-- FY07 Revenue Increases 86% to $276.0 Million --
-- FY07 Net Income Increases 103% to $22.9 Million --
-- FY07 Diluted EPS Results of $0.44 Meets Company Forecast --
HANGZHOU, China, March 17 /Xinhua-PRNewswire/ -- China 3C Group (OTC Bulletin Board: CHCG), a retailer and wholesale distributor of consumer and business products in China, today announced financial results for the fourth quarter and fiscal year ended December 31, 2007.
Mr. Zhenggang Wang, Chairman and Chief Executive Officer commented, "We are pleased to report that 2007 was a good year for China 3C both in terms of the financial results achieved and relative to the progress we made building a foundation for future growth. Our increase in sales benefitted from a combination of strong organic growth, increased retail store penetration, higher sales volume and the introduction of new product lines resulting in record profits for our company. We experienced an 83% year-over-year increase in diluted EPS even as our diluted share count increased 14% in 2007 to 52.67 million shares from 46.18 million shares in 2006.
We are encouraged by the ongoing improvement to our balance sheet. We generated strong cash returns in 2007 finishing the year with approximately $25 million in cash, which is an increase of 284% over 2006 and 51% sequential improvement from the third quarter of 2007. We managed our accounts receivables very well, maintained a clean level of inventory and do not have any debt on our balance sheet."
Full Year 2007
Net sales for 2007 totaled $276.0 million compared to $148.2 million for 2006. The large increase amount was due to a combination of both organic growth and contribution from subsidiaries acquired in the second half of 2006. Higher sales volume and the addition of new product lines were also factors.
Cost of sales for 2007 totaled $226.7 million, or approximately 82.11% of net sales, compared to $125.4 million, or approximately 84.61% for 2006. The cost of sales as a percentage decreased during 2007 due to the introduction of new product models with higher gross profit margin.
Gross profit margin for 2007 increased 250 basis points to 17.9% compared to 15.4% for 2006. The increase was partially due to the inclusion of the newly acquired subsidiaries. The gross profit margin increased as we benefited from increasing economies of scale as the Company grew in size and scale. Higher sales of higher margin products such as MP3 and DVD players were also critical factors.
General and administrative expense for 2007 totaled $13.6 million, or approximately 4.93% of net sales, compared to $5.5 million, or approximately 3.74% for 2006.
Income from operations for 2007 was $35.8 million, or 12.95% of net sales, as compared to income from operations of $17.3 million for 2006, or 11.65% of net sales. Increasing economies of scale were a critical factor for the larger margins, as were a higher margin product mix.
Net income was $22.9 million, or 8.3% of net sales for 2007 compared to $11.3 million, or 7.6% of net sales for 2006. Increasing economies of scale, a higher margin product mix and significant larger store were all key factors for the large increase in net income. Diluted earnings per share increased to $0.44 compared to $0.24 in the prior year period.
2008 Financial Outlook
The Company believes that certain events could make 2008 a transitional period for China 3C. Some of the events expected to impact the Company in 2008 are as follows:
-- The first quarter of 2008, which is seasonally the Company’s
strongest quarter, is expected to be negatively impacted by the heavy
snow storms that paralyzed much of China during January and February
of this year. The Company believes that 2008 first quarter revenue
results could fall by as much as 15-20% compared to prior year results
of $84.5 million.
-- The Company expects its business to experience gross margin
pressure due to increased costs associated with changes in Chinese
regulations relative to mandated employee benefits.
The Company expects total sales for 2008 to trend between flat to a decrease of approximately 5% compared to 2007 and that gross margin will decrease 4-5 percentage points when compared to 2007 levels. These projections do not take into account any impact related to future acquisitions.
Mr. Wang concluded, “We expect 2008 to be a transitional period in which to expand. We will use this year to further strengthen our operational foundation by focusing our efforts on issues such as internal cost control, improved logistics coordination, closure of underperforming store counters, expansion of well performing stores, and an increase in the overall managerial efficiency of the Company.
Our wholesale and retail consumer electronic business brings significant advantages to a very large and fast growing market in China. We have a flexible operating model with multiple layers of growth that can allow 3C to become a much larger, more profitable business in the future. As we look ahead, we have a large opportunity to grow our business through maximizing sales at existing store counters, selective expansion of our counters into new consumer retail locations, additional product introductions, new supplier agreements with leading international and domestic consumer brands, the acquisition of new businesses, and geographic expansion. Additionally, with our sizeable cash position, we will evaluate the opportunity to pursue strategic opportunities, including an acquisition, to expand our presence in the Chinese marketplace. We are encouraged with the opportunities in our business and believe our initiatives will position China 3C for healthy growth in the years ahead,” concluded Wang.
Conference Call
The Company will hold a conference call to discuss the financial results at 8:30 a.m. ET today. The Company invites you to join the call by dialing 913-312-1493. A live webcast of the conference call will be available at http://www.viavid.net . A replay of the call will be available from March 17, 2008 to March 24, 2008. Listeners may access the replay by dialing 719-457-0820, passcode: 7831457.
