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
March 31,
2010
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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 small business issuer 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
(Issuer'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: 24,572,328 shares of Common
Stock, $.001 par value, were outstanding as of May 12, 2010.
2
TABLE
OF CONTENTS
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PART I
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FINANCIAL INFORMATION
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Page
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Item
1.
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Financial
Statements.
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4
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Consolidated
Balance Sheets
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||
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As
of March 31, 2010 (Unaudited) and June 30, 2009
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4
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Consolidated
Statements of Income and Comprehensive Income
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||
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For
the Three and Nine Months Ended March 31, 2010 and 2009
(Unaudited)
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5
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Consolidated
Statements of Cash Flows
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||
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For
the Three and Nine Months Ended March 31, 2010 and 2009
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||
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(Unaudited)
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6
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Notes
to Consolidated Financial Statements
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||
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As
of March 31, 2010 (Unaudited)
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7
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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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31
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Item
4T.
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Controls
and Procedures
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42
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PART II
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OTHER INFORMATION
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Item
2
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Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
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43
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Item
6.
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Exhibits
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43
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Signatures
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44
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Exhibits/Certifications
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||
3
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Item
1.
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Financial
Statements
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AS
OF MARCH 31, 2010 AND JUNE 30, 2009
(UNAUDITED)
ASSETS
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March
31, 2010
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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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$ | 58,233,311 | $ | 17,795,447 | ||||
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Restricted
cash
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431 | 83,579 | ||||||
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Accounts
receivable, net
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13,316,354 | 8,167,715 | ||||||
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Inventories
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10,883,919 | 7,162,249 | ||||||
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Other
assets
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342,339 | 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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161,800 | 95,255 | ||||||
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Total
Current Assets
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82,938,154 | 33,593,958 | ||||||
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Plant,
Property and Equipment, Net
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29,009,241 | 17,341,654 | ||||||
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Construction
In Progress
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31,859 | 9,609,649 | ||||||
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Advances
to suppliers – Non Current
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392,695 | - | ||||||
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Intangible
Assets, Net
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11,592,939 | 1,073,165 | ||||||
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Total
Assets
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$ | 123,964,888 | $ | 61,618,426 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
Liabilities
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||||||||
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Accounts
payable
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$ | 1,096,241 | $ | 926,883 | ||||
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Unearned
revenue
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61,238 | 24,000 | ||||||
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Other
payables and accrued expenses
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745,368 | 1,091,168 | ||||||
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Advances
from other unrelated companies
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297,783 | 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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1,170,707 | 2,887,828 | ||||||
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Short
term loans
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- | 3,170,290 | ||||||
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Total
Current Liabilities
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3,439,501 | 8,458,299 | ||||||
| Commitments | ||||||||
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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, $.001 par value, 115,197,165 shares authorized,
24,564,328 shares issued and outstanding (12,281,569 as of June 30,
2009)
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24,565 | 12,282 | ||||||
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Additional
paid-in capital
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74,648,807 | 2,060,162 | ||||||
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Statuary
reserve
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5,168,773 | 3,468,530 | ||||||
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Retained
earnings
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38,243,589 | 24,642,768 | ||||||
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Accumulated
other comprehensive income
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2,439,653 | 2,457,130 | ||||||
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Total
Stockholders' Equity
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120,525,387 | 32,640,872 | ||||||
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Total
Liabilities and Stockholders' Equity
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$ | 123,964,888 | $ | 61,618,426 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
4
FOR
THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)
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Nine
Months Ended March 31,
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Three
Months Ended March 31,
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|||||||||||||||
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2010
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2009
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2010
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2009
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|||||||||||||
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Net
Sales
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||||||||||||||||
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Jinong
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$ | 30,554,200 | $ | 19,435,021 | $ | 11,264,754 | $ | 6,864,494 | ||||||||
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Jintai
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5,337,013 | 5,286,782 | 2,177,523 | 1,977,180 | ||||||||||||
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Net
sales
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$ | 35,891,213 | $ | 24,721,802 | $ | 13,442,277 | $ | 8,841,675 | ||||||||
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Cost
of goods sold
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- | - | - | - | ||||||||||||
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Jinong
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11,209,185 | 7,667,116 | 4,206,699 | 2,560,795 | ||||||||||||
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Jintai
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2,842,736 | 2,941,221 | 1,125,017 | 1,215,343 | ||||||||||||
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Cost
of goods sold
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14,051,921 | 10,608,337 | 5,331,717 | 3,776,138 | ||||||||||||
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Gross
profit
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21,839,292 | 14,113,466 | 8,110,560 | 5,065,537 | ||||||||||||
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Operating
expenses
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||||||||||||||||
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Selling
expenses
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1,302,733 | 786,462 | 566,966 | 203,925 | ||||||||||||
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General
and administrative expenses
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2,683,959 | 1,432,514 | 1,335,229 | 408,740 | ||||||||||||
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Total
operating expenses
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3,986,692 | 2,218,976 | 1,902,195 | 612,665 | ||||||||||||
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Income
from operations
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17,852,601 | 11,894,490 | 6,208,366 | 4,452,872 | ||||||||||||
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Other
income (expense)
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||||||||||||||||
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Other
income (expense)
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1,045 | 4,482 | 492 | 207 | ||||||||||||
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Interest
income
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200,461 | 306,359 | 118,539 | 163,340 | ||||||||||||
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Interest
expense
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(112,457 | ) | (560,257 | ) | (6,813 | ) | (112,334 | ) | ||||||||
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Total
other income (expense)
