KAIFENG, China, Aug. 14 /PRNewswire-Asia-FirstCall/ -- China Valves
Technology, Inc. (OTC Bulletin Board: CVVZ; "China Valves" or the
"Company"), a leading metal valve manufacturer with operations in
the People's Republic of China (the "PRC"), today announced its
financial results for the second quarter ended June 30, 2009.
Highlights for the Second Quarter 2009 and Recent Developments --
Net revenue was $24.9 million, an increase of 111.1% from the
second quarter of 2008 -- Gross profit was $12.4 million, an
increase of 156.4% from the second quarter of 2008, and gross
margin was 49.9%, compared to 41.1% for the second quarter of 2008
-- Net income was $212,711, or $0.01 per diluted share. Adjusting
for the one-for-two reverse stock split the Company effected on
August 13, the Company has approximately 31,398,207 weighted
average diluted shares outstanding for the second quarter of 2009,
compared to approximately 20,001,775 weighted average diluted
shares during the second quarter of 2008 -- Non-GAAP net income for
the second quarter of 2009, after excluding non-cash compensation
expense of $7.5 million, was $7.7 million, or $0.25 per diluted
share, an increase of 361.8% from net income $1.7 million, or $0.08
per fully diluted share in the second quarter of 2009 -- Received
purchase orders for nuclear forged steel valves from China
Guangdong Nuclear Power Group ("CGNPG") valued at $4.7 million --
Newly established production facility at its Henan Kaifeng High
Pressure Valve Co., Ltd. ("Kaifeng Valve") subsidiary began trial
production at the beginning of June 2009 "For the second quarter we
achieved exceptional year-over-year top and bottom line growth
driven by strong demand for our higher end products and a
streamlined selling process and expense controls put in place
earlier this year. While the favorable comparisons are partially
due to delayed shipments and lower sales in the second quarter of
2008 because of the earthquake in Sichuan province, these results
provide us with confidence that we are on track to achieve our
financial goals for 2009 as we head into what are normally the
seasonally strongest quarters for our industry," said Mr. Siping
Fang, Chairman and CEO of China Valves. "Demand for our industrial
valve products remained strong as various civil infrastructure
related industries responded to the Chinese government's economic
stimulus programs. Our high temperature, pressure power station
gate valves and two-way metal sealing butterfly valves for thermal
power stations and water supply systems are becoming increasingly
popular as replacements for expensive imports. Demand was supported
by additional production capacity from the integration of Taizhou
Wote, a mid-sized valve manufacturer we acquired in April 2009.
Moreover, we have successfully penetrated the nuclear power sector
by supplying products to one of China's leading nuclear power
developers, which is a significant milestone for China Valves,"
added Mr. Fang. "During the quarter, we also succeeded in
centralizing our sales process, leading to larger orders being
channeled through our headquarters, Henan Tonghai Fluid Equipment,
Co. Ltd. This has greatly reduced sales commissions previously
granted for our operating subsidiaries," commented Mr. Fang. Second
Quarter 2009 Results For the second quarter of 2009, China Valves'
net revenue was $24.9 million, an increase of 111.1% from $11.8
million for the second quarter of 2008. Sales volume was 8,323
metric tons for the second quarter of 2009, up 104.6% from 4,068
metric tons for the second quarter of 2008. The sales volume and
revenue for the second quarter of last year were adversely impacted
by the temporary delay in shipments and sales due to the earthquake
in the Sichuan province in May 2008. Net revenue increased
primarily because of strong sales of high pressure high temperature
valves used in thermal power stations and two-way metal sealing
butterfly valves for water supply systems. Together, these products
were responsible for $17.1 million of net revenue, approximately
68.7% of net revenue, in the second quarter of 2009. Strong demand
of these high-end valve products was mainly attributed to the
increasing expansion or upgrading activities of thermal and nuclear
power stations, as well as government economic stimulus programs
that encourage investment in civil infrastructure projects. Sales
to the power industry accounted for 32.0% of net revenue, and sales
to the water supply and drainage industry accounted for 35.4% of
net revenue for the second quarter of 2009 compared to 13.5% and
22.0% respectively for the second quarter last year. Gross profit
for the second quarter of 2009 was $12.4 million, an increase of
156.4% from $4.8 million for the second quarter of 2008. Gross
profit margin was 49.9%, compared to 41.1% for the second quarter
