- 2nd Quarter revenue reaches a record $77.6 million
- 2nd Quarter net income increases to a record $7.5 million
- Basic Non-GAAP EPS climbs to $0.34 and diluted Non GAAP EPS increases to $0.30
- Basic GAAP EPS rises to $0.29 and diluted GAAP EPS reaches $0.26
- Company to discuss its business outlook for 2008 during today's 4:30 p.m. EDT Conference Call.
DEERFIELD BEACH, Fla., Aug. 7 /PRNewswire-FirstCall/ -- China Direct, Inc.
(Nasdaq: CDS), a U.S. company that owns controlling stakes in a diversified
portfolio of Chinese entities and assists Chinese businesses in accessing the
U.S. capital markets, announced today the Company's financial results for the
second quarter of 2008.
Financial Highlights
Revenues for the second quarter ended June 30, 2008 increased to $77.6
million as compared to revenues of $40.5 million in the second quarter ended
June 30, 2007. The increase in revenues was mainly attributable to increased
sales from our magnesium segment as a result of acquisitions and our
investment in additional production facilities.
Gross profit for the second quarter of 2008 was $13.5 million as compared
to $3.7 million in the second quarter ended June 30, 2007. Gross profit
increased by over 30% sequentially from $10.5 million in the first quarter of
2008. Total operating expenses for the second quarter of 2008 increased to
$2.6 million as compared to $847,417 in the second quarter of 2007. The
increase in operating expenses reflects the costs associated with our expanded
operations both in the U.S. and China associated with the financial management
and integration of our expanding operations. On a sequential basis, operating
expenses, excluding non-cash items, were up fractionally over the first
quarter of 2008. The Company also experienced increases in travel expenses,
professional consulting fees, professional insurance premiums, as well as
non-cash option charges for employees, management, and professional advisors.
Operating income was $10.9 and $2.9 million for the second quarter of 2008 and
2007, respectively, yielding operating margins of 14.0% and 7.0% over the
relevant periods. The increase in operating margins was largely a result of a
shift in the company's business mix in its magnesium operations towards higher
margin production sales as compared to primarily distribution sales in the
second quarter of 2007. Results were also strengthened by a strong performance
from the consulting segment in the second quarter of 2008.
Net income for the second quarter of 2008 was $7.5 million as compared to
$2.3 million in the second quarter of 2007. Non-GAAP earnings per basic share
were $0.34, excluding non-cash items, as compared to $0.18 per basic share in
the second quarter of 2007. On a GAAP basis, earnings per basic share were
$0.29, as compared to $0.16 in the second quarter of 2007. On a diluted basis,
excluding non-cash items, non-GAAP earnings per share for the second quarter
of 2008 were $0.26 per share as compared to $0.15 in the second quarter of
2007.
For the first six months of 2008 earnings per basic share on a non-GAAP
basis were $0.59, excluding certain non-cash items, as compared to $0.33 per
basic share for the same period in 2007. On a GAAP basis, earnings per basic
share were $0.27, as compared to or $0.31 per basic share in the first six
months of 2007. On a diluted basis, non-GAAP earnings per share for the first
six months of 2008 were $0.54 per share as compared to $0.29 per share for the
same period in 2007. Non-cash items excluded in all non-GAAP amount are set
forth in the reconciliation of GAAP to non-GAAP net income set forth below.
This record performance for the first six months of 2008 was driven by a
strong first half performance in our magnesium and consulting segments.
Magnesium, the largest driver of earnings for the first six months of 2008,
reached $6.7 million, a 488% increase from earnings of $1.2 million recorded
in the first six months of 2007. In the second quarter of 2008 our consulting
segment added its most substantial client to date with the addition of China
Armco Metals, Inc., a metals distributor in China which plans on launching a
scrap steel recycling operation in 2009.
Balance Sheet
At June 30, 2008, total assets were $123.7 million, an increase of 40.1%
from the $88.3 million at December 31, 2007. At June 30, 2008, shareholder
equity reached $70.0 million, an increase of 63.6% from the $42.8 million at
December 31, 2007. At June 30, 2008, cash and cash equivalents were $26.4
million and working capital was $70.1 million as compared to cash and cash
equivalents of $20.4 million and working capital of $40.9 million at December
31, 2007, respectively.
2008 Financial Guidance
The Company sees continued robust growth in both revenue and earnings for
2008 and will discuss its outlook for the remainder of 2008 during its
conference call today, August 7, 2008 at 4:30 PM EDT.
