SinoCoking Coal and Coke Chemical Industries Announces Improved Earnings and Gross Margin for Fiscal 2014 Third Quarter

PINGDINGSHAN, CHINA--(Marketwired - May 29, 2014) - SinoCoking Coal and Coke Chemical Industries, Inc. ( NASDAQ : SCOK ) (the "Company" or "SinoCoking"), a vertically-integrated coal and coke processor, today announced that for fiscal 2014 third quarter ended March 31, the Company had net income of $0.7 million, or $0.04 per diluted share, on revenue of $11.0 million, as compared to net income of $0.5 million, or $0.02 per diluted share, on revenue of $13.9 million, in fiscal 2013 third quarter. The Company's gross margins improved to 22% in fiscal 2014 third quarter, up from 15% in the same period of last year. 

For the first nine months of fiscal 2014 ended March 31, SinoCoking had net income of $1.8 million, or $0.09 per diluted share, on revenue of $41.7 million, as compared to net income of $2.0 million, or $0.09 per diluted share, on revenue of $52.7 million, in the first nine months of fiscal 2013. The Company's gross margins improved to 18% in the first nine months of fiscal 2014, up from 13% in the same period in 2013. 

The decrease in the Company's fiscal 2014 third quarter and nine month revenue compared to the same periods of last year was primarily the result of a reduction in sales of raw coal and washed coal, both of which are being steadily de-emphasized as SinoCoking continues its development of clean energy products. This development, said Chairman and CEO, Mr. Jianhua Lv, made accelerated progress in fiscal 2014 third quarter. He also noted:

  • The construction of the Company's upgraded facility for the production of synthetic gas ('syngas'), a clean burning energy source offering an alternative to the widespread burning of coal, is in its initial construction phase and should be completed and ready for trial production in the fourth quarter of this calendar year.

  • Construction/upgrade cost is expected to be approximately $5 million, all of which is directly funded by a loan from the CEO.

  • The upgraded facility is expected to produce 25,000 cubic meters of syngas per hour, ranking it among the leading facilities of its kind in China.

  • Of note, syngas is a mixture of hydrogen and carbon monoxide which is produced through the process of coal gasification and can be used in a number of downstream applications to produce a wide range products such as fertilizers, fuels, solvent and synthetic materials, used in several industries. 

  • SinoCoking's gross profit margin on syngas sales is expected to be between 45% and 50%, far higher than any other product the Company is currently producing. Although currently the Company cannot estimate the annual revenue expected to be generated from the sale of syngas, in light of current market conditions within China, management believes potential revenue can be significant.

Additionally Mr. Lv added, "The upgrade is continuing at a satisfactory rate and we anticipate that the capacity of our syngas facility may even exceed our original expectations. As the first coking company in all of China to be building such a plant, we are excited about the financial contributions it can make to SinoCoking as well as the environmental benefits it can provide to our country."

Mr. Lv added, "We look forward to providing further updates on the facility's construction in the near future."

Regarding the Company's performance SinoCoking announced the following:

  • Over 94% of fiscal 2014 third quarter revenue came from coke products and 6% from coal products, as compared to 61% from coke products and 39% from coal products for the same period of fiscal 2013. For fiscal 2014 nine month period, 86% of revenue came from coke products and 14% from coal products, as compared to 55% from coke products and 45.4% from coal products for the same period of fiscal 2013.

  • The reduction in revenue from sales of coal products in both fiscal 2014 three and nine month periods as compared to the same periods of last year is a result of the weakened coal demand emanating from a current oversupply of crude steel in China.

  • Higher coke revenue for fiscal 2014 three and nine month periods compared to the same reporting period of fiscal 2013 resulted from increased coke sales to specialized steel producers such as Fangda Special Steel Technology Co., Ltd., one of China's best-known special steel manufacturers.

  • Additional revenues for fiscal 2014 three and nine month periods were generated from the sale of crude benzene, a new coke-derived product for fiscal 2014.

