Fourth Quarter 2009 Highlights

  -- Revenue was $25.7 million
  -- Gross profit was $2.3 million with 9.0% gross margin
  -- Net income was $2.2 million
  -- Fully diluted earnings per share of $0.05

  Full Year 2009 Highlights

  -- Revenue was $76.3 million
  -- Gross profit was $7.7 million with 10.1% gross margin
  -- Net loss of $0.4 million resulting from a $3.8 million provision for
     bad debt
  -- Fully diluted loss per share of $0.01
  -- Exports generated 27.6% of total sales

"We are extremely pleased with the rebound in our business during the fourth quarter of fiscal year 2009 as the Chinese steel industry recovers from its lowest level since the global economic crisis began," commented Dr. Wo Hing Li, China Precision Steel's Chairman and CEO. "While our business has not recovered to the levels achieved during fiscal year 2008 and there are still uncertainties within the steel industry, we have experienced a significant improvement in demand for our precision steel products over our 2009 fiscal third quarter and our inventory destocking continues to run its course. Our high carbon business is also benefiting from the implementation of a series of stimulus policies for automobiles by the Chinese government which has bolstered demand for automobiles and construction vehicles and subsequently precision steel clutch discs. Moreover, we have successfully acquired 123 new customers for the entire fiscal year."

Revenue for the fourth quarter of fiscal 2009 was $25.7 million, down 9.9% from $28.6 million in the fourth quarter of fiscal 2008. Revenue for the 2009 fourth quarter benefited from a $3.2 million subcontracting order, which represented 14.8% of total sales for the quarter. High carbon and low carbon products accounted for 30.4% and 51.8% of sales, respectively, compared to 30.4% and 61.3%, respectively, from the same period of the prior year.

Gross profit in the fourth quarter was $2.3 million, down 57.9% from gross profit of $5.5 million in the fourth quarter of fiscal 2008. Gross margin was 9.0%, compared to 19.2% in the same period a year ago. The decline in gross margin was mainly attributable to the higher cost of raw materials incurred in connection with the inventory build up during the first half of calendar year 2008 when demand and steel prices were both high. Subsequently, selling prices declined dramatically amid the worldwide industry downturn resulting in a tightening of gross margin.

Selling expenses for the fourth quarter of fiscal 2009 were $46,961, or 0.2% of revenue, compared to $123,134, or 0.4% of revenue, in the fourth fiscal quarter of 2008. Administrative expenses were $656,632, or 2.6% of revenue, compared to $726,720, or 2.5% of revenue in the same period a year ago. Depreciation and amortization expenses for the quarter were $103,648, or 0.4% of revenue, up from $17,668 or 0.1% of revenue in the same period a year ago.

Operating income for the fourth quarter was $1.5 million, compared to operating income of $4.6 million in the same period a year ago.

Net profit for the fourth quarter of fiscal 2009 was $2.2 million, compared to net income of $5.6 million in the same period of the prior year. Fully diluted earnings per share were $0.05, compared to fully diluted earnings per share of $0.12 in the fourth quarter of fiscal 2008.

Fiscal Year 2009 Results

Revenues for the fiscal year 2009 were $76.3 million, down 13.1% from revenues of $87.7 million in fiscal year 2008. Exports contributed to 27.6% of total revenue, compared to 18.2% in fiscal year 2008. Gross profit was $7.7 million, down 65.6% from gross profit of $22.5 million in fiscal year 2008. Gross margin was 10.1%, compared to 25.6% a year ago. Operating loss was $0.2 million, compared to operating income of $18.4 million in fiscal year 2008. Net loss was $0.4 million, compared to net income of $18.6 million a year ago. Fully diluted loss per share was $0.01, compared to fully diluted earnings per share of $0.43 for fiscal year 2008.

Financial Condition

As of June 30, 2009, China Precision Steel had $13.6 million in cash and cash equivalents, no long term debt, total liabilities of $42.8 million and working capital of $41.2 million. Stockholders' equity was $120.6 million, compared to $120.3 million as of June 30, 2008. The Company generated $15.1 million in cash flow from operating activities during the full year of fiscal 2009.

Business Outlook

China Precision Steel has completed the construction of its third cold rolling mill and has begun testing and commissioning of the mill. The new mill is a tandem mill with best in class gauge control and shape performance capable of producing high quality cold rolled steel for exposed and unexposed products and will be used primarily in the production of high carbon cold- rolled steel products. The Company expects the new mill to begin production in the third fiscal quarter of 2010 and reach its full design capacity of 100,000 tons within four years. As of June 30, 2009, China Precision Steel expects to incur an additional $2.5 million in capital expenditures in relation to the new mill and annealing furnaces.

"We remain optimistic about our future growth as we have built a strong foundation with our state-of-the-art patented technology process and our experienced management team which has served us well in these difficult times," Dr. Li commented. "Currently, we have a backorder of $9.3 million of which 50% is for our high carbon precision steel products which we believe is an indicator of a steady improvement in both demand and margins as overall economic conditions gradually improve. Furthermore, we remain committed to executing our long-term growth strategy and expanding our market penetration as demand for precision steel rebounds in China and the global market."

About China Precision Steel

China Precision Steel is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips.