Deyu Agriculture Announces Second Quarter 2010 Results

    BEIJING, Aug. 16 /PRNewswire-Asia/ -- Deyu Agriculture Corp. (OTC Bulletin Board: ECBI) ("Deyu Agriculture" or the "Company"), an emerging, vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and various grains, today announced its financial results for the second quarter ended June 30, 2010.

    Second Quarter 2010 Highlights

    -- Net revenue increased 139.0% year-over-year to $18.5 million
    -- Gross profit increased 135.3% year-over-year to $4.7 million with a
       gross margin of 25.7%
    -- Net income was $3.0 million up 85.8% year-over-year with diluted net
       income per share of $0.29
    -- Became a public company through a share-exchange transaction and
       completed a private-placement transaction, raising $10.8 million in
       gross proceeds
    -- Hired Mr. David Lethem as Chief Financial Officer and strengthened
       management team with other key hires

    "We are pleased to report record revenue and earnings in the second quarter of 2010," said Mr. Jianming Hao, Chairman and Chief Executive Officer of Deyu Agriculture. "During the second quarter, we rapidly scaled up our supermarket network from previously serving only Beijing and Shanxi province in the first quarter, to serving 12 provinces at the end of July.  We moved our headquarters to Beijing, which gives us access to a larger pool of talent and research institutes, with which we can collaborate on marketing and product development. Finally, we became a public company via a share-exchange transaction and raised capital to support our future growth."

    "In the second quarter, our traditional corn business maintained strong momentum while we focused on developing the market for our grain products, which expanded significantly to over 3,300 retail outlets as of the end of July 2010. While corn continues to account for the majority of our revenues, we remain focused on our strategy of aggressively expanding into the largely untapped and higher-margin market for grain products," added Mr. Hao.

    Highlights for the Three Months Ended June 30, 2010

    Net revenue totaled approximately $18.5 million for the three months ended June 30, 2010, an increase of 139.0% from $7.7 million for the comparable period in 2009. Sales of corn products increased 177.7% to $16.0 million (accounting for 86.7% of revenues), and sales of grain products grew 25.0% to $2.5 million (accounting for 13.3% of sales) in the second quarter of 2010.  The increase in corn sales is primarily attributable to increased orders from existing customers. The increase in grain sales is primarily attributable to the Company's retail-expansion strategy, with retail outlets increasing to approximately 3,300 stores at the end of July 2010.

    Gross profit for the second quarter of 2010 totaled $4.7 million, or 25.7% of net revenue, compared to $2.0 million, or 26.1% of net revenue in the year-ago quarter. Grain gross margins were 52.6% for the second quarter of 2010, up 1.9 points from the year-ago quarter. The corn gross margin improved to 21.6% in the second quarter, up from 17.7% in year-ago quarter, as the Company was able to benefit from owning inventory in a period of shortage of supply.

    Operating expenses totaled approximately $1.7 million in the second quarter of 2010, up substantially from $0.4 million in the second quarter of 2009. Total operating expenses in the second quarter of 2010 amounted to 9.1% of net revenue, compared to 5.2% in the second quarter of 2009. Selling expense rose 210.9%, primarily due to increased transportation and packaging costs related to expanding corn sales and the entry into retail outlets for grain products. General and administrative expenses increased to $0.7 million from $0.1 million in the year-ago quarter due to higher office rent, management compensation, staffing, and the added expense of being a public company.

    Net income during the three months ended June 30, 2010 was $3.0 million, up 85.8% from $1.6 million in the year-ago quarter. Net income per basic and diluted share were $0.35 and $0.29, respectively, for the second quarter of 2010, compared to net income per basic and diluted share of $0.32 for the same period of 2009. The basic and diluted weighted average number of common shares outstanding increased to approximately 8.6 million and 10.1 million respectively in the second quarter of 2010, from 4.9 million in the year-ago quarter, following the completion of a private-placement transaction.

    Results for the Six Months Ended June 30, 2010

    Net revenue for the first six months of 2010 was $32.9 million, up 125.4% versus the first six months of 2009. Gross profit during the first six months of 2010 was $8.3 million, a significant increase of 119.9% from $3.8 million in the comparable year-ago period. The gross margin was 25.1% during the first six months of 2010, slightly below 25.7% in the year-ago period. The Company recorded operating income of $5.7 million, compared with $2.9 million in the first six months of 2009. Net income for the first six months of 2010 was $5.5 million, compared with $2.9 million in the first six months of 2009. Basic and diluted net income per share were $0.82 and $0.74, respectively, for the first six months of 2010, versus $0.59 for the first six months of 2009.

