AgFeed Industries, Inc. Announces 2010 Results

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Mar 17, 2011, 06:55 ET

NEW YORK, March 17, 2011 /PRNewswire-Asia/ -- AgFeed Industries, Inc. (Nasdaq: FEED, NYSE Alternext: ALHOG - News) ("AgFeed" or the "Company"), an international agribusiness company with operations in the U.S. and China and one of the large independent hog producers and manufacturers of animal nutrients in China announced record levels of revenue in both its animal nutrition and U.S. hog production units for the fourth quarter of 2010 and for the full year 2010. The Company's 2010 fourth quarter and year-end revenues were the highest in company history representing an increase over revenues for the same periods in 2009 of 77.2% and 40.7%, respectively.

AgFeed reported a fourth quarter 2010 loss of $20.2 million, or $(0.42) per fully diluted share, on revenues of $99.5 million. For the full year 2010 the Company reported a loss of $ 42.7 million, or $(0.90) per fully diluted share on revenues of $ 243.6 million. This loss was principally attributable to the performance of the Company's legacy Chinese hog production system, the hog farms acquired by former management during 2007 and 2008.

AgFeed's loss for 2010 is attributable to operating losses in its legacy Chinese hog production system of $14.9 million of which $8.9 million was attributable to eight legacy farms being closed and non-cash, non-recurring, write downs and reserves related to the restructuring of this business unit of $30.6 million. This $30.6 million in asset write downs is comprised of $16.8 million of goodwill written off during the third quarter of 2010, $4.8 million of goodwill written off during the fourth quarter of 2010 and fixed asset written down during the fourth quarter of 2010 of $9.0 million.

John A. Stadler, AgFeed's Chairman and Interim President and Chief Executive Officer stated, "While we are pleased with the continued operating excellence demonstrated by the performance of both our animal nutrition business and our U.S. hog production business, the performance of our legacy Chinese hog production system is unacceptable. The team at M2P2 has demonstrated great success in executing our U.S. business plan and has positioned us to pursue growth opportunities that present themselves domestically. This team is now fully engaged in leading the restructuring and execution of operational changes to return our legacy Chinese hog production system to profitability. Our plan is to add to our team international professionals to firmly establish AgFeed as a global agribusiness."

Recognizing the unacceptable performance of the Company's legacy Chinese hog production system, AgFeed's Board of Directors completed its detailed analysis and operational review of this business unit that commenced during the fall of 2010. This review has resulted in additional actions and asset-write downs to those announced by the Company in November 2010.

AgFeed's new Board of Directors has made the following management changes and implemented operational changes to support the execution of the Company's international strategic plan while aggressively addressing the operating issues confronted by the legacy Chinese hog production system.

Appointed John Stadler as the Company's Chairman and Interim President and Chief Executive Officer;

Appointed Edward Pazdro as the Company's Chief Financial Officer;

Appointed McGladrey & Pullen, LLP as the Company's auditor;

Deployed managers and executives from its M2P2 subsidiary to lead the restructuring and return to profitability of the legacy Chinese hog production system;

Commenced the closing of eight legacy Chinese hog farms considered to be of a configuration and quality that they were deemed incapable of meeting AgFeed's long-term operating benchmarks;

Reduced overall headcount from 1,843 to 1,673.

The Company's Chief Financial Officer, Edward Pazdro, said, "We have worked closely with outside consultants, auditors and our new management team to thoroughly assess the long-term viability and profitability of our legacy Chinese hog farms, and based on current market conditions, believe that our asset values are appropriate and present a long-term picture of the value of our legacy farms." Mr. Pazdro stated further, "The combination of M2P2's operating discipline with our management information systems will allow us to monitor and execute our strategic plan."

Income from Operations
Summary by Segment
	Legacy Chinese Farms	Animal Nutrition	M2P2	New Western-Style Chinese Farm	Corporate Overhead
Non-Cash Items:
Goodwill	($ 21,612,398)
Asset Write Down	($ 9,021,583)
Audit Adjustments:
Legacy Chinese Farms	($ 1,721,417)
Legacy Chinese Farms
to be Closed	($ 8,632,230)
Other Legacy Chinese
Farms	($ 4,603,151)
Non-Capitalized
Investment in Western
Style Chinese Farms				($578,900)
Animal Nutrition		$10,915,748
M2P2 (acquired 9/13/10)			$1,657,490
Corporate Overhead					($6,839,838)

Totals	($ 45,590,779)	$10,915,748	$1,657,490	($578,900)	($6,839,838)

ABOUT AGFEED INDUSTRIES, INC.

NASDAQ Global Market Listed AgFeed Industries (www.agfeedinc.com) is an international agribusiness with operations in the U.S. and China. AgFeed has two business lines animal nutrition in premix, concentrates and complete feeds and hog production. In the U.S., AgFeed's hog production unit, M2P2, is a market leader in setting new standards for production efficiency and productivity. AgFeed believes the transfer of these processes, procedures and techniques will allow its new Western-style Chinese hog production units to set new standards for production in China. China is the world's largest pork market consuming 50% of global production and over 62% of total protein consumed in China is pork. Hog production in China enjoys income tax free status.

