CHINA GREEN AGRICULTURE, INC.
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
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For the
quarterly period ended
December
31, 2009
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
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For
the transition period from ____________ to ____________
Commission
File Number 000-18606
CHINA
GREEN AGRICULTURE, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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36-3526027
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(State
or other jurisdiction of
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(IRS
Employer
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incorporation
or organization)
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Identification
No.)
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3
rd
Floor,
Borough A, Block A, No. 181,
South
Taibai Road, X’ian, Shaanxi Province,
People’s Republic of
China 710065
(Address
of principal executive offices) (Zip Code)
+86-29-88266368
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the issuer (1) 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
o
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
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
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Smaller
reporting company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 24,443,128 shares of Common
Stock, $.001 par value, were outstanding as of February 4, 2010.
TABLE
OF CONTENTS
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PART
I.
FINANCIAL
INFORMATION
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Page
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Item
1.
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Financial
Statements.
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Consolidated
Balance Sheets
As
of December 31, 2009 and June 30, 2009 (Unaudited)
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3 | |
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Consolidated
Statements of Income and Comprehensive Income
For
the Three and Six Months Ended December 31, 2009 and 2008
(Unaudited)
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4
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Consolidated
Statements of Cash Flows
For
the Three and Six Months Ended December 31, 2009 and 2008
(Unaudited)
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5
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Notes
to Consolidated Financial Statements
As
of December 31, 2009 (Unaudited)
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6
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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28
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Item
4T.
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Controls
and Procedures
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36
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PART
II.
OTHER
INFORMATION
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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37
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Item
6.
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Exhibits
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37
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Signatures
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38
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Exhibits/Certifications
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||
- 2
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Item
1.
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Financial
Statements
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
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AS
OF DECEMBER 31, 2009 AND JUNE 30, 2009
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(UNAUDITED)
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ASSETS
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||||||||
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December
31, 2009
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June
30, 2009
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|||||||
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Current
Assets
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||||||||
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Cash
and cash equivalents
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$ | 61,183,492 | $ | 17,795,447 | ||||
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Restricted
cash
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36,897 | 83,579 | ||||||
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Accounts
receivable, net
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10,993,124 | 8,167,715 | ||||||
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Inventories
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9,906,700 | 7,162,249 | ||||||
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Other
assets
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166,305 | 129,213 | ||||||
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Deferred
offering cost
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— | 160,500 | ||||||
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Advances
to suppliers
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238,277 | 95,255 | ||||||
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Total
Current Assets
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82,524,795 | 33,593,958 | ||||||
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Plant,
Property and Equipment, Net
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28,482,504 | 17,341,654 | ||||||
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Construction
In Progress
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4,738 | 9,609,649 | ||||||
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Intangible
Assets, Net
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11,592,769 | 1,073,165 | ||||||
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Total
Assets
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$ | 122,604,806 | $ | 61,618,426 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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||||||||
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Current
Liabilities
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||||||||
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Accounts
payable
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$ | 533,021 | $ | 926,883 | ||||
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Unearned
revenue
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165,732 | 24,000 | ||||||
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Other
payables and accrued expenses
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1,599,455 | 1,091,168 | ||||||
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Advances
from other unrelated companies
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301,605 | 326,970 | ||||||
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Amount
due to related parties
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68,164 | 31,160 | ||||||
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Taxes
payable
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3,288,349 | 2,887,828 | ||||||
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Short
term loans
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2,197,512 | 3,170,290 | ||||||
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Total
Current Liabilities
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8,153,838 | 8,458,299 | ||||||
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Common
Stock, $.001 par value, 6,313,617 shares subject to
redemption
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— | 20,519,255 | ||||||
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Stockholders'
Equity
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||||||||
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Preferred
Stock, $.001 par value, 20,000,000 shares authorized, Zero
shares issued and outstanding
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— | — | ||||||
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Common
stock, $.001 par value, 115,197,165 shares
authorized, 24,283,989 shares issued and outstanding
(12,281,569 as of June 30, 2009)
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24,284 | 12,282 | ||||||
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Additional
paid-in capital
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73,883,634 | 2,060,162 | ||||||
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Statuary
reserve
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4,525,550 | 3,468,530 | ||||||
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Retained
earnings
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33,554,015 | 24,642,768 | ||||||
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Accumulated
other comprehensive income
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2,463,485 | 2,457,130 | ||||||
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Total
Stockholders' Equity
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114,450,968 | 32,640,872 | ||||||
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Total
Liabilities and Stockholders' Equity
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$ | 122,604,806 | $ | 61,618,426 | ||||
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The
accompanying notes are an integral part of these consolidated financial
statements.
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||||||||
- 3
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
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||||||||
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FOR
THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 2009 AND
2008
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||||||||
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(UNAUDITED)
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Six
Months Ended
December
31,
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Three
Months Ended
December
31,
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|||||||||||||||
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2009
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2008
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2009
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2008
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Sales
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||||||||||||||||
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Jinong
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$ | 19,289,446 | $ | 12,570,527 | $ | 9,110,797 | $ | 4,945,026 | ||||||||
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Jintai
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3,159,490 | 3,309,601 | 2,061,319 | 2,055,100 | ||||||||||||
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Net
sales
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$ | 22,448,936 | $ | 15,880,128 | $ | 11,172,116 | $ | 7,000,126 | ||||||||
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Cost
of goods sold
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||||||||||||||||
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Jinong
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7,002,486 | 5,106,321 | 3,267,122 | 1,880,375 | ||||||||||||
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Jintai
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1,717,718 | 1,725,877 | 1,135,221 | 1,020,930 | ||||||||||||
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Cost
of goods sold
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8,720,204 | 6,832,199 | 4,402,343 | 2,901,306 | ||||||||||||
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Gross
profit
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13,728,732 | 9,047,929 | 6,769,773 | 4,098,820 | ||||||||||||
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Operating
expenses
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Selling
expenses
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735,767 | 582,537 | 520,096 | 366,161 | ||||||||||||
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General
and administrative expenses
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1,348,730 | 1,023,774 | 814,551 | 586,645 | ||||||||||||
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Total
operating expenses
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2,084,497 | 1,606,311 | 1,334,647 | 952,806 | ||||||||||||
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Income
from operations
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11,644,235 | 7,441,618 | 5,435,126 | 3,146,014 | ||||||||||||
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Other
income (expense)
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||||||||||||||||
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Other
income (expense)
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553 | 4,275 | (413 | ) | — | |||||||||||
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Interest
income
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81,922 | 143,019 | 52,656 | 2,624 | ||||||||||||
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Interest
expense
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(105,644 | ) | (447,923 | ) | (44,335 | ) | (127,059 | ) | ||||||||
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Total
other income (expense)
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(23,169 | ) | (301,679 | ) | 7,908 | (125,485 | ) | |||||||||
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Income
before income taxes
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11,621,066 | 7,139,939 | 5,443,034 | 3,020,529 | ||||||||||||
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Provision
for income taxes
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1,652,798 | 984,159 | 722,041 | 362,676 | ||||||||||||
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Net
income
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9,968,268 | 6,155,780 | 4,720,993 | 2,657,852 | ||||||||||||
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Other
comprehensive income
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||||||||||||||||
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Foreign
currency translation gain/(loss)
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6,354 | (8,321 | ) | 31,284 | (2,142 | ) | ||||||||||
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Comprehensive
income
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$ | 9,974,622 | $ | 6,147,459 | $ | 4,752,277 | $ | 2,655,711 | ||||||||
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Basic
weighted average shares outstanding
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22,450,562 | 18,381,702 | 23,266,097 | 18,381,702 | ||||||||||||
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Basic
net earnings per share
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$ | 0.44 | $ | 0.33 | $ | 0.20 | $ | 0.14 | ||||||||
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Diluted
weighted average shares outstanding
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22,471,118 | 18,381,702 | 23,286,653 | 18,381,702 | ||||||||||||
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Diluted
net earnings per share
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0.44 | 0.33 | 0.20 | 0.14 | ||||||||||||
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The
accompanying notes are an integral part of these consolidated financial
statements.
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- 4
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
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FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
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(UNAUDITED)
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2009
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2008
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|||||||
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Cash
flows from operating activities
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||||||||
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Net
income
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$ | 9,968,268 | 6,155,780 | |||||
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Adjustments
to reconcile net income to net cash
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||||||||
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provided
by operating activities
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||||||||
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Issuance
of stock options for compensation
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— | 68,690 | ||||||
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Depreciation
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986,663 | 737,464 | ||||||
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Amortization
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150,318 | 53,494 | ||||||
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Decrease
/ (Increase) in current assets
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Accounts
receivable
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(2,797,999 | ) | (950,555 | ) | ||||
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Other
receivables
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(321 | ) | 32,262 | |||||
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Inventories
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(2,719,957 | ) | (3,306,067 | ) | ||||
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Advances
to suppliers
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(142,513 | ) | (72,015 | ) | ||||
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Other
assets
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(35,952 | ) | 9,508 | |||||
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(Decrease)
/ Increase in current liabilities
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||||||||
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Accounts
payable
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(395,573 | ) | (26,200 | ) | ||||
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Unearned
revenue
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141,422 | 253,800 | ||||||
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Tax
payables
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391,854 | (2,485,151 | ) | |||||
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Other
payables and accrued expenses
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436,338 | 243,560 | ||||||
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Net
cash provided by operating activities
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5,982,548 | 714,571 | ||||||
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Cash
flows from investing activities
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Acquisition
of plant, property, and equipment
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(2,440,748 | ) | (460,797 | ) | ||||
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Acquisition
of intangible assets
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(10,703,302 | ) | — | |||||
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Additions
to construction in progress
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(4,730 | ) | (1,464,432 | ) | ||||
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Net
cash used in investing activities
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(13,148,780 | ) | (1,925,229 | ) | ||||
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Cash
flows from financing activities
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||||||||
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Repayment
of loan
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(979,876 | ) | (379,384 | ) | ||||
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Proceeds
issuance of shares
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51,373,234 | |||||||
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Restricted
cash
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46,683 | 58,914 | ||||||
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Net
cash provided by / (used in) financing activities
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50,440,041 | (320,470 | ) | |||||
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Effect
of exchange rate change on cash and cash equivalents
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114,236 | (2,024 | ) | |||||
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Net
increase in cash and cash equivalents
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43,388,045 | (1,533,151 | ) | |||||
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Cash
and cash equivalents, beginning balance
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17,795,447 | 16,612,416 | ||||||
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Cash
and cash equivalents, ending balance
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$ | 61,183,492 | 15,079,265 | |||||
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Supplement
disclosure of cash flow information
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Interest
expense paid
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$ | (88,936 | ) | 242,459 | ||||
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Income
taxes paid
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$ | — | 621,367 | |||||
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The
accompanying notes are an integral part of these consolidated financial
statements.
