UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
Form
10-Q
|
[√]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
[ ]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
CHINA
DIRECT INDUSTRIES, INC.
|
(Exact
name of registrant as specified in its
charter)
|
Florida
|
13-3876100
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
431
Fairway Drive, Suite 200, Deerfield Beach, Florida
|
33441
|
(Address
of principal executive offices)
|
(Zip
Code)
|
954-363-7333
|
|
(Registrant’s
telephone number, including area code)
|
|
Not
Applicable
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Large
accelerated filer
|
[ ]
|
Accelerated
filer
|
[√
]
|
Non-accelerated
filer
|
[ ]
|
Smaller
reporting company
|
[
]
|
(Do
not check if smaller reporting company)
|
Page
No.
|
||
PART
I. - FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements.
|
5 |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
30 |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
43 |
Item
4
|
Controls
and Procedures.
|
43 |
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings.
|
45 |
Item
1A.
|
Risk
Factors.
|
45 |
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
46 |
Item
3.
|
Defaults
Upon Senior Securities.
|
46 |
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
46 |
Item
5.
|
Other
Information.
|
47 |
Item
6.
|
Exhibits.
|
47 |
Signatures
|
51 |
• |
"China
Direct”, "we”, "us” or “our” refers to China Direct Industries, Inc., a
Florida corporation, and our subsidiaries;
|
||
• |
“CDI
China”, refers to CDI China, Inc., a Florida corporation, and a wholly
owned subsidiary of China Direct; and
|
||
• |
“PRC”
refers to the People’s Republic of
China.
|
• |
“Chang
Magnesium”, refers to Taiyuan Changxin Magnesium Co., Ltd., a company
organized under the laws of the PRC and a 51% majority owned subsidiary of
CDI China;
|
||
• |
“Chang
Trading”, refers to Taiyuan Changxin YiWei Trading Co., Ltd., a company
organized under the laws of the PRC and a wholly owned subsidiary of Chang
Magnesium;
|
||
• |
“Excel
Rise”, refers to Excel Rise Technology Co., Ltd., a Brunei company and a
wholly owned subsidiary of Chang Magnesium;
|
||
• |
“CDI
Magnesium”, refers to CDI Magnesium Co., Ltd., a Brunei company and a 51%
owned subsidiary of Capital One Resources;
|
||
• |
“Asia
Magnesium”, refers to Asia Magnesium Co. Ltd., a company organized under
the laws of Hong Kong and a wholly owned subsidiary of Capital One
Resource;
|
||
• |
“Golden
Magnesium”, refers to Shanxi Gu County Golden Magnesium Co., Ltd., a
company organized under the laws of the PRC and a 52% owned subsidiary of
Asia Magnesium;
|
||
• |
“Pan
Asia Magnesium”, refers to Pan Asia Magnesium Co., Ltd., a company
organized under the laws of the PRC and a 51% owned subsidiary of CDI
China;
|
||
• |
“Baotou
Changxin Magnesium”, refers to Baotou Changxin Magnesium Co., Ltd., a
company organized under the laws of the PRC; a 51% owned subsidiary of CDI
China, and a 39% owned subsidiary of Excel Rise, effectively China Direct
holds a 70.9% interest.
|
• |
“Lang
Chemical”, refers to Shanghai Lang Chemical Co., Ltd. a company organized
under the laws of the PRC and a 51% owned subsidiary of CDI
China;
|
||
• |
“CDI
Jingkun Zinc”, refers to CDI Jingkun Zinc Industry Co., Ltd., a company
organized under the laws of the PRC and a 95% owned subsidiary of CDI
Shanghai Management;
|
||
• |
“CDI
Jixiang Metal”, refers to CDI Jixiang Metal Co., Ltd., a company organized
under the laws of the PRC and a wholly owned subsidiary of CDI
China;
|
||
• |
“CDI
Metal Recycling”, refers to Shanghai CDI Metal Recycling Co., Ltd., a
company organized under the laws of the PRC and an 83% owned subsidiary of
CDI Shanghai Management;
|
||
• |
“CDI
Beijing” refers to CDI (Beijing) International Trading Co., Ltd., a
company organized under the laws of the PRC and a 51% owned subsidiary of
CDI Shanghai Management;
|
||
• |
“CDII
Trading” refers to CDII Trading, Inc., a Florida corporation and a wholly
owned subsidiary of China Direct; and
|
||
• |
“IMG”
refers to International Magnesium Group, Inc., a Florida corporation and a
wholly owned subsidiary of China
Direct.
|
• |
“China
Direct Investments”, refers to China Direct Investments, Inc., a Florida
corporation, and a wholly owned subsidiary of China
Direct;
|
||
• |
“CDI
Shanghai Management”, refers to CDI Shanghai Management Co., Ltd., a
company organized under the laws of the PRC and a wholly owned subsidiary
of CDI China; and
|
||
• |
“Capital
One Resource”, refers to Capital One Resource Co., Ltd., a Brunei company,
and a wholly owned subsidiary of CDI Shanghai
Management.
