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Explanatory Note:
On July 7, 2010, China Green Agriculture, Inc. (the “Company”) filed a
Current Report on Form 8-K (the “Report”) with the Securities and Exchange
Commission (the “Commission”), with respect to its acquisition of Beijing
Gufeng Chemical Products Co., Ltd., a company organized under the laws of
the People’s Republic of China (“Gufeng”), and its wholly-owned
subsidiary, Beijing Tianjuyuan Fertilizer Co., Ltd., a company organized
under the laws of the People’s Republic of China. This Amendment No. 3 on
Form 8-K/A amends the Report and the Amendment No. 1 on Form 8-K/A filed
with the Commission on August 13, 2010 (“8-K/A No. 1”) in order to
provide the consolidated unaudited financial statements of Gufeng for the
quarterly period ended June 30, 2010 to bring the interim financial
statements of the acquired company current to comply with the age of
financial statements requirements relating to the Company’s proposed
registration statement on Form S-3 (File No. 333-168297).
SECTION 9 – FINANCIAL STATEMENT AND EXHIBITS
Item 9.01
Financial Statements and Exhibits
Paragraph (a) of Item 9.01, “Financial Statements and Exhibits” is hereby
amended to include the following:
(a)
Financial Statements of Business Acquired .
Unaudited Financial Statements:
Page
Balance Sheets as of June 30, 2010 and December 20, 2010
F-1
(Unaudited)
Statements of Consolidated Income for the three and six months ended
F-2
June 30, 2010 and June 20, 2009 (Unaudited)
Statements of Cash Flows for the six months ended June 30, 2010
F-3
and June 20, 2009 (Unaudited)
Notes to Financial Statements (Unaudited)
F-4
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD.
BALANCE SHEET STATEMENT (Unaudited)
AS OF
June 30, 2010
December 20, 2009
ASSETS
Current Assets
Cash and cash equivalents
$ 2,323,270 $ 215,382
Accounts receivable, net
307,157 38,360
Other receivables
- 16,396
Other assets
- 6,192
Advances to suppliers
421,412 3,324,421
Amount due from related parties
66,357 671,424
Inventories
17,890,310 28,297,957
Total Current Assets
21,008,506 32,570,132
Plant, Property and Equipment, net
13,858,112 4,637,970
Construction in Progress
765,193 7,809,052
Intangible Assets
115,233 -
Total Assets
$ 35,747,044 $ 45,017,154
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable
$ 5,858,814 3,668,553
Other payables and accrued expenses
1,662,725 951,337
Amount due to related parties
522,246 464,849
Taxes payable
12,904 13,325
Unearned revenue
19,162,105 32,571,022
Short term loans
3,907,690 4,248,524
Total Current Liabilities
31,126,485 41,917,610
Long Term Loan
- -
Total Liabilities
31,126,485 41,917,610
Stockholders' Equity
Share capital
4,068,178 4,068,178
Additional paid-in capital
- -
Statutory reserve
625,020 439,330
Retained earning
(330,664 ) (1,645,327 )
Accumulated other comprehensive income
258,024 237,363
Total Stockholders' Equity
4,620,559 3,099,544
Total Liabilities and Stockholders' Equity
$ 35,747,044 $ 45,017,154
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD.
CONSOLIDATED INCOME STATEMENTS (Unaudited)
FOR THE SIX MONTHS ENDED
THREE MONTHS END
June 30, 2010
June 20, 2009
June 30, 2010
June 20, 2009
Net Sales
33,796,319 27,962,909
16,721,237 14,016,253
Cost of goods sold
(30,580,851 ) (25,268,067 )
(15,304,257 ) (12,621,646 )
Gross profit
3,215,468 2,694,842
1,416,979 1,394,607
Operating expenses
Selling expenses
(725,666 ) (549,745 )
(348,763 ) (163,168 )
Operating and administrative expenses
(707,245 ) (382,200 )
(365,579 ) (235,505 )
Total operating expenses
(1,432,911 ) (931,946 )
(714,342 ) (398,673 )
Income from operations
1,782,557 1,762,896
702,638 995,934
Total other income (expense)
(16,690 ) 126,984
(32,589 ) 147,556
Income before income taxes
1,765,867 1,889,880
670,049 1,143,490
Provision for income taxes
Net income
1,765,867 1,889,880
670,049 1,143,490
Other comprehensive income (loss)
Foreign currency translation gain (loss)
20,662 (93,103 )
20,565 (94,484 )
Comprehensive income
$ 1,786,529 $ 1,796,776
690,614 1,049,006
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD.
STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED
June 30, 2010
June 20, 2009
Cash flows from operating activities
Net income
$ 1,765,867 $ 1,889,880
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation
571,685 463,053
Amortization
38,752 -
Decrease / (Increase) in current assets:
Accounts receivable
(266,814 ) 6,710
Other receivables
16,397 (41,248 )
Inventories
10,524,610 7,846,466
Advances to suppliers
2,905,914 (8,655,162 )
Other assets
- 28,023
(Decrease) / Increase in current liabilities:
Accounts payable
2,152,273 7,648,110
Unearned revenue
(13,534,323 ) (5,900,938 )
Tax payables
(504 ) (1,022 )
Accrued expenses
133,323 (80,005 )
Other payables
567,289 555,665
Net cash provided by operating activities
4,874,469 3,759,532
Cash flows from investing activities
Acquisition of plant, property, and equipment
(9,849,249 ) (9,097 )
Additions to construction in progress
7,049,234 (120,299 )
Acquisitions of Tianjuyuan
(146,509 ) -
Net cash used in investing activities
(2,946,525 ) (129,396 )
Cash flows from financing activities
Proceeds from (repayment of) installment loan
(366,273 ) (1,575,532 )
Payments to related parties
(375,038 )
Proceeds from (payments to) related parties
659,536
Net cash provided by (used in) financing activities
293,264 (1,950,570 )
Effect of exchange rate change on cash and cash equivalents
(113,320 ) (96,957 )
Net increase in cash and cash equivalents
2,107,888 1,582,610
Cash and cash equivalents, beginning balance
215,382 262,199
Cash and cash equivalents, ending balance
$ 2,323,270 $ 1,844,809
Supplement disclosure of cash flow information
Interest expense paid
$ 118,224 $ 116,289
Income taxes paid
$ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Beijing Gufeng Chemical Products Co., Ltd. (“Gufeng”, “we” or the “
Company”), is a limited liability company incorporated under the laws of
the People’s Republic of China (“PRC”), registered at South of Dongsiqu
Bridge, Pinggu Town, Pinggu District, Beijing.
Gufeng is located in Beijing and is a producer of compound fertilizers,
blending fertilizers and organic-inorganic compound fertilizers in China.
Founded in 1993, Gufeng operates a facility with an annual production
capacity of 300,000 metric tons of compound fertilizer, which has a current
utilization rate of approximately 60%.
Beijing Tianjuyuan Fertilizer Co., Ltd. (“Tianjuyuan”) was founded in 2001
by two shareholders who are also the sole owners of Gufeng. On May 4, 2010,
the Company acquired 100% of the equity interests of Tianjuyuan for a cash
purchase price of RMB 1 million, and Tianjuyuan’s total registered capital
(paid-in capital) amounted to RMB 1 million. Tianjuyuan is a limited
liability company incorporated under PRC law registered at South of
Nanzhangdai Village, Donggaocun Town, Pinggu District, Beijing.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Use of estimates
The preparation of 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 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. Actual results could differ from management’s estimates. Before
January 1, 2010, the Company’s fiscal year ended on December 20 th . From
January 1, 2010 to July 2010, the Company adopted December 31 st as its
fiscal year-end. Therefore, the six-month period ended on June 30, 2010 is
compared to the similar period ended on June 20, 2009.
Cash, cash equivalents and concentration of cash
For statement of cash flows purposes, the Company considers all highly
liquid investments with original maturities of three months or less at the
time of purchase to be cash equivalents. Cash includes cash on hand and
demand deposits in accounts maintained with PRC state-owned banks. As of
June 30, 2010 and December 20, 2009, cash and cash equivalents amounted to $
2,323,270 and $215,382, respectively.
