Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission file number 000-53343
ASIA GREEN AGRICULTURE
CORPORATION
(Exact name of registrant as specified in its
charter)
Nevada | 26-2809270 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
Shuinan Industrial Area, Songxi County | |
Fujian Province, China | 353500 |
(Address of principal executive offices) | (Zip Code) |
(86) 0599-2335520
(Issuer'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 Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
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 during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
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. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [ X ] |
(do not check if a smaller | |||
reporting company) |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
As of November 1, 2011, the issuer had 36,823,626 shares of common stock outstanding.
ASIA GREEN AGRICULTURE CORPORATION |
Quarterly Report on Form 10-Q |
For the Quarterly Period Ended September 30, 2011 |
TABLE OF CONTENTS |
-i-
EXPLANATORY NOTE
In this report, unless the context otherwise requires, the terms AGAC, Company, we, us, and our refer to Asia Green Agriculture Corporation (formerly known as SMSA Palestine Acquisition Corp.), a Nevada corporation and/or its subsidiaries, as the case may be. We are a Nevada holding company and conduct substantially all of our business through our operating subsidiary Fujian Yada Group Co., Ltd. in China.
On August 20, 2010, we entered into an Exchange Agreement (the "Exchange Agreement") with Sino Oriental Agriculture Group Ltd. ("Sino Oriental") and the shareholders of Sino Oriental. In connection the Exchange Agreement we issued 29,214,043 shares of our common stock to the shareholders of Sino Oriental, in exchange for all of the issued and outstanding capital stock of Sino Oriental. Prior to the Exchange Agreement, we were a shell company with nominal operations. Sino Oriental, through its wholly owned subsidiaries operates a green and organic food production and manufacturing business in the People's Republic of China. The acquisition of Sino Oriental has been accounted for as a "reverse merger". Accordingly, the historical financial statements contained in this report reflect the operations of the business of Sino Oriental and its subsidiaries.
On January 18, 2011, we filed amended and restated Articles of Incorporation with the Nevada Secretary of State to give effect to (i) a 2.5 for 1 forward stock split and (ii) an increase in our authorized common stock from 100 million shares to 200 million shares and (iii) a name change from SMSA Palestine Acquisition Corporation to Asia Green Agriculture Corporation. The information in this report reflects the stock split, increase in authorized capital and name change.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words "anticipates", "believes", "estimates", "expects", "plans", "projects", "targets" and similar expressions. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.
Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 1A and elsewhere in this report, as well as in the other reports and documents we file with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Except to the extent required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
-ii-
PART IFINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Asia Green Agriculture Corporation |
Condensed Consolidated Statements of Income and Comprehensive Income |
For the three and nine months ended September 30, 2011 and 2010 |
(Stated in US Dollars) |
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(unaudited) | (unaudited) | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||
Sales revenue | $ | 29,634,611 | $ | 18,003,393 | $ | 76,128,430 | $ | 50,654,461 | ||||
Cost of sales | (14,695,955 | ) | (8,459,489 | ) | (45,970,529 | ) | (31,384,151 | ) | ||||
Gross profit | 14,938,656 | 9,543,904 | 30,157,901 | 19,270,310 | ||||||||
Operating expenses | ||||||||||||
Administrative expenses | 1,072,433 | 284,926 | 4,213,475 | 903,396 | ||||||||
Selling expenses | 467,239 | 455,727 | 1,491,737 | 1,042,170 | ||||||||
1,539,672 | 740,653 | 5,705,212 | 1,945,566 | |||||||||
Income from operations | 13,398,984 | 8,803,251 | 24,452,689 | 17,324,744 | ||||||||
Government grant income | 4,900 | 8,277 | 86,515 | 39,016 | ||||||||
Other (loss) income - net | (383,364 | ) | (125,470 | ) | (335,261 | ) | 25,392 | |||||
Net finance costs - Note 9 | (228,786 | ) | (336,892 | ) | (419,153 | ) | (699,841 | ) | ||||
Income before income taxes | 12,791,734 | 8,349,166 | 23,784,790 | 16,689,311 | ||||||||
Income taxes - Note 8 | 2,579 | 88,219 | (165,795 | ) | (79,311 | ) | ||||||
Net income | $ | 12,794,313 | $ | 8,437,385 | $ | 23,618,995 | $ | 16,610,000 | ||||
Other comprehensive income | ||||||||||||
Foreign currency translation adjustments | 878,820 | 843,372 | 2,367,421 | 968,966 | ||||||||
Total comprehensive income | $ | 13,673,133 | $ | 9,280,757 | $ | 25,986,416 | $ | 17,578,966 | ||||
Earnings per share: basic and diluted - Note 10 | $ | 0.347 | $ | 0.258 | $ | 0.641 | $ | 0.547 | ||||
Weighted average number of shares | ||||||||||||
outstanding: basic and diluted | 36,823,626 | 32,688,333 | 36,823,626 | 30,384,865 |
See the accompanying notes to condensed consolidated financial statements
1
Asia Green Agriculture Corporation |
Condensed Consolidated Balance Sheets |
As of September 30, 2011 and December 31, 2010 |
(Stated in US Dollars) |
September 30, | December 31, | |||||
2011 | 2010 | |||||
(Unaudited) | (Audited) | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 7,748,299 | $ | 9,988,422 | ||
Restricted cash - Note 4 | 1,532,455 | 941,923 | ||||
Trade receivables, net - Note 5 | 30,715,755 | 20,872,620 | ||||
Other receivables, prepayments and deposits - Note 6 | 7,723,825 | 4,015,880 | ||||
Inventories - Note 7 | 24,334,559 | 15,109,102 | ||||
Income tax recoverable | 65,477 | 24,754 | ||||
Deferred tax assets | 350,627 | 364,674 | ||||
Total current assets | 72,470,997 | 51,317,375 | ||||
Property, plant and equipment, net - Note 11 | 12,745,318 | 11,834,344 | ||||
Deposit for acquisition of plant and equipment | 250,400 | 241,984 | ||||
Land use rights - Note 12 | 23,702,676 | 17,207,149 | ||||
TOTAL ASSETS | $ | 109,169,391 | $ | 80,600,852 | ||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||
LIABILITIES | ||||||
Current liabilities | ||||||
Trade payables Note 4 | $ | 4,572,130 | $ | 4,996,069 | ||
Bills payable - Note 4 | 1,565,000 | 877,192 | ||||
Receipts in advance | 410,232 | 169,344 | ||||
Loans from third parties - Note 16 | 156,500 | 151,240 | ||||
Other payables and accrued expenses - Note 13 | 5,851,345 | 8,081,576 | ||||
Amounts due to related parties - Note 14 | 438,166 | 794,199 | ||||
Secured short-term borrowings - Note 15 | 8,760,577 | 6,232,600 | ||||
Current maturities of secured long-term borrowings - Note 15 | - | 22,686 | ||||
Total current liabilities | 21,753,950 | 21,324,906 | ||||
Deferred tax liabilities | 28,301 | 28,051 | ||||
TOTAL LIABILITIES | 21,782,251 | 21,352,957 | ||||
COMMITMENTS AND CONTINGENCIES - Note 20 | ||||||
STOCKHOLDERS EQUITY | ||||||
Preferred
stock: par value $0.001 per share; authorized 10,000,000 shares
in 2011 and 2010; none issued and outstanding |
||||||
Common stock: par value
$0.001 per share; authorized
200,000,000 shares as of September 30, 2011 and December 31, 2010; 36,823,626 shares issued and outstanding in 2011 and 2010 |
36,824 |
36,824 |
||||
Additional paid-in capital | 19,738,645 | 17,585,816 | ||||
Statutory reserve | 7,549,903 | 4,572,033 | ||||
Accumulated other comprehensive income | 4,732,049 | 2,364,628 | ||||
Retained earnings | 55,329,719 | 34,688,594 | ||||
TOTAL STOCKHOLDERS EQUITY | 87,387,140 | 59,247,895 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $ | 109,169,391 | $ | 80,600,852 |
See the accompanying notes to condensed consolidated financial statements
2
Asia Green Agriculture Corporation |
Condensed Consolidated Statements of Stockholders' Equity |
(Unaudited) |
(Stated in US Dollars) |
Accumulated | |||||||||||||||||||||
Common stock | Additional | other | |||||||||||||||||||
No. of | paid-in | Statutory | comprehensive | Retained | |||||||||||||||||
shares | Amount | capital | reserve | income | earnings | Total | |||||||||||||||
Balance, December 31, 2010 | 36,823,626 | $ | 36,824 | $ | 17,585,816 | $ | 4,572,033 | $ | 2,364,628 | $ | 34,688,594 | $ | 59,247,895 | ||||||||
Foreign currency translation adjustments | - | - | - | - | 2,367,421 | - | 2,367,421 | ||||||||||||||
Net income | - | - | - | - | - | 23,618,995 | 23,618,995 | ||||||||||||||
Appropriation to statutory reserve | - | - | - | 2,977,870 | - | (2,977,870 | ) | - | |||||||||||||
Share-based compensation | - | - | 2,152,829 | - | - | - | 2,152,829 | ||||||||||||||
Balance, September 30, 2011 | 36,823,626 | $ | 36,824 | $ | 19,738,645 | $ | 7,549,903 | $ | 4,732,049 | $ | 55,329,719 | $ | 87,387,140 |
See the accompanying notes to condensed consolidated financial statements
3
Asia Green Agriculture Corporation |
Condensed Consolidated Statement of Cash Flows |
For the nine months ended September 30, 2011 and 2010 |
(Stated in US Dollars) |
Nine months ended September 30, | ||||||
(Unaudited) | ||||||
2011 | 2010 | |||||
Cash flows from operating activities | ||||||
Net income | $ | 23,618,995 | $ | 16,610,000 | ||
Adjustments to reconcile net income to net cash provided by operating activities :- | ||||||
Depreciation and amortization | 903,693 | 424,768 | ||||
Loss (gain) on disposal of property, plant and equipment | 2,202 | (50,210 | ) | |||
Deferred taxes | 23,039 | (58,890 | ) | |||
Unrealized loss of forward exchange contracts | 357,146 | 412,954 | ||||
Provision for (reversal of) obsolete inventories | 50 | (165,178 | ) | |||
Provision for (reversal of) doubtful debts | 351,226 | (168,266 | ) | |||
Share-based compensation | 2,152,829 | - | ||||
Changes in operating assets and liabilities :- | ||||||
Trade receivables | (9,412,728 | ) | (9,789,017 | ) | ||
Other receivables, prepayments and deposits | (3,573,604 | ) | 707,100 | |||
Inventories | (8,414,678 | ) | 583,639 | |||
Trade payables | (620,594 | ) | 1,334,296 | |||
Restricted cash held as collateral for forward exchange contracts | (354,895 | ) | (137,547 | ) | ||
Receipts in advance | 231,884 | (1,020,604 | ) | |||
Other payables and accrued expenses | 724,258 | 897,217 | ||||
Income tax recoverable | (38,782 | ) | - | |||
Income tax payable | - | 5,139 | ||||
Net cash flows provided by operating activities | 5,950,041 | 9,585,401 | ||||
Cash flows from investing activities | ||||||
Payments to acquire and for deposit for acquisition of property, plant and equipment | (911,855 | ) | (2,915,705 | ) | ||
Proceeds from disposal of property, plant and equipment | - | 236,171 | ||||
Payments to acquire land use right | (9,917,775 | ) | (5,346,526 | ) | ||
Net cash flows used in investing activities | (10,829,630 | ) | (8,026,060 | ) | ||
Cash flows from financing activities | ||||||
Proceeds from secured borrowings | 10,611,863 | 7,736,612 | ||||
Repayments of secured borrowings | (8,368,643 | ) | (8,388,192 | ) | ||
Decrease in loans from third parties | - | (797,754 | ) | |||
Increase in restricted cash held as collateral for bills payable | (203,747 | ) | (64,178 | ) | ||
Increase in bills payable | 679,156 | 238,576 | ||||
Proceeds from issue of common stock of Misaky and Sino Oriental | - | 50,387 | ||||
Cash received from private placement | - | 13,717,205 | ||||
Repayments to related parties | (366,574 | ) | (3,321,853 | ) | ||
Net cash flows provided by financing activities | 2,352,055 | 9,170,803 | ||||
Effect of foreign currency translation on cash and cash equivalents | 287,411 | 175,261 | ||||
Net (decrease) increase in cash and cash equivalents | (2,240,123 | ) | 10,905,405 | |||
Cash and cash equivalents - beginning of period | 9,988,422 | 420,801 | ||||
Cash and cash equivalents - end of period | $ | 7,748,299 | $ | 11,326,206 | ||
Supplemental disclosures for cash flow information | ||||||
Cash paid for :- | ||||||
Interest, net of capitalized interest | $ | 257,331 | $ | 597,948 | ||
Income taxes | $ | 182,072 | $ | 133,062 |
See the accompanying notes to condensed consolidated financial statements
4
Asia Green Agriculture Corporation |
Notes to Condensed Consolidated Financial Statements |
(Stated in US Dollars) |
1. |
Corporate information and general |
(i) |
