Diguang International Announces First Quarter 2010 Results

SHENZHEN, China, May 17 /PRNewswire-Asia-FirstCall/ -- Diguang International Development Co., Ltd. (OTC Bulletin Board: DGNG) ("Diguang" or the "Company") today announced its financial results for the first quarter of fiscal year 2010 ended March 31, 2010.

    First Quarter 2010 Highlights
    -- Net revenue increased 108.1% year-over-year to $12.5 million
    -- Gross profit increased 174.3% year-over-year to $1.7 million with
       gross margin of 13.7%
    -- Net loss improved to $0.6 million, or $0.03 per diluted share, compared
       to a net loss of $1.2 million, or $0.05 per diluted share, in the first
       quarter of fiscal year 2009
    -- Adjusted net loss (non-GAAP) was $0.1 million, or $0.01 per share,
       compared to an adjusted net loss of $0.7 million, or $0.03 per diluted
       share, in the first quarter of fiscal year 2009

"Our business continued to improve in the first quarter of 2010, exhibiting strong sales growth and a significant increase in gross margin driven by increased contribution from our LED products," said Mr. Song Yi, the President and Chief Executive Officer of Diguang. "During the first quarter, both traditional CCFL and new LED backlight products experienced robust growth in sales driven by strong market demand, our ability to run short production cycles and administer faster response time. Our Wuhan facility successfully received increased orders of large size CCFL backlights from one of our major customers, which is the largest monitor manufacturer in the world. We successfully added new high-profile customers and are working with a number of prospective customers. Sales of our LED products, including LED backlights, LED LCM, LED general lighting products and LED monitors, continued to represent a majority of our total sales."

Highlights for the Three Months Ended March 31, 2010

Net revenue totaled approximately $12.5 million for the three months ended March 31, 2010, a significant increase of 108.1% from $6.0 million for the comparable period in 2009. This was due to the improved market demand for our traditional and newly-developed backlight products along with continued economic recovery from the global financial crisis which affected sales in the previous year. Sales of CCFL backlights increased 117.7% to $4.4 million in the first quarter of 2010, while sales of LED backlights grew 82.2% to $5.7 million. Sales of the newly-developed large size LED backlight products contributed to approximately 54.0% of the increase in revenue from LED backlights. Sales of liquid crystal module (LCM) almost tripled to $1.7 million, and the Company generated additional revenue of $0.4 million from liquid crystal display LED monitors compared to the first quarter of 2009, as we have commenced mass production of the LED monitors and launched them in the market since the second quarter of 2009. Sales of LED general lighting products declined slightly from $246,000 in the first quarter of 2009 to $236,000 in the first quarter of 2010 due to the aggressive competition. However, our management expects the LED general lighting segment to exhibit strong growth in the coming years.

Gross profit for the first quarter of 2010 totaled $1.7 million, or 13.7% of net revenue, compared to $0.6 million, or 10.4% of net revenue, for the same period of 2009. On a sequential basis, gross margin increased 2.7 percentage points from 11.0% in the fourth quarter of 2009. The continued improvement in gross margin was largely attributed to the increased contribution from LED products, which recorded a higher gross margin of 17% than 9% in the first quarter of 2009. However, this was partially offset by a decline in gross margin from sales of CCFL backlights and CCFL LCM products from the same period in 2009.

Operating expenses totaled approximately $2.2 million for the first quarter of 2010, up 12.4% from $2.0 million in the first quarter of 2009. The total operating expenses in the first quarter of 2010 amounted to 17.6% of net revenue, compared to 32.6% in the first quarter of 2009. Selling expenses rose 44%, primarily due to increased commissions paid in proportion to increased revenue. Research and development expenses increased 30.2% to $0.5 million due to higher payroll expenses and raw materials costs related to the development of new products. General and administrative expenses were $1.1 million in the first quarter of 2010, relatively unchanged from the same period in 2009.

Interest expense was $0.2 million for the first quarter of 2010, up from $0.1 million in the same period of 2009 as the Company utilized additional bank loans to support its working capital needs.

