Shenzhen, China August 17, 2008 – Zhaoheng Hydropower (OTC Bulletin Board: ZHYP) (“Zhaoheng Hydropower” or the “Company”), a leader in small to medium sized hydropower generation in Midwest China, today announced its unaudited financial results for the second quarter ended June 30, 2008.

 

“We are very pleased to report strong results for the first time as a publicly traded company,” commented Mr. Xu Guosheng, Chairman and Chief Executive Officer of Zhaoheng Hydropower.  “Our investments are paying off as we saw a strong increase in revenues compared to the same quarter last year.  Revenues were primarily driven by an increased installed capacity from acquisition and new construction, an increase in electricity tariffs, and an improvement in operational effectiveness and efficiency.  We continue to remain positive on the future outlook of our business as we expect crude oil prices to remain high and benefit alternative energy companies.  We will also benefit as the Chinese government persists on treating hydropower as a priority in energy resources.” 

 

 

 

Revenues were $3,342,642 million, an increase of 30% from $2,363,423 in the three months ended June 30, 2007.  This growth was due primarily to an increase in both electricity tariff and installed capacity. 

The average electricity tariff for our Hunan facilities was RMB 0.2410/KWH in the second quarter compared to RMB 0.2406/KWH for the three months ended June 30, 2007.  Two new generating units with total installed capacity of 50 MW were put into use in April 2008 and another hydropower station was acquired in June 2008, bringing the total installed capacity of the Company to 120MW by June 30, 2008.

 

 

Cost of sales was $755,592, or 20.9% of our net sales compared to $450,783, or 19.1% of our net sales in the three months ended June 30, 2007.  There was a 1.8% increase in the cost of sales due to an increase in installed capacity from 65MW to 120MW.  However our total output in the second quarter did not increase in proportion to the increase in installed capacity due to decreased rainfall in the same period.  Our cost of sales consists of fixed asset depreciation, equipment maintenance cost, direct labor costs, overhead and state taxes (not including value-added tax, price exclusive tax and corporate income tax).

 

 

Total operating expenses, which include selling and administrative expenses, decreased to $214,207 from $316,580 for the three months ended June 30, 2007. The decrease in operating expenses was mainly due to reduced labor cost through the spin off of our subsidiary Hunan Jiuli Hydropower Construction Co, Ltd on April 30, 2008.

 

 

Starting from January 1, 2008, our subsidiaries Hunan Sanjiang Power Co., Ltd. and Hunan Zhaoheng Hydropower Co., Ltd. started charging interest on the loans to our related party Shenzhen Zhaoheng Industrial Co., Ltd.  We realized interest income of $963,845, compared with an interest income of $1,567 in the second quarter of 2007. Interest rates charged on these loans are 120% of the benchmark rate set by People’s Bank of China.

 

 

Interest expense was $1,153,397 in the second quarter compared to $180,632 in the second quarter of 2007. This increase was due to capitalization of interest costs occurred during the construction of a new hydropower plant by our subsidiary Hunan Zhaoheng Hydropower Co., Ltd.

 

 

Net income increased to approximately $2.2 million in the second quarter from approximately $1.08 million in the same quarter one year ago.  Net income as a percentage of revenue increased 19.7% mainly as a result of reduced operating expenses and increased interest income. Also, we realized investment income of $131,773 in Zhaoheng (Shimen) Weile Tungsten Co., Ltd in the second quarter.