Dow Tumbles 280 Points at Resistance and Fed Minutes Meeting
Aug 29, 2007 Speculative Stock Analysis, TTT.net Updates
The general market ate up the bulls today with the Dow ending the day down 280 points. Two culprits i believe to be the cause. 1: The Dow had made a very strong rally off of its recent bottom and came to a halt once price had risen to the top resistance line of a short term bearish channel which would be a signal for going short. Technically the market is looking fairly bearish and wont be surprised to see the dow around 12,800 in the near future.
2: In the Fed’s meeting apparently investors were hoping to hear something about the Fed cutting the rates to fix all this credit mess that has sparked this recent bearish activity over the past months since the Dow hit a record high near 14k. I think its likely we won’t hear anything about a rate cut until the Feds Sept 18th meeting, if the rates get cut at all.
At this point the markets tough to bet on as many stocks fundamentals are looking very strong yet that doesn’t seem to matter to the street in the face of credit problems and the question of what the hell is the FED gonna do about it. With the market in constant turbulence i’ve been taking this time to take a small step back and enjoy the sun and the last days of my summer which is why i’m 60% cash and haven’t been too active on the blog or boards. I’m taking one last summer vacation this coming weekend before the 90-100 degree weather here in Boise says adios amigos until next June. Every year me and a group of best friends head out to the Columbia Gorge to watch Dave Matthews perform 3 nights in a row at one of the most magnificent Amphitheater’s around. Maybe I’ll see some of yah there 
I’ll be gone this thursday – Monday.
August 28, 2007, 4:11 pm
Four at Four: Dogs on the Street
Posted by David Gaffen
After July, 1990 and 1998 didn’t end well.
Is This Where the Stock Market Rebounds?
Aug 17, 2007 Speculative Stock Analysis, TTT.net Updates
Wednesday i was quick to sell most of my positions as the Dow had finally broken down its horizontal trading channel while concerns of Credit continued to spark volatility and fear across the global markets. Its really hard to make accurate calls in such a volatile market when the dow is moving triple digits daily like its no biggy, especially when the underlying fundamentals of a stock are proving to be worthless. Most analysts called for an average joe 10% re-tracement and we’re sitting around 8% down as of todays close. This market is nuts ! intraday i was saying to myself man i’m glad i decided to sell most of my positions yesterday as the down began to slide over 300 points! I wasn’t in the mood to watch anymore bleeding so me and some buddies hopped in the car and went and played 9 holes of golf and threw back a “couple” cold ones . To my amazement when i got back the market had made such a strong rebound managing to close only down 15 points when earlier that day the Dow was down almost 350 points!
From a technical analysis standpoint we are looking in pretty good shape for a rebound after todays move. Price is sitting on a spot where support is looking strong in 3 places as well as forming a bullish hammer candle to indicate that the stock market probably will rebound from this area. Too early to make any assumptions, but technically after Thursdays session we are seeing signs of a rebound in progress.
Asian Markets tumbling Friday:
Japan’s Nikkei 225 index was down 3.5 percent in early afternoon trading on the Tokyo Stock Exchange. Hong Kong’s blue chip Hang Seng Index was down 3.0 percent at midday, and the Korea Composite Stock Price Index was down 2.2 percent after dropping 6.9 percent in the previous session.
Commentary of the market from Yahoo! finance
Wall Street Rebounds; Investors Eye Fed
Friday August 17, 12:51 am ET
By Joe Bel Bruno, AP Business Writer
Investors Eye Fed for Momentum After Dow Reverses From 343 Point Loss NEW YORK (AP) — In what’s becoming a familiar story on Wall Street, stocks have had a dramatic late-session turnaround as buyers streamed back into the market. The question of course is whether Thursday’s surge, which pulled the Dow Jones industrials up from a more than 300 point loss to close only narrowly lower, will be the one that sticks.
The market, which has had several such comebacks this month, has been giving back all its gains of late and then some amid unrelenting volatility. And many analysts believe the answer lies with the Federal Reserve.
Bargain hunting rather than a belief that the bad times are over was partly behind this latest last-hour advance — stocks have fallen so far amid worries about the availability of credit that investors were willing to place some bets. The market pretty much ignored the Fed’s latest injection of cash into the banking system, a move designed to alleviate the fears about credit that have sent stocks plunging for weeks.
