Deyu Agriculture Corp. Releases First Quarter 2011 Financial Results

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May 26, 2011, 08:00 ET

BEIJING, May 26, 2011 /PRNewswire-Asia-FirstCall/ -- Deyu Agriculture Corp. (OTC Bulletin Board: DEYU) ("Deyu" or "the Company"), a Shanxi Province, China based vertically integrated producer and distributor of organic and non-organic grain products, announced its financial results for the first quarter ended March 31, 2011.

First Quarter 2011 Financial Highlights:

Revenue increased 187%, from $14.4 million in Q1 2010 to $41.4 million in Q1 2011
Gross profit improved 138%, from $3.5 million in Q1 2010 to $8.4 million in Q1 2011
Net income grew 27%, from $2.6 million in Q1 2010 to $3.3 million in Q1 2011

Summarized First Quarter 2011 Results:


	Q1 2011	Q1 2010	CHANGE
Revenue	$41.43 million	$14.45 million	+187%
Gross profit	$8.35 million	$3.51 million	+138%
Net Income*	$3.30 million	$2.57 million	+27%
EPS (Diluted)**	$0.24	$0.52	(55%)
Available to common shareholders. *Earnings per diluted share of $0.24 on 14.6 million shares. For the first quarter of 2010, the Company reported diluted earnings per share of $0.52 on 4.9 million shares.

"We are thoroughly pleased with our strong first quarter results," commented Jianming Hao, Deyu's Chief Executive Officer and Chairman. "All three aspects of our business—corn, simple processed and deep processed grains—experienced tremendous growth in sales. Notably, our corn division, which is the foundation of our Company, increased its sales 87 percent. Also, our new unpacked grain products that provided a 57 percent gross margin sold extremely well and contributed significantly to our improved gross profit."

"Our brand is growing in recognition at a pivotal time when Chinese consumers are becoming increasingly diet conscious and grains as well as corn prices are rising due to high demand and short supply," Mr. Hao added. "We were able to capitalize on these developments through our exclusive access to over 100,000 acres of what we believe to be China's most fertile farmland and our agreements with three major Chinese railway lines. Our steady supply of crops and our excellent transportation links facilitated our supply to over 10,000 supermarkets and convenience stores located across China."

First Quarter 2011 Financial Results

Revenue

Deyu had sales of $41.4 million in the first quarter of 2011 compared to sales of $14.4 million in the first quarter of 2010, an increase of $27 million or 187%. The Company's 2011 first quarter revenue includes $20.5 million in corn sales, $18.9 million in simple processed grain sales and $2 million in deep processed grain sales. Revenues from Deyu's new unpacked grain products and bulk purchase/wholesale trading of rice and flour are reflected in the aggregated sales of the Company's simple processed grain business. Bulk purchase/wholesale trading of rice and flour generated revenues of $12.5 million and unpacked grains added revenues of $1.1 million.

Gross Profit

Deyu's gross profit was $8.4 million in the first quarter of 2011 compared to a gross profit of $3.5 million in the first quarter of 2010, an increase of $4.9 million or 138%. The Company's gross margin decreased from 24% to 20% during this period due to its sales mix in the first quarter of 2011, which included its deep processed grain and bulk trade and purchase businesses that each had lower than 10% margins and which diluted the Company's overall margin.

Net Income Attributable to Common Stockholders

Deyu's net income attributable to common stockholders was $3.3 million in the first quarter of 2011 compared to $2.6 million in the first quarter of 2010, an increase of $0.8 million or 27%.

Recent Updates

Deyu finished construction of a new storage center in early May 2011. The Company believes that its capacity expansion will reduce the risk associated with raw material seasonality as well as enable Deyu to better meet the rising demand for its products, especially its corn goods. The storage center's warehouse is capable of storing 70,000 tons of grains with an annual turnover rate of more than 350,000 tons. The new facility along with the Company's two other storage facilities pushes Deyu's total storage capacity to over 120,000 tons with an annual turnover rate of more than 600,000 tons. The new storage center features advanced corn-drying equipment that Deyu believes will facilitate the process of 500,000 tons of corn products annually. The Company projects that the facility will support annual corn sales of $120 million.

