Attached files
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EX-32.1 - CHINA AGRITECH INC | v165396_ex32-1.htm |
EX-31.2 - CHINA AGRITECH INC | v165396_ex31-2.htm |
EX-31.1 - CHINA AGRITECH INC | v165396_ex31-1.htm |
EX-32.2 - CHINA AGRITECH INC | v165396_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: September 30, 2009
¨
|
TRANSITION
REPORT PUR SUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
File Number: 000-49608
CHINA AGRITECH,
INC.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
75-2955368
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
Room 3F
No. 11 Building, Zhonghong International Business Garden, Future Business
Center,
Chaoyang
North Road, Chaoyang District, Beijing, China 100024
People’s Republic of
China
(Address
of principal executive offices, Zip Code)
(86)
10-59621278
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes x
No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every, Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes £ No £
Indicate
by check mark whether the registrant is a larger accelerated filer, an
accelerated file r, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer” , “ accelerated filer” and “ small
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer £
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
Reporting Company x
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes £ No x
The
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 9, 2009 is as follows:
Class of Securities
|
Shares Outstanding
|
|||
Common
Stock, $0.001 par value
|
8,440,831
|
Table of
Contents
Page
|
||
PART I
|
FINANCIAL
INFORMATION
|
1
|
ITEM
1
|
FINANCIAL
STATEMENTS
|
1
|
UNAUDITED
CONSOLIDATED BALANCE SHEETS
|
1
|
|
UNAUDITED
CONSOLIDATED INCOME STATEMENTS
|
2
|
|
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
3
|
|
ITEM
2
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
21
|
ITEM
3
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
|
29
|
ITEM
4T.
|
CONTROLS
AND PROCEDURES
|
29
|
PART
II
|
OTHER
INFORMATION
|
30
|
ITEM
1
|
LEGAL
PROCEEDINGS
|
30
|
ITEM
1A.
|
RISK
FACTORS
|
30
|
|
||
ITEM
2
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
30
|
ITEM
3
|
DEFAULTS
UPON SENIOR SECURITIES
|
30
|
ITEM
4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
30
|
ITEM
5
|
OTHER
INFORMATION
|
30
|
ITEM
6
|
EXHIBITS
|
31
|
SIGNATURES
|
32
|
i
PART
I
FINANCIAL
INFORMATION
ITEM
1 FINANCIAL STATEMENTS
CHINA
AGRITECH, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
SEPTEMBER
30, 2009
|
DECEMBER
31, 2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
19,013,822
|
$
|
11,952,235
|
||||
Accounts
receivable, net
|
46,411,842
|
34,773,115
|
||||||
Inventories
|
15,191,194
|
6,452,618
|
||||||
Advances
to suppliers
|
5,667,032
|
10,795,357
|
||||||
Prepayments
and other receivables
|
1,908,293
|
2,484,346
|
||||||
Total
Current Assets
|
88,192,183
|
66,457,671
|
||||||
Property
and equipment, net
|
6,629,315
|
4,496,045
|
||||||
Deposit
for equipment
|
-
|
749,799
|
||||||
Construction
in progress
|
387,262
|
961,551
|
||||||
Total
Assets
|
$
|
95,208,760
|
$
|
72,665,066
|
||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$
|
11,284,461
|
$
|
3,327,281
|
||||
Accrued
expenses and other payables
|
2,108,092
|
221,954
|
||||||
Taxes
payable
|
2,265,549
|
1,388,897
|
||||||
Total
Current Liabilities
|
15,658,102
|
4,938,132
|
||||||
Stockholders’
Equity
|
||||||||
Common
stock; $0.001 par value, 100,000,000 shares authorized,
|
||||||||
7,048,063
shares issued and outstanding
|
7,048
|
24,700
|
||||||
Additional
paid-in capital
|
30,579,555
|
26,148,879
|
||||||
Statutory
reserves
|
6,629,315
|
5,425,407
|
||||||
Accumulated
other comprehensive income
|
5,824,391
|
5,837,917
|
||||||
Retained
earnings
|
36,510,349
|
25,361,597
|
||||||
Total
China Agritech’s stockholders’ equity
|
79,550,658
|
62,798,500
|
||||||
Non-controlling
interest in a subsidiary
|
-
|
4,928,434
|
||||||
Total
stockholders’ equity
|
79,550,658
|
67,726,934
|
||||||
Total
Liabilities and Stockholders’ Equity
|
$
|
95,208,760
|
$
|
72,665,066
|
The
accompanying notes are an integral part of these Consolidated Financial
Statements.
1
CHINA
AGRITECH, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED INCOME STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 and 2008 AND
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 and 2008
THREE MONTHS ENDED
SEPT. 30,
|
NINE MONTHS ENDED
SEPT. 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
revenue
|
$
|
27,043,952
|
$
|
16,236,573
|
$
|
55,379,939
|
$
|
36,929,747
|
||||||||
Cost
of revenue
|
(17,447,653
|
)
|
(9,896,393
|
)
|
(33,460,130
|
)
|
(20,429,067
|
)
|
||||||||
Gross
profit
|
9,596,299
|
6,340,180
|
21,919,809
|
16,500,680
|
||||||||||||
Operating
expenses
|
||||||||||||||||
Selling
expenses
|
(727,593
|
)
|
(646,861
|
)
|
(1,758,305
|
)
|
(1,862,586
|
)
|
||||||||
General
and administrative expenses
|
(1,694,715
|
)
|
(808,710
|
)
|
(3,550,228
|
)
|
(2,732,601
|
)
|
||||||||
Total
operating expenses
|
(2,422,308
|
)
|
(1,455,571
|
)
|
(5,308,533
|
)
|
(4,595,187
|
)
|
||||||||
Income
from operations
|
7,173,991
|
4,884,609
|
16,611,276
|
11,905,493
|
||||||||||||
Other
income (expense)
|
||||||||||||||||
Interest
income
|
9,065
|
22,006
|
15,089
|
85,902
|
||||||||||||
Exchange
gain (loss)
|
299
|
127,277
|
(2,757
|
)
|
(47,562
|
)
|
||||||||||
Total
other income (expense)
|
9,364
|
149,283
|
12,332
|
38,340
|
||||||||||||
Income
before income taxes
|
7,183,355
|
5,033,892
|
16,623,608
|
11,943,833
|
||||||||||||
Provision
for income taxes
|
(1,473,260
|
)
|
(1,225,991
|
)
|
(3,789,496
|
)
|
(3,375,985
|
)
|
||||||||
Net
income
|
5,710,095
|
3,807,901
|
12,834,112
|
8,567,848
|
||||||||||||
Net
income attributable to non-controlling interest in a
subsidiary
|
-
|
(345,579
|
)
|
(481,452
|
)
|
(990,577
|
)
|
|||||||||
Net
income attributable to common stockholders
|
5,710,095
|
3,462,322
|
12,352,660
|
7,577,271
|
||||||||||||
Other
comprehensive income
|
||||||||||||||||
Foreign
currency translation adjustment
|
110,815
|
158,711
|
(13,526
|
)
|
3,273,889
|
|||||||||||
Comprehensive
income
|
5,820,910
|
3,621,033
|
12,339,134
|
10,851,160
|
||||||||||||
Comprehensive
income attributable to non-controlling interest in a
subsidiary
|
-
|
(43,610
|
)
|
8,403
|
(378,513
|
)
|
||||||||||
Comprehensive
income
|
$
|
5,820,910
|
$
|
3,577,423
|
$
|
12,347,537
|
$
|
10,472,647
|
||||||||
Basic
and diluted weighted average shares outstanding
|
7,048,063
|
6,174,904
|
6,619,803
|
6,174,904
|
||||||||||||
Basic
and diluted net earnings per share
|
$
|
0.81
|
$
|
0.56
|
$
|
1.87
|
$
|
1.23
|
The
accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
2
CHINA
AGRITECH, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
SEPTEMBER 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$
|
12,834,112
|
$
|
8,567,848
|
||||
Adjustments
to reconcile net income to net cash provided (used) in operating
activities:
|
||||||||
Stock
based compensation
|
2,703
|
-
|
||||||
Depreciation
|
508,312
|
470,198
|
||||||
Provision
for doubtful debts
|
452,958
|
-
|
||||||
(Increase)
decrease in current assets:
|
||||||||
Accounts
receivable
|
(12,080,214
|
)
|
(22,235,689
|
)
|
||||
Inventories
|
(8,731,639
|
)
|
(6,146,191
|
)
|
||||
Advances
to suppliers
|
5,874,503
|
7,994,813
|
||||||
Prepayments
and other receivables
|
579,412
|
(740,955
|
)
|
|||||
Increase
(decrease) in current liabilities:
|
||||||||
Accounts
payable
|
7,950,480
|
3,256,144
|
||||||
Taxes
payable
|
875,900
|
714,935
|
||||||
Accrued
expenses and other payable
|
1,880,903
|
171,714
|
||||||
Net
cash provided (used) in operating activities
|
10,147,430
|
(7,947,183
|
)
|
|||||
Cash
flows from investing activities:
|
||||||||
Acquisition
of 10% interest in Pacific Dragon
|
(1,000,000
|
)
|
-
|
|||||
Restricted
cash
|
-
|
11,415
|
||||||
Acquisition
of property & equipment
|
(2,201,642
|
)
|
(1,299,156
|
)
|
||||
Construction
in progress
|
155,780
|
(877,800
|
)
|
|||||
Net
cash used in investing activities
|
(3,045,862
|
)
|
(2,165,541
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Net
cash provided by financing activities
|
-
|
-
|
||||||
Net
increase (decrease) in cash and cash equivalents
|
7,101,568
|
(10,112,724
|
)
|
|||||
Effect
of exchange rate change on cash and cash equivalents
|
(39,981
|
)
|
3,536,977
|
|||||
Cash
and cash equivalents, beginning of period
|
11,952,235
|
11,841,221
|
||||||
Cash
and cash equivalents, end of period
|
$
|
19,013,822
|
$
|
5,265,474
|
||||
Supplemental
disclosure of cash flow information:
|
||||||||
Income
taxes paid
|
$
|
3,013,389
|
$
|
3,362,504
|
||||
Non-cash
Investment and Financing Activity:
|
||||||||
Offset
of amounts due to/from stockholders
|
$
|
-
|
$
|
330,032
|
The
accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
3
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION
OF BUSINESS
Except as
otherwise indicated by the context, references in this Quarterly Report on Form
10-Q to the “Company,” “China Agritech,” “we,” “us” or “our” are references to
the combined business of China Agritech, Inc. and its subsidiaries.
