equities.com: Le Gaga is a leading greenhouse vegetable producer in China. The Company sells and markets greenhouse vegetables such as peppers, tomatoes, cucumbers and eggplants, as well as green leafy vegetables to wholesalers, institutional customers and supermarkets in China and Hong Kong. The Company has successfully built a trusted brand among its customers.
The Company currently operates farms in the Chinese provinces of Fujian, Guangdong and Hebei. Leveraging its large-scale greenhouses, proprietary horticultural know-how and comprehensive database, the Company specializes in producing and selling high-quality, off-season vegetables during the winter months.
As of June 30, 2012 we still had a large area of land under construction and land improvement and greenhouse construction on these lands are on-going. In preparation for the next annual cycle of solanaceous plantation, we are spending much effort to further develop our greenhouse production system. This includes adding additional ventilation capabilities to existing greenhouses, upgrading and construction of additional nursery greenhouses and initiating trials for new production techniques for peppers and tomatoes.
Due to our increased focus on off-season solanaceous vegetables, we will see a further increase in seasonality of our revenue. We are concentrating our land resting and sanitation in the summer months and more planting of solanaceous products in August and September will further reduce our ability to generate revenues during those months.
As a result, the winter months will account for an even higher percentage of our annual revenue.” Mr. Auke Cnossen, the CFO of Le Gaga, added, “Our loss for the three months ended June 30, 2012 resulted from a negative net impact of biological assets fair value adjustment.
The negative net impact was due to the switch from high value crops on our field during the winter months to lower value crops grown during the summer, more pronounced seasonality, and improvements in planting methods and schedules which resulted in a larger gain recognized in prior periods.
The low vegetable market prices at the end of June further reduced the value of crops on land at the end of the period and thus increased the fair value change. Although our total revenue did not increase due to a decrease in average operating land and lower prices in June, revenue per mu, a key performance indicator for our company, increased slightly compared to last year due to product mix improvement.
Despite the increased size of our operations compared to a year ago, which increased our fixed cost, our Adjusted Cost of Inventories Sold decreased as a percentage of revenue and our Adjusted EBITDA margin remained stable.”