    Financial Condition

    As of June 30, 2010, Deyu Agriculture had approximately $9.6 million in cash and cash equivalents, compared to $2.6 million at the end of 2009. Working capital increased significantly to approximately $26.5 million compared to $14.0 million at the end of 2009, due higher inventory and the cash raised in a private-placement transaction. As of June 30, 2010, the Company had $3.8 million in short-term bank loans and no long-term liabilities versus $1.8 million of short-term loans at the end of 2009. Shareholders' equity was $36.6 million as of June 30, 2010, compared to $21.7 million at the end of 2009. 

    Cash used in operating activities was $1.3 million for the six months ended June 30, 2010, a decrease of $2.7 million from $4.0 million used in the first half of 2009, as higher inventories, receivables, and payables were more than offset by strong profitability.

    Business Outlook

    "We're optimistic about the vast opportunities presented by an increasingly health and nutrition-conscious population, and about growing demand for natural, green and organic foods," commented Mr. Hao. "As one of the first companies to market branded grain products nationwide, we are focused on providing deeply processed grain foods, which are set to become a major driver in our future growth. We plan to use the funds we raised in our private placement to roll out grain-based instant noodles and ready-to-drink beverages starting in the third quarter of 2010 and expand our retail outlets to 10,000 supermarkets by the end of 2010, as we believe sales of grain products will start to pick up in the fourth quarter and gain momentum in 2011." 

    "The corn business will continue to provide an essential platform for the Company to grow, as it provides a solid base and is a strong cash contributor. We plan to expand our corn acreage and capacity to further realize economies of scale," added Mr. Hao.

    About Deyu Agriculture Corp.

    Deyu Agriculture Corp. ("Deyu Agriculture" or "the Company") is an emerging, vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and various grains. The Company maintains facilities and farmland in Shanxi province, which has a relatively dry climate and wide daily temperature difference between day and night that is ideal for grain cultivation. With a 135-plus day growing season, one of the longest in China, farmland in Shanxi provides a consistent supply of high-quality and high-nutrition crops. The Company is headquartered in Beijing, where it also maintains a marketing center and a product research center.  For more information, contact CCG Investor Relations directly or go to Deyu Agriculture's website at http://www.china-deyu.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 as well as other relevant risks, including but not limited to risks outlined in the Company's periodic filings with the U.S. Securities and Exchange Commission. Deyu Agriculture does not assume any obligation to update the information contained in this press release.



                      Deyu Agriculture Corp. and Subsidiaries
                           Consolidated Balance Sheets
    
                                                June 30,        December 31,
                   Assets                         2010              2009
                                              (Unaudited)        (Audited)
    Current Assets
      Cash and cash equivalents                 $9,572,696        $2,562,501
      Restricted cash                              417,688                --
      Accounts receivable                        6,651,250         4,200,749
      Inventory                                 12,453,734         8,233,760
      Other receivable                             469,233            28,998
      Advance to supplier                          403,298                --
      Prepaid expenses                           2,510,656         1,104,072
         Total Current Assets                   32,478,555        16,130,080
    
    Property, plant, and equipment, net          4,187,382         2,939,475
    Construction-in-progress                     4,336,483         3,254,696
    Other assets                                 1,515,181         1,506,902
    Intangible assets, net                              --                --
         Total Assets                          $42,517,601       $23,831,153



          Liabilities and Stockholders' Equity

    Current Liabilities
      Accounts payable                          $1,531,459               $--
      Short-term loan                            3,829,950         1,801,960
      Accrued expenses                             224,086           116,968
      Due to related parties                       106,888           145,650
      Construction payable                          20,979                --
      Other current liabilities                    253,385            68,339
         Total Current Liabilities               5,966,747         2,132,917
    
    Stockholders' Equity
    Series A Preferred Stock-$0.001 par  
     value, 10,000,000 authorized,
     2,455,863 and 0 outstanding, 
     respectively                                8,228,677                --
    Common stock, $.001 par value;       
     75,000,000 shares authorized,
     9,999,999 and 4,930,000 shares
     issued and outstanding,      
     respectively                                    9,999             4,930
      Additional paid-in capital                10,702,075         9,685,698
      Other comprehensive income                   358,444           202,140
      Retained earnings                         17,251,659        11,805,468
         Total Stockholders' Equity             36,550,854        21,698,236
         Total Liabilities, and          
          Stockholders' Equity                 $42,517,601       $23,831,153



                  Deyu Agriculture Corp. and Subsidiaries
                   Condensed Consolidated Income Statement
                                (Unaudited)

