6-K
ZK International Group Co., Ltd. (ZKIN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TORULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the month of August 2021.
Commission File Number: 001-38146
ZKINTERNATIONAL GROUP CO., LTD.
(Translation of registrant’s name into English)
c/o Zhejiang Zhengkang Industrial Co., Ltd.
No. 678 Dingxiang Road, Binhai Industrial Park
Economic & Technology Development Zone
Wenzhou, Zhejiang Province
People’s Republic of China 325025
Tel: +86-577-86852999
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
| Form 20-F x | Form 40-F ¨ |
|---|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
INCORPORATIONBY REFERENCE
This report on Form 6-K shall be deemed to be incorporated by reference into the Registration Statement of ZK International Group Co., Ltd. on Form F-3 filed on April 15, 2019 (File No. 333-230860) and to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.
EXHIBIT INDEX
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, thereunto duly authorized.
| Date: August 26, 2021 | ZK INTERNATIONAL GROUP CO., LTD. | |
|---|---|---|
| By: | /s/ Jiancong Huang | |
| Name: | Jiancong Huang | |
| Title: | Chief Executive Officer and Chairman of the Board |
Exhibit 99.1
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
IN CONNECTION WITH THE UNAUDITED INTERIM CONSOLIDATEDFINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2021AND 2020
In this report, as used herein, and unless the context suggests otherwise, the terms “ZK” “Company” “we” “us” or “ours” refer to the combined business of ZK International Group Co., Ltd., its subsidiaries. References to “dollar” and “$” are to U.S. dollars, the lawful currency of the United States, and references to “Renminbi” and “RMB” are to the legal currency of China. References to “SEC” are to the Securities and Exchange Commission.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 20-F for the fiscal year ended September 30, 2020 filed with the Securities and Exchange Commission on February 9, 2021 (the “2020 Annual Report”). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those identified elsewhere in this report on Form 6-K, and those listed in the 2020 Annual Report under “Item 1A. Risk Factors” or in other parts of the 2020 Annual Report.
Results of Operations
The tables in the following discussion summarize our consolidated statements of operations for the periods indicated. This information should be read together with our consolidated financial statements included elsewhere in this press release. The operating results in any period are not necessarily of the results that may be expected for any future period.
| For the Six Months Ended <br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Revenues | $ | 42,168,823 | $ | 40,169,585 | ||
| Cost of sales | (37,461,065 | ) | 36,963,308 | |||
| Gross profit | 4,707,758 | 3,206,277 | ||||
| Operating expenses: | ||||||
| Selling and marketing expenses | 2,769,264 | 961,513 | ||||
| General and administrative expenses | 1,166,210 | 1,272,675 | ||||
| Research and development costs | 2,419,355 | 630,692 | ||||
| Total operating expenses | 6,354,829 | 2,864,880 | ||||
| Operating Income (loss) | (1,647,071 | ) | 341,397 | |||
| Other income (expenses): | ||||||
| Interest expenses | (528,598 | ) | (424,463 | ) | ||
| Interest income | 9,543 | 3,003 | ||||
| Other income (expenses), net | 325,539 | 170,391 | ||||
| Total other income (expenses), net | (193,516 | ) | (251,069 | ) | ||
| Income (Loss) before income taxes | (1,840,587 | ) | 90,328 | |||
| Income tax provision | (76,306 | ) | - | |||
| Net income (loss) | $ | (1,916,893 | ) | $ | 90,328 | |
| Net income (loss) attributable to non-controlling interests | (1,334,346 | ) | (2,500 | ) | ||
| Net income (loss) attributable to ZK International Group Co., Ltd. | $ | (582,547 | ) | $ | 87,828 | |
| Net income (loss) | $ | (1,916,893 | ) | $ | 90,328 | |
| Other comprehensive income: | ||||||
| Foreign currency translation adjustment | 1,863,153 | 414,042 | ||||
| Total comprehensive income (loss) | (53,740 | ) | 504,370 | |||
| Comprehensive income (loss) attributable to non-controlling interests | (1,315,874 | ) | 5,098 | |||
| Comprehensive income attributable to ZK International Group Co., Ltd. | 1,262,134 | 499,272 | ||||
| Basic and diluted earnings per share | ||||||
| Basic | (0.03 | ) | 0.01 | |||
| Diluted | (0.03 | ) | 0.01 | |||
| Weighted average number of shares outstanding | ||||||
| Basic | 19,243,252 | 16,528,037 | ||||
| Diluted | 21,743,252 | 16,528,037 |
Revenue
Revenue increased by $1,999,238 or 4.98%, to $ 42,168,823 for the six months ended March 31, 2021 from $40,169,585 for the six months ended March 31, 2020. The increase in revenues was primarily driven by our increased sales of stainless steel coil and strip as compared to our stainless steel piping and fitting products. During six months ended March 31, 2021, the sales of stainless steel coil and strip accounts for approximately 53.85% of our total revenue, as compared to 50.84%of our total revenue during six months ended March 31, 2020.
Gross profit
Our gross profit increased by $1,501,481, or 46.83%, to $4,707,758 for the six months ended March 31, 2021 from $3,206,277 for the six months ended March 31, 2020. Gross profit margin was 11.16% for the six months ended March 31, 2021, as compared to 7.98%% for the six months ended March 31, 2020. The increase of gross profit was primarily due to increased weighted average selling prices of our water and gas piping products as the result of domestic demand recovery of construction materials and piping infrastructure. The gross profit of stainless steel coil products is approximately 0.21% 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 23.75% during six months ended March 31, 2021.
Selling and Marketing Expenses
We incurred $2,769,264 in selling and marketing expenses for the six months ended March 31, 2021, compared to $961,513 for the six months ended March 31, 2020. Selling and marketing expenses increased by $1,807,751, or 188.01%, during the six months ended March 31, 2021 compared to the six months ended March 31, 2020. This increase is primarily due to stock-based marketing expenses we paid to third party for the marketing and promoting services provided to xSigma Corporation, a subsidiary of the Company. On February 15, 2021, ZK entered into a Consultancy Agreement (the “Agreement”) with Dentoro Alliance LP, a company incorporated in the Republic of Ireland (the “Consultant”). Pursuant to the Agreement, the Consultant agreed to provide marketing services for the business development of xSigma Corporation, including website development, social media and community management, content creation and public relations management. In exchange for the Consultant’s services, the Company agreed to pay the Consultant 250,000 ordinary shares of the Company. The shares are valued at $3.58/share.
