Sino Clean Energy, Inc. Announces First Quarter 2010 Financial Results

XI'AN, China, May 18 /PRNewswire-Asia/ --

-- First Quarter 2010 revenue increased 215.1% to $24.5 million; adjusted

net income increased 241.6% to $4.9 million, with adjusted EPS of $0.33

-- Company reaffirmed 2010 revenue and adjusted net income of at least

$105 million and $25 million, respectively, representing an increase of

approximately 128.3% and 127.3% compared to 2009

-- Management to host Earnings Conference Call on Tuesday May 18, 2010 at

10:30 a.m. EDT

Sino Clean Energy, Inc. (OTC Bulletin Board: SCLX; "Sino Clean Energy," or the "Company"), a leading producer and distributor of coal-water slurry fuel ("CWSF") in the People's Republic of China ("China"), today announced the Company's financial results for the first quarter of 2010.

First Quarter Results (USD)

(three months ended March 31)

2010 2009 CHANGE

Revenue $24.5 million $7.8 million +215.1%

Gross Profit $10.1 million $2.4 million +316.0%

GAAP Net Income (Loss) $20.5 million $1.6 million +1,270%

Adjusted Net Income $4.9 million(1) $1.4 million(2) +241.6%

GAAP EPS (Diluted) $1.37 $0.17 +705.9%

Adjusted EPS (Diluted) $0.33(1) $0.15(2) +120.0%

(1) Excludes non-cash gain of $28.4 million related to extinguishment of

derivative liability, non-cash charges of $4.2 million for the changes

in fair value of warrants, and $8.6 million for amortization of notes

discount.

(2) Excludes non-cash gain of $0.6 million for the changes in fair value

of warrants, non-cash charges of $0.3 million for amortization of

notes discount, and $0.1 million related to the shares of common stock

placed in escrow in connection with the Company's September 2008

financing.

Please note: For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.

Revenue -- Revenue for the first quarter ended March 31, 2010 increased 215.1% to $24.5 million from $7.8 million in the first quarter of 2009. The significant increase is primarily attributable to increased production resulting from the addition in 2009 of two new production lines, which has led to an increase in sales from new and existing customers. The Company's annual production capacity at March 31, 2010 was 650,000 metric tons, reflecting the contribution of the new CWSF production lines which increased annual output capacity by 550,000 metric tons. As of March 31, 2010, Sino Clean Energy had 35 customers under CWSF supply agreements totaling approximately 800,000 metric tons per year, compared to 30 customers totaling approximately 600,000 metric tons of CWSF per year at December 31, 2009.

Cost of Goods Sold -- Cost of goods sold was $14.4 million for the first quarter of 2010, compared to $5.3 million for the first quarter of 2009, an increase of 169.3%, less than the increase in sales.

Gross Profit and Gross Profit Margin -- Gross profit increased 316.0% to $10.1 million in the first quarter of 2010 from $2.4 million in the first quarter of 2009, as gross profit margin improved to 41.2% from 31.2% as a result of better pricing for CWSF in Shenyang. As a result of the new production line added in 2009, depreciation of plant and machinery for the first quarter of 2010 was $0.5 million as compared to $0.4 million in the first quarter of 2009.

Operating Expenses -- Operating expenses for the first quarter of 2010 were approximately $1.6 million, up 195.1% from $0.6 million for the first quarter of 2009. Selling expenses totaled $0.9 million for the first quarter of 2010, as compared to $3,559 for the first quarter of 2009. The increase was mainly in transportation cost, which totaled $0.89 million, due to the growth of the Company's business in 2010. General and administrative expenses totaled $0.7 million for the first quarter of 2010, as compared to $0.5 million for the first quarter of 2009, an increase of 31.0% due primarily to the expansion of the Company's operations.

Income from Operations -- Income from operations in the first quarter of 2010 increased 220.6% to $8.5 million from $1.9 million in the same period in 2009, with operating margins of 30.8% compared to 31.0% in the respective periods.

