China New Energy Reports Third Quarter 2009 Financial Results

Share Name	Share Symbol	Market	Type
China New Energy Group Company (PK)	USOTC:CNER	OTCMarkets	Common Stock

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	0.0085	0.0021	0.009				0.00	12:53:28

China New Energy (PK) (USOTC:CNER)
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TIANJIN, China, Nov. 17 /PRNewswire-Asia-FirstCall/ -- China New Energy Group Company (OTC:CNER) (BULLETIN BOARD: CNER) ("China New Energy" or the "Company"), an energy project developer specializing in development of natural gas distribution networks, and distribution of natural gas in China, announced its financial results for the third quarter ended September 30, 2009. Third Quarter 2009 Highlights -- Revenue increased 25% year-over-year to $2.8 million -- Gross profit increased 5% year-over-year to $1.8 million -- Net income totaled $0.5 million -- Appointed new Chief Financial Officer "China New Energy continues to achieve strong sales growth as natural gas consumption increases in our target markets," said Mr. Yangkan Chong, Chief Executive Officer. "We have exclusive natural gas distribution rights for three cities in Northern China and our sales have benefited as more and more households in these areas become connected to our distribution network." Third Quarter Results For the third quarter of 2009, revenue increased 25% to $2.8 million from $2.3 million in the same quarter a year ago. The growth was primarily attributable to an increase in the number of connected households in the cities where the Company supplies natural gas and operates its gas distribution network. Gross profit increased 5% to $1.8 million from $1.7 million a year ago. Gross margin was 63%, compared to 74% in the same quarter in 2008. The decrease in gross margin was mainly due to cost reallocation of the depreciation. Selling, general and administrative ("SG&A") expenses increased 132%, to $0.8 million from $0.4 million during the same period in 2008. As a percentage of revenues, SG&A expenses increased to 28% compared to 15% for the same period in 2008. Mr. Chong commented, "The increase in our SG&A expense was mainly attributable to the fact that we are preparing to expand our business. We are spending more in areas like business development, outside consultants, and the hiring of additional staff to help strengthen the Company's internal controls. We view this increased expenditure as an investment in ensuring the long-term growth of China New Energy and believe that it will ultimately help the Company achieve increased revenue growth and profitability." Net income was $0.5 million for the third quarter, down 45% from $0.9 million for the same period of 2008, as a result of the factors described above. Nine Month Results Revenue for the first nine months of 2009 was $6.0 million, up 40% from $4.2 million a year ago, which was mainly attributable to an increase in the number of connected households and an increase in natural gas consumption. Gross profit was $3.9 million, or 66% of revenue, up 26% from $3.1 million, or 73% of revenue, in the same period of 2008. The decrease in the gross margin was mainly due to cost reallocation of the depreciation. SG&A expenses increased to $2.0 million, or 33% of revenue, up from $0.8 million, or 19% of revenue during the same period of 2008. As a result, operating income for the nine months was $2.0 million or 33% of revenues, compared to $2.3 million or 54% of revenues in the same period of 2008. Net income for the nine months was $1.1 million compared to $1.8 million for the same period of 2008. Financial Condition As of September 30, 2009, the Company had cash and cash equivalents of $4.9 million and working capital of $9.9 million. For the nine months ended September 30, 2009, the company had $5.8 million of capital expenditures, which was mainly for the construction of gas pipelines, gas stations and acquisitions. Shareholders' equity was $27.8 million as of September 30, 2009. Recent Developments The Company appointed Mr. Eric Yu as Chief Financial Officer, effective on September 28, 2009. Mr. Yu replaces Mr. Peng Mun Foo, who left the Company for personal reasons. Mr. Yu most recently served as the CFO of an OTC Bulletin Board U.S.