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China Direct Industries Inc. F2Q10 (Qtr End 03/31/2010) Earnings Call Transcript

In our consulting segment, we had a particularly strong performance with revenue up over 200% from the same period in 2009, and I would like to highlight several accomplishments in this area.

First, we assisted [China Encore Metal] in achieving an uplifting to the [NYSENX]. Our ongoing relationship with this client and their strong performance, enabled us to record a $2.1 million realized capital gain in the quarter from the sales securities we had received as compensation for our consulting efforts, in addition to our normal consulting fees.

Second, Sunwin International received FDA, Generally Accepted Safe Status, on five grades of it’s all natural zero calorie CBS sweetener. Sunwin now has more grades of CDO approved for the food and beverage industry in the United States than any other company. Our efforts with Sunwin enabled us to earn a performance bonus in the quarter, contributing significantly to top and bottom line results in this segment.

In our basic materials segment we witnessed a market improvement in our chemical operations, where revenues were up 35%. This was partially offset by declines in our CDI Beijing subsidiary. Overall our operations were up as compared to the same period in 2009.

As we move forward into the remainder of the year, it is important to emphasize the number of key overall factors we believe will contribute to our success. Our balance sheet has improved dramatically, with cash of $15.1 million, a $2.2 million increase from our September 2009 year end, even after we made a substantial working capital investment of approximately $3.7 million, in order to begin building inventories at our magnesium segment in the first quarter.

Second, we still have negligible long-term debt, and our working capital increased by over 20%, to $37.9 million from the $31 million at the end of our September 30 year-end. Third, as I highlighted earlier, we are increasing magnesium production capacities, which will enable us to remarkably increase our ability to deliver product in the coming quarter, substantially increasing the potential trajectory of our revenue growth and our IMG brand.

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