of 2008. Gross profit margin increased because of lower production
costs which included increased sales of high end valve products and
lower raw material costs. General and administrative expenses for
the second quarter of 2009 were $8.7 million, up from $1.7 million
in the second quarter of 2008. General and administrative expenses
for the second quarter included a $7.5 million accrual of non-cash
compensation expense that relates to 4,194,344 make good shares on
a post-split basis to be released contingent to the Company meeting
its make good target for fiscal year 2009. The Company exceeded its
specified net income target of $10.5 million for 2008 and recorded
the associated non-cash compensation expense in total in the fourth
quarter of 2008. Beginning in the second quarter of 2009, the
Company will accrue this non-cash expense on a quarterly basis,
based on the determination the Company is likely to achieve the
make good target for 2009, excluding such non-cash compensation
expenses related to the make good. For more information, please
refer to the Company's Form 10-Q filed on August 14, 2009. Other
general and administrative expenses decreased 29.1% mainly because
of the one time non-recurring expense of retired employees paid in
second quarter of 2008 that didn't occur during second quarter of
2009. Selling expenses increased 110.3% year-over-year to $1.8
million from $0.9 million for the second quarter of 2008 mainly due
to increased sales. Total other income was $0.9 million for the
three month period ended June 30, 2009, compared to $37,670 for the
three month period ended June 31, 2008. The increase in other
income was mostly due to the income from selling scrap metal and
other materials. Income tax expense was $2.6 million, compared to
$0.6 million for the second quarter of 2008. Income tax was
increased proportionally with higher taxable earnings for the
second quarter of 2009. Net income for the second quarter 2009 was
$212,711, compared with $1.7 million in net income for the second
quarter 2008. Diluted loss per share was $0.01 for second quarter
2009, compared to diluted earnings per share $0.08 for the second
quarter 2008. On August 13, 2009, the Company effected a
one-for-two reverse stock split, which affected all issued and
outstanding shares of the Company's common stock immediately prior
to the effectiveness of the reverse stock split with any fractional
shares rounded up to the next highest whole share. As a result of
the reverse split, the Company has approximately 31,398,207
weighted average diluted shares for the three months ended June 30,
2009, compared to approximately 20,001,775 weighted average diluted
shares for the corresponding period in fiscal 2008. After adjusting
for the aforementioned $7.5 million in non-cash compensation
charges and changes in the fair value of warrant liabilities,
non-GAAP net income for the second quarter of 2009 was $7.7
million, a 361.8% increase from net income of $1.7 million for the
second quarter of 2008. Basic and diluted non-GAAP earnings per
share were $0.25 for the quarter ended June 30, 2009, compared to
basic and fully diluted earnings per share of $0.08 for the quarter
ended June 30, 2008. Please see the table below for a
reconciliation of non-GAAP financial information to GAAP financial
information. Six Months 2009 Revenue for the first six months of
2009 was $42.1 million, up 70.1% from revenue of $24.8 million for
the first six months of 2008. Gross profit was $20.7 million, up
108.5% from gross profit of $9.9 million for the six months of
2008. Gross margin was 49.3%, compared to 40.2% for the first six
months of 2008. Net income was $3.2 million, or $0.11 per basic and
diluted share, compared to $3.4 million, or $0.17 per basic and
diluted share, for the same period a year ago. After adjusting for
the aforementioned $7.5 million in non-cash compensation charges
and $0.4 million in changes in fair value of warrant liabilities,
non-GAAP net income for the first six months of 2009 was $11.1
million, or $0.36 per basic and diluted share, a year-over-year
increase of 223.0%. Financial Condition As of June 30, 2009, the
Company had $19.7 million in cash and cash equivalents, compared to
$16.4 million as of December 31, 2008. Accounts receivable were
$26.5 million compared to $26.1 million as of December 31, 2008,
but decreased from $28.5 million as of March 31, 2009. The decline
in accounts receivable reflects the Company's improved receivables
management, which includes tighter credit policies and increased
collection efforts. Working capital was $38.9 million, compared to
$33.1 million as of December 31, 2008. As of June 30, 2009, the
Company had no long term debt. Shareholders' equity was $97.8
million as of June 30, 2009, compared to $76.6 million as of
December 31, 2008. For the first six months of 2009, the Company
