WEB NEWS CFO Trail
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
None of the resignations were the result of any disagreement with the Company on any matter relating to its operation, policies (including accounting or financial policies) or practices.
Hai Sheng Chen, the current Chief Executive Officer and Director of the Company, will remain as the sole director, and will serve in the position of Chief Financial Officer as well as Chief Executive Officer.
Auditor trail
Item 4.01 - Changes in Registrant’s Certifying Accountant.
On June 18, 2015, the Board of Directors of the Company was notified by its auditor, MSPC, Certified Public Accountants and Advisors, A Professional Corporation (“MSPC”), that MSPC has resigned as the Company’s auditing firm.
No accountant’s report on the financial statements for the past year contained an adverse opinion or a disclaimer of opinion or was qualified or modified as to uncertainty, audit scope or accounting principles, except for a going concern opinion expressing substantial doubt about the ability of the Company to continue as a going concern.
During the Company’s most recent fiscal year (ended June 30, 2014) and from July 1, 2014 to the date of this Report, there were no disagreements with MSPC on any matter of accounting principles or practices, financial disclosure, or auditing scope or procedure. For the year ended June 30, 2014 and from July 1, 2014 to the date of this Report, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.
The Company provided MSPC with a copy of the foregoing disclosure and requested MSPC to furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made therein. A copy of MSPC’s letter dated June 22, 2015 is attached as Exhibit 16.1 in this filing.
The Company anticipates appointing successor auditors after its ongoing restructuring and will file the required Current Report on Form 8-K concurrent with that event.
Disposal of Assets
Item 2.05 Costs Associated with Exit or Disposal Activities
On June 10, 2015, the Company announced a restructuring plan with respect to substantially all of its operations. In connection with the restructuring plan, the Company expects to cease substantially all operations at its Shanghai, China facility effective June 10, 2015. The Company is in the process of terminating the majority of its employees. The restructuring plan was a result of the Company’s inability to restructure its bank loan agreement with Raiffeisen Zentralbank Osterreich AG (“RZB”). Principal and interest under the short-term loans then totaling $27,715,781 with RZB were to be repaid in full on July 31, 2012, but the Company has defaulted on this repayment obligation. On April 16, 2014, we received a notice from China International Economic and Trade Arbitration Commission regarding an arbitration pleading filed by RZB for the defaulted short-term loan. The arbitration hearing took place on October 14, 2014. An arbitral award was subsequently issued on December 31, 2014 which orders the repayment of the loan principal with any late and penalty interest and that RZB has first priority on the proceeds realized from the sale of any assets which collateralize the loan. Discussions to remove the covenant to maintain specific levels of inventories that collateralize the loan have failed. RZB has the right to take possession of the collateral granted in connection with their respective loan agreements and the arbitral award. In June 2012, the Company also defaulted on its repayment obligations of a Senior Loan Agreement with DEG-Deutsche Investitions-Und Entwicklungsgesellschaft Mbh (“DEG”) for a loan principal balance of $16,200,000 with any accrued and penalty interest. DEG has the right to take possession of the collateral granted in connection with its respective loan agreement. The Company does not have sufficient cash flows to continue its current operations and is considering alternative options, including sale of control of the Company or all its assets.
In connection with the above, the Company currently estimates it will recognize costs in the range of approximately $1,080,000 (consisting primarily of employee termination costs) in the fourth quarter of 2015.
The amount of the restructuring charges noted above are estimates, and the actual charges could vary materially based on a number of factors including, but not limited to, the following: 1) the level of employee terminations, and 2) foreign currency exchange fluctuations.
Comments & Business Outlook
China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 2014 and 2013
(Unaudited)
Three Months Ended Six Months Ended
Notes 2014 2013 2014 2013
Sales revenues
$
5,187,462
$
11,866,008
$
10,928,152
$
23,631,395
Cost of goods sold
7,946,483
16,997,339
16,486,344
31,756,985
Gross (loss)
(2,759,021
)
(5,131,331
)
(5,558,192
)
(8,125,590
)
Operating expenses
Selling expenses
19,088
49,583
39,786
80,751
Administrative expenses
512,425
303,617
771,998
751,048
Allowance for bad and doubtful debts
1,135,831
6,546,832
3,884,318
11,668,609
Depreciation and amortization expense
34,901
40,500
74,715
88,642
Total operating expenses
1,702,245
6,940,532
4,770,817
12,589,050
(Loss) from operations
(4,461,266
)
(12,071,863
)
(10,329,009
)
(20,714,640
)
Other income/(expense)
Other revenues
3,032
57,536
3,032
60,064
Interest and finance costs
(917,416
)
(944,656
)
(1,848,062
)
(1,881,547
)
Total other income/(expense)
(914,384
)
(887,120
)
(1,845,030
)
(1,821,483
)
(Loss) from operations before income tax
(5,375,650
)
(12,958,983
)
(12,174,039
)
(22,536,123
)
Provision for income tax
Current
16
-
-
-
-
Total income tax
-
-
-
-
Net (loss)
$
(5,375,650
)
$
(12,958,983
)
$
(12,174,039
)
$
(22,536,123
)
Other comprehensive income:
Foreign currency translation adjustment
(30,284
)
322,392
94,136
468,599
Comprehensive (loss)
$
(5,405,934
)
$
(12,636,591
)
$
(12,079,903
)
$
(22,067,524
)
Basic (loss) per share
17
$
(1.37
)
$
(3.34
)
$
(3.10
)
$
(5.81
)
Basic weighted average shares outstanding
3,930,866
3,880,866
3,930,866
3,880,866
Diluted (loss) per share
17
$
(1.37
)
$
(3.34
)
$
(3.10
)
$
(5.81
)
Diluted weighted average shares outstanding
3,930,866
3,880,866
3,930,866
3,880,866
Management Discussion and Analysis
Sales Revenues
Sales volume decreased by 3,813 tons, or 25.4%, period-on-period, to 11,223 tons for the three months ended December 31, 2014, from 15,036 tons for the three months ended December 31, 2013 and as a result, sales revenues decreased by $6,678,546, or 56.3%, period-on-period, to $5,187,462 for the three months ended December 31, 2014, from $11,866,008 for the three months ended December 31, 2013. The decrease in sales revenues period-on-period is attributable to the decrease in production and sales in line with our strategy to reduce the processing of loss-making products and decrease in average selling price, as detailed more fully below.