F-4
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Financial instruments, which subject the Company to concentration of credit
risk, consist of cash.
Accounts receivable
The Company extends unsecured credit to its customers and maintains reserves
for potential credit losses on accounts receivable. Management reviews the
composition of accounts receivable and analyzes customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the adequacy of these reserves to determine if the allowance for doubtful
accounts is adequate. An estimate for doubtful accounts is made when
collection of the full amount is no longer probable. Account balances are
written-off after management has exhausted all efforts of collection. As of
June 30, 2010 and December 20, 2009, the Company had accounts receivable of
$307,157 and $38,360, respectively, with no allowance for doubtful accounts.
Advances to suppliers
The Company provides advances to certain vendors for purchase of its
material. As of June 30, 2010 and December 20, 2009, the advances to
suppliers amounted to $421,412 and $3,324,421, respectively.
Inventories
Inventories are stated at the lower of cost or market value and cost is
determined using the weighted average method. Inventories include purchases
and related costs incurred in bringing the inventories to their present
location and condition. Inventories consist of raw material, work in process
, finished goods and packaging materials. Management reviews inventories
for obsolescence and cost in excess of net realizable value at least
annually and records a reserve against the inventory and additional cost of
goods sold when the carrying value exceeds net realizable value.
Property, plant and equipment
Property, plant and equipment are stated at the cost of acquisition less
accumulated depreciation. 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. Expenditures for maintenance and repairs which do not improve or
extend the useful lives of the assets are charged to operations as incurred.
The cost and related accumulated depreciation of assets sold or otherwise
retired are eliminated from the accounts and any gain or loss is included in
the statement of operations. Depreciation for financial reporting purposes
is provided using the straight-line method over the estimated useful lives
of the assets:
F-5
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Estimated Useful Life
Building
20 years
Machinery and equipment
5-10 years
Vehicles
8 years
The residual value is estimated to be 5% of the actual cost.
Impairment
The Company tests long-lived assets, including property, plant and equipment
and intangible assets subject to periodic amortization, for recoverability
at least annually or more frequently upon the occurrence of an event or when
circumstances indicate that the net carrying amount is greater than its
fair value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows of
other groups of assets. The Company considers historical performance and
future estimated results in its evaluation of potential impairment and then
compares the carrying amount of the asset to the future estimated cash flows
expected to result from the use of the asset. If the carrying amount of the
asset exceeds estimated expected undiscounted future cash flows, the
Company measures the amount of impairment by comparing the carrying amount
of the asset to its fair value. The estimation of fair value is generally
measured by discounting expected future cash flows as the rate the Company
utilizes to evaluate potential investments. The Company estimates fair value
based on the information available in making whatever estimates, judgments
and projections are considered necessary. The Company also re-evaluates the
periods of depreciation and amortization to determine whether subsequent
events and circumstances warrant revised estimates of useful lives. There
was no impairment of long-lived assets as of June 30, 2010 and December 20,
2009.
Revenue recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin (SAB) 104 (ASC 605). Revenue generated from consignment
sales is recognized typically three months after the date of shipment to
customers when the following criteria are met: persuasive evidence has been
received that an arrangement exists; delivery of the products and/or
services has occurred (three months after the shipping date); the selling
price is fixed or determinable; 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 requires its customers to make
deposits with the Company when they place an order. The Company does not
pay interest on these amounts. As of June 30, 2010 and December 20, 2009,
the Company had unearned revenues of $16,192,105 and $32,571,022,
respectively.
The Company's revenue consists of invoiced value of goods, net of a value-
added tax (VAT) though the Company’s products are not subject to 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.
F-6
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 can be provided for deferred
tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future
deductibility is uncertain.
The Company records a valuation allowance for deferred tax assets, if any,
based on its estimates of its future taxable income as well as its tax
planning strategies when it is more likely than not that a portion or all of
its deferred tax assets will not be realized. If the Company is able to
utilize more of its deferred tax assets than the net amount previously
recorded when unanticipated events occur, an adjustment to deferred tax
assets would increase the Company net income when those events occur. The
Company does not have any significant deferred tax asset or liabilities in
the PRC tax jurisdiction. As a producer of basic material for agricultural
use, the Company is not subject to VAT according to the tax jurisdiction in
the PRC, however, the Company is subject to corporate income tax.
