SHENZHEN, China, Aug. 15 /Xinhua-PRNewswire/ -- Diguang International Development Co., Ltd. (OTC Bulletin Board: DGNG ) ("Diguang") today announced financial results for the second quarter ending June 30, 2007, of the Company's 2007 fiscal year. Key highlights include:
-- Net revenues in Q2-2007 declined 1% compared to Q2-2006, to
$8.9 million from $9.0 million;
-- Sequentially, net revenues in Q2-2007 increased 30.9% compared to
Q1-2007, to $8.9 million from $6.9 million in the previous period;
-- The Company realized a net loss in Q2-2007 of $647,598, compared to net
income in Q2-2006 of $833,404;
-- Sequentially, net loss was reduced by 40% from Q1-2007, to a loss of
$647,598 in the period ending June 30, 2007, compared to a net loss of
$1.1 million in the three-month period ending March 31, 2007;
-- Sales to China domestic customers increased 290.4% in Q2-2007 compared
to Q2-2006, to $2.3 million from $582,371 in the year ago period; China
domestic customers represented almost 26% of total net revenues in Q2-
2007, compared to 6% of total net revenues in Q2-2006;
-- Q2-2007 results included 46% of sales in LED backlight products vs. 54%
in CCFL backlights. In Q2-2006, LED backlights represented 32% of
sales, while CCFL products accounted for 68%
"This was an important quarter for us," commented Song Yi, Chief Executive Officer of Diguang International Development Co. "The industry-wide supply issues continue to impact current-year sales compared to a year ago, but we saw healthy sequential revenue growth as some of our initiatives to secure market share began to pay dividends. Unit volumes continue to increase, but gross margins are getting squeezed not only due to industry-related problems, but also because we are being proactive with price in positioning ourselves in the still emerging, larger size display and LED markets."
"We are strengthening our market position in two important ways, simultaneously," Mr. Song continued. "Increasingly, the manufacture of LCD displays and backlights is coming to China because of competitive advantages including strong technological capabilities and labor cost savings. We now have a manufacturing presence in the important northern region, in the key central region and also in the southern region. But while the domestic China market is important and growing, Korean, Japanese, and Taiwan display manufacturers still dominate. In the most recent quarter, we are proud to have gained or strengthened our foothold in each of those important markets because of our strategic initiatives."
Three-Month Results for the Period ending June 30, 2007
Net revenue was approximately $8.9 million for three months ended June 30, 2007, a decrease of $92,000 or 1%, compared to $9.0 million for the same period of the prior year. The slight decline in revenue was due to an increase in delivery of backlights to some newly developed, large international and domestic customers, and in spite of the overall pricing pressure in the backlight industry. The Company has also been impacted by a decline in deliveries to long-time major customers for LCD assembly because of a general shortage in supplies in TFT-LCD materials this year.
Cost of sales was $7.7 million for the three months ended June 30, 2007, an increase of $2 million, or 35%, compared to $5.7 million for the same period of the prior year. The increase in cost of sales even while total revenues declined is attributed to significantly higher raw materials costs, due primarily to a one-time writedown for aging and obsolete inventory and the start-up manufacturing costs for the in-house facilities serving large-inch CCFL backlight products.
Overall gross margin in Q2-2007 was 13%, compared to 36% in the year earlier period. Gross margin was severely impacted by the one-time inventory writedown, start-up costs for the new facilities manufacturing large-size CCFL backlights, increased cost for raw materials, and increases in labor costs during a time when the Company was being competitive with per unit sales prices to capture or strengthen market share in new, emerging and existing markets. Gross margin was 11% in the international segment, where the Company is using price as a major competitive tool as it secures and is certified for new and larger customers. In the fast-growing domestic segment, gross margin was 23% in Q2-2007, compared to 32% in Q2-2006.
Selling expenses were $337,000 for the three months ended June 30, 2007, a decrease of $202,000 or 37%, compared to $539,000 for the prior period. The decrease was primarily attributable to commissions paid.
For the three months ended June 30, 2007, research and development expenses were $394,000, an increase of $107,000 or 37%, compared to $287,000 for the same period of the prior year. The increase was primarily attributed to payroll expenses as the Company hired more engineers and support staff.
