China Natural Gas Announces Second Quarter 2012 Financial Results

XI'AN, China, Aug. 14, 2012 /PRNewswire-Asia/ -- 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 fiscal quarter ended June 30, 2012.

Shuwen Kang, CEO of China Natural Gas, Inc. commented: "We are pleased to share the results of our second quarter, as we believe that they demonstrate continued progress toward our sector and geographic growth and forward integration objectives. The company has successfully commenced commercial production of its Jingbian liquefied natural gas ("LNG") plant on July 16, 2011, which represents a key milestone in its corporate history.

Our network of compressed natural gas, or CNG, fueling stations currently contains 35 stations, a significant presence in the markets we operate in. Our outlook for the second half of the year is promising as we continue to grow our business, and we look forward to sharing any future developments as they materialize."

Second Quarter 2012 Financial and Operating Results

Revenues in the second quarter of 2012 increased by 38.8% to $37.90 million from $27.31 million in the second quarter of 2011, driven by our LNG production facility in Jingbian County, Shaanxi Province started operations. Natural gas sales grew by 56.7% year-over-year to $34.93 million, up from $22.29 million in the second quarter of 2011. Gasoline revenues in the second quarter of 2012 decreased to $0.70 million, down by 64.5% from $1.97 million in the same period of the prior year, which was mainly attributable to the closure of three gasoline fueling stations during the first and fourth quarter of 2011. Installation and services revenue decreased by 25.6% year-over-year to $2.27 million from $3.05 million in the comparable period of 2011. In the second quarter of 2012, sales of natural gas, gasoline, and installation and other services contributed 92.2%, 1.8%, and 6.0% of the total revenues, respectively.

Gross profit in the second quarter of 2012 increased by 23.1% to $13.83 million, from $11.23 million in the same period of the prior year. Gross margin in the second quarter of 2012 was 36.5%, compared to 41.1% a year ago. Gross margin decreased primarily due to the current lower gross margin level of our LNG business, as compared to the gross margins of those business lines making greatest contribution to revenue.

Operating income in the second quarter of 2012 was $6.57 million, an increase of 23.1% year-over-year from $5.34 million in the second quarter of 2011, primarily attributable to the realization of revenue and gross profit of LNG, which started in July 2011.

Income tax expense was $1,25 million for an effective tax rate of 19.8%, as compared to an effective tax rate of 19.5% in the second quarter of 2011.

Net income in the second quarter of 2012 increased by 15.5% to $5.07million, or $0.24 per diluted share, from $4.39 million, or $0.21 per diluted share, in the second quarter of 2011. Net margin decreased to 13.4% during the three months ended June 30, 2012 from 16.1% during the three months ended June 30, 2011, primarily due to the decrease in gross margin.

As of June 30, 2012, the Company had $6.30 million in cash and cash equivalents, compared to $9.62 million in cash and cash equivalents at December 31, 2011. The decrease was primarily attributable to the construction of the LNG plant and other projects, and the repayment of the loans from Shanghai Pudong Development Bank and of the principal of the Abax Senior Notes.

Net cash provided by operating activities was $18.85 million for the six months ended June 30, 2012, compared to net cash provided by operations of $12.72 million for the six months ended June 30, 2011. The increase was primarily due to the decrease in prepaid expense and other current assets, increase in accounts payable and accrued liabilities and decrease in accounts receivable.

Conference Call

Management will hold a conference call on Thursday, August 16, 2012 at 8:30 a.m. EDT (5:30 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. Teleconference replay will be available 1 hour after the end of the conference with end date at 9 AM ET. Aug 24, 2012. The number for the replay is 1-877-344-7529 or 1-412-317-0088 for international calls with conference Number: 10017499.

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 and Henan Provinces. The Company owns approximately 120 km of high-pressure pipelines and operates 24 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; (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. For example, statements about the future plans and goals of the JV with CNPC and its prospects are forward looking and subject to risks. 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 to fourth 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 (Unaudited)
	June 30,		December 31,
	2012		2011


ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,304,066	$	9,622,883
Restricted cash		1,888,258		-
Accounts receivable, net		2,099,579		2,997,845
Other receivables,net		410,279		540,646
Employee advances		424,264		285,270
Inventories		2,915,301		1,938,754
Advances to suppliers		4,353,460		4,540,139
Prepaid expense and other current assets		4,094,987		4,470,687
Total current assets		22,490,194		24,396,224

