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Sunday, July 23, 2006

American Dairy (ADY) Q1 results

ADY sec

Q1 10-Q:
Quarter ends March 31, 2006

Balance sheet:
Cash decreased somewhat.
AR overall is largely unchanged, but trade is up somewhat.
Advances to suppliers is up.

P&E* construction is winding down
Another $666K deposit on land use rights.

The deferred income current liability has dropped back down by more than half.
Current ratio is now above 1.
Equity is up by about $5.8 million (some additional paid-in capital)

Income statement:
Revenue is $25.9 million, up from around $24.5 million in Q4.
Gross margin 52%.
Operating margin 19% which is also roughly net margin.
$4.8 million net income ($5.3 million total comprehensive income due to currency translation)

I figure a reasonable totally diluted share count is about 25 million shares which would result in about 19 cents per totally diluted share.

Cash flow statement:
Cash flow from operations was totally clobbered by deferred income (i.e. they were paid in cash previously and are delivering the goods now... the deferred income liability dropped appropriately). Operations burned $761K of cash.
Continued capex. $666K deposit on land use rights.
Minor financing activity.

$4.2 million advertising for the quarter!

US cash balances down to only $11K.

Income tax would have been $1.7 million for the quarter.

$434K stock option expense.
2.5 million warrants outstanding.

$2.8 million construction commitments, land and building $670K, land use rights of $273K, future advertising costs $294K. They just keep expanding. Not sure if it's too fast or in wrong areas or whatever.

April 2006, $3 million convertible debt converted to roughly 400K shares ($8.00).

Revenue increases had largely the same causes as mentioned in the 10-K for the year. Revenues were not up all that much vs Q4, the previous quarter. This is probably why the stock is down somewhat.

Gross margins were up to 52.2% from 46.2% or 48.3% last year due to lower costs of whey (purchased rather than created within company), partially offset by increases in sugar and fat-free powder.

I had seriously considered ADY as an investment, but I have a problem with the CEO owning 62.8% of the stock. I'm going to pass on this.

* There's no land ownership in China so I figure PP&E is more correctly called P&E.

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