Asia Green Agriculture Corporation (formerly known as SMSA Palestine Acquisition Corp.)(the Company) was organized on May 21, 2008 as a Nevada corporation to effect the reincorporation of Senior Management Services of Palestine, Inc., a Texas corporation, mandated by the plan of reorganization discussed below. | |
The Companys emergence from Chapter 11 of Title 11 of the United States Code on August 1, 2007 created the combination of a change in majority ownership and voting control - that is, loss of control by the then-existing stockholders, a court-approved reorganization, and a reliable measure of the entitys fair value - resulting in a fresh start, creating, in substance, a new reporting entity. Accordingly, the Company, post bankruptcy, has no significant assets, liabilities or operating activities. Therefore, the Company, as a new reporting entity, qualifies as a development stage enterprise as defined in Development Stage Entities topic of the FASB Accounting Standards Codification and as a shell company as defined in Rule 405 under the Securities Act of 1933, (Securities Act), and Rule 12b-2 under the Securities Exchange Act of 1934, (Exchange Act). | ||
On November 4, 2009, the Company entered into a share purchase agreement with Yang Yongjie (Mr. Yang), a resident of the Peoples Republic of China (the PRC), pursuant to which he acquired 11.25 million shares of our common stock for $4,500 cash or $0.001 per share (as adjusted for a 2.5 for 1 forward stock split on January 18, 2011 (the Forward Stock Split)). | ||
Prior to the completion of reverse takeover transaction (RTO) on August 20, 2010 as mentioned in Note 2(vi), the Company was a development stage company for development of the Chinese restaurant concept. Following the completion of RTO on August 20, 2010, the Company commenced to be engaged in the production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products. | ||
(ii) |
Misaky Industrial Limited (Misaky) was incorporated in Hong Kong on December 10, 2004 as a limited liability company with authorized capital of HK$10,000, divided into 10,000 common shares of HK$1 par value each, of which 3,001 common shares were issued and paid up. Before the acquisition by Sino Oriental Agriculture Group Limited (Sino Oriental) as described in note 2(v), Misaky was wholly owned by Mr. Youdai Zhan (Mr. Zhan) through a trust agreement with Mr. Yangbo Cai, (Mr. Cai). The sole director of Misaky is Mr. Zhan. The principal business of Misaky is an investment holding and only holds 100% equity interest in Fujian Yada Group Co., Ltd. (Fujian Yada). | |
(iii) |
Sino Oriental Agriculture Group Limited (Sino Oriental) was incorporated in the British Virgin Islands (the BVI) on January 4, 2010 as a limited liability company with authorized, issued and paid up capital of $50,000, divided into 50,000 common shares of $1 par value each. Prior to the completion of RTO on August 20, 2010, the 50,000 common shares were held by Mr. Zhan through a trust agreement with Mr. Cai and other noncontrolling shareholders. The sole director of Sino Oriental is Mr. Zhan. The principal business of Sino Oriental is an investment holding and only holds 100% equity interest in the Misaky. | |
(iv) |
Fujian Yada was established in the PRC on February 6, 2001 as a limited liability company. The then paid up capital of Renminbi (RMB) 30,000,000 was held as to 97% by Mr. Zhan and 3% by Madam Liufeng Zhou, Mr. Zhans spouse respectively and was transferred to Misaky on May 26, 2010 as stated in Note 2(iv). On August 26, 2010, Fujian Yada increased its paid up capital to RMB118,000,000. The principal activities of Fujian Yada are production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products. |
5
(v) |
Fujian Yaxin Food Co., Ltd. (Yaxin) was established in the PRC on April 2, 2007 as a limited liability company. Before the acquisition by the Fujian Yada as stated in Note 2(i), the paid up capital of RMB10,000,000 was wholly held by Mr. Zhan. The principal activities of Yaxin are production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products. | |
(vi) |
Fujian Shengda Import & Export Trading Co., Ltd. (Shengda) was established in the PRC on June 5, 2007 as a limited liability company. Before the acquisition by the Fujian Yada as stated in Note 2(ii), the paid up capital of RMB5,000,000 was held as to 90% by Mr. Zhan and 10% by Madam Liufeng Zhou, Mr. Zhans spouse. The principal activity of Shengda is trading of the Companys agricultural products to oversea customers. | |
(vii) |
Fujian Xinda Food Co., Ltd. (Xinda) was established in the PRC on February 5, 2005 as a limited liability company. Before the acquisition by the Company as stated in Note 2(iii), the paid up capital of RMB5,000,000 was held as to 30% by Mr. Zhan and 70% by Madam Liufeng Zhou, Mr. Zhans spouse. The principal activities of Xinda are production and marketing of bamboo shoots. | |
(viii) |
Shanghai Yada Green Food Co., Ltd. (Shanghai Yada) was established in the PRC on September 15, 2010 as a limited liability company with registered and paid up capital of RMB2,000,000 and is a wholly owned subsidiary of Fujian Yada. The principal activities of Shanghai Yada are trading and marketing of food products. | |
(ix) |
Fuzhou Yada Green Food Co., Ltd. (Fuzhou Yada) was established in the PRC on October 15, 2010 as a limited liability company with registered and paid up capital of RMB1,000,000 and is a wholly owned subsidiary of Fujian Yada. The principal activities of Fuzhou Yada are trading and marketing of food products. | |
(x) |
Shixing Yada Forestry Development Co., Ltd. (Shixing Yada) was established in the PRC on November 26, 2010 as a limited liability company with registered and paid up capital of RMB3,000,000 and is wholly owned subsidiary of Fujian Yada. The principal activities of Shixing Yada are production and marketing of bamboo related products. | |
(xi) |
Yudu Yada Forestry Co., Ltd. (Yudu Yada) was established in the PRC on November 10, 2010 as a limited liability company with registered and paid up capital of RMB3,000,000 and is wholly owned subsidiary of Fujian Yada. The principal activities of Yudu Yada are production and marketing of bamboo related products. | |
(xii) |
Jianyang Yaxin Agriculture and Forestry Development Co., Ltd. (Jianyang Yaxin) was established in the PRC on October 12, 2010 as a limited liability company with registered and paid up capital of RMB2,000,000 and is wholly owned subsidiary of Fujian Yaxin. The principal activities of Jianyang Yaxin are production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products. |
6
2. |
Reorganization |
To rationalize the group structure, the Company, Fujian Yada, Yaxin, Shengda and Xinda reorganized their group structure (the Reorganization) as follows :-
(i) |
Fujian Yada entered into two separate agreements with Mr. Zhan to acquire Mr. Zhans 90% and 10% equity interest in Yaxin on April 10, 2008 and October 26, 2009 respectively at cash considerations of RMB9,000,000 (equivalent to $1,320,300) and RMB1,000,000 (equivalent to $146,700) respectively, equivalent to the paid up capital of Yaxin. | |
(ii) |
Fujian Yada entered into two separate agreements with Mr. Zhan and his spouse, Madam Liufeng Zhou to acquire their 100% equity interest in Shengda on April 8, 2008 and October 26, 2009 respectively at cash considerations of RMB4,500,000 (equivalent to $660,150) and RMB500,000 (equivalent to $73,350), equivalent to the paid up capital of Shengda. | |
(iii) |
On March 23, 2008, Fujian Yada entered into an agreement with Mr. Zhan and his spouse, Madam Liufeng Zhou to acquire their 95% equity interest of Xinda at a cash consideration of RMB475,000 (equivalent to $69,683), equivalent to the then Xindas 95% paid up capital of RMB500,000. On October 26, 2009, the Company acquired their remaining 5% equity interest of Xinda at a cash consideration of RMB250,000 (equivalent to $36,675), equivalent to the then Xindas 5% paid up capital of RMB5,000,000. | |
(iv) |
On April 13, 2010, Mr. Zhan and Madam Liufeng Zhou, Mr. Zhans spouse, entered into an agreement with Misaky, a limited liability company incorporated in Hong Kong, pursuant to which Misaky agreed to acquire their 100% equity interest in the Fujian Yada at a cash consideration of RMB31,157,000. | |
(v) |
On July 2, 2010, the shareholder of Misaky, Mr. Cai, entered into an agreement with Sino Oriental, pursuant to which Sino Oriental agreed to acquire 100% equity interest in Misaky at a cash consideration of HK$3,001, equivalent to the issued and paid up share capital of Misaky. | |
(vi) |
On August 20, 2010, the Company entered into a share exchange agreement with the shareholders of Sino Oriental to acquire their 100% of the issued and outstanding common shares in Sino Oriental by issuance of 29,214,043 shares of the Companys common stock with par value of $0.001 each (as adjusted for the Forward Stock Split). On the same date, the Company entered into a share cancellation agreement with Mr. Yang, the shareholder of the Company, pursuant to which Mr. Yang agreed to surrender for cancellation of 9,738,180 shares (as adjusted for the Forward Stock Split) of the Companys outstanding common stock. On the same date, Mr. Zhan was appointed as a director of the Company and entered into an option agreement with Mr. Cai pursuant to which Mr. Zhan has an option to purchase all the equity interest in the Company held by Mr. Cai at a consideration of $84,981,327 at any time during the two years period commencing on the 180th day following the signing day of this option agreement. |
The aggregate cash consideration of $2,306,858 paid to Mr. Zhan and his spouse, Madam Liufeng Zhou stated in Notes 2 (i), (ii) and (iii) was recorded as deemed distributions of $2,050,133 in 2008 and $256,725 in 2009 in connection of the transactions. Upon the completion of Reorganization on August 20, 2010, Fujian Yada, Yaxin, Shengda and Xinda became the wholly owned subsidiaries of the Company.
7
3. |
Summary of significant accounting policies |
Basis of consolidation and presentation
Before and immediately after the completion of the Reorganization, the Company, Misaky, Sino Oriental, Fujian Yada, Yaxin, Shengda and Xinda were under the common control of Mr. Zhan and his spouse, Madam Liufeng Zhou. Accordingly, accounting for recapitalization is adopted for the preparation of the condensed consolidated financial statements to present the combined results of operations and financial position of the Company, Misaky, Sino Oriental, Fujian Yada, Yaxin, Shengda and Xinda as if the current group structure, which means that Misaky, Sino Oriental, Fujian Yada, Yaxin, Shengda and Xinda are wholly owned subsidiaries of the Company, had been in existence at the beginning of the reporting period. The 29,214,043 shares (as adjusted for the Forward Stock Split) of the Companys common stock issued for the RTO are deemed the opening common stock since January 1, 2009 to reflect the recapitalization.
The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulation and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and other receivables, prepayment and deposits. As of September 30, 2011 and December 31, 2010, substantially all of the Companys cash and cash equivalents and restricted cash were held by major financial institutions located in the PRC, which the management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customers financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade receivables.
As of September 30, 2011 and December 31, 2010, the Company did not have any balance of gross trade receivables due from any individual customer that represented 10% or more of the Companys gross trade receivables.
During the nine months period ended September 30, 2011 and 2010, the Company did not have sales to any individual customer that represented 10% or more of the Companys consolidated sales.
8
Fair value of financial instruments
The Company follows Topic ASC 820 Fair Value Measurements and Disclosures. ASC 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the fair value option was not elected. The carrying amounts of the financial assets and liabilities approximate to their fair values due to short maturities or the applicable interest rates approximate the current market rates.
The fair values of secured borrowings are estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements.
Derivative financial instruments
The Company accounts for derivative financial instruments in accordance with the Topic ASC 815 Derivatives and Hedging. The topic requires the Company to recognize the value of derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as a hedge and qualifies as part of a hedging relationship.
