Attached files
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EX-31.1 - China Ginseng Holdings Inc | v203669_ex31-1.htm |
EX-32.1 - China Ginseng Holdings Inc | v203669_ex32-1.htm |
EX-31.2 - China Ginseng Holdings Inc | v203669_ex31-2.htm |
EX-32.2 - China Ginseng Holdings Inc | v203669_ex32-2.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30,
2010
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the
transition period from _____________________ to ______________
China
Ginseng Holdings, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
20-3348253
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
Number)
|
64
Jie Fang Da Road
Ji
Yu Building A, Suite 1208
Changchun
City, China
|
130022
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone (01186) 43185790039
|
SEC File
Number: 000-54072
N/A
(Former
name, former address and former three months, if changed since last
report)
Check
whether the issuer (1) 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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|||
Non-accelerated
filer
|
¨
|
Smaller
Reporting Company
|
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
As of
November 20, 2010 there were 40,661,047 shares issued and outstanding of the
registrant’s common stock.
TABLE
OF CONTENTS
3 | ||||
22 | ||||
29 | ||||
29 | ||||
30 | ||||
30 | ||||
30 | ||||
31 | ||||
31 | ||||
31 | ||||
31 |
2
PART
I — FINANCIAL INFORMATION
ITEM
1
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
September
30,
|
June
30,
|
|||||||
2010
|
2010
|
|||||||
(Unaudited)
|
Audited
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 190,311 | $ | 171,111 | ||||
Accounts
receivable - net
|
71,426 | 45,245 | ||||||
Inventory
|
1,185,975 | 1,119,542 | ||||||
Ginseng
crops, current portion
|
49,515 | 308,764 | ||||||
Due
from related parties
|
38,170 | 23,475 | ||||||
Prepaid
expenses
|
117,057 | 30,503 | ||||||
Total
Current Assets
|
1,652,454 | 1,698,640 | ||||||
PROPERTY
AND EQUIPMENT, net
|
2,611,330 | 2,563,317 | ||||||
OTHER
ASSETS
|
||||||||
Ginseng
crops, non-current portion
|
3,850,355 | 3,527,967 | ||||||
Intangible
assets-patents, net
|
9,326 | 9,225 | ||||||
Receivable
from farmers
|
170,166 | 157,665 | ||||||
Deferred
income tax asset
|
131,568 | 130,189 | ||||||
Total
Assets
|
$ | 8,425,199 | $ | 8,087,003 | ||||
CURRENT
LIABILITIES
|
||||||||
Loan
payable to financial institution
|
$ | 298,458 | $ | 294,512 | ||||
Note
payable – building purchase
|
1,268,448 | 1,251,675 | ||||||
Notes
payable – related parties
|
766,237 | 755,311 | ||||||
Accounts
payable
|
795,892 | 887,945 | ||||||
Accrued
expenses
|
351,146 | 350,652 | ||||||
Taxes
payable
|
208,334 | 205,758 | ||||||
Payments
received in advance
|
212,877 | 20,786 | ||||||
Total
Current Liabilities
|
3,901,392 | 3,766,639 | ||||||
LONG-TERM
PAYABLE – Farmers
|
453,775 | 420,440 | ||||||
Total
Liabilities
|
4,355,167 | 4,187,079 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Common
stock, $0.001 par value, 50,000,000
|
||||||||
shares
authorized; 38,306,047 and 36,776,047
|
||||||||
shares
issued and outstanding at September 30 and June 30,
|
||||||||
2010,
respectively
|
38,306 | 36,777 | ||||||
Additional
paid-in capital
|
5,531,820 | 5,125,683 | ||||||
Accumulated
deficit
|
(2,036,045 | ) | (1,727,592 | ) | ||||
Accumulated
other comprehensive income
|
535,951 | 465,056 | ||||||
Total
Stockholders’ Equity
|
4,070,032 | 3,899,924 | ||||||
Total
Liabilities and Stockholders’ Equity
|
$ | 8,425,199 | $ | 8,087,003 |
See
accompanying notes to consolidated financial statements.
3
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
REVENUE
|
$ | 53,298 | $ | 31,616 | ||||
COSTS
AND EXPENSES
|
||||||||
Cost
of goods sold
|
45,259 | 14,914 | ||||||
Selling,
general and administrative expenses
|
278,381 | (49,528 | ) | |||||
Depreciation
and amortization
|
5,993 | 6,984 | ||||||
Total
Costs and Expenses
|
329,633 | (27,630 | ) | |||||
INCOME
(LOSS) FROM OPERATIONS
|
(276,335 | ) | 59,246 | |||||
NON
OPERATING (EXPENSE)
|
||||||||
Interest
expense
|
(32,118 | ) | (35,247 | ) | ||||
Net
Other (Expense)
|
(32,118 | ) | (35,247 | ) | ||||
(LOSS)
INCOME BEFORE INCOME TAXES
|
$ | (308,453 | ) | $ | 23,999 | |||
PROVISION
FOR INCOME TAXES
|
- | - | ||||||
NET
(LOSS) INCOME
|
$ | (308,453 | ) | $ | 23,999 | |||
NET
LOSS PER COMMON SHARE
|
||||||||
Basic
|
$ | (0.01 | ) | $ | (0.00 | ) | ||
Diluted
|
$ | (0.01 | ) | $ | (0.00 | ) | ||
WEIGHTED
AVERAGE COMMON
|
||||||||
SHARES
OUTSTANDING –
|
||||||||
Basic
|
37,298,087 | 34,397,297 | ||||||
Diluted
|
37,298,087 | 34,397,297 |
See
accompanying notes to consolidated financial statements.
4
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
income (loss)
|
$ | (308,453 | ) | $ | 23,999 | |||
Adjustments
to reconcile net loss to net cash from operating
activities:
|
||||||||
Depreciation
and amortization
|
30,845 | 29,685 | ||||||
Imputed
interest
|
26,958 | 30,128 | ||||||
Changes
in assets and liabilities:
|
||||||||
(Increase)
decrease in accounts receivable
|
(26,181 | ) | 138,689 | |||||
(Increase)
decrease in inventory
|
(129,572 | ) | (90,830 | ) | ||||
(Increase)
decrease in prepaid expense
|
(86,554 | ) | ||||||
(Increase)
decrease in due from related parties
|
(14,695 | ) | (9,798 | ) | ||||
(Increase)
decrease in receivable from farmers
|
(12,501 | ) | (15,605 | ) | ||||
(Increase)
decrease in payable to farmers
|
33,335 | 36,027 | ||||||
Increase
(decrease) in accounts payable
|
(92,053 | ) | (652,866 | ) | ||||
Increase
(decrease) payments received in advance
|
192,091 | |||||||
Increase
(decrease) in accrued expenses
|
- | 27,711 | ||||||
Net
cash provided by (used in) operating activities
|
(386,780 | ) | (482,860 | ) | ||||
Cash
Flows from Investing Activities:
|
||||||||
Purchase
of property and equipment
|
- | (3,186 | ) | |||||
Net
cash provided by (used in) investing activities
|
- | (3,186 | ) | |||||
Cash
Flows from Financing Activities:
|
||||||||
Proceeds
from sale of common stock for cash
|
380,708 | - | ||||||
Proceeds
from loans payable to related parties
|
- | 496,203 | ||||||
Net
cash provided by (used in) financing activities
|
380,708 | - | ||||||
Effect
of exchange rate on cash
|
25,272 | (2,962 | ) | |||||
Increase
(decrease) in cash
|
19,200 | 7,195 | ||||||
Cash
at beginning of period
|
171,111 | 10,227 | ||||||
Cash
at end of period
|
$ | 190,311 | $ | 17,422 |
See
accompanying notes to consolidated financial statements.
