Agfeed Industries (PINK:FEED)

The Company reported unaudited total revenue for the six months ended December 31, 2011 of $196.4 million, comprised as follows for its four reporting segments (in thousands):

The Company also estimates that it incurred a net loss for the second half of 2011 in the range of $3.0 million - $5.0 million, which included $4.8 million (after tax) of legal and other expenses associated with the previously announced investigation by the Special Committee of the Board. Cash and cash equivalents totaled $12.8 million at December 31, 2011. All figures are unaudited. The above second half 2011 amounts do not include the potential effects, if any, of the Company's ongoing restatement process described below.

As reported on January 31, 2012, the Special Committee of the Board completed its investigation into certain accounting issues in the animal nutrition and legacy farm hog operations in China. During the investigation by the Special Committee and subsequent further evaluation by management, accounting irregularities were uncovered in both of those segments. The Board and management are working closely with McGladrey & Pullen, LLP, the Company's independent public accountants, and the predecessor accounting firm on restating the Company's financial statements for the 2008 fiscal year and subsequent periods through the first two quarters of 2011. The Company expects to file restated financial statements and return to a regular reporting schedule as soon as practicable. The Company believes that the effect of the restatements will be non-cash items and will not affect current liquidity.

Over the past few months, AgFeed has taken actions to improve operations in the U.S. and China. These actions include:

• Reduced corporate overhead by approximately $2.5 million on an annualized pre-tax basis. Additional expense reductions were achieved in U.S. hog operations.
• Continued to restructure and strengthen the Company's financial management and reporting in the U.S. and China. These restructuring actions are ongoing and are expected to be substantially completed in the second half of 2012.
• Streamlined hog production operations in China and commenced the organizational restructuring of the animal nutrition business.
• Named K. Ivan F. Gothner as chief executive officer. Mr. Gothner has been serving as interim CEO since December 2011. Mr. Gothner also serves as chairman of the board of directors.
• Appointed two new board members, H. David Sherman and Todd Zelek, each of whom bring extensive business and financial expertise to the Company's board.
• Appointed Thomas Zhi Yang, Esq. as China country manager, responsible for coordinating all aspects of the Company's business in China.
• Appointed Joseph Barban as managing director of AgFeed USA and head of the Company's U.S. hog production business.
• Changed the name of the U.S. hog production operations to AgFeed USA (from the legacy name M2P2) to better reflect the integrated U.S. and China nature of the Company's business.

"Our results in the second half of 2011 were buoyed by strong market demand and record hog prices in China," said K. Ivan F. Gothner, chairman and chief executive officer. "We continued to deploy more efficient and disciplined production methods to our legacy hog production system in China and in the fourth quarter of 2011 also began selling hogs from the first of our two western-style facilities in China. We are pleased that we are getting a favorable reaction to the quality, reliability and pricing of our western-style hog production in that market.

"The transformation of AgFeed is well underway," Mr. Gothner continued. "We have strengthened our executive team, reduced overhead and expect to return to a normalized financial reporting schedule in the third quarter of this year. We believe we have adequate liquidity under current market conditions to fund our operations for the remainder of 2012 and to complete the construction of our second western-style facility in China, which is scheduled to enter production in June with the first animals available for sale in December of this year. We look forward to providing a further update when 2012 first quarter results are available."

On March 2, 2012, AgFeed Industries, Inc. (the “Company”) entered into a standstill agreement (the “Standstill Agreement”) with AF Sellco, LLC (“Sellco”), the holder of the Amended and Restated Promissory Note dated November 12, 2010 (the “Note”) issued by the Company to Sellco in connection with the acquisition of M2 P2, LLC by the Company in September 2010, related to disputes previously reported by the Company in its Current Report on Form 8-K filed on February 10, 2012. Under the Standstill Agreement, Sellco has agreed to forbear from exercising any of the rights and remedies which Sellco may have as a result of previous written notices by Sellco related to the Note, if successfully alleged and pursued, during the Standstill Period (as defined below). As a condition precedent to the Standstill Agreement, the Company paid to Sellco a prepayment of principal in the amount of $1.0 million on the Note.