During the three months ended December 31, 2014, sales decreased across all product categories except for subcontracting income. Low-carbon cold-rolled steel products accounted for 38% of the current sales mix at an average selling price of $608 per ton for the three months ended December 31, 2014, compared to 25% of the sales mix at an average selling price per ton of $651 for the three months ended December 31, 2013. The decrease in sales in this category during the quarter was mainly due to streamlined production to reduce the sales of these loss-making products. Low-carbon hard-rolled steel products accounted for less than 1% of the current sales mix at an average selling price of $645 per ton for the three months ended December 31, 2014, compared to 2% of the sales mix at an average selling price per ton of $793 for the three months ended December 31, 2013, due to a weak demand in the export market. High-carbon cold-rolled steel products accounted for 51% of the current sales mix at an average selling price of $830 per ton for the three months ended December 31, 2014, compared to 31% of the sales mix at an average selling price of $858 for the three months ended December 31, 2013. The products in this category are mainly used in the automobile industry and the decrease in sales volume period-on-period was a result of soft demand. Subcontracting income revenues accounted for $216,453 or 4% of the sales mix for the three months ended December 31, 2014, an increase from $50,124 for the three months ended December 31, 2013.
Sales revenue generated from our top five major customers as a percentage of total sales was 59% for the three months ended December 31, 2014, as compared to 88% in 2013. The change in customer mix reflects management’s continuous efforts in expanding our customer base and geographical coverage during the course of the quarter.
Net Loss
Net loss decreased by $7,583,333 or 58.5%, period-on-period, from $12,958,983 for the three months ended December 31, 2013, to $5,375,650 for the three months ended December 31, 2014. The decrease in net loss is attributable to a combination of all the factors discussed above, principally the decrease in allowance for bad and doubtful debts.
Comments & Business Outlook
China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended September 30, 2014 and 2013
(Unaudited)
Notes 2014 2013
Sales revenues
$
5,740,690
$
11,765,387
Cost of goods sold
8,539,861
14,759,646
Gross (loss)
(2,799,171
)
(2,994,259
)
Operating expenses
Selling expenses
20,698
31,168
Administrative expenses
259,573
447,431
Allowance for bad and doubtful debts
2,748,487
5,121,777
Depreciation and amortization expense
39,814
48,142
Total operating expenses
3,068,572
5,648,518
(Loss) from operations
(5,867,743
)
(8,642,777
)
Other income/(expense)
Other revenues
-
2,528
Interest and finance costs
(930,646
)
(936,891
)
Total other (expense)
(930,646
)
(934,363
)
(Loss) from operations before income tax
(6,798,389
)
(9,577,140
)
Provision for income tax
Current
16
-
-
Total income tax
-
-
Net (loss)
$
(6,798,389
)
$
(9,577,140
)
Other comprehensive income:
Foreign currency translation adjustment
124,420
146,207
Comprehensive (loss)
$
(6,673,969
)
$
(9,430,933
)
Basic (loss) per share
17
$
(1.73
)
$
(2.47
)
Basic weighted average shares outstanding
3,930,866
3,880,866
Diluted (loss) per share
17
$
(1.73
)
$
(2.47
)
Diluted weighted average shares outstanding
3,930,866
3,880,866
Management Discussion and Analysis
Sales Revenues
Sales volume decreased by 10,640 tons, or 52.0%, period-on-period, to 9,809 tons for the three months ended September 30, 2014, from 20,449 tons for the three months ended September 30, 2013 and as a result, sales revenues decreased by $6,024,697, or 51.2%, period-on-period, to $5,740,690 for the three months ended September 30, 2014, from $11,765,387 for the three months ended September 30, 2013. The decrease in sales revenues period-on-period is mainly attributable to the decrease in production and sales in line with our strategy to reduce the processing of loss-making products
Net loss decreased by $2,778,751, or 29.0%, period-on-period, from $9,577,140 for the three months ended September 30, 2013, to $6,798,389 for the three months ended September 30, 2014. The decrease in net loss is attributable to a combination of all the factors discussed above, principally the negative gross margin and the decrease in allowance for bad and doubtful debts.
Comments & Business Outlook
China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended June 30, 2014 and 2013
Notes 2014 2013
Sales revenues
$
47,192,107
$
36,527,550
Cost of goods sold
64,979,660
48,301,295
Gross (loss)
(17,787,553
)
(11,773,745
)
Operating expenses
Selling expenses
141,474
112,991
Administrative expenses
2,297,071
2,465,576
Bad debts written off
16,358,846
14,147,604
Allowance for bad and doubtful debts
8,863,671
41,466,990
Depreciation and amortization expense
167,983
199,885
Total operating expenses
27,829,045
58,393,046
(Loss) from operations
(45,616,598
)
(70,166,791
)
Other income/(expense)
Other revenues
6,282,282
4,784,116
Interest and finance costs
(4,045,397
)
(3,556,711
)
Total other income
2,236,885
1,227,405
(Loss) from operations before income tax
(43,379,713
)
(68,939,386
)
Provision for income tax
17
Current
(5,868,318
)
-
Total income (benefit)
(5,868,318
)
-
Net (loss)
$
(37,511,395
)
$
(68,939,386
)
Other comprehensive income:
Foreign currency translation adjustment
(753,002
)
2,978,527
Comprehensive (loss)
$
(38,264,397
)
$
(65,960,859
)
Basic (loss) per share
18
$
(9.67
)
$
(17.76
)
Basic weighted average shares outstanding
3,880,866
3,880,866
Diluted (loss) per share
18
$
(9.67
)
$
(17.76
)
Diluted weighted average shares outstanding
3,880,866
3,880,866
Management Discussion and Analysis
Sales Revenues
Sales volume increased by 17,891 tons, or 31.8%, year-on-year, to 74,123 tons for the year ended June 30, 2014, from 56,232 tons for the year ended June 30, 2013 and as a result, sales revenues increased by $10,664,557, or 29.2%, year-on-year, to $47,192,107 for the year ended June 30, 2014, from $36,527,550 for the year ended June 30, 2013. The increase in sales revenues year-on-year is attributable to the increase in demand for domestic sales and partially offset by a small decrease in average selling prices.
