Emerald Dairy Inc. Reports Record Results for the First Quarter 2010
HARBIN, China, May 18 /PRNewswire-Asia-FirstCall/ -- Emerald Dairy, Inc. (OTC Bulletin Board: EMDY, "Emerald Dairy" or the "Company"), a leading producer and distributor of infant and children's formula, today announced results for its first quarter ended March 31, 2010.
First Quarter 2010 Highlights
-- Revenue was $14.3 million, up 31.3% from Q1 2009.
-- Gross profit was $7.1 million with a 49.7% profit margin for the
quarter, a 390 basis point improvement in profit margin compared to the
first quarter of 2009.
-- Net income was ($2.3) million compared to $1.5 million in Q1 2009.
-- Adjusted net income* increased 75.6% for the quarter to $2.7 million;
adjusted net income margins improved 420 basis points to 18.9% for the
quarter.
-- Adjusted earnings per diluted share* were $0.08 for the quarter based
on 32.9 million shares.
Summary Financials
First Quarter 2010 Results
1Q 2010 1Q 2009 CHANGE
Net Sales $14.3 million $10.9 million +31.3%
Gross Profit $7.1 million $5.0 million +41.8%
Net Income ($2.3)million $1.6 million -247.9%
Adjusted Net Income* $2.7 million $1.6 million +75.6%
Adjusted Earnings Per $0.08 $0.05 +60.0%
Share*
*Adjusted net income and EPS in Q1 2010 are non-GAAP calculations and
include other non-cash expenses of $5,021,669, in fair value of warrant
liability related to 5,374,648 warrants outstanding as of March 31, 2010.
For more information about the non-GAAP financial measures contained in
this press release, please see "About Non-GAAP Financial Measures" below.
"The Chinese dairy market is estimated at $13 billion a year in sales, and is expected to grow at a rate of 15.0% per year for the foreseeable future," began Chairman and CEO of Emerald Dairy, Mr. Yong Shan Yang. "With 16 million infants born in China every year, we are confident we will secure more market share in our target markets of 'Tier Two' through "Tier Four' cities in China. This category of cities represents the fastest growing populations in China and provides us the most growth potential. Demand for our products has been increasing and we added a third shift in 2008 to maintain pace with orders at that time. Now, we are in the process of completing our new production facility and adding the first production line with 10,000 tons of capacity, more than double our capacity to increase our earnings and revenues," Yang concluded.
Financial Results
Total revenues in the first quarter ended March 31, 2010 were $14.3 million, an increase of 31.3% from $10.9 million in the prior year's corresponding period. The increase in sales revenues was attributed to sales of the Company's leading product line, Xing An Ling(R), which targets high-end consumers in Emerald Dairy's target markets. Emerald Dairy's infant formula and milk powders are distributed throughout 20 provinces in mainland China and sold in over 6,000 retail outlets.
In addition to powdered milk formula, Emerald Dairy produces and sells limited quantities of soybean and rice powered formulas for lactose intolerant children. In the first quarter of 2010, Company's sales of soybean and rice powders were $0.4 million each, or approximately 2.7% of sales. Additional revenues of $1.0 million were categorized in the first quarter of 2010 as "sub contracted" sales which the Company records as sales of milk powders sold to other suppliers as a private label, or in bulk. Due to the strain sub-contracting puts on capacity utilization at Emerald Dairy's facilities, the Company will not renew its sub-contracting agreements and will use its capacity for production of the Company's proprietary products and brands.
Cost of goods sold increased 22.3% from $5.8 million to $7.1 million in the first quarter ended March 31, 2010. Overall gross profit was $7.1 million, with gross margin of 49.8%, compared to overall gross profit of $5.0 million and gross margin of 46.1% in the first quarter of 2009. Profit margins differ depending on the product marketed and sold to Emerald Dairy's customer segments.
