JADE LJ International, Inc. (MM)

LJ International Reports 20% Sales Gain in First Quarter Revenue Beats Forecast as Jeweler's China Expansion Continues HONG KONG and LOS ANGELES, Calif., May 12 /Xinhua-PRNewswire-FirstCall/ -- LJ International, Inc. (LJI) (NASDAQ:JADE), one of the fastest-growing jewelry companies in the world, today reported financial results for the first quarter, ending March 31, 2005. Revenue rose 20% over the first quarter of 2004. Earnings per fully diluted share were down $0.01 from a year earlier, reflecting the impact of additional shares issued from a recent private placement, higher interest expenses and costs related to the expansion of LJI's Chinese retail operation. Revenue for the first quarter of 2005 totaled $17.44 million. This was about $1.4 million above the top range of earlier guidance for the quarter, and it was 20% above the $14.5 million reported in the first quarter of 2004. The Company indicated that the sharp rise in sales was due both to higher orders from existing and new customers in all markets, along with a modest contribution from sales at newly opened outlets of LJI's ENZO subsidiary in China. This represented the fifth consecutive quarter in which LJI recorded sales gains of 20% or more year-over-year. Gross profit for the first quarter was $3.65 million, for a gross margin of 21%. This compares to gross profit of $3.44 million, or 24%, in the first quarter of 2004. The gross margin for the latest quarter improved sequentially from 17% in the fourth quarter of 2004. Selling, general and administrative expenses were $3.62 million. The Company showed an operating income in the first quarter of 2005 totaling $31,000, compared to operating income of $572,000 in the first quarter of 2004. As a result, primarily of a sharp increase in interest expenses to $324,000 from $182,000 in 2004, net income in the first quarter of 2005 fell to $249,000 from $355,000 a year earlier. Earnings per fully diluted share over that time decreased to $0.02 from $0.03. LJI Chairman and CEO Yu Chuan Yih commented, 'We are pleased to see another robust increase in sales, reflecting rising demand for our major customers in the U.S. and abroad. Most of the 20% increase was due to non-China sales, but we now have three Chinese retail outlets open -- with four more to come in May -- and these have started to make a contribution to overall revenue. For the near term, costs of our expansion into the Mainland China retail market will slow growth in net income even as sales continue to rise briskly, but we are confident that profit will once again grow at rates comparable to sales growth, or faster, as the start-up costs are absorbed. We also see sales continuing to expand in our older markets, with no significant clouds on the horizon.' Balance Sheet Remains Strong LJI's balance sheet remained in its historical ranges, with cash and cash equivalents (including restricted cash) totaling $8.8 million on March 31, 2005, compared to $9.62 million on December 31, 2004. Restricted cash rose to $7.27 million from $6.39 million during the first quarter, while unrestricted cash and cash equivalents fell to $1.54 million from $3.23 million. Long-term debt was minimal and little changed, rising to $66,000 from $58,000. Company Provides Second Quarter Guidance LJI projects revenues for the second quarter to come in at a range of $17.5 to $18 million, representing an increase of 7% to 10% from a year ago. Net income is expected to come in at a range of $250,000 to $350,000, or $0.02 to $0.03 cents per fully diluted share. Conference Call Information The Company will conduct a conference call today, May 12, 2005 at 11:00 a.m. EST to review the first quarter 2005 financial results and for a Q&A session. The call will be hosted by Betty Ho, Vice President of Corporate Development. The conference call is accessible live via phone by dialing 888-338-6461, or 973-935-8509 for international callers, and asking for the LJ International call. Please call at least 10 minutes prior to the start time, or hear the call live over the Internet by logging on to the Company's Website at http://www.ljintl.com/ . If you would like to be added to LJI's investor email lists please contact Haris Tajyar with Investor Relations International . About LJ International LJ International, Inc. (LJI) is a publicly-owned company, based in Hong Kong and the U.S., engaged in designing, branding, marketing and distributing a full range of jewelry. It has built its global business, currently one of the fastest-growing in the jewelry industry, on a vertical integration strategy and an