What investors really want is an interest rate cut, and one that comes before the Fed’s Sept. 18 meeting.
“I think there is more confidence of a lasting rally in equities if the Fed cuts rates, and that makes it easier on days like this to do bargain hunting,” said John Lonski, chief economist for credit-rating agency Moody’s Investors Service. “And, the more investors sense that the U.S. economy can shoulder losses arising from subprime mortgages, the closer we are to stabilization in equities.”
So far, though, the Fed shows no signs of acquiescing. It has relied on adding money into the banking system to try to soothe the markets. Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up.
The New York Fed — which carries out the central bank’s market operation — announced Thursday an overnight repurchase agreement worth $12 billion. This was on top of a 14-day “repo” worth $5 billion announced before the market opened. The Fed uses a repo to buy securities from dealers, who then deposit the money into commercial banks.
It’s not what the market wanted. The Dow was down as much as 343 points Thursday.
But the Fed has its reasons for not giving in — for instance, moving too soon could send a message that policymakers are being too reactive. Also, lower rates risk sending inflation higher, and keeping inflation in check has been the Fed’s primary concern.
“Speculation about what their move will be is what is going to control equities for the time being,” Lonski said.
The turnaround Thursday was driven by buying of blue chip stocks, specifically among beleaguered banks and brokerages. Before the buyers returned, the major indexes had reached the levels of a correction, defined as a 10 percent drop from the market’s highs.
The Dow, which closed just above 14,000 on July 19, was down about 1,150 points, or 8.2 percent, by Thursday’s close.
Some analysts were hopeful that the market will be able to build on Thursday’s momentum.
“The fundamental buyers are coming back into the market, and typically trading in the last half hour of the day is where the smart institutional money is going,” said Jack Ablin, chief investment officer at Harris Private Bank. “There’s a feeling that maybe we’ve pushed it too far, and this gives us a running start for positive markets worldwide on Friday.”
Still, the market is quite fragile. Thursday’s buying also came from traders or hedge funds trying to cover losses from what’s known as short trading. In short trading, an investor sells borrowed stock on a bet that the market will fall; when the market rises, the investor must buy stock to pay back the debt.
Moreover, analysts contend each trading day seems to bring about new worries about credit — needed to fuel corporate profits and takeovers — is drying up. The latest catalyst for selling was bad news from Countrywide Financial Corp., the nation’s largest mortgage lender, which had to draw on a billion-dollar credit line to fund its operations.
GSB Can’t hold up in the Face of the Bear, How Undervalued will this get?
Aug 14, 2007 Small Cap Stock Picks, Speculative Stock Analysis
I know guys what a disappointment here…… The markets been so volatile this once 28% gain turned into an unexpected slim to nothing in just 2 days after they reported a record quarter.
They’re forward PE is currently at 12.21x which seems conservative now being that they reported such a strong quarter. In the case of no growth and GSB reports .12 for the next 4 quarters they would report annual basis of .48 eps making their forward PE a multiple of 8.43x instead of the current estimated 12.21x. The industry average for the business software services is currently a 35x earnings multiple making GSB look very undervalued. Fair value estimates for GSB’s future share price is 11.9 – 15.4 $/share making a lot of room for growth into the future as GSB is trading at just 4.15 at todays closing price.
Technically price has retested the breakout zone near $4/share and is coming up on the 50ema as se7en pointed out that could be signs of support. Of course this stock looks cheap here but the general market is beating down everything regardless, So i close below $4 i’ll most likely sell this position off and maybe buy some even cheaper if i get the chance and the market seems to be rebounding.
GlobalSCAPE (AMEX:GSB), leading the market in the integration of Managed File Transfer and Wide Area File Services technologies, today announced its second quarter results.
Revenue for the quarter ending June 30, 2007, grew to $6,418,025, or 162% over the $2,445,327 registered in the 2nd quarter of last year. Net Income increased by 323% to $2,114,876 or $.12 a share on both a basic and fully diluted basis for the quarter.
