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About China New Energy Group Company

China New Energy Group Company ("China New Energy" or the "Company") is a vertically integrated natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial, and commercial users in small and medium sized cities in China. The Company generates revenues primarily from the connection fees it charges its customers for interconnecting to pipelines in its natural gas distribution networks, and fees for natural gas usage. For more information, please visit http://www.cnegc.com .

China New Energy Reports Full Year 2009 Financial Results.........

Press Release Source: China New Energy Group Company On Friday April 16, 2010, 6:00 am EDT

TIANJIN, China, April 16 /PRNewswire-Asia-FirstCall/ -- China New Energy Group Company (OTC Bulletin Board:CNER.ob - News) ("China New Energy" or the "Company"), a natural gas network developer and distributor of natural gas to residential, industrial, and commercial users in small and medium sized cities in China, announced its financial results for the twelve months ended December 31, 2009.

          Full Year 2009 Highlights     -- Revenue increased 114.4% to $11.8 million compared to 2008     -- Gross profit increased 139.8% to $8.6 million     -- Gross margin increased 780 basis points to 73.5%     -- Operating income increased 214.1% to $4.9 million     -- Operating margin increased to 42.0% from 28.7%     -- Net income from continuing operations was $6.8 million, or $0.04 per        diluted share, compared to a net loss from continuing operations of        $1.6 million, or ($0.09) per diluted share, last year     -- Adjusted net income from continuing operations, which excludes the        non-cash impact of the change in fair value of derivative financial        instruments, was $3.2 million, or $0.02 per diluted share, up 247.1%        from adjusted net income of $0.9 million, or $0.01 per share, last        year(*)    

"We achieved strong growth in revenues, gross and operating margins, and earnings in 2009," said Mr. Yangkan Chong, Chief Executive Officer. "This performance was driven by both organic growth and growth via strategic acquisitions. We increased the number of households connected to our natural gas network, grew the number of industrial customers we service, and expanded into new and attractive markets. We expect to continue to benefit from the strong demand for natural gas in China in the current year and thereafter."

Full Year 2009 Results

For the twelve months ended December 31, 2009, revenues were $11.8 million, an increase of 114.4% from $5.5 million in 2008. The increase was primarily due to an increase in the number households and industrial users connected to the Company's natural gas network. The number of connected households almost doubled, increasing from 13,400 at the end of 2008 to 26,600 by the end of 2009. Revenues from connection fees were $11.1 million, an increase of 125.5% from $4.9 million last year. Revenues from natural gas sales were $0.7 million, an increase of 19.0% from $0.6 million last year.

Cost of sales was $3.1 million, an increase of 65.8% from $1.9 million last year. The increase was primarily due to a corresponding increase in the number of households and industrial users connected to the Company's distribution network as cost of sales consists primarily of connection costs and purchase of natural gas from the Company's suppliers. Gross profit was $8.6 million, an increase of 139.8% from last year. Gross margin was 73.5%, an increase of 780 basis points from 65.7% last year. The increase in gross margin was primarily due to the high margin involved in connection services provided to industrial users.

Operating expenses were $3.7 million, an increase of 82.2% from $2.0 million last year. This increase was primarily due to the corresponding increase in revenues generated during the year; expenses related to the Company preparing to expand its business, such as adding more resources in areas like business development, outside consultants, and the hiring of additional staff to help strengthen the Company's internal controls; and registration rights penalties. Operating income was $4.9 million, an increase of 214.1% from $1.6 million last year. Operating margin was 42.0% compared to 28.7% last year.

The Company's full year 2009 and 2008 financial statements include a non-cash impact from the change in fair value of derivative financial instruments of $3.6 million and ($2.5 million), respectively.

Net income from continuing operations was $6.8 million, or $0.04 per diluted share, compared to a net loss from continuing operations of $1.6 million, or ($0.09) per diluted share, last year. Excluding the non-cash impact from the change in fair value of derivative financial instruments, the Company's adjusted income from continuing operations was $3.2 million, or $0.02 per diluted share, up 247.1% from $0.9 million, or $0.01 per diluted share, last year.(*)

In December 2009, the Company sold its Acheng Division for RMB 40 million (approximately $6 million). In 2008, The Company disposed of its interest in its Hunchun Sing Ocean subsidiary. The results of Acheng Division and Hunchun Sing Ocean are classified as discontinued operations on the Company's financial statements.

In fiscal 2009 and 2008, the Company recorded non-cash deemed preferred stock dividends of $2.2 million and $7.0 million, respectively, related to issuance of its Series A and B preferred shares. Net income attributable to common shareholders was $5.2 million, or $0.05 per diluted share, compared to a net loss attributable to common shareholders of $8.6 million, or ($0.09) per diluted share, last year. Adjusted net income attributable to common shareholders, which excludes the non-cash impact of the change in fair value of derivative financial instruments and non-cash deemed preferred dividends, was $3.8 million, or $0.02 per diluted share, up 281.7% from adjusted net income attributable to common shareholders of $1.0 million, or $0.01 per diluted share, last year (*)

           Financial Condition   

As of December 31, 2009, the Company had cash and cash equivalents of $2.7 million and working capital of $0.9 million. The Company has no long term debt. Shareholders' equity was $15.0 million as of December 31, 2009. Capital expenditures for 2009 were approximately $5.1 million, which was primarily for the construction of gas pipelines and stations.

