WEB NEWS Investor Alert
SHENZHEN, China, July 22, 2011 /PRNewswire-Asia -FirstCall/ -- Diguang International Development Co., Ltd. (OTC Bulletin Board: DGNG) ("Diguang" or the "Company") announced today the filing of a Form 15 with the U.S. Securities and Exchange Commission. The Company filed the Form 15 with the SEC in order to effect a termination of registration of its common stock under the Securities Exchange Act of 1934. Upon the filing of Form 15, the Company's obligation to file periodic and current reports with the SEC, including Forms 10-K, 10-Q and 8-K, was immediately suspended.
The board of directors of the Company considered many factors in making this decision, including:
the cost associated with preparing and filing periodic reports and other filings with the SEC; and the demands placed on management to comply with SEC reporting obligations, which detract from the time available for overseeing the Company's operation and growth.
"A significant amount of resources has been expended over the past several years for auditing, filing and legal expenses in the desire to maintain an OTC Bulletin Board listing," stated Yi Song, chief executive officer of the Company. "We are now going to focus all of our energies and resources on the promotion of our products and research and development of technology. We believe that, at this stage of our operations, using our resources to build our business better serves the interests of our shareholders.
"Our Directors voted for the voluntary deregistration of our common stock after carefully considering the advantages and disadvantages of continuing registration. The costs and administrative burdens associated with being a public company are significant. Our board of directors determined that the costs of compliance, as well as the substantial demands on management time and resources, outweigh the benefits we receive from maintaining our registered status. The filing of the Form 15 will reduce expenses, avoid higher future expenses and enable management to focus more of its time and resources on strategic long-term development, operating the Company and enhancing shareholder value," added Mr. Song.
CFO Trail
On July 14, 2011, Junjiang Li offered his
resignation as financial controller to the board of directors of Diguang International Development Co., Ltd. (the “Company”), effective immediately. On July 15, the Company appointed Mr. Zeng Qingjun to act as the principal financial officer of the Company until such time as the Company is able to appoint a new chief financial officer.
Comments & Business Outlook
DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In US Dollars)
2011
2010
(Unaudited)
(Unaudited)
Revenues:
Revenues, net
$ 13,409,910 $ 12,484,194
Cost of sales
(13,070,023 ) (10,779,840 )
Gross profit
339,887 1,704,354
Selling expense
607,432 600,831
Research and development
520,459 528,984
General and administrative
1,145,934 1,068,932
Loss on disposing assets
- 2,686
Loss from operations
(1,933,938 ) (497,079 )
Interest income (expense), net
(285,374 ) (169,226 )
Investment income (expense)
-
Other income (expense)
120,012 38,592
Loss before income taxes
(2,099,300 ) (627,713 )
Income tax provision
(386 ) -
Net loss
(2,099,686 ) (627,713 )
Net income (loss) attributable to non-controlling interest
(43,394 ) (50,888 )
Net loss attributable to common shares
$ (2,056,292 ) $ (576,825 )
Weighted average common shares outstanding – basic
22,072,000 22,072,000
Losses per share – basic
(0.09 ) (0.03 )
Weighted average common shares outstanding – diluted
22,072,000 22,072,000
Loss per share – diluted
(0.09 ) (0.03 )
Three Months Ended March 31,
2011
2010
International sales
9,152,575 6,477,000
Domestic sales
4,257,335 6,007,000
Total
13,409,910 12,484,000
Sales to international customers totaled $9.2 million for the three months ended March 31, 2011, representing an increase of $2.7 million, or a 42% decrease, compared with $6.5 million for the first quarter of 2010. The significant increase in international sales was due to an increase in the demand of LED backlight products.
Sales to domestic customers were $4.2 million for the first quarter of 2011, representing a decrease of $1.8 million, or a 30% decrease, compared with $6.0 million for the same period of 2010. The decrease in domestic sales was due to some of the major customers starting to manufacture the LED backlight products by themselves, so the sales orders from those customers dropped significantly.