Commenting on the quarter, Mr. Siegel, President of China Direct, Inc.
stated, 'We are pleased with the strong growth of our operations in the first
half of 2008. The record expansion in revenue in the second quarter and
record profit continues to demonstrate the power of our business strategy. We
are excited to have added China Armco Metals as a consulting client and
anticipate we will continue to upgrade the clients in our consulting division
as we market to larger organizations in China. We continue to expand our
magnesium segment and anticipate strong top and bottom line growth in this
segment for the foreseeable future. We begin the second half of 2008 with high
expectations for our basic materials and clean technology segments as projects
are expected to come on-line before year's end. We remain excited by the
opportunities we are seeing in China and are moving closer to executing on
potential acquisitions for the benefit of our shareholders in 2008 and
beyond.'
China Direct Conference Call to discuss the Company's financial results
for the second quarter of 2008 as well as to discuss its business outlook for
the remainder of 2008.
The conference call will take place at 4:30 p.m. EDT on Thursday,
August 7th, 2008. Anyone interested in participating should call 1-866 394-
7735 if calling within the United States or 1-706-758-1915 if calling
internationally approximately 5 to 10 minutes prior to 4:30 p.m. Participants
should ask for the China Direct 2008 First Quarter Financial Results
conference call/ Conference ID 57044477. There will be a playback available
until August 21st, 2008. To listen to the playback, please call 1-800-642-1687
if calling within the United States or 1-706-645-9291 if calling
internationally. Please use the pass code 57044477 for replay.
This call is being webcast by ViaVid Broadcasting and can be accessed at
China Direct's website at http://www.chinadirectinc.com . The webcast may also
be accessed at ViaVid's website at http://www.viavid.net or directly at
http://viavid.net/dce.aspx?sid=00005489 . The webcast can be accessed through
August 21, 2008 on either site. To access the webcast, you will need to have
the Windows Media Player on your desktop. For the free download of the Media
Player, please visit:
http://www.microsoft.com/windows/windowsmedia/en/download/default.asp
About China Direct, Inc.
China Direct, Inc. (Nasdaq: CDS) is a diversified management and advisory
services organization headquartered in the U.S. Our management services
division acquires a controlling interest in entities operating in China. Our
ownership control enables China Direct to provide management advice, as well
as financing to Chinese entities. This infrastructure creates a platform to
expand business opportunities globally while accessing the U.S. capital
markets. Our advisory services division provides comprehensive advisory and
consulting services to Chinese entities seeking to access the U.S. capital
markets. As a direct link to China, China Direct serves as a vehicle allowing
investors to directly participate in the rapid growth of the Chinese economy
in a diversified and balanced manner. For more information about China Direct,
please visit http://www.chinadirectinc.com .
Q2 FY 2008 GAAP Reconciliation
RECONCILIATION OF GAAP to NON-GAAP NET INCOME
The following table reconciles the calculation of net income (loss) per
share on a basic and fully diluted basis from the amounts reported in
accordance with generally accepted accounting principles ('GAAP') to such
amounts before giving effect to the non-cash deemed dividend deduction related
to the Series A Convertible Preferred Stock and associated warrants (the
'Preferred Stock and Warrants'), the non-cash compensation and depreciation.
This disclosure is being provided as we believe it is meaningful to our
investors and other interested parties to understand our operating performance
on a consistent basis without regard to the anti-dilutive effects of the
timing of the non-cash deemed dividend deduction related to the Preferred
Stock and Warrants, non-cash compensation and depreciation. The presentation
of the non-GAAP information titled 'Net income per share as adjusted' or 'Net
income per diluted share as adjusted' is not meant to be considered in
isolation or as a substitute for net income or diluted income per share
prepared in accordance with GAAP.