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- 5
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
China
Green Agriculture, Inc. (the “Company”, “we”, “us”) was incorporated in 1987. On
December 26, 2007, the Company acquired all of the issued and outstanding
capital stock (the “Green Agriculture Shares”) of Green Agriculture Holding
Corporation, a New Jersey corporation (“Green Agriculture” or “Green New
Jersey”), through a share exchange (the “Share Exchange”).
Green
Agriculture was incorporated on January 27, 2007 under the laws of the State of
New Jersey. On August 24, 2007, Green Agriculture acquired 100% outstanding
shares of Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”) which
owns 100% equity of Xi’an Jintai Agriculture Technology Development Company
(“Xi’an Jintai” or “Jintai”). Jinong is engaged in the research and development,
manufacture, distribution and sale of humic acid based compound fertilizer. It
was incorporated in the People’s Republic of China (the “PRC”) on June 19, 2000
under the name of Yangling Techteam Jinong Humic Acid Product Co., Ltd. On
February 28, 2006, Yangling Techteam Jinong Humic Acid Product Co., Ltd changed
its name to Shaanxi Techteam Jinong Humic Acid Product Co., Ltd.
On
January 19, 2007, Jinong incorporated Xi’an Jintai which provides testing and
experimental data collection base for the function and feature of the new
fertilizer products produced by Jinong by imitating the various growing
conditions and stages or cycles for a variety of plants, such as flowers,
vegetables and seedlings on which the fertilizers are applied. Xi’an Jintai also
sells such plants to its customers.
On
December 23, 2008, Xi’an Hu County Yuxing Agriculture Technology Development
Co., Ltd. (“Xi’an Yuxing”) was established and registered in Hu County, Xi’an by
two related parties. The purpose of establishing this entity is mainly to
facilitate the research and development of agriculture technology. On July 23,
2009, 100% ownership of Xi’an Yuxing was transferred to Jinong for $146,250
which was the original contribution for the share capital. On September 25,
2009, Xi’an Yuxing was granted the Land Use Right for approximately 88 acres of
land for 50 years by the People’s Government and Land & Resources Bureau of
Hu County. The Company applied a portion of the proceeds from its public
offering in July 2009 and November/December 2009 toward construction of 12
additional greenhouse facilities to further strengthen its R&D base and
support its greenhouse capacity expansion.
- 6
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The
Company’s current corporate structure is set forth in the diagram
below:
The
Company, through its subsidiaries are engaged in the following business:
Jinong’s main business is to produce and sell fertilizers, and Xi’an Jintai’s
and Xi’an Yuxing’s main business is to conduct research and development on new
fertilizer products and sell high quality agricultural products.
The
accompanying unaudited financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results for any future period. These statements should be read in conjunction
with the Company's audited financial statements and notes thereto for the fiscal
year ended June 30, 2009. The results of the six month period ended
December 31, 2009 are not necessarily indicative of the results to be expected
for the full fiscal year ending June 30, 2010.
- 7
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Principle of
consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries—Green Holding Agriculture, Jinong,
Xi’an Jintai and Xi’an Yuxing. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Use of
estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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 consolidated financial statements and the amount of revenues and
expenses during the reporting periods. Management makes these estimates using
the best information available at the time the estimates are made. However,
actual results could differ materially from those results.
Cash and cash
equivalents
For
statement of cash flows purposes, the Company considers all cash on hand and in
banks, certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents. Cash overdraft as of balance sheet date will be reflected as
liabilities in the balance sheet.
As of December 31, 2009
and June 30, 2009, cash and cash equivalents amounted to $61,183,492 and
$17,795,447, respectively.
Accounts
receivable
The
Company's policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes customer credit worthiness, current economic trends and changes in
customer payment patterns to evaluate the adequacy of these reserves. As of
December 31, 2009 and June 30, 2009, the Company had accounts receivable of
$10,993,124 and $8,167,715, net of allowance for doubtful accounts of $169,359
and $4,122, respectively.
- 8
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Advances to
suppliers
The
Company provides advances to certain vendors for purchase of its material. As of
December 31, 2009 and June 30, 2009, the advances to suppliers amounted to
$238,227 and $95,255, respectively.
Inventories
Inventory
is valued at the lower of cost (determined on a weighted average basis) or
market. Inventories consist of raw materials, work in process, finished goods
and packaging materials.
Property, plant and
equipment
Property,
plant and equipment are recorded at cost. Gains or losses on disposals are
reflected as gain or loss in the year of disposal. The cost of improvements that
extend the life of plant, property, and equipment are capitalized. These
capitalized costs may include structural improvements, equipment, and fixtures.
All ordinary repair and maintenance costs are expensed as incurred.
Depreciation
for financial reporting purposes is provided using the straight-line method over
the estimated useful lives of the assets:
|
Estimated
Useful Life
|
|
|
Building
|
10-40
years
|
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Agricultural
assets
|
8
years
|
|
Machinery
and equipment
|
5-15
years
|
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Vehicles
|
3-5
years
|
Impairment
The
Company applies the provisions of Statement of Financial Accounting Standard No.
144,
"Accounting for the
Impairment or Disposal of Long-Lived Assets"
(ASC
360)
,
issued by
the Financial Accounting Standards Board ("FASB"). FAS No. 144
(ASC 360)
requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through the estimated undiscounted cash flows expected to result
from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
- 9
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The
Company tests long-lived assets, including property, plant and equipment and
intangible assets subject to periodic amortization, for recoverability at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the net carrying amount is greater than its fair
value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the future estimated cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
amount of impairment by comparing the carrying amount of the asset to its fair
value. The estimation of fair value is generally measured by discounting
expected future cash flows as the rate the Company utilizes to evaluate
potential investments. The Company estimates fair value based on the information
available in making whatever estimates, judgments and projections are considered
necessary. There was no impairment of long-lived assets for the six months ended
December 31, 2009.
Revenue
recognition
The
Company's revenue recognition policies are in compliance with Staff Accounting
Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue. As of December 31, 2009 and June 30, 2009, the Company had unearned
revenues of $165,732 and $24,000, respectively.
The
Company's revenue consists of invoiced value of goods, net of a value-added tax
(VAT). No product return or sales discount allowance is made as products
delivered and accepted by customers are normally not returnable and sales
discounts are normally not granted after products are delivered.
- 10
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 December 31, 2009 and 2008, were $37,497 and $26,650, respectively.
Advertising costs for the six months ended December 31, 2009 and 2008, were
$43,357 and $51,031, respectively.
Income
taxes
The
Company accounts for income taxes using an asset and liability approach which
allows for the recognition and measurement of deferred tax assets based upon the
likelihood of realization of tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.
The
Company records a valuation allowance for deferred tax assets, if any, based on
its estimates of its future taxable income as well as its tax planning
strategies when it is more likely than not that a portion or all of its deferred
tax assets will not be realized. If the Company is able to utilize more of its
deferred tax assets than the net amount previously recorded when unanticipated
events occur, an adjustment to deferred tax assets would increase the Company
net income when those events occur. The Company does not have any significant
deferred tax asset or liabilities in the PRC tax jurisdiction.
Foreign currency
translation
The
reporting currency of the Company is the US dollar. The functional currency of
China Green Agriculture and Green Holding is the US dollar. The functional
currency of Jinong and its subsidiary Xi’an Jintai is the Chinese Yuan or
Renminbi (“RMB”). For the subsidiaries whose functional currencies are other
than the US dollar, all asset and liability accounts were translated at the
exchange rate on the balance sheet date; stockholder's equity is translated at
the historical rates and items in the cash flow statements are translated at the
average rate in each applicable period. Translation adjustments resulting from
this process are included in accumulated other comprehensive income in the
statement of shareholders’ equity. The resulting translation gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the results of
operations as incurred.
- 11
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Accumulated
other comprehensive income amounted to $2,463,485 and $2,457,130 as of December
31, 2009 and June 30, 2009, respectively.
Fair values of financial
instruments
Statement
of Financial Accounting Standard No. 107, "Disclosures about Fair Value of
Financial Instruments", requires that the Company disclose estimated fair values
of financial instruments.
The
Company's financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other receivables, advances to suppliers, accounts payable,
other payables, tax payable, and related party advances and
borrowings.
As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented on the balance
sheet. This is attributed to the short maturities of the instruments and that
interest rates on the borrowings approximate those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.
Segment
reporting
The
Company adopts the standard of segment reporting. The standard requires use of
the "management approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments within the
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company.