Investment in unconsolidated joint ventures		1,585,000		1,574,000
Property and equipment, net		188,281,179		174,097,754
Construction in progress		44,514,824		45,882,320
Deferred financing cost, net		312,418		517,334
Goodwill		1,754,512		629,729
Other intangible assets		21,299,973		18,910,244
Prepaid expenses and other assets		6,130,315		10,976,203
TOTAL ASSETS	$	286,368,415	$	276,983,808

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Senior notes- current maturities	$	13,595,775	$	9,671,682
Current portion of bank loan payable		5,547,500		4,722,000
Accounts payable and accrued liabilities		9,714,776		7,694,423
Other payable - related party		1,614,392		787,000
Short-term borrowing - related party		2,679,945		1,359,945
Unearned revenue		3,999,560		4,280,594
Accrued interest		1,003,954		1,029,431
Taxes payable		2,182,274		2,626,271
Total current liabilities		40,338,176		32,171,346

LONG-TERM LIABILITIES:
Senior notes, net of current portion		20,393,663		25,791,151
Bank loan payable, net of current portion		7,925,000		9,444,000
Borrowings - related party		-		1,320,000
Warrants liability		17,500,000		17,500,000
Total long-term liabilities		45,818,663		54,055,151
Total liabilities		86,156,839		86,226,497



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 June 30, 2012 and December 31, 2011		2,145		2,145
Additional paid-in capital		83,205,561		82,909,485
Accumulated other comprehensive income		21,558,709		19,817,493
Statutory reserves		11,133,287		10,124,710
Retained earnings		84,116,412		77,903,478
Noncontrolling interests		195,462		-
Total stockholders' equity		200,211,576		190,757,311
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	286,368,415	$	276,983,808

CHINA NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012			2011		2012		2011
Revenues
Natural gas	$	34,927,804	$	22,285,730		$	64,327,491	$	42,633,560
Gasoline		701,168		1,974,377			1,527,063		3,281,550
Installation and others		2,272,723		3,053,062			4,324,459		5,506,167
		37,901,695		27,313,169			70,179,013		51,421,277

Cost of revenues
Natural gas		22,462,516		12,870,450			41,737,375		24,969,900
Gasoline		655,614		1,902,709			1,443,758		3,127,433
Installation and others		955,283		1,308,916			1,807,528		2,372,548
		24,073,413		16,082,075			44,988,661		30,469,881

Gross profit		13,828,282		11,231,094			25,190,352		20,951,396

Operating expenses
Selling		5,619,864		4,041,412			10,570,664		7,621,333
General and administrative		1,636,029		1,851,785			4,347,675		4,762,756
		7,255,893		5,893,197			14,918,339		12,384,089

Income from operations		6,572,389		5,337,897			10,272,013		8,567,307

Non-operating income (expense):
Interest income		9,853		9,273			20,599		15,920
Interest expense		(275,643)		-			(707,680)		(4,666)
Other income (expense), net		18,763		(9,091)			(14,330)		87,865
Change in fair value of warrants		(1,146)		123,630			(1,229)		239,810
Foreign currency exchange loss		1,494		(4,006)			(504,446)		(7,048)
		(246,679)		119,806			(1,207,086)		331,881

Income before income tax		6,325,710		5,457,703			9,064,927		8,899,188

Provision for income tax		1,251,128		1,064,018			2,042,599		2,019,671

Net income		5,074,582		4,393,685			7,022,328		6,879,517
Less: Income (loss) attributable to noncontrolling interests		28,876		-			(199,183)		-
Net income attributable to China Natural Gas, Inc.		5,045,706		4,393,685			7,221,511		6,879,517

Other comprehensive income
Foreign currency translation gain		(17,584)		2,993,637			1,741,216		4,442,292
Comprehensive income	$	5,028,122	$	7,387,322		$	8,962,727	$	11,321,809

Weighted average shares outstanding
Basic		21,458,654		21,428,265			21,458,654		21,375,085
Diluted		21,458,654		21,428,265			21,458,654		21,377,407
Earnings per share
Basic	$	0.24	$	0.21		$	0.34	$	0.32
Diluted	$	0.24	$	0.21		$	0.34	$	0.32

