Attached files
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EX-32.2 - BODISEN BIOTECH, INC | v211793_ex32-2.htm |
EX-31.1 - BODISEN BIOTECH, INC | v211793_ex31-1.htm |
EX-31.2 - BODISEN BIOTECH, INC | v211793_ex31-2.htm |
EX-32.1 - BODISEN BIOTECH, INC | v211793_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(Amendment
No. 1)
(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, 2010
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____________ to _____________
Commission File No.
000-31539
BODISEN
BIOTECH, INC.
|
(Exact
name of small business issuer as specified in its
charter)
|
Delaware
|
98-0381367
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer
Identification No.)
|
|
Room 2001, FanMei Building
No. 1 NaguanZhengjie
Xi’an, Shaanxi
People’s Republic of China710068
|
||
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
852-2482-5168
|
(Registrant’s
Telephone Number, Including Area
Code)
|
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 preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x
No ¨
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 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. ¨(Do not check if a smaller reporting company)
|
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
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. ¨ Yes ¨
No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.The number of shares outstanding of
each of the issuer’s classes of common stock as of November17, 2010:
18,710,250
Explanatory
Note
Bodisen
Biotech, Inc. (the “Company”) is filing this amendment to its Quarterly Report
on Form 10-Q originally filed with the SEC on November 22, 2010 (the “Original
Filing”). This Quarterly Report on Form 10-Q/A is being filed solely to correct
typographical errors on the cover page.
Except as
noted above there have been no other changes to the Original
Filing.
TABLE
OF CONTENTS
Page
|
|||
PART
I
|
|||
Item
1.
|
Financial
Statements
|
2
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
14
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
17
|
|
Item
4
|
Controls
and Procedures
|
17
|
|
PART
II
|
|||
Item
1.
|
Legal
Proceedings
|
20
|
|
Item
1A.
|
Risk
Factors
|
20
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
20
|
|
Item
4.
|
(Removed
and Reserved)
|
20
|
|
Item
5.
|
Other
Information
|
20
|
|
Item
6.
|
Exhibits
|
20
|
|
SIGNATURES
|
21
|
1
CONSOLIDATED
BALANCE SHEETS
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(as restated)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 3,603,356 | $ | 4,824,135 | ||||
Accounts
receivable and other receivable, net of allowance for
|
||||||||
doubtful
accounts of $669,672 and $2,196,072
|
4,340,852 | 2,346,583 | ||||||
Note
receivable
|
1,497,000 | - | ||||||
Other
receivables
|
22,953 | 26,298 | ||||||
Inventory,
net
|
2,432,490 | 991,140 | ||||||
Advances
to suppliers
|
209,705 | 541,754 | ||||||
Prepaid
expense and other current assets
|
9,647 | 966,942 | ||||||
Total
current assets
|
12,116,003 | 9,696,852 | ||||||
PROPERTY
AND EQUIPMENT, net
|
11,480,500 | 11,837,406 | ||||||
CONSTRUCTION
IN PROGRESS
|
10,650,752 | 10,422,641 | ||||||
MARKETABLE
SECURITY, AVAILABLE-FOR-SALE
|
9,487,373 | 8,175,290 | ||||||
INTANGIBLE
ASSETS, net
|
4,805,859 | 4,873,904 | ||||||
TOTAL
ASSETS
|
$ | 48,540,487 | $ | 45,006,093 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ | 1,563,458 | $ | 71,504 | ||||
Deferred
revenue
|
829,547 | 917,147 | ||||||
Accrued
expenses and other payables
|
153,639 | 161,673 | ||||||
Total
current liabilities
|
2,546,644 | 1,150,324 | ||||||
Long-term
note payable
|
1,497,000 | - | ||||||
TOTAL
LIABILITIES
|
4,043,644 | 1,150,324 | ||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Preferred
stock, $0.0001 per share; authorized 5,000,000 shares;
|
||||||||
nil
issued and outstanding
|
||||||||
Common
stock, $0.0001 per share; authorized 30,000,000 shares;
|
||||||||
issued
and outstanding 18,710,250 and 18,710,250
|
1,871 | 1,871 | ||||||
Additional
paid-in capital
|
33,945,822 | 33,945,822 | ||||||
Other
comprehensive income
|
15,606,779 | 13,473,307 | ||||||
Statutory
reserve
|
4,314,488 | 4,314,488 | ||||||
Accumulated
deficit
|
(9,372,117 | ) | (7,879,719 | ) | ||||
Total
stockholders' equity
|
44,496,843 | 43,855,769 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 48,540,487 | $ | 45,006,093 |
The
accompanying notes are an integral part of these consolidated financial
statements.
