China Carbon Graphite Group Reports Second Quarter 2013 Financial Results

Sales: For the three months ended June 30, 2013, sales decreased by $9.16 million, or 77.1%, to $2.71 million from $11.88 million for the second quarter of 2012. The decrease in sales was mainly due to industry-wide demand weakness for our products as a result of continued struggles of steel manufacturers. Demand for our fine grain graphite and high purity graphite products was particularly weak during the second quarter with sales decreasing 82.7% and 99.7% to $0.92 million and $0.01 million, respectively. Sales of graphite electrodes increased 5.5% to $1.58 million while sales of semi-processed and other types of products grew 19.9% to $0.20 million.

Gross Income (Loss): Gross profit for the second quarter of 2013 was ($1.03) million, compared to gross profit of $2.89 million for the same period of last year. Gross margin decreased to (38.1%) for the second quarter of 2013 from 24.4% for the same period of last year. The decrease in gross margin was mainly due to increased percentage of low margin product sales, increased depreciation allocated to the cost of goods sold due to the transfer of construction in progress to property and equipment since the end of 2012, and increased fixed cost allocation as a result of decreased production volume.

Operating Income (Loss):

Selling Expenses:

Selling expenses decreased by 31.8% to $0.03 million for the second quarter of 2013 from $0.02 million for the same period of last year. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the three months ended June 30, 2013 as compared to the three months ended June 30, 2012, which was resulted from lower sales.

General and Administrative Expenses:

General and administrative expenses increased by $6.23 million, or 532.4%, to $7.40 million for the second quarter of 2013 from $1.17 million for the same period of last year. The increase in general and administrative expenses was mainly due to increased consulting expenses and increased inventory impairment expenses for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses increased by $0.19 million, or 33.3%, to $0.74 million for the second quarter of 2013 from $0.56 million for the same period of last year. The increase in depreciation and amortization expenses was due to additional fixed assets placed in service.

Operating expenses totaled $7.47 million for the second quarter of 2013, compared to $1.25 million for the same period of 2012, an increase of $6.23 million, or 499.6%. Operating income decreased by $10.15 million, or 616.9%, to ($8.51) million for the second quarter of 2013 from $1.65 million for the same period of last year.  As a result of the factors described above, operating income (loss) margin was (313.4%) for the second quarter of 3013, compared to 13.9% for the second quarter of last year.

Net Income (Loss): Net loss available to common stockholders was ($9.45) million, or ($0.37) per diluted share, for the second quarter of 2013, compared to net income available to common stockholders of $0.87 million, or $0.04 per diluted share, for the second quarter of 2012.

Six Months Ended June 30, 2013 Financial Results

Sales: For the six months ended June 30, 2013, sales decreased by $16.16 million, or 73.7%, to $5.78 million from $21.94 million for same period of last year. The decrease in sales was mainly due to industry-wide demand weakness for our products as a result of continued struggles of steel manufacturers. Demand for our fine grain graphite and high purity graphite products was particularly weak for the six months ended June 30, 2013 with sales decreasing 76.1% and 83.7% to $2.33 million and $1.51 million, respectively. Sales of graphite electrodes also decreased by 37.2% to $1.66 million.  Sales of semi-processed and other types of products grew 16.1% to $0.30 million.

Gross Income (Loss): Gross profit (loss) for the six months ended June 30, 2013 was ($1.29) million, compared to gross profit of $5.81 million for the same period of last year. Gross margin decreased to (22.4%) for the six months ended June 30, 2013 from 26.5% for the same period of last year. The decrease in gross margin was mainly due to increased percentage of low margin product sales, increased depreciation allocated to the cost of goods sold due to the transfer of construction in progress to property and equipment since the end of 2012, and increased fixed cost allocation as a result of decreased production volume.

Operating Income (Loss):

Selling Expenses:

Selling expenses decreased by $0.04 million, or 50.2%, to $0.04 million for the six months ended June 30, 2013 from $0.08 million for the same period of last year. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the six months ended June 30, 2013 as compared to the same period of last year, which resulted from lower sales.

General and Administrative Expenses:

General and administrative expenses increased by $5.76 million, or 285.1%, to $7.79 million for the six months ended June 30, 2013 from $2.02 million for the same period of last year. The increase in general and administrative expenses was mainly due to increased consulting expenses and increased inventory impairment expenses for the six months ended June 30, 2013 compared to the same period of last year.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses increased by $0.04 million, or 2.58%, to $1.40 million for the six months ended June 30, 2013 from $1.36 million for the same period of last year. The increase in depreciation and amortization expenses was due to additional fixed assets placed in service.

Operating expenses totaled $7.94 million for the six months ended June 30, 2013, compared to $2.20 million for the same period of last year, an increase of $5.74 million, or 260.8%. Operating income decreased by $12.85 million, or 356.0%, to ($9.24) million for the six months ended June 30, 2013 from $3.61 million for the same period of last year.  As a result of the factors described above, operating income (loss) margin was (159.9%) for the six months ended June 30, 2013, compared to 16.4% for the same period of last year.

Net Income (Loss): Net loss available to common stockholders was ($10.96) million, or ($0.43) per diluted share, for the six months ended June 30, 2013, compared to net income available to common stockholders of $1.11 million, or $0.05 per diluted share, for the same period of 2012.

Financial Position  

As of June 30, 2013, the Company had cash and cash equivalents of $0.36 million, restricted cash of $27.37 million, and short-term bank loans of  $45.78 million. Net cash used in operating activities was ($5.23) million for the six months ended June 30, 2013, compared to net cash provided by operating activities of $1.83 million for the same period of last year.

About China Carbon Graphite Group, Inc.

China Carbon Graphite Group, through its affiliate, Xingyong Carbon Co., Ltd., manufactures graphite and carbon based products in China. The company is the largest wholesale supplier of fine-grain and high-purity graphite in China and one of the nation's top overall producers of carbon and graphite products. Fine grain graphite is widely used in smelting for colored metals and rare earth metal smelting as well as the manufacture of molds. High purity graphite is used in metallurgy, mechanical industry, aviation, electronic, atomic energy, chemical industry, food industry and a variety of other fields. In September 2007, the Company was approved and designated by the Ministry of Science & Technology as a "National Hi-tech Enterprise," a distinction that the Company still holds. Of the more than 400 carbon graphite producers in China, China Carbon Group Inc. is the only non-state-owned company to receive this honor. For more information, please visit http://www.chinacarboninc.com.

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