- Results reflect preparation for entering larger backlight markets and
strategy to shift product mix toward higher value-added products with
existing products
SHENZHEN, China, Nov. 16 /Xinhua-PRNewswire/ -- Diguang International
Development Co., Ltd. (OTC Bulletin Board: DGNG) ("Diguang") today announced
financial results for the third quarter, ended September 30, 2006, of the
Company's 2006 fiscal year.
Three Months Ended September 30, 2006
Third-quarter net revenues of $8.3 million represented a decrease of
$1.4 million, or 15%, from $9.7 million in the corresponding year-ago period.
The decrease in net revenue was due to the pricing pressure in the backlight
industry, mitigated by the Company's continuing improvement in product mix in
favor of higher priced and higher value-added products.
Gross margins for the third quarter of 2006 were 37%, 3% lower than the
40% level for the third quarter of 2005. Gross margins edged lower due to an
increase in labor cost and production overhead. Gross profit for the third
quarter of 2006 was approximately $3.1 million, a 21% decline compared to
gross profit of approximately $3.9 million for the same quarter of the prior
year.
For the third quarter ending September 30th, Diguang had earnings per
share on a U.S. GAAP basis of $0.03 per share and earnings per share on a
non-GAAP basis, adjusted for stock based compensation, of $0.06 per share.
For the nine months ending September 30th Diguang had U.S. GAAP earnings
for the first nine months of $0.16 per share and non-GAAP adjusted earnings of
$0.25 per share.
In strategic highlights for the quarter, Diguang:
-- Continued to advance the 15" to 19" new product series, resulting in
its recent selection as in-house backlight supplier by one of the four
"Taiwan Tigers" that is leading the global TFT-LCD panel industry;
-- Prepared for fourth-quarter shipments of new 15" to 19" monitor
backlight products pursuant to an order for 100,000 pieces;
-- Continued to invest in additional capacity primarily for the new 15" to
19" new product series;
-- Started trial production of 32" CCFL backlights for flat-panel
televisions;
-- Continued efforts to commercialize LED backlight technology for large
flat-panel TV applications, leading to the co-development agreement
with a major Chinese TV producer focusing on the integration of LED
backlights into televisions;
-- Filed for 10 patents on new backlight technologies, most of which are
for larger displays;
-- Continued to maintain above-average gross margins of its existing
products by shifting its product mix toward higher-priced,
higher-margin products, re-engineering product designs and employing
other cost-efficiency measures.
Cost of sales was $5.2 million in the 2006 third quarter, a decrease of
$0.6 million, or 10.4%, compared to $5.8 million for the same period of the
prior year, despite a 22% increase in labor cost and a 25% increase in
production overhead associated with the manufacture of new products.
Total operating expenses (general and administrative, research and
development and selling) for the third quarter of 2006 were $2.2 million, or
27% of sales, compared to $834,000, or 8.6% of sales, for the same quarter of
the prior year. The increase was primarily due to share-based compensation
expenses of $795,000 incurred during the third quarter of 2006. There was no
such expense during the same quarter of the prior year.
Third-quarter selling expenses totaled $337,000, or approximately 4% of
net revenues, a 39% increase compared to third-quarter 2005 selling expenses
of $243,000, or 3% of net revenues. This primarily reflected the Company's
heightened efforts to expand market share and promote new products such as
backlights for computer monitors and television sets, as well as increases in
the Company's sales staff headcount, higher sales incentives and higher
advertising and trade show attendance.
Year over year, quarterly research and development expenses decreased
$35,000, or 11%, from $307,000 in the 2005 third quarter to $273,000 in the
2006 third quarter. R&D expense as a percentage of net revenue remained at
3% comparing the third quarters of 2005 and 2006. The Company reached an
agreement in September 2006 with a major Chinese LCD TV producer to co-develop
key technology for the integration of LED backlights to LCD TVs. The parties
to the agreements will jointly bid on key semi-conductor related projects
under the present 5-year plan of the Chinese government, seeking government
funding and eligibility for other favorable policies.
General and administrative expenses for the three months ended September
30, 2006 were $1.6 million, an increase of $1.3 million over G&A expenses of
$284,000 in the 2005 third quarter. A major component of this increase was
share-based compensation expenses of $795,000 incurred during the third
quarter of 2006 as noted above. There was no such expense during the same
quarter of the prior year. As a percentage of net revenues, G&A expenses,
which also reflected increased managerial and administrative compensation and
increased professional expenses incurred in connection with the Company's
March 17, 2006 reverse merger, grew from 3% in the prior-year third quarter to
20% in the 2006 third quarter.