- 12
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The
Company was organized into three main business segments: fertilizer production
(Jinong), agricultural products production (Jintai) and future research and
development center (Yuxing). The following tables present a summary of operating
information for the six and three months ended December 31, 2009 and 2008,
respectively and quarter-end balance sheet information as of December 31,
2009.
|
For
the six months ended
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Revenues
from unaffiliated customers:
|
||||||||
|
Jinong
|
$ | 19,289,446 | $ | 12,570,527 | ||||
|
Jintai
|
3,159,490 | 3,309,601 | ||||||
|
Consolidated
|
$ | 22,448,936 | $ | 15,880,128 | ||||
|
Operating
income :
|
||||||||
|
Jinong
|
$ | 11,049,785 | $ | 6,669,921 | ||||
|
Jintai
|
1,277,140 | 1,376,295 | ||||||
|
Yuxing
|
(72,924 | ) | — | |||||
|
Reconciling
item (1)
|
— | (561,041 | ) | |||||
|
Reconciling
item (2)
|
(609,766 | ) | (43,557 | ) | ||||
|
Consolidated
|
$ | 11,644,235 | $ | 7,441,618 | ||||
|
Net
income:
|
||||||||
|
Jinong
|
$ | 9,373,129 | $ | 5,575,915 | ||||
|
Jintai
|
1,277,260 | 1,376,529 | ||||||
|
Yuxing
|
(72,918 | ) | ||||||
|
Reconciling
item (1)
|
7,835 | 6,558 | ||||||
|
Reconciling
item (2)
|
(617,038 | ) | (803,222 | ) | ||||
|
Consolidated
|
$ | 9,968,268 | $ | 6,155,780 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Jinong
|
$ | 1,008,924 | $ | 715,276 | ||||
|
Jintai
|
56,701 | 75,682 | ||||||
|
Yuxing
|
71,356 | |||||||
|
Consolidated
|
$ | 1,136,981 | $ | 790,958 | ||||
|
Interest
expense:
|
||||||||
|
Jinong
|
$ | 105,644 | $ | 249,299 | ||||
|
Reconciling
item (1)
|
— | |||||||
|
Reconciling
item (2)
|
— | 198,624 | ||||||
|
Consolidated
|
$ | 105,644 | $ | 447,923 | ||||
|
Capital
Expenditure:
|
||||||||
|
Jinong
|
$ | 2,440,748 | $ | 1,925,229 | ||||
|
Yuxing
|
10,708,032 | — | ||||||
|
Consolidated
|
$ | 13,148,780 | $ | 1,925,229 | ||||
|
Identifiable
assets:
|
As
of 12/31/09
|
As
of 06/30/09
|
||||||
|
Jinong
|
$ | 88,658,686 | $ | 46,329,125 | ||||
|
Jintai
|
10,161,564 | 6,572,315 | ||||||
|
Yuxing
|
10,724,673 | |||||||
|
Reconciling
item (1)
|
13,026,892 | 314,346 | ||||||
|
Reconciling
item (2)
|
32,991 | 134,478 | ||||||
|
Consolidated
|
$ | 122,604,806 | $ | 53,350,264 | ||||
- 13
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
For
the three months ended
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Revenues
from unaffiliated customers:
|
||||||||
|
Jinong
|
$ | 9,110,797 | $ | 4,945,026 | ||||
|
Jintai
|
2,061,319 | 2,055,100 | ||||||
|
Consolidated
|
$ | 11,172,116 | $ | 7,000,126 | ||||
|
Operating
income :
|
||||||||
|
Jinong
|
$ | 4,925,511 | $ | 2,544,835 | ||||
|
Jintai
|
839,233 | 922,191 | ||||||
|
Yuxing
|
(55,077 | ) | ||||||
|
Reconciling
item (1)
|
— | — | ||||||
|
Reconciling
item (2)
|
(274,541 | ) | (277,455 | ) | ||||
|
Reconciling
item (2)--stock compensation
|
— | (43,557 | ) | |||||
|
Consolidated
|
$ | 5,435,126 | $ | 3,146,014 | ||||
|
Net
income:
|
||||||||
|
Jinong
|
$ | 4,213,250 | $ | 2,054,176 | ||||
|
Jintai
|
839,304 | 922,300 | ||||||
|
Yuxing
|
(55,071 | ) | ||||||
|
Reconciling
item (1)
|
5,323 | 2,515 | ||||||
|
Reconciling
item (2)
|
(274,541 | ) | (321,139 | ) | ||||
|
Consolidated
|
$ | 4,728,266 | $ | 2,657,852 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Jinong
|
$ | 564,709 | $ | 348,173 | ||||
|
Jintai
|
31,355 | 47,951 | ||||||
|
Yuxing
|
53,517 | |||||||
|
Consolidated
|
$ | 649,581 | $ | 396,124 | ||||
|
Interest
expense:
|
||||||||
|
Jinong
|
$ | 44,335 | $ | 126,933 | ||||
|
Reconciling
item (1)
|
— | |||||||
|
Reconciling
item (2)
|
— | 126 | ||||||
|
Consolidated
|
$ | 44,335 | $ | 127,059 | ||||
|
Capital
Expenditure:
|
||||||||
|
Jinong
|
$ | 3,010 | $ | 1,883,109 | ||||
|
Yuxing
|
4,730 | — | ||||||
|
Consolidated
|
$ | 7,740 | $ | 1,883,109 | ||||
|
Identifiable
assets:
|
As
of 12/31/09
|
|||||||
|
Jinong
|
$ | 88,658,686 | $ | 46,329,125 | ||||
|
Jintai
|
10,161,564 | 6,572,315 | ||||||
|
Yuxing
|
10,724,673 | |||||||
|
Reconciling
item (1)
|
13,026,892 | 314,346 | ||||||
|
Reconciling
item (2)
|
32,991 | 134,478 | ||||||
|
Consolidated
|
$ | 122,604,806 | $ | 53,350,263 | ||||
(1)
Reconciling amounts refer to the unallocated assets or expenses of Green
Agriculture.
(2)
Reconciling amounts refer to the unallocated assets or expenses of the parent
Company.
- 14
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Statement of cash
flows
In
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows" (ASC230), cash flows from the Company's operations are calculated
based upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows may not necessarily agree
with changes in the corresponding balances on the balance sheet.
Recent accounting
pronouncements
In June
2009, the FASB issued ASC 105 (previously SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
("GAAP") - a replacement of FASB Statement No. 162
), which will become
the source of authoritative accounting principles generally accepted in the
United States recognized by the FASB to be applied to nongovernmental entities.
The Codification is effective in the third quarter of 2009, and accordingly,
the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009
and all subsequent public filings will reference the Codification as the sole
source of authoritative literature. The Company does not believe that this will
have a material effect on its consolidated financial statements.
In
June 2009, the FASB issued amended standards for determining whether to
consolidate a variable interest entity. These amended standards eliminate a
mandatory quantitative approach to determine whether a variable interest gives
the entity a controlling financial interest in a variable interest entity in
favor of a qualitatively focused analysis, and require an ongoing reassessment
of whether an entity is the primary beneficiary. These amended standards are
effective for us beginning in the first quarter of fiscal year 2010 and we are
currently evaluating the impact that adoption will have on our consolidated
financial statements.
In June
2009, the FASB issued ASC 855 (previously SFAS No. 165,
Subsequent Events
), which
establishes general standards of accounting for and disclosures of events that
occur after the balance sheet date but before the financial statements are
issued or available to be issued. It is effective for interim and annual periods
ending after June 15, 2009. There was no material impact upon the adoption of
this standard on the Company’s consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820,
Measuring
Liabilities at Fair Value
, which provides additional guidance on the
measurement of liabilities at fair value. These amended standards clarify that
in circumstances in which a quoted price in an active market for the identical
liability is not available, we are required to use the quoted price of the
identical liability when traded as an asset, quoted prices for similar
liabilities, or quoted prices for similar liabilities when traded as assets. If
these quoted prices are not available, we are required to use another valuation
technique, such as an income approach or a market approach. These amended
standards are effective for us beginning in the fourth quarter of fiscal year
2009 and are not expected to have a significant impact on our consolidated
financial statements.
In
January 2010, the FASB issued Accounting Standards Update No. 2010-06
(ASU 2010-06),
Fair Value
Measurements and Disclosures
which amends ASC Topic 820, adding new
requirements for disclosures for Levels 1 and 2, separate disclosures of
purchases, sales, issuances, and settlements relating to Level 3 measurements
and clarification of existing fair value disclosures. ASU 2010-06 is
effective for interim and annual periods beginning after December 15, 2009,
except for the requirement to provide Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010 (the Company’s fiscal year 2012);
early adoption is permitted. The Company is currently evaluating the
impact of adopting ASU 2009-14 on its financial statements.
- 15
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Inventories
consist of the following as of December 31, 2009 and June 30, 2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Raw
materials
|
$ | 465,068 | $ | 67,046 | ||||
|
Supplies
and packing materials
|
151,056 | 87,081 | ||||||
|
Work
in progress
|
8,678,615 | 6,901,124 | ||||||
|
Finished
goods
|
611,960 | 106,279 | ||||||
|
Totals
|
$ | 9,906,700 | $ | 7,162,249 | ||||
As of
December 31, 2009 and June 30, 2009, other assets comprised of the
following:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Other
receivable
|
$ | 92,307 | $ | 91,334 | ||||
|
Promotion
material
|
73,998 | 37,879 | ||||||
|
Total
|
$ | 166,305 | $ | 129,213 | ||||
Other
receivables represent advances made to non-related companies and employees. The
amounts were unsecured, interest free, and due on demand.
