omniture

Diguang International Reports Third-Quarter Financial Results

Diguang International Development Co., Ltd.
2006-11-16 12:07 928

- 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

Source: Diguang International Development Co., Ltd.
Keywords: Machinery
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