PR Newswire | Feb 9, 2021 04:35PM EST

Increase of 36% for the Fiscal Year 2020

02/09 15:35 CST

ZK International Group Co., Ltd. Announces Record Revenue of $86.85 Million, an Increase of 36% for the Fiscal Year 2020 WENZHOU, China, Feb. 9, 2020

WENZHOU, China, Feb. 9, 2020 /PRNewswire/ -- ZK International Group Co., Ltd. (ZKIN) ("ZK International" or the "Company"), a designer, engineer, manufacturer, and supplier of patented high-performance stainless steel and carbon steel pipe products primarily used for water and gas supplies, today announced its audited financial results for the fiscal year ended September 30, 2020.

Financial Highlights for the Fiscal Year 2020

For the Fiscal Year Ended September 30,

($ millions, except per share data) 2020 2019 % Change

Revenue $86.85 $63.88 35.9%

Gross profit $3.94 $15.64 -74.8%

Gross margin 4.5% 24.5% -19.9 percentage points

Income (loss) from operations ($1.88) $8.65 -121.7%

Operating income (loss) margin -2.2% 13.5% -15.7 percentage points

Net income (loss) attributable to ZK International ($0.83) $8.11 -110.2%

Diluted earnings (loss) per share ($0.05) $0.49 -110.2%

Net book value per share $2.72 $2.63 3.4%

* Revenue increased by 35.9% to a record $86.85 million primarily driven by increased sales of stainless steel coil and strip and partially offset by decreased weighted average selling prices ("ASP") offered to customers as a temporary sales strategy during the pandemic by providing one-off discount on certain products to some key customers. * Gross profit decreased by 74.8% to $3.94 million. Gross margin was 4.5%, compared to 24.5% for the prior fiscal year. The decreases in gross profit and gross margin were primarily due to increased sales percentage of low gross margin products such as stainless steel coil and strip and decreased sales percentage of high gross margin products such as stainless steel piping and fitting products. * Loss from operations was $1.88 million, compared to income from operations of $8.65 million for the prior fiscal year. Operating loss margin was 2.2%, compared to operating profit margin of 13.5% for the prior fiscal year. * Net loss attributable to ZK International was $0.83 million, or net loss of $0.05 per share. This compared to net income attributable to ZK International of $8.11 million, or $0.49 per share, for the prior fiscal year. * Net book value per share was $2.72 as of September 30, 2020, compared to $2.63 as of September 30, 2019.

"While the COVID-19 pandemic caused historic setbacks on the global economy and unprecedented difficulties along the stainless and carbon steel pipe value chain, we managed to grow our top line by 35.9% and achieved record revenue of $86.85 million for the twelve months ended September 30, 2020, a testament to our strong product quality and customer recognition among our end customers. However, margins and profitability deteriorated in the fiscal year 2020 as a result of significantly decreased ASP for our products and increased sales of lower margin stainless steel coil and strip products as a percentage of total sales. We are encouraged and looking forward to the year ahead, one where we hope to continue to see not only revenue growth in our Company but an increase in profitability and margins." commented Mr. Jiancong Huang, Chairman and Chief Executive Officer of ZK International.

Financial Results for the Fiscal Year 2020

Revenue

For the fiscal year ended September 30, 2020, revenue increased by $22.96 million, or 35.9%, to a record $86.85 million from $63.88 million for the prior fiscal year. The increase in revenue was primarily driven by our increased sales of stainless steel coil and strip, and partially offset by decreased weighted average selling prices offered to customers. The increased sales of stainless steel coil and strip, which is also the raw materials of our stainless steel piping and fitting products, was primarily driven by the management's decision to decrease inventory level during the Covid-19 pandemic and to strengthen Company's cash flow. The increase of sales revenue was partially offset by the decreased weighted average selling prices offered to customers as a temporary sales strategy during the pandemic by providing one-off discount on certain products to some key customers as a result of other customers not being able to fulfill their orders as they suffered from the negative impact of the COVID-19 pandemic earlier this year.

