Analyst: Victor Sula, Ph.D. Initial Report January 14th, 2009
CGYV’s quarterly revenues increased in 2008 due to increased sales volume of energy recovery systems and services and higher revenues per contract. During the first nine months of 2008, CGYV completed 60 contracts and realized average revenues per contract of $255,377. This compares to 36 completed contracts and values averaging $209,403 per contract for the same period in 2007. We believe the Company’s sales will continue to grow, despite the current global economic slowdown, because of its rising order backlog and CGYV’s unique position as one of the few industry participants with the necessary design and engineering expertise to build larger energy recovery systems. Income Statement, $ 2006
2007
%Chg
9 mo 2007
9 mo 2008
%Chg
Revenues Cost of sales Gross profit
5,456,683 4,471,900 984,783
11,846,892 9,718,424 2,128,468
117.1% 117.3% 116.1%
7,538,493 6,851,603 686,890
15,980,191 12,467,448 3,512,743
112.0% 82.0% 411.4%
Selling, general and administrative expenses Operating profit
1,014,458 (29,675)
1,365,321 763,147
34.6% 81.5%
842,776 (155,886)
2,273,105 1,239,638
169.7% n/m
-63,571 11,390 n/a
640,919 439,359 n/a
n/m 3757% n/m
-189,949 -239,363 -0.009
809,088 764,652 0.033
n/m n/m n/m
18.0% -0.5% -1.2%
18.0% 6.4% 5.4%
-0.1% 7.0% 6.6%
9.1% -2.1% -2.5%
22.0% 7.8% 5.1%
12.9% 9.8% 7.6%
Net income Comprehensive income Diluted EPS Gross margin Operating margin Net Margin
Source: SEC Filings
The Company significantly improved its gross margins in 2008 through sales growth, increasing contract prices and expanded offerings of higher-margin design services. Management expects steel and other raw materials prices will slightly decline or remain stable in 2009, allowing CGYV to stabilize gross margins at current levels. Increased operating and net margins were attributable to more completed contracts, improved operating efficiency and increased sales of higher-margin licensing and design service contracts. Liquidity and Capital resources The Company has a strong balance sheet, with cash and equivalents exceeding $6.9 million. During the first nine months of 2008, cash balances increased due to the issuance of Series A Convertible Preferred Stock on April 15, 2008 which generated net proceeds of $6,619,278. Operations provided net cash flow of $104,846 while investing activities consumed $194,188, consisting mainly of equipment purchases.
China Energy Recovery Inc. (OTCBB: CGYV)
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