ZHEJIANG, China, May 26, 2011 /PRNewswire-Asia/ -- Lizhan
Environmental Corporation ("Lizhan" or the "Company") (Nasdaq:
LZEN), one of China's leading
manufacturers of eco-friendly fabrics made from patented
technologies, announced today its three- and six-month results for
the fiscal second quarter of 2011 ended March 31, 2011.
Six months Ended March
31, 2011 Financial Results (Unaudited)
Net Sales
Net sales for the six months ended March
31, 2011 was $16.7 million, a
decrease of approximately 25% from $22.4
million in 2009. Sales of recycled leather flocked
fabric sales decreased by 26% to $11.9
million. Sales in the first half of fiscal 2011 were
negatively impacted by a shutdown of production mandated by the
local government to review and repair the steam supply systems
during the second quarter. Sales of the lower margin ultrasuede
leather products decreased by 31% to $3.8
million due to management's ongoing efforts to reallocate
capital to its higher margin businesses.
"Production during the three-month and six-month periods was
impacted by a steam supply suspension in Tongxiang City for
citywide machinery maintenance during the end of January and
February," explained Chairman and Chief Executive Officer
Jianfeng Liu. "The impact of this
suspension, along with temporary disruptions from transitioning
some of our outsourced production, was responsible for the sales
decrease during the quarter ended March 31,
2011. While we are not pleased with these results, we
believe we are making meaningful progress toward our long term
objectives. We know that consistency in our sales and operating
performance is important and we firmly believe our assets and
technologies position us well to deliver on those objectives."
Management anticipates production of recycled leather flocked
fabric normalizing during the third and fourth fiscal quarters.
Gross Profit and Gross Profit Margin
Gross profit for the six months ended March 31, 2011 decreased 25% to $4.3 million, from $5.7
million for the six months ended March 31, 2010. Gross margin was 26% for
both periods as a favorable shift to higher margin products was
offset by lower plant utilization.
General and Administrative Expenses
General and administrative expenses totaled $2.1 million for the six months ended
March 31, 2011 from $0.8 million for the six months ended
March 31, 2010, an increase of
156.5%. The increase was attributed to the increasing professional
service fee of $0.3 million and staff
expenses to operate as a public company since Lizhan became public
in late 2010, as well as a one-time cost of $0.6 million to establish our operating
subsidiary, Hongzhan. These expenses were not incurred in the prior
year period.
Selling and Marketing Expenses
Selling and marketing expenses increased 97% to $0.5 million for the six months ended
March 31, 2011, commensurate with
increased advertising, promotion and marketing activities.
Management expects advertising and marketing investments will lead
to higher sales and brand recognition over time.
Net Income
Net income decreased 59% to $1.8
million for the six months ended March 31, 2011 as compared to approximately
$4.5 million for the six months ended
March 31, 2010. The fully diluted
earnings per share were $0.15 and
$0.40 in the first six months of 2011
and 2010, respectively.
Three months Ended March 31,
2011 Financial Results (Unaudited)
Net Sales for the three months ended March 31, 2011 decreased 48% to $5.9 million. Sales of our recycled fabrics
dropped from $10.4 million in the
second quarter of 2010 to $4 million
in the same period this year due to management's decision to only
take on profitable orders in light of the significant increase in
raw materials costs. The Company generated $1.6 million of revenue from its ultrasuede
leather products, up 216% from the same period last year.
After renegotiating with customers in April and May for higher
pricing to reflect the higher cost production costs, sales of the
Company's recycled fabrics has rebounded.
Gross profit declined 60% to $1.2
million with gross margins of 20% compared to 26% in the
year ago period due to lower plant utilization and higher raw
materials costs. The average capacity utilization was approximately
40% in the second quarter of 2011 compared to 70% in the same
period last year. Net loss was $0.3
million or $0.03 per share,
compared to a net profit of $2.2
million and $0.19 in earnings
per share for the second quarter of fiscal 2010.
Total backlog was approximately 1.8 million meters at the end of
the second quarter, equal to approximately $6.9 million based on current market prices.
Mr. Liu continued, "We have already started producing Evergreen
Products on a limited basis and expect to book revenues from our
first Evergreen Product line in the upcoming quarter. In
addition, once we complete testing of the new equipment, we believe
we can ramp production of our Evergreen Products in subsequent
quarters. We have several orders in hand and expect to begin
shipping products to select clients in June."
