Sino Gas Intl Hldgs (GREY:SGAS)

BEIJING and SALT LAKE CITY, November 27, 2014 /PRNewswire/ -- Sino Gas International Holdings, Inc. (the "Company", OTCBB: SGAS), a Utah corporation engaging in the development of natural gas distribution systems and the distribution of natural gas to residential and industrial customers in small- and medium-sized cities in the People's Republic of China, today announced the completion on November 26, 2014 of the merger (the "Merger") contemplated by the previously announced Agreement and Plan of Merger, dated as of April 3, 2014, as amended by the Amendment to the Agreement and Plan of Merger, dated April 16, 2014, and Amendment No. 2 to the Agreement and Plan of Merger dated June 2, 2014 by and between Prosperity Gas Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("Parent"), Merger Sub Gas Holdings Inc., a Utah corporation and a wholly owned subsidiary of Parent ("Merger Sub") and the Company (the "Merger Agreement") providing for the merger of Merger Sub with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Parent. Pursuant to the Merger Agreement, Merger Sub merged with and into the Company, with the Company surviving the Merger as a wholly-owned subsidiary of Parent.

Under the terms of the Merger Agreement, which was approved by the Company's stockholders at a special meeting held on August 6, 2014, at the effective time of the Merger (the "Effective Time"), each share of Company common stock issued and outstanding immediately prior to the Effective Time was converted into the right to receive US $1.30 in cash, without interest, less any applicable withholding taxes, except for (a) shares of common stock owned by the Company or any of the Company's subsidiaries, which will be cancelled at the effective time of the merger for no consideration, (b) all of the shares of common stock currently beneficially owned by Mr. Yuchuan Liu, the Company's Chief Executive Officer, which, pursuant to a contribution agreement entered into among Mr. Yuchuan Liu, Parent and Harmony Gas Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and the wholly owned parent of Parent ("Holdco") dated April 3, 2014, will be contributed to Parent and will be cancelled for no consideration at the effective time of the merger, and (c) shares of common stock owned by shareholders who have exercised and perfected dissenters' rights in accordance with applicable Utah law.

Stockholders of record will receive a letter of transmittal and instructions on how to surrender their stock certificates in exchange for the merger consideration. Stockholders should wait to receive the letter of transmittal before surrendering their stock certificates.

Item 2.01, Completion of Acquisition or Disposition of Assets.

On November 26, 2014, the Company has completed the merger contemplated under and pursuant to the Merger Agreement, resulting in Merger Sub merged with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Parent.

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On September 3, 2014, in connection with the anticipation of the Merger, the Company has submitted to OTC Corporate Actions unit of FINRA its merger request. Upon the completion of the merger and the final approval by FINRA, shares of Company common stock will no longer be traded on the OTC Bulletin Board (the “OTCBB”), and price quotations with respect to shares of Company common stock in the public market will no longer be available.

Item 2.01, Completion of Acquisition or Disposition of Assets.

On November 26, 2014, the Company has completed the merger contemplated under and pursuant to the Merger Agreement, resulting in Merger Sub merged with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Parent.

Sino Gas International Holdings, Inc.

Consolidated Statements of Income

For the three months and nine months ended September 30, 2014 and 2013

(Stated in US Dollars)

 

		Three Months Ended								Nine Months Ended
		9/30/2014				9/30/2013				9/30/2014				9/30/2013
Sales revenue		$	22,649,778			$	13,878,779			$	55,145,335			$	42,171,537
Cost of revenue			17,964,200				8,260,261				42,929,140				27,861,037
Gross Profit			4,685,578				5,618,518				12,216,195				14,310,500
Operating Expense
Selling expense			1,500,412				1,340,699				4,481,393				3,739,652
General and administrative expense			1,742,829				1,260,485				4,375,687				4,131,962
Total operating expense			3,243,241				2,601,184				8,857,080				7,871,614
Operating Income/(Loss)			1,442,337				3,017,334				3,359,115				6,438,886
Other Income/(Expense)
Investment Income/(Loss)			72				198,121				24,865				196,009
Other income			-				154,703				526,318				186,144
Other expense			(1,063,404	)			14,425				(370,817	)			(109,442	)
Interest income			11,524				41,913				97,818				142,075
Interest expense			(536,472	)			(933,705	)			(1,936,695	)			(2,802,258	)
Total other income/(expense)			(1,588,280	)			(524,543	)			(1,658,511	)			(2,387,472	)
Income before tax			(145,943	)			2,492,791				1,700,604				4,051,414
Income tax			(401,160	)			(495,011	)			(894,369	)			(1,273,694	)
Net income/(loss)			(547,103	)			1,997,780				806,235				2,777,720
Net income (loss) attributable to:
- Common stockholders			(546,812	)			1,996,282				809,889				2,779,218
- Non-controlling interest			(291	)			(1,498	)			(3,654	)			(1,498	)
Other Comprehensive income
Foreign currency translation adjustment			300,717				916,233				422,906				2,651,699
Comprehensive income/(loss)			(246,386	)			2,914,013				1,229,141				5,429,419
Comprehensive Income/(Loss) Attributable to:
-Common stockholders			(246,386	)			2,914,013				1,229,141				5,429,419
-Non-controlling stockholders			-				-				-				-
			(246,386	)			2,914,013				1,229,141				5,429,419
Earnings per share
Basic: -Net income			0.00				0.06				0.01				0.08
Diluted: -Net income			0.00				0.06				0.01				0.08
Weighted Average Shares Outstanding
Basic			57,608,833				32,650,813				57,608,833				32,650,813
Diluted			57,608,833				32,650,813				57,608,833				32,650,813