The Company enters into foreign currency forward exchange contracts (forward exchange contracts) to manage its exposure to the foreign currency exchange risk related to the trade receivable denominated in Japanese Yen (JPY). The Company does not enter into forward exchange contracts for trading or speculative purposes. In accordance with US GAAP, the forward exchange contracts are considered as derivatives not designated as hedging instruments. Therefore, the foreign exchange contracts are recorded at fair value, with the gain or loss on these transactions recorded in the condensed consolidated statements of income and comprehensive income within other (loss) income - net in the period in which they occur. As of September 30, 2011 and December 31, 2010, the Company had outstanding forward exchange contracts to sell totaling JPY657,126,090 and JPY667,000,000 respectively with maturities of less than one year.
Fair value measurements
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair value of the Companys assets and liabilities, focusing on the most observable inputs when available :-
Level 1 - | Quoted prices in active markets for identical assets or liabilities. | |
Level 2 - | Observable inputs other than quoted prices in active markets for identical assets or liabilities. | |
Level 3 - | Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
9
The following items recorded or measured at fair value on a recurring basis in the accompanying condensed consolidated financial statements were based on the use of Level 2 inputs as of September 30, 2011 and December 31, 2010 :-
Included in the following items | |||||||||
of condensed consolidated | Total fair value measurement | ||||||||
balance sheets | as of | ||||||||
September | December | ||||||||
30, 2011 | 31, 2010 | ||||||||
(Unaudited) | (Audited) | ||||||||
Derivative financial assets - forward exchange contracts | Other receivables, prepayments and deposits | $ | - | $ | 1,089 | ||||
Derivative financial liabilities - forward exchange contracts | Other payables and accrued expenses | $ | 1,074,756 | $ | 696,530 |
Included in | |||||||||||||||
the following | |||||||||||||||
items of | |||||||||||||||
condensed | |||||||||||||||
consolidated | |||||||||||||||
statements of | |||||||||||||||
income and comprehensive | Three months ended | Nine months ended | |||||||||||||
income | September 30, | September 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||
Realized gain (loss) recorded - forward exchange contracts | Other (loss) income - net | $ | - | $ | - | $ | 2,535 | $ | (2,339 | ) | |||||
Unrealized (loss) recorded - forward exchange contracts | Other (loss) income - net | (384,723 | ) | (236,361 | ) | (357,146 | ) | (412,954 | ) | ||||||
Total (loss) recorded | $ | (384,723 | ) | $ | (236,361 | ) | $ | (354,611 | ) | $ | (415,293 | ) |
The Company estimates the fair value of forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. There were no changes in valuation techniques during the nine months period ended September 30, 2011 and 2010.
Recently issued accounting pronouncements
In July 2010, the FASB issued ASU 2010-20 Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entitys allowance for credit losses and the credit quality of its financing receivables. Under ASU 2010-20, an entity is required to provide disclosures so that financial statement users can evaluate the nature of the credit risk inherent in the entitys portfolio of financing receivables, how that risk is analyzed and assessed to arrive at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. ASU 2010-20 is applicable to all entities, both public and non-public and is effective for interim and annual reporting periods ending on or after December 15, 2010. Comparative disclosure for earlier reporting periods that ended before initial adoption is encouraged but not required. However, comparative disclosures are required to be disclosed for those reporting periods ending after initial adoption. The adoption of this ASU update has no material impact on the Companys financial statements.
10
The FASB issued ASU 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring. The amendments to Topic 310 clarify the guidance on a creditors evaluation of whether a debtor is experiencing financial difficulties. A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debts in foreseeable future without the modification. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtors guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a troubled debt restructuring. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies Loss Contingencies. The adoption of this ASU update has no material impact on the Companys financial statements.
In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The amendments in this ASU update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The guidance in this ASU update is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this ASU update is not expected to have a material impact on the Companys financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The FASB and the International Accounting Standard Board (IASB) works together to ensure that fair value has the same meaning in U.S. GAAP and IFRSs and that their respective fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this ASU update will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments in this ASU update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The adoption of this ASU update is not expected to have a material impact on the Companys financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. In this ASU updated, the entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU update are to be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application by public entities is permitted. The adoption of this ASU update has no material impact on the Companys financial statements.
11
In September 2011, the FASB issued ASU 2011-08, Intangibles - Goodwill and Other (Topic 350). The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The adoption of this ASU update is note expected to have a material impact on the Companys financial statements.
In September 2011, the FASB issued ASU 2011-09, Compensation - Retirement Benefits - Multiemployer Plans (Subtopic 715 80). The amendments in this update require additional disclosures about an employer's participation in a multiemployer plan. The management is assessing the impact of this ASU update on the Companys financial statements.
4. |
Restricted cash, bills payable and trade payables |
Restricted cash as of September 30, 2011 and December 31, 2010 consist of the following :-
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Bank deposits held as collateral for forward exchange contracts - Note (a) | $ | 1,062,955 | $ | 678,765 | |||
Bank deposits held as collateral for bills payable - Note (b) | 469,500 | 263,158 | |||||
$ | 1,532,455 | $ | 941,923 |
(a) |
When the Company enters into forward exchange contracts with the bank, it is required to place deposits with reference to the nominal amount. These deposits will be used to settle loss on the forward exchange contracts or return to the Company at the earlier of maturity date or exercise date. | |
(b) |
When the Company intends or is requested to settle its suppliers by issuance of bills, it is required to place deposits with banks equal to 30% - 40% of the bills amount at the time of issuance. These deposits will be used to settle the bills at maturity. | |
(c) |
Trade payables represent trade creditors on open account. They are interest-free and unsecured. The normal credit term given by these suppliers to the Company ranges from one to three months. |
5. |
Trade receivables, net |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Trade receivables | $ | 30,860,948 | $ | 20,932,240 | |||
Less : Allowance for doubtful accounts | (145,193 | ) | (59,620 | ) | |||
$ | 30,715,755 | $ | 20,872,620 |
Trade receivables with carrying value of $1,163,806 and $719,318 as of September 30, 2011 and December 31, 2010 was pledged as collateral under certain loan agreements (see Note 15) respectively.
An analysis of the allowance for doubtful accounts is as follows:
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Balance at beginning of the period | $ | 59,620 | $ | 187,736 | |||
Provision for (reversal of) doubtful debts | 351,226 | (128,959 | ) | ||||
Bad debts written off against trade receivable | (269,774 | ) | - | ||||
Translation adjustments | 4,121 | 843 | |||||
$ | 145,193 | $ | 59,620 |
Provision for (reversal of) doubtful debts of $351,226 and $(168,266) were charged to operations during the nine months ended September 30, 2011 and 2010 respectively. During the three months ended September 30, 2011 and 2010, provision for (reversal of) doubtful debts amounted to $274,505 and $(4,506) respectively.
12
6. |
Other receivables, prepayments and deposits |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Prepayments* | $ | 5,045,357 | $ | 2,536,078 | |||
Deposits | 874,209 | 896,657 | |||||
Derivative financial assets - forward exchange contracts - Note 3 | - | 1,089 | |||||
Other receivables | 1,804,259 | 582,056 | |||||
$ | 7,723,825 | $ | 4,015,880 |
* Represents primarily prepayment for the production of fresh produce which are expected to be recorded as cost of sales upon harvest within one year.
7. |
Inventories |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Raw materials and packaging materials | $ | 1,812,753 | $ | 38,027 | |||
Bamboo and other growing crops | 18,251,812 | 11,695,082 | |||||
Finished goods | 4,281,077 | 3,386,417 | |||||
24,345,642 | 15,119,526 | ||||||
Less: Provision for obsolete inventories | (11,083 | ) | (10,424 | ) | |||
$ | 24,334,559 | $ | 15,109,102 |
As of September 30, 2011 and December 31, 2010, the inventories with carrying amount of $379,363 and $746,728 were pledged as collateral under certain loan agreements (see Note 15).
Provision for (Reversal of) obsolete inventories of $50 and $(165,178) were charged to operations during the nine months ended September 30, 2011 and 2010 respectively. During the three months ended September 30, 2011 and 2010, provision for (reversal of) obsolete inventories amounted to $(23,505) and $13,588 respectively.
8. |
Income taxes |
United States | |
Asia Green Agriculture Corporation is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no taxable income in this jurisdiction for the reporting period. | |
BVI | |
Sino Oriental is incorporated in the BVI and, under the current laws of the BVI, is not subject to income taxes. | |
Hong Kong | |
Misaky is incorporated in Hong Kong and subject to profit tax rate of 16.5% on the assessable profits during the year. No provision for Hong Kong profit tax has been made on Misaky as Misaky had no taxable income in this jurisdiction for the reporting period. |
13
8. |
Income taxes (Cont'd) |
PRC | |
Pursuant to the new PRCs enterprise income tax (EIT) law, Fujian Yada, Yaxin, Xinda, Shengda, Shanghai Yada, Fuzhou Yada, Shixing Yada, Yudu Yada and Jiangyang Yaxin are subject to EIT at the statutory rate of 25%. In addition, the Companys profits generated from its fresh produce and certain processed produce, which have been qualified as agriculture product under the EIT law, are exempted from EIT. | |
In July 2006, the FASB issued ASC 740-10-25 (previously Interpretation No. 48, Accounting for Uncertainty in Income Taxes). This interpretation requires recognition and measurement of uncertain income tax positions using a more-likely-than-not approach. The Company adopted this ASC 740-10-25 on January 1, 2007. Under the new CIT Law which became effective on January 1, 2008, the Company may be deemed to be a resident enterprise by the PRC tax authorities. If the Company was deemed to be resident enterprise, the Company may be subject to the CIT at 25% on the worldwide taxable income and dividends paid from PRC subsidiaries to their overseas holding companies may be exempted from 10% PRC withholding tax. Except for certain immaterial interest income from bank deposits placed with financial institutions outside the PRC, all of the Companys income is generated from the PRC operation. Given the immaterial amount of income generated from outside the PRC and the PRC subsidiaries do not intend to pay dividends for the foreseeable future, the management considers that the impact arising from resident enterprise on the Companys financial position is not significant. The management evaluated the Companys overall tax positions and considered that no provision for uncertainty in income taxes is necessary as of September 30, 2011. | |
9. |
Net finance costs |
Details of finance costs are summarized as follows :- |
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Total interest cost incurred | $ | 145,684 | $ | 328,207 | $ | 377,958 | $ | 597,948 | |||||
Less: Interest income | (5,840 | ) | - | (15,577 | ) | - | |||||||
Government grant for interest incurred | - | - | (105,050 | ) | - | ||||||||
Net interest cost | 139,844 | 328,207 | 257,331 | 597,948 | |||||||||
Other finance costs | 88,942 | 8,685 | 161,822 | 101,893 | |||||||||
$ | 228,786 | $ | 336,892 | $ | 419,153 | $ | 699,841 |
10. |
Earnings per share |
During the reporting periods, potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. 1,359,113 warrants and 3,093,258 share options (as adjusted for the Forward Stock Split) were excluded from the calculation of earnings per share for three and nine months period ended September 30, 2011 as their dilutive effects are immaterial. Accordingly, the basic and diluted earnings per share are the same. | |
The per share data reflects the reorganization of stockholders equity as if the Reorganization occurred as of the beginning of the first period presented and has been adjusted to reflect the Forward Stock Split effected on January 18, 2011. |
14
11. |
Property, plant and equipment, net |
September30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Costs :- Buildings | $ | 10,705,688 | $ | 10,345,868 | |||
Plant and machinery | 1,453,053 | 1,398,711 | |||||
Motor vehicles | 203,835 | 194,362 | |||||
Electronic equipment | 173,572 | 131,384 | |||||
Leasehold improvements | 39,532 | 38,203 | |||||
12,575,680 | 12,108,528 | ||||||
Accumulated depreciation | (2,545,699 | ) | (2,090,087 | ) | |||
Construction in progress | 2,715,337 | 1,815,903 | |||||
Net | $ | 12,745,318 | $ | 11,834,344 |
(i) During the reporting periods, depreciation charge is included in :-
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Cost of sales and overheads of inventories | $ | 88,849 | $ | 122,607 | $ | 344,210 | $ | 276,115 | |||||
Selling expenses | 504 | 17,636 | 1,492 | 29,540 | |||||||||
Administrative expenses | 11,562 | 5,745 | 30,912 | 90,364 | |||||||||
$ | 100,915 | $ | 145,988 | $ | 376,614 | $ | 396,019 |
As of September 30, 2011 and December 31, 2010, buildings and plant and machinery with carrying amount of $8,422,315 and $8,521,316 were pledged as collateral under certain loan and bills payable arrangements, respectively (Note 15).
