NASDAQ:ZKIN

WENZHOU, China, Feb. 1, 2023 /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, 2022.

(PRNewsfoto/ZK International Group Co., Ltd.)

Financial Highlights for the Fiscal Year 2022

For the Fiscal Year Ended
September 30,
($ millions, except per share data)20222021% Change
Revenue$102.39$99.413.00%
Gross profit$7.60$6.4717.38%
Gross margin7.42%6.51%0.91
percentage
points
Loss from operations$(3.96)$(3.65)8.51%
Operating loss margin(3.87)%(3.68)%-0.19
percentage
points
Net loss attributable to ZK
International$(6.08)$(3.80)60.06%
Diluted loss per share$(0.21)$(0.17)23.53%
Net book value per share$2.80$3.08-9.09%

Mr. Jiancong Huang, Chairman of ZK International, commented, “We are pleased with our record revenue growth to break the $100 million mark while having an increased gross margin. Our financial results in 2022 were largely driven by the market recovery from the pandemic and worldwide construction material supply shortage. The Chinese government also continues to focus on improving water and gas infrastructure. Our ability to work closely with the local government and provide sophisticated piping solutions for major projects is key to our growth trajectory. We anticipate that our business will continue to grow and expand both domestically and internationally into the next fiscal year.”

Mr. Huang continued, “Building on the foundation of our core steel pipe business domestically, we are excited to provide additional value to our shareholders with plans to grow our core steel pipe business internationally.  Being one of the leaders in our industry has brought many other international opportunities for gas and water infrastructure needs, so it will be our goal in 2023 to seek out these international opportunities while building our sales and profitability domestically.  We are confident that ZK is going to continue to provide its existing and future shareholders with a value propisition for a long time to come.”

Financial Results for the Fiscal Year 2022

Revenues

Revenues increased by $2,984,419 or 3.00%, to $102,391,636 for the year ended September 30, 2022 from $99,407,217 for the year ended September 30, 2021. The increase in revenues was primarily driven by the following factors:

1) During the fiscal year 2022, we observed an increase of raw materials, especially the price of nikel which is an important component of stainless steel. To minimize the impact the rise of raw material price, we increased our weighted average selling price (“ASP”) during the fiscal year 2022.

2) During 2022 fiscal year, the average selling price of electrolytic nickel decreased by 0.33% from RMB 114,092 per ton in fiscal year 2021 to RMB 113,716 in fiscal year 2022; the average selling price of steel strip increased by 34.26% from RMB 15.12 per kilogram in fiscal year 2021 to RMB 20.3 in fiscal year 2022; the average selling price of steel pipe increased by 29.00% from RMB 108.73 per piece in fiscal year 2021 to RMB 140.26 in fiscal year 2022; the average selling price of pipe fittings increased by 33.71% from RMB 16.94 each in fiscal year 2021 to RMB 22.65 in fiscal year 2022.

3) Due to the rise of product prices, we had an overall decrease in sales volume. The sales volume of steel strip decreased by 62.98% from 2227.19 tons in fiscal year 2021 to 753.91 tons in fiscal year 2022; Sales of pipes decreased by 25.28% from 793,480 in fiscal year 2021 to 592,919 in fiscal year 2022; The sales volume of pipe fittings decreased by 22.16% from 9,126,002 pieces in fiscal year 2021 to 7,103,894 pieces in fiscal year 2022.

Gross Profit

Our gross profit increased by $1,124,411 or 17.38% to $7,595,599 for the year ended September 30, 2022 from $6,471,188 for the year ended September 30, 2021. Gross profit margin was 7.42% for the year ended September 30, 2022, as compared to 6.51% for the year ended September 30, 2021. The increase of gross profit was primarily due to increased weighted average selling prices which is attributable to the rise of raw material prices and market demand recovery over the construction materials and supply shortages on the current market compared to the fiscal year 2021. 

Operating Expenses

We incurred $2,380,429 in selling and marketing expenses for the fiscal year ended September 30, 2022, compared to $3,117,906 for the fiscal year ended September 30, 2021. Selling and marketing expenses decreased by $737,477, or 23.65%, during the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021. This decrease is primarily due to decreases in sales payroll expenses, compensation for the sales personnel, freight expenses, and technical service fee during the year. 