Management Discussion and Anlaysis

Total net revenues for the three months ended September 30, 2014 increased 63.2% to $22.6 million from the same period in 2013. During the three months ended September 30, 2014, we connected 13,530 new residential households to our gas distribution network, resulting in total connection fees of $7.67 million. Gas sales during the three months ended September 30, 2014 were $14.98 million.

Net income for the three months ended September 30, 2014 was negative $0.5 million, compared with net income of $2.0 million for the same period of 2013.

Item 5.07

Submission of Matters to a Vote of Security Holders.

 

The following proposals were submitted to the Company’s stockholders at the Special Meeting:

 

(1)

To approve the Agreement and Plan of Merger, dated April 3, 2014, as amended by the Amendment to the Agreement and Plan of Merger, dated April 16, 2014, and Amendment No. 2 to the Agreement and Plan of Merger, dated June 2, 2014, by and among Prosperity Gas Holdings Limited, Merger Sub Gas Holdings Inc. and the Company, providing for the merger of Merger Sub Gas Holdings Inc. with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Prosperity Gas Holdings Limited.

 

The votes regarding the approval of the merger transaction were as follows:

  

FOR		AGAINST		ABSTAIN
48,258,716		38		511

Item 1.01. Entry into a Material Definitive Agreement.

On June 2, 2014, Sino Gas International Holdings, Inc. (the “Company”) entered into Amendment No. 2 to the Agreement and Plan of Merger that the Company entered into on April 3, 2014 (Hong Kong time) with Prosperity Gas Holdings Limited, a Cayman Islands exempted company (“Parent”) and Merger Sub Gas Holdings Inc., a Utah corporation and a wholly owned subsidiary of Parent (“Merger Sub,” together with the Company and Parent, the “Parties” and any one of them a “Party”), as amended by that certain Amendment to the Agreement and Plan of Merger, dated as of April 16, 2014 (“Amendment No. 1”) (as amended, the “Merger Agreement”) with Parent and Merger Sub (this “Amendment”). The Merger Agreement is previously reported in, and attached as Exhibit 9.1 to, the Company’s Current Report on Form 8-K filed on April 3, 2014 which is incorporated herein by reference; and Amendment No. 1 is previously reported in, and attached as Exhibit 9.1 to, the Company’s Current Report on Form 8-K filed on April 18, 2014, which is also incorporated herein by reference.

The Amendment
 

The Parties agreed on the following amendments to the Merger Agreement:

1. The No Conflict; Required Filings and Consents section (Section 3.05(b) of the Merger Agreement) is amended to include the Anti-monopoly Law of the People’s Republic of China as well as any official clarifications, guidance, interpretations or implementation rules in connection with or related to the AML (collectively, the “PRC AML Rules”) to the requisite regulatory approvals for the merger transaction.
 

2. The No Conflict; Required Filings and Consents section (Section 4.03(b) of the Merger Agreement) is amended to include the approval of the applicable governmental authority under the PRC AML Rules in the filings and consents required.

3. The Further Actions; Reasonable Best Efforts section (Section 6.08(a) of the Merger Agreement) is amended to obligate each party to use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective the Transactions, including, without limitation, employing such resources as are necessary to obtain the Requisite Regulatory Approvals and the approval of the applicable Governmental Authority under the PRC AML Rules.

4. The Regulatory Approvals section (Section 7.01(c) of the Merger Agreement) is amended to include the approval of the applicable governmental authority under the PRC AML Rules in the requisite regulatory approvals, with certain exceptions.

5. The SAFE Registration section (Section 7.02(e) of the Merger Agreement) is amended to read, as follows:

(e) SAFE Registration. (i) Members of management of the Company who are PRC residents shall have duly completed the registration described in Section 6.15(a); and (ii) the Company shall have duly completed the registration described in Section 6.15(b).

6. The Long Stop Date section (Section 8.02(a) of the Merger Agreement) is amended so that the new termination date of the merger transaction due to non-consummation on a non-fault basis is December 31, 2014.

Sino Gas International Holdings, Inc.