Net loss decreased by $31,427,991, or 45.6%, year-on-year, from $68,939,386 for the year ended June 30, 2013, compared to $37,511,395 for the year ended June 30, 2014. The decrease in net loss is attributable to a combination of all the factors discussed above, the major factors being a substantial decrease in allowance for bad and doubtful debts due to the tightening of our credit policy during the year.
Investor Alert
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
On May 15, 2014, China Precision Steel, Inc. (the “Company”) received a deficiency letter from Listing Qualifications Staff at The NASDAQ Stock Market (“NASDAQ”) due to the failure to pay certain fees required by Listing Rule 5250(f). The letter sets forth that if the Company elects not to appeal this determination, then trading of its common stock will be suspended at the opening of business on May 27, 2014, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market. The Company does not intend to appeal.
Investor Alert
SHANGHAI , May 21, 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 that on May 15, 2014, the Company received a delisting notice from NASDAQ Stock Market, LLC ("NASDAQ") due to the failure to pay certain fees required by Listing Rule 5250(f). The Company elects not to appeal.
Trading of the China Precision Steel's common stock on the NASDAQ will be suspended at the opening of business on May 27 th , 2014. The Company's security will immediately begin to trade on the OTC Bulletin Board under the trading symbol CPSLQ.
Comments & Business Outlook
Second Quarter 2014 Financial Results
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.
Basic net loss per ADS and diluted net loss per ADS for the fourth quarter of 2013 were each RMB1.26 (US$0.22), compared to basic net income per ADS and diluted net income per ADS of RMB0.16 (US$0.02) in the prior year quarter.
"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."
Business Outlook
eLong currently expects net revenues for the first quarter of 2014 to increase by 10% to 20% compared to the first quarter of 2013. This outlook reflects eLong's current and preliminary view, which is subject to change.
Comments & Business Outlook
First Quarter 2014 Financial Results
Revenue for the first quarter of fiscal year 2014 was $11.8 million, up from revenue of $6.0 million in the first quarter of fiscal year 2013.
Diluted (loss) per share was ($2.47) vs. last years ($1.09 )
"We are pleased to report first quarter fiscal 2014 sales increased 97.5% from the first quarter fiscal 2013 as sales volume increased by 12,696 tons. We expect to continue to experience a gradual increase in our sales volume during fiscal 2014 as we reposition our products and rebuild our relationship with customers," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "Specifically, we believe the auto components industry, driven by robust demand from OEMs coupled with growth in the replacement market, offers us opportunity for future growth. We are working to expand our sales for our high carbon precision steel products in this segment by ramping up our sales and marketing efforts along with making improvements to further refine the precision and consistency of our products to meet customers' stricter requirements."
Business Outlook
China Precision Steel is focused on expanding its customer base in the domestic steel market, especially in the auto components segment. The Company is working to recover its outstanding accounts receivables and has tightened its credit policy requiring customers to pay a 30% - 40% deposit with the balance to be paid on delivery. As of September 30, 2013, China Precision Steel had a backlog of $8.2 million.
"We are working diligently to turnaround our operations by focusing our efforts on increasing sales of high carbon precision steel products and improving our gross margin. As our sales volume increases, our average cost of sales decreases as a result of economies of scale, which we expect will contribute to an improvement in our gross margin. Additionally, we are working on strengthening our balance sheet by tightening credit offered to new customers and recovering outstanding accounts receivable," Mr. Chen continued. "Even though China's economic growth is starting to show signs of rebounding and sales are strengthening, our outlook remains cautious as the steel industry continues to struggle with overcapacity combined with pressure on steel prices. However, addressing these problems remains a top priority for the country's leaders who have stopped approving new production facilities, suspended unauthorized projects and are closing outdated steel mills."
Comments & Business Outlook
Fourth Quarter 2013 Results
The company reported revenue of $36.5 million, compared to $142.9 million for the same quarter 2012.
The company reported a loss per share of $10.39, compared to a loss of $2.33 for the same quarter 2012.
"We started the year off with a challenging environment of overcapacity of steel production combined with sluggish demand which resulted in a significant drop in our sales volume for fiscal year 2013. In response to the industry's problems, the State Council and other oversight organizations have decided to implement steps to address the overcapacity including putting aside funds for promoting restructuring and mergers of steel companies," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "While government organizations work to improve the conditions in the industry, we are pleased to have experienced a progressive increase in our sales volume from the low of the first quarter in fiscal year 2013, primarily due to strengthening of our relationships with customers in less competitive markets such as the auto and international markets."
Revenue for fiscal year 2013 was $36.5 million, down 74.5% from revenue of $143.0 million in fiscal year 2012. High carbon and low carbon products accounted for 38.2% and 59.8% of sales, respectively, compared to 18.3% and 79.3%, respectively, in the prior year. International sales represented 10% of total sales, up from 5% in fiscal year 2012.