China
Agritech, Inc. is a holding company whose direct and indirect subsidiaries
manufacture and sell organic liquid compound fertilizers; organic granular
compound fertilizers and related agricultural products in The People’s Republic
of China (“PRC”). Our business operations are primarily conducted through the
following direct and indirect subsidiaries: Anhui Agritech
Agriculture Development Limited (“Anhui Agritech”), Agritech Fertilizer Ltd.
(“Beijing Agritech”), China Tailong Holdings Company Limited (“Tailong”),
Pacific Dragon Fertilizers Co. Ltd. (“Pacific Dragon”), and Xinjiang Agritech
Agriculture Resources Co., Ltd. (“Xinjiang Agritech”). Our revenues are derived
from the sale of our fertilizers and related agricultural products to our
customers.
We were
originally incorporated on January 5, 1925, under the laws of the State of
Nevada as Argyle Mining Company. We changed our name to Argyle Corporation in
January 1960, Basic Empire in November 1963, Basic Empire Corp in December 1976
and finally to China Agritech, Inc. in May 2005. On August 10, 2004, we changed
our corporate domicile from Nevada to Delaware. Throughout our existence, we
have changed our business model several times, and conducted no substantive
business from 1986 until February 2005, when we closed the transaction pursuant
to the Reorganization Agreement.
We
acquired the line of business which we now operate pursuant to the Agreement and
Plan of Reorganization (the “Reorganization Agreement”), as amended whereby on
December 25, 2004 we acquired all of the issued and outstanding Tailong shares
from the shareholders of Tailong in exchange for 10,606,158 shares of our common
stock, whereby such shareholders obtained control of the Company and Tailong
became our wholly owned subsidiary.
As a
result of the acquisition of Tailong, we acquired the business of our operating
subsidiaries and became a fertilizer manufacturer conducting operations in the
PRC through Tailong and Tailong’s 90% owned subsidiary, Pacific
Dragon.
Tailong
was incorporated on October 27, 2003 under the laws of Hong Kong. On October 9,
2004, Tailong acquired 90% of Pacific Dragon, which conducts Tailong’s only
business operations. Pacific Dragon is a foreign investment joint venture and
was incorporated in the PRC on May 20, 1994. Pacific Dragon is classified as a
Foreign Invested Enterprise (“FIE”) in the PRC and is subject to the FIE laws of
the PRC. Its legal structure is similar to that of a limited liability company
organized under state laws in the United States.
On June
29, 2006, we established a wholly owned subsidiary, Anhui Agritech. Anhui
Agritech engages in the business of manufacturing and marketing a series of
organic liquid compound fertilizers.
On
November 1, 2006, we entered into an equity transfer agreement with the
stockholders of CAI Investment, Inc (the “CAI stockholders”). The CAI
stockholders transferred 100% equity interest in CAI Investment, Inc. (“CAI”) to
the Company in exchange for $1,000. Prior to the equity transfer, CAI
established a wholly owned subsidiary, Beijing Agritech. Beijing Agritech
engages in the business of manufacturing and marketing a series of organic
liquid compound fertilizers.
On
December 23, 2008, we formed Xinjiang Agritech, a PRC entity. Beijing
Agritech and Anhui Agritech hold 75% and 25% of the equity interests,
respectively, in Xinjiang Agritech.
On May
15, 2009, Tailong acquired the remaining 10% of Pacific Dragon in consideration
of the payment of $1,000,000 and the issuance of 3,490,000 shares of common
stock in the Company. As a result, Pacific Dragon became the wholly foreign
owned enterprise in the PRC and is a wholly owned subsidiary of the
Company.
4
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
2. BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
unaudited consolidated financial statements were prepared in accordance with
U.S. generally accepted accounting principles (“U.S. GAAP”). These
consolidated financial statements for interim periods are
unaudited. In the opinion of management, the consolidated financial
statements included all adjustments, consisting only of normal, recurring
adjustments, necessary for their fair presentation. The results
reported in these unaudited consolidated financial statements are not
necessarily indicative of the results that may be reported for the entire
year. The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The
Company regularly evaluates estimates and assumptions related to allowances for
doubtful accounts, sales returns and allowance, and inventory reserves. Although
management believes these estimates and assumptions are adequate and reasonable
under the circumstances, actual results could differ from those
estimates. U.S. GAAP differs from that used in the statutory
financial statements of the major operating subsidiaries of the Company, which
were prepared in accordance with the relevant accounting principles and
financial reporting regulations in the PRC. Certain accounting
principles stipulated under U.S. GAAP are not applicable in the
PRC.
Unless
otherwise noted, all references to “$” and dollar are to the United States
dollar, the legal currency of the United States.
a. Principles of
consolidation
The
unaudited consolidated financial statements include the accounts of China
Agritech, Inc. and all of its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
b. Cash and cash
equivalents
For
Statement of Cash Flows purposes, the Company considers all cash on hand and in
banks, including accounts in book overdraft positions, certificates of deposit
and other highly-liquid investments with maturities of three months or less,
when purchased, to be cash and cash equivalents.
c. Accounts
receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer
creditworthiness, current economic trends and changes in customer payment
patterns to evaluate the adequacy of these reserves. The Company gives most
customers an extended credit policy for up to one year. The Company extends
credit to its customers based upon its assessment of their credit worthiness and
generally does not require collateral. Credit losses have not been
material.
d. Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. Management compares the cost of inventories with market value and an
allowance is provided to reduce the value of inventories to their net market
value.
e. Advances to
suppliers
The
Company provides advances to certain vendors for purchase of its material.
Advancing of funds to vendors is common practice in China and the Company
expects to realize these advances in the form of inventory receipts within a
one-year period.
5
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
f.
Property and
equipment
Property
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 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
and amortization for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets: 5 to 15
years for machinery; 3 to 5 years or shorter of the lease period for leasehold
improvement, 5 to 10 years for office equipment; and 5 to 8 years for motor
vehicles.
g. 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. No depreciation is
provided for construction in progress until such time as the relevant assets are
completed and are ready for their intended use.
h. Impairment
The
Company applies the provisions of ASC 360-10 (formerly SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”), which requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through the estimated undiscounted cash flows expected to result
from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
The
Company tests long-lived assets, including property and equipment subject to
periodic amortization, for recoverability at least annually during the fourth
quarter, 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 has not identified any incidence that may indicate the
carrying value of its long-lived assets may not be recoverable for nine months
ended September 30, 2009 and 2008.
i.
Revenue
recognition
The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin 104. Sales revenue is recognized at the date of shipment to customers
when a formal arrangement exists, the price is fixed or determinable, the
delivery is completed, no other significant obligations of the Company exist and
collectibility is reasonably assured.
The
Company’s revenue consists of the invoiced value of goods, net of a value-added
tax (“VAT”) and marketing rebate.
6
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
j.
Advertising
costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for three
months ended September 30, 2009 and 2008 were $154,749 and $208,814,
respectively. Advertising costs for nine months ended September 30,
2009 and 2008 were $376,110 and $513,424, respectively.
k. Shipping and
Handling
The
Company classifies shipping cost under selling expenses. Shipping costs for
three months ended September 30, 2009 and 2008 were $367,216 and $201,801,
respectively. Shipping costs for nine months ended September 30, 2009
and 2008 were $740,868 and $564,114, respectively.
l.
Income
taxes
The
Company utilizes ASC 740-10 (formerly SFAS No. 109, “Accounting for Income
Taxes,”) which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred income
taxes are recognized for tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
The
Company accounts for income taxes using an asset and liability approach which
allows for the recognition and measurement of deferred tax assets based upon the
likelihood of realization of tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.
The
Company records a valuation allowance for deferred tax assets, if any, based on
its estimates of its future taxable income as well as its tax planning
strategies when it is more likely than not that a portion or all of its deferred
tax assets will not be realized. If the Company is able to utilize more of its
deferred tax assets than the net amount previously recorded when unanticipated
events occur, an adjustment to deferred tax assets would increase the Company’s
net income. The Company does not have any significant deferred tax assets or
liabilities in the PRC tax jurisdiction.
The
Company adopted the provisions of ASC 740-10 (formerly FIN 48, “Accounting for
Uncertainty in Income Taxes”), and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. ASC 740-10 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. We may
from time to time be assessed interest or penalties by major tax jurisdictions.
In the event we receive an assessment for interest and/or penalties, it will be
classified in the financial statements as tax expense.
m. Foreign currency
translation
The
Company uses the United States dollar for financial reporting purposes. The
Company’s subsidiaries maintain their books and records in their functional
currency, being the primary currency of the economic environment in which their
operations are conducted. Such financial statements were translated into U.S.
dollars in accordance with ASC 830-10 (formerly SFAS No. 52, “Foreign Currency
Translation.”) According to ASC 830-10, all assets and liabilities are
translated at the current exchange rate, stockholders’ equity is translated at
the historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with ASC 220-10 (formerly SFAS
No. 130, “Reporting Comprehensive Income,”) as a component of stockholders’
equity.
7
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
n. Fair values of financial
instruments
ASC
825-10 (formerly SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments,”) requires that the Company disclose estimated fair values of
financial instruments. The Company’s financial instruments primarily consist of
cash and cash equivalents, accounts receivable, other receivables, advances to
suppliers, accounts payable, other payables, 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 to the
interest rates on the borrowings approximating those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.
o. Earnings per share
(EPS)
Earnings
per share is calculated in accordance with ASC 260-10 (foremerly SFAS No. 128,
“Earnings per share.”) Basic earnings per share is based upon the weighted
average number of common shares outstanding. Diluted earnings per share is based
on the assumption that all dilutive warrant and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
The
following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted earnings per share for the periods
presented (amounts in thousands, except per share data):
For three months ended September 30, 2009 and 2008
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||||||||||
Average
|
Per
|
Average
|
Per
|
|||||||||||||||||||||
Income
|
Shares
|
Share
|
Income
|
Shares
|
Share
|
|||||||||||||||||||
Earnings
per share - basic
|
||||||||||||||||||||||||
Income
available to common stockholders
|
$
|
5,710
|
7,048
|
$
|
0.81
|
$
|
3,462
|
6,175
|
$
|
0.56
|
||||||||||||||
Effect
of dilutive options and warrants
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Earnings
per share - diluted
|
||||||||||||||||||||||||
Income
available to common stockholders
|
$
|
5,710
|
7,048
|
$
|
0.81
|
$
|
3,462
|
6,175
|
$
|
0.56
|
The
dilutive earnings per share computation for three months ended September 30,
2009 excludes options and warrants to purchase 543,920 shares of common
stock and for three months ended September 30, 2008 excludes options and
warrants to purchase 438,920 shares of common stock because the impact was
anti-dilutive.
