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China Organic Agriculture Announces Second Quarter 2008 Financial Results
Friday August 15, 12:59 AM
China Organic Agriculture, Inc. (OTCBB: CNOA), a growth-driven agricultural products company, today announced its operating results for the second quarter and six months ended June 30, 2008.
Net sales for the second quarter of 2008 were $3.7 million, increasing 60% compared to $2.3 million for the comparable quarter of 2007. For the six months ended June 30, 2008 net sales were $11.2 million, increasing 74% compared to $6.4 million for the second quarter of 2007. China Organic had a net loss of $121,000 for the second quarter of 2008, compared to net income of $0.7 million for the second quarter of 2007, with earnings per share decreasing to $0.00 per diluted share compared to $0.01 per diluted share for the second quarter of 2007.
"Although the second quarter is historically our slowest quarter, we realized a 60% increase in sales compared with the same period in 2007," said Changqing Xu, Chief Executive Officer of China Organic Agriculture. "Our net loss of $121,000 is primarily attributable to higher levels of general and administrative expenses as well as interest expenses incurred as part of various strategic growth initiatives, including our new operations in the US. These additional costs are necessary in order to sustain our ventures into wine and other agricultural products."
Second Quarter and First Six Months Highlights
Net sales for the three months ended June 30, 2008 increased 60% to $3.7 million compared to $2.3 million for the three months ended June 30, 2007. For the six months ended June 30, 2008, net sales increased 74% to $11.2 million compared to $6.4 million for the second quarter of 2007. These increases in total sales are attributable to the Company's expansion of its distribution operations into the resale of rice through CNOA's Ankang segment. In the second quarter of 2008, approximately $3.3 million of total sales was generated by the Company's new initiative of purchasing rice from other rice producers and then selling it to retailers and wholesalers.
For the six months ending June 30, 2008, the Ankang segment recorded $7.5 million of sales. As the Ankang segment was established in 2008, there were no comparable sales in 2007.
The ErMaPao segment had a significant decrease in sales of both green and organic rice this quarter, which together declined to $0.4 million as compared to $2.3 million in the second quarter of 2007, reflecting the shift of the Company's primary focus to the trading opportunities in the agricultural industry and also increased amount of competition from other rice producers.
ErMaPao sales for the six months ending June 30, 2008 totaled $3.8 million compared to $6.4 million for the six months ending June 30, 2007. This decrease of $2.6 million, or approximately 41%, is due to the same factors noted regarding ErMaPao's second quarter sales reduction.
The Bellisimo Vineyard generated approximately $23,000 in rental revenue from the homes on the property during the three and six months ended June 30, 2008. There were no sales of grapes or wine during these periods as grapes will not be harvested until the end of fall 2008.
Gross profit for the three months ended June 30, 2008, increased to $1.1 million as compared to $0.8 million for the same period in 2007, reflecting the increased level of sales. The gross profit margin for the second quarter was 29%, a decrease from 34% realized in the comparable quarter in 2007. The decline in gross profit margin was due primarily to the lower profit margin for the Company's new distribution activity of reselling rice.
The gross profit for the six months ending June 30, 2008 was $3.2 million (or 28% of revenue) compared to $2.6 million (or 40% of revenue) for the six months ending June 30, 2007. This increase reflects the higher revenues in the 2008 six month period, while the decrease in the gross profit margin is due to Ankang's lower margins.
Selling, general and administrative expenses for the second quarter in 2008 totaled $0.7 million or approximately 19% of sales, compared to $0.1 million or approximately 4% of sales for the second quarter in 2007. This increase largely resulted from increased professional fees for financial and legal services as well as the Vineyard expenses, such as insurance, taxes, utilities, and staff.
Selling, general and administrative expenses for the six months ending June 30, 2008 totaled $1.3 million or approximately 12% of sales, compared to $0.2 million or approximately 3% for the six months ending June 30, 2007. This cost increase results from the same factors as mentioned for the second quarter.
According to the People's Republic of China's ("PRC") new tax policy effective January 1, 2008, the Company no longer benefits from its previous exemption and is now taxed at the statutory Enterprise Income Tax rate of 25%. The Company had expenses incurred outside of the PRC that are not expected to be deductible for PRC tax purposes, thereby resulting in a tax provision on a pre-tax loss.
Net loss for the three months ended June 30, 2008, was $121,000 compared to a profit of $0.7 million for the same period in 2007. This decrease was due to the higher selling, general and administrative costs and the implementation of a tax provision in 2008.
Recent Event
On June 10, 2008, the Company established Far East Wine Holding Group Limited. The formation of this subsidiary represents a major component of the Company's recently launched strategic plan to capitalize on the fast-growing demand for premium California wines in China.
