UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington D.C. 20549
FORM 10-Q
| ¨ | QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31,
2015
or
| ¨ | TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to______.
|
DEYU AGRICULTURE
CORP. |
|
|
(Exact name of registrant as
specified in its
charter) |
|
Nevada |
|
333-160476 |
|
80-0329825 |
(State or other jurisdiction of
incorporation or organization) |
|
(Commission File No.) |
|
(I.R.S. Employer Identification
No.) |
Unit 1010, Block B, Huizhi Building,
No.9 Xueqing Road,
Haidian District, Beijing, PRC
Zip Code: 100085
(Address of principal executive offices) (zip
code)
86-10-8273-2870
(Issuer Telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer ¨
Accelerated Filer ¨ Non-Accelerated Filer ¨
Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company
as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x
As of May 13, 2015, there were 11,044,328 shares outstanding of
the registrant’s common stock.
DEYU AGRICULTURE CORP.
FORM 10-Q
March 31,
2015
INDEX
Item 1. Financial Statements
DEYU AGRICULTURE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
(Unaudited) | | |
(Audited) | |
Assets | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 828,736 | | |
$ | 1,012,743 | |
Accounts receivable, net | |
| 21,538,376 | | |
| 21,536,525 | |
Inventory | |
| 9,440,799 | | |
| 9,815,931 | |
Advance to supplier | |
| 1,065,685 | | |
| 732,976 | |
Prepaid expenses | |
| 755,439 | | |
| 939,429 | |
Other current assets | |
| 434,162 | | |
| 254,817 | |
Total Current Assets | |
| 34,063,197 | | |
| 34,292,421 | |
| |
| | | |
| | |
Property, plant, and equipment, net | |
| 16,556,964 | | |
| 17,020,127 | |
Construction-in-progress | |
| 373,624 | | |
| 353,963 | |
Long-term Investment | |
| 58,719 | | |
| 58,666 | |
Intangible assets, net | |
| 7,408,510 | | |
| 7,459,320 | |
| |
| | | |
| | |
Total Assets | |
$ | 58,461,014 | | |
$ | 59,184,497 | |
| |
| | | |
| | |
Liabilities and Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Short-term loan | |
$ | 7,275,367 | | |
$ | 7,268,801 | |
Accounts payable | |
| 5,911,285 | | |
| 4,355,395 | |
Advance from customers | |
| 1,973,975 | | |
| 1,972,193 | |
Accrued expenses | |
| 1,506,531 | | |
| 1,406,519 | |
Tax payable | |
| 89,240 | | |
| 107,228 | |
Preferred stock dividends payable | |
| 320,737 | | |
| 212,094 | |
Due to related parties | |
| 13,971 | | |
| 13,958 | |
Other current liabilities | |
| 288,775 | | |
| 293,456 | |
Total Current Liabilities | |
| 17,379,881 | | |
| 15,629,644 | |
| |
| | | |
| | |
Equity | |
| | | |
| | |
Series A convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 1,960,132
and 1,894,992 shares outstanding, respectively | |
| 1,960 | | |
| 1,895 | |
Common stock, $.001 par value; 75,000,000 shares authorized,
11,044,328 and 11,044,328 shares outstanding, respectively | |
| 11,044 | | |
| 11,044 | |
Additional paid-in capital | |
| 21,670,317 | | |
| 21,670,346 | |
Other comprehensive income | |
| 6,540,097 | | |
| 6,515,733 | |
Retained earnings | |
| 12,825,966 | | |
| 15,325,116 | |
Total Stockholders' Equity | |
| 41,049,384 | | |
| 43,524,134 | |
Noncontrolling Interests | |
| 31,749 | | |
| 30,719 | |
Total Equity | |
| 41,081,133 | | |
| 43,554,853 | |
| |
| | | |
| | |
Total Liabilities and Equity | |
$ | 58,461,014 | | |
$ | 59,184,497 | |
The accompanying notes are an integral part
of these consolidated financial statements.
DEYU AGRICULTURE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME (UNAUDITED)
| |
For The Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
Net revenue | |
| | | |
| | |
Normal inventory | |
$ | 32,208,047 | | |
$ | 12,152,145 | |
Damaged corn | |
| - | | |
| 3,421,175 | |
Total Net Revenue | |
| 32,208,047 | | |
| 15,573,320 | |
Cost of goods sold | |
| | | |
| | |
Normal inventory | |
| (30,459,475 | ) | |
| (11,553,198 | ) |
Damaged corn | |
| - | | |
| (9,328,942 | ) |
Total Cost of Goods Sold | |
| (30,459,475 | ) | |
| (20,882,140 | ) |
Gross Profit (loss) | |
| 1,748,572 | | |
| (5,308,820 | ) |
| |
| | | |
| | |
Selling expenses | |
| (2,900,531 | ) | |
| (1,098,652 | ) |
General and administrative expenses | |
| (1,125,862 | ) | |
| (2,678,029 | ) |
Total Operating Expenses | |
| (4,026,393 | ) | |
| (3,776,681 | ) |
Operating income (loss) | |
| (2,277,821 | ) | |
| (9,085,501 | ) |
| |
| | | |
| | |
Interest income | |
| 2,393 | | |
| 1,080 | |
Interest expense | |
| (187,971 | ) | |
| (195,653 | ) |
Non-operating income (loss) | |
| 128,468 | | |
| 47,265 | |
Total Other Expenses | |
| (57,110 | ) | |
| (147,308 | ) |
| |
| | | |
| | |
Income (loss) before income taxes | |
| (2,334,931 | ) | |
| (9,232,809 | ) |
Income taxes | |
| (56,448 | ) | |
| (83,249 | ) |
Income before extraordinary items | |
| (2,391,379 | ) | |
| (9,316,058 | ) |
Net income | |
| (2,391,379 | ) | |
| (9,316,058 | ) |
Net income (loss) attributable to noncontrolling interest | |
| 36 | | |
| 159 | |
Net income (loss) attributable to Deyu Agriculture Corp. | |
| (2,391,343 | ) | |
| (9,315,899 | ) |
Preferred stock dividends | |
| (107,807 | ) | |
| (102,349 | ) |
Net income (loss) available to common stockholders | |
| (2,499,150 | ) | |
| (9,418,248 | ) |
Foreign currency translation gain (loss) | |
| (1,358,387 | ) | |
| (1,445,198 | ) |
Comprehensive income (loss) | |
| (3,857,537 | ) | |
| (10,863,446 | ) |
Other comprehensive income (loss) attributable to noncontrolling interests | |
| 756 | | |
| (81 | ) |
Comprehensive income (loss) attributable to Deyu Agriculture Corp. | |
$ | (3,856,781 | ) | |
$ | (10,863,527 | ) |
| |
| | | |
| | |
Net income (loss) attributable to common stockholders per share - basic | |
$ | (0.23 | ) | |
$ | (0.87 | ) |
Net income (loss) attributable to common stockholders per share - diluted | |
| (0.23 | ) | |
| (0.87 | ) |
Weighted average number of common shares outstanding - basic | |
| 11,044,328 | | |
| 10,793,738 | |
Weighted average number of common shares outstanding - diluted | |
| 11,044,328 | | |
| 10,793,738 | |
The accompanying notes are an integral part
of these consolidated financial statements.
DEYU AGRICULTURE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| |
For The Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income (loss) available to common stockholders | |
$ | (2,499,150 | ) | |
$ | (9,418,248 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating
activities: | |
| | | |
| | |
Depreciation & amortization | |
| 532,589 | | |
| 602,646 | |
Loss on impairment of asset valuation | |
| - | | |
| | |
Bad debt expenses | |
| 59,008 | | |
| 825,993 | |
Share-based compensation | |
| - | | |
| 585 | |
Preferred stock dividends accrued | |
| 107,807 | | |
| 102,349 | |
Noncontrolling interests | |
| (36 | ) | |
| (159 | ) |
Decrease (increase) in current assets: | |
| | | |
| | |
Accounts receivable | |
| 2,600 | | |
| 2,889,940 | |
Inventories | |
| 381,722 | | |
| 9,101,545 | |
Advance to suppliers | |
| (330,076 | ) | |
| (203,851 | ) |
Prepaid expense and other current assets | |
| (74,419 | ) | |
| 593,903 | |
Increase (decrease) in liabilities: | |
| | | |
| | |
Accounts payable | |
| 1,542,749 | | |
| (3,801,786 | ) |
Advance from customers | |
| - | | |
| (2,094 | ) |
Accrued expense and other liabilities | |
| 111,798
| | |
| (99,669 | ) |
Net cash (used
in) operating activities
| |
| (165,408
| ) | |
| (591,154 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of machinery and equipment | |
| (312 | ) | |
| - | |
Construction and remodeling of factory and warehouses | |
| (19,227 | ) | |
| - | |
Net cash (used
in) investing activities
| |
| (19,539 | ) | |
| - | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Net proceeds (repayment) of short-term loans from related parties | |
| - | | |
| 55,715 | |
Net cash provided by (used in) financing activities | |
| - | | |
| 55,715 | |
| |
| | | |
| | |
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS | |
| 940
| | |
| (37,483 | ) |
| |
| | | |
| | |
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS | |
| (184,007 | ) | |
| 609,396 | |
CASH & CASH EQUIVALENTS, BEGINNING BALANCE | |
| 1,012,743 | | |
| 979,282 | |
CASH & CASH EQUIVALENTS, ENDING BALANCE | |
$ | 828,736 | | |
$ | 1,588,678 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES: | |
| | | |
| | |
Income tax paid | |
$ | 74,425 | | |
$ | 55,306 | |
Interest paid | |
$ | 100,103 | | |
$ | 105,272 | |
The accompanying notes are an integral part
of these consolidated financial statements.
DEYU AGRICULTURE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND BASIS OF FINANCIAL STATEMENT
PREPARATION
Deyu Agriculture Corp. (the “Company”), formerly known
as Eco Building International, Inc., was incorporated under the laws of the State of Nevada on December 23, 2008. We completed
the acquisition of City Zone Holdings Limited (“City Zone”), an agricultural products distributor in the Shanxi Province
of the People’s Republic of China (the “PRC”) engaged in procuring, processing, marketing, and distributing
various grain and corn products, by means of a share exchange effective April 27, 2010. As a result of the share exchange, City
Zone became our wholly-owned subsidiary. We currently conduct our business primarily through operating PRC subsidiaries, including
JinzhongDeyu Agriculture Trading Co., Ltd. (“JinzhongDeyu”), JinzhongYuliang Agriculture Trading Co., Ltd. (“JinzhongYuliang”),
JinzhongYongcheng Agriculture Trading Co., Ltd. (“JinzhongYongcheng”), Shanxi Taizihu Food Co., Ltd. (“Taizihu”),
Shanxi Huichun Bean Products Co., Ltd. (“Huichun” and together with Taizihu, the “Taizihu Group”) and
Detian Yu Biotechnology (Beijing) Co., Ltd. (“Detian Yu”) and Detian Yu’s subsidiaries.
On May 11, 2010, our Board of Directors adopted a resolution to
change our name to "Deyu Agriculture Corp." and FINRA declared the name change effective on June 2, 2010.
Reverse Acquisition
On April 27, 2010, we entered into a Share Exchange Agreement (“Share
Exchange”) pursuant to which we issued 8,736,932 shares of our common stock, par value $ 0.001 per share, to Expert Venture
Limited (“Expert Venture”), a company organized under the laws of the British Virgin Islands, and the other shareholders
of City Zone (the “City Zone Shareholders”). As a result of the Share Exchange, City Zone became our wholly-owned
subsidiary and City Zone Shareholders acquired a majority of our issued and outstanding shares of common stock.
As a result, the Share Exchange has been accounted for as a reverse
acquisition using the purchase method of accounting, whereby City Zone is deemed to be the accounting acquirer (the legal acquiree)
and we are to be the accounting acquiree (legal acquirer). The financial statements before the date of the Share Exchange are
those of City Zone with our results being consolidated from the date of the Share Exchange. The equity section and earnings per
share have been retroactively restated to reflect the reverse acquisition and no goodwill has been recorded.
City Zone was incorporated in the British Virgin Islands (“BVI”)
on July 27, 2009 under the BVI Business Companies Act of 2004. In November 2009, pursuant to the restructuring plan set out below,
City Zone became the holding company of a group of companies comprising Most Smart International Limited ("Most Smart"),
Redsun Technology (Shenzhen) Co. Limited (“Shenzhen Redsun”), Shenzhen JiRuHai Technology Co., Ltd. ("Shenzhen
JiRuHai"), Detian Yu, JinzhongDeyu, JinzhongYongcheng and JinzhongYuliang.
Restructuring
In November 2009, pursuant to a restructuring plan intended to
ensure compliance with PRC rules and regulations, City Zone, through a series of acquisitions and wholly-owned subsidiaries, acquired
100% of the equity interests in JinzhongDeyu, JinzhongYuliang, and JinzhongYongcheng. The former shareholders and key management
of JinzhongDeyu, JinzhongYongcheng, and JinzhongYuliang became the ultimate controlling parties and key management of City Zone.
This restructuring has been accounted for as a recapitalization of JinzhongDeyu, JinzhongYongcheng and JinzhongYuliang with no
adjustment to the historical basis of the assets and liabilities of these companies, while the historical financial positions
and results of operations are consolidated as if the restructuring occurred as of the beginning of the earliest period presented
in our accompanying consolidated financial statements. For the purpose of a consistent and comparable presentation, the consolidated
financial statements have been prepared as if City Zone had been in existence since the beginning of the earliest and throughout
the whole periods covered by these consolidated financial statements.
