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China Precision Steel Announces Second Quarter Fiscal 2014 Results

SHANGHAI, Feb. 19, 2014 /PRNewswire/ -- China Precision Steel, Inc. (NASDAQ: CPSL) ("China Precision Steel" or the "Company"), a niche precision steel processing Company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its fiscal year 2014 second quarter results for the period ended December 31, 2013. 

Second Quarter Highlights

  • Revenue was $11.9 million
  • Gross loss was $5.1 million
  • Net loss was $13.0 million
  • Fully diluted loss per shares was $3.34
  • International sales were $0.2 million, or 2% of total sales

"We experienced an increase in demand for our high-carbon, hot-rolled steel in the second quarter as sales volume for the segment increased to 5,448 tons from 142 tons in the same period a year ago.  However, as we ramped up production of high-carbon, hot-rolled steel used in automobile components, we scaled back production of our low-carbon, cold-rolled steel due to the rising cost of our raw material during the end of the year," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "We anticipate the price of steel will remain high in the near-term as China's steel industry adjusts to the closing of high polluting steel plants."

Revenue for the second quarter of fiscal year 2014 was $11.9 million, up 45.3% from revenue of $8.2 million in the second quarter of fiscal year 2013.  The increase in revenue was mainly attributable to the increase in production and sales of high-carbon products as a result of increased marketing and sales to the automobile industry.  Sequentially, revenue increased 0.9% from revenue of $11.8 million in the first quarter of fiscal year 2014.  Total sales volume in the second quarter of fiscal year 2014 was 15,036 tons, up from total sales volume of 10,705 tons in the prior period.  High carbon and low carbon sales accounted for 66.9% and 26.8% of total sales, respectively, compared to 32.4% and 65.6%, respectively, period-on-period.  Exports represented 2% of total sales for the current period, compared to 10% in the same period a year ago. 

Gross loss in the second quarter was $5.1 million, compared to gross loss of $1.3 million in the same period a year ago.  Gross loss margin for the current period was 43.2%, compared to a gross loss margin of 15.9% in the second quarter of fiscal 2013.  The increase in gross loss margin is due to a 27.8% period-on-period increase in average cost per unit sold as a result of a spike in steel prices due to an expectation of a reduction in steel produced during the quarter. 

Selling expenses for the second quarter of fiscal year 2014 were $49,583, compared to $25,063 in the second quarter of fiscal year 2013. The increase in selling expenses was primarily attributable to higher transportation costs and traveling expenses period-on-period.  Administrative expenses were $303,617, or 2.6% of revenue, compared to $401,797, or 4.9% of revenue period-on-period.  The decrease in administrative expenses was primarily due to a decrease in traveling expenses and legal and professional fees period-on-period. 

Operating loss for the current quarter was $12.0 million, compared to an operating loss of $10.6 million in the second quarter of fiscal year 2013.

Net loss for the second quarter of fiscal year 2014 was $13.0 million, compared to net loss of $10.9 million for the second quarter of fiscal year 2013.  Fully diluted loss per share was $3.34, compared to fully diluted loss per share of $2.80 in the same period a year ago. 

Six Months Financial Results

Revenue for the first six months of fiscal year 2014 increased 67.3% to $23.6 million from $14.1 million in the same period a year ago.  Gross loss was $8.1 million, compared to a gross loss of $2.8 million for the six months of fiscal year 2013.  Gross loss margin for the six months ended December 31, 2013 was 34.4% compared to 19.6% for the same period a year ago.  Operating loss was $20.7 million compared to $13.9 million in the first six months of fiscal year 2013.  Net loss was $22.5 million, compared to a net loss of $15.1 million in the same period a year ago.  Fully diluted loss per share was $5.81, compared to fully diluted loss per share of $3.89 for the first six months of fiscal year 2013. 

Financial Condition

As of December 31, 2013, China Precision Steel had $135,219 in cash and cash equivalents, $80.8 million in total liabilities and stockholders' equity stood at $30.8 million.  Net cash generated from operations was $478,410.

Business Outlook

China Precision Steel has been working on improving cash flow and intends to stay conservative in regards to managing its balance sheet.  The Company is also collaborating with one of its steel suppliers and a customer to develop new steel products using its high quality steel.  As of December 31, 2013, China Precision Steel had a backlog of $3.6 million.

"The steel industry remains under a lot of pressure as the government is aggressively working to reduce the high amount of pollution the industry creates which has resulted in a temporary imbalance in supply and demand.  During the last two months of 2013, the government began to shut down high polluting mills in the province of Hebei, the region where a quarter of China's steel is produced," Mr. Chen continued.  "Subsequently, steel prices spiked on expectations steel output will experience a short term drop off in production.  We anticipate the imbalance will be resolved within the first half of the year as larger more efficient mills ramp up production.  In the meantime, we are working on strengthening our cash flow, expanding our sales for our high-carbon steel products and minimizing our gross loss by focusing on higher margin products."

Forward-Looking Statements

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding the likelihood that the downturn in China's steel industry has halted and that the industry will experience a turnaround and increased demand; the significance of China's implementation of pro-growth measures and the likelihood that it will start benefitting the domestic steel industry; the Company's ability to reduce operating costs, improve working capital and increase profitability, and any other statements of non-historical information. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs but they involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, such as business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which China Precision Steel is engaged; cyclicality of steel consumption including overcapacity and decline in steel prices, limited availability of raw material and energy may constrain operating levels and reduce profit margins, environmental compliance and remediation could result in increased cost of capital as well as other relevant risks not included herein. The information set forth herein should be read in light of such risks. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. 

