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China Nutrifruit Group Ltd. Announces Record Fourth Quarter and Fiscal Year 2009 Results

2009-07-01 18:55 456

- Fiscal year 2009 net sales climb 63.5% year-over-year to $56.4 million

- Fiscal year 2009 non-GAAP net income reaches $14.0 million, or $0.42 per diluted share

- Submitted application to list on NYSE AMEX Stock Exchange

DAQING, China, July 1 /PRNewswire-Asia-FirstCall/ -- China Nutrifruit Group Limited (OTC Bulletin Board: CNGL) ("China Nutrifruit" or "the Company"), a leading producer of premium specialty fruit based products in China ("PRC"), announced its financial results for its fourth quarter and fiscal year ended March 31, 2009.

China Nutrifruit's reported financial statements represent the consolidated results of Daqing Longheda Food Company Limited ("Longheda"), the Company's indirect, wholly-owned subsidiary following its acquisition in May 2008. For comparison purposes, the Company has provided pro forma consolidated statements of operations including Longheda's operations for three months and fiscal year ended March 31, 2008. These pro forma statements of operations are presented in Table 2 below. During the quarter ended March 31, 2009, the Company recorded $9.5 million in non-cash compensation expense related to the Company's August 2008 private placement. The Company has presented non-GAAP operating income, net income and diluted earnings per share excluding the impact of this expense on its financial results for the three months and fiscal year ended December 31, 2009. A reconciliation of these non-GAAP measures to the corresponding GAAP measure is provided in Table 3 below. The Company uses the non-GAAP and pro forma information in its internal performance measures to analyze performance between periods, develop internal projections and measure management performance. The Company believes the non-GAAP and pro forma results provide investors with a measurement of operating results which are comparable with subsequent periods.

Highlights for the Fourth Quarter 2009

-- Record net sales increased 174.8% to $20.2 million from pro forma net

sales of $7.4 million in the fourth quarter of fiscal 2008

-- Gross profit grew 106.9% year-over-year to $7.5 million, with gross

margin of 36.9%

-- Net loss was $5.4 million, or $0.16 per diluted share, compared to pro

forma net income of $2.9 million, or $0.10 per diluted share, a year

ago

-- Excluding $9.5 million in non-cash stock compensation expenses, non-

GAAP net income was $4.1 million, or $0.12 per diluted share, up 41.2%

from pro forma net income a year ago

Fiscal Year 2009 Highlights

-- Net sales were $56.4 million up 63.5% from pro forma net sales of $34.5

million in fiscal 2008

-- Gross profit increased 50.8% year-over-year to $24.6 million, with a

gross margin of 43.7%

-- Net income was $4.5 million, or $0.14 per diluted share, compared to

pro forma net income of $11.6 million, or $0.38 per diluted share, in

fiscal 2008

-- Excluding non-cash compensation expenses, non-GAAP net income increased

21.2% year-over-year to $14.0 million, or $0.42 per fully diluted share

-- Completed a private placement of 3.1 million shares of common stock

generating $6.84 million in net proceeds

-- Launched new fruit concentrate production plant in Mu Dan Jiang City,

increasing annual production capacity by 6,000 metric tons

-- Increased number of distributors to 70, up from 68 at the end of fiscal

2008

"We closed our 2009 fiscal year with strong performance in what is typically one of our seasonally slowest periods of the year. Recognizing the demand for our products was not impacted by the global financial contraction, our distributors increased orders in the fourth quarter to build up their inventories," commented Mr. Jinglin Shi, CEO of China Nutrifruit. "Our strong sales growth was largely driven by increased market demand for our specialty fruit based products and successful expansion of our distribution network. The fruit processing market in China, especially the market for premium specialty fruit products, continued to expand in fiscal year 2009 due to increasing health awareness among end consumers and increase in per capita disposable income."

Unaudited Fourth Quarter 2009 Results

Net sales for the fourth quarter ended March 31, 2009 was $20.2 million, up 174.8% from pro forma net sales of $7.4 million in the fourth quarter of fiscal 2008. The strong sales growth was mainly attributable to increased market demand and capacity expansion of the Company's fruit concentrate products. The Company's new concentrate juice production line came online in August 2008, contributing to the overall sales growth.