Consolidation Scope:
Details of our subsidiaries subject to consolidation are as follows:
| |
Domicile and | |
| | |
Percentage | | |
|
| |
Date of | |
Registered | | |
of | | |
|
Name of Subsidiary | |
Incorporation | |
Capital | | |
Ownership | | |
Principal Activities |
City Zone Holdings Limited ("City Zone") | |
British Virgin Islands, July 27, 2009 | |
$ | 20,283,581 | | |
| 100 | % | |
Holding company of Most Smart |
| |
| |
| | | |
| | | |
|
Most Smart International Limited ("Most Smart") | |
Hong Kong, March 11, 2009 | |
$ | 1 | | |
| 100 | % | |
Holding company of Shenzhen Redsun |
| |
| |
| | | |
| | | |
|
Redsun Technology (Shenzhen) Co., Ltd. ("Shenzhen Redsun") | |
The PRC, August 20, 2009 | |
$ | 30,000 | | |
| 100 | % | |
Holding company of Shenzhen JiRuHai, Taizihu and Huichun |
| |
| |
| | | |
| | | |
|
Shenzhen JiRuHai Technology Co., Ltd.("Shenzhen JiRuHai") | |
The PRC, August 20, 2009 | |
$ | 14,638 | | |
| 100 | % | |
Holding company of Beijing Detian Yu |
| |
| |
| | | |
| | | |
|
Detian Yu Biotechnology (Beijing) Co., Ltd. ("Detian Yu") | |
The PRC, November 30, 2006 | |
$ | 7,637,723 | | |
| 100 | % | |
Wholesale distribution of simple-processed and deep-processed packaged food products and staple
food. Holding company of the following first five entities. |
| |
| |
| | | |
| | | |
|
JinzhongDeyu Agriculture Trading Co., Ltd. ("JinzhongDeyu") | |
The PRC, April 22, 2004 | |
$ | 1,492,622 | | |
| 100 | % | |
Organic grains preliminary processing and wholesale distribution. |
| |
| |
| | | |
| | | |
|
JinzhongYongcheng Agriculture Trading Co., Ltd. ("JinzhongYongcheng") | |
The PRC, May 30, 2006 | |
$ | 1,025,787 | | |
| 100 | % | |
Corns preliminary processing and wholesale |
| |
| |
| | | |
| | | |
|
JinzhongYuliang Agriculture Trading Co., Ltd. ("JinzhongYuliang") | |
The PRC, March 17, 2008 | |
$ | 13,963,243 | | |
| 100 | % | |
Corns preliminary processing and wholesale distribution. |
| |
| |
| | | |
| | | |
|
Tianjin Guandu Food Co., Ltd. ("Tianjin Guandu") * | |
The PRC, June 21, 2011 | |
$ | 1,544,497 | | |
| 100 | % | |
Wholesale distribution of simple-processed and deep-processed packaged food products and staple
food. |
| |
| |
| | | |
| | | |
|
HebeiYugu Grain Co., Ltd. ("HebeiYugu") | |
The PRC, July 25, 2011 | |
$ | 1,563,824 | | |
| 70 | % | |
Wholesale distribution of grain products and operating or acting as an agent of import &
export business for grain products. |
| |
| |
| | | |
| | | |
|
Shanxi Taizihu Food Co., Ltd. (“Taizihu”) | |
The PRC, July 27, 2003 | |
$ | 1,208,233 | | |
| 100 | % | |
Producing and selling fruit beverages and soybean products. |
| |
| |
| | | |
| | | |
|
Shanxi HuiChun Bean Products Co., Ltd. (“Huichun”) | |
The PRC, September 2, 2007 | |
$ | 2,636,192 | | |
| 100 | % | |
Producing and selling fruit beverages and soybean products. |
| |
| |
| | | |
| | | |
|
Jilin Jinglong Agriculture Development Limited (“Jinglong”) | |
The PRC, October 10, 2012 | |
$ | 3,152,138 | | |
| 99 | % | |
Procurement, storage and sales of corn and grain. |
|
* |
Tianjin Guandu completed the deregistration procedure with the Tianjin Industrial and Commercial
Bureau on May 28, 2014. |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited consolidated financial statements include the financial
statements of Deyu Agriculture Corp. and its subsidiaries. All significant intercompany account balances and transactions have
been eliminated in consolidation. Results of operations of companies purchased are included from the dates of acquisition.
These accompanying consolidated financial statements have been
prepared in accordance with US GAAP. The Company’s functional currency is the Chinese Yuan, or Renminbi (“RMB”);
however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”).
On April 27, 2010, as a result of the consummation of the Share
Exchange, we changed our fiscal year end from May 31 to December 31 to conform to the fiscal year end of City Zone.
Use of estimates
The preparation of the consolidated financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Management makes its estimates based on historical experience and various other assumptions
and information that are available and believed to be reasonable at the time the estimates are made. Therefore, actual results
could differ from those estimates under different assumptions and conditions.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks
and all highly liquid investments with original maturities of three months or less.
Accounts receivable
Accounts receivable are recorded at net realizable value consisting
of the carrying amount less allowance for doubtful accounts, as needed. We assess the collectability of accounts receivable based
primarily upon the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s
payment history. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these
reserves. While management uses the best information available upon which to base estimates, future adjustments to the allowance
may be necessary if economic conditions differ substantially from the assumptions used for the purposes of analysis. The balance
of allowance for doubtful accounts as of March 31, 2015 and December 31, 2014 was $1,353,571
and $1,337,364 respectively.
Inventories
The Company's inventories are stated at the lower of cost or
market. Cost is determined on a moving-average basis. Costs of inventories include purchase and related costs incurred in
delivering products to their present location and condition. Market value is determined by reference to selling prices after
the balance sheet date or to management’s estimates based on prevailing market conditions. Management periodically
evaluates the composition of its inventories at least quarterly to identify slow-moving and obsolete inventories to determine
if a valuation allowance is required. The balance of reserve for inventory valuation as of March 31, 2015 and December 31,
2014 was $140,709 and $140,582, respectively.
Property, plant, and equipment
Property, plant, and equipment are stated at cost less accumulated
depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; in addition, renewals and betterments
are capitalized. When property, plant, and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:
|
|
Useful
Life
(in years) |
|
Automobiles |
|
|
5 |
|
Buildings |
|
|
10-30 |
|
Office equipment |
|
|
5 |
|
Machinery and equipment |
|
|
5-10 |
|
Furniture & fixtures |
|
|
5 |
|
Construction-in-progress
Construction-in-progress consists of amounts expended for the construction
of a new factory park, and the cost of the portion of the land use right that the new factory park occupied. Construction-in-progress
is not depreciated until such time as the assets are completed and put into service. Once factory park construction is completed,
the cost accumulated in construction-in-progress will be transferred to property, plant, and equipment.
Long-lived assets
The Company applies the provisions of FASB ASC Topic 360 (ASC 360),
"Property, Plant, and Equipment" which addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance
with ASC 360, at least on an annual basis. ASC 360 requires the impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount
exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal. As of March 31, 2015 and December 31, 2014, the balance
of impairment of construction-in-progress was $772,788 and $772,091, respectively.
Intangible assets
For intangible assets subject to amortization, an impairment loss
is recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of
the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from
the use of the assets. As of March 31, 2015 and December 31, 2014, the balance of impairment of intangible assets was $6,833,181
and $6,557,755, respectively.
Fair value measurements
FASB ASC 820, “Fair Value Measurements” (formerly SFAS
No. 157) defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes
a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure
its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable
inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure
fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing
the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based
on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s
own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best
information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability
of the inputs as follows:
| · | Level 1 –
Inputs are quoted prices in active markets for identical assets or liabilities that the
Company has the ability to access at the measurement date. Valuation of these instruments
does not require a high degree of judgment as the valuations are based on quoted prices
in active markets that are readily and regularly available. |
| · | Level 2 –
Inputs other than quoted prices in active markets that are either directly or indirectly
observable as of the measurement date, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the
assets or liabilities. |
| · | Level 3 –
Valuations based on inputs that are unobservable and not corroborated by market data.
The fair value for such assets and liabilities is generally determined using pricing
models, discounted cash flow methodologies, or similar techniques that incorporate the
assumptions a market participant would use in pricing the asset or liability. |
This guidance applies to other accounting pronouncements that require
or permit fair value measurements. On February 12, 2008, the FASB finalized FASB Staff Position (FSP) No. 157-2, Effective Date
of FASB Statement No. 157 (ASC 820). This Staff Position delays the effective date of SFAS No. 157 (ASC 820) for nonfinancial
assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, except
for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).
The adoption of SFAS No. 157 (ASC 820) had no effect on the Company's financial position or results of operations for the three
months ended March 31, 2015.
We also analyze all financial instruments with features of both
liabilities and equity under ASC 480-10 (formerly SFAS 150, “Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity”) and ASC 815-40 (formerly EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock”). We have determined ASC 480-10 (formerly SFAS 150)
and ASC 815-40 (formerly EITF 00-19) had no material effect on our financial position or results of operations for the three months
ended March 31, 2015.
Revenue recognition
The Company’s revenue recognition policies are in compliance
with the SEC Staff Accounting Bulletin No. 104 (“SAB 104”). The Company recognizes product revenue when the following
fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) our price to
the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. The Company
recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally
used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance requirements,
when applicable, are used to verify product delivery or that services have been rendered. The Company assesses whether a price
is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to
refund or adjustment.
The Company’s revenue is recognized net of value-added tax
(VAT), reductions to revenue for estimated product returns, and sales discounts based on volume achieved in the same period that
the related revenue is recorded. The estimates are based on historical sales returns, analysis of credit memo data and other factors
known at the time. The sales discounts for the three months ended March 31, 2015 and 2014 were not material.
We offer a right of exchange on our grain products sold through
our relationships with grocery store networks. The consumer who purchases the product may exchange it for the same kind and quantity
of product originally purchased. In accordance with FASB ASC 605-15-25-1 and 605-15-15-2, these are not considered returns for
revenue recognition purposes. The returns of our products for the three months ended March 31, 2015 and 2014 were not material.
Advertising costs
The Company expenses the cost of advertising as incurred or, as
appropriate, the first time the advertising takes place. Advertising costs for the three months ended March 31, 2015 and 2014
were $76,715 and $30,185, respectively.
Research and development
The Company expenses its research and development costs as incurred.
Research and development expenses for the three months ended March 31, 2015 and 2014 were not material.
Stock-based compensation
In December 2004, the Financial Accounting Standard Board, or the
FASB, issued the Statement of Financial Accounting Standards, or SFAS, No. 123(R), “Share-Based Payment”, which replaces
SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) is now included in the FASB’s ASC Topic 718, “Compensation
– Stock Compensation.” Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period
during which employees or independent contractors are required to provide services. Share-based compensation arrangements include
stock options and warrants, restricted share plans, performance-based awards, share appreciation rights and employee share purchase
plans. In March 2005, the SEC issued Staff Accounting Bulletin No. 107, or SAB 107, which expresses views of the staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff’s views regarding the
valuation of share-based payment arrangements for public companies. SFAS No. 123(R) permits public companies to adopt its requirements
using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS No. 123(R). Companies
may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial
statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under
SFAS No. 123.
The Company has fully adopted the provisions of FASB ASC 718 and
related interpretations as provided by SAB 107. As such, compensation cost is measured on the date of grant as the fair value
of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the option
grant.
Income taxes
The Company accounts for income taxes in accordance with FASB ASC
Topic 740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income
taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if
it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption
had no material effect on the Company’s consolidated financial statements for the three months ended March 31, 2015.
Foreign currency translation and comprehensive income
U.S. GAAP requires that recognized revenue, expenses, gains, and
losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities,
such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such
items, along with net income, are components of comprehensive income. The functional currency of the Company is RMB. The unit
of RMB is in Yuan. Translation gains are classified as an item of other comprehensive income in the stockholders’ equity
section of the consolidated balance sheet.
Statement of cash flows
In accordance with FASB ASC Topic 230, “Statement of Cash
Flows,” cash flows from the Company’s operations is calculated based upon the local currencies. As a result, amounts
related to assets and liabilities reported on the consolidated statement of cash flows will not necessarily agree with changes
in the corresponding balances on the consolidated balance sheets.
Recent pronouncements
In February 2013, the FASB issued ASU 2013-02, “Comprehensive
Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” This ASU does not
change the current requirements for reporting net income or other comprehensive income in financial statements. However, this
guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income
by component. In addition, an entity is required to present, either on the face of the statement where net income is presented
or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of
net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in
the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail
about those amounts. For public entities, the guidance is effective prospectively for reporting periods beginning after December
15, 2012. For nonpublic entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013.
Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated
financial position and results of operations.
In July 2013, the FASB issued ASU 2013-11, “Income Taxes
(Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists.” An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented
in the financial statements as a reduction to a deferred tax asset. To the extent a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction
to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable
jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose,
the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred
tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred
tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date.
For public entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013. For nonpublic
entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2014. Early adoption is permitted.
The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position
and results of operations.
In December 2013, the FASB issued ASU 2013-12, “Definition
of a Public Business Entity”. The Board has decided that it should proactively determine which entities would be within
the scope of the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private
Companies (Guide). This will aim to minimize the inconsistency and complexity of having multiple definitions of, or a diversity
in practice as to what constitutes, a nonpublic entity and public entity within U.S. generally accepted accounting principles
(GAAP) on a going-forward basis. This Update addresses those issues by defining public business entity. The Accounting Standards
Codification includes multiple definitions of the terms nonpublic entity and public entity. The amendment in this Update improves
U.S. GAAP by providing a single definition of public business entity for use in future financial accounting and reporting guidance.
The amendment does not affect existing requirements. There is no actual effective date for the amendment in this Update. However,
the term public business entity will be used in Accounting Standards Updates which are the first Updates that will use the term
public business entity. The adoption of this standard is not expected to have a material impact on the Company’s consolidated
financial position and results of operations.
In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts
with Customers”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. An entity should disclose sufficient information to enable users of financial statements
to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For
a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. Early application is not permitted. The adoption of this standard is not expected
to have a material impact on the Company’s consolidated financial position and results of operations.
In August 2014, the FASB issued ASU 2014-15, “Presentation
of Financial Statements—Going Concern (Subtopic 205-40)”. In connection with preparing financial statements for each
annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within
one year after the date that the financial statements are issued (or within one year after the date that the financial statements
are available to be issued when applicable). The amendments in this Update are effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this standard
is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Accounts receivable | |
$ | 22,891,946 | | |
$ | 22,873,889 | |
Less: Allowance for doubtful accounts | |
| (1,353,570 | ) | |
| (1,337,364 | ) |
Accounts receivable, net | |
$ | 21,538,376 | | |
$ | 21,536,525 | |
NOTE 4. INVENTORY
Inventory consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Raw materials | |
$ | 833,605 | | |
$ | 751,095 | |
Finished goods | |
| 7,255,555 | | |
| 8,125,176 | |
Supplies | |
| 1,492,348 | | |
| 1,080,242 | |
Reserve for inventory valuation | |
| -140,709 | | |
| -140,582 | |
Total Inventory | |
$ | 9,440,799 | | |
$ | 9,815,931 | |
The balance of reserve for inventory valuation as of March 31,
2015 and December 31, 2014 was $142, 107 and $4,603,929 respectively.
NOTE 5. PREPAID EXPENSES
Prepaid expenses consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Deductible value-added taxes (VAT) | |
$ | 533,903 | | |
$ | 637,612 | |
Prepaid rent | |
| 198,138 | | |
| 290,190 | |
Prepaid other expenses | |
| 23,398 | | |
| 11,627 | |
Total | |
$ | 755,439 | | |
$ | 939,429 | |
NOTE 6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Automobiles | |
$ | 1,022,012 | | |
$ | 1,021,089 | |
Buildings | |
| 16,589,468 | | |
| 16,587,178 | |
Office equipment | |
| 987,783 | | |
| 986,892 | |
Machinery and equipment | |
| 8,890,087 | | |
| 8,869,381 | |
Furniture and fixtures | |
| 111,717 | | |
| 111,615 | |
Total cost | |
| 27,601,067 | | |
| 27,576,155 | |
Less: Accumulated depreciation | |
| (11,044,103 | ) | |
| (10,556,028 | ) |
Property, plant, and equipment, net | |
$ | 16,556,964 | | |
$ | 17,020,127 | |
The buildings owned by the Company located in Jinzhong and Quwo
in Shanxi Province, China are used for production, warehousing and offices for our corn and grains business.
As of March 31, 2015, $5.7 million (RMB 35.2 million) of buildings,
machinery and equipment owned by the Taizihu Group were pledged as collateral for short-term bank loans.