2
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
(as restated)
|
(as restated)
|
|||||||||||||||
Net
revenue
|
$ | 2,209,724 | $ | 56,090 | $ | 5,661,715 | $ | 3,246,456 | ||||||||
Cost
of revenue
|
1,559,565 | 503,530 | 4,224,164 | 2,720,245 | ||||||||||||
Gross
profit (loss)
|
650,159 | (447,440 | ) | 1,437,551 | 526,211 | |||||||||||
Operating
expenses
|
||||||||||||||||
Selling
expenses
|
25,835 | 15,816 | 372,021 | 42,934 | ||||||||||||
General
and administrative expenses
|
956,675 | 494,744 | 2,418,410 | 794,886 | ||||||||||||
Writedown
of assets
|
- | - | 104,254 | |||||||||||||
Total
operating expenses
|
982,510 | 510,560 | 2,790,431 | 942,074 | ||||||||||||
Loss
from operations
|
(332,351 | ) | (958,000 | ) | (1,352,880 | ) | (415,863 | ) | ||||||||
Non-operating
income (expense):
|
||||||||||||||||
Other
income (expense)
|
(61,531 | ) | (503 | ) | (81,372 | ) | (1,787 | ) | ||||||||
Interest
income
|
5,826 | 82 | 13,712 | 396 | ||||||||||||
Interest
expense
|
(40,438 | ) | (60 | ) | (61,561 | ) | (208 | ) | ||||||||
Loss
on disposal of property and equipment
|
(10,297 | ) | - | (10,297 | ) | - | ||||||||||
Loss
on the sale of investment
|
- | (29 | ) | - | (211,639 | ) | ||||||||||
Equity
income in investment
|
- | 177,826 | - | 484,728 | ||||||||||||
Total
non-operating income (expense)
|
(106,440 | ) | 177,316 | (139,518 | ) | 271,490 | ||||||||||
Loss
before provision for income taxes
|
(438,791 | ) | (780,684 | ) | (1,492,398 | ) | (144,373 | ) | ||||||||
Provision
(benefit) for income taxes
|
- | - | - | |||||||||||||
Net
loss
|
(438,791 | ) | (780,684 | ) | (1,492,398 | ) | (144,373 | ) | ||||||||
Other
comprehensive income (loss)
|
||||||||||||||||
Foreign
currency translation gain
|
653,271 | 55,167 | 821,389 | 259 | ||||||||||||
Unrealized
gain (loss) on marketable equity security
|
201,859 | (7,161,275 | ) | 1,312,083 | (2,270,145 | ) | ||||||||||
Comprehensive
loss
|
$ | 416,339 | $ | (7,886,792 | ) | $ | 641,074 | $ | (2,414,259 | ) | ||||||
Weighted
average shares outstanding :
|
||||||||||||||||
Basic
|
18,710,250 | 18,710,250 | 18,710,250 | 18,710,250 | ||||||||||||
Diluted
|
18,710,250 | 18,710,250 | 18,710,250 | 18,710,250 | ||||||||||||
Loss
per share:
|
||||||||||||||||
Basic
|
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.01 | ) | ||||
Diluted
|
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.01 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
3
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine Months Ended September
30,
|
||||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
(as
restated)
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (1,492,398 | ) | $ | (144,373 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
and amortization
|
757,672 | 557,736 | ||||||
Loss
on disposal of fixed asset
|
- | 104,254 | ||||||
Loss
on the sale of investment
|
- | 211,610 | ||||||
Allowance
(recovery) of bad debts
|
897,017 | 104,736 | ||||||
Equity
income in investment
|
- | (484,728 | ) | |||||
(Increase)
/ decrease in assets:
|
||||||||
Accounts
receivable
|
(3,366,551 | ) | (918,350 | ) | ||||
Other
receivables
|
3,815 | 303,819 | ||||||
Inventory
|
(1,396,400 | ) | 1,276,509 | |||||
Advances
to suppliers
|
337,168 | (486,562 | ) | |||||
Prepaid
expense
|
960,100 | 49,356 | ||||||
Increase
/ (decrease) in current liabilities:
|
||||||||
Accounts
payable
|
1,464,814 | (586,759 | ) | |||||
Deferred
revenue
|
438,646 | (613,428 | ) | |||||
Accrued
expenses
|
62,933 | (16,917 | ) | |||||
Other
payables
|
55,673 | - | ||||||
Net
cash used in operating activities
|
(1,277,511 | ) | (643,097 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Disposal
of property and equipment
|
(4,292 | ) | - | |||||
Additions
to construction in progress
|
- | (15,287 | ) | |||||
Decrease
in construction in progress
|
(14,710 | ) | - | |||||
Proceeds
from sale of investment
|
- | 735,656 | ||||||
Loan
receivable
|
(1,471,000 | ) | - | |||||
Net
cash provided by (used in) investing activities
|
(1,490,002 | ) | 720,369 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from issuance of long-term debt
|
1,471,000 | - | ||||||
Net
cash provided by investing activities
|
1,471,000 | - | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
75,734 | 934 | ||||||
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
|
(1,220,779 | ) | 78,206 | |||||
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
4,824,135 | 90,716 | ||||||
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
$ | 3,603,356 | $ | 168,922 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Interest
paid
|
$ | - | $ | - | ||||
Income
taxes paid
|
$ | - | $ | - | ||||
SUPPLEMENTAL
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Transfer
of construction in process to property and equipment
|
$ | - | $ | 7,166,581 |
The
accompanying notes are an integral part of these consolidated financial
statements.
4
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Note
1 - Organization and Basis of Presentation
The
unaudited consolidated financial statements have been prepared by Bodisen
Biotech, Inc., a Delaware corporation (the “Company” or “Bodisen”), pursuant to
the rules and regulations of the Securities Exchange Commission
(“SEC”). The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly present the operating results for the
respective periods.Certain information and footnote disclosures normally present
in annual consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company’s Annual Report on
Form 10-K. The results for the ninemonths ended September 30, 2010
are not necessarily indicative of the results to be expected for the full year
ending December 31, 2010.
Organization and Line of
Business
The
accompanying consolidated financial statements include the accounts of Bodisen
Biotech, Inc., its 100% wholly-owned subsidiaries Bodisen Holdings, Inc. (BHI),
Yang Ling Bodisen Agricultural Technology Co., Ltd (“Agricultural”), which was
incorporated in March 2005, and Sinkiang Bodisen Agriculture Material Co., Ltd.