About China 3C
China 3C is a leading wholesale distributor and retailer of 3C merchandise: computers, communication products and consumer electronics. The company specializes in wholesale distribution and retail sales of 3C products in Eastern China, focusing on products that make life more comfortable, convenient and connected. The company’s goal is to become the number one retailer of 3C products in China. For more information, visit http://www.china3cgroup.com .
Forward-looking Statements:
Certain of the statements set forth in this press release constitute "Forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We have included and from time to time may make in our public filings, press releases or other public statements, certain forward-looking statements, including, without limitation, those under "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K. In some cases these statements are identifiable through the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" or words or expressions of similar meaning. You are cautioned not to place undue reliance on these forward- looking statements. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. There can be no assurance that such forward-looking statements will prove to be accurate and China 3C Group undertakes no obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements.
(financial tables below)
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDING DECEMBER 31, 2007 AND 2006
2007 2006
Sales, net $276,026,673 $148,218,848
Cost of sales 226,656,242 125,411,758
Gross profit 49,370,431 22,807,090
General and administrative expenses 13,614,500 5,544,924
Income from operations 35,755,931 17,262,166
Other (Income) Expense
Interest income (88,413) (31,293)
Other expense 74,215 100,646
Interest expense -- 7,565
Total Other (Income) Expense (14,198) 76,918
Income before income taxes 35,770,129 17,185,248
Provision for income taxes 12,850,429 5,908,122
Net income $ 22,919,700 $ 11,277,126
Net income per share:
Basic & diluted $ 0.44 $ 0.24
Weighted average number of
shares outstanding:
Basic & diluted 52,671,438 46,179,507
CHINA 3C GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND DECEMBER 31,2006
ASSETS 12/31/2007 12/31/2006
Current Assets
Cash and cash equivalents $ 24,952,614 $ 6,498,450
Accounts receivable, net 8,077,533 8,013,071
Inventory 6,725,371 2,779,506
Advance to supplier 2,572,285 2,215,841
Prepaid expenses 382,769 60,059
Total Current Assets 42,710,572 19,566,927
Property & equipment, net 89,414 65,803
Goodwill 20,348,278 20,348,278
Refundable deposits 48,541 6,567
Total Assets $ 63,196,805 $ 39,987,575
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 3,108,235 $ 1,964,663
Income tax payable 2,684,487 2,596,517
Notes payable -- 4,500,000
Total Current Liabilities 5,792,722 9,061,180
Stockholders’ Equity
Common stock, $.001 par value,
100,000,000 shares authorized,
52,673,938 and 52,488,938 issued
and outstanding 52,674 52,489
Additional paid in capital 19,465,776 17,352,691
Subscription receivable (50,000) (50,000)
Statutory reserve 7,234,295 3,320,755
Other comprehensive income 1,872,334 427,616
Retained earnings 28,829,004 9,822,844
Total Stockholders’ Equity 57,404,083 30,926,395
Total Liabilities and
Stockholders’ Equity $ 63,196,805 $ 39,987,575
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2007 AND 2006
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 22,919,700 $ 11,277,126
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 40,714 20,191
Gain on asset disposition -- (936)
Provision for bad debts 9,021 82,686
Stock based compensation 2,113,270
Amortization of deferred
consulting expense -- 387,945
(Increase) / decrease in assets:
Accounts receivables (73,483) (2,375,209)
Inventory (3,945,865) (487,593)
Prepaid expense (322,710) 85,216
Advance to supplier (356,444) (848,848)
Deposits (41,974) (5,929)
Increase / (decrease) in current
liabilities:
Accounts payable and accrued expenses 1,143,572 1,356,272
Income tax payable 87,970 1,477,695
Total Adjustments (1,345,929) (308,510)
Net cash provided by operating
activities 21,573,771 10,968,616
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment (64,325) (30,591)
Proceeds from asset sales -- 1,508
Net cash used by Investing activities (64,325) (29,083)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of acquisition notes -
net of cash acquired (4,500,000) (6,550,157)
Payments of notes - other -- (7,769)
Net cash provided by financing
activities (4,500,000) (6,557,926)
Effect of exchange rate changes
on cash and cash equivalents 1,444,718 167,621
Net change in cash and cash
equivalents 18,454,164 4,549,228
Cash and cash equivalents,
beginning balance 6,498,450 1,949,222
Cash and cash equivalents,
ending balance $ 24,952,614 $ 6,498,450
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments $ 12,762,459 $ 3,534,155
Interest payments $ -- $ 7,565
Non cash transactions relating to
acquisitions
Purchased Goodwill $(20,348,278)
Fair value of assets purchased (5,451,879)
less cash acquired
Acquisition financed with stock
issuance 14,750,000
Acquisition financed with notes 12,500,000
Net cash acquired in acquisitions $ 1,449,843