5
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
For
the Three Months Ended
|
||||||||
September
30,
|
||||||||
2010
|
2009
|
|||||||
(Restated)
|
||||||||
Supplemental
Disclosure of Cash Flow Information:
|
||||||||
Cash
paid for:
|
||||||||
Interest
|
- | - | ||||||
Income
taxes
|
- | - |
See
accompanying notes to consolidated financial statements.
6
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
FOR THE
YEARS ENDED JUNE 30, 2010 AND 2009 (Unaudited)
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||
Common Stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
Stockholders'
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Income
|
Equity
|
|||||||||||||||||||
Balance,
June 30, 2009
|
34,397,297 | $ | 34,398 | $ | 4,420,548 | $ | (1,078,865 | ) | $ | 452,125 | $ | 3,828,206 | ||||||||||||
Issuance
of private placement shares for cash at $0.2488 per share
|
2,378,750 | 2,379 | 589,523 | - | - | 591,902 | ||||||||||||||||||
Imputed
interest for related party loans
|
- | - | 115,612 | - | - | 115,612 | ||||||||||||||||||
Net
loss for the year ended June 30, 2010
|
- | - | - | (648,727 | ) | - | (648,727 | ) | ||||||||||||||||
Translation
adjustment
|
- | - | - | - | 12,931 | 12,931 | ||||||||||||||||||
Total
comprehensive loss
|
- | - | - | - | (635,796 | ) | ||||||||||||||||||
Balance,
June 30, 2010
|
36,776,047 | 36,777 | 5,125,683 | (1,727,592 | ) | 465,056 | 3,899,924 | |||||||||||||||||
Imputed
interest for related party loans
|
- | - | 26,958 | - | - | 26,958 | ||||||||||||||||||
Issuance
of private placement shares for cash at $0.2488 per share
|
1,530,000 | 1,529 | 379,179 | - | - | 380,708 | ||||||||||||||||||
Net
loss for the three months ended September 30, 2010
|
- | - | - | (308,453 | ) | - | (308,453 | ) | ||||||||||||||||
Translation
adjustment
|
- | - | - | - | 70,895 | 70,895 | ||||||||||||||||||
Total
comprehensive loss
|
- | - | - | - | - | (237,558 | ) | |||||||||||||||||
Balance,
September 30, 2010 (Unaudited)
|
38,306,047 | $ | 38,306 | $ | 5,531,820 | $ | (2,036,045 | ) | $ | 535,951 | $ | 4,070,032 |
See
accompanying notes to consolidated financial statements.
7
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE A –
PRESENTATION, NATURE OF BUSINESS AND GOING CONCERN
Basis of
Presentation
The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary in order to make the financial statements not
misleading have been included. Results for the three months ended
September 30, 2010 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2011. For further information, refer
to the financial statements and footnotes thereto included in the China Ginseng
Holdings, Inc. on Form 10 for the year ended June 30, 2010 filed November 6,
2010.
Nature of
Business
China
Ginseng Holdings, Inc. and Subsidiaries (the “Company”), was incorporated under
the laws of Nevada on June 24, 2004.
On
November 24, 2004, the Company acquired 55% of Yanbian Huaxing Ginseng Industry
Co. Limited (“Yanbian Huaxing”), which is located in China and, is in the
business of farming, processing, distribution, and marketing of Asian
Ginseng. In 2010, the Company increased marketing Ginseng and is presently
utilizing the harvest to produce a Ginseng beverage. On November 24, 2005,
the Company acquired the remaining 45% interest in Yanbian Huaxing.
Yanbian
Huaxing controls, through 20 year leases granted by the Chinese Government,
approximately 1,500 hectors (3,705 acres) of land used to grow Ginseng.
The Company had no operations prior to November 24, 2004. These leases expire
through the year 2024.
On August
24, 2005, the Company acquired Jilin Ganzhi Ginseng Produce Co. Limited, whose
principal business is the manufacture of Ginseng drinks.
On
October 19, 2005, the Company incorporated a new company, Jilin Huamei Beverage
Co. Limited (“Jilin Huamei”). To date, Jilin Huamei has not had any
significant operations.
On March
31, 2008 the Company acquired Tonghua Linyuan Grape Planting Co. Limited
(“Tonghua Linyuan”) whose principal activity is the growing, cultivation and
harvesting of a grape vineyard. The Company plans to produce wine and grape
juice but to date has not commenced production. As of June 30, 2010, Tonghua
Linyuan leased 750 acres of land on which the grape vines are planted. The lease
expires on December 31, 2014. The Company anticipates that the lease will be
renewed.
Going
Concern
As
indicated in the accompanying financial statements, the Company has accumulated
deficits of $2,036,045 and $1,727,592 at June 30, 2010 and 2009, respectively,
and there are existing uncertain conditions the Company foresees relating to its
ability to obtain working capital and operate successfully. At September
30, 2010, the Company had a negative working capital of $2,248,938. Management’s
plans include the raising of capital through the equity markets to fund future
operations and the generating of revenue through its businesses. Failure to
raise adequate capital and generate adequate sales revenues could result in the
Company having to curtail or cease operations.
8
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE A –
PRESENTATION, NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)
Going
Concern(Continued)
Additionally,
even if the Company does raise sufficient capital to support its operating
expenses and generate adequate revenues, there can be no assurances that the
revenues will be sufficient to enable it to develop business to a level where it
will generate profits and cash flows from operations. These matters raise
substantial doubt about the Company’s ability to continue as a going
concern. However, the accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. These
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going
concern.
Consolidated Financial
Statements
The
financial statements include the accounts and activities of China Ginseng
Holdings, Inc. and its wholly-owned subsidiaries, Yanbian Huaxing Ginseng Co.
Limited, Jilin Huamei Beverage Co. Limited, Jilin Ganzhi Ginseng Products Co.
Limited, and Tonghua Linyuan Grape Planting Co. Limited. All intercompany
transactions have been eliminated in consolidation.
NOTE B –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Effective
July 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10 Generally Accepted Accounting
Principles-Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied to
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP for SEC registrants. All guidance contained in
the Codification carries an equal level of authority. The Codification
superseded all existing non-SEC accounting and reporting standards. All
other non-grandfathered, non-SEC accounting literature not included in the
codification is non-authoritative. The FASB will not issue new standards
in the form of Statements, FASB Positions or Emerging Issue Task Force
Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own
right. ASUs will serve only to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
change(s) in the Codification. References made to FASB guidance throughout
this document have been updated for the Codification.
Use of
Estimates
The
preparation of the financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Foreign Currency
Translation
The
Company considers the Chinese Yuan Renminbi to be its functional currency.
The Company does not have any material transactions in foreign currencies other
than the Chinese Yuan Renminbi. Assets and liabilities were translated into US
dollars at period-end exchange rates. Statement of operations amounts were
translated using the average rate during the period. Gains and losses
resulting from translating foreign currency financial statements are included in
accumulated other comprehensive income, a separate component of stockholders’
equity.
9
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE B –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash
Equivalents
For
purposes of reporting cash flows, cash equivalents include investment
instruments purchased with an original maturity of three months or less.
There were no cash equivalents at June 30, 2010 and 2009.
Inventory
Inventory
consists of fresh and dried Ginseng as well as crushed grapes and is stated at
the lower of cost or market value. Cost is determined using the First-In,
First-Out (FIFO) Method.
Ginseng
Crops
The
Company uses the full absorption costing method to value its Ginseng
crops. Included in crop costs are seeds, labor, applicable overhead
including depreciation, and supplies. Common costs are allocated in each period
based upon the total number of hectors under cultivation during the
period.
