Zhaoheng Hydropower Reports Second Quarter 2008 Results

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Total Revenues up 30%, Net Income up 104% over Q2 2007

We are very pleased to report strong results for the first time as a publicly traded company

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.

Second Quarter Financial and Operating Highlights

  •     Revenues were $3.34 million, an increase of 30% from $2.36 million in the second quarter of 2007
  •     Gross profit was $2.59 million, an increase of 26% from $1.91 million in the second quarter of 2007
  •     Net income was $ 2.2 million, an increase of 104% from $1.08 million in the second quarter of 2007

"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."

Second Quarter 2008 Financial Results

Revenue
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
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).

Operating Expenses
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.

Interest Income
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
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
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.

First Half 2008 Financial Highlights

Revenue
Total revenue was $4.63 million in the first half of 2008, an increase of 2.2% from $4.53 million in the same period one year ago. The increase was primarily due to an increase in both electricity tariff and installed capacity. Two new generating units with total installed capacity of 50 MW were commenced 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.

Gross Profit
Gross profit was $3.41 million in the first half of 2008, a decrease of 6.5% from $3.65 million in the same period one year ago. The decrease was primarily due to the increase in cost of sales from an increase in installed capacity from 65MW to 120MW in the first half of 2008.

Net Income
Net income was $2.4 million in the first half of 2008, an increase of 26.7% from approximately $1.89 million in the same period one year ago. Net income as a percentage of revenue increased 9.9% mainly through reduced operating expenses and increased interest income. Also, we realized investment income of $131,773 in Zhaoheng (Shimen) Weile Tungsten Co., Ltd during the second quarter compared to $0 for the three same period one year ago.

Recent Business Developments

  •     Commenced operations for Hunan Sanjiang left bank for an installed capacity of 50MW
  •     Acquisition of Jingrong Industrial Development Co., Ltd (Jingrong, Guizhou) in June 2008 and increased total installed capacity by 7.5MW
  •     Sold Jiuli Hydropower Construction Co. Ltd to Shenzhen Zhaoheng Industrial Co., Ltd.

About Zhaoheng Hydropower

Zhaoheng Hydropower Company, through its wholly-owned subsidiaries in mainland China, is a leading professional small and medium-sized hydropower station investment, development, and management company focused on hydropower stations with an installed capacity between 5-100 MW. Currently, the company owns three facilities in China with a total installed capacity of approximately 120 MW. Zhaoheng Hydropower treats the cascade development of river basins as a priority and is committed to push forward the development of clean and renewable energy industry in China. The Company listed on the OTCBB since May 14, 2008 and has offices in Hong Kong and Shenzhen, China

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements. Forward-looking statements include statements that may predict, forecast, indicate, or imply future results, performance or achievements, and may contain the words "estimate," "project," "intend," "forecast," "anticipate," "plan," "planning," "expect," "believe," "will," "will likely," "should," "could," "would," "may" or words or expressions of similar meaning. All forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected. Factors that could cause such a difference include, without limitation, vulnerability of our business to general economic downturn, operating in the People's Republic of China generally and the potential for changes in the laws of the People's Republic of China that affect our operations, our ability to obtain all necessary government certifications and/or licenses to conduct our business, the cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations, as well as other risks set forth in the Company's filings with the Securities and Exchange Commission. The forward-looking statements contained herein speak only as of the date of this press release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which any such statement is based.

Contacts for investors and media     

Lily Zhou, Director of Investor Relations
+852 2787.3355 in Hong Kong

Alan Peng, Corporate Secretary
+86-755-82070966 in Shenzhen, China

Kathy Li, Christensen Investor Relations
+1 212.618.1978 in New York
kli @ christensenir.com

Roger Hu, Christensen Investor Relations
+852 2232.3918 in Hong Kong
rhu @ christensenir.com

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