New Oriental Energy & Chemical (OTC:NOEC)

Revenues for the three months ended December 31, 2010 were $943,757, which represented a decrease of 89.24% from the same period in the prior year. This was mainly due to the Company stopping all production for maintenance of the manufacturing systems from June 21, 2010 to October 15, 2010. This resulted in the decrease in sales volume of products as compared to last year. The Company finished maintenance and resumed production on October 15, 2010. On November 15, 2010, the Company again ceased production, this time due to the Company’s cash flow problem.

The Company is seeking financial resources to solve the problem. With the existing cash and our future plans (see overview section), we believe the Company has sufficient cash to sustain operations for the next 12 months.

Financial Resources Being Sought To Resume Production in February

Mr. Chen Si Qiang, President and CEO of the Company, stated, "We have been working tirelessly to strengthen our financial position and to obtain the financing required to restart production. We believe production can be resumed by the end of February and that operating performance can return to normal levels within one year."

The Company said that its major shareholder has committed to provide financial assistance of RMB 30 million to RMB 50 million over the next few years, if necessary. In addition, he has extended repayment for one more year of a $10,448,908 loan and has promised to provide guarantees for future debt, if necessary.

The Company added that it intends to finance business activity through bank loans, related party loans and notes payable, if required, while other capital expenditures are expected to be financed by cash flow from operations when manufacturing is restarted. The Company anticipates improving cash flow as business operations rebound and the global economy continues to recover.

Currently, the Company also projects that the 200,000 ton new addition to its methanol manufacturing facility, previously expected to be completed by December 31, 2010, will now be completed in April. As of December 31, 2010 the Company entered into agreements and made a down payment of $25.1 million toward the purchase of production equipment to be used in its methanol production. The Company will be required to pay the $7.82 million remaining amount of the purchase price prior to delivery of equipment, which is estimated to occur this year, and will need $12 million to finish the methanol plant expansion.

Mr. Chen Si Qiang concluded, "We are sincerely appreciative for the cooperation we have received from the Company's lenders, suppliers and shareholders in this difficult period, and remain optimistic that our alternative energy products and solutions will ultimately achieve their potential."

Overview Section 

In January 2011, the Company obtained financial support from a major shareholder. The major shareholder agreed in writing to extend the due date of loans totaling $10,448,908 for one additional year and promised to provide a guarantee for future debt if necessary. In February 2011, the Company obtained a written commitment from a related party controlled by the Chairman of the Company. The related party agreed to provide a RMB 20 million (approximately $3 million) short-term loan by the end of February 2011. In February 2011, the Company obtained an oral commitment from the local government. The local government agreed to provide a RMB 10 million (approximately $1.5 million) short-term loan by the end of February 2011. In February 2011, the Company obtained oral agreements with four creditors. The creditors agreed to sign indebtedness agreements with the Company by the end of February 2011. The creditors will agree to accept common shares of the Company in exchange for cancellation of Company debt totaling RMB 14 million (approximately $2 million).

To increase our cash resources, the Company obtained a short-term bank loan for RMB 12 million (approximately $1.8 million) with an interest rate of 11.16% per annum from Luoshan Rural Credit Cooperatives, which is due on January 10, 2012. Also in 2010, the Company obtained written commitments from its major shareholder to provide working capital to the Company, if needed, in the form of loans. With the existing cash and our future plans (see overview section), we believe the Company has sufficient cash to sustain operations for hte next 12 months.

The Company added that it intends to finance business activity through bank loans, related party loans and notes payable, if required, while other capital expenditures are expected to be financed by cash flow from operations when manufacturing is restarted. The Company anticipates improving cash flow as business operations rebound and the global economy continues to recover.

NOEC has received a letter of determination from The NASDAQ Stock Market granting the Company’s request to remain listed on NASDAQ, subject to monitoring by the Hearings Panel until December 15, 2011 to ensure the Company remains in continued compliance with the shareholders’ equity rule and all other listing requirements.

Mr. Chen S. Qiang, CEO and Chairman of the Company commented, "This has been a very difficult period for us, but we continue to be optimistic about seeing continuing improving conditions in the second half of the year. In recent weeks, we also have taken many steps, as reported, to strengthen the Company's financial condition."

We will finance our business activity through bank loans and related party loans. The Company obtained a short-term bank loan for RMB 3.8 million (approximately $0.57 million) with an interest rate of 11.16% per annum from Luoshan Rural Credit Cooperatives, which is due on October 25, 2011. We intend to finance other capital expenditures mainly from cash flows from our operations, and from notes payable, bank loans and related party loans, if needed. We believe that cash flow from our operations will improve as business operations rebound and as the global economy gradually recovers. We believe that existing cash and resources are sufficient to meet our projected operating requirements during the next 12 months.

On October 18, 2010, New Oriental Energy & Chemical Corp. entered into an Indebtedness Conversion Agreement with Xingyang Hongchang Channel Gas Engineering Co., Ltd. for the conversion of $3,010,200 of debt into 3,010,200 shares of common stock of the Company. The converted debt consisted of loans used to fund the construction of the Company’s methanol production facility.