The
carrying value of the Ginseng crops is reviewed on a regular basis for any
impairment in value using management’s best estimate as to expected future
market values, yields and costs to harvest. Costs accumulated on the acres
expected to be harvested during the next fiscal year have been classified as a
current asset.
Revenue
Recognition
The
Company’s primary source of revenue has been from the sale of fresh and dried
Ginseng. Currently, the Company is processing the Ginseng and storing the stock
for future juice production which it plans to commence in the later part of
2010. The grape harvest for 2009 has been crushed and the juice produced
has been stored in storage tanks. The Company plans to do the same for
2010. Ginseng is planted in the Spring (March) and Fall (September) of each year
and is generally harvested in September. It usually takes 6 years for a
Ginseng root to mature, although, senior maturity can be 8 years.
Harvested
Ginseng can be sold in two ways: (1) fresh Ginseng which can be sold immediately
and stored in refrigerators for up to 3 years and (2) dried Ginseng which is
processed and dried via sunlight and steam machines. Drying is a two month
process. Dried Ginseng can be stored up to 5 years. The Company has
focused on selling dried Ginseng as it is more profitable than selling fresh
Ginseng. The Company has also been storing fresh Ginseng for future juice
manufacturing.
When the
Company sells Ginseng, it receives orders prior to harvest. For major
customers, 20% to 30% is paid upon delivery as payment in advance. The
balance is billed after the customer incurs a lengthy inspection process which
can take up to 60 days. Until the customer finalizes its inspection and
deems the shipment acceptable, the shipment is still the property of the
Company. Upon customer completion of inspection and approval, the sale is
then recorded and the balance of the invoice price is sent to the Company. For
smaller sales, the customers pick up the Ginseng from the Company, pay in cash
at time of pick up and receive an invoice with appropriate sales tax applied and
a cash acknowledgement. On these orders, revenue is recognized upon payment. The
Company had one bulk sale of crushed grape juice and recognized the sale when
the tanker left the vineyard.
10
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE B –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable and
Allowance for Doubtful Accounts
Accounts
receivable consist principally of trade receivables. When Ginseng is shipped to
a customer, the customer is entitled to an inspection process which could take
up to 60 days. Upon completion of the inspection and approval process, the
customer notifies the company and a sale is recorded. Receivables from sales are
based upon contracted prices. The Company provides an allowance for doubtful
accounts which is based upon a review of outstanding receivables, historical
collection information, and existing economic conditions. Normal trade
receivables are due 60 days after the date of sale. Trade receivables past
due more than 120 days are considered delinquent. Delinquent receivables are
written off based upon individual credit evaluation and specific circumstances
of the customer. The allowance for doubtful accounts was $8,500 and $9,471 at
September 30 and June 30, 2010, respectively.
Property and
Equipment
Property
and equipment is recorded at cost and is depreciated using the straight line
method over the estimated useful lives of the respective assets, as
follows:
Biological
assets – vineyard
|
40
years
|
Buildings
and improvements
|
6 -
40 years
|
Machinery
and equipment
|
5 -
15 years
|
Motor
vehicles
|
5 -
10 years
|
Office
equipment
|
5 -
10 years
|
Routine
maintenance, repairs and replacement costs are expensed as incurred and
improvements that extend the useful life of the assets are capitalized.
When equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recognized in operations.
Vineyard Development
Costs
Vineyard
development costs consist primarily of the costs of the vines and expenditures
related to labor and materials to prepare the land and construct vine trellises.
The costs are capitalized within Property and Equipment. When the vineyard
becomes commercially productive, annual amortization is recognized using the
straight-line method over the estimated economic useful life of the vineyard,
which is estimated to be 40 years. All of the company’s vineyards are considered
commercially productive.
Amortization
of vineyard development costs are included in capitalized crop costs that in
turn are included in inventory costs and ultimately become a component of cost
of goods sold. For the year ending June 30, 2010 and 2009, approximately $29,961
and $26,626, respectively, was amortized into inventory costs.
11
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE B –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Loss Per Common
Share
The
Company computes per share amounts in accordance with ASC Topic 260 Earnings per Share (EPS)
which requires presentation of basic and diluted EPS. Basic EPS is
computed by dividing the income (loss) available to Common Stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS is based on the weighted-average number of shares of Common Stock
and Common Stock equivalents outstanding during the periods. Diluted EPS is not
presented as it would be antidilutive.
Stock Based
Compensation
The
Company accounts for stock issued for services in accordance with Topic ASC 718
Compensation-Stock
Compensation (formerly SFAS No. 123R “Share Based Payments). All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to
employees and the cost of the services received as consideration are measured
and recognized based upon the fair value of the equity instruments
issued.
Comprehensive
Income
The
Company follows ASC 220-10, Reporting Comprehensive
Income, (formerly SFAS No. 130). ASC 220-10 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized in the
calculation of net income.
Fair Value of Financial
Instruments
The
carrying amounts reported in the consolidated balance sheets for cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the immediate or short-term maturity of these financial
instruments.
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of
accounting. Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets to amounts that are expected to be
realized.
Uncertainty in Income
Taxes
The
Company follows ASC 740-10 Accounting for Uncertainty in Income
Taxes (“ASC 740-10”). This interpretation requires recognition and
measurement of uncertain income tax positions using a “more-likely-than-not”
approach. ASC 740-10 is effective for fiscal years beginning after
December 15, 2006. Management has adopted ASC 740-10 for 2009, evaluates
their tax positions on an annual basis, and has determined that as of June 30,
2010, no additional accrual for income taxes other than the foreign, federal and
state provisions and related interest and estimated penalty accruals are
considered necessary.
12
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE B –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived
Assets
Long-lived
assets, primarily property and equipment, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets might not be recoverable. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an
asset, a significant change in the extent or manner in which an asset is used,
or a significant adverse change that would indicate that the carrying amount of
an asset or group of assets is not recoverable. For long-lived assets to
be held and used, the Company recognizes an impairment loss only if its carrying
amount is not recoverable through its undiscounted cash flows and measures the
impairment loss based on the difference between the carrying amount and
estimated fair value.
Fair Value
Measurements
In
September 2006, ASC issued 820, Fair Value Measurements.
ASC 820 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosure about
fair value measurements.
In
February 2007, ASC issued 825-10 The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election
dates. A business entity is required to report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date.
NOTE C -
PROPERTY AND EQUIPMENT
Property and equipment is comprised of
the following at:
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Buildings
and improvements
|
$ | 1,583,957 | $ | 1,539,557 | ||||
Vineyards
|
1,128,355 | 1,128,355 | ||||||
Machinery
and equipment
|
681,398 | 657,766 | ||||||
Motor
vehicles
|
67,475 | 60,519 | ||||||
Office
equipment
|
28,015 | 24,555 | ||||||
3,489,200 | 3,410,752 | |||||||
Less
accumulated depreciation
|
877,870 | 847,435 | ||||||
$ | 2,611,330 | $ | 2,563,317 |
Reference
is made to Note I - Note Payable – Building Purchase
Total
Depreciation was $30,845 and $29,685 for the three months ended September 30,
2010 and 2009, respectively. Depreciation is recorded in the
financial statements as follows:
Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Depreciation
expense
|
$ | 5,583 | $ | 6,574 | ||||
Capitalized
inventory
|
20,520 | 19,786 | ||||||
Capitalized
Ginseng crops
|
4,332 | 2,915 | ||||||
$ | 30,435 | $ | 29,275 |
13
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE C -
PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation
expense is included within Deprecation and amortization on the consolidated
Statements of Operations. Capitalized Inventory and Ginseng Crops are
included within the respective balances on the consolidated Balance
Sheets.
