Deyu Agriculture Corp. Announces First Quarter 2014 Results

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May 13, 2014, 09:00 ET

BEIJING, May 13, 2014 /PRNewswire/- Deyu Agriculture Corp. (OTCBB: DEYU) (the "Company"), a Shanxi Province, China-based vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains, today announced its financial results for the three months ended March 31, 2014.

First Quarter 2014 Results:

Net revenue was $15.6 million, as compared to $77.2 million in Q1 of 2013;
Gross loss was $5.3 million, as compared to gross profit $8.8 million in Q1 of 2013;
Gross margin was (34.1)%, as compared to 11.4% in Q1 of 2013;
Net loss available to common stockholders was $9.4 million, as compared to net income of $3.1 million in Q1 of 2013;
Loss per diluted share was $0.87 on 10.8 million shares, as compared to income per diluted share of $0.25 on 12.7 million shares in Q1 of 2013.

"Corn is mainly used as raw material for livestock feeds and deep processed products such as corn starch and ethanol. The demand for corn declined dramatically in 2013. The corn market experienced a downturn, a result of weak demand from the downstream industries with consecutive increases in output in the past few years in China," commented Mr. Hong Wang, Acting Chief Executive Officer. "The on-going downturn continued to impact our business in 2014. In the first quarter of 2014, the trend continued. Pork prices continued to decline and the demand of livestock feeds made of corn remained very weak. In addition, the deep processed corn industry has been depressed for a few years. Many deep processed corn companies have been running under production capacity and have not been profitable. Demand for corn in the deep processed corn industry continues to remain very low. The Company is now undertaking a conservative strategy in sales development as a temporary measure to cope with the weak demand in the market."

Financial Results for the Three Months Ended March 31, 2014

The Company's net revenue for 2014Q1 was $15.6 million, a decrease of $61.6 million, or 79.8%, compared to $77.2 million for2013Q1. This decrease was the combined result of a decrease of $27.1 million in corn sales, a decrease of $5.7 million in grain sales and a decrease of $28.8 million in bulk trading sales. Net revenue from our Corn Division for 2014Q1 was approximately $8.3 million, a decrease of $27.1 million, or approximately 76.5%, as compared to $35.4 million for 2013Q1. The decrease was mainly the combined result of a decrease of 42.8% in sales volume and a decrease of 58.9% in the average annual selling price of corn. The decrease was primarily due to a conservative strategy temporarily taken by the Company to cope with the weak demand in the corn market. Net revenue from our Grain Division for 2014Q1 was approximately $6.7 million, a decrease of $5.7 million, or 46.2%, as compared to $12.4 million for 2013Q1. The decrease was mainly attributable to the reduction in retail sales caused by the deteriorating efficiency of traditional retail sales. Net revenue from our Bulk Trading Division for 2014Q1 was approximately $0.6 million, a decrease of $28.8 million, or 98.0% as compared to $29.4 million for 2013Q1. This decrease was mainly attributable to a conservative strategy temporarily taken by the Company with its bulk trading business.

Gross loss for 2014Q1 was $5.3 million, as compared to gross profit of $8.8 million for 2013Q1. The decrease was a combined result of a decrease in gross profits of $10.5 million in the Corn Division, a decrease of $2.0 million in the Grain Division and a decrease of $1.6 million in the Bulk Trading Division. Our gross margin decreased from 11.4% for 2013Q1 to (34.1)% for 2014Q1. The decrease in gross margin was mainly attributable to the gross loss resulting from the sales of mildewed corn inventory to third parties at prices lower than the cost for 2014Q1. Gross margin for our Corn Division was (68.4)% for 2014Q1, compared with 13.5% for 2013Q1. The Company incurred gross loss of $5.9 million from the sales of the mildewed corn inventory to third parties at prices lower than the cost for 2014Q1. Taking out the impact of disposal of mildewed corn, gross profit and gross margin from the sales of normal corn was $0.2 million and 4.3%, respectively. Gross margin from the sales of normal corn decreased 938 basis points, which was primarily due to the weak demand from corn downstream industries. Gross margin for the Grain Division was 9.1% for 2014Q1, which decreased by 1190 basis points from 21.0% for 2013Q1. This decrease in gross margin was primarily due to the increasing cost of raw materials in addition to the reduction in grain retail sales with higher gross margin. Gross margin for the Bulk Trading Division was (33.9)% for 2014Q1, compared to 4.9% for 2013Q1. This decrease was mainly attributable to the market fluctuation in the first quarter of 2014.