Gross Profit

Gross profit decreased by $11.70 million, or 74.8%, to $3.94 million for the fiscal year 2020 from $15.64 million for the prior fiscal year. As a result, gross margin decreased to 4.5% for the fiscal year 2020 from 24.5% for the prior fiscal year. The decrease of gross profit was primarily due to decreased weighted average selling prices we offered to customers as a temporary sales strategy during the pandemic by providing one-off discount on certain products to some key customers as a result of other customers not being able to fulfill their orders as they suffered from the negative impact of the COVID-19 pandemic earlier this year. The decrease of gross profit was also attributable to the increased sales percentage of low gross margin products such as stainless steel coil and strip and decreased sales percentage of high gross margin products such as stainless steel piping and fitting products. The gross profit of stainless steel coil products is approximately 0.15% due to the decrease of average selling price of stainless steel coil products, while our water and gas piping products generally have gross margin of 7.58% during the year ended September 30, 2020.

Operating Expenses

Selling and marketing expenses decreased by $0.43 million, or 16.3%, to $2.22 million for the fiscal year 2020 from $2.65 million for the prior fiscal year. As a percentage of sales, selling and marketing expenses was 2.6% for the fiscal year 2020, compared to 4.1% for the prior fiscal year. The decrease was primarily due to decreases in freight expenses, advertising expenses, and compensation for the sales personnel during the year.

General and administrative expenses decreased by $0.42 million, or 14.3%, to $2.48 million for the fiscal year 2020 from $2.90 million for the prior fiscal year. As a percentage of sales, general and administrative expenses was 2.9% for the fiscal year 2020, compared to 4.5% for the prior fiscal year. The decrease was primarily due to decrease in travelling expenses and entertainment expenses.

Research and development expenses decreased by $0.33 million, or 22.6%, to $1.12 million for the fiscal year 2020 from $1.45 million for the prior fiscal year. As a percentage of sales, research and development expenses was 1.3% for the fiscal year 2020, compared to 2.3% for the prior fiscal year. The decrease was primarily due to the decreased research and development activities as a result of the disruption caused by the pandemic.

Total operating expenses decreased by $1.18 million, or 16.8%, to $5.82 million for the fiscal year 2020 from $7.00 million for the prior fiscal year. As a percentage of sales, total operating expenses was 6.7% for the fiscal year 2020, compared to 11.0% for the prior fiscal year.

Income(loss) from Operations

Loss from operations was $1.88 million for the fiscal year 2020, compared to income from operations of $8.65 million for the prior fiscal year. As a result, operating loss margin was 2.2% for the fiscal year 2020, compared to operating margin of 13.5% for the prior fiscal year. The decreases in operating income and operating margin were primarily related to decreased gross profit (margin) explained above and partially offset by decreased operating expenses.

Other Income (Expenses)

Interest expenses were $1.00 million for the fiscal year 2020, compared to $1.15 million for the prior fiscal year. Other income was $0.33 million for the fiscal year 2020, compared to $0.92 million for the prior fiscal year. As a result, total net other expenses were $0.39 million for the fiscal year 2020, compared to $0.20 million for the prior fiscal year.

Net Income (loss) and earnings (loss) per share

As a result of the factors described above, net loss was $0.84 million for the fiscal year 2020, compared to net income of $8.19 million for the prior fiscal year. Net loss margin was 1.0% for the fiscal year 2020, compared to net profit margin of 12.8% for the prior fiscal year.

After deducting for non-controlling interests, net loss attributable to ZK International was $0.83 million, or net loss of $0.05 per share, for the fiscal year 2020. This compared to net income attributable to ZK International of $8.11 million, or $0.49 per share, for the prior fiscal year.

Financial Condition

As of September 30, 2020, cash and cash equivalents and short-term investments totaled $4.05 million, compared to $3.73 million as of September 30, 2019. Short-term bank borrowings were $17.37 million as of September 30, 2020, compared to $16.28 million as of September 30, 2019.

Accounts receivable was $31.39 million as of September 30, 2020, compared to $25.12 million as of September 30, 2019. Inventories were $21.68 million as of September 30, 2020, compared to $20.80 million as of September 30, 2019. Accounts payable was $10.35 million as of September 30, 2020, compared to $4.18 million as of September 30, 2019.

Total current assets and current liabilities were $64.78 million and $40.88 million, respectively, leading to a current ratio of 1.58 as of September 30, 2020. This compared to total current assets and current liabilities were $58.85 million and $34.58 million, respectively, and current ratio of 1.70 as of September 30, 2019.