General and Administrative expenses
We incurred $1,166,210 in general and administrative expenses for the six months ended March 31, 2021, compared to $1,272,675 for the six months ended March 31, 2020. General and administrative expenses decreased by $106,465, or 8.37%, for the six months ended March 31, 2021 compared to the same period in 2020. The slight decrease is primarily due to decrease in travelling expenses and administrative staff salary.
Research and Development Expenses
We incurred $2,419,355 in research and development expenses for the six months ended March 31, 2021, compared to $630,692 for the six months ended March 31, 2020. R&D expenses increase by $1,788,663, or 283.60%, for the six months ended March 31, 2021 compared to the same period in 2020. The significant increase was primarily due to the expenses we paid to our various subsidiaries to to develop a DeFi exchange, a cryptocurrency trading platform, and an NFT platform.
Income from operations
As a result of the factors described above, especially our expanded operations, increase of research and development expenses and consulting share issuances, we incurred operating loss of $1,647,071 for the six months ended March 31, 2021, compared to operating income of $341,397 for the six months ended March 31, 2020, an decrease of operating income of $1,988,468.
Other income and expenses
Our interest income and expenses were $9,543 and $528,598, respectively, for the six months ended March 31, 2021, compared to interest income and expenses of $3,003 and $424,463, respectively, for the six months ended March 31, 2020. The increase of interest expense is primarily due to the increase of bank loan incurred during fiscal half year of 2021. Other income mainly consists of government grant for financial support to the Company under local government’s innovation incentive programs.
Net Income
As a result of the factors described above, especially our expanded operations, increase of research and development expenses and consulting share issuances, we incurred net loss of $1,916,893 for the six months ended March 31, 2021, compared to net profit of $90,328 for the six months ended March 31, 2020, a decrease in profit of $2,007,221.
Foreign currency translation
Our consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiaries is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Our foreign currency translation gain for the six months ended March 31, 2021 was $1,863,153, compared to a currency translation gain of $414,042 for the six months ended March 31, 2020, an increase of $1,449,111. The increased gain is primarily due to the appreciation of RMB against the U.S. dollars.
Liquidity and Capital Resources
As of March 31, 2021 and 2020, we had cash and cash equivalents of $23,792,863 and $1,392,405 respectively. The significant increase of cash in 2021 fiscal half year is primarily attributable to our financing activities as result of a series of stock issuances to fund our operations and expansion. We believe that our current cash, cash to be generated from our operations and access to capital market will be sufficient to meet our working capital needs for at least the next twelve months. However, we do not have any amounts committed to be provided by our related party. We are also not dependent upon future financing to meet our liquidity needs for the next twelve months. However, we plan to expand our business to implement our growth strategies in the water supply market and strengthen our position in the marketplace. To do so, we may need more capital through equity financing to increase our production and meet market demands.
Substantially all of our operations are conducted in China and all of our revenues, expense, cash and cash equivalents are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control regulations that restrict its ability to convert RMB into U.S. Dollars.
Under applicable PRC regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Under PRC law, RMB is currently convertible into U.S. Dollars under a company’s “current account,” which includes dividends, trade and service-related foreign exchange transactions, without prior approval of the State Administration of Foreign Exchange (SAFE), but is not from a company’s “capital account,” which includes foreign direct investments and loans, without the prior approval of the SAFE.
With respect to retained earnings accrued after such date, our board of directors may declare dividends after taking into account our operations, earnings, financial condition, cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment, as well as the amount, of dividends will be subject to our By-Laws, charter and applicable Chinese and U.S. state and federal laws and regulations, including the approval from the shareholders of each subsidiary which intends to declare such dividends, if applicable.
We have limited financial obligations dominated in US dollars, thus the foreign currency restrictions and regulations in the PRC on the dividends distribution will not have a material impact on the liquidity, financial condition and results of operations of the Company.
Cash Flow Summary
| For the Six Months Ended <br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Net cash used in (provided by) operating activities | $ | (4,234,329 | ) | $ | 1,070,999 | |
| Net cash provided by (used in) investing activities | 57,857 | (574,050 | ) | |||
| Net cash provided by (used in) financing activities | 23,823,569 | (2,614,615 | ) | |||
| Effect of exchange rate changes on cash | 386,231 | 58,933 | ||||
| Net increase (decrease) in cash | $ | 20,033,328 | $ | (2,058,733 | ) |
Operating activities
Net cash used in operating activities was approximately $4.23 million for the six months ended March 31, 2021, as compared to net cash provided by was approximately $1.07 million for the six months ended March 31, 2020.
Net cash used in operating activities for the six months ended March 31, 2021 was mainly due to the increase of advance to suppliers of approximately $9.05 million as a result of our advance payment to certain suppliers to order raw materials, decrease of accounts payable of approximately $4.38 million, decrease of accrued expenses and other current liabilities of approximately $2.08 million, partially offset by the decrease of accounts receivable of approximately $6.76 million, increase of advance from customers of approximately $2.91 million and decrease of other receivables of approximately $2.42 million.
Net cash provided by operating activities for the six months ended March 31, 2020 was mainly due to the decrease of inventory of approximately $2.56 million as a result of our sales initiative to sell certain products on discount to decrease inventory level and strengthen cash flow, and the increase of accrued expenses and other current liabilities of approximately $0.26 million. The net cash provided by operating activities was mainly offset by the decrease of accounts payable of approximately $2.00 million.
Investing activities
Net cash provided by investing activities was approximately $0.06 million for the six months ended March 31, 2021, as compared to approximately $0.57 million for the six months ended March 31, 2020.
Net cash provided by investing activities for the six months ended March 31, 2021 was mainly due to purchases of equipment of approximately $0.06 million.
Net cash used in investing activities for the six months ended March 31, 2020 was mainly due to purchases of equipment and transportation vehicles of approximately $0.61 million.
Financing activities
Net cash provided by financing activities was approximately $23.82 million for the six months ended March 31, 2021, as compared to approximately $2.61million for the six months ended March 31, 2020.
Net cash provided by financing activities for the six months ended March 31, 2020 was mainly due to financing through stock offering and warrants exercise of approximately $27.34 million, and net proceeds from short-term bank loans of approximately $0.35 million. The net cash provided by financing activities was mainly offset by cash advance to related parties of approximately $2.88 million which was subsequently repaid by the related parties, and repayment of related party payables of approximately $1.14 million.