Excluding the non-cash expense of approximately $5.0 million, total operating expenses were $4.0 million in the first quarter of 2010 compared to $3.1 million in the first quarter of 2010. Selling expenses and administrative expenses were $3.9 million, a 28.9% increase from $3.1 million in the first quarter of 2009. Advertising increased by $0.1 million, or 44.3%, to $0.35 million in 2010, from $0.25 million in 2009, due to an increased marketing campaign in 2010. Promotion expenses increased by $0.6 million, or 633.3%, to $0.7 million in 2010, as the Company increased marketing expenses for brand building. Rather than using wholesalers, Emerald Diary sales people work closely with exclusive distributors and their retail customer's locations. Emerald Dairy believes that although this business model has slightly higher sales expenses, it is offset by higher profit margins for the Company, better control over the promotion and product positioning of its products on retail, and fosters long term customer relationships. Adjusted operating income was $3.1 million in the first quarter of 2010 compared to $1.9 million in the first quarter of 2009, a 63.2% increase year over year.
Adjusted net income was $2.7 million in the first quarter of 2010 compared to $1.5 million in the first quarter of 2009. Adjusted earnings per share were $0.08 in the first quarter of 2010 based on 32.9 million diluted shares compared to $0.05 in the first quarter of 2009, based on 29.5 million diluted shares.
Financial Condition
Cash and cash equivalents as of March 31, 2010 were $6.4 million compared to $13.5 million as of December 31, 2009. Working capital was $19.9 million as of March 31, 2010 compared to $24.1 million as of December 31, 2009. Property, plant and equipment, net and construction in progress in the first quarter of 2010 totaled $15.4 million, compared to $14.7 million in the first quarter of 2009. Total current liabilities as of March 31, 2010 were $9.7 million compared to $9.7 million as of December 31, 2009. The Company contracted to purchase equipment from a supplier for its second processing facility for $10.3 million of which $8.8 million has been paid. The remaining $1.5 million will be paid on delivery and completed installation of the equipment in 2010.
Total stockholders equity as of March 31, 2010 $46.3 million, a 7.5% increase from $43.1 million as of December 31, 2009.
"We are pleased with the results of this quarter," said Mr. Shu Kaneko, CFO of Emerald Dairy. "We increased revenue and reduced operating expenses. In fiscal 2009, we raised financing which we are using for the construction and equipping of a second and larger production facility. We expect this new facility to be ready for production by mid 2010. Emerald Dairy is one of the most productive and respected businesses in the industry. Our goal is to expand production to meet existing demand for our products."
2010 Guidance
Guidance for the 2010 ending December 31, 2010 is from $60 million to $65 million in revenues and approximately $8.0 million in net income. Guidance is dependent upon the Company's ability to complete expansion of its manufacturing facilities.
About Emerald Dairy
Through its wholly-owned operating subsidiaries, Emerald Dairy, Inc. is a producer and distributor of infant and children's formula, milk powder and soybean products in the People's Republic of China. The Company's products are sold under two brand names -- "Xing An Ling," designed for middle class and affluent customers, and "Yi Bai," designed for price conscious customers. Emerald Dairy's products are distributed throughout 20 provinces in mainland China and sold in over 6,000 retail points.
About Non-GAAP Financial Measures
To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP net income, and non-GAAP EPS. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our "recurring core business operating results," meaning our operating performance excluding not only non-cash charges, such as stock-based compensation, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.
Forward Looking Statements
Certain statements in this release and other written or oral statements made by or on behalf of the Company are "forward looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. The forward looking statements are subject to a number of risks and uncertainties including market acceptance of the Company's services and projects and the Company's continued access to capital and other risks and uncertainties. The actual results the Company achieves may differ materially from any forward- looking statements due to such risks and uncertainties. These statements are based on our current expectations and speak only as of the date of such statements.
