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China Marine Reports Second Quarter 2013 Financial Results

2013-08-15 04:01
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SHISHI, China, August 15, 2013 /PRNewswire-FirstCall/ -- China Marine Food Group Limited (NYSE MKT: CMFO) ("China Marine" or the "Company"), a manufacturer of Mingxiang® seafood-based snack foods, Hi-Power® marine algae-based beverages and a distributor of frozen marine catch, today announced its financial results for the three and six months ended June 30, 2013.

Second Quarter Financial Summary

Three Months Ended June 30


2013

2012

CHANGE

Net Sales

$27.3 million

$61.3 million

-55.5%

Gross Profit

$6.7 million

$9.0 million

-25.5%

Net Income

-$3.1 million

-$1.6 million

-88.6%

Diluted EPS*

-$0.10

-$0.06

-66.7%

Adjusted Net Income**

-$1.4 million

-$1.0 million

-43.5%

Adjusted Diluted EPS**

-$0.05

-$0.03

-66.7%





* Diluted EPS calculated for the period is based on 29.7 million shares on June 30, 2013 and June 30, 2012.

** Adjusted Net Income and Diluted EPS are non-GAAP calculations and do not include $0.6 million of non-cash, amortization of intangible assets related to the Company's acquisition in Q2 2013 and Q2 2012, and $1.1 million of non-cash intangible assets impairment in Q2 2013. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.

"Performance in the first half of the year suffered from a slowdown of consumer demand in China," began Mr. Pengfei Liu, Chairman and CEO of China Marine. "Based on feedback from our distributors and our continued efforts to keep our brand and products in front of consumers, we expect that the second half of the year will continue to improve."

Second Quarter 2013 Results

For the quarter ended June 30, 2013, total net revenues, including Mingxiang®-branded seafood snack foods, Hi-Power® beverages and marine catch was $27.3 million, down approximately 55.5% from $61.3 million in the prior year's period.

Seafood Snack Food Segment

China Marine's sale of processed and packaged seafood snack foods generated $9.8 million in revenue, down 8.1% from the second quarter of 2012. Higher sales in Shandong and Zhejiang provinces were offset by lower sales in Fujian. Seafood snack foods accounted for 35.8% of total revenues in the second quarter of 2013.

China Marine has maintained its product line of 23 Mingxiang®-branded seafood jerky snacks sold to consumers at retail locations. Retail points for seafood snack foods include major supermarket chains, convenience store chains, general food stores, campus canteens and local corner shops in Fujian, Zhejiang, Guangdong, Shandong and major prefectures like Shenzhen.

Hi-Power® Beverage Segment

Revenues from the Hi-Power® algae-based beverage line were $8.4 million in the second quarter of 2013, a 32.0% decline compared to $12.3 million in the second quarter of 2012. Hi-Power® sales were negatively affected by lower consumer spending in China. Hi-Power® accounted for approximately 30.6% of total sales in the second quarter of 2013.

The total numbers of retail end-points for Hi-Power® were about 14,000 on June 30, 2013, up slightly from 13,000 a year ago. Since 2012, the Company has focused on increasing sales growth in existing distributors. Hi-Power® beverages are sold and promoted in major international retailers such as Walmart®, China-based supermarkets like Trust-Mart®, convenience stores, bars, restaurants, school canteens and local corner stores which carry Hi-Power® beverages, and certain locations where Mingxiang®-branded seafood products are also sold.

Marine Catch Trade Segment

China Marine's frozen marine catch business segment generated $9.1 million in the second quarter of 2013 compared to $38.3 million in the same period a year ago. The Company purchases and sells marine catch to distributors on an opportunistic basis. Due to suppressed pricing for frozen seafood in the second quarter of the year, China Marine opted to maintain a large percentage of its inventory in stock until pricing rebounds expected by the Company in the third and fourth quarter of the year.

Consolidated costs of goods sold totaled $20.6 million for the quarter compared to $52.3 million in the same period a year ago. Cost of sales, which consists of the cost of raw materials, packaging materials, direct labor and manufacturing overhead decreased 60.6% due to lower sales.

Gross margin was 24.5% in the second quarter of 2013, up 990 basis points from 14.6% in the corresponding period a year ago. The biggest contributors to the year-over-year margin expansion were higher margins in the Hi-Power® beverage business and a lower sales contribution from the marine catch business, which generates lower margins compared to the seafood snacks and beverage businesses.