Net cash used in financing activities for the six months ended March 31, 2020 was mainly due to loan repayment to related parties of approximately $1.47 million, and cash advance to related parties of approximately $1.95 million which was subsequently repaid by the related parties. The net cash used in financing activities was mainly offset by net proceeds from short-term bank loans of approximately $0.72 million.
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company’s year-end financial statements, which could result in significant differences from this unaudited financial information.
Safe Harbor Statement
This report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. When the Company uses words such as “may, “will, “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the actual results to differ materially from the Company’s expectations discussed in the forward-looking statements. These statements are subject to uncertainties and risks including, but not limited to, the following: the Company’s goals and strategies; the Company’s future business development; product and service demand and acceptance; changes in technology; economic conditions; reputation and brand; the impact of competition and pricing; government regulations; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing and other risks contained in reports filed by the Company with the Securities and Exchange Commission. For these reasons, among others, investors are cautioned not to place undue reliance upon any forward-looking statements in this press release. Additional factors are discussed in the Company’s filings with the U.S. Securities and Exchange Commission, which are available for review at www.sec.gov. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
Exhibit 99.2
ZK International GroupCo., Ltd. and Subsidiaries
Consolidated BalanceSheets
As of March 31, 2021and September 30, 2020 (Unaudited)
(IN U.S. DOLLARS)
| 2020 | ||||
|---|---|---|---|---|
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | 23,792,863 | $ | 3,759,535 | |
| Short-term Investment | - | 294,568 | ||
| Accounts receivable, net of allowance for doubtful accounts of 2,098,282 and 2,020,373, respectively | 25,772,075 | 31,393,289 | ||
| Notes receivable | 161,616 | 192,819 | ||
| Other receivables | 1,038,179 | 3,337,634 | ||
| Due from related parties | 2,927,769 | 47,135 | ||
| Inventories | 22,037,116 | 21,679,258 | ||
| Advance to suppliers | 13,281,349 | 4,078,256 | ||
| Total current assets | 89,010,967 | 64,782,494 | ||
| Property, plant and equipment, net | 8,035,478 | 7,870,680 | ||
| Intangible assets, net | 5,936,851 | 929,021 | ||
| Deferred tax assets | 750,912 | 724,612 | ||
| Long-term deposit | 12,266,483 | 11,836,860 | ||
| Long-term investment | 317,974 | 306,837 | ||
| TOTAL ASSETS | 116,318,665 | $ | 86,450,504 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | 6,543,051 | $ | 10,351,880 | |
| Accrued expenses and other current liabilities | 2,239,097 | 4,172,781 | ||
| Accrued payroll and welfare | 1,145,865 | 1,555,705 | ||
| Advance from customers | 5,338,816 | 2,345,891 | ||
| Due to related parties | 225,288 | 1,315,803 | ||
| Short-term bank borrowings | 18,354,498 | 17,372,894 | ||
| Other borrowing - short term portion | - | 420,741 | ||
| Notes payables | 112,946 | 153,175 | ||
| Income tax payable | 3,301,236 | 3,188,615 | ||
| Total current liabilities | 37,260,797 | 40,877,485 | ||
| Other borrowing - long term portion | 562,447 | 269,290 | ||
| TOTAL LIABILITIES | 37,823,244 | $ | 41,146,775 | |
| Equity | ||||
| Common stock, no<br> par value, 50,000,000 shares authorized, 25,553,748 and 16,558,037 shares issued and outstanding, respectively | ||||
| Additional paid-in capital | 51,283,674 | 18,049,630 | ||
| Statutory surplus reserve | 2,904,699 | 2,904,699 | ||
| Retained earnings | 22,975,762 | 23,546,921 | ||
| Accumulated other comprehensive income | 2,337,366 | 492,685 | ||
| Total equity attributable to ZK International Group Co., Ltd. | 79,501,501 | 44,993,935 | ||
| Equity attributable to non-controlling interests | (1,006,080 | ) | 309,794 | |
| Total equity | 78,495,421 | 45,303,729 | ||
| TOTAL LIABILITIES AND EQUITY | 116,318,665 | $ | 86,450,504 |
All values are in US Dollars.
ZK International GroupCo., Ltd. and Subsidiaries
Consolidated Statementsof Income and Comprehensive Income (Loss)
For the Six MonthsEnded March 31, 2021 and 2020 (Unaudited)
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
| For the Six Months Ended <br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Revenues | 42,168,823 | $ | 40,169,585 | |||
| Cost of sales | 37,461,065 | 36,963,308 | ||||
| Gross profit | 4,707,758 | 3,206,277 | ||||
| Operating expenses: | ||||||
| Selling and marketing expenses | 2,769,264 | 961,513 | ||||
| General and administrative expenses | 1,166,210 | 1,272,675 | ||||
| Research and development costs | 2,419,355 | 630,692 | ||||
| Total operating expenses | 6,354,829 | 2,864,880 | ||||
| Operating Income (loss) | (1,647,071 | ) | 341,397 | |||
| Other income (expenses): | ||||||
| Interest expenses | (528,598 | ) | (424,463 | ) | ||
| Interest income | 9,543 | 3,003 | ||||
| Other income (expenses), net | 325,539 | 170,391 | ||||
| Total other income (expenses), net | (193,516 | ) | (251,069 | |||
| Income (Loss) before income taxes | (1,840,587 | ) | 90,328 | |||
| Income tax provision | (76,306 | ) | - | |||
| Net income (loss) | (1,916,893 | ) | $ | 90,328 | ||
| Net income (loss) attributable to non-controlling interests | (1,334,346 | ) | 2,500 | |||
| Net income (loss) attributable to ZK International Group Co., Ltd. | (582,547 | ) | $ | 87,828 | ||
| Net income (loss) | (1,916,893 | ) | $ | 90,328 | ||
| Other comprehensive income: | ||||||
| Foreign currency translation adjustment | 1,863,153 | 414,042 | ||||
| Total comprehensive income (loss) | (53,740 | ) | 504,370 | |||
| Comprehensive income (loss) attributable to non-controlling interests | (1,315,874 | ) | 5,098 | |||
