WENZHOU, China, Aug. 13, 2024 /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, 2023.
Financial Highlights for the Fiscal Year 2023
For the Fiscal Year EndedSeptember 30,
($ millions, except per share data)
2023
2022
% Change
Revenue
$
111.60
$
102.39
8.99 %
Gross profit
$
1.30
$
7.60
-82.93 %
Gross margin
1.16 %
7.42 %
-6.26percentage
points
Loss from operations
$
(60.44)
$
(3.96)
-1424.58 %
Operating loss margin
(54.16 %)
(3.87 %)
-50.29percentagepoints
Net loss attributable to ZK
International
$
(61.06)
$
(6.08)
-904.06 %
Diluted loss per share
$
(1.94)
$
(0.21)
-835.72 %
Net book value per share
$
0.80
$
2.80
-71.43 %
Revenue
Revenues increased by $9.21 million or 8.99%, to $111.60 million for the year ended September 30, 2023 from $102.39 million for the year ended September 30, 2022. The increase in revenues was primarily driven by the following factors:
1) During the fiscal year 2023, the decline of real estate market in China, especially the collapse of Evergrande, has set pressure on the steel pipe market. To strengthen the cash flow and expand our market share, we lowered our weighted average selling price ("ASP") to boost our sales volume. However, we have observed the recovery of real estate market and increase of market demand for the 2024 fiscal year, we have increased ASP for the 2024 fiscal year.
2) During 2023 fiscal year, the average selling price of electrolytic nickel increased by 33.33% from RMB 113,716 per ton in fiscal year 2022 to RMB 151,619 in fiscal year 2023; the average selling price of steel strip decreased by 1.82% from RMB 20.3 per kilogram in fiscal year 2022 to RMB 19.93 in fiscal year 2023; the average selling price of steel pipe decreased by 20.25% from RMB 140.26 per piece in fiscal year 2022 to RMB 111.86 in fiscal year 2023; the average selling price of pipe fittings decreased by 4.86% from RMB 22.65 each in fiscal year 2022 to RMB 21.55 in fiscal year 2023.
3) Due to the decrease of product prices, we had an overall increase in sales volume. The sales volume of steel strip increased by 87.73% from 753.91 tons in fiscal year 2022 to 1,415.29 tons in fiscal year 2023; Sales volume of pipes increased by 0.42% from 592,919 in fiscal year 2022 to 595,395 in fiscal year 2023; The sales volume of pipe fittings increased by 29.28% from 7,103,894 pieces in fiscal year 2022 to 9,183,690 pieces in fiscal year 2023.
Gross Profit
Our gross profit decreased by $6.30 million or 82.93% to $1.30 million for the year ended September 30, 2023 from $7.60 million for the year ended September 30, 2022. Gross profit margin was 1.16% for the year ended September 30, 2023, as compared to 7.42% for the year ended September 30, 2022. The decrease of gross profit was primarily due to decreased weighted average selling prices while our cost of raw material remained stable. However, we have observed the recovery of real estate market and increase of market demand for the 2024 fiscal year, we have increased ASP for the 2024 fiscal year which will improve our gross margin.
Loss from Operations
Loss from operations was $60.44 million, compared to loss from operations of $3.96 million for the prior fiscal year. The increase of operational loss was mainly due to the one-off asset impairment cost of intangible asset and long-term investment, and stock-based compensation incurred during 2023 fiscal year for the expenses related to our new business operations and subsidiaries.
During 2023 fiscal year, the Company recorded asset impairment cost of $53.20 million, primarily for the write off of its long-term investment in CG Malta and the software platforms, including xSigma Trading, MaximNFT, and the Defi Exchange.
For the 2021 and 2022 fiscal years, CG Malta achieved high growth with its online gaming services launched in more than 10 states in US with high growth rate of Real Money Handle and First-Time Depositor. However, during the 2023 fiscal year, the competition of gaming market has been increasingly intense. Market bullishness and valuations peaked in early-2023 and declined rapidly from there, preventing CG Malta from raising further capital to execute its business plan. For the best interest of the Company’s shareholder, the Company decided to stop funding CG Malta and instead demanded the management team of CG Malta took active measures to achieve organic growth and healthy cash flow. However, the business was unable to raise the capital required to fund the business plan, and therefore the shareholders of CG Malta passed shareholder resolution on November 27, 2023 to cease operations of CG Malta and wind up the entity. For the year ended September 30, 2023, the Company has written off the investment in CG Malta.