Recent Developments

In March 2010, the Company sold its subsidiary, Yingkou Zhongneng Gas Development Co., Ltd., for RMB 21.9 million (approximately $3.2 million).

In March 2010, the Company entered into an agreement to acquire a 70% equity interest in Beijing Century Dadi Gas Co., Ltd. and its affiliated companies (collectively, "Dadi Gas"). Dadi Gas is primarily engaged in the business of the supply of natural gas and construction and development of a gas pipeline network in Northern China. The total purchase price has not yet been determined, but will be based on a multiple of Dadi Gas's net profits for the fiscal year ended December 31, 2009, and has been capped at RMB 392.2 million (approximately $57.5 million).

In January 2010, the Company entered into an agreement to acquire Fuzhou Flying Dragon Zhongran Gas Inc. ("Fuzhou Zhongran") for RMB 26 million (approximately $3.8 million). Fuzhou Zhongran has the exclusive operating license from the Dongxiang County government in Jiangxi Province for the construction and development of a natural gas pipeline network for 30 years.

In December 2009, the Company entered into an agreement to acquire Fuzhou City Lean Zhongran Gas Inc. ("Lean Zhongran") for RMB 4.8 million (approximately $0.7 million). The purchase price is based on an appraised value of Lean Zhongran as of September 30, 2009, and will be adjusted to reflect the appraised value of the assets as of the closing date.

In December 2009, the Company acquired Wuyuan County Zhongran Gas Ltd. ("Wuyuan Zhongran") for RMB 6 million (approximately $0.9 million). Wuyuan Zhongran has an exclusive operating license from the local government for the construction and development of a gas pipeline network and gas supply in the county for 30 years.

In December 2009, the Company acquired Zhanhua Jiutai Gas Co. Ltd. ("Zhanhua Jiutai") for RMB 16.5 million (approximately $2.4 million). Zhanhua Jiutai has a 50-year exclusive right and operating license from the local government to construct and develop a gas pipeline network and supply gas in Zhanhua County.

Business Outlook

China New Energy primarily operates in the northeastern cities of China, around Bohai Bay, which is one of the seven key areas in the PRC government's general plan for natural gas development. The Company plans to continue to capitalize on the rise in natural gas consumption in China as the country shifts away from oil and coal to cleaner fuels like natural gas, and as the natural gas pipeline infrastructure in China continues to improve. Improved living standards and real estate development are driving demand for natural gas consumption in China and local governments now often require new residential buildings to incorporate natural gas connections in their designs.

The Company's growth strategy is to focus on under-penetrated, growing small- and medium-sized cities and enter into favorable franchise agreements with local governments for long-term exclusive rights to develop the local natural gas distribution network and supply natural gas in their area. China New Energy looks at the following criteria when identifying attractive areas for geographic expansion: size and density of population, concentration of industrial/commercial activities, environmental policies of the regional government, potential for further development, exclusivity of distribution, and required methods of delivery. The Company is also focused on diversifying its revenue stream towards a greater focus on industrial customers and natural gas sales. The Company's recently completed and announced acquisitions are in line with these selection criteria.

Mr. Chong concluded, "We are optimistic about our business and believe that with the acquisitions we made in 2009 and those that we have announced in 2010, China New Energy is well positioned to capitalize on the continued rising demand for natural gas consumption in China."

Conference Call

The Company will host a conference call at 9:00 a.m. Eastern Time on Friday, April 16, 2010, to discuss its financial results for the twelve months ended December 31, 2009. The call will be hosted by Mr. Yangkan Chong, Chief Executive Officer, and Mr. Eric Yu, Chief Financial Officer. To participate in this live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 775-2396. International callers should call +1 (702) 224-9924. The conference passcode is 68498286.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Friday, April 16, 2010, at 10:00 a.m. Eastern Time. To access the replay, call (800) 642-1687. International callers should call +1 (706) 645-9291. The conference passcode is 68498286.

Use of Non-GAAP Financial Information

GAAP results for years ended December 31, 2009 and 2008 include the significant non-cash charges which do not relate to the operation of the business including deemed preferred dividends related to the Company's Series A and B preferred stock and non-cash expenses related to the change in fair value of derivative financial instruments. These are non-cash events which do not affect the Company's operations. To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release, which are adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted net income attributable to common shareholders and adjusted earnings per share attributable to common shareholders. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measure to the nearest GAAP measure appears in the table at the end of this release.

About China New Energy Group Company

China New Energy Group Company ("China New Energy" or the "Company") is a vertically integrated natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial, and commercial users in small and medium sized cities in China. The Company generates revenues primarily from the connection fees it charges its customers for interconnecting to pipelines in its natural gas distribution networks, and fees for natural gas usage. For more information, please visit http://www.cnegc.com .

