EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 China Nutrifruit Group Limited - Exhibit 99.1 - Filed by newsfilecorp.com

Exhibit 99.1



























China Nutrifruit Group Limited (the "Company") outlines a detailed question and answers ("Q&A") list in response to investor inquiries related to China Nutrifruit's production capacity, seasonality in business operations and expansion plans.

China Nutrifruit Group Limited – Q&A

1. Has the Company announced guidance for FY 2010 and FY 2011?

Yes, for FY 2010, we expect revenues to be in the range of approximately $72.0 - $76.0 million and expect to meet our make-good target of $18.5 million in net income, excluding non-cash stock compensation expenses. Based on our full year guidance, we expect fourth quarter revenues to be approximately $25.5 to 29.5 million and fourth quarter net income, excluding non-cash compensation expenses, of $4.5 to 7.0 million.

We have also announced guidance for FY 2011 with revenue forecast of approximately $90-$95 million and projected net income of approximately $22-$23 million.

2. Does the Company experience seasonality in its business?

We experience seasonality in our existing premium specialty fruit processing business. Our fruit processing lines are mainly in operation from mid July to mid November, which includes the second and third quarter of our fiscal year, marking the harvest period for our primary source fruits.

Historically, our first fiscal quarter is the weakest, contributing about 10%-13% of our fiscal year sales. During this period, we are mostly selling down our remaining inventory and preparing for the harvest/production season. Our second and third fiscal quarters typically contribute approximately 25%-29% of our fiscal year sales, and these are our peak periods of production and inventory build up. We also sell fresh fruits only during these periods. The fourth fiscal quarter marks our strongest quarter contributing approximately 35%-37% of our fiscal year sales. We typically have high inventory levels during this period to support strong sales momentum.

3. Please provide a product breakdown of the Company's revenue?

For the first nine months of FY 2009, ended December 31, 2009, sales from our concentrated juice products line accounted for 43% of our total net sales and glazed fruit product sales accounted for 22%. Sales of our concentrate pulp products accounted for 14% of our total net sales. Sales of Nectar and fresh fruits accounted for 10% and 5%, respectively. Sales from beverage products contributed approximately 6% of our total net sales.


4. What are the Company's capacity expansion plans?

We have recently announced plans to expand our business and enter into production of fruit and vegetable powders to capture the high-potential powder market. We plan to acquire land use rights in Daqing and build our new fruit and vegetable powder manufacturing facility with a total production capacity of 10,000 tons, which is anticipated to begin production in September 2010. Our total capital expenditure related to the new production line is expected to be $19.1 million.

According to our estimates, average selling price of the powder products is estimated to be $2,640 per ton. We expect the new line to operate at an average utilization of about 51% to 60% in fiscal 2011 and contribute approximately $11.5 to 13.5 million in revenue. The fruit and vegetable powder business has a longer production period of approximately seven months compared to the typical five month production period for our concentrate juice and glazed fruit production lines. The longer production cycle is mainly because some vegetables remain fresh for a longer period after the harvest. We expect the new fruit and vegetable powder facility to reach target utilization rate of approximately 90% in the second quarter of FY 2012.

5. Are the Company's existing production lines operating at full capacity?

With the exception of our newly added glazed fruit production line, currently, all our production lines are operating at target utilization rate of over 90% during the harvest season. During the production season, our production lines average utilization is in the range of approximately 94% to 98%, except for our beverage line.

Below is a table listing our total capacity during the production season by each product line:

 

 

Processing

Product Category

Location

Capacity (tons)

Glazed Fruit

Daqing

2,400

Nectar

Daqing

4,800

Concentrate Fruit

Daqing

3,960

Concentrate Fruit

Mu Dan Jiang

6,000

Beverage*

Daqing

10,800

Total

 

27,960

* Beverage line is in operation throughout the year.

The new glazed fruit production line commenced production in December 2009 and has a total production capacity of 1,200 tons. We expect the glazed fruit line to reach an average utilization of approximately 95% in fiscal 2011. The availability of frozen blueberries for processing provides us the flexibility to expand our glazed fruit production capacity and operate these lines outside of the harvest season.


6. What is the expected trend in average selling price? What kind of pricing pressure does the Company anticipate on the existing product lines?

Our average selling price for each product category is determined by various factors, including the type of source fruit, amount of fruit utilized for production, fruit prices, and market demand. Approximately 40% of our product mix is from golden berries which generally have stable prices and we also enjoy a good pricing power in the market. Apple and Raspberry are the most volatile in terms of pricing. We manage our product mix to maintain prices at a certain level and modify our product mix to take advantage of increase or decrease in prices.

7. What has been the trend in gross margin and what are management's expectations of gross margin for FY 2010 and into the future?

Historically, our gross margin varies each quarter due to changes in our product mix, ranging from 37% to 57% during the past 2 years. For the full year, our gross margins have averaged to about 43-47% for fiscal 2008 to 2009. We expect gross margins to maintain the current trend into the future as our fruit and vegetable powder production line comes into operation and our new glazed fruit line ramps up to target utilization levels.

8. What has been the historical trend in operating expenses and what is the expected future trend?

Due to the seasonality of our business, our operating expenses vary on a quarterly basis from 6%-19% as a percentage of revenue, excluding stock compensation expenses. On a fiscal year basis, our historical operating expenses were approximately 10.3% in fiscal 2009. Our selling expenses are expected to grow in proportion with our revenue. We will be able to utilize our existing network of distributors to sell our new powder products, resulting in no significant increase in selling expenses related to launch of new product category. With the addition of our new fruit and vegetable powder production line later this year, we expect higher G&A and depreciation expenses associated with $19.1 million in new property, plant and equipment.

9. What have been the stock compensation expenses and explain their future trend?

In the fourth quarter of FY2009, we incurred a $9.5 million non-cash stock compensation expense related to the release of approximately 2.8 million "make good" shares in connection with the Company meeting its specified net income target of $13.9 million for the 2009 fiscal year (excluding the non-cash compensation expense), and therefore one-half of the pledged shares were released and a non-cash compensation expenses of $9.5 million was recorded in the fourth quarter of 2009. Similarly, the Company will record non-cash compensation expense in the 4Q of FY2010 as we expect to achieve our make good target of $18.5 million in net income for FY 2010.


10. What is the Company's statutory tax rate? Are there any tax benefits available to the Company?

The applicable tax rate for China Nutrifruit is 25%. We currently do not avail any tax benefits from the government. However, our high-tech enterprise qualification is under review by the government and if the high-tech status is granted, we expect to avail several benefits, including attractive rates for financing and favorable taxation, etc.

11. What is the potential number of diluted weighted average shares outstanding?

Common stock issued and outstanding

36,190,182

Warrants*

1,370,847

Convertible preferred stock**

4,034,180

Weighted average common stock and dilutive potential common stock

41,595,209

* 120,228 Warrants have an exercise price of $2.78 per share and expire in October 2011; 1,250,619 warrants have an exercise price of $3.30 per share and expire in October 2013

** Effective conversion price is $3.30 per share

Forward-Looking Statements

This Q&A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act""). Such statements include, among others, those concerning our expected financial performance in FY 2010 and FY2011 and strategic and operational plans, our future operating results, our capacity expansion plan and expected utilization of our production lines, our expectations regarding the market for our products, our expectations regarding the continued growth of the specialty fruit and beverage market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended March 31, 2009, and other risks and uncertainties mentioned in our other reports filed with the Securities and Exchange Commission. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.