The Company's net loss attributable to common shares during the three months ended March 31, 2010 was $0.6 million, improved from a net loss of $1.2 million attributable to common shares for the same period in 2009.

The loss per basic and diluted share was $0.03 for the first quarter of 2010, improved from loss per basic and diluted share of $0.05 for the same period of 2009.

Adjusted net loss (non-GAAP), which excludes non-cash items (including non-controlling interest, depreciation, inventory provision, loss on disposal of assets and share-based compensation), for the first quarter of 2010 would have been $0.1 million, or $0.01 per basic and diluted share. Adjusted net loss (non-GAAP), which excludes non-cash items (including non-controlling interest, depreciation, inventory provision, loss on disposal of assets and share-based compensation), for the first quarter of 2009 would have been $0.7 million, or $0.03 per basic and diluted share. Please see the reconciliation table below.

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

                                               Three Months Ended March 31,
                                                 2010                 2009

    GAAP net income (loss)                     (576,825)          (1,210,418)
    Non-cash items:
        Non controlling interest                (50,888)             (35,866)
        Depreciation                            446,606              427,287
        Bad debts allowance                      62,698                    0
        Inventory provision                     (33,398)             (21,068)
        Loss on disposal of assets                2,686               14,039
        Share-based compensation                 11,219              100,090
    Non GAAP net income (loss)                 (137,902)            (725,936)

    GAAP net income (loss)                        (0.03)               (0.05)
        Non-cash items:
        Non controlling interest                  (0.00)               (0.00)
        Depreciation                               0.02                 0.02
        Inventory provision                       (0.00)               (0.00)
        Loss on disposal of assets                 0.00                 0.00
        Share-based compensation                   0.00                 0.00
    Non GAAP net income (loss)                    (0.01)               (0.03)
    Weighted average shares
     outstanding - diluted                   22,116,774           22,072,000

Financial Condition

As of March 31, 2010, Diguang had $5.6 million in cash and cash equivalents and $7.3 million in restricted cash. Our working capital increased significantly to approximately $8.0 million compared to $2.8 million at the end of 2009. As of March 31, 2010, the Company had $11.7 million in short-term bank loans and $6.6 million in long-term liabilities. Shareholders' equity was $19.5 million as of March 31, 2010.

Recent Events

Diguang participated in the 2010 China Optoelectronics and Display EXPO ("CODE") at the Shenzhen Convention and Exhibition Center from May 8 to May 10, 2010.

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."

Use of Non-GAAP Financial Measures

The Company's financial results prepared based on U.S. GAAP for the three months ended March 31, 2010 and 2009 include non-cash expenses such as depreciation, share based compensation, bad debt allowance, inventory provisions, loss on the disposal of assets, and deferred tax assets. To supplement the Company's condensed consolidated financial statements presented in accordance with U.S. GAAP, the Company has provided non-GAAP financial measures excluding the impact of these items in this release, including adjusted net income and adjusted diluted earnings per share. The Company's management believes that, in conjunction with U.S. GAAP financial measures, these non-GAAP financial measures (i) improve transparency for investors, (ii) assist investors in their assessment of the Company's operating performance, (iii) facilitate comparison to the Company's historical performance, (iv) ensure that these measures are fully understood in light of how the Company evaluates its operating results, (v) properly define the metrics used and confirm their calculation. The additional adjusted information is not meant to be considered in isolation or as a substitute for items appearing on the Company's financial statements prepared in accordance with U.S GAAP. Rather, the non-GAAP measures should be used as supplement to U.S. GAAP results to assist the reader in better understanding the operational performance of the Company. The adjusted financial information that the Company provides may also differ from the adjusted information provided by other companies, which limits their usefulness as comparative measures. Our management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under the U.S. GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measures to the nearest U.S. GAAP financial measures appears in the table above.

Teleconference and Webcast Information

Diguang will host a conference call at 9:00 a.m. Eastern Daylight Time on Tuesday, May 18, 2010, to discuss its results for the first quarter of fiscal 2010.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled time: [phone]. International callers should dial [phone]. When prompted, please enter conference ID number 742 398 48.