- 16
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Property,
plant and equipment consist of the following as of December 31, 2009 and June
30, 2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Building
and improvements
|
$ | 18,868,689 | $ | 10,632,055 | ||||
|
Vehicles
|
88,822 | 23,784 | ||||||
|
Machinery
and equipment
|
12,453,062 | 8,620,173 | ||||||
|
Agriculture
assets
|
1,338,234 | 1,334,538 | ||||||
|
Total
|
32,748,807 | 20,610,551 | ||||||
|
Less:
accumulated depreciation
|
(4,266,303 | ) | (3,268,897 | ) | ||||
|
Total
property, plant and equipment
|
$ | 28,482,504 | $ | 17,341,654 | ||||
Depreciation
expenses for the three months ended December 31, 2009 and 2008 were $542,448 and
$369,370, respectively. Depreciation expenses for the six months ended December
31, 2009 and 2008 were $986,663 and $737,464, respectively.
Agriculture
assets consist of reproductive trees that are expected to be commercially
productive for a period of eight years.
Construction
in Progress:
As of
December 31, 2009 and June 30, 2009, construction in progress, representing
construction for a new product line, amounted to $4,738 and $9,609,649,
respectively.
The
intangible assets comprised of following at December 31, 2009 and June 30,
2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Land
use right, net
|
$ | 11,478,009 | $ | 895,808 | ||||
|
Technology
know-how, net
|
114,760 | 177,357 | ||||||
|
Total
|
$ | 11,592,769 | $ | 1,073,165 | ||||
- 17
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LAND USE
RIGHT
Per the
People's Republic of China's governmental regulations, the Government owns all
land. However, the government grants the user a “land use right” (the Right) to
use the land. The Company has recognized the amounts paid for the acquisition of
rights to use land as intangible asset and amortizing over a period of fifty
years.
A
shareholder contributed the land use rights on August 16, 2001. The land use
right was recorded at a cost of $1,012,833.
On August 13, 2009, Xi’an
Yuxing was granted a certificate of Land Use Right for a parcel of land of
approximately 88 acres.
The purchase cost is
recorded at $10,721,648. Both certificates of land use right are valid for fifty
years. The land use right consists of the following as of December 31, 2009 and
June 30, 2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Land
use right
|
$ | 11,734,481 | $ | 1,064,326 | ||||
|
Less:
accumulated amortization
|
(256,472 | ) | (168,518 | ) | ||||
|
Total
|
$ | 11,478,009 | $ | 895,808 | ||||
TECHNOLOGY
KNOW-HOW
A
shareholder contributed the technology know-how on August 16, 2001. The
technology know-how is recorded at a cost of $860,702. This technology is the
special formula to produce humid acid. The technology know-how is valid for 10
years. The technology know-how consists of the following as of December 31, 2009
and June 30, 2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Technology
Know-how
|
$ | 860,702 | $ | 858,326 | ||||
|
Less:
accumulated amortization
|
(745,942 | ) | (680,969 | ) | ||||
|
Total
|
$ | 114,760 | $ | 177,357 | ||||
Total
amortization expenses of intangible assets for the three months ended December
31, 2009 and 2008 amounted to $107,132 and $26,754, respectively. Total
amortization expenses of intangible assets for the six months ended December 31,
2009 and 2008 amounted to $150,318 and $53,494, respectively.
- 18
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Amortization
expenses of intangible assets for the next five years after December 31, 2008
are as follows:
|
December
31, 2010
|
$ | 320,760 | ||
|
December
31, 2011
|
263,380 | |||
|
December
31, 2012
|
234,690 | |||
|
December
31, 2013
|
234,690 | |||
|
December
31, 2014
|
234,690 | |||
|
Total
|
$ | 1,288,208 |
The
amount due to related parties were the advances to the Company’s officers and
shareholders, and was unsecured, non-interest bearing and due on demand. As of
December 31, 2009 and June 30, 2009, the amount due to related parties is
$68,164 and $31,160, respectively.
Accrued
expenses and other payables of the following as of December 31, 2009 and June
30, 2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Payroll
payable
|
$ | 8,790 | $ | 8,766 | ||||
|
Welfare
payable
|
176,834 | 177,865 | ||||||
|
Accrued
expenses
|
1,300,151 | 791,172 | ||||||
|
Other
levy payable
|
113,679 | 113,365 | ||||||
|
Total
|
$ | 1,599,454 | $ | 1,091,168 | ||||
As of
December 31, 2009 and June 30, 2009, the loan payables were as
follows:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Short
term loans payable:
|
||||||||
|
Xi’an
Commercial Bank Xincheng Branch
|
$ | 2,197,512 | $ | 2,191,445 | ||||
|
Xi’an
Beilin District Rural Credit Union Wenyibeilu Branch
|
555,166 | |||||||
|
Agriculture
Bank Yanglingshifangqu Branch
|
423,679 | |||||||
|
Total
|
$ | 2,197,512 | $ | 3,170,290 | ||||
- 19
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of
December 31, 2009, the Company had a loan payable of $2,197,512 to Xi’an
Commercial Bank Xincheng Branch in China, with an annual interest rate of
7.965%, and due on March 31, 2010. The loan is pledge by the land use right and
property of the Company.
The
interest expenses from this short-term loans are $44,236 and $119,948 for three
months ended December 31, 2009 and 2008, respectively. The interest expenses
from these short-term loans are $105,644 and $242,313 for the six months ended
December 31, 2009 and 2008, respectively.
Taxes
payable consist of the following as of December 31, 2009 and June 30,
2009:
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
VAT
payable
|
$ | 4,536 | 1,216,191 | |||||
|
Income
tax payable
|
2,978,062 | 1,290,777 | ||||||
|
Other
levies
|
305,752 | 380,860 | ||||||
|
Total
|
$ | 3,288,349 | 2,887,828 | |||||
Advances
from unrelated companies were $301,605 and $326,970 as of December 31, 2009 and
June 30, 2009, respectively. The advances were due on demand, unsecured and non
interest bearing.
- 20
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Other
income (expenses) mainly consists of interest expense and subsidy income from
government.
The
Company adopts the standard which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized.
Since
January 1, 2008, Jinong has been subject to income tax at a rate of 15%. Xi’an
Jintai was exempt from paying income tax for calendar 2009 as it
produces products that qualify for a government tax exemption.
The
provision for income taxes as of December 31, 2009 and 2008 consisted of the
following:
|
2009
|
2008
|
|||||||
|
Current
income tax - Provision for China income and local tax
|
$ | 1,645,525 | $ | — | ||||
|
Deferred
taxes
|
— | — | ||||||
|
Total
provision for income taxes
|
$ | 1,645,525 | $ | — | ||||
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate as of December 31, 2009 and 2008:
|
2008
|
2008
|
2007
|
||||||||||
|
Tax
at statutory rate
|
34 | % | 34 | % | 34 | % | ||||||
|
Foreign
tax rate difference
|
(19 | %) | (19 | %) | (19 | %) | ||||||
|
Net
operating loss in other tax jurisdiction for where no benefit is
realized
|
(8 | %) | (1 | %) | (15 | %) | ||||||
|
Total
|
7 | % | 14 | % | 0 | % | ||||||
Due to
non-operation in U.S. and tax free status in China, the Company had no deferred
tax as of December 31, 2009 and 2008.
- 21
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The
Company's operations are all carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy.
The
Company's operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company's results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
MAJOR
CUSTOMERS AND VENDORS
There was
one vendor accounted for 10% of the Company’s total purchases for the three
months ended December 31, 2009. Accounts payable to this vender amounted to $0
as of December 31, 2009.
There
were three vendors that are over 10% of the Company’s total purchases for the
three months ended December 31, 2008 with each vendor individually accounting
for about 14.5%, 12.7% and 11.5%. Accounts payable to the vender amounted to
$
0
as of December 31,
2008.
There was
no customer that accounted for more than 10% of the total sales for the six
months ended December 31, 2009 and 2008.
MAJOR
CONCENTRATION OF CASH
The
Company maintained bulk of cash in two major banks in China. The balance as of
December 31, 2009 under these two banks amounted approximately $45,400,000.
There is no insurance securing these deposits in China. In addition, the Company
had approximately $10,400,000 of cash in a bank in the United States as of
December 31, 2009 with $250,000 secured by the FDIC.
- 22
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
COMMON
STOCK
On
December 26, 2007, the Company issued 6,313,617 shares of common stock to 31
accredited investors (the “Investors”) at $3.25 per share in a private placement
(the “Private Placement”). If any governmental agency in the PRC challenges or
otherwise takes any action that adversely affects the transactions contemplated
by the Exchange Agreement, and the Company cannot undo such governmental action
or otherwise address the material adverse effect to the reasonable satisfaction
of the Investors within sixty (60) days of the occurrence of such governmental
action, then, upon written demand from an Investor, the Company shall promptly,
and in any event within thirty (30) days from the date of such written demand,
pay to that Investor, as liquidated damages, an amount equal to that Investor’s
entire Investment Amount with interest thereon from the Closing date until the
date paid at the rate of 10% per annum. As a condition to the receipt of such
payment, the Investor shall return to the Company for cancellation of the
certificates evidencing the Shares acquired by the Investor under the Agreement.
In accordance with EITF D-98: “Classification and Measurement of Redeemable
Securities”, the Company has classified the equity as temporary equity, as
“Common Stock, $.001 par value, 6,313,617 shares subject to redemption”. In July
2009, the Company signed the Waiver and Consent with the Investors where the
Investors consented to waive all their rights associated with the liquidated
damages arising from any material adverse effect due to PRC governmental actions
as stated above. As a result, such temporary equity was no longer necessary for
the purposes of the Company’s balance sheet as of September 30,
2009.
