WEB NEWS Comments & Business Outlook
Nine Months Ended
September 30,
2011
2010
2011
2010
REVENUES :
Phthalic anhydride production line
$ 6,565,670 $ 9,644,787 $ 22,453,415 $ 26,169,640
Aleic anhydride production line
23,147,074 8,038,603 53,870,692 21,022,576
Sales of steam to a related party
744,215 1,382,511 2,276,467 4,539,200
TOTAL REVENUES
30,456,959 19,065,901 78,600,574 51,731,416
COST OF GOODS SOLD
23,722,927 14,938,547 63,296,542 41,188,906
GROSS PROFIT
6,734,032 4,127,354 15,304,032 10,542,510
General and administrative expenses
614,698 348,420 1,704,818 966,770
Selling and distribution expenses
3,274 2,980 24,973 8,286
INCOME FROM OPERATIONS
6,116,060 3,775,954 13,574,241 9,567,454
OTHER INCOME (EXPENSES)
Lease income from a related party, net
- 713,564 - 2,136,161
Lease income, net
825,643 - 2,444,481 -
Interest expense, net
(758,258 ) (689,710 ) (2,704,368 ) (1,481,236 )
Other income, net
113,785 6,236 402,016 1,106
INCOME BEFORE INCOME TAXES
6,297,230 3,806,044 13,716,370 10,223,485
INCOME TAX EXPENSE
(928,010 ) (403,445 ) (1,958,263 ) (1,184,237 )
NET INCOME
5,369,220 3,402,599 11,758,107 9,039,248
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain
7,507,308 938,679 2,878,869 1,220,932
COMPREHENSIVE INCOME
$ 12,876,528 $ 4,341,278 $ 14,636,976 $ 10,260,180
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
30,015,000 19,867,000 30,015,000 19,867,000
NET INCOME PER SHARE BASIC AND DILUTED
$ 0.18 $ 0.17 $ 0.39 $ 0.45
CFO Trail
On August 5, 2011, the Board of Directors of the Company
accepted the resignation of
Mr. Huge and approved the appointment of Bin Li, currently the Company’s Chief Accounting Officer, as the
new Chief Financial Officer for the Company to replace Mr. Huge, effective immediately. Ms. Li will serve as Chief Financial Officer until the earlier of her resignation, dismissal, death or when her successor is duly elected and qualified.
Investor Alert
On November 5, 2011, China Chemical Corp. (the “Company”) received the resignation of Doug Cole, a director of the Company, the Chairman of the Compensation Committee, a member of the Audit Committee and the Nominating Committee of the Company, effective immediately.
In his resignation notice, Mr. Cole indicated that his decision is occasioned by (i) his discomfort with the substance and disclosure regarding the transaction described in that certain Form 13-E filed October 17, 2011 and related proxy filed October 14, 2011 by the Company with the U.S. Securities and Exchange Commission (the “SEC”), (ii) the lack of responsiveness to his inquiries from the Company regarding such matters and (iii) the Company’s failure to provide him with the funds to engage counsel that he views as independent to advise on such matters.
Investor Alert
Investor Alert
ZIBO CITY, China – (October 14, 2011 ) -- China Chemical Corp . (OTCBB: CHCC) ("China Chemical" or the "Company"), a manufacturer of organic chemicals, today announced that it has entered into a definitive merger agreement under which it will be merged with a subsidiary of New Source Holding Co., Ltd. (“NSH”), an entity created by certain stockholders of CHCC (the “Contributing Stockholders”). All outstanding shares of CHCC common stock not owned by CHCC, the Contributing Stockholders or certain other stockholders whose shares are subject to litigation in China between Zibo Jiazhou Chemical Co., Ltd., a related party of the Company, against PAMCO Management, Ltd. (“PAMCO”) and its Chairman (the “PAMCO Litigation”), will be converted into the right to receive $1.50 in cash per share. The Contributing Stockholders currently own approximately 79.15% of the outstanding shares of CHCC common stock. The cash consideration represents a 2,500% premium to the Company's closing share price on October 11, 2011, the last trading day prior to the date the merger agreement was entered into and a greater than 1,666% premium to the Company's closing share price on October 13, 2011, the last trading day prior to today's announcement of the execution of a definitive merger agreement.
