New Oriental Energy & Chemical Corp.
(NASDAQ: NOEC) (the "Company"), a China-based specialty chemical
and emerging coal-based alternative fuel manufacturer, announced
today that its 2010 first quarter revenues for the period ended
June 30, 2010 increased sharply over the same period in the prior
fiscal year as a result of an 87.26% increase in sales of urea, and
increased sales of ammonium bicarbonate and methanol.
The Company reported a year over year first quarter increase in
urea sales to $10,719,109, which led to a 63.75% increase in
revenues to $13,730,314, up from $8,384,866 in the same period in
the prior year, but the Company produced a net loss of $2,597,604
in this year's first quarter. This was $554,251, or 17.58% less of
a loss than the net loss of $3,151,855 for the three months ended
June 30, 2009. The decrease was mainly due to lower production
costs for most products compared to the same period in 2009 which,
nevertheless, could not offset the decline in the price of urea,
the Company's major product.
The Company explained that spring fertilizer sales got off to a
promising start. However, unusually bad spring weather conditions,
including a drought in seven provinces and flooding across nearly
half the country, destroyed crops and led to an industry wide
decline in fertilizer demand and pricing, which generated higher,
but unprofitable sales in the quarter.
Mr. Chen Si Qiang, CEO and Chairman of the Company, commented,
"The problems we encountered in urea pricing obviously reflected
the far greater problems caused by the severe spring weather. Not
only in China, but elsewhere in the world, this has reduced the
food supply and led to a rapid rise in grain prices. As we and the
rest of the world seek to repair the damage with an enlarged
agricultural investment, the outlook necessitates a strong rebound
in agricultural output, which should include rebounding fertilizer
prices."
A Brightening Picture for DME
Describing the results of its alternative fuels business, the
Company noted that in January 2007, the Chinese government
announced that DME could be utilized as a civil fuel. However, the
market has since been in disarray as there have been no supporting
policies relating to the mix proportion (e.g., the maximum quantity
of DME that can be combined with gas) nor have standards for the
storage and transportation of DME been set. In this climate,
DME/gas mixes generated problems with consumers, and government
safety authorities stepped in to reduce the proportion of DME in
the fuel mix, which led to shrinkage in the market for DME.
Consequently, despite continuous increases in liquid gas prices,
DME prices suffered an unexpected and significant reduction. The
Company temporarily halted DME production in these
circumstances.
In recent developments that are expected to resolve the DME
standards problem, the Company was invited in late July of this
year to take the lead in Henan Province, in conjunction with other
DME enterprises and the Province Quality Technology Surveillance
Bureau and the Chemical Association, to develop standards for
mixing DME and gas, with the final standard to be developed in
October. Upon making this determination, the mix will be legalized
in Henan Province. The Company anticipates this will have a very
positive effect on DME demand and pricing. Concomitantly, the
Company said that it now plans to restart DME production in its
third fiscal quarter beginning October 1, 2010.
Methanol: Further Promotion Required
With respect to methanol, the Company noted that it is used to
produce DME, and increased production of DME necessitates increased
methanol production. Additionally, coal based methanol can be used
as a cleaner alternative or an additive to gasoline, and on
December 1, 2009, the Chinese government announced national
standards for a methanol/gasoline mix. Thus far, there has been
limited promotion of methanol gasoline, but it is anticipated that
when this is promoted more comprehensively by the government,
methanol demand will grow rapidly, which would spur sales of
methanol produced by the Company that it does not use internally in
its DME production.
Commenting on these developments, Mr. Chen stated, "The overall
dynamics with respect to alternative energy have not changed
despite the difficulties we've had over the past several quarters.
In fact, the dramatic expansion in China's economy, combined with
the rise in imported oil prices, has made the need to address the
bottleneck to further growth caused by high cost imported oil even
more urgent. A start has been made with the methanol/gasoline
mandate, but with China's limited domestic oil supply, and large
coal reserves, further action to stimulate sales of this coal-based
alternative fuel is now required." Mr. Chen continued, "With regard
to DME, I am pleased that our Company, as a leader in DME
production and technology, has been asked to take a lead in helping
to produce solutions in Henan. As such, I am more confident than
ever that the future we have envisioned for DME usage as well as
for methanol is now coming closer to reality."
Financial Position Highlights
The Company's first quarter net loss expanded its working
capital deficit to $45,971,279 as of June 30, 2010. At that time,
the Company also had a shareholders' deficit of $470,784. Cash and
cash equivalents as of the end of the 2010 first quarter increased
to $1,117,917 compared with $234,057 at the same time last year. In
May, 2010, the Company sold a total of 1,460,000 shares of common
stock and warrants to purchase 730,000 shares of common stock at
$1.25 per unit of share and warrant, for net proceeds of
$1,607,807. Details of this transaction are available in the first
quarter 10-Q filed by the Company with the U.S. Securities and
Exchange Commission.