On February 6, 2012, AF Sellco, LLC (the “Lender”), the holder of the Amended and Restated Promissory Note dated November 12, 2010 (the “Note”) issued by AgFeed Industries, Inc. (the “Company”) to the Lender, delivered written notice (the “Notice”) to the Company claiming that an event of default under the Note had occurred and was continuing. Pursuant to the terms and conditions of a Pledge Agreement, dated as of September 13, 2010 (the “Pledge Agreement”), by and between the Lender and the Company, the Company pledged to the Lender all of the outstanding equity interests of M2 P2, LLC (“M2P2”) as collateral security for the Company’s obligations under the Note. The Notice alleges (i) that the Company materially breached its material covenants or agreements contained in the Membership Purchase Agreement, dated as of September 13, 2010 (the “Purchase Agreement”), by and between the Lender and the Company by reporting in its Current Reports on Form 8-K filed on January 31, 2012 and December 19, 2011 that certain financial statements of the Company should no longer be relied upon (collectively, the “Notices of Non-Reliance”) and (ii) that such breaches constitute events of default under the terms of the Note. The Company and the Lender have been, and continue to be, in discussions regarding these issues since this issue was first raised by the Lender on December 22, 2011.

On January 31, 2012, AgFeed Industries, Inc. (the “Company”) announced today that it has notified The Nasdaq Stock Market LLC (“Nasdaq”) of its intent to voluntarily delist its common stock from The Nasdaq Global Select Market. The Company currently anticipates that it will file with the Securities and Exchange Commission (the “Commission”) and Nasdaq a Form 25 relating to the delisting of its common stock on or about February 10, 2012, on which day there will be no trading in its common stock. The Company anticipates that the delisting of its common stock becoming effective on or about February 20, 2012, ten days after the filing of the Form 25. The Company expects to continue to be under a trading halt on Nasdaq until the delisting of its common stock becomes effective.

On January 13, 2012, Glenn McClelland resigned as Chief Operating Officer of AgFeed Industries, Inc. (the “Company”). Additionally, on January 16, 2012, Raymond M. Cesca resigned as President of the Company. Mr. Cesca, who had been primarily involved in developing the Company’s global market initiative, will be transitioning to a consultant relationship with the Company and will continue to focus on its global market and sourcing plans.

On December 16, 2011, John Stadler resigned as Chairman of the Board and Interim Chief Executive Officer and as a director of the Company for personal reasons. His resignation was not the result of any disagreement with the Company relating to its operations, policies or practices.

On October 14, 2011, AgFeed Industries, Inc. (the “Company”) received notice from The NASDAQ Stock Market (“Nasdaq”) that, because the closing bid price for the Company's common stock has fallen below $1.00 per share for 30 consecutive business days, the Company no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Global Select Market, set forth in Nasdaq Marketplace Rule 5450(a)(1).

To conduct our operations related to Animal feed nutrition, Hog Production—China and Hog Production-United States, we intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of raw materials, and the expansion of our business, through cash flow provided by these operations. You should note that our Hog Production—United States utilizes a line of credit for its working capital needs. This line of credit is due to expire June 1, 2012 with a lender that we have a long history with and understands our business model.

Rodman and Renshaw on FEED                                 5/13/2011

FEED: 1Q11 Update

FEED reported 1Q11 revenue, GAAP net loss and diluted EPS of $93.0 million, ($1.6) million and ($0.03) versus our estimates of $96.5 million, ($3.2 million) and ($0.06), respectively. Top line grew by 75.9% YoY from $52.9 million in 1Q11, but declined 6.5% sequentially from $99.5 million in 4Q10 on higher than expected contribution from the company’s U.S. operations offset by disappointing performance of animal nutrition and China hog operation segments. Gross profit of $7.8 million represented a 24.7% YoY increase and an 8.5% gross margin, compared to $6.3 million or 12.0% margin in 1Q10 and $1.5 million or 1.5% margin in 4Q10. SG&A expenses were up 56.8% YoY from $4.7 million in 1Q10 to $7.4 million, accounting for 7.9% of the total revenues compared to 8.9% in 1Q11. The company reported a net loss of ($1.6) million or ($0.03) per share compared to a net income of $1.1 million or $0.02 per share in 1Q11. We expect the company to return to profitability in 2H11 and reiterate our Market Outperform/Speculative Risk rating. We are, however, reducing our price target from $4.00 to $3.50 on higher share count. Our 12-month price target is based on the shares attaining a P/E level of 8x our FY12 EPS estimate of $0.43.