SAFE HARBOR DISCLOSURE NOTICE

Certain statements regarding AgFeed Industries set forth in this press release contain forward-looking information and speak only as of the date of such statement. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans and prospects. This forward-looking information is subject to numerous material risks, uncertainties and assumptions, certain of which are beyond the control of AgFeed Industries, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, environmental risks, competition from other industry participants, stock market volatility, ability to access sufficient capital from internal and external sources. Readers are cautioned that the material assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise. Actual results, performance or achievement could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that AgFeed Industries will derive therefrom. AgFeed Industries disclaim any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. For additional information and risk factors that could affect AgFeed Industries, see its filings with the Securities and Exchange Commission, including "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," including "Cautionary Statement for Forward-Looking Statements," set forth in the Company's Annual Report on Form 10-K for the period ended December 31, 2010. The information contained in this press release is made as of the date of the press release, even if subsequently made available by AgFeed Industries on its website or otherwise.

Contact: Investor Relations: AgFeed Industries, Inc. Tel: (917) 804-3584 Email: [email protected]

The Company's policy is to handle all questions by email to [email protected] and they will be answered as soon as possible.

AGFEED INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009

				2010		2009

ASSETS

CURRENT ASSETS:
	Cash and cash equivalents		$	12,399,916	$	37,580,154
	Accounts receivable, net of allowance for doubtful accounts
	of $707,968 and $415,765			21,872,121		14,397,793
	Advances to suppliers			1,708,637		1,173,941
	Other receivables			-		2,186,643
	Inventory			84,579,778		23,835,412
	Prepaid expenses and other current assets			2,251,181		1,359,856
	Deferred tax asset			83,685

		Total current assets		122,895,318		80,533,799

PROPERTY AND EQUIPMENT, net				66,003,779		34,606,983
INTANGIBLE ASSETS, net				5,785,471		1,064,252
GOODWILL				22,365,414		42,744,247
DEFERRED TAX ASSET				2,329,548		-
OTHER ASSETS				4,115,132		3,998,739

	TOTAL ASSETS		$	223,494,662	$	162,948,020

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
	Short-term loan		$	4,551,000	$	4,401,000
	Accounts payable			9,664,374		6,162,385
	Other payables			3,736,931		1,892,858
	Unearned revenue			542,856		582,266
	Accrued expenses			6,731,854		83,649
	Accrued payroll			1,209,120		975,485
	Tax and welfare payable			1,920,389		396,370
	Interest payable			121,392		120,419
	Current portion of long-term debt			1,703,658		-
	Convertible notes, net of discount of $10,864			989,136		-

		Total current liabilities		31,170,710		14,614,432

CONVERTIBLE NOTES, net of debt discount of $81,675				-		918,325
ACQUISITION NOTE PAYABLE				9,621,434		-
LINE OF CREDIT				42,231,176		-
LONG-TERM DEBT				15,024,666		-

TOTAL LIABILITIES				98,047,986		15,532,757

COMMITMENTS AND CONTINGENCIES (Note 15)				-		-

EQUITY:
AgFeed stockholders' equity:
	Common stock, $0.001 per share; 75,000,000 shares authorized;
	51,756,907 issued and 51,370,212 outstanding at December 31, 2010
	44,510,558 issued and 44,143,263 outstanding at December 31, 2009			51,758		44,511
	Additional paid-in capital			125,788,151		109,281,086
	Accumulated other comprehensive income			8,120,628		4,176,450
	Statutory reserve			5,621,937		4,685,115
	Treasury stock (386,695 shares)			(1,858,942)		(1,811,746)
	Retained earnings (accumulated deficit)			(12,430,229)		31,210,563
		Total AgFeed stockholders' equity		125,293,303		147,585,979
Noncontrolling interest (deficit)				153,373		(170,716)
		Total equity		125,446,676		147,415,263

	TOTAL LIABILITIES AND EQUITY		$	223,494,662	$	162,948,020

AGFEED INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

			2010		2009		2008


Revenues		$	243,614,119	$	173,203,271	$	143,661,485

Cost of goods sold			228,942,742		146,660,232		109,269,960

Gross profit			14,671,377		26,543,039		34,391,525

Operating expenses
	Selling expenses		4,386,259		3,934,047		3,941,247
	General and administrative expenses		20,087,416		10,945,838		6,510,238
	Impairment of long-term assets		9,021,583		-		-
	Impairment of goodwill		21,612,398		-		-
	Total operating expenses		55,107,656		14,879,885		10,451,485

Income (loss) from operations			(40,436,279)		11,663,154		23,940,040

Non-operating income (expense):
	Other income (expense)		(75,551)		486,299		90,208
	Interest income		117,457		213,018		190,965
	Interest and financing costs		(1,364,706)		(1,022,626)		(5,704,358)
	Foreign currency transaction loss		(5,261)		(17,943)		(559,299)