Q2 FY 2008 GAAP Reconciliation
RECONCILIATION OF GAAP to NON-GAAP NET INCOME
Three Months Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
GAAP net income $7,514,875 $2,267,742 $12,267,751 $4,138,611
1. Employee share-based
compensation expense 641,091 112,762 848,364 196,010
2. Fair value of warrants
granted for services 57,344 - 103,708 -
3. Depreciation 494,967 65,989 921,287 122,810
Non-GAAP net income $8,708,277 $2,446,493 $14,141,110 $4,457,431
GAAP Earnings applicable
to common stockholders $6,466,938 $2,267,742 $5,860,892 $4,138,611
GAAP Basic EPS 0.29 0.16 0.27 0.31
GAAP Diluted EPS 0.26 0.15 0.24 0.27
Non-GAAP net income
reconciliation total
(1)+(2)+(3) 1,193,402 178,751 1,873,359 318,820
Non-cash deducted related
to Preferred Stock
issuance:
Relative Fair Value of
warrants - - 2,765,946 -
Beneficial Conversion
Feature - - 2,451,446 -
NON-GAAP Earnings
applicable to common
stockholders 7,660,340 2,446,493 12,951,643 4,457,431
NON-GAAP Basic EPS 0.34 0.18 0.59 0.33
NON-GAAP Diluted EPS $0.30 $0.16 $0.54 $0.29
Shares used in basic net
income per-share
calculation - GAAP 22,663,337 13,882,955 21,833,388 13,464,666
Shares used in basic net
income per-share
calculation - Non-GAAP 22,663,337 13,882,955 21,833,388 13,464,666
Shares used in diluted
net income per-share
calculation - GAAP 25,427,385 15,380,420 24,160,683 15,174,110
Shares used in diluted
net income per-share
calculation - Non-GAAP 25,427,385 15,380,420 24,160,683 15,174,110
CHINA DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2008 2007
ASSETS Unaudited
Current Assets:
Cash and cash equivalents $26,424,935 $20,394,931
Investment in marketable securities
available for sale 4,732,593 7,820,500
Investment in marketable securities
available for sale-related party 766,019 1,315,488
Accounts receivable, net of
allowance for doubtful accounts of
$335,851 and $290,456 at June 30, 2008
and December 31, 2007, respectively 24,415,061 10,655,661
Accounts receivable-related parties 556,687 2,283,600
Inventories 12,286,538 5,293,986
Prepaid expenses and other current
assets 21,564,895 15,439,462
Prepaid expenses-related parties 4,821,163 4,150,943
Loans receivable-related parties 1,597,305 -
Due from related parties 14,552 1,287,877
Total current assets 97,179,748 68,642,448
Restricted cash 2,874 646,970
Property, plant and equipment, net of
accumulated depreciation of
$1,499,088 and $577,801 at June 30,
2008 and December 31, 2007,
respectively 25,650,264 18,010,524
Prepaid expenses and other assets 234,683 433,075
Property use rights, net 582,733 553,304
Total assets $123,650,302 $88,286,321
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable-short term $1,229,663 $1,978,142
Accounts payable and accrued
expenses 11,584,094 9,649,797
Accounts payable-related parties 735,184 964,114
Notes payable-related party - 410,167
Accrued dividends payable 20,015 -
Advances from customers 5,785,605 6,963,061
Other payables 6,229,216 4,097,716
Income taxes payable 943,779 560,116
Due to related parties 576,890 3,137,233
Total current liabilities 27,104,446 27,760,346
Loans payable-long term 210,280 166,573
Minority interest 26,351,743 17,535,909
Stockholders' Equity:
Preferred Stock: $.0001 par value,
stated value $1,000 per share;
10,000,000 authorized, 1,006
shares and 0 shares issued and
outstanding at June 30, 2008
and December 31, 2007, respectively 1,006,250 -
Common Stock: $.0001 par value,
1,000,000,000 authorized,
23,501,056 and 20,982,010 issued and
outstanding at June 30, 2008
and December 31, 2007,
respectively 2,350 2,098
Additional paid-in capital 50,654,559 30,257,644
Deferred compensation (33,000) (55,000)
Accumulated comprehensive income 36,076 162,045
Retained earnings 18,317,598 12,456,706
Total stockholders' equity 69,983,833 42,823,493
Total liabilities and
stockholders' equity $123,650,302 $88,286,321
CHINA DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
Revenues $76,215,437 $40,012,970 $135,456,235 $70,511,910
Revenues-related
parties 1,344,725 440,000 2,078,646 880,000
Total revenues 77,560,162 40,452,970 137,534,881 71,391,910
Cost of revenues 64,045,927 36,742,381 113,525,741 64,209,395
Gross profit 13,514,235 3,710,589 24,009,140 7,182,515
Operating expenses:
Selling, general,
and
administrative 2,635,633 847,417 4,335,603 1,684,926
Operating income 10,878,602 2,863,172 19,673,537 5,497,589
Other income
(expense):
Other income 102,521 371,433 296,139 381,369
Interest income 129,470 41,855 220,172 71,021
Realized gain
(loss) on sale of
marketable
securities 3,756 206,236 (35,705) 206,236
Realized loss on
sale of marketable
securities-related
party - (16,041) - (32,014)
Total other income 235,747 603,483 480,606 626,612
Net income before
income taxes 11,114,349 3,466,655 20,154,143 6,124,201
Income tax expense (705,176) (522,159) (1,157,656) (754,731)
Income before
minority interest 10,409,173 2,944,496 18,996,487 5,369,470
Minority interest (2,894,298) (676,754) (6,728,736) (1,230,859)
Net income 7,514,875 2,267,742 12,267,751 4,138,611
Deduct dividends on
Series A Preferred
Stock:
Cumulative preferred
stock dividend (1,047,937) - (1,189,467) -
Relative fair
value of detachable
warrants issued - - (2,765,946) -
Preferred stock
beneficial
conversion feature - - (2,451,446) -
