SOURCE: China Direct Industries, Inc.
August 12, 2010 16:42 ET
China Direct Industries Reports Financial Results for the Third Quarter of Fiscal 2010 Ended June 30, 2010
DEERFIELD BEACH, FL--(Marketwire - August 12, 2010) - China Direct Industries, Inc. (NASDAQ: CDII)
3rd Quarter Revenue of $31.9 Million Up 64% From the Three Month Period
Ended June 30, 2009
3rd Quarter Revenue Improves Across All Business Segments Compared to the
Three Month Period Ended June 30, 2009
3rd Quarter Gross Margins Improve to 6.1% From (1.6%) in Three Month Period
Ended June 30, 2009
China Direct Industries, Inc. ("China Direct Industries") (NASDAQ: CDII), a
U.S. owned holding company operating in China in two core business segments,
pure magnesium production and distribution of basic materials, announced
today its financial results for the third quarter of our fiscal 2010 for
the three months ended June 30, 2010.
Financial Highlights
For the third quarter of fiscal 2010 total revenues increased to $31.9
million, a 64% increase as compared to total revenues of $19.5 million for
the three month period ended June 30, 2009. Our third quarter gross profit
reached $2.0 million as compared to a loss of ($308,000) for the three
month period ended June 30, 2009. Our operations resulted in a net loss
for the third quarter of fiscal 2010 of ($1.1 million) inclusive of
$420,000 in non-cash compensation. This represents a substantial
improvement from the third quarter of fiscal 2009 where we recorded a net
loss of ($2.9 million). Our loss per basic and diluted share narrowed to
($0.04) from the ($0.12) recorded in the three month period ended June 30,
2009. Operating revenue, gross margins, and gross profit increased across
all business segments reflecting a continued improvement in each of the
segments. For the first nine months of fiscal 2010, revenue totaled $77.6
million with a net loss of ($412,000) inclusive of $1.1 million in non-cash
compensation compared to revenues of $79 million with a net loss of ($8.8)
million for the first nine months of fiscal 2009.
Balance Sheet
At June 30, 2010, total assets were $83.7 million and shareholder equity
was $51.0 million with 31.0 million shares outstanding. At September 30,
2009, total assets were $80.5 million and shareholder equity of $46.1
million with 27.2 million shares outstanding. At June 30, 2010 cash and
cash equivalents were $14.4 million and working capital was $37.1 million.
At September 30, 2009 cash and cash equivalents were $12.9 million and
working capital was $31.0 million.
Financial Outlook and Conference Call
The overall environment in our various segments continue to improve
especially in consulting where we have signed two new clients and
anticipate the consummation of a number of business transactions with them
in the fourth quarter. The gross margin and revenue improvements trend in
our magnesium segment continued in the third quarter with gross margins
improving to 4.3%, a 19% increase from gross margins of 3.6% recorded in
the second quarter of fiscal 2010. We anticipate this trend will continue
as additional production from our restarted facilities is brought online in
the coming quarters and we broadened our magnesium product offerings with
the integration of Ruiming Magnesium into our IMG brand. Our trading
operations are finalizing several purchase and sale agreements for various
metal ore for delivery into China from South America and Mexico with
shipments expected to begin in the fourth quarter of fiscal 2010. While we
remain optimistic regarding our outlook for the remainder of fiscal 2010,
when taking all of these factors into consideration, we now see our net
income ranging between $6 to $8 million and our revenue ranging from
between $120 and $130 million. We will further discuss our operating
results as well as our outlook for the remainder of fiscal 2010 during the
conference call today, August 12, 2010 at 5:00 PM EST.
Commenting on the third quarter, Dr. James Wang, Chairman and CEO of China
Direct Industries, Inc., stated, "Our results for the third quarter reflect
a significant improvement in overall operating revenue across all of our
business segments as compared to the same period in fiscal 2009.
Additionally we are encouraged by the sequential improvement in our
magnesium segment where both revenue and gross margins have improved
significantly as we prepare to reinitiate operations at several facilities
in response to signs of increasing demand. We believe our consulting
operations are poised to add a substantial contribution to our bottom line
performance in the near term as we recently added two new clients and we
anticipate the efforts we have made in our international commodity trading
business will also begin to demonstrate positive results. As we head into
the fourth quarter of fiscal 2010 and into fiscal 2011, we maintain a
strong balance sheet with significant cash and negligible debt in an
improving environment across all our business segments."
China Direct Industries Conference Call to discuss the Company's financial
results for the third quarter of fiscal 2010.
The conference call will take place at 5:00 p.m. EST on Thursday August 12,
2010. Anyone interested in participating should call (877) 407-8035 if
calling within the United States or (201) 689-8035 if calling
internationally approximately 5 to 10 minutes prior to 5:00 p.m.
