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
September
30, 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 001-34260
CHINA GREEN AGRICULTURE,
INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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36-3526027
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(State
or other jurisdiction of
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(IRS
Employer
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incorporation
or organization)
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Identification
No.)
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3
rd
Floor,
Borough A, Block A, No. 181,
South
Taibai Road, Xi’an, 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
x
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Non-acce
lerated filer
o
(
Do not check if a smaller
reporting company
)
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Smaller reporting
company
o
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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: 26,848,260 shares issued
and 25,937,887 shares outstanding of Common Stock, $.001 par value, as of
November 5, 2010.
TABLE
OF CONTENTS
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PART
I
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FINANCIAL INFORMATION |
Page
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||
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Item
1.
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Financial Statements. | 3 | ||
| Consolidated Balance Sheets | 4 | |||
| As of September 30, 2010 (Unaudited) and June 30, 2010 | ||||
| Consolidated Statements of Income and Comprehensive Income | 5 | |||
| For the Three Months Ended September 30, 2010 and 2009 (Unaudited) | ||||
| Consolidated Statements of Cash Flows | 6 | |||
| For the Three Months Ended September 30, 2010 and 2009 | ||||
| (Unaudited) | ||||
| Notes to Consolidated Financial Statements | 7 | |||
| As of September 30, 2010 (Unaudited) | ||||
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Item
2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 | ||
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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38 | ||
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Item
4.
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Controls and Procedures | 39 | ||
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PART
II
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OTHER INFORMATION | |||
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Item
1.
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Legal
Proceedings
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40 | ||
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Item
1A.
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Risk
Factors
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40 | ||
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Item
5.
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Other
Information
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40 | ||
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Item
6.
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Exhibits
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41 | ||
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Signatures
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42 | |||
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Exhibits/Certifications
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43 | |||
2
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Item
1.
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Financial
Statements
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
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||||
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||||
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AS
OF SEPTEMBER 30, 2010 AND JUNE 30, 2010
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||||
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(UNAUDITED)
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ASSETS
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||||||||
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September
30, 2010
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June
30, 2010
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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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$ | 53,947,094 | $ | 62,335,437 | ||||
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Accounts
receivable, net
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16,482,643 | 15,571,888 | ||||||
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Inventories
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27,248,954 | 11,262,647 | ||||||
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Other
assets
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369,733 | 86,824 | ||||||
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Related
party receivables
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68,668 | - | ||||||
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Advances
to suppliers
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14,616,112 | 221,280 | ||||||
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Total
Current Assets
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112,733,204 | 90,414,167 | ||||||
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Plant,
Property and Equipment, Net
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46,277,708 | 29,368,515 | ||||||
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Construction
In Progress
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1,179,818 | 257,077 | ||||||
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Other
Assets - Non Current
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3,181,561 | 1,098,704 | ||||||
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Intangible
Assets, Net
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27,302,650 | 11,585,570 | ||||||
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Goodwill
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448,146 | - | ||||||
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Total
Assets
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$ | 191,123,087 | $ | 131,787,942 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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||||||||
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Current
Liabilities
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||||||||
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Accounts
payable
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$ | 2,251,015 | $ | 328,124 | ||||
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Unearned
revenue
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22,851,799 | 41,645 | ||||||
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Accrued
expenses and other payables
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1,565,979 | 507,705 | ||||||
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Advances
from other unrelated companies
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923,599 | - | ||||||
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Amount
due to related parties
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444,877 | 68,164 | ||||||
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Taxes
payable
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4,119,590 | 2,304,382 | ||||||
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Short
term loans
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6,227,481 | - | ||||||
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Other
short-term liability
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2,894,987 | - | ||||||
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Total
Current Liabilities
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41,279,327 | 3,250,020 | ||||||
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Commitments
and Contingencies
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||||||||
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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, $.001 par value, 115,197,165 shares
authorized, 26,848,260 and 24,572,328 shares
issued, and 25,937,887 and 24,572,328,shares outstanding as of September
30, 2010 and June 30, 2010, respectively)
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25,938 | 24,573 | ||||||
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Additional
paid-in capital
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87,978,324 | 75,755,682 | ||||||
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Statuary
reserve
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6,632,554 | 5,864,648 | ||||||
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Retained
earnings
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50,556,287 | 43,536,408 | ||||||
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Accumulated
other comprehensive income
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4,650,657 | 3,356,611 | ||||||
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Total
Stockholders' Equity
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149,843,760 | 128,537,922 | ||||||
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Total
Liabilities and Stockholders' Equity
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$ | 191,123,087 | $ | 131,787,942 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
3
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
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||||
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||||
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FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
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||||
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(UNAUDITED)
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For
the Three Months Ended September 30,
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||||||||
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2010
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2009
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|||||||
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Sales
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||||||||
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Jinong
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$ | 16,571,293 | $ | 10,178,649 | ||||
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Gufeng
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21,801,034 | - | ||||||
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Jintai
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1,110,594 | 1,098,171 | ||||||
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Net
sales
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$ | 39,482,921 | $ | 11,276,820 | ||||
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Cost
of goods sold
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||||||||
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Jinong
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6,853,787 | 3,735,364 | ||||||
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Gufeng
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18,900,513 | - | ||||||
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Jintai
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589,294 | 582,497 | ||||||
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Cost
of goods sold
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26,343,594 | 4,317,862 | ||||||
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Gross
profit
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13,139,327 | 6,958,958 | ||||||
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Operating
expenses
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||||||||
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Selling
expenses
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1,415,985 | 215,672 | ||||||
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General
and administrative expenses
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2,098,187 | 534,179 | ||||||
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Total
operating expenses
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3,514,172 | 749,850 | ||||||
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Income
from operations
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9,625,155 | 6,209,108 | ||||||
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Other
income (expense)
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||||||||
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Other
income (expense)
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(11,943 | ) | 966 | |||||
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Interest
income
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64,991 | 29,266 | ||||||
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Interest
expense
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(176,675 | ) | (61,309 | ) | ||||
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Total
other income (expense)
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(123,627 | ) | (31,077 | ) | ||||
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Income
before income taxes
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9,501,528 | 6,178,031 | ||||||
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Provision
for income taxes
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1,713,743 | 930,757 | ||||||
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Net
income
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7,787,785 | 5,247,274 | ||||||
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Other
comprehensive income
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||||||||
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Foreign
currency translation gain/(loss)
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1,294,047 | (24,930 | ) | |||||
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Comprehensive
income
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$ | 9,081,832 | $ | 5,222,344 | ||||
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Basic
weighted average shares outstanding
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25,922,880 | 21,632,488 | ||||||
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Basic
net earnings per share
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$ | 0.30 | $ | 0.24 | ||||
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Diluted
weighted average shares outstanding
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26,035,426 | 21,650,546 | ||||||
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Diluted
net earnings per share
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0.30 | 0.24 | ||||||
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The
accompanying notes are an integral part of these consolidated financial
statements.
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||||||||
4
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CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
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FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
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(UNAUDITED)
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2010
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2009
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|||||||
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Cash
flows from operating activities
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||||||||
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Net
income
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$ | 7,787,785 | $ | 5,247,274 | ||||
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Adjustments
to reconcile net income to net cash
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||||||||
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provided
by operating activities
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||||||||
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Issuance
of equity for compensation
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644,075 | - | ||||||
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Depreciation
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852,693 | 444,215 | ||||||
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Amortization
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81,143 | 43,185 | ||||||
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Decrease
/ (Increase) in current assets, net of effects from
acquisitions:
|
||||||||
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Accounts
receivable
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(383,146 | ) | (3,532,758 | ) | ||||
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Other
receivables
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16,653 | (30,915 | ) | |||||
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Inventories
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2,345,622 | (974,125 | ) | |||||
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Advances
to suppliers
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(15,847,463 | ) | 17,933 | |||||
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Other
assets
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(296,554 | ) | 2,171 | |||||
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(Decrease)
/ Increase in current liabilities, net of effects from
acquisitions:
|
||||||||
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Accounts
payable
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(3,972,787 | ) | (332,626 | ) | ||||
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Unearned
revenue
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3,347,743 | 43,432 | ||||||
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Tax
payables
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1,750,338 | 2,653,822 | ||||||
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Other
payables and accrued expenses
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(23,333 | ) | 709,662 | |||||
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Net
cash (used in) / provided by operating activities
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(3,697,231 | ) | 4,291,270 | |||||
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Cash
flows from investing activities
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||||||||
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Acquisition
of plant, property, and equipment
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(776,669 | ) | (2,437,738 | ) | ||||
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Acquisition
of intangible assets
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- | (10,703,302 | ) | |||||
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Acquisition
of Gufeng, net of cash acquired
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(6,720,539 | ) | - | |||||
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Amounts
increase in construction in progress
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(141,985 | ) | - | |||||
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Net
cash used in investing activities
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(7,639,193 | ) | (13,141,040 | ) | ||||
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Cash
flows from financing activities
|
||||||||
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Repayment
of loan
|
- | (979,876 | ) | |||||
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Proceeds
from loan
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2,240,468 | - | ||||||
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Proceeds
from issuance of shares
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- | 27,143,338 | ||||||
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Restricted
cash
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- | 24,766 | ||||||
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Net
cash provided by financing activities
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2,240,468 | 26,188,228 | ||||||
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Effect
of exchange rate change on cash and cash equivalents
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707,613 | 23,057 | ||||||
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Net
(decrease) increase in cash and cash equivalents
|
(8,388,343 | ) | 17,361,515 | |||||
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Cash
and cash equivalents, beginning balance
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62,335,437 | 17,795,447 | ||||||
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Cash
and cash equivalents, ending balance
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$ | 53,947,094 | $ | 35,156,962 | ||||
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Supplement
disclosure of cash flow information
|
||||||||
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Interest
paid
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$ | 179,941 | $ | 61,309 | ||||
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Income
taxes paid
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$ | 11,738 | $ | - | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
5
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
China
Green Agriculture, Inc. (the “Company”, “we”, “us”), through its subsidiaries,
is engaged in the research, development, production, distribution and sale of
humic acid-based compound fertilizer, and the development, production and
distribution of agricultural products. The Company was incorporated in 1987, but
entered its current lines of business in December 2007.
The
Company’s corporate structure as of September 30, 2010 is set forth in the
diagram below:
6
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
consolidated condensed interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading.