Safe Harbor Statement

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to access natural gas for distribution, and ability to identify and develop operational locations under favorable terms, changes in natural gas pricing mechanism imposed by the Chinese government, changes in the regulatory environment and future national or regional economic and competitive conditions, and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


    For further information, please contact:

Eric Yu, Chief Financial Officer
Email: ericyu@cnegc.com
Web: http://www.cnegc.com

Investor Relations Contact:

CCG Investor Relations
Mr. Athan Dounis, Account Manager
Phone: +1-646-213-1916
Email: athan.dounis@ccgir.com

Mr. Crocker Coulson, President
Phone: +1-646-213-1915
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com

 

 


CHINA NEW ENERGY GROUP COMPANY
CONSOLIDATED BALANCE SHEETS

 
   
December 31,
   
December 31,
 
   
2009
   
2008
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 2,672,884     $ 5,612,356  
Restricted cash
    180,352       221,152  
Accounts receivable, net of allowance for doubtful accounts of $- and $-
    6,137,403       1,501,431  
Receivable from sale of subsidiary
    5,119,055       -  
Inventories, net
    419,259       231,336  
Prepaid expenses
    280,337       128,748  
Deemed receivable from former shareholders of subsidiaries acquired for settlement of certain liabilities
    1,983,782       -  
Net current assets of discontinued operations
    -       717,532  
Total current assets
    16,793,072       8,412,555  
Property, plant and equipment, net
    17,212,324       9,744,916  
Other receivables
    2,482,072       2,253,588  
Deposits for acquisitions
    197,696       -  
Intangible assets, net
    1,344,008       1,124,605  
Deposits paid for acquisition of long term assets
    1,972,162       1,424,747  
Goodwill
    224,488       -  
Net non-current assets of discontinued operations
    -       3,972,336  
TOTAL ASSETS
  $ 40,225,822     $ 26,932,747  
CHINA NEW ENERGY GROUP COMPANY
CONSOLIDATED BALANCE SHEETS

 
   
December 31,
   
December 31,
 
   
2009
   
2008
 
LIABILITIES AND STOCKHOLDERS' EQUITY
           
CURRENT LIABILITIES
           
Accounts payable
  $ 882,773     $ 105,573  
Accruals and other payables
    191,737       346,598  
Acquisition consideration payable
    1,651,888       1,838,946  
Tax payable
    1,600,683       228,933  
Registration rights penalties   payable
    2,160,000       900,000  
Related party payables
    97,893       498,703  
Dividends payable on preferred stock
    509,381       194,000  
Derivative financial instruments - warrants
    6,768,106       5,506,143  
Liabilities to be settled by former shareholders of subsidiaries acquired
    1,983,782       -  
Net liabilities of discontinued operations
    -       1,128,863  
TOTAL CURRENT LIABILITIES
    15,846,243       10,747,759  
Commitments and contingencies (Note 21)
               
Preferred Stock : 10,000,000 shares authorized, $0.001 par value Series A Convertible Preferred Stock: 2,098,918 and 1,857,373 shares issued and outstanding, liquidation preference of $10,137,774 and $8,971,112, respectively
    7,031,818       7,031,818  
Series B Convertible Preferred Stock: 1,116,388 and 0 shares issued and outstanding, liquidation preference of $5,399,969 and $0
    2,153,307       -  
CHINA NEW ENERGY GROUP COMPANY'S STOCKHOLDERS' EQUITY
               
Common Stock: 500,000,000 shares authorized, $0.001 par value, 101,788,199 and 100,000,041 shares issued and outstanding, respectively
    101,788       100,000  
Additional paid in capital
    10,152,971       9,396,046  
Retained earnings (Accumulated deficit)
    1,423,523       (3,809,149 )
Statutory surplus reserve fund
    1,746,890       1,746,890  
Accumulated other comprehensive income
    1,600,941       1,616,977  
TOTAL CHINA NEW ENERGY GROUP COMPANY'S STOCKHOLDERS' EQUITY
    15,026,113       9,050,764  
Non-controlling interest
    168,341       102,406  
TOTAL STOCKHOLDERS' EQUITY
    15,194,454       9,153,170  
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
  $ 40,225,822     $ 26,932,747  

 

 CHINA NEW ENERGY GROUP COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
   
For the year ended
 
   
December 31,
 
   
2009
   
2008
 
Revenues:
           
Connection services
  $ 11,093,444     $ 4,919,392  
Natural gas
    680,451       571,835  
      11,773,895       5,491,227  
Cost of Revenues:
               
Connection services
    2,468,537       1,386,320  
Natural gas
    655,686       498,377  
      3,124,223       1,884,697  
Gross Profit
    8,649,672       3,606,530  
Operating Expenses:
               
General and administrative expenses
    2,196,225       1,068,810  
Selling expenses
    245,692       62,668  
Registration rights penalties
    1,260,000       900,000  
Total operating expenses
    3,701,917       2,031,478  
Operating Income
    4,947,755       1,575,052  
Other Income (Expenses):
               
Change in fair value of derivative financial instruments - warrants
    3,608,077       (2,553,870 )
Gain on acquisition of Wuyuan
    313,056       -  
Interest income
    69,560       11,777  
Interest expense
    (10,719 )     (33,718 )
Other income
    13,022       4,972  
Total other income (expenses)
    3,992,996       (2,570,839 )
Income (Loss) From Continuing Operations, Before Income Tax
    8,940,751       (995,787 )
Income Tax
    2,142,816       639,088  
Income (Loss) From Continuing Operations, net of Income Tax
    6,797,935       (1,634,875 )
Discontinued Operations:
               