| Comprehensive income attributable to ZK International Group Co., Ltd. | 1,262,134 | 499,272 | ||||
| Basic and diluted earnings per share | ||||||
| Basic | (0.03 | ) | 0.01 | |||
| Diluted | (0.03 | ) | 0.01 | |||
| Weighted average number of shares outstanding | ||||||
| Basic | 19,243,252 | 16,558,037 | ||||
| Diluted | 21,743,252 | 16,558,037 |
ZK International GroupCo., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity(UNAUDITED, IN U.S. DOLLARS, EXCEPT SHARE DATA)
| Shares | Additional <br> paid-in <br> capital | Statutory <br> surplus<br> reserve | Retained<br> earnings | Accumulated<br> other<br> comprehensive<br> income (loss) | Non-<br> controlling<br> interests | Total <br> equity | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at September 30, 2017 | 13,068,346 | 8,382,876 | 1,173,363 | 10,978,891 | 681,788 | 150,028 | 21,366,946 | |||||||||||
| Shares issued for cast, net of offering costs | 3,459,691 | 9,616,057 | 9,616,057 | |||||||||||||||
| Foreign currency translation loss | (809,244 | ) | (9,224 | ) | (818,468 | ) | ||||||||||||
| Net income | 858,412 | 6,159,702 | 84,943 | 7,103,057 | ||||||||||||||
| Balance at September 30, 2018 | 16,528,037 | 17,998,933 | 2,031,775 | 17,138,593 | (127,456 | ) | 225,747 | 37,267,592 | ||||||||||
| Shares issued for cast, net of offering costs | 30,000 | 50,697 | 50,697 | |||||||||||||||
| Foreign currency translation loss | (1,681,369 | ) | (12,909 | ) | (1,694,278 | ) | ||||||||||||
| Net income | 872,924 | 7,233,942 | 86,828 | 8,193,694 | ||||||||||||||
| Balance at September 30, 2019 | 16,558,037 | 18,049,630 | 2,904,699 | 24,372,535 | (1,808,825 | ) | 299,666 | 43,817,705 | ||||||||||
| Disposal of subsidiary | 3,992 | 3,992 | ||||||||||||||||
| Foreign currency translation loss | 2,301,510 | 17,538 | 2,319,048 | |||||||||||||||
| Net income | (825,614 | ) | (11,402 | ) | (837,016 | ) | ||||||||||||
| Balance at September 30, 2020 | 16,558,037 | 18,049,630 | 2,904,699 | 23,546,921 | 492,685 | 309,794 | 45,303,729 | |||||||||||
| Net proceeds from stock offering | 8,745,711 | 27,340,977 | 27,340,977 | |||||||||||||||
| Warrants and stock issued for consulting and developing services | 250,000 | 5,893,067 | 5,893,067 | |||||||||||||||
| Foreign currency translation loss | 1,844,681 | 18,472 | 1,863,153 | |||||||||||||||
| Net income | (571,159 | ) | (1,334,346 | ) | (1,905,505 | ) | ||||||||||||
| Balance at March 31, 2021 | 25,553,748 | 51,283,674 | 2,904,699 | 22,975,762 | 2,337,366 | (1,006,080 | ) | 78,495,421 |
ZK International Group Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2021 and2020 (Unaudited)
(IN U.S. DOLLARS)
| For the Six Months Ended <br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Cash Flows from Operating Activities: | ||||||
| Net income | $ | (1,916,893 | ) | $ | 90,328 | |
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||
| Depreciation expense | 264,887 | 176,111 | ||||
| Amortization expense | 6,605 | - | ||||
| Non-cash expenses | 894,167 | - | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 6,755,242 | (136,090 | ) | |||
| Other receivables | 2,420,300 | (96,109 | ) | |||
| Notes receivable | 38,197 | 167,896 | ||||
| Inventories | 428,946 | 2,563,087 | ||||
| Advance to suppliers | (9,053,966 | ) | 163,096 | |||
| Accounts payable | (4,379,215 | ) | (2,002,061 | ) | ||
| Notes payable | (45,783 | ) | - | |||
| Accrued expenses and other current liabilities | (2,084,882 | ) | 263,591 | |||
| Accrued payroll and welfare | (466,248 | ) | (183,670 | ) | ||
| Advance from customers | 2,907,425 | 64,820 | ||||
| Income tax payable | (3,111 | ) | - | |||
| Net cash provided (used in) operating activities | (4,234,329 | ) | 1,070,999 | |||
| Cash Flows from Investing Activities: | ||||||
| Purchases of property, plant and equipment | 56,013 | (608,404 | ) | |||
| Proceed from disposal of property, plant and equipment | (4,871 | ) | 48,676 | |||
| Net proceeds placed into long-term deposit | 6,715 | (14,262 | ) | |||
| Net cash used in investing activities | 57,857 | (574,050 | ) | |||
| Cash Flows from Financing activities: | ||||||
| Net proceeds from stock offering | 27,340,977 | - | ||||
| Net proceeds released from (placed into) bank acceptance notes | - | (185,764 | ) | |||
| Net proceeds released from short-term investment | 305,222 | 277,944 | ||||
| Net proceeds from (repayment to) short-term bank borrowings | 351,006 | 716,659 | ||||
| Net repayment of other borrowing | (156,929 | ) | - | |||
| Repayments of loans of related parties | (1,138,134 | ) | (1,474,517 | ) | ||
| Cash advance to related parties | (2,878,572 | ) | (1,948,937 | ) | ||
| Net cash provided by (used in) financing activities | 23,823,569 | (2,614,615 | ) | |||
| Effect of exchange rate changes on cash | 386,231 | 58,933 | ||||
| Net change in cash and cash equivalents | 20,033,328 | (2,058,733 | ) | |||
| Cash and cash equivalents at the beginning of year | 3,759,535 | 3,451,138 | ||||
| Cash and cash equivalents at the end of year | $ | 23,792,863 | $ | 1,392,405 | ||
| Supplemental disclosures of cash flows information: | ||||||
| Cash paid for income taxes | $ | 167,862 | $ | - | ||
| Cash paid for interest expenses | $ | 524,217 | $ | 450,282 |
Selected Notes to Consolidated Financial Statements
We prepare our consolidated financial statements in conformity with accounting principles generally accepted by the U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
We believe that the following accounting policies and notes involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Such estimates include, but are not limited to, allowances for doubtful accounts, inventory valuation, useful lives of property, plant and equipment, intangible assets, and income taxes related to realization of deferred tax assets and uncertain tax position. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash and deposits with financial institutions which are unrestricted as to withdrawal and use. Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with original maturities of three months or less when purchased.