“I am especially excited about the way our core business, Secure File Transfer and File Sharing continues to explode,” commented Randy Poole, President and CEO. “At 60% growth, we would have had a great quarter without the Defense Department order. Since inception in ’03, our server-side business has more than doubled each year from $600 thousand in ’04 to $2.9 million in ’05, to $6 million in ’06, and we’ll exceed $13 million this year,” stated Poole. “Those core products are fueling our steady, if not dramatic, growth and making it possible for us to participate in the very large order arenas that are not as predictable. We’ll take advantage of those opportunities as they occur while focusing on the day-to-day activities that have gotten us here,” concluded Poole.
2 Chinese Stocks I Love on Earnings Watch: CHNG.OB and CHCG.OB
Aug 12, 2007 Speculative Stock Analysis
Both these stocks ive traded in the past for great profits and have sold off on the momentum. Earnings are coming up for both of them this week, Monday for CHCG.OB, and Tuesday for CHNG.OB.
CHNG made a huge run where i traded it for over 50% gain and has succumb to the inevitable profit taking tumble only to find support near its ascending trendline after falling 23% in one session on news of a private placement. The stock has rebounded and seems fairly stabilized at the moment
Here is my initial analysis of CHNG from when i first analyzed it before it made its big run:
Fundamental Analysis:
CHNG.OB is a small cap company with a current market cap of $99.5m, compared to the Oil & Gas industry’s 2.5b average cap. While its current PS ratio is trading at a higher multiple than the industry’s, the important thing to note is CHNG’s PE ratios, with trading at 13.7x multiple compared to the industry’s 17.3x PE. Even more impressive is their forecasted growth into the future with a one year forward PE of just 3.67x. For the current year, CHNG is expecting to report .39eps and a huge jump to follow in 08? with expectations of 1.12eps, and 1.39eps in 09?. Hypothetically speaking, if CHND continued on average its trading multiple of 13.7x we could expect price per share to be trading in the mid teens in 2008, if the company doesn’t run into any trouble. The financial condition also looks great here, with a high current ratio and no long term debt, making this an attractive growth stock.
I’d be more than happy to re-enter a position here if CHNG can step up to the plate and deliver us some positive results in their earnings call tuesday.
CHCG.OB is another very speculative chinese stock that looks like its on its way to becoming Chinas next electronic retail giant comparable to our Best Buy and Circuit City here in the USA. CHCG is expecting some huge growth going forward with plans to expand to 4000 stores by 2010 worth an estimated $1 billion in annual sales. Technically price has been trading in its bullish ascending channel for quite sometime and had a very bullish breakout which i believed to be a catalyst for a continued move higher though price was hammered down by dilution leading to a tumble back to the ascending support line. Price action has been pretty stagnant until friday when CHCG.OB announced that they would be announcing earnings on Monday which lead to a bullish rally making this stock look ready for a turn around. If CHCG.OB can deliver positive results monday i think it will be a turning point for this bullish stock and the negative sentiment from the dilution will be forgotten.
Heres some Fundamental Analysis from the message boards:
“CHCG is getting more and more out of the small cap category as its growing here ket. I mean this is a company that sells a lot of stuff, they’re expecting $369m in sales for this year alone, and if i recall correctly they were forecasting a billion in sales by 2010. So looking at its current sales and growth in sales $387m doesn’t look very expensive in my eyes, it doesn’t look dirt cheap, but not excessively expensive. Their P/S ratio currently is trading at 1.56x compared to the industry average of .8x. This is based on the last 4 quarters of sales of $247m and current market cap of $379
P/S = Market cap/Sales = 379m/247m = 1.56x sales
Though the more significant ratio we want to look at is the Price to earnings ratio which CHCG is trading below the industry average with a current PE of 19.34 compared to the industries 25x earnings. So CHCG looks inexpensive from this point of view especially given their steady earnings growth with a forward PE of just 11.34. So basically how we look at that forward PE is this, if price to were remain unchanged from todays price, in 1 year from now the PE ratio would be 11.34x. Which would make CHCG.OB a very attractive undervalued stock given that the industry average is 25x. But thats not likely to happen. So we would expect CHCG to rise along with its rise in earnings possibly to maintain its current conservative earnings multiple of 19x. If that were the case over the course of the next year if CHCG were to report its expected .56 eps then hypothetically CHCG should trade near 10.83. If CHCG’s momentum gained quicker which is highly possible in the result of a chart pattern breakout and began to trade at an earnings multiple comparable to the industries 25x then hypothetically price would trade around:
Eps = .56
PE = 25x
.56 x 25 = $14/share. ”
Will keep those one on close watch monday for positive results and possible re-entry.
