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| CYXI.OB > SEC Filings for CYXI.OB > Form 10KSB/A on 5-Dec-2008 | All Recent SEC Filings |
5-Dec-2008
Annual Report
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-KSB. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
Results of Operations
For the Fiscal Year Ended December 31, 2007 as Compared to the Fiscal Year Ended December 31, 2006
The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the years ended December 31, 2007 and 2006:
2007 2006
Sales $ 15,912,318 $ 8,401,711
Cost of Sales 6,771,252 3,835,017
Gross Profit 9,141,067 4,566,694
Operating Expenses
Research & Development Expense 136,767 488,404
Selling, general and administrative 2,920,694 1,739,221
Income before other Income and (Expenses) 6,083,605 2,339,069
Other Income and (Expenses)
Subsidy Income 32,877 -
Interest Income 3,216 431
Other Income - 138
Other Expense (484 ) (176 )
Other Income and Expenses Total Other Income and (Expenses) 35,608 393
Income Before Income Taxes (Benefits) 6,119,214 2,339,462
Provision for Income Taxes (Benefits) - (3,000,795 )
Net Income $ 6,119,214 $ 5,340,257
Other Comprehensive Income
Foreign Currency Translation Adjustment $ 1,956,330 568,889
Comprehensive Income $ 8,075,544 $ 5,909,146
Basic and Diluted Income per common share
Basic $ 0.16 $ 0.33
Diluted $ 0.15 $ 0.33
Weighted average common share outstanding
Basic 37,995,417 17,157,810
Diluted 40,176,812 17,157,810
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Revenues
Revenues for the year ended 2007 totaled $15,912,318, an increase of $7,510,607 or 89.4% over revenues for the year ended 2006 of $8,401,711.
A breakdown of sales by product categories and as a percentage of total sales is listed below:
Percentage of Percentage of
2006 Total 2007 Total
Sales Sales
Nutritional Foods $ 457,844 5.45 % $ 2,152,812 13.53 %
Dietary Supplements $ 1,721,026 20.49 % $ 3,431,914 21.56 %
Cosmetic Products $ 69,132 0.82 % $ 772,370 4.85 %
Raw cactus plants $ 5,816,960 69.23 % $ 6,095,632 38.31 %
Personal care and other products $ 336,749 4.01 % $ 3,459,590 21.75 %
Total $ 8,401,711 $ 15,912,318
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Notable products are as follows:
Revenue Percentage of Nutritional Foods Sales
Nutritional Foods
Functional Organic Rice $ 201,546 9.36 %
Soy Milk $ 202,483 9.41 %
Long Gu Millet $ 135,327 6.29 %
Dried noodles $ 343,729 15.97 %
Rice Crackers and biscuits $ 158,051 7.34 %
Dried herbal mushrooms $ 147,738 6.86 %
Organic eggs $ 398,213 18.50 %
Nestle products $ 129,359 6.01 %
Milk $ 121,794 5.66 %
Soybeans $ 166,200 7.72 %
Percentage of
Dietary
Dietary Supplements Revenue Supplements Sales
Cactus based supplements $ 308,177 8.98 %
Balsamic pear based supplements $ 127,395 3.71 %
Protein supplements $ 152,894 4.46 %
Shepherd's purse based supplements $ 226,783 6.61 %
Multi-vitamin supplements $ 128,053 3.73 %
Organic teas $ 846,622 24.67 %
Freeze dried cactus powder $ 464,986 13.55 %
Percentage
of Personal
Care and
Personal care and Other Products Revenue Others Sales
Showerheads $ 460,467 13.31 %
Induction cooker $ 746,791 21.59 %
Blood circulation machine $ 152,855 4.42 %
Ozone purifiers $ 178,632 5.16 %
Pressure cookers $ 611,111 17.66 %
Smokeless woks $ 525,586 15.19 %
Kitchen exhaust vent hoods $ 157,340 4.55 %
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While raw cactus plants which accounts for 38.31% of total revenue still remains the top selling product line, the Company has significantly diversified the concentration of its product mix to other product lines including dietary supplements, personal care and other products, and nutritional food products which account for 21.56%, 21.75% and 13.53% of total revenue respectively.
The 89.4% year-over-year increase in sales was driven by the introduction of new products and the increase in number of total active franchisees.
The nutritional food product line contributed approximately $2,152,812 to total revenues and represents 22.56% of total growth. The personal care and others product line contributed approximately $3,459,590 to total revenues and represents 41.58% of total growth. The dietary supplements product line contributed approximately $3,431,914 to total revenues and represents 22.78% of total growth.
Gross Profit
The Company achieved a gross profit of $9,141,067 in 2007 compared to $4,566,694
in 2006, representing a 100.17% increase year-over-year and a direct result of
the 89.4% increase in sales and improved product mix margins. A breakdown of
gross margins by product line year-over-year is as follows:
Gross Margins
2006 2007
Nutritional Foods 24.99 % 44.46 %
Dietary Supplements 48.00 % 59.09 %
Cosmetic Products 71.41 % 76.37 %
Raw cactus plants 58.45 % 61.95 %
Personal Care & Others Products 40.00 % 70.91 %
Overall 54.35 % 57.45 %
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We expect to continue to introduce new products within our existing segments and expect gross margins to remain relatively stable going forward.