- Financial Statements Follow -
Emerald Dairy Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 2010 and December 31, 2009
ASSETS
March 31, December 31,
2010 2009
(Unaudited)
Current Assets
Cash and cash equivalents $6,482,593 $13,486,429
Trade accounts receivable, net 6,925,247 7,223,016
Inventory, net 1,921,028 1,298,488
Advances to equipment supplier 8,787,779 3,710,707
Other current assets 5,453,840 1,292,749
Total current assets 29,570,487 27,011,389
Property, plant and equipment
Property, plant and equipment, net 5,860,017 5,946,330
Construction in progress 9,519,137 8,772,931
15,379,154 14,719,261
Intangible assets, net 1,332,313 1,341,534
$46,281,954 $43,072,184
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses $3,026,838 $2,917,798
Notes payable, net of debt discount
of $543,805 and $729,830 at
March 31, 2010 and December 31,
2009, respectively 6,029,497 5,843,472
Other current liabilities 423,325 704,056
Loan from shareholder 210,176 210,142
Total current liabilities 9,689,836 9,675,468
Commitments and Contingencies (Note 18)
Stockholders' Equity
Preferred stock ($0.001 par value,
10,000,000 shares authorized, none
issued and outstanding at March
31, 2010 and December 31, 2009) -- --
Common stock ($0.001 par value,
100,000,000 shares authorized,
34,890,267 and 34,890,267 issued
and outstanding at March 31, 2010
December 31, 2009, respectively) 34,890 34,890
Treasury Stock (1,944,444 shares at
March 31, 2010 and
December 31, 2009, respectively) (1,944) (1,944)
Additional paid-in capital 22,488,323 17,003,093
Retained earnings (of which
$3,191,614 and $1,834,742 are
restricted at March 31, 2010
and December 31, 2009, respectively,
for common welfare reserves) 12,021,781 14,318,425
Accumulated other comprehensive
income 2,049,068 2,042,252
Total stockholders' equity 36,592,118 33,396,716
$46,281,954 $43,072,184
Emerald Dairy Inc. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
March 31, March 31,
2010 2009
Sales $14,252,856 $10,856,552
Cost of Goods Sold 7,153,772 5,848,675
Gross Profit 7,099,084 5,007,877
Operating Expenses
Selling expenses and administrative
expenses 3,902,390 3,026,704
Liquidated damages 5,021,669 --
Depreciation and amortization 51,228 43,238
Total operating expenses 8,975,287 3,069,942
Other Income (Expense)
Interest income 1,058 953
Interest expense -- (48,352)
Total other income (expense) 1,058 (47,399)
Net (Loss) Income Before Provision for
Income Tax (1,875,145) 1,890,536
Provision for Income Taxes
Current 421,499 337,830
421,499 337,830
Net Income $(2,296,644) $1,552,706
Basic Earnings Per Share $(0.07) $0.05
Basic Weighted Average Shares
Outstanding 32,945,823 29,415,137
Diluted Earnings Per Share $(0.07) $0.05
Diluted Weighted Average Shares
Outstanding 32,945,823 29,510,851
The Components of Other Comprehensive
Income
Net Income $(2,296,644) $1,552,706
Foreign currency translation
adjustment 10,295 (55,826)
Income tax related to other
comprehensive income (3,500) 18,981
Comprehensive Income $(2,289,849) $1,515,861
Emerald Dairy Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
March 31, March 31,
2010 2009
Cash flows from operating activities
Net Income $(2,296,644) $1,552,706
Adjustments to reconcile net cash
provided by operating activities
Depreciation and amortization 141,255 133,083
Amortization of loan discount 186,025 21,971
Capitalized interest (630,918) (62,012)
Warrants modified for liquidated
damages 5,021,669 --
Incentive stock options 213,361 18,508
Net change in assets and liabilities
Trade accounts receivable 298,933 (634,733)
Inventory (622,331) (480,552)
Other current assets 171,145 36,018
Accounts payable and accrued
expenses 358,770 (223,133)
Other current liabilities (280,844) (291,812)
Net cash provided by operating
activities 2,560,421 70,044
Cash flows from investing activities
Deposit on equipment and
construction (9,411,275) --
Construction in progress (113,874) --
Purchases of fixed assets and
intangibles (44,548) (4,933)
Net cash used in investing activities (9,569,697) (4,933)
Cash flows from financing activities
Exercise of warrants -- 758,230
Net cash provided by financing
activities -- 758,230
Effect of exchange rate 5,440 (12,537)
Net increase in cash (7,003,836) 810,804
Cash and cash equivalents at
beginning of period 13,486,429 7,343,588
Cash and cash equivalents at end of
period $6,482,593 $8,154,392
For more information, please contact:
Company Contact:
Shu Kaneko
Chief Financial Officer
Emerald Dairy Inc.
Email: [email protected]
Web: http://www.emeralddairy.com/
Investor Relations
Mr. John Mattio
HC International, Inc.
Tel: +1-203-616-5144
Email: [email protected]
Web: http://www.hcinternational.net/
SOURCE Emerald Dairy, Inc.
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