On
September 8, 2009, we effected a reverse split of our common stock on the basis
of one share for every four outstanding shares, so that every four outstanding
shares of common stock before the reverse stock split was converted into one
common stock after the reverse stock split. Earnings per share - basic and
diluted for three months ended September 30, 2009 and 2008, as calculated
above, reflect the effectiveness of the reverse stock split.
8
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
o. Earnings per share (EPS)
(cont'd)
For nine months ended September 30, 2009 and 2008
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||||||||||
Average
|
Per
|
Average
|
Per
|
|||||||||||||||||||||
Income
|
Shares
|
Share
|
Income
|
Shares
|
Share
|
|||||||||||||||||||
Earnings
per share - basic
|
||||||||||||||||||||||||
Income
available to common stockholders
|
$
|
12,353
|
6,620
|
$
|
1.87
|
$
|
7,577
|
6,175
|
$
|
1.23
|
||||||||||||||
Effect
of dilutive options and warrants
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Earnings
per share - diluted
|
||||||||||||||||||||||||
Income
available to common stockholders
|
$
|
12,353
|
6,620
|
$
|
1.87
|
$
|
7,577
|
6,175
|
$
|
1.23
|
The
dilutive earnings per share computation for nine months ended September 30, 2009
excludes options and warrants to purchase 543,920 shares of common stock
and for nine months ended September 30, 2008 excludes options and warrants to
purchase 438,920 shares of common stock because the impact was
anti-dilutive.
On
September 8, 2009, we effected a reverse split of our common stock on the basis
of one share for every four outstanding shares, so that every four outstanding
shares before the reverse stock split was converted into one common stock after
the reverse stock split. Earnings per share - basic and diluted for nine months
ended September 30, 2009 and 2008, as calculated above, reflect the
effectiveness of the reverse stock split.
p. Segment
reporting
ASC
280-10 (formerly SFAS No. 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.
ASC
280-10 has no effect on the Company’s unaudited consolidated financial
statements as the Company operates in one reportable business
segment.
q. Statement of cash
flows
In
accordance with ASC 230-10 (formerly SFAS No. 95, “Statement of Cash Flows,”)
cash flows from the Company’s operations is calculated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on
the statement of cash flows may not necessarily agree with changes in the
corresponding balances on the balance sheets.
r. Stock-based
compensation
In
accordance with ASC 718-10 (formerly SFAS No. 123R “Share-Based Payment”) all
share based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on the grant date fair value
of the award. The Company has adopted the requirements of ASC 718-10 and
recorded the compensation expense for all unvested stock options existing prior
to the adoption during the period.
s. Fair value
measurements
ASC Topic
820, 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. There are three levels of inputs that may be used to
measure fair value:
|
·
|
Level
one — Quoted prices in active markets for identical assets or
liabilities;
|
|
·
|
Level
two — Observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities; and
|
|
·
|
Level
three — Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
|
The
carrying values of cash and cash equivalents, trade receivables and payables
approximate their fair values due to their short maturities. There were no
assets and liabilities measured at fair value on a non-recurring basis as of
September 30, 2009.
9
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
t.
Recent Accounting
Pronouncements Adopted
In June
2009, the FASB established the FASB Accounting Standards CodificationTM (ASC) as
the single source of authoritative U.S generally accepted accounting principles
(GAAP) recognized by the FASB to be applied to nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission (“SEC”)
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The ASC superseded all previously existing non-SEC
accounting and reporting standards, and any prior sources of U.S. GAAP not
included in the ASC or grandfathered are not authoritative. New accounting
standards issued subsequent to June 30, 2009 are communicated by the FASB
through Accounting Standards Updates (ASUs). The ASC did no change current U.S.
GAAP but changes the approach by referencing authoritative literature by topic
(each a “Topic”) rather than by type of standard. The ASC has been effective for
the Company effective July 1, 2009. Adoption of the ASC did not have a material
impact on the Company’s Consolidated Financial Statements, but references in the
Company’s Notes to Consolidated Financial Statements to former FASB positions,
statements, interpretations, opinions, bulletins or other pronouncements are now
presented as references to the corresponding Topic in the ASC.
Effective
January 1, 2009, the first day of fiscal 2009, the Company adopted FASB ASC
350-30 and ASC 275-10-50 (formerly FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets”), which amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142 (“SFAS 142”), “Goodwill and
Other Intangible Assets.” The Company will apply ASC 350-30 and ASC 275-10-50
prospectively to intangible assets acquired subsequent to the adoption
date. The adoption of these revised provisions had no impact on the
Company’s Consolidated Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 815-10-65 (formerly SFAS 161,
“Disclosures about Derivative Instruments and Hedging Activities”), which amends
and expands previously existing guidance on derivative instruments to require
tabular disclosure of the fair value of derivative instruments and their gains
and losses., This ASC also requires disclosure regarding the credit-risk related
contingent features in derivative agreements, counterparty credit risk, and
strategies and objectives for using derivative instruments. The adoption of this
ASC did not have a material impact on the Company’s Consolidated Financial
Statements.
During
2008, the Company adopted FASB ASC 820-10 (formerly FSP
FAS 157-2, ”Effective Date of FASB Statement 157”), which deferred the
provisions of previously issued fair value guidance for nonfinancial assets and
liabilities to the first fiscal period beginning after November 15, 2008.
Deferred nonfinancial assets and liabilities include items such as goodwill and
other nonamortizable intangibles. Effective January 1, 2009, the Company adopted
the fair value guidance for nonfinancial assets and liabilities. The adoption of
FASB ASC 820-10 did not have a material impact on the Company’s Consolidated
Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS 160,
“Noncontrolling Interests in Consolidated Financial Statements — an amendment of
ARB No. 51”), which amends previously issued guidance to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest
in a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity.
Among other requirements, this Statement requires that the consolidated net
income attributable to the parent and the noncontrolling interest be clearly
identified and presented on the face of the consolidated income
statement. The adoption of the provisions in this ASC did not have a
material impact on the Company’s Consolidated Financial
Statements.
10
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
t.
Recent Accounting
Pronouncements Adopted (cont'd)
Effective
January 1, 2009, the Company adopted FASB ASC 805-20 (formerly FSP FAS 141R-1,
“Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies”), which amends ASC 805-10 to require
that an acquirer recognize at fair value, at the acquisition date, an asset
acquired or a liability assumed in a business combination that arises from a
contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value of
such an asset acquired or liability assumed cannot be determined, the acquirer
should apply the provisions of ASC Topic 450, Contingences, to determine whether
the contingency should be recognized at the acquisition date or after such date.
FSP The adoption of ASC 805-20 did not have a material impact on the
Company’s Consolidated Financial Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 825-10-65 (formerly FASB Staff
Position (“FSP”) No. FAS 107-1 and Accounting Principles Board 28-1, “Interim
Disclosures about Fair Value of Financial Instruments”), which amends previous
guidance to require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. The adoption of FASB ASC 825-10-65 did not have a material
impact on the Company’s Consolidated Financial Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and
FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”).
Under ASC 320-10-65, an other-than-temporary impairment must be recognized if
the Company has the intent to sell the debt security or the Company is more
likely than not will be required to sell the debt security before its
anticipated recovery. In addition, ASC 320-10-65 requires impairments related to
credit loss, which is the difference between the present value of the cash flows
expected to be collected and the amortized cost basis for each security, to be
recognized in earnings while impairments related to all other factors to be
recognized in other comprehensive income. The adoption of ASC 320-10-65 did not
have a material impact on the Company’s Consolidated Financial
Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 820-10-65 (formerly FSP FAS 157-4,
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly”), which provides guidance on how to determine the fair value of assets
and liabilities when the volume and level of activity for the asset or liability
has significantly decreased when compared with normal market activity for the
asset or liability as well as guidance on identifying circumstances that
indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not
have a material impact on the Company’s Consolidated Financial
Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 855-10 (formerly SFAS 165,
“Subsequent Events”), which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. Adoption of ASC
855-10 did not have a material impact on the Company’s Consolidated Financial
Statements.
11
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
u
New Accounting Pronouncement
to be Adopted
In
December 2008, the FASB issued ASC 715, Compensation – Retirement Benefits
(formerly FASB FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement
Benefit Plan Assets”), which expands the disclosure requirements about plan
assets for defined benefit pension plans and postretirement plans. The Company
is required to adopt these disclosure requirements in the fourth quarter of
2009. It is expected the adoption of these disclosure requirements will not have
a material impact on the Company’s Consolidated Financial
Statements.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets – an amendment of FASB Statement No. 140,” (not yet reflected in
FASB ASC). SFAS No. 166 limits the circumstances in which a financial asset
should be derecognized when the transferor has not transferred the entire
financial asset by taking into consideration the transferor’s continuing
involvement. The standard requires that a transferor recognize and initially
measure at fair value all assets obtained (including a transferor’s beneficial
interest) and liabilities incurred as a result of a transfer of financial assets
accounted for as a sale. The concept of a qualifying special-purpose entity is
removed from SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” along with the exception
from applying FIN 46(R), “Consolidation of Variable Interest Entities.” The
standard is effective for the first annual reporting period that begins after
November 15, 2009 (i.e., the Company’s fiscal year beginning January 1,
2010), for interim periods within the first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is
prohibited. It is expected the adoption of this Statement will not have a
material impact on the Company’s Consolidated Financial Statements
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R),” (not yet reflected in FASB ASC). The standard amends FIN
No. 46(R) to require a company to analyze whether its interest in a
variable interest entity (“VIE”) gives it a controlling financial interest. A
company must assess whether it has an implicit financial responsibility to
ensure that the VIE operates as designed when determining whether it has the
power to direct the activities of the VIE that significantly impact its economic
performance. Ongoing reassessments of whether a company is the primary
beneficiary are also required by the standard. SFAS No. 167 amends the
criteria to qualify as a primary beneficiary as well as how to determine the
existence of a VIE. The standard also eliminates certain exceptions that were
available under FIN No. 46(R). This Statement will be effective as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009 (i.e., the Company’s fiscal year
beginning January 1, 2010), for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter.
