SUTR (MM)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 8-K

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of Earliest Event Reported): December 15, 2014

 

SUTOR TECHNOLOGY GROUP LIMITED

 

(Exact name of registrant as specified in its charter)

 

Nevada	001-33959	87-0578370
(State of Incorporation)	(Commission File No.)	(IRS Employer ID No.)

 

No. 8, Huaye Road

Dongbang Industrial Park

Changshu, China 215534

 

(Address of Principal Executive Offices)

 

(86) 512-52680988

Registrant’s Telephone Number, Including Area Code:

 

 

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On December 15, 2014, Sutor Technology Group Limited (the “Company”) issued a press release announcing its audited financial results for the fiscal year ended June 30, 2014.

 

On the same day, the Company also issued a press release announcing its unaudited financial results for the first quarter of fiscal year 2015 ended September 30, 2014.

 

Copies of the press releases are hereby furnished as Exhibit 99.1 and Exhibit 99.2, and incorporated herein by reference.

 

The information contained in this Current Report on Form 8-K and the exhibits attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information or such exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 7.01. Regulation FD Disclosure.

 

The information set forth in Item 2.02 above is incorporated by reference herein.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit		Description
99.1		Press release dated December 15, 2014, announcing its financial results for fiscal year 2014
99.2		Press release dated December 15, 2014, announcing its financial results for the first quarter of fiscal year 2015.

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Sutor Technology Group Limited
Date: December 15, 2014
/s/ Lifang Chen
Chief Executive Officer

 

  

EXHIBIT INDEX

 

Exhibit		Description
99.1		Press release dated December 15, 2014, announcing its financial results for fiscal year 2014
99.2		Press release dated December 15, 2014, announcing its financial results for the first quarter of fiscal year 2015.

  

 

 

 

Exhibit 99.1

 

 

Sutor Technology Group Limited Reports

Fiscal Year 2014 Financial Results

 

CHANGSHU, China, December 15, 2014 -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), one of the leading China-based manufacturers and service providers for fine finished steel products used by a variety of downstream applications, today announced its audited financial results for the fiscal year ended June 30, 2014.

 

Fiscal 2014 Financial Results Highlights:

 

		FY2014				FY2013				Change
Revenues (million):		$	405.4			$	612.1				(33.8	)%
Gross profit (million)		$	33.6			$	44.9				(25.2	)%
Net income (million)		$	7.1			$	16.9				(58.2	)%
EPS		$	0.17			$	0.42				(59.5	)%

 

Major Events Highlights:

 

l

Started transition from a traditional fine finished steel manufacturer to a valued-added service provider offering both products and fee-based processing services for fine finished steel products.

 

l

Started producing products in small quantities on our new 500,000 MT cold-rolled production line and expects gradual ramp-up of capacity utilization in the coming quarters.

 

l

Renewed the certificate of Jiangsu Provincial High-tech Enterprise for Changshu Huaye Steel Strip Co. Ltd, a subsidiary of Sutor (“Changshu Huaye”). The high-tech enterprise status enhances the Company’s market position and entitles Changshu Huaye to a preferential income tax rate for three more years.

 

Fiscal Year 2014 Results

 

Revenue. For the fiscal year ended June 30, 2014, revenue was $405.4 million compared to $612.1 million last year, a decrease of approximately $206.7 million, or 33.8%. Total sales volume in tons decreased approximately 39.3% in fiscal year 2014 as compared to last year, which reflected the impact of stagnant Chinese real estate markets, steel industry overcapacity as well as the Company’s transition from a pure fine-finished steel manufacturer to a steel product and processing service provider. For a typical product sales transaction, our product price covers the cost of raw materials as well as gross profits; while for a fee-based steel processing service, the price for our service does not contain the cost of raw materials as the customers buy the raw materials and we charge them only for a processing fee to cover processing expenses and a profit. Therefore, revenue from steel processing services is significantly lower than that from product sales.