We incurred $5,421,575 in general and administrative expenses for the fiscal year ended September 30, 2022, compared to $5,772,710 for the fiscal year ended September 30, 2021. General and administrative expenses decreased by $351,136, or 6.08%, for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021. The slight decrease is mainly attributable to the decreased stock-based compensation incurred during the fiscal year 2022.

During the fiscal year ended September 30, 2021, the Company entered into a series of consulting agreements with third-party entity and individuals to develop and implement a defi exchange platform, which is a stablecoin DEX (decentralized exchange) and liquidity mining platform, available at https://xsigma.fi. During 2022 fiscal year, the Company evalutated the recoverability of the Defi platform pursuant to ASC 360-10-35-21 and concluded that the carrying value of the Defi Exchange 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. The Company wrote off the carrying value of the platform and recorded a loss of $2,771,019. There was no asset impairment cost during the fiscal year ended September 30, 2021

We incurred $987,186 in research and development expenses for the fiscal year ended September 30, 2022, compared to $1,234,161 for the fiscal year ended September 30, 2021. R&D expenses decreased by $246,975, or 20.01%, for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021. The decrease was primarily due to the decreased research and development activities during fiscal year 2022.

Income(loss) from Operations

As a result of the factors described above, operating loss was $3,964,610 for the fiscal year ended September 30, 2022, compared to operating loss of $3,653,589 for the fiscal year ended September 30, 2021, an increase of operating loss of $311,021 or approximately 8.51%. 

Other Income (Expenses)

Our interest income and expenses were $109,290 and $3,451,665, respectively, for the fiscal year ended September 30, 2022, compared to interest income and expenses of $13,733 and $1,196,648, respectively, for the fiscal year ended September 30, 2021. We also had government grant of $ 496,740 for financial support to the Company under local government’s innovation incentive programs which was recorded as other income in our Statement of Operations.

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

As a result of the factors described above, our net loss for the fiscal year ended September 30, 2022 was $6,054,266 compared to net loss of $3,802,271 for the fiscal year ended September 30, 2021, an increase in loss of $2,251,995 or approximately 59.23%.

After deducting for non-controlling interests, net loss attributable to ZK International was $6.08 million, or net loss of $0.21 per share, for the fiscal year 2022. This compared to net loss attributable to ZK International of $3.80 million, or $0.17 per share, for the prior fiscal year.