These
statements reflect all adjustments, consisting of normal recurring adjustments,
which, in the opinion of management, are necessary for fair presentation of the
information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company’s annual report
on Form 10-K for the year ended June 30, 2010. The Company
follows the same accounting policies in preparation of interim
reports. Results of operations for the interim periods are not
indicative of annual results.
Principle of
consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Jintai,
Yuxing, Gufeng and Tianjuyuan. 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.
Subsequent
Events
The
Company evaluates events subsequent to the end of the fiscal quarter through the
date the financial statements are filed with the Securities and Exchange
Commission for recognition or disclosure in the consolidated financial
statements. Events that provide additional evidence about material conditions
that existed at the date of the balance sheet are evaluated for recognition in
the consolidated financial statements. Events that provide evidence about
conditions that did not exist at the date of the balance sheet but occurred
after the balance sheet date are evaluated for disclosure in the notes to the
consolidated financial statements.
7
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 with state owned banks in the PRC and banks in
the United States, and other highly-liquid investments with maturities of three
months or less, when purchased, to be cash and cash equivalents. The Company
maintains balances at financial institutions which, from time to time, may
exceed deposit insurance limits for the banks located in the United States.
Balances at financial institutions or state owned banks within the PRC are not
covered by insurance. Cash overdraft as of balance sheet date will be reflected
as liabilities in the balance sheet. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant risks on its
cash in bank accounts.
Accounts
receivable
The
Company's policy is to maintain reserves for potential credit losses on accounts
receivable. Management regularly 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 at each
year-end. Accounts considered uncollectible are written off through a charge to
the valuation allowance. As of September 30, 2010 and June 30, 2010, the Company
had accounts receivable of $16,482,643 and $15,571,888, net of allowance for
doubtful accounts of $234,804 and $193,403, respectively.
Inventories
Inventory
is valued at the lower of cost (determined on a weighted average basis) or
market. Inventories consist of raw materials, work in process, finished goods
and packaging materials. The Company reviews its inventories regularly for
possible obsolete goods and establishes reserves when determined
necessary.
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
|
8
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Construction in
Progress
Construction
in progress represents the costs incurred in connection with the construction of
buildings or new additions to the Company’s plant facilities. Costs classified
to construction in progress include all costs of obtaining the asset and
bringing it to the location and condition necessary for its intended use. No
depreciation is provided for construction in progress until such time as the
assets are completed and are placed into service. Interest incurred during
construction is capitalized into construction in progress. All other interest is
expensed as incurred.
Long-Lived
Assets
The
Company tests long-lived assets 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.
Intangible
Assets
The
Company records intangible assets acquired individually or as part of a group at
fair value. Intangible assets with definitive lives are amortized over the
useful life of the intangible asset, which is the period over which the asset is
expected to contribute directly or indirectly to the entity’s future cash flows.
The Company evaluates intangible assets for impairment at least annually and
more often whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Whenever any such impairment exists, an
impairment loss will be recognized for the amount by which the carrying value
exceeds the fair value.
The
Company has not recorded impairment of intangible assets as of September 30,
2010 and June 30, 2010, respectively.
Fair Value Measurement and
Disclosures
Our
accounting for Fair Value Measurement and Disclosures, defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy which
requires classification based on observable and unobservable inputs when
measuring fair value. The fair value hierarchy distinguishes between assumptions
based on market data (observable inputs) and an entity’s own assumptions
(unobservable inputs). The hierarchy consists of three levels:
9
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Level one
— Quoted market prices in active markets for identical assets or
liabilities;
Level two
— Inputs other than level one inputs that are either directly or indirectly
observable; and
Level
three — Unobservable inputs developed using estimates and assumptions, which are
developed by the reporting entity and reflect those assumptions that a market
participant would use.
Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter.
The
carrying values of cash and cash equivalents, trade and other receivables, trade
and other payables approximate their fair values due to the short maturities of
these instruments.
Revenue
recognition
Sales
revenue is recognized on 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
September 30, 2010 and June 30, 2010, the Company had unearned revenues of
$22,851,799 and $ 41,645, 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.
Stock-Based
Compensation
The costs
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 on the grant date. That cost is
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). Stock compensation for stock granted to non-employees is
determined as the fair value of the consideration received or the fair value of
equity instruments issued, whichever is more reliably measured.
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.
10
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency
translation
The
reporting currency of the Company is the US dollar. The functional currency of
the Company and Green New Jersey is the US dollar. The functional currency of
Jinong and its subsidiaries Jintai and Yuxing 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.
Fair values of financial
instruments
Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. Assets and liabilities measured at fair value are categorized
based on whether or not the inputs are observable in the market and the degree
that the inputs are observable. The categorization of financial assets and
liabilities within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
The
Company's financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other receivables, advances to suppliers, accounts payable,
other payables, tax payable, and related party advances and
borrowings.
As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented on the balance
sheet. This is attributed to the short maturities of the instruments and that
interest rates on the borrowings approximate those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.
Statement of cash
flows
11
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company's cash flows from operations are calculated based on 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.
Earnings per
share
Basic
earnings per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is
computed based on the weighted average number of shares of common stock plus the
effect of dilutive potential common shares outstanding during the period using
the treasury stock method. Dilutive potential common shares include outstanding
stock options and stock awards.
The
components of basic and diluted earnings per share as of September 30, 2010 and
2009 were as follows:
|
2010
|
2009
|
|||||||
|
Net
Income for Basic Earnings Per Share
|
$
|
7,787,785
|
$
|
5,247,274
|
||||
|
Basic
Weighted Average Number of Shares
|
25,922,880
|
21,632,488
|
||||||
|
Net
Income per Share – Basic
|
0.30
|
0.24
|
||||||
|
Net
Income for Diluted Earnings Per Share
|
7,787,785
|
5,247,274
|
||||||
|
Diluted
Weighted Average Number of Shares
|
26,035,426
|
21,650,546
|
||||||
|
Net
Income per Share – Diluted
|
$
|
0.30
|
$
|
0.24
|
||||
Recent accounting
pronouncements
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
year beginning after December 15, 2010 (the Company’s fiscal year 2011);
early adoption is permitted. The Company is currently evaluating the
impact of adopting ASU -2010-06 on its financial statements.
In July
2010, the FASB issued Accounting Standards Update (ASU) No. 2010-20,
“Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses.” ASU No. 2010-20 amends the guidance with ASC Topic 310,
“Receivables” to facilitate financial statement users’ evaluation of
(1) the nature of credit risk inherent in the entity’s portfolio of
financing receivables; (2) how that risk is analyzed and assessed in
arriving at the allowance for credit losses; and (3) the changes and
reasons for those changes in the allowance for credit losses. The amendments in
ASU No. 2010-20 also require an entity to provide additional disclosures
such as a rollforward schedule of the allowance for credit losses on a portfolio
segment basis, credit quality indicators of financing receivables and the aging
of past due financing receivables. The Company is required to adopt ASU
No. 2010-20 as of December 15, 2010 and is currently evaluating the
impact the new disclosure requirements will have on its financials statements
and notes.
12
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Beijing
Gufeng Chemical Products Co., Ltd. (“Gufeng”) and its wholly-owned subsidiary
Beijing Tianjuyuan Fertilizer Co., Ltd. (“Tianjuyuan”):
Gufeng
was founded in 1993. Its wholly-owned subsidiary Tianjuyuan was founded in 2001
and was acquired by Gufeng on May 4, 2010. Both companies are based in Beijing,
and registered to produce compound fertilizer, blended fertilizer, organic
compound fertilizer and mixed, organic-inorganic compound fertilizer and sell
their products throughout China and abroad.
On July
2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan
by purchasing all of Gufeng’s outstanding equity interests and delivering
acquisition consideration of approximately $8.8 million cash and approximately
1.4 million shares of the Company’s common stock (valued at approximately $11.6
million) to the former shareholders of Gufeng or their designees (the “Gufeng
Shareholders”). Additionally, the Company may be required to deliver up to an
additional 0.9 million shares of common stock, which are being held in escrow
(the “Escrowed Shares”), to be released based upon achievement of following
conditions:
1) If
Gufeng achieves certain sales revenue targets for its fiscal year ending June
30, 2011 (the “Sales Target”), 341,390 of the Escrowed Shares will be released
from escrow to the Gufeng Shareholders, which is subject to adjustment based on
a three-tier system. If Gufeng achieves at least 80% of the Sales
Target, then 227,593 of the Escrowed Shares will be released from escrow to the
Gufeng Shareholder, and if Gufeng achieves at least 60% of the Sales Target,
then 113,797 of the Escrowed Shares will be released from escrow to the Gufeng
Shareholders.
2) If
Gufeng achieves certain net profit after tax targets for its fiscal year ending
June 30, 2011 (the “Profit Target”), 341,390 of the Escrowed Shares will be
released from escrow to the Gufeng Shareholders, which is subject to adjustment
based on a three-tier system. If Gufeng achieves at least 80% of the
Profit Target, then 227,593 of the Escrowed Shares will be released from escrow
to the Gufeng Shareholders, and if Gufeng achieves at least 60% of the Profit
Target, then 113,797 of the Escrowed Shares will be released from escrow to the
Gufeng Shareholders.
3) If
Gufeng obtains a land use right with respect to certain real property located in
China, along with ownership of the buildings thereon, then 227,593 of the
Escrowed Shares will be released from escrow to the Gufeng
Shareholders.
13
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Any
Escrowed Shares that are not released from escrow to the Gufeng Shareholders for
failure to achieve the conditions described above will be forfeited and returned
to the Company for cancellation. While the Escrowed Shares are held
in escrow, the Gufeng Shareholders will retain all voting rights with respect to
the Shares.
The
Company has recognized a liability based on the acquisition date fair value of
the acquisition-related contingent consideration based on the probability of the
achievement of the targets. Based on the Company’s estimation, an initial
liability of $2.9 million (341,390 shares) was recorded. Changes in the fair
value of the acquisition-related contingent consideration subsequent to the
acquisition date, including changes from events after the acquisition date, such
as changes in the Company’s estimate of the revenue and net income expected to
be achieved and changes in their stock price, are being recognized in earnings
in the period in which the estimated fair value changes. The accompanying
consolidated financial statements include the financial results of these
companies from the date of acquisition.