SDTH Beats the Street – Back in at 5.40
Aug 9, 2007 Small Cap Stock Picks, Speculative Stock Analysis
SDTH posted some pretty solid growth #’s today in its earnings release early this morning at 1am. Analysts were expecting .09eps for the quarter on $20m in revenues. SDTH beat the street posting .11eps on $22m in revenues. Price opened gapped up and has slid in these current unstable markets. Though with SDTH’s positive earnings and fore casted growth in the future suggesting double digit share prices i think its safe to say that we should be holding this stock in our portfolio. I re-established a position at 5.40 this morning.
Quoting my analysis from July 18th:
Fundamental Evaluation:
SDTH had a very strong first year reporting as a publicly traded company posting some impressive earnings. For fy 2006 they posted revenues of $72.6m with a 28% gross margin and minimal operating costs at just $3.9m SGA leaving them with net income of $17.5m on the year. SDTH’s financial condition was quite impressive as well when i looked over there balance sheet. Currently they’re sitting on $34.6m in cash with an outstanding current ratio of 4.38, 2 is optimal, 4.38 is very nice to see. On top of that SDTH is currently subject to zero long term debt so there financial condition is very healthy and look more that set to move forward with growth.
Industry Comparison:
SDTH looks very undervalued when comparing them to the industry averages. SDTH is trading at just 15.17x earnings compared to the Chemical Manufacturing average of 31.8x so we could expect SDTH’s price action to continue its bullish trend as it attracts more investors, especially since its currently holding a very low forward PE of just 9.53x earnings. The price to sales ratio is slightly above the industries with SDTH at 3.83x and the avg of 2.5x. But the P/S ratio is usually of not that much significance. I like to see it below but with SDTH’s PE ratios so undervalued its not of much importance. As i said before the current ratio of 4.38 is very attractive compared to the avg 2.6.
ShengdaTech, Inc. Reports Second Quarter 2007 Results
Thursday August 9, 1:00 am ET
TAIAN CITY, China, Aug. 9 /Xinhua-PRNewswire-FirstCall/ — ShengdaTech Inc. (“ShengdaTech”) (Nasdaq: SDTH – News), a leading manufacturer of nano precipitated calcium carbonate (NPCC) and coal-based chemical products manufacturer in the People’s Republic of China (“PRC”), today reported financial results for the second quarter ended June 30, 2007.
Second Quarter 2007 Highlights
– Revenue for the second quarter increased 58.7% year-over-year to $22.7
million
– Revenue from NPCC segment tripled year-over-year to $10.8 million
– Gross margin increased 580 basis points year-over-year to a record
33.8%, as higher margin NPCC products contributed to a larger
percentage of total revenue
– Net income for the second quarter increased 91% year-over-year to $6.0
million
– Began trading on the NASDAQ Capital Market
Revenues for the second quarter of 2007 increased to $22.7 million, up 58.7% from $14.3 million in the same quarter of 2006. The increase in revenues for the quarter was primarily driven by growth in the NPCC business. NPCC represented 47.7% of total revenues for the quarter with the remaining 52.3% generated by the chemical segment. Gross profit increased 91.5% year- over-year to $7.7 million from $4.0 million in the same period a year ago. Gross margin was a record 33.8% as a result of the increased contribution of NPCC products to revenue. Net income increased 91.0% to $6.0 million from $3.2 million in the second quarter of 2006. Fully diluted earnings per share for the second quarter of 2007 were $0.11 compared to $0.06 in the second quarter of 2006.
