Man Shing Agricultural (OTC BB:MSAH)

Third Quarter 2012 Results

• Revenue increased 17.3% year-over-year to $9.3 million;
• Gross profit increased 37.3% to $4.6 million, gross margin improved to 48.9% vs. 41.8% YOY;
• Net income increased 65.4% to $3.8 million;
• EPS of $0.08 based on 48.1 million shares outstanding;
• Cash and cash equivalents totaled $15.5 million, or $0.32 per share.

Mr. Shili Liu, Chairman and Chief Executive Officer of Man Shing, stated, "During the third quarter, we successfully used the leverage in our unique business model to utilize the current infrastructure to generate additional revenue with very little incremental increases in our expenses. This enabled us to increase margins and profitability. As a result, year-over-year gross profit margin for the quarter increased from 41.8% to 48.9% and net income margin increased from 29% to 41%, yielding an increase in net income of 65.4%. We also enhanced our earnings by producing more products with higher margins. During the quarter, we generated $8.8 million in operating cash flow as compared to $2.3 million during the quarter ended March 31, 2011, and as of March 31, 2012 we had $15.5 million, or $0.32 per share, of cash. Our strong cash flow will help us prepare for the upcoming planting season and better enable us in bringing our products to market, while further evaluating new higher margin products."

First Quarter 2012 Results

• Revenue for the 2012 fiscal first quarter ended September 30, 2011 totaled $7.2 million compared to $7.3 million for the same period in fiscal 2011.
• Net income for the 2011 fiscal first quarter ended September 30, 2011 totaled $2.1 million, compared to $2.2 million for the 2011 fiscal first quarter.
• Basic and diluted earnings per share for the 2012 fiscal first quarter were $0.04, based on 48 million basic and 49.8 million diluted shares outstanding versus basic and diluted earnings per share of $0.06 and $0.03 for the same period the year prior, based on 36.3 million basic and 72.4 million diluted shares outstanding.

Mr. Shili Liu, Chairman and Chief Executive Officer of Man Shing, stated, "Our financial results for the first quarter of our 2012 fiscal year were in line with our expectations. Growth in our business is directly attributable to the amount of land we have on which to harvest our high quality fresh ginger and other vegetable products. During the quarter, the demand for our products remained at an all-time high and we managed our inventory accordingly as we approached the upcoming October harvest season. We are encouraged that we were able to complete harvesting on our original 5.2 million square meters of farmland and the 2.4 million square meters we leased in March 2011. The addition of the new land will allow us to increase our inventory, fulfill more purchase orders and will ultimately lead to an increase in revenue and earnings going forward."

Financial results for the twelve months ended June 30, 2011

GeoTeam® Note: Fourth Quarter 2010 vs. 2009 EPS was $0.04 vs. $0.00.

Mr. Shili Liu, Chairman and Chief Executive Officer of Man Shing, stated, "We are pleased that we generated $9 million in net income and exceed our guidance. Additionally, we successfully increased our land capacity by 45%, from 5.3 million to 7.7 million square meters, allowing us to significantly increase our production capacity for the current fiscal year. We completed planting on all 7.7 million square meters in April and will begin to harvest the ginger by October 2011. The uniqueness of our business model is apparent as we increase our land capacity and are able to continually implement our quality standards without incurring additional expenses. This enabled us to increase our gross margins year over year from 37.5% in fiscal 2010 to 42.2% in fiscal 2011. Our company is well capitalized and as of June 30, 2011, we had approximately $7.1 million in cash which will provide us with sufficient capital to fuel the future growth of the Company."

Overall, we have funded all of our cash needs and no significant amount of our trade payables has been unpaid within the stated trade term. As of June 30, 2011, we are not subject to any unsatisfied judgments, liens, or settlement obligations. We believe that the current operating activities would be able to generate adequate cash flows supporting the daily operations.

Our company is well capitalized and as of June 30, 2011, we had approximately $7.1 million in cash which will provide us with sufficient capital to fuel the future growth of the Company."

Red Flag. MSAH downgrades its auditor after the completion of its Fiscal 2011 June year end, but before the completion of its audit by its previous auditor!!!!!!!! (unbelievable).  