(“Material”), which was incorporated in June 2006, as well as the accounts of
Agricultural’s 100% wholly- owned subsidiary Yang Ling Bodisen Biology Science
and Technology Development Company Limited (“BBST”). The Company is
engaged in developing, manufacturing and selling organic fertilizers, liquid
fertilizers, pesticides and insecticides in the People’s Republic of China
and produce numerous proprietary product lines, from pesticides to crop-specific
fertilizers. The Company markets and sells its products to
distributors throughout the People's Republic of China, and these distributors,
in turn, sell the products to farmers.
Basis of
Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America. All significant intercompany transactions and balances have
been eliminated. The Company’s functional currency is the Chinese
Yuan Renminbi (“RMB”); however the accompanying consolidated financial
statements have been translated and presented in United States Dollars ($ or
“USD”).
Principles of
Consolidation
The
accompanying consolidated financial statements include the accounts of Bodisen
Biotech, Inc., and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Note
2 – Summary of Significant Accounting Policies
Reclassifications
Certain
amounts in the 2009 consolidated financial statements have been reclassified to
conform with the 2010 presentation with no effect to previously reported net
income (loss).
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions. These estimates and assumptions 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. Actual results could differ
from those estimates. It is possible that accounting estimates and assumptions
may be material to the Company due to the levels of subjectivity and judgment
involved.
5
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Cash and Cash
Equivalents
Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.
Accounts
Receivable
The
Company maintains reserves for potential credit losses for 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. Reserves are recorded based on the Company’s
historical collection history.
Advances to
Suppliers
The
Company advances to certain vendors for purchase of its material. The advances
to suppliers are interest free and unsecured.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down their inventories to market value, if
lower.
Property & Equipment and
Capital Work In Progress
Property
and equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of:
Operating
equipment
|
10
years
|
Vehicles
|
8
years
|
Office
equipment
|
5
years
|
Buildings
|
30
years
|
The
following are the details of the property and equipment at September30, 2010 and
December 31, 2009, respectively:
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Operating
equipment
|
$ | 4,747,269 | $ | 4,650,919 | ||||
Vehicles
|
701,856 | 687,791 | ||||||
Office
equipment
|
90,375 | 87,552 | ||||||
Buildings
|
8,835,190 | 8,656,077 | ||||||
14,374,690 | 14,082,339 | |||||||
Less
accumulated depreciation
|
(2,894,190 | ) | (2,244,933 | ) | ||||
Property
and equipment, net
|
$ | 11,480,500 | $ | 11,837,406 |
Depreciation
expense for the three and ninemonths ended September 30, 2010 and 2009 was
$201,344and $592,870and $206,863and $393,492, respectively.
On
September 30, 2010 and December 31, 2009, the Company had “Capital Work in
Progress” representing the construction in progress of the Company’s
manufacturing plant amounting $10,650,752and $10,422,641. During the nine months
ended September 30, 2010, there were no transfers from construction in progress
to property and equipment.
6
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Marketable
Securities
The
Company applies the guidance of ASC Topic 320 “Investments-Debt and Equity
Securities,” which requires investments in equity securities to be classified as
either trading securities or available-for-sale
securities. Marketable securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and are reported at fair value, with unrealized gains and
losses recognized in earnings. Marketable equity securities not classified as
trading are classified as available for sale, and are carried at fair market
value, with the unrealized gains and losses, net of tax, included in the
determination of comprehensive income and reported in shareholders’
equity.
Long-Lived
Assets
The
Company applies the provisions of ASC Topic 360, “Property, Plant, and
Equipment,” which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. ASC 360 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair value of the long-lived assets. Loss on long-lived assets to be disposed of
is determined in a similar manner, except that fair values are reduced for the
cost of disposal. Based on its review, the Company believes that as of September
30, 2010 and December 31, 2009, there was no significant impairment of its
long-lived assets.
Intangible
Assets
Intangible
assets consist of Rights to use land and Fertilizers proprietary technology
rights. The Company evaluates intangible assets for impairment, at least on an
annual basis and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss.
Fair Value of Financial
Instruments
For
certain of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate their fair
values due to their short maturities. In addition, the Company has long-term
debt with financial institutions. The carrying amounts of the line of credit and
other long-term liabilities approximate their fair values based on current rates
of interest for instruments with similar characteristics.
|
·
|
Level
1 inputs to the valuation methodology are quoted prices for identical
assets or liabilities in active
markets.
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
7
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC
815.
The
following table represents our assets and liabilities by level measured at fair
value on a recurring basis as of September 30, 2010.
Description
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
Assets:
|
||||||||||||
Marketable
securities
|
$ | 9,487,373 | $ | - | $ | - |
The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the consolidated balance sheets at fair value in
accordance with ASC 825.
Revenue
Recognition
The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Because collection is not reasonably assured, sales revenue
is recognized using the cost recovery method. Under the cost recovery method, no
profit is recognized until cash payments exceed the cost of the goods
sold.
Advertising
Costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the three and
ninemonths ended September 30, 2010 and 2009 were insignificant.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with ASC Topic 718,
“Compensation – Stock Compensation.” ASC 718 requires companies to
measure compensation cost for stock-based employee compensation at fair value at
the grant date and recognize the expense over the employee’s requisite service
period. The Company recognizes in the statement of operations the grant-date
fair value of stock options and other equity-based compensation issued to
employees and non-employees. There were 426,000 options outstanding as of
September 30, 2010.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes.” ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion, or all of,
the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Under ASC
740, a tax position is recognized as a benefit only if it is “more likely than
not” that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. The adoption had no effect on the Company’s
consolidated financial statements.