“We are very excited to see another strong quarter with increasing revenue contribution from our NPCC business. We continue to see strong demand for NPCC as a functional filler in a diversified number of applications. Both our NPCC facilities operated at full capacity during the quarter with over half of our sales derived from our long-term clients,” commented Mr. Xiangzhi Chen, President, CEO and Director of ShengdaTech. “Moreover, we successfully added seven new domestic clients and one Malaysian client, which marks our expansion into the international markets for NPCC.”
Revenue from the NPCC segment was $10.8 million for the second quarter 2007, up 207.8% from $3.5 million in the second quarter of 2006. The large year-over-year revenue growth is due to the addition of the new Xi’an, NPCC facility in Shaanxi Province, in September 2006 with 60,000 metric tons of NPCC capacity. On a sequential basis, revenue from the NPCC segment increased 20.6% from the first quarter of 2007. The sequential increase was derived from a 21% increase in volume, to 28,029 metric tons of NPCC sold from 23,164 metric tons of NPCC sold in the first quarter of 2007. NPCC for use in the production of tires and PVC remained the largest contributors to revenue representing 51.4% and 34.4% of total NPCC revenue, respectively. NPCC for use in latex and adhesives applications experienced the strongest growth in the second quarter of 2007, up 263.9% quarter-over-quarter, representing 8.5% of NPCC revenue compared to 2.8% of NPCC revenue in the first quarter of 2007. NPCC for use in printing ink and paints accounted for 5.7% of revenue in the second quarter of 2007.
Revenue from the chemical segment for the second quarter of 2007 was $11.9 million, up 10.0% from $10.8 million in the second quarter of 2006. On a sequential basis, revenue from the chemical segment was down 10.2% quarter- over-quarter due to a 15-day closure of the chemical factory to upgrade equipment in April 2007. The new equipment is expected to reduce raw material cost and improve operating efficiencies at the factory. For the second quarter of 2007, liquid ammonia generated $4.1 million, or 34.1%, of the total chemical revenue. Revenue from ammonium bicarbonate represented 30.2% of total chemical revenue while melamine and methanol represented 16.9% and 18.7% of total chemical revenue, respectively.
Gross profit increased to $7.7 million in the second quarter of 2007, up 91.5% from $4.0 million in the same quarter of 2006. Gross margin for the quarter was a record 33.8% compared to 28.0% in the same quarter a year ago. Gross margin was favorably impacted by the increased in NPCC products as a percentage of overall product mix and from higher gross margin realized from the new Xi’an factory when compared to the original factory, 46.1% versus 36.0%, respectively. The higher gross margins at the Xi’an factory were due to the use of the company’s proprietary membrane dispersion technology combined with lower raw materials and labor costs, which together lowered the overall cost of goods sold at the Xi’an factory by 30% compared to the original factory.
Selling expenses were $355,855, or 1.6% of revenue, in the second quarter of 2007 compared to $204,449, or 1.4% of revenue, in the second quarter of 2006. General and administrative (“G&A”) expenses were $722,280, up 11.4% from $648,416 in the second quarter of 2006 primarily due to expenses incurred as a result of being a publicly listed company (NASDAQ). As a percentage of revenue, G&A expenses decreased to 3.2% in the second quarter of 2007, down from 4.5% in the second quarter of 2006 due to increased cost efficiencies as the Company has grown in scale.
Operating income for the second quarter of 2007 was $6.6 million, up 109.2% from $3.1 million in the same period a year ago. Operating margin was 29.0% in the second quarter of 2007, up from 22.0% in the second quarter of 2006.
Net income for the second quarter of 2007 was $6.0 million, up 91.0% from $3.2 million in the second quarter 2006. Net income for the second quarter includes a tax provision of $618,404, as the tax holiday on income generated from the original factory ended on December 31, 2006. Fully diluted earnings per share for the second quarter of 2007 were $0.11 compared to fully diluted earnings per share of $0.06 in the second quarter of 2006.
