Ossen Innovation Announces Third Quarter 2014 Financial Results

SHANGHAI, December 27, 2014 /PRNewswire/ -- Ossen Innovation Co., Ltd. ("Ossen" or the "Company") (Nasdaq: OSN), a China-based manufacturer of an array of plain surface, rare earth and zinc coated pre-stressed steel materials, today announced its financial results for the quarter ended September 30, 2014.

Dr. Liang Tang, Chairman of Ossen Innovation, commented: "Our business remained challenged on the back of China's GDP growth hitting 5-year low despite stimulus measures by the central government during the third quarter, leading to year-over-year declines in both our revenue and profitability. However, our Rare Earth coated products sales remained strong, growing 7% year-over-year to $24.7 million in the third quarter as we continue to win new contracts and add new customers. Additionally, we used lower grade raw materials for some of our Rare Earth coated products to improve margins without sacrificing product strength or quality. Looking ahead, despite continued economic headwinds, we remain confident in the long-term prospects of our business and believe we are well positioned for an eventual recovery of the steel materials industry."

Three Months Ended September 30, 2014 Financial Results

For the three months ended September 30, 2014, revenue decreased by $5.3 million, or 16%, to $27.9 million from $33.1 million for the same period of last year, mainly due to the weaknesses in both Zinc coated products and plain surface pre-stressed ("PC") strands sales and partially offset by strength in Rare Earth coated products sales. The sales of coated PC steel materials, including Rare Earth and Zinc coated products, decreased by $2.9 million, or 11%, to $24.7 million and accounted for 89% of total sales for the three months ended September 30, 2014. The sales of Rare Earth and Zinc coated products were $24.7 million and nil, respectively, for the three months ended September 30, 2014, compared to $23.0 million and $4.6 million for the same period of last year. Zinc coated products, that didn't contribute any revenue during the third quarter of 2014, are expected to generate revenue in future quarters based on current order trends. The sales of plain surface PC strands also decreased by approximately $2.4 million, or 43%, to $3.1 million and accounted for 11% of total sales for the three months ended September 30, 2014 as a result of declines in both sales volume and average selling price.

Gross profit decreased by $1.5 million, or 38%, to $2.4 million for the three months ended September 30, 2014 from $3.9 million for the same period of last year. Gross margin was 8.7% for the three months ended September 30, 2014, compared to 11.7% for the same period of last year. The decline in gross margin was mainly due to lower average selling price and the lack of sales of higher-margin Zinc coated products in the third quarter of this year.

Selling expenses increased by $0.1 million, or 84%, to approximately $0.3 million for the three months ended September 30, 2014, primarily due to higher transportation cost associated with new overseas' customers and higher commission fees. General and administrative expenses increased by $0.4 million, or 49%, to approximately $1.3 million for the three months ended September 30, 2014 mainly due to a $0.3 million increase in research and development expenses and a $0.1 million increase in bad-debt provision. Operating income and operating margin were $0.9 million and 3.1% for the three months ended September 30, 2014, compared to $2.9 million and 8.7% for the same period of last year, respectively.

After deducting net income attributable to non-controlling interest, net income attributable to Ossen Innovation decreased by $1.2 million, or 72%, to $0.5 million for the three months ended September 30, 2014 from $1.7 million for the same period of last year. Earnings per share, both basic and diluted, was $0.02 for the three months ended September 30, 2014, versus $0.08 for the same period of last year.

Nine Months Ended September 30, 2014 Financial Results

For the nine months ended September 30, 2014, revenue increased by $19.9 million, or 28%, to $91.8 million from $71.9 million for the same period of last year as sales of plain surface PC strands, Rare Earth and Zinc coated products all grew on a year-over-year basis. The sales of coated PC steel materials, including Rare Earth and Zinc coated products, increased by $19.1 million, or 31%, to $80.9 million and accounted for 88% of total sales for the nine months ended September 30, 2014. The sales of Rare Earth and Zinc coated products were $71.9 million and $9.0 million, respectively, for the nine months ended September 30, 2014, compared to $54.1 million and $7.7 million for the same period of last year. The sales of plain surface PC strands also increased by $0.8 million, or 8%, to $10.9 million and accounted for 12% of total sales for the nine months ended September 30, 2014.

Gross profit increased by $0.3 million, or 3%, to $8.8 million for the nine months ended September 30, 2014 from $8.5 million for the same period of last year. Gross margin was 9.6% for the nine months ended September 30, 2014, compared to 11.8% for the same period of last year. The decline in gross margin was mainly due to a decrease in the average unit selling price in 2014 compared to the prior year period.

