China Direct, Inc. 2008 Annual Report
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China Direct, Inc. 2008 Annual Report NASDAQ: CDII China Direct, Inc. Financial Highlights (In millions, except per share amounts) 2006 2007 2008 Revenue $ 14$167.6 $ 240 Net Income $ 0.17$11.8 $ 11.4 EPS (Fully-Diluted) $ 0.01 $ 0.67 $ 0.20 Shareholder Equity $ 5.9 $ 42.6 $ 58 Working Capital $ 6.8 $ 40.7 $ 37.5 Total Assets $ 20.8 $ 88.3 $ 107.4 Revenue Net Income EPS (Fully-Diluted) $11.8 $11.4 $0.67 $240 $167.6 $0.20 1 $ 4 $.17 $0.01 2006 2007 2008 2006 2007 2008 2006 2007 2008 Shareholder Equity Working Capital Total Assets $58 $107.4 $40.7 $37.5 $42.6 $88.3 $20.8 $5.9 $6.8 2006 2007 2008 2006 2007 2008 2006 2007 2008 Dear Fellow Shareholder, 2008 was a pivotal China Direct as we positioned our company to and distribution of magnesium. We made great strides in increasing our production As I look back on 2008, I realize that in two short years capacity as we completed construction of several new we have transitioned from a small consulting operation facilities in Taiyuan and initiated operations in Baotou to a growing management services company through the Inner Mongolia. We enter 2009 with the capability of acquisition of Chinese entities in magnesium production producing and distributing over 100,000 metric tons and distribution and basic industry. Our magnesium of magnesium with the ability to meet the large quantity segment has emerged as the flagship of our company and requirements of the largest end customers in the world. is our largest segment by revenue and number of portfolio We continued to grow our basic materials segment with companies. In 2008, we have built our magnesium the acquisition of CDI Beijing which distributes various segment to be one of the largest producers and distributors materials including steel and wood in China. We elected of magnesium in the world with a variety of products such to divest our experimental clean technology operations in as pure magnesium ingots, magnesium powders and order to focus on our core magnesium and basic materials magnesium scraps. Revenue from this segment reached segments. Our efforts and substantial investments made $170 million in 2008, up 69% from the $101 million throughout 2008 yielded a strong overall performance as recorded in 2007. We anticipate this segment will continue revenue from continued operations grew to $240 million to be the main driver of our performance in 2009. up from $168 million in 2007. Additionally, our earnings before non-cash items increased to $17.7 as In the second half of 2008 we witnessed a severe compared to $12.5 million in 2007. While our GAAP net downturn in the magnesium industry. Prices and demand income decreased slightly to $11.4 million as compared to fell sharply as most world markets went into a deep recession. $11.8 million in 2007, we generated approximately $11 The decrease in automobile sales, steel production and million in cash from operations. aluminum dye casting all contributed to this rapid deterioration. While this environment had a significant I am extremely pleased with the dedication and tireless negative impact on our operating results in the third and effort of our whole team in both China and the United fourth quarter, we believe our investment in low cost States. Their contribution has enabled us to react quickly production technology and a flexible labor force positions us to a rapidly changing global environment. They will to compete effectively and quickly bring our costs in line to continue to play a key role as we deal with the global operate profitably at lower production levels. In addition, economic slowdown that became apparent after the 2008 many of our smaller competitors have ceased operations and Beijing Olympics. The impact of this slowdown on our most if not all new production projects have been operations was significant and continues to present abandoned. This has resulted in decreasing magnesium challenges to all facets of our business. We have responded supplies and signs of price stabilization. We are confident with significant cost cutting efforts as we look to quickly that the implementation of worldwide stimulus plans will align our costs with the current environment while not increase demand in the second half of 2009 resulting in sacrificing our ability to perform and scale up production industry growth and a resumption of our leading position as economic conditions improve. in the magnesium market. This letter contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the Company’s operations, financial performance and, condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, but not limited to, the impact of competitive products, pricing and new technology; changes in consumer preferences and tastes; and effectiveness of marketing; changes in laws and regulations; fluctuations in costs of production, and other factors as those discussed in the Company’s reports filed with the Securities and Exchange Commission from time to time. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. year of growth and transition for be a major global force in the production Our second largest segment by way of revenue is basic unprecedented opportunity. We are confident our materials, which covers the sale and distribution of corporate vision will give our shareholders direct access to industrial chemicals, basic metals and minerals, forestry China through the enormous potential of our subsidiaries and wood products, and other basic resources. operating in China and believe China Direct Industries This segment also experienced difficulty during the is a compelling investment vehicle for investors seeking economic downturn. With our acquisition of CDI Beijing exposure to the Chinese economy. to distribute products including steel and wood and the performance of our Lang Chemical distributing On behalf of all of us at China Direct, I would like to operations, we saw 2008 revenues from this segment of thank our shareholders for their support and emphasize $54 million, representing approximately 23% of our total the commitment of each and every one of our employees consolidated revenues. Profits in this segment for 2008 to delivering the best possible results for our company. were primarily driven by our Lang Chemical subsidiary We head into 2009 on strong financial ground with the and to a lesser extent by CDI Beijing. We continue to confidence that we have the right combination of delay commencement of our Zinc mining and production leadership, employees and operations to survive and indeed subsidiaries until the market becomes more favorable. thrive in this challenging environment. We believe China We believe we are well positioned in this segment and look still represents a tremendous growth opportunity and we forward to the resumption of growth as the economy in intend to capitalize on the foundation we have built and China improves in 2009. prosper in the coming years. We intend to prudently expand our business in China through internal and external growth Our consulting segment offers a suite of services tailored while aligning operating costs to the current economic to meet the needs of each individual client and generated environment. We believe this will help our company emerge revenues of approximately $16 million in 2008. As we from these uncertain times as a stronger and more continue to focus our resources on our operating importantly, a profitable company poised for growth. companies in China, we expect our consulting revenues As always, we thank you for your support and look forward to decline as a percentage of our overall revenue. We plan to maximizing the value of China Direct for you, our to continue to service our current clients and will look to shareholders, in the years to come. opportunistically add clients in 2009. Sincerely, China has emerged as an economic powerhouse with huge potential for growth as the world’s economies begin to recover. China’s stimulus plan is largely devoted to infrastructure which should benefit our core operations. From our offices in Shanghai, China and Deerfield Beach, Florida, we have built operations and developed Dr. James Wang a network and methodology to capitalize on this Chief Executive Officer and Chairman of the Board UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ——————— FORM 10-K ——————— (Mark One) ; ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2008 or TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: _____________ to _____________ ——————— CHINA DIRECT, INC. (Exact name of registrant as specified in its charter) ——————— Florida 001-33694 13-3876100 (State or other jurisdiction of Commission (I.R.S. Employer incorporation or organization) file number Identification No.) 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (954) 363-7333 Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common stock, par value $0.0001 Nasdaq Global Market Securities registered under Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.