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89,049 | (250,596 | ) | 112,218 | 51,083 | |||||||||||
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Income
before income taxes
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17,941,649 | 11,643,894 | 6,320,584 | 4,503,955 | ||||||||||||
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Provision
for income taxes
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2,640,584 | 1,597,833 | 987,786 | 613,673 | ||||||||||||
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Net
income
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15,301,066 | 10,046,061 | 5,332,798 | 3,890,282 | ||||||||||||
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Other
comprehensive income
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- | |||||||||||||||
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Foreign
currency translation gain/(loss)
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(17,478 | ) | 49,570 | (23,832 | ) | 57,891 | ||||||||||
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Comprehensive
income
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$ | 15,283,588 | $ | 10,095,631 | $ | 5,308,966 | $ | 3,948,173 | ||||||||
| - | - | |||||||||||||||
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Basic
weighted average shares outstanding
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23,098,783 | 18,439,569 | 24,418,325 | 18,559,206 | ||||||||||||
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Basic
net earnings per share
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$ | 0.66 | $ | 0.54 | $ | 0.22 | $ | 0.21 | ||||||||
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Diluted
weighted average shares outstanding
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23,105,783 | 18,439,569 | 24,425,325 | 18,559,206 | ||||||||||||
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Diluted
net earnings per share
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0.66 | 0.54 | 0.22 | 0.21 | ||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
5
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
FOR
THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)
|
2010
|
2009
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|||||||
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Cash
flows from operating activities
|
||||||||
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Net
income
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$ | 15,301,066 | 10,046,061 | |||||
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Adjustments
to reconcile net income to net cash
|
||||||||
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provided
by operating activities
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||||||||
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Issuance
of equity for compensation
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1,259,992 | 112,247 | ||||||
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Depreciation
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1,545,413 | 1,121,989 | ||||||
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Amortization
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205,018 | 80,267 | ||||||
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Decrease
/ (Increase) in current assets
|
- | |||||||
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Accounts
receivable
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(5,125,905 | ) | (3,269,466 | ) | ||||
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Other
receivables
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(158,415 | ) | 12,465 | |||||
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Inventories
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(3,701,733 | ) | (4,261,570 | ) | ||||
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Advances
to suppliers
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(66,279 | ) | 372,837 | |||||
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Other
assets
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(73,784 | ) | 6,528 | |||||
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(Decrease)
/ Increase in current liabilities
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- | |||||||
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Accounts
payable
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166,957 | 1,002,165 | ||||||
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Unearned
revenue
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37,171 | (30,100 | ) | |||||
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Tax
payables
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(1,725,159 | ) | (4,411,497 | ) | ||||
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Other
payables and accrued expenses
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(282,450 | ) | 199,071 | |||||
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Net
cash provided by operating activities
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7,381,891 | 980,997 | ||||||
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Cash
flows from investing activities
|
||||||||
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Acquisition
of plant, property, and equipment
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(3,528,331 | ) | (465,648 | ) | ||||
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Acquisition
of intangible assets
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(10,776,152 | ) | - | |||||
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Additions
to construction in progress
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(31,859 | ) | (3,059,913 | ) | ||||
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Advances
to suppliers - non current
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(392,695 | ) | - | |||||
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Net
cash used in investing activities
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(14,729,037 | ) | (3,525,561 | ) | ||||
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Cash
flows from financing activities
|
||||||||
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Repayment
of loan
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(3,179,115 | ) | (525,475 | ) | ||||
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Shares
issuance cost
|
(2,232,302 | ) | - | |||||
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Proceeds
from issuance of shares
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53,063,824 | - | ||||||
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Restricted
cash
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83,148 | 75,074 | ||||||
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Net
cash provided by / (used in) financing activities
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47,735,555 | (450,401 | ) | |||||
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Effect
of exchange rate change on cash and cash equivalents
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49,455 | 15,509 | ||||||
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Net
increase in cash and cash equivalents
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40,437,864 | (2,979,455 | ) | |||||
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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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$ | 58,233,311 | 13,632,961 | |||||
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Supplement
disclosure of cash flow information
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||||||||
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Interest
expense paid
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$ | (95,740 | ) | (339,203 | ) | |||
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Income
taxes paid
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$ | (3,081,381 | ) | (2,112,985 | ) | |||
The
accompanying notes are an integral part of these consolidated financial
statements.
6
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%of the
outstanding shares of Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd.
(“Jinong”) which owns 100% of the 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 a 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.
7
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
a
ccepted 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
p
eriods 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 nine m
o
nth period ended March 31, 2010 are not
necessarily indicative of the results to be expected for the full fiscal year
ending June 30, 2010.
8
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
and concentration of cash
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 March 31, 2010 and June 30, 2009, cash
and cash equivalents amounted to $58,233,311 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
March 31, 2010 and June 30, 2009, the Company had accounts receivable of
$13,316,354 and $8,167,715, net of allowance for doubtful accounts of $184,988
and $119,178, respectively.
9
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
March 31, 2010 and June 30, 2009, the advances to suppliers amounted to $161,800
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 material, work in process, finished goods and
packaging materials.
Deferred Offering
Cost
Deferred
offering cost, related to the public offering in July 2009, consists of the
following as of March 31, 2010 and June 30, 2009:
|
March
31, 2010
|
June
30, 2009
|
|||||||
|
Legal
costs
|
$
|
-
|
$
|
130,000
|
||||
|
Accounting
costs
|
-
|
30,500
|
||||||
|
Total
|
$
|
-
|
$
|
160,500
|
||||
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
|
10-25
years
|
|
Agricultural
assets
|
8
years
|
| Machinery and equipment |
5-15
years
|
|
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.
10
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 nine months
ended March 31, 2010.
Revenue
recognition
The
Company's revenue recognition policies are in compliance with Staff Accounting
Bulletin (SAB) 104 (ASC 605). 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 March 31, 2010 and June 30, 2009, the Company had
unearned revenues of $61,238 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.
11
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Stock-Based
Compensation
The cost
of all employee stock options, as well as other equity-based compensation
arrangements, are reflected in the consolidated financial statements based on
the estimated fair value of the awards. That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award—the requisite service period (usually the vesting
period).
The
Company’s calculations were made using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected life of 0.80 years;
76% stock price volatility; risk-free interest rate of 2.22% and no dividends
during the expected term. During the three and nine month period ended March 31,
2010, the Company recognized stock-based compensation expense of $1,259,992 and
$1,259,992, respectively. No stock-based compensation expense was recognized in
the three and nine month period ended March 31, 2009.
Advertising
costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the three months
ended March 31, 2010 and 2009, were $12,677 and $0, respectively. Advertising
costs for the nine months ended March 31, 2010 and 2009, were $56,034 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.
12
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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.
Accumulated
other comprehensive income amounted to $2,439,653 and $2,457,130 as of March 31,
2010 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.
13
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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.