On June 30, 2011, Man Shing Agricultural Holdings, Inc. (the “Company” or the “Registrant”) dismissed its principal independent accountant, BDO Limited (“BDO”).  The decision to dismiss BDO as the Company's principal independent accountant was approved by the Company's Board of Directors on June 30, 2011.  BDO did not issue a report on the Company's financial statements. During the period from October 29, 2010 through the date of BDO's dismissal, there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused BDO to make reference to the subject matter of the disagreements in connection with its report on the financial statements for such period.  None of the reportable events described under Item 304(a)(1)(iv) or (v) of Regulation S-K occurred within the period from October 29, 2010 through the date BDO was dismissed. The Company has provided BDO with a copy of the foregoing disclosures, and BDO has furnished a letter addressed to the Securities and Exchange Commission stating that it agrees with the statements made by the Company herein, attached hereto as Exhibit 16.1.
 
On June 30, 2011, the Company engaged Moore Stephens, Hong Kong (“MSHK”) as its new principal independent accountants, effective June 30, 2011. The decision to engage MSHK as the Company's principal independent accountants was approved by the Company's Board of Directors on June 30, 2011. During the period from October 29, 2010 through June 30, 2011, the Company did not consult with MSHK regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

HONG KONG--(Marketwire - April 5, 2011) - Man Shing Agricultural Holdings, Inc. has leased an additional 2.4 million square meters, or 3,620 Mu of farmland, increasing total farmland by approximately 45% to 7.7 million square meters.

The newly leased farmland is located in close proximity to the 5.3 million square meters of land currently leased by the Company in Anqiu, Shandong Province. This lease furthers the Company's growth strategy. The annual cost for the new lease of 2.4 million square meters of farmland is approximately $530,000. Planting on the new 2.4 million square meters and existing 5.3 million square meters of farmland will begin in April 2011, followed by harvesting in October 2011.

Mr. Shili Liu, Chairman and CEO of Man Shing, stated, "Today's announcement marks a significant milestone in the history of Man Shing as we have increased total farmland by 45% to 7.7 million square meters of farmland. This production increase bodes very well for our future financial performance, if demand continues to grow for our product and the favorable pricing trend for fresh, high quality ginger continues, as we believe that they will. The significance of finalizing the lease for land in close proximity to existing operations also enables us to ensure that the planting, harvesting, and implementation of quality standards can be done without additional costs beyond the general farming expenses stated."

Mr. Shili Liu, continued, "We have also worked closely with the PRC government and the farmland workers of Anqiu. Due to our reputation as one of the market leaders in the production of fresh ginger, Man Shing has gained the trust and respect from both parties allowing us the opportunity to lease more land. Demand for our products remains at an all time high. Due to the timing of this agreement, we can now prepare to plant on the new and existing land as originally scheduled in mid April of this year."

After management evaluates the financial impact of the new farmland and fiscal 2011 results are reported, financial guidance for the fiscal year ending June 30, 2012 will be given

HONG KONG, March 3, 2011 (GLOBE NEWSWIRE) -- Man Shing Agricultural Holdings, Inc. today announced

• net income guidance of $8.8 million, or earnings per share of $0.18 based on 50 million fully diluted shares, for the fiscal year ending June 30, 2011, up from previous guidance of $8 million for the same period.

"It is with great pleasure that we are able to announce the increase in our net income guidance for the 2011 fiscal year to $8.8 million," stated Mr. Shili Liu, Chairman and Chief Executive Officer of Man Shing. "Over the last year it has been our priority to improve our capital structure and corporate governance including auditors, legal counsel and board of directors, while preparing ourselves for continued growth from operations both domestically and internationally."

Mr. Shili Liu continued, "Several strategic initiatives have already been set in motion for 2011. In December we entered into an agreement to produce ginger in Japan on 70,186 square meters of land. We believe that our presence in Japan will present us with several important advantages, including a higher price point for our ginger. Additionally, due to the high quality and safety standards enforced in Japan, we anticipate increased customer confidence. We will continue to evaluate opportunities to broaden our production capabilities and markets to sell our product."

Our success will be dependent upon implementing our plan of operations and the risks associated with our business plans. We engaged in the production and processing of fresh vegetables, including mainly ginger and others such as onion and garlic. We strive to provide high quality products to our customers. We plan to strengthen our position in the existing and new markets. We also plan to expand our operations through aggressively marketing our products and our concept.