Net income for the third quarter of 2006 decreased $2.1 million, or 76%,
to $669,000, or $0.03 per basic share (based on 22.6 million basic weighted
average shares), compared to net income of $2.7 million, or $0.15 per share
(based on approximately 18.3 million basic shares), for the third quarter of
2005. Year over year, lower net revenues due to pricing pressures and
customer over-supply, as well as higher expenses, including share-based
compensation expenses and investments in growth, accounted for the comparison.
Without the expenses related to stock options noted above, third-quarter
net income on a non-GAAP basis would have been $1.5 million, or $0.06 per
share. A reconciliation of GAAP and non-GAAP operating results is provided
below. The increase in shares outstanding was the result of the reverse merger
that took place in March 2006.
Song Yi, Diguang's Chief Executive Officer, commented, "While we were
selective with our existing product portfolio in the current market
environment, our efforts in connection with new products were rewarded with
our being chosen as the in-house backlight producer for one of the four
'Taiwan Tiger' leaders in the TFT-LCD panel industry, as announced in a
separate press release today. 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."
Nine Months Ended September 30, 2006
For the nine months ended June 30, 2006, net revenue was $26 million, a
decrease of $2.1 million, or 7%, from the $28.1 million in net revenues
reported for the corresponding prior-year period. The decrease in net revenue
was primarily attributed to the pricing pressure as noted above. The
industry-wide price declines were partially offset by a product mix
improvement in favor of higher-priced and higher-value-added products. Gross
profit for the nine-month period of FY2006 ended September 30, 2006, was
$9.4 million, or 36.1% of sales, compared to $10.3 million, or 36.6% of sales,
for the year-earlier period.
Total operating expenses (general and administrative, research and
development and selling) for the first nine months of 2006 amounted to
$5.6 million, compared to $2.4 million in the first nine months of 2005. Much
of this increase is attributed to share-based compensation of approximately
$1.9 million in the first nine months of 2006 which was accounted for in
accordance with SFAS No. 123(R). There was no share-based compensation in the
corresponding period of 2005. As a percentage of revenues, operating expenses
amounted to 21.6% and 8.4% for the nine-month periods ended September 30,
2006, and September 30, 2005, respectively.
Nine-month selling expenses totaled $1.1 million, an increase of $447,000,
or 68%, compared to nine-month 2005 selling expenses of $653,000. This
primarily reflected the Company's heightened efforts to expand market share
and promote new products such as backlights for computer monitors and
television sets, as well as increases in the Company's sales staff headcount,
higher sales incentives and higher advertising and trade show attendance.
Nine-month research and development expenses increased by 18% year over
year, to $864,000, or approximately 3.3% of net revenues, from $729,000, or
2.6% of net revenues, in the prior-year nine-month period. During the nine
months ended September 30, 2005, the Company received government subsidies
totaling $71,000; no such subsidies were received in the 2006 period.
General and administrative expenses were $3.6 million for the 2006
nine-month period, an increase of $2.7 million from $987,000 in the
corresponding period of 2005. The primary component of this increase was
$1.9 million in amortized share-based compensation as noted above, versus no
such expense in the 2005 period. The rest of the year-over-year increase was
primarily due to increased levels of compensation for key positions, and
increased staff counts. As a percentage of revenues, G&A expenses represented
14% and 4% of net revenues for the nine months ended September 30, 2006 and
2005, respectively.
Net income for the nine months ended September 30, 2006, was $3.5 million,
a decrease of $4.0 million, or 54%, from $7.4 million recorded for the
corresponding period in 2005. Primary drivers of the decrease were decreased
revenues and increased operating expenses as outlined above. Earnings per
basic share for the first nine months of 2006 were $0.16, compared to $0.41 in
the first nine months of 2005, reflecting lower net income attributable to
common shareholders divided by average weighted shares outstanding that
increased from 18.3 million shares for the 2005 nine-month period to
21.4 million shares for the 2006 period.
Without the expenses related to stock options and warrants noted above,
which were accounted for in accordance with SFAS No. 123(R), nine-month net
income on a non-GAAP basis would have been $5.3 million, or $0.25 per share.
A reconciliation of GAAP and non-GAAP operating results is provided below.
Diguang's cash and cash equivalents as of September 30, 2006 totaled
$20.9 million compared to cash and cash equivalents of $10.1 million as of
December 31, 2005.
Teleconference and Webcast Information
Management will conduct a conference call and webcast to discuss financial
results for the third quarter and nine months, ended September 30, of its 2006
fiscal year. The conference call and webcast will take place at 8:00 a.m.
Eastern (U.S.) Time, on Thursday, November 16, 2006. Anyone interested in
participating should call 800-901-5217 if calling from within the United
States, or 617-786-2964 if calling internationally; the passcode is 76133250.
There will be a replay available until November 23, 2006. 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 26426610 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=1416191 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.
Use of Non-GAAP Financial Measures
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R), which requires the Company to begin
recognizing compensation expense relating to stock-based payment transactions.