 

Our business was relatively stable during the first three quarters of fiscal 2014 while our sales declined significantly during the fourth quarter. We believe a number of factors contributed to this change: First, the prices of steel products declined to a multi-year low level during the fourth quarter and the market generally believed that the near-term outlook remained bearish. As a result, very few customers were willing to place large orders with us and fulfilling small orders reduced our production efficiency. Second, the real estate markets in most cities in China were stagnant. In some markets, housing prices and sales declined so dramatically that the local governments had to repeal its restrictive policies to control housing prices and excessive investment in the real estate. A stagnant real estate market affected demands for a variety of steel products including steel products for construction and infrastructure as well as for household appliances. Moreover, banks in general tightened their policy of granting of new lines of credit to non-state-owned enterprises. Due to the tight liquidity of many small and medium enterprises (SMEs), which are our core clients, they were unable to expand their operations and some even had to reduce their operating scale, which significantly adversely affected our operations.

 

 

Gross profit and gross margin. Gross profit decreased $11.3 million to $33.6 million in fiscal year 2014 from $44.9 million in fiscal year 2013. Gross profit as a percentage of revenue (gross margin) was 8.3% in fiscal year 2014 as compared with 7.3% last year. The increased gross margin mainly resulted from the change in the composition of the products we sold. We sold much less low margin AP steel in fiscal 2014 than in fiscal 2013.

 

Selling expenses. Our selling expenses decreased approximately $3.3 million to $5.0 million in fiscal year 2014, from $8.3 million in fiscal year 2013. As a percentage of revenue, our selling expense was 1.3% in fiscal year 2014 as compared to 1.3% in fiscal 2013. The dollar decrease of selling expenses was primarily due to reduced sales, particularly our internationals sales. In addition, a higher percentage of more shipment was made through the local harbor in Changshu, which further reduced shipping and handling expenses.

 

General and administrative expenses.  General and administrative expenses increased $1.0 million, or 9.5%, to $11.5 million, or 2.8% of revenue, in fiscal year 2014, from $10.5 million, or 1.7% of revenue, in fiscal year 2013. The higher general and administrative expenses were primarily due to the provision for account receivables in the amount of approximately $0.5 million. Our research and development expenses increased $0.1 million, or 25.0%, to $ 0.5 million, or 1.4 % of revenue in fiscal year 2014 as compared to $0.4 million, or 0.1% of revenue in fiscal year 2013.

 

Interest expense. Our interest expense decreased $0.1 million to $10.1 million in fiscal year 2014, from $10.2 million in fiscal year 2013. As a percentage of revenue, our interest expenses increased to 2.5% in fiscal year 2014, from 1.7% in fiscal year 2013.  The increase in interest expense as percentage of revenue was mainly attributable to the fact that the decrease in total revenue outpaced the decrease in interest expense. The Company’s total debt and average interest rate remained relatively stable.

 

Provision for income taxes. We incurred income tax expense of $3.0 million with an effective tax rate of 29.9% in fiscal year 2014 as compared to $2.7 million with an effective tax rate of 13.9% in fiscal year 2013. The primary reason of the significant change in effective tax rate is that we had a favorable one-time income tax credit and income tax refund in the amount of approximately $0.87 million last fiscal year.

 

Net income. Net income, without including the foreign currency translation adjustment, decreased $9.8 million, or approximately 58.2%, to $7.1 million in fiscal year 2014, from $16.9 million in fiscal year 2013, as a cumulative result of the above factors.

 

Financial Condition and Liquidity

 

As of June 30, 2014, we had approximately $12.2 million in cash and $60.9 million in restricted cash. Our short-term loans were approximately $139.2 million. We also had approximately $11.0 million long-term loans. As of June 30, 2014, the Company had an unused line of credit with banks of approximately $31.7 million.

 

For fiscal 2015, we anticipate a very limited amount of capital expenditure for major maintenance and equipment improvement. For the 500,000-ton new cold-rolled production line, the remaining capital expenditure is approximately $2.5 million, and most of which is expected to be paid one year after the commercial production starts.

 

 

Functional Currency

 

The functional currency of the Company is the Chinese Yuan Renminbi ("RMB"); however, the accompanying financial information has been expressed in United States Dollars ("USD"). The accompanying consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The accompanying consolidated statements of operations and cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. Transactions in the Company's equity securities have been recorded at the exchange rate existing at the time of the transaction.