Consolidated Statements of Income and Comprehensive Income

For the three-month periods ended March 31, 2014 and 2013

(Stated in US Dollars)

 

 

		Notes		3/31/2014				3/31/2013
Sales		2(r)			15,491,830			$	13,429,892
Cost of revenue		2(s)			(10,007,965	)			(9,890,214	)
Gross Profit					5,483,865				3,539,678
Operating Expenses
Selling expenses					(1,588,716	)			(1,215,699	)
General and administrative expenses					(1,160,561	)			(1,647,358	)
Total operating expenses					(2,749,277	)			(2,863,057	)
Operating Income					2,734,588				676,621
Other Income/(Expense)
Other income					28,079				1,459
Other expense					(267,538	)			(66,316	)
Interest income					48,485				41,351
Interest expense					(614,939	)			(924,872	)
Total other income/(expense)					(805,913	)			(948,378	)
Earnings from continued operation before tax					1,928,675				(271,757	)
Income taxes		2(t),15			(260,839	)			(362,625	)
Income from continued operation					1,667,836				(634,382	)
Income/(loss) from discontinued operation, net of tax		18(b)			-				-
Net income				$	1,667,836			$	(634,382	)
Net Income Attributable to
-Common stockholders				$	1,667,742			$	(633,674	)
-Non-controlling stockholders				$	(906	)		$	(708	)
				$	1,667,836			$	(634,382	)
Other Comprehensive income
Foreign currency translation adjustment					165,509				2,227,727
Comprehensive income				$	1,833,345			$	1,593,346
Comprehensive Income Attributable to:
-Common stockholders				$	1,834,341			$	1,591,567
-Non-controlling stockholders				$	(996	)		$	1,779
				$	1,833,345			$	1,593,346
Earnings Per Share		2(z),16
Basic:     -Net income				$	0.03			$	(0.02	)
-Income from continued operation					0.03				(0.02	)
-Income from discontinued operation					0.00				0.00
Diluted: -Net income				$	0.03			$	(0.02	)
-Income from continued operation					0.03				(0.02	)
-Income from discontinued operation					0.00				0.00
Weighted Average Shares Outstanding
-Basic					57,608,833				31,793,698
-Diluted					57,608,833				31,793,698

Management Discussion and Analysis

Net Revenues

We generate revenues from two sources: connection fees for constructing connections to our natural gas distribution network and fees for sales of natural gas.

Total net revenues for the three months ended March 31, 2014 were $15,491,830, compared to $13,429,892 for the same period in 2013, representing an increase of 15.4%. The increase was due to increases in both gas sales and connection fees, but primarily due to the significant increase in the revenue from connection fees. During this period, we connected 11,245 new residential households to our gas distribution network, resulting in total connection fees of $4,505,559. In comparison, we connected 8,675 new residential households to our gas distribution network for the same period of 2013, resulting in total connection fees of $3,102,319. Gas sales during the three months ended March 31, 2014 were $10,985,821. Gas sales during the same period in 2013 were $10,327,572.

Net Income

Net income for the three months ended March 31, 2014 was $ 1.7 million, compared with net loss of $0.6 million for the same period of 2013.  This increase was due to the higher gross profit during the three months ended March 31, 2014.

Item 1.01. Entry into a Material Definitive Agreement.

 
On April 16, 2014, Sino Gas International Holdings, Inc. (the “Company”) entered into an Amendment to the Agreement and Plan of Merger that the Company entered into on April 3, 2014 (Hong Kong time) with Prosperity Gas Holdings Limited, a Cayman Islands exempted company (“Parent”) and Merger Sub Gas Holdings Inc., a Utah corporation and a wholly owned subsidiary of Parent (“Merger Sub,” together with the Company and Parent, the “Parties” and any one of them a “Party”) (the “Merger Agreement”) with Parent and Merger Sub (the “Amendment”). The Merger Agreement is previously reported in, and attached as Exhibit 9.1 to, the Company’s Current Report on Form 8-K filed on April 3, 2014 which is incorporated herein by reference.

The Amendment
 

The Parties agreed on the following amendments to the Merger Agreement:

1. The “Company Shareholders’ Meeting” section (Section 6.02 of the Merger Agreement) is amended to remove the Company’s obligation to convene a Company shareholders’ meeting (the “Meeting”) even if the board of directors of the Company (the “Board”) has determined that the merger contemplated under the Merger Agreement (the “Merger”) is no longer advisable. Also removed from this section is Parent’s consent as a condition to proposing matters other than the Merger to be acted upon by the Company shareholders (the “Shareholders”) at the Meeting. This section is further amended to permit the “Change in the Company Recommendation” (any change to the recommendation of the Merger by the Board in a manner adverse to Parent or Merger Sub) to affect the Company’s obligations in using reasonable best efforts to solicit Shareholders proxies in favor of the approval of the Merger, subject to Section 6.04(c) of the Merger Agreement.

2. The “No Solicitation of Transactions” section (Section 6.04 of the Merger Agreement) is amended to grant the Board the right to authorize the Company to terminate the Merger Agreement, in connection with, and in addition to, the right to recommend a “Superior Proposal” (a unsolicited a proposal of merger, acquisition, or other similar transaction that the Board determines to be more favorable to the Shareholders), pursuant to the relevant terms and conditions under the Merger Agreement. This section is further amended so that, if (1) the Company has complied with its obligations regarding the acceptance of a Superior Proposal, (2) the Board issued a Change in the Company Recommendation, and (3) the Company has terminated the Merger Agreement, then, the obligation of the Company to call, give notice of, convene and hold the Meeting may be limited or affected by a competing transaction.

