SUTR (MM)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 8-K

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of Earliest Event Reported): February 17, 2015

 

SUTOR TECHNOLOGY GROUP LIMITED

 

(Exact name of registrant as specified in its charter)

 

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

 

No. 8, Huaye Road

Dongbang Industrial Park

Changshu, China 215534

 

(Address of Principal Executive Offices)

 

(86) 512-52680988

Registrant’s Telephone Number, Including Area Code:

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On February 17, 2015, Sutor Technology Group Limited (the “Company”) issued a press release announcing its unaudited financial results for the second quarter of fiscal year 2015 ended December 31, 2014.

 

A copy of the press release is hereby furnished as Exhibit 99.1 and incorporated herein by reference.

 

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

 

Item 7.01. Regulation FD Disclosure.

 

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

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit		Description
99.1		Press release dated February 17, 2015

 

 

SIGNATURES

 

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

 

Sutor Technology Group Limited
Date: February 17, 2015
/s/ Lifang Chen
Chief Executive Officer

 

 

EXHIBIT INDEX

 

Exhibit		Description
99.1		Press release dated February 17, 2015

 

Exhibit 99.1

 

Sutor Technology Group Limited Reports

Second Quarter of Fiscal Year 2015 Financial Results

 

CHANGSHU, China, February 17, 2015 -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), one of the leading China-based manufacturers and service providers for fine finished steel products used by a variety of downstream applications, today announced its unaudited financial results for the second quarter of fiscal year 2015 ended December 31, 2014.

 

Second Quarter of Fiscal 2015 Financial Results Highlights:

 

		2Q FY2015				2Q FY2014				Change
Revenues (million):			85.3				128.3				(33.5	)%
Gross profit (million)			5.3				13.6				(61.0	)%
Net income (million)			0.03				6.4				(99.5	)%
EPS			(0	)			0.15				(100.0	)%

 

		2Q FY2015				1Q FY2015				Change
Revenues (million):			85.3				38.0				124.5	%
Gross profit (million)			5.3				(1.8	)			394.4	%
Net income (million)			0.03				(5.1	)			100.6	%
EPS			(0	)			(0.12	)			100.0	%

 

Ms. Lifang Chen, CEO and President of Sutor, commented, “We are pleased to see our performance turned from net loss for the first quarter of fiscal 2015 to profit for the second quarter. Although our second quarter revenue and net income decreased as compared with same period last year, both of them increased by 124.5% and 100.6%, respectively, compared with the first quarter of this fiscal year, which demonstrates the initial success of our business transformation as we are focusing more on sales quality improvement. We anticipate that we will continue to see improved results in the coming quarters both in overall gross margin and international sales after our PPGI production line upgrading is finished and operation of that line resumes, which are expected to be in the third fiscal quarter.

 

Ms. Chen continued, “The Chinese economy is undergoing a structural adjustment and experiencing a slowdown. However, we believe this process provides opportunities for Chinese steel enterprises to carry out business transformation and upgrading and we are trying to capitalize on this historical opportunity to change our business model, strengthen our brand awareness and enhance innovation with a goal to develop new markets and cultivate new drivers of profit growth of our company. .”

 

“Besides that, our PRC subsidiary, Sutor Technology engages in the development of online-to-offline (O2O) E-commerce. We believe that the combination of online promotional trading platform and traditional offline sales service not only maximizes our sales opportunity, but also reduces our procurement and sales cost. Following the trend of structural transformation and specialization in the world steel industry, we have made significant progress in taking potential merger and acquisition to consolidate resources of upstream and downstream. Our goal is to integrate all functions of R&D, sales, processing and logistics service together and upgrade ourselves from a traditional manufacturer of fine finished steel to a customized processing service provider. We will update the market on this development when it is appropriate.” Ms. Chen concluded.

 

Second Quarter of Fiscal Year 2015 Results

 

Revenue. For the three months ended December 31, 2014, our revenue was $85.3 million, compared to $128.3 million for the same period last year, a decrease of $43.0 million, or 33.5%. The decrease was mainly attributable to the change in our business model. In the past, our revenue was primarily derived from selling manufactured products and the sales price included the cost of steel sheets plus a gross profit. With the fee-based processing services, the price of pure processing services does not include the cost of steel sheets as the customers are responsible for procurement of the raw materials. As a result, revenue from processing one ton of fine finished steel products is only a fraction of the revenue from the traditional business model. We believe that the fee-based model is more measurable and allows us to better adapt to the changes in the Chinese economy and improve company competitiveness.