Earlier application is prohibited. Comparative disclosures will be required for
periods after the effective date. As such, the Company will adopt this Statement
for interim and annual periods ending after January 1, 2010. It
is expected the adoption of this Statement will not have a material impact on
the Company’s Consolidated Financial Statements.
In August
2009, the FASB issued ASC Update No. 2009-05 (“Update 2009-05”) to provide
guidance on measuring the fair value of liabilities under FASB ASC 820 (formerly
SFAS 157, “Fair Value Measurements”). The Company is required to
adopt Update 2009-05 in the fourth quarter of 2009. It is expected
the adoption of this Update will not have a material impact on the Company’s
Consolidated Financial Statements.
In
October 2009, the FASB concurrently issued the following ASC
Updates:
ASU No.
2009-14 - Software (Topic 985): Certain Revenue Arrangements That Include
Software Elements (formerly EITF Issue No. 09-3). This standard removes tangible
products from the scope of software revenue recognition guidance and also
provides guidance on determining whether software deliverables in an arrangement
that includes a tangible product, such as embedded software, are within the
scope of the software revenue guidance.
ASU No.
2009-13 - Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements (formerly EITF Issue No. 08-1). This standard modifies
the revenue recognition guidance for arrangements that involve the delivery of
multiple elements, such as product, software, services or support, to a customer
at different times as part of a single revenue generating
transaction. This standard provides principles and application
guidance to determine whether multiple deliverables exist, how the individual
deliverables should be separated and how to allocate the revenue in the
arrangement among those separate deliverables. The standard also expands the
disclosure requirements for multiple deliverable revenue
arrangements.
These
Accounting Standards Updates should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application
permitted. Alternatively, an entity can elect to adopt these
standards on a retrospective basis, but both these standards must be adopted in
the same period using the same transition method. The Company expects
to apply this standard on a prospective basis for revenue arrangements entered
into or materially modified beginning January 1, 2011. The Company is
currently evaluating the potential impact these standards may have on its
financial position and results of operations.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s Consolidated Financial
Statements upon adoption.
12
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
3.
ACCOUNTS
RECEIVABLE
Accounts
receivable consist of the following as of September 30, 2009 and December 31,
2008:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Accounts
receivable
|
$
|
|
47,312,856
|
$
|
35,221,721
|
|||
Less:
Allowance for doubtful accounts
|
(901,014
|
)
|
(448,606
|
)
|
||||
$
|
|
46,411,842
|
$
|
34,773,115
|
4.
INVENTORIES
Inventories
consist of the following as of September 30, 2009 and December 31,
2008:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Raw
Materials
|
$
|
11,141,663
|
$
|
4,941,787
|
||||
Packing
Materials
|
449,614
|
107,053
|
||||||
Finished
goods
|
3,599,917
|
1,403,778
|
||||||
$
|
15,191,194
|
$
|
6,452,618
|
5.
PREPAYMENTS AND OTHER
RECEIVABLES
Prepayments
and other receivables primarily include prepaid rent, prepaid advertising and
advanced travel expenses to employees.
13
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
6.
PROPERTY AND
EQUIPMENT
Property
and equipment consist of the following as of September 30, 2009 and December 31,
2008:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Manufacturing
machinery
|
$
|
6,280,920
|
$
|
4,735,761
|
||||
Leasehold
improvement
|
1,525,555
|
439,341
|
||||||
Office
equipment
|
221,809
|
220,031
|
||||||
Motor
vehicles
|
629,801
|
619,149
|
||||||
8,658,085
|
6,014,282
|
|||||||
Less:
Accumulated Depreciation
|
(2,028,770
|
)
|
(1,518,237
|
)
|
||||
$
|
6,629,315
|
$
|
4,496,045
|
Depreciation
expense for three months ended September 30, 2009 and 2008 was $188,203 and
$145,165, respectively. Depreciation expense for nine months ended September 30,
2009 and 2008 was $508,312 and $470,198, respectively.
7.
CONSTRUCTION IN
PROGRESS
The
construction in progress consists of equipment for the organic granular compound
fertilizer plants in Xinjiang.
14
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
8.
TAXES
PAYABLE
Taxes
payable consist of the following as of September 30, 2009 and December 31,
2008:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Income
tax payable
|
$
|
1,633,431
|
$
|
857,324
|
||||
VAT
tax payable
|
587,112
|
529,313
|
||||||
Others
|
45,006
|
2,260
|
||||||
$
|
2,265,549
|
$
|
1,388,897
|
9.
INCOME
TAXES
Local PRC income
tax
The
Company is governed by the Income Tax Law of the PRC concerning Chinese
registered limited liability companies. Under the Income Tax Laws of the PRC,
Chinese enterprises are generally subject to an income tax at an effective rate
of 25% for the periods ended September 30, 2009 on income reported in the
statutory financial statements after appropriate tax adjustments, unless the
enterprise is located in a specially designated region for which more favorable
effective tax rates are applicable. The provision for income taxes for
three and nine months ended September 30, 2009 and 2008 consisted of the
following:
Three months ended
September 30,
|
Nine months ended
September30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Provision
for China income and local tax
|
$
|
1,473,260
|
$
|
1,225,991
|
$
|
3,789,496
|
$
|
3,375,985
|
The
following table reconciles the statutory rate to the Company’s effective tax
rate at September 30, 2009 and 2008, respectively;
2009
|
2008
|
|||||
Tax
at statutory rate
|
25
|
%
|
25
|
%
|
||
Net
effect for income reported during tax exemption period and operating
losses where no benefit is realized
|
(2
|
)%
|
3
|
%
|
||
23
|
%
|
28
|
%
|
15
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
10. NON-CONTROLLING INTEREST IN
A SUBSIDIARY
Non-controlling
interest in a subsidiary represented the 10% interest of our minority
shareholder, Yinlong, a related party of the Company, in Pacific
Dragon.
On May
15, 2009, Tailong acquired the remaining 10% interest in Pacific Dragon from
Yinlong for a total consideration of $7,980,000. The consideration
consisted of a $1,000,000 cash payment and the issuance of 3,490,000 shares of
common stock in the Company at the value of $6,980,000. As a result,
Pacific Dragon became a wholly foreign owned enterprise in the PRC and a wholly
owned subsidiary of the Company.
11. 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.
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 other things, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
12. MAJOR CUSTOMERS AND
VENDORS
There
were no major customers that accounted for more than 10% of the total net
revenue for nine months ended September 30, 2009 and 2008.
Four
vendors provided approximately 89% of the Company’s raw materials for nine
months ended September 30, 2009 with each vendor individually accounting for
approximately 23%, 21%, 19% and 14%. Four vendors provided
approximately 70% of the Company’s dollar value of raw materials for nine months
ended September 30, 2008 with each individually accounting for approximately
43%, 12%, 8% and 7%.
13. STOCK OPTIONS AND
WARRANTS
In
accordance with ASC 718-10 (formerly SFAS 123R “Share Based Payment”), the
Company recognized $0 and $0 in share-based compensation expense for three
months ended September 30, 2009 and 2008, respectively. There was no
impact of this share-based compensation expense on the Company’s basic and
diluted earnings per share. The fair value of our stock options was estimated
using the Black-Scholes option pricing model.
The
Company’s 2008 Equity Incentive Plan (the “Plan”) permits the grant of options,
stock appreciation rights, restricted stock, restricted stock units, and other
share-based awards as the administrator may determine for the employees,
directors and consultants of the Company. Up to a maximum of nine
hundred thousand (900,000) shares of the Company’s common stock were available
for issuance under the Plan. The Company believes the Plan will
promote the success of the Company’s business, advance the interests of the
Company, and attract and retain the best available personnel for positions of
substantial responsibility. The exercise price per share with respect
to the Plan will be determined by the administrator provided that the
exercise price per share cannot be less than the fair market value of a share on
a grant date and the administrator will establish and set forth in the award
agreement the times, installments or conditions upon which the option, stock
appreciation rights, restricted stock, restricted stock units, and other
share-based awards will vest and become exercisable, which may include, among
other things, the achievement of the Company, business units and individual
goals (including, but not limited to, continued employment or
services).
For three
months ended September 30, 2009, the Company did not issue any stock
options.
16
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
13. STOCK OPTIONS AND WARRANTS
(Cont ‘ d)
Options
On May
25, 2009, the Company granted the Company’s chairman of the audit committee
options to purchase 1,250 shares of common stock. The options vested immediately
upon signing of the stock option agreement. The exercise price of the options is
$6.72 per share.
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
Risk-free
interest rate
|
0.48
|
%
|
||
Expected
life of the options
|
1 year
|
|||
Expected
volatility
|
99.5
|
%
|
||
Expected
dividend yield
|
0
|
%
|
During
the nine months ended September 30, 2009, 25,000 options were
cancelled.
On
September 8, 2009, we effected a reverse split of our common stock on the basis
of one share for every four outstanding shares, so that every four outstanding
shares before the reverse stock split was converted into one common stock after
the reverse stock split. The number of options outstanding, exercise
price and fair market value of a share at the grant date are adjusted
accordingly to reflect the effectiveness of the reverse stock
split.
Following
is a summary of the stock option activity:
Options
outstanding
|
Weighted
Average Exercise
Price
|
Grant Date
Fair
Market
Value
of a Share
|
||||||||||
Outstanding,
December 31, 2006
|
12,500
|
$
|
14.00
|
|||||||||
Granted
|
—
|
—
|
||||||||||
Forfeited
|
—
|
—
|
||||||||||
Exercised
|
—
|
—
|
||||||||||
Outstanding,
December 31, 2007
|
12,500
|
$
|
14.00
|
|||||||||
Granted
|
25,000
|
8.00
|
$ |
0.52
|
||||||||
Forfeited
|
—
|
—
|
||||||||||
Exercised
|
—
|
—
|
||||||||||
Outstanding,
December 31, 2008
|
37,500
|
10.00
|
||||||||||
Granted
|
1,250
|
6.72
|
$
|
2.16
|
||||||||
Forfeited
/ Cancelled
|
(25,000
|
) |
(8.00
|
) | ||||||||
Exercised
|
—
|
—
|
||||||||||
Outstanding,
September 30, 2009
|
13,750
|
$
|
13.34
|
17
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
13. STOCK OPTIONS AND WARRANTS (Cont ‘
d)
Following
is a summary of the status of options outstanding at September 30,
2009:
Outstanding Options
|
Exercisable Options
|
|||||||||||||
Exercise Price
|
Number
|
Exercise Price
|
Number
|
|||||||||||
$ | 14.00 | 12,500 | $ | 14.00 | 12,500 | |||||||||
$ | 6.72 | 1,250 | $ | 6.72 | 1,250 |
As of
September 30, 2009, our options had no intrinsic value.