During the nine months ended September 30, 2011, property, plant and equipment with net book value of $2,202 were scrapped, resulting in a loss of $2,202. During the nine months ended September 30, 2010, property, plant and equipment with net book value of $185,961 were disposed of at a consideration of $236,171, resulting in a gain of $50,210.
For the nine months ended September 30, 2010, the Company capitalized interest of $74,191 to the cost of property, plant and equipment. No interest was capitalized for the three months ended September 30, 2011 and 2010 and for the nine months ended September 30, 2011.
(ii) Construction in progress :-
Construction in progress mainly comprises capital expenditure for construction of the Companys new offices and factories.
15
12. |
Land use rights |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Land use rights | |||||||
- for office premises, production facilities and warehouse | $ | 2,172,478 | $ | 2,099,461 | |||
- for growing and plantation | 22,294,283 | 15,329,432 | |||||
Accumulated amortization | (764,085 | ) | (221,744 | ) | |||
$ | 23,702,676 | $ | 17,207,149 |
The Company obtained the land use rights from the relevant PRC land authorities for a period of fifty years to use the lands on which the office premises, production facilities and warehouse of the Company are situated. As of September 30, 2011 and December 2010, land use rights with carrying amounts of $731,548 and $714,963 were pledged as collateral under certain loan arrangements (Note 15).
The Company obtained several land use rights from the relevant PRC local rural village cooperatives for periods ranging from twenty to thirty years to use the lands for growing and plantation purpose for producing the Companys fresh produce.
During the nine months ended September 30, 2011 and 2010, amortization amounted to $527,079 and $28,749 respectively. During the three months ended September 30, 2011 and 2010, amortization amounted to $209,713 and $20,900 respectively. The estimated amortization for each of the five succeeding years is approximately $883,000 each year.
13. |
Other payables and accrued expenses |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Payables for acquisition of land use rights for growing and plantation purpose | $ | 582,963 | $ | 4,048,813 | |||
Withholding tax payable - Note 13(b) | 626,000 | 604,960 | |||||
Pension payable - Note 13(a) | 730,938 | 538,427 | |||||
Derivative financial liabilities - forward exchange contracts - Note 3 | 1,074,756 | 696,530 | |||||
VAT payable | 1,239,894 | 1,127,599 | |||||
Salaries payable | 176,385 | 191,434 | |||||
Accrued audit fee | 42,753 | 128,554 | |||||
Liquidated damage payable - Note 20 | 443,686 | 177,507 | |||||
Other payables | 933,970 | 567,752 | |||||
$ | 5,851,345 | $ | 8,081,576 |
(a) |
Pension payable represents accrued staff medical, industry injury claims, labor and unemployment insurances, all of which are third parties insurance and the insurance premiums are based on certain percentage of salaries. The obligations of the Company are limited to those premiums contributed by the Company. | |
(b) |
On March 21, 2009, Yada declared a dividend of RMB20,000,000, of which RMB16,000,000 (equivalent to $2,347,200 as of March 21, 2009) was transferred to amounts due to related parties in accordance with a loan agreement entered into between Mr. Zhan, Madam Liufeng Zhou, Mr. Zhans spouse, and the Company. The remaining balance of RMB4,000,000 (equivalent to $626,600 as of September 30, 2011), representing withholding tax payable on dividend declared in accordance with PRC Tax Law, was included in other payables and accrued expenses. |
16
14. |
Amounts due to related parties |
The amounts represent amounts due to Mr. Zhan and Liufeng Zhou, Mr. Zhans spouse, and are interest-free, unsecured and repayable on demand. | |
15. |
Secured borrowings |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Secured short-term borrowings - Note 15(a) | $ | 8,760,577 | $ | 6,232,600 | |||
Current maturities of secured long-term borrowings | - | 22,686 | |||||
$ | 8,760,577 | $ | 6,255,286 | ||||
Secured long-term borrowings - Note 15(b) Interest bearing : - at 14.4% per annum | $ | - | $ | 22,686 | |||
Less: current maturities | - | (22,686 | ) | ||||
$ | - | $ | - |
Notes :-
(a) |
The weighted-average interest rate on short-term borrowings as of September 30, 2011 and December 31, 2010, were 6.90% and 5.41%, respectively. | |
(b) |
Long-term borrowings were repayable as follows :- |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | (Audited) | |||||||
Within one year | $ | - | $ | 22,686 | ||||
After one year but within two years | - | - | ||||||
$ | - | $ | 22,686 |
As of September 30, 2011, the Companys banking facilities were composed of the following :- |
Amount | ||||||||||
Granted | utilized | Unused | ||||||||
Facilities granted: Secured bank loans | $ | 8,760,577 | $ | 8,760,577 | $ | - |
17
The secured borrowings were secured by the following :-
(i) |
The Companys assets with following carrying values :- |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Property, plant and equipment (Note 11) | $ | 8,422,315 | $ | 8,521,316 | |||
Trade receivable (Note 5) | 1,163,806 | 719,318 | |||||
Land use rights (Note 12) | 731,548 | 714,963 | |||||
Inventories (Note 7) | 379,363 | 746,728 | |||||
$ | 10,697,032 | $ | 10,702,325 |
(ii) |
Guarantees executed by third parties; | |
(iii) |
Guarantees executed by Mr. Zhan and Liufeng Zhou, Mr. Zhans spouse; and | |
(iv) |
Guarantees executed by certain staff of the Company. |
As of September 30, 2011, Fujian Yadas secured short-term borrowings of $3,756,000 are subject to the fulfillment of certain financial covenants: to maintain the minimum current ratio of 1.0, minimum quick ratio of 0.5 and maximum debt to asset ratio of 60% at any time.
If Fujian Yada were to breach the covenants, the secured short-term borrowings would become payable on demand. Fujian Yada regularly monitors its compliance with these financial covenants.
As of September 30, 2011, none of the above financial covenants relating to secured short-term borrowings had been breached.
16. |
Loans from third parties |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Audited) | ||||||
Non-interest bearing | $ | 156,500 | $ | 151,240 |
All the loans from third parties are unsecured and repayable on demand or within one year. | |
17. |
Defined contribution plan |
The Company has a defined contribution plan for all qualified employees in the PRC. The employer and its employees are each required to make contributions to the plan at the rates specified in the plan. The only obligation of the Company with respect to retirement scheme is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in the future years. The defined contribution plan contributions were charged to the condensed consolidated statements of income and comprehensive income. The Company recorded defined contribution plan expenses of $219,322 and $162,972 for the nine months ended September 30, 2011 and 2010 respectively. | |
18. |
Statutory reserve |
In accordance with the relevant laws and regulations of PRC, the Company is required to transfer not less than 10% of its net income (the percentage is upon approval from the board of directors meeting), after offsetting any prior years losses, for PRC tax reporting purpose to the statutory reserve. | |
When the balance of such reserve reaches 50% of the registered capital, any further appropriation is optional. Upon approval from the board of directors of the Company, the statutory reserve can mainly be used to offset accumulated losses or increase capital. |
18
19. |
Make good escrow agreement |
In connection with a private placement completed on August 20, 2010, Mr. Cai, the major shareholder of the Company, entered into a make good escrow agreement (the "Escrow Arrangement") with the investors under the private placement pursuant to which he agreed to place 4,848,525 shares (as adjusted for the Forward Stock Split) of our common stock (the Make Good Share) owned by him in an escrow account administrated by an escrow agent. In the event of the Company fails to achieve the earnings per share targets of 2010 and 2011, the escrow agent shall distribute the Make Good Share to the investors on a pro rate basis for any shortfall. | |
For the purpose of the Escrow Arrangement, the earnings per share targets of 2010 and 2011 shall be determined by $18,176,145 and $27,264,218 divided by the total number of shares of common stock outstanding (as adjusted for the Forward Stock Split) immediately following the closing of the private placement respectively. As of December 31, 2010, the Company achieved the earnings per share target of 2010 and the Make Good Share will be released to Mr. Cai when the Company achieves earnings per share target of 2011. | |
Since Mr. Cai is only a major stockholder without taking any management position of the Company and the release or cancellation of the Make Good Share is not contingent on continued employment of any management shareholders, in accordance with ASC 718-10-S99-2, the Company considered that the presumption of compensation in this Escrow Arrangement should be overcome and that no compensation charge should be recognized. The Escrow Arrangement should be recorded as an inducement to facilitate the private placement on behalf of the Company. Accordingly, the transaction was recorded as a reduction of proceeds from the private placement in an amount equal to the estimated fair value of the Make Good Share of $1,160,114 on August 20, 2010, the date of the Make Good Escrow Agreement and completion of the private placement, with corresponding credit to additional paid-in capital. The fair value of the Make Good Share was estimated, at the date of the Make Good Escrow Agreement, by reference to the estimated placing price per share of the Companys common stock in the private placement completed on August 20, 2010 and the probability of any shortfall in earnings per share targets of 2010 and 2011 estimated by the management. | |
20. |
Commitments and contingencies |
Capital commitment | |
As of September 30, 2011, and December 31, 2010, the Company had capital commitments of $3,902,824 and $4,545,236, respectively, in relation to the construction of new building facility and cold storage facility. | |
Operating lease commitment | |
The Company leases certain land use rights under operating leases. The future minimum lease payments under non-cancelable operating leases are as follows at September 30, 2011 :- |
Within 1 year | $ | 3,422,668 | ||
In the second year | 3,380,087 | |||
In the third year | 3,370,228 | |||
In the fourth year | 3,369,758 | |||
In the fifth year | 3,346,805 | |||
Thereafter | 49,654,816 | |||
$ | 66,544,362 |
Rental expense for operating leases amounted to $2,549,273 and $2,058,762 for the nine months ended September 30, 2011 and 2010, respectively, have been recorded in cost of sales and inventories.
Rental expense for operating leases amounted to $889,926 and $889,486 for the three months ended September 30, 2011 and 2010, respectively, have been recorded in cost of sales and inventories.
19
Registration payment arrangement
On August 20, 2010, the Company completed a private placement of 4,848,525 shares (as adjusted for the Forward Stock Split) of common stock and warrants in order to purchase up to 969,717 shares (as adjusted for the Forward Stock Split) of common stock at an exercise price of $3.78 per share (as adjusted for the Forward Stock Split). In connection with the private placement, warrants to purchase up to 339,396 shares (as adjusted for the Forward Stock Split) of common stock at an exercise price of $3.78 per share (as adjusted for the Forward Stock Split) were issued to the Placement Agent.
Pursuant to the subscription agreement, the Company was required to file a registration statement (the Registration Statement) under the Securities Act of 1933, as amended, (i) registering for resale by the investors 4,848,525 shares (as adjustment for the Forward Stock Split) of common stock and warrants in order to purchase up to 969,717 shares (as adjustment for the Forward Stock Split) of common stock issued to the investors; and (ii) registering for resale for the Placement Agents for the warrants to purchase up to 339,396 shares (as adjustment for the Forward Stock Split) of common stock (all of the foregoing securities being collectively referred herein as the Registrable Securities). The Company agreed to use its best efforts to file the Registration Statement within 30 days from the closing date, dated August 20, 2010 (the Closing Date), (the Registration Filing Date) and to have the Registration Statement declared effective prior to the 150th day following the Closing Date (the Registration Effective Date).
In the event that (i) the Registration Statement has not been filed on or prior to the Registration Filing Date or declared effective by the SEC on or before the Registration Effective Date; and (ii) the Registrable Securities included in such Registration Statement are not saleable under Rule 144, the Company shall pay to each investor as liquidated damages, a cash payment equal to 0.5% per month of the aggregated amount invested by such investors in the private placement until the registration statement has been filed and/or declared effective, but the maximum amount of liquidated damages is capped at 6% on aggregated amount invested by such investors. In accordance with ASC 450 Contingencies, the Company records a liability in the condensed consolidated financial statements for these contingencies when a loss is known or considered probable and the amount can be reasonably estimated. In accordance with FASB ASC 825-20, if the Company determines a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. The Registration Statement was declared effective on July 15, 2011 and the provision of liquidated damages was made in an amount of $443,686 as of September 30, 2011 with reference to the effective date of Registration Statement. Liquidated damage of $Nil and $443,686 was recognized and allocated to administrative expenses for the three and nine months ended September 30, 2011, respectively.