Anticipated Events
The previously announced anticipated acquisition of Dalian Baoshui District Huiming Trading Ltd. ("Dalian Huiming") is in the final stages. Negotiations have progressed to the point where $10.6 million was deposited to a bank account jointly controlled with the selling shareholders for the acquisition of 60% of Dalian Huiming stock. This cash transfer was performed as an assurance that both parties are committed to this transaction and symbolizes one of the last steps in closing this acquisition.
Mr. Xu concluded, "With negotiations nearing the final stages and cash transferred to assure our intentions for purchasing 60% of Dalian Huiming, China Organic is preparing to diversify the range of products we currently offer, including wine sales to Chinese consumers. Our goal is to continue to be one of the leaders in China's agricultural industry, expand the variety of products we supply to our loyal customers, and increase value to our shareholders."
About China Organic Agriculture
China Organic Agriculture is a leading producer and distributor in the agricultural industry in China. The Company's high-growth business plan is designed to enable it to capitalize effectively on China's burgeoning economy and expanding class of consumers with the ability to acquire upscale products. The Company has developed an extensive distribution network throughout many of China's major cities, including Beijing, Shanghai and Manjing, and is positioned to leverage those networks to establish broad distribution of a number of agricultural, food and related premium products. CNOA has in excess of 6,260 acres dedicated to the production of green and organic rice, with an irrigation system fed from the Nen River, one of the last unpolluted rivers in China. The Company's flagship brand, ErMaPao, has won several awards for its high quality, holds the highest organic certification and is one of the most popular brands in the country. The Company has experienced significant growth since its inception in 2002 and has implemented a number of strategic initiatives to expand sales and revenues. For more information, please visit: www.chinaorganicagriculture.com
FORWARD-LOOKING STATEMENTS: This document includes forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning estimates of, and increases in, production, cash flows and values, statements relating to the continued advancement of China Organic Agriculture's products and other statements which are not historical facts. When used in this document, the words such as "could," "plan," "estimate," "expect," "intend," "may," and similar expressions are forward-looking statements. Although China Organic Agriculture Inc. believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements include, but are not limited to, those set forth in our reports filed with the Securities and Exchange Commission, together with the risks discussed in our press releases and other communications to shareholders issued by us from time to time, such as our ability to raise capital as and when required, the availability of raw products and other supplies, competition, the costs of goods, government regulations, and political and economic factors in the People's Republic of China in which our subsidiaries operate.
China Organic Agriculture, Inc.
Selected Consolidated Statements of Operations
----------------------------------------------------------------------
(in millions, except per share amounts)
(unaudited)
Three (unaudited)
months Six months
ended ended
June 30, June 30,
2008 2007 2008 2007
----- ---- ----- ----
Sales $ 3.7 $ 2.3 $ 11.2 $ 6.4
Cost of sales 2.6 1.5 8.1 3.9
Selling, general and admin expenses 0.7 0.1 1.3 0.2
----- ---- ----- ----
Income from operations 0.3 0.7 1.9 2.4
Interest expense and other 0.2 - 0.3 -
Provision for income taxes 0.2 - 0.7 -
----- ---- ----- ----
Net income(loss) $(0.1) $ 0.7 $ 0.9 $ 2.4
===== ==== ===== ====
Basic and diluted earnings per share $ 0.00 $0.01 $ 0.02 $0.05
===== ==== ===== ====
Basic and diluted average number of shares 51.5 51.5 51.5 51.5
===== ==== ===== ====
NOTE: The above numbers may not total correctly due to rounding.
China Organic Agriculture, Inc.
Selected Consolidated Balance Sheet Items
----------------------------------------------------------------------
(in millions)
(unaudited) December
June 30, 31,
2008 2007
----------- --------
Cash and cash equivalents $ 0.7 $ 9.7
Accounts receivable, net 5.8 1.9
Inventories 1.5 3.2
Other receivables and prepayments 1.0 0.4
Acquisition deposits 13.3* -
Property, plant & equipment, net 16.0 1.5
Total current liabilities 6.0 0.9
Total long-term debt 14.5 -
Total stockholders' equity $21.0 $19.1
==== ====
*Includes $10.6 of cash deposit for pending Dalian acquisition
NOTE: The above numbers may not total correctly due to rounding.
Selected Consolidated Cash Flow Items
----------------------------------------------------------------------
(in millions)
(unaudited)
Six months
ended
June 30,
--------------
2008 2007
------ ----
Net cash provided (used) by operating activities (10.3)* 0.2
Purchase of property, plant & equipment (14.6) -
Net cash provided by financing activities 15.3 -
Effective exchange rate changes 0.6 -
Net change in cash and cash equivalents $ (9.0) $ 0.2
===== ====
*Includes $10.6 of cash deposit for pending Dalian acquisition
NOTE: The above numbers may not total correctly due to rounding.
Contact:
China Organic Agriculture, Inc. Steve Wan, 310-441-9777 stevewan@chinaorganicagriculture.com or Investor Relations Darren Minton, 212-823-0523 chinaorganic@cafcg.com
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