NOTE D -
INVENTORY
Inventory
is comprised of the following at:
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Fresh
and dried harvested Ginseng
|
$ | 14,503 | $ | 13,290 | ||||
Raw
materials
|
1,125,718 | 1,064,359 | ||||||
Operating
supplies
|
45,754 | 41,893 | ||||||
$ | 1,185,975 | $ | 1,119,542 |
At
September 30, and June 30, 2010, there were no shipments of Ginseng at customer
locations awaiting inspection and approval that may be subject to
invoicing.
NOTE E –
GINSENG CROPS
The
Company’s business, prior to June 30, 2009, was primarily to harvest and sell
fresh and dried Ginseng. The growth period takes approximately 6 years
before harvest can commence and up to 8 years for improved harvest and seedling
yields. The Company is changing its business model to utilize the
harvested Ginseng to manufacture Ginseng juice and other Ginseng
beverages. It plans to commence the juice operation in August 2010.
The Company plants selected areas each year and tracks the costs expended each
year by planting area. The Chinese government owns all the land in China.
See Note P-Commitments and Contingencies.
Currently,
the Company has land grants from the Chinese government for approximately 1,500
hectors of land (approximately 3,705 acres) to grow Ginseng which were awarded
in April and May 2004. These grants are for 20 years and the management of
the Company believes that the grants will be renewed as the grants expire in
different areas. However, there are no assurances that the Chinese
government will continue to renew these grants in the future. The planting of
new Ginseng is dependent upon the Company’s cash flow and its ability to raise
working capital.
During
the past 5 years, the Company has planted approximately 518,000 square meters of
land which represents approximately 3% of the total land grants. The
Company plans to plant over the next 5 years 420,000 square meters of Ginseng
(2011-100,000 square meters, 2012-100,000 square meters, 2013-100,000 square
meters, 2014-100,000 square meters and 2015-20,000 square meters). At
September 30, 2010, the Company has 208,182 square meters of Ginseng available
for harvest and plans to harvest 11,132 square meters in 2010; 54,833 square
meters in 2011 and 65,800 square meters in 2012 based upon their anticipated
Ginseng feed stock requirements to produce the Ginseng juice
beverages.
14
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE E –
GINSENG CROPS (CONTINUED)
An
analysis of Ginseng crop costs is as follows for each of the applicable periods
:
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Beginning
Crop Costs
|
$ | 3,836,731 | $ | 3,842,812 | ||||
Capitalized
costs during year:
|
||||||||
Fertilizer
|
- | - | ||||||
Scaffolding
|
- | 66,448 | ||||||
Drying
costs
|
- | - | ||||||
Field
clearing and cultivation
|
1,114 | 48,061 | ||||||
Seedlings
|
- | - | ||||||
Irrigation
|
- | - | ||||||
Labor
including farmer net costs
|
64,517 | 512,488 | ||||||
Freight
|
- | - | ||||||
Depreciation
|
4,332 | 42 | ||||||
Other
|
386 | 1,026 | ||||||
70,349 | 628,065 | |||||||
Less:
|
||||||||
Cost
of crops harvested
|
(7,210 | ) | (225,176 | ) | ||||
Adjustment
to Ginseng crop write-downs for crops sold
|
- | (408,970 | ) | |||||
7,210 | (634,146 | ) | ||||||
Ending
Crop Costs
|
3,899,870 | 3,836,731 | ||||||
Less:
Current portion
|
49,515 | 308,764 | ||||||
Non-Current
Portion of Crop Costs
|
$ | 3,850,355 | $ | 3,527,967 |
The cost
of harvest is calculated by reference to the planting area and the detailed
costs maintained for each planting area. Based upon the square meters
planted by area, a square meter cost is calculated and applied to the square
meters harvested, rendering a cost of harvest.
For each
financial reporting period, the Ginseng crop harvested is valued at net
realizable value. If the net realizable value is lower than carrying
value, a write down is made for the difference.
NOTE F –
AGREEMENTS WITH FARMERS
The
Company has executed agreements with a number of local farmers to grow,
cultivate and harvest Ginseng utilizing the Company’s land grants. The
farming contracts commenced in January 2008. In connection with these
agreements, the Company (1) leases sections of the Ginseng land grants to the
farmers at approximately $0.20 (1.5 RMB) per square meter per year, (2) provides
the seeds and fertilizer to the farmers and clears the land of large debris.
These costs are capitalized by the Company and included in the Ginseng Crop
inventory, (3) pays the farmers a management fee of approximately $0.50 (4.00
RMB) per square meter per year and (4) the farmers are required to produce 2 kg
of Ginseng for each square meter that they manage. The company pays the
farmers market price for their Ginseng. If the harvest is below 2 kg per
square meter, the difference will be deducted from the total payment for Ginseng
purchased. If the harvest produces more than 2 kg per square meter, the Company
pays a premium of $3.00 for every extra kilo.
15
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE F –
AGREEMENTS WITH FARMERS (CONTINUED)
The
Company has recorded a receivable from the farmers for the rental income of the
leased Ginseng land grants of $170,166 and $157,665 at September 30 and June 30,
2010, respectively. The Company has also recorded a long-term
payable-farmers for the management fee due to the farmers. The liability at
September 30 and June 30, 2010 was $453,775 and $420,440, respectively.
The receivable and liability balances for the respective areas will be settled
at harvest time when the Company purchases the harvest at the current market
value for Ginseng.
NOTE G –
INTANGIBLE ASSETS
Intangible
assets consist of the patent rights for Ginseng drinks. The cost and related
amortization is as follows:
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Cost
|
$ | 16,966 | $ | 16,455 | ||||
Less
accumulated amortization
|
(7,640 | ) | (7,230 | ) | ||||
$ | 9,326 | $ | 9,225 |
Amortization
expense was $410 for the three months ended September 30, June 30, 2010,
respectively.
NOTE H –
LOAN PAYABLE TO FINANCIAL INSTITUTION
In 2002,
the Company’s subsidiary, Tonghua Linyuan Grape Co. Limited, borrowed 2,000,000
RMB from Ji’an Farmer’s Credit Union at an interest rate of 7% per annum with a
maturity date of April 1, 2004. The loan is secured by the Company’s property
and equipment with carrying values of $76,938 and $76,477 at September 30 and
June 30, 2010, respectively, and currently is in default. Interest has been paid
on the loan through June 30, 2009 and accrued in subsequent periods. The loan
balance at September 30 and June 30, 2010 is $298,458 and $294,512,
respectively.
NOTE I –
NOTE PAYABLE – BUILDING PURCHASE
On March
2, 2010, the Company entered into an agreement with Meihekou Hang Yilk Tax
Warehousing Logistics, an auctioneer, to purchase office and warehouse
facilities. The purchase price was $1,325,479 (RMB 9,000,000). On
June 24, 2010, the Company made payment of $73,804 (RMB 500,000) leaving a
balance of $1,251,675 (RMB 8,500,000) which was to be paid by June 30,
2010. As at the date of this report, the final payment has not been made
in accordance with the agreement and the seller has the right to repossess the
property and obtain an amount equivalent to 6 months rental expense for using
the premises. The balance of the loan at September 30, 2010 and June 30, 2010 is
$1,268,448 and $1,251,675, respectively.
NOTE J -
RELATED PARTY TRANSACTIONS
The
Company had been financing its operations from loans from individuals,
principally residents of China, who are deemed to be related parties because of
their ownership interest in the Company (shareholders). The individuals
have loaned the Company funds which are interest free, have no specific
repayment date, and are unsecured. The funds received are evidenced by
receipt of cash acknowledgments. At September 30 and June 30, 2010, funds
borrowed to fund the current operations of the Company were $766,237 and
$755,311, respectively. In accordance with FASB ASC 835-30, the Company
has imputed an interest charge of $26,958 and $30,128 for the three months ended
September 30, 2010.
