Ossen Innovation Announces Third Quarter 2011 Financial Results

Management to host conference call on Wednesday, November 16th at 9:00 am ET

15 Nov, 2011, 07:30 ET from Ossen Innovation Co., Ltd.

SHANGHAI, Nov. 15, 2011 /PRNewswire-Asia-FirstCall/ -- Ossen Innovation Co., Ltd. ("Ossen" or the "Company") (Nasdaq: OSN), a China-based manufacturer of galvanized pre-stressed steel wires used in the production of bridge cables as well as other pre-stressed steel materials, today announced financial results for the nine months ended September 30, 2011.

"The past couple of months have been challenging," stated Dr. Liang Tang, Chairman of Ossen Innovation. "After the July railway accident in Wenzhou, almost all of the high-speed railway related projects have been halted, including those already in the middle of construction. In addition, the tightened credit environment in China as well as the funding difficulties faced by Ministry of Railways (MOR) have both impacted our business and our clients' business. There have been signs of improvement these weeks, however, especially after the aid from central government to MOR. In the near term, our business growth would be adversely affected for the reasons mentioned and we expect that financial results of 2011 will be lower than our original guidance. But we remain confident and optimistic about the medium to long term market outlook."

Financial Summary

(in millions except EPS)

Q3 2011

Q3 2010

Chg.

YTD 2011

YTD 2010

Chg.

Revenue

$31.1

$30.9

1%

$91.9

$89.6

3%

Gross Profit

$4.2

$7.2

-41%

$20.1

$18.8

7%

Net Income

$2.0

$4.5

-56%

$11.5

$11.6

-1%

EPS

$0.10

$0.30

-67%

$0.57

$0.77

-26%

SHARES OUTSTANDING(1)

20.0

15.0

33%

20.0

15.0

33%

(1) Includes five million shares issued through the Company's initial public offering completed in December 2010.

Third Quarter 2011 Financial Results

Revenue was $31.1 million in the third quarter of 2011, up slightly from $30.9 million in the corresponding period a year ago. Sales of coated pre-stressed steel materials, including rare earth coated products, were $10.7 million, representing 34.4% of total sales for the three months ended September 30, 2011. This number was lower as compared to $17.8 million and 56.1% for the first quarter of 2011, $19.7 million and 68.0% for the second quarter of 2011, and $16.6 million and 53.8% for the third quarter of 2010. The main reason for the decline in revenue contribution from coated products was the suspension of bridge projects as part of the nation-wide MOR projects suspended during the third quarter.

Gross profit decreased by $3.0 million to $4.2 million, representing a 41% year-over-year decline. Consolidated gross margin fell from 23.2% to 13.6%. The primary causes of the declines in gross profit and gross margin were lower sales of higher margin coated products and lower pricing on select contracts in an effort to improve sales collection.

Gross margin for the third quarter of 2011 were 23.2% and 11.7% for coated pre-stressed steel products and for plain surface pre-stressed steel products, respectively.

Selling expenses increased 37% to $0.3 million from $0.2 million in the third quarter of 2010 due to higher salaries, marketing and transportation costs. General and administrative expenses increased approximately 29% to $0.3 million from the same period last year due to costs related to our being a public company. Operating income fell 46% to $3.6 million, with operating margin of 11.7% compared to $6.7 million and 21.8%, respectively, in the third quarter of 2010.

Net income attributable to controlling interest fell 56% to $2.0 million in the third quarter of 2011 from $4.5 million in the year-ago period. Earnings per share were $0.10 versus $0.30 a year ago, reflecting lower profits and an increase of 5 million shares outstanding year-over-year as a result of the December 2010 IPO.

Nine Months Ended September 30, 2011 Financial Results

Revenue for the nine months ended September 30, 2011 was $91.9 million, with $48.2 million or 52.5% generated from the sale of coated pre-stressed steel materials. This represented a slight increase over the $89.6 million of total revenue in the nine months ended September 30, 2010 and an increase of $0.5 million or 1.1% over the $47.7 million in sales of coated pre-stressed steel products during the same period of 2010. Within the $48.2 million sales of coated products, sales of rare earth coated products were $44.4 million.