Selling expenses increased by $0.1 million, or 29%, to approximately $0.6 million for the nine months ended September 30, 2014. General and administrative expenses increased by $1.6 million, or 68%, to approximately $4.0 million for the nine months ended September 30, 2014 mainly due to increase in research and development expenses. Operating income and operating margin were $4.2 million and 4.6% for the nine months ended September 30, 2014, compared to $5.6 million and 7.9% for the same period of last year, respectively.

After deducting net income attributable to non-controlling interest, net income attributable to Ossen Innovation decreased by $0.1 million, or 1%, to $2.4 million for the nine months ended September 30, 2014 from $2.5 million for the same period of last year. Earnings per share, both basic and diluted, was $0.12 for the nine months ended September 30, 2014, essentially unchanged from the same period of last year.

Balance Sheet and Cash Flows

The Company had approximately $23.1 million of cash and restricted cash as of September 30, 2014, compared to $32.9 million at December 31, 2013. Accounts receivable were $49.3 million as of September 30, 2014, compared to $48.2 million at December 31, 2013. The days sales of outstanding were 154 days for the three months ended September 30, 2014, compared to 150 days for the year of 2013. The balance of prepayment to suppliers for raw materials totaled $43.3 million as of September 30, 2014, compared to $50.6 million at December 31, 2013. The Company had inventories of $24.1 million as of September 30, 2014, compared to $18.8 million at the end of last year. Total working capital was $98.2 million as of September 30, 2014, compared to $85.7 million at December 31, 2013.

Net cash provided by operating activities was $7.5 million for the nine months ended September 30, 2014, compared to $18.0 million for the same period of last year. Net cash used in investing activities was $7.8 million for the nine months ended September 30, 2014, compared to $14,806 for the same period of last year. Net cash provided by financing activities was $1.4 million for the nine months ended September 30, 2014, compared to net cash used in financing activities of $21.9 million for the same period of last year. The Company's 81% owned subsidiary in Ma'anshan, Ossen Innovation Materials Co., Ltd. ("Ossen Materials") completed a private placement of RMB 100 million (approximately $16.2 million) in aggregate principal amount of bonds to certain accredited investors in China (the "Offering") and received net proceeds of $15.4 million for the purpose to retire it's regular bank loans during the third quarter of 2014. The bonds bear a fixed interest rate of 10.75 per cent per annum, payable annually in arrears, and mature on September 2, 2016. China-based GuoYuan Securities Co., Ltd. acted as sole placement agent for the Offering.

Recent Development

On December 1, 2014, the Company announced that it had been awarded approximately $11.4 million contracts to supply its PC strands/wires, both plain surface and coated, for the construction of three bridges in Jiaozuo, Henan Province, Ji'an, Jiangxi Province, and Zhaoqing, Guangdong Province. The constructions of these bridges are expected to last over a year with product delivery to start in December 2014.

On November 25, 2014, our chairman, Dr. Tang, was recognized as one of the national winners of "National Outstanding Contributors" at the Fourth National Outstanding Contributors Awards Ceremony. Sponsored by four national ministries, the National Outstanding Contributors Award is a flagship national award given every other year to individuals who have made significant contributions to the society.

On October 9, 2014, the Company provided an update on its supply contract to provide 5,000 tons of plain surface products to the 205 National Highway reconstruction project in Anhui Province (the "Project"). The Project, which was originally secured in December 2013 and subsequently suspended due to the delay of a geological survey, had resumed with the delivery of our plain surface products to commence in late 2014 or early 2015.

Conference Call

To attend the call, please use the information below for either dial-in access or webcast access. When prompted on dial-in, ask for "Ossen Innovation Third Quarter 2014 Conference Call" or be prepared to utilize the conference ID.

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through January 6, 2015. To listen, please call +1-855-452-5696 within the United States or +1-646-254-3697 if calling internationally. Utilize the pass code 58509895 for the replay.

This call is being webcast and can be accessed by clicking on this link: http://edge.media-server.com/m/p/irvv26je

About Ossen Innovation Co., Ltd.

Ossen Innovation Co., Ltd. manufactures and sells a wide variety of plain surface pre-stressed steel materials and rare earth coated and zinc coated pre-stressed steel materials. The Company's products are mainly used in the construction of bridges, as well as in highways and other infrastructure projects. Ossen has two manufacturing facilities located in Maanshan, Anhui Province, and Jiujiang, Jiangxi Province.

Safe Harbor Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks outlined in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 20-F, as amended. All information provided in this press release is as of the date hereof. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

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