21. |
Share based compensation |
The Company granted share options and warrants to employees, directors and consultants to reward for services. | |
Stock option plan | |
Under the stock option plan adopted by the Company in 2010, 3,093,258 share options with exercisable period up to 10 years were granted to the management and employees of the Company on February 14, 2011 of which, 184,123 share options are vesting on March 18, 2011 with an exercise price of $3.94, 184,122 share options are vesting on March 18, 2012 with an exercise price equal to 125% of the market price of the Companys common stock on that vesting date, 908,338 share options are vesting on February 14, 2012 and 1,816,675 share options are vesting in equal amounts on the first day of each quarter during a four year period commencing from February 15, 2012 with an exercise price of $4. All the share options granted are subject to the option holders continuing to be management or employees of the Company before the respective vesting dates. |
20
A summary of share option plan activity for the nine months ended September 30, 2011 is presented below:
Weighted average | Remaining | Aggregate | |||||||||||
Number | Exercise price per | contractual | intrinsic | ||||||||||
of shares | share | Term | value (1) | ||||||||||
Outstanding as of January 1, 2011 | - | $ | - | ||||||||||
Granted | 3,093,258 | 4.13 | |||||||||||
Exercised | - | - | |||||||||||
Forfeited | - | - | |||||||||||
Cancelled | - | - | |||||||||||
Outstanding as of September 30, 2011 | 3,093,258 | $ | 4.13 | 9.4 years | $ | - | |||||||
Exercisable as of September 30, 2011 | 184,123 | $ | 3.94 | 9.4 years | $ | - |
(1) |
No aggregate intrinsic value as the weighted average exercise price of options $4.13 is in excess of the estimate value of the Companys common stock as of September 30, 2011. |
The weighted average grant-date fair value of options granted during 2011 was $1.78 per share. Compensation expense of $2,050,922 arising from abovementioned share options granted was recognized and allocated $1,637,146 to administrative expenses and $413,776 to selling expenses for the nine months ended September 30, 2011.
The fair value of the above option awards was estimated on the date of grant using the Binomial Option Valuation Model together with the following assumptions.
Expected volatility | 56.80% | |
Expected dividends | Nil | |
Expected life | 5.0-7.5 years | |
Risk-free interest rate | 3.69% |
As of September 30, 2011, there was unrecognized compensation cost of $3,445,898 related to the above non-vested share options which are expected to be recognized over approximately 4.4 years.
Warrant
On February 10, 2011, the Company issued warrants to a service provider the warrant holder is entitled to purchase up to 50,000 shares of the Companys common stock at a price of $4.00 per share in exchange for investor relation services provided to the Company. These warrants have exercisable period of 5 years commencing from February 10, 2011.
At the grant date, the fair value of warrants issued was approximately $2.04 each. Compensation expense of $101,907 arising from abovementioned warrants issued was recognized and allocated to administrative expenses for the nine months ended September 30, 2011.
The fair value of the above warrants issued was estimated on the date of grant using the Binomial Option Valuation Model together with the following assumptions.
Stock price and exercise price | $ | 4.00 | ||
Expected volatility | 57.28% | |||
Expected dividends | Nil | |||
Expected life | 2.5 years | |||
Risk-free interest rate | 2.41% |
As of September 30, 2011, there was no unrecognized compensation cost related to the above warrants.
21
22. |
Segment information |
The Company uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Companys chief operating decision maker for making operating decisions and assessing performance as the source for determining the Companys reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly fresh produce and processed produce and operating results of the Company and, as such, the Company has determined that the Company has two operating segments as defined by ASC 280, Segments Reporting : Fresh produce and processed produce.
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on reportable operating segments gross profit. There were no inter-segment sales or transfers during the three and nine months ended September 30, 2011 and 2010. Management does not track segment assets and, therefore, segment assets information is not presented.
Fresh produce | Processed produce | Total | |||||||||||||||||
Nine months ended | Nine months ended | Nine months ended | |||||||||||||||||
September 30, | September 30, | September 30, | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
Revenue from external customers | $ | 50,620,596 | $ | 35,083,556 | $ | 25,507,834 | $ | 15,570,905 | $ | 76,128,430 | $ | 50,654,461 | |||||||
Segment profit | $ | 20,347,435 | $ | 13,668,997 | $ | 9,810,466 | $ | 5,601,313 | $ | 30,157,901 | $ | 19,270,310 |
Fresh produce | Processed produce | Total | |||||||||||||||||
Three months ended | Three months ended | Three months ended | |||||||||||||||||
September 30, | September 30, | September 30, | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
Revenue from external customers | $ | 18,780,582 | $ | 12,580,348 | $ | 10,854,029 | $ | 5,423,045 | $ | 29,634,611 | $ | 18,003,393 | |||||||
Segment profit | $ | 9,315,013 | $ | 6,671,497 | $ | 5,623,643 | $ | 2,872,407 | $ | 14,938,656 | $ | 9,543,904 |
A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Total consolidated revenue | $ | 29,634,611 | $ | 18,003,393 | $ | 76,128,430 | $ | 50,654,461 | |||||
Total profit for reportable segments | $ | 14,938,656 | $ | 9,543,904 | $ | 30,157,901 | $ | 19,270,310 | |||||
Unallocated amounts relating to operations :- | |||||||||||||
Administrative expenses | (1,072,433 | ) | (284,926 | ) | (4,213,475 | ) | (903,396 | ) | |||||
Selling expenses | (467,239 | ) | (455,727 | ) | (1,491,737 | ) | (1,042,170 | ) | |||||
Government grant income | 4,900 | 8,277 | 86,515 | 39,016 | |||||||||
Other (loss) income - net | (383,364 | ) | (125,470 | ) | (335,261 | ) | 25,392 | ||||||
Net finance costs | (228,786 | ) | (336,892 | ) | (419,153 | ) | (699,841 | ) | |||||
Income before income taxes | $ | 12,791,734 | $ | 8,349,166 | $ | 23,784,790 | $ | 16,689,311 |
22
All of the Companys long-live assets are located in the PRC. Geographic information about the revenues, which are classified based on the customers, is set out as follows :-
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
PRC | $ | 28,068,849 | $ | 17,319,315 | $ | 71,598,456 | $ | 48,182,082 | |||||
Japan | 1,565,762 | 684,078 | 4,529,974 | 2,472,379 | |||||||||
Total | $ | 29,634,611 | $ | 18,003,393 | $ | 76,128,430 | $ | 50,654,461 |
During the reporting periods, no individual customer represented 10% or more of the Companys consolidated revenue. | |
23. |
Related party transactions |
Apart from the transactions as disclosed in notes 14 and 15 to the condensed consolidated financial statements, the Company had no other material transactions with its related parties during the nine months ended September 30, 2011 and 2010. | |
24. |
Subsequent events |
The Company evaluated all events or transactions that occurred after September 30, 2011 through the date the financial statements were issued and has determined that there is no material recognizable nor subsequent events or transactions which would require recognition or disclosure in the condensed consolidated financial statements. |
23
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Statements in the following discussion and throughout this report that are not historical in nature are forward-looking statements. You can identify forward-looking statements by the use of words such as expect, anticipate, estimate, may, should, intend, believe, and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A Risk Factors. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see Special Note Regarding Forward Looking Statements at the beginning of this report.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this report.
OVERVIEW
We are a green and organic food company with headquarters in Fujian Province, China. We currently provide over 100 kinds of fresh and processed products in three principal categories, bamboo shoot products, fresh vegetables and fruit, and processed vegetables. Bamboo shoot products accounted for approximately 52% of our revenue in 2010 and 54% of our revenue in the first nine months of 2011, while fresh vegetables and fruit accounted for approximately 28% and 29% of revenue, processed vegetables for 7% and 7% of revenue, and bamboo wood for 13% and 10% of revenue, respectively.
We have a vertically integrated operation consisting of planting, manufacturing and sales of final products. We can supply most of the fresh raw material for our products from our own land. We view our integrated operations as key to the quality of our products, as we monitor substantially all of our products from seed to ultimate sale. Accordingly, our ability to grow is dependent in part on the size of lands we control under lease, and our processing and storage capacity. We are currently experiencing rapid growth in our business and continually seek to procure additional lands for planting. We anticipate making capital expenditures over the next nine to twenty-one months to increase our cold storage capacity, increase planting bases and processing capacity.
We conduct our operations in China and sell products in 10 provinces and administrative regions in China as well as the Japanese market. We derived approximately 94% of our revenue in 2010 and in the first nine months of 2011 in China and approximately 6% in Japan.
Agricultural products are naturally subject to seasonality tied to their local growing season. For example, our fresh bamboo shoots, an important revenue driver, are only available for sale from approximately December through April. As a result, our fourth and first quarter revenues tend to be significantly higher than our second and third quarter revenues. We seek to offset the impact of seasonality on our revenues by managing a diversified portfolio of products. In addition to product diversification, we use cold storage facilities to preserve some of our fresh products to extend their season and time market sales to improve gross margin. We also maintain research and development facilities that focus on the development of unique products which either have unique size or flavor characteristics or which have the potential to expand the market for products, such as our high PH bamboo shoots.
We believe that investments we made in physical facilities and planting bases in 2010 establish a strong foundation for growth during the remainder of 2011 and beyond. Our growth strategy is currently centered on the following five initiatives:
-
Expand our planting bases.
-
Improve our profitability by continuously introducing new high value added products.
-
Further expand our domestic sales and distribution network and enter new markets.
24
-
Increase our cold storage capacity.
-
Further enhance our brand recognition.
RECENT DEVELOPMENTS
Net sales for the first nine months of 2011 were $76.1 million, an increase of approximately 50% over net sales in the first nine months of 2010. Net income for the first nine months of 2011 was $23.6 million, an increase of approximately 42%, compared to the nine months ended September 30, 2010.
Our continued growth has been the result of focus on our five core initiatives. The table below summarizes our planting bases as of December 31, 2010 and September 30, 2011.
December 31, 2010 | September 30, 2011 | |
Bamboo forest | 30,500 acres | 32,500 acres |
(123.43 square kilometers) | (131.52 square kilometers) | |
Vegetables & Fruits | 12,500 acres | 12,500 acres |
(50.59 square kilometers) | (50.59 square kilometers) |
Our research and development team is continuously evaluating new product opportunities with the potential to address unmet market needs or provide additional value characteristics to our products. In 2010 we launched our proprietary high PH bamboo shoots, which maintain freshness and are generally sold in the "off season," when fresh bamboo shoots are not available. Sales of our high PH bamboo shoots, as well as increased sales of bamboo wood products helped to improve margins for the nine months ended September 30, 2011. Overall, our gross margins for the nine months ended September 30, 2011 were 40%, as compared to our gross margins of 38% for the nine months ended September 30, 2010.
We currently sell through distributors and members of our own sales force to farmers' markets, supermarkets, food manufacturers, restaurants and retailers in China. The following table shows the number of internal sales team members, outside sales agents and markets served at December 31, 2010 and September 30, 2011.
December 31, 2010 | September 30, 2011 | |
Internal Sales Team Members | 56 | 62 |
Distributors | 100 | 188 |
During the remainder of 2011, we plan to continue expansion of our sales network domestically, with our focus on the cities of Jinan, Nanjing, Beijing, Tianjin and Harbin. We have no immediate plans to expand our international sales presence beyond Japan.
We had a 6,000 metric ton cold storage facility as at September 30, 2011 for storing fresh and semi-finished products. We are adding an additional 5,500 metric ton cold storage facility in order to meet the requirements of our existing products and the anticipated need for storage as a result of our recent new product launches. As of September 30, 2011, the construction work for this additional facility was underway.
We have been gaining brand recognition in China, especially in Fujian Province. At September 30, 2011 we had expanded our sales to approximately 1,200 supermarket stores. We plan to further enhance our name recognition through establishing branded counters at supermarkets. We also have opened five Yada-branded distribution locations in Fujian Province and Shanghai.
CRITICAL ACCOUNTING POLICIES
Our financial statements have been prepared in accordance with the accounting policies which are consistent with the audited consolidated financial statements for the year ended December 31, 2010. Please refer to the audited consolidated financial statements for the year ended December 31, 2010 for the description of all of the accounting policies.