  • Gross profit margin for both fiscal 2014 three and nine month periods improved from the same periods a year ago, primarily due to sales of higher-margin coke products and reduced sales of lower-margin coal products.

Although construction of SinoCoking's new coking plant remains on hold, the Company is currently seeking bank financing and expanded lines of credit, either of which may enable construction to recommence before the end of 2014. 

In the meantime, SinoCoking has increased its annual coke production capacity by leasing third-party facilities and equipment with minimal upfront capital.

About SinoCoking
SinoCoking and Coke Chemical Industries, Inc., a Florida corporation, is a vertically-integrated coal and coke processor that uses coal from both its own mines and that of third-party mines to produce basic and value-added coal products for steel manufacturers, power generators, and various industrial users. SinoCoking has been producing metallurgical coke since 2002, and acts as a key supplier to regional steel producers in central China. SinoCoking also produces and supplies thermal coal to its customers in central China. SinoCoking currently owns its assets and conducts its operations through its subsidiaries, Top Favour Limited and Pingdingshan Hongyuan Energy Science and Technology Development Co., Ltd., and its affiliated companies, Henan Province Pingdingshan Hongli Coal & Coke Co., Ltd., Baofeng Coking Factory, Baofeng Hongchang Coal Co., Ltd., Baofeng Hongguang Environment Protection Electricity Generating Co., Ltd., Zhonghong Energy Investment Company, Henan Hongyuan Coal Seam Gas Engineering Technology Co., Ltd., Baofeng Shuangri Coal Mining Co., Ltd., and Baofeng Xingsheng Coal Mining Co., Ltd.

For further information about SinoCoking, please refer to our periodic reports filed with the Securities and Exchange Commission.

Forward Looking Statement
This press release contains forward-looking statements, particularly as related to, among other things, the business plans of the Company, statements relating to goals, plans and projections regarding the Company's financial position and business strategy. The words or phrases "plans," "would be," "will allow," "intends to," "may result," "are expected to," "will continue," "anticipates," "expects," "estimate," "project," "indicate," "could," "potentially," "should," "believe," "think," "considers" or similar expressions are intended to identify "forward-looking statements." These forward-looking statements fall within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to the safe harbor created by these sections. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. Such forward-looking statements are based on current expectations, involve known and unknown risks, a reliance on third parties for information, transactions or orders that may be cancelled, and other factors that may cause our actual results, performance or achievements, or developments in our industry, to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from anticipated results include risks and uncertainties related to the fluctuation of local, regional, and global economic conditions, the performance of management and our employees, our ability to obtain financing, competition, general economic conditions and other factors that are detailed in our periodic reports and on documents we file from time to time with the Securities and Exchange Commission. Statements made herein are as of the date of this press release and should not be relied upon as of any subsequent date. The Company cautions readers not to place undue reliance on such statements. The Company does not undertake, and the Company specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. Actual results may differ materially from the Company's expectations and estimates. The Company provides no assurances that any potential acquisitions will actually be consummated, or if consummated that such acquisitions will be on terms and conditions anticipated on the date of this press release, and the Company makes no assurances with regard to any results of any such acquisitions.

 
SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
 
CONDESED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
 
    For the Three Months
Ended March 31,
    For the Nine Months
Ended March 31,
 
    2014     2013     2014     2013  
                         
REVENUE   $ 10,993,882     $ 13,903,951     $ 41,678,105     $ 52,704,787  
                                 
COST OF REVENUE     8,545,142       11,815,066       34,076,508       45,770,689  
                                 
GROSS PROFIT     2,448,740       2,088,885       7,601,597       6,934,098  
                                 
OPERATING EXPENSES:                                
  Selling     78,597       37,018       118,351       122,775  
  General and administrative     342,598       533,055       1,421,425       1,741,228  
    Total operating expenses     421,195       570,073       1,539,776       1,864,003  
                                 