3. The “Termination by the Company” section (Section 8.03 of the Merger Agreement) is supplemented by a new subsection 8.03(c), “Consummation of a Competing Transaction”, which provides that, to accept a Superior Proposal, the Company may terminate the Merger Agreement before the requisite vote in favor of the approval of the Merger is obtained (in accordance with the relevant terms and conditions under the Merger Agreement, including that (1) the Company, simultaneously with the termination of the Merger Agreement, will enter into an agreement to consummate such Superior Proposal and pay to Parent $2,656,402 (the “Company Termination Fee”) and (2) the Company has complied in all material respects with the provisions of the “No Solicitation of Transactions” section).

4. The “Fees Following Termination” section (Section 8.06 of the Merger Agreement) is amended to conform the changes described immediately above, by adding “Consummation of a Competing Transaction” as a trigger of the obligation of the Company to pay to Parent the Company Termination Fee.

The Amendment is hereby filed as Exhibit 9.1 to this Current Report on Form 8-K. The foregoing summary of the terms of the document is subject to, and qualified in its entirety by, such document attached hereto, which is incorporated herein by reference.

 

Sino Gas International Holdings, Inc.

Consolidated Statements of Income and Comprehensive Income

For the years ended December 31, 2013 and 2012

(Stated in US Dollars)

			Notes			12/31/2013				12/31/2012
Sales			2(r)		$	68,442,045			$	50,399,529
Cost of revenue			2(s)			(46,147,604	)			32,356,568
Gross Profit						22,294,441				18,042,961
Operating Expenses
Selling expenses						5,431,969				3,686,534
General and administrative expenses						6,726,313				4,998,365
Total operating expenses						12,158,282				8,684,899
Operating Income						10,136,159				9,358,062
Other Income/(Expense)
Investment income			2(s)			4,136,340				2,985,233
Other income						482,349				1,979,844
Other expense						(688,799	)			(2,748,237	)
Interest income						185,413				253,924
Interest expense						(3,446,647	)			(3,395,554	)
Gain on disposal of subsidiaries			18(a)			-				-
Total other income/(expense)						668,656				(924,790	)
Earnings from continued operation before tax						10,804,815				8,433,272
Income taxes			2(t),15			(2,287,358	)			(2,049,832	)
Income from continued operation						8,517,457				6,383,440
Income/(loss) from discontinued operation, net of tax			18(b)			-				-
Net income					$	8,517,457			$	6,383,440
Net Income Attributable to
-Common stockholders					$	8,481,295			$	5,321,721
-Non-controlling stockholders					$	36,162			$	1,061,719
					$	8,517,457			$	6,383,440
Other Comprehensive income
Foreign currency translation adjustment						2,802,636				(2,748,884	)
Comprehensive income					$	11,320,093			$	3,634,556
Comprehensive Income Attributable to:
-Common stockholders					$	11,272,032			$	3,030,042
-Non-controlling stockholders					$	48,061			$	604,514
					$	11,320,093			$	3,634,556
Earnings Per Share			2(z),16
Basic:	-Net income				$	0.22			$	0.17
	-Income from continued operation					0.22				0.17
	-Income from discontinued operation					0.00				0.00
Diluted:	-Net income				$	0.22			$	0.17
	-Income from continued operation					0.22				0.17
	-Income from discontinued operation					0.00				0.00
Weighted Average Shares Outstanding
	-Basic					39,155,453				31,795,007
	-Diluted					39,155,453				40,854,873
Earnings Per Share
-Net income					$	0.15			$	0.17
	-Income from continued operation					0.15				0.17
	-Income from discontinued operation					0.00				0.00
Number of Shares Outstanding						57,608,833				31,802,382

Management Discussion and Analysis

Net Revenues

We generate revenues from two sources: connection fees for constructing connections to our natural gas distribution network, and sales of natural gas.

Total net revenues for the year ended December 31, 2013 were $68,442,045, compared to $50,399,529 for the same period in 2012, representing an increase of 35.8%. The increase was due to the increases of both gas sales, and the connection fees. In 2013, we connected 72,882 new residential households to our gas distribution network, resulting in total connection fees of $27,124,579. Gas sales during the twelve months ended December 31, 2013 were $41,259,554. In comparison, we connected 59,009 new residential households to our gas distribution network in 2012, resulting in total connection fees of $23,426,503. Gas sales during the same period in 2012 were $26,973,026.

Net Income

Net income for the year ended December 31, 2013 was $8.5 million, an increase of 33.4% from $6.4 million in the same period in 2012. This result was due to the higher revenue and higher gross margin accomplished in 2013.

Item 1.01. Entry into a Material Definitive Agreement.

On April 3, 2014 (Hong Kong time), Sino Gas International Holdings, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Prosperity Gas Holdings Limited, a Cayman Islands exempted company (“Parent”) and Merger Sub Gas Holdings Inc., a Utah corporation and a wholly owned subsidiary of Parent (“Merger Sub,” together with the Company and Parent, the “Parties” and any one of them a “Party”).
 

