TIDMBODI
RNS Number : 4119M
Bodisen Biotech Inc
16 August 2011
15 August 2011
Bodisen Biotech, Inc.
Results for the six month period ended 30 June 2011
Review & Extracts of the Form10-Q as required by the
Securities & Exchange Commission
Bodisen Biotech, Inc. (the "Company") (OTC Pink Sheets: BBCZ;
London AIM: BODI; website: www.bodisen.com) recently announced its
six months unaudited results for the period ended 30 June 2011,
which are extracted from the Company's Form 10-Q filed with the
SEC.
Result of Operations
Three Months Ended June 30, 2011 as Compared to Three Months
Ended June 30, 2010
Three Months Ended
June 30, Change
-------------------------- --------------------
2011 2010 $ %
---------- ----------
Revenue $ 1,416,610 $ 1,913,649 $ (497,039) (26)
---------- ---------- ------------
Cost of revenue 558,927 1,854,716 (1,295,789) (70)
---------- ---------- ------------
Gross profit 857,683 58,933 798,750 1,355
Operating expenses
Selling expenses 30,277 204,772 (174,495) (85)
General and
administrative expenses 531,907 713,751 (181,844) (25)
Writedown of Assets - - - -
---------- ---------- ------------
Total operating
expenses 562,184 918,523 (356,339) (39)
Loss from operations 295,499 (859,590) 1,155,089 (134)
Non-oparating income
(expense):
Other income (expense) (2,280) (19,227) 16,947 (88)
Interest income, net 21,217 (15,745) 36,962 (235)
Gain on sale of
investment, net - - - -
Equity income in
investment - - - -
---------- ---------- ------------
Total non-operating
income(expense) 18,937 (34,972) 53,909 (154)
Net income (loss) $ 314,436 $ (894,562) $ 1,208,998 (135)
========== ========== ============
Revenue: We generated revenue of $1,416,610 for the three months
ended June 30, 2011, a decrease of $497,039 or 26%, compared to
$1,913,649 for the three months ended June 30, 2010. The decrease
in revenue is primarily attributable to the severe inflation in
China which caused a decrease in spending by our customers.
Gross Profit (Loss):. We experienced a gross profit of $857,683
for the three months ended June 30, 2011, an increase of $798,750
or 1,355%, compared to $58,933 for the three months ended June 30,
2010. Gross margin (gross profit as a percentage of revenue), was
60% for the three months ended June 30, 2011, compared to 3.1% for
the three months ended June 30, 2010. The increase in the gross
margin percentage was primarily attributable to the timing of
collections of our accounts receivable.
Selling Expenses: Aggregated selling expenses accounted for
$30,277 of our operating expenses for the three months ended June
30, 2011, a decrease of $174,495 or 85%, compared to $204,772 for
the three months ended June 30, 2010. The decrease in our
aggregated selling expenses is primarily attributable to the
decrease of sales.
General and Administrative Expenses: General and administrative
expenses accounted for $531,907 of our operating expenses for the
three months ended June 30, 2011, a decrease of $181,844 or 25%,
compared to $713,751 for the three months ended June 30, 2010. The
decrease is principally due to a decrease in our bad debt
expense.
Non Operating Income and Expenses: We had total non-operating
income of $18,937 for the three months ended June 30, 2011 a change
of $53,909 compared to expense of $34,972 for the three months
ended June 30, 2010. Other income (expense) was $(2,280) for the
three months ended June 30, 2011 compared to $(19,227) for the
three months ended June 30, 2010. During the three months ended
June 30, 2011 and 2010, we did not incur any gains or losses
related to equity income in investment.
Six Months Ended June 30, 2011 as Compared to Six Months Ended
June 30, 2010
Six Months Ended
June 30, Change
---------------------------- --------------------
2011 2010 $ %
---------- ------------
Revenue $ 2,441,287 $ 3,451,991 $ (1,010,704) (29)
---------- ------------ ------------
Cost of revenue 1,038,144 2,664,599 (1,626,455) (61)
---------- ------------ ------------
Gross profit 1,403,143 787,392 615,751 78
Operating
expenses
Selling expenses 714,174 346,186 367,988 106
General and
administrative
expenses 1,048,517 1,461,735 (413,218) (28)
Writedown of
Assets - - - -
---------- ------------ ------------
Total operating
expenses 1,762,691 1,807,921 (45,230) (3)
Loss from operations (359,548) (1,020,529) 660,981 (65)
Non-oparating
income
(expense):
Other income
(expense): (2,509) (19,841) 17,332 (87)
Interest income, net 35,134 (13,237) 48,371 (365)
Gain on sale of
investment, net - - - -
Equity income in
investment - - - -
---------- ------------ ------------
Total non-operating
income (expense) 32,625 (33,078) 65,703 (199)
Net income
(loss) $ (326,923) $ (1,053,607) $ 726,684 (69)
========== ============ ============
Revenue: We generated revenue of $2,441,287 for the six months
ended June 30, 2011, a decrease of $1,010,704 or 29%, compared to
$3,451,991 for the six months ended June 30, 2010. The decrease in
revenue is primarily attributable to the severe inflation in China
which caused a decrease in spending by our customers.