16
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE J -
RELATED PARTY TRANSACTIONS (CONTINUED)
At June
30, 2010 and 2009, the Company had receivables from related parties aggregating
$38,170 and $23,475. These balances relate to unsettled travel
advances.
NOTE K -
STOCKHOLDERS’ EQUITY
The
Company, through an informal private placement under Registration S to Chinese
national investors, is attempting to sell 10,000,000 shares of its common stock
at $0.25 per share. During the period April 1, 2010 to June 30, 2010, the
Company sold 2,378,750 shares and received $591,902 in cash. During the three
months ended September 30, 2010, the Company sold an additional 1,530,000 shares
@ $0.2488 aggregating $380,708. As of this report date, the shares have not yet
been issued but have been reflected in the accompanying financial statements as
though they were issued.
NOTE L -
WARRANT AGREEMENT
During
the period August 2005 to October 2005, the Company issued 798,384 warrants in
connection with a private placement. The warrants vest immediately and are
exercisable over a 5 year period.
The
following summarizes the warrants issued in connection with the Company’s
private placement:
Warrants
|
Weighted Average
|
|||||||
Outstanding
|
Exercise Price
|
|||||||
Balance,
June 30, 2008
|
798,334 | $ | 0.39 | |||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Cancelled
|
- | - | ||||||
Balance,
June 30, 2009
|
798,334 | $ | 0.39 | |||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Cancelled
|
- | - | ||||||
Balance,
June 30 and September 30, 2010
|
798,334 | $ | 0.39 |
The fair
value of the warrants at date of grant was $0.0245, which was computed using the
Black-Scholes option pricing model based upon the weighted average assumptions
of:
Risk
free interest rate
|
4.80 | % | ||
Volatility
|
16.79 | % | ||
Expected
life
|
2.5
years
|
|||
Dividend
yield
|
0 | % |
At
September 30, 2010, the weighted average life of the above warrants was 0.22
years. The weighted average exercise price was $0.39 for all
periods.
17
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE M –
PROVISION FOR INCOME TAXES
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes are measured
based on the tax rates expected to be in effect in the Company’s tax return.
Deferred tax assets and liabilities are recognized based on anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax
bases.
Deferred
tax assets consist of the following at:
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Timing
difference related to inventory provisions
|
$ | 131,568 | $ | 130,189 | ||||
Net
operating losses
|
490,000 | 350,000 | ||||||
Valuation
allowance
|
(490,000 | ) | (350,000 | ) | ||||
Deferred
tax asset
|
$ | 131,568 | $ | 130,189 |
The
deferred tax asset is the result of an inventory provision and related reserve
of $843,000 (RMB 4,248,000 of which 2,130,310 RMB was recorded in 2010 and
2,117,776 RMB was recorded in 2009). Under Chinese tax laws, the Company
is not entitled to a deduction for the provision until the inventory is
completely discarded. Accordingly, the liability has been recorded offset by a
deferred tax asset representing a timing difference.
The
Company has a net operating loss carry forward as follows:
September
30,
|
June
30,
|
|||||||
2010
|
2010
|
|||||||
International
(China)
|
$ | 1,018,600 | $ | 949,600 | ||||
United
States
|
617,500 | 378,000 | ||||||
$ | 1,636,100 | $ | 1,327,600 |
The
operating losses are available to offset future taxable income. The foreign
(China) net operating loss carryforwards can only be carried forward for five
years and will commence expiring in the year 2013. The Company does not
file a consolidated tax return in China. Therefore, the profitability of the
individual Chinese companies will determine the utilization of the carryforward
losses. The U.S. carryforward losses are available to offset future taxable
income for the succeeding 20 years and commence expiring in the year
2027.
The
components of income before taxes are as follows:
For the Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
United
States
|
$ | (239,487 | ) | $ | 7,753 | |||
International
(China)
|
(68,966 | ) | 16,236 | |||||
$ | 308,453 | $ | 23,989 |
18
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE M –
PROVISION FOR INCOME TAXES (CONTINUED)
The
provision for income taxes consists of the following:
For the Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
United
States
|
- | - | ||||||
International
(China)
|
- | - | ||||||
- | - |
A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and Federal statutory rate for the years ended June 30, 2010 and
2009, respectively, are as follows:
For the Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Federal
statutory rate
|
(34.0 | )% | (34.0 | )% | ||||
State
income taxes, net of federal benefit
|
3.3 | 3.3 | ||||||
Valuation
allowance
|
30.7 | 30.7 | ||||||
Effective
tax rate
|
- | - |
NOTE N –
FAIR VALUE MEASUREMENTS
The
Company follows ASC 820 which defines fair value, provides a consistent
framework for measuring fair value under generally accepted accounting
principles and expands fair value financial statement disclosure
requirements. ASC 820’s valuation techniques are based on observable and
unobservable inputs. Observable inputs reflect readily obtainable data
from independent sources, while unobservable inputs reflect our market
assumptions.
ASC 820
classifies these inputs into the following hierarchy:
Level 1
inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs:
|
Quoted
prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
|
Level 3 inputs:
|
Instruments
with primarily unobservable value
drivers.
|
NOTE O –
COMMITMENTS AND CONTINGENCIES
The
Company has a three year employment contract with the Chief Executive Officer
expiring on January 1, 2011 aggregating $8,782 per year.
The
Company has a three contract with the Chief Financial Officer and the Chief
Marketing Officer expiring on February 11, 2011 aggregating $22,131 per
year.
The
Company has a three year employment contract with a staff accountant expiring on
March 1, 2012 aggregating $3,162 per year.
19
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE O –
COMMITMENTS AND CONTINGENCIES (CONTINUED)
The
Company has a three year employment contract with five office employees expiring
on January 1, 2011 aggregating $15,458 per year.
The
Company has a three year employment contract with the President of the Company
expiring on March 20, 2012 aggregating $17,564 per year.
The
Company has a one year lease for its corporate offices in China aggregating
$5,572 of which one half was due on signing on November 25, 2009 and the
remaining balance to be paid on May 1, 2010.
The
Company has a lease for office facilities related to its Tonghua Linyuan Grape
Co. Limited facilities aggregating $1,760 per year. The lease expires January 1,
2022.
The
Chinese government owns all the land in China. Currently, the Company has grants
from the Chinese government for approximately 1,500 hectors of land (3,705
acres) to grow Ginseng. These grants are for 20 years. There is no assurance
that the Chinese government will continue to renew these grants in the
future.
The
Company has a 15 year lease with the Representative of Group One Farmer, Si’An
City, Qingshi, Qingshi Town, Qingshi Village, China to lease 750 acres to grow
and harvest grapes. The lease expires December 31, 2014. The annual lease
fee is 187,500 RMB or approximately $29,600 per year to lease the acreage.
The Company believes that the lease will be renewed.
Rent
expense for the year ended June 30, 2010 and 2009, respectively was $10,646 and
$1,752, respectively.
NOTE P –
OPERATING SEGMENTS
The
Company presently organizes its business into two reportable farming segments:
(1) the cultivation and harvest of Ginseng for the production of Ginseng
beverages and (2) the cultivation and harvest of grapes for the eventual
production of wine and grape juice.
The
Company’s reportable business segments are strategic business units that offer
different products. Each segment is managed separately because they
require different productions techniques and market to different classes of
customers.