For the fourth quarter of fiscal year 2009, net sales from concentrated juice products, which accounted for 53.3% of the total net sales, were $10.8 million, up 242.3% from $3.1 million in the fourth quarter of fiscal year 2008. Among the Company's concentrated juice products, sales of golden berry and blueberry surged 89.2% and 215.3% to $2.6 million and $4.6 million, respectively. Net sales from glazed fruit and nectar, which accounted for 6.5% and 10.6% of net sales, were $1.3 million and $2.1 million, down 4.2% and up 116.0% from $1.4 million and $1.0 million in the fourth quarter of fiscal 2008, respectively. Beverages, which represented 6.6% of net sales, were $1.3 million, up 56.2% from $0.9 million in the fourth quarter of fiscal 2008.

Gross profit for the fourth quarter of 2009 was $7.4 million, up 106.9% from pro forma gross profit of $3.6 million for the same period a year ago. Gross margin was 36.9% for the fourth quarter of 2009 compared with pro forma gross margin of 49.0% in the fourth quarter of 2008. The decline in gross margin was due to decrease in gross margin of the Company's crab apple concentrate juice. The market price of crab apples decreased considerably in the fourth quarter of 2009. The Company had build up inventory of crab apples in the second and third quarter of 2009 and the significant decline in prices of crab apple affected the Company's gross margin. The gross margin for crab apple concentrate juice declined from 39.5% in the fourth quarter of fiscal year 2008 to 7.1% in the fourth quarter of 2009. The market price for crab apples has stabilized and the Company expects gross margin will improve in fiscal year 2010.

For the fourth quarter of 2009, general, and administrative expenses were $10.9 million, significantly higher than pro forma general and administrative expenses of $0.3 million a year ago. The increase was due to $9.5 million in non-cash compensation expenses related to the release of approximately 2.8 million "make good" shares which were pledged by Yiu Fai Kung, the Company's major shareholder, in connection with the Company's August 2008 private placement agreement. A total of 5,599,598 shares of the Company's common stock held by Mr. Kung were placed into escrow in support of the Company's performance in fiscal year 2009 and 2010. Because Mr. Kung is a director of the Company's subsidiary Fezdale, any release of the shares placed in escrow is accounted for as a separate compensatory agreement and recorded as non-cash compensation and recorded as a general and administrative expense. The Company met the specified net income target of $13.9 million for the 2009 fiscal year (excluding the non-cash compensation expense), and therefore one-half of the pledged shares were released and a non-cash compensation expenses of $9.5 million was recorded in the fourth quarter of 2009. Other general and administrative expenses also increased mainly due to higher professional fees associated with being a U.S. public reporting company. Selling expenses declined as the Company efficiently managed selling costs and ceased royalty payments for the beverage product "The World of Legend" which was replaced by "The Legend of Network" in May 2008.

For the fourth quarter of fiscal year 2009, interest expenses were $162,151, up 33.2% from pro forma interest expenses of $121,755 in the fourth quarter of fiscal year 2008, primarily due to increase in bank loans for working capital requirements.

Operating loss in the fourth quarter of fiscal 2009 was $4.4 million. Excluding the non-cash compensation expense related to the August 2008 private placement, non-GAAP operating income in the fourth quarter of fiscal year 2009 was $5.2 million, up 88.1% from pro forma operating income of $2.7 million a year ago.

Net loss in the fourth quarter of 2008 was $5.4 million, or $0.16 per diluted share. Excluding the non-cash compensation expense related to the August 2008 private placement, non-GAAP net income for the fourth quarter of fiscal year 2009 was $4.1 million, or $0.12 per fully diluted share, up 41.1% from pro forma net income of $2.9 million, or $0.10 per fully diluted share, for the fourth quarter of fiscal year 2008.

Full Year Financial Results

For fiscal year ended March 31, 2009, net sales were $56.4 million, up 63.5% from pro forma net sales of $34.5 million in fiscal year ended March 31, 2008. Net sales from concentrated juice products, which accounted for 51.2% of fiscal 2009 total net sales, were $28.9 million, up 78.8% from $16.2 million in fiscal 2008. Among the Company's concentrated juice products, sales of golden berry and blueberry surged 64.9% and 95.1% to $8.9 million and $13.2 million, respectively. Net sales from glazed fruit and nectar, which accounted for 10.9% and 13.2% of net sales, were $6.2 million and $7.4 million, up 35.1% and 39.7% from $1.6 million and $2.1 million in fiscal 2008, respectively. Net sales of fresh golden berry fruits accounted for 4.3% of net sales and totaled $2.4 million, up 18.6% from $2.1 million in the last fiscal year. Beverages, which represented 8.2% of net sales, were $4.6 million, up 8.2% from $4.2 million in fiscal 2008.