Depreciation expense for the three months ended March 31, 2015
and 2014 was $475,699 and $537,485, respectively.
NOTE 7. CONSTRUCTION-IN-PROGRESS
Construction-in-progress amounted to $373,
624 as of March 31, 2015 was mainly represents the cost of the water purification system, building and workshop decoration of
a new bean-based products production line in Huichun.
NOTE 8. INTANGIBLE ASSETS
Intangible assets consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Land use rights | |
$ | 14,354,385 | | |
$ | 14,341,429 | |
Software-ERP System and B2C platform | |
| 1,056,180 | | |
| 740,945 | |
Less: Accumulated amortization | |
| (1,168,874 | ) | |
| (1,110,323 | ) |
Impairment loss | |
| (6,833,181 | ) | |
| (6,512,731 | ) |
Total | |
$ | 7,408,510 | | |
$ | 7,459,320 | |
According to government regulations of the PRC, the PRC Government
owns all land. The Company owns the land use rights of farmland and industrial land.
JinzhongDeyu is one of the
Company-owned land use rights of the 17,000 acres of farmlands in Jinzhong, Shanxi Province. There is no active market for
trading of land use rights of those farmlands and the Company could not assess the fair market value of the land use rights
based on quoted prices in active markets. The Company assessed fair value of the land use rights based on discounted cash
flow and determined that it was less than the carrying value. The balance of impairment of farmland use rights as of March
31, 2015 and December 31, 2014 was $5,784,625 and 5,819,359,
respectively. As of March 31, 2015, the original value of the land use rights of the farmland was $7,708,000 and was
written-down to $1,923,375.
The Company determined the
Software-ERP system (“ERP”) and B2C platform owned by JinzhongDeyu for retail sales of the Grain Division was not
applicable for its current business operations due to the reduction of retail sales. The balance of impairment of ERP system
and B2C platform as of March 31, 2015 and December 31, 2014 was $1,048,556
and $738,396, respectively. As of March 31, 2015, the carrying value of ERP system and B2C platform was $1,048,556 and was
written down to $0.
The Company leases and has obtained a certificate of right
of use on 11,667 square meters with the PRC Government in Jinzhong, Shanxi Province where JinzhongDeyu's buildings and production
facility are located. The term of the right is four to five years and is automatically renewed upon expiration. The right was
fully amortized as of December 31, 2010 using the straight-line method. On June 18, 2012, the Company received the extended land
use right certificate and the term of the right was extended to March 14, 2037.
Huichun leases and has obtained a certificate of right to use on
100,000 square meters of industrial land with the PRC Government in Quwo County, Shanxi Province where Taizihu Group’s buildings
and production facility are located. The term of the right is 50 years from October 28, 2008 to October 27, 2058. The amortization
of the land use right was commenced in October 2008 using the straight-line method over 50 years.
As of March 31, 2015, $3,896,101 (RMB 19 million) of the land use
right owned by Taizihu Group was pledged as collateral for short-term bank loans.
Amortization expense of the intangible assets for the three months
ended March 31, 2015 and 2014 was $57,548 and $65,161, respectively.
NOTE 9. SHORT-TERM LOANS
Short-term loans consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Bank loan payable to Agriculture Development Bank of China,
bearing interest at the prime rate based on six-month to one-year loan interest rate
released by The People's Bank of China. The actual interest rates as of March 31, 2015
and December 31, 2014 were 6.00%. The term of the loan started from August 14, 2012 with
maturity date on August 13, 2013. The loan was obtained by Taizihu and pledged by its
buildings and land use right. On July 31, 2013 the loan was repaid for $65,359
(or RMB400,000). As of March 31,
2015, the loan balance was $2,355,219 (or RMB14,600,000). As of the date of this filing,
the Company has been in negotiation with the lender on renewal of the loan. The Company
is not currently able to predict the probability of the success on the renewal and will
repay the loan immediately if the loan cannot be renewed.
| |
$ | 2,355,219 | | |
$ | 2,353,093 | |
| |
| | | |
| | |
Bank loan payable to Agriculture Development Bank of China, bearing interest at the prime rate,
based on six-month to one-year loan interest rate released by The People's Bank of China. The actual interest rates as of
March 31, 2015 and December 31, 2014 were 6.0%. The term of the loan started from September 18, 2012 with maturity date on
September 17, 2013. The loan was obtained by Taizihu and pledged by its buildings and land use right. As of the date
of this filing, the Company has been in negotiation with the lender on renewal of the loan. The Company is not currently able
to predict the probability of the success on the renewal and will repay the loan immediately if the loan cannot be renewed. | |
| 1,451,847 | | |
| 1,450,537 | |
| |
| | | |
| | |
Bank loan payable to Jinzhong City Yuci District Rural Credit Union Co., Ltd., bearing
interest at a fixed rate of prime rate plus 145% of prime rate, of
which prime rate was based on six-month to one-year loan interest rate released by The People's Bank of China. The actual
interest rates as of March 31, 2015 were 14.688%. The term of the loan started from September 12, 2014 with maturity date
on September 11, 2015. The loan was obtained by Jinzhong Yongcheng and guaranteed by Yuci Jinmao Food Processing Factory,
a related party, for a period of two years starting from September 17, 2015. | |
| 1,371,189 | | |
| 1,369,951 | |
| |
| | | |
| | |
Bank loan payable to Jinzhong City Yuci District Rural Credit Union Co.,
Ltd., bearing interest at a fixed rate of prime rate plus 145%
of prime rate, of which prime rate was based on six-month to one-year loan interest rate released
by The People's Bank of China. The actual interest rates as of March 31, 2015 were 14.688%. The
term of the loan started from September 12, 2014 with maturity date on September 11, 2015. The
loan was obtained by Jinzhong Yuliang and guaranteed by Yuci Jinmao Food Processing Factory,
a related party, for a period of two years starting from September 17, 2015. | |
| 1,371,189 | | |
| 1,369,951 | |
| |
| | | |
| | |
Bank loan payable to Agriculture Development Bank of China, bearing interest
at the prime rate, based on six-month to one-year loan interest rate released by The People's Bank of China. The actual interest
rate as of March 31, 2015 was 6.0%. The term of the loan started from January 4, 2013 with maturity date on January 3, 2014.
The loan was obtained by Taizihu and pledged by its buildings and land use right. As of the date of this filing, the
Company has been in negotiation with the lender on renewal of the loan. The Company is not currently able to predict the probability
of the success on the renewal and will repay the loan immediately if the loan cannot be renewed. | |
| 725,923 | | |
| 725,269 | |
| |
| | | |
| | |
Total | |
$ | 7,275,367 | | |
$ | 7,268,801 | |
NOTE 10. ACCRUED EXPENSES
Accrued expenses consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Accrued VAT and other taxes | |
$ | 434,339 | | |
$ | 422,049 | |
Accrued payroll | |
| 176,194 | | |
| 179,117 | |
Others | |
| 895,999
| | |
| 805,353
| |
Total | |
$ | 1,506,531
| | |
$ | 1,406,519 | |
NOTE 11. INCOME TAXES
United States
Deyu Agriculture Corp. is incorporated in the State of Nevada in
the United States of America and is subject to the U.S. federal and state taxation. No provision for income taxes have been made
as the Company has no taxable income in the U.S. The applicable income tax rate for the Company for the three months ended March
31, 2015 and 2014 was 34%. No tax benefit has been realized since a 100% valuation allowance has offset deferred tax asset resulting
from the net operating losses.
British Virgin Islands
City Zone, a wholly-owned subsidiary of the Company, is incorporated
in the BVI and, under the current laws of the BVI, is not subject to income taxes.
Hong Kong
Most Smart, a wholly-owned subsidiary of the Company, is incorporated
in Hong Kong. Most Smart is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived
from Hong Kong. No provision for income taxes have been made as Most Smart has no taxable income in Hong Kong.
People’s Republic of China
Under the Enterprise Income Tax (“EIT”) Law of the
PRC, the standard EIT rate is 25%. The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which they operate. According to the Tax Pronouncement [2008] No. 149 issued
by the State Administration of Tax of the PRC, the preliminary processing industry of agricultural products is entitled to EIT
exemption starting January 1, 2008. Three of the Company’s wholly-owned subsidiaries located in the Shanxi Province, China,
including JinzhongDeyu, JinzhongYongcheng and JinzhongYuliang, are subject to the EIT exemption. All other subsidiaries are subject
to the 25% EIT rate.
The provision for income taxes on income consisted of the following
for the three months ended March 31, 2015 and 2014:
| |
For The Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Current income tax expense (benefit) | |
| | | |
| | |
U.S. | |
$ | - | | |
$ | - | |
PRC | |
| 56,448 | | |
| 83,249 | |
Total current expense (benefit) | |
$ | 56,448 | | |
$ | 83,249 | |
| |
| | | |
| | |
Deferred income tax expense (benefit) | |
| | | |
| | |
U.S. | |
$ | - | | |
$ | - | |
PRC | |
| - | | |
| - | |
Income tax expense (benefit) | |
$ | 56,448 | | |
$ | 83,249 | |
The following is a reconciliation of the statutory tax rate to
the effective tax rate for the three months ended March 31, 2015 and 2014:
| |
For The Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Expected U.S. income tax expense | |
| 34.0 | % | |
| 34.0 | % |
Increase (decrease) in taxes resulting from: | |
| | | |
| | |
Tax-exempt income | |
| -32.9 | % | |
| -33.0 | % |
Foreign tax differential | |
| 0.2 | % | |
| 0.0 | % |
Change in valuation allowance | |
| 4.6 | % | |
| -0.2 | % |
Intercompany elimination | |
| 0.0 | % | |
| 0.0 | % |
Other | |
| -3.5 | % | |
| 0.1 | % |
Income tax expense | |
| 2.4 | % | |
| 0.9 | % |
Significant components of the Company’s net deferred tax
assets as of March 31, 2015 and December 31, 2014 are presented in the following table:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Deferred tax assets | |
| | | |
| | |
Net operating loss carryforwards (NOL) | |
$ | 5,741,096 | | |
$ | 5,696,456 | |
Share-based compensation | |
| 407,099 | | |
| 407,099 | |
Others | |
| 438,203 | | |
| 438,122 | |
Total | |
| 6,586,398 | | |
| 6,541,677 | |
Less: Valuation allowance | |
| (6,586,398) | | |
| (6,541,677 | ) |
Total deferred tax assets, net | |
$ | - | | |
$ | - | |
As of March 31, 2015, the Company accrued a 100% valuation allowance
on its deferred tax assets based on the assessment on the probability of future reversion.
NOTE 12. NET INCOME (LOSS) PER SHARE
Reconciliation of the basic and diluted net income (loss) per share
was as follows:
| |
Amounts | | |
Shares | | |
Per Share | |
| |
(Numerator) | | |
(Denominator) | | |
Amount | |
For the Three Months Ended March 31, 2015: | |
| | | |
| | | |
| | |
Net income (loss) attributable to common stockholders - basic | |
$ | (2,499,150
| ) | |
| 11,044,328 | | |
$ | (0.23 | ) |
Preferred dividends applicable to convertible preferred
stocks | |
| - | | |
| - | | |
| | |
Net income (loss) attributable to common stockholders
- diluted | |
$ | (2,499,150
| ) | |
| 11,044,328 | | |
$ | (0.23 | ) |
| |
| | | |
| | | |
| | |
For the Three Months Ended March 31, 2014: | |
| | | |
| | | |
| | |
Net income attributable to common stockholders - basic | |
$ | (9,418,248 | ) | |
| 10,793,738 | | |
$ | (0.87 | ) |
Preferred dividends applicable to convertible preferred
stocks | |
| | | |
| | | |
| | |
Net income attributable to common stockholders -
diluted | |
$ | (9,418,248 | ) | |
| 10,793,738 | | |
$ | (0.87 | ) |
NOTE 13. SHAREHOLDERS’ EQUITY
Reverse Acquisition and Private Placement
On April 27, 2010, we completed the acquisition of City Zone by
means of a Share Exchange with (i) City Zone, (ii) the City Zone Shareholders and (iii) our principal shareholders (see NOTE 1).
Pursuant to the terms of the Share Exchange, Expert Venture and the other City Zone Shareholders transferred to us all of the
shares of City Zone in exchange for the issuance of 8,736,932 shares of our common stock so that Expert Venture and the other
minority shareholders of City Zone shall own at least a majority of our outstanding shares.
Our directors approved the Share Exchange and the transactions
contemplated thereby. The directors of City Zone also approved the Share Exchange and the transactions contemplated thereby.
As a result of the Share Exchange, we acquired 100% of the equity
interests of City Zone, the business and operations of which now constitute our primary business and operations through its wholly-owned
PRC subsidiaries. Specifically, as a result of the Share Exchange:
| · | We issued 8,736,932
shares of our common stock to the City Zone Shareholders; |
| · | The ownership
position of our shareholders who were holders of common stock immediately prior to the
Share Exchange changed from 100% to 9.5% (fully diluted) of our outstanding shares; and |
| · | City Zone Shareholders
were issued our common stock constituting approximately 65.71% of our fully diluted outstanding
shares. |
Immediately after the Share Exchange, we entered into a securities
purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) for
the issuance and sale in a private placement of 1,866,174 Units at $4.40 per Unit, with each Unit consisting of one share of Series
A convertible preferred stock, par value $ 0.001 per share (the “Investor Shares”) and a warrant to purchase 0.4 shares
of our common stock with an exercise price of $ 5.06 per share (the “Warrants”). We initially received gross proceeds
from the sale of the 1,866,174 Investor Shares and Warrants to purchase up to 746,479 shares of our common stock of $8,211,166
(the “Private Placement”).
In connection with the Private Placement, we also entered into
a registration rights agreement (the “Registration Rights Agreement”) with the Investors, in which we agreed to file
a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”)
to register for resale the Investor Shares, within 60 calendar days of April 27, 2010, and use our best efforts to have the Registration
Statement declared effective within 180 calendar days of April 27, 2010. On October 21, 2010, the SEC declared the Registration
Statement effective and no liquidated damages were incurred.
In connection with the Private Placement, Maxim Group, LLC acted
as our financial advisor and placement agent (the “Placement Agent” or “Maxim”). The Placement Agent received
a cash fee equal to 7% of the gross proceeds of the Private Placement. Maxim also received warrants to purchase 171,911 shares
of our common stock at a price per share of $4.84 (the “Placement Agent Warrants”). Pursuant to the original placement
agreement entered into by and between Detian Yu and the Placement Agent on January 27, 2010 (the “Original Placement Agreement”),
we engaged the Placement Agent to act as the exclusive agent to sell the Units in this offering on a “commercially reasonable
efforts basis.” The Placement Agent also received a cash corporate finance fee equally to 1% of our gross proceeds raised
in the offering, payable at the time of each closing; five (5) year warrants to purchase that number of shares of Series A convertible
preferred stock equal to 5% of the aggregate number of shares of Series A convertible preferred stock underlying the Units issued
pursuant to the offering; and a non-refundable cash retainer of $25,000 payable upon the execution of the retainer agreement.