Participants should ask for the China Direct Industries Third Quarter 2010
Financial Results conference call.
This call is being webcast and can be accessed at China Direct Industries
website at http://www.cdii.net/calendar-of-events. The webcast may also be
accessed at: http://www.investorcalendar.com/IC/CEPage.asp?ID=160959. The
playback of the webcast can be accessed through either site until August 12,
2011. 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 Industries, Inc.
China Direct Industries, Inc. (NASDAQ: CDII), is a U.S. owned holding
company operating in China in two core business segments, pure magnesium
production and distribution and distribution of basic materials in China.
China Direct Industries also provides advisory services to China based
companies in competing in the global economy. Headquartered in Deerfield
Beach, Florida, China Direct Industries operates 9 subsidiaries throughout
China. This infrastructure creates a platform to expand business
opportunities globally while effectively and efficiently accessing the U.S.
capital markets. For more information about China Direct Industries, please
visit http://www.cdii.net.
CHINA DIRECT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2010 2009
------------- -------------
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $ 14,397,702 $ 12,851,310
Investment in marketable securities
available for sale 2,873,676 5,589,037
Investment in subsidiaries -- cost method 290,864 290,864
Accounts receivable, net of allowance of
$127,089 and $746,786, respectively 11,993,071 8,195,916
Accounts, prepaid and loan and other
receivable - related parties 8,085,391 9,272,240
Inventories, net 7,235,355 5,806,722
Prepaid expenses and other current assets 6,731,966 5,092,205
Current assets of discontinued operations 51,345 51,345
------------- -------------
Total current assets 51,659,370 47,149,639
------------- -------------
Restricted cash 602,180 722,324
Property, plant and equipment, net 30,183,152 31,331,992
Prepaid expenses and other assets 2,397 1,836
Property use rights, net 1,081,928 1,113,902
Long-lived assets of discontinued
operations 196,078 196,078
------------- -------------
Total assets $ 83,725,105 $ 80,515,770
============= =============
LIABILITIES AND EQUITY
Current Liabilities:
Loans payable-short term $ 1,843,257 $ 1,521,002
Accounts payable and accrued expenses 9,588,108 7,708,730
Accounts and other payable-related
parties 669,381 451,345
Advances from customers and deferred
revenue 987,573 2,007,137
Other payables 737,600 3,072,238
Taxes payable 479,020 1,130,907
Current liabilities of discontinued
operations 300,000 300,000
------------- -------------
Total current liabilities 14,604,939 16,191,358
------------- -------------
Loans payable-long term - -
------------- -------------
Total liabilities 14,604,939 16,191,358
------------- -------------
CHINA DIRECT INDUSTRIES INC. EQUITY
Preferred Stock: $.0001 par value, stated
value $1,000 per share 1,006,250 1,006,250
Common Stock: $.0001 par value;
31,003,710 and 27,189,719 outstanding,
respectively 3,100 2,719
Additional paid-in capital 63,466,474 57,492,755
Accumulated other comprehensive income 1,327,336 1,902,221
Accumulated deficit (14,820,913) (14,328,732)
------------- -------------
Total China Direct Industries, Inc.
stockholders' equity 50,982,247 46,075,213
Noncontrolling interests 18,137,919 18,249,198
------------- -------------
Total equity 69,120,166 64,324,411
------------- -------------
Total liabilities and equity $ 83,725,105 $ 80,515,770
============= =============
The notes to our unaudited consolidated financial statements are an
integral part of these unaudited financial statements.
