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China Industrial Steel, Inc. Reports Third Quarter Financial Results

Company Remains Profitable Year-To-Date

NEW YORK, Nov. 16, 2012 /PRNewswire/ -- China Industrial Steel, Inc. (the "Company") (OTC: CDNN) today announced its earnings for the quarter ended September 30, 2012. The Company, filed its quarterly report on Form 10-Q with the Securities and Exchange Commission on November 14, 2012.

China Industrial Steel manufactures and sells in the Chinese domestic market four products; steel plate, steel bar, steel wire, and steel billet. Steel plate, steel wire and steel bar are primarily used in the construction of buildings and in large scale infrastructure projects, such as roads and bridges. Steel plate is also utilized by the ship building industry, and in the construction of pipelines. The Company also manufactures and sells steel billet, a semi-finished product, which is utilized as a raw material by other manufacturers. China Industrial Steel also sells some of the byproducts of its production process, including offcuts of steel plate and steel drop. Based on market conditions for these byproducts, the company may alternatively utilize them in its own manufacturing processes.

Summary of the Third Quarter 2012 Financials

  • Revenues for the third quarter of 2012 decreased 25% to $170 million from $226 million in the third quarter of 2011.
  • Management's 2011 decision to modify steel bar production line to produce steel wire helped alleviate the negative market impact from a decline in the selling price of steel.
  • The Company was able to maintain its year-on-year tonnage sold, despite an overall general market decline for its steel products.
  • The Company reported a loss of $3.7 million for the quarter ended September 30, 2012 as compared to net income of $18.4 million for the same period in 2011.
  • Earnings per share for the three months ended September 30, 2012 were a loss of $0.05 as compared to a gain of $0.25 for the same period in 2011.

Liu Shenghong, Chief Executive Officer and Chairman of the Company, commenting on the quarterly results stated, "Our management team was pleased that we remained profitable for the first nine months of this year, despite a general downturn of the Chinese economy. Our shift from the production of steel plate to steel wire proved beneficial, as our steel wire sales continued to increase throughout the year, enabling us to maintain the tonnage sales levels achieved during the same period in 2011. But, as was common to the steel producers worldwide, the decrease in raw material costs was not fully sufficient to offset the effect of the decrease in the selling prices of steel products on our margins, most notably during the third quarter."

Mr. Liu also stated, "The steel industry is subject to economic and industrial trends and the past two years have certainly been challenging, however consensus is that China's economy is improving and we believe that the recently announced stimulus measures to be taken by the new administration will prove beneficial for Chinese business in general and the steel industry in particular. These stimulus programs include infrastructure projects such as airports, millions of affordable housing units, as well as the construction of new subway and train lines, all of which we believe will have a very positive effect on China's demand for steel."

Mr. Liu went on to say, "Over the past months, China Industrial Steel has aggressively optimized our production capabilities. We also have focused on building and enhancing relationships with new and existing customers, and have begun to explore financing strategies to facilitate our five-year expansion plans. These steps will help ensure that China Industrial Steel is well positioned to benefit from China's economic recovery and future economic growth."

Detailed Financial Discussion

For the three months ended September 30, 2012, China Industrial Steel's revenue was $169,550,216, a decrease of $56,405,620, or 25%, compared to $225,955,836 for the comparable period in 2011. Price declines accounted for a revenue drop of approximately $59 million; however the Company was able to mitigate some of the negative impact with revenues generated from the increased sale of steel wire.

Revenue from the sale of steel plate was $68,888,563 for the three months ended September 30, 2012; a decrease of $72,941,235, or 51% compared to $141,829,798 for the three months ended September 30, 2011. The Company sold 146,689 tons of steel plate during the third quarter of 2012, a decrease of 80,308 tons or 35%, compared to 226,997 tons during the same period of 2011. In reaction to lower market prices and decreased market demand during the third quarter, China Industrial Steel reduced its production of steel plate. The average selling price of steel plate was approximately $470 per ton during the three months ended September 30, 2012, a decrease of $155 per ton, or 25%, from the approximate $625 per ton for the same three month period in 2011.

During the three months ended September 30, 2012, revenue from the sale of steel wire was $79,207,594, an increase of 41,552,643, or 110%, compared to 37,654,951 for the comparable period of 2011. During the period the Company sold 164,331 metric tons of steel wire, an increase of 108,659 metric tons, and an increase of 195%, compared to 55,672 metric tons for the same period in 2011. Due to market conditions, the average unit sales price of steel wire was approximately $482 per ton during the three months ended September 30, 2012, a decrease of $194 per ton, or 29%, from $676 per ton for the comparable period in 2011.