generated $15.3 million in cash from operating activities. Cash
used for investing activities for the first six months of 2009 was
$7.2 million and included $6.8 million for the construction of the
new facility at its Kaifeng location and purchase of new equipment,
and the Company plans to invest approximately $3 million in the
second half of 2009 in upgrading production lines and purchasing
additional equipment. Recent Developments In July 2009, China
Valves' subsidiary, Zhengzhou Zhengdie Valve Co, Ltd. ("Zhengdie")
received purchase orders for two-way metal sealing butterfly valves
from Kunshan Water and Guangzhou Water, valued at $1.2 million and
$3.1 million, respectively. Two-way metal sealing butterfly valves
are primarily used to control municipal water and sewage flow. In
July 2009, the Company appointed of Ms. Ichi Shih as its Chief
Financial Officer effective July 1, 2009. Ms. Shih replaces Mr.
Renrui Tang, who has served as interim Chief Financial Officer
since February 2009. On July 24, 2009, the Company amended its
articles of incorporation with the State of Nevada to effect a
one-for-two reverse stock split. The reverse split took effect on
August 13, 2009 and the Company's common stock started trading on
the Over the Counter Bulletin Board under the new ticker symbol
"CVVZ." As a result of the reverse split, the Company has
approximately 31,393,701 shares issued and outstanding. The Company
expects to file a listing application with a senior stock market
during the third quarter of 2009. On August 14, 2009, the Company
entered into an amendment to the Make Good Escrow Agreement, dated
as of August 26, 2008, among the Company, Bin Li, Brean Murray
Carret & Co., LLC as investor agent and Escrow, LLC, as escrow
agent. The amendment revised the 2009 guaranteed after tax net
income the Company was obligated to achieve under the Make Good
Agreement from $23 million to $21 million and the earnings per
share for 2009 was revised from around $0.738 to around $0.668 on a
post-split basis. The amendment also revised the 2010 guaranteed
after tax net income the Company was obligated to achieve from $31
million to $34 million and the earnings per share for 2010 was
revised from around $0.994 to around $1.082 on a post-split basis.
Business Outlook Due to increased governmental spending, China
Valves expects to see continued demand for high-end valve products
from domestic infrastructure and power generation projects. The
water supply and drainage and nuclear power sectors should increase
demand for the Company's high-end, high-margin products, such as
forged steel valves for nuclear power stations and two-way metal
sealing butterfly valves for water supply systems. The Company has
applied for the license required to produce valves used in the core
island of nuclear power stations, and expects to obtain the
approval from the government by the end of 2009. Consequently, the
Company expects gross margin for second half of 2009 will remain at
the same level of second quarter of 2009. As of June 30, 2009, the
Company's backlog was RMB 280 million, or approximately $41
million. For the full year 2009, the Company remains confident in
meeting the target of annual net income of $23 million and fully
diluted earnings per share of $0.738 on a post-split basis. "In the
third quarter, demand from customers in industries that benefit
from the Chinese government's economic stimulus programs continues
to grow, and we expect that China Valves will continue to benefit
in the second half of 2009," said Mr. Fang, "We have recently
finished installation of all equipment at our new facility in
Kaifeng and expect to start formal production at the end of
September. This is a critical year for us in terms of growing our
production capacity and carving out market share in high-end valve
markets such as nuclear power and municipal water supply and
drainage. We will continue to pursue a disciplined acquisition
strategy, and are actively engaged in discussions with several
acquisition targets. We intend to complete several acquisitions
this year using our existing strong cash position and $10 million
in available lines of credit." Conference call China Valves'
management will host a conference call at 9:00 a.m. Eastern
Daylight Time on Friday, August 14, 2009 to discuss its financial
results for the second quarter 2009 ended June 30, 2009. To
participate in this live conference call, please dial the following
number five to ten minutes prior to the scheduled conference call
time: 888 339-2688. International callers should call +1 617
847-3007. The Conference Pass Code is 724 103 40. If you are unable
to participate in the call at this time, a replay will be available
for fourteen days starting from 11:00 a.m. Eastern Daylight Time on
Friday, August 14, 2009. To access the replay, call 888-286-8010.
