Sen Yu Intl (OTC BB:CSWG)

Fiscal 2011 Highlights

• Total revenue increased 41.8% to a record $99.8 million from $70.4 million
• Gross profit increased 84.6% year-over-year to $25.9 million from $14.0 million
• Gross margin increased to 26.0% from 20.0% on increased sales and strong increases in the average market price for hogs
• Adjusted net income, which excludes a gain in the fair value of warrants, increased 202.2% to $18.9 million, or $0.73 per diluted share, versus $6.3 million, or $0.41 per diluted share, for the same period last year, which excludes a non-cash expense related to the fair value of warrants for the fiscal year 2010
• Net income increased to $36.1 million, or $1.40 per diluted share, from $4.3 million, or $0.29 per diluted share, for the fiscal year ended June 30, 2010

"We experienced record revenues and profits in fiscal 2011 based on strong demand for our high quality breeding and commercial hogs," stated Mr. Zhenyu (Jack) Shang, Founder, Chairman and CEO of Sen Yu International Holdings, Inc. "Increased orders from our two major customers, Beijing Dahongmen and Beijing Fifth Meat Factory, resulted in revenues increasing to $99.8 million for the year compared to $70.4 million in revenue for fiscal 2010. Overall, our hog sales increased by 106,773 head to 504,028 head in fiscal 2011, compared to 397,255 at the end of fiscal 2010. We achieved higher margins in fiscal 2011 due to strong increases in average market prices for commercial hogs that led to higher unit sales prices. We believe our efficient business model and advanced breeding techniques, coupled with the demand we see for our products, will help us to continue to capture market share and drive our future growth."

Business Outlook

"We see significant growth for our industry going forward and believe that strong demand from Chinese consumers for high quality pork coupled with rising domestic incomes and economic expansion will stimulate even greater demand for our high quality breeding hogs," commented Mr. Shang. "The market for breeding and commercial hogs is becoming very attractive to foreign investors as China is the world's largest consumer of pork and produces some 50 million tons of pork every year to feed a population of over 1.3 billion. We continue to expand our production and refine our breeding techniques to meet the rising demand from China's middle class. Going forward, we believe pork consumption and production will continue to rise and that Sen Yu is well positioned to capture greater revenue and profit."

Third Quarter 2011 Highlights 

• Total revenue increased 36% to $20.3 million from $14.9 million a year ago
• Gross profit increased 107% to $5.5 million from $2.7 million a year ago
• Gross margin increased to 27.2% from 17.9% in the same period last year on increased sales and strong increases in the average market price for hogs
• Operating expenses were $1.6 million, up from $1 million in the same period last year
• Operating income rose 139% to $3.9 million from $1.6 million a year ago
• Adjusted net income, which excludes a non-cash expense related to the change in fair value of warrants for the third quarter of 2011, was $3.9 million, versus $1.4 million for the same period last year, last year there was no such non-cash expense relating to fair value of warrants
• Adjusted EPS was $0.16 vs. $0.08
• Net income was $55,696, or $0.00 per diluted share
• Working capital increased 85% to $37.8 million at March 31, 2011, from $20.5 million at June 30, 2010
• Shareholders' equity inclusive of noncontrolling interest increased 77% to $39.6 million at March 31, 2011, from $22.5 million at June 30, 2010

"We experienced higher revenue and gross profit in what is typically a slower season following the Chinese holidays," stated Mr. Zhenyu (Jack) Shang, Founder, Chairman and CEO of Sen Yu International Holdings, Inc. "This was driven by increased orders from our two major customers, Beijing Dahongmen and Beijing Fifth Meat Factory, resulting in solid revenue increases and a 107% increase in gross profit for the quarter. Hog sales increased by 13,761 head over the third quarter of last year. Going forward, we believe that our efficient business model, coupled with advanced breeding techniques and the superior quality of our Canadian breeding hogs will allow us to capture more market share and drive our growth."

Business Outlook

"We continue to see significant growth for our industry, underpinned by strong demand for quality pork among Chinese consumers," said Mr. Zhenyu (Jack) Shang, Founder, Chairman and CEO of Sen Yu International Holdings, Inc. "China's economy continues to grow rapidly, buoyed by a rising middle class and the continued preference for pork as a main and most popular source of protein among the Chinese population. To meet rising consumer demand, we continue to refine our breeding techniques and expand production based on increases in orders for commercial hogs from our customers. Based on China's economic expansion and government policies encouraging domestic pig production, we believe pork production and consumption will continue to rise, helping to fuel strong revenues and profits in our business going forward."