Elite IR
Leslie J. Richardson, Partner
+852-3183 0283
[email protected]

– Financial Tables Follow –


China Precision Steel, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)






 December 31,


June 30,





2013


2013

Assets




Current assets






Cash and cash equivalents


$135,219


$75,243


Accounts receivable







Trade, net of allowances of $42,495,764 and $30,642,373






at December 31 and June 30, 2013, respectively

23,997,088


29,480,738


Bills receivable


49,554


94,089


Other receivable


980,049


1,041,255


Inventories, net


15,324,726


15,837,201


Prepaid expenses


269,180


467,890


Advances to suppliers, net of allowance of $20,305,486 and







$19,689,609 at December 31 and June 30, 2013, respectively

10,833,214


9,304,847

Total current assets


51,589,030


56,301,263

Property, plant and equipment






Property, plant and equipment, net


57,743,507


61,366,745


Construction-in-progress


295,857


255,996





58,039,364


61,622,741

Intangible assets, net


1,906,545


1,903,675

Goodwill


99,999


99,999

Total assets


$111,634,938


$119,927,678

Liabilities and Stockholders' Equity





Current liabilities






Short-term loans


$28,415,772


$28,028,722


Long-term loan - current portion


16,200,000


16,200,000


Accounts payable and accrued liabilities


12,342,164


7,044,007


Advances from customers


9,773,145


1,456,420


Other taxes payables


7,985,307


8,295,220


Current income taxes payable


6,076,339


5,993,574

Total current liabilities


80,792,727


67,017,943

Long-term loan


-


-

Stockholders' equity:






Preferred stock: $0.001 per value, 500,000 shares







authorized, no shares outstanding







at December 31 and June 30, 2013, respectively

-


-


Common stock: $0.001 par value, 10,000,000 shares







authorized, 3,880,866 issued and outstanding






at December 31 and June 30, 2013, respectively

3,880


3,880


Additional paid-in capital


75,685,066


75,685,066


Accumulated other comprehensive income


22,544,421


22,075,822


Accumulated deficit


(67,391,156)


(44,855,033)

Total stockholders' equity


30,842,211


52,909,735

Total liabilities and stockholders' equity


$111,634,938


$119,927,678


 

China Precision Steel, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

For the Three and Six Months Ended December 31, 2013 and 2012

(Unaudited)




Three Months Ended


Six Months Ended



2013


2012


2013


2012

Sales revenues

$11,866,008


$8,164,267


$23,631,395


$14,121,027

Cost of goods sold

16,997,339


9,466,225


31,756,985


16,889,934

Gross (loss)

(5,131,331)


(1,301,958)


(8,125,590)


(2,768,907)

Operating expenses









Selling expenses

49,583


25,063


80,751


54,336


Administrative expenses

303,617


401,797


751,048


844,412


Allowance for bad and doubtful debts

6,546,832


8,786,214


11,668,609


10,159,214


Depreciation and amortization expense

40,500


52,050


88,642


104,011


Total operating expenses

6,940,532


9,265,124


12,589,050


11,161,973

(Loss) from operations

(12,071,863)


(10,567,082)


(20,714,640)


(13,930,880)

Other income/(expense)









Other revenues

57,536


607,654


60,064


607,757


Interest and finance costs

(944,656)


(925,077)


(1,881,547)


(1,783,665)


Total other (expense)

(887,120)


(317,423)


(1,821,483)


(1,175,908)

(Loss) from operations before income tax

(12,958,983)


(10,884,505)


(22,536,123)


(15,106,788)

Provision for income tax









Current

-


-


-


-


Total income tax

-


-


-


-

Net (loss)

(12,958,983)


(10,884,505)


(22,536,123)


(15,106,788)

Basic (loss) per share

($3.34)


($2.80)


($5.81)


($3.89)

Basic weighted average shares outstanding

3,880,866


3,880,866


3,880,866


3,880,866

Diluted (loss) per share

($3.34)


($2.80)


($5.81)


($3.89)

Diluted weighted average shares outstanding

3,880,866


3,880,866


3,880,866


3,880,866

 

China Precision Steel, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2013 and 2012

(Unaudited)



2013


2012

Cash flows from operating activities





Net (loss)

($22,536,123)


($15,106,788)


Adjustments to reconcile net income to net cash provided by operating activities





  Depreciation and amortization

4,498,491


4,561,331


  Allowance for bad and doubtful debts

11,668,609


10,159,214


Net changes in assets and liabilities:





  Accounts receivable, net

(5,418,079)


2,477,594


  Inventories

731,172


(4,060,401)


  Prepaid expenses

201,438


412,031


  Advances to suppliers

(1,743,858)


1,086,749


  Accounts payable and accrued expenses

5,204,609


(139,640)


  Advances from customers

8,296,613


755,623


  Other taxes payable

(424,462)


(381,886)


  Current income taxes

-


32,914

Net cash provided by/(used in) operating activities

478,410


(203,259)

Cash flows from investing activities





  Purchase of property, plant and equipment, including construction in progress

(80,759)


(111,583)

Net cash (used in) investing activities

(80,759)


(111,583)

Cash flows from financing activities





  Repayments of short-term loans

(223,707)


(504,269)

Net cash (used in) financing activities

(223,707)


(504,269)

SOURCE China Precision Steel Inc.

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