Gross profit increased 50.8% to $24.6 million from pro forma gross profit of $16.3 million a year ago. Gross margin was 43.7% in fiscal year 2009 compared to pro forma gross margin of 47.3% in 2008. Income from operations was $9.3 million, down from pro forma income from operations of $13.1 million last year, reflecting the impact of $9.5 million in non-cash compensation expenses recorded in the fourth quarter of fiscal 2009. Net income for the fiscal year ended March 31, 2009 was $4.5 million, or $0.14 per diluted share. Excluding the impact of the non cash compensation expenses, non-GAAP net income for fiscal 2009 was $14.0 million, or $0.42 per diluted share, up 21.2% from pro forma net income of $11.6 million, or $0.38 per diluted share, in fiscal 2008.

Financial Condition

As of March 31, 2009, China Nutrifruit had $4.8 million in cash and cash equivalents, $11.8 million in total liabilities with no long term debt and working capital of $16.0 million. Shareholders' equity stood at $26.8 million as of March 31, 2009, compared to $5.9 million as of March 31, 2008. In fiscal year 2009, the Company generated $6.3 million in cash flow from operating activities.

On October 10, 2008, the Company completed a private placement of 3,085,840 shares of its common stock resulting in approximately $6.84 million in net proceeds. The Company used the proceeds to build its new concentrate juice production line in Mu Dan Jiang. Capital expenditures for fiscal year 2009 were $13.1 million, which was utilized for capacity expansion.

Recent Events

On June 11, 2009, China Nutrifruit appointed Mr. Tony Chun Wai Chan, Mr. William Haus, and Mr. Jingfu Li as independent board members. With these additions, China Nutrifruit's board of directors is now comprised of five directors, three of whom are independent. The Company also adopted a code of ethics and established audit, compensation and corporate governance and nominating committees.

On June 22, 2009, the Company announced the relocation of its new headquarters in Daqing City, Heilongjiang Province, China. The new headquarters is located in the Daqing Hi-tech Industrial Development Zone, a leading industrial area in Daqing City, Heilongjiang Province. With a total floor area of 966 square meters, the new office provides enhanced work environment for employee growth and development, and is located in close proximity to the Company's processing facility in Daqing, facilitating improved management and co-ordination.

Business Outlook

The Company is currently readying itself to begin production for the harvest season which occurs from mid July through November of each year. During the upcoming harvest season, China Nutrifruit plans to increase utilization of its newly added concentrate juice production line. The Company also intends to extend its geographic outreach by adding new distributors with strong track records in target markets, including Eastern and Greater Middle China. Subject to financing, the Company plans to expand production capacity to meet the growing market demand for its specialty fruit products. In fiscal 2010, the Company plans to add a new glazed fruit production line and a pulp concentrate production line.

China Nutrifruit has recently submitted its application to list its common stock on the NYSE Amex Stock Exchange. The Company believes that it meets all corporate governance and other listing requirements of the exchange and expects its application to be accepted soon.

"We believe China's processed fruit products industry will continue to experience robust growth as health conscious consumers transition away from carbonated beverages and embrace premium specialty fruit juice products such as ours. Furthermore, the Ministry of Agriculture is taking steps to encourage the fruit processing industry in an effort to reduce the fruit harvest loss ratio. We believe our leading market position, strong and profitable distribution network and long term relationships with suppliers and local farmers put us in an ideal position to capitalize on the many growth opportunities available to us," concluded Mr. Shi. "Our growth strategy for 2010 will focus on revenue growth by improving utilization of our new production line, extending our market presence and expanding capacity and our product portfolio."

Conference Call Information

Management will conduct a conference call at 9:00 a.m. Eastern Time on Wednesday, July 1, 2009 to discuss its fourth quarter and full year 2009 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial 617-614-2702. The pass code for the call is 115 76 906. If you are unable to participate in the call at this time, a replay will be available on Wednesday, July 1, 2009 at 11:00 a.m. Eastern Daylight Time, through Wednesday, July 15, 2009. To access the replay, dial 888-286-8010. International callers should dial 617-801-6888. The conference pass code is 902 65 743.