|
Financial
Statements.
|
June
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
Unaudited
|
|||||||
Current
Assets:
|
||||||||
Cash and cash equivalents
|
$ | 13,792,725 | 14,205,229 | |||||
Investment in marketable securities available for sale
|
4,928,754 | 7,569,333 | ||||||
Investment in marketable securities available for sale - related
party
|
385,101 | 160,459 | ||||||
Investment in subsidiaries -- cost method
|
290,864 | 290,864 | ||||||
Accounts receivable, net of allowance
|
5,874,166 | 9,457,306 | ||||||
Accounts receivable - related parties
|
4,349,383 | 1,676,191 | ||||||
Inventories, net
|
9,992,885 | 8,559,593 | ||||||
Prepaid expenses and other current assets
|
6,508,666 | 8,127,300 | ||||||
Prepaid expenses - related parties
|
4,142,066 | 8,007,111 | ||||||
Loans receivable - related parties
|
1,120,432 | 1,652,728 | ||||||
Due from related parties
|
42,002 | 35,710 | ||||||
Total
current assets
|
51,427,044 | 59,741,824 | ||||||
Restricted
cash
|
1,663,343 | 846,197 | ||||||
Property,
plant and equipment, net
|
44,641,972 | 43,455,683 | ||||||
Prepaid
expenses and other assets
|
1,800,431 | 2,744,427 | ||||||
Property
use rights, net
|
1,281,046 | 591,277 | ||||||
Total
assets
|
$ | 100,813,836 | $ | 107,379,408 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Loans payable-short term
|
$ | 2,768,503 | $ | 933,735 | ||||
Accounts payable and accrued expenses
|
9,736,879 | 8,590,010 | ||||||
Accounts payable-related parties
|
1,552,780 | 7,516,728 | ||||||
Advances from customers
|
1,503,580 | 1,545,273 | ||||||
Other payables
|
1,405,597 | 1,624,370 | ||||||
Taxes payable
|
843,731 | 1,039,112 | ||||||
Due to related parties
|
71,963 | 978,739 | ||||||
Total current liabilities
|
17,883,033 | 22,227,967 | ||||||
Loans
payable-long term
|
8,035 | 186,018 | ||||||
Stockholders'
equity:
|
||||||||
China
Direct Industries, Inc. stockholders' equity
|
||||||||
Series
A Convertible Preferred Stock: $.0001 par value, stated value $1,000 per
share; 10,000,000 authorized, 1,006 shares issued and outstanding at
June 30, 2009 and December 31, 2008.
|
1,006,250 | 1,006,250 | ||||||
Common
Stock: $.0001 par value, 1,000,000,000 authorized, 26,519,623 and
23,530,642 issued and outstanding at June 30, 2009 and December 31, 2008,
respectively
|
2,652 | 2,353 | ||||||
Additional
paid-in capital
|
56,239,467 | 51,701,293 | ||||||
Deferred
compensation
|
(11,000 | ) | ||||||
Accumulated
comprehensive income
|
(13,554,759 | ) | (11,711,021 | ) | ||||
Retained
earnings
|
12,629,575 | 17,037,407 | ||||||
Total
China Direct Industries, Inc. stockholders’ equity
|
56,323,185 | 58,025,282 | ||||||
Non-controlling
interests
|
26,599,583 | 26,940,141 | ||||||
Total
Equity
|
82,922,768 | 84,965,423 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 100,813,836 | $ | 107,379,408 |
For
the Three Months
|
For
the Six Months
|
|||||||||||||||
Ended
June 30,
|
Ended
June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
$ | 18,417,789 | $ | 75,999,328 | $ | 34,474,466 | $ | 134,659,553 | ||||||||
Revenues-related
parties
|
2,007,621 | 1,344,725 | 6,637,053 | 2,078,646 | ||||||||||||
Total
revenues
|
20,425,410 | 77,344,053 | 41,111,519 | 136,738,199 | ||||||||||||
Cost
of revenues
|
21,136,660 | 63,893,924 | 40,453,953 | 113,307,926 | ||||||||||||
Gross
profit
|
(711,250 | ) | 13,450,129 | 657,566 | 23,430,273 | |||||||||||
Operating
expenses:
|
||||||||||||||||
Selling,
general, and administrative
|
2,419,684 | 2,486,588 | 5,518,814 | 4,097,581 | ||||||||||||
Operating
(loss) income
|
(3,130,934 | ) | 10,963,541 | (4,861,248 | ) | 19,332,692 | ||||||||||
Other
income (expense):
|
||||||||||||||||
Other
income (expense)
|
(403,548 | ) | 102,874 | (331,963 | ) | 296,492 | ||||||||||
Interest
(expense) income
|
(86,911 | ) | 143,018 | (40,797 | ) | 239,877 | ||||||||||
Realized
(loss) gain on sale of marketable securities
|
(79,221 | ) | 3,756 | (311,932 | ) | (35,705 | ) | |||||||||
Total
other (expense) income
|
(569,680 | ) | 249,648 | (684,692 | ) | 500,664 | ||||||||||
(Loss)
income from continuing operations, before tax
|
(3,700,614 | ) | 11,213,189 | (5,545,940 | ) | 19,833,356 | ||||||||||
Income
tax (expense) benefit
|
(13,492 | ) | (716,791 | ) | 58,087 | (1,040,424 | ) | |||||||||
(Loss)
income from continuing operations, net of tax
|
(3,714,106 | ) | 10,496,398 | (5,487,853 | ) | 18,792,932 | ||||||||||
Income
from discontinued operations
|
- | (70,151 | ) | - | 73,357 | |||||||||||
Net
(loss) income
|
(3,714,106 | ) | 10,426,247 | (5,487,853 | ) | 18,866,289 | ||||||||||
Net
(loss) income attributable to noncontrolling interests
|
826,450 | (2,911,372 | ) | 1,144,666 | (6,598,538 | ) | ||||||||||
Net
(loss) income attributable to China Direct Industries,
Inc.