 

About Sutor Technology Group Limited

 

Sutor is one of the leading China-based manufacturers and service providers for high-end fine finished steel products and welded steel pipes used by a variety of downstream applications. The Company utilizes a variety of in-house developed processes and technologies to convert steel manufactured by third parties into fine finished steel products, including hot-dip galvanized steel, pre-painted galvanized steel, acid-pickled steel, cold-rolled steel and welded steel pipe products. To learn more about the Company, please visit http://www.sutorcn.com/en/index.php.

 

Forward-Looking Statements

 

This press release includes certain statements that are not descriptions of historical facts, but are “forward-looking statements” in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, among others, those concerning our expected financial performance, liquidity and strategic and operational plans, our future operating results, our expectations regarding the market for our products, our expectations regarding the steel market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. These risks and uncertainties include, but not limited to, the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended June 30, 2014, and other risks mentioned in our other reports filed with the Securities Exchange Commission (“SEC”). Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

 

For more information, please contact:
Investor Relations
Sutor Technology Group Limited
Tel: +86-512-5268-0988

Email: investor_relations@sutorcn.com

 

Financial Tables Below:

 

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		June 30,				June 30,
		2014				2013
ASSETS
Current Assets:
Cash and cash equivalents		$	12,178,225			$	3,601,385
Restricted cash			60,860,255				108,825,425
Short-term investments			3,248,652				-
Trade accounts receivable, unrelated parties, net of allowance for doubtful accounts of $1,368,723 and $623,742, respectively			6,331,702				7,331,291
Trade accounts receivable, related parties			16,149,269				-
Notes receivables			194,919				19,835,677
Other receivables and prepayments, unrelated parties, net of allowance for doubtful accounts of $255,628 and $248,128, respectively			1,875,785				3,446,187
Other receivables and prepayments, related parties			405,558				-
Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $527,673 and $796,026, respectively			8,645,751				43,175,047
Advances to suppliers, related parties			286,085,768				251,900,527
Inventories, net			78,277,682				52,377,135
Current deferred tax assets			1,507,840				952,417
Total Current Assets			475,761,406				491,445,091
Non-current Assets:
Advances for purchase of long term assets			85,241				17,085,958
Property, plant and equipment, net			87,121,382				71,508,912
Intangible assets, net			3,568,855				3,074,372
Long-term investments			1,814,734				6,686,539
Total Non-current Assets			92,590,212				98,355,781
TOTAL ASSETS		$	568,351,618			$	589,800,872
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term loans		$	139,223,123			$	138,968,845
Long-term loans, current portion			-				7,418,003
Accounts payable, unrelated parties			5,843,599				9,645,713
Notes payable			136,274,446				178,917,942
Other payables and accrued expenses, unrelated parties			4,613,201				7,291,220
Other payables and accrued expenses, related parties			3,110,196				-
Advances from customers, unrelated parties			7,917,111				11,008,550
Advances from customers, related parties			15,114,353				-
Warrant liabilities			866				144,535
Total Current Liabilities			312,096,895				353,394,808
Non-Current Liabilities
Long-term loans, unrelated parties			2,859,995				1,180,877
Long-term loans, related parties			8,182,018				-
Total Non-current Liabilities			11,042,013				1,180,877
Total Liabilities			323,138,908				354,575,685
Stockholders' Equity
Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; nil shares outstanding			-				-
Common stock - $0.001 par value; authorized: 500,000,000 shares as of June 30, 2014 and 2013; issued: 42,252,267 shares and 40,965,602 shares as of June 30, 2014 and 2013, respectively			42,252				40,965
Additional paid-in capital			43,652,089				41,793,142
Statutory reserves			22,725,841				20,426,971
Retained earnings			137,081,594				132,311,592
Accumulated other comprehensive income			42,362,443				41,304,026
Less: Treasury stock, at cost, 590,838 as of June 30, 2014 and 2013			(651,509	)			(651,509	)
Total Stockholders' Equity			245,212,710				235,225,187
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	568,351,618			$	589,800,872

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

 