About China Nutrifruit Group Limited

Through its subsidiary Daqing Longheda Food Company Limited, China Nutrifruit, is engaged in developing, processing, marketing and distributing a variety of food products processed primarily from premium specialty fruits grown in Northeast China, including golden berry, crab apple, blueberry and raspberry. The Company's processing facility possesses ISO9001 and HACCP series qualifications. Currently, the Company has established an extensive nationwide sales and distribution network covering 19 provinces and 43 cities, through 70 distributors in China.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act""). Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors mentioned in the "Risk Factors" section of our Current Report on Form 10-K filed on June 30, 2009, and other risks and uncertainties mentioned in our other reports filed with the Securities and Exchange Commission. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

-Financial Tables Follow -

Table 1

CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(THREE MONTHS AND TWELVE MONTHS)

(Stated in US Dollars)

Three Months Ended Fiscal Year Ended

March 31, March 31,

2009 2008 2009 2008

(unaudited) (unaudited) (audited) (audited)

Net Sales 20,206,609 7,316,945 56,418,837 13,527,015

Cost of Sales (12,756,905) (3,963,710) (31,777,733) (7,499,879)

Gross Profit 7,449,704 3,353,235 24,641,104 6,027,136

Selling Expenses (894,226) (309,696) (2,929,881) (859,995)

General & Administrative

Expenses (10,902,944) (535,105) (12,408,747) (535,105)

Operating earnings (4,347,466) 2,508,434 9,302,476 4,632,036

Other income (expenses)

Interest expenses (162,151) (136,882) (480,201) (250,985)

Other income 5,638 30,509 31,730 30,569

Total other income (156,513) (106,373) (448,471) (220,416)

Earnings before minority

interests and income

tax (4,503,979) 2,402,061 8,854,005 4,411,620

Provision for income tax (883,619) 286,440 (4,127,577) (7,384)

Earnings before minority

interests (5,387,598) 2,688,501 4,726,428 4,404,236

Minority interests -- (479,526) (209,308) (895,780)

Net earnings (5,387,598) 2,208,975 4,517,120 3,508,456

Earnings per share

Basic ($0.16) 0.07 $0.14 $0.12

Diluted ($0.16) 0.07 $0.14 $0.12

Weighted average number

of common stock

outstanding

Basic 33,431,434 30,166,878 33,431,434 30,166,878

Diluted 33,451,676 30,166,878 33,451,676 30,166,878

Table 2

CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

(THREE MONTHS AND TWELVE MONTHS)

(Stated in US Dollars)

Three Months Fiscal Year

Ended Ended

March 31, March 31,

2008 2008

Proforma Proforma

Unaudited Unaudited

Net Sales 7,354,156 34,510,140

Cost of Sales (3,752,934) (18,167,973)

Gross Profit 3,601,222 16,342,167

Selling Expenses (554,791) (2,077,076)

General & Administrative Expenses (296,618) (1,150,058)

Operating earnings 2,749,813 13,115,033

Other income (expenses)

Interest expenses (121,755) (402,852)

Other income

13,562 30,569

Total other income (108,193) (372,283)

Earnings before minority interests and

Income Tax 2,641,620 12,742,750

Provision for income tax 285,454 (1,159,750)

Earnings before MI 2,927,074 11,583,000

Minority interests -- --

Net earnings 2,927,074 11,583,000

Earnings per share

Basic $0.10 $0.38

Diluted $0.10 $0.38

Weighted average number of common stock

outstanding

Basic 30,166,878 30,166,878

Diluted 30,166,878 30,166,878

Table 3

CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES

Reconciliation of non-GAAP Operating Income and Net Income

(in thousands except per share data)

For the quarter Fiscal Year

ended ended

March 31, 2009

Net income as reported under GAAP (5,387,598) 4,517,120

Add: Non cash stock compensation

expense (1) 9,519,317 9,519,317

Adjusted Net Income 4,131,719 14,036,437

Diluted Earnings Per Share reported

under GAAP ($0.16) $0.14

Add: Non cash stock compensation

expense per share (1) $0.28 $0.28

Adjusted Diluted Earnings Per Share $0.12 $0.42

Diluted weighted average number of

common stock

outstanding 33,451,676 33,451,676

Operating Income (Loss) as reported

under GAAP (4,347,466) 9,302,476

Add: Non cash stock compensation

expense (1) 9,519,317 9,519,317

Adjusted Operating Income 5,171,851 18,821,793

(1) Non-cash stock compensation expense recorded in the fourth quarter of

2009 related to the release of 2,799,799 shares from escrow to the

Company's majority shareholder, Mr. Kung.