The Company has signed an agreement with a farmland owner in Japan. The agreement was executed on December 17, 2010 and runs for a term of one year from February 1, 2011 to January 31, 2012. The Company will lease a farmland which sits on 70,186 square meters of land in Japan with annual rental of approximately $128,000. The Company expects to pay the annual rental from its working capital.

Effective December 20, 2010, Mr. Eddie Cheung resigned as Chief Executive Officer and a member of the Board of Directors and Mr. Ji Yang resigned as a member of the Board of Directors of Man Shing Agricultural Holdings, Inc. (the “Company”).  Mr. Shili Liu was appointed Chief Executive Officer of the Company effective December 20, 2010, and remains the President and Chairman of the Company.  Messrs. Cheung and Yang resigned from their respective positions with the Company for the following reasons (which were expressed in a letter attached hereto as exhibit 99.1):

   1. Each of them believed that the Company had inadequately responded to the legal letter sent to the Company respecting the Service Agreement between a wholly owned subsidiary of the Company and Excel Linker Capital (Asia) Ltd.. (“Excel Linker”);

   2. Mr. Shili Liu wired $1,100,000 back to a potential investor without the knowledge of certain members of the Company’s Board of Directors and without discussing the wire with the Board of Directors; and

   3. Certain members of the Company’s Board of Directors did not receive the appropriate directors remuneration.

The senders of this letter believe that, under such circumstances, the Company’s Board cannot function effectively and the board members are exposed to significant personal risk. In consideration of this, the two Directors, Mr. Eddie Cheung and Mr. Ji Yang, hereby tender their resignation to the Board, effective immediately. Mr. Eddie Cheung will also resign from the Company’s Chief Executive Officer’s position, effective today.

The Company responded to the foregoing items in a letter, attached hereto as exhibit 99.2, which indicated that:

   1. The Company  engaged a law firm to deal with and respond to the legal letter from Excel Linker and noted that Excel Linker has deregistered and dissolved on November 13, 2009;

   2. The wire transfer was made to return funds to a potential investor at the request of the investor prior to the closing of the applicable transaction and that it was only because Mr. Cheung could not be contacted by Mr. Liu and did not return the phone calls of Mr. Liu that he did not know of the intended wire transfer; and

   3. The Company has been handling the matter of the directors remuneration and that the allegation that the Company was in arrears on these payments is groundless and unreasonable.

On November 19, 2010  MSAH filed an 8K updating a decision to cancel preferred shares (per the GeoTeam's advice):

"On November 14, 2010, Man Shing Agricultural Holdings, Inc.entered into amendments to those certain securities purchase agreements  with each of International Investment (Hong Kong) Trading Group Company Limited, Liu Ling Ling, Yang Shao Bin, Sea Dragon Investments Limited, and Hong Kong Investment Group Limited (each an “Investor” and together the “Investors”) pursuant to which the Investors agreed to purchase an aggregate of 10,000,000 shares of common stock of the Company, for consideration of $0.40 per share of Common Stock (an aggregate of $4,000,000). Pursuant to Amendment No. 1, each Investor has agreed to amend the Closing Date under each such Investor’s Agreement to be seven (7) days following the date that 3,358,250 preferred shares of the Company registered in the name of Shili Liu (the “Shili Liu Preferred Shares”), Chairman and President of the Company, have been cancelled.

Pursuant to that certain Cancellation Agreement (the “Cancellation Agreement”) dated as of November 14, 2010 by and between the Company and Shili Liu, Shili Liu has agreed to the cancellation of the Shili Liu Preferred Shares on or before November 15, 2010, and Shili Liu has agreed to indemnify each Investor for any resulting damages if the Shili Liu Preferred Shares have not been cancelled on or before November 15, 2010."

It appears that this development eliminates all of the convertible preferred stock that would convert into common stock on a 10 for 1 basis. This is good news for investors who had qualms about MSAH's fully diluted share count which was approximately double the basic count.

Estimated new share count:

38,026,958 basic + 10,000,000 from financing= 49,026,958. 

The new share count is still higher than we like, but it's still a move in the right direction.  We would expect the company to effect a reverse split in the near future.

We plan to pull MSAH's Chinese financial filings.

Year 2010-2009 Results:

• Net revenues were $$22,425,534 and $11,404,328 for the years ended June 30, 2010 and 2009, respectively. The sales revenues were due primarily to the sales of our frozen and fresh vegetables. The increase in revenues was due to our expanding business, our marketing strategy, our customer loyalty, and the quality of our product and service.
  