Discussion

• M2P2 Saves the Day: M2P2, a U.S.- based hog production company and a key supplier to Hormel (HRL, Not Rated), was acquired in September 2010. The subsidiary contributed $57.9 million and $4.4 million towards the company’s revenues and gross profit in 1Q11, equivalent to 62.3% and 55.6% of the total revenues and gross profit, respectively. During 1Q11, M2P2 sold 334,000 hogs versus 84,275 hogs sold by AgFeed in China, earning an average gross profit of $13 per hog (~7.6% gross margin). These results significantly exceeded our 1Q11 revenue and gross profit estimates of $50.0 million and $2.3 million (~4.5% gross margin). We are consequently increasing our full year projections for the U.S. hog segment to $219.9 million in revenues and $13.7 million in gross profit from the previous forecasts of $200.0 million and $9.5 million, respectively.
• Weak Quarter for the Animal Nutrition Segment: Animal nutrition segment revenues increased by less than 1% YoY to $28.2 million (inclusive of $4.0 million in intercompany sales). Sequentially, revenues declined 17.3% QoQ on lower volume and selling prices. During 1Q11, the company sold 43,926 MT of feed versus 49,614 MT sold in the previous quarter. Average selling prices declined by 3.0% YoY and 6.5% QoQ to $643/MT despite higher input costs. Overall feed segment gross margin declined from 15.9% in 1Q10 and 13.4% in 4Q10 to 8.6% in 1Q11 as the company struggled to absorb higher corn costs without losing its market share.
  
  
  Notice Regarding Privacy and Confidentiality:
  
  
  This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.
  
  Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.
  
  Rodman & Renshaw, LLC may make a market in the securities being discussed.
  
  Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).
  
  Member FINRA.
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First Quarter Results:

• AgFeed reports revenue of $93 million and an operating profit of $0.5 million.  Revenues for the company's U.S. hog production unit reached $57.9 million with an operating profit of $3.6 million.  In China, significant progress was made in restructuring hog production and containing operating issues in this business segment with revenue reported at $10.9 million and an operating loss of $139,000.  In its Chinese based animal nutrition segment, the Company reports first quarter revenue of $24.2 million and an operating loss of $835,000.  These results do not reflect the loss attributable to discontinued operations within the Company's legacy Chinese hog production unit.

John A. Stadler, AgFeed's Chairman & Interim Chief Executive Officer stated, "Our team of hog production professionals that were deployed in the past months to focus on turning around our legacy Chinese hog production system has made significant strides in closing and liquidating facilities that could not meet our standard production metrics while at the same time moving rapidly to bring appropriate operating discipline to the remaining legacy assets.  This work is not yet complete.  However, we expect that we can return the legacy system to profitability later this year.  The performance of our animal nutrition unit was disappointing.  The size of the nation-wide Chinese hog herd is down which has impacted demand for our nutrition products.  More importantly we were unable to pass along the rapidly increasing cost of grains in real time."

In conclusion Mr. Stadler added, "During the coming weeks we plan to provide 'guidance' to the investment community regarding our annual performance." He also reiterated, "The base of hog production excellence and human capital which AgFeed can deliver from its U.S. operations at M2P2 coupled with our burgeoning Chinese presence and its showcase western-style hog production facility at Da Hua demonstrate a model of aligning resources from disparate global locations in order to delivery high quality, safe food to a global market."

Rodman and Renshaw on FEED                 5/6/2011

Farm Closures to Dent FY11 Production, Lowering PT to $4.