The
Company issued 977,948 shares of common stock to consultants relating to the
Private Placement. Net proceeds from the Private Placement were $18,602,723, of
which $188,388 was received in January 2008. The direct costs related to this
placement, including legal and professional fees, were deducted from the related
proceeds and the net amount in excess of par value was recorded as additional
paid-in capital. The total of $4,250,000 was placed in escrow and booked as
restricted cash, pursuant to a Securities Purchase Agreement and the Holdback
Make Good Agreement entered into in connection with the placement for the
following:
|
|
1.
|
$2,000,000
is held pending the company hiring a qualified CFO. The Company appointed
a CFO in April 2008 and $2,000,000 was released to the Company
accordingly.
|
|
|
2.
|
$2,000,000
is held pending the company hiring two independent directors, therefore
constituting a majority independent directors in the board. The Company
appointed a majority of independent directors in April 2008 and $2,000,000
was released to the Company
accordingly.
|
|
|
3.
|
$250,000
is for the retaining of an Investors Relation firm. The company retained
an Investors Relation firm in January 2008 and the money was released to
the company on a monthly basis.
|
As of
December 31, 2009, the balance of restricted cash is $36,897.
In
connection with the Securities Purchase Agreement and the Private Placement, the
Company also entered into a registration rights agreement (the “Registration
Rights Agreement”) and a lockup agreement (the “Lockup Agreement”). Among other
things, the Securities Purchase Agreement establishes targets for after tax net
income and earnings per share for our fiscal year ending June 30, 2009 at not
less than $12,000,000 and $0.609, respectively (the “2009 Targets”). In order to
secure our obligations to meet the 2009 profit target and earnings per share
target, Mr. To, the nominee holder for our CEO Mr. Tao Li, has placed 3,156,808
shares of Common Stock (“2009 Make Good Shares”) into an escrow account pursuant
to the terms of the Make Good Escrow Agreement by and among us, Mr. To, the
Investors and the escrow agent named therein. In the event we do not achieve
either of the 2009 Targets, the 3,156,808 shares of Common Stock will be
conveyed to the Investors pro-rata in accordance with their respective
investment amount for no additional consideration. In the event that we meet the
2009 Targets, the 3,156,808 shares will be transferred to Mr. Tao Li. We have
met the 2009 Targets for the fiscal year of 2009, and consequently, the
3,156,808 shares were transferred to Mr. Tao Li on October 9, 2009 pursuant to
the Make Good Escrow Agreement.
The
Company issued 4,025,000 shares of common stock at a public offering price of
$7.15 per share and received a total of approximately $28.8 million on July 24,
2009. The shares were sold under the Company's previously filed shelf
registration statement, which was declared effective by the Securities and
Exchange Commission on June 12, 2009. On November 23, 2009 and December 17,
2009, the Company issued 1,281,051 shares and 320,512 shares of common stock,
respectively, and received total proceeds of approximately $24.5 million. The
Company intends to use all of the net proceeds to expand its production of
agricultural products through the construction of new greenhouse
facilities.
- 23
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PREFERRED
STOCK
Under the
Company’s articles of incorporation, the board of directors has the authority,
without further action by stockholders, to designate up to 20,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges, qualifications and restrictions granted to or imposed upon the
preferred stock, including dividend rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preference and sinking fund terms,
any or all of which may be greater than the rights of the common
stock. If the Company sells under the preferred stock under the
registration statement on Form S-3, we will fix the rights, preferences,
privileges, qualifications and restrictions of the preferred stock of each
series in the certificate of designation relating to that series and will file
the certificate of designation that describes the terms of the series of
preferred stock the Company offers before the issuance of the related series of
preferred stock.
As of
December 31, 2009, the Company had 20,000,000 shares of preferred stock
authorized, with a par value of $.001 per share, of which no shares are
outstanding.
As
stipulated by the Company Law of the People's Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
|
|
i)
|
Making
up cumulative prior years' losses, if
any;
|
|
|
ii)
|
Allocations
to the "Statutory surplus reserve" of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the fund
amounts to 50% of the Company's registered
capital;
|
|
|
iii)
|
Allocations
of 5-10% of income after tax, as determined under PRC accounting rules and
regulations, to the Company's "Statutory common welfare fund", which is
established for the purpose of providing employee facilities and other
collective benefits to the Company's employees; and
statutory common welfare fund is
no longer required per the new cooperation law executed in
2006.
|
|
|
iv)
|
Allocations
to the discretionary surplus reserve, if approved in the shareholders'
general meeting.
|
In
accordance with the Chinese Company Law, the Company has allocated 10% of its
net income to surplus. The amount included in the statutory reserves as of
December 31, 2009 and June 30, 2009 amounted to $4,525,550 and $3,468,530,
respectively.
Effective
January 1, 2006, the Company adopted the standard which requires the
measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors, including stock options based on their
fair values. SFAS No. 123-R (ASC 718) supersedes Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), which the
Company previously followed in accounting for stock-based awards. In March 2005,
the SEC issued Staff Accounting Bulletin No. 107
(SAB 107) to provide
guidance on SFAS No. 123-R (ASC 718). The Company has applied SAB 107 in its
adoption of SFAS No. 123-R (ASC 718).
On
January 31, 2008, the Company issued 123,000 stock options to its employees with
an exercise price of $3.25 and term of three years. Compensation expense for the
year ended June 30, 2008 recorded was $388,452. On June 24, 2008, the employees
requested a cashless exercise of 76,500 options at an exercise price of $3.25
per share. Based on the formula provided in the options agreement, the employees
received 67,685 shares. On August 17, 2009, the employees requested a cashless
exercise of 46,500 options and received 35,620 shares of common
stock.
- 24
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option pricing model are as follows:
|
Risk-free
interest rate
|
2.27 | % | ||
|
Expected
life of the options
|
3
year
|
|||
|
Expected
volatility
|
252 | % | ||
|
Expected
dividend yield
|
0 | % | ||
On April
8, 2008, the Company issued 35,000 stock options to two directors with an
exercise price of $6 and term of two years. 10,500 options vested on June 29,
2008 and 24,500 options will vest on July 1, 2009. On August 17, 2009, one
director requested a cashless exercise and received 5,681 shares of common
stock.
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option pricing model are as follows:
|
Risk-free
interest rate
|
1.87 | % | ||
|
Expected
life of the options
|
2
year
|
|||
|
Expected
volatility
|
540 | % | ||
|
Expected
dividend yield
|
0 | % | ||
On April
23, 2008, the Company issued 40,000 stock options to the former CFO with an
exercise price of $6 and term of two years. 12,000 options vested on June 29,
2008 and 28,000 options were forfeited due to the former CFO’s
resignation.
On
September 10, 2008, the Company issued 28,000 stock options to the CFO with an
exercise price of $4 and term of two years. The options vested on
July 1, 2009. On August 17, 2009, the CFO requested a cashless
exercise and received 19,938 shares of common stock.
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option pricing model are as follows:
|
Risk-free
interest rate
|
2.22 | % | ||
|
Expected
life of the options
|
2
year
|
|||
|
Expected
volatility
|
584 | % | ||
|
Expected
dividend yield
|
0 | % | ||
- 25
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Options
outstanding as of December 31, 2009 and related weighted average price and
intrinsic value are as follows:
|
Exercise
Prices
|
Total
Options
Outstanding
|
Weighted
Average
Remaining
Life
(Years)
|
Total
Weighted
Average
Exercise
Price
|
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
||||||||||||||||||||
| $ |
6
|
37,000 | 0.6 | $ | 6 | 37,000 | $ | 6 | $ | 302,179 | ||||||||||||||||
The
following table summarizes the options outstanding as of December 31,
2009:
|
Options
Outstanding
|
||||
|
Outstanding,
July 1, 2007
|
— | |||
|
Granted
|
198,000 | |||
|
Forfeited/Canceled
|
— | |||
|
Exercised
|
(76,500 | ) | ||
|
Outstanding,
July 1, 2008
|
121,500 | |||
|
Granted
|
28,000 | |||
|
Forfeited/Canceled
|
(28,000 | ) | ||
|
Exercised
|
— | |||
|
Outstanding,
June 30, 2009
|
121,500 | |||
|
Exercised
|
(84,500 | ) | ||
|
Outstanding,
December 31, 2009
|
37,000 | |||
In July
2007, the Company signed an office lease with the shareholder and started to pay
the rent for $1,702 per month. The Company recorded rent expenses of $5,122 and
$5,104 as rent expenses for the three months ended December 31, 2009 and 2008,
respectively. The Company recorded rent expenses of $10,244 and $10,208 as rent
expenses for the six months ended December 31, 2009 and 2008, respectively. Rent
expenses for the 5 years after December 31, 2009 are as follows:
|
December
31, 2010
|
$ | 20,490 | ||
|
December
31, 2011
|
20,490 | |||
|
December
31, 2012
|
20,490 | |||
|
December
31, 2013
|
20,490 | |||
|
December
31, 2014
|
20,490 | |||
|
Total
|
$ | 102,450 |
- 26
-
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
On
January 3, 2010, the Compensation Committee (the “Committee”) of the Board of
Directors of China Green Agriculture, Inc. (the “Company”) approved the grant of
restricted stock and non-qualified stock options to certain executive officers
and directors of the Company under the Company’s 2009 Equity Incentive Plan (the
“Plan”). The Plan was approved by a majority of shareholders on the annual
shareholder meeting on December 11, 2009.
Pursuant
to a one-time grant under the Plan, the Committee granted (i) 25,000
shares of restricted stock and non-qualified stock options to purchase 25,000
shares of common stock, par value $.001 per share, of the Company (“Common
Stock”) to Mr. Tao Li, the Company’s chairman and chief executive officer, (ii)
15,000 shares of restricted stock and non-qualified stock options to purchase
15,000 shares of Common Stock to Ms. Ying Yang, the Company’s chief financial
officer, and (iii) non-qualified stock options to purchase 3,334 shares of
Common Stock to each of Mr. Yizhao Zhang, Mr. Barry Raeburn and Mr. Lianfu Liu,
the Company’s independent directors. The non-qualified stock options
are exercisable at a price of $14.70 per share, the closing price of the Common
Stock on the last trading day preceding the grant date, and have a five-year
term. Both the restricted stock and the non-qualified stock options
granted pursuant to this one time grant vest on February 2, 2010.