Net cash provided by operating activities was $0.46 million for the fiscal year 2020, compared to $8.46 million for the prior fiscal year. Net cash used in investing activities was $1.16 million for the fiscal year 2020, compared to $0.89 million for the prior fiscal year. Net cash provided by financing activities was $0.76 million for the fiscal year 2020, compared to net cash used in financing activities of $11.73 million for the prior fiscal year.

Recent Developments

On January 19, 2021, the Company announced its ETF-like decentralized fund and platform, which was the second DeFi project in xSigma's ecosystem.

On January 12, 2021, the Company announced that xSigma Corporation, a subsidiary of the Company, had published the whitepaper for its DeFi protocol which revealed the key technical details of its future product.

On January 4, 2021, the Company announced that xSigma Corporation, a blockchain R&D lab and a subsidiary of the Company, was in the process of securing initial liquidity from institutional and individual blockchain investors for its DeFi project.

On December 28, 2020, the Company announced that xSigma Corporation, a subsidiary of the Company, had completed the smart contract development of xSigma's DeFi platform.

On December 23, 2020, the Company announced that it hosted a delegation led by Mr. James Heller, Consul General at the U.S. Consulate General in Shanghai on December 14, 2020 during its visit in Wenzhou and the Company.

On December 21, 2020, the Company announced that xSigma Corporation, a subsidiary of the Company, had appointed Jesse Brauner as Senior Engineer.

On December 10, 2020, the Company announced that it signed a letter of intent with Tuopeng Industrial, a prominent construction and real estate company, to form a joint venture that would bid on the construction of a navigation and hydropower project with a total cost estimated to be 4.9 Billion RMB (approximately USD 0.7 Billion).

On November 30, 2020, the Company announced the official launch of the decentralized finance (DeFi) project.

On November 30, 2020, the Company announced that its subsidiary, xSigma Corporation, had selected Dentoro Alliance LP, as software development partner for the development and implementation of a decentralized finance protocol application.

On November 25, 2020, the Company announced that its subsidiary, xSigma Corporation, was launching a Decentralized Finance ("DeFi") protocol which aimed to provide a new level of transparency and legitimacy to decentralized financial blockchain-based smart contracts.

On November 23, 2020, the Company announced that it planned to fund its subsidiary, xSigma Corporation, to develop and deploy disruptive blockchain solutions.

On November 19, 2020, the Company announced the official approval of a new national standard for water conservation in China.

On November 9, 2020, the Company announced that its subsidiary, xSigma Corporation, had signed a letter of intent with Dentoro Alliance LP.

On October 22, 2020, the Company announced it had been approved as a Qualified Supplier for the Suning Real Estate Co., Ltd, which in 2019, Suning Real Estate ranked among the TOP 5 of China's Top 100 Commercial Real Estate Enterprises, the TOP 20 of China's Most Valuable Real Estate Brands and the TOP 50 of China's Top 100 Chinese Real Estate Enterprises.

On September 24, 2020, the Company announced that it had set the terms of a convertible note financing for aggregate gross proceeds up to $1.4 million.

About ZK International Group Co., Ltd.

ZK International Group Co., Ltd. is a China-based designer, engineer, manufacturer, and supplier of patented high-performance stainless steel and carbon steel pipe products that require sophisticated water or gas pipeline systems. The Company owns 33 patents, 21 trademarks, 2 Technical Achievement Awards, and 10 National and Industry Standard Awards. ZK International is Quality Management System Certified (ISO9001), Environmental Management System Certified (ISO1401), and a National Industrial Stainless Steel Production Licensee that is focused on supplying steel piping for the multi-billion dollar industries of Gas and Water sectors. ZK has supplied stainless steel pipelines for over 2,000 projects, including the Beijing National Airport, the "Water Cube", and "Bird's Nest", which were venues for the 2008 Beijing Olympics. Emphasizing superior properties and durability of its steel piping, ZK International is providing a solution for the delivery of high quality, highly sustainable, environmentally sound drinkable water not only to the China market but also to international markets such as Europe, East Asia, and Southeast Asia.

For more information please visit www.ZKInternationalGroup.com. Additionally, please follow the Company on Twitter, Facebook, YouTube, and Weibo. For further information on the Company's SEC filings please visit www.sec.gov.

