LZEN Lizhan Environmental Corp. - Ordinary Shares (MM)

ZHEJIANG, China, April 7, 2011 /PRNewswire-Asia/ -- Lizhan Environmental Corporation ("Lizhan" or the "Company") (Nasdaq: LZEN), one of China's leading manufacturers of eco-friendly fabrics whose products are developed using patented technology that regenerates collagen fiber from genuine leather scraps, announced today its first quarter of fiscal year 2011 unaudited results.

2011 First Quarter Financial Highlights

• Sales of recycled leather flocked fabric increased $42.5% to $7.9 million in the first quarter of fiscal 2011 from $5.5 million in the first quarter of fiscal 2010
• Gross profit increased by 14.7% to $3.1 million in the first quarter of fiscal 2011 from $2.7 million in the first quarter of fiscal 2010
• Gross profit percentage increased by 16.3% from 24.4% in the first quarter of fiscal 2010 to 28.3% in the first quarter of fiscal 2011
• Operating Expenses increased by 100% to $0.95 million in the first quarter of fiscal 2011 compared to $0.47 million in the first quarter of fiscal 2010
• Sales to international customers increased by 15.8% in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010
• Basic and fully diluted earnings per share were $0.18 in the first quarter of fiscal 2011

First Quarter Ended December 31, 2010 Financial Results (Unaudited)

Net Sales

Net sales for the quarter ended December 31, 2010 was $10.8 million, a decrease of approximately 1.4% from $11.0 million in 2009.  Sales of our lower margin ultrasuede leather products decreased by 55.7% to $2.2 million, offset by the 42.5% increase of recycled leather flocked fabric sales, to $7.9 million, and 99.7% increase of tufted fabric sales, to $0.6 million. The Company strategically shifted its sales during the quarter from lower margin ultrasuede leather products to higher margin recycled leather flocked fabric and tufted fabric products, which have experienced increased demand from customers. The following table sets forth the breakdown of the Company's net revenue by product.

Gross Profit and Gross Profit Margin

Gross profit for the quarter ended December 31, 2010 increased 14.7% to $3.1 million, from $2.7 million for the quarter ended December 31, 2009.  For the quarters ended December 31, 2010 and 2009, the Company's gross profit margin was 28.3% and 24.4%, respectively. The rise of gross profit margin in 2010 was due to higher volume and improved operational efficiency for our recycled leather flocked fabric products.  In addition, the increase of sales price of the recycled leather flocked material was partially offset by the increased cost of raw materials.

General and Administrative Expenses

The general and administrative expenses totaled $0.7 million for the quarter ended December 31, 2010 from $0.4 million for the quarter ended December 31, 2009, an increase of 75%. The increase was attributable to the increasing cost for additional staff and professional services after the closing of our recent IPO.

Research and Development Expenses

Research and development expenses totaled $11,706 for the quarter ended December 31, 2010, as compared to $19,089 for the quarter ended December 31, 2009, a decrease of 38.7%. This decrease reflected our decreased research and development effort on our existing products.  We focused our research and development efforts on testing our equipment and our production line for the Evergreen products.

Selling and Marketing Expenses

Selling and marketing expenses totaled $218,839 for the quarter ended December 31, 2010, as compared to $58,385 for the quarter ended December 31, 2009, an increase of 274.8%.  This increase was primarily due to increased advertising and promotion activities, staffing costs and other costs relating to selling and marketing activities.

Net Income

Net income attributable to stockholders slightly decreased 2.7% to $2.2 million for the quarter ended December 31, 2010 as compared to approximate $2.3 million for the quarter ended December 31, 2009.  The decrease was primarily due to the higher general and administrative expenses, higher selling and market expenses as well as $0.3 million income tax expense for the quarter ended December 31, 2010. The Company was granted a preferential tax treatment—a tax holiday of full exemption from Enterprise Income Tax ("EIT") for the two year ended December 31, 2009 and 50% reduction on its EIT rate for the three calendar years ending December 31, 2012.

Balance Sheet and Cash Flow Statement

As of December 31, 2010, the Company had $6.8 million in cash and cash equivalents.  The Company used $2.9 million of cash from operating activities in the quarter ended December 31, 2010, compared to $0.9 million cash provided by operating activities in the quarter ended December 31, 2009, primarily due to a security deposit and prepaid rent of $2.1 million for the Evergreen plant site.  Cash used in investing activities was $4.1 million and increased from $0.4 million in the quarter ended December 31, 2009, reflecting our commitment and continued investment in our new Evergreen Products.  Cash provided by financing activities was $11.2 million for the quarter ended December 31, 2010.

CEO Comments

In commenting on the results for the Company's first quarter of fiscal year 2011, Mr. Jianfeng Liu, Chief Executive Officer of Lizhan commented, "During the quarter we increased the sales of our higher margin recycled leather flocked fabric by 42.5%. As a result, we increased our gross margin by 16.0% while improving the operational efficiency of existing products.  In addition, during the quarter, we successfully tested and produced our new Evergreen Products and have subsequently begun to produce these products for commercial sale.   We intend to gradually continue to invest and expand our production capacity for both recycled leather flocked fabric and our new Evergreen Products to gradually meet our customer's growing demand.

About Lizhan Environmental Corporation

Lizhan Environmental Corporation is one of China's leading manufacturers of eco-friendly fabrics whose products are developed with patented technology that regenerates collagen fiber from genuine leather scraps. The Company's products are mainly used in furniture, garments and other consumer applications.

Safe Harbor Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks outlined in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 20F, as amended. Some of risks inherent in an investment in our company include, but are not limited to, our limited operation history, our need to maintain sufficient levels of liquidity and working capitals, the potential need to reduce our expansion plans, price inflation in the PRC, difficulties in developing and selling our new Evergreen Products, seasonal patterns in our business, protection of our intellectual property and the risk of infringing the intellectual property of others, customer decisions to discontinue purchasing our products, and restrictions imposed by Chinese regulations, including every policies.  All information provided in this press release is as of the date hereof. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

-TABLES FOLLOW-

SOURCE Lizhan Environmental Corporation