In March
2005, Bodisen Biotech Inc. formed Agricultural. Under Chinese law, a newly
formed wholly owned subsidiary of a foreign company enjoys an income tax
exemption for the first two years and a 50% reduction of normal income tax rates
for the following 3 years. In order to extend such tax benefits, in June 2005,
Agricultural completed a transaction with BBST, which resulted in Agricultural
owning 100% of BBST.
8
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Foreign Currency
Translation
The
accounts of the Company’s Chinese subsidiaries are maintained in the RMB and the
accounts of the U.S. parent company are maintained in the
USD. The accounts of the Chinese subsidiaries are were
translated into USD in accordance with Accounting Standards Codification (“ASC”)
Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency
for the Chinese subsidiaries. According to Topic 830, all assets and
liabilities were translated at the exchange rate on the balance sheet date,
stockholders’ equity is translated at historical rates and statement of
operations items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance with ASC Topic 220, “Comprehensive
Income.” Gains and losses resulting from the translations of foreign
currency transactions and balances are reflected in the statement of
operations.
Foreign Currency
Transactions and Comprehensive Income
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain statements, however, require
entities to report specific changes in assets and liabilities, such as gain or
loss on foreign currency translation, as a separate component of the equity
section of the balance sheet. Such items, along with net income, are
components of comprehensive income. The functional currency of the
Company’s Chinese subsidiaries is the Chinese Yuan
Renminbi. Translation gains of $8,949,138 and $8,127,749at
September30, 2010 and December 31, 2009, respectively are classified as an item
of other comprehensive income in the stockholders’ equity section of the
consolidated balance sheet. During the three and nine months ended
September 30, 2010, other comprehensive income in the consolidated statements of
operations and other comprehensive income included translation gains (loss) of
$653,271and $821,389, respectively, and $55,167 and $259 for the three and nine
months ended September 30, 2009, respectively.
Basic and Diluted Earnings
Per Share
Earnings
per share is calculated in accordance with the ASC Topic 260, “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 convertible shares and stock warrants
were converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, 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. There were 426,000 and 436,000 options as of
September 30, 2010 and 2009 that were excluded from the diluted loss per share
calculation due to their anti-dilutive effect.
Statement of Cash
Flows
In
accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rates. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.
Segment Reporting
ASC Topic
280, “Segment Report,” 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. ASC Topic 280 has no effect on the
Company’s consolidated financial statements as the Company consists of one
reportable business segment. All revenue is from customers in
People’s Republic of China and all of the Company’s assets are located in
People’s Republic of China.
Note
3 – Note Receivable
The note
receivable is unsecured; bears interest at 9.1% per annum and is due on March
25, 2011.
9
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Note
4 – Inventory
Inventory
at September 30, 2010 and December 31, 2009 consisted of the
following:
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Raw
materials
|
$ | 1,684,375 | $ | 355,714 | ||||
Packaging
|
7,476 | 59,729 | ||||||
Finished
goods
|
740,639 | 652,202 | ||||||
2,432,490 | 1,067,645 | |||||||
Less
obsolescence reserve
|
- | (76,505 | ) | |||||
Inventory,
net
|
$ | 2,432,490 | $ | 991,140 |
Note
5 – Marketable Security
During
2008, the Company exchanged $3,291,264 of receivables for a 28.8% ownership
interest in a Chinese company, Shanxi Jiali Pharmaceutical Co. Ltd
(“Jiali”). The Company had written down the value of this investment
by $987,860 at December 31, 2008. This investment was originally
accounted for under the equity method and the Company recorded equity income in
this investment through September 30, 2009. During the fourth quarter
of 2009, Jiali was purchased by China Pediatric Pharmaceuticals, Inc. (“China
Pediatric”), a public company. After the transaction, the Company
owned 18.8% of China Pediatric. The Company then changed the
accounting method for the investment from the equity method to the fair value
method. At the date of the change, the investment was valued at
$2,829,732. As of September 30, 2010 and December 31, 2009, the fair
value of the investment is $9,487,373 and $8,175,290, respectively, which is
reflected in the consolidated balance sheet. The company recognized
an unrealized gain of $201,859and $1,312,083for the three and nine months ended
September 30, 2010, respectively, and an unrealized loss of $7,161,275and
$2,270,145for the three and nine months ended September 30, 2009, respectively,
which is reflected as other comprehensive income in the consolidated statement
of stockholder’s equity.
Note
6– Intangible Assets
Net
intangible assets at September 30, 2010 and December 31, 2009 were as
follows:
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Rights
to use land
|
$ | 5,101,968 | $ | 4,999,725 | ||||
Fertilizers
proprietary technology rights
|
1,197,600 | 1,173,600 | ||||||
6,299,568 | 6,173,325 | |||||||
Less
accumulated amortization
|
(1,493,709 | ) | (1,299,421 | ) | ||||
Intangibles,
net
|
$ | 4,805,859 | $ | 4,873,904 |
The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shaanxi, People’s
Republic of China. The Company leases land per a real estate contract with the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.
During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.
The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty
years.
The
Company acquired Fluid and Compound Fertilizers proprietary technology rights on
January 1, 2001with a life ending December 31, 2011. The Company is amortizing
Fertilizers proprietary technology rights over a period of ten
years.
On July
15, 2008, the Company entered into a 50 year land rights
agreement.