The transaction was unanimously approved by the board of directors of CHCC. Rockwell Global Capital, LLC acted as financial advisor and McKenna Long & Aldridge LLP acted as legal counsel to the CHCC board of directors.
The transaction is subject to customary closing conditions, including the condition that a majority of the outstanding shares of CHCC common stock vote in favor of the adoption of the merger agreement. The Contributing Stockholders have agreed to vote the shares of CHCC common stock that they own in favor of the merger agreement. The transaction is not subject to any financing contingency.
The transaction is expected to close during the fourth quarter of 2011, subject to the review and clearance of required filings by the Securities Exchange Commission ("SEC"). The preliminary proxy statement was filed with the SEC on October 14, 2011.
The PAMCO Litigation
The Company previously engaged PAMCO as financial advisor, in connection with the Company’s share exchange and related transactions in September, 2010. The Company delivered cash and shares of its common stock to PAMCO as consideration for certain specified services, although the Company did not receive some of those services. After the Company’s unsuccessful attempts to resolve this issue with PAMCO and Po Sun Liu, PAMCO’s Chairman, the Company initiated the PAMCO Litigation in Shandong Province, PRC on September 22, 2011. Through the PAMCO Litigation, the Company seeks the return of $1.8 million cash paid to PAMCO, and either (i) the return to the Company for cancellation of 6 million shares of its common stock (the “Litigation Shares”) received by PAMCO or (ii) payment in the amount of $9 million for such shares. The Company will not make payment with respect to any of these shares until and unless it is determined upon the conclusion of this litigation that the shares in question are properly held by the parties who presently hold them. The Litigation Shares and the shares owned by the Contributing Stockholders account for over 99% of the shares of the Company currently outstanding. The stockholders are, therefore, urged to be certain of the source of their shares and prospective buyers of shares should confirm that the shares they are considering purchasing are not Litigation Shares. Since becoming a public company, other than the shares issued prior to the Company’s share exchange in 2010, since the share exchange, the Company has not conducted any offering of shares of its common stock and has not issued or sold any shares of its common stock. Consequently, shares available for purchase or trading by the public have entered the market principally as a result of re-sales by PAMCO or its affiliates of Litigation Shares and may be shares for which the Company seeks cancellation.
Going Private News
Agreement and Plan of Merger :
On October 12, 2011, China Chemical Corp. (“CHCC” or the “Company”), a Delaware corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with New Source Holding Co., Ltd. (“Parent”), a Delaware corporation, and CHCC Acquisition Co., Inc. (“Merger Sub”), a Delaware corporation and a wholly owned subsidiary of Parent, providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent.
The Merger:
Pursuant to the Merger Agreement, at the effective time of the Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time (other than (i) shares owned by the Company, any subsidiary of the Company, Parent or Merger Sub, including shares to be contributed to Parent or Merger Sub by certain current stockholders of the Company (collectively, the “Contributing Parties”) pursuant to the Support and Contribution Agreement (as defined below) immediately prior to the effective time of the Merger, (ii) shares owned by shareholders who have properly exercised and perfected appraisal rights under Delaware law and (iii) 6 million shares initially issued by the Company in exchange for services to have been provided by PAMCO Management, Ltd., which shares are currently subject to litigation filed on September 22, 2011, in a court in Shandong Province, PRC by Zibo Jiazhou Chemical Co., Ltd., a related party of the Company’s, against PAMCO Management, Ltd. and Po Sun Liu) will be converted automatically into the right to receive $1.50 in cash, without interest.
Investor Presentations
On June 22, 2011, the Company made a
presentation to investors at the RedChip Small-Cap Equities Virtual Conference VIII.