We also agreed to pay for all of the reasonable expenses the Placement Agent incurred in connection with the offering.
On May 10, 2010, we closed on the second and final round of the
Private Placement for the issuance and sale of 589,689 Units, consisting of 589,689 shares of Series A convertible preferred
stock and 235,883 five-year Series A Warrants with an exercise price of $ 5.06 per share, to certain Investors for total gross
proceeds of $2,594,607.
We raised an aggregate amount of $10,805,750 in the offering in
two closing events. As of the final closing, we had 9,999,999 shares of common stock issued and outstanding. In connection with
the offering, we issued a total of 2,455,863 shares of Series A convertible preferred shares and 982,362 Series A Warrants to
the Investors. Additionally, the Placement Agent received 171,911 warrants.
Common Stock
As of the final closing of the Private Placement, we
had 9,999,999 shares of common stock issued and outstanding. Between the final closing of the Private Placement and March
31, 2015, an aggregate of 964,329 shares of Series A convertible preferred stock were converted into 964,329 shares of
common stock, and 80,000 shares of common stock were issued. As of March 31, 2015, the total number of shares of common
stock issued and outstanding was 11,044,328 shares.
Series A Convertible Preferred Stock
Holders of Series A convertible preferred stock (“Series
A Preferred”) are entitled to receive cumulative dividends in preference to the holders of our common stock at an annual
rate of 5% of the applicable per Series A Preferred original purchase price (the “Dividend Preference” and the “Dividends”).
If, after the Dividend Preference has been fully paid or declared and set apart, the Company shall make any additional distributions,
then the holders of Series A Preferred shall participate with the holders of common stock on an as-converted basis with respect
to such distributions. Dividends are payable in cash or shares of Series A Preferred, at the Company’s option.
Upon any liquidation, dissolution or winding up of the Company,
the holders of Series A Preferred will be entitled to receive, out of the assets of the Company available for distribution to
its shareholders, an amount equal to $4.40 per share (the “Liquidation Preference Amount”), before any payment shall
be made or any assets distributed to the holders of the common stock (the “Liquidation Preference”).
Each holder of Series A Preferred will have the right, at the option
of the holder at any time on or after the issuance of the Series A Preferred, without the payment of additional consideration,
to convert the Series A Preferred into a number of fully paid and nonassessable shares of common stock equal to: (i) the Liquidation
Preference Amount of such share divided by (ii) the Conversion Price in effect as of the date of the conversion in accordance
with the Certificate of Designations of the Series A Preferred.
For a period of two (2) years following the issuance of the Series
A Preferred, the conversion price of Series A Preferred was subject to adjustment for issuances of common stock (or securities
convertible or exchangeable into shares of common stock) at a purchase price less than the conversion price of the Series A Preferred.
The Series A Preferred does not contain any repurchase or redemption rights.
Current accounting standards require that we evaluate the terms
and conditions of convertible preferred stock to determine (i) if the nature of the hybrid financial instrument, based upon its
economic risks, is more akin to an equity contract or a debt contract for purposes of establishing classification of the embedded
conversion feature and (ii) the classification of the host or hybrid financial instrument. Based upon a review of the terms and
conditions of the Series A Preferred, the Company has concluded that the financial instrument is more akin to an equity financial
instrument. The major consideration underlying this conclusion is that the Series A Preferred is a perpetual financial instrument
with no stated maturity or redemption date, or other redemption that is not within the Company’s control. Other considerations
in support of the equity conclusion included the voting rights and conversion feature into common shares. While the cumulative
dividend feature may, in some instances, be likened to a debt-type coupon, the absence of a stated maturity date was determined
to establish the cumulative dividend as a residual return, which does not obviate the equity nature of the financial instrument.
Further, there are no cash redemption features that are not within the control of our management. As a result, classification
in shareholders’ equity is appropriate for the Series A Preferred.
As of March 31, 2015, an aggregate of 964,329 shares of Series
A Preferred were converted into 964,329 shares of common stock and an aggregate of 468,598 shares of Series A Preferred were issued
as dividends to the shareholders of Series A Preferred. As of March 31, 2015, the total number of shares of Series A Preferred
issued and outstanding was 1,960,132 shares.
For the three months ended March 31, 2015 and 2014, the Company
recorded $107,807 and $102,349 in preferred dividend expenses, respectively.
Series A Warrants
We issued Series A Warrants to the Investors and the Placement
Agent having strike prices of $5.06 and $4.84, respectively, and they expire five (5) years from the original date of issuance.
The strike prices are subject to adjustment only for changes in our capital structure, but allow for cashless exercise under a
formula that limits the aggregate issuable common shares. There are no redemption features embodied in the warrants and they have
met the conditions provided in current accounting standards for equity classification.
There were 982,362 Series A Warrants sold together with the Series
A Preferred to the Investors, each of which:
| (a) | entitles the holder to purchase one (1) share of common stock; |
| (b) | are exercisable at any time after consummation of the transactions
contemplated by the Purchase Agreement and shall expire on the date that is five years
following the original issuance date of the Series A Warrants; |
| (c) | are exercisable, in whole or in part, at an exercise price
of $5.06 per share of common stock; and |
| (d) | are exercisable only for cash (except that there will be
a cashless exercise option if, after twelve months from the Issue Date, (i) the Per Share
Market Value of one share of common stock is greater than the Warrant Price (at the date
of calculation) and (ii) a registration statement under the Securities Act providing
for the resale of the common stock issuable upon exercise of Warrant Shares is not in
effect, in lieu of exercising the Series A Warrant by payment of cash). |
The Series A Warrants expired on April 27, 2015. Aggregate
gross proceeds from the two (2) closing events amounted to $10,805,750. Direct financing costs totaled $1,742,993, of which
$1,555,627 was paid in cash and the balance of $187,366 represents the fair value of warrants linked to 171,911 shares of our
common stock that were issued to Maxim. The proceeds and the related direct financing costs were allocated to the Series A
Preferred and the Series A Warrants (classified in paid-in capital) based upon their relative fair values. The following
table summarizes the components of the allocation:
| |
Paid-in | | |
| | |
| |
| |
Series A | | |
Capital | | |
| |
| |
Preferred | | |
Warrants | | |
Total | |
Fair values of financial instruments | |
$ | 10,248,092 | | |
$ | 1,039,978 | | |
$ | 11,288,070 | |
| |
| | | |
| | | |
| | |
Gross proceeds | |
$ | 9,810,227 | | |
$ | 995,523 | | |
$ | 10,805,750 | |
Direct financing costs | |
| (1,581,550 | ) | |
| (161,443 | ) | |
| (1,742,993 | ) |
Fair value of placement agent warrants | |
| - | | |
| 187,366 | | |
| 187,366 | |
| |
$ | 8,228,677 | | |
$ | 1,021,446 | | |
$ | 9,250,123 | |
Fair value considerations:
Our accounting for the sale of Series A Preferred and Series A
Warrants, and the issuance of the Series A Warrants to Maxim required the estimation of fair values of the financial instruments
on the financing inception date. The development of fair values of financial instruments requires the selection of appropriate
methodologies and the estimation of often subjective assumptions. We selected the valuation techniques based upon consideration
of the types of assumptions that market participants would likely consider in exchanging the financial instruments in market transactions.
The Series A Preferred was valued based upon a common stock equivalent method, enhanced by the cumulative dividend feature. The
dividend feature was valued as the estimated cash flows of the dividends discounted to present value using an estimated weighted
average cost of capital. The warrants were valued using a Black-Scholes-Merton Valuation Technique because it embodies all of
the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments.
These fair values were necessary to develop relative fair value
calculation for allocations of certain elements of the financing arrangement, principally proceeds and the related direct financing
costs. The following tables reflect assumptions used to determine the fair value of the Series A Preferred:
| |
| | |
Series A | | |
Series A | |
| |
Fair Value | | |
Preferred | | |
Preferred | |
| |
Hierarchy | | |
April 27, | | |
May 10, | |
| |
Level | | |
2010 | | |
2010 | |
Indexed common shares | |
| | | |
| 1,866,174 | | |
| 589,689 | |
| |
| | | |
| | | |
| | |
Components of fair value: | |
| | | |
| | | |
| | |
Common stock equivalent value | |
| | | |
$ | 6,631,403 | | |
$ | 2,083,094 | |
Dividend feature | |
| | | |
| 659,821 | | |
| 209,439 | |
| |
| | | |
$ | 7,291,224 | | |
$ | 2,292,533 | |
| |
| | | |
| | | |
| | |
Significant assumptions: | |
| | | |
| | | |
| | |
Common stock price | |
| 3 | | |
| 3.55 | | |
| 3.53 | |
Horizon for dividend cash flow projection | |
| 3 | | |
| 2.00 | | |
| 2.00 | |
Weighted average cost of capital ("WACC") | |
| 3 | | |
| 15.91 | % | |
| 15.55 | % |
Fair value hierarchy of the above assumptions can be categorized
as follows:
| (1) | Level 1 inputs are quoted prices in active markets for identical
assets and liabilities, or derived therefrom. There were no level 1 inputs. |
| (2) | Level 2 inputs are significant other observable inputs. There
were no level 2 inputs. |
| (3) | Level 3 inputs are unobservable inputs. Inputs for which
any parts are level 3 inputs are classified as level 3 in their entirety. |
| · | Stock price-
Given that management did not believe our trading market price was indicative of the
fair value of our common stock at the measurement date, the common stock price value
was derived implicitly from an iterative process based upon the assumption that the consideration
of the Private Placement was the result of an arm’s length transaction. The Private
Placement was composed of shares of Series A Preferred and Series A Warrants which were
both indexed to our common stock; accordingly, we used an iterative process to determine
the value of our common stock in order for the fair value of the Series A Preferred and
Series A Warrants to equal the amount of consideration received in the Private Placement. |
| · | Dividend horizon-
We estimated the horizon for dividend payment at 2 years. |
| · | WACC- The
rates utilized to discount the cumulative dividend cash flows to their present values
were based on a weighted average cost of capital of 18.94 % and 18.60 %, as of April
27, 2010 and May 10, 2010, respectively. This discount rate was determined after consideration
of the rate of return on debt capital and equity that typical investors would require
in an investment in companies similar in size and operating in similar markets as Deyu
Agriculture Corp. The cost of equity was determined using a build-up method which begins
with a risk free rate and adds expected risk premiums designed to reflect the additional
risk of the investment. Additional premiums or discounts related specifically to us and
the industry are also added or subtracted to arrive at the final cost of equity rate.
The cost of debt was determined based upon available financing terms. |
| · | Significant
inputs and assumptions underlying the model calculations related to the warrant valuations
are as follows: |
The following tables reflect assumptions used
to determine the fair value of the Series A Warrants:
| |
Fair Value | | |
April 27, 2010 | | |
May 10, 2010 | |
| |
Hierarchy | | |
Investor | | |
Agent | | |
Investor | | |
Agent | |
| |
Level | | |
warrants | | |
warrants | | |
warrants | | |
Warrants | |
| |
| | |
| | |
| | |
| | |
| |
Indexed shares | |
| | | |
| 746,479 | | |
| 130,632 | | |
| 235,883 | | |
| 41,279 | |
Exercise price | |
| | | |
| 5.06 | | |
| 4.84 | | |
| 5.06 | | |
| 4.84 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Significant assumptions: | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock price | |
| 3 | | |
| 3.55 | | |
| 3.55 | | |
| 3.53 | | |
| 3.53 | |
Remaining term | |
| 3 | | |
| 5 years | | |
| 5 years | | |
| 5 years | | |
| 5 years | |
Risk free rate | |
| 2 | | |
| 2.39 | % | |
| 2.39 | % | |
| 2.24 | % | |
| 2.24 | % |
Expected volatility | |
| 2 | | |
| 45.25 | % | |
| 45.25 | % | |
| 45.47 | % | |
| 45.47 | % |
Fair value hierarchy of the above assumptions can be categorized
as follows:
| (1) | There were no Level 1 inputs. |
| (2) | Level 2 inputs include: |
| • | Risk-free rate- This rate is based on publicly-available
yields on zero-coupon U.S. Treasury securities with remaining terms to maturity consistent
with the remaining contractual term of the Series A Warrants. |
| • | Expected volatility- We did not have a historical trading
history sufficient to develop an internal volatility rate for use in the model. As a
result, we have used a peer approach wherein the historical trading volatilities of certain
companies with similar characteristics as ours and who had a sufficient trading history
were used as an estimate of our volatility. In developing this model, no one company
was weighted more heavily than another. |
| (3) | Level 3 inputs include: |
| • | Stock price- Given that management did not believe our
trading market price was indicative of the fair value of our common stock at the measurement
date, the stock price was determined implicitly from an iterative process based upon
the assumption that the consideration of the Private Placement was the result of an arm’s
length transaction. |
| • | Remaining term- We do not have a history to develop the
expected term for our warrants. Accordingly, we have used the contractual remaining term
in our calculations. |
The following is a summary of the status and activity of warrants
outstanding as of March 31, 2015:
Outstanding
Warrants |
Exercise
Price | | |
Number
of Warrants | | |
Average
Remaining Contractual Life |
$ | 5.06 | | |
| 982,362 | | |
0.07 years |
$ | 4.84 | | |
| 171,911 | | |
0.07 years |
| Total | | |
| 1,154,273 | | |
|
| |
Number
of Warrants | |
Outstanding as of December 31, 2014 | |
| 1,154,273 | |
Granted | |
| - | |
Forfeited | |
| - | |
Exercised | |
| - | |
Outstanding as of March 31, 2015 | |
| 1,154,273 | |
NOTE 14. SHARE-BASED COMPENSATION
As of March 31, 2015, the Company had one share-based compensation
plan as described below. The compensation cost that had been charged against income for the plan was $nil and $585 for the three
months ended March 31, 2015 and 2014, respectively. The related income tax benefit recognized was $nil and $199 for the three
months ended March 31, 2015 and 2014, respectively. A 100 % valuation allowance was assessed against the deferred tax assets derived
from such tax benefit as of March 31, 2015 and 2014.
On November 4, 2010, the Company’s Board of Directors approved
the Company’s 2010 Share Incentive Plan. On November 8, 2010, a total of 931,000 non-qualified incentive stock options
were approved by our Board of Directors and granted under the Plan to executives, key employees, independent directors, and consultants
at an exercise price of $4.40 per share and on December 15, 2010, 40,000 non-qualified incentive stock shares were approved by
our Board of Directors and granted under the Plan to a consultant at an exercise price of $4.40 per share, of which shall vest
as follows:
33 1/3% of the option grants vested one (1) month after
the date of grant;
33 1/3% of the option grants vested twelve (12) months
after the date of grant; and
33 1/3% of the option grants vested twenty-four (24)
months after the date of grant.
On March 8, 2012, the Company’s Board of Directors increased
the number of shares allocated to and authorized for use under the Plan from 1,000,000 shares to the maximum number of shares
allowable pursuant to the terms of the Plan and granted 420,000 options under the Plan to independent directors, officers and
key employees of the Company, of which included some new options and those re-granted after such options were forfeited by other
former employees as a result of their resignations from the Company in accordance with the terms of their option agreements. All
of the granted options vest as follows:
50 % of the options granted vested six (6) months after
the date of the grant; and
50 % of the options granted vested twelve (12) months
after the date of the grant.