10
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Amortization
expense for the Company’s intangible assets amounted to $55,244 and $164,802for
the three and nine months ended September 30, 2010, respectively and $54,763 and
$164,244for the three and nine months ended September 30, 2009,
respectively.
Note
7 – Long-Term Note Payable
On March
19, 2010, the Company obtained a bank loan for 10,000,000 RMB (approximately
$1,437,000). The loan has an 8.1% annual interest rate, matures on
March 19, 2012 and is secured by the Company’s land and facility.
Note
8 – Stock Options
Stock
Options
Weighted
|
||||||||||||
Average
|
Aggregate
|
|||||||||||
Options
|
Exercise Price
|
Intrinsic
|
||||||||||
Outstanding
|
Price
|
Value
|
||||||||||
Outstanding
at December 31, 2009
|
426,000 | $ | 1.07 | |||||||||
Granted
|
- | |||||||||||
Canceled
|
- | |||||||||||
Exercised
|
- | |||||||||||
Outstanding
at September 30, 2010 (unaudited)
|
426,000 | $ | 1.07 | |||||||||
Exercisable
at September 30, 2010 (unaudited)
|
426,000
|
$ | 1.07 | $ | - |
Note
9 – Statutory Common Welfare Fund
As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
|
i.
|
Making
up cumulative prior years’ losses, if
any;
|
|
ii.
|
Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the fund
amounts to 50% of the Company’s registered
capital;
|
iii.
|
Allocations
of 5-10% of income after tax, as determined under PRC accounting rules and
regulations, to the Company’s “Statutory common welfare fund”, which is
established for the purpose of providing employee facilities and other
collective benefits to the Company’s employees;
and
|
iv.
|
Allocations
to the discretionary surplus reserve, if approved in the stockholders’
general meeting.
|
Pursuant
to the new Corporate Law effective on January 1, 2006, there is now only one
"Statutory surplus reserve" requirement. The reserve is 10 percent of
income after tax, not to exceed 50 percent of registered capital.
The
Company did not appropriate a reserve for the statutory surplus reserve and
welfare fund for the ninemonths ended September 30, 2010 and 2009.
Note
10– Factory Location and Lease Commitments
The
Company’s principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanxi province, People’s Republic of China. BBST owns two factories, which
includes three production lines, an office building, one warehouse, and two
research labs and, is located on 10,900 square meters of land. These leases
require monthly rental payments of $2,546 and the leases expire in
2013.
11
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Note 11 – Current Vulnerability Due
to Certain Concentrations
Two
vendors provided 65% and 22% of the Company’s raw materials for the ninemonths
ended September 30, 2010 and three vendors provided 36.6%, 13.4% and 10.7% of
the Company’s raw materials for the nine months ended September 30,
2009.
The
Company’s operations are 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, by the general state of
the PRC’s economy. The Company’s business may be influenced 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.
Note
12 – Restatement
The
Company changed its revenue recognition policy to the cost recovery method as
the Company does not believe that collection is reasonably
assured. Under the cost recovery method, no profit is recognized
until cash payments exceed the cost of the goods sold and the Company records
deferred revenue which is the gross profit that has not been
realized. As a result of the change in the revenue recognition
policy, the Company has restated previously issued financial
statements.
The
following adjustments were made to the financial statements for the three and
nine months ended September 30, 2009.
For
the Three
|
For
the Three
|
|||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||
September
30, 2009
|
September
30, 2009
|
|||||||||||
As Reported
|
Adjustment
|
Restated
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
Net
revenue
|
$ | 472,957 | $ | (416,867 | ) | $ | 56,090 | |||||
Gross
profit
|
(30,573 | ) | (416,867 | ) | (447,440 | ) | ||||||
General
and administrative expenses
|
1,066,009 | (571,265 | ) | 494,744 | ||||||||
Total
operating expenses
|
1,081,825 | (571,265 | ) | 510,560 | ||||||||
Income
(loss) from operations
|
(1,112,398 | ) | 154,398 | (958,000 | ) | |||||||
Other
income (expense)
|
177,316 | - | 177,316 | |||||||||
Income
(loss) before provision for income taxes
|
(935,082 | ) | 154,398 | (780,684 | ) | |||||||
Net
income (loss)
|
(935,082 | ) | 154,398 | (780,684 | ) | |||||||
Comprehensive
loss
|
(8,041,190 | ) | 154,398 | (7,886,792 | ) | |||||||
Basic
earnings (loss) per share
|
(0.05 | ) | (0.03 | ) | (0.08 | ) | ||||||
Diluted
earnings (loss) per share
|
$ | (0.05 | ) | $ | (0.03 | ) | $ | (0.08 | ) |
12
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
For the Nine
|
For the Nine
|
|||||||||||
Months Ended
|
Months Ended
|
|||||||||||
September 30, 2009
|
September 30, 2009
|
|||||||||||
As Reported
|
Adjustment
|
Restated
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
Net revenue
|
$ | 3,078,485 | $ | 167,971 | $ | 3,246,456 | ||||||
Gross
profit
|
358,240 | 167,971 | 526,211 | |||||||||
General
and administrative expenses
|
207,593 | 587,293 | 794,886 | |||||||||
Total
operating expenses
|
354,781 | 587,293 | 942,074 | |||||||||
Income
(loss) from operations
|
3,459 | (419,322 | ) | (415,863 | ) | |||||||
Income
(loss) before provision for income taxes
|
274,949 | (419,322 | ) | (144,373 | ) | |||||||
Net
income (loss)
|
274,949 | (419,322 | ) | (144,373 | ) | |||||||
Comprehensive
loss
|
(1,994,937 | ) | (419,322 | ) | (2,414,259 | ) | ||||||
Basic
earnings (loss) per share
|
0.01 | (0.02 | ) | (0.01 | ) | |||||||
Diluted
earnings (loss) per share
|
$ | 0.01 | $ | (0.02 | ) | $ | (0.01 | ) |
Note
13 – Subsequent Events
Pursuant
to Financial Accounting Standards Board Accounting Standards Codification
855-10, the Company has evaluated all events or transactions that occurred from
October 1, 2010, through the filing with the SEC. The Company did not
have any material recognizable subsequent events during this
period.