Table 4

CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31,

2009 2008

ASSETS

Current assets:

Cash and cash equivalents $ 4,768,542 $ 7,104,849

Trade receivables, net of

allowance 11,423,996 1,921,457

Inventory, net 3,692,892 1,955,725

Other current assets 481,679 114,865

Total current assets 20,367,109 11,096,896

Property and equipment, net 16,614,930 7,173,523

Deferred tax assets 1,406,814 875,555

Land use rights, net 189,303 318,120

TOTAL ASSETS $ 38,578,156 $ 19,464,094

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Short-term borrowings $ -- $ 2,848,110

Other payables and accrued

expenses 2,675,983 494,278

Consideration payable -- 5,353,755

Trade payables 260,322 159,078

Income taxes payable 1,416,835 607,680

Amount due to an affiliate -- 57,219

Total current liabilities 4,353,140 9,520,120

Non-current liabilities:

Amounts due to shareholders 7,407,748 --

TOTAL LIABILITIES 11,760,888 9,520,120

Minority interests -- 4,039,286

Commitments and Contingencies

Shareholders' equity

Preferred stock

Authorized: 5,000,000 shares, par

value $0.001

None issued and outstanding -- --

Common stock

Authorized: 120,000,000 shares,

par value $0.001

Issued and outstanding: 36,125,754

shares at March 31, 2009;

(30,166,878 shares at

March 31, 2008) 36,126 30,167

Additional paid-in-capital (deficit) 16,746,971 (29,167)

Statutory reserves - restricted 2,873,880 1,713,065

Accumulated other comprehensive

income 425,675 812,312

Retained earnings 6,734,616 3,378,311

TOTAL SHAREHOLDERS' EQUITY 26,817,268 5,904,688

TOTAL LIABILITIES AND SHAREHOLDERS'

EQUITY $ 38,578,156 $ 19,464,094

Table 5

CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31,

2009 2008

Cash flows from operating activities:

Net earnings $ 4,517,120 $ 3,508,456

Adjustments to reconcile net earnings

to net cash provided by operating

activities

Minority interests 209,308 927,493

Depreciation and amortization 1,049,739 207,836

Loss on disposal of property

and equipment 289 --

Benefit for deferred income

taxes (531,259) (875,555)

Stock compensation cost 9,519,317 --

Changes in operating assets and

liabilities:

Trade receivables (9,404,994) 5,271,640

Inventories (1,678,154) 4,088,234

Other current assets (364,374) 624,997

Trade payables 94,590 (603,475)

Amount due to an affiliate (59,169) --

Other payables and accrued

expenses 2,159,113 (4,437,157)

Income taxes payable 789,452 388,569

Net cash provided by operating

activities 6,300,978 9,101,038

Cash flows from investing activities:

Cash (outflow)/inflow from

acquisition of subsidiaries (6,836,284) 423,566

Purchases of property and equipment (13,123,980) --

Proceeds from disposal of property

and equipment 3,924 --

Net cash (used in)/provided by

investing activities (19,956,340) 423,566

Cash flows from financing activities:

Proceeds from borrowings 7,266,893 --

Repayment of borrowings (10,173,650) (3,232,067)

Amounts due to shareholders 7,370,153 --

Proceeds from private placement 8,578,706 --

Cost of raising capital (1,294,421) --

Net cash provided by (used in)

financing activities 11,747,681 (3,232,067)

Effect of exchange rate on cash and

cash equivalents (428,626) 812,312

(Decrease) increase in cash and cash

equivalents (2,336,307) 7,104,849

Cash and cash equivalents at

beginning of year 7,104,849 --

Cash and cash equivalents at

end of year $ 4,768,542 $ 7,104,849

For more information, please contact:

CCG Investor Relations

Mr. Crocker Coulson, President

Tel: +1-646-213-1915 (New York)

Email: crocker.coulson@ccgir.com

Web: http://www.ccgirasia.com

Source: China Nutrifruit Group Limited
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Keywords: Food/Beverages
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