Six Month Financial Results
For the first six months of 2007, total revenue was $44.9 million, up 46.5% from the first six months of 2006. Revenue from the chemical business was $25.1 million, up 7.3% from $23.3 million in the same period a year ago, representing 55.8% of total revenue. The NPCC business comprised the balance of 44.1% of revenue at $19.8 million, up 172.5% from $7.3 million in the first six months of 2006. Total gross profit for the first six months of 2007 was $14.6 million, up 80.1% from gross profit of $8.1 million in the comparable period a year ago. Total gross margin was 32.6% compared to 26.5% for the first six month of 2007 and 2006, respectively. Income from operations for the period was $12.6 million, up 94.0% from $6.5 million in the first six months of 2006. Net income for the first six months of 2007 was $11.4 million, up 72.0% from $6.7 million in the first six months of 2006. Fully diluted earnings per share were $0.21 for the first six months of 2007 compared to $0.13 in the first six months of 2006.
Financial Condition
As of June, 2007, ShengdaTech had $27.6 million in cash and cash equivalents, no long-term debt and $30.2 million in working capital. Shareholders‘ equity stood at $70.0 million up from shareholders’ equity of $57.1 million at December 31, 2006. The company generated $13.8 million in cash flow from operating activities in the first half of 2007.
Business Outlook
In July 2007, ShengdaTech completed the addition of 40,000 metric tons of NPCC capacity. The new lines are expected to be at full capacity by November, 2007. The Company also plans on completing instillation of an additional 60,000 metric tons of capacity by year end 2007. Total NPCC capacity, once all lines are completed, will be 190,000 metric tons. Capital expenditure for the year 2007 is expected to be $54 million, of which $16.2 million has already been spent. Of the balance of $37.8 million, approximately $33.0 million is intended to be used for the construction of the additional NPCC capacity. ShengdaTech reaffirms its guidance for full year 2007 for revenue to be in the range of $96 million to $98 million and net income to be in the range of $23.0 million to $24.4 million with fully diluted earnings per share of $0.43 to $0.45.
“We are rapidly expanding our market share as we build our leadership position in the NPCC market in China. Currently, we are in the testing process with a number of potential new customers, including 12 PVC manufacturers, 20 tire manufacturers, 15 latex makers, 25 adhesive producers, and four paper makers. We expect to add five to six new clients in the third quarter 2007. In addition, we recently doubled our sales team to 60 sales agents,” commented Mr. Chen. “Overall, we expect to see continued strong growth in our NPCC products as we bring on additional capacity and increase our marketing efforts.”
Conference Call
ShengdaTech will host a conference call at 10:00 am EST on Thursday, August 9, 2007, to discuss the second quarter 2007 financial results. Joining Mr. Xiangzhi Chen, ShengdaTech’s Chief Executive Officer on the call will be Ms. Anhui Guo, the Chief Financial Officer, Mr. Crocker Coulson, President of CCG Elite, and Ms. Leslie Richardson, Financial Writer at CCG Elite. The company plans to release its earnings earlier that same day. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 800-688-0796. International callers should dial 617-614-4070. The pass code for the call is 766 800 26. If you are unable to participate in the call at this time, a replay will be available on Thursday, August 9, 2007 at 11:00 AM ET through Thursday, August 16, 2007. To access the replay, dial 888-286-8010, international callers should dial 617-801-6888. The conference passcode is 12151592. This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.shengdatechinc.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 during the live broadcast, a 90 day replay will be available shortly after the call by accessing the same link.
CHND.OB Raises Guidance and Reports Stellar Earnings
Aug 8, 2007 Small Cap Stock Picks, Speculative Stock Analysis
Well my plan as i stated yesterday was to only hold 1/2 of this position through earnings to limit risk as CHND stated the conference call wouldn’t be until after the close, so i was assuming a PR about their result wouldn’t be issued until after the close as well. Though they released a PR this morning at 7:30am reporting an awesome quarter and upgraded their 2007 guidance from revenues of $120m to $150m on net income that may exceed $8.5m compared to the initial $6m. I’m very pleased with the results here and along with a “can’t really get any better” stock chart with volume and bullish earnings to confirm this breakout suggesting further momentum going forward. CHND currently has the highest eps growth rate in its industry and i’ll continue holding this as a full position.