13
Cautionary
Note Regarding Forward-Looking Statements
We make
certain forward-looking statements in this report. Statements concerning our
future operations, prospects, strategies, financial condition, future economic
performance (including growth and earnings), demand for our services, and other
statements of our plans, beliefs, or expectations, including the statements
contained under the captions “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Business,” as well as captions elsewhere
in this document, are forward-looking statements. In some cases these statements
are identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,”
“may,” “should,” “will,” “would,” and similar expressions. We intend such
forward-looking statements to be covered by the safe harbor provisions contained
in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)
and in Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The forward-looking statements we make are not guarantees of
future performance and are subject to various assumptions, risks, and other
factors that could cause actual results to differ materially from those
suggested by these forward-looking statements. Because such statements are
subject to risks and uncertainties, actual results may differ materially from
those expressed or implied by the forward-looking statements. Indeed, it is
likely that some of our assumptions will prove to be incorrect. Our actual
results and financial position will vary from those projected or implied in the
forward-looking statements and the variances may be material. You are cautioned
not to place undue reliance on such forward-looking statements. These risks and
uncertainties, together with the other risks described from time to time in
reports and documents that we file with the SEC should be considered in
evaluating forward-looking statements.
The
nature of our business makes predicting the future trends of our revenue,
expenses, and net income difficult. Thus, our ability to predict results or the
actual effect of our future plans or strategies is inherently uncertain. The
risks and uncertainties involved in our business could affect the matters
referred to in any forward-looking statements and it is possible that our actual
results may differ materially from the anticipated results indicated in these
forward-looking statements. Important factors that could cause actual results to
differ from those in the forward-looking statements include, without limitation,
the following:
|
·
|
the
effect of political, economic, and market conditions and geopolitical
events;
|
|
·
|
legislative
and regulatory changes that affect our
business;
|
|
·
|
the
availability of funds and working
capital;
|
|
·
|
the
actions and initiatives of current and potential
competitors;
|
|
·
|
investor
sentiment; and
|
|
·
|
our
reputation.
|
We do not
undertake any responsibility to publicly release any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by any
forward-looking statements.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this
Report.
Except as
otherwise indicated by the context, references in this Form 10-Q to “we,” “us,”
“our,” “the Registrant”, “our Company,” or “the Company” are Bodisen Biotech,
Inc., a Delaware corporation and its consolidated subsidiaries, including Yang
Ling Bodisen Biology Science and Technology Development Company Limited, (“Yang
Ling”), our operating subsidiary. Unless the context otherwise requires, all
references to (i) “PRC” and “China” are to the People’s Republic of China; (ii)
“U.S. dollar,” “$” and “US$” are to United States dollars; (iii) “RMB” are to
Yuan Renminbi of China; (iv) “Securities Act” are to the Securities Act of 1933,
as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934,
as amended.
Critical
Accounting Policies and Estimates
Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenues and expenses amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
14
We
believe the following is among the most critical accounting policies that impact
our consolidated financial statements. We suggest that our significant
accounting policies, as described in our condensed consolidated financial
statements in the Summary of Significant Accounting Policies, be read in
conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Accounts
receivable
We
maintain reserves for potential credit losses on accounts receivable and record
them primarily on a specific identification basis. In order to establish
reserves, we review the composition of accounts receivable and analyze
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. This analysis and evaluation requires the use of
judgments and estimates. Because of the nature of the evaluation, certain
judgments and estimates are subject to change, which may require adjustments in
future periods.
Inventories
We value
inventories at the lower of cost (determined on a weighted average basis) or
market. When evaluating our inventory, we compare the cost with the market value
and make allowance to write them down to market value, if lower. The
determination of market value requires the use of estimates and judgment by our
management.
Intangible
assets
We
evaluate intangible assets for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable from its estimated future cash flows. This evaluation
requires the use of judgments and estimates, in particular with respect to
recoverability. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment
loss.
Revenue
Recognition
Our
revenue recognition policies are in compliance with Staff accounting bulletin
(SAB) 104. Because collection is not reasonably assured, sales revenue is
recognized using the cost recovery method. Under the cost recovery method, no
profit is recognized until cash payments exceed the cost of the goods
sold.
Results
of Operations
Three Months Ended September
30, 2010as Compared to Three Months EndedSeptember30, 2009
Revenue. We
generated revenue of $2,209,724for the three months ended September 30, 2010,
anincrease of $2,153,634or3,840%, compared to $56,090for the three months ended
September 30, 2009. The increase in revenue is primarily attributable
to the overall recovery of the economic environment and an increase in the
demand for our products during the quarter.
Gross Profit
(Loss). We experienceda gross profitof $650,159 for the three
months ended September 30, 2010, an increase of $1,097,599or245%, compared to
($447,440)for the three months ended September 30, 2009. Gross margin
(gross profitas a percentage of revenue), was 29.4% for the three months ended
September 30, 2010, compared to (798)% for the three months ended September 30,
2009. The increase in the gross margin percentage was primarily
attributable to the higher profit margins which are earned on the new
products. During 2009, we reduced our selling price due to the
economic downturn.