The
estimated fair values of net assets acquired and presented below are preliminary
and are based on the information that was available as of the acquisition date
and prior to the filing of this Form 10-Q. The Company believes that the
information provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed; however, the Company is awaiting the
finalization of certain third-party valuations to finalize those fair values.
Thus, the preliminary measurements of fair value set forth below are subject to
change. The Company expects to finalize the valuation and complete the purchase
price allocations as soon as practicable, but no later than one year from the
respective acquisition date.
The
following table summarizes the fair values of the assets acquired and
liabilities assumed from the acquisition of Gufeng. Since the acquisition and
the initial preliminary purchase price allocation were included in the Company’s
Form 8-K for the quarter ended June 30, 2010, net adjustments of
$12.5 million were made to the fair values of the assets acquired and
liabilities assumed with a corresponding adjustment to goodwill. These
adjustments are summarized in the table presented below.
|
($
in millions)
|
||||
|
Purchase
Price
|
$ | 23.3 | ||
|
Fair
Value of Assets Acquired:
|
||||
|
Current
assets
|
25.1 | |||
|
Fixed
assets
|
17.3 | |||
|
Intangible
assets
|
15.8 | |||
|
Other
assets
|
- | |||
|
Total
Assets Acquired
|
$ | 58.2 | ||
|
Fair
Value of Liabilities Assumed:
|
||||
|
Current
liabilities
|
$ | 15.9 | ||
|
Deferred
revenue
|
19.4 | |||
|
Deferred
tax liabilities, net
|
- | |||
|
Total
Liabilities Assumed
|
$ | 35.3 | ||
|
Goodwill
(1)
|
$ | 0.4 | ||
(1)
The goodwill of $0.4 million is non-deductible for tax
purposes.
14
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes the preliminary fair value of amortizable and
indefinite-lived intangible assets as of their respective acquisition
dates:
|
Gufeng
at July 2, 2010
|
||||||||
|
($
in millions)
|
Fair
Value
|
Estimated
useful life
(in
years)
|
||||||
|
Amortizable
intangible assets:
|
||||||||
|
Customer
relationships
|
$ | 8.4 | 10 | |||||
|
Indefinite-lived
intangibles:
|
||||||||
|
Trademarks
|
$ | 7.4 | ||||||
|
Total
intangible assets acquired
|
$ | 15.8 | ||||||
Pro Forma
Condensed Combined Financial Information
The
following unaudited pro forma condensed combined comparative financial
information presents the results of operations of the Company as they may have
appeared if the acquisition of Gufeng had been completed on July 1,
2009.
|
For
the Three Months Ended September 30,
|
||||
|
($
in millions, except per share data)
|
2009
|
|||
|
Net
Sales
|
$ | 28.8 | ||
|
Net
Income
|
$ | 6.8 | ||
|
Basic
earnings per share
|
$ | 0.30 | ||
|
Diluted
earnings per share
|
$ | 0.29 | ||
Acquisition
related expenses consist of integration related professional services, certain
business combination adjustments after the measurement period or purchase price
allocation period has ended, and certain other operating expenses,
net.
15
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A pretax
charges approximating $0.2 million were recorded for acquisition and integration
related costs in the period ended September 30, 2010. These charges
were recorded as General and administrative expenses. As the
acquisition took place on July 2, 2010, statement of income for the period ended
September 30, 2010 included the operations of the Company and
Gufeng.
Inventories
consisted of the following as of September 30, 2010 and June 30,
2010:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Raw
materials
|
$ | 5,829,268 | $ | 314,268 | ||||
|
Supplies
and packing materials
|
657,819 | 113,146 | ||||||
|
Work
in progress
|
2,203,926 | 10,686,325 | ||||||
|
Finished
goods
|
18,557,941 | 148,909 | ||||||
|
Total
|
$ | 27,248,954 | $ | 11,262,647 | ||||
As of
September 30, 2010 and June, 30 2010, other current assets comprised of the
following:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Advancement
|
$ | 65,630 | $ | 41,875 | ||||
|
Promotion
material
|
304,103 | 44,949 | ||||||
|
Total
|
$ | 369,733 | $ | 86,824 | ||||
Advancement
represents advances made to non-related parties and employees. The amounts were
unsecured, interest free, and due on demand.
Property,
plant and equipment consisted of the following as of September 30, 2010 and
June, 30, 2010:
|
September 30,
2010 |
June, 30,
2010 |
|||||||
|
Building
and improvements
|
$ | 32,277,792 | $ | 11,719,363 | ||||
|
Auto
|
961,775 | 117,295 | ||||||
|
Machinery
and equipment
|
21,398,234 | 21,628,525 | ||||||
|
Agriculture
assets
|
1,365,316 | 1,528,898 | ||||||
|
Total
property, plant and equipment
|
56,003,117 | 34,994,081 | ||||||
|
Less:
accumulated depreciation
|
(9,725,409 | ) | (5,625,566 | ) | ||||
|
Total
property, plant and equipment, net
|
$ | 46,277,708 | $ | 29,368,515 | ||||
16
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Depreciation
expense for the three months ended September 30, 2010 and 2009 were $852,963 and
$444,215, respectively.
Agriculture
assets consist of reproductive trees that are expected to be commercially
productive for a period of eight years.
As of
September 30, 2010 and June 30, 2010, construction in progress, representing
construction for a new product line and other buildings amounted to $1,179,818
and $257,077, respectively.
The
intangible assets comprised of the following as of September 30, 2010 and June
30, 2010:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Land
use right, net
|
$ | 11,708,070 | $ | 11,495,059 | ||||
|
Technology
patent, net
|
69,790 | 90,512 | ||||||
|
Customer
relationships, net
|
8,159,802 | - | ||||||
|
Trademarks
|
7,364,988 | - | ||||||
|
Total
|
$ | 27,302,650 | $ | 11,585,570 | ||||
LAND USE
RIGHT
On
September 25, 2009, Yuxing was granted a land use right for approximately 88
acres (353,000 square meters or 3.8 million square feet) by the People’s
Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi
Province. The fair value of the related intangible asset was determined to be
the respective cost of $10,938,628 (or RMB 73,184,895). The intangible asset is
being amortized over the grant period of 50 years.
On August
13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of
land of approximately 11 acres (42,726 square meters or 459,898 square feet) at
Ping Gu District, Beijing. The purchase cost was recorded at $156,334 (or RMB
1,045,950). The intangible asset is being amortized over the grant period of 50
years.
17
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On August
16, 2001, Jinong received a land use right as a contribution from a shareholder,
which was granted by the People’s Government and Land & Resources Bureau of
Yanling District, Shaanxi Province. The fair value of the related intangible
asset at the time of the contribution was determined to be $1,088,872 (or RMB
7,285,099). The intangible asset is being amortized over the grant period of 50
years.
The Land
Use Rights consist of the following as of September 30, 2010 and June 30,
2010:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Land
use rights
|
$ | 12,183,834 | $ | 11,866,105 | ||||
|
Less:
accumulated amortization
|
(475,764 | ) | (371,047 | ) | ||||
|
Total
Land use rights, net
|
$ | 11,708,070 | $ | 11,495,059 | ||||
TECHNOLOGY
PATENT
On August
16, 2001, Jinong was issued a technology patent related to a proprietary formula
used in the production of humid acid. The fair value of the related intangible
asset was determined to be the respective cost of $878,121 (or RMB 5,875,068).
The intangible asset is being amortized over the patent period of 10
years.
The
technology know-how consisted of the following as of September 30, 2010 and June
30, 2010:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Technology
know-how
|
$ | 878,121 | $ | 866,338 | ||||
|
Less:
accumulated amortization
|
(808,331 | ) | (775,826 | ) | ||||
|
Total
Technology know-how, net
|
$ | 69,790 | $ | 90,512 | ||||
CUSTOMER
RELATIONSHIP
On July
2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan.
The preliminary fair value on the acquired customer relationships was estimated
to be $8,369,028 (or RMB 80,720,740) and is amortized over the remaining useful
life of ten years. See Note 3.
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Customer
relationships
|
$ | 8,369,028 | $ | - | ||||
|
Less:
accumulated amortization
|
(209,226 | ) | - | |||||
|
Total
Customer relationships, net
|
$ | 8,159,802 | $ | - | ||||
TRADEMARKS
18
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On July
2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan.
The preliminary fair value on the acquired trademarks was estimated to be
$7,364,988 and is subject to an annual impairment test. See Note 3.
Total
amortization expenses of intangible assets for the periods ended September 30,
2010 and 2009 were $290,369 and $43,185, respectively.
AMORTIZATION
EXPENSE
Estimated
amortization expenses of intangible assets for the next twelve month periods
September 30, are as follows:
|
September
30, 2011
|
$ | 1,150,369 | ||
|
September
30, 2012
|
1,080,579 | |||
|
September
30, 2013
|
1,080,579 | |||
|
September
30, 2014
|
1,080,579 | |||
|
September
30, 2015
|
1,080,579 |
As of
September 30, 2010 and June 30, 2010, the amount due to related parties was
$444,877 and $68,164, respectively. These amounts represent
unsecured, non-interest bearing loans that are due on demand. These
loans are not subject to written agreements. The large increase in
amounts due to related parties as of September 30, 2010 is attributable to the
previously outstanding loans payable by Gufeng to Mr. Qing Xin Jiang, the Chief
Executive Officer and former controlling shareholder of Gufeng, which we
acquired in the Gufeng acquisition.
Accrued
expenses and other payables consisted of the following as of September 30, 2010
and June 30, 2010:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Payroll
payable
|
$ | 211,050 | $ | 8,848 | ||||
|
Welfare
payable
|
319,010 | 164,051 | ||||||
|
Accrued
expenses
|
888,773 | 334,806 | ||||||
|
Other
levy payable
|
147,146 | - | ||||||
|
Total
|
$ | 1,565,979 | $ | 507,705 | ||||
19
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of
September 30, 2010and June 30, 2010, the loan payables were as
follows:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
Short
term loans payable:
|
$ | 6,227,481 | $ | - | ||||
|
Total
|
$ | 6,227,481 | $ | - | ||||
The
interest expense from these short-term loans was $176,675 and $61,309 for the
three months ended September 30, 2010 and 2009, respectively.