Comments & Business Outlook
First Quarter Results :
Revenues for the three months ended March 31, 2011 increased by 9.8% year-over-year to $18.4 million, up from $16.8 million in the first quarter of 2010.
Gross profit for the first quarter was $3.8 million, a decrease of 16.1% as compared to $4.5 million in 2010. Gross margin was 20.4% and 26.7% for the three months ended March 31, 2011 and 2010, respectively.
Operating income decreased 21.7% year-over-year to $3.3 million, as compared to $4.2 million in the first quarter of 2010.
Net income after tax for the three months ended March 31, 2011 was $3.2 million, a decrease of 18.9% as compared to $4.0 million for the same period in 2010.
Earnings per basic and diluted share were $0.11 for the first quarter of 2011, compared with basic and diluted earnings per share of $0.20 in the first quarter of 2010.
China Chemical's Chairman and CEO, Mr. Lu Feng, stated, "Although fluctuations in raw material prices impacted our bottom line during the first quarter, sales of MAH, our most profitable product, increased nearly 48% from the same period in 2010 ."
Mr. Feng continued, "Going forward, we will continue to focus on ramping up production at our new MAH plant and making progress on the construction of our 50,000-ton 1,4-butanediol ("BDO") facility. Our new MAH facility became operational during the first quarter, doubling our MAH production capacity to 60,000 tons per year and providing us with a significant regional competitive advantage. We are continually purchasing equipment to support the construction of the BDO facility, which is due to begin operations at the beginning of 2013. BDO is used in a wide variety of consumer goods, and by moving into the production of this higher-margin product, we will be well-positioned to expand our customer base and benefit from the continued robust demand for chemical products in China. We remain very optimistic about our long-term growth prospects."
Liquidity Requirements
The Company has a working capital deficit of
$17,730,782 at December 31, 2010. This was principally due to the Company used cash of approximately $33 million to purchase property, plant and equipment and construction in progress during 2010. The Company currently generates its cash flow through operating profit and obtaining debt. The Company had a net profit of $13,720,708 for the year ended December 31, 2010. As of the date of this report, the Company has not experienced any liquidity problems in settling payables in the normal course of business and repaying the bank loans when they become due. To improve liquidity, the Company may explore new expansion opportunities and funding sources from which the management may consider seeking external funding and financing. We believe the Company has sufficient cash to
sustain operations for the next twelve months.
Comments & Business Outlook
CHINA CHEMICAL CORP.
(FORMERLY BOMPS MINING, INC.) AND SUBSIDIARIES
2010
2009
(Consolidated)
REVENUES
$ 75,673,839 $ 56,920,742
COST OF GOODS SOLD
58,689,379 46,030,417
GROSS PROFIT
16,984,460 10,890,325
General and administrative
1,635,294 1,325,743
Selling and distribution
29,236 11,725
INCOME FROM OPERATIONS
15,319,930 9,552,857
OTHER INCOME (EXPENSES)
Lease income from a related party, net
2,868,505 3,261,702
Interest expense, net
(2,529,972 ) (1,398,369 )
Other expenses, net
(52,264 ) (484 )
INCOME BEFORE INCOME TAXES
15,606,199 11,415,706
INCOME TAX EXPENSE
(1,885,491 ) (1,410,314 )
NET INCOME
13,720,708 10,005,392
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain
2,314,734 15,380
COMPREHENSIVE INCOME
$ 16,035,442 $ 10,020,772
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
22,423,126 19,861,700
NET INCOME PER SHARE, BASIC AND DILUTED
$ 0.61 $ 0.50
Fourth Quarter Financial Highlights
Revenues for the three months ended December 31, 2010 increased by 38.7% year-over-year to $23.9 million, up from $17.3 million in the fourth quarter of 2009.
Gross profit for the fourth quarter was $6.4 million, an increase of 52.2% as compared to $4.2 million in 2009. Gross margin was 26.9% and 24.5% for the three months ended December 31, 2010 and 2009, respectively.