General and administrative expenses were $1.1 million for the three months ended June 30, 2007, a decrease of $462,000 or 31%, compared to $1.5 million for the prior year. The decrease was attributed primarily to the recognition of share-based compensation of approximately $160,000 in the second quarter ended June 30, 2007, a decrease of $635,000 or 80%, compared with $795,000 for the same period in the prior year. This decrease also follows the resignation of the former chief financial officer and two independent directors in the second quarter ended June 30, 2007. General and administrative expenses were also impacted by a reduction in professional fees compared to the year ago period, as well as increases in new manufacturing facility-related expenses, increased depreciation expenses, and an increase in general office expenses.
Income tax provision for the quarter ended June 30, 2007 was approximately $19,000, a decrease of $189,000, compared to $208,000 for the prior period. The decrease in income tax provision was attributable mainly to the taxable loss from Diguang Electronics. The taxable loss in Diguang Electronics for the quarter ended June 30, 2007 was $397,000, compared to a taxable income of $3.4 million for the prior period.
Net loss was $648,000 for the quarter ended June 30, 2007, compared with $833,000 net income for the same period of the prior year. The net loss was arrived after deduction of the minority interest of $110,000 for the 35% interest in North Diamond, from which we acquired a 65% interest on January 3, 2007. The employee stock option program started on March 1, 2006 when 540,000 shares of stock options were granted. As a result, net income was reduced by share-based compensation of $160,000, compared with $795,000 for the same period of the prior year. The decrease in net income was due mainly to a decrease in total sales revenues and an increase in production cost, an increase in operating expenses, which was primarily attributable to an increase in research and development expenses, and offset by a decrease in professional expense, a decrease in selling expenses and increase in other income. As a percentage of revenue, net loss fell to 7% for the period ended June 30, 2007 from the net income of 9% for the prior period.
Net loss per share in Q2-2007 was $0.03 per share, compared to earnings per share of $0.04 in Q2-2006. The basic weighted number of shares outstanding was 22,593,000 in both periods. Fully diluted, the weighted number of shares fell from 22,919,392 in Q2-2006, to 22,593,000 in Q2-2007. Fully diluted loss per share was $0.03 in Q2-2007, compared to earnings per share of $0.04 in Q2-2006.
Six Month Highlights
Net revenue was approximately $15.7 million for six months ended June 30, 2007, a decrease of $2.0 million or 11%, compared to $17.7 million for the same period of the prior year.
Cost of sales was $13.2 million for the six months ended June 30, 2007, an increase of $1.8 million, or 15%, compared to $11.4 million for the same period of the prior year. The increase in cost of sales for the six months ended June 30, 2007 occurred while there was a decrease of 11% in total revenue for the same period.
The overall gross margin for the six months ended June 30, 2007 was 16%, a 20-percentage point decrease, compared to 36% gross margin for the same period of the prior year.
Selling expenses were $963,000 for the six months ended June 30, 2007, an increase of $200,000 or 26%, compared to $762,000 for the prior period.
For the six months ended June 30, 2007, the net research and development expenses were $558,000, a decrease of $33,000 or 6%, compared to $591,000 for the same period of the prior year.
General and administrative expenses were $2.8 million for the six months ended June 30, 2007, an increase of $814,000 or 40%, compared to $2 million for the prior year.
Income tax provision for the six months ended June 30, 2007 was approximately $19,000, a decrease of $316,000, compared to $335,000 for the prior period.
Net loss was $1.7 million for the six months ended June 30, 2007, compared with $2.8 million net income for the same period of the prior year. The net loss was arrived after deduction of the minority interest of $136,000 for the 35% interest in North Diamond, from which the Company acquired a 65% interest on January 3, 2007.
As of June 30, 2007, Diguang had total assets of $42.8 million, of which cash amounted to $12 million, accounts receivable amounted to $11 million and inventories amounted to $6.5 million. Working capital was approximately $20.4 million and shareholders' equity was $29.1 million compared with working capital of $23.4 million and equity of $29.6 million at December 31, 2006.
