-- Revenues Increased 90% to $36.2 Million in 3Q07
-- 3Q07 Net Income Increased 200% to $2.7 Million, or $0.21 per Diluted Share
-- Company Provides Financial Outlook for 4Q07
SHENZHEN, China, Nov. 14 /Xinhua-PRNewswire/ -- FUQI International, Inc. (Nasdaq: FUQI) today announced financial results for the third quarter of 2007.
Revenues for the third quarter of 2007 increased 90% to $36.2 million from $19.1 million in the third quarter of 2006, due to several factors. The economy in China continues to grow, and consumers are purchasing more luxury goods than ever. The Company has begun introducing a broader product line to meet demand for more designs. Importantly, FUQI's stronger cash and inventory position allowed the Company to promptly meet the customers' demand. A stable pricing environment in the precious metal market during the third quarter of 2007 also allowed the Company to better manage the revenue growth.
Gross profit in the third quarter increased 221% to $4.5 million compared to $1.4 million in the prior year. Gross profit margin for the third quarter increased to 490 basis points to 12.4% compared to 7.5%. This increase in gross margin was primarily due to higher selling prices for new jewelry designs as well as a more favorable pricing environment in the precious metal market, which resulted in increased processing fees on jewelry items delivered during the third quarter.
Operating expenses in the third quarter increased to $807,000 compared to $189,000 in the prior year period. This increase was a result of higher advertising costs and expenses incurred as a result of being a publicly traded company. Operating income for the third quarter increased to $3.7 million from $1.3 million in the third quarter of 2006. Operating margin increased 370 basis points to 10.1%, up from 6.5% in the prior year period as revenue growth outpaced increased expenses.
Net Income for the third quarter of 2007 increased 200% to $2.7 million, or $0.21 per diluted share, compared to $0.9 million, or $0.08 per diluted share in the prior year period.
The Company's cash balance at the end of the third quarter of 2007 was $16 million. Subsequently, the Company issued eight million shares at $9 per share in a secondary offering, including a one million share over-allotment, generating approximately $67 million in net proceeds.
Mr. Yu Kwai Chong, Chairman of FUQI International commented, "We are pleased with our overall results for the third quarter and believe our strategy of continuing to build our wholesale business while penetrating the retail market is sound. Our strong balance sheet positions us to meet the growing demand for luxury jewelry products in China. We are excited by the increasing purchasing power of the Chinese consumers, and will deploy our capital strategically in order to continue to build FUQI as the leading wholesale and retail company in our market."
Mr. Chong continued, "We are on track with our retail strategy plans to penetrate 20 store counters and 2 retail stores by the end of this year, and open another 60-80 new counters and 8-10 new stores in 2008. At the same time, we have successfully positioned our wholesale business, and plan to leverage our strong sales and distribution network to continue to tap the wholesale market for luxury goods."
Financial Expectations
For the fourth quarter of 2007, the Company anticipates total revenue of approximately US$43 million, which represents a year-over-year increase of approximately 72%. Fourth quarter is a seasonally strong quarter, as the October Chinese holiday season drives sales, and Western influence on gift-giving in the Christmas season and the Chinese new year also helps to increase demand for purchase of luxury goods. Based on raw material pricing trends thus far in the quarter, the Company expects gross margins between 11.5%-12% for the fourth quarter. Diluted earnings per share for the fourth quarter are expected to be in the range of $0.14 to $0.18, based on a weighted average diluted count of 19 million shares.
Mr. Chong stated, "We are excited about the projected operating results for the remainder of 2007, and believe that our strong cash position provides us with opportunities for us to expand our presence in retail market, as well as the higher margin platinum and gemstone business going forward. We will continue to differentiate ourselves with unique and complex designs that we believe will also strengthen our margins going forward. Our solid sales and distribution network will help to build awareness of the FUQI brand name among wholesale customers and consumers, contributing to our goal of becoming the leading provider of luxury jewelry products in China."
Financial Results for the Nine Months ending September 30, 2007
For the nine-month period ending September 30, 2007, total sales increased 33.9% to $90.5 million compared to $67.6 million in the nine months of last year.
Gross profit increased to $10.7 million compared to $5.9 million in the prior year period. Gross margin increased 310 basis points to 11.8% from 8.7% in the same period of prior year.
Selling, general and administrative expenses in the for the first nine months of 2007 were $2.3 million, or 2.6% of sales, compared to $973,000, or 1.4% of sales, in the same period of prior year.
Operating profit for the first nine months of 2007 increased 71% to $8.3 million compared to $4.9 million in the same period of prior year. Nine month operating margin increased 200 basis points to 9.2% compared to 7.2% in the same period of prior year.
Net income for the first nine months of 2007 was $6.1 million, or $0.42 per diluted share, compared to $3.7 million, or $0.33 per diluted share in the same period of prior year.
Conference Call
The Company will conduct a conference call to discuss the third quarter 2007 results today, Wednesday, November 14, 2007 after the market close at 4:30 pm ET. Listeners may access the call by dialing # 913-312-6673. To listen to the live webcast of the event, please go to http://www.viavid.net. A replay of the call will be available from November 14, 2007 to November 21, 2007. Listeners may access the replay by dialing # 719-457-0820; Passcode: 8097241.
About FUQI International, Inc.
Based in Shenzhen, China, FUQI International, Inc. is a leading designer of high quality precious metal jewelry in China, developing, promoting, and selling a broad range of products in the large and rapidly expanding Chinese luxury goods market.
Fuqi International, Inc.
