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Diguang International Reports Fiscal 2006 Financial Results



SHENZHEN, China, April 3 /Xinhua-PRNewswire/ -- Diguang International Development Co., Ltd. (OTC Bulletin Board: DGNG) ("Diguang") today announced financial results for its 2006 fiscal year, ended December 31, 2006.

Fiscal Year Ended December 31, 2006

For the twelve months ended December 31, 2006, net revenue was $31.9 million, a decrease of $3.8 million, or 10.6%, from the $35.6 million in net revenues reported for the prior fiscal year. The decrease in net revenue was primarily attributed to pricing pressure stemming from continuing industry over-supply. The industry-wide price declines were partially offset by a product mix improvement in favor of higher-priced and higher-value-added products, although achieving such product mix improvements required additional costs and strategic investments. Gross profit for FY2006 was $10.5 million, or 32.9% of sales, compared to $12.6 million, or 35.3% of sales, for the prior fiscal year.

In strategic highlights announced since the end of the fiscal year:

-- On January 3, 2007, the Company exercised its option to purchase from

Sino Olympics Industrial Limited all of its 65% equity interest in

North Diamond International Co., Ltd., which will support the Company's

efforts to gain additional market share in the Yangtze River Region, an

important LCD manufacturing base;

-- Between January 8 and 11, Diguang showcased 32", 42" and 47"

televisions powered by its LED and CCFL backlights, and 17" and 19"

computer monitors powered by its CCFL backlights, at the giant CES

industry show in Las Vegas;

-- In February, Diguang announced its certification as the first backlight

supplier in mainland China for a Korea-based TFT-LCD producer, one of

the world's largest; Diguang was also certified by a Japanese consumer

electronics maker as its first backlight supplier in mainland China;

-- On March 16, Diguang announced Board of Directors approval to acquire

up to $5,000,000 of its common stock over a period of twelve months.

During the 2006 fourth quarter, the Company recorded a non-cash inventory write-down of $545,000. Excluding the inventory provision, raw materials costs declined 16% for the 2006 fiscal year as compared to 2005.

Total operating expenses (general and administrative, research and development and selling) for fiscal 2006 amounted to $8.5 million, compared to $3.3 million in fiscal 2005. Part of this increase consisted of share-based compensation of approximately $2.1 million in 2006, which was accounted for in accordance with SFAS No. 123(R). There was no share-based compensation in 2005. A reconciliation of GAAP and non-GAAP operating results is provided below.

Selling expenses totaled $1.5 million in 2006, an increase of $65,000, or 4.4%, compared to 2005 selling expenses of approximately $1.5 million. This increase, which was partly offset by lower trade agency commissions year over year, was small despite 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.

Research and development expenses, net of government subsidies, increased by 8.1% year over year, to $786,000, or approximately 2.5% of net revenues, from $727,000, or 2.0% of net revenues, in the prior year.

General and administrative expenses totaled $6.1 million for the 2006 fiscal year, an increase of $5.0 million from $1.1 million in 2005. A component of this increase was $2.1 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 3.1% and 19.3% of net revenues for fiscal years 2005 and 2006, respectively.

Net income for fiscal 2006 was $1.7 million, a decrease of approximately $7.2 million, or 81.2%, from $8.8 million in 2005. Primary drivers of the decrease were decreased revenues and increased operating expenses, including share-based compensation, as outlined above. Earnings per basic share for fiscal 2006 were $0.08, compared to $0.48 in fiscal 2005, reflecting lower net income attributable to common shareholders divided by average weighted shares outstanding that increased from 18.3 million shares for 2005 to 21.7 million shares for 2006.

Without the share-based compensation expenses accounted for in accordance with SFAS No. 123(R) and the inventory write-down noted above, fiscal 2006 net income on a non-GAAP basis would have been $4.3 million, or $0.20 per share. A reconciliation of GAAP and non-GAAP operating results is provided below.

Diguang's cash and cash equivalents as of December 31, 2006 totaled $18.9 million compared to cash and cash equivalents of $10.1 million as of December 31, 2005.

Song Yi, Diguang's Chief Executive Officer, commented, "We believe that the strategic improvements and inroads we have made recently, including our being chosen as the in-house backlight producer for one of the four 'Taiwan Tiger' leaders in the TFT-LCD panel industry, better indicate our future trajectory than do our fiscal 2006 financial results. Although our achievements could not counteract the severe industry conditions prevailing throughout the year, we believe they position us strongly to outperform in a market undergoing any degree of recovery."

Teleconference and Webcast Information

Management will conduct a conference call and webcast to discuss financial results for its 2006 fiscal year, ended December 31, 2006.

