China Natural Gas Announces Second Quarter 2013 Financial Results

XI'AN, China, Aug. 14, 2013 /PRNewswire / -- China Natural Gas, Inc. ("China Natural Gas" or the "Company") (PINK: CHNG), a leading provider of compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for industrial, commercial and residential use in Xi'an, China, today announced its financial results for the second quarter ended June 30, 2013.

Second Quarter 2013 Results

Revenue in the second quarter of 2013 decreased by 9.6% to $34.2 million from $37.9 million in the second quarter of 2012, driven by the closure of three fueling stations in the second quarter of 2012, three fueling stations in the third quarter of 2012, one fueling station in October 2012, and one fueling station in April 2013 because of changes in market conditions. Sales revenue of natural gas decreased by 9.1% year-over-year to $31.8 million from $34.9 million in the second quarter of 2012. Gasoline revenue in the second quarter of 2013 decreased by 28.2% to $0.5 million, from $0.7 million in the same period of the prior year, mainly because the closure of one gasoline fueling stations during the fourth quarter of 2012. Installation and automobile conversion services revenue decreased by 12.9% year-over-year to $2.0 million, from $2.3 million a year ago. In the second quarter of 2013, sales of natural gas, gasoline, and installation and automobile conversion services contributed 92.7%, 1.5%, and 5.8% of total revenue, respectively.

Gross profit in the second quarter of 2013 decreased 18.7% to $11.2 million from $13.8 million in the same period of the prior year. Gross margin in the second quarter of 2013 was 32.8%, compared to 36.5% a year ago. Gross margin decreased primarily due to the decrease in gross margin for our LNG business.

Operating income in the second quarter of 2013 was $4.0 million, a decrease of 38.6% year-over-year from $6.6 million, primarily attributable to the decrease in gross profit of natural gas from fueling stations and LNG.

Income tax expense was $0.7 million at an effective tax rate of 18.2%, as compared to $1.3 million at an effective tax rate of 19.8% in the second quarter of 2012. The decrease of effective income tax rate was primarily attributable to the reduced income tax rate of 15% enjoyed by JBLNG beginning on January 1, 2013.

Net income in the second quarter of 2013 decreased by 37.4% to $3.2 million or $0.15 per diluted share from $5.1 million or $0.24 per diluted share in the second quarter of 2012.

As of June 30, 2013, the Company had $7.4 million of cash and cash equivalents on hand, compared to $10.9 million of cash and cash equivalents as of December 31, 2012. The decrease was primarily attributable to the construction of pipelines in Shaanxi Province and LNG fueling stations in Hubei Province, and the repayment of the loans from Shanghai Pudong Development Bank.

Net cash provided by operating activities was $10.0 million for the six months ended June 30, 2013, as compared to net cash provided by operations of $18.8 million for the six months ended June 30, 2012. The decrease was primarily due to the increase in advances to suppliers, accounts receivable and other receivable, and adjustments for non-cash expense items.

Conference Call

Management will hold a conference call on Friday, August 16, 2013 at 9:00 a.m. EDT (6:30 a.m. Pacific) to discuss its second quarter results.

To participate in the call please dial 1-800-860-2442, or 1 412-858-4600 for international calls, approximately 10 minutes prior to the scheduled start time.

A replay of the call will be available 1 hour after the end of the conference through End Date on Aug 26, 2013 at 9:00 am EDT. The number for the replay is 1-877-344-7529 or 1-412-317-0088 for international calls；the pass code for the replay is 10032849.

About China Natural Gas, Inc.

China Natural Gas (http://www.naturalgaschina.com) transports and sells natural gas to vehicular fueling terminals, as well as commercial, industrial and residential customers through its distribution networks in China's Shaanxi, Henan and Hubei Provinces. As of June 30, 2013, the Company owns approximately 120 km of high-pressure pipelines and operates 19 CNG fueling stations in Shaanxi Province, 10 CNG fuelling stations in Henan Province and 1 CNG fueling station in Hubei Province. China Natural Gas' five primary business lines include: (1) the distribution and sale of CNG through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles; (2) the installation, distribution and sale of piped natural gas to residential, commercial and industrial customers through Company-owned pipelines; (3) production and sales of LNG through our LNG production facility in Jingbian County, Shaanxi Province，and sales of LNG through our mobile fueling truck; (4) the distribution and sale of gasoline through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles; and (5) the conversion of gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles through its auto conversion division.