Warrants
In
connection with a private placement which occurred on July 5, 2007, the Company
granted the private placement consultant warrants to purchase 97,230 shares of
its common stock. The warrants vested immediately. The exercise price of the
warrants is $10.80 per share.
The
assumptions used in calculating the fair value of warrants granted using the
Black-Scholes option- pricing model are as follows:
Risk-free
interest rate
|
5.02
|
%
|
||
Expected
life of the options
|
5
years
|
|||
Expected
volatility
|
83
|
%
|
||
Expected
dividend yield
|
0
|
%
|
On
September 8, 2009, we effected a reverse split of our common stock on the basis
of one share for every four outstanding shares, so that every four outstanding
shares before the reverse stock split was converted into one common stock after
the reverse stock split. The number of warrants outstanding,
exercise price and fair market value of a share at the grant date are adjusted
accordingly to reflect the effectiveness of the reverse stock
split.
Following
is a summary of the warrants activity:
Warrants
outstanding
|
Weighted
Average Exercise
Price
|
Grant Date
Fair Market
Value of a
Share
|
||||||||||
Outstanding,
December 31, 2006
|
—
|
$
|
—
|
|||||||||
Granted
|
97,230
|
$
|
10.8
|
$
|
9.24
|
|||||||
Forfeited
|
—
|
—
|
||||||||||
Exercised
|
—
|
—
|
||||||||||
Outstanding,
December 31, 2007
|
97,230
|
$
|
10.8
|
|||||||||
Granted
|
—
|
—
|
||||||||||
Forfeited
|
—
|
—
|
||||||||||
Exercised
|
—
|
—
|
||||||||||
Outstanding,
December 31, 2008
|
97,230
|
$
|
10.8
|
|||||||||
Granted
|
—
|
—
|
||||||||||
Forfeited
|
—
|
—
|
||||||||||
Exercised
|
—
|
—
|
||||||||||
Outstanding,
September 30, 2009
|
97,230
|
$
|
10.8
|
Following
is a summary of the status of warrants outstanding at September 30,
2009:
Outstanding Warrants
|
Exercisable Warrants
|
|||||||||||||||
Exercise Price
|
Number
|
Average
Remaining
Contractual Life
|
Average
Exercise Price
|
Number
|
Average
Remaining
Contractual Life
|
|||||||||||
$ | 10.80 |
97,230
|
3.5
years
|
$ |
10.80
|
97,230
|
3.5
years
|
As of September 30, 2009, our warrants had no intrinsic value.
18
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
14. STATUTORY
RESERVES
As
stipulated by the Company Law of the People’s Republic of China, 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
(iv) Allocations
to the discretionary surplus reserve, if approved in the shareholders’ general
meeting.
In
accordance with the Company Law of the People’s Republic of China, the Company
has allocated 10% of its net income to the above-mentioned PRC statutory
reserves, which is considered appropriations of retained earnings. The amount
included in the statutory reserves as of September 30, 2009 and December 31,
2008 amounted to $6,629,315 and $5,425,407, respectively.
15. RELATED PARTY TRANSACTIONS
AND COMMITMENTS AND LEASES
On
January 6, 2005, our subsidiary, Pacific Dragon, entered into a license
agreement with Mr. Yu Chang, our Chairman, Chief Executive Officer, President
and Secretary. Under this license agreement, Mr. Chang granted an
exclusive license to Pacific Dragon for the use of know-how in manufacturing
organic liquid compound fertilizer on a royalty-free basis. On December 3,
2005, Mr. Chang and Pacific Dragon entered into another license agreement
pursuant to which the term of the license was extended to a permanent license.
In accordance with the Securities Purchase Agreement, dated June 29, 2007, among
the Company, Mr. Chang, and the investors named therein, an additional license
agreement was entered into for the know-how mentioned above between Mr. Chang
and Pacific Dragon confirming that the license has been extended until December
31, 2011. The Company continues to refine the manufacturing know-how of the
product at its expense.
Pacific
Dragon entered into a tenancy agreement with a related party, Yinlong, the joint
venturer who held a 10% equity interest in Pacific Dragon at the time, to lease
two factory plants and one office building with a total floor area of 7,018 sq.
meters for a term of 10 years from January 1, 2004 to December 31, 2013 at an
annual rent of RMB 1,200,000 (equivalent to $144,578). The tenancy agreement was
amended by increasing the annual rent to RMB 3,600,000 (equivalent to $518,940)
effective July 1, 2005. Yinlong is owned and controlled by Mr. Yu Chang and Ms.
Xiao Rong Teng, who is one of the directors of the Company.
On July
2, 2007, Beijing Agritech entered into a tenancy agreement with Ms. Xiao Rong
Teng to lease an office with a total floor area of 780 meter square for a term
of 5 years from February 1, 2007 to February 1, 2012 at an annual rent of RMB
480,000 (equivalent to approximately $68,800) effective July 2,
2007.
On
February 12, 2009, Tailong entered into a share purchase agreement with Pacific
Dragon and Yinlong and a supplemental purchase agreement among Yinlong, Pacific
Dragon, Mr. Yu Chang and Ms. Xiao Rong Teng pursuant to which Tailong agreed to
acquire Yinlong’s 10% interest in Pacific Dragon for an aggregate purchase price
of $7,980,000. Mr. Chang has an 85% equity interest in Yinlong and
Ms. Teng owns the remaining 15% equity interest. On May 15, 2009,
Tailong entered into an amendment to the supplemental purchase agreement among
Yinlong, Pacific Dragon, Mr. Yu Chang and Ms. Xiao Rong Teng pursuant to which
Tailong amended the purchase consideration to include a cash payment of
$1,000,000 and issuance of 3,490,000 shares of common stock in the Company for
the balance consideration of $6,790,000. On the same date, Tailong
completed the acquisition.
According to the requirements in paragraphs 32 to 34 of SFAS 160,
“Non-controlling Interests in Consolidated Financial Statements – an amendment
of ARB No. 51,” the Company’s change in the ownership interest in Pacific
Dragon was accounted for as equity transactions and no gain or loss was
recognized in the Company’s consolidated income statement for six month ended
June 30, 2009. The carrying amount of the non-controlling interest in
Pacific Dragon was adjusted to reflect the change in the Company’s ownership
interest in Pacific Dragon. Any difference between the fair value of the
consideration paid and the amount by which the non-controlling interest was
adjusted was recognized in equity attributable to the Company.
19
CHINA
AGRITECH, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCI AL STATEMENTS
(UNAUDITED)
16. SUBSEQUENT
EVENTS
On
October 19, 2009, the Company issued (i) an aggregate of 1,392,768 shares of
common stock and (ii) warrants to purchase up to 928,514 shares of common stock
at an initial exercise price of approximately $10.77 per share, subject to
adjustment, to Carlyle Asia Growth Partners IV, L.P. and CAGP IV Co-Investment,
L.P. (collectively, the “Carlyle Investors”) for a purchase price of
$15,000,000. The exercise price of the warrants has a floor of approximately
$3.0657 per share, and in the event that the warrants are exercised at that
price, the Company would issue an additional 2,333,331 shares. The
Company is obligated to issue up to 3,500,000 shares of common stock (the
“Make-Good Shares”) to the Carlyle Investors in the event that the Company fails
to meet a predetermined net income target of $11.5 million for the fiscal year
ending December 31, 2009. If the Company meets the net income target
it will not issue any additional shares upon exercise of the warrants or any
Make-Good Shares. The Company granted the Carlyle Investors a
one-year right of participation in future offerings by the Company of shares of
its common stock, debt or equity securities convertible, exercisable or
exchangeable into common stock, or debt securities. The right of
participation was granted individually, on a pro rata basis based upon each
investor’s original subscription amount, and collectively no less than $5
million and no more than $10 million. In addition, the Company
granted the Carlyle Investors the right to collectively designate one person to
serve as a member of the Company’s Board of Directors.
The
Company has evaluated events subsequent to the balance sheet date through
November 11, 2009, which represents the issue date of this Form
10-Q.
20
ITEM
2 MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introductory
Note
Except as
otherwise indicated by the context, references in this Quarterly Report on Form
10-Q (this “Report”) to the “Company,” “China Agritech,” “we,” “us” or “our” are
references to the combined business of China Agritech, Inc. and its consolidated
subsidiaries. References to “Tailong” are references to our wholly-owned
subsidiary, China Tailong Holdings Company Limited; references to “Pacific
Dragon” are to Tailong’s wholly owned subsidiary, Pacific Dragon Fertilizers Co.
Ltd.; references to “CAI” are to our wholly owned subsidiary, CAI Investment
Inc.; references to “Beijing Agritech” are to our wholly-owned indirect
subsidiary, Agritech Fertilizer Ltd.; references to Anhui Agritech are to our
wholly-owned subsidiary, Anhui Agritech Development Co. Ltd., and references to
“Beijing Agritech” are to Xinjiang Agritech Agricultural Resources Co. Ltd., our
wholly owned indirect subsidiary. References to “China” or “PRC” are
references to the People’s Republic of China. References to “RMB” are to
Renminbi, the legal currency of China, and all references to “$” and dollars are
to the United States dollar, the legal currency of the United
States.
Special
Note Regarding Forward Looking Statements
This
Report contains forward-looking statements and information relating to China
Agritech that are based on the beliefs of our management, as well as assumptions
made by and information currently available to us. Such statements
should not be unduly relied upon. When used in this Report,
forward-looking statements include, but are not limited to, the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar
expressions, as well as statements regarding new and existing products,
technologies and opportunities, statements regarding market and industry segment
growth and demand and acceptance of new and existing products, any projections
of sales, earnings, revenue, margins or other financial items, any statements of
the plans, strategies and objectives of management for future operations, any
statements regarding future economic conditions or performance, uncertainties
related to conducting business in China, any statements of belief or intention,
any of the factors mentioned in the “Risk Factors” section of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2009, and any
statements or assumptions underlying any of the foregoing. These
statements reflect our current view concerning future events and are subject to
risks, uncertainties and assumptions. There are important factors
that could cause actual results to vary materially from those described in this
Report as anticipated, estimated or expected, including, but not limited to,
competition in the fertilizer industry and the impact of such competition on
pricing, revenues and margins, volatility in the securities market due to the
general economic downturn; SEC regulations which affect trading in the
securities of “penny stocks,” and other risks and
uncertainties. Except as required by law, we assume no obligation to
update any forward-looking statements publicly, or to update the reasons actual
results could differ materially from those anticipated in any forward- looking
statements, even if new information becomes available in the
future. Depending on the market for our stock and other conditional
tests, a specific safe harbor under the Private Securities Litigation Reform Act
of 1995 may be available. Notwithstanding the above, Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
expressly state that the safe harbor for forward-looking statements does not
apply to companies that issue penny stock. Because we may from time
to time be considered to be an issuer of penny stock, the safe harbor for
forward-looking statements may not apply to us at certain times.