The conference call and webcast will take place at 8:30 a.m. Eastern (U.S.) time on Tuesday, April 3, 2007. Anyone interested in participating should call 866-356-4441 if calling from within the United States, or 617-597-5396 if calling internationally; the passcode is 33278793.

There will be a replay available until April 10, 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 48557113 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=1519591 and is being distributed through the Thomson StreetEvents Network. Individual investors can listen to the call at http://www.earnings.com , Thomson's individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson StreetEvents ( http://www.streetevents.com ), a password-protected event management site.

Use of Non-GAAP Financial Measures

In the fourth quarter of fiscal 2006, Diguang wrote down inventory in the form of raw materials valued at $545,000, in a non-recurring event that reduced GAAP net income per share by approximately $0.03. In addition, 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.

(financial tables follow)

DIGUANG INTERNATIONAL DEVELOPMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In U.S. Dollars)

Twelve months ended December 31,

2005 2006

Revenues:

Revenues, net $ 35,648,118 $ 31,858,239

Cost of sales 23,048,087 21,391,123

Gross profit 12,600,031 10,467,116

Selling expense 1,480,229 1,545,354

Research and development 727,302 786,322

General and administrative 1,096,160 6,136,745

Loss on disposing assets 913 --

Income (loss) from operations 9,295,427 1,998,695

Interest income (expense), net 45,710 243,699

Investment income (loss) (7,405) 53,676

Other income (loss) 48,252 (176,809)

Income (loss) before income taxes 9,381,984 2,119,261

Income tax provision (benefit) 532,927 452,562

Net income (loss) $ 8,849,057 $ 1,666,699

Weighted average common shares

outstanding - basic 18,250,000 21,688,704

Earnings (loss) per share - basic 0.48 0.08

Weighted average common shares

outstanding - diluted 18,250,000 21,688,704

Earnings (loss) per share -

diluted 0.48 0.08

Other comprehensive income (loss):

Net income (loss) $ 8,849,057 $ 1,666,699

Translation adjustment 157,018 709,170

Comprehensive income (loss) $ 9,006,075 $ 2,375,869

DIGUANG INTERNATIONAL DEVELOPMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars)

Twelve Months Ended December 31,

2005 2006

ASSETS

Current assets:

Cash and cash equivalents $ 10,054,568 $ 18,910,808

Short term deposits 1,056,122 --

Accounts receivable, net of

allowance for doubtful

accounts of $491,908 and $751,145 6,081,427 5,006,649

Trade receivable from a related

party -- 246,337

Inventories, net of provision $0

and $545,446 3,447,096 4,008,445

Other receivables 80,318 215,569

VAT recoverables -- 220,793

Advance to suppliers 417,781 756,208

Amount due from related parties 21,538 55,997

Deferred tax asset -- 86,572

Loan receivable from a related

party -- 2,050,204

Total current assets 21,158,850 31,557,582

Investment -- 1,500,000

Property and equipment, net 2,119,893 2,672,338

Prepayment for purchasing

office space 99,130 1,969,462

Deferred offering expense 25,718 --

Total assets $ 23,403,591 $ 37,699,382

LIABILITIES AND SHAREHOLDERS'

EQUITY

Current liabilities:

Accounts payable $ 5,868,614 $ 5,685,836

Advance from customers 334,943 177,184

Accruals and other payables 1,277,161 1,575,933

Accrued payroll and related

expense 221,295 342,531

Dividend payable 111,140 --

Income tax payable 572,159 335,672

Amount due to related parties 137,440 --

Total current liabilities 8,522,752 8,117,156

Total liabilities 8,522,752 8,117,156

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 14,193,773

Appropriated earnings 501,833 1,294,578

Retained earnings 12,328,675 13,202,629

Translation adjustment 159,483 868,653

Total stockholders' equity 14,880,839 29,582,226

Total liabilities and stockholders'

equity $ 23,403,591 $ 37,669,382

Reconciliation of GAAP Net Income and Earnings Per Share to Non-GAAP Net Income and Earnings Per Share

Year Ended December 31,

2005 2006

GAAP net income/(loss) 8,849,057 1,666,699

Inventory write-down -- 545,446

Stock-based compensation -- 2,134,342

Non-GAAP net income/(loss) 8,849,057 4,346,487

GAAP net income/(loss) per share 0.48 0.08

Inventory write-down -- 0.03

Stock-based compensation -- 0.10

Non-GAAP earnings/(loss) per share

- basic and diluted 0.48 0.20

Weighted average shares outstanding

- basic and diluted 18,250,000 21,688,704

For more information, please contact:

Company Contact:

Keith Hor, CFO

Diguang International Development, Ltd.

Tel: +86-755-2661-1731

Investor Relations Contact:

Sean Collins, Senior Partner

CCG Elite

Tel: +1-310-477-9800 x202

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