Value-added Tax (“VAT”)
Value-added taxes (“VAT”) collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis. VAT collected from customers is excluded from revenue. The Company is subject to a VAT rate of 17% before May 1, 2018, a VAT rate of 16% effective on May 1, 2018, and the most current VAT rate of 13% effective on April 1, 2019. The VAT payable may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products.
Intangible Assets
| March 31, | September <br><br>30, | |||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Land use rights, cost | $ | 607,672 | $ | 586,389 | ||
| Software, cost | 5,517,469 | 517,954 | ||||
| Other intangible assets, cost | 1,704 | 1,643 | ||||
| Less: accumulated amortization | (189,994 | ) | (176,965 | ) | ||
| Intangible assets, net | $ | 5,936,851 | $ | 929,021 |
Intangible assets consist primarily of land use rights and software. Under the PRC law, all land in the PRC is owned by the government and cannot be sold to an individual or company. The government grants individuals and companies the right to use parcels of land for specified periods of time. These land use rights are sometimes referred to informally as “ownership.” Land use rights are stated at cost less accumulated amortization. The land use right represents the Company's land use rights in Wenzhou's plant, which had been pledged to secure the Company’s banking facilities granted to the Company as of March 31, 2021 and September 30, 2020.
On February 15, 2021, ZK entered into a Consultancy Agreement (the “Agreement”) with Dentoro Alliance LP, a company incorporated in the Republic of Ireland (the “Consultant”). Pursuant to the Agreement, the Consultant agreed to provide marketing services for the business development of xSigma Corporation, a subsidiary of the Company (“xSigma”), including website development, protocol development and implementation, social media and community management, content creation and public relations management. In exchange for the Consultant’s services, the Company agreed to pay the Consultant initial compensation and performance earn-out. The initial compensation includes warrants to purchase a total of 2,500,000 ordinary shares, which include (i) warrants to purchase 400,000 ordinary shares, exercisable at $1.00 per share only when Company’s closing bid price is at least $2.00 for ten consecutive trading days, (ii) warrants to purchase 1,000,000 ordinary shares, exercisable at $1.50 per share only when Company’s closing bid price is above $2.50 for seven consecutive trading days, (iii) warrants to purchase 500,000 ordinary shares, exercisable at $2.00 per share only when Company’s closing bid price is at least $3.50 for seven consecutive trading days, (iv) Warrants to purchase 600,000 ordinary shares, exercisable at $2.50 per share, only when Company’s closing bid price is at least $4.25 for seven consecutive trading days. All the warrants will expire nine months after issuance and may be permitted for cash or cashless exercise at Company’s option pursuant to a definitive warrant agreement.
The fair value of this Warrants was $4,998,900 as determined on February 15, 2021. The fair value has been estimated using the Black-Scholes Options pricing model with the following weighted-average assumptions: 30-day average stock price of $3.58; risk free rate of 0.07%; expected term of 9 months; exercise price of the warrants pursuant to the agreement; volatility of 82.60%; and expected future dividends of nil.
Stockholders’ Equity
Registered Direct Offerings
On September 25, 2020 and October 16, 2020, the Company closed a registered direct offering pursuant to certain convertible debenture agreements with certain unaffiliated investors identified therein. The convertible debentures, with aggregate principal amount of $1.4 million and 5% annual interest rate, are exercisable for a period of one year at an exercise price of 70% of the average closing price during the seven (7) consecutive Trading Days immediately preceding the Conversion Date, but not lower than the Floor Price of $0.62 per share. The transaction was closed on October 20, 2020 and full proceeds were received. As of February 5, 2021, all of the outstanding principal and interest underlying the Convertible Debentures have been converted into a total of 1,394,253 ordinary shares.
On January 8, 2021, the Company closed a registered direct offering pursuant to certain securities purchase agreement with certain unaffiliated investors identified therein, to offer an aggregate of 1,785,000 Company’s ordinary shares, for a total purchase price of $2,499,000.
On February 24, 2021, the Company closed a registered direct offering pursuant to certain securities purchase agreements with several accredited investors providing for an aggregate investment of $4,599,983.50 by the investors for the issuance by the Company to them of (i) 1,295,770 ordinary shares of the Company (the “Shares”); (ii) first registered investor warrants, with a term of five (5) years exercisable immediately upon issuance, to purchase an aggregate of up to 1,295,770 ordinary shares (the “First Registered Warrant Shares”) at an exercise price of $4.00 per share, subject to customary adjustments thereunder (the “First Registered Warrants”); and (iii) second registered investor warrants, with a term of five (5) years exercisable immediately upon issuance, to purchase an aggregate of up to 1,295,770 ordinary shares (the “Second Registered Warrant Shares” and collectively with the First Registered Warrant Shares, the “Warrant Shares”) at an exercise price of $4.50 per share, subject to customary adjustments thereunder (the “Second Registered Warrants” and collectively with the First Registered Warrants, the “Warrants”). Holders of the Warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the Warrant Shares at the time of exercise, by exercising on a cashless basis pursuant to the formula provided in the Warrants. As of March 31, 2021, 270,696 warrants have been exercised on cash exercise basis, and $964,779 were received.
On March 22, 2021, ZK entered into certain securities purchase agreements (the “Purchase Agreements”) with several accredited investors (the “Investors”) providing for an aggregate investment of $18,000,000 by the Investors for the issuance by the Company to them of 4,000,000 ordinary shares of the Company (the “Shares”) at an offering price of $4.50 per share.
Subsequent Event
Investment in CG Malta
On April 4, 2021, ZK through its wholly-owned subsidiary xSigma Entertainment Limited (“xSigma”) entered into a Subscription of Shares Agreement (the “Subscription Agreement”) with CG Malta Holding Limited(“CG Malta”). Concurrently, xSigma entered into a shareholders agreement with CG Malta and its existing shareholder(the “Shareholders Agreement”).
Pursuant to the Subscription Agreement, the Company acquired 12% interest (the “Shares”) on a post-transaction basis in CG Malta through its wholly-owned subsidiary xSigma for US$15 million.
In addition, the Company also agreed to subscribe to an additional number of ordinary shares (the “Additional Shares”) in CG Malta for a total purchase price of US$35 million, which will guarantee to the Company an additional 13% equity interest in CG Malta. The subscription of the Additional Shares is subject to the signing of a separate subscription agreement not later than four months from April 4, 2021. If the Company fails to fulfil the obligation to purchase the Additional Shares, the Company shall either forfeit 2% ownership in CG Malta, or pay a sum equivalent to $3 million to compensate the Company for such failure. The Company has the exclusive right to the Additional Shares until August 4, 2021. On August 4, 2021, xSigma entered into an amendment to the Subscription Agreement (the “Amendment”). Pursuant to the Amendment, the subscription to the Additional Shares will be subject to signing of a separate subscription agreement no later than January 1, 2022, of which US$10 million shall be completed no later than August 30, 2021.