CHINA NATURAL GAS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Unaudited)
	Common Stock		Additional Paid-in Capital	Accumulative Other Comprehensive Income	Minority Interest	Retained Earnings		Total Stockholders' Equity
	Shares	Amount				Statutory Reserve	Unrestricted
Balance at 1/1/2011	21,321,904	$2,132	$81,611,763	$ 15,667,145	$ -	$7,918,634	$64,847,622	$170,047,296
Exercise of stock options	136,750	13	670,062	-	-	-	-	670,075
Stock based compensation	-	-	627,660	-	-	-	-	627,660
Cumulative translation adjustment	-	-	-	4,150,348	-	-	-	4,150,348
Net income	-	-	-	-	-	-	15,261,932	15,261,932
Appropriation of retain earnings	-	-	-	-	-	2,206,076	(2,206,076)	-
Balance at 12/31/2011	21,458,654	$2,145	$82,909,485	$ 19,817,493	$ -	$10,124,710	$77,903,478	$190,757,311

Balance at 1/1/2012	21,458,654	$2,145	$82,909,485	$ 19,817,493	$ -	$10,124,710	$77,903,478	$190,757,311
Stock based compensation	-	-	296,076	-	-	-	-	296,076
Purchases of a Noncontrolling interest equity	-	-	-	-	394,645	-	-	394,645
Cumulative translation adjustment	-	-	-	1,741,216	-	-	-	1,741,216
Net income	-	-	-	-	(199,183)	-	7,221,511	7,022,328
Appropriation of retain earnings	-	-	-	-	-	1,008,577	(1,008,577)	-
Balance at 6/30/2012	21,458,654	$2,145	$83,205,561	$ 21,558,709	$195,462	$11,133,287	$84,116,412	$200,211,576

CHINA NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Six Months Ended June 30,
		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to China Natural Gas, Inc.	$	7,221,511	$	6,879,517
Add: Loss attributable to noncontrolling interests		(199,183)		-
Net income		7,022,328		6,879,517

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		6,945,862		3,744,657
Provision for doubtful accounts		202,100		20,810
Stock-based compensation		296,076		228,711
Change in fair value of warrants		1,229		(239,810)
Change in assets and liabilities:
Accounts receivable		1,035,676		(866,852)
Other receivables		(146,652)		(118,999)
Employee advances		(137,270)		2,796
Inventories		(591,244)		(712,617)
Advances to suppliers		(336,767)		(381,947)
Prepaid expense and other current assets		3,527,412		(548,647)
Accounts payable and accrued liabilities		1,830,593		992,566
Unearned revenue		(311,342)		3,367,774
Accrued interest		(25,477)		363,701
Taxes payable		(462,934)		(7,632)
Net cash provided by operating activities		18,849,590		12,724,028

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of property and equipment		(3,592,657)		(5,723,603)
Additions to construction in progress		(10,459,937)		(5,232,444)
Prepayment on long-term assets		52,892		(3,499,321)
Payment for acquisition of business		(657,007)		-
Payment for intangible assets		(1,511,611)		(141,129)
Net cash used in investing activities		(16,168,320)		(14,596,497)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		-		670,075
Proceeds from short-term debt and other payable, related parties		-		3,085,445
Repayment of long-term debt		(793,500)		-
Repayment of senior notes		(3,333,334)
Increase in restricted cash		(1,890,641)
Net cash provided by financing activities		(6,017,475)		3,755,520

Effect of exchange rate changes on cash and cash equivalents		17,388		292,245

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(3,318,817)		2,175,296

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,622,883		10,046,249

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,304,066	$	12,221,545

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, including capitalized interest	$	481,583	$	-
Income taxes paid	$	1,967,965	$	2,062,496

Non-cash transactions for investing and financing activities:
Construction material transferred to construction in progress	$	67,142	$	5,346,835
Construction in progress transferred to property and equipment	$	18,507,550	$	12,781,821
Advances to suppliers transferred to construction in process	$	-	$	7,480,412
Other assets transferred to construction in progress	$	2,395,267	$	640,767
Capitalized interest - amortization of discount of notes payable and issuance cost	$	2,040,389	$	2,091,230

For more information, please contact:
China Natural Gas, Inc.
Zhaoyang Qiao, CFO
Phone: +86-29-8832-7391 Cell: +86-158 2969-1287
Email: qiaochaoyang@naturalgaschina.com

Jackie Shi
Investor Relations Director
Phone: +86-29-8832-3325 x922
Cell: +86-139-9287-9998
Email: yjshi@naturalgaschina.com