Balance Sheet and Cash Flow Statement
As of March 31, 2011, the Company
had $2.1 million in cash and cash
equivalents. The Company used $5.7
million of cash from operating activities in the six months
ended March 31, 2011, compared to
$2.1 million cash provided by
operating activities in the six months ended March 31, 2010, primarily due to the increased
cost of raw materials and a prepaid rent of $2.1 million for the Evergreen facilities.
Business Updates
Lizhan's production and sales during the three and six months
ended March 31, 2011 were negatively
impacted by several one-time disruptions. All of the disruptions
have been resolved and the Company has resumed normal operations.
The Company generated sales of approximately $4.2 million in April
2011.
First, the Tongxiang Environmental Thermoelectricity Co., Ltd.
in Tongxiang City completely shut down its steam production from
January 20th to February 12th, 2011
to complete maintenance of its equipment. This mandatory
maintenance, which occurs every three or four years at the local
government's discretion, was the primary reason for the approximate
25% reduction of the Company's total production. Steam production
has returned to normal since Tongxiang Environmental
Thermoelectricity Co., Ltd completed its repairs in February 13th, 2011.
The Company decided to reduce the amount of outsourced
production during the second quarter of 2011 due to rising costs of
outsourced manufacturing. In the second quarter of 2010, Lizhan
outsourced approximately 30% of its production in order to fill
excess demand for its products. Due to rising labor and commodity
costs, outsourcing no longer generated acceptable returns. However,
the Company experienced some short-term production and sales
disruptions while it transitioned the manufacturing back in-house.
Since completing the conversion in March
2011, the Company has resumed normal production.
Evergreen Products
One component of Lizhan's growth strategy is to produce and sell
a high quality, environmentally friendly recycled leather product –
Evergreen Products – using proprietary production technologies. The
Company owns two patents and one patent application relating to the
Evergreen Products and has an exclusive license from the Company's
Chief Scientist Liwen Zhang for 18
patents (including one Chinese patent and 17 international patents)
and eight international patent applications, relating to the
technologies that are critical to the processing of the Evergreen
Products. The primary advantages of Evergreen Products are
abundance and low cost of raw materials; value-added finished
products that can replace genuine leather at less than half the
cost; and no harmful waste produced during the manufacturing
process. These products will initially be sold to customers in the
automotive and furniture industries.
The Company is finalizing the construction and testing of its
initial Evergreen Products production line – Line 1. Because no
such equipment currently exists on the market, Lizhan needed to
make modifications to the equipment purchased from a US vendor.
Once it completes the installation and testing of the water
treatment equipment, Lizhan will commence volume production.
Management believes it will gradually ramp production in Line 1
starting in June from 3,000 meters per day to 5,000 meters per day
by the fiscal fourth quarter of 2011.
Power Rationing
The local government has informed Lizhan that all businesses in
Tongxiang city will be subject to electricity restrictions from
approximately three to four months this summer. The Company
is preparing to mitigate the potential disruption by purchasing
three backup power generators and securing additional diesel
supplies. Based on information available today, Management does not
anticipate a meaningful impact on overall production as a result of
the upcoming power restrictions. However, the full extent of the
restrictions is not known at this time and margins may be impacted
if the Company is not able to fully offset the higher anticipated
electricity costs through higher prices.
About Lizhan Environmental Corporation
Lizhan Environmental Corporation is one of China's leading manufacturers of eco-friendly
fabrics whose products are developed with patented technology that
regenerates collagen fiber from leftover cuttings, pieces and
trimmings of genuine leather. The Company's products are mainly
used in furniture, garments and other consumer applications. For
more information about Lizhan Environmental Corporation, please
visit www.lzencorp.com.
Safe Harbor Statements
This press release may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and as defined in the U.S. Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve
inherent risks and uncertainties that could cause actual results to
differ materially from those projected or anticipated, including
risks outlined in the Company's public filings with
the Securities and Exchange Commission, including the
Company's annual report on
20F, as amended. Some of risks inherent in an investment
in our company include, but are not limited to, our limited
operation history, our need to maintain sufficient levels of
liquidity and working capitals, the potential need to reduce our
expansion plans, price inflation in the PRC, difficulties in
developing and selling our new Evergreen Products, seasonal
patterns in our business, protection of our intellectual property
and the risk of infringing the intellectual property of others,
customer decisions to discontinue purchasing our products, and
restrictions imposed by Chinese regulations, including every
policies. All information provided in this press release is
as of February 1 2011. Except as
required by law, the Company undertakes no obligation to update or
revise publicly any forward-looking statements, whether as a result
of new information, future events or otherwise, after the date on
which the statements are made or to reflect the occurrence of
unanticipated events.