The Merger Agreement

Pursuant to the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into the Company with the Company surviving the merger and becoming a wholly-owned subsidiary of Parent (the “Merger”). In connection with and at the effective time of the Merger, each share of the Company’s common stock that is outstanding immediately prior to the effective time of the Merger will be cancelled in consideration for the right to receive $1.30 in cash without interest (the “Merger Consideration”), except for (a) shares to be rolled over by Mr. Liu in connection with the Merger, which shares will be cancelled for no consideration at the effective time of the Merger, and (b) shares of the Company’s common stock owned by shareholders who have exercised and not effectively withdrawn or lost the right of dissent in accordance with applicable Utah law, which shares will be cancelled at the effective time of the Merger and will entitle the former holders thereof to receive the appraised value thereon in accordance with applicable Utah law.

Following the effective time of the Merger, Parent will be beneficially owned by Mr. Liu, an affiliate or affiliates of Morgan Stanley Private Equity Asia, and Zhongyu Gas Holdings Limited. Currently, Mr. Liu beneficially owns approximately 11.3% of the outstanding shares of the Company’s common stock.

The Merger Agreement contains representations and warranties of the Company, on the one hand, and of Parent and Merger Sub, on the other. The assertions embodied in those representations and warranties were made solely for purposes of the contract among the Parties and may be subject to important qualifications and limitations agreed to by the Parties in connection with the negotiated terms. Moreover, some of those representations and warranties (a) may not be accurate or complete as of any specified date, (b) may be subject to a contractual standard of materiality different from those generally applicable to shareholders or (c) may have been used for purposes of allocating risk among the Parties rather than establishing matters as facts. Accordingly, the Merger Agreement is included with this filing only to provide investors with information regarding the terms of the Merger Agreement, and not to provide investors with any factual information regarding the Company or its business. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

The Parties have also agreed to certain covenants, including covenants requiring the Company to conduct its business in the ordinary course of business consistent with past practice in all material respects and use commercially reasonable efforts to preserve substantially intact its business organization and relationships with governmental authorities, customers, suppliers and other persons with which it has material business relations and keep available the services of its current officers and key employees through the effective time of the merger, except as expressly provided in the Merger Agreement.

Consummation of the merger is subject to the satisfaction or waiver of customary closing conditions, including, but not limited to: (a) adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the issued and outstanding common shares of the Company; (b) the absence of any order, injunction or decree preventing or making illegal the consummation of the merger; (c) the truth and correctness of each Party’s representations and warranties at closing (subject to materiality qualifiers); (d) the compliance of each party with its covenants in all material respects, and (e) the absence of any material adverse effect on the Company.

The Merger Agreement may be terminated at any time prior to the effective time of the merger by the Company and/or Parent (whether before or after the receipt of stockholder approvals) under the circumstances and in the manner prescribed in the Merger Agreement. Upon termination, the Merger Agreement shall forthwith become void and none of the Company, Parent, any of their respective subsidiaries or any of their respective representatives shall have any liability under the Merger Agreement, except that certain provisions such as confidentiality and payment of termination fees following termination shall survive any termination of the Merger Agreement.

In specified circumstances, if the Merger Agreement has been terminated, the Company shall pay Parent a termination fee in the amount of US$2,656,402,or receive from Parent a termination fee in the amount of US$1,992,302.

Parent intends to finance the Merger through a combination of (i) an equity commitment of approximately US$28.96 million by MSPEA Gas Holdings Limited, an affiliate of Morgan Stanley Private Equity Asia, (ii) an equity commitment of US$37.45 million by Zhongyu Gas Holdings Limited, a company listed on the Hong Kong Stock Exchange and a leading gas service operator in China, and (iii) rollover equity contributed by Mr. Liu through his investment vehicle.

The Company’s board of directors, acting upon the unanimous recommendation of a special committee comprised solely of directors of the Company who are independent and unaffiliated with any of Parent, Merger Sub, Mr. Liu, Morgan Stanley Private Equity Asia or its affiliates, Zhongyu Gas Holdings Limited or any of the management members of the Company (the “Special Committee”), approved the Merger Agreement and the Merger and resolved to recommend that the Company’s shareholders vote to approve the Merger Agreement and the Merger. The Special Committee exclusively negotiated the terms of the Merger Agreement with the assistance of its financial and legal advisors.

On April 3, 2013 (Hong Kong time), the Company issued a press release regarding the matters set forth above. A copy of the press release is filed herewith as Exhibit 99.1to this current report on Form 8-K and is incorporated herein by reference.

The Merger Agreement is hereby filed as Exhibit 9.1 to this Current Report on Form 8-K. The foregoing summary of the terms of the document is subject to, and qualified in its entirety by, such document attached hereto, which is incorporated herein by reference.

Concurrently with the execution of the Merger Agreement, Mr. Yuchuan Liu, Zhongyu Gas Holdings Limited, and Morgan Stanley Private Equity Asia IV Holdings Limited, entered into a Limited Guarantee (the “Limited Guarantee”) in favor of the Company, guaranteeing certain payment obligations of Parent pursuant to the Merger Agreement.

The Limited Guarantee is hereby filed as Exhibit 9.2 of this Current Report on Form 8-K. The foregoing summary of the terms of the document is subject to, and qualified in its entirety by, such document attached hereto, which incorporated herein by reference.

Sino Gas International Holdings, Inc.

