Profits at China-based infant formula maker Emerald Dairy fell during the second quarter of the year as a result of increased operating expenses.

For the period to 30 June 2008, income from operations was US$973,233, compared with $984,550 in the second quarter of 2007.

Net income was also down to $698,350, or $0.02 per diluted share, from $922,830, or $0.04 per diluted share, in the second quarter of 2007.

''We remain committed to building our growth through expansion of our current capacity," said Yang Yong Shan, CEO of Emerald Dairy. "In July 2008, we commenced the construction of a new milk powder processing facility in Hailun City, Heilongjiang Province, and expect that we can double our total capacity to approximately 18,000 tons by the end of 2009.

"We are confident that the increase in capacity will contribute to our sales growth and improve our gross margin performance in the long run.''

Despite poor operating results, revenue for the second quarter was $10.9m, up 64.1% from $6.6m for the same period last year, primarily due to a 42.2% increase in average selling price and a 15.4% growth in sales volume year-on-year.

The company said it will file its second quarter 2008 Form 10Q today (25 August).