Safe Harbor Statement

This news release contains 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. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are not guarantee of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict and many of which are beyond the control of ZK International. Actual results may differ from those projected in the forward-looking statements due to risks and uncertainties, as well as other risk factors that are included in the Company's filings with the U.S. Securities and Exchange Commission. Although ZK International believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by ZK International or any other person that their objectives or plans will be achieved. ZK International does not undertake any obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Investor Contact:

Sherry ZhengWeitian Group LLCEmail: shunyu.zheng@weitian-ir.comPhone: +1 718-213-7386

ZK INTERNATIONAL GROUP CO., LTDCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)IN U.S. DOLLARS, EXCEPT SHARE DATA)

For the year ended September 30,

2020 2019 2018

Revenues $ 86,846,791 $ 63,883,520 $ 54,884,381

Cost of sales (82,903,989) (48,239,478) (36,593,792)

Gross profit 3,942,802 15,644,042 18,290,589

Operating expenses:

Selling and marketing 2,215,651 2,647,429 2,949,204expenses

General and administrative 2,482,972 2,897,995 4,071,116expenses

Research and development 1,123,555 1,452,061 1,652,633costs

Total operating expenses 5,822,178 6,997,485 8,672,953

Operating Income (loss) (1,879,376) 8,646,557 9,617,636

Other income (expenses):

Interest expenses (1,000,554) (1,151,045) (1,239,170)

Interest income 7,192 24,437 10,702

Gain on disposal of 536,612 - -subsidiary, net

Loss on investment (256,937) - -

Other income, net 327,845 921,973 112,099

Total other expenses, net (385,842) (204,635) (1,116,369)

Income (loss) before income (2,265,218) 8,441,922 8,501,267taxes

Income tax recovery 1,428,202 (248,228) (1,398,210)(expense)

Net (loss) income $ (837,016) $ 8,193,694 $ 7,103,057

Net (loss) incomeattributable to 11,402 (86,828) (84,943)non-controlling interests

Net (loss) incomeattributable to ZK (825,614) 8,106,866 $ 7,018,114International GroupCo., Ltd.

Net (loss) income (837,016) $ 8,193,694 $ 7,103,057

Other comprehensive income(loss):

Foreign currency translation 2,319,048 (1,694,278) (818,468)adjustment

Total comprehensive income $ 1,482,032 $ 6,499,416 $ 6,284,589

Comprehensive loss (income)attributable to (6,136) (73,919) (75,719)non-controlling interests

Comprehensive incomeattributable to ZK $ 1,475,896 $ 6,425,497 $ 6,208,870International GroupCo., Ltd.

Basic and diluted earnings(loss) per share

Basic $ (0.05) $ 0.49 $ 0.52

Diluted (0.05) 0.49 0.51

Weighted average number ofshares outstanding

Basic 16,558,037 16,551,708 13,610,046

Diluted 16,558,037 16,551,708 13,629,517

ZK INTERNATIONAL GROUP CO., LTDCONSOLIDATED BALANCE SHEETS(IN U.S. DOLLARS)

As of September 30,

2020 2019

Assets

Current assets

Cash and cash equivalents $ 3,759,535 $ 3,451,138

Short-term Investment 294,568 279,810

Accounts receivable, net of allowance fordoubtful accounts of $2,020,373 and $1,919,152, 31,393,289 25,115,040respectively

Notes receivable 192,819 385,519

Other receivables 3,337,634 1,866,321

Due from related parties 47,135 110,990

Inventories 21,679,258 20,796,075

Advance to suppliers 4,078,256 6,848,143

Total current assets 64,782,494 58,853,036

Property, plant and equipment, net 7,870,680 6,595,704

Intangible assets, net 929,021 918,717

Deferred tax assets 724,612 289,756

Long-term deposit 11,836,860 11,453,690

Long-term investment 306,837 291,464

TOTAL ASSETS $ 86,450,504 $ 78,402,367

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 10,351,880 $ 4,182,530

Accrued expenses and other current liabilities 4,172,781 4,438,570

Accrued payroll and welfare 1,555,705 1,340,060

Advance from customers 2,345,891 2,422,776

Due to related parties 1,315,803 1,446,461

Short-term bank borrowings 17,372,894 16,281,461

Other borrowing - short term portion 420,741 -

Notes payables 153,175 296,267

Income tax payable 3,188,615 4,176,537

Total current liabilities 40,877,485 34,584,662

Other borrowing - long term portion 269,290 -

TOTAL LIABILITIES $ 41,146,775 $ 34,584,662

Equity

Common stock, no par value, 50,000,000 sharesauthorized, 16,558,037 and 16,558,037 sharesissued and outstanding, respectively

Additional paid-in capital 18,049,630 18,049,630

Statutory surplus reserve 2,904,699 2,904,699

Retained earnings 23,546,921 24,372,535

Accumulated other comprehensive income (loss) 492,685 (1,808,825)

Total equity attributable to ZK International 44,993,935 43,518,039Group Co., Ltd.

