SHANGHAI, China, Nov. 21 /Xinhua-PRNewswire/ -- China Precision Steel (Nasdaq: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision cold-rolled steel products, announced today its results for the first quarter of fiscal 2008 ending September 30, 2007.
2008 First Fiscal Quarter Highlights
-- Revenue increased 141% period-over-period to $25.3 million
-- Volume of precision steel sold increased 191% to 28,683 metric tons
-- Gross profit was $5.1 million, up 36.8% period-over-period
-- New cold-rolled mill currently operating at 40% capacity
“Our continued revenue growth this quarter is the result of increased sales of our low-carbon and high-carbon cold-roll steel products. Our capacity is gradually increasing with our second cold-rolled mill currently operating at 40% utilization,” commented Dr. Wo Hing Li, China Precision Steel’s Chairman and CEO. “Volume sold of precision steel products is up 191% as we continue to increase our market share.”
Revenue for the first quarter of fiscal 2008 was $25.3 million, up 141% from $10.5 million in the first quarter of fiscal 2007. The increase in revenue was driven by increased sales of high carbon and low carbon cold rolled steel resulting from the Company’s increased capacity and the continued development of its brand in China. Sales volume of precision steel products increased to 28,683 tons, up 191% from 9,859 tons in the first quarter of fiscal 2007. High carbon and low carbon products accounted for 59% and 40%, respectively, compared to 64% and 35%, respectively, in the same period a year ago. Revenue from exports was $1.5 million, or 6% of total revenues.
Gross profit in the first quarter of fiscal 2008 was $5.1 million, up 36.8% from gross profit of $3.7 million in the same period a year ago. Gross margin was 20.0% compared to 35.3% from the prior year period. The gross profit margin was negatively impacted by a change in sales mix in the current quarter, which resulted in increased sales of lower margin products in the high-carbon cold-rolled steel product line. Gross margin was also negatively impacted by higher depreciation costs associated with the addition of a second mill, which increased cost of sales.
Operating expenses were $1.2 million, or 4.8% of revenue, compared to $236,302 or 2.2% of revenue, in the first quarter of fiscal 2007. The increase in operating expenses was primarily due to a provision for bad debts of $625,998 recorded in the first quarter of fiscal 2008. Administrative expenses increased due to the amortization of intangible assets, compliance costs associated with the Company’s U.S. regulatory and reporting requirements and higher salaries and wages. Selling expenses increased principally due to higher transportation expenses resulting from a broader customer base, including exports, as well as an increase in the frequency of deliveries.
Operating income for the first quarter of fiscal 2008 was $3.8 million, up 10.8% from operating income of $3.5 million in the same quarter last year.
Net income for the first quarter of fiscal year 2008 was $2.9 million, unchanged from $2.9 million in the same period of the prior year. Fully diluted earnings per share were $0.08 compared to $0.12 in the comparable period a year ago. Weighted average diluted shares outstanding for the quarter increased to 37.4 million, reflecting an increase of about 14.1 million shares principally related to a private placement of the Company’s equity securities in February 2007.
Financial Condition
As of September 30, 2007, China Precision Steel had $6.0 million in cash and cash equivalents, total liabilities of $41.2 million and working capital of $19.2 million. Shareholders’ equity stood at $54.9 million compared to $51.1 million as of June 30, 2007.
Business Outlook
China Precision Steel’s new cold-rolled mill with 150,000 metric tons of design capacity is operating at 40% utilization. It is expected to reach 50% utilization by the end of calendar year 2007. The Company has plans to commence the construction of a third mill with 150,000 metric tons of capacity in the first quarter of 2008.
“We are continuing with our plans to expand our production capacity. We recently completed a registered direct financing for net proceeds of $44 million. With the additional funds, we are in the position to begin construction on our third mill at the beginning of 2008,” commented Dr. Li. “We are expanding our capacity to meet the market demand in China for high quality precision steel. We have recently embarked on several new R&D projects, which include cold rolled steel used in drawer guidance rails and in double layer welded pipes for various industrial applications.”
Subsequent Events
On November 6, 2007, China Precision Steel completed a registered direct offering to certain institutional investors of an aggregate of 7,100,000 shares of its common stock at a purchase price of $6.75 per share and an aggregate of 1,420,000 warrants to purchase its common stock, for net proceeds of approximately $44 million. Approximately $18 million of the net proceeds will be used to purchase a new hydrogen annealing furnace and a new 1700 mm cold rolled mill, approximately $22 million will be used to repay certain existing bank debt, and the balance will be available for general corporate purposes.
On November 12, 2007, at the Annual Meeting of the Company’s shareholders in New York City, the Company’s shareholders approved the reincorporation of the Company in the state of Delaware. The reincorporation was effected on November 16, 2007 through a merger with and into the Company’s wholly-owned subsidiary.
About China Precision Steel
China Precision Steel is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel produces high precision ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products primarily for automotive components, food packaging materials, saw blades and textile needle manufacturing companies in the People’s Republic of China. However, China Precision Steel is expanding into overseas markets such as Nigeria, Thailand, Indonesia and the Philippines, and intends to expand into Japan, the European Union and the United States in the future.
Conference Call
China Precision Steel will host a conference call on Monday, November 26 at 9:00 am EST to discuss first quarter of fiscal 2008 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888-482-0024. International callers should dial 617-801-9702. When prompted by the operator, mention conference pass code 102 675 65.
If you are unable to participate in the call at this time, a replay will be available for seven days starting on Monday, November 26, 2007 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the pass code 41024398. International callers should dial 617-801-6888 and enter the same pass code 41024398.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.chinaprecisionsteelinc.com . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.