Our
Business
China
Agritech, Inc. is a holding company whose direct and indirect subsidiaries
manufacture and sell organic liquid compound fertilizers; organic granular
compound fertilizers and related agricultural products. Our business operations
are primarily conducted through the following direct and indirect
subsidiaries: Anhui Agritech Agriculture Development Limited (“Anhui
Agritech”), Agritech Fertilizer Ltd. (“Beijing Agritech”), China Tailong
Holdings Company Limited (“Tailong”), Pacific Dragon Fertilizers Co. Ltd.
(“Pacific Dragon”) and Xinjiang Agritech Agricultural Resources Co., Ltd.
(“Xinjiang Agritech”). Our revenues are derived primarily from the
sale of our organic fertilizer products. We are a leading
manufacturer of fertilizer products and, more specifically, organic fertilizer
products in liquid form, in China. We have been producing organic
liquid compound fertilizer products in China since 1994.
21
Our main
products include organic spray products, organic water-flush products, organic
dip products, organic granular products and other customized, crop specific
fertilizers that are tailored to our customers’ specific requirements. Our
products promote photosynthesis, root system growth and transmission of
nutrients to seeds; equilibrate absorption of nutrients and speed a plant’s
maturity; eliminate the damage of harmful radicals to plants and increase
protein and vitamin content levels; accelerate the accumulation of
photosynthesis materials and cell concentration; increase reservation ability to
resist drought, resistance and the utilization rate of basic fertility; and
foster the development of plant life along with neutral or acidic pesticides.
Our products can be applied on a widespread basis via spraying by machine or
aircraft. Our products have been recognized for their quality and effectiveness
by leading industry associations and have been certified by the PRC government
at the national level, which is an endorsement of the effectiveness of the
products in all regions of China.
China is
the principal market for our products, which are primarily sold to farmers in 20
provinces in China: Hainan, Anhui, Hubei, Jiangsu, Jiangxi, Guangxi, Liaoning,
Shanxi, Heilongjiang, Hebei, Jilin, Shandong, Inner Mongolia, Henan, Sichuan,
Guangdong, Xinjiang, Yunnan, Chongqing and Guizhou.
We
believe that our brand reputation and ability to tailor our products to meet the
requirements of various regions of China affords us a competitive advantage. We
purchase the majority of our raw materials from suppliers located in China and
use suppliers that are located in close proximity to our manufacturing
facilities.
To
capitalize on the increased demand for our products and geographic expansion of
our sales throughout China, we organized two operating subsidiaries in 2007,
Anhui Agritech and Beijing Agritech. Our Anhui facility, which is part of Anhui
Agritech, manufactures and sells our fertilizer products to customers generally
in the Anhui, Hubei, and Henan provinces of China which are in the central and
southern areas of China. Our Beijing facility, which is part of Beijing
Agritech, is our primary research and development center, syrup production
center and converting factory and also distributes our products to the central
and southern areas of China. Our Harbin facility, which is part of
Pacific Dragon, primarily distributes our products to the northern areas of
China. In December 2008, we formed Xinjiang Agritech, which is 75%
and 25% owned by Beijing Agritech and Anhui Agritech,
respectively.
Our
annual fertilizer
production
capacity in 2008 was approximately 13,000 metric tons of organic liquid compound
fertilizers. In 2008, we expanded our operations to include granular
fertilizers. Until September 2009, our annual production
capacity for granular fertilizers was approximately 150,000 metric tons,
consisting of 100,000 metric tons in Anhui and 50,000 metric tons in
Harbin. In
September 2009, we expanded our annual production capacity for granular
fertilizers to approximately 200,000 metric tons by completing another 50,000
granular plant in Xinjiang.
Recent
Developments
During
the third quarter of 2009, we completed construction of our granular production
facilities in Xinjiang (50,000 metric tons). As of the date of this
quarterly report, the Company has an annual production capacity of approximately
200,000 metric tons for granular fertilizers. It is expected that the
Xinjiang granular plant will commence its commercial production in the first
quarter of 2010.
22
On
September 8, 2009, we effected a reverse split of our common stock on the basis
of one share for every four outstanding shares, so that every four outstanding
shares of common stock before the reverse stock split was converted into one
share of common stock after the reverse stock split.
On
September 21, 2009, the Company began trading on the NASDAQ Global Market under
the symbol “CAGC”.
On
October 19, 2009 the Company issued (i) an aggregate of 1,392,768 shares of
common stock and (ii) warrants to purchase up to an aggregate of 928,514 shares
of common stock at an initial exercise price of approximately $10.77 per share,
subject to adjustment, to Carlyle Asia Growth Partners IV, L.P. and CAGP IV
Co-Investment, L.P. (collectively, the “Carlyle Investors”) for a purchase price
of $15,000,000. The exercise price of the warrants has a floor of approximately
$3.0657 per share, and in the event that the warrants are exercised at that
price, the Company would issue an additional 2,333,331 shares. The
Company is obligated to issue up to 3,500,000 shares of common stock (the
“Make-Good Shares”) to the Carlyle Investors in the event that the Company fails
to meet a predetermined net income target of $11.5 million for the fiscal year
ending December 31, 2009. If the Company meets the net income target
it will not issue any additional shares upon exercise of the warrants or any
Make-Good Shares. The Company granted the Carlyle Investors a
one-year right of participation in future offerings by the Company of shares of
its common stock, debt or equity securities convertible, exercisable or
exchangeable into common stock, or debt securities. The right of
participation was granted individually, on a pro rata basis based upon each
investor’s original subscription amount, and collectively no less than $5
million and no more than $10 million. In addition, the Company
granted the Carlyle Investors the right to collectively designate one person to
serve as a member of the Company’s Board of Directors.
Overview
Net
revenue during the three quarter of 2009 was approximately 66.6% higher than net
revenue (after reclassification of marketing rebate of approximately $438,000
from selling expenses to net revenues) during the third quarter of
2008. The Company’s unaudited consolidated balance sheet as of
September 30, 2009 included current assets of $88,692,183 and total assets of
$95,708,760. The Company had no long-term debt as of September 30,
2009. The Company’s unaudited stockholders’ equity as of September
30, 2009 was $80,050,657.
Results
of Operations
Comparison
of Three Months Ended September 30, 2009 and 2008.
The
following table summarizes the results of our operations during the three-month
period ended September 30, 2009 and 2008 and provides information regarding the
dollar and percentage increase or (decrease) from the 2008 fiscal period to the
2009 fiscal period:
(All
amounts, other than percentages, in thousands of U.S. dollars)
Three Months
Ended
9/30/09
|
Three Months
Ended
9/30/08
|
Dollar ($)
Increase
(Decrease)
|
Percentage (%)
Increase
(Decrease)
|
|||||||||||||
Net
Revenue
|
$
|
27,043
|
$
|
16,237
|
10,806
|
66.6
|
||||||||||
Cost
of Revenue
|
(17,448
|
)
|
(9,897
|
)
|
7,551
|
76.3
|
||||||||||
Gross
Profit
|
9,595
|
6,340
|
3,255
|
51.3
|
||||||||||||
Selling
Expenses
|
(727
|
)
|
(647
|
)
|
80
|
12.4
|
||||||||||
Operating
and Administrative Expenses
|
(1,694
|
)
|
(808
|
)
|
886
|
109.7
|
||||||||||
Income
From Operations
|
7,174
|
4,885
|
2,289
|
46.9
|
||||||||||||
Other
Income (Expenses)
|
9
|
149
|
(140
|
)
|
(94.0
|
)
|
||||||||||
Income
Tax
|
(1,473
|
)
|
(1,226
|
)
|
247
|
20.2
|
||||||||||
Net
Income
|
5,710
|
3,808
|
1,902
|
49.9
|
||||||||||||
Net
Income Attributable to Non-Controlling Interest in a
Subsidiary
|
-
|
(346
|
)
|
(346
|
)
|
(100.0
|
)
|
|||||||||
Net
Income Attributable to Common Stockholders
|
5,710
|
3,462
|
2,248
|
64.9
|
Net
Revenue. Our net revenue for three months ended September 30, 2009
equaled approximately $27,043,000, an increase of approximately $10,806,000 or
66.6%, as compared to $16,237,000 for the three months ended September 30,
2008. The increase was mainly attributable to the increase in sales
of granular fertilizers of approximately $7,919,000 and sales of liquid
fertilizers of approximately $2,887,000. The increase in sales of
granular fertilizers resulted from the increase in sales volume from 11,000
metric tons for the three months ended September 30, 2008 to 33,994 metric tons
for the three months ended September 30, 2009, an increase of 22,994 metric tons
whereas the increase in sales of liquid fertilizers was contributable to the
increase in average net selling price of liquid fertilizers from $5,747 for the
third quarter of 2008 to $7,348 for the corresponding period in
2009.
23
Cost of
Revenue. Our cost of revenue equaled approximately $17,448,000 for the
three months ended September 30, 2009, an increase of approximately $7,551,000
or 76.3% as compared to $9,897,000 for the three months ended September 30,
2008. Our cost of revenue increased because of the increase in cost
of revenue of granular fertilizers of approximately $6,390,000 that resulted
from the increase in the volume of granular fertilizer’s sales and the increase
in cost of revenue of liquid fertilizers of approximately $1,161,000 that was in
line with the increase in liquid fertilizer’s sales. The percentage
of the cost of revenue to total net revenue was 64.5% and 60.9% for the three
months ended September 30, 2009 and 2008, respectively.
