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Yayi International Announces First Quarter Fiscal Year 2011 Results
TIANJIN, CHINA August 17 2010 Yayi International Inc., (OTC Bulletin Board: YYIN) ("Yayi International" or "the Company"), the first mover and a leading producer and distributor of premium goat milk formula products for infants, toddlers, young children, and adults in the Peoples Republic of China (China), today announced its financial results for the first quarter of Fiscal 2011 ended June 30, 2010.
First Quarter Highlights
- Net sales increased 65.5% to $7.6 million from $4.5 million for the three months ended March 31, 2010
- Gross margin improved 80 basis points to 64.8% from 64.0% for the three months ended March 31, 2010
- The Company reported net income of $0.03 million, or $0.001 per diluted share, compared to a net loss of $1.4 million for the three months ended March 31, 2010
- As of August 10, 2010 Yayi International has signed sales contracts with the distributors with an aggregate expected sales value of approximately $75 million (value-added tax included)
- Added 1,080 retail outlets in China, significantly broadening its distribution network since the Company rolled out a new product portfolio at the beginning of this year
- Expanded its executive team with the addition of Mr. Bao Zhou as Marketing Director, effective May 11 2010.
"We are pleased to report a solid quarter with robust sequential growth as we expanded our distribution channel and focused on marketing our new product portfolio," said Ms. Li Liu, Chief Executive Officer of Yayi International. "While our business is on the verge of rapid growth, we have maintained focus on quality control, especially our raw goat milk sources. With 10 dairy farms, 20 self-owned mechanized milk collection stations, 65 cooperated and self-owned milk collection centers, we are confident that our Milk Goat branded products are of premium quality due to our vertically integrated production process and quality control measures.
First Quarter Results
For the three months ended June 30, 2010, net sales increased 3.1% to $7.6 million from $7.4 million for the same period of 2009. The increase was mainly because of a shift in product mix and an increase in raw material costs that led to a 30.5% increase in the unit sales price. Furthermore, the Company has been able to achieve higher net sales from the current 10 product lines versus 58 for the same period last year. On a sequential basis, net sales increased 65.5% from $4.5 million for the three months ended March 31, 2010. The Company has witnessed favorable market reactions following a successful distributor conference early in 2010. In June 2010, sales of formula for infants, toddlers and young children together accounted for 56.1% of total sales, while the remainder of the sales came from formula for adolescents and adults.
Gross profit for the three months ended June 30, 2010 remained largely flat at $4.9 million on a year-over-year basis. Gross profit margin narrowed 110 basis points to 64.8% from 65.9% a year ago, which was primarily attributable to higher unit costs due to the Company utilizing more giveaways and promotions to attract potential customers. Excluding slotting fees paid to hypermarkets and supermarkets and giveaway costs, gross margin improved 740 basis points to 73.3% from 65.9% from a year ago. In addition, gross margin improved 80 basis points from 64.0% for the three months ended March 31, 2010, reflecting the introduction of the new higher-margin product portfolio and higher prices.
Operating expenses for fiscal first quarter increased to $4.6 million from $2.2 million for the same period last year. The increase was primarily attributable to the increase in sales and marketing expense as well as general administrative expenses. Sales and marketing expense for the three months grew 143.9% to $3.6 million as the Company launched a prime-time TV commercial to promote new product lines nationwide, and nearly 1,000 sales road show programs across 23 provinces and municipalities in June in conjunction with the International Childrens Day. General and administrative expense increased 42.4% to $1.0 million because of the appointment of a new Chief Financial Officer and a new Director of Production, in addition to other management compensation expenses. Compared to the first quarter of 2010, operating expenses increased only 10.1% from $4.2 million for the three months ended March 31, 2010.
As a result, the Company had an operating profit of $0.3 million, compared with $2.7 million for the three months ended June 30, 2009.
For the three months ended June 30, 2010, the Company reported net income of $0.03 million, or $0.001 per basic and diluted share, compared with $1.8 million, or $0.07 per basic share and $0.06 per diluted share for the three months ended June 30, 2009. The Company returned to profitability following a net loss of $1.4 million, in the three months ended March 31, 2010. For the quarter ended June 30, 2010, the number of weighted average diluted shares increased to approximately 43.3 million shares from 25.0 million shares due to the dilutive effect of warrants and convertible notes.
Excluding debt issuance costs and accretion of debt discount from the Companys Series A warrants and stock-based compensation expenses, adjusted net income available to common shareholders was $0.2 million, or $0.007 per basic share and $0.004 per diluted share for the three months ended June 30, 2010 compared with adjusted net income of $1.9 million, or $0.07 per basic and diluted share for the same period of 2009. For a full reconciliation of net income, please see the reconciliation table below.