Contacts:
|
|
Company:
|
|
Lizhan Environmental
Corporation
|
|
Silvia Liu, Investor
Relations Manager
|
|
Email: ir@lezncorp.com
|
|
Phone:
+011-86-573-8862-268
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|
|
|
Investor
Relations:
|
|
HC International,
Inc.
|
|
Ted Haberfield, Executive
Vice President
|
|
Email: thaberfield@hcinternational.net
|
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Phone:
+1-760-755-2716
|
|
|
Financial Tables to Follow:
|
|
LIZHAN
ENVIRONMENTAL CORPORATION
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
( IN US
DOLLARS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
September 30, 2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
|
$2,056,389
|
|
$2,597,366
|
|
Restricted cash
|
|
|
2,382,299
|
|
1,072,416
|
|
Accounts receivable, net
|
|
|
6,338,146
|
|
7,310,194
|
|
Inventories
|
|
|
10,454,683
|
|
4,666,496
|
|
Amounts due from directors
|
|
|
1,527
|
|
1,497
|
|
Value added tax receivable
|
|
|
786,787
|
|
37,586
|
|
Prepaid expenses and other current assets
|
|
|
2,375,097
|
|
2,442,120
|
|
Total current assets
|
|
|
$24,394,928
|
|
$18,127,675
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
29,664,277
|
|
12,906,655
|
|
Land use rights
|
|
|
1,655,230
|
|
1,638,248
|
|
Intangible assets, net
|
|
|
612,083
|
|
628,333
|
|
Deposits for plant and equipment
|
|
|
1,250,557
|
|
11,385,603
|
|
Security deposit and prepaid rent
|
|
|
2,177,384
|
|
-
|
|
Total other assets
|
|
|
35,359,531
|
|
26,558,839
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$59,754,459
|
|
$44,686,514
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
|
$8,978,265
|
|
$8,158,461
|
|
Bank acceptance notes payable
|
|
|
4,617,992
|
|
2,144,832
|
|
Short-term loans
|
|
|
7,330,147
|
|
13,676,108
|
|
Accrued expenses and other payables
|
|
|
643,671
|
|
1,251,849
|
|
Payable for construction of building and machinery
|
|
|
87,206
|
|
297,153
|
|
Income taxes payable
|
|
|
199,827
|
|
702,713
|
|
Deferred income
|
|
|
-
|
|
110,106
|
|
Total current liabilities
|
|
|
$21,857,108
|
|
$26,341,222
|
|
Long-term loans
|
|
|
9,697,173
|
|
-
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
31,554,281
|
|
26,341,222
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
Common stock, $0.32 par; 31,250,000 shares authorized, 13,643,750
|
|
|
|
|
|
shares and 11,143,750 shares issued and outstanding as at March 31,
|
|
|
|
|
|
2011 and September 30, 2010, respectively
|
|
|
$4,366,000
|
|
3,566,000
|
|
Additional paid-in capital
|
|
|
7,665,752
|
|
924,000
|
|
Statutory reserves
|
|
|
1,517,590
|
|
1,289,475
|
|
Retained earnings
|
|
|
12,715,015
|
|
11,053,506
|
|
Accumulated other comprehensive income
|
|
|
1,382,553
|
|
888,532
|
|
Total Lizhan stockholders' equity
|
|
|
27,646,910
|
|
17,721,513
|
|
|
|
|
|
|
|
|
Less: Non-controlling interest
|
|
|
553,268
|
|
623,779
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
28,200,178
|
|
18,345,292
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
|
59,754,459
|
|
44,686,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIZHAN
ENVIRONMENTAL CORPORATION
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
(UNAUDITED)
|
|
( IN US
DOLLARS)
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
|
Ended March 31,
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
|
$16,718,332
|
|
$22,423,365
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
12,448,030
|
|
16,708,651
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,270,302
|
|
5,714,714
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
General and administrative
expenses
|
|
|
$(2,048,333)
|
|
(798,472)
|
|
Research and development
expenses
|
|
|
(32,203)
|
|
(101,051)
|
|
Selling and marketing
expenses
|
|
|
(472,037)
|
|
(240,277)
|