Income from discontinued operations, net of Income Tax
    515,748       1,387,100  
Gain (loss) on disposal of subsidiary
    911,065       (1,098,253 )
Income (loss) from Discontinued Operations, net of Income Tax
    1,426,813       288,847  
Net Income (Loss)
    8,224,748       (1,346,028 )
Net Income Attributable to Non-controlling Interest
    (65,935 )     (24,010 )
Net Income (Loss) Attributable to China New Energy Group
    8,158,813       (1,370,038 )
Dividends and Deemed Dividend on Preferred Stock
    (2,926,141 )     (7,225,818 )
Net Income (Loss) Attributable to Common Stockholders
  $ 5,232,672     $ (8,595,856 )
Other Comprehensive Income:
               
Net Income (Loss)
    8,224,748       (1,346,028 )
Foreign currency translation adjustment
    16,036       924,621  
Comprehensive income
  $ 8,240,784     $ (421,407 )
Income (Loss) per share - Basic
               
Income (loss) from continuing operations
  $ 0.05     $ (0.09 )
Income (loss) from discontinued operations
    0.01       (0.00 )
Total income (loss) per share
  $ 0.06     $ (0.09 )
Income per share - Diluted
               
Income (loss) from continuing operations
  $ 0.04     $ (0.09 )
Income (loss) from discontinued operations
    0.01       0.00  
Total income (loss) per share
  $ 0.05     $ (0.09 )
Weighted average Common Stock outstanding
               
Basic
    100,268,687       98,727,193  
Diluted
    209,282,696       124,375,102  

 

RECENT EVENTS  
 
Date Event
15-Apr-10 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Non-Reliance on Previous Financials, Audits or Interim Review
19-Mar-10 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement
12-Mar-10 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement
1-Mar-10 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement
8-Jan-10 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement
22-Dec-09 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement
17-Dec-09 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement
16-Nov-09 CHINA NEW ENERGY GROUP CO Files SEC form 10-Q, Quarterly Report
1-Oct-09 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Change in Directors or Principal Officers
19-Aug-09 CHINA NEW ENERGY GROUP CO Files SEC form 10-Q, Quarterly Report
12-Aug-09 Price hit new 52-week low ($0.10)
20-May-09 CHINA NEW ENERGY GROUP CO Files SEC form 10-Q, Quarterly Report
6-May-09 CHINA NEW ENERGY GROUP CO Files SEC form 8-K, Entry into a Material Definitive Agreement, Unregistered Sale of Equity
15-Apr-09 CHINA NEW ENERGY GROUP CO Files SEC form 10-K, Annual Report
 
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2008

 
Overview of Our Business ...
 
We are a natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial and commercial customers in small and medium sized cities in China.
 
We currently own the exclusive rights to develop distribution networks to provide natural gas to industrial, commercial and residential consumers in the cities of Dashiqiao, Nandaihe and Zhanhua. Currently, these distribution networks provide natural gas to an aggregate of approximately 64,000 consumers in these cities.
 
We procure our natural gas by purchasing natural gas from third-party suppliers. Once natural gas is extracted by the supplier, all water content and impurities are removed.  Natural gas is then delivered by truck to either (1) our natural gas supply stations, where the gas is either depressurized and then delivered to households through pipelines or delivered directly to customers in pressurized tanks, or (2) to gas stations where the gas is sold for use in motor vehicles.

Our major business activities include development and construction of local gas distribution networks, transportation of natural gas from suppliers to our storage facilities in a given operational location, and operating and maintaining the gas distribution networks.

 
Our Organizational Structure

 
China New Energy Group Company was incorporated on March 28, 2008 in the state of Delaware USA, under the name of Travel Hunt Holdings, Inc.. On May 27, 2008, Travel Hunt changed its name to China New Energy Group Company in connection with a share exchange transaction as described below. 

 
Willsky- was incorporated on May 31, 2005 in the British Virgin Islands. On March 28, 2008, Travel Hunt Holdings, Inc. completed a reverse acquisition transaction with Willsky whereby Travel Hunt Holdings, Inc. issued to the shareholder of Willsky 94,908,650 shares of Travel Hunt Holdings, Inc. common stock in exchange for all of the issued and outstanding capital stock of Willsky Development. Simultaneous with the consummation of the share exchange agreement, the shareholder of Willsky, Eternal International Holding Group Ltd, a Hong Kong corporation, or Eternal International, distributed 85,417,785 shares of Travel Hunt Holdings, Inc. common stock as a dividend. Accordingly, following this distribution, Eternal International beneficially owns approximately 9.49% of Travel Hunt Holdings, Inc. outstanding capital stock. Willsky thereby became Travel Hunt Holdings, Inc.'s wholly-owned subsidiary and the former shareholders of Willsky became Travel Hunt Holdings, Inc. controlling stockholders.

 
For accounting purposes, the acquisition was accounted for as a recapitalization effected by a share exchange, and the transaction treated as a reverse acquisition with Willsky as the acquirer and Travel Hunt Holdings, Inc. as the acquired party. The assets and liabilities of the acquired entity (Willsky) were brought forward at their book value and no goodwill was recognized.

 
In 2005, Willsky acquired 99% shareholding of Tianjin Sing Ocean Public Utility Development Co., Ltd. ("Singocean") which formed in the PRC as an equity joint venture to be operated for a period of 50 years until January 18, 2054 with registered capital of $4.5 million (RMB31,897,000). Singocean has two branch divisions, namely Acheng SingOcean and Dashiqiao SingOcean, and established in the PRC to be operated for a period of 5 years until December 28, 2010 and 50 years until January 18, 2054 respectively.