Consolidated Statements of Income

For the year ended December 31, 2012 and 2011

(Stated in US Dollars)

 

		Notes		12/31/2012				12/31/2011
Sales		2(r)		$	50,399,529			$	41,680,718
Cost of revenue		2(s)			32,356,568				23,372,296
Gross Profit					18,042,961				18,308,422
Operating Expenses
Selling expenses					3,686,534				2,485,698
General and administrative expenses					4,998,365				4,677,798
Total operating expenses					8,684,899				7,163,496
Operating Income					9,358,062				11,144,926
Other Income/(Expense)
Investment income		2(s)			2,985,233				1,384,935
Other income					1,979,844				207,010
Other expense					(2,748,237	)			(323,394	)
Impairment loss					-				(791,569	)
Interest income					253,924				25,618
Interest expense					(3,395,554	)			(2,426,737	)
Gain on disposal of subsidiaries		18(a)			-				1,128,776
Total other income/(expense)					(924,790	)			(795,361	)
Earnings from continued operation before tax					8,433,272				10,349,565
Income taxes		2(t),15			(2,049,832	)			(2,265,313	)
Income from continued operation					6,383,440				8,084,252
Income/(loss) from discontinued operation, net of tax		18(b)			-				106,305
Net income				$	6,383,440			$	8,190,557
Other Comprehensive Income
Foreign currency translation adjustment					(2,748,884	)			336,547
Comprehensive Income				$	3,634,556			$	8,527,104
Comprehensive Income Attributable to:
-Common stockholders				$	3,030,042			$	8,386,577
-Non-controlling stockholders				$	604,514			$	140,527
				$	$ 3,634,556			$	8,527,104
Earnings Per Share		2(z),16
Basic:       Net income				$	0.17			$	0.29
Income from continued operation					0.17				0.28
Income from discontinued operation					0.00				0.01
Diluted:    Net income				$	0.17			$	0.23
Income from continued operation					0.17				0.23
Income from discontinued operation					0.00				0.00
Weighted Average Shares Outstanding
Basic					31,795,007				28,213,167
Diluted					40,854,873				37,476,056

BEIJING and SALT LAKE CITY, December 9, 2013 /PRNewswire-FirstCall/ -- Sino Gas International Holdings, Inc. (OTC Bulletin Board: SGAS), ("Sino Gas" or the "Company"), a holding company that is engaged in the development of natural gas distribution systems and the distribution, of natural gas to residential and industrial customers in small- and medium-sized cities in the People's Republic of China, today announced that a Special Committee comprised of independent directors (the "Special Committee") of the Company's Board of Directors (the "Board") has received a renewed, non-binding proposal letter (the "Renewed Proposal") dated December 8, 2013 from Mr. Yuchuan Liu ("Mr. Liu"), the Company's Chairman and Chief Executive Officer and President, and an affiliate of Morgan Stanley Private Equity Asia, the private equity arm of Morgan Stanley ("MSPEA"), to acquire all of the outstanding shares of common stock of the Company not currently owned by Mr. Liu (and possibly other rollover shareholders) (the "Shares") in a going private transaction for $0.50 in cash per Share (the "Acquisition"), subject to certain conditions.

Reference is made to that Proposal Letter, dated and delivered to the Board by Mr. Liu on April 28, 2012, in which Mr. Liu submitted a non-binding proposal to acquire all of the outstanding shares of the Company not owned by Mr. Liu in a going private transaction at US$0.48 in cash per share(the "Original Proposal"). Through the Renewed Proposal, Mr. Liu and MSPEA reaffirm and supplement the Original Proposal and together intend to effect the Acquisition.

According to the Renewed Proposal the Acquisition is proposed to be financed through equity capital and Mr. Liu and certain of the Company's management and affiliates intend to exchange all or part of their equity interests in the Company into equity securities in the post-Acquisition company.

The Board formed a Special Committee to consider the Original Proposal. The Special Committee will be responsible for evaluating the Renewed Proposal. The Board cautions the Company's shareholders and others considering trading in the Company's securities that the Special Committee has just received the Renewed Proposal and that no decisions have been made by the Special Committee with respect to the Company's response to the Renewed Proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.

Sino Gas International Holdings, Inc.

Consolidated Statements of Income

For the three-month periods ended March 31, 2013 and 2012

(Stated in US Dollars)

 

 

 

 

 