Condensed Consolidated Balance Sheets
September 30, December 31,
2007 2006
(Unaudited)
Assets
Current assets:
Cash $16,097,286 $13,354,981
Restricted cash 399,425 --
Accounts receivable, net of allowance
for doubtful accounts of $363,000 as
of September 30, 2007 and $195,000
as of December 31, 2006 13,955,656 9,363,397
Refundable value added taxes 808,978 --
Inventories 15,267,360 6,066,213
Prepaid expenses 142,355 89,362
Deposits 66,821 --
Deposits related to borrowings on
notes payable -- 736,358
Deferred taxes 54,521 29,198
Total current assets 46,792,402 29,639,509
Property, equipment, and
improvements, net 1,187,212 1,354,313
Deposits 95,023 91,398
Deferred offering costs 218,042 --
Other assets 38,520 40,122
$48,331,199 $31,125,342
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $15,311,285 $14,086,852
Line of credit 1,331,416 --
Accounts payable and accrued
liabilities 1,708,108 215,092
Accrued business tax 1,501,111 1,084,078
Accrued estimated penalties 1,163,592 1,119,201
Accrued value added taxes -- 133,010
Customer deposits 3,776,088 1,234,424
Due to stockholder -- 422,909
Income tax payable 3,157,477 1,884,837
Total current liabilities $27,949,077 $20,180,403
Stockholders' equity:
Preferred stock, $0.001 par value,
5,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $0.001 par value,
100,000,000 shares authorized as of
September 30, 2007 and 75,000,000
shares authorized as of December 31,
2006; shares issued and outstanding
- 12,835,955 shares as of September
30, 2007 and 12,257,624 shares as of
December 31, 2006 $12,836 $12,258
Additional paid in capital 9,967,031 7,212,130
Accumulated foreign currency
translation adjustments 1,011,342 432,125
Retained earnings 9,390,913 3,288,426
Total stockholders' equity $20,382,122 $10,944,939
$48,331,199 $31,125,342
Fuqi International, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Net sales $36,247,811 $19,082,910 $90,488,776 $67,606,850
Cost of sales 31,771,214 17,657,069 79,794,797 61,750,693
Gross profit 4,476,597 1,425,841 10,693,979 5,856,157
Operating
expenses:
Selling and
marketing 268,334 112,108 648,907 327,968
General and
administrative 539,153 76,713 1,700,751 644,910
Total operating
expenses 807,487 188,821 2,349,658 972,878
Income from
operations 3,669,110 1,237,020 8,344,321 4,883,279
Other income
(expenses):
Interest expense (384,406) (176,635) (914,182) (576,869)
Interest Income 2,850 -- 5,859 --
Change of fair
value on
inventory loan
payable 2,683 -- (45,692) -
Miscellaneous 88 49 5,702 12,502
Total other
expenses (378,785) (176,586) (948,313) (564,367)
Income before
provision for
income taxes 3,290,325 1,060,434 7,396,008 4,318,912
Provision for
income taxes 560,026 155,056 1,293,521 624,959
Net income 2,730,299 905,378 6,102,487 3,693,953
Other
comprehensive
income - foreign
currency
translation
adjustments 228,320 94,943 553,239 165,582
Comprehensive
income $2,958,619 $1,000,321 $6,655,726 $3,859,535
Earnings per
share - basic $0.21 $0.08 $0.49 $0.33
Earnings per
share - diluted $0.21 $0.08 $0.42 $0.33
Weighted average
number of common
shares - basic 12,835,955 11,175,543 12,497,006 11,175,543
Weighted average
number of common
shares - diluted 12,835,955 11,175,543 14,531,517 11,175,543
Fuqi International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Increase (Decrease) in Cash
Nine Months Ended
September 30,
2007 2006
Cash flows provided by operating
activities:
Net income $6,102,487 $3,693,953
Adjustments to reconcile net income
to net cash used for operating
activities:
Depreciation and amortization 242,160 229,387
Bad debt 158,129 (12,502)
Changes in operating assets and
liabilities:
Accounts receivable (4,301,122) (331,054)
Refundable value added taxes (929,785) (1,163,132)
Inventories (8,795,197) (9,560,912)
Inventory loan receivable -- 687,936
Prepaid expenses (48,536) (54,840)
Deposits - short term 684,617 (284,486)
Deferred taxes (23,719) (21,242)
Other current assets -- 2,189
Deposits -- 18,966
Deferred offering costs (217,674)
Other assets 3,061 (23,283)
Accounts payable, accrued expenses,
accrued business tax and accrued
penalties 1,830,231 235,018
Customer deposits 2,446,706 (1,055,564)
Income tax payable 1,175,777 501,463
Net cash used for operating
activities (1,672,865) (7,138,103)
Cash flows provided by (used for)
investing activities:
Purchase of property, equipment and
improvements (25,347) (20,864)
Disbursements on loans to stockholder -- (47,988,056)
Proceeds from collections on loans to
stockholder -- 54,983,415
Decrease (Increase) in restricted
cash (392,054) 1,011,506
Net cash provided by (used for)
investing activities (417,401) 7,986,001
Cash flows provided by (used for)
financing activities:
Proceeds from short-term borrowing 1,960,272 --
Loan from (repayment to) a non-
related party -- (991,326)
Cash proceeds from exercise of
warrants, net of financing cost 2,755,479 --
Proceeds from loans borrowed from
stockholder 203,506 --
Repayments to loans payable to
stockholder (642,295)
Net cash provided by (used for)
financing activities 4,276,962 (991,326)
Effect of exchange rate changes on
cash 555,609 201,619
Net increase (decrease) in cash 2,742,305 58,191
Cash, beginning of the period 13,354,981 71,479
Cash, end of the period $16,097,286 $129,670
Supplemental disclosure of cash flow
information:
Interest paid $904,194 $573,541
Income taxes paid $141,463 $150,141
Non-cash activities:
Decrease in due from stockholder for
dividend declared and paid $ -- $2,739,726