Operating income increased 51.8% year-over-year to $5.8 million, as compared to $3.8 million in the fourth quarter of 2009.
Net income after tax for the three months ended December 31, 2010 was $4.7 million, an increase of 27.9% as compared to $3.7 million for the same period in 2009.
Earnings per basic and diluted share were $0.16 for the fourth quarter of 2010, compared with basic and diluted EPS of $0.18 in the fourth quarter of 2009.
China Chemical's Chairman and CEO, Mr. Lu Feng, stated, "2010 was an exciting year for China Chemical, as we entered the U.S. capital markets and reached a milestone in our expansion strategy by completing our new 30,000-ton maleic anhydride facility. The new facility doubled our production capacity of MAH, our most profitable product, and our average selling price for MAH rose 48.6% in 2010 due to strong market demand, which also boosted revenue and gross profit. We achieved strong organic growth this year, with both top- and bottom-line growth well above 30% and a sales mix increase in MAH from 30% to more than 35% of total sales."
"Looking forward," Mr. Lu continued, "our outlook for 2011 is equally optimistic, as we will benefit from the revenue contribution of the new MAH plant, which became fully operational in January 2011. Progress on our 50,000-ton 1,4-butanediol facility remains on track following the beginning of site development in late 2010. Following its completion in 2013, we will be able to supply all of the plant's MAH feedstock needs internally thanks to our new MAH expansion facility. We are very confident in our ability to achieve strong sustained growth and profitability for the next several years."
Deal Flow
We may offer and sell, from time to time in one or more offerings , any combination of common stock, debt securities, warrants, or units having a maximum aggregate offering price of $30,000,000. When we decide to sell a particular class or series of securities, we will provide specific terms of the offered securities in a prospectus supplement.
Except as otherwise provided in the applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities covered by this prospectus for general corporate purposes, which may include, but is not limited to, working capital, capital expenditures, research and development expenditures and acquisitions of new technologies or businesses.
Reverse Merger Activity
On September 30, 2010 China Chemical became a public entity via a
reverse merger transaction.
Company Snapshot:
A manufacturer of organic chemical compounds
Chemical’s facilities currently have the capacity to produce 30,000 tons/year of maleic anhydride and 50,000 tons/year of phthalic anhydride. In October 2009, construction began on an additional 30,000 tons/year maleic anhydride production line which is expected to be operational in October, 2010. Construction is expected to begin on a 50,000 tons/year of 1,4-butanediol co-generation facility in October 2010 .
Post Merger Share Calculation :
4,000,000: Pre reverse merger outstanding shares
36,000,000: Dividend shares (9 shares of common stock for each 1).
30,000,000: Shares cancelled as part of the Share Exchange
19,861,700: Newly issued shares of Common Stock
100,000: Shares issued to its investor relations firm
38,300: Micellaneous
GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions: 30,000,000
Financial Snapshot:
The Company’s revenue for the year ended December 31, 2009 was $56,920,742, which represented an increase of 24.23% from the same period in the prior year.
The Company’s revenue for the six months ended June 30, 2010 was $32,488,555, which represented an increase of 40% from the same period in the prior year.
Net profit for the year ended December 31, 2009 increased to $10,005,392 from $5,329,152 in 2008.
Net profit for the six months ended June 30, 2010 increased to $5,888,603 from $ 2,789,043 in 2008.
Liquidity Requirements
The Company has a working capital deficit of $5,004,059 at June 30, 2010. This was principally due to the Company paid deposit to a related party for a land use right and fixed assets. The Company currently generates its cash flow through operating profit, and the Company had a net profit of $10,005,392 for the year ended December 31, 2009. As of the date of this report, the Company has not experienced any liquidity problems in settling payables in the normal course of business and repaying the bank loans when they become due. To improve liquidity, the Company may explore new expansion opportunities and funding sources from which the management may consider seeking external funding and financing. We believe the Company has sufficient cash to sustain operations for the next twelve months.