Enterprise Income
Tax
Effective
January 1, 2008, the new Enterprise Income Tax (“EIT”) law of the PRC replaced
the existing tax laws for Domestic Enterprises (“DES”) and Foreign Invested
Enterprises (“FIEs”). The new EIT rate of 25% replaced the 33% rate that was
applicable to both DES and FIEs. The two year tax exemption and three year 50%
tax reduction tax holiday for production-oriented FIEs was eliminated. Since
January 1, 2008, Jinong became subject to income tax in China at a rate of 15%
as a high-tech company, as a result of the expiration of its tax exemption on
December 31, 2007, and accordingly, it made provision for income taxes for the
three months ended September 30, 2010 and 2009 of $1,713,743 and $930,757,
respectively, which is mainly due to the operating income from Jinong. Gufeng is
subject to 25% EIT rate and thus it made provision for income taxes of $426,334
for the three months ended September 30, 2010. Jintai has been exempt from
paying income tax since its formation as it produces products which fall into
the tax exemption list set out in the EIT. This exemption is expected to last as
long as the applicable provisions of the EIT do not change.
Value-Added
Tax
All of
the Company’s fertilizer products that are produced and sold in the PRC were
subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On
April 29, 2008, the PRC State of Administration of Taxation (SAT) released
Notice #56, “
Exemption of VAT
for Organic Fertilizer Products
”, which allows certain fertilizer
products to be exempt from VAT beginning June 1, 2008. The Company submitted the
application for exemption in May 2009, which was granted effective September 1,
2009, continuing through December 31, 2015. The VAT exemption applies to all
agricultural products sold by Jingtai, and all but a nominal amount of
agricultural products sold by Jinong.
20
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes and Related
Payables
Taxes
payable consisted of the following as of September 30, 2010 and June 30,
2010:
|
September 30,
2010 |
June 30,
2010 |
|||||||
|
VAT
provision (credit)
|
$ | 40,718 | (24,655 | ) | ||||
|
Income
tax payable
|
3,766,933 | 2,020,253 | ||||||
|
Other
levies
|
311,939 | 308,784 | ||||||
|
Total
|
$ | 4,119,590 | 2,304,382 | |||||
Income Taxes in the
Consolidated Statements of Operations and Comprehensive
Income
Income
taxes consisted of the following as of September 30, 2010 and 2009:
|
2010
|
2009
|
|||||||
|
Current
Tax
|
$ | 1,713,743 | $ | 930,757 | ||||
|
Deferred
Tax
|
- | - | ||||||
|
Total
|
$ | 1,713,743 | $ | 930,757 | ||||
Tax Rate
Reconciliation
Substantially
all of the Company’s income before income taxes and related tax expense are from
PRC sources. Actual income tax benefit reported in the consolidated statements
of operations and comprehensive income differ from the amounts computed by
applying the US statutory income tax rate of 34% to income before income taxes
for the three months ended September 30, 2010 and 2009 for the following
reasons:
21
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
September
30, 2010
|
China
|
United
States
|
||||||||||||||||||
|
15%
- 25%
|
34%
|
Total
|
||||||||||||||||||
|
Pretax
income (loss)
|
10,702,296 | (1,200,768 | ) | 9,501,528 | ||||||||||||||||
|
Expected
income tax expense (benefit)
|
2,636,058 | 9.50 | % | (408,261 | ) | 34.00 | % | |||||||||||||
|
High-tech
income benefits on Jinong
|
(858,273 | ) | -3.09 | % | ||||||||||||||||
|
Income
tax benefit of nontaxable
income
on Jintai
|
(109,368 | ) | -0.39 | % | ||||||||||||||||
|
Income
tax benefit of nontaxable income on Yuxing
|
45,326 | 0.16 | % | |||||||||||||||||
|
Change
in valuation allowance on deferred tax asset
from US tax
benefit
|
408,261 | -34.00 | % | |||||||||||||||||
|
Actual
tax expense
|
1,713,743 | 6.17 | % | - | 0.00 | % | 18.04 | % | ||||||||||||
|
September
30, 2009
|
China
|
United
States
|
||||||||||||||||||
|
15%
|
34%
|
Total
|
||||||||||||||||||
|
Pretax
income (loss)
|
6,513,257 | (335,226 | ) | 6,178,031 | ||||||||||||||||
|
Expected
income tax expense (benefit)
|
993,774 | 15.00 | % | (113,977 | ) | 34.00 | % | |||||||||||||
|
Income
tax benefit of nontaxable
income
on Jintai
|
(65,694 | ) | -2.02 | % | ||||||||||||||||
|
Income
tax benefit of nontaxable income on Yuxing
|
2,677 | -0.16 | % | |||||||||||||||||
|
Change
in valuation allowance on deferred tax asset
from US tax
benefit
|
113,977 | -34.00 | % | |||||||||||||||||
|
Actual
tax expense
|
930,757 | 3.35 | % | - | 0.00 | % | 15.07 | % | ||||||||||||
Reclassification of
Temporary Equity
On
December 26, 2007 the Company issued 6,313,617 shares (the “Shares”) of common
stock to 31 accredited investors (the “Investors”) at $3.25 per share in a
private placement (the “Private Placement”). The Securities Purchase Agreement
(“SPA”) set forth a contingency which gave the Investors the right to redeem the
Shares in the event the Share Exchange was forced to be unwound as a result of
any material adverse effect due to PRC governmental actions. As a result of the
redemption feature, the Company recorded the Private Placement as temporary
equity. In July 2009, the Investors and the Company entered into a Waiver and
Consent where the Investors consented to waive all their rights associated with
the liquidated damages under Section 4.16 of SPA. As a result, such temporary
equity was no longer necessary for the purposes of the Company’s balance sheet
as of June 30, 2010.
Common
Stock
22
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company issued 4,025,000 shares of common stock at a public offering price of
$7.15 per share in an underwritten offering and received total gross proceeds of
approximately $28.8 million on July 24, 2009. The shares were sold under the
Company's previously filed shelf registration statement, which was declared
effective by the SEC on June 12, 2009. The Company uses the net proceeds to
expand its production facilities through the construction of new greenhouse at
Yuxing.
The
Company completed the sale of 1,282,052 shares of common stock at a public
offering price of $15.60 per share on November 25, 2009 in a registered direct
offering for gross proceeds of $20,000,011. On December 16, 2009, the placement
agent exercised rights to place up to 320,512 additional shares of common stock
at a price of $15.60 per share, for additional gross proceeds of $4,999,987. The
shares were sold under the Company's previously filed shelf registration
statement, which was declared effective by the SEC on June 12,
2009.
On
January 3, 2010, the Company made a one-time grant of an aggregate of 120,000
shares of restricted common stock of the Company to certain members of
management and officers under the 2009 Equity Incentive Plan of the Company.
Pursuant to the terms of the grant, one-third of the shares vested on February
2, 2010, one-third of the shares will vest on December 31, 2010 if certain
financial targets are achieved and the remaining one-third of the shares will
vest on December 31, 2011 if certain financial targets are achieved.
Additionally, the Company made a one-time grant of an aggregate of 22,961 shares
of performance-based restricted common stock to certain officers, which vests in
three equal installments on September 30, 2010, 2011 and 2012 because the
Company achieved both net sales and income from operations targets for the
fiscal year ended June 30, 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 independent directors 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
will vest on December 31, 2010 if certain financial targets are achieved and the
remaining one-third of the shares will vest on December 31, 2011 if certain
financial targets are achieved. Additionally, the Company also granted to
certain independent directors and key employees an aggregate of 70,500 shares of
performance-based restricted common stock, which automatically vests in three
equal installments on September 30, 2010, 2011 and 2012 because the Company
achieved both net sales and income from operations targets for the fiscal year
ended June 30, 2010.
On
February 10, 2010, the Company issued a total of 8,000 shares of restricted
common stock under its 2009 Equity Incentive Plan to a consultant pursuant to
the terms of a service agreement, half of which was vested on August 9, 2010 and
half of which was forfeited due to the disengagement of the service on September
15, 2010.
On July
2, 1010, the Company issued a total of 2,275,931 shares of common stock to
Gufeng’s previous shareholders or their designees. Of the shares being issued in
the acquisition, 40% will be held in escrow pending satisfaction of certain
conditions such as make good targets set for Gufeng for the fiscal year ended
June 30, 2011. See Note 3.
23
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
As of
September 30, 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.
On August
17, 2009, some directors, officers and employees exercised 84,500 options to
purchase an aggregate of 84,500 shares of common stock in a cashless manner and
received 61,239 shares of common stock as a result of the cashless
exercise.
On
January 3, 2010, the Company made a one-time grant of options to purchase an
aggregate of 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 common stock on 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 will vest on December 31, 2010 if certain financial
targets are achieved and the remaining one-third of the options will vest on
December 31, 2011 if certain financial targets are achieved.
On
January 3, 2010, the Company also made a grant of performance-based options to
purchase an aggregate of 45,291 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 common stock on the previous trading day.
Pursuant to the terms of the grant, the options automatically vest in three
equal installments on September 30, 2010, 2011 and 2012 because the Company
achieved both net sales and income from operations targets for the fiscal year
ended June 30, 2010.
On
February 3, 2010, one independent director resigned and all his vested and
unvested options were forfeited pursuant to his grant agreement with the
Company.
24
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On
February 7, 2010, the Company appointed a new independent director and issued to
him performance-based 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 of the common stock 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 will vest on December 31, 2010 if certain financial targets are
achieved and the remaining one-third of the options will vest on December 31,
2011 if certain financial targets are achieved.
The
Company’s calculations are made using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected life of 2 years;
75.2%-75.6% stock price volatility; risk-free interest rate of 1.63% and no
dividends during the expected term. Stock compensation expense is recognized
based on awards expected to vest. The forfeitures are estimated at the time of
grant and revised in subsequent periods pursuant to actual forfeitures, if it is
different from those estimates. During the three months ended September 30, 2010
and 2009, the Company recognized stock-based compensation expense of $644,075
and $0, respectively.
Options
outstanding as of September 30, 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
|
Aggregate
Intrinsic Value
|
||||||
|
$14.02-14.70
|
195,291
|
1.56
|
$14.67
|
65,100
|
-
|
The
following table summarizes the options outstanding as of September 30,
2010:
|
Options
Outstanding
|
||||
|
Outstanding,
July 1, 2008
|
121,500 | |||
|
Granted
|
28,000 | |||
|
Forfeited/Canceled
|
(28,000 | ) | ||
|
Exercised
|
- | |||
|
Outstanding,
June 30, 2009
|
121,500 | |||
|
Granted
|
205,291 | |||
|
Forfeited/Canceled
|
(22,000 | ) | ||
|
Exercised
|
(109,500 | ) | ||
|
Outstanding,
June 30, 2010
|
195,291 | |||
|
Outstanding,
September 30, 2010
|
195,291 | |||
25
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Market
Concentration
All of
the Company's revenue-generated operations are all conducted 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 respexct to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation.