To supplement the Company's condensed consolidated financial statements
presented on a GAAP basis, the Company provides non-GAAP financial
information. The Company's management believes that these non-GAAP measures
provide investors with a better understanding of how the results relate to the
Company's historical performance. A reconciliation of adjustments to GAAP
results for the quarter and nine months ended September 30, 2006 is included
below. This additional non-GAAP information is not meant to be considered in
isolation or as a substitute for GAAP financials. The non-GAAP financial
information that the Company provides also may differ from the non-GAAP
information provided by other companies.
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: Investor Relations Contact:
Jackie You Kazmerzak, CFO Sean Collins, Sr. Partner
Diguang International Development, Ltd. CCG Elite
925-457-1445 310-477-9800, ext. 202
DIGUANG INTERNATIONAL DEVELOPMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In U.S. Dollars)
Nine Months Ended Three Months Ended
September 30, September 30,
2005 2006 2005 2006
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Revenues, net $28,063,438 $25,991,193 $9,676,969 $8,252,019
Cost of sales 17,779,676 16,600,268 5,800,461 5,199,144
Gross profit 10,283,762 9,390,925 3,876,508 3,052,875
Selling expense 652,919 1,099,820 242,554 337,441
Research and
development costs 729,109 863,884 307,303 272,659
General and
administrative
expenses 987,341 3,644,061 283,859 1,631,319
Income from operations 7,914,393 3,783,160 3,042,792 811,456
Interest income
(expense), net (20,806) 113,685 (4,102) 8,299
Investment income (loss) - 35,392 - 7,135
Other income 7,134 - (65,384) -
Non-operating income
(expense), net (36,871) 64,940 (35,116) 52,455
Income before income
taxes 7,863,850 3,997,177 2,938,190 879,345
Income tax provision 424,216 545,059 199,694 210,029
Net income $7,439,634 $3,452,118 $2,738,496 $669,316
Weighted average
common shares
outstanding - basic 18,250,000 21,383,960 18,250,000 22,593,000
Earnings per share -
basic 0.41 0.16 0.15 0.03
Weighted average
common shares
outstanding - diluted 18,250,000 21,624,765 18,250,000 22,814,979
Earning per shares -
diluted 0.41 0.16 0.15 0.03
Other comprehensive
income :
Net income $7,439,634 $3,452,118 $2,738,496 $669,316
Translation
adjustment 66,791 360,862 66,587 252,488
Comprehensive income $7,506,425 $3,812,980 $2,805,083 $921,804
DIGUANG INTERNATIONAL DEVELOPMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars)
December 31, September 30,
2005 2006
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,054,568 $ 20,862,732
Short term deposits 1,056,122 724,308
Accounts receivable, net of allowance
for doubtful accounts of $491,908 and
$491,908 6,081,427 5,601,396
Trade receivable from a related party - 734,931
Inventories 3,447,096 4,618,684
Other receivables 80,318 165,057
Advance to suppliers 417,781 104,087
Amount due from related parties 21,538 48,077
Deferred assets - 52,709
Total current assets 21,158,850 32,911,981
Long-term Investment - 1,500,000
Property and equipment, net 2,119,893 2,622,629
Prepayment for purchasing office space 99,130 1,944,569
Long-term receivable from a related party - 384,615
Deferred offering expense 25,718 -
Total assets $ 23,403,591 $ 39,363,794
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,868,614 $ 6,037,946
Advance from customers 334,943 -
Accruals and other payables 1,277,161 1,687,678
Accrued payroll and related expense 221,295 330,155
Dividend payable 111,140 -
Income tax payable 572,159 567,307
Amount due to related parties 137,440 -
Total current liabilities 8,522,752 8,623,086
Total liabilities 8,522,752 8,623,086
Shareholders' equity:
Common stock, par value $0.001 per
share, 50 million shares authorized,
18,250,000 shares and 22,593,000
issued and outstanding 18,250 22,593
Additional paid-in capital 1,872,598 13,915,144
Appropriated earnings 501,833 501,833
Retained earnings 12,328,675 15,780,793
Translation adjustment 159,483 520,345
Total stockholders' equity 14,880,839 30,740,708
Total liabilities and stockholders' equity $ 23,403,591 $ 39,363,794
Reconciliation of GAAP Net Income and Earnings Per Share to
Non-GAAP Net Income and Earnings Per Share
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
2006 2006
GAAP net income 669,316 3,452,118
Stock-based compensation 795,305 1,855,713
Non-GAAP net income 1,464,621 5,307,831
GAAP net income per share 0.03 0.16
Stock-based compensation 0.04 0.09
Non-GAAP earnings per share - basic 0.06 0.25
Weighted average shares
outstanding - basic 22,593,000 21,383,960