Reconciliation of GAAP Net Income and Earnings Per Share to Non-GAAP Net
Income and Earnings Per Share
Second Quarter Ended June 30,
2006 2007
GAAP net income/(loss) 833,404 (647,598)
Inventory write-down - 308,000
Stock-based compensation - 160,000
New manufacturing start-up expenses 759,000 440,000
Non-GAAP net income/(loss) 1,592,404 260,402
GAAP net income/(loss) per share 0.036 (0.029)
Inventory write-down - 0.014
Stock-based compensation - 0.007
New manufacturing start-up expenses 0.019
Non-GAAP earnings/(loss) per
share - basic and diluted 0.036 0.011
Weighted average shares
outstanding - basic and diluted 22,593,000 22,593,000
Teleconference and Webcast Information
The conference call and webcast will take place at 8:30 a.m. Eastern (U.S.) time on Wednesday, August 15, 2007. Anyone interested in participating should call 866-825-3354 if calling from within the United States, or 617-213-8063 if calling internationally; the passcode is 39128935. There will be a replay available until August 22, 2007. To listen to the playback, please call 888-286-8010 if calling within the United States, or 617-801-6888 if calling internationally. Please use passcode 83624887 for the replay.
The event will also be webcast live and a webcast archive will be available for 90 days. The webcast will be available at: http://phx.corporate-ir.net/playerlink.zhtml?c=137803&s=wm&e=1623573 and is being distributed through the Thomson StreetEvents Network. Individual investors can listen to the call at www.earnings.com, Thomson's individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson StreetEvents (www.streetevents.com), a password-protected event management site.
About Diguang International Development Co., Ltd.
Diguang, through its subsidiaries, specializes in the research, development, production, sale and distribution of backlights and backlight technologies. A backlight is the typical light source of a liquid crystal display (LCD). The Company is focused on providing LED and CCFL backlights for international producers of televisions, monitors, cellular phones, digital cameras, DVDs and other home appliances. Diguang currently develops an average of approximately 50 new products per month. Diguang is a Nevada corporation with its manufacturing subsidiary located in Shenzhen, PRC, and its sales and marketing subsidiary located in the British Virgin Islands.
Safe Harbor Statements
This press release contains forward-looking statements made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements are statements that are not historical facts such as statements that we remain optimistic that the rollout of our exciting new computer monitor backlight products will gain traction in the coming months and that these new products will position us for high growth and gains in market share during 2007. Such forward-looking statements are based upon the current plans, estimates and projections of Diguang's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Therefore, you should not place undue reliance on these forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Diguang is engaged; fluctuations in customer demand; management of rapid growth; intensity of competition from other providers of backlights; timing approval and market acceptance of new products introduction; general economic conditions; geopolitical events and regulatory changes, as well as other relevant risks not included herein, including but not limited to risks outlined in the Company's periodic filings with the U.S. Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Diguang does not assume any obligation to update the information contained in this press release.
Company Contact:
Keith Hor, CFO
Diguang International Development, Ltd.
86-755-26611731
Investor Relations Contact:
Sean Collins, Senior Partner
CCG Elite
310-477-9800, ext. 202
DIGUANG INTERNATIONAL DEVELOPMENT, LTD. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME
(In U.S. Dollars)
Six Months Ended Three Months Ended
June 30, June 30,
2006 2007 2006 2007
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Revenues, net $17,739,174 $15,658,508 $8,987,996 $8,896,421
Cost of sales $11,401,124 $13,151,962 $5,725,252 $7,727,862
Gross profit $6,338,050 $2,506,546 $3,262,744 $1,168,559
Selling expense $762,379 $962,741 $539,506 $337,193
Research and development
costs $591,225 $558,347 $286,942 $393,849
General and
administrative
expenses $2,012,742 $2,826,429 $1,512,535 $1,050,564
Income (loss) from
operations $2,971,704 $(1,840,971) $923,761 $(613,047)
