Net Income Impact of Non-recurring Financial Penalty Paid to Holders of Series A Convertible Preferred Stock and Related Stock Purchase Warrants
CHANGGE CITY, China, April 5 /Xinhua-PRNewswire-FirstCall/ -- Zhongpin Inc. (OTC Bulletin Board: ZHNP), a leading meat and food processing company in The People's Republic of China ("PRC"), provided today further explanation regarding its financial results for the year ended December 31, 2006, originally reported on March 23, 2007.
NON-RECURRING FINANCIAL PENALTY. During the year ended December 31, 2006, we incurred a non-recurring expense in the aggregate amount of $8.35 million as a result of payments we made in December 2006 to the holders of our Series A convertible preferred stock and related stock purchase warrants because of a delay in registering in a timely manner for resale under the Securities Act of 1933, as amended, the shares of our common stock issuable upon the conversion or exercise of such securities. Such payments included cash payments in the aggregate amount of $1.04 million, our issuance of an aggregate of 379,743 shares of our common stock valued at $2.85 million and warrants to purchase 884,799 shares of our common stock valued at $4.46 million. We do not anticipate any additional expense of this nature in fiscal 2007.
Components of the Non-recurring Financial Penalty
Cash payment $1.04 million
Non-cash payments
Estimated expense of issuance of common stock $2.85 million
Estimated expense of issuance of warrants $4.46 million
Total non-recurring financial penalty $8.35 million
The cash impact of the non-recurring financial penalty was $1.04 million representing approximately 12.46 % of the aggregate penalty amount.
We have prepared pro forma non-GAAP unaudited consolidated statements of operations and comprehensive income to show the impact of the non-recurring financial penalty as compared with GAAP conformed audited financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2007.
Full Year 2006 Highlights
-- Record revenue increased 95.9% from $73.4 million in 2005 to $143.8
million in 2006
-- Non-GAAP net income increased 148.8% from $5.9 million in 2005 to
$14.7 million in 2006 (adjusting for the non-recurring financial
penalty)
-- From 2005 to 2006 capacity increased 110% to 187,560 metric tons
Pro Forma Non-GAAP Unaudited Consolidated Statements of Operations and Comprehensive Income (adjusted for the non-recurring financial penalty)
Year Ended December 31,
(Amounts in $US million) 2006(1) 2006(2) 2005(3)
Unaudited
Revenues
Sales revenues $143,812,212 $143,812,212 $73,399,998
Costs of sales 123,195,870 123,195,870 61,220,499
Gross Profit 20,616,342 20,616,342 12,179,499
Operating expenses
General & administrative
expenses 2,989,158 2,989,158 2,395,961
Operating expenses 3,485,397 3,485,397 2,299,950
Penalty -- 8,354,205 --
Total operating expenses 6,474,555 14,828,760 4,695,911
Income from Operations 14,141,787 5,787,582 7,483,588
Other income (expense)
Interest income 316,604 316,604 182,798
Other income (expense) 50,589 50,589 166,673
Allowances income 2,364,803 2,364,803 85,592
Exchange gain (loss) (21,377) (21,377) 226,547
Interest expense (1,555,671) (1,555,671) (1,802,042)
Total other income 1,154,948 1,154,948 (1,140,432)
Net income before taxes 15,296,735 6,942,530 6,343,156
Provision for income taxes 568,433 568,433 352,880
Net income after taxes 14,728,302 6,374,097 5,990,276
Minority interest (15,047) (15,047) 76,429
Net income $14,713,255 $6,359,050 $5,913,847
Foreign currency translation
adjustment 1,379,019 1,379,019 303,748
Comprehensive income $16,092,274 $7,738,069 $6,217,595
Basic earnings per
common share $0.81 $0.35 $0.50
Diluted earnings per
common share $0.72 $0.31 $0.50
Basic weighted average
shares outstanding 11,761,932 11,761,932 11,752,568
Diluted weighted average
shares outstanding 20,334,259 20,334,259 11,752,568
Note 1: Pro forma unaudited non-GAAP adjusted for the non-recurring
financial penalty
Note 2: Audited GAAP financial statements
Note 3: Audited GAAP financial statements
Revenue for the year ended December 31, 2006 increased to a record $143.8 million, or an increase of 95.9%, from $73.4 million in fiscal 2005. Gross profit for the 2006 fiscal year was $20.6 million, up 69.3% from the gross profit in fiscal 2005 of $12.2 million. Net income for fiscal 2006 was $6.4 million, which resulted in fully diluted earnings per share of $0.31, as compared to net income for fiscal 2005 of $5.9 million and fully diluted earnings per share of $0.50. Calculation of fully-diluted earnings per share in 2006 included an additional 11,614,542 shares, which included 6.9 million shares of Series A preferred stock, 379,743 shares of common stock and warrants to purchase 4,334,799 shares of common stock that were issued during 2006. In addition, in 2006, Zhongpin incurred $8.35 million in penalties in connection with the delay in having its S-1 registration statement declared effective by the Securities and Exchange Commission. Adjusting for such penalties, non-GAAP net income would have been $14.7 million with fully diluted earnings per share of $0.72.
Mr. Xianfu Zhu, CEO of Zhongpin Inc. commented, "We are very pleased to have achieved record revenues for the full year 2006 and our success in achieving those goals is reflected in our financial performance. During the year we doubled our production capacity, expanded both our geographic footprint and customer base, and enhanced our logistic systems and product lines. We have established a solid market position to build a leading national brand in China for pork and pork products."
About Zhongpin
Zhongpin is a meat and food processing company that specializes in pork and pork products and vegetables and fruits, in the PRC. Its distribution network in the PRC spans more than twenty provinces and includes over 2,700 retail outlets. Zhongpin's export markets include the European Union, Eastern Europe, Russia, Hong Kong, Japan, and South Korea. For more information, contact CCG Elite directly. For more information please go to http://www.zpfood.com .
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Zhongpin's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: unanticipated changes in product demand, interruptions in the supply of live pigs/raw pork, downturns in the Chinese economy, delivery delays, freezer facility malfunctions, poor performance of the retail distribution network, changes in applicable regulations, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission.