Gross Profit (Loss): We experienced a gross profit of $1,403,143
for the six months ended June 30, 2011, an increase of $615,751 or
78%, compared to $787,392 for the six months ended June 30, 2010.
Gross margin (gross profit as a percentage of revenue), was 57.5%
for the six months ended June 30, 2011, compared to 22.8% for the
six months ended June 30, 2010. The increase in the gross margin
percentage was primarily attributable to the higher profit margins
which are earned on the new products.
Selling Expenses: Aggregated selling expenses accounted for
$714,174 of our operating expenses for the six months ended June
30, 2011, an increase of $367,988 or 106%, compared to $346,186 for
the six months ended June 30, 2010. The increase in our aggregated
selling expenses is primarily attributable to an increase in
marketing promotion and advertising programs.
General and Administrative Expenses: General and administrative
expenses accounted for $1.048,517 of our operating expenses for the
six months ended June 30, 2011, a decrease of $413,218 or 28%,
compared to $1,461,735 for the six months ended June 30, 2010. The
decrease is principally due to a decrease in our bad debt
expense.
Non Operating Income and Expenses: We had total non-operating
income of $32,625 for the six months ended June 30, 2011, a change
of $65,703 compared to and expense of $33,078 for the six months
ended June 30, 2010. Other income (expense) was $(2,509) for the
six months ended June 30, 2011 compared to $(19,841) for the six
months ended June 30, 2010. During the six months ended June 30,
2011 and 2010, we did not incur any gains or losses related to
equity income in investment.
Liquidity and Capital Resources
We are primarily a parent holding company for the operations
carried out by our operating subsidiary, Yang Ling, which carries
out its activities in the People's Republic of China. Because of
our holding company structure, our ability to meet our cash
requirements apart from our financing activities, including payment
of dividends on our common stock, if any, substantially depends
upon the receipt of dividends from our subsidiaries, particularly
Yang Ling.
As of June 30, 2011, we had $1,383,128 of cash compared to
$3,675,209 as of December 31, 2010.
Cash Flows
Operating: We used $2,337,832of cash for operating activities
for the six months ended June 30, 2011 compared to $1,461,401 of
cash used in operating activities for the six months ended June 30,
2010. The cash used in operating consisted of a net loss of $.3
million offset by non cash expenses of depreciation and
amortization of $855,253. In preparation for greater sales, we
increased inventory by $1,327,219 our advances to suppliers
increased $250,773. Deferred revenues and other payables were paid
down resulting in a decrease in cash of $408,891 and $641,667,
respectively.
Investing: Our investing activities $528of cash for the six
months ended June 30, 2011, compared to $3,268 for the six months
ended June 30, 2010.
Financing. Our financing activities provided $0 of cash from a
long term bank financing for the six months ended June 30, 2010
compared to $1,466,900 provided by financing activities for the six
months ended June 30, 2009.
Off-Balance Sheet Arrangements
We currently do not have any material off-balance sheet
arrangements except for the remaining pre-payments under the
land-lease arrangement described above.
About Bodisen Biotech, Inc.
Bodisen Biotech, Inc. is a manufacturer of liquid and organic
compound fertilizers, pesticides, insecticides and agricultural raw
material certified by the Petroleum Chemical Industry
Administrative office of China (Chemical Petroleum Production
Administrative Bureau), Shaanxi provincial government and Chinese
government. The company is headquartered in Shaanxi province and is
a Delaware corporation. The company files annual and periodic
reports with the U.S. Securities and Exchange Commission, which are
accessible at www.sec.gov.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements are
based on the current expectations or beliefs of Bodisen Biotech,
Inc. management and are subject to a number of factors and
uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements.
Enquiries:
Bodisen Biotech, Inc.
