New Oriental Energy & Chemical Corp.
(NASDAQ: NOEC) (the "Company"), a China-based specialty chemical
and emerging coal-based alternative fuel manufacturer, reported
today that on Friday, August 27, 2010, the Company outlined in a
letter to the NASDAQ Stock Market ("NASDAQ") the steps it is
undertaking to achieve compliance with NASDAQ's minimum shareholder
equity requirement of $2,500,000. This letter and related
attachments are contained in a Form 8-K being filed by the Company
with the U.S. Securities and Exchange today.
In the letter, management acknowledges that its stockholder
equity as of June 30, 2010 of ($470,784) is below the minimum
requirement for continued listing on NASDAQ. The Company goes on to
describe actions being taken by management to bring the Company
back into compliance.
Debt Conversion Agreements
Management reports it has entered into agreements with two
former shareholders for the conversion of $700,000 and $739,899 of
debt, respectively, into shares of common stock, at a conversion
rate of $1.00 per share, which is above the current price of New
Oriental shares. This action would result in the issuance of
1,439,899 new common shares and a reduction in debt of
$1,439,899.
The Company also states it is in the process of negotiating
similar agreements for the additional conversion of approximately
$1,473,000 of loans to common stock at $1.00 per share, and
anticipates these agreements will be executed in the near future,
resulting in the issuance of approximately 1,473,000 additional
common shares.
The Company stated that each of these transactions is described
in the Form 8-K filed today, together with the pro forma balance
sheets included below with this press release, which describe the
change in shareholder equity after giving effect to the debt
conversion.
Of note, the shareholder equity of the Company will still be
$57,000 below NASDAQ's minimum required shareholder equity after
conversion of the debt into common equity described above.
Consequently, the Company describes in the letter to NASDAQ other
approaches it is exploring to meet the minimum shareholder equity
requirement. These include:
1. Negotiations with holders of the 1,460,000 units (consisting of one
share of common stock and warrants to purchase one-half share) issued by
the Company in a private placement in May this year. The Company is
seeking to lower the exercise price on the warrants from $2.00 to $1.00.
It is believed this would provide unit holders an incentive to convert
their warrants into common stock.
2. Discussions with management of the Company about possibly providing
their personal funds for additional paid-in capital.
3. Discussions with holders of an additional RMB 70MM in loans about
possible conversion of these loans into common stock.
Improving Outlook For Achieving
Profitability
As also discussed in the Company's recently issued first fiscal
quarter results, in the letter to NASDAQ, the Company describes
some of the dramatic industry changes coupled with improving market
conditions for its key fertilizer and alternative energy products
that have developed recently after several quarters of poor
results. In July, the first month of fiscal second quarter, market
conditions that prevailed in the first quarter continued, and the
Company made the best use of murky conditions to undergo a
comprehensive examination of its production equipment. This
necessitated a lengthy factory shutdown which is expected to
produce a loss in the second quarter ending September 30, 2010.
However, the prices of products have been rising sharply since
August, which is the main reason the Company now expects it will
achieve breakeven in the third quarter and be profitable in the
fourth quarter in its fertilizer business and overall.
There are other factors underlying the Company's forecast. Among
them is a period of anticipated rising demand for product resulting
from the reduced spring and summer agricultural output.
Additionally the Company cited new more stringent government
emission standards that cannot be met by many smaller competitors
who are going out of business as a consequence. Further, the
largest Chinese company in the business, Sinopec, has announced
plans to halt production from September until 2015, which will
reduce their production by 10 million tons until 2015. New Oriental
anticipates a positive impact on the Company's sales as a
result.
Further, current prices for coal, the principal raw material
used in producing urea (fertilizer), are expected to be in a range
of $175 to $185 per ton in the second half of the fiscal year, from
$180 currently. The Company also reported that it is in
negotiations with the largest coal company in China, Shanxi Coal
Transport & Sale Corp -- which owns 462 coal mines and produces
330 million tons of coal annually -- with plans to establish a coal
logistics company with a 5 million ton capacity. Upon anticipated
completion, this will improve upon the Company's former supply
method, provide coal with higher quality and lower prices, and also
generate a new revenue stream. The Company noted further that while
prices for urea were abnormally low in the first quarter due to
severe weather conditions which reduced crop output, they have
begun to increase due to sharply increased export orders and
seasonal demand. The Company estimates Urea prices to be in a range
of $275 to $280 in the second half of the fiscal year from $220 per
ton currently, creating an opportunity for profitable gross
margins.