Equity Incentive Plan
On March 25, 2021, the Board and shareholders of the Company holding an aggregate of 14,425,664 ordinary shares, representing approximately 57% of the total issued and outstanding as of March 25, 2021 took action by written consent to approve the 2021 equity incentive plan (the “Plan”).
The Plan provides for current or prospective employees, directors, officers, advisors or consultants of the Company or its affiliates are eligible to participate in the Plan. The compensation committee of the board of directors has the sole and complete authority to determine who will be granted an award under the Plan, however, it may delegate such authority to one or more officers of the Company under the circumstances set forth in the Plan. As of August 26, 2021, no award stock was issued from the Plan.
Exhibit 99.3
ZK International Group Co., Ltd.Announces Record Revenue of $42.17 Million, an Increase of 4.98% for the First Half of Fiscal Year 2021
WENZHOU, China, August 26,2021 --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 unaudited financial results for the six months ended March 31, 2021.
FinancialHighlights for the First Half of Fiscal Year 2021
| · | Revenue increased 4.98%<br>to a record $42.17 million due to increased domestic orders that drove increased sales volume. | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| · | Gross profit increased<br>by 46.83% to $4.71 million. Gross margin was 11.16%, compared to 7.98% for the same period of the prior fiscal period. The increase of<br>gross profit was primarily due to increased weighted average selling prices of our water and gas piping products as the result of domestic<br>demand recovery of construction materials and piping infrastructure. | ||||||||
| --- | --- | ||||||||
| · | Loss from operations<br>was $1.65 million, compared to income<br>from operations of $0.34 million for the same period of the prior fiscal year. Operating margin was -3.91%,<br>compared to 0.8% for the same period of the prior fiscal year. The decrease of operating margin was primarily due to one-off developing<br>and marketing expenses incurred for the xSigma trading platform and other newly added business operations. | ||||||||
| --- | --- | ||||||||
| · | Net loss attributable<br>to ZK International was $0.58 million,<br>or $0.03 per share. This compared to net income attributable to ZK International of $0.09 million, or $0.01 per share, for the same period<br>of the prior fiscal year. | ||||||||
| --- | --- | ||||||||
| · | Net<br>book value increased to $3.11 per share as of<br>March 31, 2021, compared to $2.66 as of September 30, 2020. | ||||||||
| --- | --- | ||||||||
| For the Six Months Ended March 31, | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ($ millions, except per share data) | 2021 | 2020 | % Change | ||||||
| Revenue | $ | 42.17 | $ | 40.17 | 4.98 | % | |||
| Gross profit | $ | 4.71 | $ | 3.21 | 46.83 | % | |||
| Gross margin | 11.16 | % | 7.98 | % | 3.18 | % pp* | |||
| Income (loss) from operations | $ | (1.65 | ) | $ | 0.34 | -582.45 | % | ||
| Operating margin | -3.91 | % | 0.85 | % | -4.76 | % pp* | |||
| Net income (loss) attributable to ZK International | $ | (0.58 | ) | $ | 0.09 | -763.28 | % | ||
| Diluted earnings per share | $ | (0.03 | ) | $ | 0.01 | -367.92 | % | ||
| Net book value per share | $ | 3.11 | $ | 2.66 | 16.96 | % | |||
| * pp: percentage point(s) |
Mr. Jiancong Huang, Chairman and Chief Executive Officer of ZK International, commented, “as a Company we continue to grow as we have hit record sales of $42 million for the first half of fiscal year of 2021. With our core business returning to profitability, in what is a competitive landscape, we continue to be a market leader of our proprietary stainless steel and carbon steel pipe products. Our growth is not limited to the Chinese market as we aim to expand our line of products into other European countries, Canada and the United States. In addition to the existing business, leadership at the Company decided to be innovative, and have formed several subsidiaries to develop, market, and execute on a number of initiatives which include raising capital to develop a DeFi Exchange and launch our own tokens, develop a cryptocurrency trading platform and the development of our own NFT Marketplace which will be launched in the Fall of 2021. We expect our core business to grow with a focus of returning to profitability while we establish venture vehicles through operations of our subsidiaries.”
FinancialResults for the First Half of Fiscal Year 2020
Revenue
Revenue increased by $1,999,238 or 4.98%, to $ 42,168,823 for the six months ended March 31, 2021 from $40,169,585 for the six months ended March 31, 2020. The increase in revenues was primarily driven by our increased sales of stainless steel coil and strip as compared to our stainless steel piping and fitting products. During six months ended March 31, 2021, the sales of stainless steel coil and strip accounts for approximately 53.85% of our total revenue, as compared to 50.84%of our total revenue during six months ended March 31, 2020.
GrossProfit
Our gross profit increased by $1,501,481, or 46.83%, to $4,707,758 for the six months ended March 31, 2021 from $3,206,277 for the six months ended March 31, 2020. Gross profit margin was 11.16% for the six months ended March 31, 2021, as compared to 7.98%% for the six months ended March 31, 2020. The increase of gross profit was primarily due to increased weighted average selling prices of our water and gas piping products as the result of domestic demand recovery of construction materials and piping infrastructure. The gross profit of stainless steel coil products is approximately 0.21% 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 23.75% during six months ended March 31, 2021.
Sellingand Marketing Expenses
We incurred $2,769,264 in selling and marketing expenses for the six months ended March 31, 2021, compared to $961,513 for the six months ended March 31, 2020. Selling and marketing expenses increased by $1,807,751, or 188.01%, during the six months ended March 31, 2021 compared to the six months ended March 31, 2020. This increase is primarily due to stock-based marketing expenses we paid to third party for the marketing and promoting services provided to xSigma Corporation, a subsidiary of the Company. On February 15, 2021, ZK entered into a Consultancy Agreement (the “Agreement”) with Dentoro Alliance LP, a company incorporated in the Republic of Ireland (the “Consultant”). Pursuant to the Agreement, the Consultant agreed to provide marketing services for the business development of xSigma Corporation, including website development, social media and community management, content creation and public relations management. In exchange for the Consultant’s services, the Company agreed to pay the Consultant 250,000 ordinary shares of the Company. The shares are valued at $3.58/share.