|
(2,887,656 | ) | 7,514,875 | (4,343,187 | ) | 12,267,751 | ||||||||||
Deduct
dividends on Series A Preferred Stock:
|
||||||||||||||||
Preferred
stock dividend
|
(20,271 | ) | (1,047,937 | ) | (53,926 | ) | (1,189,467 | ) | ||||||||
Relative
fair value of detachable warrants issued
|
- | - | - | (2,765,946 | ) | |||||||||||
Preferred
stock beneficial conversion feature
|
- | - | - | (2,451,446 | ) | |||||||||||
(Loss)
income attributable to China Direct Indstries, Inc. common
stockholders
|
$ | (2,907,927 | ) | $ | 6,466,938 | $ | (4,397,113 | ) | $ | 5,860,892 | ||||||
Basic
and diluted income (loss) per common share after deduction in the first
quarter of 2008, of noncash deemed dividends attributable to Series
Convertible A Preferred Stock as described in Note 11
|
||||||||||||||||
Basic
|
$ | (0.12 | ) | $ | 0.29 | $ | (0.18 | ) | $ | 0.27 | ||||||
Diluted
|
$ | (0.12 | ) | $ | 0.26 | $ | (0.18 | ) | $ | 0.24 | ||||||
Basic
weighted average common shares outstanding
|
24,168,640 | 22,663,337 | 24,082,025 | 21,833,388 | ||||||||||||
Diluted
weighted average common shares outstanding
|
24,168,640 | 25,427,385 | 24,082,025 | 24,160,683 |
For
the Six Months Ended
|
||||||||
June
30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income attributable to China Direct Industries, Inc.
|
$ | (4,343,187 | ) | $ | 12,267,751 | |||
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities:
|
||||||||
Depreciation
& Amortization
|
1,451,354 | 962,281 | ||||||
Allowance
for bad debt
|
(127,424 | ) | 45,395 | |||||
Stock
based compensation for employees and board of directors
|
1,122,803 | 848,364 | ||||||
Realized
loss on sale of investment in marketable securities
|
295,707 | 35,705 | ||||||
Fair
value of securities received for services and interest
|
(584,371 | ) | (392,942 | ) | ||||
Fair
value of securities paid for services
|
205,165 | - | ||||||
Deferred
compensation expense
|
11,000 | - | ||||||
Income
(loss) attributable to noncontrolling interest
|
(1,144,666 | ) | 6,598,538 | |||||
Changes
in operating assets and liabilities:
|
||||||||
Prepaid
expenses and other assets
|
2,115,450 | (4,857,996 | ) | |||||
Prepaid
expenses - related parties
|
3,865,045 | (670,220 | ) | |||||
Inventories
|
(1,433,292 | ) | (6,881,077 | ) | ||||
Accounts
receivable
|
3,710,564 | (14,733,064 | ) | |||||
Accounts
receivable - related parties
|
(2,673,192 | ) | 1,726,913 | |||||
Accounts
payable and accrued expenses
|
1,153,722 | 2,526,304 | ||||||
Accounts
payable - related party
|
(5,963,948 | ) | (228,930 | ) | ||||
Advances
from customers
|
(41,693 | ) | (1,177,456 | ) | ||||
Other
payables
|
(218,773 | ) | 1,006,401 | |||||
Income
taxes payable
|
(195,381 | ) | 582,015 | |||||
Net
cash (used in) provided by continuing activities
|
(2,795,117 | ) | (2,342,018 | ) | ||||
Net
cash provided by discontinued operations
|
- | (421,642 | ) | |||||
Net
cash (used in) provided by operating activities
|
(2,795,117 | ) | (2,763,660 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Decrease
(increase) in notes receivable
|
- | 946,897 | ||||||
Increase
in loans receivable
|
- | (1,060,156 | ) | |||||
Repayment
of loans and advances to related parties
|
546,881 | (1,597,305 | ) | |||||
Proceeds
from the sale of marketable securities available for sale
|
483,723 | 428,395 | ||||||
Purchases
of property, plant and equipment
|
(2,880,232 | ) | (7,364,599 | ) | ||||
Net
cash used in investing activities
|
(1,849,628 | ) | (8,646,768 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Decrease
(increase) in restricted cash
|
(817,146 | ) | 644,096 | |||||
Proceeds
from loans payable
|
926,325 | 1,161,303 | ||||||
Payment
of loans payable
|
- | (1,866,075 | ) | |||||
Payment
of notes payable
|