With China's economy losing steam over the past year combined with overcapacity and softening demand for steel, steel prices have been under pressure. Subsequently, gross loss for the fiscal year 2013 was $11.8 million compared to a gross loss of $5.8 million in fiscal year 2012 . Gross margin was (32.2%), compared to gross margin of (4.1%) a year ago. Operating loss was $70.2 million, compared to operating loss of $14.0 million in fiscal year 2012. Net loss was $69.0 million, compared to a net loss of $16.9 million a year ago. Fully diluted loss per share was $17.76, compared to fully diluted loss per share of $4.37 for fiscal year 2012.
Share Structure
8-K
On August 27, 2013, the board of directors of China Precision Steel, Inc. (the “Company,” “we,” or “our”) approved an amendment of our Amended and Restated Articles of Incorporation to effect a reduction in the number of authorized shares of the Company’s common stock and preferred stock to (i) 10,000,000 shares of common stock, par value $0.001 per share and (ii) 500,000 shares of preferred stock, par value $0.001 per share. The amendment became effective upon filing with the Delaware Secretary of State on September 6, 2013.
Comments & Business Outlook
Third Quarter Financial Results
Revenue was $8.6 million
Gross loss was $2.4 million
Net loss for the third quarter of fiscal year 2013 was $13.5 million, compared to net loss of $3.3 million for the third quarter of fiscal year 2012. Fully diluted loss per share was $3.48, compared to fully diluted loss per share of $0.85 in the same period a year ago
"We continued to experience a gradual improvement in demand for our high-carbon, cold-rolled precision steel as the segment's sales volume increased 15.2% from the third quarter of fiscal 2012 and 37.2% from the second quarter of fiscal 2013," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "During the quarter, we added three new members to our management team to enhance our production efficiency and product quality as well as expand sales for our high-carbon, cold-rolled products. We intend to dedicate additional sales and marketing efforts for this segment as the manufacturing of these products is one of our key strengths and strongest competitive advantages."
Business Outlook
China Precision Steel expects sales volume to gradually increase as orders for high-carbon steel products are picking up. The Company will continue to focus on improving its gross margin by being selective in accepting new orders as well as improving cash flow through reducing its accounts receivable. As of March 31, 2013, China Precision Steel had a backlog in orders of $6.4 million.
"Our outlook for the steel industry is improving as key risks are stabilizing and automobile sales are gradually rebounding in China due to the strengthening economy driven by rising incomes and increasing consumption. Furthermore, the World Steel Association stated it expects a recovery in global steel demand in the second half of 2013, led by the emerging economies," Mr. Chen continued. "Going forward, we will continue to focus on expanding our high-carbon, cold-rolled precision steel products while improving our cash flow. As we work with our customers to recover outstanding receivables, we are also minimizing our credit risk by primarily accepting orders from customers that are able to pay cash on delivery."
Comments & Business Outlook
Fourth Quarter 2012 Highlights
Revenue was $37.6 million down 18.2% from $46.0 million in the fourth quarter of fiscal year 2011.
Total volume sold was 47,212 tons
Gross loss was $3.0 million
Net loss was $9.0 million
Net loss per share was $2.32 vs earnings of $0.07 in prior year period.
"Business confidence and manufacturing activities continue to be strained as concerns linger regarding the prolonged uncertainty from the euro debt crisis and sharper than expected slowdown in China. The fallout of this challenging economic environment has been a softening in global steel demand along with a sharp decline in steel prices. As a result, we experienced negative gross margins for the fourth quarter and full year ended June 30, 2012 as we were unable to recover the full cost of our raw materials which was purchased in advance of the decline in steel prices," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "Facing the challenging economic environment, we recognize the need to increase focus on our more competitive specialty high-carbon steel products and lower our production costs. As such, we have begun to implement a series of measures to cut costs and increase profitability in order to strengthen our financial position."
Business Outlook
China Precision Steel is taking measured steps to adjust to the current market conditions by re-focusing on its more competitive products and niche capabilities, including producing more ultra-thin low-carbon and high-strength high-carbon products, streamlining production by reducing the number of workers, and improving working capital efficiency by increasing turnover of advances to suppliers and accounts receivables. Total Company backlog as of June 30, 2012 was $6,629,115.
"The global economic environment remains challenging, especially for steel manufacturers as we believe uncertainty and volatility has become the norm for the industry in the past year. We are working to adjust to the market conditions by manufacturing only products that will help enhance our gross margin, as well as taking steps to improve our cost position and bottom line," continued Mr. Chen. "As the world's largest steel producer and consumer, China, has responded to the slowdown by launching a series of pro-growth policies and fast-tracking infrastructure projects with the intention of reinvigorating the economy and bolstering the steel industry. As these projects are expected to be implemented in 2013, we remain focused on controlling the factors that we can and carefully executing our business strategy to make China Precision Steel more sustainable and endure through this period of uncertainty and difficulty."
Share Structure
SHANGHAI, August 29, 2012 /PRNewswire-Asia / -- China Precision Steel Inc. (Nasdaq: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision cold-rolled steel products, announced today that it effected a reverse split of its common stock at a ratio of 1 share of common stock for every 12 shares. The reverse stock split became effective just prior to market open on Tuesday, August 28, 2012. China Precision Steel's common stock will continue to be traded on the NASDAQ Capital Market under the symbol "CPSL". CPSL's Board of Directors were authorized by CPSL stockholders to effect the reverse split at the annual meeting of stockholders held on June 29, 2012.
As a result of the reverse split, every twelve shares of China Precision Steel's issued and outstanding common stock was converted automatically into one issued and outstanding share of its common stock without any change in the par value per share or any need to surrender stock certificates. The reverse split will reduce the number of outstanding shares of China Precision Steel's common stock from approximately 46.6 million shares to approximately 3.9 million shares. Proportional adjustments will be made to the number of shares of China Precision Steel's common stock issuable upon exercise or conversion of China Precision Steel's outstanding equity awards, as well as the applicable exercise price.