Revenue from steel billet was $17,691,200 for the three months ended September 30, 2012, a decrease of $23,833,791, or 57%, compared to $41,524,991 for the same period of 2011. The Company sold 35,957 metric tons of steel billet in the three months ended September 30, 2012, a decrease of 33,385 metric tons, or 48%, compared to 69,342 metric tons sold in the same period of 2011. The average unit sales price of steel billet was approximately $492 per ton during the three months ended September 30, 2012, a decrease of $107 per ton, or 18%, from the $599 per ton for the three months ended September 30, 2011.

Sales of byproducts accounted for $3,762,859 for the three months ended September 30, 2012, a decrease of $1,183,237, or 24%, compared to $4,946,096 for the comparable period of 2011.

The Company's revenue breakdown for the three months ended September 30, 2012 and 2011 can be found in the following table.


2012

2011

Products

Revenue

Quantity (Ton)

Revenue

Quantity (Ton)

Steel plate

$68,888,563

146,689

$141,829,798

226,997

Steel wire / bar

79,207,594

164,331

37,654,951

55,672

Steel billet

17,691,200

35,957

41,524,991

69,342

Byproducts and others

3,762,859

-

4,946,096

-

Products Total

$169,550,216

346,977

$225,955,836

352,011

The Company incurred a loss of $3,748,280 from operations during the three months ended September 30, 2012, compared to net income of $18,354,951 for the comparable period of 2011. The decrease of net income was attributable primarily to an industry-wide decrease in the sales price of steel products. The average sales price per ton decreased by 24%, a 10% higher than the 14% decrease in the average cost of sales per ton.

 

CHINA INDUSTRIAL STEEL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (IN US DOLLARS)

(UNAUDITED)



September 30,

December 31,

 ASSETS

2012

2011

 Current Assets:



 Cash

$

1,100,439

$

1,737,495

 Bank notes receivable


225,955


2,342,186

 Accounts receivables, net


6,079,850


20,862,269

 Inventories, net


9,790,159


16,139,936

 Advances to suppliers, net


2,639,108


3,215,680

 VAT and other taxes recoverable


29,747,838


21,612,482

 Advances to related parties


176,815,708


77,416,285

     Total Current Assets


226,399,057


143,326,333






 Machinery and Equipment, Net


96,868,009


84,410,398

 Machinery and Equipment - acquired from related parties, Net


88,388,646


98,514,249

Total Machinery and Equipment, Net


185,256,655


182,924,647






 Other Assets:





 Restricted cash


3,500,420


5,402,600

 Land use rights and buildings under capital leases


5,111,815


5,613,105

     Total Other Assets


8,612,235


11,015,705






 TOTAL ASSETS

$

420,267,947

$

337,266,685






 Current Liabilities:





 Accounts payable

$

96,776,076

$

23,095,827

 Accounts payable - related parties


10,181,676


184,447

 Accrued liabilities


2,418,914


2,622,224

 Taxes payables


17,729


1,868,886

 Bank and private loans payable


20,191,059


34,640,200

 Bank notes payable


3,023,090


3,019,100

 Equipment loan payable - related parties


3,938,219


11,562,752

 Current obligations under capital leases - related parties


631,937


597,258

 Short term loan payable - related party


795,550


1,747,900

 Advances from customers


86,023,316


13,257,487

     Total Current Liabilities


223,997,566


92,596,081






 Long Term Liabilities:





 Equipment loan payables - related parties


-


51,093,694

 Obligation under capital leases - related parties


5,780,795


6,254,954

     Total Long Term Liabilities


5,780,795


57,348,648






 TOTAL LIABILITIES


229,778,361


149,944,729






Commitments and Contingencies





Stockholders' Equity:





Common stock, $0.0001 par value, 980,000,000 authorized, 73,620,391
    and 73,542,058 issued and outstanding at 09/30/2012 and 12/31/2011,
    respectively


7,362


7,354

 Paid-in capital


16,417,235


16,299,744

 Statutory reserves


6,530,869


6,530,869

 Retained earnings


152,995,798


150,189,517

 Accumulated other comprehensive income


14,538,322


14,294,472

Total Stockholders' Equity


190,489,586


187,321,956

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

420,267,947

$

337,266,685








 