- | (592,007 | ) | |||||
Payment
of notes payable-related party
|
- | (410,167 | ) | |||||
Proceeds
from repayment of advances to related parties
|
- | 1,273,325 | ||||||
Due
to related parties
|
(176,316 | ) | (2,560,343 | ) | ||||
Gross
proceeds from sale of preferred stock
|
- | 12,950,000 | ||||||
Gross
proceeds from sale of common stock
|
5,000,000 | - | ||||||
Proceeds
from exercise of warrants/options
|
10,000 | 2,782,376 | ||||||
Cash
payment for stock split/forward and stock repurchase
|
(1,650,000 | ) | - | |||||
Cash
dividend payment to preferred stock holders
|
- | (141,530 | ) | |||||
Capital
contribution from minority interest owners
|
715,788 | 2,217,296 | ||||||
Offering
expenses
|
(190,000 | ) | (1,504,345 | ) | ||||
Net
cash provided by financing activities
|
3,818,652 | 13,953,929 | ||||||
EFFECT
OF EXCHANGE RATE ON CASH
|
413,591 | 1,872,188 | ||||||
Net
(decrease) increase in cash
|
(412,504 | ) | 4,415,689 | |||||
Cash,
beginning of year
|
14,205,229 | 19,024,604 | ||||||
Cash,
end of period
|
$ | 13,792,725 | $ | 23,440,293 |
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for taxes
|
$ | - | $ | 146,716 | ||||
Cash
paid for interest
|
$ | - | $ | 169,385 | ||||
Dividend
payment in stock to preferred stock shareholders
|
$ | 53,926 | $ | 1,027,922 | ||||
Non-cash
preferred stock deemed dividend
|
$ | - | $ | 5,217,392 | ||||
See
notes to audited consolidated financial statements
|
Country
|
June
30, 2009
|
December
31, 2008
|
||||||||||||||
United
States
|
$ | 8,672,693 | 63 | % | $ | 6,640,672 | 47 | % | ||||||||
China
|
5,120,032 | 37 | % | 7,564,557 | 53 | % | ||||||||||
Total
cash and cash equivalents
|
$ | 13,792,725 | 100 | % | $ | 14,205,229 | 100 | % |
Company
|
June
30, 2009
|
December
31, 2008
|
||||||||||||||
% | % | |||||||||||||||
China America Holdings, Inc. | $ | 357,557 | 7 | % | $ | 272,200 | 5 | % | ||||||||
China
Logistics Group, Inc.
|
694,745 | 13 | % | 1,807,357 | 23 | % | ||||||||||
Dragon
International Group Corp.
|
807,289 | 15 | % | 704,656 | 9 | % | ||||||||||
China
Armco Metals, Inc.
|
2,773,945 | 52 | % | 4,045,002 | 52 | % | ||||||||||
Sunwin
International Neutraceuticals, Inc.
|
295,218 | 6 | % | 649,337 | 8 | % | ||||||||||
Other
|
385,101 | 7 | % | 251,240 | 3 | % | ||||||||||
Marketable
securities held for sale
|
$ | 5,313,855 | 100 | % | $ | 7,729,792 | 100 | % |
June
30,
|
||||||||
2009
|
2008
|
|||||||
Quarter
end RMB : U.S. Dollar exchange rate
|
6.8448 | 6.8718 | ||||||
Average
year-to-date RMB : U.S. Dollar exchange rate
|
6.8432 | 7.0726 |
For
three months ended
|
For
six months ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
(loss) income
|
$ | (2,887,656 | ) | $ | 7,514,875 | $ | (4,343,187 | ) | $ | 12,267,751 | ||||||
Series
A preferred stock:
|
||||||||||||||||
Preferred
stock dividend
|
(20,271 | ) | (1,047,937 | ) | (53,926 | ) | (1,189,467 | ) | ||||||||
Relative
fair value of detachable warrants issued
|
- | - | (2,765,946 | ) | ||||||||||||
Preferred
stock beneficial conversion feature
|
- | - | (2,451,446 | ) | ||||||||||||
Numerator
for basic EPS, loss applicable to common stock holders (A)
|
$ | (2,907,927 | ) | $ | 6,466,938 | $ | (4,397,113 | ) | $ | 5,860,892 | ||||||
Plus:
Income impact of assumed conversion
|
||||||||||||||||
Preferred
stock dividends - unconverted
|
$ | 20,015 | $ | 31,097 | ||||||||||||
Numerator
for diluted EPS, Income applicable to common stock holders
assumed
conversions (*)(B)
|
$ | (2,907,927 | ) | $ | 6,486,953 | $ | (4,397,113 | ) | $ | 5,891,989 | ||||||
Denominator:
|
||||||||||||||||
Denominator
for basic earnings per share - weighted average number of common shares
outstanding (C)
|
24,168,640 | 22,663,337 | 24,082,025 | 21,833,388 | ||||||||||||
Stock