|
Total operating
expenses
|
|
|
(2,552,573)
|
|
(1,139,800)
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,717,729
|
|
4,574,914
|
|
|
|
|
|
|
|
|
Other income
(expenses):
|
|
|
|
|
|
|
Other income
|
|
|
733,151
|
|
345,299
|
|
Exchange loss
|
|
|
(86,253)
|
|
(14,091)
|
|
Interest income
|
|
|
6,850
|
|
14,531
|
|
Interest
expense
|
|
|
(73,581)
|
|
(88,068)
|
|
Other expenses,
net
|
|
|
(155,066)
|
|
(38,050)
|
|
Total other income,
net
|
|
|
425,101
|
|
219,621
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
|
2,142,830
|
|
4,794,535
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
|
(335,522)
|
|
(338,586)
|
|
|
|
|
|
|
|
|
Net income before
allocation of non-controlling interest
|
|
|
1,807,308
|
|
4,445,585
|
|
|
|
|
|
|
|
|
Net loss attributable to
non-controlling interest
|
|
|
82,316
|
|
9,131
|
|
|
|
|
|
|
|
|
Net income
attributable to the stockholders
|
|
|
1,889,624
|
|
4,465,080
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
494,021
|
|
2,982
|
|
|
|
|
|
|
|
|
Less: Foreign currency
translation adjustments attributable to
|
|
|
|
|
|
|
non-controlling
interest
|
|
|
(11,805)
|
|
(9,277)
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
2,371,840
|
|
4,458,785
|
|
|
|
|
|
|
|
|
Earnings per
common share
|
|
|
|
|
|
|
- Basic and fully
diluted
|
|
|
$0.15
|
|
$0.40
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
|
|
|
|
|
|
|
- Basic and fully
diluted
|
|
|
12,980,767
|
|
11,025,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIZHAN
ENVIRONMENTAL CORPORATION
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(UNAUDITED)
|
|
(IN US
DOLLARS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
|
|
|
|
|
|
Ended March 31,
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$1,807,308
|
|
$4,445,585
|
|
Add net loss attributable
to non-controlling interest
|
|
|
82,316
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
the Stockholders
|
|
|
1,889,624
|
|
4,445,585
|
|
Adjustments
to reconcile net income to net cash (used in) /
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation of property,
plant and equipment
|
|
|
353,229
|
|
328,303
|
|
Amortization
of intangible assets
|
|
|
|
16,291
|
|
-
|
|
Amortization of land use
rights
|
|
|
|
18,422
|
|
21,666
|
|
Loss on
disposal
|
|
|
|
|
14,479
|
|
-
|
|
Recognition of noncash
deferred income from exclusive distribution right
|
|
|
|
|
|
|
granted by the
Company to a customer (Note 11)
|
|
|
(111,451)
|
|
(323,288)
|
|
Non-controlling
interest
|
|
|
|
|
(82,316)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
|
1,120,269
|
|
(3,266,680)
|
|
Inventories
|
|
|
|
|
|
(5,633,939)
|
|
(1,574,178)
|
|
Prepaid expenses and other
current assets
|
|
|
71,715
|
|
(1,833,473)
|
|
Accounts
payable
|
|
|
|
|
636,659
|
|
2,779,056
|
|
Accrued expenses and other
payables
|
|
|
|
(173,626)
|
|
684,319
|
|
(Increase) in security
deposit and prepaid rent
|
|
|
(2,157,125)
|
|
-
|
|
Income tax
payable
|
|
|
|
|
(513,325)
|
|
337,749
|
|
Value added tax
receivable
|
|
|
|
|
(527,528)
|
|
-
|
|
Value added tax
payable
|
|
|
|
|
(621,143)
|
|
514,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) / provided by operating activities
|
|
|
(5,699,765)
|
|
2,113,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
(Increase) decrease
in restricted cash
|
|
|
|
(1,274,624)
|
|
473,961
|
|
Acquisition of land
use rights
|
|
|
|
-
|
|
(625,295)
|
|
Proceeds from sale
of property, plant and equipment
|
|
|
6,052
|
|
-
|
|
Payment for
purchase of plant and equipment
|
|
|
(6,631,702)
|
|
(2,862,843)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
used in by investing activities
|
|
|
|
(7,900,274)
|
|
(3,014,177)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOURCE Lizhan Environment Corporation