Sales and marketing expenses for the three months ended June 30, 2013 were $7.0 million, down 19.7% from $8.7 million in the year-ago quarter. The Company reduced sales and promotions spending in the second quarter of 2013 which was in line with the drop in sales and mainly attributable to soften product demand and weak purchasing power in the domestic market.

General and administrative expenses decreased 30.2% to $0.8 million in the second quarter of 2013. Total operating expenses were $9.5 million compared to $10.6 million a year ago. Operating income was a loss of $2.9 million compared to a loss of $1.6 million in the second quarter of 2012. Excluding $0.6 million non-cash acquisition-related amortization expenses and $1.1 million of non-cash intangible assets impairment related to prior acquisition, non-GAAP operating income were a loss of $1.2 million and a loss of $1.0 million for the second quarter of 2013 and 2012, respectively.

GAAP net income attributable to China Marine shareholders was a loss of $3.1 million in the three months ended June 30, 2013 compared to a loss of $1.6 million in the same period a year ago. Reported net loss per share was $0.10 for the second quarter of 2013. Excluding the non-GAAP financial measure as mentioned above, adjusted net loss for the quarter was $1.4 million, with adjusted net loss per share of $0.05. Total shares outstanding at June 30, 2013 were 29.7 million.

First Half Financial Summary

Six Months Ended June 30


2013

2012

CHANGE

Net Sales

$48.8 million

$76.4 million

-36.1%

Gross Profit

$13.9 million

$13.6 million

+2.6%

Net Income

-$2.5 million

-$3.7 million

+32.1%

Diluted EPS*

-$0.08

-$0.12

+33.3%

Adjusted Net Income**

-$0.3 million

-$1.8 million

+84.3%

Adjusted Diluted EPS**

-$0.01

-$0.06

+83.3%





* Diluted EPS calculated for the period is based on 29.7 million shares on June 30, 2013 and June 30, 2012.

** Adjusted Net Income and Diluted EPS are non-GAAP calculations and do not include $1.1 million and $1.3 million of non-cash amortization of intangible assets related to the Company's acquisition in Q2 2013 and Q2 2012, respectively, $1.1 million of non-cash intangible assets impairment in Q2 2013 and $0.6 million of after-tax non-cash stock-based compensation expenses in Q1 2012. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.

First Half 2013 Results

Net revenues were $48.8 million compared to $76.4 million for the first six months of 2012. Sales of seafood snacks and Hi-Power® beverages increased 4.4% and 2.6%, respectively.

Gross profit and gross margin for the six months ended June 30, 2013 were $13.9 million and 28.6% compared to $13.6 million and 17.8%, respectively, in the same period a year ago. Gross margins improved in each of the business units.

Operating expenses were $15.7 million, down 8.2% compared to $17.1 million in the first six months of 2012. Operating loss from operations improved to $1.7 million in the first six months of 2013 from $3.5 million in the same period a year ago.

Reported net income attributable to China Marine shareholders was a loss of $2.5 million. Reported net loss per share was $0.08. Non-GAAP adjusted net loss and net loss per share for the first six months of 2013 were $0.3 million and $0.01, respectively.

Financial Condition

As of June 30, 2013, the Company had $1.6 million in cash compared to $0.9 million as of December 31, 2012. China Marine had $19.3 million of debt outstanding at June 30, 2013 as a result of short-term loans used for optimal pricing of marine catch purchases and to maintain the effectiveness of the facility lines with the banks. Cash used for operations were $10.3 million during the first six months of 2013 compared to $12.9 million of cash inflows in the comparable period a year ago. The primary cause of the decline in cash from operations was higher inventories which were largely composed of trading materials.

Working capital was $73.0 million as of June 30, 2013, up from $72.2 million as of December 31, 2012. Accounts receivable were $30.9 million as of June 30, 2013 compared to $54.0 million as of December 31, 2012. The accounts receivable takes about three months to collect on average. Shareholder equity was $126.8 million at June 30, 2013.