Awards, Options, and Warrants
|
- | 2,620,298 | - | 2,215,928 | ||||||||||||
Preferred
stock dividends - unconverted
|
143,750 | 111,367 | ||||||||||||||
Denominator
for diluted earnings per share - adjusted weighted average outstanding
average number of common shares outstanding (D)
|
24,168,640 | 25,427,385 | 24,082,025 | 24,160,683 | ||||||||||||
Basic
and Diluted loss Per Common Share:
|
||||||||||||||||
Earnings
per share - basic (A)/ (C )
|
$ | (0.12 | ) | $ | 0.29 | $ | (0.18 | ) | $ | 0.27 | ||||||
Earnings
per share - diluted (B)/(D)
|
$ | (0.12 | ) | $ | 0.26 | $ | (0.18 | ) | $ | 0.24 |
For
the Three Months Ended June 30,
|
For
the Six Months Ended June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
unaudited
|
unaudited
|
unaudited
|
unaudited
|
|||||||||||||
Net
(loss) income
|
$ | (3,714,106 | ) | $ | 10,426,247 | $ | (5,487,853 | ) | $ | 18,866,289 | ||||||
Other
comprehensive (loss) income, net of tax
|
||||||||||||||||
Foreign
currency translation gain, net of tax
|
64,083 | 1,309,234 | 380,875 | 3,106,933 | ||||||||||||
Unrealized
loss on marketable securities held for sale, net of tax
|
(399,812 | ) | (1,646,180 | ) | (2,465,397 | ) | (2,774,304 | ) | ||||||||
Unrealized
gain (loss) on marketable securities held for sale, net taxes - related
parties
|
192,551 | 3,625 | 240,783 | (458,598 | ) | |||||||||||
Total
other comprehensive (loss) income, net of tax
|
(143,178 | ) | (333,321 | ) | (1,843,739 | ) | (125,969 | ) | ||||||||
Comprehensive
Income
|
(3,857,284 | ) | 10,092,926 | (7,331,592 | ) | 18,740,320 | ||||||||||
Comprehensive
Income attributable to the noncontrolling interests
|
826,450 | (2,911,372 | ) | 1,144,666 | (6,598,538 | ) | ||||||||||
Comprehensive
(loss) Income attributable to China Direct Industries Inc.
|
$ | (3,030,834 | ) | $ | 7,181,554 | $ | (6,186,926 | ) | $ | 12,141,782 |
June
30, 2009
|
December
31, 2008
|
|||||||
unaudited
|
||||||||
Raw
materials
|
$ | 5,097,978 | $ | 6,081,259 | ||||
Finished
goods
|
4,894,907 | 3,038,956 | ||||||
Inventory
Reserve
|
- | (560,622 | ) | |||||
$ | 9,992,885 | $ | 8,559,593 |
Description
|
June
30, 2009
|
December
31, 2008
|
||||||
unaudited
|
||||||||
Prepayments
to vendors for merchandise that had not yet been shipped or services that
had not been performed
|
$ | 2,865,690 | $ | 2,173,989 | ||||
Other
recievables
|
446,696 | 2,434,578 | ||||||
Fair
value of securities received from client companies associated with our
Consulting segment assigned to employees as compensation
|
- | 524,907 | ||||||
Loans
receivable
|
3,198,156 | 2,987,615 | ||||||
Other
assets acquired in connection with acquisition
|
1,798,555 | 2,750,638 | ||||||
Total
|
8,309,097 | 10,871,726 | ||||||
Less:
Current Portion
|
(6,508,666 | ) | (8,127,300 | ) | ||||
Prepaid expenses and other assets, non-current
|
$ | 1,800,431 | $ | 2,744,426 |
Description
|
Useful
Life
|
June
30, 2009
|
December
31, 2008
|
|||||||||
Unaudited
|
||||||||||||
Building
|
10-40
years
|
$ | 12,013,505 | $ | 7,792,403 | |||||||
Manufacturing
equipment
|
10
years
|
18,989,327 | 12,635,161 | |||||||||
Office
equipment and furniture
|
3-5
years
|
707,028 | 636,621 | |||||||||
Autos
and trucks
|
5
years
|
1,267,261 | 334,630 | |||||||||
Construction
in progress
|
N/A
|
16,839,070 | 26,277,835 | |||||||||
Total
|
49,816,191 | 47,676,650 | ||||||||||
Less: Accumulated
Depreciation
|
(5,174,219 | ) | (4,220,967 | ) | ||||||||
Property,
Plant and Equipment, Net
|
$ | 44,641,972 | $ | 43,455,683 |
Description
|
June
30, 2009
|
December
31, 2008
|
||||||
Loan
due to China Industry Bank., an unrelated party. Due July
2012. 6.06375% annual interest rate
|
$ | 8,035 | $ | 186,018 | ||||
Commerical
Bank due November 2009, related to Lang Chemical, (Lang Chemical deposited