A replay will be available for 14 days starting at 10:00 a.m. Eastern Daylight Time on Tuesday May 18, 2010, and can be accessed by dialing [phone]. International callers should dial [phone]. When prompted, please enter conference ID number 742 398 48.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.diguangintl.com . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate in the live broadcast, a one-year replay will be available shortly after the call by accessing the same link.

About Diguang International Development Co., Ltd.

Through its subsidiaries, Diguang develops and produces CCFL and LED backlights for a wide range of TFT-LCD products. A backlight is the typical light source of a liquid crystal display (LCD), with applications spanning televisions, computer monitors, cellular phones, digital cameras, DVDs and other home appliances. Leveraging its LED expertise, the Company also creates and markets energy-saving technologies and solutions for rapidly growing markets such as LED backlight monitors and LED general lighting. For more information, contact CCG Investor Relations directly or go to Diguang's website at http://www.diguangintl.com .

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 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 product introductions; general economic conditions; geopolitical events and regulatory changes, as well as other relevant risks, including but not limited to risks outlined in the Company's periodic filings with the U.S. Securities and Exchange Commission. Diguang does not assume any obligation to update the information contained in this press release.

    For more information, please contact:

    Company Contact:
     Viola Tse
     Diguang International Development Co., Ltd.
     Email: [e-mail]
     Tel:   [phone]

    Investor Relations Contact:
     Elaine Ketchmere, Partner
     CCG Investor Relations
     Email: [e-mail]
     Tel:   [phone]
     Web:   http://www.ccgirasia.com



                 DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.
                      CONSOLIDATED STATEMENTS OF INCOME
                           AND COMPREHENSIVE INCOME
                               (In US Dollars)


                                               Three months ended March 31,
                                                 2010                2009
                                             (Unaudited)         (Unaudited)
    Revenues:
    Revenues, net                         $   12,484,194      $    5,999,853
    Cost of sales                             10,779,840           5,378,488
    Gross profit                               1,704,354             621,365
    Selling expense                              600,831             418,234
    Research and development                     528,984             406,324
    General and administrative                 1,068,932           1,130,978
                                               2,198,747           1,955,536
    Loss on disposing assets                       2,686                  --
    Loss from operations                        (497,079)         (1,334,171)

    Interest income (expense), net              (169,226)            (87,446)
    Investment income (expense)                       --                 500
    Other income (expense)                        38,592             177,921

    Loss before income taxes                    (627,713)         (1,243,196)

    Income tax provision                              --               3,088

    Net loss                                    (627,713)         (1,246,284)

    Net income (loss) attributable to
     non-controlling interest                    (50,888)            (35,866)

    Net loss attributable to common
     shares                               $     (576,825)     $   (1,210,418)

    Weighted average common shares
     outstanding - basic                      22,072,000          22,072,000

    Losses per share - basic                       (0.03)              (0.05)

    Weighted average common shares
     outstanding - diluted                    22,116,774          22,072,000

    Losses per shares - diluted                    (0.03)              (0.05)

    Other comprehensive income:
    Translation adjustment                       (38,965)           (245,869)
    Comprehensive loss                          (666,678)         (1,492,153)
    Comprehensive income (loss) attributable
     to non-controlling interest                 (50,853)            (39,661)

    Comprehensive income attributable to
     common shares                        $     (615,825)     $   (1,452,492)




                 DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.
                         CONSOLIDATED BALANCE SHEETS
                               (In US Dollars)

                                             March 31,          December 31,
                                                2010                 2009
                                            (Unaudited)
    ASSETS
    Current assets:
    Cash and cash equivalents            $    5,630,416       $    6,190,513
    Restricted cash                           7,311,803            4,341,112
    Accounts receivable, net of allowance
     for doubtful accounts $1,529,505 and
     $1,592,221                              15,908,878           13,972,086
    Inventories, net of provision
     $3,519,124 and $3,485,777               10,008,084            7,439,287
    Other receivables, net of provision
     $69,032 and $69,032                        401,024              465,013
    VAT recoverable                             548,969               82,497
    Advance to suppliers                      1,608,134              900,328
    Total current assets                     41,417,308           33,390,836