On November 23, 2012, our Board of Directors allocated to and authorized
to re-grant 150,000 options to a director of the Company after such options were forfeited by other former employees as a result
of their resignations from the Company in accordance with the terms of their option agreements. All of the granted options vest
as follows:
33 1/3% of the option grants vested one (1) month after
the date of grant;
33 1/3% of the option grants vested twelve (12) months
after the date of grant; and
33 1/3% of the option grants vested twenty-four (24)
months after the date of grant.
The fair value of each option award was estimated on the date of
grant using a Black-Scholes option pricing model that uses the assumptions noted in the following table. The model is based on
the assumption that it is possible to set up a perfectly hedged position consisting of owning the shares of stock and selling
a call option on the stock. Any movement in the price of the underlying stock will be offset by an opposite movement in the options
value, resulting in no risk to the investor. This perfect hedge is riskless and, therefore, should yield the riskless rate of
return. As the Black-Scholes option pricing model applies to stocks that do not pay dividends, we made an adjustment developed
by Robert Merton to approximate the option value of a dividend-paying stock. Under this adjustment method, it is assumed that
the Company’s stock will generate a constant dividend yield during the remaining life of the options.
The following tables reflect assumptions used to determine the
fair value of the option award:
Options granted on November 8, 2010:
Exercisable Period | |
12/8/2010 - 11/8/2020 | | |
11/8/2011 - 11/8/2020 | | |
11/8/2012 - 11/8/2020 | |
Risk-free Rate (%) | |
| 1.12 | | |
| 1.27 | | |
| 1.46 | |
Expected Lives (years) | |
| 5.04 | | |
| 5.50 | | |
| 6.00 | |
Expected Volatility (%) | |
| 46.10 | | |
| 44.49 | | |
| 43.04 | |
Expected forfeitures per year (%) | |
| 0.00-55.00 | | |
| 0.00-55.00 | | |
| 0.00-55.00 | |
Dividend Yield (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
Options granted on December 15, 2010:
Exercisable Period | |
1/15/2011 - 12/15/2020 | | |
12/15/2011 - 12/15/2020 | | |
12/15/2012 - 12/15/2020 | |
Risk-free Rate (%) | |
| 2.15 | | |
| 2.32 | | |
| 2.50 | |
Expected Lives (years) | |
| 5.04 | | |
| 5.50 | | |
| 6.00 | |
Expected Volatility (%) | |
| 46.15 | | |
| 44.52 | | |
| 43.09 | |
Expected forfeitures per year (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
Dividend Yield (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
Options granted on March 8, 2012:
Exercisable Period | |
09/08/2012 - 03/08/2020 | | |
03/08/2013 - 03/08/2020 | |
Risk-free Rate (%) | |
| 0.94 | | |
| 1.00 | |
Expected Lives (years) | |
| 5.25 | | |
| 5.49 | |
Expected Volatility (%) | |
| 45.91 | | |
| 45.22 | |
Expected forfeitures per year (%) | |
| 0.00 | | |
| 0.00 | |
Dividend Yield (%) | |
| 0.00 | | |
| 0.00 | |
Options granted on November 23, 2012:
Exercisable Period | |
12/23/2012 - 11/8/2020 | | |
11/23/2013 - 11/8/2020 | | |
11/23/2014 - 11/8/2020 | |
Risk-free Rate (%) | |
| 0.53 | | |
| 0.60 | | |
| 0.68 | |
Expected Lives (years) | |
| 4.02 | | |
| 4.48 | | |
| 4.98 | |
Expected Volatility (%) | |
| 37.43 | | |
| 46.48 | | |
| 46.45 | |
Expected forfeitures per year (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
Dividend Yield (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
Fair value hierarchy of the above assumptions can be categorized
as follows:
| (1) | There were no Level 1 inputs. |
| (2) | Level 2 inputs include: |
| · | Risk-free rate-
This rate is based on continuous compounding of publicly-available yields on U.S. Treasury
securities with remaining terms to maturity consistent with the expected term of the
options at the dates of grant. |
| · | Expected volatility-
We did not have a historical trading history sufficient to develop an internal volatility
rate for use in the model. As a result, we have used a peer approach wherein the historical
trading volatilities of certain companies with similar characteristics as ours and who
had a sufficient trading history were used as an estimate of our volatility. In developing
this model, no one company was weighted more heavily than another. |
| (3) | Level 3 inputs include: |
| · | Expected lives-
The expected lives of options granted were derived from the output of the option valuation
model and represented the period of time that options granted are expected to be outstanding. |
| · | Expected forfeitures
per year- The expected forfeitures are estimated at the dates of grant and will be revised
in subsequent periods pursuant to actual forfeitures, if significantly different from
the previous estimates. |
The estimates of fair value from the model are theoretical values
of stock options and changes in the assumptions used in the model could result in materially different fair value estimates. The
actual value of the stock options will depend on the market value of the Company’s common stock when the stock options are
exercised.
A summary of option activity under the Plan as of March 31, 2015,
and changes during the three months ended March 31, 2015 are presented below:
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
Intrinsic |
|
Options |
|
Shares |
|
|
Price |
|
|
Term |
|
Value |
|
Outstanding as of January 1, 2015 |
|
|
750,000 |
|
|
$ |
3.14 |
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
Exercised |
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
Forfeited |
|
|
(80,000 |
) |
|
$ |
4.40 |
|
|
|
|
|
|
|
Outstanding as of March 31, 2015 |
|
|
670,000 |
|
|
$ |
2.99 |
|
|
3.12 Years |
|
$ |
537,202 |
|
Exercisable as of March 31, 2015 |
|
|
670,000 |
|
|
$ |
2.99 |
|
|
2.91 Years |
|
$ |
537,202 |
|
Vested and expected to vest (1) |
|
|
670,000 |
|
|
$ |
2.99 |
|
|
3.12 Years |
|
|
|
|
(1) Includes
vested shares and unvested shares after a forfeiture rate is applied.
As of March 31, 2015, the Company’s unvested shares were
all vested.
NOTE 15. RELATED PARTY TRANSACTIONS
Due to related parties
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Due to Mr. He Hao | |
$ | 13,971 | | |
$ | 13,958 | |
Total | |
$ | 13,971 | | |
$ | 13,958 | |
Mr. Hao He is the former shareholder of Huichun and Taizihu.
Guarantees
As of March 31, 2015, YuciJinmao Food Processing Factory, of which
the legal representative is JunlianZheng, the wife of Junde Zhang, the Vice President of the Company, provided guarantees on short-term
loans obtained by JinzhongYongcheng and JinzhongYuliang.
NOTE 16. SEGMENT REPORTING
The Company defined reportable segments according to ASC Topic
280. The segments, including Corn Division, Grain Division and Bulk Trading Division, are identified primarily based on the structure
of allocating resources and assessing performance of the group.
The Corn Division is in the business of purchasing corn from farmers,
simple processing and distributing to agricultural product trading companies through wholesale. The business of the Grain Division
is conducted by processing and distributing grains and other products. The business of the Bulk Trading Division is conducted
by bulk purchasing and the sale of raw grain.
For the three months ended |
|
Corn |
|
|
Grain |
|
|
Bulk Trading |
|
|
|
|
|
|
|
March 31, 2015 |
|
Division |
|
|
Division |
|
|
Division |
|
|
Others |
|
|
Total |
|
Revenues from external customers |
|
$ |
25,458,653 |
|
|
$ |
6,749,394 |
|
|
$ |
- |
|
|
|
|
|
|
$ |
32,208,047 |
|
Loss on inventory valuation reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Intersegment revenues |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest revenue |
|
|
1,780 |
|
|
|
559 |
|
|
|
- |
|
|
|
54 |
|
|
|
2,393 |
|
Interest expense |
|
|
(100,103 |
) |
|
|
(87,868 |
) |
|
|
- |
|
|
|
- |
|
|
|
(187,972 |
) |
Net interest (expense) income |
|
|
(98,323 |
) |
|
|
(87,309 |
) |
|
|
- |
|
|
|
54 |
|
|
|
(185,578 |
) |
Depreciation and amortization |
|
|
(133,973 |
) |
|
|
(348,696 |
) |
|
|
(1,106 |
) |
|
|
(48,814 |
) |
|
|
(532,589 |
) |
Noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
36 |
|
|
|
36 |
|
Segment net profit (loss) |
|
|
(2,025,927 |
) |
|
|
52,521 |
|
|
|
(3,617 |
) |
|
|
(414,356 |
) |
|
|
(2,391,379 |
) |
For the three months ended |
|
Corn |
|
|
Grain |
|
|
Bulk Trading |
|
|
|
|
|
|
|
March 31, 2014 |
|
Division |
|
|
Division |
|
|
Division |
|
|
Others |
|
|
Total |
|
Revenues from external customers |
|
$ |
8,330,537 |
|
|
$ |
6,652,924 |
|
|
$ |
589,859 |
|
|
|
- |
|
|
$ |
15,573,320 |
|
Loss on inventory valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Intersegment revenues |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest revenue |
|
|
694 |
|
|
|
214 |
|
|
|
117 |
|
|
|
55 |
|
|
|
1,080 |
|
Interest expense |
|
|
(105,050 |
) |
|
|
(90,382 |
) |
|
|
- |
|
|
|
(221 |
) |
|
|
(195,653 |
) |
Net interest (expense) income |
|
|
(104,356 |
) |
|
|
(90,168 |
) |
|
|
117 |
|
|
|
(166 |
) |
|
|
(194,573 |
) |
Depreciation and amortization |
|
|
(148,572 |
) |
|
|
(401,585 |
) |
|
|
(1,176 |
) |
|
|
(51,313 |
) |
|
|
(602,646 |
) |
Noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
159 |
|
|
|
159 |
|
Segment net profit (loss) |
|
|
(7,744,170 |
) |
|
|
(257,527 |
) |
|
|
(678,789 |
) |
|
|
(635,572 |
) |
|
|
(9,316,058 |
) |
Since April 2014, our grain business includes direct exporting
the organic bean-based products to countries including the U.S., Australia, Canada, Israel, and Denmark. The export businesses
were denominated in US Dollar. All long-lived assets are located in China. The following tables set forth our three major customers
in each segment:
|
|
For The
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Corn Division : |
|
|
|
|
|
|
Neijiang Zhengda Co., Ltd. |
|
|
11.0 |
% |
|
|
3.3% |
|
Chengdu longqing Feed Co., Ltd. |
|
|
6.7 |
% |
|
|
1.8% |
|
Chengdu Jindou Animal Nitrition Food Co., Ltd. |
|
|
6.5 |
% |
|
|
4.2 |
% |
Top Three Customers as % of Total Gross Sales: |
|
|
24.2 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
Grain Division : |
|
|
|
|
|
|
|
|
Deyufang Innovation Food (Beijing) Co., Ltd. |
|
|
56.7 |
% |
|
|
82.0 |
% |
Ethical Food SA |
|
|
12.3 |
% |
|
|
4.0 |
% |
Jinzhong Shengde Trading Food Co., Ltd. |
|
|
5.7 |
% |
|
|
0.3 |
% |
Top Three Customers as % of Total Gross Sales |
|
|
74.7 |
% |
|
|
86.3 |
% |
|
|
|
|
|
|
|
|
|
Bulk Trading Division : |
|
|
|
|
|
|
|
|
n/a |
|
|
n/a |
|
|
|
n/a |
|
n/a |
|
|
n/a |
|
|
|
n/a |
|
n/a |
|
|
n/a |
|
|
|
n/a |
|
Top Three Customers as % of Total Gross Sales: |
|
|
0.0 |
% |
|
|
0.0 |
% |
NOTE 17. CONCENTRATION OF CREDIT RISK
As of March 31, 2015 and December 31, 2014 , all of the Company’s
cash balances in banks were maintained within the PRC where no rule or regulation currently in place to provide obligatory insurance
for bank deposits in the event of bank failure. However, the Company has not experienced any losses in such accounts and believes
it is not exposed to such risks on its cash balances in banks.
For the three months ended March 31, 2015 and 2014, the sales generated
from overseas countries were $831, 463 and $0, respectively. Accounts receivable as of March 31, 2015 and December 31, 2014 that
were due from customers located outside of China were $552, 997 and $0, respectively.
For the three months ended March 31, 2015, sales revenue generated
from Deyufang Innovation Food (Beijing) Co., Ltd. accounted for 11.9% of the Company's consolidated gross revenue, while there
was no single customer that accounted for greater than 10% of the Company's consolidated gross revenue for the three months ended
March 31 2014. As of March 31, 2015 and 2014, no single customer accounted for greater than 10% of the Company’s consolidated
accounts receivable.
NOTE 18. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases railroad lines, warehouses and offices under
operating leases. Future minimum lease payments under operating leases with initial or remaining terms of one year or more are
as follows:
As of March 31, | |
Operating
Leases | |
2016 | |
$ | 204,657 | |
2017 | |
| 169,705 | |
2018 | |
| 169,705 | |
2019 | |
| 169,705 | |
2020 | |
| 169,705 | |
Thereafter | |
| 860,488 | |
| |
$ | 1,743,965 | |
NOTE 19. SUBSEQUENT EVENTS
Management has considered all events occurring through the date
which the financial statements were available to be issued. All subsequent events requiring recognition as of March 31, 2015 have
been incorporated into the accompanying consolidated and combined financial statements, and those requiring disclosure have been
fully disclosed in accordance with FASB ASC Topic 855, “Subsequent Events”.
The Series A Warrants expired on April 27, 2015.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
In this Quarterly Report on Form 10-Q,
unless otherwise indicated, the words “we”, “us”, “our”, “Deyu” or the “Company”)
refer to Deyu Agriculture Corp. and all entities owned or controlled by Deyu Agriculture Corp., except where it is made clear
that the term only means the parent or a subsidiary company. References in this report to the “PRC” or “China”
are to the People’s Republic of China.
This report contains forward-looking statements.
The words “anticipated”, “believe”, “expect”, “plan”, “intend”, “seek”,
“estimate”, “project,”, “could”, “may” and similar expressions are intended to
identify forward-looking statements. These statements include, among others, information regarding future operations, future capital
expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events
and financial performance and involve risks and uncertainties, including, without limitation, the current economic downturn adversely
affecting demand for the our products; our reliance on our major customers for a large portion of our net sales; our ability to
develop and market new products; our ability to raise additional capital to fund our operations; our ability to accurately forecast
amounts of supplies needed to meet customer demand; market acceptance of our products; exposure to product liability and defect
claims; fluctuations in the availability of raw materials and components needed for our products; protection of our intellectual
property rights; changes in the laws of the PRC that affect our operations; inflation and fluctuations in foreign currency rates
and various other matters, many of which are beyond our control. Should one or more of these risks or uncertainties occur, or
should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated,
believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this report are qualified
by these cautionary statements and there can be no assurance of the actual results or developments.
Summary of our Business
We are 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
and retail stores. Our facilities include modern warehouses with storage capacity of over 100,000 tons and sophisticated production
lines with annual production capacity of over 108,000 and 700,000 tons for grain products and corn, respectively.