 
ChenSheng - On September 16, 2008, we, through our 99%-owned subsidiary SingOcean entered into an Equity Swap Agreement with Mr. Xiu Hai Tian, whereby we acquired from Mr. Tian a 49% ownership interest in Chensheng, in exchange for our 99% ownership in Hunchun Sing Ocean.  The parties to the Equity Swap Agreement determined that the value of the 49% interest in Chensheng Gas and the 99% interest in Hunchun Sing Ocean were approximately equal and therefore there was no cash or other consideration involved in the transaction from either party.

 
On December 10, 2008, the Company entered into an Agreement for Equity Transfer with the holders of the remaining 51% outstanding equity in Chensheng.  Pursuant to the Agreement for Equity Transfer, the Company agreed to purchase the remaining 51% of the outstanding equity of Chensheng Gas from 17 individuals for an aggregate purchase price of RMB 12.56 million (approximately $1.84 million).  The transaction was consummated on December 30, 2008, following which the Company now owns 51% of the equity of Chensheng , and Tianjin Sing Ocean now owns 49% of the equity of Chensheng.

 
Critical Accounting Policies

 
Accounting policies discussed in this section are those that we consider to be most critical to an understanding of our financial statements because they inherently involve significant judgment and uncertainties.  For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. 
 
Revenue Recognition

 
Among the accounting policies adopted by the Group, the most critical one is the policy regarding revenue recognition of the Group's major sources of income, namely, gas connection services and sales of gases. In accordance with the SEC's Staff Accounting Bulletin ("SAB") No. 104, under this policy, all of the following criteria must be met in order for us to recognize revenue:

 
         1.       Persuasive evidence of an arrangement exists;
 
         2.       Delivery has occurred or services have been rendered;
 
         3.       The seller's price to the buyer is fixed or determinable; and
 
         4.       Collectibility is reasonably assured.

 
Gas connection revenue

 
Gas connection revenue is recognized when the outcome of a contract can be estimated reliably and the stage of completion at the balance sheet date can be measured reliably.

 
Revenue from gas connection contracts is recognized on the percentage of completion method, measured by reference to the value of work carried out during the year. When the outcome of a gas connection contract cannot be estimated reliably, revenue is recognized only to the extent of contract costs incurred that it is probable will be recoverable.

 
When the outcome of a gas connection contract can be estimated reliably and the stage of contract
completion at the balance sheet date can be measured reliably, contract costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date on the same basis as revenue from the gas connection contract is recognized.

 
When the outcome of a gas connection contract cannot be estimated reliably, contract costs are recognized as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed contract revenue, the expected loss is recognized as an expense immediately.

 
Where contract costs incurred to date plus recognized profits less recognized losses exceed progress billings, the surplus is shown as an amount due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognized profits less recognized losses, the surplus is shown as an amount due to customers for contract work. Amounts received before the related work is performed are included in the consolidated balance sheet, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated balance sheet under trade and other receivables.

 
During the years ended December 31, 2008 and 2007, all the contracts for connection services were started and completed in the same year.

 
Revenue from sale of gas
 
Sales revenue from sale of gas represents the invoiced value of goods sold, net of value-added tax ("VAT"). Revenue from sale of gas is recognized when the goods are delivered and title has passed. 
 
All of the Company's products that are sold in the PRC are subject to Chinese value-added tax of 3% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company recorded VAT payable and VAT receivable net of payments in the financial statements.

 
Use of Estimates

 
In preparing consolidated financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported periods. Actual results could differ from those estimates

 
Significant Estimates

 
These consolidated financial statements include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to revenue recognition of gas connection contracts, depreciation of property, plant and equipment, the valuation allowance for deferred taxes, impairment testing of intangible assets and various contingent liabilities. It is reasonably possible that the above-mentioned estimates and others may be adjusted as more current information becomes available, and any adjustment could be significant in future reporting periods.

 
Reportable Operating Segments

 
For the year ended December 31, 2008, we had sales revenue of $7.51 million of which $6.94 MM or 92.4% was from connection services while $0.57 million or 7.6% was from gas sales.

 
Our revenue for the year ended December 31, 2008, was mainly contributed by the connection services segment as the company concentrates our efforts to provide our services to property developers.  Thus, the gas consumption will begin when the properties are sold in the market.  Currently, the volume of gas sales to connected households is not high. This phenomenon does affect our revenue structure.
 
Year Ended Financial Performance Highlights

 
The following are some financial highlights for the year ended December 31, 2008 (MM represents million):

 
Revenues : Our revenues were $7.51 MM for the year ended 31, 2008, an increase of 53% from the same period of 2007.

 
Gross Margin : Gross margin was 70% for the year ended December 31, 2008 compared to gross margin of 75% for the year ended December 31, 2007, representing a percentage decrease of 5%.

 
Operating Expenses : Operating expenses (including selling, general and administrative expenses) were $2.14 MM for the year ended December 31, 2008, an increase of 389% from the same period of 2007.

 
Net Income / (Loss) : A net loss, $1.37 MM was resulted for the year ended December 31, 2008. The net loss was due to some major expenses incurred during the year which included: (1) change in fair value of warrant liabilities, $2.55 MM; and (2) loss from discontinued operations of $0.87 MM. 
 