Vendor
and Customer Concentration
There was
one vendor from which the Company purchased more than 10% of its raw materials
for the three months ended September 30, 2010. There is no accounts payable to
this vender as of September 30, 2010.
There
were three vendors from which the Company purchased more than 10% of its raw
materials for the three months ended September 30, 2009 with each vendor
individually accounting for about 13%, 12% and 10%. Accounts payable to those
venders amounted to $0 as of September 30, 2009.
There was
no customer that accounted over 10% of the total sales as of three months ended
September 30, 2010 and September 30, 2009.
Concentration
of Cash
The
Company maintains large sums of cash in three major banks in China. The
aggregate balance in such accounts as of September 30, 2010 was $51,199,499.
There is no insurance securing these deposits in China. In addition, the Company
also had $2,747,595 in cash in two banks in the United States as of September
30, 2010, with $500,000 secured by the U.S. Federal Deposit Insurance
Corporation.
Litigation
On
October 15, 2010, a class action lawsuit was filed against the Company and
certain of its current and former officers in the United States District Court
for the District of Nevada on behalf of purchasers of the Company’s common stock
between November 12, 2009 and September 1, 2010. The complaint
alleges that the Company and certain of its current and former officers violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by
making material misstatements and omissions about the Company’s true financial
condition. The complaint alleges, among other things, that the financial
statements for the fiscal year ended June 30, 2010 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission are
materially false and misleading on the basis that such financial statements
materially differ from certain financial information the Company reported to
certain governmental agencies in the People’s Republic of China. The
plaintiffs claim that such allegedly misleading financial statements inflated
the price of the Company’s common stock and seek monetary damages in an amount
to be determined at trial.
26
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company believes the allegations are without merit and it intends to vigorously
defend this lawsuit. However, it is possible that additional similar complaints
and related derivative actions may be filed in the future. If this does occur,
the Company expects that all similar class action complaints will eventually be
consolidated into a single action.
The
Company was organized into four main business segments: fertilizer production
(Jinong & Gufeng), agricultural products production (Jintai) and future
research and development center that is currently under construction (Yuxing).
The following tables present a summary of our businesses’ and operating
segments’ results.
|
For
the three months ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenues
from unaffiliated customers:
|
||||||||
|
Jinong
|
$ | 16,571,293 | $ | 10,178,649 | ||||
|
Gufeng
|
21,801,034 | - | ||||||
|
Jintai
|
1,110,594 | 1,098,171 | ||||||
|
Yuxing
|
- | - | ||||||
|
Consolidated
|
$ | 39,482,921 | $ | 11,276,820 | ||||
|
Operating
income :
|
||||||||
|
Jinong
|
$ | 8,519,558 | $ | 6,124,274 | ||||
|
Gufeng
|
1,922,981 | - | ||||||
|
Jintai
|
437,446 | 437,906 | ||||||
|
Yuxing
|
(54,062 | ) | (17,846 | ) | ||||
|
Reconciling
item (1)
|
- | - | ||||||
|
Reconciling
item (2)
|
(556,693 | ) | (335,226 | ) | ||||
|
Reconciling
item (2)--stock compensation
|
(644,075 | ) | - | |||||
|
Consolidated
|
$ | 9,625,155 | $ | 6,209,108 | ||||
|
Net
income:
|
||||||||
|
Jinong
|
$ | 7,295,318 | $ | 5,159,879 | ||||
|
Gufeng
|
1,307,706 | - | ||||||
|
Jintai
|
437,473 | 437,956 | ||||||
|
Yuxing
|
(53,731 | ) | (17,846 | ) | ||||
|
Reconciling
item (1)
|
1,787 | 2,512 | ||||||
|
Reconciling
item (2)
|
(1,200,768 | ) | (335,226 | ) | ||||
|
Consolidated
|
$ | 7,787,785 | $ | 5,247,274 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Jinong
|
$ | 578,765 | $ | 444,215 | ||||
|
Gufeng
|
268,613 | - | ||||||
|
Jintai
|
31,374 | 25,346 | ||||||
|
Yuxing
|
55,084 | 17,839 | ||||||
|
Consolidated
|
$ | 933,836 | $ | 487,400 | ||||
|
Interest
expense:
|
||||||||
|
Jinong
|
$ | - | $ | 61,309 | ||||
|
Gufeng
|
176,675 | - | ||||||
|
Consolidated
|
$ | 176,675 | $ | 61,309 | ||||
|
Capital
Expenditure:
|
||||||||
|
Jinong
|
$ | 553,899 | $ | 2,437,738 | ||||
|
Gufeng
|
209,432 | - | ||||||
|
Jintai
|
- | - | ||||||
|
Yuxing
|
13,338 | 10,703,302 | ||||||
|
Consolidated
|
$ | 776,669 | $ | 13,141,040 | ||||
|
Identifiable
assets:
|
As
of 09/30/10
|
As
of 06/30/10
|
||||||
|
Jinong
|
$ | 95,724,716 | $ | 103,519,520 | ||||
|
Gufeng
|
64,428,315 | - | ||||||
|
Jintai
|
13,144,736 | 12,198,845 | ||||||
|
Yuxing
|
15,077,316 | 12,748,003 | ||||||
|
Reconciling
item (1)
|
2,753,409 | 3,311,943 | ||||||
|
Reconciling
item (2)
|
(5,405 | ) | (9,631 | ) | ||||
|
Consolidated
|
$ | 191,123,087 | $ | 131,787,942 | ||||
(1)
Reconciling amounts refer to the unallocated assets or expenses of Green New
Jersey.
(2)
Reconciling amounts refer to the unallocated assets or expenses of the parent
company.
27
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In July
2007, Jinong signed an office lease with the Group Company and started to pay
the rent for $954 (RMB 6,460) per month. On September 30, 2010, Jinong cancelled
the lease agreement with the Group Company without penalty and signed a two year
lease starting from July 1, 2010 directly with Xi’an Kingtone Information
Technology Co., Ltd. (“Kingtone Information”), who owns the property. Kingtone
Information is a Variable Interest Entity (“VIE”) with Kingtone Wirelessinfo
Solution Holoding Ltd. (“Kingtone Wirelessinfo”), whose Chairman and majority
shareholder is Mr. Tao Li, the Chairman, President and Chief Executive Officer
of the Company. According to the new lease agreement, the monthly rent is $1,596
(RMB 10,800).
In
January 2008, Jintai signed a ten year land lease with Xi’an Jinong Hi-tech
Agriculture Demonstration Zone for a monthly rent of $768 (RMB
5,200).
In
February 2004, Tianjuyuan signed a fifty year lease with village committee of
Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District,
with a monthly rent of $437 (RMB 2,958).
Accordingly,
the Company recorded an aggregate of $8,403 and $5,113 as rent expenses for the
three months ended September 30, 2010 and 2009, respectively. Rent expenses for
the next twelve month periods ended September 30, 2010 is as
follows:
|
September
30, 2011
|
$
|
33,611
|
||
|
September
30, 2012
|
28,824
|
|||
|
September
30, 2013
|
14,464
|
|||
|
September
30, 2014
|
14,464
|
|||
|
September
30, 2015
|
14,464
|
|||
28
|
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 markets and its impact on economic growth in general, the competition
in the fertilizer industry and the impact of such competition on pricing,
revenues and margins, the weather conditions in the areas where our customers
are based, the cost of attracting and retaining highly skilled personnel, the
prospects for future acquisitions, and the factors set forth elsewhere in this
report, our actual results may differ materially from those anticipated in these
forward-looking statements. In light of this risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this report
will in fact occur. You should not place undue reliance on the forward-looking
statements contained in this report.
The forward-looking statements speak
only as of the date on which they are made, and, except to the extent required
by U.S. federal securities laws, we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of unanticipated
events. Further, the information about our intentions contained in
this report is a statement of our intention as of the date of this report and is
based upon, among other things, the existing regulatory environment, industry
conditions, market conditions and prices and our assumptions as of such
date. We may change our intentions, at any time and without notice,
based upon any changes in such factors, in our assumptions or
otherwise.
Unless the context indicates otherwise,
as used in the following discussion, “Company”, “we,” “us,” and “our,” refer to
(i) China Green Agriculture, Inc. (“Green Nevada”), a corporation incorporated
in the State of Nevada; (ii) Green Agriculture Holding Corporation (“Green New
Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the
State of New Jersey; (iii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd.
(“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the
laws of the PRC; (iv) Xi’an Jintai Agriculture Technology Development Company
(“Jintai”), wholly-owned subsidiary of Jinong in the PRC, (v) Xi’an Hu County
Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a wholly-owned
subsidiary of Jinong in the PRC; (vi) Beijing Gufeng Chemical Products Co.,
Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (vii)
Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the
PRC (“Tianjuyuan”).
Unless the context otherwise requires,
all references to (i) “PRC” and “China” are to the People’s Republic of China;
(ii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (iii) “RMB”,
“Yuan” and Renminbi are to the currency of the PRC or China.
Overview
We are
engaged in the research, development, production and sale of various types of
fertilizers and agricultural products in the PRC through our wholly-owned
Chinese subsidiaries, Jinong, Jintai, Yuxing, Gufeng and
Tianjuyuan. Our primary business is fertilizer products, specifically
humic-acid based compound fertilizer produced by Jinong and compound fertilizer,
blended fertilizer, organic compound fertilizer and mixed organic-inorganic
compound fertilizer produced by Gufeng and Tianjuyuan. In addition, through
Jintai and Yuxing, we develop and produce agricultural products, such as
top-grade fruits, vegetables, flowers and colored seedlings. For financial
reporting purposes, our operations are organized into four business segments:
fertilizer products (Jinong), fertilizer products (Gufeng), agricultural
products (Jintai) and future research and development (Yuxing).