Selling Expenses.Aggregated
selling expenses accounted for $25,835of our operating expenses for the three
months ended September 30, 2010, anincrease of $10,019or63%, compared to $15,816
for the three months ended September 30, 2009. The increasein our
aggregated selling expenses is primarily attributable to an increase in
marketing promotion and advertising programs.
15
General and Administrative
Expenses. General and administrative expenses accounted for
$956,675of our operating expenses for the three months ended September 30, 2010,
an increase of $461,931 or93%, compared to of $494,744 for the three months
ended September 30, 2009. The increase is due to the $735,500 deposit write
off for the nine months ended September 30, 2010.
Non Operating Income and
Expenses. We had total non-operating expensesof $106,440for
the three months ended September 30, 2010,achange of $283,756compared toincome
of $177,316for the three months ended September 30, 2009. Other
income (expense) was $(61,531)for the three months ended September 30, 2010
compared to $(503)for thethree months ended September 30,
2009. Also included in non-operating income (expense) for
the three months ended September 30, 2009is again of $177,826 related to equity
income of an investment that we accounted for under the equity method. During
the three months ended September 30, 2010, we did not incur any gains or losses
related to equity income in investment.
Nine Months Ended September
30, 2010as Compared to Nine Months EndedSeptember30, 2009
Revenue. We
generated revenue of $5,661,715for the nine months ended September 30, 2010,
anincrease of $2,415,259 or74%, compared to $3,246,456 for the nine months ended
September 30, 2009. The increase in revenue is primarily attributable
to the overall recovery of the economic environment and the launch of new
productsin May 2010.
Gross Profit. We
achieved a gross profitof $1,437,551 for the nine months ended September 30,
2010, anincreaseof $911,340 or173%, compared to $526,211 for the nine months
ended September 30, 2009. Gross margin (gross profit as a percentage
of revenues), was 25% for the nine months ended September 30, 2010, compared to
16% for the nine months ended September 30, 2009. The increase in the
gross margin percentage was primarily attributable to the higherprofit margins
due to higher profit margins on new products.
Selling Expenses.Aggregated
selling expenses accounted for $372,021 of our operating expenses for the nine
months ended September 30, 2010, an increase of $329,087or 766%, compared to
$42,934 for the nine months ended September 30, 2009. The increase in
our aggregated selling expenses is primarily attributable to an increase in
marketing promotion and advertising programs.
General and Administrative
ExpensesGeneral and administrative expenses accounted for $2,418,410 of
our operating expensesfor the nine months ended September 30, 2010, an increase
of $1,623,524 or204%, compared to$794,886 for the nine months ended September
30, 2009. The increase in general and administrative expenses is primarily
attributable to a bad debt expense in 2010 compared to 2009. During
the nine months ended September 30, 2009, the Company recorded a bad debt
expense of $104,254 compared to a charge to bad debts of $897,017 for the nine
months ended September 30, 2010. Also, included in general and administrative
expenses is the write off of a deposit for $735,500 for the nine months ended
September 30, 2010.
Non Operating Income and
Expenses. We had total non-operating expense of $139,518 for
the nine months ended September 30, 2010, a change of $411,008 compared to
income of $271,490 for the nine months ended September 30,
2009. Other income (expense) was $(81,372) for the nine months ended
September 30, 2010 compared to $(1,787) for the nine months ended September 30,
2009. Also included in non-operating income (expense) for the nine
months ended September 30, 2009 is a loss of $211,639 related to a loss on the
sale of investment and a gain of $484,728 related to equity income of an
investment that we account for under the equity method. During the
nine months ended September 30, 2010, we did not incur any gains or losses
related to the sale on investment or equity income in investment.
Liquidity
and Capital Resources
We are
primarily a parent holding company for the operations carried out by our
indirect operating subsidiary, Yang Ling, which carries out its activities in
the People’s Republic of China. Because of our holding company
structure, our ability to meet our cash requirements apart from our financing
activities, including payment of dividends on our common stock, if any,
substantially depends upon the receipt of dividends from our subsidiaries,
particularly Yang Ling.
On March
19, 2010, we obtained a bank loan for 10,000,000 RMB (approximately
$1,437,000). The loan has an 8.1% annual interest rate, matures on
March 19, 2012 and is secured by our land and production
facility.
16
As of
September 30, 2010, we had $3,603,356of cash and cash equivalents compared to
$4,824,135as of December 31, 2009.
Cash
Flows
Operating. We
used $1,277,511 of cash for operating activities for the nine months ended
September 30, 2010 compared to $643,097for the nine months ended September 30,
2009.
Investing. Our
investing activities used$1,490,002 of cash for the nine months ended September
30, 2010, compared to $720,369 of cashprovided by investing activities for the
nine months ended September 30, 2009. The increase is primarily
attributable tothe increase in loan receivables of $1,471,000.
Financing. Our
financing activities provided $1,471,000 of cash from a long term bank financing
for the nine months ended September 30, 2010 compared to no cash provided by
financing activities for the nine months ended September 30, 2009.
Contractual
Commitments
In August
2006, we entered into a 30-year land-lease arrangement with the government of
the People’s Republic of China, under which we pre-paid $2,529,818 upon
execution of the contract of lease expense for the next 15 years. We agreed to
make a prepayment for the next eight years in November 2021, and will make a
final pre-payment in November 2029 for the remaining seven years. The annual
lease expense amounts to approximately $169,580. Our land-lease arrangement is
currently our only material on- and off-balance sheet expected or contractually
committed future obligation.