The
Company was organized into three main business segments: fertilizer production
(Jinong), agricultural products production (Jintai) and research and development
(Yuxing). The following tables present a summary of operating information for
the three and nine months ended March 31, 2010 and 2009, respectively and
quarter-end balance sheet information as of March 31, 2010.
14
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
For
the nine months ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Revenues
from unaffiliated customers:
|
||||||||
|
Jinong
|
$ | 30,554,200 | $ | 19,435,021 | ||||
|
Jintai
|
5,337,013 | 5,286,781 | ||||||
|
Consolidated
|
$ | 35,891,213 | $ | 24,721,802 | ||||
|
Operating
income:
|
||||||||
|
Jinong
|
$ | 17,396,134 | $ | 10,698,680 | ||||
|
Jintai
|
2,249,711 | 2,013,618 | ||||||
|
Yuxing
|
(72,934 | ) | - | |||||
|
Reconciling
item (1)
|
- | |||||||
|
Reconciling
item (2)
|
(460,318 | ) | (705,561 | ) | ||||
|
Reconciling
item (2)--stock compensation
|
(1,259,992 | ) | (112,247 | ) | ||||
|
Consolidated
|
$ | 17,852,601 | $ | 11,894,490 | ||||
|
Net
income:
|
||||||||
|
Jinong
|
$ | 14,825,479 | $ | 9,041,228 | ||||
|
Jintai
|
2,249,880 | 2,013,881 | ||||||
|
Yuxing
|
(72,927 | ) | ||||||
|
Reconciling
item (1)
|
18,943 | 7,384 | ||||||
|
Reconciling
item (2)
|
(1,720,310 | ) | (1,016,432 | ) | ||||
|
Consolidated
|
$ | 15,301,066 | $ | 10,046,061 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Jinong
|
$ | 1,585,309 | $ | 1,119,014 | ||||
|
Jintai
|
93,644 | 83,242 | ||||||
|
Yuxing
|
71,479 | |||||||
|
Consolidated
|
$ | 1,750,431 | $ | 1,202,256 | ||||
|
Interest
expense:
|
||||||||
|
Jinong
|
$ | 112,457 | $ | 361,633 | ||||
|
Reconciling
item (1)
|
- | |||||||
|
Reconciling
item (2)
|
- | 198,624 | ||||||
|
Consolidated
|
$ | 112,457 | $ | 560,257 | ||||
|
Capital
Expenditure:
|
||||||||
|
Jinong
|
$ | 3,528,331 | $ | 3,525,561 | ||||
|
Yuxing
|
11,200,705 | - | ||||||
|
Consolidated
|
$ | 14,729,036 | $ | 3,525,561 | ||||
|
Identifiable
assets:
|
As
of 03/31/10
|
As
of 06/30/09
|
||||||
|
Jinong
|
$ | 97,793,931 | $ | 46,329,125 | ||||
|
Jintai
|
11,431,367 | 6,572,315 | ||||||
|
Yuxing
|
11,102,841 | |||||||
|
Reconciling
item (1)
|
3,637,316 | 314,346 | ||||||
|
Reconciling
item (2)
|
(568 | ) | 134,478 | |||||
|
Consolidated
|
$ | 123,964,888 | $ | 53,350,264 | ||||
15
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
For
the three months ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Revenues
from unaffiliated customers:
|
||||||||
|
Jinong
|
$ | 11,264,754 | $ | 6,864,495 | ||||
|
Jintai
|
2,177,523 | 1,977,180 | ||||||
|
Consolidated
|
$ | 13,442,277 | $ | 8,841,675 | ||||
|
Operating
income:
|
||||||||
|
Jinong
|
$ | 6,346,349 | $ | 4,028,758 | ||||
|
Jintai
|
972,571 | 637,323 | ||||||
|
Yuxing
|
(10 | ) | - | |||||
|
Reconciling
item (1)
|
- | - | ||||||
|
Reconciling
item (2)
|
127,882 | (169,652 | ) | |||||
|
Reconciling
item (2)--stock compensation
|
(1,238,425 | ) | (43,557 | ) | ||||
|
Consolidated
|
$ | 6,208,366 | $ | 4,452,872 | ||||
|
Net
income:
|
||||||||
|
Jinong
|
$ | 5,459,624 | $ | 3,465,313 | ||||
|
Jintai
|
972,620 | 637,352 | ||||||
|
Yuxing
|
(9 | ) | - | |||||
|
Reconciling
item (1)
|
11,108 | 826 | ||||||
|
Reconciling
item (2)
|
(1,110,544 | ) | (213,209 | ) | ||||
|
Consolidated
|
$ | 5,332,798 | $ | 3,890,282 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Jinong
|
$ | 576,384 | $ | 403,738 | ||||
|
Jintai
|
36,943 | 7,560 | ||||||
|
Yuxing
|
123 | - | ||||||
|
Consolidated
|
$ | 613,450 | $ | 411,298 | ||||
|
Interest
expense:
|
||||||||
|
Jinong
|
$ | 6,813 | $ | 112,334 | ||||
|
Reconciling
item (1)
|
- | - | ||||||
|
Reconciling
item (2)
|
- | (0 | ) | |||||
|
Consolidated
|
$ | 6,813 | $ | 112,334 | ||||
|
Capital
Expenditure:
|
||||||||
|
Jinong
|
$ | 1,141,930 | $ | 1,600,332 | ||||
|
Yuxing
|
492,673 | - | ||||||
|
Consolidated
|
$ | 1,634,403 | $ | 1,600,332 | ||||
|
Identifiable
assets:
|
As
of 03/31/10
|
As
of 06/30/09
|
||||||
|
Jinong
|
$ | 97,793,931 | $ | 46,329,125 | ||||
|
Jintai
|
11,431,367 | 6,572,315 | ||||||
|
Yuxing
|
11,102,841 | - | ||||||
|
Reconciling
item (1)
|
3, 637,316 | 314,346 | ||||||
|
Reconciling
item (2)
|
(568 | ) | 134,478 | |||||
|
Consolidated
|
$ | 123,964,888 | $ | 53,350,264 | ||||
(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.
16
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.
17
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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.