During 2023 fiscal year, the Company evaluated the recoverability of the three platforms, including Defi Exchange, xSigma Trading, and MaximNFT and concluded that the carrying value of the three platforms may not be recoverable as it projects that the platform is likely to have continuing losses and it’s more likely than not this platform will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. For the year ended September 30, 2023, the Company wrote off the carrying value of the three platforms.
Net Loss Attributable to ZK International
Net loss attributable to ZK International was $61.06 million, or net loss of $1.94 per share. This compared to net loss attributable to ZK International of $6.08 million, or $0.21 per share, for the prior fiscal year.
Net book value
Net book value per share was $0.80 as of September 30, 2023, compared to $2.80 as of September 30, 2022.
Mr. Jiancong Huang, Chairman of ZK International, commented, "while ZK International declared a net loss of $61 million for the year, this was largely due to a series of one-time write-offs related to various non-core investments. These write-offs are part of the company’s broader strategy to streamline operations and focus on high-growth opportunities, ensuring a more robust financial foundation for the future."
Mr. Huang continued, "While this year’s financial results reflect certain challenges, I am proud of the progress we have made in growing our revenue and strengthening our core business in China. The strategic decisions we’ve taken to write off certain investments position us for a more focused and profitable future. We remain committed to enhancing shareholder value and driving long-term growth for ZK International. As ZK International moves forward, the company remains confident in its ability to navigate the evolving market landscape and deliver sustainable value to its shareholders."
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.
ZK INTERNATIONAL GROUP CO., LTD
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
As of September 30,
2023
2022
Assets
Current assets
Cash and cash equivalents
$
4,994,411
$
7,515,147
Restricted cash
50,995
101,992
Short-term Investment
48,145
915,616
Accounts receivable, net of allowance for doubtful accounts and provision for expected credit loss of $6,617,485 and $255,322, respectively
14,967,186
28,362,933
Notes receivable
54,825
49,611
Prepayment, deposit and other receivable – current
383,413
2,360,539
Inventories
17,937,425
21,141,501
Advance to suppliers
4,810,044
6,322,592
Total current assets
43,246,444
66,769,931
Property, plant and equipment, net
7,836,017
7,124,587
Right-of-use asset – Operating lease
43,840
30,998
Intangible assets, net
1,437,384
11,415,451
Deferred tax assets
—
320,164
Prepayment, deposit and other receivable – Non-current
292,070
—
Long-term prepayment
—
10,447,395
Long-term accounts receivable
5,527,682
7,522,188
Long-term investment
285,540
25,292,866
TOTAL ASSETS
$
58,668,977
$
128,923,580
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
2,611,220
$
10,066,758
Accrued expenses and other current liabilities
4,964,893
6,949,772
Operating lease liability – current
21,749
10,754
Accrued payroll and welfare
1,918,415
1,880,377
Advance from customers
821,694
1,758,800
Due to related parties
1,111,001
2,052,403
Convertible debentures
4,011,224
3,352,311
Bank borrowings – current
9,388,706
16,257,820
Notes payables
41,118
702,889
Income tax payable
669
817,059
Total current liabilities
24,890,689
43,848,943
Operating lease liability – non-current
11,811
10,256
Bank borrowings – non-current
8,527,686
—
TOTAL LIABILITIES
$
33,430,186
$
43,859,199
COMMITMENTS AND CONTINGENCIES
—
—
Equity
Common stock, no par value, 50,000,000 shares authorized, 32,992,740 and 30,392,940 shares issued and outstanding, respectively
Additional paid-in capital
72,886,898
70,872,765
Statutory surplus reserve
3,176,556
3,176,556
Subscription receivable
(125,000)
(125,000)
Retained earnings (Deficits)
(47,666,657)
13,394,137
Accumulated other comprehensive loss
(3,190,985)
(2,640,753)
Total equity attributable to ZK International Group Co., Ltd.