 

 
Fully diluted net income per share : Fully diluted net loss per share was $0.16 for the year ended December 31, 2008, as compared to net income per share $0.03 for the same period of 2007.
Taxation

 
As a Delaware company, the Company is subject to United States taxation, but no provision for income taxes was made for the year ended December 31, 2008 and 2007 as the Company did not have reportable taxable income for the period.

 
Willsky, a wholly-owned subsidiary of the Company, is subject to BVI taxation, but no provision for income taxes was made for the year ended December 31, 2008 and 2007 as Willsky did not have reportable taxable income for the period.

 
Sing Ocean is subject to the tax laws of the PRC at  the prevailing statutory rate of enterprise income tax of 25%. For the year ended December 31, 2008 and 2007, the amount of income tax was $1.02 MM and $1.02 MM respectively.

 
Acheng and Daishiqio are the divisions of SingOcean, thus, they are not subject to separate statutory income tax..

 
Chensheng is subject to the tax laws of the PRC being taxed on 0.8% of  annual sales. Starting from January 1, 2009, the tax rate was changed to 1% on annual sales.  It was further amended and effective on July 1, 2009, the tax rate was changed to 25% on net income. For the year ended December 31, 2008, the amount of income tax was $0.01 MM. As Chensheng was acquired on September 16, 2008, thus there was no income tax reported in Year 2007.
 

Results of Operations

 

Comparison of Year Ended December 31, 2008 and 2007

 
The following table summarizes the results of our operations during the year ended December 31, 2008 and 2007:
 
 
 NEW ENERGY GROUP COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

 
   
For the year ended
December 31,
 
   
2008
   
2007
 
Revenues:
 
Restated
       
   Connection services
  $ 6,934,687     $ 4,780,265  
   Natural gas
    571,835       138,910  
      7,506,522       4,919,175  
Cost of Sales
               
   Connection services
    1,759,755       1,071,707  
   Natural gas
    498,377       163,492  
      2,258,132       1,235,199  
                 
Gross Profit
    5,248,390       3,683,976  
                 
Operating Expenses:
               
Other selling, general and administrative expenses
    1,224,251       434,297  
Registration rights penalties
    900,000       -  
Total operating expenses
    2,124,251       434,297  
                 
Operating Income
    3,124,139       3,249,679  
                 
Other Income (Expenses):
               
Change in fair value of warrant liabilities
    (2,553,870 )     -  
Interest income
    14,311       -  
Interest expense
    (33,753 )     (411 )
Other income
    4,972       11,688  
Subsidy income
    -       (8,459 )
 Total other income (expenses)
    (2,568,340 )     2,818  
                 
Income From Continuing Operations, Before Income Tax
    555,799       3,252,497  
                 
Income Tax
    1,026,984       1,018,338  
                 
Income Before Minority Interest
    (471,185 )     2,234,159  
                 
Minority Interest
    (24,010 )     (23,946 )
                 
Income From Continuing Operations, net of Income Tax
    (495,195 )     2,210,213  
                 
Discontinued Operations:
               
Income from discontinued operations, net of income tax
    223,410       622,676  
Loss on disposal of subsidiary
    (1,098,253 )     -  
Income (loss) from discontinued operations
    (874,843 )     622,676  
                 
Net Income (Loss)
  $ (1,370,038 )   $ 2,832,889  
                 
Dividends and Deemed Dividend on Preferred Stock
    (7,225,818 )     -  
                 
Net Income (Loss) Attributable to Common Stockholders
  $ (8,595,856 )   $ 2,832,889  
                 
Net Income (Loss)
    (1,370,038 )     2,832,889  
Foreign currency translation gain
    924,621       183,671  
Comprehensive loss
  $ (445,417 )   $ 3,016,560  
                 
Income (Loss) per share - Basic
               
Income (loss) from continuing operations
  $ (0.08 )   $ 0.02  
Income (loss) from discontinued operations
    (0.08 )     0.01  
Total income (loss) per share
  $ (0.16 )   $ 0.03  
                 
Income (Loss) per share - Diluted
               
Income from continuing operations
  $ (0.08 )   $ 0.02  
Income (loss) from discontinued operations
    (0.08 )     0.01  
Total income per share
  $ (0.16 )   $ 0.03  
                 
Weighted average common stock outstanding
               
Basic
    98,727,193       94,908,650  
Diluted
    124,375,102       94,908,650  
CHINA NEW ENERGY GROUP COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
   
December 31,
 
   
2008
   
2007
 
   
Restated
       
Cash flows from operating activities :
           
Net income (loss)
  $ (1,370,038 )   $ 2,832,889  
Net income (loss) from discontinued operation
    (874,843 )     622,676  
Net income (loss) from continuing operations
    (495,195 )     2,210,213  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    396,785       169,823  
Change in fair value of warrant liabilities
    2,553,870       -  
Registration rights penalties
    900,000          
Minority interest
    24,010       23,946  
Changes in operating assets and liabilities:
               