Bo Chen 0086 29 8707 4957
Charles Stanley Securities
(Nominated Adviser)
Russell Cook / Carl Holmes 020 7149 6000
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE
INCOME (LOSS) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30,
2011 AND 2010 (UNAUDITED)
Three Months Ended Six Months Ended June
June 30, 30,
2011 2010 2011 2010
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
$ $ $ $
Net revenue 1,416,610 1,913,649 2,441,287 3,451,991
------------ ------------ ------------ ------------
Cost of revenue 558,927 1,854,716 1,038,144 2,664,599
------------ ------------ ------------ ------------
Gross profit 857,683 58,933 1,403,143 787,392
Operating expenses
Selling expenses 30,277 204,772 714,174 346,186
General and
administrative
expenses 531,907 713,751 1,048,517 1,461,735
Total
operating
expenses 562,184 918,523 1,762,691 1,807,921
Loss from
operations 295,499 (859,590) (359,548) (1,020,529)
Non-operating
income (expense):
Other income
(expense) (2,280) (19,227) (2,509) (19,841)
Interest income 58,659 4,718 106,726 7,886
Interest expense (37,442) (20,463) (71,592) (21,123)
------------ ------------ ------------ ------------
Total
non-operating
income 18,937 (34,972) 32,625 (33,078)
Net loss 314,436 (894,562) (326,923) (1,053,607)
Other
comprehensive
income (loss)
Foreign currency
translation gain
(loss) 448,219 168,197 670,658 168,118
Unrealized gain
(loss) on
marketable
equity security (1,998,404) 2,240,634 (6,742,091) 1,110,224
Comprehensive loss (1,235,749) $ 1,514,269 $ (6,398,356) $ 224,735
============ ============ ============ ============
Weighted average
shares outstanding
:
Basic 21,510,250 18,710,250 21,510,250 18,710,250
============ ============ ============ ============
Diluted 21,510,250 18,710,250 21,510,250 18,710,250
============ ============ ============ ============
Earnings per
share:
Basic 0.01 (0.05) (0.02) (0.06)
============ ============ ============ ============
Diluted 0.01 (0.05) (0.02) (0.06)
============ ============ ============ ============
CONSOLIDATED BALANCE SHEETS
December
June 30, June 30, 31,
2011 2010* 2010
------------- ------------ -------------
$ $ $
ASSETS
CURRENT ASSETS:
Cash & cash equivalents 1,462,799 4,869,341 3,675,209
Accounts receivable and other
receivable, net of allowance for
doubtful accounts of $418,238,
$3,296,095 and $1,005,992 4,585,063 3,836,753 4,499,673
Other receivables 11,878 38,978 9,185
Note receivable 1,547,000 - 1,517,000
Inventory 2,564,320 2,500,048 1,198,134
Advances to suppliers 852,919 1,058,441 665,765
Prepaid expense and other current
assets 9,002 746,426 8,598
Total current assets 11,032,981 13,049,987 11,573,564
PROPERTY AND EQUIPMENT, net 22,531,098 11,495,948 22,870,340
MARKETABLE SECURITY,
AVAILABLE-FOR-SALE 2,038,776 9,285,514 8,780,867
INTANGIBLE ASSETS, net 4,835,560 4,783,824 4,813,409
TOTAL ASSETS 40,438,415 49,080,542 48,038,180
============= ============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable 1,127,592 2,545,145 1,256,681
Accrued expenses 90,502 195,042 811,181
Deferred revenue 1,234,224 - 1,615,865
Note payable 1,547,000 - -
Total current liabilities 3,999,318 2,740,187 3,683,727
Long-term note payable - 1,473,000 1,517,000
TOTAL LIABILITIES 3,999,318 4,213,187 5,200,727
------------- ------------ -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 per
share; authorized 5,000,000
shares; nil issued and
outstanding - - -
Common stock, $0.0001 per share;
authorized 30,000,000 shares;
issued and outstanding
21,510,250 2,151 1,871 2,151
Additional paid-in capital 35,345,542 33,945,822 35,345,542
Accumulated other comprehensive
income 9,153,871 14,751,649 15,225,304
Statutory reserve 4,314,488 4,314,488 4,314,488
Retained Earnings (12,376,955) (8,146,475) (12,050,032)
Total stockholders' equity 36,439,097 44,867,355 42,837,453
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 40,438,415 49,080,542 48,038,180
============= ============ =============
* The 2010 balance sheet figures are taken from the SEC 10-Q for
the quarterly period ended 30 June 2010.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 2011 and 2010
Six Months Ended June 30,
2011 2010
------------- -------------
(unaudited) (unaudited)
$ $
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (326,923) (1,053,607)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation and amortization 840,916 501,084
Allowance (recovery) of bad
debts (600,736) 474,018
(Increase) / decrease in assets:
Accounts receivable 604,289 (2,560,964)
Other receivables (2,483) (12,520)
Inventory (1,327,219) (1,498,623)
Advances to suppliers (172,009) (512,340)
Prepaid expense (231) 223,541
Increase / (decrease) in current
liabilities:
Accounts payable (151,986) 2,463,148
Accrued expenses (86,465) 32,615
Deferred revenue (408,891) 482,247
Other payables (641,667) -
Net cash used in operating activities (1,946,482) (407,794)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (Acquisition) of property
and equipment 13,810 (3,268)
Net cash used in investing activities 13,810 (3,268)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term
note payable - 1,466,900
Net cash provided by financing
activities - 1,466,900
------------- -------------
Effect of exchange rate changes
on cash and cash equivalents 47,185 42,975
------------- -------------
NET INCREASE (DECREASE) IN CASH
& CASH EQUIVALENTS (2,212,410) 45,206
CASH & CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,675,209 4,824,135
------------- -------------
CASH & CASH EQUIVALENTS, END
OF PERIOD 1,462,799 4,869,341
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid - -
Income taxes paid - -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)
Note 1 - Organization and Basis of Presentation
The unaudited consolidated financial statements have been
prepared by Bodisen Biotech, Inc., a Delaware corporation (the
"Company" or "Bodisen"), pursuant to the rules and regulations of
the Securities Exchange Commission ("SEC"). The information
furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly present the operating results for
the respective periods. Certain information and footnote
disclosures normally present in annual consolidated financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K. The results for the six
months ended June 30, 2011 are not necessarily indicative of the
results to be expected for the full year ending December 31,
2011.