Our business operations are mainly conducted
through our wholly-owned PRC subsidiaries, JinzhongDeyu Agriculture Trading Co. Limited (“JinzhongDeyu”), JinzhongYuliang
Agriculture Trading Co. Limited (“Yuliang”), Shanxi Taizihu Food Co. Ltd. (“Taizihu”) and Shanxi Huichun
Bean Products Co., Ltd (“Huichun”). Yuliang focus on processing and distributing our corn and corn byproducts. Our
grain processing, distribution and bulk trading business are mainly conducted through JinzhongDeyu, Taizihu and Huichun.
A brief description of our products is
set forth below, by division:
• Corn Division –acquires unprocessed
corn for value-added processing such as cleaning, drying packaging, etc. the main consumers for this division range from livestock
feed companies to corn oil/corn starch manufacturing companies as well as governmental procurement agencies in China.
• Grain Division –acquires unprocessed
grains including millet, green bean, soy bean, black rice and many other varieties of grains traditionally grown and consumed
in China for value-added processing such as peeling, cleaning, grinding, packaging, etc. The Grain Division also produces and
distributes deep processed food products, such as bean based products, fruit vinegars and juices, noodles and other grain products.
We sell our processed grain products to wholesalers, distributors, institutional clients, etc.
• Bulk Trading Division –conducts
bulk trading through procuring and wholesales of rice, flour, wheat, kidney beans, green beans and other agricultural products.
The majority customers of this division include food manufacturers, grain trading companies, wholesalers and governmental procurement
agencies in China.
We have adopted the operation mode of “Company
+ Farmers + Cultivation Base”. We have established long term strategic partnerships with over 60,000 farmers to grow crops
on farmland. We provide extensive agricultural services to the farmers to plan and harvest crops. Services include technical know-how
and support, such as cultivation methods, seeding and logistics.
We are equipped with fully automatic and
advanced production lines for grain processing with a total production capacity of over 108,000 tons. The advanced production
lines and production technologies help produce grain products with high quality by maintaining the nutritional components of the
products. We operate six self-owned warehouses and some rental warehouses with total storage capacity of over 100,000 tons of
food products and an annual turnover of 700,000 tons. This capacity helps us to reach economies of scale with low cost of processing
and storage. Our production bases are located in Jinzhong and Quwo in Shanxi Province with convenient transportation. We have
exclusive lease agreements with three railway lines for freight transportation in Jinzhong: (a) Shanxi Cereal & Oil Group,
Mingli Reservation Depot; (b) Shanxi Yuci Cereal Reservation Depot; and (c) YuciDongzhao Railway Freight Station, which ensure
speedy delivery of our products at a low cost.
We have cultivated a national network for
corn and bulk trading with customers including various livestock feed companies, food manufacturers, corn oil/corn starch manufacturing
companies, grain trading companies, wholesalers and governmental procurement agencies. Meanwhile, our processed grain products
are sold to wholesalers, distributors, institutional clients and retail stores. We also sell OEM products made of grain through
export agencies to Japan, Germany, the United States and other countries.
Operating revenue for the three months
ended March 31, 2015 was $32,208,047, representing a 106.8% increase from $15,573,320 for the three months ended March 31, 2014.
Net loss available to common stockholders for the three months ended March 31, 2015 was $2,499,150, representing a decrease of
$6,919,098 from $9,418,248 of net loss for the three months ended March 31, 2014.
Our principal office is located in China
at Unit 1010, Block B, Huizhi Building, No. 9 Xueqing Road, Haidian District, Beijing, PRC 100085. Our telephone number in China
is +(8610)-8273-2870 and our fax number is +(8610)- 8273 2870 x 8518. Our corporate website is www.deyuagri.com (information
on our website is not made a part of this Quarterly Report).
Recent Developments
Corn is mainly used as raw material for
livestock feeds and deep processed products such as corn starch and ethanol. Starting from 2013, the corn market experienced a
downturn as a result of weak demand from the downstream industries with consecutive increase of output in the past few years in
China. The on-going downturn continued to impact our business in 2015, as the demand for corn continued to be weak. In order to
stabilize the market, Chinese government started to implement some measures, including government procurement and providing subsidies
to downstream manufacturers. The market showed some fluctuation and the average sales prices had a slight increase in the first
quarter of 2015. The Company increased the corn sales volume slightly according to the market situation although the Company is
still undertaking a conservative strategy.
Plan of Operation
The demand in the corn market showed some
signs of recovery, but it still needs time to fully recover, as the demand from livestock feed companies was remains week and
deep processed corn companies have been operating in the red for several years. However, we continue to believe that the agriculture
sector is still very promising in the long term even though the evolving market conditions in China currently present great challenges.
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 to cultivate the entire value chain concept and develop new business strategies with resources
integration. We expect these measures, together with new business development, will help us get through this difficult period
and restore growth in the future.
Results of Operations for the Three Months Ended March 31,
2015 as Compared to the Three Months Ended March 31, 2014
|
|
For The Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
% |
|
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normal inventory |
|
$ |
32,208,047 |
|
|
$ |
12,152,145 |
|
|
$ |
20,055,902 |
|
|
|
165.0 |
% |
Damaged corn |
|
|
- |
|
|
|
3,421,175 |
|
|
|
-3,421,175.00 |
|
|
|
100.0 |
% |
Total Net Revenue |
|
|
32,208,047 |
|
|
|
15,573,320 |
|
|
|
16,634,727 |
|
|
|
106.8 |
% |
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normal inventory |
|
|
(30,459,475 |
) |
|
|
(11,553,198 |
) |
|
|
(18,906,277 |
) |
|
|
163.6 |
% |
Damaged corn |
|
|
- |
|
|
|
(9,328,942) |
|
|
|
9,328,942 |
|
|
|
100.0 |
% |
Total Cost of Goods Sold |
|
|
(30,459,475 |
) |
|
|
(20,882,140 |
) |
|
|
(9,577,335 |
) |
|
|
45.9 |
% |
Gross Profit |
|
|
1,748,572 |
|
|
|
(5,308,820 |
) |
|
|
7,057,392 |
|
|
|
-132.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
(2,900,531 |
) |
|
|
(1,098,652 |
) |
|
|
(1,801,879 |
) |
|
|
164.0 |
% |
General and administrative expenses |
|
|
(1,125,862 |
) |
|
|
(2,678,029 |
) |
|
|
1,552,167 |
|
|
|
-58.0 |
% |
Total Operating Expense |
|
|
(4,026,393 |
) |
|
|
(3,776,681 |
) |
|
|
(249,712 |
) |
|
|
6.6 |
% |
Operating income (loss) |
|
|
(2,277,821 |
) |
|
|
(9,085,501 |
) |
|
|
6,807,680 |
|
|
|
-74.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
2,393 |
|
|
|
1,080 |
|
|
|
1,313 |
|
|
|
121.6 |
% |
Interest expense |
|
|
(187,971 |
) |
|
|
(195,653 |
) |
|
|
7,682 |
|
|
|
-3.9 |
% |
Non-operating income (loss) |
|
|
128,468 |
|
|
|
47,265 |
|
|
|
81,203 |
|
|
|
171.8 |
% |
Total Other Expense |
|
|
(57,110 |
) |
|
|
(147,308 |
) |
|
|
90,198 |
|
|
|
-61.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2,334,931 |
) |
|
|
(9,232,809 |
) |
|
|
6,897,878 |
|
|
|
-74.7 |
% |
Income taxes |
|
|
(56,448 |
) |
|
|
(83,249 |
) |
|
|
26,801 |
|
|
|
-32.2 |
% |
Net income (loss) |
|
|
(2,391,379 |
) |
|
|
(9,316,058 |
) |
|
|
6,924,679 |
|
|
|
-74.3 |
% |
Net Income (loss) attributable to noncontrolling interests |
|
|
36 |
|
|
|
159 |
|
|
|
(123 |
) |
|
|
-77.4 |
% |
Net income (loss) attributable to Deyu Agriculture Corp. |
|
|
(2,391,343 |
) |
|
|
(9,315,899 |
) |
|
|
6,924,556 |
|
|
|
-74.3 |
% |
Preferred stock dividends |
|
|
(107,807 |
) |
|
|
(102,349 |
) |
|
|
(5,458 |
) |
|
|
5.3 |
% |
Net income (loss) available to common stockholders |
|
$ |
(2,499,150 |
) |
|
|
(9,418,248 |
) |
|
$ |
6,919,098 |
|
|
|
-73.5 |
% |
Net Revenue
Our net revenue for the three months ended
March 31, 2015 was $32.2 million, an increase of $16.6 million, or 106.8%, compared to $15.6 million for the three months ended
March 31, 2014. This increase was the combined result of an increase of $17.1 million in corn sales, an increase of $0.1 million
in grain sales and a decrease of $0.6 million in bulk trading sales. Sales derived from our Corn Division, Grain Division and
Bulk Trading Division for the three months ended March 31, 2015 were $25.5 million, $6.7 million and $0 million, respectively,
accounting for 79.0%, 21.0% and 0% of total net revenue, respectively.
The following table breaks down the distribution
of our sales volume and amount by division and as a percentage of gross sales:
| |
For
The Three Months Ended March 31 | | |
| | |
| |
| |
2015 | | |
2014 | | |
| | |
| |
| |
Volume
(ton) | | |
Net
Revenue | | |
%
of
total
sales | | |
Volume
(ton) | | |
Net
Revenue | | |
%
of total sales | | |
Changes | | |
% | |
Corn Division | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Normal inventory | |
| 73,920 | | |
$ | 25,458,653 | | |
| 79.0 | % | |
| 14,040 | | |
| 4,909,362 | | |
| 31.5 | % | |
$ | 20,549,291 | | |
| 418.6 | % |
Damaged corn | |
| - | | |
| - | | |
| 0.0 | % | |
| 40,880 | | |
| 3,421,175 | | |
| 22.0 | % | |
$ | (3,421,175 | ) | |
| 100 | % |
Subtotal | |
| 73,920 | | |
| 25,458,653 | | |
| 79.0 | % | |
| 54,920 | | |
| 8,330,537 | | |
| 53.5 | % | |
| 17,128,116 | | |
| 205.6 | % |
Grain Division | |
| 4,303 | | |
| 6,749,394 | | |
| 21.0 | % | |
| 4,193 | | |
| 6,652,924 | | |
| 42.7 | % | |
| 96,470 | | |
| 1.5 | % |
Bulk Trading Division | |
| - | | |
| - | | |
| n/a | | |
| 674 | | |
| 589,859 | | |
| 3.8 | % | |
| (589,859 | ) | |
| 100.0 | % |
Total | |
| 78,223 | | |
$ | 32,208,047 | | |
| 100.0 | % | |
| 59,787 | | |
| 15,573,320 | | |
| 100.0 | % | |
$ | 16,634,727 | | |
| 106.8 | % |
Net revenue from our Corn Division for
the three months ended March 31, 2015 was approximately $25.5 million, an increase of $17.1 million, or approximately 205.6%,
as compared to $8.3 million for the three months ended March 31, 2014. The increase was mainly the combined result of an increase
of 34.6% in sales volume and an increase of 127.1% in the average selling price of corn. The increase was primarily due to the
slightly increase of the demand from the downstream industry which coursed the sale volume increase, although the Company still
mentioned the conservative strategy. The increase of the average selling price was primarily due to the sales of damaged corn
to the customers with lower than cost prices during the three months ended March 31, 2014.
Net revenue from our Grain Division for
the three months ended March 31, 2015 was approximately $6.7 million, an increase of $0.1 million, or 1.5%, as compared to $6.6
million for the three months ended March 31, 2014. The increase was the combined result of the increase of export business in
Huichun and the reduction in retail sales caused by the costly distribution channel.
Net revenue from our Bulk Trading Division
for the three months ended March 31, 2015 was $0, a decrease of $0.6 million, or 100% as compared to $0.6 million for the three
months ended March 31, 2014. This decrease was mainly attributable to that the Company temporarily suspended the bulk trading
business due to lack of cash resources.
Cost of Goods Sold
Cost of goods sold mainly consisted of
the cost of raw materials, labor, utilities, manufacturing costs, manufacturing related depreciation and packaging costs. Our
cost of goods sold was $30.5 million, an increase of $9.6 million, or 45.9%, as compared to $20.9 million for the three months
ended March 31, 2014. This increase was primarily attributable to the increase in sales volume.
Gross Profit (loss)
The following table breaks down the gross
profit (loss) and gross margin by division:
| |
For The Three Months
Ended March 31, | |
| |
2015 | | |
2014 | |
| |
Gross Profit | | |
% of total Gross
Profit | | |
Margin | | |
Gross Profit | | |
% of total Gross
Profit | | |
Margin | |
Corn Division | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Normal inventory | |
$ | 1,051,288 | | |
| 60.1 | % | |
| 4.1 | % | |
$ | 208,900 | | |
| -3.9 | % | |
| 4.3 | % |
Damaged corn | |
| - | | |
| 0.0 | % | |
| | | |
| (5,907,766 | ) | |
| 111.3 | % | |
| -172.7 | % |
Subtotal | |
| 1,051,288 | | |
| 60.1 | % | |
| 4.1 | % | |
| (5,698,866 | ) | |
| 107.3 | % | |
| -68.4 | % |
Grain Division | |
| 697,284 | | |
| 39.9 | % | |
| 10.3 | % | |
| 590,091 | | |
| -11.1 | % | |
| 8.9 | % |
Bulk Trading Division | |
| - | | |
| 0 | % | |
| | | |
| (200,045 | ) | |
| 3.8 | % | |
| -33.9 | % |
Total | |
| 1,748,572 | | |
| 100.0 | % | |
| 5.4 | % | |
| (5,308,820 | ) | |
| 100.0 | % | |
| -34.1 | % |
| |
| 1,748,572 | | |
| 100.0 | % | |
| 5.4 | % | |
| (5,308,820 | ) | |
| 100.0 | % | |
| -34.1 | % |
Gross profit for the three months ended
March 31, 2015 was $1.7 million, an increase of $7.0 million, or 132.9%, as compared to gross losses of $5.3 million for the three
months ended March 31, 2014. The increase was a combined result of an increase in gross profits of $6.8 million in the Corn Division,
an increase of $0.2 million in the Bulk Trading Division and an increase of $0.1 million in the Grain Division. Our gross margin
increased from (34.1%) for the three months ended March 31, 2014 to 5.4% for the three months ended March 31, 2015. The increase
in gross margin was mainly the result of the increase of gross margin in Corn Division.
Gross profit in the Corn Division was $1.1
million for the three months ended March 31, 2015, while gross loss in the Corn Division was $5.7 million for the three months
ended March 31, 2014 . The Company incurred the gross loss of $5.9 million from the sales of the mildewed corn inventory to third
parties at prices lower than the cost during the first quarter of 2014. Taking out the impact of disposal of mildewed corn, gross
profit and gross margin from the sales of the normal corn was $0.2 million and 4.3% respectively. Gross margin from normal corn
sales decreased for 20 basis points, which was primarily due to the pressure from the government’s intervention on the corn
pricing.