Foreign currency translation
The reporting currency of the Company is the U.S. dollar. The Company uses
its local currency, Renminbi (RMB), as its functional currency. 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. Because cash flows are also translated at average translation
rates, amounts reported on the statement of cash flows will not necessarily
be consistent with changes in the corresponding balances on the balance
sheet.
Accumulated other comprehensive income amounted to $258,024 and $237,363 as
of June 30, 2010 and December 20, 2009, respectively.
Fair values of financial instruments
F-7
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Statement of Financial Accounting Standard No. 107 (ASC 825), Disclosures
about Fair Value of Financial Instruments , requires that the Company
disclose estimated fair values of financial instruments. The accounting
standards regarding fair value of financial instruments and related fair
value measurements defines financial instruments and requires fair value
disclosures of those financial instruments. The fair value measurement
accounting standard defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure
requirements for fair value measures. The carrying amounts reported in the
balance sheets for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value because of the
short period of time between the origination of such instruments and their
expected realization and their current market rate of interest. The three
levels are defined as follows:
• Level 1
inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
• Level 2
inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable for the
assets or liability, either directly or indirectly, for substantially the
full term of the financial instruments.
• Level 3
inputs to the valuation methodology are unobservable and significant to the
fair value.
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts receivable, other receivables, advances to suppliers,
accounts payable, other payables, taxes 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.
In addition to assets and liabilities that are recorded at fair value on a
recurring basis, the Company is required to record assets and liabilities at
fair value on a non-recurring basis. Generally, assets are recorded at
fair value on a non-recurring basis as a result of impairment charges. As
of June 30, 2010 and December 20, 2009, there were no impairment charges.
F-8
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Statement of cash flows
In accordance with Statement of Financial Accounting Standards No. 95,
Statement of Cash Flows (ASC230) , cash flows from the Company's operations
are calculated based upon the local currencies. As a result, amounts related
to assets and liabilities reported on the statement of cash flows may not
necessarily agree with changes in the corresponding balances on the balance
sheet.
Recent accounting pronouncements
In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162, or
the “Codification” ), which will become the source of authoritative
accounting principles generally accepted in the United States recognized by
the FASB to be applied to nongovernmental entities. The Codification is
effective in the third quarter of 2009, and accordingly, all subsequent
public filings will reference the Codification as the sole source of
authoritative literature. The Company does not believe that this will have a
material effect on its financial statements.
In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent
Events ), which establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before the
financial statements are issued or available to be issued. It is effective
for interim and annual periods ending after June 15, 2009. There was no
material impact upon the adoption of this standard on the Company’s
financial statements.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-
05, which amends ASC Topic 820, Measuring Liabilities at Fair Value , which
provides additional guidance on the measurement of liabilities at fair value
. These amended standards clarify that in circumstances in which a quoted
price in an active market for the identical liability is not available, we
are required to use the quoted price of the identical liability when traded
as an asset, quoted prices for similar liabilities, or quoted prices for
similar liabilities when traded as assets. If these quoted prices are not
available, we are required to use another valuation technique, such as an
income approach or a market approach. These amended standards are effective
for the Company beginning in the middle of 2010 and are not expected to have
a significant impact on the Company’s financial statements.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (
ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic
820, adding new requirements for disclosures for Levels 1 and 2, separate
disclosures of purchases, sales, issuances, and settlements relating to
Level 3 measurements and clarification of existing fair value disclosures.
ASU 2010-06 is effective for annual and interim reporting periods beginning
after December 15, 2009, except for the requirement to provide Level 3
activity of purchases, sales, issuances, and settlements on a gross basis,
which will be effective for fiscal years beginning after December 15, 2010 (
the Company’s fiscal year 2011); early adoption is permitted. The Company
does not expect significant impact of adopting ASU 2010-06 on its financial
statements.
F-9
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
In February 2010, the FASB issued Accounting Standards Update 2010-09, “
Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds
the requirement that, for listed companies, financial statements clearly
disclose the date through which subsequent events have been evaluated.