29
Jintai and Yuxing also serve as a
research and development base for our fertilizer products. The fertilizer
business conducted by Jinong and Gufeng, which we acquired in July 2010,
generated approximately 97.2% and 90.3% of our total revenues for the three
months ended September 30, 2010 and 2009, respectively. See “Recent
Developments” for a discussion of the Gufeng acquisition.
Fertilizer
Products
As of September 30, 2010, we had a
total of 464 different fertilizer products, of which 162 were developed and
produced by Jinong and 302 by Gufeng.
For the three months ended September
30, 2010, we sold approximately 86,463 metric tons of fertilizer products, as
compared to 4,315 metric tons for the three months ended September 30, 2009,
which did not include sales of products by Gufeng. During the 2010 period,
Jinong sold approximately 10,641 metric tons of fertilizer products, as compared
to 4,315 for the three months ended September 30, 2009. Gufeng sold
approximately 75,822 metric tons of fertilizer products during the 2010
period.
For the three months ended September
30, 2010, the top five provinces of our total fertilizer sales accounted for
28.2% of total fertilizer revenues. The five provinces and their respective
percentage contribution to total revenues were Hebei (7.6%), Heilongjiang
(6.1%), Liaoning (5.2%), Jilin (4.8%) and Shaanxi (4.6%). Jinong’s sales to the
top five provinces accounted for approximately 36.0% of Jinong’s fertilizer
revenue (or 15.1% of our total revenues). The five provinces and their
respective percentage contribution to Jinong’s fertilizer revenues were Shaanxi
(11.0%), Shandong (8.3%), Anhui (6.1%), Sichuan (5.6%) and Henan (5.0%). For the
three months ended September 30, 2010, Gufeng’s sales of fertilizer products to
the top five provinces accounted for approximately 40.5% of Gufeng’s fertilizer
revenue (or 22.4% of the total revenues). The five provinces and their
respective percentage contribution to Gufeng’s fertilizer revenues were Hebei
(10.1%), Liaoning (9.4%), Jilin (8.6%), Heilongjiang (7.2%) and Inner Mongolia
(5.2%).
A significant portion of our revenues
are derived from sales in other countries. Gufeng exports blended fertilizer
through contracted distributors to other countries including India, Zimbabwe,
Mongolia, the Philippines and Brazil. The export revenues accounted for 55.3% of
Gufeng’s fertilizer revenues (or 30.5% of total revenues) for the three months
ended September 30, 2010.In addition, we export humic-acid based compound
fertilizer products and blended fertilizer products via contracted distributors.
Jinong exports its humic-acid based compound fertilizers to other countries,
including India, Ecuador, Pakistan and Lebanon. However, the revenues from
Jinong’s export products currently account for less than 1% of our fertilizer
revenues.
30
As of September 30, 2010, we had a
total of 740 distributors covering 21 provinces, four autonomous regions and
three central government-controlled municipalities in China. Jinong had 588
distributors in China. Jinong’s sales are not dependent on any one or group of
distributors. Its top five distributors accounted for 2.0% of Jinong’s
fertilizer revenues (or 0.8% of our total revenues) for the three months ended
September 30, 2010. Gufeng had 152 distributors, including some large
state-owned enterprises. Its top five distributors accounted for 58.7% of
Gufeng’s revenues (or 32.4% of our total revenues) for the three months ended
September 30, 2010.
Agricultural
Products
Through Jintai, we develop, produce and
sell high-quality flowers, green vegetables and fruits to local marketplaces and
various horticulture and planting companies. We also use certain of
Jintai’s and Yuxing’s greenhouse facilities to conduct research and development
activities for our fertilizer products. The three PRC provinces, which accounted
for 100% of our agricultural products revenue (or 2.8% of our total revenues)
for the three months ended September 30, 2010, were Shaanxi (86.5%), Shanxi
(8.3%) and Sichuan (5.2%). Jintai’s top three customers accounted for
28.7% of Jintai’s sales (or 0.8% of our total revenues) for the three months
ended September 30, 2010.
Recent
Developments
As we
previously reported on our Current Report on Form 8-K filed with the Commission
on July 7, 2010, we acquired Gufeng and its wholly-owned subsidiary Tianjuyuan
on July 2, 2010. As a result of the acquisition by the Company, Gufeng and
Tianjuyuan became wholly-owned subsidiaries of Jinong and our indirect
subsidiaries. Our acquisition of Gufeng improves our competitive position by (i)
increasing our maximum production capacity of fertilizers from 55,000 metric
tons to 355,000 metric tons per year, (ii) adding over 152 new distributors to
our existing nationwide distribution network of 588 distributors as of September
30, 2010, and (iii) broadening our fertilizer portfolio of organic and
non-organic fertilizer products to serve a larger base of
end-users.
During the three months ended September
30, 2010, Jinong launched five new humic-acid based liquid and powder fertilizer
products, including three powder fertilizers, one functional fertilizer and one
broad-spectrum fertilizer. These new products generated approximately $226,174,
or 1.4%, of Jinong’s fertilizer revenues for the three months ended September
30, 2010. Jinong also added 13 new distributors during the three months ended
September 30, 2010. Jinong’s new distributors accounted for approximately
$227,904, or 1.4%, of Jinong fertilizer revenues for the three months ended
September 30, 2010.
During the three months ended September
30, 2010, Gufeng launched two new blended fertilizers. These new products
generated approximately $1,040,087, or 4.8%, of Gufeng’s fertilizer revenues for
the three months ended September 30, 2010. Gufeng also added two new
distributors during the three months ended September 30, 2010, which accounted
for approximately $32,798, or 0.2%, of Gufeng’s fertilizer
revenues.
Results of
Operations
31
The following table shows the operating
results of the Company on a consolidated basis for the three months ended
September 30, 2010 and 2009. It should be noted that our consolidated
results for the 2009 period do not include the results of Gufeng and its
subsidiary, Tianjuyuan, which were acquired on July 2, 2010.
|
Three
months ended
|
Three
months ended
|
|||||||
|
September 30, 2010
|
September 30, 2009
|
|||||||
|
Net
Sales
|
$ | 39,482,921 | $ | 11,276,820 | ||||
|
Jinong
|
16,571,293 | 10,178,649 | ||||||
|
Gufeng
|
21,801,034 | n/a | ||||||
|
Jintai
|
1,110,594 | 1,098,171 | ||||||
|
Cost
of Goods Sold
|
26,343,594 | 4,317,862 | ||||||
|
Jinong
|
6,853,787 | 3,735,364 | ||||||
|
Gufeng
|
18,900,513 | n/a | ||||||
|
Jintai
|
589,294 | 582,497 | ||||||
|
Gross
Profit
|
13,139,327 | 6,958,958 | ||||||
|
Selling
Expenses
|
1,415,985 | 215,672 | ||||||
|
General
and Administrative Expenses
|
2,098,187 | 534,179 | ||||||
|
Income
from Operations
|
9,625,155 | 6,209,108 | ||||||
|
Total
Other Income (expense)
|
(123,627 | ) | (31,077 | ) | ||||
|
Income
Before Income Taxes
|
9,501,528 | 6,178,031 | ||||||
|
Provision
for Income Taxes
|
1,713,743 | 930,757 | ||||||
|
Net
Income
|
7,787,785 | 5,247,274 | ||||||
|
Net
Income Per Share (Basic and Fully Diluted)
|
0.30 | 0.24 | ||||||
|
Basic
Weighted Average Shares Outstanding
|
25,922,880 | 21,632,488 | ||||||
|
Diluted
Weighted Average Shares Outstanding
|
26,035,426 | 21,650,546 | ||||||
Net
Sales
Our net sales for the quarter ended
September 30, 2010 were $39,482,921, an increase of $28,206,101, or 250.1%, from
$11,276,820 for the three months ended September 30, 2009, largely due to
the inclusion of Gufeng’s net sales during the 2010 period, which contributed
$21,801,034, or 55.2%, of the total net sales. The total net sales without
including Gufeng’s net sales for the three months ended September 30, 2010 were
$17,681,887, an increase of $6,405,067, or 56.8%, from the same period a year
ago.
32
For the
three months ended September 30, 2010, Jinong’s net sales increased $6,392,643,
or 62.8%, to $16,571,293 from $10,178,649 from the three months ended September
30, 2009. This increase was mainly attributable to the sales of more new
products including our liquid fertilizers, powder fertilizers, and particularly,
the lower-margin granular fertilizers released since our 40,000 metric-ton
production line began production in August 2009.
Jintai’s
net sales, which include sales of agricultural products, increased by $12,423,
or 1.1%, to $1,110,594 for the three months ended September 30, 2010 from
$1,098,171 for the same period in 2009. As its greenhouse facility reached its
full capacity in fiscal 2010, we do not expect any further significant sales
growth of agriculture products from Jintai in the near future. Our Yuxing
segment had no revenues during the period ended September 30, 2010. However,
since we completed 100 sunlight greenhouses at Yuxing, we expect that sales
revenue of agriculture products will increase when Yuxing begins to produce
agriculture products later this fiscal year.
Cost
of Goods Sold
Total cost of goods sold for the three
months ended September 30, 2010 were $26,343,594, an increase of $22,025,732,
from $4,317,862 for the three months ended September 30, 2009, mainly due to the
costs attributable to the production and sale of Gufeng’s products, which
accounted for 71.7% of total cost of goods sold. The total cost of goods sold
without including Gufeng’s cost of goods sold for the three months ended
September 30, 2010 was $7,443,081, an increase of $3,125,219, or 72.4%, from the
same period a year ago.
Cost of goods sold by Jinong for the
three months ended September 30, 2010 were $6,853,787, an increase of
$3,118,422, or 83.5%, from $3,735,364 for the same period in 2009. As
a percentage of total net sales, cost of goods sold by Jinong accounted for
approximately 17.4% and 33.1% for the three months ended September 30, 2010 and
2009, respectively. The increase in cost of goods sold was primarily
attributable to the increase in raw materials and packaging materials as a
result of our newly introduced powder and liquid fertilizer
products.
Cost of goods sold by Gufeng for the
three months ended September 30, 2010 were $18,900,513, which accounted for
47.9% of total net sales.
Cost of goods sold by Jintai for the
three months ended September 30, 2010 were $589,294, an increase of $6,797, or
1.2%, from $582,497 for the same period in 2009. As a percentage of
total net sales, cost of goods sold by Jintai accounted for approximately 1.5%
and 5.2% for the three months ended September 30, 2010 and 2009, respectively.