On September 10, 2010, New Oriental Energy & Chemical Corp. received a notification letter stating NASDAQ has denied the Company’s request for continued listing on The NASDAQ Capital Market.

Goals For 2011: Transformation to a Much Larger New Energy Company

"The difficulties posed by the economic and business conditions in recent periods have been very substantial," stated Mr. Chen. He continued, "Nevertheless, we believe there is light at the end of the tunnel and it is anticipated and planned that during calendar year 2011, the Company will have the manufacturing capacity and equipment to produce 600,000 tons of DME per year, with the completion of our 200,000 ton coal-based gas-methanol production project." He added, "Our goal continues to be the conversion of our Company to a large scale, comprehensive new energy and chemical fertilizer corporation with a very bright outlook, as China and the world intensify efforts to find new, clean energy alternatives."

Mr. Chen Si Qiang, CEO and Chairman of the Company, as well as its largest shareholder, stated, "It is apparent that we underestimated the depth of the current recession and the effect it would have on oil prices and the pricing of our key products in the first quarter. However, the signs we were seeing pointing to an improvement in the situation have emerged more clearly in recent weeks. On the cost side, we have seen coal prices continue to decline since March 2009, from a high of more than 70% above prior year prices. Spurred in part by government actions, the agricultural demand for urea also continues to be strong. Further, the severe difficulties faced by smaller domestic coal-based producers of the product should improve our Company's competitive position."

"Despite the current environment," Mr. Chen continued, "the Company's potential should not be underestimated. We will continue to improve products and to make our processes more effective by applying our very strong technological skills. Our capabilities in both our traditional and new alternative fuel products will continue to generate a rich product pipeline that we believe will drive long-term growth. In our view, the outlook for improved results in the short term also has improved greatly after a very difficult period."

Source: Marketwire (August 17, 2009)

Mr. Chen Si Qiang, CEO and Chairman of the Company, commented, "In this extremely difficult environment we have been doing our very best to deal with the unanticipated situation with respect to raw material cost and product pricing facing everyone in the industry. We also are maintaining confidence in our ability to improve our near term performance as the cost of coal continues to moderate, as we believe is the case. Further, we believe that upon completion of the new methanol plant, we will be well positioned to achieve very substantial gains from DME and methanol when the environment improves."

"In the case of urea," he continued, "we believe the pressing agricultural need for this product, particularly in the April-May season, will translate to improved selling prices, and note that the government has now lifted the upper cap on fertilizer prices. If as anticipated, we see a further decline in the price of coal, possibly to levels seen in 2007, we should soon be able to generate higher revenues and a positive margin for urea."

"With respect to our alternative energy product portfolio," Mr. Chen said, "we see a longer time horizon for a return to profitability, mainly due to lower energy prices. And, even if we begin to see profits in urea in the fourth quarter, we anticipate the Company's full year results will be lower than last year. Previously, we have said they likely would be flat to down."

Source: GlobeNewswire (February 23, 2009)

2008 Full Year Guidance:

For the full 2008 fiscal year, in its second quarter guidance, the Company predicted revenues of "at least $75 million." However, the lower production of DME in the third quarter and the continuing disruptive impact of the record snowstorm in the fourth quarter, necessitates an adjustment in this figure. The Company continues to believe full year results will show a strong year over year advance in revenues as well as in the bottom line, with revenues growing to approximately $66 million, or nearly 70% ahead of results in fiscal 2007. This full year guidance reflects its anticipation of solid fourth quarter growth compared to the same period last year, even given the negative impact of the snowstorms. Specifically, for Urea, in Q4 it anticipate a 24% sales increase year over year despite an anticipated 10% quarter over quarter reduction in production and sales, mainly due to the snowstorms in January and February.

For DME, estimated fourth quarter sales of $5.3 million would be five times what they were in last year's fourth quarter, though roughly 50% lower than in the third quarter in the current fiscal year, largely due to the severe weather. Further, management believes it should be conservative in estimating March DME production, even if there is no snowstorm that month, as the methanol price has continued to fluctuate, and it will be cautious in purchasing this feedstock to produce DME with a concern about profitability. Consequently, it cautiously predicts that DME output may be at half the capacity even in March. Even with severe weather that impacts production and sales for approximately half a quarter, the Company is confident that the quarter will be profitable overall and contribute to the full year advance.

Looking Ahead :

Looking past Fiscal 2008, the Company remains confident of its alternative fuel growth strategy and believes it should increasingly be able to better control costs and meet its requirements with internal production of methanol, a project that is continuing as planned. Further, it believes fertilizer products will continue to be stable with reasonable fluctuation in prices going forward. The Company is not making estimates on DME production beyond the current fiscal year at this time, but will address this further in its year end reporting.

Source: Marketwire (February 15, 2008 )