Selling expenses for 2014Q1 were $1.1 million, decreased for $2.1 million, or 65.7% from the $3.2 million for 2013Q1. The decrease was mainly attributable to the decline of freight costs caused by the reduction in sales volume. General and administrative expenses for 2014Q1 were $2.7 million, an increase of $0.8 million or 42.2% compared to 2013Q1. This increase was primarily due to the increase of allowance for bad debts of account receivables.

As a result of the above, we had net loss available to common stockholders of $9.4 million for 2014Q1 compared to a net income of $3.1 million for 2013Q1.Loss per diluted share was $0.87 on 10.8 million shares, as compared to income per diluted share of $0.25 on 12.7 million shares in Q1 of 2013.

Business Outlook

"Given that the decrease in demand of corn from downstream industries, another good corn harvest in 2013 and anticipated increases in corn imports with low prices, we expect the oversupply in the corn market will continue to impact our business in the coming months," said Mr. Wang. "The Company has been undertaking measures to optimize operations, to increase efficiency and to reduce operational costs. At the same time, the Company is continuing its business development initiatives. We expect these measures, together with new business development, will help us get through this difficult period and restore the growth in the future."

About Deyu Agriculture Corp.

Deyu Agriculture Corp. is a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains operating in Shanxi Province in the People's Republic of China. We have a nationwide sales network covering manufacturers, grain traders, wholesalers, distributors, institutional clients and retail stores in China. Deyu Agriculture Corp.'s facilities include sophisticated production lines and modern warehouses with a total production capacity of over 105,000 tons for grain products, storage capacity of over 100,000 tons and annual turnover of 700,000 tons for corn products. The Company's website is located at www.deyuagri.com.

Safe Harbor Statements

This press release contains forward-looking statements made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the current plans, estimates and projections of Deyu Agriculture Corp.'s management and are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Therefore, you should not place undue reliance on these forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, general economic conditions; geopolitical events and regulatory changes, availability of capital, changes in the agricultural industry, the Company's ability to maintain its competitive position. Additional Information regarding risks can be found in the Company's quarterly and annual reports filed with the U.S. Securities and Exchange Commission at www.sec.gov.

Company Contact:

Ms. Amy He, Chief Financial Officer
Deyu Agriculture Corp.
Tel: +86-10-8273-2870 x8522
Email: [email protected]

Financial Tables

DEYU AGRICULTURE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	March 31, 2014		December 31, 2013
	(Unaudited)		(Audited)
Assets
Current Assets
Cash and cash equivalents	$	1,588,678	$	979,282
Restricted cash		16,086		16,519
Accounts receivable, net		27,832,967		32,326,897
Due from related parties		43,277		44,441
Inventory		5,982,523		15,318,224
Advance to supplier		4,449,215		4,363,298
Prepaid expenses		539,556		1,161,302
Other current assets		120,812		115,507
Total Current Assets		40,573,114		54,325,470

Property, plant, and equipment, net		18,232,850		19,251,051
Construction-in-progress		-		-
Long-term Investment		58,555		60,129
Intangible assets, net		7,545,679		7,827,809

Total Assets	$	66,410,198	$	81,464,459

Liabilities and Equity

Current Liabilities
Short-term loan	$	7,269,481	$	7,464,856
Accounts payable		4,582,938		8,538,544
Advance from customers		1,936,326		1,990,479
Accrued expenses		895,157		1,002,885
Tax payable		99,290		73,790
Preferred stock dividends payable		100,474		247,614
Due to related parties		68,626		14,306
Other current liabilities		230,998		282,179
Total Current Liabilities		15,183,290		19,614,653

Equity
Series A convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 1,860,900 and 2,182,628 shares outstanding, at March 31, 2014 and December 31, 2013, respectively		1,861		2,183
Common stock, $.001 par value; 75,000,000 shares authorized, 11,015,029 and 10,618,266 shares outstanding, at March 31, 2014 and December 31, 2013, respectively		11,015		10,618
Additional paid-in capital		21,465,778		21,225,146
Other comprehensive income		6,452,451		7,897,730
Retained earnings		23,263,340		32,681,588
Total Stockholders' Equity		51,194,445		61,817,265
Noncontrolling Interests		32,463		32,541
Total Equity		51,226,908		61,849,806