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 TwitterFacebookYouTube, 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, 
20222021
Assets
Current assets
Cash and cash equivalents$7,515,147$13,525,298
Restricted cash101,99277,906
Short-term Investment915,6162,560,760
Accounts receivable, net of allowance for doubtful accounts of $255,322 and $2,221,870,
respectively
28,362,93327,124,959
Notes receivable49,611
Other receivables and prepayments2,360,5392,158,120
Inventories21,141,50120,689,252
Advance to suppliers6,322,59212,567,368
Total current assets66,769,93178,703,663
Property, plant and equipment, net7,124,5878,004,855
Right-of use asset30,99854,166
Intangible assets, net11,415,4518,749,987
Deferred tax assets320,164353,460
Long-term deposit12,472,847
Long-term prepayment10,447,395
Long-term accounts receivable7,522,188
Long-term investment25,292,86625,323,323
TOTAL ASSETS$128,923,580$133,662,301
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$10,066,758$2,159,731
Accrued expenses and other current liabilities6,949,7726,875,769
Lease liability – current portion10,75426,332
Accrued payroll and welfare1,880,3771,853,019
Advance from customers1,758,8005,666,214
Due to related parties2,052,4031,072,335
Convertible debentures3,352,3112,823,364
Short-term bank borrowings16,257,82021,394,761
Other borrowing – short term portion283,758
Notes payables702,889
Income tax payable817,0592,354,832
Total current liabilities43,848,94344,510,115
Lease liability – long term portion10,25627,834
TOTAL LIABILITIES$43,859,199$44,537,949
Equity
Common stock, no par value, 50,000,000 shares authorized, 30,392,940 and 28,918,177 shares
issued and outstanding, respectively
Additional paid-in capital70,872,76563,374,085
Statutory surplus reserve3,176,5562,914,602
Subscription receivable(125,000)(125,000)
Retained earnings13,394,13719,737,504
Accumulated other comprehensive income (loss)(2,640,753)2,898,594
Total equity attributable to ZK International Group Co., Ltd.84,677,70588,799,785
Equity attributable to non-controlling interests386,676324,567
Total equity85,064,38189,124,352
TOTAL LIABILITIES AND EQUITY$128,923,580$133,662,301
The accompanying notes are an integral part of these consolidated financial statements. 
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, 
202220212020
Revenues$102,391,636$99,407,217$86,846,791
Cost of sales(94,796,037)(92,936,029)(82,903,989)
Gross profit7,595,5996,471,1883,942,802
Operating expenses:
Selling and marketing expenses2,380,4293,117,9062,215,651
General and administrative expenses5,421,5755,772,7102,482,972
Asset impairment costs2,771,019
Research and development costs987,1861,234,1611,123,555
Total operating expenses11,560,20910,124,7775,822,178
Operating loss(3,964,610)(3,653,589)(1,879,376)
Other income (expenses):
Interest expenses(3,451,665)(1,196,648)(1,000,554)
Interest income109,29013,7337,192
Gain on disposal of subsidiary, net536,612
Income (loss) on investment50,649(256,937)
Other income (expense), net(88,125)431,438327,845
Total other expenses, net(3,430,500)(700,828)(385,842)
Loss before income taxes(7,395,110)(4,354,417)(2,265,218)
Income tax recovery1,340,844552,1461,428,202
Net loss$(6,054,266)$(3,802,271)$(837,016)
Net (loss) income attributable to non-
  controlling interests
(27,147)2,75711,402
Net (loss) income attributable to ZK
  International Group Co., Ltd.
(6,081,413)(3,799,514)$(825,614)
Net (loss) income(6,054,266)$(3,802,271)$(837,016)
Other comprehensive income (loss):
Foreign currency translation adjustment(5,504,385)2,423,4392,319,048
Total comprehensive loss$(11,558,651)$(1,378,832)$1,482,032
Comprehensive loss (income) attributable to non-
  controlling interests
(62,109)(14,773)(6,136)
Comprehensive income attributable to ZK
  International Group Co., Ltd.
$(11,620,760)$(1,393,605)$1,475,896
Basic and diluted earnings (loss) per share
Basic$(0.21)$(0.17)$(0.05)
Diluted(0.21)(0.17)(0.05)
Weighted average number of shares
  outstanding
Basic29,305,82821,873,59416,558,037
Diluted29,431,78122,633,81916,558,037
The accompanying notes are an integral part of these consolidated financial statements.
ZK INTERNATIONAL GROUP CO., LTD
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2022, 2021 AND 2020
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
Accumulated
Additional otherNon-
paid-in SubscriptionStatutory RetainedcomprehensivecontrollingTotal
SharescapitalReceivablesurplus reserveearningsincome (loss)interestsequity
Balance at
  September 30,
  2019
16,558,03718,049,6302,904,69924,372,535(1,808,825)299,66643,817,705
Disposal of
  subsidiary
3,9923,992
Foreign currency
  translation loss
2,301,51017,5382,319,048
Net income(825,614)(11,402)(837,016)
Balance at
  September 30,
  2020