Net Income -- For the first quarter of 2010, the Company reported net income of $20.4 million compared to net income of $1.6 million for the first quarter of 2009, with a corresponding net income per share of $1.37 compared to net income per share of $0.17 based on 14.9 million and 9.3 million diluted shares, respectively. The increase in net income for the first quarter of 2010 is primarily attributable to a gain on extinguishment of derivative liability, offset by charges for the change in the fair value of certain derivative liabilities and amortization of notes discount. Results for the first quarter of 2009 included charges related to the shares of common stock held by the Company's Chief Executive Officer and placed in escrow in connection with the Company's September 2008 financing transaction and to charges for amortization of notes discount, offset by a gain related to the change in the fair value of certain derivative liabilities. Excluding these items, adjusted net income for the first quarter of 2010 and 2009 would have been $4.9 million and $1.4 million, respectively, with corresponding adjusted net income per share of $0.33 and $0.15 based on 14.9 million and 9.3 million diluted shares, respectively. (See "Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income" table below.)

"We are pleased with our strong revenue growth and operating results during the first quarter of 2010, and expect robust growth to continue during 2010 due to our increased production capacity and growing demand for coal water slurry fuel in China," stated Baowen Ren, Chairman of Sino Clean Energy. "Our total production capacity today is 850,000 metric tons and we plan to expand our production capacity to 1,050,000 metric tons by the end of 2010. Currently, we have 35 customers under CWSF supply agreements totaling approximately 800,000 metric tons per year. The CWSF market continues to expand due to growing customer demand for clean and efficient sources of energy and the government's mandate for reduced emissions through improved utilization of coal. CWSF increases burning efficiency and reduces air pollution, coal consumption and coal material costs for end users while generating attractive gross profit margins for energy producers. As a result, we believe we are well-positioned to further drive incremental revenue and earnings growth and will continue to build upon being a leading producer of CWSF in China."

Liquidity and Capital Resources

Cash and cash equivalents were $25.8 million at March 31, 2010 compared to $18.3 million at December 31, 2009. For the first quarter of 2010, the Company generated $11.3 million in net cash flow from operations, compared to $2.4 million in the first quarter of 2009. The Company had working capital of $6.9 million at March 31, 2009 and a current ratio of 1.26-to-1. Inventories were $0.8 million and the accounts receivable balance was $2.8 million at March 31, 2010, compared to approximately $0.9 million and $3.7 million respectively at December 31, 2009. The annualized days sales outstanding for the first quarter of 2010 were 41 days.

Financial Outlook for 2010

For the year ending December 31, 2010, management reaffirmed guidance and expects revenues of at least $105 million in revenues and adjusted net income of at least $25 million, representing an increase of approximately 128.3% and 127.3% compared to 2009 revenues and adjusted net income, respectively. This guidance assumes total sales volume of 850,000 metric tons of CWSF in 2010. The Company expects to end 2010 with 1,050,000 metric tons of total CWSF production capacity.

Conference Call

The conference call will take place at 10:30 a.m. ET on Tuesday, May 18, 2010. Interested participants should call 1-877-941-1427 when calling within the United States or 1-480-629-9664 when calling internationally.

A playback will be available through May 25, 2010. To listen, please call 1-800-406-7325 within the United States or 1-303-590-3030 when calling internationally. Utilize the pass code 4299949 for the replay.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://viavid.net/dce.aspx?sid=00007551 , or visiting ViaVid's website at http://www.viavid.net , where the webcast can be accessed through May 25, 2010.

About Sino Clean Energy

Sino Clean Energy is a U.S. publicly traded company and a China-based producer and distributor of coal-water slurry fuel ("CWSF"). With locations in Shaanxi Province and Liaoning Province, Sino Clean Energy is the largest CWSF producer in Northwestern China with 850,000 metric tons of total annual capacity. For more information about Sino Clean Energy, please visit http://www.sinocei.net/ .