Principal amount to guarantee this note)
|
1,249,123 | 262,613 | ||||||
Loan
due to Chen Jian Fei, unsecured, payable on demand, no
interest*
|
730,460 | - | ||||||
Mingsheng
Bank Due May 2010, interest is LIBOR plus 20%
|
496,727 | 671,122 | ||||||
Shanghai
Bank Due January 2010, interest is 5.84%
|
292,193 | - | ||||||
Total
|
2,776,538 | 1,119,753 | ||||||
Less:
Current Portion
|
(2,768,503 | ) | (933,735 | ) | ||||
Loans
payable, long-term
|
$ | 8,035 | $ | 186,018 |
• |
Yuwei
Huang is executive vice president of our Magnesium segment, a member of
our board of directors, chief executive officer and chairman of Chang
Magnesium, chairman of Baotou Changxin Magnesium, chairman of YiWei
Magnesium, and chief executive officer and vice chairman of Golden
Magnesium;
|
||
• |
Taiyuan
YiWei Magnesium Industry Co., Ltd., a company organized under the laws of
the PRC (“YiWei Magnesium”), is a non-controlling interest owner in Chang
Magnesium;
|
||
• |
Lifei
Huang is the daughter of Yuwei Huang;
|
||
• |
Huihuan
Huang is the sister of Yuwei Huang;
|
||
• |
Lifei
Huang is a registered representative of Pine Capital Enterprises Inc., a
company organized under the laws of the Caymen Islands (“Pine
Capital”);
|
||
• |
Lifei
Huang is a registered representative of Wheaton Group Corp., a
company organized under the laws of Brunei Darussalam
(“Wheaton”);
|
||
• |
Nippon
Magnetic Dressing Co., Ltd., a company organized under the laws of the
Japan (“Nippon Magnetic”), is a non-controlling interest owner of YiWei
Magnesium;
|
||
• |
LuCheng
Haixu Magnesium Co., Ltd., a company organized under the laws of the PRC
(“Haixu Magnesium”), is legally represented by an officer of Chang
Magnesium;
|
||
• |
LingShi
County Yihong Magnesium Co., Ltd., a company organized under the laws of
the PRC (“Yihong Magnesium”), is legally represented by an officer of
Chang Magnesium;
|
||
• |
Shanxi
Senrun Coal Chemistry Co., Ltd., a company organized under the laws
of the PRC (“Senrun Coal”), is a non-controlling interest owner in
Golden Magnesium;
|
||
• |
Shanxi
Jinyang Coal and Coke Group Co., Ltd., a company organized under the laws
of the PRC (“Jinyang Group”), is a non-controlling interest owner of
Pan Asia Magnesium;
|
||
• |
Japan
Material Industry Co., Ltd. a company organized under the laws of the PRC,
(“Japan Material”), is a non-controlling interest owner of YiWei
Magnesium;
|
||
• |
Australia
Three Harmony Co., Ltd., a company organized under the laws of Australia,
is a non-controlling interest owner of Baotou Changxin
Magnesium;
|
||
• |
Runlian
Tian is a director of Pan Asia Magnesium;
|
||
• |
NanTong
Langyuan Chemical Co., Ltd., a company organized under the laws of the PRC
(“NanTong Chemical”), is owned by Jingdong Chen and Qian Zhu, the
non-controlling interest owners of Lang Chemical;
|
||
• |
Jingdong
Chen, is vice president of our Basic Materials segment and chief executive
officer of Lang Chemical;
|
||
• |
Qian
Zhu is chief financial officer of Lang Chemical. Jingdong Chen and Qian
Zhu are husband and wife; and
|
||
• |
Lisheng
(Lawrence) Wang is the chief executive officer and chairman of Dragon
Capital Group Corp. a Nevada corporation, (“Dragon Capital”) and is the
brother of Dr. Wang, our CEO and Chairman and Xiaowen Zhuang, a key
employee of
ours.
|
•
|
$1,772,638
due Chang Magnesium from YiWei Magnesium for inventory provided;
and,
|
||
•
|
$1,710,945
due Baotou Changxin Magnesium from YiWei Magnesium, for inventory
provided; and
|
||
•
|
$865,800
due Golden Magnesium from YiWei Magnesium for inventory
provided.
|
•
|
$1,628,896
due Baotou Changxin Magnesium from YiWei Magnesium, for inventory
provided; and
|
||
•
|
$47,295
due Golden Magnesium from YiWei Magnesium for inventory
provided.