• Cost of sales primarily includes cost of planting, harvesting and maintaining our vegetables. During the year ended June 30, 2010, we had cost of sales of $14,018,540, or approximately 62.5% of revenues, versus cost of sales of $7,998,951, or approximately 70.13% of revenues for the year ended June 30, 2009. The cost of sales as a percentage of revenue decreased due to more efficient use of supplies.
  
• We had a net income of $5,244,493 and $2,744,500 for the years ended June 30, 2010 and 2009, respectively. The net income in these periods was due primarily to sales of our fresh and frozen vegetables. Our net income is a function of revenues, cost of sales and other expenses as described above. The increase in net income is attributable to our expanding business, our marketing strategy, our customer loyalty, and the quality of our products and services.

"To satisfy growing demand, we plan to expand farmland from the existing 5.3 million square meters to 8 million square meters in the next year," said CEO Eddie Cheung of Man Shing. "Due to the environmental factors in Southern China, we expect continued demand to outweigh supply in ginger markets throughout 2011. Also, demand for high quality ginger is expected to be increasing as customers are more concerned with food quality and safety. We aim to be one of the largest exporters of ginger in China and our goal is to capture more of China's ginger export market. Our primary strategy is to increase planting and production capacity to satisfy our customers' demand."

"We will continue to focus resources on our high quality ginger products and on selling our ginger products to customers with high food safety standards," said Eddie Cheung, CEO of Man Shing. "We are working towards leasing more farmland, increasing production and storage capacity and modernizing our product cycle in order to satisfy our current customers' overwhelming demand and further expand our customer base. We remain confident that we will be able to continue our incremental growth and meet our guidance for 2011," Cheung concluded.

2011 Guidance

Man Shing provided 2011 guidance of net income of $8 million which will represent 53% growth.

"We will continue to focus resources on our high quality ginger products and on selling our ginger products to customers with high food safety standards," said Eddie Cheung, CEO of Man Shing. "We are working towards leasing more farmland, increasing production and storage capacity and modernizing our product cycle in order to satisfy our current customers' overwhelming demand and further expand our customer base. We remain confident that we will be able to continue our incremental growth and meet our guidance for 2011," Cheung concluded.

GeoTeam® note:

• Fourth quarter net income was flat at $1.2 million.  EPS was nil vs. $0.03. Company did not break down fourth quarter in the press release.
  
• Share count will increase by at least 10 million shares, due to recent financing.
  
• Company needs to heed GeoInvesting's suggestion and cancel convertible preferred stock.

It appears that MSAH and its new IR firm have headed our advice to consider cancelling some outstanding convertible preferred stock:

On September 13, 2010, the Registrant entered into an addendum (the "Addendum") with each of China Angel Assets Management Limited and Guangdong Zhibo Investment Co., Limited (together, the “Investors”) to the Registration Rights Agreement, as amended (the “Registration Rights Agreement”), the Secured Convertible Redeemable Debenture (the “Debenture”), the Pledge Agreement (the “Pledge Agreement”) and the Investor Rights Agreement (the “Investor Rights Agreement” and together with the Registration Rights Agreement, the Debenture, and the Pledge Agreement, the “Agreements”), each entered into by and among the Company and the Investors on or about January 4, 2010 and January 14, 2010.

Pursuant to the Addendum, the Investors agreed to waive all of the requirements under the Registration Rights Agreement obligating the Company to prepare and file with the Securities and Exchange Commission any registration statement on any form and to waive all rights to any accrued damages with respect to such obligations.  In addition, the Investors waived any compliance by the Registrant with the covenants contained in the Agreements requiring the listing of the Common Stock or Common Stock purchase warrants of the Company on a national securities exchange, including the NASDAQ Stock Market LLC, the New York Stock Exchange, or NYSE Euronext or the receipt of the Investors’ consent to sell capital stock, incur debt or grant security interests, effect any forward or reverse stock split or any merger, acquisition, or share exchange, including a merger, acquisition, or share exchange which results in a change in control of the Company.  The Investors also agreed to release a number of shares of the Registrant’s preferred stock securing obligations under the Debenture, provided that the Registrant agree to contemporaneously cancel such preferred shares upon their release.