Organization and Line of Business
The accompanying consolidated financial statements include the
accounts of Bodisen Biotech, Inc., its 100% wholly-owned
subsidiaries Bodisen Holdings, Inc. (BHI), Yang Ling Bodisen
Agricultural Technology Co., Ltd ("Agricultural"), which was
incorporated in March 2005, and Sinkiang Bodisen Agriculture
Material Co., Ltd. ("Material"), which was incorporated in June
2006, as well as the accounts of Agricultural's 100% wholly- owned
subsidiary Yang Ling Bodisen Biology Science and Technology
Development Company Limited ("BBST"). The Company is engaged in
developing, manufacturing and selling organic fertilizers, liquid
fertilizers, pesticides and insecticides in the People's Republic
of China and produces numerous proprietary product lines, from
pesticides to crop-specific fertilizers. The Company markets and
sells its products to distributors throughout the People's Republic
of China, and these distributors, in turn, sell the products to
farmers.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America. All significant
intercompany transactions and balances have been eliminated. The
Company's functional currency is the Chinese Yuan Renminbi ("RMB");
however the accompanying consolidated financial statements have
been translated and presented in United States Dollars ($ or
"USD").
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. It is possible that accounting estimates and
assumptions may be material to the Company due to the levels of
subjectivity and judgment involved.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash in time
deposits, certificates of deposit and all highly liquid debt
instruments with original maturities of three months or less.
Accounts Receivable
The Company maintains reserves for potential credit losses for
accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves. Reserves are recorded based on the Company's
historical collection history.
Advances to Suppliers
The Company advances to certain vendors for purchase of its
material. The advances to suppliers are interest free and
unsecured.
Inventories
Inventories are valued at the lower of cost (determined on a
weighted average basis) or market.
Property & Equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to earnings as incurred;
additions, renewals and betterments are capitalized. When property
and equipment are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the
straight-line method for substantially all assets with estimated
lives of:
Operating equipment 10 years
Vehicles 8 years
Office equipment 5 years
Buildings 30 years
The following are the details of the property and equipment at
June 30, 2011 and December 31, 2010, respectively:
June 30, December 31,
2011 2010
------------- -------------
Operating equipment $ 10,384,569 $ 10,181,140
Vehicles 613,327 617,703
Office equipment 100,900 98,420
Buildings 15,313,001 15,016,045
------------- -------------
26,411,797 25,913,308
Less accumulated depreciation (3,880,699) (3,042,968)
------------- -------------
Property and equipment, net $ 22,531,098 $ 22,870,340
------------- -------------
Depreciation expense for the three and six months ended June 30,
2011 and 2010 was $382,019 and $768,709 and $185,472 and $391,526,
respectively.
Marketable Securities
The Company applies the guidance of ASC Topic 320
"Investments-Debt and Equity Securities," which requires
investments in equity securities to be classified as either trading
securities or available-for-sale securities. Marketable securities
that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and are
reported at fair value, with unrealized gains and losses recognized
in earnings. Marketable equity securities not classified as trading
are classified as available for sale, and are carried at fair
market value, with the unrealized gains and losses, net of tax,
included in the determination of comprehensive income and reported
in shareholders' equity.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360, "Property,
Plant, and Equipment," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. ASC
360 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount
exceeds the fair value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except
that fair values are reduced for the cost of disposal. Based on its
review, the Company believes that as of June 30, 2011 and December
31, 2010, there was no impairment of its long-lived assets.
Intangible Assets
Intangible assets consist of Rights to use land and Fertilizers
proprietary technology rights. The Company follows ASC Topic 350 in
accounting for intangible assets, which requires impairment losses
to be recorded when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by the assets are
less than the assets' carrying amounts. There were no impairment
losses recorded on intangible assets for the three and six months
ended June 30, 2011 and 2010.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including
cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, accrued liabilities and short-term debt, the
carrying amounts approximate their fair values due to their short
maturities. In addition, the Company has long-term debt with
financial institutions. The carrying amounts of the line of credit
and other long-term liabilities approximate their fair values based
on current rates of interest for instruments with similar
characteristics.
Fair Value Measurements
ASC Topic 820, "Fair Value Measurements and Disclosures,"
requires disclosure of the fair value of financial instruments held
by the Company. ASC Topic 825, "Financial Instruments," defines
fair value, and establishes a three-level valuation hierarchy for
disclosures of fair value measurement that enhances disclosure
requirements for fair value measures. The three levels of valuation
hierarchy are defined as follows:
-- Level 1 inputs to the valuation methodology are quoted prices
for identical assets or liabilities in active markets.
