China Marine Food Group Sheds Light on Hi-Power Acquisition

The Street recently sat down with Marco Ku, CFO of China Marine Food Group,(CMFO) to discuss the controversy on CMFO's acquisition of Hi-Power energy drink.

What is Hi-Power? What is in it?

Hi-Power is an algae extract. It is colorless, has no smell and no taste. We put other things into it into a can with the algae to make the Hi-Power.

What were the total revenues and net income so far by quarter for Hi-Power?

In 2009, sales were $7.5 million for two quarters, about $4.5 million in the third quarter and $3 million in the fourth quarter. The reason for this drop in Q4 was that Q3 is the summer -- the peak selling time. Q1 2010 revenue was $2.7 million, Q2 is currently more than $7 million (latest update from sales team). The rest of 2010 will be about $10 million; the net margin is 20-25% for these products.

Explain Hi-Power to me in terms of total number of cans sold?

In 2010, we should sell approximately 60 million cans. That's 34 cents for the wholesale price per can.

How many retailers?

10,000 retail points. 10,000 retail points with 60,000,000 cans sold means 6,000 cans per retail point. So that's 16.5 cans per day per retail point. That that is approximately 1.5 cans per hour.

Let's look at the economics of the business on a per can basis so it can be explained to a third grader. COGS of the can?

Packaging material is 60-70% of the total cost. Raw material and packaging cost per can is 20 cents. Sales and marketing cost per can is 7 cents.

What about fees paid to bottlers per can?

About RMB 0.2 per can. We provide them with can, extract, flavor and packaging box. They do the bottling according to our formula and then pack into boxes. Net Profit margin per can is 7 cents. The gross profit is 40%, the bottom line is 20%. In between the SG&A will be 20%, most of it will come from sales and marketing.

Why were your SAIC documents different from your SEC documents?

CMFO used an agent, paid a fee and got the business license done. In the process, the agent doesn't care whether you earn how much or whether you lose money. They just care whether your company is in operation. The agent firm doesn't ask us for audited reports. We pay the fee and get the license back.