Also pursuant to a one-time grant under
the Plan, the Committee granted (i) 50,000 shares of restricted stock and
non-qualified stock options to purchase 50,000 shares of Common Stock to Mr. Li,
(ii) 30,000 shares of restricted stock and non-qualified options to purchase
30,000 shares of Common Stock to Ms. Yang, and (iii) non-qualified stock options
to purchase 6,666 shares of Common Stock to each of Mr. Zhang, Mr. Raeburn and
Mr. Liu. The non-qualified stock options are exercisable at a price
of $14.70 per share and have a five-year term. Both the restricted
stock and the non-qualified stock options granted pursuant to this one-time
grant vest in two equal installments on December 31, 2010 and December 31, 2011,
so long as certain target thresholds of net sales and operating income are
achieved by the Company with respect to each vesting date.
As an annual equity award under the
Plan, the Committee granted (i) 15,307 shares of restricted stock and
non-qualified stock options to purchase 30,194 shares of Common Stock to Mr. Li,
and (ii) 7,654 shares of restricted stock and non-qualified options to purchase
15,097 shares of Common Stock to Ms. Yang. The non-qualified stock options are
exercisable at a price of $14.70 per share and have a five-year
term. Both the restricted stock and the non-qualified stock options
granted pursuant to this annual equity award vest in three equal installments on
September 30, 2010, September 30, 2011 and September 30, 2012, so long as
certain target thresholds of net sales and operating income are achieved by the
Company with respect to its fiscal year ending June 30, 2010.
- 27
-
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the notes to those financial statements appearing elsewhere in
this report. This discussion and analysis contains forward-looking statements
that involve significant risks and uncertainties. As a result of many factors,
such as the slow-down of the global financial market and its impact on economic
growth in general, the competition in the fertilizer industry and the impact of
such competition on pricing, revenues and margins, the weather conditions in the
areas where our customers are based, the cost of attracting and retaining highly
skilled personnel, the prospects for future acquisitions, and the factors set
forth elsewhere in this report, our actual results may differ materially from
those anticipated in these forward-looking statements. Unless the context
indicates otherwise, as used in the following discussion, “Company”, “we,” “us,”
and “our,” refer to (i) China Green Agriculture, Inc. (“Green Nevada”, formerly
known as Discovery Technologies, Inc.), a corporation incorporated in the State
of Nevada; (ii) Green Agriculture Holding Corporation (“Green New Jersey”),
a wholly-owned subsidiary of Green Nevada incorporated in the State of New
Jersey; (iii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a
wholly-owned subsidiary of Green New Jersey organized under the laws of the
People’s Republic of China (the “PRC”); (vi) Xi’an Jintai Agriculture Technology
Development Company (“Jintai”), wholly-owned subsidiary of Techteam in the PRC
and (vii) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd.
(“Yuxing”), a wholly-owned subsidiary of Jinong in the PRC.
Overview
We,
through our indirect wholly-owned subsidiaries, Jinong, Jintai and Yuxing, are
engaged in the following business: (i) research, development, production and
distribution of humic acid-based compound fertilizer (conducted through Jinong);
and (ii) development, production and distribution of agricultural products
(conducted through Jintai and Yuxing); namely, top-grade fruits, vegetables,
flowers and colored seedlings. Jintai also serves as a research and development
base for our fertilizer products. The fertilizer business is our main business,
which generated 81.5% and 70.6% of our total revenues in the three months ended
December 31, 2009 and 2008, respectively. In the six months ended December 31,
2009 and 2008, the fertilizer business generated 85.9% and 79.2% of our total
revenues, respectively.
We employ
a multi-tiered product strategy in which we tailor our products to different
needs and preferences of the different geographic regions across China. Each
region has varying climate and soil conditions and grows different crops which
require fertilizer which addresses local conditions. We sold approximately 3,065
and 1,611 metric tons of our fertilizer products in the three months ended
December 31, 2009 and 2008, respectively. In the six months ended December 31,
2009 and 2008, we sold approximately 7,435 and 4,901 metric tons of our
fertilizer products, respectively.
As of
December 31, 2009, we developed and produced 141 different fertilizer products.
For the three months ended December 31, 2009 and 2008, we sold approximately
3,836 and 3,065 metric tons of fertilizer, respectively. The five provinces in
which we had the most sales accounted for a total of 34.7% of our fertilizer
revenue for the three months ended December 31, 2009. These provinces were
Shaanxi (9.1%), Shandong (6.8%), Guangdong (6.7%), Heilongjiang (6.2%), and
Hebei (5.9%).
Our
fertilizers are sold through a large number of distributors and we are not
dependent on any one or group of distributors. As of December 31, 2009, we had
approximately 540 distributors in China. The top five distributors accounted for
a total of 3.8% of fertilizer revenues for the three months ended December 31,
2009.
Through
our wholly-owned subsidiary Jintai, we sell high quality flowers, green
vegetables and fruits to airlines, hotels and restaurants, among other
customers. Jintai, which has a 137,000 square meter greenhouse facility, also
conducts our fertilizer research and development activities. Four provinces
accounted for 100% of our agriculture product revenue for the three months ended
December 31, 2009. These were Shaanxi (89.9%), Shanxi (4.7%), Henan (2.8%) and
Sichuan (2.6%). Jintai’s top five customers accounted for a total of 63.9% of
Jintai’s sales for the three months ended December 31, 2009.
- 28
-
Recent
Developments
During
the three months ended December 31, 2009, we launched two new liquid-based and
two powder-based fertilizer products. They generated approximately $293,668, or
3.2% of the revenues from our fertilizer products sold for the three months
ended December 31, 2009. During the six months ended December 31, 2009, we
launched a total of seven new fertilizer products, including four powder-based
products, two liquid-based products and one granular-based product, which
accounted for 21.9% of the fertilizer revenues for the six month ended December
31, 2009.
We
received net proceeds of approximately $24.5 million from a public offering of
our common stock with 1,282,052 shares issued on November 25, 2009 and 320,512
shares on December 17, 2009. The shares were sold under the Company’s previously
filed shelf registration statement, which was declared effective by the
Securities and Exchange Commission on June 12, 2009. The net proceeds are being
used for new green house expansion in Yuxing, which is expected to complete in
two years and working capital purposes. We plan to use the new greenhouse
facilities to expand our research and development base for our humic-acid based
fertilizer products and other humic-acid related agricultural
products.
On
December 7, 2009, our common stock became listed on the New York Stock Exchange
(“NYSE”) and we voluntarily delisted our common stock from the NYSE Amex. On
November 23, 2009, we changed our stock transfer agent to Continental Stock
Transfer & Trust Company.
On
October 9, 2009, we engaged a compensation consulting firm in the U.S. to
conduct a comprehensive compensation analysis study and a Board of Director
analysis and to develop an annual cash-based and equity-based incentive program
for our directors, officers and key management under our 2009 Equity Incentive
Plan, which were approved and adopted by our shareholders at our annual meeting
of stockholders on December 11, 2009. On November 6, 2009, our Compensation
Committee approved the cash-based compensation plan. On January 3, 2010, our
Compensation Committee approved the equity-based compensation plan.
Results of
Operations
THREE
MONTHS ENDED DECEMBER 31, 2009 COMPARED WITH THREE MONTHS ENDED DECEMBER 31,
2008.
The
following table shows the operating results of the Company on a consolidated
basis for the three months ended December 31, 2009 and 2008.
|
Three
months ended
|
Three
months ended
|
|||||||
|
December
31, 2009
|
December
31, 2008
|
|||||||
|
Net
Sales
|
$ | 11,172,116 | $ | 7,000,126 | ||||
|
Cost
of Goods Sold
|
4,402,343 | 2,901,306 | ||||||
|
Gross
Profit
|
6,769,773 | 4,098,820 | ||||||
|
Selling
Expenses
|
520,096 | 366,161 | ||||||
|
General
and Administrative Expenses
|
814,551 | 586,645 | ||||||
|
Income
from Operations
|
5,435,126 | 3,146,014 | ||||||
|
Total
Other Income (expense)
|
7,908 | (125,485 | ) | |||||
|
Income
Before Income Taxes
|
5,443,034 | 3,020,529 | ||||||
|
Provision
for Income Taxes
|
722,041 | 362,676 | ||||||
|
Net
Income
|
4,720,993 | 2,657,852 | ||||||
- 29
-
Net
Sales
Total net
sales for the three months ended December 31, 2009 were $11,172,116, an increase
of $4,171,990, or 59.6%, from $7,000,126 for the three months ended December 31,
2008.
Jinong’s
net sales, which accounted for 81.5% of total net sales, were driven by
increased sales of humic acid-based compound fertilizers. Jinong’s net sales
increased $4,165,771, or 84.2%, to $9,110,797 for the three months ended
December 31, 2009, from $4,945,026 for the three months ended December 31, 2008.
Sales volume increased 25.2% to 3,836 tons for the three months ended December
31, 2009 from 3,065 tons for the three months ended December 31, 2008. These
increases were mainly attributable to the increased production due to greater
capacity from our new production line and the sales of more high-end products,
including our highly-concentrated powdered fertilizer products.
Jintai’s
net sales, which include sales of agricultural products, such as top-grade
fruits, vegetables, flowers and colored seedlings, increased $6,219, or 0.3%, to
$2,061,319 for the three months ended December 31, 2009 from $2,055,100 for the
same period in 2008. The sales for the top three products accounted for 82.6% of
Jintai’s sales for the three months ended December 31, 2009.
We do not
currently derive revenue from Yuxing.
