Sutor Technology Group Limited Announces First Quarter Financial Results of Fiscal Year 2010

DONGBANG TOWN, China, Nov. 13 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (Nasdaq: SUTR), a leading private manufacturer of fine finished steel products and welded steel pipes used by steel fabricators, and infrastructure projects, today announced its financial results for the first quarter of fiscal year 2010, ended September 30, 2009.

    First Fiscal Quarter 2010 Financial Results:

    -- Total revenue was US$123.8 million for the three months ended September
       30 2009, a decrease of US$6.3 million, or 4.8% over the same period
       last year.

    -- Gross margin was 3.6% for the first fiscal quarter of 2010, compared to
       11.4% for the same period last year.

    -- Net income was US$0.5 million for the first fiscal quarter of 2010, a
       decrease of US$10.4 million, or 95.4%, from US$10.9 million for the
       same period of last year.

    -- Fully-diluted earnings per common share for the first fiscal quarter of
       2010 were US$0.01, compared to US$0.29 for the same time last year.

Ms. Lifang Chen, Chairperson and CEO of Sutor said, "Despite the fact that we continued to face challenges during our first fiscal quarter of 2010, we believe operations have stabilized. We continue our efforts to extend market share by maintaining competitive per unit sales price. Although it reduces gross margins, it has helped us maintain our market share, attract new customers and build existing customers' loyalty.

"In addition, we recently announced the acquisition of Ningbo Zhehua Heavy Steel Pipe Manufacturing Co. This new business line will help to diversify our company's product portfolio and expand our vertically integrated business model. We also believe this acquisition will be beneficial to both our revenue and income during the fiscal year. In October, the Company experienced an increase in orders and firming of average sales price. In addition, with the increase in orders, the Company was able to begin elimination of some very low margin products while maintaining overall volume. The Company therefore expects to see improving margins and net income beginning with the second quarter 2009.

First Fiscal Quarter 2010 Financial Results:

As a result of the acquisition of Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. ("Ningbo Zhehua") from Shanghai Huaye Iron & Steel Group Co., Ltd. in November 2009, a company that is 100% owned by our chief executive officer, chairwoman and majority shareholder Lifang Chen and her husband Feng Gao, our financial statements were restated to reflect the reorganization of Ningbo Zhehua as if the acquisition had happened at the beginning of each period.

Revenues. Revenues were US$123.8 million in the first fiscal quarter of 2010, compared to US$130.1 million for the same period last year, a decrease of 4.8%. The decrease was mainly attributable to the global economic slowdown which led to a decrease in steel prices of approximately 30%, Sutor's primary raw material. In response to the weak economy and lower price of steel, Sutor made the strategic decision to reduce the per unit sales price in certain instances to both maintain our market share and attract new customers

Gross Profit. Gross profit was US$4.4 million in the first fiscal quarter of 2010, compared to US$14.8 million in the same period last year, a decrease of 70.2%. Gross margin decreased to 3.6% for the first fiscal quarter of 2010 from 11.4 % for the same period last year. The decreased margins mainly resulted from the Company's strategic decision to reduce the per unit sale price to retain market share and attract new customers, as well as a larger proportion of smaller orders we received in the first fiscal quarter 2010 which generally had higher costs as compared to that of large orders.

Selling expenses. Selling expenses were US$1.6 million for the first fiscal quarter of 2010 compared to US$0.7 million in the same period last year, an increase of 117.9%. The increase was mainly because the Company shouldered more transportation costs for our clients and transportation costs rose this year. Additionally, the Company incurred more costs in connection with its increased efforts on marketing and product promotion.

General and administrative expenses. General and administrative expenses were US$1.3 million in the first fiscal quarter of 2010, compared to US$0.7 million in the same period last year, an increase of 94.8%. The increase is mainly the result of more fragmented and lower quantity orders received in the first fiscal quarter of 2010 as compared to the same period last year, which led to higher administrative cost. In addition, we incurred US$0.4 million in allowance for doubtful accounts and advances to suppliers in the quarter ended September 30, 2009.

Income from Operations. Income from operations was US$1.5 million in the first fiscal quarter of 2010 compared to $13.4 million in the same period last year, a decrease of approximately 88.8%.