Mr. Hai Sheng Chen, Chief Executive Officer, stated, "We are effecting this reverse stock split to raise China Precision Steel's common stock price in order to regain compliance with the NASDAQ Capital Market's minimum bid price requirement for continued listing. With our bid price compliance addressed we plan to focus our attention on continuing to produce precision steel products for our customers while taking measures to try to improve our operating efficiencies, despite the difficult macro-economic environment."
Investor Alert
SHANGHAI, Aug. 29, 2012 /PRNewswire-Asia / -- China Precision Steel Inc. (Nasdaq: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision cold-rolled steel products, announced today that it effected a reverse split of its common stock at a ratio of 1 share of common stock for every 12 shares. The reverse stock split became effective just prior to market open on Tuesday, August 28, 2012. China Precision Steel's common stock will continue to be traded on the NASDAQ Capital Market under the symbol "CPSL". CPSL's Board of Directors were authorized by CPSL stockholders to effect the reverse split at the annual meeting of stockholders held on June 29, 2012.
As a result of the reverse split, every twelve shares of China Precision Steel's issued and outstanding common stock was converted automatically into one issued and outstanding share of its common stock without any change in the par value per share or any need to surrender stock certificates. The reverse split will reduce the number of outstanding shares of China Precision Steel's common stock from approximately 46.6 million shares to approximately 3.9 million shares. Proportional adjustments will be made to the number of shares of China Precision Steel's common stock issuable upon exercise or conversion of China Precision Steel's outstanding equity awards, as well as the applicable exercise price.
Mr. Hai Sheng Chen, Chief Executive Officer, stated, "We are effecting this reverse stock split to raise China Precision Steel's common stock price in order to regain compliance with the NASDAQ Capital Market's minimum bid price requirement for continued listing. With our bid price compliance addressed we plan to focus our attention on continuing to produce precision steel products for our customers while taking measures to try to improve our operating efficiencies, despite the difficult macro-economic environment."
Comments & Business Outlook
Third Quarter Highlights
Revenue was $29.5 million
Gross loss was $1.1 million
Net loss was $3.3 million
Fully diluted loss per share was $0.07
International sales increased to $1.6 million, up from $0.3 million in third quarter fiscal year 2011
Sales volume increased to 38,898 tons from 36,475 period-over-period
"While total sales volume is up period-over-period, it was another challenging quarter for us as the domestic demand for precision steel remains soft due to the slowdown of China's growth rate. Subsequently, the softening steel demand resulted in steel prices sharply dropping 10.2% from the second quarter of fiscal year 2012. Our revenue for the quarter was also impacted by theChinese New Year holiday which shortened the quarter's production period by ten days," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "While we continue to remain cautious for the rest of calendar year 2012, we are experiencing a gradual increase in demand for our low carbon, cold-rolled steel and could experience a turnaround in demand for high-carbon steel before the end of the calendar year should the government enacts new stimulus policies."
Business Outlook
China Precision Steel anticipates that the market demand for precision steel used in home appliance would gradually strengthen while demand for high carbon precision steel used in automobile components and low carbon steel used in roofing materials would continue to be soft throughout calendar year 2012. Additionally, the Company expects to experience more competitive pressures in the international markets if the Chinese RMB continues to strengthen against US Dollars. As of March 31, 2012, China Precision Steel had a backlog of $19.0 million, of which approximately 70% are orders for low-carbon steel products.
"We anticipate a difficult operating environment throughout calendar year 2012 due to a weakening Chinese economy. However, in response to the slowing of China's growth rate, the Chinese government is looking at new ways to stimulate consumption and spending. Currently, it is taking steps to accelerate some infrastructure projects, such as railway, roads, airports and electricity projects, to help boost the economy," Mr. Chen continued. "We view these new infrastructure projects as a potential opportunity to drive sales for our high carbon steel products which are used in automobile parts for transportation vehicles. Furthermore, despite the economic slowdown, urbanization is still going strong in China and will continue to drive demand for home appliances which combined with a potential new round of subsidies could enhance demand for our low-carbon, cold-rolled steel products."
Investor Alert
SHANGHAI , March 19, 2012 /PRNewswire-Asia / -- 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 that it received a letter from the listing qualifications department staff of The NASDAQ Stock Market LLC ("NASDAQ"), granting China Precision Steel an additional 180 days, or until September 10, 2012 , to regain compliance with NASDAQ's minimum bid price requirement.
On September 16, 2011 , China Precision Steel received a letter from NASDAQ, notifying the Company that for 30 consecutive business days the bid price of its common stock had closed below $1.00 per share, the minimum closing bid price required by the continued listing requirements set forth in Listing Rule 5450(a)(1), and that, pursuant to Listing Rule 5810(c)(3)(A), China Precision Steel has 180 calendar days, or until March 14, 2012, to regain compliance with the minimum bid price requirement. On March 15, 2012, the Company received a second letter from NASDAQ notifying the Company that it had not regained compliance during the initial 180-day grace period, but that NASDAQ was granting the Company an additional 180-day period to regain compliance with the minimum bid price requirement. NASDAQ's determination was based on the Company having met the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the NASDAQ Capital Market, with the exception of the bid price requirement, and on the Company's written notice to NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split if necessary. The notice has no effect at this time on the listing of China Precision Steel's common stock, which will continue to trade under the symbol "CPSL."