Income applicable to
common stockholders $6,466,938 $2,267,742 $5,860,892 $4,138,611
Basic and diluted
income per common
share after
deduction in the first
quarter of 2008,
of noncash deemed
dividends
attributable to
Series A Preferred
Stock as described
in Notes 3 & 11 of
the Notes to
consolidated the
Financial
Statements:
Basic $0.29 $0.16 $0.27 $0.31
Diluted $0.26 $0.15 $0.24 $0.27
Basic weighted
average common
shares outstanding 22,663,337 13,882,955 21,833,388 13,464,666
Diluted weighted
average common
shares outstanding 25,427,385 15,380,420 24,160,683 15,174,110
Safe Harbor Statement
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, China Direct, Inc., is hereby providing
cautionary statements identifying important factors that could cause our
actual results to differ materially from those projected in forward-looking
statements (as defined in such act). Any statements that are not historical
facts and that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, indicated through the use of words or phrases such as 'will likely
result,' 'are expected to,' 'will continue,' 'is anticipated,' 'estimated,'
'intends,' 'plans,' 'believes' and 'projects') may be forward-looking and may
involve estimates and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. These
statements include, but are not limited to, our guidance and expectations
regarding revenues, net income and earnings. In addition, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following key factors that have a direct bearing on our results of operations:
-- Our ability to identify and close acquisitions of operating companies
in China in a cost effective manner that enhance our financial
condition.
-- Our need for additional financing which we may not be able to obtain on
acceptable terms, the dilutive effect additional capital raising
efforts in future periods may have on our current shareholders and the
increased interest expense in future periods related to additional debt
financing.
-- Our ability to effectively integrate our acquisitions and to manage our
growth and our inability to fully realize any anticipated benefits of
acquired business.
-- The value of the equity securities we accept as compensation is subject
to adjustment which could result in losses to us in future periods.
-- The Investment Company Act of 1940 which limits the value of securities
we can accept as payment for our business consulting services which may
limit our future revenues.
-- Our acquisition efforts in future periods may be dilutive to our then
current shareholders.
-- Our dependence on certain key personnel.
-- The lack various legal protections in certain agreements to which we
are a party and which are material to our operations which are
customarily contained in similar contracts prepared in the United
States.
-- Our ability to assure that related party transactions are fair to our
company.
-- Chang Magnesium's chief executive officer is also chief executive
officer of a group of companies which directly compete with Chang
Magnesium.
-- The risks and hazards inherent in the mining industry on the operations
of our basic materials segment.
-- The effect of changes resulting from the political and economic
policies of the Chinese government on our assets and operations located
in the PRC.
-- The influence of the Chinese government over the manner in which our
Chinese subsidiaries must conduct our business activities.
-- The impact on future inflation in China on economic activity in China.
-- The impact of any recurrence of severe acute respiratory syndrome, or
SAR's, or another widespread public health problem.
-- The limitation on our ability to receive and use our revenues
effectively as a result of restrictions on currency exchange in China.
-- Our ability to enforce our rights due to policies regarding the
regulation of foreign investments in China.
-- Our ability to comply with the United States Foreign Corrupt Practices
Act which could subject us to penalties and other adverse consequences.
-- Our ability to establish adequate management, legal and financial
controls in the PRC.
-- The provisions of our articles of incorporation and bylaws which may
delay or prevent a takeover which may not be in the best interests of
our shareholders.
We caution that the factors described herein could cause actual results to
differ materially from those expressed in any forward-looking statements we
make and that investors should not place undue reliance on any such forward-
looking statements. Further, any forward-looking statement speaks only as of
the date on which such statement is made, and we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
anticipated or unanticipated events or circumstances. New factors emerge from
time to time, and it is not possible for us to predict all of such factors.
Further, we cannot assess the impact of each such factor on our results of
operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-
looking statements. This press release is qualified in its entirety by the
cautionary statements and risk factor disclosure contained in our Securities
and Exchange Commission filings, including our Annual Report on Form 10-K for
the year ended December 31, 2007.
SOURCE China Direct, Inc.