-- Level 2 inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
financial instrument.
-- Level 3 inputs to the valuation methodology are unobservable
and significant to the fair value measurement.
The Company analyzes all financial instruments with features of
both liabilities and equity under ASC 480, "Distinguishing
Liabilities from Equity," and ASC 815.
The following table represents our assets and liabilities by
level measured at fair value on a recurring basis as of June 30,
2011.
Description Level 1 Level 2 Level 3
---------------------- ------------ -------- --------
Assets:
Marketable securities $ 2,038,776 $ - $ -
The Company did not identify any other non-recurring assets and
liabilities that are required to be presented in the consolidated
balance sheets at fair value in accordance with ASC 825.
Revenue Recognition
The Company's revenue recognition policies are in compliance
with Staff accounting bulletin (SAB) 104. Because collection is not
reasonably assured, sales revenue is recognized using the cost
recovery method. Under the cost recovery method, no profit is
recognized until collections exceed the cost of the goods sold.
Advertising Costs
The Company expenses the cost of advertising as incurred or, as
appropriate, the first time the advertising takes place.
Stock-Based Compensation
The Company records stock-based compensation in accordance with
ASC Topic 718, "Compensation - Stock Compensation." ASC 718
requires companies to measure compensation cost for stock-based
employee compensation at fair value at the grant date and recognize
the expense over the employee's requisite service period. The
Company recognizes in the statement of operations the grant-date
fair value of stock options and other equity-based compensation
issued to employees and non-employees. There were 426,000 options
outstanding as of June 30, 2011.
Income Taxes
The Company accounts for income taxes in accordance with ASC
Topic 740, "Income Taxes." ASC 740 requires a company to use the
asset and liability method of accounting for income taxes, whereby
deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Under ASC 740, a tax position is recognized as a benefit only if
it is "more likely than not" that the tax position would be
sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount of
tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the "more likely than
not" test, no tax benefit is recorded. The adoption had no effect
on the Company's consolidated financial statements.
Foreign Currency Translation
The accounts of the Company's Chinese subsidiaries are
maintained in the RMB and the accounts of the U.S. parent company
are maintained in the USD. The accounts of the Chinese subsidiaries
are were translated into USD in accordance with Accounting
Standards Codification ("ASC") Topic 830 "Foreign Currency
Matters," with the RMB as the functional currency for the Chinese
subsidiaries. According to Topic 830, all assets and liabilities
were translated at the exchange rate on the balance sheet date,
stockholders' equity is translated at historical rates and
statement of operations items are translated at the weighted
average exchange rate for the period. The resulting translation
adjustments are reported under other comprehensive income in
accordance with ASC Topic 220, "Comprehensive Income." Gains and
losses resulting from the translations of foreign currency
transactions and balances are reflected in the statement of
operations.
Foreign Currency Transactions and Comprehensive Income
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Certain
statements, however, require entities to report specific changes in
assets and liabilities, such as gain or loss on foreign currency
translation, as a separate component of the equity section of the
balance sheet. Such items, along with net income, are components of
comprehensive income. The functional currency of the Company's
Chinese subsidiaries is the Chinese Yuan Renminbi. Translation
gains of $9,947,091 and $9,274,169 at June 30, 2011 and December
31, 2010, respectively are classified as an item of other
comprehensive income in the stockholders' equity section of the
consolidated balance sheet. During the three and six months ended
June 30, 2011 other comprehensive income in the consolidated
statements of operations and other comprehensive income included
translation gains (loss) of $448,219 and 670,658, respectively.
During the three and six months ended June 30, 2010 other
comprehensive income in the consolidated statements of operations
and other comprehensive income included translation gains of
$168,197 and $168,118, respectively. A detail of accumulated other
comprehensive income is summarized below:
Total
Other
Foreign Unrealised Comprehensive
Currency Gain (loss) Income
------------ ------------- ---------------
Balance, December 31,
2010 9,274,169 5,951,135 15,225,304
Adjustments 670,658 (6,742,091) (6,071,433)
Balance, June 30, 2011 $ 9,944,827 $ (790,956) $ 9,153,871
============ ============= ===============
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with the ASC
Topic 260, "Earnings Per Share." Basic earnings per share is based
upon the weighted average number of common shares outstanding.
Diluted earnings per share is based on the assumption that all
dilutive convertible shares and stock warrants were converted or
exercised. Dilution is computed by applying the treasury stock
method. Under this method, warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock
at the average market price during the period. There were 426,000
options as of June 30, 2011 and 2010 that were excluded from the
diluted loss per share calculation due to their exercise price
being greater than the Company's average stock price for the
year.
Statement of Cash Flows
In accordance with ASC Topic 230, "Statement of Cash Flows,"
cash flows from the Company's operations are calculated based upon
the local currencies using the average translation rates. As a
result, amounts related to assets and liabilities reported on the
consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated
balance sheets.