About China Marine

China Marine Food Group Limited is a food and beverage manufacturer of Mingxiang® seafood-based snack foods and Hi-Power® marine algae-based health drinks, and a wholesaler of frozen marine catch in five provinces in the PRC. Founded in 1994, China Marine has grown steadily and positioned its Mingxiang® brand as a category leader in 3,500 retail food sales points and 14,000 beverage sales points in China. The Company has received "The Famous Brand" and "Green Food" awards. Located in Fujian province, it is one of the largest coastal provinces in the PRC and a vital navigation hub between the East China Sea and the South China Sea. The Company is committed to the highest standard of quality control with the ISO9001, ISO14001, HACCP certification and EU export registration.

Forward Looking Statements

This release contains certain "forward-looking statements" relating to the business of China Marine Food Group Limited and its subsidiary companies, which can be identified by the use of forward-looking terminology such as "believes, expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties, including all business uncertainties relating to product development, marketing, concentration in a single customer, raw material costs, market acceptance, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. China Marine Food Group Limited is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction.

About Adjusted Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP adjusted net income, and non-GAAP adjusted diluted 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. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Companys performance and liquidity by excluding certain expenses and expenditures that may not be indicative of "recurring core business operating results", meaning operating performance excluding non-cash amortization charges for intangibles, after-tax non-cash stock-based compensation expenses, and non-cash goodwill and intangible assets impairment. China Marine believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to historical performance and liquidity as well as comparisons to competitors' operating results. The Company believes 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 the business.

- Financial Statements Follow -

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Currency expressed in United States Dollars ("US$"))




June 30, 2013


December 31, 2012




(Unaudited)



(Audited)

ASSETS







Current assets:







Cash and cash equivalents


$

1,629,936


$

880,259

Accounts receivable, net



30,884,459



54,045,852

Inventories



65,775,140



36,415,013

Prepaid expenses and other current assets



2,612,371



400,664








Total current assets



100,901,906



91,741,788








Property, plant and equipment, net



37,131,143



35,737,296

Land use rights, net



2,986,764



2,966,805

Construction in progress



-



158,702

Intangible assets, net



13,704,459



15,616,259

TOTAL ASSETS


$

154,724,272


$

146,220,850








LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Short-term borrowings


$

19,291,453


$

8,760,375

Accounts payable, trade



3,457,480



4,227,177

Income tax payable



-



321,306

Accrued liabilities and other payables



5,180,898



6,217,260








Total current liabilities



27,929,831



19,526,118








Commitments and contingencies














Shareholders' equity:







Preferred stock, $0.001 par value; 1,000,000 shares authorized; 0
shares issued and outstanding as of June 30, 2013 and
December 31, 2012



-



-

Common stock, $0.001 par value; 100,000,000 shares authorized;
29,722,976 shares issued and outstanding as of June 30, 2013
and December 31, 2012



29,723



29,723

Additional paid-in capital



50,097,677



50,097,677

Statutory reserve



9,696,177



9,696,177

Accumulated other comprehensive income



15,547,308



12,946,218

Retained earnings



51,067,416



53,568,622

Total China Marine Food Group Limited shareholders' equity



126,438,301



126,338,417

Non-controlling interests



356,140



356,315

Total shareholders' equity



126,794,441



126,694,732

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


$

154,724,272


$

146,220,850

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Currency expressed in United States Dollars ("US$"))

(Unaudited)




For the Three Months Ended June 30,


For the Six Months Ended June 30,



2013


2012


2013


2012

Revenue, net













Processed seafood products


$

9,798,962


$

10,657,284


$

21,461,384


$

20,560,387

Marine catch



9,125,015



38,334,101



9,380,940



38,334,101

Algae-based beverage products



8,363,640



12,292,806



17,930,156



17,473,632




27,287,617



61,284,191



48,772,480



76,368,120














COST OF REVENUE (INCLUSIVE OF DEPRECIATION AND AMORTIZATION)













Processed seafood products



(7,357,758)



(7,630,558)



(15,475,636)



(14,901,293)

Marine catch



(8,140,078)



(37,086,105)



(8,417,728)



(37,086,105)

Algae-based beverage products



(5,104,318)



(7,592,003)



(10,948,627)



(10,806,254)




(20,602,154)



(52,308,666)



(34,841,991)



(62,793,652)














GROSS PROFIT



6,685,463



8,975,525



13,930,489



13,574,468














OPERATING EXPENSES:













Depreciation and amortization



(625,998)



(695,145)



(1,244,732)



(1,391,215)

Sales and marketing



(6,981,939)



(8,698,313)



(11,762,739)



(13,279,562)

General and administrative



(843,994)



(1,208,921)