Cost
of Goods Sold
Total
cost of goods sold for the three months ended December 31, 2009 was $4,402,343,
an increase of $1,501,037, or 51.7%, from $2,901,306 for the three months ended
December 31, 2008.
Jinong’s
costs of goods sold primarily consist of costs for packaging materials, raw
materials, direct labor and overhead allocation. Cost of goods sold by Jinong
increased $1,386,747, or 73.7%, to $3,267,122 for the three months ended
December 31, 2009 compared to $1,880,375 for the same period in 2008. This
increase was primarily due to increased sales. As a percentage of total net
sales, cost of goods sold by Jinong approximated 29.2% and 26.9% for the three
months ended December 31, 2009 and 2008, respectively.
Jintai’s
costs of goods sold primarily consist of costs for direct materials, direct
labor, utility costs and depreciation expenses. Cost of goods sold by Jintai
increased $114,291, or 11.2%, to $1,135,221 for the three months ended December
31, 2009 compared to $1,020,930 for the three months ended December 31, 2008.
This increase was partly due to the increased sales of decorative flowers which
have higher costs than costs associated with fruits and vegetables. As a
percentage of total net sales, cost of goods sold by Jintai approximated 10.2%
and 14.6% for the three months ended December 31, 2009 and 2008,
respectively.
Gross
Profit
Total
gross profit for the three months ended December 31, 2009 was $6,769,773, an
increase of $2,670,953, or 65.2%, from $4,098,820 for the three months ended
December 31, 2008. Gross profit margin approximated 60.6% and 58.6% for the
three months ended December 31, 2009 and 2008, respectively. As further detailed
below, our margins for fertilizer products are approximately 10% higher than our
margins for agriculture products.
Gross
profit from Jinong for the three months ended December 31, 2009 was $5,843,675,
an increase of $2,779,024, or 90.7%, from $3,064,651 for the three months ended
December 31, 2008. Gross profit margin from Jinong sales approximated 64.1% and
62.0% for the three months ended December 31, 2009 and 2008, respectively. The
increase in gross profit margin was mainly due to the value-added tax (“VAT”)
exemption although the increase resulting from the VAT exemption was partially
offset by the increased amortization expenses from the new production
line.
Gross
profit from Jintai for the three months ended December 31, 2009 was $926,098, a
decrease of $108,072 or 10.5% from $1,034,170 for the three months ended
December 31, 2008. Gross profit margin from Jintai sales approximated 44.9% and
50.3% for the three months ended December 31, 2009 and 2008, respectively. The
decrease in gross profit margin was mainly due to a shift of our product mix. In
the recent period, we sold more decorative flowers, which have higher costs,
than fruits and vegetables as compared to the corresponding prior period in
order to meet the market demand.
- 30
-
Selling
Expenses
Selling
expenses consist primarily of salaries of sales personnel, advertising and
promotion expenses, freight charges and related compensation. Selling expenses
were $520,096, or 4.7% of net sales for the three months ended December 31, 2009
as compared to $366,161, or 5.2% of net sales for the three months ended
December 31, 2008, an increase of $153,935, or approximately 42.0%. Most of this
increase was due to higher promotion expenses on brochures and other educational
kits for new products.
General
and Administrative Expenses
General
and administrative expenses consisted primarily of rental expenses, related
salaries, business development, depreciation, travel expenses and other
professional expenses. General and administrative expenses were $814,551, or
7.3% of net sales for the three months ended December 31, 2009, as compared to
$586,645, or 8.4% for the three months ended December 31, 2008, an increase of
$227,906, or 38.8%. The increase was largely attributable to expenses associated
with our activities as a public company, including our NYSE application and our
annual shareholder meeting.
Total
Other Income (Expenses)
Total
other income (expenses) consisted of subsidy income from the PRC government,
interest income, interest expenses and bank charges. Total other income for the
three months ended December 31, 2009 was $7,908 as compared to total other
expenses for the three months ended December 31, 2008 of $125,485. The interest
expense incurred during the recent period was offset by the higher interest
income we received in the same period.
Income
Taxes
Jinong is
subject to a preferred tax rate of 15% as a result of Jinong’s operation being
classified as a High-Tech project under the new PRC Enterprise Income Tax Law
(“EIT”) effective on January 1, 2008. Jinong incurred income tax expenses of
$722,041 for the three months ended December 31, 2009, as compared to $362,676
for the same period in the prior year, an increase of $359,365. This increase
was primarily attributable to our increased operating income during the three
months ended December 31, 2009.
Jintai
has been exempt from paying income tax since its formation as it produces
products that fall into the tax exemption category set out in the EIT. The
duration of exemption is indefinite so long as there are no amendments to the
relevant provisions of the EIT.
Net Income
Our net
income was $4,720,993 for the three months ended December 31, 2009, an increase
of $2,063,414, or 77.6%, from $2,657,852 for the three months ended December 31,
2008. The increase in net income was largely due to the increase in our net
sales of fertilizer products which provide higher profit margins than that of
our agriculture products. Net income as a percentage of total net sales
approximated 42.3% and 38.0% for the three months ended December 31, 2009 and
2008, respectively.
- 31
-
SIX
MONTHS ENDED DECEMBER 31, 2009 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
2008.
The
following table shows the operating results of the Company on a consolidated
basis for the six months ended December 31, 2009 and 2008.
|
Six
months ended
|
Six
months ended
|
|||||||
|
December
31, 2009
|
December
31, 2008
|
|||||||
|
Net
Sales
|
$ | 22,448,936 | $ | 15,880,128 | ||||
|
Cost
of Goods Sold
|
8,720,204 | 6,832,199 | ||||||
|
Gross
Profit
|
13,728,732 | 9,047,929 | ||||||
|
Selling
Expenses
|
735,767 | 582,537 | ||||||
|
General
and Administrative Expenses
|
1,348,730 | 1,023,774 | ||||||
|
Income
from Operations
|
11,644,235 | 7,441,618 | ||||||
|
Total
Other Income (expense)
|
(23,169 | ) | (301,679 | ) | ||||
|
Income
Before Income Taxes
|
11,621,066 | 7,139,939 | ||||||
|
Provision
for Income Taxes
|
1,652,798 | 984,159 | ||||||
|
Net
Income
|
9,968,268 | 6,155,780 | ||||||
Net
Sales
Total net
sales for the six months ended December 31, 2009 were $22,448,936, an increase
of $6,568,808, or 41.4%, from $15,880,128 for the six months ended December 31,
2008.
Jinong’s
net sales, which accounted for 85.9% of total net sales in the six months ended
December 31, 2009, were driven mainly by the sales of humic acid-based compound
fertilizers. Jinong’s net sales increased $6,718,919, or 53.4%, to $19,289,446
for the six months ended December 31, 2009, from $12,570,527 for the six months
ended December 31, 2008. This increase was mainly attributable to the
commencement of our new production line in August 2009 and the sale of more
high-end products, including our recently introduced powdered fertilizer
products.
Jintai’s
net sales decreased $150,112, or 4.5%, to $3,159,490 for the six months ended
December 31, 2009 from $3,309,601 for the same period in 2008.
Cost
of Goods Sold
Total
cost of goods sold for the six months ended December 31, 2009 was $8,720,204, an
increase of $1,888,005, or 27.6%, from $6,832,199 for the six months ended
December 31, 2008.
Cost of
goods sold by Jinong increased $1,896,165, or 37.1%, to $7,002,486 for the six
months ended December 31, 2009, compared to $5,106,321 for the same period in
2008. This increase was primarily due to the increased total net sales. As a
percentage of total net sales, cost of goods sold by Jinong approximated 31.2%
and 32.2% for the six months ended December 31, 2009 and 2008,
respectively.
Cost of
goods sold by Jintai decreased $8,159, or 0.5%, to $1,717,718 for the six months
ended December 31, 2009 compared to $1,725,877 for the six months ended December
31, 2008. The increase in cost of goods sold for the six months ended December
31, 2009 was primarily due to an increase in direct material, which was
partially offset by a decrease in utility and other overhead costs.
Gross
Profit
Total
gross profit for the six months ended December 31, 2009 was $13,728,732, an
increase of $4,680,803, or 51.7% from $9,047,929 for the six months ended
December 31, 2008. Gross profit margin approximated 61.2% and 57.0% for the six
months ended December 31, 2009 and 2008, respectively.
Gross
profit from Jinong increased $4,822,754, or 64.6%, to $12,286,960 for the six
months ended December 31, 2009 from $7,464,206 for the six months ended December
31, 2008. Gross profit margin from Jinong sales approximated 63.7% and 59.4% for
the six months ended December 31, 2009 and 2008, respectively.
Gross
profit from Jintai decreased $141,952, or 9.0%, for the six months ended
December 31, 2009 to $1,441,772 compared to $1,583,724 for the six months ended
December 31, 2008. The decrease was attributable to our higher proportion of
sales of decorative flowers, which have a higher cost as compared to the costs
associated with fruits and vegetables. Sales of our butterfly orchids and red
leaf flowers, two types of decorative flowers, accounted for 75.2% of Jintai’s
sales for the six months ended December 31, 2009, as compared to 48.6% for the
same period a year ago. Gross profit margin from Jintai sales approximated 45.6%
and 47.9% for the six months ended December 31, 2009 and 2008,
respectively.
- 32
-
Selling
Expenses
Selling
expenses consist primarily of salaries of sales personnel, advertising and
promotion expenses, freight charges and related compensation. Selling expenses
were $735,767, or 3.3% of net sales for the six months ended December 31, 2009,
an increase of $153,230, or approximately 26.3% as compared to $582,537, or 3.7%
of net sales for the six months ended December 31, 2008. Most of this increase
was due to an increase in promotion expense.