Comments & Business Outlook
Second Quarter 2012 Results
Revenue was $33.7 million
Gross loss was $1.8 million
Net loss was $3.5 million
Fully diluted loss per share was $0.08 vs. $0.00 in prior year
International sales increased to $4.8 million from $0.7 million in second quarter fiscal year 2011
"Sales for the second quarter of fiscal year 2012 declined as domestic demand for our products were negatively impacted by the overall economic slowdown in China . A slight decline in demand for home appliances was anticipated as the government's home appliance trade-in program concluded at the end of 2011; however, the decline in demand was further hampered as a result of the slowdown in global demand. Home appliances are one of our major end markets and we anticipate an improvement in demand toward the end of the year as appliance manufacturers work with the government to develop incentives to strengthen sales. In the longer-term, the transition of China 's population moving from rural areas to the urban areas remains a major source of growth for China 's home appliances industry which is expected to expand to $137.0 billion in 2016 from $77.2 billion in 2011, according to Euromonitor International," commented Mr. Hai Sheng Chen , CEO of China Precision Steel. "As for our international sales, we experienced a strong rebound in international demand during the quarter as our average selling price declined period-on-period, which made our products more competitive in the international markets."
Business Outlook
China 's growth is predicted to be 8.2% in 2012, down from 9.2% in 2011 mainly due to weakening demand from Europe and the United States . As a result, China Precision Steel anticipates a continued slowing of near-term domestic demand. To minimize the negative impact of such a slowdown, the Company is working to increase its international sales and began supplying a new customer from Belgium during the second quarter of fiscal year 2012. As of December 31, 2011 , China Precision Steel had a backlog of $17.3 million .
"Our business is closely tied to economic growth and as a result, our revenue and net profit will fluctuate according to economic trends. Growth in China 's economy cooled to the slowest pace in more than two years in the fourth quarter of calendar year 2011 to 8.9%. However, the Chinese government is in the process of taking steps to ensure steady growth throughout 2012, which is expected to include implementing a new round of incentive policies as early as March," Mr. Chen continued. "As for our international market opportunities, we have become more competitive as selling prices have declined resulting in a strengthening of our export demand. We will continue to pursue these new opportunities and develop new customers in the global market. Additionally, we are maintaining our focus on strengthening our balance sheet and improving operating cash flows."
Comments & Business Outlook
First Quarter 2012 Results
Revenue increased 24.4% to $42.2 million compared to the first quarter of fiscal year 2011
Sales volume was 45,548 tons, up 3,035 tons period-on-period
Gross profit was $61,770
Net loss was $1.1 million
Fully diluted loss per share was $0.02 vs earnings of $0.01
"Revenue for our low carbon products grew to a record $33.5 million during the first quarter of fiscal year 2012 as domestic demand for home appliances remains strong. However, we also experienced a rapid increase in the cost of our raw material during the quarter which we were not able to fully pass on to our customers resulting in a decline in our gross margin. Subsequently, we have renegotiated with our suppliers to reduce the cost of our raw material which we expect to be reflected in our raw material costs in the second quarter," commented Mr. Hai Sheng Chen , CEO of China Precision Steel. "In addition, we have recently begun to experience an increase in demand from the international markets and have added several new international customers. One company in particular is based in Thailand and is our first international customer to purchase our high carbon steel for use in the production of automobile chains. We are extremely pleased with this development, as sales to international customers contribute to a higher gross margin than sales to domestic customers."
Business Outlook
China Precision Steel is ramping up production capacity with the addition of its third mill, which went into production in January 2010 . The new mill is currently operating at 50% of its design capacity. Total production capacity is expected to increase by approximately 15,000 tons to 235,000 tons by the end of fiscal year 2012. Once all mills reach full design capacity by 2014, total production capacity is expected to be approximately 260,000 tons. As of September 30, 2011 , China Precision Steel had a backlog of $19,922,102 .
"While we have made strides in expanding our international penetration and continue to sell record volume of our low carbon products, we remain cautious on our outlook as the uncertainty of the global economic environment makes our near-term visibility limited," Mr. Chen continued. "Even though the global markets continue to present challenges, we are still pursuing several new opportunities to expand our sales. Currently, we are focusing on expanding our product offerings to include additional higher margin automobile components such as steel sealing strips as well as electronic parts. We are also working on further expanding into Northern China where there is strong demand for galvanized steel along with targeting new opportunities in international markets. In addition, we expect to strengthen our balance sheet and cash flow by reducing our advance to suppliers and accounts receivables."
Comments & Business Outlook
Fourth Quarter and Full Year 2011 Results
Fourth Quarter 201 1 Highlights
Revenue increased 26.5% to a record $46.0 million
Sales volume was a record 49,104 tons
Gross profit was $1.7 million with 3.7% gross margin
Net income was $283,155
Fully diluted earnings per share of $0.01 vs $0.03 in 2010
Full Year 2011 Highlights
Revenue increased 36.9% to a record $151.2 million
Sales volume increased 30.9% to a record 175,328 tons
Gross profit was $6.0 million with 3.9% gross margin
Net income was $256,950
Fully diluted earnings per share of $0.01 vs $0.12 in 2010
Exports generated 3% of total sales
"We are pleased to experience a healthy growth in revenues throughout fiscal year 2011 and in particular a strong pickup in sales during the fourth quarter. The increased revenue for the fourth quarter was primarily due to orders realized that were delayed from the third quarter, as well as continued growth in demand for our low carbon, cold-rolled steel products and high carbon, cold-rolled products," commented Mr. Hai Sheng Chen , CEO of China Precision Steel. "Supporting our continued revenue growth is our increased production capacity, which contributed to record sales volume of 175,328 tons for fiscal year 2011. We plan to continue to gradually ramp up production capacity for our third mill over the next few years which we expect to reach up to approximately 80,000 tons, giving us a combined annual production capacity of approximately 260,000 tons."
Business Outlook
China Precision Steel is actively working on expanding its customer base to increase total demand and reduce it's per unit cost. The Company is also focused on optimizing its product mix by carrying out research and development ("R&D") to improve profitability of existing products and launch new high value-add products. Total Company backlog as of June 30, 2011 was $25,658,170 .