Equity attributable to non-controlling interests 309,794 299,666

Total equity 45,303,729 43,817,705

TOTAL LIABILITIES AND EQUITY $ 86,450,504 $ 78,402,367

ZK INTERNATIONAL GROUP CO., LTDCONSOLIDATED STATEMENTS OF CASH FLOWS(IN U.S. DOLLARS)

For the year ended September 30,

2020 2019 2018

Cash Flows from OperatingActivities:

Net income $ (837,016) $ 8,193,694 $ 7,103,057

Adjustments to reconcile netincome to net cash used inoperating activities:

Depreciation expense 438,467 375,286 395,604

Amortization expense 11,366 13,638 12,137

Loss on disposal of fixed 7,608 2,244 -assets

Bad debt expense - - 286,606

Inventory provision 103,942 - -

Write-off of advance to 100,684 102,523suppliers

Deferred tax benefits (406,637) (1,958) (37,311)

Non-cash service expense - 50,679 -

Gain on disposal of (536,612) - -subsidiary

Loss on investment 214,114 - -

Change in unrecognized tax (1,021,565) - -benefits

Changes in operating assetsand liabilities:

Accounts receivable (4,800,889) 995,327 (7,151,260)

Other receivables (793,936) 680,970 (1,215,167)

Notes receivable 206,465 13,119 (216,478)

Inventories 103,123 (3,846,722) (9,065,712)

Advance to suppliers 2,933,852 596,380 1,580,700

Accounts payable 5,582,787 2,593,103 861,192

Notes payable (153,824) 308,005 (380,000)

Accrued expenses and other (484,477) (1,314,005) 1,698,015current liabilities

Accrued payroll and welfare 140,497 506,894 600,619

Advance from customers (198,358) (887,934) 1,563,693

Income tax payable (149,386) 83,250 1,349,310

Net cash provided (used in) 460,205 8,464,493 (2,614,995)operating activities

Cash Flows from InvestingActivities:

Purchases of property, plant (1,168,322) (880,289) (467,138)and equipment

Proceed from disposal ofproperty, plant and 6,281 5,963 -equipment

Disposal of intangible asset - - 257,863

Purchases of intangible - (11,149) (501,000)assets

Net cash used in investing (1,162,041) (885,475) (710,275)activities

Cash Flows from Financingactivities:

Net proceeds released from(placed into) short-term - 559,030 (893,945)investment

Net proceeds received from(placed into) long-term (7,682,151) (4,444,170)deposit

Net proceeds released from - - 539,381restricted cash

Proceeds from short-term 18,061,979 25,875,962 24,056,279bank borrowings

Repayments of short-term (17,836,445) (28,199,497) (25,529,488)bank borrowings

Net proceeds received from (133,007) (2,279,911) 5,665,914(repaid to) related parties

Proceed from other borrowing 775,951 - -

Repayment of other borrowing (107,195) - -

Net cash provided by (used 761,283 (11,726,567) (606,029)in) financing activities

Effect of exchange rate 248,950 (83,902) 335,413changes on cash

Net change in cash and cash 308,397 (4,231,451) (3,595,886)equivalents

Cash and cash equivalents at 3,451,138 7,682,589 11,278,475the beginning of year

Cash and cash equivalents at $ 3,759,535 $ 3,451,138 $ 7,682,589the end of year

Supplemental disclosures ofcash flows information:

Non-cash financing $ - $ - $ 9,842,676activities

Cash paid for income taxes $ 149,291 $ 170,331 $ 38,218

Cash paid for interest $ 991,319 $ 1,197,504 $ 1,218,757expenses

View original content: http://www.prnewswire.com/news-releases/zk-international-group-co-ltd-announces-record-revenue-of-86-85-million-an-increase-of-36-for-the-fiscal-year-2020--301225180.html

SOURCE ZK International Group Co., Ltd.