    Investment, net of impairment
     $1,500,000 and $1,500,000                       --                   --
    Plant, property and equipment, net       18,698,964           17,868,845
    Long-term prepayments                       417,533              439,502

    Total assets                         $   60,533,805       $   51,699,183

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
    Bank loans                               11,745,728       $   10,213,683
    Accounts payable                         17,386,496           15,446,721
    Advance from customers                      331,422              325,165
    Accruals and other payables               2,472,450            2,510,206
    Accrued payroll and related expense         771,067              712,206
    Income tax payable                          383,782              394,989
    Amount due to stockholders - current        352,835              943,378
    Total current liabilities                33,443,780           30,546,348

    Long-term bank loans                      6,592,634                   --
    Research funding advanced                   952,270              952,255
    Total non-current liabilities             7,544,904              952,255

    Total liabilities                        40,988,684           31,498,603

    Equity
    Common stock, par value $0.001 per
     share, 50 million shares authorized,
     22,593,000 and 22,593,000 shares
     issued, 22,072,000 and 22,072,000
     shares outstanding                          22,593               22,593
    Additional paid-in capital               20,892,854           20,881,635
    Treasury stock at cost                     (674,455)            (674,455)
    Appropriated earnings                       802,408              802,408
    Accumulated deficit                      (8,221,079)          (7,644,254)
    Translation adjustment                    4,299,891            4,338,891
    Total stockholders' equity               17,122,212           17,726,818
      Non-controlling interest                2,422,909            2,473,762
    Total equity                             19,545,121           20,200,580

    Total liabilities and stockholders'
     equity                             $    60,533,805    $      51,699,183



                 DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
               Increase (Decrease) in Cash and Cash Equivalents
                               (In US Dollars)

                                               Three months ended March 31,
                                                 2010              2009
                                              (Unaudited)       (Unaudited)
    Cash flows from operating
     activities:
    Net loss                            $         (627,713)    $  (1,246,284)
    Adjustments to reconcile net income
     to net cash provided by (used in)
     operating activities:
    Depreciation                                   446,606           427,287
    Bad debts allowance                             62,698                --
    Inventory provision                            (33,398)          (21,068)
    Loss on disposing assets                         2,686            14,039
    Share-based compensation                        11,219           100,090
    Changes in operating assets and
     liabilities:
    Accounts receivable                         (1,999,455)        1,581,302
    Inventory                                   (2,535,342)       (1,168,677)
    Other receivables                               63,989           155,994
    VAT recoverable                               (466,465)          (38,258)
    Prepayments and other assets                  (707,798)           29,694
    Accounts payable                             1,939,835        (3,801,009)
    Accruals and other payable                      21,105          (380,104)
    Advance from customers                           6,257           (27,290)
    Accrued interest payable to related
     parties                                         7,025                --
    Taxes payable                                  (11,207)           (1,036)

    Net cash used in operating
     activities                                 (3,819,958)       (4,375,320)

    Cash flows from investing
     activities:
    Purchase of fixed assets                    (1,257,632)          (56,690)
    Proceeds from disposal of fixed
     assets                                            209            13,464

    Net cash used in investing
     activities                                 (1,257,423)          (43,226)

    Cash flows from financing
     activities:
    Due to related parties                        (597,568)          (83,409)
    Repayments for short-term bank
     facilities                                 (1,438,624)               --
    Proceeds from import financing loans         2,970,691                --
    Restricted cash pledged for import
     financing loans                            (2,970,691)               --
    Proceeds from long-term loan
     facilities                                  6,592,731                --

    Net cash received from financing
     activities                                  4,556,539           (83,409)

    Effect of changes in foreign
     exchange rates                                (39,255)         (222,780)

    Net increase (decrease) in cash and
     cash equivalents                             (560,097)       (4,724,735)

    Cash and cash equivalents, beginning
     of the year                                 6,190,513        15,024,363

    Cash and cash equivalents, end of
     the year                           $        5,630,416     $  10,299,628

SOURCE Diguang International Development Co., Ltd.

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