-listed Chinese company and has worked as a CFO or Financial Controller for almost ten years of which two were in the gas business. Business Outlook Mr. Chong concluded, "As China continues to undergo rapid urbanization and increasingly moves towards more environmentally friendly fuels, it is anticipated that the use of natural gas will continue to grow. Our strategy for capitalizing on this opportunity is to continue to focus on under- penetrated, growing small- and medium-sized cities where we can enter into favorable franchise agreements with local governments that grant us long-term exclusive rights to develop the local natural gas distribution network and supply natural gas in their area. We already have such agreements in Acheng, Dashiqiao, and Nandaihe. By focusing on these types of markets, we can help avoid competition as currently very few of these small- and medium-size cities have access to natural gas. Our business development team is actively exploring and evaluating potential areas for development of new distribution networks and opportunities for expansion of our existing distribution networks." 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. The Company currently has exclusive natural gas distribution rights for Acheng, Dashiqiao, and Nandaihe, three cities located in Northern China. 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. -FINANCIAL TABLES FOLLOW- CHINA NEW ENERGY GROUP COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Stated in US Dollars) September 30, December 31, 2009 2008 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $4,878,751 $5,612,356 Restricted cash 196,873 221,152 Accounts receivable 3,925,491 2,183,087 Other receivables 2,159,614 2,254,997 Inventories, net 285,787 254,585 Prepayment 784,953 1,558,361 Other current assets 94,017 3,340 Total current assets 12,325,486 12,087,878 Property, plant and equipment, net 7,676,229 6,844,262 Construction in progress 8,447,645 5,589,551 Related party receivable -- 84,120 Intangible assets 1,804,658 1,814,316 TOTAL ASSETS $30,254,018 $26,420,127 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable $276,117 $111,660 Accrued expenses 277,271 256,071 Accruals and other payable-Third Party 526,837 3,144,043 Tax payable 523,770 693,116 Related party payable 97,888 -- Dividend payable on preferred stock 744,946 194,000 TOTAL CURRENT LIABILITIES 2,446,829 4,398,890 China New Energy's Stockholders' equity: Preferred Stock: 10,000,000 shares authorized, $0.001 par value, 2,973,761 and 1,857,373 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively 2,973 1,857 Common Stock: 500,000,000 shares authorized, $0.001 par value, 100,000,041 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively 100,000 100,000 Additional paid in capital 27,269,163 19,725,482 Accumulated (deficit) (2,382,613) (619,357) Statutory surplus reserve fund 1,903,034 1,903,034 Accumulated other comprehensive income 693,939 730,168 Total China New Energy's Stockholders' equity 27,586,496 21,841,184 Non-controlling interest 220,693 180,053 TOTAL EQUITY 27,807,189 22,021,237 TOTAL LIABILITIES AND EQUITY $30,254,018 $26,420,127 CHINA NEW ENERGY GROUP COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - (UNAUDITED) (Stated in US Dollars) For the Three months ended For the nine months ended September 30, September 30, 2009 2008 2009 2008 Revenues: Connection services $2,659,930 $2,092,445 $5,433,912 $3,846,773 Natural gas 157,344 161,413 518,970 390,214 2,817,274 2,253,858 5,952,882 4,236,987 Cost of Sales: Connection services 683,068 454,061 1,376,630 833,644 Natural gas 367,411 121,565 649,622 295,257 1,050,479 575,626 2,026,252 1,128,901 Gross Profit 1,766,795 1,678,232 3,926,630 3,108,086 Operating Expenses: Selling, general and administrative expenses 802,011 346,094 1,962,698 813,975 Total operating expenses 802,011 346,094 1,962,698 813,975 Operating income 964,784 1,332,138 1,963,932 2,294,111 Other Income (Expenses): Interest Income 10,680 -- 20,307 -- Interest (expense) (3,699) -- (4,370) -- Other