Management believes that the most critical accounting policies important to understanding our financial statements and financial condition are our policies concerning inventories, revenue recognition, and income taxes and foreign currency translation, discussed in more detail below. Please see “Note 3 – Significant Accounting Policies” in our financial statements for a more complete discussion of the accounting policies we have identified as the most important to an understanding of our current financial condition and results of operations.
25
The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed using the weighted average cost method for finished goods, raw materials and packaging materials. Finished goods include fresh and processed produce while raw materials and packaging materials consist primarily of purchased fresh and processed produce and containers.
Expenditures on bamboo and other growing crops are valued at the lower of cost or market and are deferred and charged to cost of sales when the related produce is harvested and sold. The deferred growing costs included in inventories in the consolidated balance sheets consist primarily of land rental cost and service costs.
In assessing the ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase or decrease with our projected demand requirements and market conditions. We estimate the demand requirements based on market conditions, forecasts prepared by our customers, sales contracts and orders in hand.
In addition, we estimate net realizable value based on intended use, current market value and inventory ageing analyses. We write down the inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.
Based on the above assessment, we established a general provision to make a 20% provision for inventories aged between one and two years and 100% provision for inventories aged over 2 years.
Revenue recognition
Revenue from sales of the Companys products, including fresh produce and processed produce, is recognized upon customer acceptance, which occurs at the time of delivery to the customer, provided persuasive evidence of an arrangement exists, such as signed sales contract, the significant risks and rewards of ownership have been transferred to the customer at the time when the products are delivered to our customer with no significant post-delivery obligation on our part, the sales price is fixed or determinable and collection is reasonably assured. We do not provide our customers with contractual rights of return and post-delivery discount for any of our products. When any significant post-delivery performance obligation exists, revenue is recognized only after such obligation is fulfilled. We evaluate the terms of sales agreement with our customer in order to determine whether any significant
26
post-delivery performance obligations exist. Currently, the sales under fresh produce and processed produce segments do not include any terms which may impose any significant post-delivery performance obligations.
Revenue from sales of our product represents the invoiced value of goods, net of the value-added tax (VAT). Our processed produce products that are sold in the PRC are subject to VAT at a rate of 17 percent of the gross sales price. This VAT may be offset by VAT paid on raw materials, other materials or costs included in the cost of producing our processed produce products.
Income taxes
We use the asset and liability method of accounting for income taxes pursuant to ASC 740 "Income Taxes" (previously SFAS No. 109). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
We file separate tax returns in the United States and China. Income taxes of our PRC operating subsidiaries are calculated in accordance with taxation principles currently effective in the PRC. For Asia Green Agriculture Corporation, applicable U.S. tax laws are followed. We expect that the tax rate of 25% currently applicable to our Fujian Yada operating subsidiary will remain unchanged in the remainder of 2011.
In 2007, China passed the New EIT Law and its implementing rules, both of which became effective on January 1, 2008. The New EIT Law significantly curtails tax incentives granted to foreign-invested enterprises under the previous law. The New EIT Law, however, (i) reduces the statutory rate of enterprise income tax from 33% to 25%, (ii) permits companies to continue to enjoy their existing tax incentives, adjusted by certain transitional phase-out rules, and (iii) introduces new tax incentives, subject to various qualification criteria.
Substantially all of our income may be derived from dividends we receive from our PRC operating subsidiaries. The New EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes. We expect that such 10% withholding tax will apply to dividends paid to us by our PRC subsidiaries but this treatment will depend on our status as a non-resident enterprise. For detailed discussion of PRC tax issues related to resident enterprise status, see "Risk Factors Risks Associated with Doing Business in China Under the New EIT Law, we may be classified as a 'resident enterprise' of China." Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.
27
Foreign currency translation
Our functional currency is the RMB and RMB is not freely convertible into foreign currencies. We maintain our financial statements in our functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, our financial statements that are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholder's equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders' equity.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010
The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.
(All amounts, other than percentage, in thousands of US dollars) | ||||||||||||
For the three months | For the three months | |||||||||||
Item | ended | ended | ||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||
(Unaudited) | (As reported) | (As reported) | ||||||||||
In | As a | In | As a | |||||||||
Thousands | Percentage | Thousands | Percentage | |||||||||
of | of | |||||||||||
Net Sales | Net Sales | |||||||||||
Net sales | $ | 29,635 | 100% | 18,003 | 100% | |||||||
Cost of sales | (14,696 | ) | (50)% | (8,459 | ) | (47)% | ||||||
Gross profit | 14,939 | 50% | 9,544 | 53% | ||||||||
Selling and administrative expenses | (1,540 | ) | (5)% | (741 | ) | (4)% | ||||||
Operating income | 13,399 | 45% | 8,803 | 49% | ||||||||
Government grant income | 5 | 0% | 8 | 0% | ||||||||
Other loss - net | (383 | ) | (1)% | (125 | ) | (1)% | ||||||
Net finance costs | (229 | ) | (1)% | (337 | ) | (2)% | ||||||
Income before income taxes | 12,792 | 43% | 8,349 | 46% | ||||||||
Income taxes | 2 | 0% | 88 | 1% | ||||||||
Net income | 12,794 | 43% | 8,437 | 47% |
28
The functional currency of the Company is RMB; however, our financial information is expressed in US Dollars. The results of operations reported in the table above is based on the exchange rate of RMB 6.4029 to $1 for the three months ended September 30, 2011 and the rate of RMB 6.7613 to $1 for the three months ended September 30, 2010.
Net Sales. Our net sales consist of revenue derived from the sale of our food products, less discounts and returns. For the three months ended September 30, 2011, our net sales were $29.6 million compared to $18.0 million for the same period last year, an increase of $11.6 million or approximately 65%. The increase was primarily due to increased demand of products. Of such increase, approximately $10.9 million was attributable to increased sales volume of our products and approximately $0.7 million due to higher average selling prices of our products.
Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor, overhead and sales tax. For the three months ended September 30, 2011 our cost of sales were $14.7 million compared to $8.5 million for the same period last year, an increase of $6.2 million or approximately 74%. This increase was primarily due to higher sales volume. As a percentage of net sales, our cost of sales increased to approximately 50% for the three months ended September 30, 2011 from approximately 47% for the three months ended September 30, 2010.
Gross Profit and Gross Margin. Our gross profit is equal to our net revenues less our cost of sales. Our gross profit was $14.9 million for the three months ended September 30, 2011 compared to $9.5 million for the same period last year, an increase of $5.4 million or approximately 57%. Gross profit as a percentage of net sales was approximately 50% and 53% for the three months ended September 30, 2011 and 2010, respectively. Our gross margin decreased primarily due to a decrease in sales of higher margin bamboo wood as a proportion of total net sales revenue as well as a decrease in the gross margin of our bamboo wood, in each case comparing the third quarter of 2011 with the year ago quarter. The gross margin of our bamboo wood was approximately 74% and 82% in the third quarters of 2011 and 2010, respectively.
Selling and Administrative Expenses. Our selling and administrative expenses increased $0.8 million, or approximately 108%, to $1.5 million for the three months ended September 30, 2011 from $0.7 million for the three months ended September 30, 2010.
Our selling expenses include sales commissions, the cost of promotional materials, salaries and fringe benefits of sales personnel, transportation costs and other sales related costs. Our selling expenses amounted to $0.4 million for the three months ended September 30, 2011, similar to $0.4 million for the three months ended September 30, 2010. As a percentage of net sales, selling expenses for the three months ended September 30, 2011 were approximately 2% of net sales, as compared to 3% for the three months ended September 30, 2010.
Our administrative expenses primarily include the costs associated with staff and support personnel who manage our business activities, office expense, professional fees paid to third parties, foreign exchange expense, and depreciation of non-production facilities. Our administrative expenses increased $0.8 million, or approximately 276%, to $1.1 million for the three months ended September 30, 2011 from $0.3 million for the three months ended September 30, 2011. The increase is mainly attributed to a non-cash compensation expense of approximately $0.6 million arising from the grant of employee stock options and an increase in salaries of approximately $0.1 million. As a percentage of net sales, administrative expenses increased to approximately 4% for the three months ended September 30, 2011 from 2% for the three months ended September 30, 2010.
Net Finance Costs. Our net finance costs decreased to approximately $0.2 million for the three months ended September 30, 2011 from approximately $0.3 million for the three months ended September 30, 2010. The decrease is mainly due to a decrease in exchange loss.
Income Taxes. We had income tax credit of approximately $0 million for the three months ended September 30, 2011, as compared to approximately $0.1 million for the three months ended September 30, 2010. This slight decrease was primarily attributable to our decreased taxable loss for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.
29
Net Income. Our net income increased by $4.4 million or approximately 52%, to $12.8 million for the three months ended September 30, 2011. The main reasons for the growth of our net income were due to the changes in our other key components of our results of operations discussed above.
Nine months Ended September 30, 2011 Compared to Nine months Ended September 30, 2010
The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.
(All amounts, other than percentage, in thousands of US dollars)
For the nine months | For the nine months | |||||||||||
Item | ended | ended | ||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||
(Unaudited) | (As reported) | (As reported) | ||||||||||
In | As a | In | As a | |||||||||
Thousands | Percentage | Thousands | Percentage | |||||||||
of | of | |||||||||||
Net Sales | Net Sales | |||||||||||
Net Sales | $ | 76,128 | 100% | $ | 50,654 | 100% | ||||||
Cost of Sales | (45,971 | ) | (60% | ) | (31,384 | ) | (62% | ) | ||||
Gross profit | 30,157 | 40% | 19,270 | 38% | ||||||||
Selling and administrative expenses | (5,705 | ) | (8% | ) | (1,945 | ) | (4% | ) | ||||
Operating income | 24,452 | 32% | 17,325 | 34% | ||||||||
Government Grant Income | 87 | 0% | 39 | 0% | ||||||||
Other net (loss) income | (335 | ) | 0% | 25 | 0% | |||||||
Net finance costs | (419 | ) | (1% | ) | (700 | ) | (1% | ) | ||||
Income before income taxes | 23,785 | 31% | 16,689 | 33% | ||||||||
Income tax provision | (166 | ) | 0% | (79 | ) | 0% | ||||||
Net income | 23,619 | 31% | 16,610 | 33% |
The functional currency of the Company is RMB; however, our financial information is expressed in US Dollars. The results of operations reported in the table above is based on the exchange rate of RMB 6.4876 to $1 for the nine months ended September 30, 2011 and the rate of RMB 6.7981 to $1 for the nine months ended September 30, 2010.
Net Sales. Our net sales consist of revenue derived from the sale of our food products, less discounts and returns. For the nine months ended September 30, 2011, our net sales were $76.1 million compared to $50.7 million for the same period last year, an increase of $25.4 million or approximately 50%. The increase was primarily due to increased sales volume resulting from increased demand for our products. Of such increase, approximately $21.9 million was attributable to increased sales volume of our products, while approximately $3.5 million was due to higher average selling prices of our products.
Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor, overhead and sales tax. For the nine months ended September 30, 2011 our cost of sales were $46.0 million compared to $31.4 million for the same period last year, an increase of $14.6 million or approximately 46%. This increase was primarily due to higher sales volume. As a percentage of net sales, our cost of sales decreased to approximately 60% for the nine months ended September 30, 2011 from approximately 62% for the nine months ended September 30, 2010.
Gross Profit and Gross Margin. Our gross profit is equal to our net revenues less our cost of sales. Our gross profit was $30.2 million for the nine months ended September 30, 2011 compared to $19.3 million for the same period last year, an increase of $10.9 million or approximately 56%. Gross profit as a percentage of net sales was approximately 40% and 38% for the nine months ended September 30, 2011 and 2010, respectively. Our gross margin increased primarily due to product mix as we had an increase in sales of higher margin products such as bamboo wood and high PH bamboo shoots for the nine months ended September 30, 2011 as compared to 2010. The gross margin of our high PH bamboo shoots was approximately 83% and 76% for the nine months ended September 30, 2011 and 2010, respectively. The gross margin of our bamboo wood was approximately 75% and 82% for the nine months ended September 30, 2011 and 2010, respectively.
30
Selling and Administrative Expenses. Our selling and administrative expenses increased $3.8 million, or approximately 193%, to $5.7 million for the nine months ended September 30, 2011 from $1.9 million for the nine months ended September 30, 2010.