The increase in amortization expense was slightly offset by the decrease in
direct materials and overhead expenses.
Gross
Profit
Gross profit for the three months ended
September 30, 2010 increased by $6,180,369, or 88.8%, to $13,139,327, as
compared to $6,958,958 for the three months ended September 30,
2009. Gross profit margin was approximately 33.3% and 61.7% for the
three months ended September 30, 2010 and 2009, respectively. The decrease in
gross profit margin was mainly due to the recent acquisition of Gufeng, which
mainly sells low-margin granular fertilizer products. The gross profit without
including Gufeng’s gross profit was $10,238,806 with a gross profit margin of
57.9%.
33
Gross profit generated by Jinong
increased by $3,274,221, or 50.8%, to $9,717,506 for the three months ended
September 30, 2010 from $6,443,285 for the three months ended September 30,
2009. Gross profit margin from Jinong’s sales was approximately 58.6% and 63.3%
for the three months ended September 30, 2010 and 2009, respectively. The main
reason for the decrease in Jinong’s gross profit margin was the change in
product mix during the 2010 period. While we have experienced fast
growth in our higher-margin liquid fertilizer products, we have recently
penetrated the granular and powder fertilizer market with a view toward
maximizing our marketing efforts, despite the relative lower profit margins on
granular fertilizer.
Gross
profit generated by Gufeng was $2,900,521 with a gross profit margin of
approximately 13.3% for the three months ended September 30, 2010.
Gross profit from Jintai
increased by $5,627, or 1.1%, for the three months ended September 30, 2010, to
$521,300, as compared to $515,674 for the three months ended September 30,
2009. Gross profit margin from Jintai sales was approximately 46.9%
and 47.0% for the three months ended September 30, 2010 and 2009,
respectively.
Selling
Expenses
Our selling expenses consist primarily
of salaries of sales personnel, advertising and promotion expenses, freight-out
costs and related compensation. Selling expenses were $1,415,985, or 3.6%, of
net sales for the three months ended September 30, 2010 as compared to $215,672,
or 1.9%, of net sales for the three months ended September 30, 2009, an increase
of $1,200,313, or 556.5%. This increase was primarily due to the inclusion of
Gufeng’s selling expenses for the 2010 period. The selling expenses of Gufeng
were $516,585, or 2.4%, of Gufeng’s net sales. The selling expenses
of Jinong were $892,930, or 5.4%, of Jinong’s net sales. The main reason for the
increase in Jinong’s selling expenses was its expanded marketing efforts and the
increase in shipping costs.
General
and Administrative Expenses
General and administrative expenses
consisted primarily of related salaries, rental expenses, business development,
depreciation and travel expenses incurred by our general and administrative
departments and legal and professional expenses. General and administrative
expenses were $2,098,187, or 5.3%, of net sales, for the three months ended
September 30, 2010, as compared to $534,179, or 4.7%, of net sales, for the
three months ended September 30, 2009, an increase of $1,564,008. The general
and administrative expenses of Gufeng were $552,285, of which $342,463 was the
non-cash amortization expenses from its estimated intangible assets. The
acquisition related expenses, which mainly included professional services
related to the acquisition, were $236,143 for the three months ended September
30, 2010. In addition, the non-cash stock compensation expense was $644,075 for
the three months ended September 30, 2010, compared to $0 for the same period a
year ago.
34
Total
Other Income (Expenses)
Total other income (expenses) consisted
of income from subsidies received from the PRC government, interest income,
interest expenses and bank charges. Total other expenses for the three months
ended September 30, 2010 was $123,627, as compared to total other expenses of
$31,077 for the three months ended September 30, 2009, an increase of $92,550,
or 297.8%. The increase was mainly attributable to the $176,676
interest expense from Gufeng’s outstanding short-term loans.
Income
Taxes
Jinong is subject to a preferred tax
rate of 15% as a result of its business being classified as a “High-Tech”
project under the PRC Enterprise Income Tax Law (“EIT”) that became effective on
January 1, 2008. Jinong incurred income tax expenses of $1,287,409
for the three months ended September 30, 2010, as compared to $930,757 for the
same period in 2009, an increase of $356,652, or 38.3%, which was primarily
attributable to our increased operating income.
Gufeng, subject to a tax rate of 25%,
incurred income tax expenses of $426,334 for the three months ended September
30, 2010.
Jintai has been exempt from paying
income tax since its formation as it produces products which fall into the tax
exemption list set out in the EIT. This exemption is expected to last as long as
the applicable provisions of the EIT do not change.
Net
Income
Net income for the three months ended
September 30, 2010 was $7,787,785, an increase of $2,540,511, or 48.4%, compared
$5,247,274 for the three months ended September 30, 2009. The increase was
attributable to the increase in gross profit. Net income as a percentage of
total net sales was approximately 19.7% and 46.5% for the three months ended
September 30, 2010 and 2009, respectively.
Discussion of Segment
Profitability Measures
As of
September 30, 2010, we were engaged in the following businesses: the production
and sale of fertilizers through Jinong, Gufeng and Tianjuyuan, and the
production and sale of high-quality agricultural products and research and
development on new fertilizer products by Jintai. Upon the completion of its
research and development center, Yuxing’s main business will be to conduct
research and development on new fertilizer products and sell high-quality
agricultural products. For financial reporting purposes, our operations were
organized into four business segments: fertilizer products (Jinong), fertilizer
products (Gufeng), agricultural products (Jintai) and future research and
development (Yuxing). Each of the segments has its own annual budget with regard
to development, production and sales.
35
Liquidity and Capital
Resources
Our
principal sources of liquidity include cash from operations, borrowings from
local commercial banks and net proceeds of offerings of our securities
consummated in July 2009 and November/December 2009 (the “Public
Offerings”).
As of
September 30, 2010, cash and cash equivalents were $53,947,094, a decrease of
$8,388,343 from $62,335,437 as of June 30, 2010.
We intend to use some remaining
net proceeds from the Public Offerings (approximately $15.0 million) to acquire
new businesses, upgrade production lines and complete the greenhouse facilities
for agriculture products of Yuxing located on 88-acres of land in Hu County, 18
kilometers southeast of Xi’an city. We believe that we have sufficient cash on
hand and positive projected cash flow from operations to support our business
growth for the next twelve months to the extent we do not have further
significant acquisitions or expansions. Notwithstanding the foregoing, we may
seek additional financing for expansion purposes, which may include additional
equity financings. There can be no assurance that any additional
financing will be available on acceptable terms, if at all. Any equity financing
may result in dilution to existing stockholders.
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
Three
Months
Ended
September
30
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
cash provided by / (used in) operating activities
|
$ | (3,697,231 | ) | $ | 4,291,270 | |||
|
Net
cash used in investing activities
|
(7,639,193 | ) | (13,141,040 | ) | ||||
|
Net
cash provided by financing activities
|
2,240,468 | 26,188,228 | ||||||
|
Effect
of exchange rate change on cash and cash equivalents
|
707,613 | 23,057 | ||||||
|
Net
increase in cash and cash equivalents
|
(8,388,343 | ) | 17,361,515 | |||||
|
Cash
and cash equivalents, beginning balance
|
62,335,437 | 17,795,447 | ||||||
|
Cash
and cash equivalents, ending balance
|
$ | 53,947,094 | $ | 35,156,962 | ||||
Operating
Activities
Net cash used in operating activities
was $3,697,231 for the three months ended September 30, 2010, a decrease of
$7,988,501 from the $4,291,270 net cash provided by operating activities for the
three months ended September 30, 2009. The decrease was mainly due to an
increase in the advancement to suppliers from Gufeng.
Investing
Activities
Net cash used in investing
activities in the three months ended September 30, 2010 was $7,639,193, which
was mainly used to acquire Gufeng. The net cash used in investing activities for
the same period in 2009 was $13,141,040, most of which was used to procure Land
Use Rights for Yuxing in July 2009.
36
Financing
Activities
Net cash provided by financing
activities in the three months ended September 30, 2010 totaled $2,240,468,
mainly due to the short-term loans borrowed by Gufeng with its local banks. The
net cash provided by financing activities for the same period in 2009 was
$26,188,228, mainly due to our public offering in July 2009.
Accounts
Receivable
We had accounts receivable of
$16,482,643 as of September 30, 2010, as compared to $15,571,888 as of June 30,
2010, an increase of $910,755, or 5.8%. The increase was primarily due to the
increase in sales during the period ended September 30, 2010, including Gufeng’s
sales.
Our
allowance for doubtful accounts was $234,804 of September 30, 2010, as compared
to $193,403 as of June 30, 2010, an increase of $41,401, or 21.4%.
Inventories
We had an
inventory of $27,248,954 as of September 30, 2010, as compared to $11,262,647 as
of June 30, 2010, an increase of $15,986,307, or 141.9%. This
increase was mainly due to the recent acquisition of Gufeng, which had an
estimated fair value of $14,522,749 in inventory as of September 30, 2010.
Inventories in other subsidiaries was $12,726,205 as of September 30, 2010, as
compared to $11,262,647 as of June 30, 2010, an increase of $1,463,558, or 13%,
mainly due to the increased work in progress at Jintai’s greenhouse facilities
with more high-end flowers.
Accounts
Payable
We had
accounts payable of $2,251,015 as of September 30, 2010 as compared to $328,124
as of June 30, 2010, representing an increase of $1,922,891, of which $1,768,997
was attributable to Gufeng. Neither Jintai nor Yuxing had any accounts payable
as of September 30, 2010.
Off-Balance Sheet
Arrangements
As of
September 30, 2010, we did 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 (“US
GAAP”). 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:
37
Use of
estimates
The
preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the 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 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
purposes of the statement of cash flows, 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. The Company reviews its accounts receivable outstanding balance and
its assessment of the collectability of specific customer accounts, the aging of
accounts receivable, its history of bad debts, and the general condition of the
industry at each fiscal year-end to determine if the bad debt allowance is
adequate.
Segment
reporting
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
Segments of an Enterprise and Related Information" 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.
As of
September 30, 2010, the Company, through its subsidiaries is engaged in the
following businesses: fertilizer products (Jinong), fertilizer products
(Gufeng), agricultural products (Jintai) and future research and development
(Yuxing).