Segment Reporting
ASC Topic 280, "Segment Report," requires use of the "management
approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments
within the company for making operating decisions and assessing
performance. ASC Topic 280 has no effect on the Company's
consolidated financial statements as the Company consists of one
reportable business segment. All revenue is from customers in
People's Republic of China and all of the Company's assets are
located in People's Republic of China.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board
("FASB") issued Accounting Standard Update ("ASU") No. 2010-06,
Improving Disclosures about Fair Value Measurements ("ASU No.
2010-06"). The new standard addresses, among other things, guidance
regarding activity in Level 3 fair value measurements. Portions of
ASU No. 2010-06 that relate to the Level 3 activity disclosures are
effective for the annual reporting period beginning after December
15, 2010. The Company will provide the required disclosures
beginning with the Company's Annual Report on Form 10-K for the
year ending December 31, 2011. Based on the initial evaluation, the
Company does not anticipate a material impact to the Company's
financial position, results of operations or cash flows as a result
of this change.
Note 3 - Note Receivable
The note receivable is unsecured; bears interest at 9.1% per
annum and originally due on March 25, 2011, but extended to
September 25, 2011.
Note 4 - Inventory
Inventory at June 30, 2011 and December 31, 2010 consisted of
the following:
June 30, December 31,
2011 2010
------------ -------------
Raw materials $ 1,176,578 $ 563,088
Packaging 85,498 45,288
Finished goods 1,302,244 589,758
------------ -------------
2,564,320 1,198,134
Less obsolescence reserve - -
------------ -------------
Inventory, net $ 2,564,320 $ 1,198,134
============ =============
Note 5 - Marketable Security
During 2008, the Company exchanged $3,291,264 of receivables for
a 28.8% ownership interest in a Chinese company, Shanxi Jiali
Pharmaceutical Co. Ltd ("Jiali"). The Company had written down the
value of this investment by $987,860 at December 31, 2008. This
investment was originally accounted for under the equity method and
the Company recorded equity income in this investment through
September 30, 2009. During the fourth quarter of 2009, Jiali was
purchased by China Pediatric Pharmaceuticals, Inc. ("China
Pediatric"), a public company. After the transaction, the Company
owned 18.8% (or 2,018,590 shares) of China Pediatric. The Company
then changed the accounting method for the investment from the
equity method to the fair value method. At the date of the change,
the investment was valued at $2,829,732. As of June 30, 2011 and
December 31, 2010, the fair value of the investment is $2,038,776
and $8,780,867, respectively, which is reflected in the
consolidated balance sheet. The Company recognized an unrealized
gain (loss) of $(1,998,404) and $(6,742,091) for the three and six
months ended June 30, 2011, respectively and $2,240,634 and
$1,110,224 for the three and six months ended June 30,2010,
respectively, which is reflected as accumulated other comprehensive
income in the consolidated statement of stockholder's equity.
Investment has been categorized as Available for Sale.
Note 6- Intangible Assets
Net intangible assets at June 30, 2011 and December 31, 2010
were as follows:
June 30, December 31,
2010 2009
------------ -------------
Rights to use land $ 5,277,016 $ 5,174,682
Fertilizers proprietary
technology rights 1,237,600 1,213,600
6,514,616 6,388,282
Less accumulated amortization (1,679,056) (1,574,873)
------------ -------------
Intangibles, net $ 4,835,560 $ 4,813,409
============ =============
The Company's office and manufacturing site is located in Yang
Ling Agricultural High-Tech Industries Demonstration Zone in the
province of Shaanxi, People's Republic of China. The Company leases
land per a real estate contract with the government of People's
Republic of China for a period from November 2001 through November
2051. Per the People's Republic of China's governmental
regulations, the Government owns all land.
During July 2003, the Company leased another parcel of land per
a real estate contract with the government of the People's Republic
of China for a period from July 2003 through June 2053.
The Company has recognized the amounts paid for the acquisition
of rights to use land as intangible asset and amortizing over a
period of fifty years.
The Company acquired Fluid and Compound Fertilizers proprietary
technology rights on January 1, 2001with a life ending December 31,
2011. The Company is amortizing Fertilizers proprietary technology
rights over a period of ten years.
On July 15, 2008, the Company entered into a 50 year land rights
agreement.
Amortization expense for the Company's intangible assets
amounted to $26,759 and $72,207 for the three and six months ended
June 30, 2011 and $54,788 and $109,558 for the three and six months
ended June 30, 2010, respectively. Amortization of intangible
assets for the next five years are as follows:
Year End Amount
--------- --------
2011 $ 160,000
2012 101,000
2013 101,000
2014 101,000
2015 $ 101,000
Note 7 - Long-Term Note Payable
On March 19, 2010, the Company obtained a bank loan for
10,000,000 RMB (approximately $1,527,000 and $1,517,000 at June 30,
2011 and December 31, 2010, respectively). The loan has an 8.1%
annual interest rate, matures on March 19, 2012 and is secured by
the Company's land use rights and facility.