Net Income. Net income was US$0.5 million in the first quarter of fiscal 2010, compared to US$10.9 million in the same period last year, a decrease of 95.4%.

Financial Condition:

As of September 30, 2009, the Company had cash and cash equivalents of US$13.5 million plus $55.2 million in restricted cash and working capital of US$83.5 million. Stockholders' equity increased to US$158.9 million, compared to US$158.3 million as of June 30, 2009. In early November, $6.6 million of cash and cash equivalents was spent for the purchase of Ningbo Zhehua.

Functional Currency and Translating Press Release

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

About Sutor Technology Group Limited

Sutor (Nasdaq: SUTR) is one of a leading private manufacturer of fine finished steel products and welded steel pipes used by steel fabricators and infrastructure projects. Sutor utilizes a variety of processes and technological methodologies to convert steel manufactured by third parties into fine finished steel products and welded steel pipes including hot-dipped galvanized steel, pre-painted galvanized steel, acid-pickled steel, cold-rolled steel, longitudinally welded steel pipes and spiral welded steel pipes. To learn more about the Company, please visit http://www.sutorcn.com .

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 expected financial performance and strategic and operational plans, our future operating results, our expectations regarding the market for our steel finishing fabrication products, our expectations regarding the continued growth of the steel market, as well as all assumptions, expectations, predictions, intentions or beliefs about our relative strength and 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, including developments in the world economy and in our industry, 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, 2009, 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.

                         --FINANCIAL TABLES FOLLOW--


                 SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES
        CONDENSED CONSOLIDATED PRO-FORMA STATEMENT OF STOCKHOLDERS' EQUITY
                    AND CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                              Pro-Forma
                             Statement of
                             Stockholders'
                                Equity
                             September 30,   September 30,         June 30,
                                 2009            2009               2009
                               (Note 1)
    ASSETS
    Current Assets:
    Cash and cash equivalents                 $13,518,156        $10,653,438
    Restricted cash                            55,194,783         64,811,741
    Trade accounts
     receivable, net of
     allowance for doubtful
     accounts of 384,887 and
     $816,268, respectively                     6,194,651         12,107,602
    Other receivables                             310,852            463,916
    Advances to suppliers,
     related parties                          105,279,904         76,391,552
    Advances to suppliers, net
     of allowance of $1,035,518
     and $898,762, respectively                11,802,447         25,039,763
    Inventory                                  38,302,420         44,163,502
    Notes receivable                              131,625            178,237
    Deferred taxes                                358,750            397,998
    Total Current Assets                      231,093,588        234,207,749
    Property and Equipment, net of
     accumulated depreciation of
     $20,643,782 and $18,799,763,
     respectively                               75,573,561         77,242,707
    Intangible Assets, net of
     accumulated amortization of
     $362,474 and $345,130,
     respectively                               3,033,727          3,047,498
    TOTAL ASSETS                             $309,700,876       $314,497,954

    LIABILITIES AND STOCKHOLDERS'
     EQUITY
    Current Liabilities:
    Accounts payable                          $12,610,520        $16,077,413
    Advances from customers                    15,306,133         18,805,901
    Other payables and
     accrued expenses                           3,949,801          3,950,327
    Short-term notes payable                  105,629,796        104,338,736
    Short-term notes payable
     - Related Parties                         10,102,311          9,900,727
    Total Current Liabilities                 147,598,561        153,073,104
    Long-Term Notes Payable                     2,859,995          2,859,995
    Long-Term Notes Payable
     - Related Parties                            249,996            249,996
    Total Liabilities                         150,708,552        156,183,095

    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; 37,955,602
     shares outstanding            37,955          37,955             37,955
    Additional paid-in
     capital                   35,633,307      42,233,307         42,233,307

    Statutory reserves         12,601,921       12,601,921        12,601,921

    Retained earnings          85,366,456       85,366,456        84,865,780
    Accumulated other
     comprehensive income      18,752,685       18,752,685        18,575,896
    Total Stockholders'
     Equity                   152,392,324      158,992,324       158,314,859
    TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY                     $309,700,876      $314,497,954



                                                      $--                $--



                 SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE INCOME
                                   (Unaudited)