Subsequent events must still be evaluated through the date of financial
statement issuance; however, the disclosure requirement has been removed to
avoid conflicts with other SEC guidelines. ASU 2010-09 was effective
immediately upon issuance and was adopted in February 2010. The adoption of
ASU 2010-09 did not have a material impact on our consolidated financial
statements.
In April 2010, the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition” or ASU 2010-17. This Update provides guidance on the
recognition of revenue under the milestone method, which allows a vendor to
adopt an accounting policy to recognize all of the arrangement consideration
that is contingent on the achievement of a substantive milestone (milestone
consideration) in the period the milestone is achieved. The pronouncement
is effective on a prospective basis for milestones achieved in fiscal years
and interim periods within those years, beginning on or after June 15, 2010.
The Company does not expect the adoption of ASU 2010-17 to have a
significant impact on its consolidated financial statements.
NOTE 3 – ACQUISITION
On May 4, 2010, the Company acquired Tianjuyuan to expand product offerings
and manufacturing sites. The acquisition was not significant in total assets
or net income. We have accounted for this acquisition in accordance with
the FASB’s revised accounting standard for business combinations under
common control. We have included the financial results of Tianjuyuan
according to its carrying value in our consolidated results from the
acquisition date. The total purchase price for the acquisition was
approximately $ 146,499 in cash. As a result of a total shareholders'
deficit of approximately $222,171 as of the date of the acquistion, we have
recorded approximately $368,670 in deemed dividend.
NOTE 4 – INVENTORIES
Inventories consist of the following as of June 30, 2010 and December 20,
2009:
F-10
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2010
December 20, 2009
Raw materials
$ 2,308,325 $ 3,675,177
Packaging
563,114 687,797
Lower value materials
7,630 7,581
Semi-finished goods
1,493,446 2,565,422
Finished goods
13,517,795 21,361,980
Totals
$ 17,890,310 $ 28,297,957
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of the following as of June 30, 2010
and December 20, 2009:
June 30, 2010
December 20, 2009
Building and improvements
$ 11,836,966 $ 2,215,215
Machinery and equipment
4,777,223 4,622,824
Office equipment
61,069 23,213
Vehicles
634,034 633,796
Total
17,309,292 7,495,048
Less: accumulated depreciation
( 3,451,180 ) ( 2,857,078 )
Total property, plant and equipment
$ 13,858,112 $ 4,637,970
Depreciation expenses for the six months ended for June 30, 2010 and June 20
, 2009 were $571,685 and $463,053, respectively.
NOTE 6 – CONSTRUCTION IN PROGRESS
The construction project was to expand the Company's structures including
office buildings, warehouses and staff dormitories. The construction
agreement was signed in the end of 2005 specifying a construction timeline
of January 2006 to December 2010. The construction was mostly carried out in
2007 and 2009, and later completed in February 2010. Most of these
construction in progress were reclassified as fixed assets of buildings. The
total construction in progress as of June 30, 2010 and December 20, 2009
were $765,193 and $7,809,052, respectively.
F-11
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7 - ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following as of June 30
, 2010 and December 20, 2009:
June 30, 2010
December 20, 2009
Accrued payroll
$ 204,001 $ 211,113
Welfare payable
157,253 14,476
Other payables
1,277,145 701,581
Accrued expense
24,325 24,167
Total
$ 1,662,725 $ 951,337
NOTE 8 – SHORT TERM LOAN
The Company had three short-term loans outstanding with Beijing Agricultural
Bank as of June 30, 2010. The Company had four short-term loans outstanding
with Beijing Agricultural Bank as of December 20, 2009. As of June 30, 2010
and December 20, 2009, the average loan terms, average loan rates and
average loan payables were as follows:
June 30, 2010
December 20, 2009
Average Original Loan Term
1 year
0.86 year
Average Loan Rate
5.8 % 5.9 %
Loan Payables
$ 3,907,690 $ 4,248,524
NOTE 9 – INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of:
Current
Deferred
Total
Period ended June 30, 2010:
Foreign jurisdiction
441,467 (441,467 )
0
Year ended December 20, 2009:
Foreign jurisdiction
938,852 (938,852 )
0
The Company's operations are all carried out in the PRC. The Company did not
engage in any business in the United States as of June 30, 2010 and
December 20, 2009. Therefore, no provision for withholding taxes or U.S.
federal income taxes or deferred income tax benefits has been made as of
June 30, 2010 and December 20, 2009.