Investor Alert
On June 7, 2011, Diguang International Development Co., Ltd. received a notification letter from the Financial Industry Regulatory Authority regarding the Company’s failure to comply with the requirements of NASD Rule 6530, which requires the timely filing of periodic reports to the Securities and Exchange Commission due to Diguang’s delay in filing its Form 10-Q for the three-month period ended March 31, 2011 (the “Q1 Form 10-Q”). As previously noticed in the Company’s Form 12b-25 filed with the SEC on May 16, 2011, Diguang did not file the Q1 Form 10-Q on the required due date, which was May 16, 2011, due to a decision made by its then independent registered public accounting firm to terminate its relationship with Diguang. Accordingly, FINRA has notified Diguang that, unless it regains compliance with the requirements of NASD Rule 6530 prior to June 24, 2011, its common stock will not be quoted on the OTC Bulletin Board (the “OTCBB”) as of June 27, 2011.
Investor Alert
On May 4, 2011, Diguang International Development Co., Ltd. was notified by BDO China Li Xin Da Hua CPA Co., Ltd. (“BDO China LXDH”), its independent registered public accounting firm, that BDO China LXDH
has decided not to stand for re-election as the independent registered public accounting firm of the Company for fiscal year 2011. On the same date, BDO China LXDH also confirmed that the client-auditor relationship between itself and the Company has ceased with immediate effect from May 4, 2011.
Liquidity Requirements
Currently, the Company’s operations are financed by debt financing, which included short-term and long-term bank loans and accounts payable. The Company believes that it should be able to get additional loans as needed by pledging as collateral its property and facility at Dongguan which has a market value of about $6.0 million . Since the Chinese government is tightening its bank credit policy, the Company may not be able to obtain more funds from bank loans; furthermore, the Company may not be able to renew short-term bank loans at their maturity. Cash on hand as of December 31, 2010 may not be adequate to meet working capital demands from the Company’s operating activities in 2011. Consequently, the Company may need to apply for new loans as soon as possible.
The Company started to construct a new manufacturing facility in the Guangming District of Shenzhen at the beginning of 2010. Total budget investment for the new facility was $11 million . As of December 31, 2010, total construction cost invested in the new facility amounted to $8.1 million , among which, $4.2 million was actually paid and $3.9 million was outstanding. The interior decoration of the facility was on hold as the Company did not have adequate cash for further proceeding. This construction was financed by a long-term bank facility of RMB100 million, approximately $15.2 million , from China Development Bank. As of December 31, 2010, the Company drew down RMB53 million, equivalent to about $8.7 million , from this facility and there was still RMB43 million, equivalent to $6.5 million , available for future use. The Company needs to apply for further draw-downs from this facility with China Development Bank. There is no assurance that the Company can succeed in its application with China Development Bank
Comments & Business Outlook
Fourth Quarter Results :
Net revenue increased 13.4% year-over-year to $16.3 million
Gross profit totaled $0.22 million, or 1.3% of sales, compared to gross profit of $1.6 million a year ago
Net loss was $2.7 million, or $0.12 cents per diluted share, in 2010, compared to a loss of $2.9 million, or $0.13 per diluted share, in 2009
"Due to the various factors in the development of the LED TV business in the past, the Company did not perform as well as expected , "said Mr. Yi Song, executive officer and chairman of the board of directors of the Company. "Nowadays product competition has become more fierce, with labour costs going up continuously and we are seeing the same for some of the raw material prices. Furthermore, our production base for the development of the Company cannot be fully and effectively utilized, which will cause higher depreciation and finance costs. Although the Company still endeavors to reduce general and administrative expenses by strengthening management control and increasing future income streams by increasing sales, we cannot be sure that there would be obvious improvement to profit this year. Of course, we will make our utmost efforts to reduce losses ," added Mr. Song.
The Company estimates fiscal 2011 revenue to be in the range of $40 million to $50 million . (Total revenue for 2010 was approximately $64.9 million , up 47.31% from $44.1 million in fiscal year 2009.
Liquidity Requirements
The Company estimated that as of
September 30, 2010 , cash on hand is enough to meet day-to-day working capital requirements at the current operating level. But if the plant under construction in Guangming is put in use in the near future, then the Company may need more fund as working capital to run the new production facility. Based on the cash on hand, the used banking facility of $6.6 million, and potential borrowing ability by pledging Dongguang plants, management of the Company firmly believes that it has adequate financing ability to run operating activities for a year as of September 30, 2010.