Reconciliation of Adjusted Net Income
To supplement the Company's condensed consolidated financial statements for the three months ended June 30, 2010 and June 30, 2009 presented on a GAAP basis, the Company provided adjusted financial information in this release that exclude the impact of a debt issuance costs and accretion of debt discount from the Companys Series A warrants and stock-based compensation expenses. The Company's management believes that these adjusted measures, adjusted net income and adjusted diluted earnings per share provide investors with a better understanding of how the results relate to the Company's current and historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measures to the nearest GAAP measure appears in the table below:
|ended June||ended June||
|Reported net income (loss)||32,898||1,783,012|
|Write-off on debt issuance costs and accretion of debt discount from the warrants and embedded derivatives||-||83,007|
|Stock-based compensation expenses||144,417||-|
|Adjusted net income (loss) available to common shareholders||177,315||1,866,019|
|Basic weighted average number of shares outstanding||26,409,719||25,000,000|
|Diluted weighted average number of shares outstanding||43,303,480||25,000,000|
|Adjusted net income (loss) available to common shareholders per basic shares||0.007||0.07|
|Adjusted net income (loss) available to common shareholders per diluted shares||0.004||0.07|
As of June 30, 2010, Yayi International held $4.6 million in cash and cash equivalents and $2.6 million in working capital. Advances were $18.4 million as of June 30, 2010 mainly due to the construction of factory, warehouse, and office buildings and the purchase of machinery equipment for its new production facilities in Tianjin and Weinan of Shaanxi Province. As of June 30, 2010, the Company had $10.5 million in short-term debt, and $6,831 in long-term liabilities. Shareholders' equity was $11.0 million, compared with $10.7 million as of March 31, 2010.
On July 30, 2010, the Company renewed its loans from Shanghai Pudong Development Bank for an aggregate of approximately $1.5 million to be used for working capital purposes. Yayi International is also working closely with Bank of Tianjin, Bank of Beijing, and Citibank for additional bank financing.
For the three months ended June 30, 2010, the Company used $3.2 million in cash for operating activities compared with $1.0 million for the same period in 2009, mainly due to lower net income, an increase in accounts receivable due to the extension of credit terms to the distributors for the new products promotion and increased slotting fee paid to the supermarkets.
On August 7, 2010, following recent cases where cow milk formula might have been linked to the alleged premature onset of puberty in children, Tianjin Municipal Supervisory Bureau for Quality and Technology declared that Yayi Internationals goat milk products are qualified based on its extensive field sample testing. The Company prohibits the use of artificial hormones in its farming practices to avoid disrupting the natural lactation period of dairy goats. Dairy goats do not lactate between November and February, providing them with sufficient time to rest, grow and restore energy, which in turn ensures higher quality goat milk when lactation season begins. In addition to adhering to natural production methods, the Company has introduced quality control standards that are often more rigorous than national standards, guaranteeing the high quality of its goat milk products when shipped from the factory.
On August 9, 2010, Yayi International announced the expansion of its executive team with the addition of Ms. Meiping Li as Sales Director, effective July 21, 2010.
Yayi International continues to expand its distribution network and has thus far as of August 10, 2010 signed sales contracts with distributors following a successful distributor conference in January 2010 for an aggregate expected sales value of approximately $75 million (value-added tax included). The Companys sales are seasonal with peak season normally starting from September to March. Therefore, the Company reaffirms its previous guidance for the new fiscal year ending March 31, 2011 of net sales between $58.6 million to $65.9 million.
We are delighted to gain strong sequential sales momentum from the previous quarter and expect renewed public concerns about the safety of cow milk formula to act as a potential catalyst for consumers to switch to our premium goat milk formula products. We see that as a great opportunity for us to continue our marketing activities in the next few quarters to enhance public awareness of the benefits of goat milk and to expand our distribution channels to further build out our presence, especially in the infant formula market, said Ms. Liu.
About Yayi International
Yayi International is the first mover and a leading producer and distributor of premium goat milk formula products for infants, toddlers, young children and adults in China. Its current formula product lines are targeted at the premium market segment and health-conscious consumers. The Company has a vertically-integrated production process. It sources raw goat milk from its proprietary dairy farms and neighboring dairy goat farmers on a long-term contract basis in milk collection centers, which ensures high quality control of its products. The Company's distribution network comprises of a nationwide footprint across China in 23 provinces and municipalities including domestic and multinational supermarkets, infant-maternity store chains, and drug stores as well as catalogue sales and a dedicated online store at Taobao.com.