Gross profit in the Grain Division was
$0.7 million for the three months ended March 31, 2015; an increase of $0.1 million or 18.2%, compared to $0.6 million for the
three months ended March 31, 2014. The increase in gross profit in the Grain Division was mainly due to the increase of the bean-based
grain product export business in Taizihu Group retail sales with relatively higher gross margin. Gross margin for the Grain Division
was 10.3% for the three months ended March 31, 2015, which increased by 140 basis points from 8.9% for the three months ended
March 31, 2014. This increase in gross margin was primarily due to the increase of export business with higher gross margin.
Gross profit in the Bulk Trading Division
was $0, an increase of $0.2 million or 100%, compared to gross loss of $0.2 million for the three months ended March 31, 2014.
The Company suspended bulk trading business due to lack of cash resources.
Selling Expenses
Selling expenses included expenses of freight,
warehousing, handling, distribution, advertising, farmer subsidies, payroll and other expenses. Selling expenses for the three
months ended March 31, 2015 were $2.9 million, an increase of $1.8 million, or 164.0% from the $1.1 million for the three months
ended March 31, 2014. The increase was mainly attributable to the increase of freight costs caused by the increase in sales volume.
General and Administrative Expenses
General and administrative expenses
included payroll, professional services, rental, travel, depreciation and amortization, and bad debt allowance. General and
administrative expenses for the three months ended March 31, 2015 were $1.1 million, a decrease of $1.6 million or 58.0%
compared to the $2.7 million for the three months ended March 31, 2014. This decrease was a combined result of a reduction
of $0.8 million in general an expense as a result of the Company’s cost saving measures and a $0.8 million decrease in
bad debt expenses.
Interest Expense
Interest expense for the three months ended
March 31, 2015 was $187,971 compared to $195,653 for the March 31, 2014, a decrease of $7,682, or 3.9%. This decrease was mainly
due to the fluctuation of balances on loans and their interest rates.
Provision for Income Taxes
Under the Enterprise Income Tax (“EIT”)
Law of the PRC, the standard EIT rate is 25%. Our PRC subsidiaries are subject to PRC income taxes on an entity basis on
income arising in or derived from the tax jurisdiction in which they operate. According to the Tax Pronouncement [2008] No.
149 issued by the State Administration of Tax of the PRC, the preliminary processing industry of agricultural products is entitled
to EIT exemption starting January 1, 2008. Three of the Company’s wholly-owned subsidiaries located in Shanxi Province,
namely JinzhongDeyu, JinzhongYongcheng and JinzhongYuliang, are subject to the EIT exemption. All of our other subsidiaries
are subject to the 25% EIT rate.
Income tax expenses were $56,448 for the
three months ended March 31, 2015; a decrease of $26,801 or 32.2%, compared to $83,249 for the three months ended March 31, 2014.
Income tax expenses were mainly representing the current income tax expenses derived from Huichun, both of which were subject
to the 25% EIT rate. The decrease of the income tax expenses was mainly due to the decline of taxable income in Huichun.
Net Income (Loss)
As a result of the above, we had net loss
available to common stockholders of $2.5 million for the three months ended March 31, 2015 compared to a net loss of $9.4 million
for the three months ended March 31, 2014.
Liquidity and Capital Resources
The following summarizes the key components
of our cash flows for the three months ended March 31, 2015 and 2014:
|
|
For
The Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Net cash provided (used in)
by operating activities
|
|
$ |
(165,408
|
) |
|
$ |
(591,164
|
) |
Net cash used in investing activities |
|
|
(19,539 |
) |
|
$ |
0 |
|
Net cash provided by (used in) financing activities |
|
|
- |
|
|
|
55,715 |
|
Effect of exchange rate change on cash and cash
equivalents |
|
|
940
|
|
|
|
(37,483 |
) |
Net (decrease) increase in cash and cash equivalents |
|
$ |
(184,007
|
) |
|
$ |
609,396 |
|
Net cash used in operating activities totaled
approximately $0.2 million for the three months ended March 31, 2015 and net cash used in operating activities totaled approximately
$0.6 million for the three months ended March 31, 2014, an increase of $0.4 million. This decrease was primarily attributable
to continue losses which weakened the operating cash flow.
Net cash used in investing activities for
the three months ended March 31, 2015 and 2014 was $0.2 million and $0 million, respectively. There was no material net cash used
in investing activities for the three months ended March 31, 2015 and 2014.
Net cash provided in financing activities
was $0 and $0.1 million for the three months ended March 31, 2015 and 2014. There was no material net cash used in financing activities
for the three months ended March 31 2015, and cash used in financing activities for the three months ended March 31, 2014 was
the Construction and remodeling of the workshop in Huichun.
We believe that our current levels of cash,
cash flows from operations, and bank, related party and unrelated party borrowings will be sufficient to meet our anticipated
cash needs for at least the next 12 months. However, we may need additional cash resources in the future if we experience worsening
business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue
opportunities for investment, acquisition, strategic cooperation or other similar actions. If we ever determine that our cash
requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue debt or equity securities or obtain
a credit facility. Any future issuance of equity securities could cause dilution to our shareholders. Any incurrence of indebtedness
could increase our debt service obligations and cause us to be subject to restrictive operating and financial covenants. It is
possible that, when we need additional cash resources, financing will only be available to us in amounts or on terms that would
not be acceptable to us, if at all.
Contractual Obligations
The following table presents the Company’s
material contractual obligations as of March 31, 2015:
Contractual
Obligations | |
Total | | |
Less
than 1 year | | |
1-2
years | | |
3-5
years | | |
More
than 5 years | |
| |
| | |
| | |
| | |
| | |
| |
Bank Loans | |
$ | 7,275,367 | | |
$ | 7,275,367 | | |
$ | - | | |
$ | - | | |
$ | - | |
Operating Lease Obligations | |
| 1,743,965 | | |
| 204,657 | | |
| 339,410 | | |
| 339,410 | | |
| 860,488 | |
| |
$ | 9,019,332 | | |
$ | 7,480,024 | | |
$ | 339,410 | | |
$ | 339,410 | | |
$ | 860,488 | |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements,
financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities”.
Critical Accounting Policies and Estimates
This discussion and analysis of financial
condition and results of operations has been prepared by management based on our consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, management evaluates our critical accounting policies and estimates, including those
related to revenue recognition, valuation of accounts receivable, inventory, property and equipment, long-lived assets, intangible
assets, derivative liabilities and contingencies. Estimates are based on historical experience and on various assumptions believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenue and expenses during the reporting periods. We consider the following
accounting policies important in understanding our operating results and financial condition:
Basis of presentation
The unaudited consolidated financial statements
include the financial statements of Deyu Agriculture Corp. and its subsidiaries. All significant intercompany account balances
and transactions have been eliminated in consolidation. Results of operations of companies purchased are included from the dates
of acquisition.
These accompanying consolidated financial
statements have been prepared in accordance with US GAAP. The Company’s functional currency is the Chinese Yuan, or Renminbi
(“RMB”); however, the accompanying consolidated financial statements have been translated and presented in United
States Dollars (“USD”).
On April 27, 2010, as a result of the consummation
of the Share Exchange, we changed our fiscal year end from May 31 to December 31 to conform to the fiscal year end of City Zone.
Use of estimates
The preparation of the consolidated financial
statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management makes its estimates based on historical experience and
various other assumptions and information that are available and believed to be reasonable at the time the estimates are made.
Therefore, actual results could differ from those estimates under different assumptions and conditions.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in
banks and all highly liquid investments with original maturities of three months or less.
Accounts receivable
Accounts receivable are recorded at net realizable value consisting
of the carrying amount less allowance for doubtful accounts, as needed. We assess the collectability of accounts receivable based
primarily upon the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s
payment history. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these
reserves. While management uses the best information available upon which to base estimates, future adjustments to the allowance
may be necessary if economic conditions differ substantially from the assumptions used for the purposes of analysis. The balance
of allowance for doubtful accounts as of March 31, 2015 and December 31, 2014 was $1,353,571 and $1,337,364 respectively.
Inventories
The Company's inventories are stated at lower of cost or market.
Cost is determined on a moving-average basis. Costs of inventories include purchase and related costs incurred in delivering products
to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date
or to management’s estimates based on prevailing market conditions. Management periodically evaluates the composition of
its inventories at least quarterly to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.
The balance of reserve for inventory valuation as of March 31, 2015 and December 31, 2014 was $140,709 and $140,582, respectively.
Property, plant, and equipment
Property, plant, and equipment are stated at cost less accumulated
depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; in addition, renewals and betterments
are capitalized. When property, plant, and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets as follows:
|
|
Useful
Life
(in years) |
|
Automobiles |
|
|
5 |
|
Buildings |
|
|
10-30 |
|
Office equipment |
|
|
5 |
|
Machinery and equipment |
|
|
5-10 |
|
Furniture & fixtures |
|
|
5 |
|
Construction-in-progress
Construction-in-progress consists of amounts expended for the
construction of a new factory park, and the cost of the portion of the land use right that the new factory park occupied. Construction-in-progress
is not depreciated until such time as the assets are completed and put into service. Once factory park construction is completed,
the cost accumulated in construction-in-progress will be transferred to property, plant, and equipment.
Long-lived assets
The Company applies the provisions of FASB ASC Topic 360 (ASC
360), "Property, Plant, and Equipment" which addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance
with ASC 360, at least on an annual basis. ASC 360 requires the impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount
exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal. As of March 31, 2015 and December 31, 2014, the balance
of impairment of construction-in-progress was $772,788 and $772,091, respectively.
Intangible assets
For intangible assets subject to amortization, an impairment
loss is recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount
of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result
from the use of the assets. As of March 31, 2015 and December 31, 2014, the balance of impairment of intangible assets was $6,833,181
and $6,557,755, respectively.
Fair value measurements
FASB ASC 820, “Fair Value Measurements” (formerly
SFAS No. 157) defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity
measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use
of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques
used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related
disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable
inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing
the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs
that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad
levels based on the reliability of the inputs as follows:
| · | Level 1 –
Inputs are quoted prices in active markets for identical assets or liabilities that the
Company has the ability to access at the measurement date. Valuation of these instruments
does not require a high degree of judgment as the valuations are based on quoted prices
in active markets that are readily and regularly available. |
| · | Level 2 –
Inputs other than quoted prices in active markets that are either directly or indirectly
observable as of the measurement date, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the
assets or liabilities. |
| · | Level 3 –
Valuations based on inputs that are unobservable and not corroborated by market data.
The fair value for such assets and liabilities is generally determined using pricing
models, discounted cash flow methodologies, or similar techniques that incorporate the
assumptions a market participant would use in pricing the asset or liability. |
This guidance applies to other accounting pronouncements that
require or permit fair value measurements. On February 12, 2008, the FASB finalized FASB Staff Position (FSP) No. 157-2, Effective
Date of FASB Statement No. 157 (ASC 820). This Staff Position delays the effective date of SFAS No. 157 (ASC 820) for nonfinancial
assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, except
for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).
The adoption of SFAS No. 157 (ASC 820) had no effect on the Company's financial position or results of operations for the three
months ended March 31, 2015.
We also analyze all financial instruments with features of
both liabilities and equity under ASC 480-10 (formerly SFAS 150, “Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity”) and ASC 815-40 (formerly EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock”). We have determined ASC 480-10 (formerly SFAS 150)
and ASC 815-40 (formerly EITF 00-19) had no material effect on our financial position or results of operations for the three months
ended March 31, 2015.
Revenue recognition
The Company’s revenue recognition policies are in compliance
with the SEC Staff Accounting Bulletin No. 104 (“SAB 104”). The Company recognizes product revenue when the following
fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) our price to
the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. The Company
recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally
used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance requirements,
when applicable, are used to verify product delivery or that services have been rendered. The Company assesses whether a price
is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to
refund or adjustment.
The Company’s revenue is recognized net of value-added
tax (VAT), reductions to revenue for estimated product returns, and sales discounts based on volume achieved in the same period
that the related revenue is recorded. The estimates are based on historical sales returns, analysis of credit memo data and other
factors known at the time. The sales discounts for the three months ended March 31, 2015 and 2014 were not material.
We offer a right of exchange on our grain products sold through
our relationships with grocery store networks. The consumer who purchases the product may exchange it for the same kind and quantity
of product originally purchased. In accordance with FASB ASC 605-15-25-1 and 605-15-15-2, these are not considered returns for
revenue recognition purposes. The returns of our products for the three months ended March 31, 2015 and 2014 were not material.
Advertising costs
The Company expenses the cost of advertising as incurred or,
as appropriate, the first time the advertising takes place. Advertising costs for the three months ended March 31, 2015 and 2014
were $76,715 and $30,185, respectively.
Research and development
The Company expenses its research and development costs as
incurred. Research and development expenses for the three months ended March 31, 2015 and 2014 were not material.
Stock-based compensation
In December 2004, the Financial Accounting Standard Board,
or the FASB, issued the Statement of Financial Accounting Standards, or SFAS, No. 123(R), “Share-Based Payment”, which
replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) is now included in the FASB’s ASC Topic 718, “Compensation
– Stock Compensation.” Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period
during which employees or independent contractors are required to provide services. Share-based compensation arrangements include
stock options and warrants, restricted share plans, performance-based awards, share appreciation rights and employee share purchase
plans. In March 2005, the SEC issued Staff Accounting Bulletin No. 107, or SAB 107, which expresses views of the staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff’s views regarding the
valuation of share-based payment arrangements for public companies. SFAS No. 123(R) permits public companies to adopt its requirements
using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS No. 123(R). Companies
may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial
statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under
SFAS No. 123.
The Company has fully adopted the provisions of FASB ASC 718
and related interpretations as provided by SAB 107. As such, compensation cost is measured on the date of grant as the fair value
of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the option
grant.
Income taxes
The Company accounts for income taxes in accordance with FASB
ASC Topic 740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for
income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only
if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption
had no material effect on the Company’s consolidated financial statements for the three months ended March 31, 2015.
Foreign currency translation and comprehensive income
U.S. GAAP requires that recognized revenue, expenses, gains,
and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities,
such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such
items, along with net income, are components of comprehensive income. The functional currency of the Company is RMB. The unit
of RMB is in Yuan. Translation gains are classified as an item of other comprehensive income in the stockholders’ equity
section of the consolidated balance sheet.
Statement of cash flows
In accordance with FASB ASC Topic 230, “Statement of
Cash Flows,” cash flows from the Company’s operations is calculated based upon the local currencies. As a result,
amounts related to assets and liabilities reported on the consolidated statement of cash flows will not necessarily agree with
changes in the corresponding balances on the consolidated balance sheets.
Recent pronouncements
In February 2013, the FASB issued ASU 2013-02, “Comprehensive
Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” This ASU does not
change the current requirements for reporting net income or other comprehensive income in financial statements. However, this
guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income
by component. In addition, an entity is required to present, either on the face of the statement where net income is presented
or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of
net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in
the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail
about those amounts. For public entities, the guidance is effective prospectively for reporting periods beginning after December
15, 2012. For nonpublic entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013.
Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated
financial position and results of operations.