On March 3, 2010, Ligang Shang delivered a resignation letter to Sen Yu International Holdings, Inc. (the “Company”) pursuant to which he resigned as Chief Operating Officer of the Company effective immediately. Mr. Shang will continue serving as a member of the Company’s board of directors.

On the same day, Mr. Shang was appointed as the Vice Chairman of Heilongjiang Sen Yu Animal Husbandry Co., Ltd., a wholly owned subsidiary of the Company in China. Mr. Shang’s current compensatory arrangement with the Company will not change as a result of the changes of his position with the Company.

On February 17, 2011, Sen Yu International Holdings, Inc. entered into a subscription agreement with a non-U.S. investor called D.D Investment Co., Limited, a Marshall Islands corporation, pursuant to which the Company sold an aggregate of 1,383,700 shares of the Company’s common stock at $2.20 per share for total gross proceeds of $3,044,140 (the “February 2011 Private Placement”).

The Investor also received a common stock purchase warrant exercisable for three years to purchase 1,106,960 shares of Common Stock at $2.64 per share. The Warrant may only be exercised in cash and the exercise price of the Warrant is subject to adjustment for stock splits, stock dividends, recapitalizations and the like. The Investor is entitled to piggy-back registration rights with respect to the Shares and shares underlying the Warrant. No placement agent was utilized in connection with the February 2011 Private Placement. The issuance of the Shares and Warrant was made in reliance on the exemption from registration provided by Regulation S of the Securities Act of 1933, as amended, as an offshore transaction involving non-U.S. persons.

Year ended June 30, 2010 Highlights

• Net revenue increased 39.61% to $70.35 million for the fiscal year ended June 30, 2010 from $50.39 million for the same period ended June 30, 2009.
  
• Gross profit increased 62.75% to $14.29 million for the fiscal year ended June 30, 2010 from $8.78 million for the same period ended June 30, 2009
  
• Net income increased 38.74% to $6.26 million for the fiscal year ended June 30, 2010 from $4.51 million for the same period ended June 30, 2009.
  
• Diluted earnings per common share increased 100% to $0.46 per share for the fiscal year ended June 30, 2010 from $0.23 per share for the same period ended June 30, 2009.

Mr. Zhenyu Shang, the founder and chief executive officer of Sen Yu International, said, "Our strong increases in revenues and net income for the fiscal year ended June 30, 2010 reflect the high pork consumption in the Chinese market due to China's economic expansion. The consistency of our operating performance results from our established business model and effective execution. Our strategy, business model and actions have proven to be very effective, thereby delivering results. We continue to bring in talents to strengthen our financial structure and corporate governance."

Mr. Shang continued, "I believe our results for the fiscal year ended June 30, 2010 represent a very good performance in a very high growth year. With our advanced technology, modest debt leverage, and additional financing flexibility, we believe we should be very successful in expanding our current market and working capital to support sales growth in our commercial hogs market. We utilize Golden Lotus as our selling agent to ensure quality through a selection process. Golden Lotus is our exclusive sales agent in Heilongjiang Province. If Golden Lotus is not able to sell the minimum quarterly amount, it is required to pay a fee equal to 20% of the unaccomplished sales, and we have the right to sell our breeding swine through other agents. Among Golden Lotus' responsibilities is the recruitment of farmers that meet our standards. Golden Lotus is also responsible for processing the necessary data regarding the farmers, their requirements of breeding swine, their productivity, and an estimate of their fodder requirements. The data formulated by Golden Lotus is then used to determine the farmers' fodder requirements and our financial obligations to Wang Da. Wang Da is our fodder supply agent who maintains the Fodder Supply and Commercial Hog Buyback Agreements with the farmers." 

Mr. Shang concluded, "China's economic outlook continues to be encouraging, and China's projected domestic pork consumption will approach 68 million metric tons in 2015. Government support and trade protection policies also encourage domestic pig production with tax exemptions, vaccines technology, feed costs cap, price control and providing use of lands. China consumes about 50% of the world's pork products. As a result, we believe that the high demand for hogs should continue for several years."