		For The Year Ended
		June 30
		2014				2013
Revenue from unrelated parties		$	262,635,057			$	395,433,973
Revenue from related parties			142,780,398				216,641,488
Total Revenue			405,415,455				612,075,461
Cost of Revenue			(371,768,467	)			(567,139,939	)
Gross Profit			33,646,988				44,935,522
Operating Expenses:
Selling expenses			(4,993,368	)			(8,266,533	)
General and administrative expenses			(11,491,805	)			(10,516,116	)
Total Operating Expenses			(16,485,173	)			(18,782,649	)
Income from Operations			17,161,815				26,152,873
Other Incomes/(Expenses):
Interest income			3,263,566				3,414,416
Interest expense			(10,113,479	)			(10,209,681	)
Changes in fair value of warrant liabilities			143,669				(97,131	)
Income from equity method investments			274,225				370,814
Other income			139,624				457,735
Other expense			(784,597	)			(460,412	)
Total Other Expenses			(7,076,992	)			(6,524,259	)
Income Before Taxes			10,084,823				19,628,614
Income tax expense			(3,015,951	)			(2,723,150	)
Net Income		$	7,068,872			$	16,905,464
Other Comprehensive Income:
Foreign currency translation adjustment			1,058,417				5,681,785
Comprehensive Income			8,127,289				22,587,249
Basic Earnings per Share		$	0.17			$	0.42
Diluted Earnings per Share		$	0.17			$	0.42
Basic Weighted Shares Outstanding			41,517,840				40,251,218
Diluted Weighted Shares Outstanding			41,517,840				40,251,218

 

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For The Year Ended
		June 30
		2014				2013
Cash Flows from Operating Activities:
Net income		$	7,068,872			$	16,905,464
Adjustments to reconcile net income to net cash provided by/(used in) operating activities
Depreciation and amortization			9,068,355				8,868,707
Provision/(reversal) for doubtful accounts			478,682				(392,969	)
Write downs of inventories			-				141,173
Stock-based compensation			496,292				193,518
Foreign currency exchange gain			(47,909	)			(454,657	)
(Gain)/loss on disposal of property, plant and equipment			(11,062	)			16,240
Interest income from short-term investments carried at amortized cost			-				(31,059	)
Income from equity method investments			(274,225	)			(370,814	)
Deferred income taxes			(552,796	)			(223,911	)
Changes in fair value of warrant liabilities			(143,669	)			97,131
Changes in current assets and liabilities:
Restricted cash			27,002,074				(20,674,295	)
Trade accounts receivable, unrelated parties			286,190				544,243
Trade accounts receivable, related parties			(16,182,388	)			-
Notes receivable			19,759,493				(2,514,588	)
Other receivables and prepayments, unrelated parties			1,443,844				1,150,326
Other receivables and prepayments, related parties			(406,390	)			-
Advances to suppliers, unrelated parties			35,042,929				(15,318,614	)
Advances to suppliers, related parties			(33,197,638	)			(54,965,689	)
Inventories			(25,116,596	)			(982,823	)
Accounts payable, unrelated parties			(3,740,716	)			(4,385,361	)
Notes payable			(43,438,610	)			50,723,310
Other payables and accrued expenses, unrelated parties			(2,709,446	)			(1,668,531	)
Other payables and accrued expenses, related parties			3,113,187				-
Advances from customers, unrelated parties			(3,140,092	)			2,874,317
Advances from customers, related parties			15,145,350				-
Net Cash Used In Operating Activities			(10,056,269	)			(20,468,882	)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment			(7,750,475	)			(5,310,774	)
Proceeds from disposal of property, plant and equipment			411,448				889,743
Purchase of intangible assets			(567,444	)			(3,565,706	)
Payment for long-term investments			-				(6,213,456	)
Proceeds from disposal of long-term investments			4,557,440				-
Payments for short-term investments			(3,255,314	)			-
Disposal of subsidiary, net of cash disposed of $27,401 and nil, respectively			-				(27,401	)
Proceeds from sale of short-term investments			-				4,909,220
Net Cash Used In Investing Activities			(6,604,345	)			(9,318,374	)
Cash Flows from Financing Activities:
Proceeds from loans			238,160,540				117,603,938
Payments of loans			(235,852,667	)			(119,567,659	)
Proceeds from issuance of common stock			1,500,000
Changes in restricted cash			21,491,892				25,763,889
Payments on repurchase of common stock			-				(43,841	)
Net Cash Provided By Financing Activities			25,299,765				23,756,327
Effect of Exchange Rate Changes on Cash			(62,311	)			101,783
Net Change in Cash and Cash Equivalents			8,576,840				(5,929,146	)
Cash and Cash Equivalents at Beginning of Year			3,601,385				9,530,531
Cash and Cash Equivalents at End of Year		$	12,178,225			$	3,601,385
Supplemental Non-Cash Information:
Offset of notes payable to related parties against receivable from related parties		$	-			$	10,791,134
Accounts payable for purchase of long-term assets			(107,346	)			(1,244,579	)
Advances for purchase of long-term assets			17,103,162				(1,733,684	)
Supplemental Cash Flow Information:
Cash paid during the year for interest expense		$	(11,484,801	)		$	(8,670,207	)
Cash paid during the year for income tax		$	(5,113,782	)		$	(2,595,402	)