Three
months ended September 30, 2010:
Parent Company
|
Ginseng
|
Wine
|
Total
|
|||||||||||||
Revenues
|
$ | - | $ | 53,298 | $ | - | $ | 53,298 | ||||||||
Net
loss
|
(239,487 | ) | (63,698 | ) | (5,268 | ) | (308,453 | ) | ||||||||
Total
Assets
|
224,058 | 6,002,143 | 2,198,998 | 8,425,199 | ||||||||||||
Other
significant items:
|
||||||||||||||||
Depreciation
and amortization
|
126 | 5,765 | 100 | 5,991 | ||||||||||||
Interest
expense
|
26,958 | - | 5,160 | 32,118 | ||||||||||||
Expenditures
for assets
|
- | - | - | - |
20
CHINA
GINSENG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2010
NOTE P –
OPERATING SEGMENTS (CONTINUED)
Three
months ended September
30,
2009
Parent Company
|
Ginseng
|
Wine
|
Total
|
|||||||||||||
Revenues
|
$ | - | $ | 31,616 | $ | - | $ | 31,616 | ||||||||
Net
income (loss)
|
7,763 | 10,714 | 5,522 | 23,999 | ||||||||||||
Total
Assets
|
105,738 | 4,398,243 | 2,156,703 | 6,660,684 | ||||||||||||
Other
significant items:
|
||||||||||||||||
Depreciation
and amortization
|
247 | 5,693 | - | 5,940 | ||||||||||||
Interest
expense
|
30,123 | - | 5,124 | 35,247 | ||||||||||||
Expenditures
for assets
|
- | - | - | - |
NOTE Q – SUBSEQUENT EVENTS
Since September 30, 2010, the Company under a
Regulation S Private Placement sold 2,355,000 shares of its common stock at
$0.25 per share .
Subsequent events were assessed through November
22, 2010, the date the financial statements and accompanying registration
statements were filed with its Securities and Exchange Commission.
21
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
This
10−Q contains forward-looking statements. Our actual results could differ
materially from those set forth as a result of general economic conditions and
changes in the assumptions used in making such forward-looking statements. The
following discussion and analysis of our financial condition and results of
operations should be read together with the audited consolidated financial
statements and accompanying notes and the other financial information appearing
else where in this report. The analysis set forth below is provided pursuant to
applicable Securities and Exchange Commission regulations and is not intended to
serve as a basis for projections of future events. Refer also to "Cautionary
Note Regarding Forward Looking Statements" and “Risk Factors”
below.
Company
Overview
Our
company, China Ginseng Holdings Inc., was incorporated on June 24, 2004 in the
State of Nevada. The company conducts business through its four wholly
owned subsidiaries located in Northeast China. Through leases, we control
3,705 acres of land approved by the Chinese government for ginseng planting and
approximately 750 acres of grape vineyards which are harvested
annually.
Since our
inception in 2004, we have been engaged in the business of farming, processing,
distribution and marketing of fresh ginseng, dry ginseng, ginseng seeds, and
seedlings. In March 2008, we acquired Tonghua Linyuan Grape Planting Co,
introducing wild mountain grapes to our existing ginseng farming business.
Starting August 2010, China Ginseng has gradually shifted the business from
farming to producing ginseng juice and wine with our crops as raw
materials.
With the
expansion of our planting area and the integration of our farming and beverage
manufacturing business, we hope to build a world-class brand by taking advantage
of our land resources, high-quality raw materials, patented product formula,
unique manufacturing technology and growing distribution network.
The
following discussion of our financial condition and operational results should
be read in conjunction with our financial statements and related notes as well
as other financial information included in this Form 10 Q.
Critical
Accounting Policies and Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. As such, in accordance with the use
of accounting principles generally accepted in the United States of America, our
actual realized results may differ from management’s initial estimates as
reported. The Company considers the following critical accounting policies
to be critical:
Inventory
Inventory
consists of fresh and dried Ginseng as well as crushed grapes and is stated at
the lower of cost or market value. Cost is determined using the First-In,
First-Out (FIFO) Method.
22
Ginseng
Crops
The
Company uses the full absorption costing method to value its Ginseng
crops. Included in crop costs are seeds, labor, applicable overhead
including depreciation, and supplies. Common costs are allocated in each period
based upon the total number of hectors under cultivation during the
period.
The
carrying value of the Ginseng crops is reviewed on a regular basis for any
impairment in value using management’s best estimate as to expected future
market values, yields and costs to harvest. Costs accumulated on the acres
expected to be harvested during the next fiscal year have been classified as a
current asset.
Revenue
Recognition
The
Company’s primary source of revenue has been from the sale of fresh and dried
Ginseng. Currently, the Company is processing the Ginseng and storing the stock
for future juice production which it plans to commence in late 2010.
Ginseng is planted in the spring (March) and fall (September) of each year and
is generally harvested in September. It usually takes 6 years for a
Ginseng root to mature, although, senior maturity can be 8 years.
Harvested
Ginseng can be sold in two ways: (1) fresh Ginseng which can be sold immediately
and stored in refrigerators for up to 3 years and (2) dried Ginseng which is
processed and dried via sunlight and steam machines. Drying is a two month
process. Dried Ginseng can be stored up to 5 years. The Company has
focused on selling dried Ginseng as it is more profitable than selling fresh
Ginseng. The Company has also been storing fresh Ginseng for future juice
manufacturing.
When the
Company sells Ginseng, it receives orders prior to harvest. For major
customers, 20% to 30% is paid upon delivery as payment in advance. The
balance is billed after the customer incurs a lengthy inspection process which
can take up to 60 days. Until the customer finalizes its inspection and
deems the shipment acceptable, the shipment is still the property of the
Company. Upon customer completion of inspection and approval, the sale is
then recognized and the balance of the invoice price is sent to the Company. For
smaller sales, the customers pick up the Ginseng from the Company, pay in cash
at time of pick up and receive an invoice with appropriate sales tax applied and
a cash acknowledgement. On these orders, revenue is recognized upon
payment.
Accounts Receivable and
Allowance for Doubtful Accounts
Accounts
receivable consist principally of trade receivables. When Ginseng is shipped to
a customer, the customer is entitled to an inspection process which could take
up to 60 days. Upon completion of the inspection and approval process, the
customer notifies the company and a sale is recorded. The allowance for
doubtful accounts represents management’s estimate of the amount of probable
credit losses, determined by reviewing past due balances and other
information. Account balances are written off against the allowance if
management determines the receivable is uncollectible. The Company’s
standard terms stipulate payment in 60 days and consider a receivable to be
uncollectible after one appropriate collection efforts have been
exhausted.
Vineyard Development
Costs
Vineyard
development costs consist primarily of the costs of the vines and expenditures
related to labor and materials to prepare the land and construct vine trellises.
The costs are capitalized within Property and Equipment. When the vineyard
becomes commercially productive, annual amortization is recognized using the
straight-line method over the estimated economic useful life of the vineyard,
which is estimated to be 40 years. All of the company’s vineyards are considered
commercially productive. Amortization of vineyard development costs are
included in capitalized crop costs that in turn are included in inventory costs
and ultimately become a component of cost of goods sold.
23
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of
accounting. Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse.
Valuation allowances are established,
when necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
Result
of Operations
For
the three months ended September 30, 2010 compared to the three months ended
September 30, 2009.
Revenue
Products
|
September
30, 2010
Revenue
|
September
30, 2009
Revenue
|
2010-2009
Variance of
Quantity
|
2010-2009
Variance
of
Unit Price
|
2010-2009
Dollar
Variance
|
|||||||||||||||
Ginseng
(production)
|
$ | 9,937 | - | - | - | $ | 9,937 | |||||||||||||
Ginseng
(purchase)
|
$ | 43,360 | $ | 31,616 |
(1,556
|
)kg | $ | 5.79 | $ | 11,744 | ||||||||||
Total
|
$ | 53,298 | $ | 31,616 | $ | 21,682 |
Our total
revenue increased from $31,616 for the three months ended September 30, 2009 to
$53,298 for the three months ended September 30, 2010, an increase of $21,682 or
69%.