Note 8 - Stock Options
Common Stock
Stock Options
The following is a summary of the stock option activity:
Weighted
Average Aggregate
Options Exercise Intrinsic
Outstanding Price Value
------------- ---------- -----------
Outstanding at December
31, 2010 426,000 $ 1.07
Granted -
Cancelled -
Exercised -
-------------
Outstanding at June 30,
2011 426,000 $ 1.07 $ -
=============
Exercisable at June 30,
2011 426,000 $ 1.07 $ -
-------------
The following is a summary of the status of options outstanding
at June 30, 2011:
Options Outstanding and Exerciseable
-----------------------------------------
Weighted
Number Average
Range of Outstanding Remaining
Exercise June 30, Contractual
Price 2011 Life (Years)
---------- ------------- --------------
$ 0.70 400,000 0.75
$ 6.72 26,000 0.25
426,000
=============
Note 9 - Employee Welfare Plans
The Company has established its own employee welfare plan in
accordance with Chinese law and regulations. The Company makes
annual contributions of 14% of all employees' salaries to employee
welfare plan. The total expense for the above plan were $0 for the
three and six months ended June 30, 2011 and 2010. The Company has
recorded welfare payable of $0 at and June 30, 2011 and December
31, 2010.
Note 10 - Statutory Common Welfare Fund
As stipulated by the Company Law of the People's Republic of
China (PRC), net income after taxation can only be distributed as
dividends after appropriation has been made for the following:
i. Making up cumulative prior years' losses, if any;
ii. Allocations to the "Statutory surplus reserve" of at least
10% of income after tax, as determined under PRC accounting rules
and regulations, until the fund amounts to 50% of the Company's
registered capital;
iii. Allocations of 5-10% of income after tax, as determined
under PRC accounting rules and regulations, to the Company's
"Statutory common welfare fund", which is established for the
purpose of providing employee facilities and other collective
benefits to the Company's employees; and
iv. Allocations to the discretionary surplus reserve, if
approved in the stockholders' general meeting.
Pursuant to the new Corporate Law effective on January 1, 2006,
there is now only one "Statutory surplus reserve" requirement. The
reserve is 10 percent of income after tax, not to exceed 50 percent
of registered capital.
The Company did not appropriate a reserve for the statutory
surplus reserve and welfare fund for the six months ended June 30,
2011 and 2010.
Note 11 - Factory Location and Lease Commitments
The Company's principal executive offices are located at North
Part of Xinquia Road, Yang Ling Agricultural High-Tech Industries
Demonstration Zone Yang Ling, Shaanxi province, People's Republic
of China. BBST owns two factories, which includes three production
lines, an office building, one warehouse, and two research labs
and, is located on 10,900 square meters of land. These leases
require monthly rental payments of $2,637 and the leases expire in
2013.
Note 12 - Current Vulnerability Due to Certain
Concentrations
Two vendors provided 28.6% and 21.0% of the Company's raw
materials for the six months ended June 30, 2011 and two vendors
provided 18.8%, and 18.5% of the Company's raw materials for the
six months ended June 30, 2010.
Two customers accounted for 24.3% and 12.3% of the Company's
sales for the six months ended June 30, 2011. Two customers
accounted for 24% and 12% of the Company's sales for the six months
ended June 30, 2010.
The Company's operations are carried out in the PRC.
Accordingly, the Company's business, financial condition and
results of operations may be influenced by the political, economic
and legal environments in the PRC, by the general state of the
PRC's economy. The Company's business may be influenced by changes
in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
Note 13 - Litigation
From time to time, we may become involved in various lawsuits
and legal proceedings that arise in the ordinary course of
business. Litigation is, however, subject to inherent
uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Other than the
matters described below, we are currently not aware of any such
legal proceedings or claims that we believe would or could have,
individually or in the aggregate, a material adverse affect on our
business, financial condition, results of operations or
liquidity.
Note 14 - Subsequent Events
Pursuant to Financial Accounting Standards Board Accounting
Standards Codification 855-10, the Company has evaluated all events
or transactions that occurred from July 1, 2010, through the filing
with the SEC. The Company did not have any material recognizable
subsequent events during this period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). We have based these
forward-looking statements on our current expectations and
projections about future events. These forward-looking statements
are subject to known and unknown risks, uncertainties and
assumptions about us that may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could,"
"would," "expect," "plan," anticipate," believe," estimate,"
continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those listed under the
heading "Risk Factors" and those listed in our other SEC filings.
The following discussion should be read in conjunction with our
Financial Statements and related notes thereto included elsewhere
in this Quarterly Report. Throughout this Quarterly Report we will
refer to Shiner International, Inc., together with its
subsidiaries, as "Shiner," the "Company," "we," "us," and "our.
Overview
We are incorporated under the laws of the state of Delaware and
our operating subsidiary, Yang Ling, is headquartered in Shaanxi
Province, the People's Republic of China. We are engaged in
developing, manufacturing and selling organic fertilizers, liquid
fertilizers, pesticides and insecticides in the People's Republic
of China and produce numerous proprietary product lines, from
pesticides to crop-specific fertilizers. We market and sell our
products to distributors throughout the People's Republic of China,
and these distributors, in turn, sell our products to farmers. We
also conduct research and development to further improve existing
products and develop new formulas and products.