Gross profit increased $1.3 million to $20.1 million in the first nine months of 2011, representing a gross margin of 21.9%, as compared to 21.0% in the same period of last year. Gross margin for rare earth coated products were 27.0% in the nine months ended September 30, 2011.

Operating expenses increased by $1.1 million in the first nine months of 2011 to $2.3 million. Selling expenses and general and administrative expenses were $0.8 million and $1.5 million, respectively. Operating income grew 1% to $17.8 million in the nine months ended September 30, 2011, with operating margin of 19.3%, as compared to 19.7% of the same period of last year.

Net income attributable to controlling interest dropped 1% to $11.5 million in the first nine months of 2011 from $11.6 million in the year-ago period. Earnings per share were $0.57 compared to $0.77 in the same period a year ago.

Balance Sheet and Cash Flows

Ossen had approximately $22.3 million of cash and restricted cash at September 30, 2011 compared to $26.1 million at December 31, 2010. Total accounts receivable and notes receivable increased from $31 million as of December 31, 2010 to $49 million as of September 30, 2011. The average accounts receivable days sales outstanding were 93 days in the first nine months of 2011.

In the third quarter of 2011, the Company generated approximately $5.5 million of cash flows from operations due to a reduction in advance to suppliers which was partially offset by higher accounts receivable and inventories.

The Company raised approximately $22 million from its IPO in December 2010. The funds are being used to fund its 30,000-ton rare earth coated production facility expansion. Through September 30, 2011, Ossen has spent $7.7 million for equipment purchases related to this project.

Financial Outlook for Year End 2011

Due to uncertainties surrounding the temporary suspension of all existing and new high speed railway projects in China by the Ministry of Railways and the tightened credit environment in China, Ossen will be suspending financial guidance for 2011. The Company will continue to communicate relevant news to investors as they occur.

Business Updates

Following a highly publicized high speed railway accident in Wenzhou in July 2011, the PRC Ministry of Railways (MOR) temporarily suspended activities for all existing and new high speed railway projects in China. In the meantime, MOR's high debt ratio was disclosed and local banks tightened their lending policy towards the ministry afterwards. As a result, MOR was unable to honor its payables to suppliers and manufacturers who were working on the railway projects across the country. Ossen and its customers were among those who were impacted by the situation. As many MOR related projects previously awarded to Ossen included construction of bridges, our production of higher margin coated pre-stressed steel products declined significantly due to the suspension of such projects. In addition, MOR's inability to make payment indirectly caused our increased receivables balance.

We have seen positive developments in response to MOR's difficult situation recently. MOR's approximate $4.7 billion (RMB30 billion) bond offering together with eased bank lending policy has allowed MOR to start paying back past dues for various projects. While there are still uncertainties involved, we remain cautiously optimistic that those halted projects will resume construction in the near future.

Ossen has maintained strong relationships with multiple large Chinese banks. The Company has been able to obtain bank financing to fund its working capital needs. On September 30, 2011, the Company had a balance of short term RMB borrowing of $44.2 million and does not expect difficulty to renew these loans under existing credit lines. However, the recent tightening of credit by Chinese banks has negatively impacted many of our clients, including the distributors we work with. As a result, the Company experienced longer receivable days in the third quarter compared with the previous two quarters and the same period of last year.

Conference Call

To attend the call, please use the information below for either dial-in access or webcast access. When prompted on dial-in, ask for "Ossen Innovation Third Quarter 2011 Conference Call" or be prepared to utilize the conference ID.