Our
ginseng sales revenue from our own farming production for the three months ended
September 30, 2010 is $9,939.28 compared to zero during the same period of the
previous year. In the three months ended September 30, 2009, we harvested
Ginseng very late in September due to weather so we did not have ginseng sales
from our own farming production during that period.
Part of
our business is to purchase and resell ginseng based on orders we receive from
our major customers. Our ginseng sales revenue from purchase and resale
increased from $31,616 for the three months ended September 30, 2009 to $43,360
for the three months ended September 30, 2010, an increase of $11,744 or 37 %.
Our revenue increased even though our order quantity decreased 1556 kg because
of a significant change in the resale price. For the three months ended
September 30, 2010, the selling price for our resale Ginseng increased $6 per kg
compared to the same period in 2009.
Because
the Chinese government restricted the amount of land available for ginseng
farming, the supply of ginseng was restricted and the price of high-quality
ginseng rose significantly during the three months ended September 30, 2010.
(Land under our company’s control was not subject to the change in government
restrictions.
24
Cost
of Goods Sold
009/30/2010
|
Unit Price
|
Quantity/
Kilo
|
09/30/2009
|
Unit Price
|
Quantity/
Kilo
|
|||||||||||||||||||
Ginseng
(Farming)
|
$ | 7,210 | 5.04 | 1,427 | - | |||||||||||||||||||
Ginseng
Purchase
for Resale
|
$ | 38,049 | 3.84 | 9,890 | $ | 14,914 | 3.22 | 4,628 | ||||||||||||||||
Total
|
$ | 45,259 | $ | 14,914 |
Our total
cost of goods sold increased from $14,914 for the three months ended September
30, 2009 to $45,259 for the three months ended September 30, 2010, an increase
of $30,345. The primary reason for the increase was an increase in the cost of
purchasing ginseng for resale. In addition, the company had a cost of $7,210 for
ginseng production. There was no cost for ginseng production for the three
months ended September 30, 2009 since there was no harvest during that
period.
The
harvest cost is based on the area of ginseng farmland harvested. It includes
seeds, seedlings, plant sheds, woodland expenses, wages, fertilizer, pesticides,
irrigation, transportation fees, and the building of pathways. These costs are
capitalized to ginseng crop inventory and are prorated to the cost of the
harvest. The cost is calculated based on the planting area and quantities of
ginseng being harvested.
Our cost
of purchasing ginseng for resale increased substantially from $14,914 in the
first three months ended 30, 2009 to $38,049 in the three months ended Sept. 30,
2010 primarily because the quality of the ginseng we purchased increased. During
the three months ended September 30, 2009, we purchased dry ginseng for resale.
During the three months ended September 30, 2010, we purchased 9,890kg of fresh
ginseng and processed it into dry ginseng to resale.
Selling
General and Administration Expenses
Sales
costs, general expenses and administrative expenses increased significantly from
a negative $49,528 for the three months ended September 30, 2009 to $ 278,381
for the three months ended September 30, 2010, an increase of $327,963.
The increase is mainly from the rise in general administrative expenses and
marketing expenses for our new business – the ginseng juice and grape wine
operation. Additionally, the Company recovered approximately $125,000 of
receivables which were considered a bad debt and charged to bad debt expense in
2009. In order to develop our new business and promote our new products, company
representatives attended most national agriculture exhibitions and food
exhibitions during the period.
Depreciation
and Amortization
Depreciation
and amortization was $5,993 for the three months ended September 30, 2010,
compared to $6,984 for the three months ended September 30, 2009, a decrease of
$991 or 14%.
25
Interest
Expense
Our
Interest expense decrease by $3,129, from $35,247 for the three months ended
September 30, 2009 to $32,118 for the three months ended September 30, 2010,
representing a 9% increase. The change in imputed interest is the primary reason
for the decrease in interest expense.
Income
Tax Expense
There was
no income tax for either quarter.
Net
Loss
The net
loss for the three months ended September 30, 2010 was $308,453; an increase of
$332,442 compared to a net profit of $23,989 for the three months ended
September 30, 2009. The net loss is primarily due to the increase in operating
expenses and administrative expenses. There also was an increase in the cost of
producing ginseng and in purchasing ginseng for resale, offset by
a reduction in bad debt expense of approximately $125,000 for receivables
written off and recovered in 2009.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
We usually finance our operation and capital expenditures through cash from
operations as well as loans from the members of our management group and through
a Regulation S private placement.
As of the
three months ended September 30, 2010, our working capital has a deficiency of
$2,248,938 , increased $180,939 compared to the three months ended September 30,
2009. In order to have sufficient funds to operate our existing business
and start our new business, we will pursue additional equity financing. From
June 30, 2010 to September 30, 2010 the company has raised an additional
$380,708 through a Regulation S private placement. Management believes that
through taking this series of actions, the Company will improve cash flow
and move towards profitability in the future.
Discussion
of Cash Flow
Cash
flows results for the three months ended September 30, 2010 and the three months
ended September 30, 2009 are summarized as follows:
September 30, 2010
|
September 30, 2009
|
|||||||
Net
cash provided by(used in) operating activities
|
$ | (386,780 | ) | $ | (482,860 | ) | ||
Net
cash used in investing activities
|
- | (3,186 | ) | |||||
Net
cash provided by financial activities
|
380,708 | 496,203 |
Operating
activities
Negative
cash flows from operating activities decreased by $96,080 for the three month
ended September 30, 2010 compared to the same period of 2009. This change was
primarily the result of an increase in net losses of $ 308,458 in addition to an
increase in accounts receivable of $26,181, an increase in inventory of $129,572
and a decrease in accounts payable of $92,053. These amounts were offset by an
increase in payments received in advance of $192,091. The increase in accounts
receivable primary was due to the increase in sales. The inventory increased due
to the stocking of more raw materials to avoid the potential material shortage
in the near future. A decrease in our accounts payable was because we paid
accounts payable with the cash generated from financial activities; and an
increase payment received in advance is primary due to the deposit we received
from our distributors.
26
Investing
activities
No cash
was used in investing activities for the three months ended September 30, 2010
and $3,186 used in investing activities for the three months ended September 30,
2009.
Financing
activities
Our cash
flows provided by financing activities aggregated $380,708 for the three months
ended September 30, 2010. During the period June 30, 2010 to
September 30, 2010, the Company raised $380,708 from a Regulation S Private
Placement to Chinese Nationals to support our working capital needs and during
the three months ended September 30, 2010,
Cash
flows provided by financing activities for the three months ended September 30
2009 was $496,203, primarily from the proceeds of loans payable to related
parties aggregating $496,203.
For
the three months ended September 30, 2009 compared to the three months ended
September30, 2008
Revenue
Revenue 09/30/2009
|
Revenue 09/30/2008
|
|||||||
Ginseng
Production (Farming)
|
- | $ | 65,008 | |||||
Ginseng
Purchase & Resale
|
$ | 31,616 | - | |||||
Seeds
|
- | |||||||
Seedlings
|
- | |||||||
Total
Revenue
|
$ | 31,616 | $ | 65,008 |
For the
three months ended September 30, 2008, we generated total revenue of $65,008
from the farming and sale of ginseng. For the first three months ended September
30, 2009, we generated $31,616 from the purchase and resale of
ginseng.
Our total
revenues for the three months ended September 30, 2009 decreased by $33,392 (or
51%) compared to the three months ended September 30, 2008. The decrease
was primary due to the fact that we didn’t generate revenue from farming ginseng
sales in three months ended September 30, 2009 because we harvested ginseng at
the end of September, 2009 due to hot weather.