Accounts receivable
    (595,245 )     249,512  
Other receivables
    560,378       118,113  
Inventories
    72,509       (89,726 )
Prepaid expenses
    (124,591 )     -  
Other current assets
    (3,287 )     -  
Accounts payable
    (443,046 )     573,581  
Accrued expenses
    -       (1,040,572 )
Accruals and other payable - Third Party
    (2,007,964 )     27,216  
Tax payable
    (646,523 )     146,774  
Cash (used in) provided by operating activities-continuing operations
    191,701       2,388,880  
Cash (used in) provided by operating activities-discontinued operation
    (131,916 )     1,097,135  
Net cash (used in) provided by operating activities
    59,785       3,486,015  
                 
Cash flows from investing activities
               
Net cash from exchange of subsidiary
    66,841       -  
Deposit paid and acquisition of property, plant and equipment
    (4,039,904 )     (737,315 )
Cash used in investing activities-continuing operations
    (3,973,063 )     (737,315 )
Cash used in investing activities-discontinued operation
    (124,259 )     (876,145 )
Net cash used in investing activities
    (4,097,322 )     (1,613,460 )
                 
Cash flows from financing activities
               
Cash acquired from director
    -       301  
Net proceeds from stock issuance
    7,076,302       -  
Fund deposit as restricted cash
    (221,152 )     -  
Loan from related parties
    335,132       -  
Cash provided by financing activities-continuing operations
    7,190,282       301  
Cash provided by financing activities-discontinued operation
    -       -  
Net cash provided by financing activities:
    7,190,282       301  
             
Effect of exchange rate changes on cash and cash equivalents
    148,583       121,597  
                 
Net increase in cash and cash equivalents
    3,301,328       1,994,453  
                 
Cash and cash equivalents, beginning of year
    2,311,028       316,575  
                 
Cash and cash equivalents, end of year
  $ 5,612,356     $ 2,311,028  
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ -     $ -  
Cash paid for income tax
  $ 1,885,638     $ 1,127,035  
                 
Cash investment activities:
               
Fair value of assets required
  $ 2,164,821     $ -  
Fair value of liabilities assumed
  $ 325,876     $    
                 
                 
Supplemental disclosure of non cash investing and financing activities:
               
Registration rights penalties
  $ 900,000       -  
Dividend payable
  $ 194,000     $ -  
Net assets exchanged during exchange of 99% Hunchun with Chensheng
  $ 2,998,890     $ -  
Acquisition payable under other payables
  $ 1,838,946     $ -  
CHINA NEW ENERGY GROUP COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

 
                           
Retained
     
Statutory
     
Accumulated
         
                   
Additional
     
Earnings
     
Surplus
     
Other
     
Total
 
   
Common Stock
     
Paid-in
     
(Accumulated
     
Reserve
     
Comprehensive
     
Stockholders'
 
   
Shares
     
Amount
     
Capital
     
deficit)
     
Fund
     
Income
     
Equity
 
BALANCE, December 31, 2006
    94,908,650       $ 94,909       $ 5,277,108       $ 2,843,681       $ 857,027       $ 5,339       $ 9,078,064  
Net income
    -         -         -         2,832,889         -         -         2,832,889  
Transfer
    -         -         -         (889,863 )       889,863         -         -  
Currency translation adjustment
    -  
 
    -  
 
 
-
 
 
    -  
 
 
-
 
 
    687,017  
 
    687,017  
BALANCE, December 31, 2007
    94,908,650       $ 94,909       $ 5,277,108       $ 4,786,707       $ 1,746,890       $ 692,356       $ 12,597,970  
                                                                     
Recapitalization
    7,091,391         7,091         (7,091 )       -         -         -         -  
Cancellation of stock in recapitalization
    (2,000,000 )       (2,000 )       2,000         -         -         -         -  
Warrants issued in connection with private placement
    -         -         (984,091 )       -         -         -         (984,091 )
Cost of raising capital
    -         -         (1,923,698 )       -         -         -         (1,923,698 )
Deemed dividend on issuance of preferred stock
    -         -         7,031,818         (7,031,818 )       -         -         -  
Preferred stock dividend
    -         -         -         (194,000 )       -         -         (194,000 )
Net (loss)
    -         -         -         (1,370,038 )       -         -         (1,370,038 )
Currency translation adjustment
    -         -         -         -         -         924,621         924,621  
BALANCE, December 31, 2008  -restated
    100,000,041       $ 100,000       $ 9,396,046       $ (3,809,149 )     $ 1,746,890       $ 1,616,977       $ 9,050,764  
Summary of Consolidated Statement of Changes in Stockholders' Equity as of December 31, 2007

 
                       
Statutory
   
Retained
   
Accumulated
       
               
Additional
     
Surplus
   
Earnings
   
Other
   
Total
 
               
Paid-in
     
Reserve
   
(Accumulated
   
Comprehensive
   
Stock
 
   
Common Stock
   
Capital
     
Fund
   
loss)
   
Income
   
Equity
 
BALANCE, December 31, 2006
    94,908,650     $ 94,909     $ 5,277,108       $ 857,027     $ 2,843,681     $ 5,339     $ 9,078,064  
Net Income
    -       -       -         -       2,832,889       -       2,832,889  
Transfer
    -       -       -         889,863       (889,863 )     -       -  
Currency translation adjustment
    -    
-
   
347,202
 
 
 
156,144
      -       183,671       687,017  
BALANCE, December 31, 2007
-As reported
    94,908,650       94,909     $ 5,624,310       $ 1,903,034     $ 4,786,707     $ 189,010     $ 12,597,970  
                                                           