 

 

 

Exhibit 99.2

 

Sutor Technology Group Limited Reports

First Quarter of Fiscal Year 2015 Financial Results

 

CHANGSHU, China, December 15, 2014 -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), one of the leading China-based manufacturers and service providers for fine finished steel products used by a variety of downstream applications, today announced its unaudited financial results for the first quarter of fiscal year 2015 ended September 30, 2014.

 

First Quarter of Fiscal 2015 Financial Results Highlights:

 

		1Q FY2015				1Q FY2014				Change
Revenues (million):			38.0				139.1				(72.7	)%
Gross profit (million)			(1.8	)			12.2				(114.8	)%
Net income (million)			(5.1	)			5.2				(198.2	)%
EPS			(0.12	)			0.13				(192.3	)%

 

Ms. Lifang Chen, CEO of Sutor, commented, “Based on our recent operating results and market outlook, we anticipate our performance for the second quarter of fiscal year 2015 will improve. We believe the recent net loss reflected the unusual challenges facing the Chinese steel industry and our company.”

 

“It appears that the steel industry is at a cyclical bottom. The headwinds we encountered were stronger than we had expected. The Chinese economy is undergoing a structural adjustment. During the process, those companies without technology or markets for their products are being phased out. This structural change temporarily reduced demands for certain steel products, depressed prices to a multi-year low level, and altered our customers purchase patterns. Further, tight liquidity for some small and medium enterprises further constrained our customers’ operations and affected our performance. ”

 

Ms. Chen continued, “To cope with these challenges, we are carrying out a number of strategic initiatives. We are taking a multi-faceted approach and transforming ourselves from a traditional steel manufacturer to a fine finished steel product and service provider. We are developing fee-based steel processing services to minimize the risks of declining steel prices. We believe that such services are more scalable and allow us to quickly adapt to the changes in the market place. ”

 

“We believe the growth of Chinese economy cannot be sustainable without a healthy and growing steel industry. We also believe the Chinese steel sector is at a cyclical bottom and the valuation of Chinese steel companies is generally depressed. This creates a tremendous opportunity for the steel industry to restructure and consolidate. We are taking advantage of this historical opportunity and actively evaluating merger and acquisition opportunities that are otherwise not available to us.We have engaged Ernst & Young as our financial advisor to help us evaluate and structure deals and to maximize our asset value. We believe we can become larger and stronger through steel industry restructuring and consolidation. We will update the market on this potential development when it is appropriate.” Ms. Chen concluded.

 

First Quarter of Fiscal Year 2015 Results

 

Revenue. For the three months ended September 30, 2014, revenue was $38.0million, compared to $139.1 million for the same period last year, a decrease of $101.1 million, or 72.7%. The decrease was mainly attributable to the change in our business model. In the past, our revenue was primarily derived from selling manufactured products and the sales price included the cost of steel sheets plus a gross profit. Under the fee-based processing services, the price of processing services does not include the cost of steel sheets as the customers are responsible for procurement of the raw materials. As a result, revenue from processing one ton of fine finished steel products is only a fraction of the revenue from the traditional practice of the revenue from the traditional business model. We believe the fee-based model is more scalable and allows us to better adapt to the changes in the Chinese economy than our traditional manufacturing and sales model. Finally, as fewer products were available for sales for the first quarter of fiscal 2015 than in the same period last year, sales to related parties were also significantly reduced.