Interest income
(expense), net $105,386 $85,256 $86,890 $71,292
Investment income (loss) $28,257 $144,062 $23,244 $144,062
Other income $12,485 $46,809 $7,602 $(120,339)
Income (loss) before
income taxes $3,117,832 $(1,564,844) $1,041,497 $(518,032)
Income tax provision $335,030 $19,449 $208,093 $19,449
Net income (loss) before
minority interest $2,782,802 $(1,564,293) $833,404 $(537,481)
Minority interests $(136,368) $(110,117)
Net income (loss) $2,782,802 $(1,720,661) $833,404 $(647,598)
Weighted average common
shares outstanding -
basic $20,769,420 $22,593,000 $22,593,000 $22,593,000
Earnings (loss) per
share - basic $0 $(0) $0 $(0)
Weighted average common
shares outstanding -
diluted $20,985,087 $22,593,000 $22,919,392 $22,593,000
Earning (loss) per
shares - diluted 0.13 (0.08) 0.04 (0.03)
Other comprehensive
income (loss):
Net income (loss) $2,782,802 $(1,720,661) $833,404 $(647,598)
Translation
adjustment $108,374 $487,199 $49,373 $293,583
Other comprehensive
income (loss) $2,891,176 $(1,233,462) $882,777 $(354,015)
DIGUANG INTERNATIONAL DEVELOPMENT, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE
SHEETS
(unaudited)
(In U.S. Dollars)
December 31, June 30,
2006 2007
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $18,910,808 $11,990,056
Accounts receivable, net of allowance for
doubtful accounts of $751,145 and $751,145 $5,006,649 $10,978,650
Trade receivable from a related party $246,337 $-
Inventories, net of provision $545,446 and
$885,740 $4,008,445 $6,549,228
Prepayment and other receivables $215,569 $427,091
VAT recoverable $220,793 $67,780
Advance to suppliers $756,208 $533,103
Amount due from related parties $55,997 $59,249
Deferred tax asset $86,572 $86,572
Loan receivable from a related party $2,050,204 $2,188,649
Total current assets $31,557,582 $32,880,378
Investment $1,500,000 $1,500,000
Property and equipment, net $2,672,338 $8,395,123
Prepayment for purchasing office building $1,969,462 $-
Total assets $37,699,382 $42,775,501
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,685,836 $9,192,068
Advance from customers $177,184 $496,994
Accruals and other payables $1,575,933 $1,971,510
Accrued payroll and related expense $342,531 $456,519
Income tax payable $335,672 $354,666
Total current liabilities $8,117,156 $12,471,757
Total liabilities $8,117,156 $12,471,757
Minority interest $- $1,210,758
Stockholders' equity:
Common stock, par value $0.001 per share,
50 million shares authorized, 22,593,000
shares and 22,593,000 shares outstanding $22,593 $22,593
Additional paid-in capital $14,193,773 $14,978,793
Appropriated earnings $1,294,578 $1,294,578
Retained earnings $13,202,629 $11,441,170
Translation adjustment $868,653 $1,355,852
Total shareholders' equity $29,582,226 $29,092,986
Total liabilities and stockholders' equity $37,699,382 $42,775,501
DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In U.S. Dollars)
Six Months Ended June 30
2006 2007
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $2,782,802 $(1,720,661)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Minority interest $(136,367)
Depreciation $170,216 $350,007
Share-based compensation $1,060,408 $785,020
Changes in operating assets and liabilities:
Accounts receivable $(1,024,476) $(4,073,532)
Inventory $(264) $(2,102,171)
Prepayment and other receivable $(375,372) $(182,145)
VAT recoverable $(152,518)
Advance to suppliers $(263,505)
Accounts payable $285,381 $1,986,737
Accruals and other payable $60,477 $208,254
Advance from customers $(335,555) $316,892
Taxes payable $(156,990) $18,476
Net cash provided by (used in) operating
activities $2,466,627 $(3,860,733)
Cash flows from investing activities:
Purchase of plant, property and equipment $(356,692) (2,910,149)
Purchase of marketable securities $765,258 $-
Due from related parties $21,538 $(89,912)
Business acquisition, net of cash acquired $- $(469,145)
Deposit for office building $(1,816,027) $-
Net cash used in investing activities $(1,385,923) (3,469,206)
Cash flows from financing activities:
Dividend paid $(111,140) $-
Gross proceeds from issuing 12 million
shares $12,000,000 $-
Due to related parties $(2,339) $-
Offering expense $(1,647,124) $-
Net cash provided by financing activities $10,239,397 $-
Effect of changes in foreign exchange rates $101,742 $409,187
Net increase (decrease) in cash and cash
equivalents $11,421,843 $(6,920,752)
Cash and cash equivalents, beginning of the
period $10,054,568 $18,910,808
Cash and cash equivalents, end of the period $21,213,037 $11,990,056