SAFE HARBOR: FORWARD-LOOKING STATEMENTS

This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. China Natural Gas, Inc. may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q and 8-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees tofourth parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in the Company's filings with the U.S. Securities and Exchange Commission, including its registration statements on Forms S-1 and S-3, in each case as amended. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

This release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE30, 2013 AND DECEMBER 31, 2012 (Stated in US Dollars)
	June 30, 2013		(Audited) December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,385,901	$	10,857,456
Accounts receivable, net		2,580,664		2,148,379
Other receivables, net		1,005,614		458,605
Employee advances		353,408		399,031
Inventories		2,916,691		2,473,933
Advances to suppliers		9,259,807		4,869,606
Prepaid expense and other current assets		3,009,853		3,541,431
Total current assets		26,511,938		24,748,441

Investment in unconsolidated joint ventures		-		1,587,000
Property and equipment, net		181,454,681		179,515,563
Construction in progress		61,900,042		53,393,933
Goodwill		857,269		839,806
Other intangible assets		21,233,562		21,400,924
Prepaid expenses and other assets		7,538,785		7,015,142
TOTAL ASSETS	$	299,496,277	$	288,500,809

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Senior notes- current maturities	$	39,149,998	$	38,352,498
Current portion of bank loan payable		4,860,000		4,761,000
Redeemable liabilities - warrants		17,500,000		17,500,000
Accounts payable and accrued liabilities		6,554,897		6,756,278
Other payable - related party		840,041		1,616,429
Short-term borrowing - related party		2,679,945		2,679,945
Unearned revenue		3,283,380		3,663,570
Accrued interest		2,854,030		1,936,584
Taxes payable		1,507,698		2,232,546
Total current liabilities		79,229,989		79,498,850

LONG-TERM LIABILITIES:
Bank loan payable, net of current portion		3,240,000		4,761,000
Total liabilities	$	82,469,989	$	84,259,850

STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.0001 per share, 5,000,000 authorized, none issued and outstanding	$	-	$	-
Common stock, par value $0.0001 per share, 45,000,000 authorized, 21,458,654 issued and outstanding at June30, 2013 and December 31, 2012, respectively		2,145		2,145
Additional paid-in capital		83,649,675		83,501,637
Accumulated other comprehensive income		26,073,493		21,276,931
Statutory reserves		12,737,218		11,818,087
Retained earnings		94,272,625		87,410,615
Noncontrolling interests		291,132		231,544
Total stockholders' equity		217,026,288		204,240,959
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	299,496,277	$	288,500,809

CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS PERIODS ENDED JUNE30, 2013 AND 2012 (Stated in US Dollars)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Revenues
Natural gas	$	31,765,252	$	34,927,804	$	63,945,320	$	64,327,491
Gasoline		503,680		701,168		978,679		1,527,063
Installation and others		1,979,026		2,272,723		4,823,289		4,324,459
		34,247,958		37,901,695		69,747,288		70,179,013

Cost of revenues
Natural gas		21,696,966		22,462,516		42,650,396		41,737,375
Gasoline		453,364		655,614		874,025		1,443,758
Installation and others		849,457		955,283		2,046,105		1,807,528
		22,999,787		24,073,413		45,570,526		44,988,661

Gross profit		11,248,171		13,828,282		24,176,762		25,190,352

Operating expenses
Selling		6,034,037		5,619,864		11,587,891		10,570,664
General and administrative		1,177,469		1,636,029		2,709,459		4,347,675
		7,211,506		7,255,893		14,297,350		14,918,339