Operating Expenses
Our total operating expenses consists mostly of selling, general and administrative costs (SG&A) and a small portion on research and development (R&D). SG&A accounts for expenses associated with sales and marketing of our products including advertising and travel, costs of maintaining our manufacturing facilities, salaries, and costs associated with being a public company including legal, audit, investor relations.
A breakdown of major operating expenses year on year is as follows:
Operating Expenses 2006 2007 Salary expenses $ 100,550 $ 186,167 Advertising expenses $ 151,470 $ 228,441 Business travel & entertainment expenses $ 99,101 $ 185,742 Manufacturing facilities upkeep expenses $ 15,792 $ 62,638 Legal and Audit fees $ 70,075 $ 121,569 Going Public expense $ 850,000 $ 0 Investor relations expense $ 0 $ 77,500 Directors' and Officers' insurance expense $ 0 $ 20,200 Research & Development expenses $ 488,404 $ 136,767 Stock issuance expense for consultants $ 0 $ 212,744 Allowance for doubtful accounts related to related party loans $ 0 $ 347,702 |
The Company incurred total operating expenses of $3,057,461in 2007, compared to $2,227,625 in 2006.
This represents an increase of $829,836 or 37.25%, year-over-year. This increase is primarily due to the higher SG&A expenses listed above.
SG&A expenses amounted to $2,920,694 or 18.4% of total sales in 2007 compared to $1,739,221or 20.7% of total sales in 2006. If we normalize for the one time $850,000 fee of going public, our SG&A expense for 2006 becomes $889,221 or 10.6% of total sales. The year-over-year increase is primarily due to higher costs related to marketing our brand and products as a result of increased sales. Additionally, higher consulting, legal, directors' and officers' insurance and auditing expenses totaling approximately $432,013 contributed to the increase in SG&A expenses. Lastly, we recorded an allowance for doubtful accounts in the amount of $347,702.
Operating Profit
We achieved a 160.08% year-over-year growth in operating profit, which was $6,083,605 in 2007 compared to $2,339,069 in 2006.
The sizeable growth in operating profit is primarily attributable to our sales growth. Operating margin for 2007 was 38.23%, up from 27.89% in 2006. This reflects the improved operating efficiency and product diversification.
Net Income
Net Income for 2007 was $6,119,214 compared to $5,340,257 for 2006.
Net income for 2006 includes a one time income tax benefit we received as a result of achieving WOFE status. The tax benefit represented $3,000,795 or 56.19% of our total net income for 2006.
Excluding the income tax provision and normalizing for the going public expense, net income in 2006 was $3,189,462. Using this net income figure for 2006 and net income of $6,119,214 in 2007, we achieved a 91.86% year-over-year growth. This increase in net income was mainly due to sales to new franchisees and new products.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2007, cash and cash equivalents totaled $736,683, compared to $77,867 on December 31, 2006, representing a net increase in cash and cash equivalent of $658,816. The increase was mainly attributable to the increase in our collection of account receivables and other receivables.
The Company had net cash flows used in operations of $1,225,372 for the year ended December 31, 2007, as compared to net cash provided by operations of $8,424,577 for the year ended December 31, 2006.
This variance is mainly to inventory and other receivables.
Cash used in inventory increased friom $929,194 in 2006 to $4,415,033 in 2007 primarily as a result of increased spending on raw materials and finished goods. A breakdown of inventory at December 31, 2007 is as follows:
Packaging materials $ 102,707 Raw materials (including soybeans and organic rice materials) $ 2,660,601 Work in process $ 210,864 Finished goods $ 2,552,963 |
Cash used in other receivables increased to $2,804,002 in 2007 primarily due to the approximately RMB13,800,000 (approximately US$1.9 million) made to a organic rice growing project in Donghai, Jiangsu Province, in anticipation of a good harvest year. The advance was not utilized because the actual output of the rice was a lot less than expected. The Company collected the full amount in the first quarter of 2008.
Cash flows used in investing activities were $8,142,669 in the year ended December 31, 2007 compared with a net usage of $8,800,779 in the corresponding period last year. In 2006, we incurred $1,937,126 and $3,798,973 in the purchase of property and equipment and additions to construction in process related to the building of our headquarters and manufacturing facilities. In 2007, our significant investments were related to a $4,112,631 investment advance, a $2,194,774 short term loan, and $1,718,077 in deposits on buildings and land.
In August 2007, the Company made a short tem loan of $2,194,774 to the agriculture production base in Hulan county, Helongjiang Province to help finance the well sinker and irrigation project due to an unexpected severe drought in the northern part of China during the summer of 2007. The purpose of the loan was to support the farmers in order to prevent any further damage to their harvest and to secure the raw materials for the Company's own production. The loan was intended to be interest free and for a short-term period from August 2007 to March 2008. The management expects the entire loan to be repaid by the end of March 2008.