"We are very proud of the great strides we have made over the past decade in expanding our production capacity and market share. However, the current global economy continues to be sluggish and China 's economy is possibly facing a slowdown. Moreover, as a manufacturer of components for consumer products we are generally considered a leading economic indicator, in that we are among the first in the supply chain to experience economic slowdowns, as well as the first to experience increased demand when the economy rebounds. While we anticipate a slowdown in demand in the near-term, our long-term outlook remains optimistic. According to International Monetary Fund estimates, China is expected to surpass the United States and become the world's largest economy as early as 2016, and we believe that we are firmly positioned to benefit as China 's economy resumes its strong growth."
With respect to the Company's NASDAQ listing status, Mr. Chen continued, "We have been a NASDAQ listed company since December 2006 and we take our responsibilities as a US listed company seriously. We remain committed to our NASDAQ listing and we are monitoring our share price movements closely and will consider all options to maintain NASDAQ compliance including a reverse stock split."
From 2011 10K:
During the year ended June 30, 2011, we saw continued growth in demand for our cold rolled steel products together with fast rising costs. Domestic consumption continued to increase under China's 12th Five-Year Economic Development Plan which boosted demand, however, high inflation and especially high raw material costs have substantially and adversely impacted our gross margin compared to the prior fiscal year.
Investor Alert
SHANGHAI , September 22, 2011 /PRNewswire-Asia / -- 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 that the Company was notified on September 16, 2011 by the Listing Qualifications Department of the NASDAQ Stock Market ("NASDAQ"), that the Company was not in compliance with the NASDAQ continued listing standard requiring a listed security to maintain a minimum average closing price of $1.00 per share over a consecutive 30-trading-day period. The Company has 180 days from receipt of the notification, or until March 14, 2012 , to bring its share price and average share price back above $1.00 .
The Company intends to actively monitor the bid price for its common stock between now and March 14, 2012 , and will consider all available options including a reverse stock split to resolve the deficiency and regain compliance with the NASDAQ minimum bid price requirements.
Comments & Business Outlook
Third Quarter Highlights
Revenue increased 5.0% period-over-period to $31.5 million
Net loss was $0.9 million
Fully diluted loss per share was $0.02 vs. $0.04
Backlog as of March 31, 2011 was $21.8 million
"During the third quarter of fiscal 2011, we experienced some challenges due to the rapid increase in steel prices which resulted in a sharp increase in our average cost per ton. Additionally, while overall near-term demand remains healthy, some of our customers chose to temporary delay their orders until steel prices leveled off," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "Towards the end of the quarter, steel prices began to stabilize which contributed to a slight increase in customer orders. We anticipate that orders will increase from both domestic and international customers through the fourth quarter of fiscal 2011."
Business Outlook
China Precision Steel continues to ramp up production capacity with the addition of its third mill, which commenced production in January 2010. As the new mill continues to ramp up production, total production capacity is expected to increase by approximately 35,000 tons to 195,000 tons by the end of fiscal 2011. Once the three mills reach full design capacity in approximately two to three years, total annual production capacity is expected to be approximately 260,000 tons. As of March 31, 2011, China Precision Steel had a backlog of $21.8 million for contracts signed but not yet delivered.
"We have a cautiously optimistic outlook for the near-term as growth in demand for precision steel products resumed in response to the stabilization of steel prices towards the end of the quarter. We also anticipate an increase in exports in the fourth quarter of fiscal 2011 as we are in negotiations with several new potential international customers," Mr. Chen continued. "While uncertainties remain in respect to the macro environment, we will continue to focus on our operating fundamentals and those factors we can control, such as expanding markets, improving margins of existing product groups, developing higher margin products, maintaining our strong balance sheet and financial flexibility, and positioning ourselves to capitalize on any strategic growth opportunities that may develop."
Comments & Business Outlook
From fiscal 2011 filing :
During the second fiscal quarter of 2011, we saw continuing growth in demand for our cold rolled steel products as well as an increase in raw material prices. We have seen increasing demand and orders from both our long term and new customers, especially in the low-carbon cold-rolled steel segment and the high-carbon cold-rolled steel segment, due to favorable policies and PRC government subsidies for the home appliance industry and the auto industry, where our products in these two segments are used in the manufacturing of certain components. However, despite the positive growth we have seen during the period, general industry problems such as excess capacity, low industrial concentration and a lack of access to natural resources that have long plagued China’s steel sector still remain. Commencing January 1, 2011, the Chinese government ended subsidies for small cars with an engine capacity of 1.6 liters or lower in rural area, but analysts still expect the domestic automobile market to grow at 10 to 15 percent annually during the next five to 10 years due to a strong economy. As we may not be able to fully pass on the increase in cost to our customers, we remain cautiously optimistic with increasing demand but also rising prices.
We continue to take appropriate actions to perform business and credit reviews of customers and suppliers and reduce exposure by avoiding entry into contracts in countries or with customers with high credit risks. We strive to optimize our product mix, prioritize higher margin products, and strengthen collection of accounts receivable with the goal to maintain overall healthy sales volume, margins and cash positions. We believe that there are high barriers to entry in the Chinese domestic precision cold-rolled steel industry because of the level of technology expertise required for operation. Although we expect a continuation of volatility in demand in both domestic and international markets, and rising steel prices could have adverse impacts on our gross margins in the near future, the medium to long term prospects of our niche remain highly optimistic. We believe that our unique capabilities and know-how give us a competitive advantage to grow sales and build a globally recognized brand as we continue to carry out research and development (“R&D”) and expand to new segments, customers and markets.
Comments & Business Outlook
Second Quarter FY 2011 Results :
Revenue increased to a record $39.8 million , up 47.2% from revenue in the second quarter of fiscal 2010 of $27.0 million
Sales volume was a record 47,236 tons sold
Gross profit in the second quarter was $2.0 million , compared to gross profit of $3.6 million in the same period a year ago.