Reclassification - see note 4 above
    -       -    
(347,202)
 
 
 
(156,144)
      -       503,346       -  
BALANCE, December 31, 2007
    94,908,650     $ 94,909     $ 5,277,108       $ 1,746,890     $ 4,786,707     $ 692,356     $ 12,597,970  
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
December 31,
 
   
2008
   
2007
 
   
Restated
       
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 5,612,356     $ 2,311,028  
Restricted cash
    221,152       -  
Accounts receivable
    2,183,087       823,625  
                 
Inventories, net
    257,597       273,004  
Prepaid expenses
    133,614       -  
Other current assets
    3,340       -  
Net current assets of discontinued operations
    -       146,320  
TOTAL CURRENT ASSETS
    8,411,146       3,553,977  
                 
Property, plant and equipment, net
    13,470,468       8,204,184  
Intangible assets, net
    1,308,375       331,378  
Other receivables
    2,254,997       448,186  
Deposits paid for acquisition of long term assets
    1,424,747       -  
Goodwill
    63,014       58,974  
Net non-current assets of discontinued operations
    -       5,145,195  
TOTAL ASSETS
    26,932,747       17,741,894  
                 
LIABILITIES AND EQUITY
               
CURRENT LIABILITIES
               
Accounts payable
  $ 874,542     $ 1,033,185  
Accruals and other payables - Third Party
    242,309       1,976,376  
Acquisition consideration payable
    1,838,946       -  
Registration rights penalties payable
    900,000       -  
Tax payable
    693,116       1,059,269  
Related party payable
    498,703       143,833  
Dividend payable on preferred stock
    194,000       -  
Warrant liabilities
    5,506,143       -  
Net liabilities of discontinued operations
    -       833,386  
TOTAL CURRENT LIABILITIES
    10,747,759       5,046,049  
                 
Commitment and contingencies (Note 12)
               
                 
Minority interest
    102,406       97,875  
                 
Preferred Stock : 10,000,000 shares authorized, $0.001 par value Series A Convertible Preferred Stock: 1,857,373 and 0 shares issued and outstanding, Liquidation preference of $8,971,112 and $0, respectively
    7,031,818       -  
                 
STOCKHOLDERS' EQUITY
               
Common Stock: 500,000,000 shares authorized, $0.001 par value, 100,000,041 shares and 94,908,650 shares issued and outstanding as of December 31, 2008 and 2007
    100,000       94,909  
Additional paid in capital
    9,396,046       5,277,108  
Retained earnings (Accumulated deficit)
    (3,809,149 )     4,786,707  
Statutory surplus reserve fund
    1,746,890       1,746,890  
Accumulated other comprehensive income
    1,616,977       692,356  
TOTAL STOCKHOLDERS' EQUITY
    9,950,764       12,597,970  
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
  $ 26,932,747     $ 17,741,894  

 

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PostSubject
#26   $CNER: Some simple volume today.... but interesting makinezmoney 10/02/18 01:59:09 PM
#25   $CNER recent news/filings stocktrademan 08/21/14 03:58:38 PM
#24   CNER.. $0.28 First Quarter FY 2010 Results..... 10 bagger 05/25/10 12:52:04 PM
#23   why in the world would an inactive stock Sportsjunkie 04/23/10 03:33:02 PM
#22   CNER.. $0.33 10 bagger 04/17/10 09:38:11 AM
#21   CNER $0.33 10 bagger 04/17/10 09:24:27 AM
#20   Would this be for uplisting, do you think? Cburg 04/16/10 10:17:23 PM
#19   So why did this tank today? Did I Cburg 04/16/10 10:10:09 PM
#18   CNER.. $0.35 10 bagger 04/16/10 02:18:51 PM
#17   CNER.. Background..$0.35 10 bagger 04/16/10 02:17:08 PM
#16   CNER.. Background..$0.35 10 bagger 04/16/10 02:14:05 PM
#15   CNER.. $0.33 10 bagger 04/16/10 11:10:31 AM
#14   CNER - May split 1 for 5 to bUrRpPPP! 04/15/10 06:38:34 PM
#13   Hi it has gone up so much. I kew2 01/17/10 10:51:24 PM
#12   .37 on the ask.... L2 shows min. volume sahd3g 12/31/09 02:37:18 PM
#11   I am watching them both and I got 180stocks 12/28/09 08:25:31 AM
#10   Sleeper stock here ... L2 hints at prices sahd3g 12/28/09 08:24:48 AM
#9   They do that with lots of china plays...in sahd3g 12/24/09 12:15:44 PM
#8   .35's all sold out...nobody knows about this co. sahd3g 12/24/09 12:14:33 PM
#7   .35 high of day already...very good action. Bout time! sahd3g 12/24/09 12:02:59 PM
#6   It would be better if ameritrade did not 180stocks 12/24/09 11:58:24 AM
#5   .27 bid...no sellers now. Doing well on great sahd3g 12/24/09 11:50:59 AM
#4   I got some of this, first small buy, sahd3g 11/17/09 12:19:02 PM
#3   14. Issuance of Series B Convertible Preferred Stock morokoy 11/09/09 08:55:03 PM
#2   On March 28, 2008, we entered into a atout 04/03/08 10:30:12 AM
#1   TVHT Might be something here. Filings up to booger 12/31/07 09:41:21 PM
PostSubject