AgFeed Industries, Inc. Reports Record 2008 Financial Results

NEW YORK, March 16 /PRNewswire-Asia/ -- AgFeed Industries, Inc. , the largest commercial hog producer and the largest premix feed company in China, today announced record financial results for the year of 2008:

-- Earnings of $0.54 per share compared to 2007 Earnings per Share of $0.26 -- Net Income of $16.95 million compared to 2007 Net Income of $6.66 million -- Adjusted Earnings Per Share of $0.74 -- Adjusted Net Income of $23.21 Million -- Revenue was $143.66 million up from $36.16 million in 2007 -- Gross Profit was $34.44 million -- Cash and cash equivalents are $24.84 million as of December 31, 2008 -- Total Assets of $137.05 million as of December 31, 2008 Record 2008 Revenue

AgFeed experienced phased-in hog production revenue during the course of 2008, as new farms were brought on line. AgFeed sold approximately 410,000 hogs during the development of an annual capacity of up to 650,000 hogs. Revenue from premix and blended feed sales was $51.75 million, up from $36.07 million in 2007. Revenue from hog production was $91.92 million in 2008, up from less than one million dollars in 2007. Premix and blended feed accounted for 36% of revenue while hog sales accounted for 64%. The increase in premix and blended feed sales was due to AgFeed's relationship with 1,006 independently owned, exclusive AgFeed retail distribution stores. In addition, AgFeed broadened its direct sales efforts to over 660 commercial hog farms.

Record 2008 Earnings

AgFeed reported premix and blended feed related income from operations of $7.78 million on revenue of $51.75 million and net income on hog sales of $16.92 million on hog sales of $91.92 million, prior to the cost of the holding company of $6.66 million. These results reflected 23.97% gross profit margin for the company. Premix and blended feed earnings were driven by efficient cost management, increased economies of scale on raw material purchases, and long term annual supply agreements. AgFeed's income from hog operations was driven by the phasing-in of 30 producing hog farms starting in late 2007.

Management Comments

"2008 was a milestone year for the Company. As the year progressed, amid the dysfunctional international economic and credit crisis, AgFeed continued its acquisition program recognizing that the next couple of years will be taxing on all businesses," said Dr. Songyan Li, Chairman.

Gerry Daignault, COO said that, "In 2008 AgFeed improved all of the financial metrics that are key to building the Company's enterprise value. AgFeed's total assets were $137.05 million or $3.61/share as of December 31. AgFeed's cash and cash equivalents were $24.84 million and working capital was $46.04 million. Our operating cash flow was positive and the current asset to liability ratio is 4.58:1."

Reconciliation of Adjusted Net Income and Earnings per Share to GAAP Results

Adjusted net income excludes one time, non-operational, non-cash charges of $6.26 million, primarily related to investor conversion of $15.2 million of the $19 million, 3 year convertible note offering completed in February 2008. The remainder of this convertible note is $3.8 million as of December 31, 2008. Details of the one time, non-operational, non-cash charges are as follows: a) Amortization of the convertible note related warrant issuance, warrant beneficial conversion feature related charges and placement agent commissions paid to the placement agent amounted to a total of $5.7 million; and b) Currency translation loss of $0.6 million related to the conversion of our US dollars into Chinese RMB during the year.

Internal Controls

AgFeed's management, under the supervision and with the participation of its chief executive officer, chief financial officer and with the assistance of its internal controls consultant, Protiviti Shanghai Co. Ltd. has performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures and has concluded that no significant deficiency or material weakness was found in AgFeed's internal control process and the internal control over financial reporting was effective as of December 31, 2008. Furthermore, the material weaknesses disclosed in the 2007 audit have all been successfully remediated.

2009 Strategic Plan

AgFeed's plan will direct its mission through 2010 and 2011 during which time the Company believes that the Chinese markets will once again attain double-digit growth rates. Increasing urbanization and the swift growth of the Chinese middle class, strongly position AgFeed for the expanding Chinese consumer pork market.