Generaland Administrative expenses
We incurred $1,166,210 in general and administrative expenses for the six months ended March 31, 2021, compared to $1,272,675 for the six months ended March 31, 2020. General and administrative expenses decreased by $106,465, or 8.37%, for the six months ended March 31, 2021 compared to the same period in 2020. The slight decrease is primarily due to decrease in travelling expenses and administrative staff salary.
Researchand Development Expenses
We incurred $2,419,355 in research and development expenses for the six months ended March 31, 2021, compared to $630,692 for the six months ended March 31, 2020. R&D expenses increase by $1,788,663, or 283.60%, for the six months ended March 31, 2021 compared to the same period in 2020. The significant increase was primarily due to the expenses we paid to our various subsidiaries to to develop a DeFi exchange, a cryptocurrency trading platform, and an NFT platform.
Income(loss) from Operations
Loss from operations was $1.65 million for the first half of fiscal year 2021, compared to $0.34 million for the same period of the prior fiscal year. As a result, operating margin was -3.91% for the first half of fiscal year 2021, compared to 0.85% for the same period of the prior fiscal year. The decreases in operating income and operating margin were primarily related to our expanded operations, increase of research and development expenses and consulting share issuances.
OtherIncome (Expenses)
Interest expenses were $0.53 million for the first half of fiscal year 2021, compared to $0.42 million for the same period of the prior fiscal year. Other income was $0.33 million for the first half of fiscal year 2021, compared to $0.17 million for the same period of the prior fiscal year. As a result, total net other expenses were $0.19 million for the first half of fiscal year 2020, compared to $0.25 million for the same period of the prior fiscal year.
NetIncome (loss) and earnings per share
As a result of the factors described above, net loss was $1.92 million for the first half of fiscal year 2021, compared to net income of $0.09 million for the same period of the prior fiscal year. Net margin was -4.55% for the first half of fiscal year 2021, compared to 0.2% for the same period of the prior fiscal year.
After deducting for non-controlling interests, net loss attributable to ZK International was $0.58 million, or $0.03 per share, for the first half of fiscal year 2021. This compared to net income attributable to ZK International of $0.09 million, or $0.01 per share, for the same period of the prior fiscal year.
FinancialCondition
As of March 31, 2021, cash and cash equivalents and short-term investments totaled $23.79 million, compared to $3.76 million as of September 30, 2020. Short-term bank borrowings were $18.35 million as of March 31, 2021, compared to $17.37 million as of September 30, 2020.
Accounts receivable was $25.77 million as of March 31, 2021, compared to $31.39 million as of September 30, 2020. Inventories were $22.04 million as of March 31, 2021, compared to $21.68 million as of September 30, 2020. Accounts payable was $6.54 million as of March 31, 2021, compared to $10.35 million as of September 30, 2020.
Total current assets and current liabilities were $89.01 million and $37.26 million, respectively, leading to a current ratio of 2.39 as of March 31, 2021. This compared to total current assets and current liabilities were $64.78 million and $40.88 million, respectively, and current ratio of 1.58 as of September 30, 2020.
Net cash used in operating activities was $4.23 million for the six months ended March 31, 2021, compared to net cash provided by operating activities of $1.07 million for the same period of the prior fiscal year. Net cash provided by investing activities was $0.06 million for the six months ended March 31, 2021, compared to net cash used in investing activities of $0.57 million for the same period of the prior fiscal year. Net cash provided by financing activities was $23.82 million for the six months ended March 31, 2021, compared to net cash used in financing activities of $2.61 million for the same period of the prior fiscal year.
About ZK International GroupCo., 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 containsforward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. Without limitingthe 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 comparableterminology are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections orother characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are not guaranteeof future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict and many of whichare beyond the control of ZK International. Actual results may differ from those projected in the forward-looking statements due to risksand uncertainties, as well as other risk factors that are included in the Company’s filings with the U.S. Securities and ExchangeCommission. Although ZK International believes that the assumptions underlying the forward-looking statements are reasonable, anyof the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statementswill be realized. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusionof such information should not be regarded as a representation by ZK International or any other person that their objectives or planswill be achieved. ZK International does not undertake any obligation to revise the forward-looking statements contained herein to reflectevents or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
ZKInternational Group Co., Ltd. and Subsidiaries
ConsolidatedStatements of Income and Comprehensive Income (Loss)
Forthe Six Months Ended March 31, 2021 and 2020 (Unaudited)
(IN U.S. DOLLARS, EXCEPT SHAREDATA)
| For the Six Months Ended <br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Revenues | 42,168,823 | $ | 40,169,585 | |||
| Cost of sales | 37,461,065 | 36,963,308 | ||||
| Gross profit | 4,707,758 | 3,206,277 | ||||
| Operating expenses: | ||||||
| Selling and marketing expenses | 2,769,264 | 961,513 | ||||
| General and administrative expenses | 1,166,210 | 1,272,675 | ||||
| Research and development costs | 2,419,355 | 630,692 | ||||
| Total operating expenses | 6,354,829 | 2,864,880 | ||||
| Operating Income (loss) | (1,647,071 | ) | 341,397 | |||
| Other income (expenses): | ||||||
| Interest expenses | (528,598 | ) | (424,463 | ) | ||