16,558,03718,049,6302,904,69923,546,921492,685309,79445,303,729
Issuance of
  common
  stock, net of
  offering costs
7,080,76224,884,560(125,000)24,759,560
Common stock
  issued in
  connection
  with
  conversion of
  convertible
  notes
4,374,17611,443,06711,443,067
Issuance of
  common stock
  related to
  exercise of
  warrants
355,2021,345,0561,345,056
Stock-based
  compensation
550,0009,542,7839,542,783
Unearned
  Compensation
(1,891,011)(1,891,011)
Foreign currency
  translations
2,405,90917,5302,423,439
Net income9,903(3,809,417)(2,757)(3,802,271)
Balance at
  September 30,
  2021
28,918,17763,374,085(125,000)2,914,60219,737,5042,898,594324,56789,124,352
Stock incentive
  issuance
1,407,2001,688,6401,688,640
Stock issued in
  connection
  with
  conversion of
  convertible
  notes
67,563116,781116,781
Fair value
  change due to
  convertible
  notes
  extension
678,782678,782
Stock-based
  compensation
5,603,6155,603,615
Unearned
  Compensation
(589,138)(589,138)
Foreign currency translations(5,539,347)34,962(5,504,385)
Net income261,954(6,343,367)27,147(6,054,266)
Balance at
  September 30,
  2022
30,392,94070,872,765(125,000)3,176,55613,394,137(2,640,753)386,67685,064,381
The accompanying notes are an integral part of these consolidated financial statements. 
ZK INTERNATIONAL GROUP CO., LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
 For the year ended September 30, 
202220212020
Cash Flows from Operating Activities:
Net loss$(6,054,266)$(3,802,271)$(837,016)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation expense672,368568,038438,467
Amortization expense830,481481,76311,366
Right of use assets(53,634)
Loss on disposal of fixed assets7,608
Bad debt expense227,83792,032
Inventory provision103,942
Write-off of advance to suppliers108,395100,684
Deferred tax benefits406,064(406,637)
Gain on accounts receivable factoring, net of discount(451,047)
Gain on disposal of subsidiary(536,612)
Loss on investment214,114
Impairment on intangible assets2,771,019
Change in unrecognized tax benefits(1,428,458)(918,038)(1,021,565)
Stock compensation expense2,674,8071,351,082
Interest expense of convertible notes1,324,510210,173
Interest expense of financing lease44,458
Changes in operating assets and liabilities:
Accounts receivable(12,059,620)5,804,654(4,800,889)
Other receivables and prepayments(260,755)1,345,520(793,936)
Notes receivable(53,853)201,187206,465
Inventories(2,606,504)2,021,789103,123
Advance to suppliers5,493,624(8,297,301)2,933,852
Accounts payable8,803,924(8,662,576)5,582,787
Notes payable762,986(159,823)(153,824)
Accrued expenses and other current liabilities752,2412,428,410(484,477)
Accrued payroll and welfare219,178211,632140,497
Advance from customers(3,662,097)3,162,961(198,358)
Income tax payable(77,214)(149,386)
Lease liability(28,595)53,635
Net cash provided (used in) operating activities(2,072,220)(3,479,064)460,205
Cash Flows from Investing Activities:
Purchases of property, plant and equipment(507,663)(114,319)(1,168,322)
Proceed from disposal of property, plant and equipment6,281
Purchase of CIP(12,666)(47,942)
Disposal of intangible asset
Purchases of intangible assets(1,588,107)(1,983,812)
Investment into CG Malta(25,000,000)
Net cash used in investing activities(2,108,436)(27,146,073)(1,162,041)
Cash Flows from Financing activities:
Net proceeds released from (placed into) short-term investment1,523,953(2,228,301)
Proceeds from short-term bank  borrowings31,113,04431,203,12918,061,979
Repayments of short-term bank borrowings(34,501,465)(28,144,978)(17,836,445)
Net proceeds received from (repaid to) related parties1,173,516(280,313)(133,007)
Proceed from other borrowing775,951
Repayment of other borrowing(279,004)(483,458)(107,195)
Proceeds from stock issuances24,758,458
Proceeds from convertible notes issuances14,071,908
Proceeds from stock warrants exercise1,345,056
Net cash provided by (used in) financing activities(969,956)40,241,501761,283
Effect of exchange rate changes on cash(835,453)227,305248,950
Net change in cash, cash equivalents and restricted cash(5,986,065)9,843,669308,397
Cash and cash equivalents and restricted cash at the beginning of period13,603,2043,759,5353,451,138
Cash, cash equivalents and restricted cash at the end of period$7,617,139$13,603,204$3,759,535
Supplemental disclosures of cash flows information:
Non-cash financing activities$$$
Cash paid for income taxes$87,473$37,041$149,291
Cash paid for interest expenses$976,091$338,575$991,319
The accompanying notes are an integral part of these consolidated financial statements.

For Media Enquiries: 

Di Chen
Email: super.di@live.cn

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SOURCE ZK International Group Co., Ltd.

Released February 2, 2023

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