Income from operations		4,036,665		6,572,389		9,879,412		10,272,013

Other income (expense):
Interest income		10,973		9,853		20,696		20,599
Interest expense		(171,992)		(275,643)		(361,371)		(707,680)
Loss on disposal of fixed assets		(358)		-		(57,403)		-
Loss on sales of long term investment		(500)		-		(80,150)		-
Other income (expense), net		9,543		18,763		35,742		(14,330)
Change in fair value of warrants		-		(1,146)		-		(1,229)
Foreign currency exchange loss		(4,456)		1,494		(5,269)		(504,446)
		(156,790)		(246,679)		(447,755)		(1,207,086)

Income before income tax		3,879,875		6,325,710		9,431,657		9,064,927

Provision for income tax		705,467		1,251,128		1,590,928		2,042,599

Net income		3,174,408		5,074,582		7,840,729		7,022,328
Less: Income (loss) attributable to noncontrolling interests		32,735		28,876		59,588		(199,183)
Net income attributable to China Natural Gas, Inc.		3,141,673		5,045,706		7,781,141		7,221,511

Other comprehensive income
Foreign currency translation gain		3,494,137		(17,584)		4,796,562		1,741,216
Comprehensive income	$	6,635,810	$	5,028,122	$	12,577,703	$	8,962,727

Weighted average shares outstanding
Basic		21,458,654		21,458,654		21,458,654		21,458,654
Diluted		21,458,654		21,458,654		21,458,654		21,458,654

Earnings per share

Basic	$	0.15	$	0.24	$	0.36	$	0.34
Diluted	$	0.15	$	0.24	$	0.36	$	0.34

CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIXMONTHS ENDED JUNE30, 2013 AND 2012 (Stated in US Dollars)
	2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		7,840,729		7,022,328
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,938,760		6,945,862
Provision for (recovery of)doubtful accounts		110,063		202,100
Loss (Gain) on disposal of equipment		57,403		-
Loss (Gain) on sales of long term investment		80,150		-
Stock-based compensation		148,038		296,076
Change in fair value of warrants		-		1,229
Change in assets and liabilities:
Accounts receivable		(493,607)		1,035,676
Other receivables		(963,970)		(146,652)
Employee advances		53,069		(137,270)
Inventories		(387,209)		(591,244)
Advances to suppliers		(4,243,935)		(336,767)
Prepaid expense and other current assets		655,917		3,527,412
Accounts payable and accrued liabilities		494,285		1,830,593
Unearned revenue		(451,580)		(311,342)
Accrued interest		917,446		(25,477)
Taxes payable		(763,178)		(462,934)
Net cash provided by operating activities		9,992,381		18,849,590

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of property and equipment		(1,411,550)		(3,592,657)
Proceeds from sales of property and equipment		7,178		-
Proceeds from sales of long term investment		721,350		-
Additions to construction in progress		(10,367,064)		(10,459,937)
Prepayment on long-term assets		(170,460)		52,892
Payment for acquisition of business		-		(657,007)
Payment for intangible assets		-		(1,511,611)
Net cash used in investing activities		(11,220,546)		(16,168,320)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term borrowing and other payable, related parties		(801,500)		-
Repayment of long-term debt		(1,603,000)		(793,500)
Repayment of senior notes		-		(3,333,334)
Increase in restricted cash		-		(1,890,641)
Net cash (used in) provided by financing activities		(2,404,500)		(6,017,475)

Effect of exchange rate changes on cash and cash equivalents		161,110		17,388

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(3,471,555)		(3,318,817)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		10,857,456		9,622,883

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,385,901	$	6,304,066

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest	$	284,978	$	481,583
Income taxes paid	$	2,001,258	$	1,967,965

Non-cash transactions for investing and financing activities:
Construction materials transferred to Construction in progress	$	-	$	67,142
Construction in progress transferred to property and equipment	$	3,143,182	$	18,507,550
Capitalized interest - amortization of discount of notes payable and issuance cost	$	-	$	2,040,389
Other assets transferred to construction in progress	$	94,345	$	2,395,267