| Interest income | 9,543 | 3,003 | ||||
| Other income (expenses), net | 325,539 | 170,391 | ||||
| Total other income (expenses), net | (193,516 | ) | (251,069 | |||
| Income (Loss) before income taxes | (1,840,587 | ) | 90,328 | |||
| Income tax provision | (76,306 | ) | - | |||
| Net income (loss) | (1,916,893 | ) | $ | 90,328 | ||
| Net income (loss) attributable to non-controlling interests | (1,334,346 | ) | 2,500 | |||
| Net income (loss) attributable to ZK International Group Co., Ltd. | (582,547 | ) | $ | 87,828 | ||
| Net income (loss) | (1,916,893 | ) | $ | 90,328 | ||
| Other comprehensive income: | ||||||
| Foreign currency translation adjustment | 1,863,153 | 414,042 | ||||
| Total comprehensive income (loss) | (53,740 | ) | 504,370 | |||
| Comprehensive income (loss) attributable to non-controlling interests | (1,315,874 | ) | 5,098 | |||
| Comprehensive income attributable to ZK International Group Co., Ltd. | 1,262,134 | 499,272 | ||||
| Basic and diluted earnings per share | ||||||
| Basic | (0.03 | ) | 0.01 | |||
| Diluted | (0.03 | ) | 0.01 | |||
| Weighted average number of shares outstanding | ||||||
| Basic | 19,243,252 | 16,558,037 | ||||
| Diluted | 21,743,252 | 16,558,037 |
ZKInternational Group Co., Ltd. and Subsidiaries
ConsolidatedBalance Sheets
Asof March 31, 2021 and September 30, 2020 (Unaudited)
(IN U.S.DOLLARS)
| 2020 | ||||
|---|---|---|---|---|
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | 23,792,863 | $ | 3,759,535 | |
| Short-term Investment | - | 294,568 | ||
| Accounts receivable, net of allowance for doubtful accounts of 2,098,282 and 2,020,373, respectively | 25,772,075 | 31,393,289 | ||
| Notes receivable | 161,616 | 192,819 | ||
| Other receivables | 1,038,179 | 3,337,634 | ||
| Due from related parties | 2,927,769 | 47,135 | ||
| Inventories | 22,037,116 | 21,679,258 | ||
| Advance to suppliers | 13,281,349 | 4,078,256 | ||
| Total current assets | 89,010,967 | 64,782,494 | ||
| Property, plant and equipment, net | 8,035,478 | 7,870,680 | ||
| Intangible assets, net | 5,936,851 | 929,021 | ||
| Deferred tax assets | 750,912 | 724,612 | ||
| Long-term deposit | 12,266,483 | 11,836,860 | ||
| Long-term investment | 317,974 | 306,837 | ||
| TOTAL ASSETS | 116,318,665 | $ | 86,450,504 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | 6,543,051 | $ | 10,351,880 | |
| Accrued expenses and other current liabilities | 2,239,097 | 4,172,781 | ||
| Accrued payroll and welfare | 1,145,865 | 1,555,705 | ||
| Advance from customers | 5,338,816 | 2,345,891 | ||
| Due to related parties | 225,288 | 1,315,803 | ||
| Short-term bank borrowings | 18,354,498 | 17,372,894 | ||
| Other borrowing - short term portion | - | 420,741 | ||
| Notes payables | 112,946 | 153,175 | ||
| Income tax payable | 3,301,236 | 3,188,615 | ||
| Total current liabilities | 37,260,797 | 40,877,485 | ||
| Other borrowing - long term portion | 562,447 | 269,290 | ||
| TOTAL LIABILITIES | 37,823,244 | $ | 41,146,775 | |
| Equity | ||||
| Common stock, no par value, 50,000,000 shares authorized, 25,553,748 and 16,558,037 shares issued and outstanding, respectively | ||||
| Additional paid-in capital | 51,283,674 | 18,049,630 | ||
| Statutory surplus reserve | 2,904,699 | 2,904,699 | ||
| Retained earnings | 22,975,762 | 23,546,921 | ||
| Accumulated other comprehensive income (loss) | 2,337,366 | 492,685 | ||
| Total equity attributable to ZK International Group Co., Ltd. | 79,501,501 | 44,993,935 | ||
| Equity attributable to non-controlling interests | (1,006,080 | ) | 309,794 | |
| Total equity | 78,495,421 | 45,303,729 | ||
| TOTAL LIABILITIES AND EQUITY | 116,318,665 | $ | 86,450,504 |
All values are in US Dollars.
ZK International Group Co., Ltd.and Subsidiaries
Consolidated Statements of CashFlows
For the Six Months Ended March 31,2021 and 2020 (Unaudited)
(IN U.S. DOLLARS)
| For the Six Months Ended <br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Cash Flows from Operating Activities: | ||||||
| Net income | $ | (1,916,893 | ) | $ | 90,328 | |
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||
| Depreciation expense | 264,887 | 176,111 | ||||
| Amortization expense | 6,605 | - | ||||
| Non-cash expenses | 894,167 | - | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 6,755,242 | (136,090 | ) | |||
| Other receivables | 2,420,300 | (96,109 | ) | |||
| Notes receivable | 38,197 | 167,896 | ||||
| Inventories | 428,946 | 2,563,087 | ||||
| Advance to suppliers | (9,053,966 | ) | 163,096 | |||
| Accounts payable | (4,379,215 | ) | (2,002,061 | ) | ||
| Notes payable | (45,783 | ) | - | |||
| Accrued expenses and other current liabilities | (2,084,882 | ) | 263,591 | |||
| Accrued payroll and welfare | (466,248 | ) | (183,670 | ) | ||
| Advance from customers | 2,907,425 | 64,820 | ||||
| Income tax payable | (3,111 | ) | - | |||
| Net cash provided (used in) operating activities | (4,234,329 | ) | 1,070,999 | |||
| Cash Flows from Investing Activities: | ||||||
| Purchases of property, plant and equipment | 56,013 | (608,404 | ) | |||
| Proceed from disposal of property, plant and equipment | (4,871 | ) | 48,676 | |||
| Net proceeds placed into long-term deposit | 6,715 | (14,262 | ) | |||
| Net cash used in investing activities | 57,857 | (574,050 | ) | |||
| Cash Flows from Financing activities: | ||||||
| Net proceeds from stock offering | 27,340,977 | - | ||||
| Net proceeds released from (placed into) bank acceptance notes | - | (185,764 | ) | |||
| Net proceeds released from short-term investment | 305,222 | 277,944 | ||||
| Net proceeds from (repayment to) short-term bank borrowings | 351,006 | 716,659 | ||||
| Net repayment of other borrowing | (156,929 | ) | - | |||
| Repayments of loans of related parties | (1,138,134 | ) | (1,474,517 | ) | ||
| Cash advance to related parties | (2,878,572 | ) | (1,948,937 | ) | ||
| Net cash provided by (used in) financing activities | 23,823,569 | (2,614,615 | ) | |||
| Effect of exchange rate changes on cash | 386,231 | 58,933 | ||||
| Net change in cash and cash equivalents | 20,033,328 | (2,058,733 | ) | |||
| Cash and cash equivalents at the beginning of year | 3,759,535 | 3,451,138 | ||||
| Cash and cash equivalents at the end of year | $ | 23,792,863 | $ | 1,392,405 | ||
| Supplemental disclosures of cash flows information: | ||||||
| Cash paid for income taxes | $ | 167,862 | $ | - | ||
| Cash paid for interest expenses | $ | 524,217 | $ | 450,282 |