China Precision Steel Announces Second Quarter Fiscal 2014 Results

      China Precision Steel Announces Second Quarter Fiscal 2014 Results

PR Newswire

SHANGHAI, Feb. 19, 2014

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

  oRevenue was $11.9 million
  oGross loss was $5.1 million
  oNet loss was $13.0 million
  oFully diluted loss per shares was $3.34
  oInternational 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
Leslie.richardson@elite-ir.com

–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,     23,997,088     29,480,738
             respectively
 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   10,833,214     9,304,847
             30, 2013, respectively
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,     3,880          3,880
             respectively
 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       303,617       401,797       751,048       844,412
   expenses
   Allowance for bad    6,546,832     8,786,214     11,668,609    10,159,214
   and doubtful debts
   Depreciation and     40,500        52,050        88,642        104,011
   amortization expense
   Total operating      6,940,532     9,265,124     12,589,050    11,161,973
   expenses
(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 (944,656)     (925,077)     (1,881,547)   (1,783,665)
   costs
   Total other          (887,120)     (317,423)     (1,821,483)   (1,175,908)
   (expense)
(Loss) from operations  (12,958,983)  (10,884,505)  (22,536,123)  (15,106,788)
before income tax
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  3,880,866     3,880,866     3,880,866     3,880,866
shares outstanding
Diluted (loss) per      ($3.34)       ($2.80)       ($5.81)       ($3.89)
share
Diluted weighted
average shares          3,880,866     3,880,866     3,880,866     3,880,866
outstanding



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          478,410        (203,259)
activities
Cash flows from investing activities
  Purchase of property, plant and equipment,     (80,759)       (111,583)
 including construction in progress
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.

Website: http://chinaprecisionsteelinc.com
 
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