Progress in Alternative Fuels
The Company anticipates the opportunity for profits in methanol
to develop as well and remains confident of the substantial longer
term potential for this alternative fuel. Driving the demand for
methanol are requirements for a more environmentally friendly
methanol/ gasoline mix, that has not been pushed by the government
as hard as it is expected to be in the future. Current coal based
methanol prices are approximately $360 per ton, but by October are
expected to increase to $380 which should permit the Company to
achieve a profit in this product in its fiscal year third
quarter.
As described in its first quarter results, the Company also is
optimistic about an increase in demand and prices for DME, after
standards for a DME/gas mix are established in October in Henan
Province, where the government has asked NOEC to spearhead the
decision making process. DME sold for approximately $440 per ton in
July and is at $550 per ton currently, which is permitting the
Company to achieve a profit. The Company estimates that in October
this price will reach $580-$590 per ton and permit a profit of $45
to $50 per ton. With this in mind, the Company announced plans to
complete construction of its methanol expansion in September and
restart DME production, after which it expects it will take about
one year for DME production and sales to return to former levels,
when DME was the Company's largest profit producing product.
Share Price Requirement
On August 26, 2010, the Company received a separate notification
from NASDAQ that the bid price of the Company's common stock had
closed below the minimum $1.00 per share requirement for the
previous 30 consecutive trading days. This notification has no
effect on the listing of the Common Stock at this time. To regain
compliance with this requirement, the bid price of the Company's
stock must close at $1.00 per share or more for a minimum of 10
consecutive trading days. The Company has until February 22, 2011
to regain compliance with the minimum bid price requirement.
NEW ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2010
-----------------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,117,917
Restricted cash 23,192,802
Notes receivable, net of reserve of $736,279 and
$732,461 at June 30, 2010 and March 31, 2010,
respectively -
Inventories, net 2,765,992
Prepayments for goods 323,773
Due from employees -
Other assets 224,266
Due from a related party 233,080
Deferred taxes 492,396
-----------------------
Total current assets 28,350,226
-----------------------
Plant and equipment, net 15,700,625
Land use rights, net 1,602,991
Construction in progress 30,077,799
Deposits 1,214,907
Deferred taxes 761,785
Other long-term assets 9,766
-----------------------
Total long-term assets 49,367,873
-----------------------
TOTAL ASSETS $ 77,718,099
=======================
CURRENT LIABILITIES
Accounts payable $ 8,749,292
Other payables and accrued liabilities 1,335,489
Short-term debt 41,249,319
Customer deposits 4,341,424
Due to employees 88,159
Payable to contractors 1,174,841
Due to related parties 12,423,325
Deferred taxes 459,427
Taxes payable 573,587
Derivative liabilities 479,645
Current portion of long-term notes payable 534,539
-----------------------
Total current liabilities 71,409,047
-----------------------
LONG-TERM LIABILITIES
Long-term bank loan 2,945,118
Deferred taxes 794,754
Due to employees 127,506
-----------------------
Total long-term liabilities 3,867,378
-----------------------
TOTAL LIABILITIES $ 78,188,883
=======================
SHAREHOLDERS' EQUITY
Common stock, par value $0.001 per share; 30,000,000
shares authorized, 17,012,458 and 12,640,000 shares
issued and outstanding at June 30, 2010 and March
31, 2010, respectively 17,012
Additional paid-in capital 8,376,523
Retained deficit (restricted portion was $0 and
$950,327 at June 30, 2010 and March 31, 2010,
respectively) (8,500,966)
Accumulated other comprehensive income 2,549,105
-----------------------
TOTAL SHAREHOLDERS' EQUITY 2,441,674
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,718,099
=======================
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.
Contact: 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
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