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Sutor Technology Group Limited Announces First Quarter Financial Results of Fiscal Year 2011

CHANGSHU, China, Nov.12, 2010 /PRNewswire via COMTEX/ -- Sutor Technology Group Limited (the "Company", "Sutor") (Nasdaq: SUTR), a leading China-based manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced its financial results for the first quarter of fiscal year 2011, ended September 30 2010.

First Fiscal Quarter 2011 Financial Results: 1QFY2011 1QFY2010 Change -------- -------- ------ Revenues (million): $101.9 $123.8 -17.7% Gross profit (million): $8.4 $4.4 91.4% Gross margin 8.3% 3.6% 132.4% Net income (million): $3.4 $0.5 581.6% EPS $0.08 $0.01 535.5% Commenting on the first fiscal quarter's performance, Ms. Lifang Chen, Chairwoman and CEO of Sutor said, "I am pleased with the significant increases in gross profits, net income and earnings per share. In the first fiscal quarter, our orders and production output was more heavily focused on advanced PPGI products that required sophisticated processing procedures and hence more production time. The result was lower total production volume, but higher profit margin products. In addition, Sutor benefited from higher commodity prices and sales prices as inflation pressures were present in the major sectors of the economy." Ms. Chen continued, speaking about the strategy and outlook for the Company, "We accelerated our efforts to tap into new geographic markets including opening a new regional office in Chongqing, a major economic hub in Southwestern China.

The region is expected to enjoy higher economic growth rate than the rest of China due to the Chinese government's preferential going-to-the-west policies." "In the coming months, we plan to participate in a number of international steel products trade shows in an effort to increase our brand recognition and build a strong global presence. As part of our long-term growth strategy, we continue to pursue selective domestic M&A opportunities and seek other opportunities for strategic cooperation with leading domestic and international steel companies to produce advanced products to meet the increasing demand from the on-going urbanization and industrial upgrading in China. We are optimistic about our financial outlook and expect improved financial performance for fiscal year 2011 over the last fiscal year." Ms. Chen concluded.

First Fiscal Quarter 2011 Financial Results: Revenues. Revenues were $101.9 million in the first fiscal quarter of 2011, compared to $123.8 million for the same period last year, a decrease of $21.9 million, or approximately 17.7%. The decrease was primarily attributable to lower production volume for our PPGI products and reduced trading businesses.

During the first fiscal quarter of 2011, we produced more advanced PPGI products that required sophisticated processing procedures and hence more production time than we did in the same period a year ago. We also made a strategic decision to significantly reduce our subsidiary Ningbo Zhehua's lower-margin steel trading business, which contributed to lower total sales revenues.

Gross profit. Gross profit was $8.4 million in the first fiscal quarter of 2011, compared to $4.4 million in the same period last year, an increase of $4.0 million, or approximately 91.4%. Gross margin increased to 8.3% for the first fiscal quarter of 2011 from 3.6% for the same period last year. The increased gross margin mainly resulted from changes in product mix and reduced lower margin trading revenues.

Selling expenses. Selling expenses were $1.4 million for the first fiscal quarter of 2011 compared to $1.6 million in the same period last year, a decrease of 13.9%. The decrease was mainly attributable to lower sales revenues.

General and administrative expenses. General and administrative expenses were $1.6 million in the first fiscal quarter of 2011, compared to $1.3 million in the same period last year, an increase of $0.3 million, or approximately 27.0%.

The increase was partially due to a credit to the expenses related to fixed assets in the same period last year and some one-time office building renovation expenses for the current period.

Income from operations. Income from operations was $5.4 million in the first fiscal quarter of 2011 compared to $1.5 million in the same period last year, an increase of $3.9 million, or approximately 258.4%.

Net income. Net income was $3.4 million in the first quarter of fiscal 2011, compared to $0.5 million in the same period last year, an increase of $2.9 million, or approximately 581.6%.