25,080,812
84,677,705
Equity attributable to non-controlling interests
157,980
386,676
Total equity
25,238,792
85,064,381
TOTAL LIABILITIES AND EQUITY
$
58,668,977
$
128,923,580
ZK INTERNATIONAL GROUP CO., LTD
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
For the year ended September 30,
2023
2022
2021
Revenues
$
111,599,686
$
102,391,636
$
99,407,217
Cost of sales
(110,303,270)
(94,796,037)
(92,936,029)
Gross profit
1,296,416
7,595,599
6,471,188
Operating expenses:
Selling and marketing expenses
2,117,810
2,380,429
3,117,906
General and administrative expenses
5,144,340
5,421,575
5,772,710
Asset impairment loss
53,203,517
2,771,019
—
Research and development costs
1,274,337
987,186
1,234,161
Total operating expenses
61,740,004
11,560,209
10,124,777
Operating loss
(60,443,588)
(3,964,610)
(3,653,589)
Other income (expenses):
Interest expenses
(1,583,734)
(3,451,665)
(1,196,648)
Interest income
36,699
109,290
13,733
Income on investment
—
—
50,649
Other income (expense), net
240,378
(88,125)
431,438
Total other expenses, net
(1,306,657)
(3,430,500)
(700,828)
Loss before income taxes
(61,750,245)
(7,395,110)
(4,354,417)
Income tax recovery
459,855
1,340,844
552,146
Net loss
$
(61,290,390)
$
(6,054,266)
$
(3,802,271)
Net (loss) income attributable to non-controlling interests
229,596
(27,147)
2,757
Net loss attributable to ZK International Group Co., Ltd.
(61,060,794)
(6,081,413)
$
(3,799,514)
Net loss
(61,290,390)
$
(6,054,266)
$
(3,802,271)
Other comprehensive income (loss):
Foreign currency translation adjustment
(549,332)
(5,504,385)
2,423,439
Total comprehensive loss
$
(61,839,722)
$
(11,558,651)
$
(1,378,832)
Comprehensive loss (income) attributable to non-controlling interests
228,696
(62,109)
(14,773)
Comprehensive loss attributable to ZK International Group Co., Ltd.
$
(61,611,026)
$
(11,620,760)
$
(1,393,605)
Basic and diluted loss per share
Basic
$
(1.94)
$
(0.21)
$
(0.17)
Diluted
(1.94)
(0.21)
(0.17)
Weighted average number of shares outstanding
Basic
31,445,962
29,305,828
21,873,594
Diluted
31,445,962
29,431,781
22,633,819
ZK INTERNATIONAL GROUP CO., LTD
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2023, 2022 AND 2021
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
Shares
Additional
paid-in
capital
Subscription
Receivable
Statutory
surplus reserve
Retained
earnings(deficits)
Accumulated
other
comprehensive
income (loss)
Non-
controlling
interests
Total
equity
Balance at September 30, 2020
16,558,037
18,049,630
—
2,904,699
23,546,921
492,685
309,794
45,303,729
Issuance of common stock, net of offering costs
7,080,762
24,884,560
(125,000)
24,759,560
Common stock issued in connection with conversion of convertible notes
4,374,176
11,443,067
11,443,067
Issuance of common stock related to exercise of warrants
355,202
1,345,056
1,345,056
Stock-based compensation
550,000
9,542,783
9,542,783
Unearned Compensation
(1,891,011)
(1,891,011)
Foreign currency translations
2,405,909
17,530
2,423,439
Net loss
9,903
(3,809,417)
(2,757)
(3,802,271)
Balance at September 30, 2021
28,918,177
63,374,085
(125,000)
2,914,602
19,737,504
2,898,594
324,567
89,124,352
Stock incentive issuance
1,407,200
1,688,640
1,688,640
Stock issued in connection with conversion of convertible notes
67,563
116,781
116,781
Fair value change due to convertible notes extension
678,782
678,782
Stock-based compensation
5,603,615
5,603,615
Unearned Compensation
(589,138)
(589,138)
Foreign currency translations
(5,539,347)
34,962
(5,504,385)
Net loss
261,954
(6,343,367)
27,147
(6,054,266)
Balance at September 30, 2022
30,392,940
70,872,765
(125,000)
3,176,556
13,394,137
(2,640,753)
386,676
85,064,381
Stock-based compensation
2,599,800
1,839,733
1,839,733
Unearned Compensation
174,400
174,400
Foreign currency translations