International callers should call +1 617-801-6888. The Conference
Pass Code is 227 631 41. Non GAAP Financial Measures To supplement
the Company's condensed consolidated financial statements for the
three and six months ended June 30, 2009 presented on a GAAP basis,
the Company provided non-GAAP financial information in this release
that exclude the impact of non-cash stock compensation expense
related to the Company's private placement financings and non cash
income or expense related to changes in the fair value of warrant
liabilities. The Company's management believes that these non-GAAP
measures, non-GAAP net income and non-GAAP diluted earnings per
share, provide investors with a better understanding of how the
results relate to the Company's current and historical performance.
The additional non-GAAP information is not meant to be considered
in isolation or as a substitute for GAAP financials. The non-GAAP
financial information that the Company provides also may differ
from the non-GAAP information provided by other companies. A
reconciliation of each non-GAAP measures to the nearest GAAP
measure is appears in the table below. RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE
30, 2009 2Q2009 1H2009 (unaudited) (unaudited) Net Income 212,711
3,180,062 Non-cash change in warrant liabilities 634 400,634
Non-cash stock compensation Expenses 7,499,487 7,499,487 Adjusted
Net Income 7,712,832 11,080,183 Basic and Diluted Shares 31,398,207
30,138,748 Earnings Per Share 0.01 0.11 Non-cash change in warrant
liabilities per share 0.00 0.01 Non-cash stock compensation
Expenses per share 0.24 0.24 Adjusted Earnings Per Share 0.25 0.36
About China Valves Technology, Inc. China Valves Technology, Inc.
through its subsidiaries, Zhengzhou Zhengdie Valve Co, Ltd. and
Henan Kaifeng High Pressure Valve Co., Ltd., is engaged in
development, manufacture and sale of high-quality metal valves for
the electricity, petroleum, chemical, water, gas and metallurgy
industries. The Company has one of the best known brand names in
China's valve industry, and its history can be traced back to 1959
when it was formed as a state-owned enterprise. The Company
develops valve products by extensive research and development and
owns a number of patents. It enjoys significant domestic market
shares and exports to Asia and Europe. For more information, visit
http://www.cvalve.com/ Safe Harbor Statements 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 develop and market new
products, the ability to access capital for expansion, the ability
to acquire other companies, changes from anticipated levels of
sales, changes in national or regional economic and competitive
conditions, changes in relationships with customers, changes in
principal product profits 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 update or revise to the public any
forward-looking statements, whether as a result of new information,
future events or otherwise. This press release was developed by
China Valves, and is intended solely for informational purposes and
is not to be construed as an offer or solicitation of an offer to
buy or sell the Company's stock. This press release is based upon
information available to the public, as well as other information
from sources which management believes to be reliable, but it is
not guaranteed by China Valves to be accurate, nor does China
Valves purport it to be complete. Opinions expressed herein are
those of management as of the date of publication and are subject
to change without notice. - Financial Tables Follow - CHINA VALVES
TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2009 AND DECEMBER 31, 2008 ASSETS June 30, December 31,
2009 2008 (Unaudited) CURRENT ASSETS: Cash and cash equivalents
$19,696,096 $16,427,883 Restricted cash 2,562,307 3,191,237 Notes
receivable 1,018,300 880,200 Accounts receivable, net of allowance
for doubtful accounts of $1,161,871 and $1,163,457 as of June 30,
2009 and December 31, 2008, respectively 26,470,235 26,119,447
Other receivables 3,800,746 4,841,691 Inventories 11,429,217
11,244,442 Advances on inventory purchases 2,011,134 1,108,512
Advances on inventory purchases - related party 891,991 1,367,446
Prepaid expenses -- 52,921 Total current assets 67,880,026
65,233,779 PLANT AND EQUIPMENT, net 24,820,260 16,184,894 OTHER
ASSETS: Accounts receivable - retainage, long term 1,718,440
2,541,418 Advances on equipment purchases 1,640,038 2,001,733 Long
term receivable 528,530 382,552 Goodwill - purchased 20,783,393
20,811,767 Intangibles, net of accumulated amortization 8,712,045
823,331 Other investments, at lower of cost or market 763,472
764,515 Total other assets 34,145,918 27,325,316 Total assets
$126,846,204 $108,743,989 LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable - trade $9,200,732 $6,630,574
Short term loans 3,161,578 7,839,960 Short term loans - related
parties 523,706 596,791 Other payables 3,888,503 4,453,881 Other
payable - related party 274,721 1,975,462 Notes payable 2,344,000
2,934,000 Accrued liabilities 2,389,697 2,382,138 Customer deposits
3,723,925 3,129,708 Taxes payable 2,932,087 1,227,338 Warrant
liabilities 568,913 924,291 Total current liabilities 29,007,862
32,094,143 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY:
Common stock, $0.001 par value; 300,000,000 shares authorized;
31,393,701 shares and 31,192,552 shares issued and outstanding as
of June 30, 2009 and December 31, 2008, respectively 31,393 31,192
Additional paid-in-capital 75,191,266 66,935,968 Common stock
subscription receivable -- (9,834,000) Statutory reserves 4,122,203
2,958,659 Retained earnings 12,415,568 10,399,050 Accumulated other
comprehensive income 6,077,912 6,158,977 Total shareholders' equity
97,838,342 76,649,846 Total liabilities and shareholders' equity
$126,846,204 $108,743,989 CHINA VALVES TECHNOLOGY INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER
COMPREHENSIVE INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE
30, 2009 AND 2008 (Unaudited) Three months ended Six months ended
June 30, June 30, 2009 2008 2009 2008 SALES $24,875,017 $11,783,209
$42,117,563 $24,766,156 COST OF GOODS SOLD 12,451,804 6,938,709
21,373,616 14,818,136 GROSS PROFIT 12,423,213 4,844,500 20,743,947
9,948,020 OPERATING EXPENSES: Selling 1,799,919 856,034 2,914,856
1,863,360 General and admini- strative (including non-cash stock
compensation expense of $7,499,487 in 2009) 8,696,722 1,689,614
11,258,330 3,269,702 Research and development 17,137 46,163 22,816
98,706 Total operating expenses 10,513,778 2,591,811 14,196,002
5,231,768 INCOME FROM OPERATIONS 1,909,435 2,252,689 6,547,945
4,716,252 OTHER (INCOME) EXPENSE: Other income, net (950,390)
(195,436) (1,037,095) (286,984) Interest and finance expense, net
54,703 157,766 126,152 291,594 Change in fair value of warrant
liabilities 634 -- 400,634 -- Total other expense, net (895,053)
(37,670) (510,309) 4,610 INCOME BEFORE PROVISION FOR INCOME TAXES
2,804,488 2,290,359 7,058,254 4,711,642 INCOME TAX EXPENSE
2,591,777 620,321 3,878,192 1,281,274 NET INCOME 212,711 1,670,038
3,180,062 3,430,368 OTHER COMPREHENSIVE INCOME: Foreign currency