Financial Outlook

Based upon the increase in health and nutrition consciousness of the Chinese people and the growing demand for Deyu's deep processed grain products, the Company believes that it has the opportunity to increase its revenues, net income and gross margins in the future. As a result of the Company's acquisition of Deyufarm in 2010, Deyu's deep processed grain products are now higher margin products than its rough processed corn. Accordingly, the Company has heightened its efforts to enter into supermarkets in tier 1 and tier 2 cities in China since it believes that Deyufarm's deep processed grain products, like organic non-fried instant noodles and buckwheat teas, suit the needs of China's urban population, which is characterized by a growing middle class and high-income consumers who tend to have less time to cook and eat. Deyufarm's products are currently sold underneath Deyu's brand name "Deyufang."

Business Outlook

In 2010, Deyu obtained additional supply sources in an effort to position itself for long-term success. For approximately $7 million dollars, the Company acquired land use rights to two pieces of farmland totaling approximately 17,300 acres. The growing season for these parcels started in April 2011. Deyu believes that it has achieved economies of scale through its exclusive rights of use to over 109,000 acres of what the Company believes to be some of China's most fertile agricultural land, approximately 19,000 acres of which the Company holds the ownership rights to.

Mr. Hao commented, "We believe that the future looks very bright for our Company as Chinese consumers are looking more to wholesome foods products, our brand is growing in popularity and we are expanding our production capacity. Accordingly, we intend to extend our sales channels into other Chinese cities to further boost the availability of our products. Furthermore, we plan to continue to observe demand trends while we maintain our development of new food products. In particular, we anticipate that we will continue to develop our unpacked grain business so that we can better provide for our consumers who prefer determining the volume of the product they wish to purchase on their own. Also, we intend to keep working with our farmers to boost yields and we anticipate that we will enter new cooperative agreements, sign new farmer agents and expand our operations in Shanxi Province. While we are delighted with our success this past quarter, we will strive to secure a larger portion of China's grain product market."

About Deyu Agriculture

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 the Shanxi Province of the People's Republic of China. The Company has access to over 109,000 acres of farmland in the Shanxi Province for breeding, cultivating, processing, warehousing, and distributing grain and corn products. Deyu's deep-processed grain division was created in 2010 and its business is conducted through Detian Yu, Deyufarm and its subsidiaries, by producing and distributing instant grain vermicelli, instant millet beverage, and buckwheat tea to wholesalers and supermarkets underneath the brand name, "Deyufang". Deyu has an extensive retail distribution network of more than 10,000 retail stores across China. The Company's web site 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'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 Report on Form 10-Q and in the Company's recently filed Prospectus filed pursuant to Rule 424(b)(3) with the SEC.

Financial Statements


DEYU AGRICULTURE CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets	March 31,		December 31,
Assets	2011		2010
	(Unaudited)		(Audited)
Current Assets
Cash and cash equivalents	$	6,315,157	$	6,281,304
Restricted cash		2,290,671		-
Accounts receivable, net		19,696,303		11,166,452
Inventory		14,765,623		18,359,505
Advance to supplier		6,141,278		3,596,991
Prepaid expenses		1,562,242		2,219,332
Other current assets		814,769		849,593
Total Current Assets		51,586,043		42,473,177

Property, plant, and equipment, net		5,465,400		4,626,004
Construction-in-progress		8,351,678		7,224,504
Goodwill		1,060,446		1,052,139
Other assets		10,233,631		10,553,328
Intangible assets, net		976,080		-

Total Assets	$	77,673,278	$	65,929,152

Liabilities and Equity

Current Liabilities
Short-term loan	$	2,652,139	$	2,631,364
Accounts payable		1,356,969		540,956
Advance from customers		7,596,117		6,484,589
Accrued expenses		1,838,831		1,619,186
Preferred stock dividends payable		106,697		238,620
Due to related parties		9,926,240		8,030,303
Other current liabilities		3,243,140		2,943,681
Total Current Liabilities		26,720,133		22,488,699