General
and Administrative Expenses
General
and administrative expenses consisted primarily of rental expenses, related
salaries, business development, depreciation, travel expenses and other
professional expenses. General and administrative expenses were $1,348,730, or
6.0% of net sales for the six months ended December 31, 2009, as compared to
$1,023,774, or 6.4% of net sales for the six months ended December 31, 2008, an
increase of $324,956, or 31.7%. This was mainly attributable to the increased
professional service fees as a result of our activities as a public
company.
Total
Other Income (Expenses)
Total
other income (expenses) consisted of subsidy income from the PRC government,
interest income, interest expenses and bank charges. Total other expenses for
the six months ended December 31, 2009 and 2008 were $23,169 and $301,679,
respectively. The decrease in total other expenses was due to the decrease in
interest expenses as we paid off certain short-term loans.
Income
Taxes
Jinong
incurred income tax expenses of $1,652,798 for the six months ended December 31,
2009, compared to $984,159 for the same period in the prior year.
As set
forth above, Jintai currently is exempted under PRC regulations from paying
income tax.
Net Income
Our net
income for the six months ended December 31, 2009 was $9,968,268, an increase of
$3,812,488, or 61.9%, from $6,155,780 for the six months ended December 31,
2008. The increase was mainly a result of our increased net sales by Jinong. Net
income as a percentage of total net sales approximated 44.4% and 38.7% for the
six months ended December 31, 2009 and 2008, respectively.
Discussion of Segment
Profitability Measures
Our
business consists of three segments – the sales of fertilizer products through
Jinong, the sales of agricultural products through Jintai and greenhouse
facility expansion through Yuxing. For each segment, we prepare quarterly and
annual projections with regard to marketing, research and development,
production and sales along with financial budgets.
Liquidity and Capital
Resources
Our
principal sources of liquidity include cash from operations, borrowings from
China local commercial bank and proceeds from our public offerings in July 2009,
and November/December, 2009. These two offerings provided aggregate gross
proceeds of approximately $51.3 million.
- 33
-
As of
December 31, 2009, cash and cash equivalents were $61,183,492, an increase of
$43,388,045 from $17,795,447 as of June 30, 2009, which was primarily due to
proceeds from the three public offerings. This amount does not include the
restricted cash from our escrow account. Pursuant to the Securities Purchase
Agreement and Holdback Escrow Agreement by and among the Company and the
investors in the private placement in December 2007 (the “2007 Private
Placement”), a total of $250,000 cash from the 2007 Private Placement proceeds
was escrowed for investor relations purposes. The funds are released to the
Company on a monthly basis to pay invoices issued by the Company’s investor
relations firm. As of December 31, 2009, there was $36,897 left in the escrow
account.
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
Six
months ended
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
cash provided by operating activities
|
$ | 5,982,547 | $ | 714,571 | ||||
|
Net
cash used in investing activities
|
(13,148,780 | ) | (1,925,229 | ) | ||||
|
Net
cash provided by / (used in) financing activities
|
50,440,041 | (320,470 | ) | |||||
|
Effect
of exchange rate change on cash and cash equivalents
|
114,236 | (2,024 | ) | |||||
|
Net
increase / (decrease) in cash and cash equivalents
|
43,388,045 | (1,533,151 | ) | |||||
|
Cash
and cash equivalents, beginning balance
|
17,795,447 | 16,612,416 | ||||||
|
Cash
and cash equivalents, ending balance
|
61,183,492 | 15,079,265 | ||||||
Operating
Activities
Net cash
provided by operating activities was $5,989,820 for the six months ended
December 31, 2009, an increase of $5,275,249 from $714,571 for the same period
in 2008. The increase was mainly due to an increase in net income and an
increase in tax payables.
Investing
Activities
Net cash
used in investing activities in the six months ended December 31, 2009 was
$13,148,780, a decrease of $11,223,551 as compared to $1,925,229 for the same
period in 2008. This increase was mainly due to the purchase of the land use
right for the expansion of our new greenhouse facility by Yuxing.
Financing
Activities
Net cash
provided by financing activities in the six months ended December 31, 2009
totaled $50,440,041, an increase of $50,760,511 as compared to the net cash used
in financing activities for the same period in 2008, primarily due to the public
offerings in July 2009, November 2009 and December 2009.
As of
December 31, 2009, our loans payable were as follows:
|
Short
term loans payable:
|
Amount
Outstanding
|
Repayment
Terms
|
Expiration
Date
|
|
Xi’an
Commercial Bank Xincheng Branch
|
$2,197,512
|
Annual
Interest Rate: 7.965%, repaid on a monthly basis
|
03/31/2010
|
|
Total
|
$2,197,512
|
- 34
-
None of
our officers or shareholders has made commitments to the Company for financing
in the form of advances, loans or credit lines.
Accounts
Receivable
Our
accounts receivable, net of allowance for doubtful accounts, was $10,993,124 as
of December 31, 2009, compared to $8,167,715 as of June 30, 2009, an increase of
$2,825,410. The increase is mainly to due to our increased sales.
Our
allowance for doubtful accounts was $169,359 as of December 31, 2009 compared
with $4,122 as of June 30, 2009, an increase of $165,237.
Inventories
We had
inventory of $9,906,700 as of December 31, 2009 as compared to $7,162,249 as of
June 30, 2009, an increase of $2,744,451. This increase was mainly due to the
increased work in progress at Jintai to accommodate the increase in demand we
typically experience during the Chinese New Year, which occurs in
February.
Off-Balance Sheet
Arrangements
We do not
have any off-balance sheet arrangements.
Critical Accounting Policies
and Estimates
Management’s
discussion and analysis of its financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles. Our
financial statements reflect the selection and application of accounting
policies which require management to make significant estimates and judgments.
See Note 2 to our consolidated financial statements, “Basis of Presentation and
Summary of Significant Accounting Policies.” We believe that the following
paragraphs reflect the more critical accounting policies that currently affect
our financial condition and results of operations:
Use of
estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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 consolidated financial statements and the amount of revenues and
expenses during the reporting periods. Management makes these estimates using
the best information available at the time the estimates are made. However,
actual results could differ materially from those estimates.
Revenue
recognition
Sales
revenue is recognized at the date of shipment to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
The
Company’s revenue consists of invoiced value of goods, net of a value-added tax
(VAT). No product return or sales discount allowance is made as products
delivered and accepted by customers are normally not returnable and sales
discounts are normally not granted after products are delivered.
- 35
-
Cash and cash
equivalents
For
statement of cash flows purposes, the Company considers all cash on hand and in
banks, certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents.
Accounts
receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. 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. Any accounts receivable that is
outstanding for more than three months will be accounted as allowance for bad
debts.
Segment
reporting
FASB ASC
280, (previously SFAS No. 131,
Segment Reporting
) requires
use of the “management approach” model for segment reporting. The management
approach model is based on the way a company’s management organizes segments
within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure, or any other manner in which management
disaggregates a company.
During
the three months ended December 31, 2009, the Company was organized into three
main business segments: fertilizer production (Jinong), agricultural products
production (Jintai) and future research and development center
(Yuxing).
|
Item
4T.
|
Controls
and Procedures
|
(a)
Evaluation of disclosure controls
and procedures
. At the conclusion of the period ended December 31, 2009
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 the end of the period covered by this report, 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.
(b)
Changes in internal controls
.
During the period covered by this report, there was no change in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
- 36
-
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Our
stockholders approved the following proposals at our Annual Meeting of
Stockholders held on Friday, December 11, 2009:
|
1)
|
The
election of the following five (5) directors, each to hold office for a
term of one year or until their respective successors have been duly
elected or appointed:
|
|
Nominee
|
Votes
FOR
|
Votes WITHHELD
|
||||||
|
Tao
Li
|
15,898,525 | 95,114 | ||||||
|
Yu
Hao
|
15,873,204 | 120,435 | ||||||
|
Lianfu
Liu
|
15,055,593 | 937,686 | ||||||
|
Barry
Raeburn
|
15,068,628 | 925,011 | ||||||
|
Yizhao
Zhang
|
15,066,349 | 927,290 | ||||||
|
2)
|
The
ratification of the adoption of our 2009 Equity Incentive
Plan:
|
|
Votes
FOR
|
Votes AGAINST
|
Votes ABSTAINED
|
Broker
Non-Votes
|
|||||||||||
| 7,317,049 | 1,202,079 | 23,665 | 7,450,846 | |||||||||||
|
Item
6.
|
Exhibits
|
The
exhibits required by this item are set forth in the Exhibit Index attached
hereto.
- 37
-
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CHINA
GREEN AGRICULTURE, INC.
Date: February
8, 2010
By:
/s/ Tao Li
Name: Tao
Li
Title:
President and Chief Executive Officer
(principal
executive officer)
Date: February
8, 2010
By:
/s/ Ying Yang
Name:
Ying Yang
Title:
Chief Financial Officer
(principal
financial officer and principal accounting officer)
- 38
-
EXHIBIT
INDEX
|
No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
- 39 -
TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1 Organization and Description Of BusinessNote 2 Basis Of Presentation and Summary Of Significant Accounting PoliciesNote 3 InventoriesNote 4 Other AssetsNote 5 - Property, Plant and EquipmentNote 6 - Intagible AssetsNote 7 - Amount Due To Related PartiesNote 8 - Accrued Expenses and Other PayablesNote 9 - Loan PayablesNote 10 - Taxes PayableNote 11 Advances From Unrelated CompaniesNote 12 - Other Income (expenses)Note 13 - Income TaxesNote 14 - Current Vulnerability Due To Certain ConcentrationsNote 15 Stockholders EquityNote 16 - Statutory ReservesNote 17 Stock OptionsNote 18 - Commitments and LeasesNote 19 Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4T. Controls and ProceduresPart II. Other InformationItem 4. Submission Of Matters To A Vote Of Security HoldersItem 6. Exhibits