Financial Condition: As of September 30, 2010, the Company had cash and cash equivalents of $17.1 million plus $45.1 million in restricted cash and working capital of $107.5 million. Stockholders' equity increased 3.9% to $177.4 million, compared to $170.8 million as of June 30, 2010. The management expects to have sufficient capital for normal operations at its current level during the remainder of fiscal year 2011.

Conference Call Information Sutor's management will host an earnings conference call today, November 12, 2010, at 9:00 a.m. Eastern time. Listeners may access the call by dialing US: +1-877-847-0047, CN: 800 876 5011, HK +852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through December 12, 2010. Listeners may access it by dialing US: +1-866-572-7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 480651.

Functional Currency and Translating Press Release The functional currency of the Company is the Chinese Yuan Renminbi ("RMB"); however, the accompanying financial information has been expressed in the US Dollars ("USD"). The consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The 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 (Nasdaq: SUTR) is a leading China-based manufacturer and distributor of 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. Such statements include, among others, those concerning our ability to capitalize on the Chinese government's policies, 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, 2010, and other risks mentioned in our other reports filed with the Securities Exchange Commission, or 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:

Mr. Jason Wang, Director of IR

Sutor Technology Group Limited

Tel: +86-512-5268-0988

Email: investor_relations@sutorcn.com Financial Tables:

Sutor Technology Group Limited and Subsidiaries

Consolidated Balance Sheets

September

30, June 30,

2010 2010

---- ----

ASSETS

Current Assets:

Cash and cash equivalents $17,084,036 $13,336,736

Restricted cash 45,097,082 48,315,962

Trade accounts receivable, net of

allowance for doubtful accounts of

$424,523 and $498,620, respectively 8,364,446 10,913,736

Other receivables 1,216,071 929,507

Advances to suppliers, related parties 98,558,271 96,776,181

Advances to suppliers, net of allowance

of $428,505 and $542,490, respectively 12,277,368 8,304,246

Inventory, net of allowance for

impairment of $103,711 and $102,028,

respectively 36,814,616 40,179,358

Notes receivable 552,973 73,437

Deferred income taxes 300,626 329,414

Total Current Assets 220,265,489 219,158,577

Property and Eqipment, net of accumulated

depreciation of $28,202,200 and

$25,914,352, respectively 69,666,934 70,018,522

Intangible Assets, net of accumulated

amortization of $439,362 and $415,178,

respectively 3,027,570 2,995,488

TOTAL ASSETS $292,959,993 $292,172,587

============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $12,869,095 $23,954,009

Advances from customers 11,524,787 6,769,481

Other payables and accrued expenses 5,056,926 4,688,324

Other payables - related parties 412,057 352,495

Short-term notes payable 82,286,908 82,128,484

Short-term notes payable - related

parties 597,184 587,492

Total Current Liabilities 112,746,957 118,480,285

Long-Term Notes Payable 2,859,995 2,859,995

Long-Term Notes Payable - Related Parties - -

--- ---

Total Liabilities 115,606,952 121,340,280

----------- -----------

Stockholders' Equity

Undesignated preferred stock -$0.001 par

value; 1,000,000 shares authorized; no

shares outstanding - -

Common stock -$0.001 par value;

500,000,000 shares authorized,

40,715,602 shares outstanding 40,715 40,715

Additional paid-in capital 42,496,949 42,465,581

Statutory reserves 12,629,151 12,629,151

Retained earnings 99,577,496 96,164,928

Accumulated other comprehensive income 22,608,730 19,531,932

Total Stockholders' Equity 177,353,041 170,832,307

----------- -----------

TOTAL LIABILITIES AND STOCKHOLDERS'

EQUITY $292,959,993 $292,172,587

============ ============

Sutor Technology Group Limited and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

For The Three Months

Ended

September 30

------------

2010 2009

---- ----

Revenue:

Revenue $39,560,159 $56,804,565

Revenue from related parties 62,386,937 67,003,757

101,947,096 123,808,322

----------- -----------

Cost of Revenue

Cost of revenue 31,930,290 54,330,912

Cost of revenue from related

party sales 61,581,246 65,068,922

93,511,536 119,399,834

---------- -----------

Gross Profit 8,435,560 4,408,488

--------- ---------

Operating Expenses:

Selling expense 1,380,478 1,604,096

General and administrative

expense 1,643,145 1,294,215

Total Operating Expenses 3,023,623 2,898,311

--------- ---------

Income from Operations 5,411,937 1,510,177

--------- ---------

Other Income (Expense):

Interest income 189,313 480,572

Other income 22,037 319,803

Interest expense (1,534,810) (1,346,898)

Other expense (65,714) (239,589)

Total Other Income (Expense) (1,389,174) (786,112)

---------- --------

Income Before Taxes 4,022,763 724,065

Provision for income taxes (610,195) (223,389)

-------- --------

Net Income $3,412,568 $500,676

Basic Earnings per Share $0.08 $0.01

----- -----

Diluted Earnings per Share 0.08 0.01

Basic Weighted Shares

Outstanding 40,715,602 37,955,602

---------- ----------

Diluted Weighted Shares

Outstanding 40,715,602 37,955,602

---------- ----------

Net Income $3,412,568 $500,676

Foreign currency translation

adjustment 3,076,798 176,789

Comprehensive Income $6,489,366 $677,465

========== ========

Sutor Technology Group Limited and Subsidiaries

Consolidated Statements of Cash Flows

For The Three Months

Ended

September 30

------------

2010 2009

---- ----

Cash Flows from Operating

Activities:

Net income $3,412,568 $500,676

Adjustments to reconcile net

income to net cash provided by

operating activities

Depreciation and amortization 1,876,098 1,840,352

Deferred income taxes 33,807 39,646

Foreign currency exchange loss 31,603 -

Stock based compensation 31,368 -

Gain on sale of assets (4,670) -

Changes in current assets and

liabilities:

Trade accounts receivable, net 2,680,916 5,922,669

Other receivable, net (267,941) 153,474

Advances to suppliers (3,789,606) 13,256,897

Inventories 3,978,750 5,904,564

Accounts payable (11,340,879) (3,482,040)

Advances from customers 4,590,240 (3,517,770)

Other payables and accrued

expenses 293,252 (3,935)

Other payables - related parties 53,095 -

Advances to suppliers -related

parties (24,309) (28,793,173)

Net Cash Provided by (Used In)

Operating Activities 1,554,292 (8,178,640)

--------- ----------

Cash Flows from Investing

Activities:

Changes in notes receivable (472,525) 46,776

Purchase of property and

equipment, net of value added tax

refunds received (371,661) (73,792)

Proceeds from sale of assets 5,899 -

---

Net Cash Used In Investing

Activities (838,287) (27,016)

-------- -------

Cash Flows from Financing

Activities:

Proceeds from issuance of notes

payable 41,910,402 61,432,374

Payments on notes payable (43,092,361) (60,250,220)

Proceeds from issuance of notes

payable -related parties - 199,932

Payments on notes payable -

related parties - -

Net change in restricted cash 3,967,261 9,680,250

Distribution to certain

shareholders in connection with

the reorganization of Ningbo - -

Net proceeds from issuance of

common stock and warrants - -

Proceeds from issuance of notes

payable -principal shareholder - -

Net Cash Provided By Financing

Activities 2,785,302 11,062,336

--------- ----------

Effect of Exchange Rate Changes on

Cash 245,993 8,038

------- -----

Net Change in Cash 3,747,300 2,864,718

Cash and Cash Equivalents at

Beginning of Period 13,336,736 10,653,438

---------- ----------

Cash and Cash Equivalents at End

of Period $17,084,036 $13,518,156

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