CHINA DIRECT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Nine
Months Ended June 30, Months Ended June 30,
------------------------ ------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Revenues $29,987,583 $17,468,762 $71,021,737 $58,876,248
Revenues-related
parties 1,956,931 2,007,621 6,545,831 20,242,695
----------- ----------- ----------- -----------
Total revenues 31,944,514 19,476,383 77,567,568 79,118,943
----------- ----------- ----------- -----------
Cost of revenues 29,984,123 19,784,135 71,788,808 79,124,046
----------- ----------- ----------- -----------
Gross profit
(loss) 1,960,391 (307,752) 5,778,760 (5,103)
----------- ----------- ----------- -----------
Operating expenses:
Selling, general,
and administrative 3,304,123 2,711,369 8,566,932 8,844,318
----------- ----------- ----------- -----------
Operating loss (1,343,732) (3,019,121) (2,788,172) (8,849,421)
----------- ----------- ----------- -----------
Other (expense) income:
Other (expense)
income: (43,961) 58,364 4,524 125,192
Interest income
(expense) 37,332 (86,856) 40,944 (98,240)
Realized gain (loss)
on sale of
marketable
securities 33,155 (79,221) 2,134,344 (410,750)
Realized loss on
other than
temporary
impairment - - - (7,521,088)
Realized gain on
sale subsidiaries - - - 238,671
----------- ----------- ----------- -----------
Total other
income (expense) 26,526 (107,713) 2,179,812 (7,666,215)
----------- ----------- ----------- -----------
Loss from continuing
operations before
income taxes (1,317,206) (3,126,834) (608,360) (16,515,636)
Income tax (expense)
benefit (7,378) (13,056) (62,302) 166,414
----------- ----------- ----------- -----------
Loss from
continuing
operations, net
of income taxes (1,324,584) (3,139,890) (670,662) (16,349,222)
----------- ----------- ----------- -----------
Loss from
discontinued
operations - (574,217) - (2,111,040)
----------- ----------- ----------- -----------
Net loss (1,324,584) (3,714,106) (670,662) (18,460,262)
----------- ----------- ----------- -----------
Net loss
attributable to
noncontrolling
interests-continuing
operations 240,167 545,084 258,913 2,934,573
Net loss
attributable to
noncontrolling
interests-
discontinued
operations - 281,366 - 1,034,411
----------- ----------- ----------- -----------
Net loss
attributable to
China Direct
Industries, Inc. (1,084,417) (2,887,657) (411,749) (14,491,278)
----------- ----------- ----------- -----------
Deduct dividends on
Series A Preferred
Stock:
Preferred stock
dividend (20,125) (33,691) (80,433) (74,161)
----------- ----------- ----------- -----------
Net loss attributable
to common stockholders (1,104,542) (2,921,348) (492,182) (14,565,439)
=========== =========== =========== ===========
Basic and diluted
income (loss) per
common share
Basic $ (0.04) $ (0.12) $ (0.02) $ (0.61)
=========== =========== =========== ===========
Diluted (0.04) (0.12) (0.02) (0.61)
=========== =========== =========== ===========
Basic weighted
average common
shares outstanding 28,828,887 24,168,640 28,940,495 23,731,020
=========== =========== =========== ===========
Diluted weighted
average common
shares outstanding 28,828,887 24,168,640 28,940,495 23,731,020
=========== =========== =========== ===========
The notes to our unaudited consolidated financial statements are an
integral part of these unaudited financial statements.
DISCLOSURE NOTICE:
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, China Direct Industries, 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,
margins, net income and earnings, magnesium prices and demand, our
expectations regarding the consummation of transactions involving our new
clients and our ability to complete expected deliveries of metal ore in our
international trading business. 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:
-- Fluctuations in the pricing and availability of magnesium and in levels
of customer demand.
-- Changes in the prices of magnesium and magnesium-related products.
-- Our ability to implement our acquisition strategy of growing our
business through increased magnesium production capacity and
acquisitions.
-- Fluctuations in the cost or availability of coke gas and coal.
-- Loss of orders from any of our major customers.
-- Our dispute with the noncontrolling shareholders of Pan Asia
Magnesium that resulted in our establishment of a reserve for loss and
the possibility of litigation and adverse outcomes in such litigation.
-- The value of the equity securities we accept as compensation is subject
to adjustment which could result in losses to us in future periods.
-- Our ability to effectively integrate our acquisitions and to manage our
growth and our inability to fully realize any anticipated benefits of
acquired business.
-- 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 dependence on certain key personnel.
-- Difficulties we have in establishing adequate management, cash, legal
and financial controls in the PRC.
-- Our ability to maintain an effective system of internal control over
financial reporting.
-- 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.
-- Potential impact of PRC regulations on our intercompany loans.
-- Our ability to assure that related party transactions are fair to our
company.
-- Yuwei Huang, our executive vice president - magnesium, director and an
officer of several of our magnesium subsidiaries and his daughter Lifei
Huang is also an owner and executive officer of several companies which
directly compete with our magnesium business.
-- The impact of a loss of our land use rights.
-- Our ability to comply with the United States Foreign Corrupt Practices
Act which could subject us to penalties and other adverse consequences.
-- Limits under the Investment Company Act of 1940 on the value of
securities we can accept as payment for our business consulting
services.
-- Our acquisition efforts in future periods may be dilutive to our then
current shareholders.
-- The risks and hazards inherent in the mining industry on the operations
of our basic materials segment.
-- Our inability to enforce our rights due to policies regarding the
regulation of foreign investments in China.
-- The impact of environmental and safety regulations, which may increase
our compliance costs and reduce our overall profitability.
-- 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 impact of Chinese economic reform policies.
-- 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
SARS, 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.
-- Recent substantial declines in the market price for shares of our
common stock and continued highly volatile and wide market price
fluctuations.
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 Transition Report on Form 10-K for the fiscal year ended
September 30, 2009 and our reports on Form 10-Q.