Management recognizes that the Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash
flow to allow the Company to continue the development of its
business plans and satisfy its current and long-term obligations on
a timely basis. The Company believes that it will be able to
complete the necessary steps in order to meet its cash requirements
throughout the fiscal year ending March 31, 2011. The Company's
major shareholder has committed to provide financial assistance of
RMB 30 to 50 million (approximately $4.4 to 7.3 million) over the
next few years, if necessary.
Outlook
"We have recently seen improved prices in urea and in other
related products we produce," Mr. Chen said, "and for the reasons
described, expect a further strengthening in urea demand and
pricing as the year develops. Our potential for a return to
profitability in this segment also is enhanced by improvements made
in our production process that have reduced production costs by
approximately RMB 70-RMB 80 per ton. This entailed extending our
traditional factory shutdown to 40 days, however, which will affect
results in our second quarter."
He added, "With respect to methanol and DME, prices are rising
again as well. We are cautiously optimistic that we will begin to
see the start of the long awaited turnaround in methanol sales and
DME with the new rules expected to be in effect in Henan in
October, and the planned completion of our DME expansion and a
restart of production in the third quarter. When DME prices
increase to over RMB 3,150 per ton in China, we believe it will
have a positive gross profit. From the point when production is
restarted, we estimate it will take approximately one year for
production to return to former levels."
About New Oriental Energy & Chemical
Corp.
New Oriental Energy & Chemical Corp. (NASDAQ: NOEC) is an
emerging coal-based alternative fuels and specialty chemical
manufacturer based in Henan Province, in the PRC. The Company's
core products are urea and other coal-based chemicals primarily
utilized as fertilizers. Future growth is anticipated from its
focus on expanding production of coal-based alternative fuels, in
particular, methanol, as an additive to gasoline and dimethyl ether
(DME), which has been a cheaper, more environmentally friendly
alternative to LPG for home heating and cooking, and diesel fuel
for cars and buses. All of the Company's sales are made through a
network of distribution partners in the PRC. Additional information
on the Company is available on its website at
www.neworientalenergy.com.
Safe Harbor Statement
This press release may contain forward-looking statements
concerning New Oriental Energy & Chemical Corp. The actual
results may differ materially depending on a number of risk factors
including, but not limited to, the following: general economic and
business conditions, development, shipment, market acceptance,
additional competition from existing and new competitors, changes
in technology or product techniques, and various other factors
beyond its control. All forward-looking statements are expressly
qualified in their entirety by this Cautionary Statement and the
risk factors detailed in the Company's reports filed with the
Securities and Exchange Commission. New Oriental Energy &
Chemical Corp. undertakes no duty to revise or update any
forward-looking statements to reflect events or circumstances after
the date of this release.
NEW ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended June 30,
----------------------------
2010 2009
------------- -------------
REVENUES $ 13,730,314 $ 8,384,866
COST OF GOODS SOLD (14,667,701) (9,973,189)
------------- -------------
GROSS LOSS (937,387) (1,588,323)
General and administrative 767,811 727,934
Selling and distribution 241,029 287,540
Research and development 18,251 27,626
------------- -------------
LOSS FROM OPERATIONS (1,964,478) (2,631,423)
OTHER INCOME (EXPENSES)
Interest expense, net (875,441) (461,917)
Other income (expenses), net 9,384 (3,507)
Change in fair value of derivatives
liabilities 232,931 -
------------- -------------
LOSS BEFORE INCOME TAXES (2,597,604) (3,096,847)
INCOME TAX EXPENSE - (55,008)
------------- -------------
NET LOSS (2,597,604) (3,151,855)
------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss) 6,108 (9,672)
------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS) 6,108 (9,672)
------------- -------------
COMPREHENSIVE LOSS $ (2,591,496) $ (3,161,527)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND
DILUTED 13,538,000 12,640,000
============= =============
NET LOSS PER SHARE, BASIC AND DILUTED $ (0.19) $ (0.25)
============= =============
Contacts: Li Donglai Chief Financial Officer New Oriental
Energy & Chemical Corp. Xicheng Industrial Zone of Luoshan,
Xinyang Henan Province, The People's Republic of China Tel:
(011-86) 139-3764-6299 Ken Donenfeld DGI Investor Relations
kdonenfeld@dgiir.com Ph: (212) 425-5700 Fax: (646) 381-9727
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