                             For The Three Months       For The Six Months
                                Ended June 30,            Ended June 30,
                               2010         2009        2010         2009

    Net revenue             $18,468,570  $7,728,761  $32,915,852  $14,601,679
    Cost of goods sold      (13,722,057) (5,711,577) (24,658,176) (10,846,173)
    Gross Profit              4,746,513   2,017,184    8,257,676    3,755,505
    Selling expenses           (975,947)   (313,904)  (1,597,661)    (652,703)
    General and            
     administrative        
     expenses                  (709,288)    (85,301)    (971,199)    (170,427)
       Total Operating     
        Expense              (1,685,235)   (399,205)  (2,568,860)    (823,130)
    Operating income          3,061,278   1,617,979    5,688,816    2,932,375
    Interest income               2,553       1,976        3,465        2,269
    Interest expense            (91,054)    (19,560)    (152,591)     (38,532)
       Total Other Expense      (88,501)    (17,584)    (149,126)     (36,263)
    Income before income   
     taxes                    2,972,777   1,600,395    5,539,690    2,896,113
    Provision for income                            
     taxes                           --          --           --           --
    Net income                2,972,777   1,600,395    5,539,690    2,893,113
    Preferred Stock        
     Dividend Expense           (96,051)         --      (96,051)          --
    Net income attributable
     to common shareholders   2,876,726   1,600,395    5,443,639    2,896,113
    Net income per common  
     share - basic                $0.35       $0.32        $0.82        $0.59
    Net income per common  
     share - diluted              $0.29       $0.32        $0.74        $0.59
    Weighted average number
     of common shares      
     outstanding - basic      8,551,428   4,930,000    6,750,718    4,930,000
    Weighted average number
     of common shares      
     outstanding - diluted   10,106,763   4,930,000    7,532,682    4,930,000



                   Deyu Agriculture Corp. and Subsidiaries
                   Consolidated Statements of Cash Flows
                                 (Unaudited)

                                            For The Six Months Ended June 30,
                                                  2010              2009
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                  $5,443,639        $2,896,113
    Adjustments to reconcile net income  
     to net cash provided by operating   
     activities:
    Depreciation & amortization                    191,086           146,180
    Reserve for sales discount                     389,773           438,847
    Preferred stock dividends declared              96,051                --
    Decrease (increase) in current       
     assets:
    Accounts receivable                         (2,800,806)       (2,871,209)
    Inventories                                 (4,146,551)       (4,171,110)
    Prepaid expense and other current    
     assets                                     (2,228,742)         (482,092)
    Increase (decrease) in liabilities:
    Accounts payable                             1,521,121                --
    Accrued expense and other liabilities          190,287            33,461
    Net cash used in operating activities       (1,344,142)       (4,009,810)
    
    CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of machinery and equipment         (1,414,526)         (484,418)
    Construction of warehouse                   (1,035,884)               --
    Net cash used in investing activities       (2,450,411)         (484,418)
    
    CASH FLOWS FROM FINANCING ACTIVITIES
    Net proceeds from short-term loans   
     from bank                                   2,004,465           394,962
    Net (repayments of) proceeds from    
     short-term loans from related       
     parties                                       (39,296)        7,204,678
    Net proceeds from short-term loans   
     from others                                     3,490                --
    Proceeds from capital contributions                 --           263,308
    Release of restricted cash related to
     private placement                               5,312                --
    Proceeds from private placement, net 
     of restricted cash held in escrow           8,766,651                --
    Net cash provided by financing       
     activities                                 10,740,623         7,862,948
    
    EFFECT OF EXCHANGE RATE CHANGE ON    
     CASH AND CASH EQUIVALENTS                      64,128             1,072
    
    NET (DECREASE) INCREASE IN CASH &    
     CASH EQUIVALENTS                            7,010,195         3,369,792
    
    CASH & CASH EQUIVALENTS, BEGINNING   
     BALANCE                                     2,562,501           332,409
    
    CASH & CASH EQUIVALENTS, ENDING      
     BALANCE                                    $9,572,696        $3,702,201


    For more information, please contact:

    Company Contact:                     
     David Lethem, Chief Financial Officer 
     Deyu Agriculture Corp.                         
     Tel:   +1-239-940-8889                             
     Email: david@china-deyu.com            
     Web:   http://www.china-deyu.com
                                                                 
    Investor Relations Contact:     
     John Harmon, Senior Account Manager
     CCG Investor Relations
     Tel:   +1-646-833-3424
     Email: john.harmon@ccgir.com
     Web:   http://www.ccgir.com

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