Conference Call

Date:

Wednesday, November 16, 2011

Time:

9:00 am Eastern Time, US

Conference Line Dial-In (U.S.):

+1-718-354-1231

International Dial-In:

United States: +1-866-519-4004

China, Domestic Mobile: 4006208038

China, Domestic: 8008190121

Conference ID:

27941910 or "Ossen Innovation Third Quarter 2011 Conference Call"

Webcast link:

http://ir.osseninnovation.com

Replay:

Available From 11/16/2011 13:00 ET to 11/23/2011 23:59 ET

Dial In # / US Toll Free 1-866-214-5335

International Dial In #  1-718-354-1232

Passcode:  27941910

Please dial in at least 10 minutes before the call to ensure timely participation. The conference call will be live webcast and also archived for 1 year on the Company's IR website.

About Ossen Innovation Co., Ltd.

Ossen Innovation Co., Ltd. manufactures and sells galvanized pre-stressed steel wires used in the production of bridge cables as well as other pre-stressed materials. The Company's products are mainly used in the construction of bridges and other infrastructure projects. Ossen has two manufacturing facilities located in Maanshan, Anhui Province, and Jiujiang, Jiangxi Province.

Safe Harbor Statements

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

For more information, please contact:

Ossen Innovation Co., Ltd.

Alan Jin, Chief Financial Officer

Email: alanjin@osseninnovation.com  

Phone: +86 (21) 6888-8886

Web: www.osseninnovation.com

Investor Relations

MZ North America

Ted Haberfield, President

Phone: +1-760-755-2716

Email: thaberfield@hcinternational.net

Web: www.mz-ir.com

-- FINANCIAL TABLES --

OSSEN INNOVATION CO., LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

2011

2010

(Unaudited)

ASSETS

Current Assets

Cash and cash equivalents

$

7,160,291

$

12,322,982

Restricted cash

15,127,341

13,799,018

Notes receivable bank acceptance notes

-

17,636,928

Accounts receivable, net of allowance for doubtful accounts of $38,572 and $37,347 at September 30, 2011 and December 31,2010, respectively

48,992,573

13,332,492

Inventories

24,129,115

27,949,781

Advance to suppliers

48,587,162

25,072,350

Other current assets

448,036

3,343,302

Notes receivable from related party bank acceptance notes

-

3,024,895

Account receivable from related party

2,082,056

707,487

 Total Current Assets

146,526,574

117,189,235

Property, plant and equipment, net

11,305,567

12,029,612

Land use rights, net

4,375,145

4,306,091

Prepayment for plant and equipment

7,810,303

7,562,237

TOTAL ASSETS

$

170,017,589

$

141,087,175

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

Notes payable bank acceptance notes

$

28,117,092

$

26,014,096

Short-term bank loans

44,205,245

38,325,414

Accounts payable

4,628,338

2,493,665

Customer deposits

884,221

833,768

Income tax payable

407,328

662,585

Other payables and accrued expenses

112,599

94,510

Due to related party

2,811,709

-

 Total Current Liabilities

81,166,532

68,424,038

TOTAL LIABILITIES

81,166,532

68,424,038

EQUITY

Shareholders' Equity

Ordinary shares, $0.01 par value: 100,000,000 shares authorized, 20,000,000 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively

200,000

200,000

Additional paid-in capital

33,858,038

33,338,096

Statutory reserve

3,847,867

2,674,457

Retained earnings

36,198,336

25,887,113

Accumulated other comprehensive income

4,782,215

2,192,996

TOTAL SHAREHOLDERS' EQUITY

78,886,456

64,292,662

Non-controlling interest

9,964,601

8,370,475

TOTAL EQUITY

88,851,057

72,663,137

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

170,017,589

$

141,087,175

OSSEN INNOVATION CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

FOR THE THREE MONTHS ENDED SEPTEMBER 30,

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

2011

2010

2011

2010

REVENUES

$

31,084,373

$

30,858,544

$

91,866,308

$

89,567,319

COST OF GOODS SOLD

26,867,212

 

23,696,304

71,793,245

70,798,025

GROSS PROFIT

4,217,161

 

7,162,240

20,073,063

18,769,294

Operating Expenses:

Selling expenses

251,721

183,924

809,683

379,630

General and administrative expenses

329,795

255,938

1,507,432

788,214

   Total Operating Expenses

581,516

 

