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| CHNG.OB > SEC Filings for CHNG.OB > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
CAUTIONARY STATEMENT
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as "believes," "estimates," "could," "possibly," "probably," anticipates," "projects," "expects," "may," "will," or "should" or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.
The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Overview
We were incorporated in the state of Delaware on March 31, 1999, as Bullet Environmental Systems, Inc. On May 25, 2000, we changed our name to Liquidpure Corp. and on February 14, 2002, we changed our name to Coventure International Inc.
On December 6, 2005, we issued an aggregate of 4 million shares to all of the registered shareholders of Xi'an Xilan Natural Gas Co., Ltd., and entered into exclusive arrangements with Xi'an Xilan Natural Gas Co., Ltd. and these shareholders that give us the ability to substantially influence Xi'an Xilan Natural Gas' daily operations and financial affairs, appoint its senior executives and approve all matters requiring shareholder's approval. On December 19, 2005, we changed our name to China Natural Gas, Inc.
On February 21, 2006, we formed Xilan Natural Gas Equipment Ltd., ("Xilan Equipment") as a wholly owned foreign enterprise (WOFE). We then, through Xilan Equipment, entered into exclusive arrangements with Xi'an Xilan Natural Gas Co., Ltd. and these shareholders that give us the ability to substantially influence Xi'an Xilan Natural Gas' daily operations and financial affairs, appoint its senior executives and approve all matters requiring shareholder's approval. We memorialized these arrangements on August 17, 2007. As a result, the Company consolidates the financial results of Xi'an Xilan Natural Gas as variable interest entity pursuant to FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities."
We transport, distribute and sell natural gas to commercial, industrial and residential customers in the Xi'an area, including Lantian County and the districts of Lintong and Baqiao, in the Shaanxi Province of The Peoples' Republic of China ("China" or the "PRC") through our natural gas pipeline networks. We own approximately 120 km high pressure pipelines in Xi'an, Shaanxi Province. During the first quarter of 2009, the pipeline's average daily throughput capacity is 35,085 cubic meters, comparing to approximately 29,096 cubic meters in the same quarter during 2008. As of March 31, 2009, we own and operate 23 CNG (Compressed Natural Gas) fueling stations in Shaanxi Province and 12 CNG fueling stations in Henan Province. During the first quarter of 2009, we had sold compressed natural gas of 37,889,840 cubic meters through our fueling stations, compared to 30,832,918 cubic meters for the same quarter in 2008.
In 2008, China consumed 72 billion cubic meters of natural gas, compared with 24.5 billion in year 2000, representing an average annual increase of 14.4%. Source:http://www.in-en.com/gas/html/gas-1009100965297290.html). According to the Chinese government's 11th Five-Year Plan (2006-2010) natural gas consumption is expected to increase by 2.5% to 5.3% of total energy consumption in China. Based on the government's energy policy and the increase in natural gas consumption in China, the demand for natural gas in China will continue to grow and we expect our sales will experience corresponding growth.
We operate four primary business lines:
· Distribution and sale of compressed natural gas (CNG) through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles. The company totally owned 35 stations as of March 31, 2009;
· Installation, distribution and sale of piped natural gas to residential, commercial and industrial customers through Company-owned pipelines. The Company distributes and sells natural gas to approximately 98,754 homes and businesses as of March 31, 2009;
· Distribution and sale of gasoline through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles. The Company totally owned 5 gasoline selling stations by March 31, 2009), and
· Conversion of gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles at our Auto Conversion Division.
We buy all of the natural gas that we sell and distribute to our customers. Currently we do not exploit any of our own natural gas. The natural gas that we buy is available in two forms: (i) piped natural gas obtained through pipelines in standard pressures; and (ii) CNG obtained through compressor stations and transported with tankers.
On October 24, 2006, Xi'an Xilan Natural Gas formed a wholly-owned subsidiary, Shaanxi Jingbian Liquified Natural Gas Co., Ltd., for the purpose of constructing a liquefied natural gas facility to be located in Jingbian, Shaanxi Province. We plan to invest approximately $40 million to construct this facility. As of March 31, 2009, the Company has invested approximately $25 million in the project.
Both CNG and LNG are natural gas compressed into canisters for convenient transportation, usually by tank trucks to locations of distribution or consumption. Typically CNG is compressed at 200kg per cubic centimeter and can be transported at normal temperatures to distances of up to 200 kilometers. LNG is compressed at up to 625 times atmospheric pressure and must be transported at sub-zero degree temperatures. The cost of compressing and processing LNG is higher than those of CNG, but LNG can be transported over longer distance and per unit transportation costs are therefore lower. The LNG plant is estimated to have LNG processing capacity of 500,000 cubic meters per day, or approximately 150 million cubic meters on an annual basis. We believe that adding LNG to our product offerings will expand our geographic sales footprint and improve revenues and profitability.
Comparing Three Months Ended March 31, 2009 and 2008:
The following table represents the consolidated operating results for the three month period ended March 31, 2009 and 2008:
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