                                      For the Three Months Ended September 30,
                                             2009                 2008
    Revenue:
    Revenue                               $56,804,565          $92,837,484
    Revenue from related
     parties                               67,003,757           37,219,878

                                          123,808,322          130,057,362
    Cost of Revenue

    Other cost of revenue                  63,642,535           51,153,046
    Purchases from related
     parties                               55,757,299           64,123,469

                                          119,399,834          115,276,515


    Gross Profit                            4,408,488           14,780,847

    Operating Expenses:

    Selling expense                         1,604,096              736,165
    General and
     administrative expense                 1,294,215              664,296
    Total Operating
     Expenses                               2,898,311            1,400,461

    Income from Operations                  1,510,177           13,380,386

    Other Income (Expense):

    Interest income                           480,572              492,350

    Other income                              319,803               55,572

    Interest expense                       (1,346,898)          (1,531,046)

    Other expense                            (239,589)            (131,863)
    Total Other Income
     (Expense)                               (786,112)          (1,114,987)

    Income Before Taxes and
     Minority Interest                        724,065           12,265,399
    Provision for income
     taxes                                   (223,389)          (1,403,097)

    Net Income                               $500,676          $10,862,302

    Basic and Diluted
     Earnings per
     Common Share                               $0.01                $0.29

    Basic and Diluted
     Weighted Average
     Shares                                37,955,602           37,955,602


    Net Income                               $500,676          $10,862,302
    Foreign currency
     translation adjustment                   176,789              374,980
    Comprehensive Income                     $677,465          $11,237,282





                 SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                      For the Three Months Ended September 30,
                                                  2009               2008

    Cash Flows from Operating
     Activities:

    Net income                                   $500,676        $10,862,302
    Adjustments to reconcile net income
     to net cash provided by
     (used in) operating activities

    Depreciation and amortization               1,840,352          1,229,998

    Deferred income taxes                          39,646            165,215

    Gain on sale of assets                             --           (161,346)
    Changes in current assets and liabilities:

    Trade accounts receivable, net              5,922,669         (4,089,870)

    Other receivables, net                        153,474           (338,219)

    Advances to suppliers                      13,256,897         17,726,151

    Inventories                                 5,904,564        (33,686,006)

    Accounts payable                           (3,482,040)        (3,137,292)

    Advances from customers                    (3,517,770)        (5,105,367)

    Other payables and accrued expenses            (3,935)         1,107,471
    Advances to suppliers - related
     parties                                  (28,793,173)        61,008,281
    Net Cash Provided by (Used in)
     Operating Activities                      (8,178,640)        45,581,318

    Cash Flows from Investing
     Activities:

    Changes in notes receivable                    46,776            185,322
    Purchase of property and equipment,
     net of value

     added tax refunds received                   (73,792)        (4,096,689)

    Proceeds from sale of assets                       --            782,493

    Net change in restricted cash               9,680,250          9,828,144
    Net Cash Provided by Investing
     Activities                                 9,653,234          6,699,270

    Cash Flows from Financing
     Activities:
    Proceeds from issuance of notes
     payable                                   61,432,374         20,525,557

    Payments on notes payable                 (60,250,220)       (74,239,886)
    Proceeds from issuance of notes
     payable - related parties                    199,932          4,060,737
    Net Cash Provided by (Used in)
     Financing Activities                       1,382,086        (49,653,592)

    Effect of Exchange Rate Changes on
     Cash                                           8,038             29,449


    Net Change in Cash                          2,864,718          2,656,445
    Cash and Cash Equivalents at
     Beginning of Year                         10,653,438         12,494,339
    Cash and Cash Equivalents at End of
     Year                                     $13,518,156        $15,150,784

    Supplemental Cash Flow Information
    Cash paid during the period for
     interest                                  $1,023,281         $1,253,855
    Cash paid during the period for
     taxes                                        $91,327         $1,080,491


    For more information, please contact:

    Company Contact (PRC):
     Mr. Jason. Wang
     Tel:   +86-512-5268-0988
     Email: investor_relations@sutorcn.com

SOURCE Sutor Technology Group Limited

RELATED LINKS
http://www.sutorcn.com
http://www.sec.gov