China Organic Agriculture, Inc. (OTCBB: CNOA), a growth-driven agricultural products company leading China’s organic foods revolution, today announced operating results for the fourth quarter and year-end 2007. Net sales for the fourth quarter of 2007 more than tripled to $15.7 million compared to $3.5 million for the fourth quarter of 2006. Fourth quarter net income was $3.9 million, compared to $1.3 million for the fourth quarter of 2006, with earnings per share increasing to $0.08 per diluted share compared to $0.03 per diluted share for the comparable period of 2006.
Net sales for the full year 2007 were up nearly fourfold to $44.5 million compared to $9.0 million for the full year 2006. Full year 2007 net income was $13.5 million, an increase of $10.1 million, or 297%, from the full year 2006 with earnings per share increasing to $0.26 earnings per diluted share compared to $0.07 per diluted share for the comparable period in 2006, based on 51.6 million and 51.5 million diluted weighted average shares outstanding, respectively. Please note that the 2006 share count reflects an adjustment resulting from the reverse merger that took place in March of 2007.
Mr. Changqing Xu, Chief Executive Officer of China Organic Agriculture stated, “Our strong increases in sales and net income in 2007 are primarily attributable to the success of our brand awareness campaign and the greater availability of the product made possible by the new strategic distribution agreements that we signed throughout the year. In addition to ongoing internal growth, China Organic is looking for acquisition targets that can allow us to expand into additional agricultural markets within China, as well as outside.”
Fourth Quarter Highlights
Net sales for the three months ending December 31, 2007 totaled $15.7 million compared to $3.5 million for the three months ending December 31, 2006. This $12.2 million increase was attributable to greater product availability and brand awareness through new distribution channels. We have expanded our distribution points from individual retailers to large company retailers and supermarkets in the second half of the year. Our products have been introduced in supermarkets in large cities such as Shanghai, Beijing, and Nanjing.
Gross profit margin for the three months ending December 31, 2007 was 32% compared to 43% for the three months ending December 31, 2007. The decline in gross profit margin is due to the significant increase of our sales of green rice, which has a lower profit margin as compared to that of organic rice, which benefits from its premium pricing position.
General and administrative expense for the fourth quarter in 2007 totaled $1.1 million or approximately 7% of net sales, compared to $0.1 million or approximately 3% of sales for the fourth quarter in 2006. This increase largely resulted from the additional staffing and related support to facilitate the significant 2007 revenue growth.
Net income for the fourth quarter 2007 was $3.9 million or 25% of net sales, compared to $1.3 million or 37% of net sales for the comparable period in 2006. This three-fold increase of $2.6 million is due to the expansion of our sales and distribution channels as discussed previously.
Full Year Highlights
Net sales for the year ending December 31, 2007 totaled $44.5 million compared to $9.0 million for the year ending December 31, 2006. This increase of $35.5 million resulted from the increase in product distribution channels and higher brand awareness discussed above. This expansion along with increase production has contributed to our substantially higher sales level in 2007.
Gross profit margin for the year ending December 31, 2007 was 34% as compared to 42% for the prior year. The lower gross profit percentage margin is again due to the significant increase of sales of our green rice, which is positioned as a more moderately priced product and thus has a lower profit margin as compared to organic rice product. The gross profit margin for each individual product increased in 2007.
General and administrative expenses for the year ending December 31, 2007 totaled $1.6 million or approximately 4% of net sales, compared to $0.3 million or approximately the same percentage for the year ending December 31, 2006. This expenses increase resulted from the costs associated with the expansion of the distribution channels and our market.
Throughout the beginning of 2008 China Organic Agriculture has continued to meet its rice sales targets and shipments to its customers. None of its operations were hampered by the large-scale winter storms that affected many parts of China at the end of January and the Company has already begun seeding and preliminary plantation work. In addition to expanding its rice production capabilities, China Organic Agriculture is also looking for additional agricultural and food related acquisitions and asset purchases.
The previously announced acquisition of Dalian Baoshui District Huiming Trading Ltd. is pending the last stages of its due diligence. The acquisition is scheduled to be completed before the end of April, whereupon management will issue 2008 guidance that will take into account the effect of this acquisition on the Company as a whole.
On February 29, 2008, we contracted to purchase the Bellisimo Vineyard, a 153-acre operating vineyard located in Sonoma County, California. Our purchase was financed with third party debt. China Organic is using this asset purchase as an initial entrance into US-based agricultural land, with the possibility of exporting Sonoma Valley wine directly to Chinese consumers who hold these products in high regard.
On March 25, 2008, the Company and the group of six investors mutually agreed to terminate the Fixed Price Standby Equity Distribution Agreement they had entered in May, 2007. No shares were sold or distributed and none of the parties have any rights remaining under the Agreement.
Mr. Xu concluded, “With the distribution agreements we signed in 2007, combined with the more efficient manufacturing operations that we expect to achieve in 2008, China Organic Agriculture looks forward to strong increases in rice sales. We are excited about the opportunity to diversify the range of agriculture products we currently offer, including the possibility of wine sales to Chinese consumers. Our goal is to continue to be one of the leaders in the green and organic rice industry in China, while expanding the types of agricultural products we supply to our loyal Chinese customers, all while delivering significant value to our shareholders.”
About China Organic Agriculture
China Organic Agriculture is among the largest producers of green and organic rice in China. CNOA controls all aspects of the process from developing seeds to planting, processing, R&D and distribution. The Company has an extensive sales network, located in the major cities in China.
CNOA has experienced significant growth since its inception in 2002, and as an agricultural company is exempt from income taxes in China. CNOA has put solid plans in place to markedly expand sales.
The quality of CNOA’s products results in the ability to obtain prices approximately 15% higher than comparables. CNOA has in excess of 6,260 acres dedicated to green and organic rice. The irrigation system is fed from the Nen River, one of the last unpolluted rivers in China. The Company’s flagship brand, ErMaPao, has won several quality awards and holds the highest organic certification and it is one of the most popular brands in the country.