 

 

On a geographic basis, revenue generated from outside of China was $1.0 million, or 2.8% of the total revenue, for the three months ended September 30, 2014, as compared to $18.1 million, or 13.0% of the total revenue, for the same period in 2013. Our pre-painted galvanized steel (“PPGI”) line was shut down during the first quarter of fiscal 2015 for scheduled technical upgrading. PPGI historically was one of our main export products.

 

Gross profit and gross margin.Gross profit decreased by $14.0 million to $(1.8) million in the three months ended September 30, 2014, from $12.2 million in the same period in 2013. Gross profit as a percentage of revenue (gross margin) was (4.9)% for the three months ended September 30, 2014, as compared to 8.8% for the same period last year. The main reason for the declined gross margin was our effort to make our new fee-based processing services more competitive by setting up our fees at a comparatively low level. In addition, overall lower production volumes in the first quarter of fiscal 2015 than the same period last year also reduced gross margin due to fixed production expenses.

 

Total operating expenses. Our total operating expenses decreased by $2.4 million to $2.5million in the three months ended September 30, 2014, from $4.9 million in the same period in 2013. As a percentage of revenue, our total operating expenses increased to 6.6% in the three months ended September 30, 2014, from 3.5% in the same period in 2013.

 

Selling expenses. Our selling expenses decreased by $1.7 million to $0.3 million in the three months ended September 30, 2014, from $2.0 million in the same period in 2013. As a percentage of revenue, our selling expenses decreased to 0.7% for the three months ended September 30, 2014, from 1.4% for the same period last year. The reduced dollar amount of the selling expenses was primarily due to reduced shipping and handling activities as the total sales were reduced.

 

General and administrative expenses. General and administrative expenses was $2.2 million, or 5.9% of the total revenue, in the three months ended September 30, 2014, as compared with $2.9 million, or 2.1% of the revenue, in the same period in 2013. The decreased dollar amount of general and administrative expenses was primarily due to the reversal of a prior period bad debt allowance.

 

Interest expense. Our interest expense increased by $1.2 million to $3.0 million in the three months ended September 30, 2014, from $1.8 million in the same period in 2013. As a percentage of revenue, our interest expense was 7.8% of total revenue in the three months ended September 30, 2014, compared to 1.3% in the same period in 2013. The higher amount of interest expenses was mainly due to more outstanding bank loans in the first quarter of fiscal 2015 than the same period last year.

 

Provision for income taxes. Our income tax benefit was $1.6 million in the three months ended September 30, 2014, as compared to $1.5 million of income tax expense in the same period last year, mainly due to net losses for the first quarter of fiscal 2015.

 

Net income. Net income, without including the foreign currency translation adjustment, decreased by $10.3 million, or 198.2%, to $(5.1) million in the three months ended September 30, 2014, from $5.2 million in the same period in 2013, as a cumulative result of the above factors.

 

Financial Condition and Liquidity

 

As of September 30, 2014, we had approximately $4.0 million in cash and $14.8 million in restricted cash. Our short-term loans were approximately $186.8 million. We also had approximately $11.0 million long-term loans. As of September 30, 2014, the Company had an unused line of credit with banks of approximately $31.2 million.

 

As a result of the completion of its500,000 MT cold-rolled production line, the Company does not expect any major capital expenditures within the next twelve months and intends to use cash flow from operations and unused line of credit from banks to meet the near-term working capital requirements. The Company also expects to renew bank loans when they become due. However, there is no assurance that additional financing will become available on terms acceptable to us.

 

 

Functional Currency

 

The functional currency of the Company is the Chinese Yuan Renminbi ("RMB"); however, the accompanying financial information has been expressed in United States Dollars ("USD"). The accompanying consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The accompanying consolidated statements of operations and cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. Transactions in the Company's equity securities have been recorded at the exchange rate existing at the time of the transaction.

 

About Sutor Technology Group Limited

 

Sutor is one of the leading China-based manufacturers and service providers for high-end fine finished steel products and welded steel pipes used by a variety of downstream applications. The Company utilizes a variety of in-house developed processes and technologies to convert steel manufactured by third parties into fine finished steel products, including hot-dip galvanized steel, pre-painted galvanized steel, acid-pickled steel, cold-rolled steel and welded steel pipe products. To learn more about the Company, please visit http://www.sutorcn.com/en/index.php.