This press release contains certain statements that may include 'forward-looking statements'. All statements other than statements of historical fact included herein are 'forward-looking statements'. These forward looking statements are often identified by the use of forward-looking terminology such as 'believes,' 'expects' or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website ( http://www.sec.gov ). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
Financial Tables Follow
YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME AND COMPREHENSIVE INCOME(UNAUDITED)
|Three months ended|
|Cost of goods sold||(2,680,237||)||(2,518,682||)|
|Sales and marketing expenses||(3,559,166||)||(1,459,324||)|
|General and administrative expenses||(1,031,526||)||(724,501||)|
|Total operating expenses||(4,590,692||)||(2,183,825||)|
|Income from continuing operations||339,337||2,680,272|
|Other income (expenses):|
|Amortization of deferred debt issuance cost||-||(83,007||)|
|Other income, net||(26,189||)||(22,583||)|
|Income before income tax||169,075||2,381,706|
|Income tax expense||(136,177||)||(598,694||)|
|Net income from continuing operations||32,898||1,783,012|
|Other comprehensive income|
|Foreign currency translation adjustment||115,735||(5,331||)|
|Net comprehensive income||$||148,633||$||1,777,681|
|Earnings per share of common stock|
|Weighted average shares of common stock outstanding|
YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|June 30||March 31|
|Cash and cash equivalents||$||4,647,800||$||4,727,677|
|Accounts receivables, net of allowances of $88,719 and $53,771||5,825,903||3,530,938|
|Other receivable, net of allowances of $74,187 and $22,833||1,308,012||993,292|
|Inventories, net of allowances of $0 and $0||3,423,453||2,561,265|
|Land use rights, current portion||18,924||18,847|
|Advances current portion||759,034||1,165,620|
|Total current assets||18,410,344||14,028,447|
|Property, plant and equipment, net||4,514,132||3,734,552|
|Construction in progress, net||2,065,202||2,770,578|
|Land use rights||924,101||923,525|
|Deferred tax asset||378,965||252,646|
|LIABILITIES AND STOCKHOLDERS EQUITY|
|Short term loans||$||10,465,359||$||6,704,406|
|Other payable and accrued expenses||1,571,577||1,257,185|
|Advance from customers||51,482||141,136|
|Income and other tax payable||1,572,102||1,338,194|
|Accrued sales return||-||45,503|
|Due to related parties||854,857||-|
|Long term loans - current portion||40,987||40,823|
|Total current liabilities||15,811,419||10,189,367|
|Due to related parties||4,471,656||5,312,801|
|Commitments and contingencies (Note 14)||-||-|
|PREFERRED STOCK, par value $0.001, 10,000,000 shares authorized, Series A 10% non-cumulative redeemable convertible preferred stock, redemption $9.80 per share plus 25% interest from date of issuance to date of redemption, 1,530,612 shares issued and outstanding||14,264,871||14,264,871|
|Common stock, par value $0.001, 100,000,000 shares authorized, 26,432,839 and 26,387,728 shares issued and outstanding, respectively||26,432||26,387|
|Additional paid in capital||4,865,709||4,721,337|
|Statutory surplus reserve fund||1,142,397||1,142,397|
|Accumulated other comprehensive income||423,562||307,827|
|Total stockholders equity||10,972,841||10,679,791|
|Total liabilities and stockholders' equity||$||45,527,618||$||40,463,839|
YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|Three Months Ended|
|Cash flow from operating activities|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Depreciation of property, plant and equipment||126,597||93,330|
|Depreciation of livestock||24,444||(1,451||)|
|Amortization of intangible assets||3,142||-|
|Allowance of bad debts-Accounts receivable||34,605||5,366|
|Allowance of bad debts-Other receivable||51,076||(3,193||)|
|Employee and director stock-based compensation||144,417||-|
|Sales return allowance||(45,520||)||108,332|
|Warrant modification expense||-||-|
|Accretion of debt discount||-||-|
|(Increase) decrease in operating assets:|
|Deferred tax asset and current assets||(124,842||)||(33,619||)|
|Increase (decrease) in operating liability:|
|Advance from customers||(89,896||)||216,665|
|Income and other tax payable||227,681||402,131|
|Other payable and accrued expenses||310,870||396,236|
|Net cash used in operating activities||(3,245,211||)||(1,044,476||)|
|Cash flows from investing activities|
|Purchase of equipment||(174,351||)||(77,537||)|
|Advance for purchase of property, plant and equipment||(453,008||)||(402,388||)|
|Construction in progress||(3,000||)||(1,351,379||)|
|Purchase and breeding of livestock||62,973||(4,650||)|
|Net cash used in investing activities||(567,386||)||(1,835,954||)|
|Cash flows from financing activities|
|Proceeds from short term loans||7,390,150||1,900,607|
|Repayment of short term loans||(3,658,463||)||(1,794,475||)|
|Proceeds from long term loans||-||90,153|
|Repayment of long term loans||(10,210||)||(8,923||)|
|Net proceeds from issuance of Series A preferred stock||-||14,264,871|
|Due (from) to related parties||(5,609||)||(84,012||)|
|Net cash provided by financing activities||3,715,868||14,368,221|
YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Effect of exchange rate changes in cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
The following information was filed by Yayi International Inc (YYIN) on Tuesday, August 17, 2010 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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