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Disclosures
About Market Risk
We may be exposed to changes in
financial market conditions in the normal course of business. Market risk
generally represents the risk that losses may occur as a result of movements in
interest rates and equity prices. We currently do not use financial instruments
in the normal course of business that are subject to changes in financial market
conditions.
Currency
Fluctuations and Foreign Currency Risk
Substantially all of our revenues and
expenses are denominated in RMB. However, we use the U.S. dollar for financial
reporting purposes. Conversion of RMB into foreign currencies is regulated by
the People’s Bank of China through a unified floating exchange rate system.
Although the PRC government has stated its intention to support the value of
RMB, there can be no assurance that such exchange rate will not again become
volatile or that RMB will not devalue significantly against the U.S. dollar.
Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms,
of our net assets and income derived from our operations in the
PRC.
Our
reporting currency is the U.S. dollar. Except for the U.S. holding companies,
all of our consolidated revenues, consolidated costs and expenses, and our
assets are denominated in RMB. As a result, we are exposed to foreign exchange
risk as our revenues and results of operations may be affected by fluctuations
in the exchange rate between U.S. dollars and RMB. If the RMB depreciates
against the U.S. dollar, the value of our RMB revenues, earnings and assets as
expressed in our U.S. dollar financial statements will decline. Assets and
liabilities are translated at exchange rates at the balance sheet dates and
revenue and expenses are translated at the average exchange rates and
shareholders’ equity is translated at historical exchange rates. Any resulting
translation adjustments are not included in determining net income but are
included in determining other comprehensive income, a component of shareholders’
equity. As of September 30, 2010, our accumulated other comprehensive income was
$4.93 million. We have not entered into any hedging transactions in an effort to
reduce our exposure to foreign exchange risk. The value of the Renminbi against
the U.S. dollar and other currencies is affected by, among other things, changes
in China’s political and economic conditions. Since July 2005, the Renminbi has
not been pegged to the U.S. dollar. Although the People’s Bank of China
regularly intervenes in the foreign exchange market to prevent significant
short-term fluctuations in the exchange rate, the Renminbi may appreciate or
depreciate significantly in value against the U.S. dollar in the medium to long
term. Moreover, it is possible that in the future, PRC authorities may lift
restrictions on fluctuations in the Renminbi exchange rate and lessen
intervention in the foreign exchange market.
38
Interest
Rate Risk
We deposit surplus funds with Chinese
banks earning daily interest. We do not invest in any instruments for trading
purposes. All of our outstanding debt instruments carry fixed rates of
interests. The amount of short-term debt outstanding as of September 30, 2010
and June 30, 2010 was $6.23 million and $0, respectively. We are exposed to
interest rate risk primarily with respect to our short-term bank loans. Although
the interest rates, which are based on the banks’ prime rates with respect to
our short-term loans are fixed for the terms of the loans, the terms are
typically three to twelve months for short-term bank loans and interest rates
are subject to change upon renewal. There were no material changes in interest
rates for short-term bank loans renewed during the three months ended September
30, 2010. The original loan term on average is one year, and the remaining
average life of the short term-loans is nine months.
Management monitors the banks’ prime
rates in conjunction with our cash requirements to determine the appropriate
level of debt balances relative to other sources of funds. We have not entered
into any hedging transactions in an effort to reduce our exposure to interest
rate risk.
Credit Risk
We have not experienced significant
credit risk, as most of our customers are long-term customers with superior
payment records. Our receivables are monitored regularly by our credit
managers.
Inflation
Risk
Inflationary factors such as increases
in the cost of our product and overhead costs may adversely affect our operating
results. Although we do not believe that inflation has had a material impact on
our financial position or results of operations to date, a high rate of
inflation in the future may have an adverse effect on our ability to maintain
current levels of gross margin and selling, general and administrative expenses
as a percentage of net revenues if the selling prices of our products do not
increase with these increased costs.
|
Item
4.
|
Controls
and Procedures
|
(a)
Evaluation of disclosure controls
and procedures
. At the conclusion of the period ended September 30, 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.
39
|
Item
1.
|
Legal
Proceedings
|
On
October 15, 2010, a class action lawsuit was filed against us and certain of our
current and former officers in the United States District Court for the District
of Nevada on behalf of purchasers of our common stock between November 12, 2009
and September 1, 2010. The complaint alleges that we and certain of
our current and former officers violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, by making material misstatements
and omissions about our true financial condition. The complaint alleges, among
other things, that the financial statements for the fiscal year ended June 30,
2010 included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission are materially false and misleading on the basis that such
financial statements materially differ from certain financial information we
reported to certain governmental agencies in the People’s Republic of
China. The plaintiffs claim that such allegedly misleading financial
statements inflated the price of our common stock and seek monetary damages in
an amount to be determined at trial.
We
believe the allegations are without merit and we intend to vigorously defend
this lawsuit. However, it is possible that additional similar complaints and
related derivative actions may be filed in the future. If this does occur, we
expect that all similar class action complaints will eventually be consolidated
into a single action.
|
Item
1A.
|
Risk
Factors
|
A class action
lawsuit was filed against us alleging violations of the federal securities laws,
an unfavorable outcome of which could have a material adverse effect on our
business
.
As
described in Item 1. “Legal Proceedings” of Part II of this Quarterly Report on
Form 10-Q, a class action lawsuit was filed in the United States District Court
for the District of Nevada on behalf of purchasers of our common stock between
November 12, 2009 and September 1, 2010, alleging that we and certain of our
current and former officers violated the federal securities laws. It is possible
that additional similar complaints and related derivative actions may be filed
in the future. The expense of defending such litigation, and possible additional
similar litigations, may be substantial and the time required to defend the
actions could divert management’s attention from the day-to-day operations of
our business, which could adversely affect our business, results of operations
and cash flows. In addition, an unfavorable outcome in such litigation or
litigations could have a material adverse effect on our business, results of
operations and cash flows.
|
Item
5.
|
Other
Information
|
On
August 10, 2010, Xi’an Hu County Yuxing Agriculture Technology Development Co.,
Ltd., one of our indirect wholly-owned PRC subsidiaries (“Yuxing”), entered into
a Project Construction Contract (the “Construction Contract”) with Xi’an
Kingtone Information Technology Co., Ltd., a PRC company (“Kingtone
Information”), pursuant to which Kingtone Information is responsible for
developing certain electronic control systems for Yuxing. Mr. Tao Li,
our chairman, president and chief executive officer, is a principal shareholder
and the chairman of Kingtone Information. Kintone Information is an
indirect contractually-controlled subsidiary of Kingtone Wirelessinfo Solution
Holding, Ltd. (Nasdaq: KONE), a publicly traded British Virgin
Islands company (“Kingtone”). Mr. Li beneficially owns a controlling
interest in Kingtone and serves as Kingtone’s chairman.
40
The
total contracted value of the Construction Contract, including value-added taxes
and other taxes, is RMB 3.03 million, or approximately $452,000. Work on this
project started in August 2010, and is expected to be completed in November
2010. Pursuant to the Construction Contract, Kingtone Information will design,
plan, construct and purchase materials for the electronic control systems to be
used in 28 greenhouses of Yuxing. The Construction Contract sets forth a
warranty period, which is the earlier of (a) 18 months after the construction
raw materials are delivered, inspected and accepted, and (b) 12 months after the
inspection and acceptance of the work completed. During the warranty period,
Yuxing is entitled to receive maintenance and repair services from Kingtone
Information at no cost. A copy of the Construction Contract is filed herewith as
Exhibit 10.1.
On
September 30, 2010, our indirect wholly-owned subsidiary Shaanxi TechTeam Jinong
Humid Acid Product Co., Ltd. entered into a Lease Agreement (the “Lease”) with
Kingtone Information with respect to our executive offices located at 3rd Floor,
Borough A, Block A, No. 181, South Taibai Road, Xi’an, Shaanxi Province,
People’s Republic of China 710065. Pursuant to the Lease, effective
as of July 1, 2010, we rent this office space from Kingtone Information at a
monthly rent of RMB 10,800 (approximately $1,614) for a two-year rental term
ending on June 30, 2012. Rent is payable on a quarterly basis. A copy
of the Lease is filed herewith as Exhibit 10.2.
The
foregoing description of the Construction Contract and Lease do not purport to
be complete and are qualified in their entirety by reference to the Construction
Contract and Lease which are attached as Exhibit 10.1 and Exhibit 10.2 to this
Quarterly Report on Form 10-Q.
On
November 7, 2010, in order to comply with the corporate governance rules of the
New York Stock Exchange, our board of directors adopted an Amended and Restated
Code of Ethics of our company. A copy of the Amended and Restated
Code of Ethics is filed herewith as Exhibit 14.1.
|
Item
6.
|
Exhibits
|
The
exhibits required by this item are set forth in the Exhibit Index attached
hereto.
41
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: November
12, 2010
|
By:
|
/s/ Tao Li | |
| Name: Tao Li | |||
| Title: President and Chief Executive Officer | |||
| (principal executive officer) | |||
|
Date: November
12, 2010
|
By:
|
/s/ Ken Ren | |
| Name: Ken Ren | |||
| Title: Chief Financial Officer | |||
| (principal financial officer and principal accounting officer) |
42
EXHIBIT
INDEX
|
No.
|
Description
|
|
10.1
|
Project
Construction Contract dated August 10, 2010 between Xi’an Hu County Yuxing
Agriculture Science & Technology Co., Ltd. and Xi’an Kingtone
Information Technology Co., Ltd.
|
|
10.2
|
Lease
Agreement dated September 30, 2010 between Shaanxi TechTeam Jinong Humid
Acid Product Co., Ltd. and Xi’an Kingtone Information Technology Co.,
Ltd.
|
|
14.1
|
Amended
and Restated Code of Ethics of China Green Agriculture,
Inc.
|
|
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.
|
43
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 AcquisitionNote 4 InventoriesNote 5 Other Current AssetsNote 6 - Property, Plant and EquipmentNote 7 Construction in ProgressNote 8 - Intangible Assets and GoodwillNote 9 - Amount Due To Related PartiesNote 10 - Accrued Expenses and Other PayablesNote 11 - Loan PayablesNote 12 - Taxes PayableNote 13 Stockholders EquityNote 14 Stock OptionsNote 15 Significant Risks and Uncertainties Including Business and Credit Concentrations and LitigiationNote 16 Segment ReportingNote 17 - Commitments and LeasesItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 5. Other InformationItem 6. Exhibits