Income 5,558 3,702 5,651 9,974 Total other income 12,539 3,702 21,588 9,974 Income from continuing operations, before tax 977,323 1,335,840 1,985,520 2,304,085 Income Taxes 461,013 391,358 828,800 705,244 Income from continuing operations, net of tax 516,310 944,482 1,156,720 1,598,841 Income (loss) from discontinued operations, net of tax -- (7,116) -- 223,410 Net Income 516,310 937,366 1,156,720 1,822,251 Net (Income) attributable to non controlling interest (25,104) (37,009) (18,200) (46,277) Net Income attributable to China New Energy Group $491,206 $900,357 $1,138,520 $1,775,974 Other Comprehensive income: Net Income 516,310 937,366 1,156,720 1,822,251 Foreign currency translation (42,159) 37,114 (41,854) 377,403 Comprehensive income attributable to the Non-controlling interest 251 -- (12,026) -- Comprehensive income attributable to China New Energy Group $474,402 $974,480 $1,102,840 $2,199,654 Income (Loss) per share - Basic & diluted: Income (Loss) from continuing operations attributable to the Company's common stockholders $0.00 $(0.06) $(0.02) $(0.05) Discontinued operations attributable to the Company's common stockholders $0.00 $0.00 $0.00 $0.00 Net income (loss) attributable to the Company's common stockholders $0.00 $(0.06) $(0.02) $(0.05) Weighted average common shares outstanding: Basic 100,000,041 100,000,041 100,000,041 98,321,560 Diluted 209,495,669 132,839,829 200,655,139 110,255,834 CHINA NEW ENERGY GROUP COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED) (Stated in US Dollars) For The Nine Months Ended September 30, 2009 2008 Cash flows from operating activities: Net income attributable to China New Energy Group Company $1,138,520 $1,775,974 Income attributable to non-controlling interest 18,200 27,371 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 277,476 125,592 Amortization 9,572 6,429 Changes in operating assets and liabilities: Accounts receivable (1,741,568) (374,181) Other receivables 205,909 (650,954) Inventories (31,228) 174,757 Prepayment 772,557 -- Other current assets (90,613) -- Accounts payable 164,360 (398,948) Accrued expenses 21,251 -- Accruals and other payable-Third Party (710,835) (790,089) Taxes payable (169,093) (397,601) Net cash used in operating activities (135,492) (501,650) Cash flows from investing activities Addition of construction in progress (2,857,106) (960,375) Addition of fixed assets (1,110,147) (97,692) Payments made to acquire subsidiary (1,838,946) -- Acquisition of an associated company -- 483,512 Net cash used in investing activities (5,806,199) (574,555) Cash flows from financing activities Repayment of cash advanced from director -- (210,711) Issued preferred stock 4,752,140 9,000,000 Payment of offering costs associated with preferred stock -- (1,507,144) Contribution from former non-controlling interest 439,060 -- Loan from related parties 24,279 -- Net cash flows provided by financing activities 5,215,479 7,282,145 Effect of exchange rate changes in cash (7,393) (1,308,366) Net increase (decrease) in cash (733,605) 4,897,574 Cash - beginning of year 5,612,356 2,311,028 Cash - end of year $4,878,751 $7,208,602 Supplemental disclosure of cash flow information: Interest paid in cash $4,370 $-- Income taxes paid in cash $522,594 $-- Supplemental disclosure of non-cash investing and financing activities: Accrued dividend of preferred stock $550,946 $-- For more information, please contact: Company Contact: Eric Yu, Chief Financial Officer Email: Web: http://www.cnegc.com/ Investor Relations Contact: CCG Investor Relations Mr. Athan Dounis, Account Manager Phone: +1-646-213-1916 Email: Mr. Crocker Coulson, President Phone: +1-646-213-1915 (New York) Email: Web: http://www.ccgirasia.com/ DATASOURCE: China New Energy Group Company CONTACT: Company Contact, Eric Yu, Chief Financial Officer, ; or Investor Relations Contacts at CCG Investor Relations, Mr. Athan Dounis, Account Manager, +1-646-213-1916, or , or Mr. Crocker Coulson, President, +1-646-213-1915 (New York), or , for CNER Web Site: http://www.cnegc.com/

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CNER China New Energy Group Company (PK)