 

Forward-Looking Statements

 

This press release includes certain statements that are not descriptions of historical facts, but are “forward-looking statements”in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, among others, those concerning our expected financial performance, liquidity and strategic and operational plans, our future operating results, our expectations regarding the market for our products, our expectations regarding the steel market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. These risks and uncertainties include, but not limited to, the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended June 30, 2014, and other risks mentioned in our other reports filed with the Securities Exchange Commission (“SEC”). Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

 

For more information, please contact:
Investor Relations
Sutor Technology Group Limited
Tel: +86-512-5268-0988

Email: investor_relations@sutorcn.com

 

 

Financial Tables Below:

 

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30,				June 30,
		2014				2014
ASSETS
Current Assets:
Cash and cash equivalents		$	4,021,868			$	12,178,225
Restricted cash			14,779,924				60,860,255
Short-term investments			-				3,248,652
Trade accounts receivable, unrelated parties, net of allowance for doubtful accounts of $1,243,554 and $1,368,723, respectively			3,939,382				6,331,702
Trade accounts receivable, related parties			40,790,071				16,149,269
Notes receivables			576,795				194,919
Other receivables and prepayments, unrelated parties, net of allowance for doubtful accounts of $257,946 and $255,628, respectively			2,679,247				1,875,785
Other receivables and prepayments, related parties			405,670				405,558
Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $661,926 and $527,673, respectively			7,898,158				8,645,751
Advances to suppliers, related parties			287,018,783				286,085,768
Inventories, net			56,202,616				78,277,682
Current deferred tax assets			3,104,989				1,507,840
Total Current Assets			421,417,503				475,761,406
Non-current Assets:
Advances for purchase of long term assets			85,264				85,241
Property, plant and equipment, net			85,008,417				87,121,382
Intangible assets, net			3,548,143				3,568,855
Long-term investments			1,815,236				1,814,734
Total Non-current Assets			90,457,060				92,590,212
TOTAL ASSETS		$	511,874,563			$	568,351,618
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term loans		$	186,818,007			$	139,223,123
Long-term loans, current portion			-				-
Accounts payable, unrelated parties			5,717,104				5,843,599
Notes payable			33,295,758				136,274,446
Other payables and accrued expenses, unrelated parties			9,411,081				4,613,201
Other payables and accrued expenses, related parties			3,113,169				3,110,196
Advances from customers, unrelated parties			7,095,891				7,917,111
Advances from customers, related parties			15,118,527				15,114,353
Warrant liabilities			3				866
Total Current Liabilities			260,569,540				312,096,895
Non-Current Liabilities
Long-term loans, unrelated parties			2,859,995				2,859,995
Long-term loans, related parties			8,182,018				8,182,018
Total Non-current Liabilities			11,042,013				11,042,013
Total Liabilities			271,611,553				323,138,908
Stockholders' Equity
Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; nil shares outstanding			-				-
Common stock - $0.001 par value; authorized: 500,000,000 shares as of September 30 and June 30, 2014; issued: 42,252,267 shares and 42,252,267 shares as of September 30 and June 30, 2014, respectively			42,252				42,252
Additional paid-in capital			43,720,091				43,652,089
Statutory reserves			22,725,841				22,725,841
Retained earnings			131,989,310				137,081,594
Accumulated other comprehensive income			42,437,025				42,362,443
Less: Treasury stock, at cost, 590,838 as of September 30 and June 30, 2014			(651,509	)			(651,509	)
Total Stockholders' Equity			240,263,010				245,212,710
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	511,874,563			$	568,351,618

 

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

 