Equity
Series A convertible preferred stock, $.001 par value, 10,000,000 shares
authorized, 1,956,088 and 2,106,088 shares outstanding, respectively		1,956		2,106
Common stock, $.001 par value; 75,000,000 shares authorized,
10,499,774 and 10,394,774 shares issued and outstanding, respectively		10,500		10,350
Additional paid-in capital		19,785,710		18,770,230
Other comprehensive income		2,574,149		2,272,633
Retained earnings		25,728,379		22,385,134
Total Stockholders' Equity		48,100,694		43,440,453
Noncontrolling Interest		2,852,451		-
Total Equity		50,953,145		43,440,453

Total Liabilities and Equity	$	77,673,278	$	65,929,152

DEYU AGRICULTURE CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)




	For The Three Months Ended
	March 31,
	2011		2010

Net revenue	$	41,432,261	$	14,447,282
Cost of goods sold		(33,078,926)		(10,936,119)
Gross Profit		8,353,335		3,511,163

Selling expenses		(3,373,255)		(621,714)
General and administrative expenses		(2,286,595)		(261,911)
Total Operating Expense		(5,659,850)		(883,625)
Operating income		2,693,485		2,627,538

Interest income		6,415		912
Interest expense		(74,378)		(61,537)
Non-operating income		44,977		-
Total Other Expense		(22,986)		(60,625)

Income before income taxes		2,670,499		2,566,913
Income tax benefit		626,250		-
Net income		3,296,749		2,566,913
Add: Net loss attributable to noncontrolling interest		144,183		-
Net income attributable to Deyu Agriculture Corp.		3,440,932		2,566,913
Preferred stock dividends		(97,687)		-
Net income available to common stockholders	$	3,343,245	$	2,566,913

Net income per common share - basic	$	0.32	$	0.52
Net income per common share - diluted	$	0.24	$	0.52
Weighted average number of common shares outstanding - basic		10,469,774		4,930,000
Weighted average number of common shares outstanding - diluted		14,581,134		4,930,000

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


	For The Three Months Ended
	March 31,
	2011		2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income available to common stockholders	$	3,343,245	$	2,566,913
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		259,426		79,993
Share-based compensation		137,588		-
Preferred stock dividends accrued		106,210		-
Deferred income tax benefit		(624,143)		-
Noncontrolling interest		(144,183)		-
Reserves for sales discount		-		374,976
Decrease (increase) in current assets:
Accounts receivable		(8,403,192)		(682,310)
Inventories		3,732,240		(5,851,426)
Advance to suppliers		(1,920,033)		-
Prepaid expense and other current assets		135,385		(346,914)
Other assets		30,336		-
Increase (decrease) in liabilities:
Accounts payable		808,040		-
Advance from customers		695,488		-
Accrued expense and other liabilities		1,027,090		170,392
Net cash used in operating activities		(816,503)		(3,688,376)

CASH FLOWS FROM INVESTING ACTIVITIES
Construction and remodeling of factory and warehouses		(1,251,461)		-
Purchase of machinery and equipment		(1,042,170)		(935,339)
Net cash used in investing activities		(2,293,631)		(935,339)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital contributions		3,800,374		-
Net proceeds from short-term loans from related parties		1,824,179		233,749
Cash restricted for credit line of bank acceptance notes		(2,280,224)		-
Payment of preferred dividends		(239,407)		-
Net proceeds from short-term loans from bank		-		2,182,479
Net repayments of short-term loans from related parties		-		(79,097)
Net cash provided by financing activities		3,104,922		2,337,131

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS		39,065		(397)

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS		33,853		(2,286,981)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE		6,281,304		2,562,501
CASH & CASH EQUIVALENTS, ENDING BALANCE	$	6,315,157	$	275,520

SUPPLEMENTAL DISCLOSURES:
Income tax paid	$	-	$	-
Interest paid	$	78,878	$	49,985