The Company incurred net operating losses (“NOLs”) in both its fiscal
years ended December 20, 2008 and 2007 that gave rise to deferred tax assets
. Previously the Company estimated that it was more likely than not that the
NOLs would not be utilized in the future and provided full valuation
allowance as of December 20, 2008. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible.
F-12
The valuation allowance for deferred tax assets as of June 30, 2010 and
December 20, 2009 was $0 and $441,467, respectively. The net change in the
total valuation allowance was a decrease of $441,467 as of June 30, 2010 and
a decrease of $938,852 in fiscal year 2009.
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the U.S. federal income tax
rate of 35% to pretax income from continuing operations as a result of the
following:
June 30, 2010
June 20, 2009
Computed “expected” tax expense
$ 598,943 661,458
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the
valuation allowance due to a change in judgment
about the realizability of deferred tax assets
(441,467 ) (487,545 )
Foreign tax differential
(157,476 ) (173,913 )
$ 0 0
Effective from January 1, 2008, the PRC’s statutory Enterprise Income Tax (
“EIT”) rate is 25%.
As of June 30, 2010 and December 20, 2009, our income taxes payable were $12
,904 and $13,325, respectively.
NOTE 10 –OTHER TAXES
Value Added Tax
Sales revenue represents the invoiced value of goods, net of a VAT. Most of
the Company’s fertilizer products that are sold in the PRC are waived from
a Chinese VAT at a rate of 17% of the gross sales price due to the Company’
s being the producer of basic material for agricultural use.
NOTE 11 – UNEARNED REVENUE
The unearned revenue represents the payment received by the Company before
the fertilizer gets sold after three months. Unearned revenue is classified
as a current liability on the balance sheet until it is recognized as earned
during the accounting cycle. Unearned revenue was $19,162,105 and $32,571,
022 as of June 30, 2010 and December 20, 2009, respectively.
NOTE 12 - OTHER INCOME (EXPENSES)
Other income (expenses) mainly consists of interest expense and subsidy
income from the PRC government. Other income (expenses) was ($16,690) and $
126,984 for the six months ended June 30, 2010 and June 20, 2009,
respectively.
NOTE 13 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company's operations are all carried out in the PRC. Accordingly, the
Company's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC, and
by the general state of the PRC's economy.
F-13
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
The Company's operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in North
America and Western Europe. These include risks associated with, among
others, the political, economic and legal environments and foreign currency
exchange. The Company's results may be adversely affected by, among other
things, changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation.
Major Customers
One customer accounted for 10.8% of the Company’s total revenue for the six
months ended June 30, 2010. No customer accounted for more than 10% of the
Company’s total revenue for the six months ended June 20, 2009. The Company
’s top ten customers accounted for 49% and 52% of the Company’s net sales
for the six months ended June 30, 2010 and June 20, 2009, respectively.
The total outstanding accounts receivable for the Company’s top ten
customers was $174,613 as of June 30, 2010. There were no outstanding
accounts receivable for the Company’s top ten customers as of June 20, 2009.
NOTE 14 - STATUTORY RESERVES
The laws and regulations of the PRC require that before an enterprise
distributes profits to its shareholders, it must first satisfy all tax
liabilities, provide for losses in previous years, and make allocations, in
proportions determined at the discretion of the board of directors, after
the statutory reserve. The statutory reserves include the surplus reserve
fund and the enterprise fund and represent restricted retained earnings.