AgFeed's strategic plan calls for a series of phases that encompasses the following programs:

1. Continue to build a strong financial base. 2. Consolidate the Company's hog farms through the implementation of advanced management and process systems. 3. Advance to the next levels of hog production by the implementation of a science based set of genetic programs which would increase throughput and birthing rates. 4. Invest in the expansion of distribution networks while fully branding AgFeed's products. 5. Expand AgFeed's marketing of its premix business products through the "BEST" brand label. Future Sow Base Expansion

AgFeed intends to invest heavily in genetics with a target to support the expanding sow base from 2009's 31,500 sows to 50,000 sows over the next 24 months. The Company has started building its nucleus farm in Wuning China and will stock with pure lines while substantially upgrading the Company's farm environment with world-class bio security measures.

Stock Buy-Back Program

After initiating a Company stock buy-back program in early October, AgFeed decided to suspend this activity for a period of time. At its discretion, AgFeed, depending upon market conditions, may reinstitute the buy-back program.

2009 Annual Meeting of Shareholders

The Company announced that its 2009 annual meeting of shareholders will be held in the offices of Buchanan, Ingersoll & Rooney PC, located at Two Liberty Place, 50 S. 16th Street, Suite 3200, Philadelphia, PA 19102, on June 11, 2009 at 10:00 a.m. Eastern Daylight Time. April 15, 2009 has been established as the record date for determining the shareholders eligible to vote at the annual meeting. All shareholders are invited and encouraged to attend the meeting.

AgFeed currently expects that members of the Board of Directors and senior management will be present to meet with shareholders.

About AgFeed Industries, Inc.

NASDAQ Global Market listed AgFeed Industries (http://www.agfeedinc.com/) is a U.S. company with its primary operations in China. AgFeed has two profitable business lines -- premix and blended animal feed and hog production. AgFeed is China's largest commercial hog producer in terms of total annual hog production as well as the largest premix feed company in terms of revenues. China is the world's largest hog producing country that produces over 600 million hogs per year, compared to approximately 100 million hogs in the U.S. China also has the world's largest consumer base for pork consumption. Over 65% of total meat consumed in China is pork. Hog production in China enjoys income tax free status. The pre-mix feed market in which AgFeed operates is an approximately $1.6 billion segment of China's $40 billion per year animal feed market, according to the China Feed Industry Association.

Safe Harbor Disclosure Notice

The information contained in this earnings release and the attachments is as of March 16, 2009. The Company assumes no obligation to update any forward- looking statements contained in this earnings release or the attachments as a result of new information or future events or developments.

This earnings release and the attachments contain forward-looking information about the Company's financial results and estimates, business plans and prospects that involve substantial risks and uncertainties. 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. Among the factors that could cause actual results to differ materially are the following: the availability and prices of live hogs, raw materials, fuel and supplies; food safety; livestock disease; live hog production costs; product pricing; the competitive environment and related market conditions; operating efficiencies; interest rate and foreign currency exchange rate fluctuations; access to capital; the cost of compliance with environmental and health standards; actions of the PRC government; governmental laws and regulations affecting our operations, including tax obligations; the ability to make effective acquisitions at the prices we expect and successfully integrate newly acquired businesses into existing operations; the success of our research and development activities, changes in generally accepted accounting principles; uncertainties related to general economic, political, business, industry, regulatory and market conditions; any changes in business, political and economic conditions due to the threat of terrorist activity; and other risks and uncertainties described in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and in its subsequent Quarterly Reports on Form 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements because actual results may differ materially from those expressed in, or implied by, the statements. Any forward-looking statement that the Company makes speaks only as of the date of such statement, and the Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission. AgFeed believes that the "adjusted net income," and "adjusted earnings per share" information contained in this press release, when taken in conjunction with reported results, provide useful a measure of financial performance since they eliminate the impact of certain non-recurring, non-cash charges and provide investors with the same information used by management to evaluate performance. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized by the company may not be comparable to non-GAAP financial measures used by other companies, a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is set forth below:

Adjusted Net Income and Earnings Per Share For the Year Ended December 31, 2008 Net Income $16,948,815 Adjustments Interest and financing costs related to conversion of convertible debentures $5,704,358 Foreign currency loss $559,299 Adjusted Net Income $23,212,472 Basic Weighted Shares Outstanding 31,557,742 Adjusted EPS $0.74 Contact: Investor Relations: AgFeed Industries, Inc. Tel: [phone] Email: [e-mail] INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007 2008 2007 ASSETS CURRENT ASSETS: Cash and cash equivalents $24,839,378 $7,696,209 Accounts receivable, net of allowance for doubtful accounts of $520,413 and $191,497 9,462,380 6,107,491 Advances to suppliers 518,829 442,851 Other receivable 2,066,030 459,034 Inventory 20,616,560 2,728,160 Prepaid expense 1,166,646 644,183 Debt issue costs 246,223 - Total current assets 58,916,046 18,077,928 PROPERTY AND EQUIPMENT, net 20,810,094 3,930,715 CONSTRUCTION-IN-PROCESS 10,853,389 221,819 INTANGIBLE ASSETS 43,833,705 839,802 OTHER ASSETS 2,641,902 - TOTAL ASSETS $137,055,136 $23,070,264 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $5,214,596 $1,458,010 Other payables 5,766,741 705,150 Unearned revenue 321,664 99,848 Accrued expenses 164,558 18,223 Accrued payroll 818,052 168,560 Short term loans - 1,110,413 Tax and welfare payable 465,875 9,534 Interest payable 121,139 - Total current liabilities 12,872,625 3,569,738 CONVERTIBLE NOTES, net of debt discount of $579,444 and $0 3,220,556 - TOTAL LIABILITIES 16,093,181 3,569,738 COMMITMENTS AND CONTINGENCIES (Note 13) - - MINORITY INTEREST 2,117,611 - STOCKHOLDERS' EQUITY: Common stock, $0.001 per share; 75,000,000 shares authorized; 38,300,436 issued and 37,933,141 outstanding in 2008 27,026,756 issued and 27,026,756 outstanding in 2007 38,300 27,027 Additional paid-in capital 90,903,261 10,094,095 Other comprehensive income 4,167,217 780,907 Statutory reserve 3,236,054 752,225 Treasury stock (1,811,746) Retained earnings 22,311,258 7,846,272 Total stockholders' equity 118,844,344 19,500,526 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $137,055,136 $23,070,264 AGFEED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 2008 2007 2006 Net Revenue $143,661,485 $36,163,339 $8,594,876 Cost of Revenue 109,224,565 25,763,479 5,446,332 Gross profit 34,436,920 10,399,860 3,148,544 Operating expenses Selling expenses 3,941,247 2,693,613 1,287,110 General and administrative expenses 5,754,742 1,385,476 827,540 Total operating expenses 9,695,989 4,079,089 2,114,650 Income from operations 24,740,931 6,320,771 1,033,894 Non-operating income (expense): Other income (expense) (710,683) 160,496 35,681 Interest income 190,965 142,148 28,851 Interest and financing costs (5,704,358) (153,723) (23,532) Foreign currency transaction loss (559,299) - - Total non-operating income (expense) (6,783,375) 148,921 41,000 Income before minority interest and provision for income taxes 17,957,556 6,469,692 1,074,894 Minority interest in subsidiaries (421,519) - - Income before provision for income taxes 17,536,037 6,469,692 1,074,894 Provision (benefit) for income taxes 587,222 (193,203) (100,386) Net income $16,948,815 $6,662,895 $1,175,280 Other comprehensive income Foreign currency translation gain 3,386,310 664,061 84,382 Comprehensive Income $20,335,125 $7,326,956 $1,259,662 Weighted average shares outstanding: Basic 31,557,742 26,093,376 17,911,296 Diluted 31,713,977 26,174,973 17,911,296 Earnings per share: Basic $0.54 $0.26 $0.07 Diluted $0.53 $0.25 $0.07