Net income for the second quarter of fiscal 2011 was $201,781 , compared to net income of $2.6 million for the second quarter of fiscal 2010.
Fully diluted earnings per share were $0.00 , compared to fully diluted earnings per share of $0.06 in the same period a year ago
"We are pleased to experience another record quarter in terms of revenue and sales volume ." commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "The strong sales for the quarter are primarily attributable to $28 million in record sales of our low carbon products and a record 47,236 tons in total sales volume." "Going forward, we expect that the demand in China for home appliances and in turn, our low carbon steel, will remain robust as the home appliance stimulus program implemented by China in 2008 continues to stimulate the demand for new appliances in China ."
China Precision Steel continues to ramp up production capacity with the addition of its third mill, which commenced production in January 2010 . Total production capacity is expected to increase by approximately 35,000 tons to 195,000 tons by the end of fiscal 2011 as the new mill continues to ramp up production. Once all mills reach full design capacity in approximately three to four years, total annual production capacity is expected to be approximately 260,000 tons. China Precision Steel had a backlog as of December 31, 2010 of $28.2 million for contracts signed but not yet delivered.
"Demand for our low-carbon steel products remains robust as China's stimulus program for appliances continues to be a success," Mr. Chen continued. "However, we anticipate that the rising price of raw materials may lead to an increase in our cost of production and continue to put pressure on our gross margin". "Overall, we expect our production capacity to continue to increase as we ramp up production at our new mill and expand our position in the domestic market."
Liquidity Requirements
Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of plant and equipment used in our operations. Our short-term and long-term liquidity needs arise primarily from capital expenditures, working capital requirements and principal and interest payments related to our outstanding indebtedness. We have met these liquidity requirements with cash provided by operations, equity financing , and bank debt. As of September 30, 2010, we had cash and cash equivalents of approximately $12.6 million.
While we currently generate sufficient operating cash flows to support our working capital requirements, our working capital requirements and the cash flow provided by future operating activities will vary from quarter to quarter, and are dependent on factors such as volume of business and payment terms with our customers. As such, we may need to rely on access to the financial markets to provide us with significant discretionary funding capacity.
On December 30, 2008, we filed a universal shelf registration statement with the SEC for the issuance of securities valued at up to an aggregate of $40 million. The shelf registration statement was declared effective on December 10, 2009 and provides us with the flexibility to issue registered securities, from time to time, in one or more separate offerings or other transactions with the size, price and terms to be determined at the time of issuance. Although we do not have any commitments or current intentions to sell securities under the registration statement, we believe that it is prudent to have a shelf registration statement in place to ensure financing flexibility should the need arise.
Comments & Business Outlook
Fourth Quarter 2010 Highlights
Revenue increased 41.5% to a record $36.4 million Sales volume was a record 39,112 tons Gross profit was $2.5 million with 7.0% gross margin Net income was $1.3 million Fully diluted earnings per share of $0.03
Full Year 2010 Highlights
Revenue increased 44.8% to a record $110.5 million Sales volume increased 59.5% to a record 133,946 tons Gross profit was $10.3 million with 9.3% gross margin Net income increased to $5.6 million from a net loss of $0.4 million in fiscal 2009 Fully diluted earnings per share of $0.12 Exports generated 13% of total sales
"Our record revenue for the fourth quarter and full year fiscal 2010 is due to our increased production capacity in January 2010, combined with strong domestic demand. Our total tons sold increased 60% in fiscal 2010 over the previous year as domestic demand continues to strengthen, especially for home appliances and auto products," commented Mr. Hai Sheng Chen, China Precision Steel's CEO. "Looking forward, we expect to experience continued growth in these markets and as of June 30, 2010, we had a backlog of $16 million ."
Business Outlook
In January 2010 , China Precision Steel commenced production on its new mill. The new mill adds 80,000 tons of design capacity, and is expected to bring total production capacity to 260,000 tons once all mills reach full design capacity in approximately three to four years. Currently, the second and third mills are operating at 80% and 25% of their design capacity , respectively. Backlog as of June 30, 2010 was $16 million .
"While demand for precision steel products in China continues to improve, steel demand in the rest of the world is still recovering from the global economic crisis. As a result, we expect the majority of our near-term growth will continue to be derived from the domestic market ," Mr. Chen continued. "Moreover, we believe that as production gradually ramps up at our new mill, we will continue to experience a stable increase in revenue and net income over the next two to three years ."
Comments & Business Outlook
"We are excited to have achieved a company record quarter in terms of sales volume and revenue as we continue to see a strengthening demand for our precision steel products from the domestic and international markets," commented Mr. Hai Sheng Chen, China Precision Steel's CEO. "Our strong sales volume this quarter is the result of bringing our new mill on line at the beginning of the quarter combined with an increase in orders across all product segments. The strong demand we experienced during the quarter was built on the foundation of a 60% increase of customer base during the 2009 fiscal year and longer-term customers ramping up their orders."
China Precision Steel continues to expand its production capacity with the new mill that began production in January 2010. The Company expects to increase its total annual production capacity from 120,000 tons to 160,000 tons during the first year of operation and ultimately to 220,000 tons when the new mill reaches its full design capacity in the next three to four years. China Precision Steel expects to incur an additional $900,000 in capital expenditure for the completion of the new mill and annealing furnaces.
"While some risk remains in the global market and steel industry, we are optimistic about our near-term growth. With the addition of our third mill and the continued increase in demand for our precision steel products, especially in the domestic market, we believe that we are well positioned to continue experiencing healthy revenue and net income growth," commented Mr. Chen. "Specifically, as of March 31, 2010, we had a backlog of $36.8 million which is expected to be delivered over the next three to four months and our total production capacity is expected to increase by one third to 160,000 tons by the end of calendar 2010 ."