(1,585,627)



(1,747,062)

Stock-based compensation



-



-



-



(667,246)

Intangible assets impairment



(1,085,183)



-



(1,085,183)



-

TOTAL OPERATING EXPENSES



(9,537,114)



(10,602,379)



(15,678,281)



(17,085,085)



























LOSS from operations



(2,851,651)



(1,626,854)



(1,747,792)



(3,510,617)














OTHER INCOME (EXPENSES):













Subsidy income



-



15,866



-



15,866

Rental income



51,269



49,224



101,931



98,529

Interest income



8,446



28,672



17,919



61,721

Interest expense



(298,498)



(105,815)



(510,012)



(141,121)

LOSS before income taxes



(3,090,434)



(1,638,907)



(2,137,954)



(3,475,622)

INCOME TAX EXPENSE



-



-



(363,427)



(207,720)














NET LOSS



(3,090,434)



(1,638,907)



(2,501,381)



(3,683,342)














Less: net loss attributable to non-controlling interests



48



46



175



92














NET LOSS ATTRIBUTABLE TO CHINA MARINE FOOD GROUP LIMITED


$

(3,090,386)


$

(1,638,861)


$

(2,501,206)


$

(3,683,250)














Other comprehensive income:













- Foreign currency translation gain



1,896,626



63,579



2,601,090



894,172














COMPREHENSIVE (LOSS) INCOME


$

(1,193,760)


$

(1,575,282)


$

99,884


$

(2,789,078)

Net loss per share attributable to China Marine Food Group Limited

- Basic


$

(0.10)


$

(0.06)


$

(0.08)


$

(0.12)

- Diluted


$

(0.10)


$

(0.06)


$

(0.08)


$

(0.12)














Weighted average shares outstanding

- Basic



29,722,976



29,697,976



29,722,976



29,697,976

- Diluted



29,722,976



29,697,976



29,722,976



29,697,976

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed in United States Dollars ("US$"))

(Unaudited)




For the Six Months Ended June 30,



2013


2012

Cash flows from operating activities:







Net loss


$

(2,501,381)


$

(3,683,342)

Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:







Depreciation and amortization



1,696,938



1,539,539

Reversal of doubtful accounts



(116,389)



(56,906)

Intangible assets impairment



1,085,183



-

Changes in operating assets and liabilities:







Accounts receivable



23,277,782



11,381,301

Inventories



(29,360,127)



(19,083)

Prepaid expenses and other current assets



(2,211,707)



(201,768)

Accounts payable, trade



(769,697)



2,980,069

Income tax payable



(321,306)



(174,525)

Accrued liabilities and other payables



(1,036,362)



1,116,175








Net cash (used in) provided by operating activities



(10,257,066)



12,881,460








Cash flows from investing activities:







Purchase of property, plant and equipment



(1,024,251)



(68,300)

Cash paid to construction in progress



-



(1,124,690)








Net cash used in investing activities



(1,024,251)



(1,192,990)








Cash flows from financing activities:







Repayment of amount due to a shareholder



-



(3,567)

Proceeds from short-term borrowings



18,972,827



7,171,530

Repayment on short-term borrowings



(8,794,150)



(2,570,327)








Net cash provided by financing activities



10,178,677



4,597,636








NET CHANGE IN CASH AND CASH EQUIVALENTS



(1,102,640)



16,286,106

Effect of exchange rate changes in cash and cash equivalents



1,852,317



495,052








CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD



880,259



586,914








CASH AND CASH EQUIVALENTS, END OF PERIOD


$

1,629,936


$

17,368,072


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes


$

1,406,832


$

382,245

Cash paid for interest


$

510,012


$

141,121








SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING TRANSACTIONS

Transfer from construction in progress to property, plant and equipment


$

158,702


$

-

Accrual of property, plant and equipment


$

27,095


$

-

For more information, please contact:

COMPANY

Marco Hon Wai Ku, CFO
Suite 815, 8th Floor
Ocean Centre, Harbour City
Tsimshatsui, Kowloon, HONG KONG
Tel: +852-2111-8768
Email: marco.ku@china-marine.cn
Web: www.china-marine.cn

INVESTOR RELATIONS

John Mattio, SVP
MZ North America
Tel: +1-212-301-7130
Email: john.mattio@mzgroup.us
Web: www.mzgroup.us

Source: China Marine Food Group Limited

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