n integrated, diversified agriculture technology and organic food company with subsidiaries operating in China, is pleased to announce financial results for the quarter ending March 31, 2014.Record quarterly revenue of $90.9M exceeded the Company's previous high by over $9M, although historically, the first quarter is the Company's lowest quarter. Stockholders' equity of $317,433.892 increased by 45% year over year, and during the first quarter alone increased by $26.3M. Working capital amounted to $184,081,493 with cash and equivalents of $18,766,877.
Revenue from sale of goods totaled $78,273,971 in the quarter ended March 31, 2014, an increase of $41,724,617 or 114% over the first quarter in 2013. Because cattle farm and corporate work were completed in 2013, revenue from consulting and services accounted for 13.5% of total revenue. This historically low percentage is expected to increase in the upcoming quarters.
First quarter results met internal targets, and laid the groundwork for a momentous 2014, a pivotal year in which the Company aims to take major strides toward establishing a future in which bottom line per share growth approximates consistent, healthy top line growth. Currently, the Company is making progress in efforts to source debt financing from institutional investors. While strictly well within the bounds of standard metrics of proper gearing, such financing would add investment capital, flexibility, and leveraged return to results.
CEO Solomon Lee commented, "2014 got off to a great start. I am particularly pleased that the fishery division's ability to reconfigure its products resulted in eels producing a major contribution to gross profits. We expect this trend to continue, as we increase the proportion of eels sold while the market price is high. The abattoir at Qinghai Sanjiang A Power Agriculture Co Ltd. ("SJAP") will start producing toward capacity in June. The reception to the division's marbled meat products indicates another new high profit margin product, just as operations scale up. Prospects for the new Zhongshan Prawn Project have moved from concept to commencement. I look forward to reporting progress on this project that promises long-term consulting and services work, and sales volumes of a new scale for the Company."
Division Operation Performance and Developments
Fishery Division
Revenue from the sale of goods in the fishery division increased by $16,378,442, or 111% from $14,730,343 for the quarter ended March 31, 2013 to $31,108,785 for the quarter ended March 31, 2014. Sales of eels and prawns contributed $29,522,973 or 95% of the Q1 2014 total, up from 29% of the total in Q1 2013.
Gross profits from the sale of goods in the fishery division increased by $7,219,064, or 308% from $2,344,154 for Q1 2013 to $9,563,219 for Q1 2014. The gross profit from eels amounted to $8,947,926, or 94% of the division's gross profit. The average selling price of eels in Q1 2014 was $26,016 per metric ton versus $$13,226 per metric ton in Q1 2013.
Accounted within the fishery division, additional revenue from consulting and services amounted to $12,243,202 for Q1 2014, an increase of $1,030,650, or 9% over Q1 2013.
Jiangmen City A Power Fishery, Development Co. Ltd. ("JFD" or "Fish Farm 1") is fully operational, with a designed capacity of 1,200 metric tons per year. First quarter production of prawns and eels showed consistent production flow and upward trends in market prices expected throughout 2014.
Fish and Eel Farm 2. Open dams were converted to Recirculating Aquaculture Systems ("RAS") in 2013, creating higher sales capacity for 2014.
Zhongshan A Power Prawn Culture Farms Development Co. Ltd. ("ZSAPP" or "Prawn Farm 2"): By the end of April 2014, 200,000 baby eels from the R & D facility were placed at three newly constructed RAS open dams for second stage grow-out to sizes of 350 to 400 grams. From there, eels will be placed at Fish Farm 1 or Fish Farm 2 for third stage grow-out to 1.3 to 1.5 kilograms, and then to final grow-out to 3.0 to 3.5 kilograms. This second stage grow-out program at ZSAPP adds sales revenue and diversity to the primary prawn fingerling production.
New Zhongshan Prawn Project: Work continued in Q1 2014 on a phased 20-year project using Capital Award's APRAS technology, consulting, and management systems. Consisting of gradual, phase dependent development, the project targets production of 10,000 metric tons/year of prawns in Phase I, stage I, and ultimately up to 300,000 metric tons per year.
Plantation Division
Revenue from the plantation division increased to $760,052 from $0 for the quarter ended March 31, 2014. Sales were primarily dried XueYingZi, a special Chinese herb commonly known as "Immortal Vegetables." There were no sales in the first quarter of 2013.
The HU plants are looking healthy and growing strongly this season; therefore, a good 2014 harvest is expected beginning in late June, weather permitting. Immortal vegetables were planted during April 2014 with the first harvest expected in June 2014.
Beef Division
Revenue from the beef division increased by $9,568,573, or 140%, from $6,815,921 for Q1 2013 to $16,384,494 for Q1 2014. The increase was due to fattening 16+ month old cattle for three months, rather than 14-15 month old cattle for four or five months.
During 2013, SJAP developed 22 farmer cooperatives. Development progressed during 2014 such that the Company now expects cooperative farms to provide at least 25,000 head of cattle in 2014. Production of concentrated stock feed will rise to accommodate the increase in fattened cattle.
Work on the slaughterhouse and de-boning operation had been delayed due to an unusually long cold winter spell, and the delayed arrival of equipment. Work recommenced April 1st, such that full slaughterhouse production is targeted on or before June 15, 2014, with deboning operations starting at the same time.
With the good reception for its marbled meat at the Shanghai City Meat Exhibition Fair in late March 2014, SJAP expects enhanced profit margins for this product line, starting with the abattoir and deboning operations in June.
Management's Discussion and Analysis section in the 10-K filed April 11, 2014 and the recent 10-Q filed May 15, 2014 present supporting detail for SJAP's business, as well as all other divisions and sub-divisions.
Organic Fertilizer Division
Revenue from organic fertilizer increased by $4,528,611, or 56% from $8,061,978 for Q1 2013 to $12,590,589 for Q1 2014. The increase was primarily due to an increase in both volume of production and the selling price of bulk live feed, organic fertilizer, and organic mixed fertilizer.
The trend of steadily increasing sales in Q1 to lake fishermen and to grape farmers is expected to continue throughout 2014. In addition, with the cooperation of the Agriculture Department of the Linli Government, HSA is developing new market sectors, including tobacco and tea farmers.
Cattle Farm Division
All from the sale of goods, total revenue from the cattle farm division increased by $4,463,717, or 145% from $3,080,876 for Q1 2013 to $7,544,591 for Q1 2014. The quantity of cattle sold increased 136% from 1,130 head in Q1 2013 to 2,672 head in Q1 2014.
Revenue from consulting and services decreased by $5,281,681 or 100%, from $5,281,681 for Q1 2013 to $0 for Q1 2014. All work in progress on Cattle Farm 2 was completed in 2013.
During Q1, Jiangman City Hang Mei Cattle Farm Development Co. Ltd. ("JHMC" or "Cattle Farm 1") added 350 head of "Yellow Native Cattle" to its inventory of Angus and Simmentals.
On November 23, 2013 Macau Eiji Co., Ltd ("MEIJI") executed an agreement with Dongguan Jinrun Agriculture Co., Ltd ("DJAC") to help DJAC develop cattle farms using MEIJI's semi-free ranging cattle system and its aromatic feed program in Xin Feng county. However, DJAC reported that the local government had not yet allocated its land, causing a delay in this project.
Corporate Division (Marketing and Trading)
All from the sale of goods, total revenue in the corporate division increased by $6,025,224, or 156%% from $3,860,236 for Q1 2013 to $9,885,460 for Q1 2014. The increase was primarily due to more imported frozen and fresh seafood being marketed.
Revenue from consulting and services decreased by $1,967,390 or 100%, from $1,967,390 for Q1 2013 to $0 for Q1 2014. All work in progress had been completed in 2013.
Gross profit for the corporate division increased by $1,201,795, or $1,367% from $87,900 for Q1 2013 to $1,289,695 for Q1 2014. More categories of seafood were marketed in 2014, primarily from Madagascar, establishing a gross profit margin of 13%.
Consolidated Results
Revenue
Total revenue for the quarter ended March 31, 2014 was $90,917,789 a 65% increase over revenue of $55,107,751 in the corresponding quarter in 2013.
Revenue in the first quarter of 2014 was derived from the sale of goods and consulting services, split 86.5%-13.5%: $78,273,971 and $12,243,202, respectively, plus commissions of $412,278.
The breakdown of revenue in 2013 from the sale of goods and consulting services was 66.4%-33.6%: $36,549,354 and $18,461,623 respectively, plus commissions of $96,774.
The following chart illustrates the total revenue and changes by business segment from the quarter ended March 31, 2013 to the quarter ended March 31, 2014.
Cost of Goods
Cost of Goods Sold and Services for Q1 2014 totaled $62,367,941. Goods sold accounted for $55,864,529, and cost of services the remaining $6,503,412.
Corresponding numbers in Q1 2013 were $$33,584,934 (total), $25,764,646 (from sale of goods), and $7,820,288 (services).
Cost of goods for both sales and services increased year over year in line with respective revenue.
Gross Profit
Gross profit increased by $7,037,031 or 33% to $28,559,848 for Q1 2014 compared to $21,522,817 for Q1 2013. Gross profits from sale of goods increased by $11,623,071, or 108% from $10,784,709 in Q1 2013 to $22,407,780 in Q1 2014.
The Q1 2014 gross profit total of $28,559,848 consisted of $22,407,780 from sale of goods (78%), and the remaining $6,152,068 from consulting services (22%).
The Q1 2013 total of $21,522,817 consisted of $10,784,709 from sale of goods (50%), and the remaining $10,738,109 from consulting services (50%).