		Notes		3/31/2013				3/31/2012
Sales		2(r)		$	13,429,892			$	10,753,604
Cost of revenue		2(s)			(9,890,214	)			(8,067,032	)
Gross Profit					3,539,678				2,686,572
Operating Expenses
Selling expenses					(1,215,699	)			(765,687	)
General and administrative expenses					(1,647,358	)			(957,364	)
Total operating expenses					(2,863,057	)			(1,723,051	)
Operating Income					676,621				963,521
Other Income/(Expense)
Other income					1,459				22,337
Other expense					(66,316	)			(118,742	)
Interest income					41,351				101,318
Interest expense					(924,872	)			(772,303	)
Gain on disposal of subsidiaries		18(a)			-				-
Total other income/(expense)					(948,378	)			(767,390	)
Earnings from continued operation before tax					(271,757	)			196,131
Income taxes		2(t),15			(362,625	)			(238,257	)
Income from continued operation					(634,382	)			(42,126	)
Income/(loss) from discontinued operation, net of tax		18(b)			-				-
Net income				$	(634,382	)		$	(42,126	)
Net income attributed to common stockholder				$	(633,674	)			(41,323	)
Net income attributed to non-controlling stockholder				$	(708	)			(803	)
Earnings Per Share		2(z),16
Basic: - Net income				$	(0.020	)		$	(0.001	)
- Income from continued operation					(0.020	)		$	(0.001	)
- Income from discontinued operation					0.00				0.00
Diluted: - Net income				$	(0.020	)		$	(0.001	)
- Income from continued operation					(0.020	)		$	(0.001	)
- Income from discontinued operation					0.00				0.00
Weighted Average Shares Outstanding
- Basic					31,802,382				31,793,698
- Diluted					31,802,382				31,793,698

Item 1.01.

Entry into a Material Definitive Agreement.

On December 21, 2012, Sino Gas International Holdings, Inc. (the “Company”) entered into an $8,000,000 loan agreement (the “Agreement”) with Goldfield International Investment Ltd. (the “Lender”) pursuant to which the Company issued an $8,000,000 note (the “Note”) with a maturity date of December 20, 2013 (the “Transaction”). Pursuant to the Note, interest will accrue on the loan at a rate of 8% per annum subject to adjustment upon the occurrence of certain events. The Note is convertible into shares of common stock of the Company at an initial rate of $0.31 per share. The Company will use the proceeds of the Transaction to settle amounts due on the 8% Senior Secured Convertible Notes dated November 30, 2009 and December 23, 2009, as amended. In order to secure the Transaction, the Company, pursuant to a pledge agreement dated December 21, 2012 (the “Pledge Agreement”), pledged 100% of the shares of GAS Investment China Co., Ltd., a British Virgin Islands company.

 

		Notes		12/31/2011				12/31/2010
Sales		2(r)		$	41,680,718			$	32,174,248
Cost of revenue		2(s)			23,372,296				19,810,913
Gross Profit					18,308,422				12,363,335
Operating Expenses
Selling expenses					2,485,698				1,776,315
General and administrative expenses					4,677,798				3,299,785
Total operating expenses					7,163,496				5,076,100
Operating Income					11,144,926				7,287,235
Other Income/(Expense)
Investment income		2(s)			1,384,935				800,745
Other income					207,010				56,275
Other expense					(323,394	)			(136,654	)
Impairment loss					(791,569	)			(73,457	)
Interest income					25,618				14,841
Interest expense					(2,426,737	)			(2,706,784	)
Gain on disposal of subsidiaries		18(a)			1,128,776				-
Total other income/(expense)					(795,361	)			(2,045,034	)
Earnings from continued operation before tax					10,349,565				5,242,201
Income taxes		2(t),15			(2,265,313	)			(1,200,096	)
Income from continued operation					8,084,252				4,042,105
Income/(loss) from discontinued operation, net of tax		18(b)			106,305				(442	)
Net income				$	8,190,557			$	4,041,663
Net income attributed to common stockholder				$	8,055,576			$	4,041,663
Net income attributed to non-controlling stockholder				$	134,981			$	-
Earnings Per Share		2(z),16
Basic:   - Net income				$	0.29			$	0.15
-   Income from continued operation					0.28				0.15
-   Income from discontinued operation					0.01				0.00
Diluted:  - Net income				$	0.23			$	0.15
-   Income from continued operation					0.23				0.15
-   Income from discontinued operation					0.00				0.00
Weighted Average Shares Outstanding
-   Basic					28,213,167				27,013,799
-   Diluted					37,476,056				27,013,799

GeoTeam® Note: 2011 vs. 2010 Adjusted EPS was $0.22 vs. $0.21

 

On October 19, 2011, Mr. Quandong Sun resigned as a director of the Board of Directors (the “Board”) of Sino Gas International Holdings, Inc. (the “Company”) effective immediately. In effect, Mr. Sun also resigned from the audit and compensation committees of the Board. Mr. Sun resigned for personal reasons and there were no disagreements between him and the Company on any matter that resulted in his resignation.

First Quarter 2011 Financial Highlights YOY

• Total revenue increased 14.78% to $7.99million
• Gross Profit Increased 13.93% to $2.42 Million
• Operating Income decreased 35.81% to $0.61 Million
• Net income improved to $106,555
• Diluted Earnings per share was  0.004 vs. (0.01)
• Adjusted Diluted Earnings per share was $0.01 vs.  $0.02

Based on our past performance and current expectations, we believe we can meet our cash needs for the next twelve months. In particular, we will utilize our cash and cash equivalents, as well as cash generated from operations to satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for the next 12 months. However, the Company may require additional financing to complete an unanticipated transaction or satisfy its daily cash needs in the event that financial circumstances of the Company change

Fourth Quarter Results and Full Year EPS:

• Total revenue increased 36.07% to $11.2 million
• Connection Fees Revenues Increased 16.73% to $5.13 Million
• Gas Sales Increased 58.18% to 6.07 Million
• Gross Profit Increased 23.11% to $5.16 Million
• Operating Income Increased 49.8% to $3.59 Million
• For the Year, the company earned $0.15 per share.