translation gain (loss) (72,181) 739,516 (81,065) 2,327,078
COMPREHENSIVE INCOME $140,530 $2,409,554 $3,098,997 $5,757,446
BASIC EARNINGS PER SHARE: Weighted average number of shares
31,393,701 20,001,775 30,133,048 20,001,775 Earnings per share 0.01
0.08 0.11 0.17 DILUTED EARNINGS PER SHARE: Weighted average number
of shares 31,398,207 20,001,775 30,138,748 20,001,775 Earnings per
share $0.01 $0.08 $0.11 $0.17 CHINA VALVES TECHNOLOGY INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30 (Unaudited) 2009 2008 CASH FLOWS FROM
OPERATING ACTIVITIES: Net income $3,180,062 $3,430,368 Adjustments
to reconcile net income to cash provided by operating activities:
Depreciation 698,114 440,655 Amortization 105,081 30,577 Bad debt
provision 433,288 548,753 Loss on disposal of fixed assets 30,148
16,888 Change in fair value of warrant liabilities 400,634 -- Stock
compensation cost 7,499,487 -- Change in operating assets and
liabilities: Note receivable (139,367) (24,113) Accounts
receivable-trade 433,322 (4,498,743) Other receivables (710,012)
(631,394) Inventories (200,201) 2,999,028 Advance on inventory
purchases (904,565) (1,189,313) Advance on inventory
purchases-related party 483,969 -- Prepaid expenses 52,904 163,295
Accounts payable-trade 2,570,250 138,636 Other payables (569,909)
784,795 Other payables-related party (362,452) (333,810) Accrued
liabilities 10,722 -- Customer deposits 598,770 (1,309,494) Taxes
payables 1,707,238 (519,385) Net cash provided by operating
activities 15,317,484 46,743 CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intangible assets (441,602) (61,154) Advance on
equipment purchases (21,986) (748,349) Purchases of plant and
equipment (6,785,183) (938,971) Proceeds from sale of equipment --
19,857 Net cash used in investing activities (7,248,771)
(1,728,617) CASH FLOWS FROM FINANCING ACTIVITIES: Restricted cash
due to covenant (3,894) 95,849 Restricted cash due to notes payable
628,912 (101,215) Proceeds from notes payable (586,280) -- Proceeds
from short term debt -- 5,811,400 Proceeds from short term
loans-related parties 1,474,548 713,601 Repayments of short term
debt (4,792,839) (4,638,168) Repayments of short term loans-related
parties (1,423,938) -- Proceeds from shareholder -- 1,280,444 Net
cash (used in) provided by financing activities (4,703,491)
3,161,911 EFFECTS OF EXCHANGE RATE CHANGES ON CASH (97,009) 238,773
INCREASE IN CASH 3,268,213 1,718,810 CASH and CASH EQUIVALENTS,
beginning 16,427,883 2,773,262 CASH and CASH EQUIVALENTS, ending
$19,696,096 $4,492,072 SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: Cash paid for interest $138,133 $276,737 Cash paid for
income taxes $1,324,470 $1,480,817 Additional Non-cash investing
and financing activities Cashless exercise of warrants $756,000 $--
Common stock issued for real estate acquisition $9,834,000 $--
Reclassification of plant and equipment and other payables
$2,075,000 $-- Reclassification of other receivables and other
payable-related party $1,259,000 $-- For more information, please
contact: China Valves Technology, Inc. Ray Chen, VP of Investor
Relations Tel: +1-650-281-8375 +86-13925279478 Email: Web:
http://www.cvalve.com/ CCG Investor Relations Crocker Coulson,
President Tel: +1-646-213-1915 Email: Web:
http://www.ccgirasia.com/ DATASOURCE: China Valves Technology, Inc.
CONTACT: Ray Chen, VP of Investor Relations of China Valves
Technology, Inc., +1-650-281-8375, +86-13925279478, ; or Crocker
Coulson, President of CCG Investor Relations, +1-646-213-1915, Web
site: http://www.cvalve.com/
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