As stipulated by the Company Law of the PRC, net income after taxation can
only be distributed as dividends after appropriation has been made for the
following:
i)
Making up cumulative prior years' losses, if any;
ii)
Allocations to the "statutory surplus reserve" of at least 10% of income
after tax, as determined under PRC accounting rules and regulations, until
the fund amounts to 50% of the Company's registered capital;
iii)
Allocations of 5-10% of income after tax, as determined under PRC accounting
rules and regulations, to the Company's "statutory common welfare fund",
which is established for the purpose of providing employee facilities and
other collective benefits to the Company's employees; and the statutory
common welfare fund is no longer required per the new Corporation Law
promulgated in 2006; and
F-14
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Allocations to the discretionary surplus reserve, if approved by the Company
’s shareholders at the shareholders' general meeting.
The Company has total registered capital of approximately $4,068,178 (RMB 30
million). As of June 30, 2010 and December 20, 2009, the Company had
appropriated approximately $625,020 and $439,330, respectively, for the
statutory surplus reserve. The Company was required to contribute an
additional $1,409,069 from future earnings as of June 30, 2010.
NOTE 15 - CONTINGENT LIABILITY
From time to time, the Company is involved in legal matters arising in the
ordinary course of business. As of June 30, 2010, management was not aware
of any legal matters or pending litigation, which would have a significant
effect on the Company’s financial statements as of June 30, 2010.
NOTE 16 – RELATED PARTY TRANSACTIONS
Amount due from (to) shareholders represents other receivables (or payables)
from (or to) Mr. Qing Xin Jiang, the Company’s Chief Executive Officer and
its largest shareholder. The amount due from (to) related parties is short
term in nature and non-interest bearing.
Amount due from (to) other related parties represents account receivable (
payable) from customers (to vendors) collected (paid) by related parties
such as Tianjuyuan (prior to the Company’s acquisition) on behalf of the
Company; balances were recorded in amount due from (to) related parties.
The amount due from (to) related parties is short term in nature and non-
interest bearing.
The Company had the following significant related party transactions as of
June 30, 2010 and December 20, 2009, respectively:
June 30, 2010
December 20, 2009
Amount due from shareholders
$ 66,357 $ 65,886
Amount due from other related parties
- 605,538
Amount due to shareholders
522,246 464,849
NOTE 17 – SUBSEQUENT EVENTS
Equity Ownership Transfer Agreements
F-15
BEIJING GUFENG CHEMICAL PRODUCTS CO., LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
On July 1, 2010, all of the Company’s shareholders, i.e., Mr. Qingxin Jiang
and Ms. Qiong Jia (“Gufeng Shareholders”), entered into a Share Transfer
Contract (the “Transfer Contract”) with Shaanxi TechTeam Jinong Humic Acid
Product Co., Ltd. (“Jinong”), a wholly owned subsidiary of China Green
Agriculture Inc. (“China Green”), for China Green to acquire 100% of the
equity interests of the Company for an aggregate purchase price of
approximately $31.8 million, which is comprised of cash purchase price of
approximately $8.8 million and an aggregate of 2,275,931 newly issued shares
(the “Shares”) of common stock of China Green to the Company’s
shareholders or their designees. The value of the Shares equaled
approximately $23 million, using the exchange rate of 6.7858 (the middle
price of US Dollar against the RMB on the issuing day of the Shares) and the
per share value of $10.101 (the average price of the closing price of the
China Green’s common stock for ten consecutive trading days immediately
before the date of execution of Transfer Contract with the Company’s
shareholders). The Company’s shareholders also entered into a Supplementary
Agreement with Jinong on the same day (the “Supplementary Agreement”).
Subsequently, the Company’s fiscal year end was changed from December 31st
to June 30th so it adopted the same fiscal year end as China Green. The
Supplementary Agreement sets forth the terms and conditions of the issuance
of the Shares. Of the Shares being issued in the acquisition, 40% will be
held in escrow pending satisfaction of certain conditions such as the make
good targets for the release of 30% of the Shares ($88.4 million in revenue
and $10.6 million in net profit after tax) set for the Company for the
fiscal year ended June 30, 2011 and the receipt of title certificates for
certain real property for the release of 10% of the Shares. The acquisition
by China Green as contemplated by the Transfer Contract and the
Supplementary Agreement was consummated on July 2, 2010.
F-16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHINA GREEN AGRICULTURE, INC.
Date: November 9, 2010
By:
/s/ Tao Li
Name: Tao Li
Title: President and Chief Executive Officer
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