unwavering commitment to quality and service. LJI distributes to fine jewelers, department stores, national jewelry chains and electronic and specialty retailers throughout North America and Western Europe, with a growing retail presence in China through stores and e-shopping sites. Its product lines incorporate all major categories sought by major retailers, including earrings, necklaces, pendants, rings and bracelets. It trades on the Nasdaq National Market under the symbol JADE. For more information on LJI, go to its Web Site at http://www.ljintl.com/ . Forward looking statement: Except for the historical information, the matters discussed in this news release may contain forward-looking statements, including, but not limited to, factors relating to future sales. These forward-looking statements may involve a number of risks and uncertainties. Actual results may vary significantly based on a number of factors, including, but not limited to, uncertainties in product demand, the impact of competitive products and pricing, changing economic conditions around the world, release and sales of new products and other risk factors detailed in the company's most recent annual report and other filings with the Securities and Exchange Commission. LJ INTERNATIONAL INC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Three months ended March 31 2005 2004 US$ US$ (Restated, see Note 1) Operating revenue $17,439 $14,497 Costs of goods sold (13,789) (11,061) Gross profit 3,650 3,436 Selling, general and administrative expenses (3,619) (2,864) Operating income 31 572 Other revenue and expense Other revenues 36 32 Share of results of investment securities (Note 1) 215 (66) Impairment loss on goodwill (Note 1) (1,493) -- Interest expenses (324) (182) (Loss) Income before income taxes and extraordinary gain (1,535) 356 Income taxes (102) (1) (Loss) Income before extraordinary gain (1,637) 355 Extraordinary gain on negative goodwill (Note 1) 1,886 -- Net income 249 355 Earnings per share: Basic $0.02 $0.03 Diluted $0.02 $0.03 Weighted average number of shares used in calculating diluted earnings per share 13,735,652 11,904,788 Note 1: On January 1, 2005, the Company paid $2,827,500 for new issuance of 3,900 common stock of Goldleaves International Limited (GIL), in which the Company had 20% equity interests and is classified as investment security as of December 31, 2004. The Company then became the major stockholder holding 98% equity interests in GIL, which became a subsidiary of the Company. LJ INTERNATIONAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) As of As of December March 31 31 2005 2004 (Unaudited) ASSETS US$ US$ Current assets: Cash and cash equivalents 1,535 3,228 Restricted cash 7,266 6,393 Trade receivables, net of allowance for doubtful accounts (US$284 as of March 31,2005 and December 31, 2004) 12,148 15,653 Inventories 44,144 36,629 Prepayments and other current assets 1,480 2,539 Total current assets 66,573 64,442 Properties held for lease, net 1,438 1,452 Property, plant and equipment, net 5,107 4,673 Due from related parties 491 491 Goodwill, net 1,521 1,521 Investment securities, net (Restated, see Note 1) -- 1,792 Total assets 75,130 74,371 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank overdrafts 2,919 607 Notes payable, current portion 2,993 2,487 Capitalized lease obligation, current portion 22 19 Letters of credit, gold and other loans 20,244 21,911 Embedded derivative 1,462 1,462 Trade payables 7,413 9,553 Accrued expenses and other payables 3,588 4,631 Income taxes payable 104 68 Deferred taxation 87 87 Total current liabilities 38,832 40,825 Other payables, non-current 66 58 Total liabilities 38,898 40,883 Minority interest 109 -- Stockholders' equity Common stocks, par value US$0.01 each, Authorized - 100 million shares, Issued - 13,109,658 shares as of March 31, 2005; 12,304,658 shares as of December 31, 2004 131 123 Additional paid-in capital 25,784 23,382 Accumulated other comprehensive loss (175) (151) Unearned compensation (37) (37) Retained earnings 10,420 10,171 Total stockholders' equity 36,123 33,488 Total liabilities and stockholders' equity 75,130 74,371 For further information: AT LJI: Betty Ho Vice President, Corporate Development Tel: +852-2170-0001 Email: AT INVESTOR RELATIONS INTL: Haris Tajyar Managing Partner Tel: +1-818-382-9702 Email: DATASOURCE: LJ International, Inc. CONTACT: Betty Ho, Vice President, Corporate Development of LJI, +852-2170-0001, or ; or Haris Tajyar at INVESTOR RELATIONS INTL, +1-818-382-9702, or Web Site: http://www.ljintl.com/

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