China Direct Posts Record Financial Results and Raises Financial Guidance for 2007
Wednesday August 8, 7:30 am ET
* 2nd Quarter Revenues Reach $40.45 Million
* 2nd Quarter Diluted Earnings per Share Reaches $0.15
* Total Assets Increase to $37.27 Million
* Shareholder Equity Increases to $12.53 Million
BOCA RATON, Fla., Aug. 8 /PRNewswire-FirstCall/ — China Direct, Inc. (OTC Bulletin Board: CHND – News), a company maintaining active, majority stakes in a diversified portfolio of Chinese companies as well as offering consulting services for both private and publicly traded Chinese entities, announced today the Company’s financial results for the second quarter of 2007 ended June 30, 2007.Financial HighlightsRevenues for the second quarter ended June 30, 2007 increased to $40,452,970 as compared to revenues of $180,417 in the second quarter ended June 30, 2006. The increase in revenues was primarily attributable to the three Chinese entities acquired since October 2006, Chang Magnesium, Lang Chemical and CDI Wanda, as well as a strong performance from our consulting division.
Gross profit for the second quarter of 2007 was $3,710,589 as compared to $46,883 in the second quarter ended June 30, 2006. Total operating expenses for the second quarter of 2007 increased to $847,417 compared to $509,200 in the second quarter of 2006. The increase in operating expenses in the second quarter of 2007 was primarily attributable to increased staffing associated with the financial management and integration of our expanded operations in China. The company also experienced increases in travel expenses, professional consulting fees, professional insurance premiums, as well as non- cash option charges for employees, management, and professional advisors.
Net income for the second quarter of 2007 increased to $2,267,742 or $0.16 per basic share, as compared to a loss of $(362,697) or a loss of $(0.04) per basic share for the second quarter of 2006. On a fully diluted basis, earnings per share for the second quarter of 2007 were $0.15 per share as compared to a loss of $(0.04) per share for the second quarter of 2006.
For the first six months, revenues increased to $71,391,910 as compared to revenues of $386,832 during the first six months of 2006.
Gross profit for the six months ended June 30, 2007 was $7,182,515 as compared to $238,038 for the six months ended June 30, 2006. Total operating expenses for the second quarter of 2007 increased to $1,684,926 as compared to $853,340 for the six months ended June 30, 2006.
Net income for the six months ended June 30, 2007 increased to $4,138,611 or $0.31 per basic share as compared to a loss of $(180,268) or a loss of $(0.02) per basic share for the six months of 2006. On a fully diluted basis, the earnings per share for the six months of 2007 were $0.27 per share as compared to a loss of $(0.02) per share for the six months of 2006.
Balance Sheet
As of June 30, 2007, total assets were $37,263,534, an increase of 78.8% from $20,835,405 as of December 31, 2006. As of June 30, 2007, shareholder equity reached $12,526,930, an increase of 113.6% from $5,864,324 as of December 31, 2006. As of June 30, 2007, cash and cash equivalents were $8,132,795 and working capital was approximately $14.45 million, compared to cash and cash equivalents of $3,030,335 and working capital of approximately $6.8 million as of December 31, 2006, respectively.
2007 Financial Guidance
As a result of stronger than expected performance in the first six months in 2007 and its current outlook for the remainder of the year, management anticipates that annual sales will now exceed $150 million as opposed to its previous 2007 estimate of $120 million. This new guidance for 2007 does not take into consideration any potential acquisitions that the company may be contemplating nor does it include any revenues from the new magnesium facilities currently under construction. Management also now believes that net income will exceed $8.25 million in 2007 as opposed to its previous guidance of net income of $6 million. Management evaluates its outlook on a quarterly basis and will communicate any changes in its business outlook following the third quarter results.
Dr. James Wang, CEO and Chairman of China Direct, stated “We are very pleased with the financial performance of our four divisions during the first six months of 2007. We anticipate that this strong performance will carry over into the second half of the year. Management is diligently working to improve profit margins across all of our divisions by focusing on controlling operational expenses and building new manufacturing facilities to increase production in response to demand. Based on our strong cash flow and the recent warrant exercise in which we received $4.2 million, the company is in a strong financial and operational position to pursue new acquisition opportunities. We are confident that our strong balance sheet will enable management to effectively deploy capital throughout our divisions to increase capacity and marketing capabilities as we head into the second half of 2007 and beyond into 2008. We look forward to building on this positive momentum as we strive to achieve continued growth in both our top and bottom line performance.”