CHINA INDUSTRIAL STEEL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION

AND COMPREHENSIVE INCOME (LOSS) IN US DOLLARS

(UNAUDITED)

 


Three Months Ended

September 30,

Nine Months Ended
September 30,


2012

2011

2012

2011

Revenues                                                                                                





Sales to customers

$162,539,814

$222,596,275

$475,334,300

$605,634,960

Sales to related parties

7,010,402

3,359,561

16,816,933

24,644,993

    Total Revenues

169,550,216

225,955,836

492,151,233

630,279,953






Cost of Revenue





Cost of Revenue - non-related parties

72,622,372

24,541,195

197,528,829

73,393,963

Cost of Revenue - related parties

99,305,592

177,943,910

283,719,169

508,579,448

  Total Cost of Revenue

171,927,964

202,485,105

481,247,998

581,973,411






Gross Profit

(2,377,748)

23,470,731

10,903,235

48,306,542






Selling and General and Administrative Expenses





Selling and General and Administrative Expenses - non-related parties

579,364

620,093

1,940,420

1,479,380

Selling and General and Administrative Expenses - related parties

165,787

225,951

1,048,696

629,402

Total Selling and General and Administrative Expenses

745,151

846,044

2,989,116

2,108,782






(Loss) Income From Operations

(3,122,899)

22,624,687

7,914,119

46,197,760






Other Income (Expenses)





Interest income

137,276

47,132

191,885

55,675

Interest expense - bank and private borrowings

(584,983)

(222,538)

(2,451,068)

(797,134)

Interest expense - related parties

(177,674)

(1,206,802)

(1,464,263)

(3,405,577)

    Total Other Income (Expenses)

(625,381)

(1,382,208)

(3,723,446)

(4,147,036)






(Loss) income from operation before income tax

(3,748,280)

21,242,479

4,190,673

42,050,724

Provision for income tax

-

2,887,528

1,384,392

5,858,792

Net (Loss) Income

(3,748,280)

18,354,951

2,806,281

36,191,932






Earnings Per Share - Basic and Diluted

(0.05)

0.25

0.04

0.49

Weighted Average Shares Outstanding - Basic and Diluted

73,620,391

73,542,058

73,585,924

73,287,782






Other Comprehensive Income (Loss):





Foreign currency translation (loss) gain

2,042,302

2,196,174

243,850

5,209,554

Comprehensive Income (Loss)

(1,705,978)

20,551,125

3,050,131

41,401,486

About China Industrial Steel, Inc.

China Industrial Steel, Inc., ("CIS" or the "Company") through its wholly owned subsidiary, Handan Hongri Metallurgy Co., Ltd., produces and sells steel billet, steel plate and steel bar for domestic and export customers.  The Company currently operates four production lines from its headquarters on approximately 1,000 acres in Handan City in the Hebei Province, China, where steel production is a significant component of the regional economy. 

China Industrial Steel manufactures and sells in the Chinese domestic market four products; steel plate, steel bar, steel wire, and steel billet. Steel plate, steel wire and steel bar are primarily used in the construction of buildings and in large scale infrastructure projects, such as roads and bridges. Steel plate is also utilized by the ship building industry, and in the construction of pipelines. The Company also manufactures and sells steel billet, a semi-finished product, which is utilized as a raw material by other manufacturers.  China Industrial Steel also sells some of the byproducts of its production process, including offcuts of steel plate and steel drop. Based on market conditions for these byproducts, the company may alternatively utilize them in its own manufacturing processes.

Forward-looking statements:

The above news release contains forward-looking statements. The statements contained in this document that are not statements of historical fact, including but not limited to, statements identified by the use of terms such as "anticipate," "appear," "believe," "could," "estimate," "expect," "hope," "indicate," "intend," "likely," "may," "might," "plan," "potential," "project," "seek," "should," "will," "would," and other variations or negative expressions of these terms, including statements related to expected market trends and the Company's performance, are all "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. These statements are based on assumptions that management believes are reasonable based on currently available information, and include statements regarding the intent, belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performances, and are subject to a wide range of external factors, uncertainties, business risks, and other risks identified in filings made by the company with the Securities and Exchange Commission. Actual results may differ materially from those indicated by such forward-looking statements. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company's expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based.

China Industrial Steel, Inc.
Contacts:
Frank Pena - Director
1-732-292-0322

Delong Zhou - Chief Financial Officer
Phone 1-917-825-2997

SOURCE China Industrial Steel, Inc.

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