Gross
Profit. Our gross
profit was approximately $9,595,000 for the three months ended September 30,
2009, an increase of approximately $3,255,000 or 51.3%, as compared to
approximately $6,340,000 for the three months ended September 30,
2008. Gross profit as a percentage of net revenue was 35.5% for the
three months ended September 30, 2009, as compared to 39.1% for the three months
ended September 30, 2008. The decrease in gross profit as a
percentage of revenue was mainly due to higher sales of granular fertilizers as
a percentage of total net revenue for the quarter (44.3% for 2009 as compared to
25% for 2008) and because granular fertilizer has a lower gross profit margin
than liquid fertilizer. The gross profit margin for our granular
fertilizers was approximately 20% for the three months ended September 30, 2009
as compared to the gross profit margin for our liquid fertilizers of
approximately 47.4% for the three months ended September 30,
2009. The gross profit margin for our granular fertilizers was
approximately 22.7% for the three months ended September 30, 2008 as compared to
the gross profit margin for our liquid fertilizers of approximately 44.5% for
the three months ended September 30, 2008.
Selling
Expenses. Our selling expenses consisted primarily of sales commission,
advertising and promotion expenses, freight charges and related
compensation. Our selling expenses were approximately $727,000 for
the three months ended September 30 2009, as compared to approximately $647,000
for the same period ended September 30, 2008, an increase of approximately
$80,000 or 12.4%. The increase was primarily attributable to the
increase in sale of granular fertilizers for the third quarter of 2009 as
compared to the corresponding quarter of 2008. As a result, more
commission was paid to the salespeople for sales of granular
fertilizer.
Operating and
Administrative Expenses. Our operating and administrative expenses
consisted primarily of rental expenses, salaries and related benefits, business
development, depreciation and travelling expenses, and legal and professional
expenses. Our general and administrative expenses were approximately
$1,694,000 for the three months ended September 30, 2009, as compared to
approximately $808,000 for the corresponding period in 2008, an increase of
approximately $886,000 or 109.7%. The increase was attributable to
payment of Delaware’s franchise tax for 2009, payment of NASDAQ listing fee,
payment of directors’ and officers’ insurance premium, increase in general
provision for doubtful debts, inclusion of non-recurring advisory and
professional fees, and increase in executive compensation as a result of the
addition of independent directors, chief operating officer and chief financial
officer for the three months ended September 30, 2009 whereas there were no such
expenses and position for the corresponding period ended September 30,
2008.
Income From
Operations. Income from operations was approximately $7,174,000 for the
three months ended September 30, 2009, as compared to approximately $4,885,000
for the corresponding period ended September 30, 2008, an increase of
approximately $2,289,000 or 46.9%. The increase was primarily attributable to
the increased sales of our new product, granular fertilizers that contributed
additional income from operations of approximately $1,529,000 and improved gross
profit margin of liquid fertilizers.
Other Income
(Expense). Other income (expense) mainly consists of interest income
(expense) and exchange gain (loss). Other income (expense) was $9,000
for the three months ended September 30 2009, as compared to approximately
$149,000 income for the corresponding period ended September 30,
2008. The decrease in other income was because there was no exchange
gain for the three months ended September 30, 2009 as compared to 2008, where
there was a realized exchange gain of approximately $127,000.
Income
taxes. Our operating subsidiaries in the PRC are governed by the PRC
income tax laws and are subject to a uniform PRC enterprise income tax rate of
25% for fiscal 2009 and 2008. Income tax expense was approximately
$1,473,000, representing an effective tax rate of 20.5%, for the three months
ended September 30, 2009, as compared to approximately $1,226,000, representing
an effective tax rate of 24.4%, for the three months ended September 30,
2008. The decrease in the effective tax rate was primarily because
one of operating subsidiaries in the PRC that generated net operating profit for
the quarter is still in tax exemption period and not subject to the PRC income
tax for fiscal 2009.
24
Net
Income. Net income was approximately $5,710,000 for the three months
ended September 30, 2009, representing an increase of approximately $1,902,000
or 49.9%, over the net income of approximately $3,808,000 for three months ended
September 30, 2008. The increase was attributable to the increased
sale of granular fertilizers, improved gross profit margin of liquid
fertilizers, and lower effective income tax for the period, but partially offset
by the increase in operating and administrative expenses as explained
above.
Net Income
Attributable to Non-controlling Interest in a Subsidiary. Because of the
completion of acquisition of the 10% non-controlling interest in Pacific Dragon
in May 2009, there was no net income attributable to non-controlling interest in
a subsidiary for the three months ended September 30, 2009 compared to the net
income attributable to non-controlling interest in a subsidiary for the
corresponding period in 2008 of approximately $346,000.
Net Income
Attributable to Common Stockholders. Net income attributable to
stockholders was approximately $5,710,000 for the three months ended September
30, 2009. There was an increase of approximately $2,248,000 or 64.9%
from our net income attributable to common shareholders for the same period
ended September 30, 2008 of about $3,462,000 mainly due to higher net income and
no net income attributable to non-controlling interest in a subsidiary as
explained above.
Comparison
of Nine Months Ended September 30, 2009 and 2008
The
following table summarizes the results of our operations during the nine month
period ended September 30, 2009 and 2008 and provides information regarding the
dollar and percentage increase or (decrease) from the 2008 fiscal period to the
2009 fiscal period:
(All
amounts, other than percentages, in thousands of U.S. dollars)
Nine
months ended September 30,
|
Dollar
($)
Increase
|
Percentage (%)
Increase
|
||||||||||||||
2009
|
2008
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Net
Revenue
|
$ | 55,379 | $ | 36,930 | 18,449 | 50.0 | ||||||||||
Cost
of Revenue
|
(33,460 | ) | (20,429 | ) | 13,031 | 63.8 | ||||||||||
Gross
Profit
|
21,919 | 16,501 | 5,418 | 32.8 | ||||||||||||
Selling
Expenses
|
(1,758 | ) | (1,863 | ) | (105 | ) | (5.6 | ) | ||||||||
Operating
and Administrative Expenses
|
(3,550 | ) | (2,732 | ) | 818 | 29.9 | ||||||||||
Income
From Operations
|
16,611 | 11,906 | 4,705 | 39.5 | ||||||||||||
Other
Income (Expenses)
|
12 | 38 | (26 | ) | (68.4 | ) | ||||||||||
Income
Tax
|
(3,789 | ) | (3,376 | ) | 413 | 12.2 | ||||||||||
Net
income
|
12,834 | 8,568 | 4,266 | 49.8 | ||||||||||||
Net
income attributable to non-controlling interest in a
subsidiary
|
(481 | ) | (991 | ) | (510 | ) | (51.5 | ) | ||||||||
Net
income attributable to common stockholders
|
12,353 | 7,577 | 4,776 | 63.0 |
Net
Revenue. Our net revenue for the nine months ended September 30, 2009
equaled approximately $55,379,000, an increase of approximately $18,449,000 or
50.0%, as compared to $36,930,000 for nine months ended September 30,
2008. The increase was mainly attributable to the increase in sales
of granular fertilizers of approximately $15,276,000 and sales of liquid
fertilizers of approximately $3,173,000. The increase in sales of
granular fertilizers resulted from the increase in sales volume from 11,000
metric tons for nine months ended September 30, 2008 to 54,361 metric tons for
nine months ended September 30, 2009, an increase of 43,361 metric tons whereas
the increase in sales of liquid fertilizers was contributable to the increase in
average net selling price of liquid fertilizers from $5,840 for nine months
ended September 2008 to $6,330 for the corresponding period ended September 30,
2009.
25
Cost of
Revenue. Our cost of revenue equaled approximately $33,460,000 for the
nine months ended September 30, 2009, an increase of approximately $13,031,000
or 63.8% as compared to $20,429,000 for the nine months ended September 30,
2008. Our cost of revenue increased because of the increase in cost
of revenue of granular fertilizers of approximately $12,222,000 that resulted
from the increase in the volume of granular fertilizer’s sales and the increase
in cost of revenue of liquid fertilizers of approximately $809,000 that was in
line with the increase in liquid fertilizer’s sales. The percentage
of the cost of revenue to total revenues was 60.4% and 55.3% for the nine months
ended on September 30, 2009 and 2008, respectively.
Gross
Profit. Our gross
profit was approximately $21,919,000 for the nine months ended September 30,
2009, an increase of approximately $5,418,000 or 32.8%, as compared to
approximately $16,501,000 for the nine months ended September 30,
2008. Gross profit as a percentage of net revenue was 39.6% for the
nine months ended September 30, 2009, as compared to 44.7% for the nine months
ended September 30, 2008. The decrease in gross profit as a
percentage of revenue was mainly due to higher sale of granular fertilizers as a
percentage of total net revenue for the nine months ended September 30, 2009
(34.9% for 2009 as compared to 11.0% for 2008) and because granular fertilizer
has a lower gross profit margin than liquid fertilizer. The gross
profit margin of granular fertilizers was approximately 20.6% for nine months
ended September 30, 2009 as compared to a gross profit margin for our liquid
fertilizers of approximately 49.8% for the nine months ended September 30,
2009. The gross profit margin for our granular fertilizers was
approximately 22.7% for the nine months ended September 30, 2008 as compared to
a gross profit margin for our liquid fertilizers of approximately 47.4% for the
nine months ended September 30, 2008.
Selling
Expenses. Our selling expenses consisted primarily of sales commission,
advertising and promotion expenses, freight charges and related
compensation. Our selling expenses were approximately $1,758,000 for
the nine months ended September 30, 2009, as compared to approximately
$1,863,000 for the same period ended September 30, 2008, a decrease of
approximately $105,000 or 5.6%. The decrease was primarily
attributable to the decrease in advertising and promotion expenses and efficient
management of our sales network. We cancelled the reimbursement of
travel and miscellaneous expenses for our sales representatives, and as a
result, our selling expenses decreased accordingly.
Operating and
Administrative Expenses. Our operating and administrative expenses
consisted primarily of rental expenses, salaries and related benefits, business
development, depreciation and travelling expenses, and legal and professional
expenses. Our general and administrative expenses were approximately
$3,550,000 for the nine months ended September 30, 2009, as compared to
approximately $2,732,000 for the same period ended September 30, 2008, an
increase of approximately $818,000 or 29.9%. The increase was
attributable to payment of Delaware’s franchise tax for 2009, payment of NASDAQ
listing fee, payment of directors’ and officers’ insurance premium, increase in
general provision for doubtful debts, inclusion of non-recurring advisory and
professional fees, and increase in executive compensation as a result of the
addition of independent directors, chief operating officer and chief financial
officer for the nine months ended September 30 2009 whereas there were no such
expenses and position for the corresponding period ended September 30,
2008.