AgFeed Industries, Inc (FEED) 4Q10 and FY10 financial results came in below our expectations. For the 4Q10 the company reported revenues of $99.5 million and GAAP net loss of ($20.2) million or ($0.42) per fully diluted share. The variance from our revenue and net income estimates of $88.2 million and $1.4 million or $0.03 per fully diluted share, respectively, was largely a result of higher than expected contribution from AgFeed’s U.S. operations offset by poor performance of Jiangxi farms and persistently high feed costs. In addition, the company recorded a non-cash non-recurring $4.8 million goodwill impairment charge and $9.0 million fixed asset write down relating to the closure of eight underperforming farms, as well as certain non-cash audit adjustments. For the full year, the company reported revenues of $243.6 million and GAAP net loss of ($42.7) million or ($0.90) per fully diluted share.

While the closure of eight legacy farms is necessary to improve the overall profitability of AgFeed’s hog operations in China and is likely to have a negative impact on the company’s production numbers and financial performance in the 1H11, we continue to believe that AgFeed remains one of the most attractive long-term stories in the agriculture space. Consequently, we are maintaining our Market Outperform rating albeit with a lowered price target of $4.

Discussion

• Hog Segment in China Continues to Face Headwinds Revenues from China-based hog operations declined 34.6% YoY from $110.3 million in FY09 to $72.2 in FY10. Hog production has been negatively impacted by persistently high feed costs, summer floods resulting in a loss of 16,000 market pigs, the spread of disease causing pre-mature marketing of hogs at lower weights (average 82.5 kg. compared to 87.8 kg. in 2009) and the halting of hog purchases from outside the company’s production system for finishing to market weight. The impact of floods, destruction of infrastructure and subsequent disease was particularly severe at Jiangxi and Guangxi production pods, leading to the management’s decision to close those farms and resulting in goodwill and asset impairments totaling $30.6 million in the 2H10.
  
  
  
  
  
  Notice Regarding Privacy and Confidentiality:
  
  
  This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.
  
  Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.
  
  Rodman & Renshaw, LLC may make a market in the securities being discussed.
  
  Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).
  
  Member FINRA.
  Member SIPC.
  

We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of raw materials, and the expansion of our business, through cash flow provided by operations and funds raised through our Equity Purchase Agreement.

Fourth Quarter Highlights:

AgFeed reported a fourth quarter 2010 loss of $20.2 million, or $(0.42) per fully diluted share, on revenues of $99.5 million.

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."

Rodman and Renshaw on FEED                                02/15/2011

AgFeed Appoints New Chairman and Interim President and CEO.

 

Agfeed announced yesterday that its Board of Directors appointed John Stadler, formerly an independent director of AgFeed, as the new Chairman and interim President and CEO of AgFeed Industries, Inc. Mr. Stadler takes over from Mr. Songyan Li and Mr. Junhong Xiong, two of the five original founders of Agfeed. Mr. Song, who served as the Chairman of AgFeed since July 2004, will remain with the company as Vice Chairman of AgFeed’s hog production business. Mr. Xiong stepped down as President and CEO of AgFeed to focus on his role as the Chairman of AgFeed Animal Nutrition, Inc. (AANI), Agfeed’s animal feed business. We remind that AANI has filed an F-1 registration statement with the SEC and is currently awaiting SEC approval for an initial public offering. In addition to the above-mentioned management changes, Mr. Edward Pazdro, AgFeed’s interim CFO since November 2010 was confirmed as the permanent CFO of the company. 

We believe the transition from founders-managers to professional management with international experience, substantial industry expertise and financial savvy is an important step in building a sustainable and profitable business and increasing shareholder value. Moreover, we believe Mr. Stadler’s substantial senior management experience in hog production in the U.S. will be highly beneficial to AgFeed as it executes on its growth and operating strategy. Notably, Mr. Stadler’s past experience includes working as the President of Premium Standard Foods, a subsidiary of Premium Standard Farms, acquired by Smithfield (SFD, Not Rated), Chairman of the Board and CEO of Pine Ridge Farms, LLC (Private), a fully integrated pork producer located in Iowa, U.S., and board membership of BMI Ag Services, LLC., a U.S. agriculture consulting company. He is also one of the founders of Mariah Foods and a founder and former Chairman of M2P2, a U.S. based pork production company acquired by AgFeed in September 2010.