439,862

2,317,115

1,167,844

INCOME FROM OPERATIONS

3,635,645

6,722,378

17,755,948

17,601,450

Other Income (Expenses):

Financial expenses, net

(1,003,853)

(597,761)

(2,611,774)

(1,667,420)

Other income, net

15,006

56,660

85,692

153,380

INCOME BEFORE INCOME TAXES

2,646,798

6,181,277

15,229,866

16,087,410

INCOME TAXES

(374,377)

(829,443)

(2,151,107)

(2,200,041)

NET INCOME

2,272,421

5,351,834

13,078,759

13,887,369

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

272,679

854,324

1,594,126

2,284,353

NET INCOME ATTRIBUTABLE TO OSSEN INNOVATION CO.,LTD AND SUBSIDIARIES

1,999,742

4,497,510

11,484,633

11,603,016

OTHER COMPREHENSIVE INCOME

Foreign currency translation gain, net of tax

791,458

546,806

2,589,219

664,342

TOTAL OTHER COMPREHENSIVE INCOME

791,458

546,806

2,589,219

664,342

COMPREHENSIVE INCOME

2,791,200

5,044,316

14,073,852

12,267,358

EARNINGS PER ORDINARY SHARE Basic and diluted

$

0.10

$

0.30

$

0.57

$

0.77

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING Basic and diluted

$

20,000,000

$

15,000,000

$

20,000,000

$

15,000,000

OSSEN INNOVATION CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

13,078,759

$

13,887,369

Adjustments to reconcile net income to net cash provided by/ (used in) operating activities:

Depreciation and amortization

1,566,548

1,191,874

Share-based compensation expense

78,987

-

Changes in operating assets and liabilities:

(Increase) Decrease In:

Accounts receivable

(35,660,081)

(4,474,523)

Inventories

3,820,667

(2,707,409)

Advance to suppliers

(23,514,812)

(13,158,315)

Other current assets

2,895,266

234,030

Notes receivable - bank acceptance notes                          

17,636,928

150,208

Notes receivable from related party - bank acceptance notes

3,024,895

1,828,234

Due from and advance to related party

-

(9,416,442)

Account receivable from related party

(1,374,570)

(13,763,159)

Increase (Decrease) In:

Accounts payable

2,134,674

4,887,549

Customer deposits

50,453

58,379

Income tax payable

(255,258)

694,671

Other payables and accrued expenses

18,089

352,877

Due to related party

2,811,709

-

Net cash used in operating activities

(13,687,746)

(20,234,657)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of plant and equipment

(154,820)

(98,911)

Net cash used in investing activities

(154,820)

(98,911)

Nine Months Ended September 30,

2011

2010

CASH FLOWS FROM FINANCING ACTIVITIES:

(Increase)/Decrease in restricted cash

(1,328,323)

(2,442,459)

Proceeds from short-term bank loans

57,482,746

46,283,696

Repayments of short-term bank loans

(51,602,914)

(32,368,643)

Proceeds from notes payable-bank acceptance notes

34,833,953

35,839,148

Repayment of notes payable-bank acceptance notes

(32,730,957)

(30,950,222)

.IPO compensation

440,955

-

Net cash provided by financing activities

7,095,460

16,361,520

DECREASE IN CASH AND CASH EQUIVALENTS

(6,747,106)

(3,972,048)

Effect of exchange rate changes on cash

1,584,415

490,614

Cash and cash equivalents at beginning of period                  

12,322,982

8,409,467

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

7,160,291

$

4,928,033

SUPPLEMENTARY CASH FLOW INFORMATION

Cash paid during the periods:

Income taxes paid

$

2,424,113

$

1,579,104

Interest paid

$

2,177,824

$

1,363,682

Non-cash transactions:

Appropriation to statutory reserve

$

1,173,410

$

1,160,331

Three Months Ended September 30,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

2,272,421

$

5,351,834

Adjustments to reconcile net income to net cash provided by/ (used in) operating activities:

Depreciation and amortization

678,860

464,281

Share-based compensation expense

26,618

-

Changes in operating assets and liabilities:

(Increase) Decrease In:

Accounts receivable

(17,262,055)

14,150,210

Inventories

(3,870,017)

2,188,821

Advance to suppliers

23,912,632

(15,049,191)

Other current assets

(307,780)

(64,407)

Due from and advance to related party

-

(1,105,099)

Account receivable from related party

(1,025,603)

(13,763,159)

Increase (Decrease) In:

Accounts payable

4,103,291

4,397,005

Customer deposits

(5,365,525)

(1,182,695)

Income tax payable

(331,398)

(83,214)

Other payables and accrued expenses                            

(161,436)

372,607

Due to related party

2,811,709

-

Net cash provided by (used in) operating activities

5,481,717

(4,323,007)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of plant and equipment

(27,360)

(2,025)

Net cash used in investing activities

(27,360)

(2,025)

CASH FLOWS FROM FINANCING ACTIVITIES:

(Increase)/Decrease in restricted cash                            

(1,526,634)

(2,116,967)

Proceeds from short-term bank loans

18,497,612

16,468,462

Repayments of short-term bank loans

(23,642,600)

(11,480,682)

Proceeds from notes payable-bank acceptance notes

8,843,854

13,808,187

Repayment of notes payable-bank acceptance notes

(6,716,861)

(11,205,297)

.IPO compensation

-

Net cash provided by (used in) financing activities

(4,544,629)

5,473,703

DECREASE IN CASH AND CASH EQUIVALENTS

909,728

1,148,671

Effect of exchange rate changes on cash

485,796

319,019

Cash and cash equivalents at beginning of period

5,764,767

3,460,342

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

7,160,291

$

4,928,032

SUPPLEMENTARY CASH FLOW INFORMATION

Cash paid during the periods:

Income taxes paid

$

707,589

$

786,330

Interest paid

$

841,232

$

517,068

Non-cash transactions:

Appropriation to statutory reserve

$

230,030

$

204,577

RELATED PARTY TRANSACTIONS

(a) Names and Relationship of Related Parties:

Existing Relationship with the Company

Dr. Tang

Chairman and controlling shareholder of the Company

Shanghai Zhengfangxing Steel Co., Ltd. ("SZS")

Under common control of Dr. Tang

Shanghai Ossen Investment Co., Ltd. ("SOI")

Under common control of Dr. Tang

Shanghai Ossen Investment Holdings (Group) Co., Ltd. ("Ossen Shanghai)

Dr. Tang is the President

Shanghai Zhaoyang New Metal Material Co., Ltd. ("Zhaoyang")

Zhaoyang owns a 30% interest in Ossen Shanghai

Shanghai Pujiang Cable Co., Ltd. ("Shanghai Pujiang")

Subsidiary of Ossen Shanghai since September 2010

(b) Summary of Balances with Related Party:

September 30,

December 31,

2011

2010

(unaudited)

Notes receivable from related party:

SZS, due April 20, 2011, subsequently settled on due date

$

-

$

1,512,448

SZS, due February 15, 2011, subsequently settled on due date        

-

1,512,447

$

-

$

3,024,895

The interest-free, unsecured notes were provided to a related party to assist with their working capital need.

September 30,

December 31,

2011

2010

(unaudited)

Account receivable from related party:                              

Zhaoyang

$

1,136,439

$

-

Shanghai Pujiang

945,617

707,487

$

2,082,056

$

707,487

Zhaoyang and Shanghai Pujiang are customers of the Company. The balance of account receivable from related party arises from the sales of our products to Zhaoyang and Shanghai Pujiang. The balance of account receivable from related party was all collected subsequently.

September 30,

December 31,

2011

2010

(unaudited)

Due to related party:                                            

SZS

$

2,811,709

$

-

SZS is a supplier of the Company. The balance of due to related party at September 30, 2011 represents the account payable to SZS for the purchase of raw materials.

SOURCE Ossen Innovation Co., Ltd.



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