	Total non-operating income (expense)		(1,328,061)		(341,252)		(5,982,484)

Income (loss) before income taxes			(41,764,340)		11,321,902		17,957,556

Income tax expense			1,234,725		1,142,105		587,222

Net income (loss)			(42,999,065)		10,179,797		17,370,334

Less: Net income (loss) attributed to noncontrolling interest			(295,095)		(168,569)		421,519

Net income attributed to AgFeed		$	(42,703,970)	$	10,348,366	$	16,948,815



Comprehensive income (loss)
Net income (loss)		$	(42,999,065)	$	10,179,797	$	17,370,334
Foreign currency translation gain			3,956,321		7,935		3,476,562

Comprehensive income (loss)		$	(39,042,744)	$	10,187,732	$	20,846,896

Weighted average shares outstanding :
	Basic		47,458,026		40,978,457		31,557,742
	Diluted		47,458,026		41,214,070		31,713,977

Earnings per share attributed to AgFeed common stockholders:
	Basic	$	(0.90)	$	0.25	$	0.54
	Diluted	$	(0.90)	$	0.25	$	0.53

AGFEED INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008


					2010		2009		2008


CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)			$	(42,999,065)	$	10,179,797	$	17,370,334
	Adjustments to reconcile net income (loss)
	to net cash provided by (used in) operating activities:
		Depreciation			3,420,945		2,596,689		1,580,843
		Amortization of intangible assets			226,110		92,740		86,543
		Loss on disposal of assets			2,658,823		1,292,480		17,248
		Impairment of long-term assets			9,021,583		-		-
		Impairment of goodwill			21,612,398		-		-
		Stock based compensation			224,636		572,605		231,368
		Issuance of common stock for services			1,508,969		-		-
		Value of re-priced warrants			-		-		22,782
		Value of change in conversion price of convertible notes			-		-		267,748
		Amortization of debt issuance costs			30,089		211,517		1,470,443
		Amortization of discount on convertible debt			70,811		497,769		3,460,441
		Change in working capital components, net of effects of acquisitions
			Accounts receivable		(3,000,232)		(4,936,388)		(2,324,978)
			Other receivables		2,298,738		(2,110,081)		(5,464,327)
			Inventory		1,459,054		(3,592,137)		(8,815,870)
			Advances to suppliers		(501,481)		(679,134)		(44,147)
			Prepaid expenses		240,567		(159,176)		(499,047)
			Deferred taxes		(2,413,233)		-		-
			Other assets		-		(1,356,005)		(2,239,491)
			Accounts payable		(2,149,043)		1,048,356		3,300,773
			Other payables		(7,473,558)		(44,890)		8,509,638
			Unearned revenue		(61,264)		260,441		211,081
			Accrued expenses		5,103,218		(80,828)		119,325
			Accrued payroll		(641,830)		157,338		626,587
			Tax and welfare payable		1,513,971		(69,463)		447,753
			Interest payable		(132,624)		(720)		121,139

	Net cash provided by (used in) operating activities				(9,982,418)		3,880,910		18,456,186

CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchase of property and equipment			(21,136,415)		(9,810,142)		(10,696,569)
		Purchase of intangible assets			(450,059)		(67,551)		(140,580)
		Cash paid for the purchase of business, net of cash acquired			(11,983,170)		-		(67,490,049)
		Proceeds from the sale of subsidiary			-		835,770		-

	Net cash used in investing activities				(33,569,644)		(9,041,923)		(78,327,198)

CASH FLOWS FROM FINANCING ACTIVITIES:
		Proceeds from the sale of common stock			13,000,000		10,000,000		65,950,069
		Offering costs paid			(42,005)		(1,740,072)		(7,030,261)
		Proceeds from exercise of warrants			-		8,062,510		2,138,848
		Repayment of borrowings under line of credit facility, net			5,455,755		-		-
		Proceeds from short-term loans			-		4,541,500		-
		Proceeds from issuance of convertible notes			-		-		19,000,000
		Issuance costs for convertible notes			-		-		(1,716,666)
		Payment on note payable			(421,373)		-		(1,161,297)
		Purchase of treasury shares			(47,196)		-		(1,811,746)
		Capital contributed by noncontrolling interest holders			401,282		118,664		1,097,690
		Purchase of noncontrolling interest in majority owed hog farms			(406,103)		(2,518,089)		-
		Repayment of contribution of noncontrolling interest holder			-		(586,800)		-

	Net cash provided by financing activities				17,940,360		17,877,713		76,466,637

Effect of exchange rate changes on cash and cash equivalents					431,464		24,076		547,544

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS					(25,180,238)		12,740,776		17,143,169

CASH & CASH EQUIVALENTS, BEGINNING BALANCE					37,580,154		24,839,378		7,696,209

CASH & CASH EQUIVALENTS, ENDING BALANCE				$	12,399,916	$	37,580,154	$	24,839,378

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Interest paid, net of amounts capitalized			$	826,485	$	312,620	$	363,191
	Income taxes paid			$	1,960,804	$	1,211,610	$	408,435