		For the Three Months Ended
		September 30
		2014				2013
Revenue from unrelated parties		$	16,991,898			$	102,182,122
Revenue from related parties			20,995,932				36,926,203
Total Revenue			37,987,830				139,108,325
Cost of Revenue			(39,832,100	)			(126,905,780	)
Gross (Loss)/Profit			(1,844,270	)			12,202,545
Operating Expenses:
Selling expenses			(269,640	)			(1,994,856	)
General and administrative expenses			(2,249,251	)			(2,904,270	)
Total Operating Expenses			(2,518,891	)			(4,899,126	)
(Loss)/Income from Operations			(4,363,161	)			7,303,419
Other Incomes/(Expenses):
Interest income			446,485				1,050,222
Interest expense			(2,978,347	)			(1,803,295	)
Changes in fair value of warrant liabilities			863				(12,587	)
Income from equity method investments			-				85,172
Other income			273,362				44,274
Other expense			(66,845	)			(18,023	)
Total Other Expenses			(2,324,482	)			(654,237	)
Income (Loss) Before Taxes			(6,687,643	)			6,649,182
Income tax benefit/(expense)			1,595,359				(1,460,935	)
Net Income/(Loss)		$	(5,092,284	)		$	5,188,247
Other Comprehensive Income:
Foreign currency translation adjustment			74,582				1,659,557
Comprehensive Income/(Loss)			(5,017,702	)			6,847,804
Basic Earnings/(Loss) per Share		$	(0.12	)		$	0.13
Diluted Earnings/(Loss) per Share		$	(0.12	)		$	0.13
Basic Weighted Shares Outstanding			41,661,429				41,314,527
Diluted Weighted Shares Outstanding			41,661,429				41,314,527

 

  

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Three Months Ended
		September 30
		2014				2013
Cash Flows from Operating Activities:
Net income (loss)		$	(5,092,284	)		$	5,188,247
Adjustments to reconcile net income to net cash provided by/(used in) operating activities
Depreciation and amortization			2,139,619				2,244,793
Provision for doubtful accounts			10,827				106,557
Stock-based compensation			68,002				64,264
Foreign currency exchange gain			-				(91,689	)
Income from equity method investments			-				(85,172	)
Deferred income taxes			(1,595,359	)			(112,083	)
Changes in fair value of warrant liabilities			(863	)			12,587
Changes in current assets and liabilities:
Restricted cash			46,057,480				(8,735,865	)
Trade accounts receivable, unrelated parties			2,517,420				(2,708,302	)
Trade accounts receivable, related parties			(24,615,145	)			-
Notes receivable			(381,494	)			(41,394,993	)
Other receivables and prepayments, unrelated parties			(804,498	)			(8,236,889	)
Advances to suppliers, unrelated parties			615,344				(2,831,826	)
Advances to suppliers, related parties			(853,727	)			93,269,690
Inventories			22,077,021				(54,550,385	)
Accounts payable, unrelated parties			574,496				3,728,819
Accounts payable, related parties			-				9,268,908
Notes payable			(102,927,694	)			17,255,052
Other payables and accrued expenses, unrelated parties			4,792,724				(361,778	)
Other payables and accrued expenses, related parties			2,641				-
Advances from customers, unrelated parties			(822,613	)			(190,350	)
Net Cash (Used In)/Provided by Operating Activities			(58,238,103	)			11,839,585
Cash Flows from Investing Activities:
Purchase of property, plant and equipment			(685,244	)			(6,557,827	)
Payments for short-term investments			-				(3,243,910	)
Proceeds from sale of short-term investments			3,246,753				-
Net Cash Provided By/(Used In) Investing Activities			2,561,509				(9,801,737	)
Cash Flows from Financing Activities:
Proceeds from loans			79,796,650				32,728,061
Payments of loans			(32,281,138	)			(44,606,562	)
Proceeds from issuance of common stock			-				1,500,000
Changes in restricted cash			-				10,864,531
Net Cash Provided By Financing Activities			47,515,512				486,030
Effect of Exchange Rate Changes on Cash			4,725				25,427
Net Change in Cash and Cash Equivalents			(8,156,357	)			2,549,305
Cash and Cash Equivalents at Beginning of Year			12,178,225				3,601,385
Cash and Cash Equivalents at End of Year		$	4,021,868			$	6,150,690
Supplemental Non-Cash Information:
Offset of notes payable to related parties against receivable from related parties		$	-			$	10,997,923
Accounts payable for purchase of long-term assets			(702,495	)			-
Supplemental Cash Flow Information:
Cash paid during the year for interest expense		$	(2,726,391	)		$	(2,030,947	)
Cash paid during the year for income tax		$	-			$	(1,539,622	)