On December 5, 2007, the Company ("Buyer") signed an agreement ("Agreement") with Shanghai Jin Ao Food Co., Ltd. ("Seller") to purchase its six (6) Soybean Milk production lines for a total of $4,112,631, including production equipments, technique know-how and marketing resources. The Agreement calls for the Company ("Buyer") to make three installment payments of the full purchase price before January 31, 2008. Once the payments are made in full, the Seller will transfer the ownership of the equipments and all related resources to the Buyer. As of December 31, 2007, the Company made all three installment payments and recorded the entire amount as investment advance since the transaction has not been completed yet. Upon closing of this transaction, the Company will reclassify the amount to fixed assets and other related accounts.
The Company made separate deposits in the total amount of RMB12,532,685 (approximately US$ 1.7 million) on one building in Harbin, one office space in Beijing and a piece of land in Anhui Province it intends to purchase. All purchases are evidenced by purchase agreements and the transactions were not finalized as of December 31, 2007. Once the Company completes the title transfers, the deposits will be reclassified to Property, Plant and Equipment account.
Cash flows provided by financing activities were $9,272,876 for the year ended December 31, 2007 as a result of proceeds received from the issuance of common stock.
On July 16, 2007, the Company entered into a stock subscription and warrant agreement, ("Subscription Agreement"), with three (3) accredited investors. Pursuant to the Subscription Agreement, the investors purchased 1,000,000 units, each unit consisting of (a) two shares of common stock and (b) one common stock purchase warrant, at a purchase price of $2.00 per unit. The Company received net proceeds of $1,980,000 in connection with this private placement.
With the warrants attached to the units sold in the private placement, the investors are entitled to purchase an aggregate of 1,000,000 shares of common stock at an exercise price of $1.50 per share. All these warrants are exercisable for five years from the effective date of registration statement.
Upon completion of the placement, the Company incurred approximately $20,000 in legal and other expenses.
On August 9, 2007, the Company completed another private placement of its
securities to accredited investors pursuant to Regulation D under the Securities
Act of 1933, as amended. The Company entered into a stock subscription agreement
and warrant agreement ("Subscription Agreement"), with twenty (20) accredited
investors. Pursuant to the Subscription Agreement, the investors purchased
34.90052 units, each unit consisting of (a) 250,000 shares of common stock and
(b) a 5-year stock purchase warrant to purchase 125,000 shares of common stock
exercisable at $2.00 per share. The units were sold for a price of $250,000 per
unit, yielding gross proceeds of $8,725,130 from the sale of the units. The
Company paid fees and commissions in the aggregate amount of $1,398,387 in
connection with this offering.
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet at December 31, 2007 F-3
Consolidated Statements of Income for the years ended F-4 December 31, 2007 and 2006
Consolidated Statements of Changes in Stockholders' F-5 Equity for the years ended December 31, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended F-6 December 31, 2007 and 2006
Notes to Consolidated Financial Statements F-7
The Board of Directors and Stockholders
China Yingxia International, Inc.
Harbin, PRC
We have audited the accompanying consolidated balance sheet of China Yingxia International, Inc., as of December 31, 2007 and the related statements of income, changes in stockholders' equity, and cash flows for each of the two years ended December 31, 2007 and 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Yingxia International, Inc., as of December 31, 2007 and the results of its operations, changes in stockholders' equity, and cash flows for each of the two years then ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.
Bagell Josephs, Levine & Company, LLC
Bagell Josephs, Levine & Company, LLC
Marlton, New Jersey
March 17, 2008
CHINA YINGXIA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2007
ASSETS
Current assets:
Cash and cash equivalents $ 736,683
Account receivables, net of allowance for doubtful accounts 20,081
Inventory 5,527,135
Tax Receivable 32,317
Short-term loan receivable 2,194,774
Other receivables 3,150,777
Advances to suppliers 1,434,059
Loan Receivable from related parties,net of allowance for doubtful
accounts 2,037,551
Total Current Assets 15,133,377
Property and equipment, net of accumulated depreciation
of $3,371,764 15,515,896
Other Assets
Deposits on buildings and land 1,718,077
Investment Advance 4,112,631
Intangible assets, net 666,785
Total other assets 6,497,493
Total Assets $ 37,146,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,911
Unearned revenue 6,509
Accrued expenses and other payables 357,976
Total Current Liabilities 367,396
Total Liabilities 367,396
Stockholders' Equity
Preferred stock, $0.001 par value, 10,000,000 shares authroized; - 0 -
shares
outstanding at December 31, 2007 -
Common stock, $0.001 par value, 100,000,000 shares authorized;
44,439,787 shares outstanding at December 31, 2007 44,440
Additional paid in capital 16,799,667
Accumulated other comprehensive income 2,885,038
Statutory reserves 901,463
Retained earnings 16,148,762
Total Stockholders' Equity 36,779,370
Total Liabilities and Stockholders' Equity $ 37,146,766
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