Inventories
consist of the following as of March 31, 2010 and June 30, 2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Raw
materials
|
$ | 375,762 | $ | 67,046 | ||||
|
Supplies
and packing materials
|
162,490 | 87,081 | ||||||
|
Work
in progress
|
10,018,330 | 6,901,124 | ||||||
|
Finished
goods
|
327,337 | 106,279 | ||||||
|
Totals
|
$ | 10,883,919 | $ | 7,162,249 | ||||
As of
March 31, 2010 and June 30, 2009, other assets comprised of the
following:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Other
receivables
|
$ | 219,740 | $ | 91,334 | ||||
|
Promotion
material
|
122,599 | 37,879 | ||||||
|
Total
|
$ | 342,339 | $ | 129,213 | ||||
Other
receivables represent advances made to non-related companies and employees. The
amounts were unsecured, interest free, and due on demand.
18
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Property,
plant and equipment consist of the following as of March 31, 2010 and June 30,
2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Building
and improvements
|
$ | 19,411,717 | $ | 10,632,055 | ||||
|
Vehicles
|
88,824 | 23,784 | ||||||
|
Machinery
and equipment
|
12,993,856 | 8,620,173 | ||||||
|
Agriculture
assets
|
1,338,253 | 1,334,538 | ||||||
|
Total
|
33,408,791 | 20,610,551 | ||||||
|
Less:
accumulated depreciation
|
(4,823,410 | ) | (3,268,897 | ) | ||||
|
Total
property, plant and equipment
|
$ | 29,009,241 | $ | 17,341,654 | ||||
Depreciation
expenses for the three months ended March 31, 2010 and 2009 were $558,750 and
$384,526, respectively. Depreciation expenses for the nine months ended March
31, 2010 and 2009 were $1,545,413 and $1,121,989, 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
March 31, 2010 and June 30, 2009, construction in progress, representing
construction for a new product line, amounted to $31,859 and $9,609,649,
respectively.
The
intangible assets comprised of following at March 31, 2010 and June 30,
2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Land use right, net
|
$ | 11,532,618 | $ | 895,808 | ||||
|
Technology know-how, net
|
60,321 | 177,357 | ||||||
|
Total
|
$ | 11,592,939 | $ | 1,073,165 | ||||
19
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LAND USE
RIGHT
Per PRC
governmental regulations, the PRC 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 $1,067,289. 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 $10,721,805. Both certificates of land
use rights are valid for fifty years. The land use rights consist of the
following as of March 31, 2010 and June 30, 2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Land
use rights
|
$ | 11,789,093 | $ | 1,064,326 | ||||
|
Less:
accumulated amortization
|
(256,475 | ) | (168,518 | ) | ||||
|
Total
|
$ | 11,532,618 | $ | 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 $860,715. 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 March 31, 2010
and June 30, 2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Technology
Know-how
|
$ | 860,715 | $ | 858,326 | ||||
|
Less:
accumulated amortization
|
(800,394 | ) | (680,969 | ) | ||||
|
Total
|
$ | 60,321 | $ | 177,357 | ||||
Total amortization expenses of
intangible assets for the three months ended March 31, 2010 and 2009 amounted to
$54,701 and $26,754, respectively. Total amortization expenses of intangible
assets for the nine months ended March 31, 2010 and 2009 amounted
t
o $205,018 and $80,267,
respectively.
20
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Amortization expenses of intangible
assets for the next five years after March 31, 2010 are as
follows:
|
March
31, 2011
|
$ | 296,103 | ||
|
March
31, 2012
|
235,782 | |||
|
March
31, 2013
|
235,782 | |||
|
March
31, 2014
|
235,782 | |||
|
March
31, 2015
|
235,782 | |||
|
Total
|
$ | 1,239,231 |
The amount due to related parties
resulted from advances from the Company
’
s officers and shareholders, which were
unsecured, non-interest bearing and due on demand. As of
March 31, 2010
and June 30, 2009,
the amount due
to related parties was $68,164 and $31,160
, respectively.
Accrued
expenses and other payables of the following as of March 31, 2010 and June 30,
2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Payroll
payable
|
$ | 8,790 | $ | 8,766 | ||||
|
Welfare
payable
|
167,696 | 177,865 | ||||||
|
Accrued
expenses
|
455,202 | 791,172 | ||||||
|
Other
levy payable
|
113,680 | 113,365 | ||||||
|
Total
|
$ | 745,368 | $ | 1,091,168 | ||||
21
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of
March 31, 2010 and June 30, 2009, the loan payables were as
follows:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Short
term loans payable:
|
- | |||||||
|
Xi’an
Commercial Bank Xincheng Branch
|
$ | - | $ | 2,191,445 | ||||
|
Xi’an
Beilin District Rural Credit Union Wenyibeilu Branch
|
- | 555,166 | ||||||
|
Agriculture
Bank Yanglingshifangqu Branch
|
- | 423,679 | ||||||
|
Total
|
$ | - | $ | 3,170,290 | ||||
As of
March 31, 2010, the Company had paid off the remaining balance [of what? – table
above shows loans still outstanding as of 3/31/10].
The
interest expenses from short-term loans are $6,813 and $112,334 for three months
ended March 31, 2010 and 2009, respectively. The interest expenses from these
short-term loans are $112,457 and $361,633 for the nine months ended March 31,
2010 and 2009, respectively.
Taxes
payable consist of the following as of March 31, 2010 and June 30,
2009:
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
VAT
payable
|
$ | 12,073 | 1,216,191 | |||||
|
Income
tax payable
|
852,878 | 1,290,777 | ||||||
|
Other
levies
|
305,756 | 380,860 | ||||||
|
Total
|
$ | 1,170,707 | 2,887,828 | |||||
Advances
from unrelated companies were $297,783 and $326,970 as of March 31, 2010 and
June 30, 2009, respectively. The advances are due on demand, unsecured and non
interest bearing.
22
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Other
income (expenses) mainly consists of interest expense and subsidy income from
the PRC 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 March 31, 2010 and 2009 consisted of the
following:
|
2010
|
2009
|
|||||||
|
Current
income tax - Provision for China income and local tax
|
$ | 2,640,584 | $ | 1,597,833 | ||||
|
Deferred
taxes
|
- | - | ||||||
|
Total
provision for income taxes
|
$ | 2,640,584 | $ | 1,597,833 | ||||
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate as of March 31, 2010, 2009 and 2008:
23
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
2010
|
2009
|
2008
|
||||
|
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
|
-
|
(1%)
|
(11%)
|
|||
|
Total
|
15%
|
14%
|
4%
|
Due to
having no operations in the U.S. and having tax-free status in China, the
Company had no deferred tax as of March 31, 2010 and 2009.