Our selling expenses include sales commissions, the cost of promotional materials, salaries and fringe benefits of sales personnel, transportation costs and other sales related costs. Our selling expenses increased to $1.5 million for the nine months ended September 30, 2011, from $1.0 million for the nine months ended September 30, 2010. As a percentage of net sales, selling expenses for the nine months ended September 30, 2011 were approximately 2% of net sales, as compared to 2% for the nine months ended September 30, 2010. The dollar increase of our selling expenses is primarily attributable to non-cash compensation expense related to the grant of employee stock option, and to a lesser extent to an increase in transportation costs.
Our administrative expenses primarily include the costs associated with staff and support personnel who manage our business activities, office expense, professional fees paid to third parties, foreign exchange expense, and depreciation of non-production facilities. Our administrative expenses increased $3.3 million, or approximately 367%, to $4.2 million for the nine months ended September 30, 2011 from $0.9 million for the nine months ended September 30, 2011. The increase is mainly attributed to non-cash compensation expense of approximately $1.6 million arising from the grant of employee stock options; an increase in salaries of approximately $0.6 million; bad debts expense of approximately $0.3 million; provision for liquidated damages of approximately $0.3 million to certain investors as discussed in Note 20 to our condensed consolidated financial statements filed herewith; and compensation expense of approximately $0.1 million arising from the grant of warrants to an investor relations firm that we did not incur during the nine months ended September 30, 2010. As a percentage of net sales, administrative expenses increased to approximately 6% for the nine months ended September 30, 2011 from approximately 2% for the nine months ended September 30, 2010.
Net Finance Costs. Our net finance costs decreased to approximately $0.4 million for the nine months ended September 30, 2011 from approximately $0.7 million for the nine months ended September 30, 2010. The decrease is mainly due to the decrease of exchange loss, and to a lesser extent, to government subsidies for agricultural producers for interest expenses set off in the amount of approximately $0.1 million. If such government subsidies decrease in the future, interest expense set off will also decrease and the results of our operations and cash flow may be adversely affected; however, we do not expect any such adverse effect to be significant.
Income Taxes. We had income taxes of $0.2 million for the nine months ended September 30, 2011, as compared to $0.1 million for the nine months ended September 30, 2010. This increase was primarily attributable to the increase of taxable profit for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010.
Net Income. Our net income increased by $7.0 million or approximately 42%, to $23.6 million for the nine months ended September 30, 2011. The main reasons for the growth of our net income were due to the changes in our other key components of our results of operations discussed above.
Liquidity and Capital Resources
As of September 30, 2011, we had cash and cash equivalents of approximately $7.7 million, compared to approximately $10.0 million for December 31, 2010. Our accounts receivable at September 30, 2011 were $30.7 million, compared to $20.9 million at December 31, 2010. Our days sales outstanding increased slightly to 110 days as at September 30, 2011, similar to 106 days as at December 31, 2010. We finished the third quarter with working capital of $50.7 million, compared to $30.0 million at December 31, 2010.
The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.
Cash Flow | ||||||||||||
(All amounts in thousands of U.S. dollars) | ||||||||||||
Nine months Ended | Year Ended | |||||||||||
September | December | |||||||||||
30, | 31 | |||||||||||
(Unaudited) | (Audited) | |||||||||||
2011 | 2010 | 2010 | 2009 | |||||||||
Net cash provided by operating activities | $ | 5,950 | $ | 9,585 | $ | 15,409 | $ | 1,235 | ||||
Net cash used in investing activities | (10,830 | ) | (8,026 | ) | (15,299 | ) | (2,026 | ) | ||||
Net cash provided by financing activities | 2,352 | 9,171 | 9,043 | 1,129 |
31
Effect of exchange rate on cash and cash equivalents | 287 | 175 | 414 | -- | ||||||||
Cash and cash equivalents at the beginning of the period | 9,988 | 421 | 421 | 83 | ||||||||
Cash and cash equivalents at the end of the period | 7,748 | 11,326 | 9,988 | 421 |
Cash Flows from Operating Activities.
Net cash provided by operating activities was $6.0 million for nine months ended September 30, 2011, compared to $9.6 million provided by operating activities for nine months ended September 30, 2010. The change was primarily attributable to an increase in inventories.
Our days' sales outstanding was 110 days as at September 30, 2011 similar to 106 days as at December 31, 2010.
Cash Flows from Investing Activities.
Net cash used in investing activities for the nine months ended September 30, 2011 was $10.8 million compared to $8.0 million for the nine months ended September 30, 2010. The increase of net cash used in investing activities was primarily attributable to capital expenses for the expansion of planting bases and production facilities. During the nine months ended September 30, 2011 we invested $0.9 million to acquire property, plant and equipment and made an additional $9.9 million in payments on the outstanding balance due in relation to previously acquired land use rights.
Cash Flows from Financing Activities.
Net cash provided by financing activities was $2.4 million in the nine months ended September 30, 2011 compared to $9.2 million used in financing activities for the nine months ended September 30, 2010. Net cash provided by financing activities for the nine months ended September 30, 2011 was primarily attributable to borrowings under bank credit facilities. Net cash provided by financing activities for the nine months ended September 30, 2010, included the proceeds from a $13.7 million sale of common stock and warrants in a private placement transaction. There was no similar equity financing transaction in 2011.
As of September 30, 2011 and December 31, 2010, the Company's banking facilities were composed of the following: (All amounts, other than percentages, in thousands of U.S. dollars)
September 30, | December 31, | |||||
2011 | 2010 | |||||
(Unaudited) | (Audited) | |||||
Secured short-term borrowings | $ | 8,761 | $ | 6,233 | ||
Current maturities of secured long-term borrowings | -- | 23 | ||||
$ | 8,761 | $ | 6,256 | |||
Secured long-term borrowings | ||||||
Interest bearing : | ||||||
- at 14.4% per annum | -- | 23 | ||||
- | 23 | |||||
Less: current maturities | -- | (23 | ) | |||
$ | - | $ | -- |
We had the following financing arrangements as of September 30, 2011, including those with third parties:
-
Fujian Yada Group Co., Ltd. (formerly known as Fujian Shengda Food Co., Ltd.) entered into a Maximum Amount Mortgage Contract on March 19, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB4,130,000, or $618,615 mortgage to secure certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.
-
Fujian Yada Group Co., Ltd. (formerly known as Fujian Shengda Food Co., Ltd.) entered into a Maximum Amount Mortgage Contract on February 27, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB15,160,000, or $2,270,753 mortgage to secure certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.
32
-
Fujian Yada Group Co., Ltd. (formerly known as Fujian Shengda Food Co., Ltd.) entered into a Maximum Amount Mortgage Contract on March, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB7,840,000, or $1,174,321 mortgage to secure certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.
-
Fujian Shengda Import & Export Trading Co., Ltd., an indirectly owned subsidiary of the Company, entered into a Maximum Mortgage Contract on February 27, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB29,000,000, or $4,343,788 mortgage guarantee for certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.
-
Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on November 26, 2010 to borrow from China Construction Bank Corporation Ltd Songxi Branch the amount of RMB8,000,000, or $1,209,921 for the purpose of capital turnover, and the annual interest rate of the loan shall be 10% higher than the benchmark interest rate announced by the Peoples Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from November 26, 2010 to November 26, 2011. Proceeds of the loan may be used for permitted purposes only, otherwise a 100% penalty applies.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on November 26, 2010 with Songxi Sub-branch of Construction Bank of China Co., Ltd. to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd., an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB8,000,000, or $1,209,921.
-
Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on February 16, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB2,900,000, or $441,380 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the Peoples Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from February 16, 2011 to February 16, 2012.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on February 15, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB2,900,000, or $441,380.
-
Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on February 16, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB3,100,000, or $471,820 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the Peoples Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from February 16, 2011 to February 16, 2012.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on February 15, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB3,100,000, or $471,820.
-
Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on March 2, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB5,000,000, or $761,000 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the Peoples Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from March 2, 2011 to February 2, 2012.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on March 2, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB5,000,000, or $761,000.
-
Fujian Yada Group Co., Ltd and Industrial and Commercial Bank of China Limited Jianyang Sub-branch entered into a Maximum Amount Guarantee Contract on June 28, 2010 to guarantee a maximum of RMB20,000,000, or $3,044,001 for debts within the period from June 28, 2010 to June 27, 2011 owed to
33
- the Industrial and Commercial Bank of China
Limited Jianyang Sub-branch by Fujian Yaxin Food Group Co., Ltd.
-
Fujian Yaxin Food Co., Ltd. entered into a Small Business Loan Agreement on April 6, 2011 to borrow from Industrial and Commercial Bank of China Limited Jianyang Sub-branch the amount of RMB5,000,000, or $773,503 for purpose of purchasing financial resources and materials, and the annual interest rate of the loan shall be 6.941%. The term of the Agreement shall be from April 6, 2011 to April 5, 2012.
-
Fujian Yaxin Food Co., Ltd. entered into a Maximum Amount Liquid Fund Loan Contract on May 5, 2011 to borrow from Jianyang City Rural Credit Cooperative Union Business Department the amount of RMB2,000,000, or $309,401 for purpose of purchasing financial resources and materials, and the monthly interest rate of the loan shall be 10.908 . The term of the Agreement shall be from May 5, 2011 to May 4, 2012.
-
Fujian Yaxin Food Co., Ltd. entered into a Domestic Factoring Contract on July 26, 2011 to borrow from Industrial and Commercial Bank of China Limited Jianyang Sub-branch the amount of RMB3,000,000, or $469,498 for purpose of purchasing materials, and the annual interest rate of the loan shall be the benchmark interest rate announced by the Peoples Bank of China plus a floating rate of 5% on each loan issuing date. The term of such Contract shall be from July 26, 2011 to January 12, 2012.
-
Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on August 4, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB3,600,000, or $563,398 for purpose of capital turnover, and the annual interest rate of the loan shall be the benchmark interest rate announced by the Peoples Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from August 4, 2011 to February 4, 2012.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on August 4, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB3,600,000, or $563,398.
-
Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on August 4, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB1,400,000, or $219,099 for purpose of capital turnover, and the annual interest rate of the loan shall be the benchmark interest rate announced by the Peoples Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from August 4, 2011 to February 4, 2012.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on August 4, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB1,400,000, or $219,099.
-
Fujian Yada Group Co., Ltd. entered into a Domestic Commercial Invoice Discount Financing Application Letter to borrow from Bank of China Songxi Branch an approximate amount of RMB3,278,635, or $513,104 for purpose of financing, and the annual interest rate of the loan shall be 5.85%. The term of such RMB Fund Loan Contract shall be from August 15, 2011 to January 2, 2012.
-
Fujian Yada Group Co., Ltd entered into a Mortgage Loan Agreement on August 17, 2011 to borrow from Songxi County rural Credit Cooperative Business Department the amount of RMB6,000,000, or $938,997 for purpose of purchasing fresh agricultural products, and the monthly interest of the loan shall be 0.8641667%. The term of such Mortgage Loan Agreement shall be from August 17, 2011 to February 14, 2012. The loan shall be only used for purposes in accordance with the Mortgage Loan Agreement.
-
Fujian Yada Group Co., Ltd. entered into a Domestic Letter of Credit Opening Contract to borrow from Songxi Sub-branch of Construction Bank of China Co., Ltd. an approximate amount of RMB10,000,000, or $1,564,994 for capital turnover, and the deposit for issuing the L/C shall be 30% of the total amount of the L/C plus the floating amount (if applicable), which is RMB3,000,000, or $469,498. The term of such Domestic Letter of Credit Opening Contract shall be from September 27, 2011 to March 23, 2012.
-
Fujian Yada Group Co., Ltd. entered into a Guarantee Deposit Pledge Contract of Domestic Letter of Credit Opening Contract on September 27, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to provide a pledge for the guarantee deposit of RMB3,000,000, or $469,498, under a Domestic
34
- Letter of Credit Opening Contract between
Fujian Yada Group Co., Ltd. and Songxi Sub-branch of Construction Bank of
China Co., Ltd.
-
Fujian Shengda Import and Export Trading Co., Ltd. entered into a Guarantee Contract on September 27, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for a L/C under a Domestic Letter of Credit Opening Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB10,000,000, or $1,564,994.
-
Songxi Yasheng Food Co., Ltd. entered into a Guarantee Contract on September 27, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for a L/C under a Domestic Letter of Credit Opening Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB10,000,000, or $1,564,994.
-
Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on September 27, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for a L/C under a Domestic Letter of Credit Opening Contract between Fujian Yada Group Co., Ltd, an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB10,000,000, or $1,564,994.