Mr. Yu-Chuan Liu, Chairman and CEO of Sino Gas said, "Our improved operating results are indicative of the continuing strong demand for natural gas in China with the Government's support, rapid urbanization, clean energy promotion and rise in income levels. We will continue to focus on our existing projects in small and medium-sized cities in China, and pursue new business opportunities.

Sino Gas International Holdings, Inc. Consolidated Statements of Income for the three months and twelve months ended December 31, 2010 and 2009 (Stated in US Dollars)

• full year EPS was $0.22 vs. $0.15
• fourth quarter EPS was $0.15 vs. $0.08

Three Months Ended								Nine Months Ended
		Note				9/30/2010				9/30/2009				9/30/2010				9/30/2009
Sales revenues		2(p)				$	8,097,341			$	6,988,621			$	20,971,220			$	19,357,933
Cost of revenues							(4,923,438	)			(4,505,070	)			(13,766,918	)			(14,074,466	)
Gross Profit							3,173,903				2,483,551				7,204,302				5,283,466
Operating Expense
Selling expense							(567,781	)			(288,766	)			(1,149,685	)			(709,256	)
General and administrative expense							(749,396	)			(656,168	)			(2,354,525	)			(1,902,328	)
Total operating expense							(1,317,177	)			(944,935	)			(3,504,210	)			(2,611,584	)
Operating Income							1,856,726				1,538,616				3,700,092				2,671,882
Other Income/(Expense)
Other income							2,099				83,000				12,394				94,206
Other expense							(4,589	)			(11,178	)			(26,087	)			(33,493	)
Interest income							3,011				941				12,050				4,019
Interest expense							(436,223	)			(96,264	)			(2,182,773	)			(180,824	)
Total other income/(expense)							(435,702	)			(23,501	)			(2,184,416	)			(116,092	)
Income before tax							1,421,024				1,515,116				1,515,676				2,555,790
Income tax		2(r),12					(395,166	)			(306,479	)			(839,007	)			(580,383	)
Gain/(loss) from discontinued operation, net of tax		17					(439	)			-				(439	)			-
Net income						$	1,025,418			$	1,208,636			$	676,230			$	1,975,407
Earnings per share		2(z),13
-      Basic						$	0.038			$	0.045			$	0.025			$	0.076
-      Diluted						$	0.035			$	0.038			$	0.025			$	0.064
Weighted Average Shares Outstanding
-      Basic							27,090,770				26,769,313				26,899,913				26,058,202
-      Diluted							36,514,909				31,444,570				26,899,913				30,733,459

Net income for the three months ended September 30, 2010 was $1.03 million, compared with net income of $1.21 million for the same period of 2009. Driven by the increase of sales, and improvement of gross margin from both connection fee revenue and gas sales, operating income achieved an improvement of 20.68% to $1.86 million compared to the operating income of $1.54 million for the same period of 2009. However, the increase in operating income was offset by the additions of amortization costs of convertible bonds. Excluding non-cash, non-operational items of amortization expense of convertible bonds in the total of $0.15 million, our adjusted net income in the third quarter of 2010 would have been $1.17 million.

Material Challenges:

Numerous small- to medium-sized cities left undeveloped, but competition is growing as there are many small new players in the market attracted by the profitability and growth potential of the business. In addition, we are also facing competition from stronger competitors, as large-sized city markets are becoming saturated and our competitors are beginning to expand into smaller cities. We are facing limited opportunities in developing into first-tier cities in China, as most of them have already been taken by other large gas distributors, such as Xin’ao Gas Co. Ltd (largest in China) in the past decade. In addition, potential users in small- and medium-sized cities need to be educated in the benefits of natural gas. This is especially true for new markets where there is no use of natural gas. Small cities where residents depend more on coal tend to be more reluctant in the use of new energies than large cities. China’s energy market is highly regulated by the government with regard to purchase price and sale price of natural gas. Whenever there is an adjustment to purchase price by the government, gas distributors would increase the sale price correspondingly, subject to a public hearing and government approval. The increase of natural gas prices in China is lagging behind that in the international markets. The Chinese government has seldom adjusted natural gas and we cannot rule out the possibilities of an increase of natural gas prices by the government in the future. Although we can adjust the sale price accordingly after the increase of purchase prices, passing the increase to end users, this adjustment would make natural gas more expensive as compared to other alternative energies. Thus, this increase of price may adversely affect our business development.

Outlook

Mr. Yu-Chuan Liu, Chairman and CEO of Sino Gas said, "We achieved record third quarter revenue in company history. The Company's improving operating results demonstrates the growth that we experience through the strong demand for natural gas and urbanization in China.  We will continue to expand our presence in small and medium-sized cities in China both through the growth of our network and in pursuing new business opportunities. "

Mr. Yugang Zhang, CFO of Sino Gas, added "We will continue to improve our company's operations. Meanwhile, we will actively ensure that the Sino Gas story is conveyed to the investor community by continuing our participation at major financial conferences and other investor relations activities."