 

 

On a geographic basis, revenue generated from outside of China was $1.5 million, or 1.7% of the total revenue, for the three months ended December 31, 2014, as compared to $5.1 million, or 4.0% of the total revenue, for the same period in 2013. The decrease was mainly because of the decline in demand for our products and the upgrading of PPGI production line. As a result, we did not produce the PPGI products which are our main exported products.

 

Cost of revenue. Cost of revenue decreased by$34.7 million, or 30.3%, to $80.0 million in the three months ended December 31, 2014, from $114.7 million in the same period in 2013. As a percentage of revenue, cost of revenue increased to 93.8% in the three months ended December 31, 2014, as compared to 89.4% in the same period last year. The decrease in cost of revenue was mainly due to our new fee-based processing model that part of our business became pure processing service, which significantly reduced our cost of revenue However, its percentage of revenue increased because those fixed costs including depreciation and amortization cost did not decrease at the early stage of our transformation period.

 

Gross profit and gross margin. Gross profit decreased by$8.3 million to $5.3 million in the three months ended December 31, 2014, from $13.6 million in the same period in 2013. Gross profit as a percentage of revenue (gross margin) was 6.2% for the three months ended December 31, 2014, as compared to 10.6% for the same period last year. The main reason for the declined gross margin was the scheduled technical upgrading of our PPGI production line and as a result, we did not produce high margin PPGI products. In addition, in order to speed up our transformation, we offered more competitive prices for processing services to attract more customers.

 

Total operating expenses. Our total operating expenses decreased by $1.4 million to $2.6 million in the three months ended December 31, 2014, from $4.0 million in the same period in 2013. As a percentage of revenue, our total operating expenses remained 3.1% in the three months ended December 31, 2014, the same as in the same period last year.

 

Selling expenses. Our selling expenses decreased by $0.5 million to $0.8 million in the three months ended December 31, 2014, from $1.3 million in the same period in 2013. As a percentage of revenue, our selling expenses decreased to 0.9% for the three months ended December 31, 2014, from 1.0% for the same period last year. The decrease was mainly due to reduced shipping, handling and miscellaneous expenses of approximately $0.65 million as a result of our declined sales.

 

General and administrative expenses. General and administrative expenses was $1.9 million, or 2.2% of the total revenue, in the three months ended December 31, 2014, as compared with $2.62 million, or 2.1% of the revenue, in the same period in 2013. The decrease was primarily due to reduced office expenses and miscellaneous local fees resulted from the reduction of our sales.

 

Interest Income. Our interest Income decreased by $0.6 million to $0.2 million in the three months ended December 31, 2014, from $0.8 million in the same period in 2013. As a percentage of revenue, our interest expense was 0.2% of total revenue in the three months ended December 31, 2014, compared to 0.6% in the same period in 2013. The decrease was mainly due to a change in financing structure. Our notes payable decreased during the three months ended December 31, 2014, which resulted in less restricted cash and accordingly lower interest income. The decrease of notes payable reduced our discounted cost and financial cost.

 

Interest expense. Our interest expense decreased by $0.2 million to $2.4 million in the three months ended December 31, 2014, from $2.6 million in the same period in 2013. As a percentage of revenue, our interest expense was 2.9% of total revenue in the three months ended December 31, 2014, compared to 2.0% in the same period in 2013. The decrease was mainly due to the fact that some of our bank acceptances were converted to short term loans, which reduced our interest expense.

 

Provision for income taxes. Our income tax expense decreased to $0.2 million in the three months ended December 31, 2014, from $1.6 million of income tax benefit in the same period last year, mainly due to the decreased taxable profit amount.

 

 

Net income. Net income, without including the foreign currency translation adjustment, decreased by $6.37 million, or 99.5%, to $0.03 million in the three months ended December 31, 2014, from $6.4 million in the same period in 2013, as a cumulative result of the above factors.

 

Liquidity and Capital Resources

 

As of December 31, 2014, we had cash and cash equivalents (excluding restricted cash) of $3.3 million and no restricted cash. Our short-term loans were approximately $202.9 million. We also had approximately $11.0 million long-term loans. As of December 31, 2014, the Company had an unused line of credit with banks of approximately $30.9 million which entitled us to draw bank loans for general corporate purposes. We do not have any large capital expenditure for new investment projects for the coming months.

 

Conference Call Information

 

Sutor's management will host an earnings conference call today, February 17, 2015, at 9:00 a.m. U.S. Eastern time/10:00 pm Beijing/Hong Kong time. Listeners may access the call by dialing US: +18778470047, CN: 800 876 5011, HK +852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through March 20, 2015. Listeners may access it by dialing US: +1866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 712647.