The following table summarizes key elements of the aforementioned twenty-seven financing arrangements:
Contract | Bank | Borrower/ | Loan/ | Repayment Term | Interest | Maturity |
Mortgager/ | Mortgaged/ | of the Loan/ | Rate | |||
Guarantor/Pledgor | Guaranteed | Repayment Term of | ||||
Amount | the Loan Covered | |||||
by Mortgage/ | ||||||
Guarantee | ||||||
Maximum Amount Mortgage Contract |
China Construction Bank Corporation Ltd Songxi Branch |
Fujian Yada Group Co., Ltd. (formerly known as Fujian Shengda Food Co., Ltd.) |
$618,615 |
March 19, 2009 to March 19, 2012 |
N/A |
March 19, 2012 |
Maximum Amount Mortgage Contract |
China Construction Bank Corporation Ltd Songxi Branch |
Fujian Yada Group Co., Ltd. (formerly known as Fujian Shengda Food Co., Ltd.) |
$2,270,753 |
February 27, 2009 to February 27, 2012 |
N/A |
February 27, 2012 |
Maximum Amount Mortgage Contract |
China Construction Bank Corporation Ltd Songxi Branch |
Fujian Yada Group Co., Ltd. (formerly known as Fujian Shengda Food Co., Ltd.) |
$1,174,321 |
March, 2009 to March 2012 |
N/A |
March 2012 |
Maximum Amount Mortgage Contract |
China Construction Bank Corporation Ltd Songxi Branch |
Fujian Shengda Import & Export Trading Co., Ltd. |
$4,343,788 |
February 27, 2009 to February 27, 2012 |
N/A |
February 27, 2012 |
RMB Fund Loan Contract |
China Construction Bank Corporation Ltd. Songxi Branch |
Fujian Yada Group Co., Ltd. |
$1,209,921
|
November 26, 2010 to November 26, 2011 |
Annual interest rate of the loan shall be 10% higher than the benchmark interest rate announced by the Peoples Bank Of China as of the value date |
November 26, 2011 |
Natural Person Guarantee Contract |
Songxi Sub- branch of Construction Bank of China Co., Ltd. |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$1,209,921 |
November 26, 2010 to November 26, 2011 |
N/A |
November 26, 2011 |
RMB Fund Loan Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd. |
Fijian Yada Group Co., Ltd
|
$441,380
|
February 16, 2011 to
February 16, 2012 |
Annual interest rate shall
be the benchmark interest rate announced by the Peoples Bank Of China as of the value date |
February 16, 2012 |
Natural Person Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$441,380 |
February 16, 2011 to February 16, 2012 |
N/A |
February 16, 2012 |
35
RMB Fund Loan Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd. |
Fujian Yada Group Co., Ltd. |
$471,820 |
February 16, 2011 to February 16, 2012 |
Annual interest rate shall be the benchmark interest rate announced by the People's Bank Of China as of the value date |
February 16, 2012 |
Natural Person Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$471,820 |
February 16, 2011 to
February 16, 2012 |
N/A |
February 16, 2012 |
RMB Fund Loan Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd. |
Fujian Yada Group Co., Ltd. |
$761,000 |
March 2, 2011 to February 2, 2012 |
Annual interest rate shall be the benchmark interest rate announced by the Peoples Bank Of China as of the value date |
February 2, 2012 |
Natural Person Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$761,000 |
March 2, 2011 to February 2, 2012 |
N/A |
February 2, 2012 |
Maximum Amount Guarantee Contract |
Industrial and Commercial Bank of China Limited Jianyang Sub- branch |
Fujian Yada Group Co., Ltd
|
$3,044,001 |
June 28, 2010 to June 27, 2013 |
N/A |
June 27, 2013 |
Small Business Loan Agreement |
Industrial and Commercial Bank of China Limited Jianyang Sub- branch |
Fujian Yaxin Food Co., Ltd
|
$773,503
|
April 6, 2011 to April 5, 2012 |
6.941% per annum
|
April 5, 2012 |
Maximum Amount Liquid Fund Loan Contract |
Jianyang City Rural Credit Cooperative Union Business Department |
Fujian Yaxin Food Co., Ltd |
$309,401 |
May 5, 2011 to May 4, 2012 |
10.908 monthly |
May 4, 2012 |
Domestic Factoring Contract |
Industrial and Commercial Bank of China Limited Jianyang Sub- branch |
Fujian Yaxin Food Co., Ltd
|
$469,498
|
July 26, 2011 to January 12, 2012 |
Annual interest rate shall
be the benchmark interest rate of the loan announced by the Peoples Bank Of China plus a floating rate of 5% on each loan issuing date |
January 12, 2012 |
RMB Fund Loan Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd. |
Fujian Yada Group Co., Ltd. |
$563,398 |
August 4, 2011 to February 4, 2012 |
Annual interest rate shall be the benchmark interest rate announced by the People's Bank Of China as of the value date |
February 4, 2012 |
Natural Person Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$563,398 |
August 4, 2011 to February 4, 2012 |
N/A |
February 4, 2012 |
RMB Fund Loan Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd. |
Fujian Yada Group Co., Ltd. |
$219,099 |
August 4, 2011 to February 4, 2012 |
Annual interest rate shall be the benchmark interest rate announced by the Peoples Bank Of China as of the value date |
February 4, 2012 |
36
Natural Person Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$219,099 |
August 4, 2011 to February 4, 2012 |
N/A |
February 4, 2012 |
Domestic Commerci al Invoice Discount Financing Application Letter |
Bank of China Songxi Branch |
Fujian Yada Group Co., Ltd
|
$513,104 |
August 15, 2011 to January 2, 2012 |
5.85% per annum |
January 2, 2012 |
Mortgage Loan Agreement |
Songxi County Rural Credit Cooperative Business Department |
Fujian Yada Group Co., Ltd
|
$938,997 |
August 17, 2011 to February 14, 2012 |
0.8641667% monthly
|
February 14, 2012 |
Domestic Letter of Credit Opening Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Fujian Yada Group Co., Ltd
|
$1,564,994 |
September 27, 2011 to March 23, 2012 |
deposit for issuing the L/C shall be 30% of the total amount of L/C plus the floating amount (if applicable), which is approximately $469,498 |
March 23, 2012 |
Guarantee Deposit Pledge Contract of Domestic Letter of Credit Opening Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Fujian Yada Group Co., Ltd
|
$469,498
|
September 27, 2011 to March 23, 2012 |
N/A
|
March 23, 2012 |
Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Fujian Shengda Import and Export Trading Co., Ltd. |
$1,564,994 |
September 27, 2011 to March 23, 2012 |
N/A |
March 23, 2012 |
Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Songxi Yasheng Food Co.,
Ltd. |
$1,564,994 |
September 27, 2011 to March 23, 2012 |
N/A |
March 23, 2012 |
Natural Person Guarantee Contract |
Songxi Sub-branch of Construction Bank of China Co., Ltd |
Mr. Zhan Youdai and Ms. Zhou Liufeng |
$1,564,994 |
September 27, 2011 to March 23, 2012 |
N/A |
March 23, 2012 |
Solely for the convenience of the reader, the above amounts were converted from RMB to U.S. dollars at specified rates, as follows: for any contract entered into in the third quarter of 2011, the conversion rate was 6.3898 RMB to $1; for any contract entered into in the second quarter of 2011, the conversion rate was 6.4641 RMB to $1; for any contract entered into in the first quarter of 2011, the conversion rate was 6.5703 RMB to $1; for any contract entered into in 2010, the conversion rate was 6.6120 RMB to $1; and for any contract entered into 2009, the conversion rate was 6.6762 RMB to $1.
Many of the financing agreements contain covenants prohibiting us from borrowing substantial amounts of money, or leasing or subsequently pledging already pledged assets, without the prior consent of each relevant lender. In addition, we are prohibited from selling a significant amount of its assets without prior consent from each relevant lender. The terms significant and substantial are not defined in the relevant contracts. In assessing our compliance with the financing agreements we have determined that a value exceeding approximately 10% of our total assets, or about $10.9 million as of September 30, 2011, would be significant or substantial and would trigger a requirement to obtain the prior consent of various lenders. However, the lenders may have a different interpretation of the limitation on our ability to borrow money or sell assets, and it may be lower than our understanding of the provisions of the loan agreements. If we were to inadvertently sell assets or borrow money with a value in excess of what our lenders believe is permissible without their consent, they could pursue breach of contract and other claims against us, which could harm our business and reputation.
37
Contingent Liabilities
We have made a provision of approximately $731,000 to cover potential liability with respect to certain unpaid social insurance obligations for full-time employees. We believe that the total potential liabilities include cost of rectifying non-compliance of the social insurance obligations for full-time employees and temporary workers, and the cost of rectifying non-compliance of the housing fund obligations for full-time employees and temporary workers, and may be as much as $1,847,000. See Risk FactorsWe may face claims or administrative penalties for non-execution of labor contracts or non-payment and/or underpayment of the social insurance and housing fund obligations in respect of our temporary workers and full-time employees. in our annual report on Form 10-K for the year ended December 31, 2010. The provision reflects our good faith estimate of the costs of rectifying our non-compliance with these obligations; actual costs could be lower or higher. If we are required to rectify our non-compliance and the costs of doing so approach or exceed our good faith estimate, it would have a material adverse effect on our liquidity and capital resources.
Capital Expenditures
Our capital expenditures were approximately $7.5 million for the quarter ended September 30, 2011, $10.8 million for the nine months ended September 30, 2011 and $15.3 million for the year ended December 31, 2010. Our capital expenditures were mainly used to acquire property, plant and equipment and land use rights to expand our production capacity. We currently estimate that our aggregate capital expenditures in fiscal year 2011 will be approximately $12 million, which we intend to use primarily for expansion of bamboo forests, constructing additional cold storage and preliminary processing facilities.
Capital Resources
At September 30, 2011, we did not have any unused credit facility that was available to us.
We believe that our cash on hand and cash flow from operations will meet our expected capital expenditures and working capital requirements for at least the next 12 months. However, our cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part I, Item 1A titled Risk Factors. In addition, we may, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue.
If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Recent Accounting Pronouncements
See Note 3 to our unaudited consolidated financial statements for the nine months ended September 30, 2011 and 2010 beginning on page 8.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide disclosure under this item.
Item 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, on a timely basis; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934, as amended.
38
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2011 except for the points discussed below related to material weaknesses in our internal control over financial reporting.
In our annual report on Form 10-K for the period ended December 31, 2010, we identified certain material weaknesses in our internal controls over financial reporting. These weaknesses included:
1. | we extend credit to certain of our customers, but do not have detailed procedures in place for documenting our analysis, establishment or management of those credit terms; |
2. | we have not completed implementation of procedures to ensure our sight and verification of documentation and sales acknowledgements for delivery of product and revenue recognition; |
3. | we have limited staff and limited documented procedures for managing our procurement process and managing our inventory levels; and |
4. | we did not maintain sufficient in-house personnel resources with the technical accounting knowledge, expertise and training in the selection, application and implementation of GAAP, particularly with respect to certain complex or non-routine transactions. |
The existence of these material weaknesses could impair our ability to provide timely and accurate financial information.
Changes in Internal Controls over Financial Reporting.
We are in the process of implementation of additional internal control procedures to remediate the identified material weaknesses. During the period ended September 30, 2011 we completed our procedures for establishing and management of our credit terms with customers. We have also completed implementation of control procedures for our sight and verification of documentation and sales acknowledgements for delivery of product and revenue recognition. We are continuing to work with external professional consultants to evaluate and improve our internal control system.
Except for the improvements in internal controls set forth above, no material changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Internal Controls over Financial Reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be 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 our 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. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
39
PART IIOTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. As of the date of this report, we are not a party to any litigation which we believe would have a material adverse effect on our business operations or financial condition.
Item 1A. RISK FACTORS.
You should carefully consider the risk factors discussed in our Report on Form 10-K filed March 31, 2011, as amended, the occurrence of which could materially affect harm our business, financial position and results of operations, before making an investment decision. Such risk factors are incorporated herein by reference.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (REMOVED AND RESERVED).
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS.
See the Exhibit Index immediately following the signature page of this report.
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ASIA GREEN AGRICULTURE CORPORATION | |
Date: November 14, 2011 | /s/ Tsang Yin Chiu Stanley |
Tsang Yin Chiu Stanley, Chief Financial Officer | |
(Principal Accounting Officer) |
41
42