Comments & Business Outlook
Three Months Ended September 30,
2009
2010
2009
2010
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenues:
Revenues, net
$ 29,659,356 $ 48,577,772 $ 13,456,366 $ 19,050,932
Cost of sales
27,699,850 43,822,467 12,518,206 17,539,034
Gross profit
1,959,506 4,755,305 938,160 1,511,898
Selling expense
1,653,102 2,036,485 714,206 784,572
Research and development costs
1,486,377 725,070 460,946 391,103
General and administrative expenses
3,185,343 2,830,203 997,932 889,226
Loss on disposing assets
30,487 10,787 10,308 8,480
Loss from operations
(4,395,803 ) (847,240 ) (1,245,232 ) (561,483 )
Interest income (expense), net
(285,759 ) (585,112 ) (126,251 ) (226,099 )
Investment income (expense)
800 - - -
Other income (expense)
197,937 83,690 87,744 (63,375 )
Loss before income tax
(4,482,825 ) (1,348,662 ) (1,283,739 ) (850,957 )
Income tax provision
30,927 29,028 (646 ) 16,199
Net loss
(4,513,752 ) (1,377,690 ) (1,283,093 ) (867,156 )
Net loss attributable to non-controlling interest
(248,609 ) (72,570 ) (65,543 ) (12,067 )
Net loss attributable to common shares
$ (4,265,143 ) $ (1,305,120 ) $ (1,217,550 ) $ (855,089 )
Weighted average common shares outstanding – basic
22,072,000 22,072,000 22,072,000 22,072,000
Losses per share – basic
(0.19 ) (0.06 ) (0.06 ) (0.04 )
Weighted average common shares outstanding – diluted
22,072,000 22,072,000 22,072,000 22,072,000
Losses per shares – diluted
(0.19 ) (0.06 ) (0.06 ) (0.04 )
Adjusted net loss (non-GAAP) was $0.3 million , or $(0.01) per share , compared to an adjusted net loss of $0.4 million , or($0.02) per diluted share , in the third quarter of fiscal year 2009
"Our Wuhan factory's low gross margin significantly impacted the Company's gross margin level for all products in the third quarter," said Mr. Song Yi , the President and Chief Executive Officer of Diguang. "The Wuhan factory only manufactures OEM products for a Taiwanese customer, and operates on a very low gross margin in order to reduce the occupation of the Company's working capital. From January to September 2010 , the total revenue at the Wuhan facility was US$14.5 million but the gross margin was only 6.2%. And, in the third quarter of 2010, the total revenue was US$5.1 million , which accounted for 27% of the total sales volume in the third quarter, but the gross margin was only 4%. However, the Company is now focusing more on sales of LED BLU for large-size backlights (18' to 32' inch), which has a higher gross margin (approximately 20%). As Diguang Technology's revenue for LED BLU products is US$3.8 million , with a gross margin of 22%, and the Wuhan factory's revenue is US$0.8 million , with a gross margin of 10%, the Company anticipates that the growth of this new business line at Diguang Technology will provide profit growth in the future."
Comments & Business Outlook
Diguang continues to anticipate strong growth that will be driven by increased demand in its LED backlights and LED TV segments in the future. The Company recently launched its 19", 22" and 24" ultra-thin LED TVs and monitors, and expects to roll out 32" and 42" ultra-thin LED backlights and TVs in May 2010. In April 2010, the Company commenced small-scale production of 19" LED TV and 24" LED backlight for TCL, one of the largest TV manufacturers in China, and expects to commence large-scale production for TCL in May 2010.
Diguang's new production facility in Shenzhen, which is designed to manufacture large-size LED backlights and LED TVs with ten production lines and a total annual production capacity of 1.0 million units, is proceeding on schedule. The Company expects to complete construction in the fourth quarter of 2010 and will begin production in the first quarter of 2011.
The Company's general lighting segment represents an attractive long-term growth opportunity and Diguang is in advanced negotiations to receive safety certifications for its LED general lighting products that will be shipped to the US, UK, France, Netherlands and Singapore.
"We are excited about the opportunities presented by the LED market, especially for large size LED backlights and LED TVs, which continues to offer the most upside potential due to growing consumer acceptance, the improving global economy and increasing consumer spending power," commented Mr. Song. "We are confident in our ability to maintain our current level of gross margin with a potential for further improvement as our sales increase . We reaffirm our revenue guidance of $60 million to $80 million for the fiscal year 2010."