About Non-GAAP Financial Measures

The following table excludes from net income (loss) certain items related to the cost of escrow shares put in escrow by the Company's chairman as a guarantee on the issuance of Sino Clean Energy's convertible notes, the change in fair value of the derivatives created upon issuance of the Company's private placement related to the conversion feature of the notes and the fair value during the period of the warrants issued to the convertible note holders, as well as the extinguishment of a portion of the derivative upon conversion of the notes, and amortization of the valuation discount recorded as interest expense relating to these convertible notes. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of Sino Clean Energy. Accordingly, management excludes these items when making operational decisions. The Company believes that providing to its investors the non-GAAP measures that management uses is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.

Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income

(Unaudited)

2010 2009

GAAP Net (loss) income $20,460,621 $1,562,160

Non-GAAP

Expense related to escrow

shares -- $120,167

Gain on extinguishment of

derivative liability $(28,404,181) --

Change in fair value of

derivative liabilities $4,239,929 $(578,978)

Amortization of notes

discount $8,601,975 $329,338

Adjusted Net income $4,894,334 $1,432,687

Safe Harbor Statement

This press release contains certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to uncertainties in product demand, the impact of competitive products and pricing, our ability to obtain regulatory approvals, changing economic conditions around the world, release and sales of new products and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information please contact:

Company:

Ming Lee

Assistant to the Chairman

Tel: +86-29-8406-7376 (China)

Email: marin_lm@163.com

Investor Relations:

HC International, Inc.

Ted Haberfield

Executive VP

Tel: +1-760-755-2716

Email: thaberfield@hcinternational.net

Web: http://www.hcinternational.net

FINANCIAL TABLES FOLLOW

Sino Clean Energy Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, December 31,

ASSETS 2010 2009

Current assets (Unaudited)

Cash and cash equivalents $25,760,626 $18,302,558

Accounts receivable, net 2,791,092 3,655,473

Inventories 809,277 892,609

Prepaid inventories 4,254,320 5,453,095

Prepaid expenses 22,084 259,627

Tax recoverable -- 138,495

Other receivables 18,469 65,584

Land use right - current portion 38,750 38,739

Total current assets 33,694,618 28,806,180

Property, plant and equipment, net 15,634,747 12,557,691

Land use right - non current portion 1,769,369 1,778,562

Goodwill 762,018 762,018

Prepayments and deposits 1,228,390 729,328

Total assets $53,089,142 $44,633,779

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current liabilities

Accounts payable and accrued expenses $3,605,237 $2,672,211

Taxes payable 2,132,203 1,577,249

Amount due to directors 73,466 73,466

Derivative liabilities 20,992,787 16,752,858

Total current liabilities 26,803,693 21,075,784

Convertible notes, net of discount -- 1,615,025

Derivative liabilities -- 28,404,181

Total liabilities 26,803,693 51,094,990

Commitments and Contingencies

Shareholders' Equity (Deficiency)

Preferred stock, $0.001 par value,

50,000,000 shares authorized, none

issued and outstanding -- --

Common stock, $0.001 par value,

30,000,000 shares authorized,

16,556,250 and 10,849,863 issued

and outstanding as of March 31, 2010

and December 31, 2009 respectively 16,557 10,850

Additional paid-in capital 37,700,930 25,432,804

Accumulated deficit (15,342,366) (35,802,987)

Statutory reserves 1,758,553 1,758,553

Accumulated other comprehensive income 2,151,775 2,139,569

Total Shareholders' equity (deficiency) 26,285,449 (6,461,211)

Total liabilities and shareholders' equity

(deficiency) $53,089,142 $44,633,779

Sino Clean Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Other Comprehensive Income

(Unaudited)

Three Months ended March 31,

2010 2009

Revenue $24,509,004 $7,778,277

Cost of goods sold (14,400,177) (5,348,107)

Gross profit 10,108,827 2,430,170

Selling expenses 911,079 3,559

General and administrative expenses 719,182 548,899

Income from operations 8,478,566 1,877,712

Other income (expense)

Interest and finance costs (10,444,563) (485,747)

Expense related to escrow shares -- (120,167)