(550,232)
900
(549,332)
Net loss
(61,060,794)
(229,596)
(61,290,390)
Balance at September 30, 2023
32,992,740
72,886,898
(125,000)
3,176,556
(47,666,657)
(3,190,985)
157,980
25,238,792
ZK INTERNATIONAL GROUP CO., LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
For the year ended September 30,
2023
2022
2021
Cash Flows from Operating Activities:
Net loss
$
(61,290,390)
$
(6,054,266)
$
(3,802,271)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation expense
677,275
672,368
568,038
Amortization expense
298,431
830,481
481,763
Right of use assets
—
—
(53,634)
Bad debt expense and credit loss
17,897,334
227,837
92,032
Write-off of advance to suppliers
—
—
108,395
Deferred tax expenses
322,897
—
406,064
Gain on accounts receivable factoring, net of discount
—
(1,602,500)
—
Impairment on intangible assets and long-term investment
35,346,769
2,771,019
—
Change in unrecognized tax benefits
(823,340)
(1,428,458)
(918,038)
Stock compensation expense
2,014,133
2,674,807
1,351,082
Interest expense of convertible notes
658,913
1,324,510
210,173
Interest expense of financing lease
—
—
44,458
Interest expense of accounts receivable factoring
359,051
1,151,453
—
Changes in operating assets and liabilities:
Accounts receivable
8,165,567
(12,059,620)
5,804,654
Other receivables and prepayments
349,612
(260,755)
1,345,520
Notes receivable
(6,676)
(53,853)
201,187
Inventories
2,870,541
(2,606,504)
2,021,789
Advance to suppliers
1,401,001
5,493,624
(8,297,301)
Accounts payable
(7,451,608)
8,803,924
(8,662,576)
Notes payable
(666,355)
762,986
(159,823)
Accrued expenses and other current liabilities
(1,918,915)
752,241
2,428,410
Accrued payroll and welfare
130,063
219,178
211,632
Advance from customers
(923,844)
(3,662,097)
3,162,961
Income tax payable
—
—
(77,214)
Long-term prepaid expenses
707,470
—
—
Lease liability – Operating lease
(23,841)
(28,595)
53,635
Net cash used in operating activities
(1,905,912)
(2,072,220)
(3,479,064)
Cash Flows from Investing Activities:
Purchases of property, plant and equipment
(656,178)
(507,663)
(114,319)
Purchase of CIP
(930,814)
(12,666)
(47,942)
Purchases of intangible assets
(707,470)
(1,588,107)
(1,983,812)
Investment into CG Malta
—
—
(25,000,000)
Net cash used in investing activities
(2,294,462)
(2,108,436)
(27,146,073)
Cash Flows from Financing activities:
Net proceeds released from (placed into) short-term investment
852,542
1,523,953
(2,228,301)
Proceeds from short-term bank borrowings
21,486,396
31,113,044
31,203,129
Repayments of short-term bank borrowings
(19,350,091)
(34,501,465)
(28,144,978)
Net (repayment) receiving for due to related parties
(920,690)
1,173,516
(280,313)
Repayment of other borrowing
—
(279,004)
(483,458)
Proceeds from stock issuances
—
—
24,758,458
Proceeds from convertible notes issuances
—
—
14,071,908
Proceeds from stock warrants exercise
—
—
1,345,056
Net cash provided by (used in) financing activities
2,068,157
(969,956)
40,241,501
Effect of exchange rate changes on cash
(439,515)
(835,453)
227,305
Net (decrease) increase in cash, cash equivalents and restricted cash
(2,571,733)
(5,986,065)
9,843,669
Cash and cash equivalents and restricted cash at the beginning of period
7,617,139
13,603,204
3,759,535
Cash, cash equivalents and restricted cash at the end of period
$
5,045,406
$
7,617,139
$
13,603,204
Supplemental disclosures of cash flows information:
Cash paid for income taxes
$
38,695
$
87,473
$
37,041
Cash paid for interest expenses
$
774,929
$
976,091
$
338,575
Non-cash transactions
Offset between due from related parties and due to related parties balances
$
545,844
623,363
604,719
Intangible assets obtained in exchange for settlement of long-term deposit
$
707,470
749,252
—
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