Emerald Dairy fourth quarter total revenue increases 10.0% to 14.8 million

Emerald Dairy, Inc. (OTC Bulleting Board: EMDY) ("Emerald Dairy" or "the Company") a leading producer and distributor of infant and children's formula products, today announced financial results for its fourth quarter ended December 31, 2010.

Fourth Quarter 2010 Review

Total revenue for the fourth quarter of 2010 ended December 31, 2010 was 14.8 million, up 10.0% from $13.4 million for the quarter ended December 31, 2009, and was driven by a 207 metric ton increase in production and shipments of Emerald Dairy's Xinganling® products during the quarter. Sales of the mid- and high end price point Xinganling® formulas increased by24.5% over the year ago period and represented 86.3% of fourth quarter sales. The Company has been able maximize production output in on its first9,000 ton line in Bei'an and tap into its new production capacity of 10,000 tons at its Hailun facility which was operational in December of the year.  Another contributor to its revenues was higher pricing on some of the Company's subcontracting production runs, leading to sales increasing by 63.4% to $1.1 million in that business segment during the fourth quarter.

Gross profit for the fourth quarter of 2010 was $7.0 million, a 9.4% increase from $6.4 million in the fourth quarter of 2009.  Overall gross profit margin was down 80 basis points to 47.2% in the fourth quarter due to large subcontracting orders, which carries lower margins.

Operating expenses for the quarter were 4.0 million, an increase of 1.7%. Operating income totaled $3.0 million in the fourth quarter of 2010, a 17.7% increase from $2.5million in the fourth quarter of the previous year. Adjusted operating income excluding non-cash items was $3.0 million. The Company's adjusted operating margin was 23.6% compared to 11.8% in the fourth quarter of the prior year, a 1,180 basis point improvement. Operating leverage resulted from prudent expense control coupled with ton line growth.

GAAP net income for the fourth quarter of 2010 was 2.7 million, an increase of 432% from $0.5 million in the fourth quarter of 2009. Earnings per share were $0.04 per diluted share in the quarter. Adjusted net income excluding the non-cash value of stock options and warrants expensed was $2.0 million, an increase of 127.3% year over year. Adjusted earnings per share increased 100.0% to $0.06 based on 34.5 million weighted average diluted shares outstanding on December 31, 2010, compared to 30.8 million fully diluted shares in the year ago period.

"Our focus on our higher margin Xinganling®-branded products has significantly improved our revenues, margins and earnings for the year," began Yongshan Yong, CEO and Chairman of Emerald Dairy.  "The results of the ongoing certification of dairy companies in China and our belief that many smaller players will simply not be recertified for operation will provide us an excellent platform to continue our growth especially in Tier 3 and Tier 4 cities in China.  Preference for domestic infant formula brands remains strong in China and our efforts to both enhance our product line with new products like organics and expand our Xinganling® line capacity is testament to our confidence in 2011.   We hope to exceed our guidance for the year and have made a commitment to update our investors on our sales and marketing successes on a more frequent basis throughout the year."

Revenue for the first twelve months of 2010 was $55.3 million, up 23.6% from $44.7 million in the prior year's period, driven by an 18.6% increase in sales volume and a 4.2% increase in average selling prices.  2010 full year performance was less than initial guidance of$60.0 - $65.0 million due to a four month delay in the installation of the Company's new 10,000 production line ("Line B") at the Hailun facility.  

Milk powder sales increased 22.5%and represented85.5% of revenues due to higher demand and increased fourth quarter production from the Hailun facility. Rice powder, soybean powder, and subcontracting accounted for approximately 3.0%, 2.6% and 8.7% of total sales in 2010.

Gross profits were $27.1 million, an increase of 31.0% for the period. Gross profit margin increased by 280basis points to 49.0% in the first twelve months ended December 31, 2010, with margin improvement in milk powder, soybean powder and subcontracting.

GAAP operating expenses for 2010 was $21.1 million, including a number of non-cash charges.  Selling expenses increased by $2.6 million, or 26.2%, due to higher advertising and promotion expenses and increased sales expenses as the Company added sales staff. Advertising expenses were $2.2 million, a 54.3% increase due to higher brand and marketing investments, representing 8% of sales.  Emerald Dairy estimates marketing and advertising costs of 8-10% of revenues for print, radio and TV advertising designed to build brand recognition and market share. The Company expanded distribution to over 6,500 retail locations in 20provinces, up approximately 8% from December 31, 2009.

Emerald Dairy recorded four non-cash charges in the twelve months of 2010; (i) $5.0 million in liquidated damages as a result of the extension of warrants previously issued by the Company to satisfy certain registration rights provisions (ii) $0.6 million in non-cash stock options for employees (iii)$0.3million related to the fair value of warrants issued to consultants amortized during the twelve months ended December 31, 2010 and (iv) $1.2related to the fair value of warrants issued for loan costs amortized during the twelve months ended December 31, 2010. Excluding these non-cash expenses of approximately $7.0million, total operating expenses were $14.1 million in the first twelve months of 2010 compared to $11.7 million in the twelve months of 2009.

Operating income for the first twelve months of 2010 was down 16.1% year-over-year to $6.0 million. Adjusted operating income, excluding $7.0million of non-cash expenses, was $13 million in the first twelve months of 2010 compared to $9 million in the first twelve months of 2009, a 44.4% increase year over year.

GAAP net income for the twelve months of fiscal year 2010 was $3.1 million, compared to $4.2 million in the prior year's corresponding period. Adjusted net income for the twelve months of 2010 was $10.2 million, an increase of 70%over 2010. Adjusted earnings per share were$0.30 versus$0.19 in the year ago period, based on 34.2 million and 31.0 million diluted shares outstanding for each respective period.

Financial Condition

The Company generated $11.9 million of cash from operations in 2010, ending the year with approximately $17.1 million in cash and equivalents. Working capital was $24.4 million, up from $17.3 million as of December 31, 2009; accounts receivable were $8.2 million, compared to $7.2 million as of December 31, 2009. The Company had $6.4 million in short term loans as of December 31, 2010. Shareholder's equity was $47.2 million, a 41.3% increase from $33.4 million reported on December 31, 2009.

2011 Guidance

Emerald Dairy has a total of 19,000 tons of capacity in 2011 versus 9,000 tons in 2010.The Company will focus its sales efforts on its high-margin, Xinganling® infant formulas which include infant formula milk powder, soybean milk powder and rice powder products.  Revenue for 2011 is forecast to approximately $70.0 million, a 27% increase over 2010.  The Company expects to produce and sell approximately 15,000 tons of products in 2011 compared to 10,050 tons in 2010.  Adjusted net income is forecast to be approximately $12.9million.