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China Digital Trades at Discount

In terms of product mix, as of the second quarter, we had total revenues of $5.4 million, which were comprised of 68% finished battery revenues and 32% battery shell and cap revenues. Margins in the shell and cap products are quite low at about 6%, however, margins in the finished battery business are quite high at about 30%.

How significant is customer concentration in your finished battery business?

The finished battery business is a relatively new business for us, which we have been building step by step. Last year, when we first entered the business, our first and only customer accounted for 100% of the finished battery revenues. Since that time we have added two new major customers such that total battery revenues will be divided very approximately as 50%, 30% and 20%. As time goes on we expect to continue adding new customers. With our customers, we have 90-day payment terms and have had no problems with accounts receivable.

The company currently has a sizable cash balance. Do you have plans for it?

We continue to look for attractive local battery producers to acquire to expand our battery business. Being located in Shenzen is ideal because there are many small, profitable private battery companies with up and running production facilities and sales channels.

Please tell me more about the battery production lines.

We are currently running three battery production lines staffed by 70 factory workers. We currently produce 600,000 to 700,000 batteries per month, but we have the capacity to increase that by a significant multiple to meet customer demands.

We produce batteries as specified in the orders by our customers in four categories: mobile phone batteries, MP3/MP4 batteries, laptop batteries, digital camera. The majority of the business is in mobile phones and MP3/MP4 batteries. Some of the well known products that we manufacture for include aftermarket battery products for use in Sony, Samsung, Canon and Apple Ipod products.
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