Forward-Looking Statements
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by China Precision Steel on its conference call in relation to this 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 our ability to prepare the company for growth, the Company’s planned manufacturing capacity expansion in 2007 and predictions and guidance relating to the Company’s future financial performance. 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, 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.
-- Financial Tables Follow --
China Precision Steel, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30. 2007 and 2006
(Unaudited)
2007 2006
Revenues
Sales revenues $25,312,698 $10,503,348
Cost of goods sold 20,245,135 6,800,098
Gross profit 5,067,563 3,703,250
Operating expenses
Selling expenses 100,705 39,697
Administrative expenses 486,377 186,188
Provision for bad debts 625,998 --
Depreciation and amortization expense 13,632 10,417
Total operating expenses 1,226,712 236,302
Income from continuing operations 3,840,851 3,466,948
Other income (expense)
Other revenues 9,155 --
Interest and finance costs (442,141) (203,339)
Total other income (expense) (432,986) (203,339)
Net income from continuing operations
before income tax 3,407,865 3,263,609
Provision for (benefit from) income tax
Current (182,977) 929,370
Deferred 690,116 (475,009)
Total income tax expense 507,139 454,361
Net income before discontinued operations 2,900,726 2,809,248
Net income from discontinued operations -- 155,072
Net income $2,900,726 $2,964,320
Basic earnings per share
From continuing operations $0.08 $0.11
From discontinued operations $ -- $0.01
Total $0.08 $0.12
Basic weighted average shares
outstanding 37,378,143 24,283,725
Diluted earnings per share
From continuing operations $0.08 $0.11
From discontinued operations $ -- $0.01
Total $0.08 $0.12
Diluted weighted average shares
outstanding 38,397,325 24,283,725
China Precision Steel, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, June 30,
2007 2007
Assets
Current assets
Cash and equivalents $6,049,792 $5,504,862
Accounts receivable
Trade, net of allowances of $908,008 and
$273,461 at September 30, 2007 and June
30, 2006, respectively 14,103,862 8,242,044
Bank acceptance notes 14,862,667
Other 19,362 85,708
Inventory 7,827,785 15,723,704
Deposits -- 82,758
Prepaid expenses 14,702 --
Advances to suppliers, net of allowance of
$2,305,637 and $3,502,184 at September
30, 2007 and June 30, 2006, respectively 11,521,415 11,699,918
Total current assets 54,399,585 41,338,994
Property and equipment
Land use rights 1,475,342 1,124,583
Property and equipment, net 29,290,837 29,238,227
Construction-in-progress 10,846,113 10,355,763
41,612,292 40,718,573
Goodwill 99,999 99,999
Total assets $96,111,876 $82,157,566
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued liabilities $3,537,985 $4,855,932
Advances from customers 8,286,100 1,720,812
Other taxes payables 2,054,814 716,554
Current income taxes payable 2,197,655 1,892,866
Deferred income taxes payable 1,791,265 1,064,028
Amounts due to directors 845,523 --
Current portion of long-term debt -- 6,163,445
Notes payable 16,490,833 9,842,520
Total current liabilities 35,204,175 26,256,157
Long-term debt, net of current portion
shown above 6,008,889 6,878,714
Stockholders’ equity:
Preferred stock: $0.001 per value,
8,000,000 shares authorized, no
shares outstanding at June 30, 2007
and 2006
Ordinary stock: $0.001 par value,
62,000,000 shares authorized,
37,378,143 and 24,283,725 issued and
outstanding June 30, 2007 and 2006 37,378 37,378
Additional paid-in capital 31,867,063 31,867,063
Accumulated other comprehensive income 3,085,407 2,192,160
Retained earnings 19,908,964 17,008,238
Total stockholders’ equity 54,898,812 51,104,839
Amounts due from directors -- (2,082,144)
Total liabilities and stockholders’ equity $96,111,876 $82,157,566
China Precision Steel, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2007 and 2006
(Unaudited)
2007 2006
Cash flows from operating activities
Net Income $2,900,726 $2,964,320
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation 493,613 260,892
Less income from discontinued
operations - Oralabs, Inc -- (155,072)
Provision for doubtful accounts 625,998 --
Net changes in assets and
liabilities:
Accounts receivable, net (21,208,354) 981,606
Inventories 8,039,005 (8,236,768)
Advances to suppliers 284,972 (4,506,824)
Deposits 82,758 (196,233)
Prepayments (14,702) --
Accounts payable and accrued
expenses (1,362,136) 10,805,570
Advances from customers 6,549,629 2,976,867
Deferred income taxes 690,166 (475,009)
Current income taxes (182,977) 929,370
Taxes payable 1,826,668 139,996
Net cash provided by operating
activities (1,274,634) 5,488,715
Cash flows from investing activities
Purchases of fixed assets including
construction in progress (1,016,793) (5,230,112)
Net cash (used in) investing
activities (1,016,793) (5,230,112)
Cash flows from financing activities
Advances from directors, net 2,946,615 (3,894,566)
Notes payable proceeds 16,490,833 4,233,252
Repayments of notes payable (17,084,041) --
Net cash provided by financing
activities 2,353,407 338,686
Effect of exchange rate 479,950 97,772
Net increase (decrease) in cash 541,930 695,061
Cash and cash equivalents, beginning
of year 5,504,862 186,955
Cash and cash equivalents, end of
year $6,046,792 $882,016
For more information, please contact:
CCG Elite
Crocker Coulson, President, or
Leslie Richardson, Financial Writer
Tel: +1-310-231-8600
Email: crocker.coulson@ccgir.com or leslie.richardson@ccgir.com
China Precision Steel
Leada Li, CFO
Email: leadali@biznetvigator.com