|
•
|
$2,953,028
prepaid by Chang Magnesium to YiWei Magnesium for future delivery of
inventory;
|
||
•
|
$661,586
prepaid by Chang Magnesium to Yihong Magnesium to for future delivery of
inventory;
|
||
•
|
$215,577
prepaid by Pan Asia Magnesium to Jinyang Group for the future delivery of
coke gas;
|
||
•
|
$156,252
prepaid by Golden Magnesium to Senrun Coal for future delivery of coke gas
for fuel;
|
||
•
|
$98,637
prepaid by Chang Magnesium to Wheaton Group for the future delivery of
inventory; and
|
||
•
|
$56,986
prepaid by Chang Magnesium to Haixu Magnesium for future delivery of
inventory.
|
•
|
$5,830,717
prepaid by Chang Magnesium to YiWei Magnesium for future delivery of
inventory;
|
||
•
|
$940,699
prepaid by Golden Magnesium to Senrun Coal for future delivery of coke gas
for fuel;
|
||
•
|
$520,397
prepaid by Chang Magnesium to Nippon Magnetic to for future delivery of
inventory;
|
||
•
|
$389,225
prepaid by Pan Asia Magnesium to Jinyang Group for the future delivery of
coke gas; and
|
||
•
|
$326,073
prepaid by Golden Magnesium to YiWei Magnesium for future delivery of
inventory.
|
•
|
$1,120,432
due Lang Chemical from NanTong Chemical for funds advanced for working
capital purposes, this loan is due on September 9, 2010 and carries an
annual interest rate of 6%.
|
•
|
$1,608,959
due Lang Chemical from NanTong Chemical for funds advanced for working
capital purposes; and
|
||
•
|
$43,769
due CDI Shanghai Management from Dragon Capital for funds advanced for
working capital
purposes.
|
•
|
$42,002
due China Direct from a China Direct employee for the exercise price of
exercised stock options and related
taxes.
|
•
|
$21,125
due China Direct from a China Direct employee for the exercise price of
exercised options; and
|
||
•
|
$14,585 due
CDI Metal Recycling from Zhou Weiyi, for the contribution of registered
capital related to the formation of CDI Metal
Recycling.
|
•
|
$1,552,780
due from Chang Magnesium to Pine Capital in repayment of an advance from
customer for the expected delivery of
inventory.
|
•
|
$4,497,180
due from Chang Magnesium to Pine Capital in repayment of an advance from
customer for the expected delivery of inventory; and
|
||
•
|
$3,019,548
due from Chang Magnesium to Wheaton Group in repayment of an advance form
customer for the expected delivery of
inventory.
|
•
|
$71,963
due to Australia Three Harmony from Golden Magnesium for fund advances for
working capital purposes.
|
•
|
$832,843 due
to Chen Chi, this amount is made of up $729,257 due from Capital One
Resource, and $103,586 from CDI Beijing for fund advances for working
capital purposes; and
|
||
•
|
$145,896
advanced by Huihuan Huang to Chang Magnesium for working capital
purposes.
|
·
|
Value
of $6.83 per share of common stock;
|
|
·
|
Expected
volatility factor of 90%;
|
|
·
|
$0
dividend rate on the common stock;
|
|
·
|
Warrant
exercise price of $8.00;
|
|
·
|
Estimated
time to exercise of 1 year; and
|
|
·
|
Risk
free rate of 2.06%.
|
Shares
underlying options
|
Weighted
average exercise price
|
|||||||
Outstanding
at December 31, 2008
|
6,440,220 | $ | 5.71 | |||||
Granted
|
- | - | ||||||
Exercised
|
1,050,000 | 0.01 | ||||||
Expired
or cancelled
|
103,750 | 5.30 | ||||||
Outstanding
at June 30, 2009
|
5,286,470 | $ | 10.30 |
Range
of exercise prices
|
Number
of options outstanding
|
Weighted
average remaining contractual life (Years)
|
Weighted
average exercise price
|
Options
Exercisable
|
Weighted
average exercise price of options exercisable
|
|||||||||||||||||
$ | 2.25 | 400 | 5.81 | $ | 2.25 | 400 | $ | 2.25 | ||||||||||||||
2.50 | 492,490 | 2.75 | 2.50 | 492,490 | 2.50 | |||||||||||||||||
3.00 | 50,000 | 1.75 | 3.00 | 50,000 | 3.00 | |||||||||||||||||