Interest income 12,871 3,986

Change in fair value of derivative

liabilities (4,239,929) 578,978

Gain on extinguishment of

derivative liability 28,404,181 --

Total other income (expense) 13,732,560 (22,950)

Income before provision for income

taxes 22,211,126 1,854,762

Provision for income taxes 1,750,505 289,286

Net income 20,460,621 1,565,476

Other comprehensive income (loss)

Foreign currency translation

adjustment 12,206 (3,316)

Comprehensive income $20,472,827 $1,562,160

Weight average number of shares

-Basic 12,851,265 9,219,471

-Diluted 14,933,797 9,275,123

Income per common share

-Basic $1.59 $0.17

-Diluted $1.37 $0.17

Sino Clean Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders' Equity

For the three months ended March 31, 2010

(Unaudited)

Additional

Common stock paid-in Statutory

Shares Amount capital reserves

Balance, January 1,

2010 10,849,863 $10,850 $25,432,804 $1,758,553

Shares issued for

exercise of warrants

and options 62,632 63 173,917 --

Fair value of options

granted -- -- 18,152 --

Shares issued upon

conversion of notes

payables 5,643,755 5,644 12,076,057 --

Net income -- -- -- --

Foreign currency

translation gain -- -- -- --

Balance, March 31,

2010 16,556,250 $16,557 $37,700,930 $1,758,553

Retained Accumulated

earnings other

(Accumulated comprehensive

Deficit) income Total

Balance, January 1, 2010 $(35,802,987) $2,139,569 $(6,461,211)

Shares issued for exercise

of warrants and options -- -- 173,980

Fair value of options

granted -- -- 18,152

Shares issued upon

conversion of notes

payables -- -- 12,081,701

Net income 20,460,621 -- 20,460,621

Foreign currency

translation gain -- 12,206 12,206

Balance, March 31, 2010 $(15,342,366) $2,151,775 $26,285,449

Sino Clean Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months ended March 31,

2010 2009

Cash flow from operating activities:

Net income $20,460,621 $1,565,476

Adjustments to reconcile net income

to cash provided by operating

activities:

Depreciation and amortization 469,002 356,063

Amortization of deferred debt

issuance costs -- 97,128

Amortization of discount on

convertible notes 8,601,975 329,338

Fair value of common stock issued

for payment of interest expense 1,864,701 --

Expense related to escrow shares -- 120,167

Fair value of common stock issued

for services -- 233,300

Fair value of vested options 18,152 --

Change in fair value of

derivative liabilities 4,239,929 (578,978)

Gain on extinguishment of

derivative liabilities (28,404,181) --

Change in operating assets and

liabilities:

Accounts receivable 864,382 (874,993)

Other receivables 47,115 820

Prepaid expenses 237,543 --

Inventories 83,332 (97,682)

Prepaid inventories 1,198,775 --

Tax recoverable 138,495 --

Accounts payable and accrued

expenses 933,026 178,809

Taxes payable 554,955 261,239

Net cash provided by operating

activities 11,307,822 1,590,687

Cash flows from investing activities:

Prepayments and deposits (499,062) 848,397

Purchase of property, plant and

equipment (3,532,523) --

Net cash used in investing

activities (4,031,585) 848,397

Cash flows from financing activities:

Payment of advances from director -- (394,956)

Cash received from exercise of

warrants and options 173,980 --

Net cash provided by (used in)

financing activities 173,980 (394,956)

Effect of foreign currency

translation 7,851 (523)

Net increase in cash and cash

equivalents 7,458,068 2,043,605

Cash and cash equivalents, beginning

of period 18,302,558 3,914,306

Cash and cash equivalents, end of

period $25,760,626 $5,957,911

Supplemental disclosure information

Interest paid $ -- $ --

Income taxes paid $1,616,656 $542,632

Supplemental non-cash investing and

financing activities

Issuance of shares upon conversion

of convertible notes $10,217,000 $ --

Issuance of shares to consultant $ -- $233,300

Cumulative effect of change in

accounting principle on convertible

notes and warrants $ -- $4,589,792

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