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 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, among other things, changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation.
MAJOR CUSTOMERS AND
VENDORS
One vendor accounted for over 10% of the
Company
’
s total purchases for the three months
ended March 31, 2010.
Accounts payable to this vender amounted
to $104,812 as of March 31, 2010.
Three vendors each accounted for over
10% of the Company
’
s total purchases for the three months
ended March 31, 2009, with each vendor individually accounting for about 16%,
15% an
d 10%, respectively.
Accounts payable to these venders amounted to $0, $298,377 and $152,281,
respectively, as of March 31, 2009.
24
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
There was
no customer that accounted for more than 10% of the Company’s total sales for
the three months ended March 31, 2010 and 2009.
MAJOR
CONCENTRATION OF CASH
The
Company maintains large sums of cash in three major banks in China. The
aggregate balance in such accounts as of March 31, 2010 was $54,081,894. There
is no insurance securing these deposits in China. In addition, the Company also
had $3,607,965 in cash in two banks in the United States as of March 31, 2010,
with $500,000 secured by the FDIC.FDIC.
COMMON
STOCK
An amount
of $4,250,000 was placed in escrow and booked as restricted cash, pursuant to a
certain Securities Purchase Agreement and Holdback Make Good Agreement, the
realease of which is subject to the following terms and conditions:
|
|
1.
|
$2,000,000
was held pending the Company’s hiring of 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
was held pending the Company’s hiring of two independent directors, which
would result in the Company having a majority of independent directors on
its board. The Company appointed a majority of independent directors in
April 2008 and $2,000,000 was released to the Company
accordingly.
|
|
|
3.
|
An
aggregate of $250,000 was held for retaining an investors relation firm.
The Company retained an investors relation firm in January 2008 and the
money was released to the Company in installments on a monthly
basis.
|
The
balance of restricted cash as of March 31, 2010 and June 30, 2009 is $431 and
$83,579 respectively. On April 22, 2010, the remaining balance with an interest
income of $3,338 was released to the Company due to the resignation of the
escrow agent.
25
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
On
January 3, 2010, the Company made a one-time grant of an aggregate of 120,000
shares of restricted common stock to certain officers under the 2009 Equity
Incentive Plan of the Company. Pursuant to the terms of the grant, one-third of
the shares were vested on February 2, 2010, one-third of the shares vest on
December 31, 2010 and the remaining one-third of the shares vest on December 31,
2011. The Company also granted to certain officers a one-time grant of an
aggregate of 22,961 shares of performance based restricted common stock, which
vests in three equal installments on September 31, 2010, 2011 and 2012 if the
Company has reached certain financial targets for fiscal year 2010.
On
February 10, 2010, the Company made a one-time grant of an aggregate of 50,700
shares of restricted common stock to certain members of management and key
employees under the 2009 Equity Incentive Plan. Pursuant to the terms of the
grant, one-third of the shares vested on March 10, 2010, one-third of the shares
vest on December 31, 2010 and the remaining one-third of the shares vest on
December 31, 2011. Additionally, the Company also granted to certain members of
management and key employees an aggregate of 70,500 shares of performance based
restricted common stock, which vests in three equal installments on September
31, 2010, 2011 and 2012 if the Company has reached certain financial targets for
fiscal year 2010.
On
February 10, 2010, the Company issued a total of 8,000 shares of restricted
common stock to a consultant pursuant to the terms of a service agreement, half
of which shall vest in six months from the date of grant, and the other half of
which shall vest in one year from the date of grant.
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 preferred stock under its registration
statement on Form S-3, it 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.
26
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of
March 31, 2010, 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 commo
n 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 March
31, 2010 and June 30, 2009 amounted to $5,168,773 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).
27
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
On April 8, 2008, the Company granted options to purchase 35,000 shares of common stock to two independent directors with an exercise price of $6.00 per share. The options had a term of two years, and 10,500 of the shares vested on June 29, 2008 and 24,500 of the shares vested on July 1, 2009. On August 17, 2009, one independent director requested a cashless exercise of his shares and received 5,681 shares of common stock. On January 12, 2010, the other independent director requested a cashless exercise of his shares and received 16,178 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
January 3, 2010, the Company made a one-time grant of options to purchase
150,000 shares of common stock to certain officers and directors under the 2009
Equity Incentive Plan at an exercise price of $14.70 per share, the closing
price of the previous trading day. Pursuant to the terms of the grant, one-third
of the options vested on February 2, 2010, one-third of the options vested on
December 31, 2010 and the remaining one-third of the options vested on December
31, 2011.
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
|
0.08
- 2 year
|
|
|
Expected
volatility
|
76%
|
|
|
Expected
dividend yield
|
0
%
|
28
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
On
February 3, 2010, one independent director resigned and all his vested and
unvested options were forfeited pursuant to this grant agreement with the
Company.
On
February 7, 2010, the Company appointed a new independent director and issued
options to purchase 10,000 shares of common stock under the 2009 Equity
Incentive Plan at an exercise price of $14.02 per share, the closing price on
the previous trading day. Pursuant to the terms of the grant, one-third of the
options vested on March 8, 2010, one-third of the options vested on December 31,
2010 and the remaining one-third of the options vested on December 31,
2011.