5.00 | 1,221,000 | 2.75 | 5.00 | 1,221,000 | 5.00 | |||||||||||||||||
7.50 | 1,387,000 | 3.75 | 7.50 | 1,387,000 | 7.50 | |||||||||||||||||
10.00 | 1,375,000 | 4.75 | 10.00 | 1,375,000.00 | 10.00 | |||||||||||||||||
15.00 | 500 | 1.43 | 15.00 | 500 | 15.00 | |||||||||||||||||
30.00 | 760,000 | 3.75 | 30.00 | 760,000 | 30.00 | |||||||||||||||||
56.25 | 80 | 5.92 | 56.25 | 80 | 56.25 | |||||||||||||||||
5,286,470 | $ | 10.30 | 5,286,470 | $ | 10.30 |
Shares
underlying warrants
|
Weighted
average exercise price
|
|||||||
Outstanding
at December 31, 2008
|
4,618,312 | $ | 8.49 | |||||
Granted
|
1,351,352 | 2.31 | ||||||
Exercised
|
- | - | ||||||
Expired
or cancelled
|
- | - | ||||||
Outstanding
at June 30, 2009
|
5,969,664 | $ | 6.94 | |||||
Exercisable
at June 30, 2009
|
4,618,312 | $ | 8.29 |
Warrants
Outstanding
|
Warrants
|
|||||||||||||||||||||
Exercisable
|
||||||||||||||||||||||
Weighted
|
||||||||||||||||||||||
Average
|
Weighted
|
Weighted
|
||||||||||||||||||||
Remaining
|
Average
|
Average
|
||||||||||||||||||||
Range
of
|
Contractual
|
Exercise
|
Exercise
|
|||||||||||||||||||
Exercise
prices
|
Shares
|
Life
(Years)
|
Price
|
Shares
|
Price
|
|||||||||||||||||
$ | 1.85 | 143,750 | 4.12 | $ | 1.85 | 143,750 | $ | 1.85 | ||||||||||||||
2.31 | 1,351,352 | 4.95 | 2.31 | - | 2.31 | |||||||||||||||||
2.5 | 50,000 | 2.92 | 2.50 | 50,000 | 2.50 | |||||||||||||||||
4 | 473,750 | 2.79 | 4.00 | 473,750 | 4.00 | |||||||||||||||||
7.50 | 60,000 | 1.39 | 7.50 | 60,000 | 7.50 | |||||||||||||||||
8.00 | 1,906,250 | 4.12 | 8.00 | 2,050,000 | 8.00 | |||||||||||||||||
10.00 | 1,869,562 | 2.74 | 10.00 | 1,869,562 | 10.00 | |||||||||||||||||
11.00 | 25,000 | 2.27 | 11.00 | 25,000 | 11.00 | |||||||||||||||||
15.00 | 90,000 | 1.39 | 15.00 | 90,000 | 15.00 | |||||||||||||||||
5,969,664 | $ | 6.94 | 4,618,312 | $ | 8.29 |
• |
Chang
Magnesium;
|
||
• |
Chang
Trading;
|
||
• |
Excel
Rise;
|
||
• |
CDI
Magnesium;
|
||
• |
Asia
Magnesium;
|
||
• |
Golden
Magnesium;
|
||
• |
Pan
Asia Magnesium;
|
||
• |
Baotou
Changxin Magnesium
|
• |
Lang
Chemical;
|
||
• |
CDI
Jingkun Zinc;
|
||
• |
CDI
Jixiang Metal;
|
||
• |
CDI
Metal Recycling; and
|
||
• | CDI Beijing. |
• |
China
Direct Investments;
|
||
• |
CDI
Shanghai Management; and
|
||
• |
Capital
One Resource*.
|
(In
thousands)
|
Magnesium
|
Basic
Materials
|
Consulting
|
Consolidated
|
||||||||||||
|
||||||||||||||||
Revenues
|
$ | 8,091 | $ | 10,005 | $ | 322 | $ | 18,418 | ||||||||
Revenues
– related party
|
2,008 | - | - | $ | 2,008 | |||||||||||
10,099 | 10,005 | 322 | 20,426 | |||||||||||||
Interest
income (expense)
|
19 | 54 | (160 | ) | (87 | ) | ||||||||||
Net
income (loss) attributable to China Direct Industries,
Inc.
|
(1,126 | ) | 56 | (1,818 | ) | (2,888 | ) | |||||||||
Segment
Assets at June 30, 2009
|
$ | 45,750 | $ | 10,615 | $ | 44,449 | $ | 100,814 |
(In
thousands)
|
Magnesium
|
Basic
Materials
|
Consulting
|
Consolidated
|
||||||||||||
Revenues
|
$ | 54,319 | $ | 14,982 | $ | 6,698 | $ | 75,999 | ||||||||
Revenues
– related party
|
1,345 | - | - | 1,345 | ||||||||||||
55,664 | 14,982 | 6,698 | 77,344 | |||||||||||||
Interest
income (expense)
|
(43 | ) | (29 | ) | 215 | 143 | ||||||||||
Net
income attributable to China Direct Industries, Inc.
|
3,001 | 25 | 4,559 | 7,515 | ||||||||||||
Segment
Assets
|
$ | 84,883 | $ | 10,770 | $ | 27,997 | $ | 123,650 |
(In
thousands)
|
Magnesium
|
Basic
Materials
|
Consulting
|
Consolidated
|
||||||||||||
Revenues
|
$ | 11,895 | $ | 21,899 | $ | 680 | $ | 34,474 | ||||||||
Revenues
– related party
|
6,637 | 6,637 | ||||||||||||||
18,532 | 21,899 | 680 | 41,111 | |||||||||||||
Interest
income (expense)
|
(83 | ) | (14 | ) | 56 | (41 | ) | |||||||||
Net
income attributable
to China Direct Industries, Inc.
|
(1,123 | ) | 16 |