We
currently do not have any material off-balance sheet arrangements except for the
remaining pre-payments under the land-lease arrangement described
above.
Not
Applicable.
Evaluation
of our Disclosure Controls
As of the
end of the period covered by this Quarterly Report on Form 10-Q, our principal
executive officer and principal financial officer have evaluated the
effectiveness of our “disclosure controls and procedures” (“Disclosure
Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Disclosure Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including our
Chief Executive Officer, Bo Chen, and our Chief Financial Officer, Junyan Tong,
as appropriate to allow timely decisions regarding required disclosure. Our
managementdoes not expect that our Disclosure Controls will prevent all error
and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
17
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act. Our management is also required to
assess and report on the effectiveness of our internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”). Management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2009. In
making this assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control – Integrated Framework.
Notwithstanding
the aforementioned controls implemented in December 2006, during management’s
assessment of the effectiveness of internal control over financial
reporting as of December 31, 2009, management identified deficiencies
related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) a
lack of segregation of duties within accounting functions, (iii) our
internal risk assessment functions, and (iv) our communication functions..
Management believes that these deficiencies amount to a material weakness that
render our internal controls over financial reporting ineffective as of
September 30, 2010.
A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.
In order
to correct the foregoing deficiencies, we have taken the following remediation
measures:
|
·
|
Although our accounting staff is
professional and experienced in accounting requirements and procedures
generally accepted in the PRC, management has determined that they require
additional training and assistance in U.S. GAAP matters. Management
has determined that our internal audit function is also significantly
deficient due to insufficient qualified resources to perform internal
audit functions. We retained an outside consulting firm in September 2006,
which has since been assisting us in the implementation of Section
404.
|
|
· |
We have committed to the
establishment of effective internal audit functions and have instituted
various anti-fraud control and financial and account management policies
and procedures to strengthen our internal controls over financial
reporting. Due to the scarcity of qualified candidates with
extensive experience in U.S. GAAP reporting and accounting in the region,
we were not able to hire sufficient internal audit resources before the
end of 2009. However, we will increase our search for qualified candidates
with assistance from recruiters and through
referrals.
|
|
· |
Due to our size and nature,
segregation of all conflicting duties may not always be possible and may
not be economically feasible. However, to the extent possible,
we will implement procedures to assure that the initiation of
transactions, the custody of assets and the recording of transactions will
be performed by separate
individuals.
|
|
·
|
As of the fiscal year ended
December 31, 2009, we hadnot yet established an effective risk assessment
system that enables us to collect related information comprehensively and
systematically, assess risks in a timely, realistic manner, and take
appropriate measures to control risks effectively. The Company is working
with its outside consultant to devise an effective risk assessment system
and our Chief Financial Officer Junyan Tong is responsible for overseeing
such measures.
|
|
·
|
As of the nine months ended
September 30, 2010, we are working to strengthen efforts to establish an
effective communication system with clear procedures that will enable us
to collect, process and deliver information related to internal controls
in a timely fashion. Due to our limited staff, our Chief
Financial Officer, Mr. Tong, will initially be primarily responsible for
collecting and delivering such information among the different levels of
Company management.
|
We
believe that the foregoing steps will remediate the material weakness identified
above, and we will continue to monitor the effectiveness of these steps and make
any changes that our management deems appropriate.
18
Notwithstanding
the conclusion that our internal control over financial reporting was not
effective as of the end of the period covered by this report, the Chief
Executive Officer and the Chief Financial Officer believe that the financial
statements and other information contained in this annual report present fairly,
in all material respects, our business, financial condition and results of
operations. Nothing has come to the attention of management that
causes them to believe that any material inaccuracies or errors exist in our
financial statements as of September 30, 2010. The reportable conditions
and other areas of our internal control over financial reporting identified by
us as needing improvement have not resulted in a material restatement of our
financial statements. Nor are we aware of any instance where such reportable
conditions or other identified areas of weakness have resulted in a material
misstatement of omission in any report we have filed with or submitted to the
Commission.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.
In
addition to the above mentioned deficiencies, in the third quarter of 2010, as a
result of comments raised by the SEC, we determined that accounting errors were
made in our revenue recognition procedures which have resulted in the
restatement of our previously issued financial statements.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal controls over financial reporting during
our thirdquarter of 2010 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
19
ITEM
1. LEGAL
PROCEEDINGS.
From time
to time, we may become involved in various lawsuits and legal proceedings that
arise in the ordinary course of business. Litigation is, however, subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe would or could have,
individually or in the aggregate, a material adverse affect on our business,
financial condition, results of operations or liquidity.
Not
Applicable.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES.
None.
ITEM
4. (REMOVED
AND RESERVED)
ITEM
5. OTHER
INFORMATION.
Not
applicable.
ITEM
6. EXHIBITS.
Copies of
the following documents are included as exhibits to this report pursuant to Item
601 of Regulation S-K.
Exhibit No.
|
Exhibit Description
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
20
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.
BODISEN
BIOTECH, INC.
|
|
Dated:
February 16, 2011
|
/s/ Bo Chen
|
Bo
Chen
|
|
Chairman,
Chief Executive Officer and President
|
|
(principal
executive officer)
|
|
Dated:
February 16, 2011
|
/s/ Junyan Tong
|
Junyan
Tong
|
|
Chief
Financial Officer
|
|
(principal
financial officer and accounting officer
)
|
21