Reiterating Market Outperform rating and $6 price target 

AgFeed is currently trading at 5x our FY11 fully diluted EPS estimate of $0.49. Given the company’s efficiency initiatives, pending completion of western style farms, improving pricing environment for hogs, and the positive impact of M2P2 acquisition, we believe the company’s shares warrant higher valuation. We reiterate our Market Outperform/Speculative Risk rating and a price target of $6 based on the shares attaining a P/E level of 12x our FY11 fully diluted EPS estimate. Our current price target does not include the impact of western-style farms under construction in Xinyu and Dahua that will more than double the number of hogs available for sale in China by FY12. isks 

(1) High feed costs (2) Persistently low hog prices (3) Weak consumer demand for pork (4) Swine disease (5) Execution risk (6) Regulatory risk (7) Commodity hedging (8) Client concentration (9) Nonrenewal of M2P2 long-term hog procurement agreements.


Notice Regarding Privacy and Confidentiality: 

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

On November 29, 2010, members of management of AgFeed Industries, Inc. will make a presentation to the Hong Kong Stock Exchange.

Rodman & Renshaw on FEED

AgFeed posted a 3Q10 miss versus our estimates, primarily due to a $16.8 million (non-cash) impairment charge, a one-time tax charge of $1.3 million relating to the corporate reorganization taken to facilitate the planned animal nutrition carve-out, one-time professional fees and expenses of $1.1 million relating to the M2P2 acquisition, a 13% increase in corn prices compared to 3Q09 and weaker hog sales volume offset by strong feed segment performance and contribution from the M2P2 acquisition. We are reducing our 4Q10 forecasts due to the potentially lingering effects from the summer floods and heat that had negatively impacted hog inventory. While the quarterly results were below our expectations, we believe the company is taking the right strategic steps that will ensure long-term growth and profitability. We are maintaining our revenue and net income FY11 outlook. We are reducing our price target from $7 to $6 based on higher share count. Our 12-month price target is based on the shares attaining a P/E level of 12x our FY11 EPS estimate of $0.50. With over 100% upside from current price levels, we suggest that long-term investors take advantage of the pullback to accumulate positions. 

Discussion 

• 3Q10 Results The company reported revenues of $53.6 million (~up 18.8% YoY) considerably above our forecast of $37.4 million. The variance from our estimate was a result of $10.3 million contribution to the quarterly results from the M2P2 that we assumed would not contribute significantly to this quarter’s results and higher than estimated revenues from the hog segment. The company reported a gross profit of $4.3 million translating into 8.1% gross profit margin compared to $7.6 million gross profit and 16.8% gross margin in the 3Q09. The decrease was attributable primarily to 13.0% increase in corn costs and lower hog selling prices during the quarter compared to the same period last year. The company reported GAAP net loss of $20.6 million or ($0.43) per share. Excluding the effect of a non-cash impairment charge (~ ($0.35) per share) and non-recurring charges amounting to a total of $2.4 million, the company lost ($0.03) per share. 
• Impairment Charge and Other Non-recurring Charges A review of the legacy farms in China for goodwill impairment has revealed that while the farms can be operated profitably, they cannot sustain a high enough level of profitability to support the original acquisition values and resulting goodwill. Consequently, the management decided that an intangible asset write down of $16.8 million was necessary. We remind that most of the farms were acquired in 2008 when hog prices were at the historically high levels. Additionally, the company booked two significant non-recurring charges totaling $2.4 million relating to the planned animal nutrition carve-out and professional and consulting fees associated with the acquisition of M2P2.
  
  Notice Regarding Privacy and Confidentiality:
  
  This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.
  
  Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.
  