In related news, the company also entered into an equity financing arrangement:

• On September 13, 2010, Man Shing Agricultural Holdings, Inc. (the “Company” or the “Registrant”) entered into securities purchase agreements (each an “Agreement” and together the “Agreements”) with each of International Investment (Hong Kong) Trading Group Company Limited (“International Investment”), Liu Ling Ling, Yang Shao Bin, Sea Dragon Investments Limited (“Sea Dragon”), and Hong Kong Investment Group Limited (“Hong Kong Investment”) (each an “Investor” and together the “Investors”) pursuant to which the Investors will purchase an aggregate of 10,000,000 shares of common stock of the Company, par value $0.001 (the “Common Stock”), for consideration of $0.40 per share of Common Stock (an aggregate of $4,000,000). Pursuant to each Investor’s respective Agreement, (i) each of International Investment and Liu Ling Ling agreed to purchase 1,875,000 shares of Common Stock for consideration of $750,000 on September 13, 2010, (ii) each of Yang Shao Bin and Sea Dragon agreed to purchase 2,000,000 shares of Common Stock for consideration of $800,000 on September 30, 2010, and (iii) Hong Kong Investment agreed to purchase 2,250,000 shares of Common Stock for consideration of $900,000 on October 20, 2010.

Before these developments MSAH had around a 70 million fully diluted share count, of which approximately half were from the convertible preferred.

Note: We had also stressed that the company issue an EPS make good, reverse split its stock upon execution on a financing transaction and review its corporate governance policies.

The Xinsheng’s operations are affected by the growing cycle of the vegetables it processes and grows. The Xinsheng’s business can be positively or negatively affected by weather conditions nationally and the resulting impact on crop yields.

• Favorable weather conditions can produce high crop yields and an over-supply situation in a given year. This over-supply typically will result in depressed selling prices and reduced profitability to the Xinsheng on the inventory produced from that year’s crops.
  
• Excessive rain or drought conditions can produce low crop yields and a shortage situation. This shortage typically will result in higher selling prices and increased profitability to the Xinsheng.

While the national supply situation controls the pricing, the supply can differ regionally because of variations in weather. Because many of the raw materials processed by the Xinsheng are agricultural crops, production of products using these crops is predominantly seasonal.

Vegetable farming is vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes and pestilences. Adverse weather conditions may be impacted by global warming and other factors. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of storing raw materials if harvests are accelerated and processing capacity is unavailable, or interrupt or delay our production schedules if harvests are delayed.

Competing manufacturers may be affected differently by weather conditions and natural disasters depending on the location of their supplies or operations. If our supplies of raw materials are reduced, we may not be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply product to our customers and adversely affect our business, financial condition and results of operations.

Frbiz.com, one of China's leading B2B search platforms, reports on rising ginger prices in China:

    Recently, ginger prices rose significantly. Market price of Ginger in Beijing has been rising since early July. At mid-July, the price appeared stable at 3.0-3.6 RMB/kg or so, but by the end of July was up to 4.6-5 RMB/kg, compared with the same period of last year. This is a rise of 88.23% or so. This is also after garlic and green bean prices also rose significantly over the same period.

    Ginger's price inflation rate has slowed down, but prices in some cities are still continuing to rise. The causes for the current high price of ginger are many. On the one hand, influenced by the weather last year, ginger experienced a decline in production. On the other hand, in previous years ginger prices have been low in general, which had resulted in reduced cultivation by farmers.

    In addition, like garlic, green beans and other agricultural products, ginger in circulation also has speculators. These speculators will accumulate ginger at a low price. They will then use some money to buy ginger on the market with a high price. After a few days, ginger prices are quickly pulled high. The speculators then immediately sell their product at a high price, cash out, and leave. These speculators often buy at least 2 or 3 kilotons of ginger. According to price differences calculated, their tactics and sales can gain a profit of RMB 2 or 3 million.

    40% of the stock of last year's harvest of ginger is still in ginger farmers' hands, and high prices are being seen with enthusiasm in the farming community.

Man Shing expects to sustain gross profit margins of over 25% and net profit margins of around 20% on low production costs, efficient land management and a high-quality, high-margin strategy. Man Shing is well on track to achieve the targeted 50% year on year net profit growth projected for the next 3 years.

Source: PR Newswire (December 1, 2009)