Total Liabilities and Equity	$	66,410,198	$	81,464,459

DEYU AGRICULTURE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

	For The Three Months Ended
	March 31,
	2014		2013
	(Unaudited)		(Unaudited)
Net revenue
Normal inventory	$	12,152,145	$	77,167,714
Damaged corn		3,421,175		-
Total Net Revenue		15,573,320		77,167,714
Cost of goods sold
Normal inventory		(11,553,198)		(68,363,540)
Damaged corn		(9,328,942)		-
Total Cost of Goods Sold		(20,882,140)		(68,363,540)
Gross Profit		(5,308,820)		8,804,174

Selling expenses		(1,098,652)		(3,198,595)
General and administrative expenses		(2,678,029)		(1,882,867)
Total Operating Expenses		(3,776,681)		(5,081,462)
Operating income (loss)		(9,085,501)		3,722,712

Interest income		1,080		8,100
Interest expense		(195,653)		(175,704)
Non-operating income (loss)		47,265		813
Total Other Expenses		(147,308)		(166,791)

Income (loss) before income taxes		(9,232,809)		3,555,921
Income taxes		(83,249)		(340,433)
Net income		(9,316,058)		3,215,488
Net loss attributable to noncontrolling interests		159		3,619
Net income (loss) attributable to Deyu Agriculture Corp.		(9,315,899)		3,219,107
Preferred stock dividends		(102,349)		(116,055)
Net income (loss) available to common stockholders		(9,418,248)		3,103,052
Foreign currency translation gain		(1,445,198)		288,602
Comprehensive income (loss)		(10,863,446)		3,391,654
Other comprehensive income (loss) attributable to noncontrolling interests		(81)		10,249
Comprehensive income (loss) attributable to Deyu Agriculture Corp.	$	(10,863,527)	$	3,401,903

Net income (loss) attributable to common stockholders per share - basic	$	(0.87)	$	0.29
Net income (loss) attributable to common stockholders per share - diluted		(0.87)		0.25
Weighted average number of common shares outstanding - basic		10,793,738		10,646,266
Weighted average number of common shares outstanding - diluted		10,793,738		12,738,439

DEYU AGRICULTURE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For The Three Months Ended
	March 31,
	2014		2013
	(Unaudited)		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) available to common stockholders	$	(9,418,248)	$	3,103,052
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation & amortization		602,646		599,415
Allowance for doubtful accounts		825,993		-
Share-based compensation		585		42,208
Preferred stock dividends accrued		102,349		116,055
Common stocks issued for services		-		(57,200)
Noncontrolling interests		(159)		(3,619)
Decrease (increase) in current assets:
Accounts receivable		2,889,940		7,511,752
Related-parties trade receivable		-		235,390
Inventories		9,101,545		5,576,393
Advance to suppliers		(203,851)		(10,215,902)
Prepaid expense and other current assets		593,903		1,074,083
Increase (decrease) in liabilities:
Accounts payable		(3,801,786)		(1,639,659)
Advance from customers		(2,094)		3,239,176
Accrued expense and other liabilities		(99,669)		(476,135)
Net cash provided by operating activities		591,154		9,105,009

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of machinery and equipment		-		(4,414)
Construction and remodeling of factory and warehouses		-		(50,172)
Net cash used in investing activities		-		(54,586)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (repayment) of short-term loans from related parties		55,715		(5,735,157)
Net repayment from short-term loans from bank and others		-		417,818
Cash released from restriction for credit line of bank loans		-		318,137
Net cash provided by (used in) financing activities		55,715		(4,999,202)

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS		(37,473)		7,961

NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS		609,396		4,059,182
CASH & CASH EQUIVALENTS, BEGINNING BALANCE		979,282		4,937,279
CASH & CASH EQUIVALENTS, ENDING BALANCE	$	1,588,678	$	8,996,461

SUPPLEMENTAL DISCLOSURES:
Income tax paid	$	55,306	$	215,166
Interest paid	$	105,272	$	182,471
NONCASH INVESTING AND FINANCING ACTIVITIES:
Construction completed and transferred to property, plant, and equipment	$	-	$	767,494
Construction transferred to land use rights	$	-	$	-

Note: Please refer to the Company's quarterly report on Form 10-Q for the three months ended March 31, 2014 for additional notes, which are an integral part of these consolidated financial statements.

SOURCE Deyu Agriculture Corp.