Cost
of Goods Sold
Comparing
the three months ended September 30, 2008 to the three months ended September
30, 2009, our cost of goods sold decreased by $44,070, a decrease of 75%. For
the three months ended September 30, 2008, the cost of goods sold was $58,989
for ginseng production (farming) cost. For the three months ended Sept 30, 2009,
our cost of goods sold was $14,919 for ginseng purchase (outsourcing)
cost.
27
The
percentage of cost of goods sold as a percentage of revenues is 91% for the
three months ended September 30, 2008 and 47% for the three months ended
September 30, 2009.
There is
no farming cost for the three months ended September 30 2009, only the purchase
(outsourcing) cost. Since the harvest cost is based on the area of ginseng
farmland harvested. It includes seeds, seedlings, plant sheds, woodland
expenses, wages, fertilizer, pesticides, irrigation, transportation fees, and
the building of pathways. These costs are capitalized to ginseng crop inventory
and are prorated to the cost of the harvest. Therefore, the cost/revenue ratio
is relatively higher with a smaller quantity of harvest.
Selling,
General and Administrative Costs
Selling,
general and administrative expenses were reduced from $111,150 for the three
months ended September 30, 2008 to ($49,528) for the three months ended
September 30, 2009. That is a decrease of $160,678 or 145% for the three months
ended September 30, 2009 compared to the three months ended September 30,
2008. The reduction is mainly from a decrease in general administrative
expenses and a reduction in bad debt expense resulting from the recovery of
accounts receivable previously written off.
Depreciation
and Amortization
Depreciation
and amortization was $6,984 for the three months ended September 30, 2009
compared to $6,956 for the three months ended September 30, 2008. There was no
significant change.
Interest
Expense
Our
Interest expense increased from $31,920 for the three months ended September 30,
2008 to $35,247 for the three months ended September 30, 2009, a total of
$3,327. Interest expense includes an amount for imputed interest relating to
non-interest bearing loans to related parties and the interest related to the
loan acquired in the Tonghua acquistion.
Income
Taxes
We are
subject to income tax laws of the US, while our subsidiaries are subject to the
income tax laws of China. Various subsidiaries in China receive different
income tax incentives under Chinese tax laws. There is no income tax
incurred during the three months ended in 2009, 2008.
Net
Income (Loss)
We had a
net income of $23,989 for the three months ended September 30, 2009 and a net
loss of $(141,433) for the three months ended September 30, 2008, an increase of
$165,422. The primary reason for turning net loss from 2008 to net profit
in the three months ended September 30, 2009 was the reduction of operating
expenses, the cost of goods sold and the reduction in bad debt expense from the
recoverability of accounts receivable previously written off.
Commitments
and Contingencies
The
company has employment contacts with key individuals including the President of
the Company. The total commitment for the three months ended in September
30, 2009 is approximately $12,119.43
28
The
Chinese government owns all the land in China, Currently, the Company has grants
from the Chinese government for approximately 1,500 hectares of land (3,705
acres) to grow ginseng. These grants are for twenty years and are set to
expire in 2025. These grants can be renewed, although there is no assurance that
the Chinese government will renew them in the future.
The
Company is obligated to pay back a loan of $292,492 to Ji’An Credit Cooperatives
(the debt carried from Tonghua Linyuan). The loan was due for repayment on
February 4, 2003. The company is currently in default on the loan and the
lender has verbally agreed not to call the loan. Interest is currently
being paid on the loan.
The
Company has a 15 year lease with the Representative of Group One Farmer, Si’An
City, Qingshi, Qingshi Town, Qingshi Village, China to lease 750 acres to grow
and harvest grapes. The lease expires December 31, 2014. The annual lease
fee is 187,500 RMB or approximately $29,600 per year to lease the acreage.
The Company believes that the lease will be renewed.
Item
3. Quantitative and Qualitative Disclosure about Market Risk
Not
applicable.
Item
4. Controls and Procedures.
Evaluation of Disclosure
Controls and Procedures
The
Company maintains disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act) that are designed to ensure
that information required to be disclosed in the Company’s Securities Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and that such information is
accumulated and communicated to the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered
by this report. Based upon that evaluation, the Chief Executive Officer and the
Chief Financial Officer have concluded that, as of the end of the period covered
by this report, the Company’s disclosure controls and procedures were
effective.
Changes in Internal Control
over Financial Reporting
There
have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the
Securities Exchange Act) during the fiscal quarter ended September 30, 2010 that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
29
PART
II — OTHER INFORMATION
Item
1. Legal Proceedings.
None.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
(a) Unregistered Sales of Equity
Securities.
The
Company commenced on March 5, 2010 a private placement under Regulation S to
non-U.S. citizens or residents whereby the Company is trying to sell 10,000,000
shares of its common stock at $0.25 per share. As of June 30, 2010, we have
raised $591,902 for our business development from this placement in China. As of
September 30, 2010, we raised an additional $380,708 from this placement in
China, for a total of $972,610. Sales were made to 128 non-U.S. citizens or
residents at $0.25 per share. Since September 30, 2010, the Campany has sold an
additional 2,355,000 shares of its common stock at $0.25 per
share.
We relied
upon Regulation S of the Securities Act of 1933, as amended for the above
issuances to non US citizens or residents.
We
believed that Regulation S was available because:
|
·
|
None
of these issuances involved underwriters, underwriting discounts or
commissions;
|
|
·
|
We
placed Regulation S required restrictive legends on all certificates
issued;
|
|
·
|
No
offers or sales of stock under the Regulation S offering were made to
persons in the United States;
|
|
·
|
No
direct selling efforts of the Regulation S offering were made in the
United States.
|
In
connection with the above transactions, although some of the investors may have
also been accredited, we provided the following to all investors:
|
·
|
Access
to all our books and records.
|
|
·
|
Access
to all material contracts and documents relating to our
operations.
|
|
·
|
The
opportunity to obtain any additional information, to the extent we
possessed such information, necessary to verify the accuracy of the
information to which the investors were given
access.
|
Prospective
investors were invited to review at our offices at any reasonable hour, after
reasonable advance notice, any materials available to us concerning our
business. Prospective Investors were also invited to visit our
offices.
30
(b) Use of
Proceeds.
The
Registrant has not sold any registered securities.
Item
3. Defaults Upon Senior Securities
None.
Item
4. (Removed and Reserved).
Item
5. Other Information.
Not
applicable.
Item
6. Exhibits.
|
(a)
|
Exhibits.
|
Exhibit
No.
|
Document
Description
|
|
31.1
|
CERTIFICATION
of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
|
|
31.2
|
CERTIFICATION
of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
|
|
32.1
|
CERTIFICATION
of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEYACT OF 2002
|
|
32.2
|
CERTIFICATION
of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEYACT OF
2002
|
* This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
31
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
China
Ginseng Holdings, Inc., a Nevada corporation
Title
|
Name
|
Date
|
Signature
|
|||
Principal
Executive Officer
|
Changzhen
Liu
|
November
22, 2010
|
/s/
Changzhen Liu
|
In
accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
SIGNATURE
|
NAME
|
TITLE
|
DATE
|
|||
/s/
Changzhen Liu
|
Changzhen
Liu
|
Principal
Executive Officer and Director
|
November
22, 2010
|
|||
/s/
Ren Ying
|
Ren
Ying
|
Principal
Financial Officer and Principal Accounting Officer
|
November
22, 2010
|
32
EXHIBIT
INDEX
Exhibit
No.
|
Document
Description
|
|
31.1
|
CERTIFICATION
of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
|
|
31.2
|
CERTIFICATION
of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
|
|
32.1
|
CERTIFICATION
of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEYACT OF 2002
|
|
32.2
|
CERTIFICATION
of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEYACT OF
2002
|
* This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
33