INCOME FROM OPERATIONS     2,027,545       1,518,812       6,061,821       5,070,095  
                                 
OTHER INCOME (EXPENSE)                                
  Interest income     58,895       174,788       426,235       605,889  
  Interest expense     (872,615 )     (910,544 )     (2,963,194 )     (2,929,609 )
  Other finance expense     (27,689 )     (94,547 )     (177,949 )     (257,914 )
  Other income, net     -       219,838       -       228,171  
  Change in fair value of warrants     -       1,150       12       715,997  
    Total other expense, net     (841,409 )     (609,315 )     (2,714,896 )     (1,637,466 )
                                 
INCOME BEFORE INCOME TAXES     1,186,136       909,497       3,346,925       3,432,629  
                                 
PROVISION FOR INCOME TAXES     445,945       404,717       1,511,634       1,436,211  
                                 
NET INCOME     740,191       504,780       1,835,291       1,996,418  
                                 
OTHER COMPREHENSIVE INCOME (LOSS)                                
  Foreign currency translation adjustment     (1,236,437 )     662,084       365,320       653,710  
                                 
COMPREHENSIVE INCOME (LOSS)   $ (496,246 )   $ 1,166,864     $ 2,200,611     $ 2,650,128  
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES                                
  Basic and diluted     21,121,372       21,121,372       21,121,372       21,121,372  
                                 
EARNINGS (LOSS) PER SHARE                                
  Basic and diluted   $ 0.04     $ 0.02     $ 0.09     $ 0.09  
                                   
 
 
SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    March 31,   June 30,
    2014   2013
    (Unaudited)      
ASSETS            
CURRENT ASSETS            
  Cash   $ 204,341   $ 782,018
  Restricted cash     -     9,708,000
  Accounts receivable, trade     9,541,195     9,474,197
  Other receivables and deposits     5,657,649     4,334,370
  Loans receivable     8,032,037     8,032,037
  Inventories     5,237,164     3,018,909
  Advances to suppliers     10,766,840     8,791,837
    Total current assets     39,439,226     44,141,368
             
PLANT AND EQUIPMENT, net     14,681,701     15,269,766
             
CONSTRUCTION IN PROGRESS     40,346,044     40,224,821
             
OTHER ASSETS            
  Refundable deposit     4,868,628     4,854,000
  Prepayments     61,748,418     61,562,890
  Intangible assets, net     32,288,238     32,244,071
  Long-term investments     2,895,082     2,886,383
  Other assets     113,601     113,260
    Total other assets     101,913,967     101,660,604
             
      Total assets   $ 196,380,938   $ 201,296,559
             
LIABILITIES AND EQUITY            
             
CURRENT LIABILITIES            
  Current maturity of long-term loan   $ -   $ 50,158,000
  Accounts payable, trade     1,842,946     183,504
  Notes payable     -     9,708,000
  Other payables and accrued liabilities     2,983,099     2,229,341
  Other payables - related party     318,416     140,465
  Acquisition payable     4,706,341     4,692,200
  Customer deposits     128,301     208,815
  Taxes payable     1,049,293     1,133,450
  Total current liabilities     11,028,396     68,453,775
             
LONG TERM LIABILITIES            
  Long-term loan     50,309,158     -
  Warrants liability     9     21
    Total long term liabilities     50,309,167     21
             
      Total liabilities     61,337,563     68,453,796
             
COMMITMENTS AND CONTINGENCIES            
             
EQUITY            
Common stock, $0.001 par value, 100,000,000 shares authorized, 21,121,372 shares issued and outstanding     21,121     21,121
  Additional paid-in capital     3,592,053     3,592,053
  Statutory reserves     3,689,941     3,689,941
  Retained earnings     113,140,117     111,304,825
  Accumulated other comprehensive income     10,268,543     9,903,223
    Total SinoCoking Coal and Coke Chemicals Industries, Inc's equity     130,711,775     128,511,163
             
NONCONTROLLING INTERESTS     4,331,600     4,331,600
             
    Total equity     135,043,375     132,842,763
             
    Total liabilities and equity   $ 196,380,938   $ 201,296,559