 

Functional Currency

 

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

 

About Sutor Technology Group Limited

 

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

 

Forward-Looking Statements

 

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

 

For more information, please contact:

Investor Relations

Sutor Technology Group Limited

Tel: +86-512-5268-0988

Email: investor_relations@sutorcn.com

 

 

Financial Tables Below:

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		December 31,				June 30,
		2014				2014
ASSETS
Current Assets:
Cash and cash equivalents		$	3,307,151			$	12,178,225
Restricted cash							60,860,255
Short-term investments							3,248,652
Trade accounts receivable, unrelated parties, net of allowance for doubtful accounts of $1,235,225 and $1,368,723, respectively			5,325,628				6,331,702
Trade accounts receivable, related parties			40,105,863				16,149,269
Notes receivables			10,030,830				194,919
Other receivables and prepayments, unrelated parties, net of allowance for doubtful accounts of $282,473 and $255,628, respectively			2,215,777				1,875,785
Other receivables and prepayments, related parties			406,245				405,558
Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $555,985 and $527,673, respectively			8,704,548				8,645,751
Advances to suppliers, related parties			307,892,313				286,085,768
Inventories, net			29,141,842				78,277,682
Current deferred tax assets			2,873,476				1,507,840
Total Current Assets			410,003,673				475,761,406
Non-current Assets:
Advances for purchase of long term assets			85,385				85,241
Property, plant and equipment, net			82,714,923				87,121,382
Intangible assets, net			3,531,438				3,568,855
Long-term investments			1,817,805				1,814,734
Total Non-current Assets			88,149,551				92,590,212
TOTAL ASSETS		$	498,153,224			$	568,351,618
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term loans		$	202,865,133			$	139,223,123
Accounts payable, unrelated parties			5,072,840				5,843,599
Accounts payable, related parties			351,448				-
Notes payable			1,663,104				136,274,446
Other payables and accrued expenses, unrelated parties			15,812,163				4,613,201
Other payables and accrued expenses, related parties			3,200,839				3,110,196
Advances from customers, unrelated parties			8,999,245				7,917,111
Advances from customers, related parties			8,382,043				15,114,353
Warrant liabilities			138				866
Total Current Liabilities			246,346,953				312,096,895
Non-Current Liabilities
Long-term loans, unrelated parties			2,859,995				2,859,995
Long-term loans, related parties			8,182,018				8,182,018
Total Non-current Liabilities			11,042,013				11,042,013
Total Liabilities			257,388,966				323,138,908
Stockholders' Equity
Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; nil shares outstanding			-				-
Common stock - $0.001 par value; authorized: 500,000,000 shares as of December 31 and June 30, 2014; issued: 42,252,267 shares and 42,252,267 shares as of December 31 and June 30, 2014, respectively			42,252				42,252
Additional paid-in capital			43,788,093				43,652,089
Statutory reserves			22,725,841				22,725,841
Retained earnings			132,016,722				137,081,594
Accumulated other comprehensive income			42,842,859				42,362,443
Less: Treasury stock, at cost, 590,838 as of December 31 and June 30, 2014			(651,509	)			(651,509	)
Total Stockholders' Equity			240,764,258				245,212,710
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	498,153,224			$	568,351,618

 

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

 

		For The Three Months Ended								For The Six Months Ended
		December 31,								December 31,
		2014				2013				2014				2013
Revenue from unrelated parties		$	22,304,103			$	102,230,215			$	39,296,001			$	204,412,337
Revenue from related parties			62,998,146				26,086,595				83,994,078				63,012,798
Total Revenue			85,302,249				128,316,810				123,290,079				267,425,135
Cost of Revenue			(80,030,060	)			(114,691,101	)			(119,862,160	)			(241,596,881	)
Gross Profit			5,272,189				13,625,709				3,427,919				25,828,254
Operating Expenses:
Selling expenses			(756,869	)			(1,337,918	)			(1,026,509	)			(3,332,774	)
General and administrative expenses			(1,887,366	)			(2,624,720	)			(4,136,617	)			(5,528,990	)
Total Operating Expenses			(2,644,235	)			(3,962,638	)			(5,163,126	)			(8,861,764	)
Income from Operations			2,627,954				9,663,071				(1,735,207	)			16,966,490
Other Incomes/(Expenses):
Interest income			169,379				786,544				615,864				1,836,766
Interest expense			(2,438,408	)			(2,574,958	)			(5,416,755	)			(4,378,253	)
Changes in fair value of warrant liabilities			(135	)			(54,311	)			728				(66,898	)
Income from equity method investments			-				180,956				-				266,128
Other income			19,736				174,752				293,098				219,026
Other expense			(118,085	)			(201,757	)			(184,930	)			(219,780	)
Total Other Expenses, net			(2,367,513	)			(1,688,774	)			(4,691,995	)			(2,343,011	)
Income/(Loss) Before Taxes			260,441				7,974,297				(6,427,202	)			14,623,479
Income tax (expense)/benefit			(233,029	)			(1,579,161	)			1,362,330				(3,040,096	)
Net Income/(Loss)		$	27,412			$	6,395,136			$	(5,064,872	)		$	11,583,383
Other Comprehensive Income:
Foreign currency translation adjustment			405,834				1,477,555				480,416				3,137,112
Comprehensive Income/(Loss)		$	433,246			$	7,872,691			$	(4,584,456	)		$	14,720,495
Basic Earnings/(Loss) per Share		$	(0.00	)		$	0.15			$	(0.12	)		$	0.28
Diluted Earnings/(Loss) per Share		$	(0.00	)		$	0.15			$	(0.12	)		$	0.28
Basic Weighted Average Shares Outstanding			41,661,429				41,453,386				41,661,429				41,383,956
Diluted Weighted Average Shares Outstanding			41,661,429				41,453,386				41,661,429				41,383,956