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
|
0.08
- 2 year
|
|
|
Expected
volatility
|
75%
|
|
|
Expected
dividend yield
|
0
%
|
Options
outstanding as of March 31, 2010 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
|
||||||
|
$6-14.70
|
162,000
|
0.80
|
$14.01
|
12,000
|
$6
|
$98,004
|
29
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The
following table summarizes the options outstanding as of March 31,
2010:
|
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 | |||
|
Granted
|
160,000 | |||
|
Forfeited/Canceled
|
(10,000 | ) | ||
|
Exercised
|
(25,000 | ) | ||
|
Outstanding,
March 31, 2010
|
162,000 | |||
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 $5,123 and
$5,106 as rent expenses for the three months ended March 31, 2010 and 2009,
respectively. The Company recorded rent expenses of $20,491 and $15,318 as rent
expenses for the nine months ended March 31, 2010 and 2009, respectively. Rent
expenses for the 5 years after March 31, 2010 are as follows:
|
March
31, 2011
|
$ | 20,491 | ||
|
March
31, 2012
|
20,491 | |||
|
March
31, 2013
|
20,491 | |||
|
March
31, 2014
|
20,491 | |||
|
March
31, 2015
|
20,491 | |||
|
Total
|
$ | 102,455 |
The
Company has evaluated events subsequent to March 31, 2010, to assess the need
for potential recognition or disclosure in this Report. Such events
were evaluated through May 12, 2010, the date these consolidated financial
statements were issued. Based upon this evaluation, it was determined
that no subsequent events occurred that require adjustment or disclosure in the
financial statements.
30
|
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 at
tracting 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 cont
ext 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
N
e
w 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
Technolog
y
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 businesses: (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 83.8% and 77.6% of our total revenues in the three months ended
March 31, 2010 and 2009, respectively. In the nine months ended March 31, 2010
and 2009, the fertilizer business generated 85.1% and 78.6% 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 5,369
and 3,364 metric tons of our fertilizer products in the three months ended March
31, 2010 and 2009, respectively. In the nine months ended March 31, 2010 and
2009, we sold approximately 13,520 and 10,799 metric tons of our fertilizer
products, respectively.
As of
March 31, 2010, we developed and produced 148 different fertilizer products. The
five provinces in which we had the most sales accounted for a total of 40.4% of
our fertilizer revenue for the three months ended March 31, 2010. These
provinces were Shaanxi (11.2%), Shandong (10.8%), Anhui (7.9%), Henan (5.6%),
and Sichuan (4.9%).
31
Our
fertilizers are sold through a large number of distributors and we are not
dependent on any one or group of distributors. As of March 31, 2010, we had
approximately 552 distributors in China. The top five distributors accounted for
an approximately 3.9% of fertilizer revenues for the three months ended March
31, 2010.
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. Five provinces
accounted for 100% of our agriculture product revenue for the three months ended
March 31, 2010. Specifically, they are Shaanxi (86.7%), Shanxi (4.7%), Sichuan
(3.3%), Gansu(3.1%) and Henan(2.2%). Jintai’s top five customers accounted for
approximately 58.3% of Jintai’s sales for the three months ended March 31,
2010.
Recent
Developments
During
the three months ended March 31, 2010, the Company launched seven new
liquid-based fertilizer products. They generated approximately 2.2% of the
revenues from our fertilizer products sold for the three months ended March 31,
2010.
Results of
Operations
THREE
MONTHS ENDED MARCH 31, 2010 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2009.
The
following table shows the operating results of the Company on a consolidated
basis for the three months ended March 31, 2010 and 2009.
|
Three
months
ended
March
31, 2010
|
Three
months
ended
March
31, 2009
|
|||||||
|
Net
Sales
|
$ | 13,442,277 | $ | 8,841,675 | ||||
|
Cost
of Goods Sold
|
(5,331,717 | ) | (3,776,138 | ) | ||||
|
Gross
Profit
|
8,110,560 | 5,065,537 | ||||||
|
Selling
Expenses
|
(566,966 | ) | (203,925 | ) | ||||
|
General
and Administrative Expenses
|
(1,335,229 | ) | (408,740 | ) | ||||
|
Income
from Operations
|
6,208,366 | 4,452,872 | ||||||
|
Total
Other Income (expense)
|
112,218 | 51,083 | ||||||
|
Income
Before Income Taxes
|
6,320,584 | 4,503,955 | ||||||
|
Provision
for Income Taxes
|
(987,786 | ) | (613,673 | ) | ||||
|
Net
Income
|
5,332,798 | 3,890,282 | ||||||
32
Net
Sales
Total net
sales for the three months ended March 31, 2010 were $13,442,277, an increase of
$4,600,603, or 52%, from $8,841,675 for the three months ended March 31,
2009.
Jinong
’
s net sales,
which
accounted for
83.8
% of to
tal net sales, were driven by
increased
sales of
humic acid-based
compound fertilizers among which the powder fertilizer products contributed 12%
of the increase. Jinong’s net sales increased $4,400,260, or 64.1%, to
$11,264,754 for the three months ended March 31, 2010, from $6,864,494 for the
three months ended March 31, 2009. Sales volume increased 59.6% to 5,369 tons
for the three months ended March 31, 2010 from 3,364 tons for the three months
ended March 31, 2009. These increases were mainly attributable to the increased
production due to greater capacity from our new production line and the sales of
more granular based fertilizer products.
Jintai
’
s net
sales, which include
sales of
agricultural products,
such as top-grade fruits, vegetables, flowers and colored seedlings, increased
$200,342, or 10.1%, to $2,177,523 for the three months ended March 31, 2010 from
$1,977,180 for the same period in 2009. The sales for the top three products
accounted for 53.3% of Jintai’s sales for the three months ended March 31, 2010.
The main reason for the increase is that the price in some high decorative
flowers are higher due to better market conditions during the
period.
We do not
currently derive revenue from Yuxing.
Cost
of Goods Sold
Total
cost of goods sold for the three months ended March 31, 2010 was $5,331,717, an
increase of $1,555,579, or 64.3%, from $3,776,138 for the three months ended
March 31, 2009.
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 $1,645,905, or 64.3%, to $4,206,699 for the three months ended March
31, 2010 compared to $2,560,795 for the same period in 2009. This increase was
mainly due to increased sales and an increasing percentage of more expensive raw
materials as we sold more high-end powder fertilizer products. As a percentage
of total net sales, cost of goods sold by Jinong approximated 31.3% and 29.0%
for the three months ended March 31, 2010 and 2009, 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
decreased $90,325, or 7.4%, to $1,125,017 for the three months ended March 31,
2010 compared to $1,215,343 for the three months ended March 31, 2009. This
decrease was partly due to savings in utility costs and costs of raw materials.
As a percentage of total net sales, cost of goods sold by Jintai approximated
8.4% and 13.7% for the three months ended March 31, 2010 and 2009,
respectively.