Income From
Operations. Income from operations was approximately $16,611,000 for the
nine months ended September 30, 2009, as compared to approximately $11,906,000
for the same period ended September 30, 2008, an increase of approximately
$4,705,000 or 39.5%. The increase was primarily attributable to the increased
sales of our new product, granular fertilizers that contributed additional
income from operations of approximately $3,976,000 and improved gross profit
margin of liquid fertilizers, but partially offset by the increase in operating
and administrative expenses as explained above.
Other Income
(Expense). Other income (expense) mainly consists of interest income
(expense) and exchange gain (loss). Other income (expense) was
$12,000 for nine months ended September 30, 2009, as compared to approximately
$38,000 income for the corresponding period ended September 30,
2008. The decrease in other income was attributable to the decrease
in interest income.
Income
taxes. Our operating subsidiaries in the PRC are governed by
PRC income tax laws and are subject to a uniform PRC enterprise income tax rate
of 25% for fiscal 2009 and 2008. Income tax expense was approximately
$3,789,000, representing an effective tax rate of 22.8%, for the nine months
ended September 30, 2009, as compared to approximately $3,376,000, representing
an effective tax rate of 28.3%, for nine months ended September 30,
2008. The decrease in the effective tax rate was primarily because
one of operating subsidiaries in the PRC that generated net operating profit for
the period is still in tax exemption period and not subject to the PRC income
tax for fiscal 2009.
26
Net
Income. Net income was approximately $12,834,000 for the nine months
ended September 30, 2009. There was an increase of approximately
$4,266,000 or 49.8%, from a net income of approximately $8,568,000 for the nine
months ended September 30, 2008. The increase was attributable to the
increased sale of granular fertilizers, improved gross profit margin of liquid
fertilizers, and lower effective income tax for the period, but partially offset
by the increase in operating and administrative expenses as explained
above.
Net Income
Attributable to Non-controlling Interest in a Subsidiary. Net income
attributable to non-controlling interest in a subsidiary was approximately
$481,000 for the nine months ended September 30, 2009, as compared to $991,000
for the same period ended September 30, 2008, a decrease of approximately
$510,000 or 51.5%. The decrease was due to the completion of
acquisition of the 10% non-controlling interest in Pacific Dragon in May 2009
and therefore, only a five-month net income of Pacific Dragon was attributable
to a non-controlling interest in a subsidiary.
Net Income
Attributable to Common Stockholders. Net income attributable to common
stockholders was approximately $12,353,000 for nine months ended September 30,
2009. There was an increase of approximately $4,776,000 or 63.0% from
our net income attributable to common stockholders for the same period ended
September 30, 2008 of approximately $7,577,000 mainly due to higher net income
and lower net income attributable to non-controlling interest in a subsidiary as
explained above.
Liquidity
and Capital Resources
As of
September 30, 2009, we had cash and cash equivalents of approximately $19.0
million. Our current assets were $88.2 million and our current
liabilities were $15.7 million as of September 30, 2009, which results
in a current ratio of approximately 5.6 times. Our total stockholders’ equity as
of September 30, 2009 was $79.6 million. We had no bank loans or
other interest bearing borrowings as of September 30, 2009.
Also, on
October 19, 2009, the Company issued (i) an aggregate of 1,392,768 shares of
common stock and (ii) warrants to purchase up to an aggregate of 928,514 shares
of common stock at an initial exercise price of approximately $10.77 per share,
subject to adjustment, to Carlyle Asia Growth Partners IV, L.P. and CAGP IV
Co-Investment, L.P. (collectively, the “Carlyle Investors”) for a purchase price
of $15,000,000. The exercise price of the warrants has a floor of approximately
$3.0657 per share, and in the event that the warrants are exercised at that
price, the Company would issue an additional 2,333,331 shares. The
Company is obligated to issue up to 3,500,000 shares of common stock (the
“Make-Good Shares”) to the Carlyle Investors in the event that the Company fails
to meet a predetermined net income target of $11.5 million for the fiscal year
ending December 31, 2009. If the Company meets the net income target
it will not issue any additional shares upon exercise of the warrants or any
Make-Good Shares.
We
believe that with Carlyle’s investment of $15 million, our currently
available working capital will be sufficient to maintain our operations at our
current levels for the next twelve months.
Cash
Flows (in U.S. Dollars)
Nine
Months
Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
Net
cash provided (used) in operating activities
|
10,147,430 | (7,947,183 | ) | |||||
Net
cash used in investing activities
|
(3,045,862 | ) | (2,165,541 | ) | ||||
Net
cash provided by financing activities
|
- | - | ||||||
Net
increase /(decrease) in cash
|
7,101,568 | (10,112,724 | ) |
27
Operating
Activities:
Net cash
generated from operating activities was $10,147,430 for the nine months ended
September 30, 2009, which was an increase of $18,094,613, as compared to the
$7,947,183 net cash used in operating activities for the same period in
2008. The increase was primarily attributable to an increase in net
income of $4,266,262, a decrease in accounts receivable of $10,155,475, a
decrease in prepayment and other receivables of $1,320,367, an increase in
accounts payable of $4,694,336, an increase in accrued expenses and other
payables of $1,709,189 and an increase in tax payable of $160,965 which was
offset by the increase in our inventories by $2,585,448 and the increase in
advances to supppliers of $2,120,310.
Investing
Activities:
Net cash
used in investing activities was $3,045,862 for the nine months ended September
30, 2009, which was an increase of $880,321 from the $2,165,541 net cash used in
investing activities for the same period in 2008. The increase was
primarily attributable to the payment of $1,000,000 cash for the acquisition of
10% interest in Pacific Dragon.
Financing
Activities
The
Company did not have any financing activity for the nine-month period ended
September 30, 2009.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) requires our
management to make assumptions, estimates and judgments that affect the amounts
reported in the financial statements, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We consider our critical
accounting policies to be those that require the most significant judgments and
estimates in the preparation of financial statements, including the
following:
·
|
Accounts
Receivable. Our policy is to maintain reserves for potential
credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer
concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these
reserves.
|
·
|
Inventories. Inventories
are valued at the lower of cost (determined on a first-in first-out basis)
or net realizable value. Our management compares the cost of inventories
with the net realizable value and an allowance is made for inventories
with net realizable value, if lower than the
cost.
|
·
|
Impairment. We
apply the provisions of ASC 360-10 (formerly SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,”) that requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through the estimated undiscounted cash flows expected to
result from the use and eventual disposition of the assets. Whenever any
such impairment exists, an impairment loss will be recognized for the
amount by which the carrying value exceeds the fair
value.
|
·
|
We
test 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. We consider historical performance and future
estimate results in our evaluation of potential impairment and then
compare 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, we
measure 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 we utilize
to evaluate potential investments. We estimate fair value based on the
information available in making whatever estimates, judgments and
projections are considered
necessary.
|
28
·
|
Revenue
Recognition. Our revenue recognition policies are in compliance
with Staff Accounting Bulletin 104. Sales revenue is recognized at the
date of shipment to customers when a formal arrangement exists, the price
is fixed or determinable, the delivery is completed, no other significant
obligations of our Company exist and collectibility is reasonably assured.
Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as unearned revenue. Our revenue
consists of invoiced value of goods, net of a 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.
|
·
|
Foreign
currency translation. We use U.S. dollars for financial reporting
purposes. Our subsidiaries maintain their books and records in their
functional currency, RMB, the primary currency of the PRC. In
general, for consolidation purposes, we translate our subsidiaries’ assets
and liabilities into U.S. dollars using the applicable exchange rates
prevailing at the balance sheet date, and the statement of income is
translated at average exchange rates during the reporting period. Gain or
loss on foreign currency transactions is reflected on the income
statement. Gain or loss on financial statement translation from foreign
currency is recorded as a separate component in the equity section of the
balance sheet, as component of comprehensive income. The functional
currency of our Company is RMB. Until July 21, 2005, RMB had been pegged
to the U.S. dollar at the rate of RMB 8.28:$1.00. On July 21, 2005, the
PRC government reformed the exchange rate system into a managed floating
exchange rate system based on market supply and demand with reference to a
basket of currencies. In addition, the exchange rate of RMB to U.S.
dollars was adjusted to RMB 8.11:$1.00 as of July 21, 2005. The People’s
Bank of China announces the closing price of a foreign currency, such as
U.S. dollar traded against RMB, in the inter-bank foreign exchange market
after the closing of the market on each working day, which becomes the
unified exchange rate for the trading against RMB on the following working
day. The daily trading price of U.S. dollars against RMB in the inter-bank
foreign exchange market is allowed to float within a band of 0.3% around
the unified exchange rate published by the People’s Bank of China. This
quotation of exchange rates does not imply free convertibility of RMB to
other foreign currencies. All foreign exchange transactions continue to
take place either through the People’s Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates quoted
by the People’s Bank of China. Approval of foreign currency payments by
the People’s Bank of China or other institutions require submitting a
payment application form together with invoices, shipping documents and
signed contracts.
|
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Seasonality
We may
experience seasonal variations in our future revenues and our operating costs
due to seasonality, but we do not believe that these variations will be
material. However, demand for our organic liquid compound fertilizer products
fluctuates significantly with weather conditions, which may delay the
application of the fertilizer or render it unnecessary and thereby reducing
demand for our products.
ITEM
3 QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK.
Not
applicable to smaller reporting companies.
ITEM
4T. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness, as of September 30, 2009, of the design and
operation of our disclosure controls and procedures, as such term is defined in
Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation,
our principal executive officer and principal financial officer have concluded
that, as of such date, our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in our Exchange Act
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
29
Changes
in Internal Controls over Financial Reporting
There has
been no change in our internal control over financial reporting during the third
quarter of 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II
OTHER
INFORMATION
ITEM
1 LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS
Not
applicable to smaller reporting companies.
ITEM
2 UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
None.
ITEM
3 DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM
4 SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None.
ITEM
5 OTHER INFORMATION
None
30
ITEM
6 EXHIBITS
EXHIBITS
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
31
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 thereunto
duly authorized.
CHINA
AGRITECH, INC.
|
||
Date: November
11, 2009
|
By:
|
/s/ Yu Chang
|
Yu
Chang
|
||
Chief
Executive Officer, President, Secretary and Chairman (Principal Executive
Officer)
|
||
Date: November
11, 2009
|
By:
|
/s/ Yau-Sing Tang
|
Yau-Sing
Tang
|
||
Chief
Financial Officer and Controller (Principal Financial
Officer)
|
32
EXHIBIT
INDEX
Exhibit
|
|
Number
|
Description
|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
33