 

 

 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For The Six Months Ended
		December 31,
		2014				2013
Cash Flows from Operating Activities:
Net (loss)/income		$	(5,064,872	)		$	11,583,383
Adjustments to reconcile net income to net cash provided by/(used in) operating activities
Depreciation and amortization			4,038,490				4,510,854
Provision/(reversal) for doubtful accounts			(81,765	)			123,435
Stock based compensation			136,004				238,320
Foreign currency exchange gain			-				(194,913	)
Gain on disposal of property, plant and equipment			-				(10,985	)
Income from equity method investments			-				(266,128	)
Deferred income taxes			(1,362,330	)			(86,678	)
Changes in fair value of warrant liabilities			(728	)			66,898
Changes in current assets and liabilities:
Restricted cash			60,929,534				(20,188,832	)
Trade accounts receivable, unrelated parties			1,151,793				(2,320,586	)
Trade accounts receivable, related parties			(23,916,037	)			-
Notes receivable			(9,830,144	)			213,696
Other receivables and prepayments, unrelated parties			(363,029	)			(5,775,579	)
Advances to suppliers, unrelated parties			(71,547	)			17,643,081
Advances to suppliers, related parties			(21,311,121	)			33,716,400
Inventories			49,237,038				(61,110,422	)
Accounts payable, unrelated parties			266,935				46,830,652
Accounts payable, related parties			351,254				(20,276,893	)
Notes payable			(126,789,039	)			-
Other payables and accrued expenses, unrelated parties			11,186,772				(293,095	)
Other payables and accrued expenses, related parties			88,221				-
Advances from customers, unrelated parties			1,068,671				10,458,615
Advances from customers, related parties			(14,732,496	)			-
Net Cash (Used in)/Provided by Operating Activities			(75,068,396	)			14,861,223
Cash Flows from Investing Activities:
Purchase of property, plant and equipment			(490,844	)			(7,818,783	)
Proceeds from disposal of property, plant and equipment			-				15,052
Purchase of intangible assets			-				(567,268	)
Payments for short-term investments			-				(3,254,308	)
Proceeds from sale of short-term investments			3,252,350				-
Net Cash Provided by/(Used In) Investing Activities			2,761,506				(11,625,307	)
Cash Flows from Financing Activities:
Proceeds from loans			111,384,323				93,079,729
Repayment of loans			(48,012,958	)			(110,464,374	)
Proceeds from issuance of common stock			-				1,500,000
Changes in restricted cash			-				21,485,248
Net Cash Provided by Financing Activities			63,371,365				5,600,603
Effect of Exchange Rate Changes on Cash and Cash Equivalents			64,451				87,351
Net Change in Cash and Cash Equivalents			(8,871,074	)			8,923,870
Cash and Cash Equivalents at Beginning of Period			12,178,225				3,601,385
Cash and Cash Equivalents at End of Period		$	3,307,151			$	12,525,255
Supplemental Non-Cash Information:
Offset of notes payable to related parties against receivable from related parties		$	-			$	11,126,897
Accounts payable for purchase of long-term assets		$	(1,047,151	)		$	(495,344	)
Advances for purchase of long-term assets		$	-			$	17,097,874
Supplemental Cash Flow Information:
Cash paid during the period for interest expense		$	(5,035,611	)		$	(4,430,640	)
Cash paid during the period for income tax		$	-			$	(3,122,617	)