33
Gross
Profit
Total
gross profit for the three months ended March 31, 2010 was $8,110,560 an
increase of $3,045,024, or 60.1%, from $5,065,537 for the three months ended
March 31, 2009. Gross profit margin approximated 60.3% and 57.3% for the three
months ended March 31, 2010 and 2009, 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 March 31, 2010 was $7,058,055, an
increase of $2,754,355, or 64.0%, from $4,303,699 for the three months ended
March 31, 2009. Gross profit margin from Jinong sales approximated 62.7% and
62.7% for the three months ended March 31, 2010 and 2009, respectively. The
increase in raw materials was partially offset by the decreased packaging costs
as we sold more concentrated powder fertilizer products.
Gross
profit from Jintai for the three months ended March 31, 2010 was $1,052,506, an
increase of $290,699 or 38.2% from $764,831 for the three months ended March 31,
2009. Gross profit margin from Jintai sales approximated 48.3% and 38.5% for the
three months ended March 31, 2010 and 2009, respectively. The increase in gross
profit margin was mainly due to a shift of our product mix as well as our
savings in utility costs.
Selling
Expenses
Selling
expenses consist primarily of salaries of sales personnel, advertising and
promotion expenses, freight charges and related compensation. Selling expenses
were $566,966, or 4.2% of net sales for the three months ended March 31, 2010 as
compared to $203,925, or 2.3% of net sales for the three months ended March 31,
2009, an increase of $363,041, or approximately 178%. Most of this increase was
due to increasing our sales force and the higher promotion expenses as we
started our new marketing strategy such as opening of Company-owned retail
stores and selecting an “Authorized Retailer” to equip our distributors with
more marketing resources.
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 $1,335,229, or
9.9%, of net sales for the three months ended March 31, 2010, as compared to
$408,740, or 4.6%, for the three months ended March 31, 2009, an increase of
$926,489, or 226.7%. The increase was largely attributable to the stock
compensation expenses as we granted restricted shares and options to directors,
officers and key management under the 2009 Equity Incentive Plan.
34
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 March 31, 2010 was $112,218 as compared to total other income
for the three months ended March 31, 2009 of $51,083, an increase of $61,135, or
119.7%. The increased other income was mainly due to the decreased interest
expenses as we paid off our short-term bank loans in the beginning of the
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 January 1, 2008. Jinong incurred income tax expenses of
$987,786 for the three months ended March 31, 2010, as compared to $613,673 for
the same period in the prior year, an increase of $374,112, or 61%. This
increase was primarily attributable to our increased operating income during the
three months ended March 31, 2010.
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 $5,332,798 for the three months ended March 31, 2010, an increase of
$1,442,516, or 37.1%, from $3,890,282 for the three months ended March 31, 2009.
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
39.7% and 44.0% for the three months ended March 31, 2010 and 2009,
respectively.
NINE
MONTHS ENDED MARCH 31, 2010 COMPARED WITH NINE MONTHS ENDED MARCH 31,
2009.
The
following table shows the operating results of the Company on a consolidated
basis for the nine months ended March 31, 2010 and 2009.
|
Nine
months ended
|
Nine
months ended
|
|||||||
|
March
31, 2010
|
March
31, 2009
|
|||||||
|
Net
Sales
|
$ | 35,891,213 | $ | 24,721,802 | ||||
|
Cost
of Goods Sold
|
(14,051,921 | ) | (10,608,336 | ) | ||||
|
Gross
Profit
|
21,839,292 | 14,113,466 | ||||||
|
Selling
Expenses
|
(1,302,733 | ) | (786,462 | ) | ||||
|
General
and Administrative Expenses
|
(2,683,959 | ) | (1,432,514 | ) | ||||
|
Income
from Operations
|
17,852,601 | 11,894,490 | ||||||
|
Total
Other Income (expense)
|
89,049 | (250,596 | ) | |||||
|
Income
Before Income Taxes
|
17,941,649 | 11,643,894 | ||||||
|
Provision
for Income Taxes
|
(2,640,584 | ) | (1,597,833 | ) | ||||
|
Net
Income
|
15,301,066 | 10,046,061 | ||||||
35
Net
Sales
Total net
sales for the nine months ended March 31, 2010 were $35,891,213, an increase of
$11,169,411, or 45.2%, from $24,721,802 for the nine months ended March 31,
2009.
Jinong
’
s net sales,
which
accounted for
85.1
% of total net sales
in the nine months ended March 31, 2010,
were driven
mainly
by the sa
les of
humic acid-based compound
fertilizers among which the powder fertilizer products contributed 26.0% of the
increase. Jinong’s net sales increased $11,119,179, or 57.2%, to $30,554,200 for
the nine months ended March 31, 2010, from $19,435,021 for the nine months ended
March 31, 2009. 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
sal
es in
creased $50,231, or 1.0%, to
$5,337,013 for the nine months ended March 31, 2010 from $5,286,782 for the same
period in 2009. The almost flat increase was mainly because the greenhouses in
Jintai have reached their full capacity.
Cost
of Goods Sold
Total
cost of goods sold for the nine months ended March 31, 2010 was $14,051,921, an
increase of $3,443,584, or 32.5%, from $10,608,336 for the nine months ended
March 31, 2009.
Cost of
goods sold by Jinong increased $3,542,069, or 46.2%, to $11,209,185 for the nine
months ended March 31, 2010, compared to $7,667,116 for the same period in 2009.
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 31.0% for the nine months ended March 31, 2010 and 2009,
respectively.
Cost of
goods sold by Jintai decreased $98,485, or 3.3%, to $2,842,736 for the nine
months ended March 31, 2010 compared to $2,941,221 for the nine months ended
March 31, 2009. The decrease in cost of goods sold for the nine months ended
March 31, 2010 was primarily due to a decrease in raw materials, utility and
other overhead costs. As a percentage of total net sales, cost of goods sold by
Jintai approximated 7.9% and 11.9% for the nine months ended March 31, 2010 and
2009, respectively.
Gross
Profit
Total
gross profit for the nine months ended March 31, 2010 was $21,839,292, an
increase of $7,7725,826, or 54.7% from $14,113,466 for the nine months ended
March 31, 2009. Gross profit margin approximated 60.8% and 57.1% for the nine
months ended March 31, 2010 and 2009, respectively.