Added to the GeoSpecial list on February 12, 2010 @ $4.10

Catalyst: Reported a strong 2010 first quarter.
Peak performance: Reached a high of $9.00 on February 18, 2010
Current Price: $6.35 (Has a wide bid/ask spread).
 
Current road block: Company may have to raise capital as cash balance is only $3.3 million and 2010 cash flow from operations is tracking at around $4.0 million;  We need to delve further into the capital structure and investigate the 81.9% increase in the diluted share count from the 2010 first quarter to the 2010 second quarter;  Gross margins will have little room for expansion.

Removed from the GeoSpecial list until we gain a better grip on capital structure and liquidity requirements.  We were impressed that the majority shareholder, Ligang Shang, agreed to cancel his loan which could signify confidence in the business plan

"After our founders made the initial contribution of our registered capital, the growth of our business has been funded, primarily, by the revenues resulting from our business operations, by loans from the Chinese Government’s Financial Bureau and by loans from our shareholders. We did, however, owe $11,167,236 to our majority shareholder, Ligang Shang, representing funds he loaned to Advanced Swine during our development period. At the quarter ended September 30, 2009 , however, Mr. Shang agreed to waive his right to collect that sum, and contributed it to the capital of the Company. Accordingly, our working capital increased by the amount of the cancelled loan, as did our paid-in capital."

Need for capital is on the table:

"We believe that we have sufficient funds to operate our existing business for the next twelve months. However, in addition to funds available from operating and loans from shareholders, we may need external sources of capital for our expansion of our facilities and to increase the roster of our franchisee farmers, in order to reach our goal of producing one million commercial hogs in 2011."

Revenues

Total revenues were $14,921,687 for the three months ended March 31, 2010, an increase of $7,180,772 or 93%, compared to $7,740,915 for the three months ended March 31, 2009. The increase in revenues mainly resulted from increased orders from our major customers. We increased sales volume of commercial hogs from 38,169 for the three months ended March 31, 2009 to 85,294 during the three months ended March 31, 2010.

On August 13, 2009, Apogee Robotics, Inc. (“Apogee Robotics”) acquired all of the outstanding capital stock of Advanced Swine Genetics, Inc., Advanced Swine owns 100% of the registered capital of Heilongjiang SenYu Animal Husbandry Co., Ltd. (“SenYu”), a company organized under the laws of The People’s Republic of China (“PRC”). SenYu is engaged in the business of breeding and raising commercial hogs and piglets and distributing them to the slaughter facilities and pork distributors in the PRC. Since the inception of its business in 2004, SenYu has developed a group of farmer franchisees who serve as the primary producers under the SenYu model for raising commercial hogs. Utilizing the most advanced technology and artificial insemination equipment and applying the same strict control standards for raising commercial hogs used in North America, SenYu has established its brand name as a high-quality swine product provider in the industry in China.

Upon completion of the Share Exchange, there were 994,067 shares of the Company’s common stock issued and outstanding. There were also outstanding shares of Series A Convertible Preferred Stock that are convertible into 464,605,933 shares of common stock.

Our revenues have grown from $3,984,967 in the year ended June 30, 2006 to $30,435,126 in the year ended June 30, 2008. During the nine months ended March 31, 2009, our revenue has already exceeded revenue achieved in all of fiscal 2008, growing to $34,139,865. The increase in revenues reflects our rapid development in both production and marketing efforts.

A recently filed 8K on April 7, 2008 implies that APRB may be in the midst of a reverse merger/share exchange event:

"On March 31, 2008 Zhenyu Shang purchased 630,000 shares of the Registrant’s common stock, representing 63.4% of the outstanding shares. The shares were purchased from Corporate Services International Inc., which is owned by Michael Anthony, who was the sole officer and sole director of Apogee Robotics. 

Zhenyu Shang is currently employed as Chairman and Chief Executive Officer of the Heilongjiang Senyu Animal Husbandry Co., Ltd., which is engaged in the business of breeding and raising hogs and boars in the People’s Republic of China.  Mr. Shang founded that company in 2004."

 The GeoTeam will provide more information once it becomes available.