  Rodman & Renshaw, LLC may make a market in the securities being discussed.
  
  Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).
  
  Member FINRA.
  Member SIPC.
  

Third Quarter 2010

• Revenues increased $8.5 million to $53.6 million, benefitting from the acquisition of M2P2 ($10.3 million from the date of its acquisition), an increase of $10.1 million from our animal feed nutrition business offset by the decline in revenues from our China hogs production business of $11.9 million. Since M2P2 was newly acquired, no revenues existed for the 2009 comparative period.

• Net income decreased to $20.6 million.

• EPS was a loss of ($0.43). vs $0.07.

AgFeed reports continued record results in its animal nutrition business segment with revenue and operating income increasing 59% and 37% respectively for the first three quarters of 2010 as compared to the same period in 2009 and achieving new record levels.  AgFeed's U.S. hog production system, which commenced through its acquisition of M2P2 late in the third quarter generated results in line with the Company's plans.  The performance of AgFeed's Chinese hog farms, acquired during 2007 and 2008, showed revenue declines and an operating loss.

AgFeed's Board of Directors, recognizing the weak performance of the Company's existing Chinese hog production system and the extreme operating conditions that the Company has experienced during 2010 has conducted a full review of its established Chinese hog production system, the farms acquired during 2007 and 2008, in connection with the preparation of its financial statements for the period ending September 30, 2010.  This review has resulted in a number of actions regarding the management and organization of the business and has caused the board to reach the conclusion that while this existing production system can be operated profitably it cannot sustain a high enough level of profitability to support the original acquisition values of these assets and the resulting goodwill.  As a result a determination has been made to write down the value of the intangible assets related to this production system by approximately $16.8 million.

On September 13, 2010, members of management of AgFeed Industries, Inc. made a presentation at the Rodman & Renshaw Annual Global Investment Conference

2010 Second Quarter Highlights:

• Revenues decreased 2.2% to $37.7 million.
  
• Non-GAAP net income was a loss of $1.48 million vs. $1.67 million in the prior year second quarter.
  
• Non-GAAP EPS was -$0.03 vs. $.04  in the prior year second quarter.

"The decrease in revenues was due to a 58.8% decrease in hog production revenue offset by a 136.8% increase in animal feed. Hog sales of 95,000 for three months ended June 30, 2010 which was a decrease from total hog sales of 184,000 hogs for the three months ended June 30, 2009. Animal feed sales volume for three months ended June 30, 2010 exceeded 41,315 metric tons representing a 77% increase in volume over the comparative period of 2009. However, the increase in revenue described above was offset by lower hog sales prices and increases in ingredient costs."

"The challenges of the market are evident in the results produced by our hog segment. Hog production shows a revenue decline of $15 million reflecting a decline of $3.4 million due to the rapid decline of market prices for hogs and $11.6 million due to our marketing 89,000 less hogs in 2010 versus 2009. The price component is indicative of the bringing to market an excessive number of hogs as a carryover from the Chinese New Year’s festival, response to increased costs and the impact of flooding in the regions we conduct business, including Jiangxi province and Guangxi province. The result is the revenue per hog declined to $131 versus $150 in 2009. In terms of volume, during the three months ended June 30, 2009, we followed a program of purchasing hogs from outside our system for finishing to market weights to take advantage of profitable market prices. In 2010, we did not purchase hogs under this program and in combination with vastly reduced revenue per hog and the reduction of our herd of over 19,000 animals due to flooding and its effects (over 16,000) and planned culling of 3,000 sows. Our hog volumes were 89,000 lower in the three months ended June 30, 2010 compared to the same period in 2009."

Our principal demands for liquidity are to increase capacity, purchase raw materials, distribute our products, consolidate our existing farm operations and make strategic acquisitions or investments in our industry as opportunities present themselves, as well as general corporate purposes.   We may seek additional funds from the capital markets to further support our genetics program to increase hog production and profitability.  We expect our genetics program to be accretive to earnings in the near future.
 
We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of raw materials, and the expansion of our business, through cash flow provided by operations and funds raised through cash investments.