36
Gross
profit from Jinong increased $7,577,109, or 64.4%, to $19,345,014 for the nine
months ended March 31, 2010 from $11,767,905 for the nine months ended March 31,
2009. Gross profit margin from Jinong sales approximated 63.3% and 60.5% for the
nine months ended March 31, 2010 and 2009, respectively.
Gross
profit from Jintai increased $148,716, or 6.3%, for the nine months ended March
31, 2010 to $2,494,277 compared to $2,345,561 for the nine months ended March
31, 2009. The slight increase was attributable to our cost savings and higher
proportion of sales of decorative flowers such as cymbidium. Gross profit margin
from Jintai sales approximated 46.7% and 44.4% for the nine months ended March
31, 2010 and 2009, respectively.
Selling
Expenses
Selling
expenses consist primarily of salaries of sales personnel, advertising and
promotion expenses, freight charges and related compensation. Selling expenses
were $1,302,733 or 3.6%, of net sales for the nine months ended March 31, 2010,
an increase of $516,271, or approximately 65.6%, as compared to $786,492, or
3.2%, of net sales for the nine months ended March 31, 2009. Most of this
increase was due to an increase in sales personnel and promotion
expenses.
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 $2,683,959, or
7.5%, of net sales for the nine months ended March 31, 2010, as compared to
$1,432,514, or 5.8%, of net sales for the nine months ended March 31, 2009, an
increase of $1.251.445, or 87.4%. This was mainly attributable to the stock
compensation expenses incurred by restricted shares and options under the 2009
Equity Incentive Plan recently granted to directs, officers and key
management.
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
nine months ended March 31, 2010 was $89,049 and total other expenses for the
nine months ended March 31, 2009 were $250,596. The increase in total other
income was due to the decrease in interest expenses as we paid off certain
short-term loans and the increase in the interest income.
Income
Taxes
Jinong
incurred income tax expenses of $2,640,584 for the nine months ended March 31,
2010, compared to $1,597,833 for the same period in the prior year. This
increase was primarily attributable to our increased operating income during the
nine months ended March 31, 2010.
As set
forth above, Jintai currently is exempted under PRC regulations from paying
income tax.
Net Income
Our net
income for the nine months ended March 31, 2010 was $15,301,066, an increase of
$5,255,005, or 52.3%, from $10,046,061 for the nine months ended March 31, 2009.
The increase was mainly a result of our increased net sales by Jinong. Net
income as a percentage of total net sales approximated 42.6% and 40.6% for the
nine months ended March 31, 2010 and 2009, respectively.
37
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.
As of
March 31, 2010, cash and cash equivalents were $58,233,311, an increase of
$44,0437,866 from $17,795,447 as of June 30, 2009, which was
primarily due to proceeds from the public offerings in 2009. 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 April 22, 2010, the remaining balance of $3,338 including
interest income in the escrow account was released to the Company due to the
resignation of the escrow agent.
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
Nine
months ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
cash provided by operating activities
|
$ | 7,381,891 | $ | 980,997 | ||||
|
Net
cash used in investing activities
|
(14,729,037 | ) | (3,525,561 | |||||
|
Net
cash provided by / (used in) financing activities
|
47,735,555 | (450,401 | ||||||
|
Effect
of exchange rate change on cash and cash equivalents
|
49,455 | 15,509 | ||||||
|
Net
increase / (decrease) in cash and cash equivalents
|
40,437,864 | (2,979,455 | ||||||
|
Cash
and cash equivalents, beginning balance
|
17,795,447 | 16,612,416 | ||||||
|
Cash
and cash equivalents, ending balance
|
58,233,311 | 13,632,961 | ||||||
38
Operating
Activities
Net cash
provided by operating activities was $7,381,891 for the nine months ended March
31, 2010, an increase of $6,400,893 from $980,997 for the same period in
2009. The increase was mainly due to an increase in net income.
Investing
Activities
Net cash
used in investing activities in the nine months ended March 31, 2010 was
$14,729,037, an increase of $11,203,476 as compared to $3,525,561 for the same
period in 2009. 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 nine months ended March 31, 2010 totaled
$47,735,555, an increase of $48,185,956 as compared to the net cash used in
financing activities for the same period in 2009, primarily due to the public
offerings in July 2009 and November/December 2009.
As of M
arch 31, 2010, we have no short-term
bank loans.
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 d
oubtful
accounts, was $13,316,354 as of March 31, 2010, compared to $8,167,715 as of
June 30, 2009, an increase of $5,148,640. The increase is mainly to due to our
increased sales.
Our
allowance for doubtful accounts was $184,988 as of March 31, 2010 compared with
$119,178 as of June 30, 2009, an increase of $65,810.
Inventories
We had
inventory of $10,883,919 as of March 31, 2010 as compared to $7,162,249 as of
June 30, 2009, an increase of $3,721,670, or 52.0%. 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.
39
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.
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.
40
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 March 31, 2010, the Company was organized into three main
business segments: fertilizer production (Jinong), agricultural products
production (Jintai) and future research and development center
(Yuxing).
41
|
Item
4T.
|
Controls
and Procedures
|
(a)
Evaluation of disclosure controls
and procedures
. At the conclusion of the period ended March 31, 2010 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.
42
|
Item
2.
|
Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
|
In March 2010, we issued 8,000 shares
of our common stock to a service provider in consideration for services
rendered. This transaction was exempt from registration provided by Section 4(2)
of the Securities Act of 1933, as amended.
|
Item
6.
|
Exhibits
|
The exhibits required by this item are
set forth in the Exhibit Index attached hereto.
43
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: May
12, 2010
|
By:
|
/s/ Tao Li | |
|
Name:
Tao Li
|
|
||
|
Title:
President and Chief Executive Officer
|
|||
|
(principal
executive officer)
|
|||
|
Date: May
12, 2010
|
By: | /s/ Ken Ren | |
|
Name:
Ken Ren
|
|||
|
Title:
Chief Financial Officer
|
|||
|
(principal
financial officer and principal
accounting
officer)
|
|||
44
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.
|
45
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 2. Recent Sales Of Unregistered Securities; Use Of Proceeds From Registered SecuritiesItem 6. Exhibits