In July 2013, the FASB issued ASU 2013-11, “Income Taxes
(Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists.” An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented
in the financial statements as a reduction to a deferred tax asset. To the extent a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction
to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable
jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose,
the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred
tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred
tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date.
For public entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013. For nonpublic
entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2014. Early adoption is permitted.
The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position
and results of operations.
In December 2013, the FASB issued ASU 2013-12, “Definition
of a Public Business Entity”. The Board has decided that it should proactively determine which entities would be within
the scope of the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private
Companies (Guide). This will aim to minimize the inconsistency and complexity of having multiple definitions of, or a diversity
in practice as to what constitutes, a nonpublic entity and public entity within U.S. generally accepted accounting principles
(GAAP) on a going-forward basis. This Update addresses those issues by defining public business entity. The Accounting Standards
Codification includes multiple definitions of the terms nonpublic entity and public entity. The amendment in this Update improves
U.S. GAAP by providing a single definition of public business entity for use in future financial accounting and reporting guidance.
The amendment does not affect existing requirements. There is no actual effective date for the amendment in this Update. However,
the term public business entity will be used in Accounting Standards Updates which are the first Updates that will use the term
public business entity. The adoption of this standard is not expected to have a material impact on the Company’s consolidated
financial position and results of operations.
In May 2014, the FASB issued ASU 2014-9, “Revenue from
Contracts with Customers”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. An entity should disclose sufficient information to enable users of financial statements
to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For
a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. Early application is not permitted. The adoption of this standard is not expected
to have a material impact on the Company’s consolidated financial position and results of operations.
In August 2014, the FASB issued ASU 2014-15, “Presentation
of Financial Statements—Going Concern (Subtopic 205-40)”. In connection with preparing financial statements for each
annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within
one year after the date that the financial statements are issued (or within one year after the date that the financial statements
are available to be issued when applicable). The amendments in this Update are effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this standard
is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
Jumpstart Our Business Startups Act
of 2012 (the “JOBS Act”)
The JOBS Act permits
an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised
accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result,
we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended
transition period under the JOBS Act is irrevocable.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
Smaller reporting companies are not required
to provide this information.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls
and procedures. At the conclusion of the period ended March 31, 2015, we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that As of March 31, 2015, our disclosure controls and procedures were effective and adequately
designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information
was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely
decisions regarding required disclosure.
We do not expect that our disclosure controls
and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures
are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints,
and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and
procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control
deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
(b) Changes in internal controls.
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We recently
reviewed the Company's overall corporate governance, internal control and financial controls and some weaknesses on operations
of some subsidiaries were noticed. Measures are being taken to strengthen the Group’s, including subsidiaries, resources
sharing, strategic planning and management of funds.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
To our knowledge, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of our executive officers or any of our subsidiaries, threatened against or affecting us, our
common stock, any of our subsidiaries or any of our companies or our companies’ subsidiaries’ officers or directors
in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
Smaller reporting companies are not required
to provide this information.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
2.1 |
|
Share Exchange Agreement Dated April 27, 2010 (1) |
|
|
|
3.1 |
|
Articles of Incorporation of Deyu Agriculture Corp. (2) |
|
|
|
3.2 |
|
Certificate of Amendment of Articles of Incorporation of Deyu Agriculture Corp. (3) |
|
|
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3.3 |
|
Bylaws of Deyu Agriculture Corp. (2) |
|
|
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4.1 |
|
Certificate of Designation of Rights and Preferences of Series A Convertible Preferred Stock
(1) |
|
|
|
4.2 |
|
Form of Series A Warrant (1) |
|
|
|
10.1 |
|
Securities Purchase Agreement Dated April 27, 2010 (1) |
|
|
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10.2 |
|
Registration Rights Agreement Dated April 27, 2010 (1) |
|
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10.3 |
|
Form of Lock-Up Agreement Dated April 27, 2010 (1) |
|
|
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10.4 |
|
Securities Escrow Agreement Dated April 27, 2010 (1) |
|
|
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10.5 |
|
Placement Agent Agreement between the Company and Maxim Group, LLC dated January 27, 2010(6) |
|
|
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10.6 |
|
Share Transfer Agreement between Hong Wang and Yam Sheung Kwok dated April 26, 2010 (6) |
|
|
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10.7 |
|
Share Transfer Agreement between JianmingHao and Yam Sheung Kwok dated April 26, 2010 (6) |
|
|
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10.8 |
|
Share Transfer Agreement between WenjunTian and Yam Sheung Kwok dated April 26, 2010 (6) |
|
|
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10.9 |
|
Share Transfer Agreement between YongqingRen and Yam Sheung Kwok dated April 26, 2010 (6) |
|
|
|
10.10 |
|
Share Transfer Agreement between Junde Zhang and Yam Sheung Kwok dated April 26, 2010 (6) |
|
|
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10.11 |
|
Employment Agreement between David Lethem, as Chief Financial Officer, and the Company dated
June 18, 2010 (4) |
|
|
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10.12 |
|
Certificate from China Organic Food Certification Center dated December 21, 2009 (6) |
|
|
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10.13 |
|
Corn Purchase Letter of Intent between Shanghai Yihai Trading Co., Ltd., Shanxi Office and
JinzhongYuliang Agricultural Trading Co., Limited dated December 20, 2009 (6) |
|
|
|
10.14 |
|
Warehouse Lease Agreement between Shanxi 661 Warehouse and JinzhongYongcheng Agricultural
Trading Co., Limited dated December 21, 2006 (6) |
|
|
|
10.15 |
|
Warehouse Lease Agreement between Shanxi Means of Production Company, Yuci Warehouse (formerly,
the 671 Warehouse) and JinzhongYongcheng Agricultural Trading Co., Limited dated December 28, 2008 (6) |
|
|
|
10.16 |
|
Railway Lease Agreement between Shanxi Cereal & Oil Group, Mingli Reservation Depot
and JinzhongYongcheng Agriculture Trading Co., Limited dated December 21, 2006 (6) |
|
|
|
10.17 |
|
Railway Lease Agreement between Shanxi Yuci Cereal Reservation Depot and JinzhongYongcheng
Agriculture Trading Co., Limited dated November 15, 2007 (6) |
|
|
|
10.18 |
|
Railway Lease Agreement between YuciDongzhao Railway Freight Station and JinzhongYongcheng
Agriculture Trading Co., Limited dated December 21, 2006 (6) |
|
|
|
10.19 |
|
Agricultural Technology Cooperation Agreement between JinzhongDeyu Agriculture Trading Co.,
Ltd. and Millet Research Institute, Shanxi Academy of Agricultural Science dated October 2007 (6) |
|
|
|
10.20 |
|
Agricultural Technology Cooperation Agreement between Sorghum Institute, Shanxi Academy
of Agricultural Sciences and JinzhongDeyu Agriculture Trading Co., Ltd. dated August 24, 2008 (6) |
In 10.21 |
|
Certificate of Forest Rights for the Yuci Forest Right Certificate (2005)
No. 01518 dated August 11, 2006 (6) |
|
|
|
10.22 |
|
Farmland Transfer Agreement between Detian Yu Biotechnology (Beijing) Co. Ltd. and Shanxi
Jinbei Plant Technology Co, Ltd. dated September 30, 2010 (6) |
|
|
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10.23 |
|
Land Use Rights Acquisition Contract Dated September 30, 2010 (5) |
|
|
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10.24 |
|
Deyu Agriculture Corp. 2010 Share Incentive Plan (7) |
|
|
|
10.25 |
|
Exclusive Management and Consulting Service Agreement, dated November 16, 2010, by and between
Detian Yu Biotechnology (Beijing) Co. Limited and Beijing Jundaqianyuan Investment Management Co., Ltd. (English translated
version) (8) |
|
|
|
10.26 |
|
Exclusive Management and Consulting Service Agreement, dated November 16, 2010, by and between
Detian Yu Biotechnology (Beijing) Co. Limited and JinzhongLongyue Investment Consulting Co., Ltd. (English translated version)
(8) |
|
|
|
10.27 |
|
Business Cooperation Agreement, dated November 16, 2010, by and between Detian Yu Biotechnology
(Beijing) Co. Limited and Beijing Jundaqianyuan Investment Management Co., Ltd. (English Translated Version) (8) |
|
|
|
10.28 |
|
Business Operation Agreement, dated November 16, 2010, by and among Detian Yu Biotechnology
(Beijing) Co. Limited, Beijing Jundaqianyuan Investment Management Co., Ltd. and each of the shareholders of Beijing Jundaqianyuan
Investment Management Co., Ltd. (English translated version) (8) |
|
|
|
10.29 |
|
Business Operation Agreement, dated November 16, 2010, by and among Detian Yu Biotechnology
(Beijing) Co. Limited, JinzhongLongyue Investment Consulting Co., Ltd. and both of the shareholders of JinzhongLongyue Investment
Consulting Co., Ltd. (English translated version) (8) |
|
|
|
10.30 |
|
Share Pledge Agreement, dated November 16, 2010, by and among Detian Yu Biotechnology (Beijing)
Co. Limited and the following shareholders of Beijing Jundaqianyuan Investment Management Co., Ltd.: TianWenjun, HaoJianming,
Yang Jianhui, Zhou Jianbin, Ren Li, RenYongqing, Zhang Junde and Wang Tao (English translated version) (8) |
|
|
|
10.31 |
|
Share Pledge Agreement, dated November 16, 2010, by and among Detian Yu Biotechnology (Beijing)
Co. Limited and the following shareholders of JinzhongLongyue Investment Consulting Co., Ltd.: Zhao Jing and Zhao Peilin (English
translated version) (8) |
|
|
|
10.32 |
|
Form of Power of Attorney (English translated version) (8) |
|
|
|
10.33 |
|
Equity Acquisition Option Agreement, dated November 16, 2010, by and among Detian Yu Biotechnology
(Beijing) Co. Limited and the following shareholders of Beijing Jundaqianyuan Investment Management Co., Ltd.: TianWenjun,
HaoJianming, Yang Jianhui, Zhou Jianbin, Ren Li, RenYongqing, Zhang Junde and Wang Tao (English translated version) (8) |
|
|
|
10.34 |
|
Equity Acquisition Option Agreement, dated November 16, 2010, by and among Detian Yu Biotechnology
(Beijing) Co. Limited and the following shareholders of JinzhongLongyue Investment Consulting Co., Ltd.: Zhao Jing and Zhao
Peilin (English translated version) (8) |
|
|
|
10.35 |
|
Business Cooperation Agreement, dated November 16, 2010, by and between Detian Yu Biotechnology
(Beijing) Co. Limited and JinzhongLongyue Investment Consulting Co., Ltd. (English Translated Version) (8) |
|
|
|
10.36 |
|
Village Collective Farmland Transfer Agreement, dated December 20, 2010, by and between
Detian Yu Biotechnology (Beijing) Co., Ltd. and Shanxi Jinbei Plant Technology Development Co., Ltd. (English Translated and
Mandarin Versions) (9) |
|
|
|
10.37 |
|
Contract of Agreement, effective as of January 10, 2011, by and between Deyu Agriculture
Corp. and Charlie Lin (10) |
|
|
|
14.1 |
|
Code of Conduct (6) |
|
|
|
16.1 |
|
Letter from Auditor (11) |
21 |
|
List of Subsidiaries (12) |
|
|
|
31.1 |
|
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002* |
|
|
|
31.2 |
|
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002* |
|
|
|
32.1 |
|
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
the Sarbanes-Oxley Act Of 2002** |
|
|
|
32.2 |
|
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
the Sarbanes-Oxley Act Of 2002** |
|
|
|
99.1 |
|
Audit Committee Charter adopted August 19, 2010 (6) |
|
|
|
101. INS |
|
XBRL Instance Document* |
|
|
|
101. CAL |
|
XBRL Taxonomy Extension Calculation Link base Document* |
|
|
|
101. DEF |
|
XBRL Taxonomy Extension Definition Link base Document* |
|
|
|
101. LAB |
|
XBRL Taxonomy Label Link base Document* |
|
|
|
101. PRE |
|
XBRL Extension Presentation Link base Document* |
|
|
|
101. SCH |
|
XBRL Taxonomy Extension Scheme Document* |
(1) |
Incorporated by reference to our Form 8-K filed on May 3, 2010. |
(2) |
Incorporated by reference to our Registration Statement on Form S-1 filed on July 8, 2009. |
(3) |
Incorporated by reference to our Form 8-K filed on June 4, 2010. |
(4) |
Incorporated by reference to our Form 8-K filed on June 18, 2010. |
(5) |
Incorporated by reference to our Form 8-K filed on October 6, 2010. |
(6) |
Incorporated by reference to our Form S-1/A filed on October 21, 2010. |
(7) |
Incorporated by reference to our Form S-8 filed on November 5, 2010. |
(8) |
Incorporated by reference to our Form 8-K filed on November 17, 2010. |
(9) |
Incorporated by reference to our Form 8-K filed on December 21, 2010. |
(10) |
Incorporated by reference to our Form 8-K filed on January 10, 2011. |
(11) |
Incorporated by reference to our Form 8-K filed on May 3, 2010. |
(12) |
Incorporated by reference to our Form 10-K filed on March 31, 2015. |
* Filed herewith.
** Furnished, not filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
DEYU AGRICULTURE CORP.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Hong Wang |
|
Acting Chief Executive Officer, Principal Executive Officer |
|
May 15, 2015 |
Hong Wang |
|
|
|
|
|
|
|
|
|
/s/ Emma Wan |
|
Acting Chief Financial Officer, Principal Financial |
|
May 15, 2015 |
Emma Wan |
|
and Accounting Officer |
|
|
EXHIBIT 31.1
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Hong Wang, certify that:
1. I have reviewed this
Form 10-Q for the period ended ended March 31, 2015 of Deyu Agriculture Corp.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of
the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based
on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 15, 2015 |
By: |
/s/ Hong Wang |
|
Name: |
Hong Wang |
|
Title: |
Acting Chief Executive Officer and Principal Executive Officer |
EXHIBIT 31.2
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Emma Wan, certify that:
1. I have reviewed this
Form 10-Q for the period ended ended March 31, 2015 of Deyu Agriculture Corp.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of
the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based
on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 15, 2015 |
By: |
/s/ Emma Wan |
|
Name: |
Emma Wan |
|
Title: |
Acting Chief Financial Officer, Principal Financial and Accounting Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with
the Quarterly Report of Deyu Agriculture Corp. (the “Company”) on Form 10-Q for the period ended ended March
31, 2015 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to his knowledge:
1. The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
Date: May 15, 2015 |
By: |
/s/ Hong Wang |
|
Name: |
Hong Wang |
|
Title: |
Acting Chief Executive Officer and Principal Executive Officer |
A signed original of this written statement
required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement required by Section 906, has been provided to the Company will
be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with
the Quarterly Report of Deyu Agriculture Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2015
as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to her knowledge:
1. The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
Date: May 15, 2015 |
By: |
/s/ Emma Wan |
|
Name: |
Emma Wan |
|
Title: |
Acting Chief Financial Officer, Principal Financial and Accounting Officer |
A signed original of this written statement
required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement required by Section 906, has been provided to the Company will
be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
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