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China Organic Agriculture Announces Second
Quarter 2008 Financial Results
Aug 15, 2008
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
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