Critical Accounting Policies and Estimates
Our financial statements and related public financial
information are based on the application of accounting principles
generally accepted in the United States ("US GAAP"). US GAAP
requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an
impact on the assets, liabilities, revenues and expenses amounts
reported. These estimates can also affect supplemental information
contained in our external disclosures including information
regarding contingencies, risk and financial condition. We believe
our use of estimates and underlying accounting assumptions adhere
to GAAP and are consistently and conservatively applied. We base
our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our
financial statements.
We believe the following is among the most critical accounting
policies that impact our consolidated financial statements. We
suggest that our significant accounting policies, as described in
our condensed consolidated financial statements in the Summary of
Significant Accounting Policies, be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Accounts receivable
We maintain reserves for potential credit losses on accounts
receivable and record them primarily on a specific identification
basis. In order to establish reserves, we review the composition of
accounts receivable and analyze historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves. This analysis and evaluation requires the use of
judgments and estimates. Because of the nature of the evaluation,
certain judgments and estimates are subject to change, which may
require adjustments in future periods.
Inventories
We value inventories at the lower of cost (determined on a
weighted average basis) or market. When evaluating our inventory,
we compare the cost with the market value and make allowance to
write them down to market value, if lower. The determination of
market value requires the use of estimates and judgment by our
management.
Intangible assets
We evaluate intangible assets for impairment, at least on an
annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its
estimated future cash flows. This evaluation requires the use of
judgments and estimates, in particular with respect to
recoverability. Recoverability of intangible assets, other
long-lived assets and, goodwill is measured by comparing their net
book value to the related projected undiscounted cash flows from
these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and
product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is
considered impaired, and a second test is performed to measure the
amount of impairment loss.
Revenue Recognition
Our revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 104. Because collection is not reasonably
assured, sales revenue is recognized using the cost recovery
method. Under the cost recovery method, no profit is recognized
until cash payments exceed the cost of the goods sold.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board
("FASB") issued Accounting Standard Update ("ASU") No. 2010-06,
Improving Disclosures about Fair Value Measurements ("ASU No.
2010-06"). The new standard addresses, among other things, guidance
regarding activity in Level 3 fair value measurements. Portions of
ASU No. 2010-06 that relate to the Level 3 activity disclosures are
effective for the annual reporting period beginning after December
15, 2010. The Company will provide the required disclosures
beginning with the Company's Annual Report on Form 10-K for the
year ending December 31, 2011. Based on the initial evaluation, the
Company does not anticipate a material impact to the Company's
financial position, results of operations or cash flows as a result
of this change.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over
financial reporting during our second quarter of 2010 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of our Disclosure Controls
Disclosure Controls and Procedures
Evaluation of our Disclosure Controls
As of the end of the period covered by this Quarterly Report on
Form 10-Q, our principal executive officer and principal financial
officer have evaluated the effectiveness of our "disclosure
controls and procedures" ("Disclosure Controls"). Disclosure
Controls, as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), are procedures that
are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Exchange
Act, such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure
Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial
Officer as appropriate to allow timely decisions regarding required
disclosure. Our management does not expect that our Disclosure
Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the
benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. The design of any system of
controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions.
During management's assessment of the effectiveness of
disclosure controls and procedures as of June 30, 2011, management
identified deficiencies related to (i) the U.S. GAAP expertise of
our internal accounting staff, (ii) a lack of segregation of duties
within accounting functions, (iii) our internal risk assessment
functions, and (iv) our communication functions.
A material weakness (within the meaning of PCAOB Auditing
Standard No. 5) is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
on a timely basis.
In order to correct the foregoing deficiencies, we have taken
the following remediation measures:
-- Although our accounting staff is professional and experienced
in accounting requirements and procedures generally accepted in the
PRC, management has determined that they require additional
training and assistance in U.S. GAAP matters. Management has
determined that our internal audit function is also significantly
deficient due to insufficient qualified resources to perform
internal audit functions. We retained an outside consulting firm in
September 2006, which has since been assisting us in the
implementation of Section 404.
-- We have committed to the establishment of effective internal
audit functions and have instituted various anti-fraud control and
financial and account management policies and procedures to
strengthen our internal controls over financial reporting. Due to
the scarcity of qualified candidates with extensive experience in
U.S. GAAP reporting and accounting in the region, we were not able
to hire sufficient internal audit resources before the end of 2010.
However, we will increase our search for qualified candidates with
assistance from recruiters and through referrals.
-- Due to our size and nature, segregation of all conflicting
duties may not always be possible and may not be economically
feasible. However, to the extent possible, we will implement
procedures to assure that the initiation of transactions, the
custody of assets and the recording of transactions will be
performed by separate individuals.
-- As of the quarter ended June 30, 2011, we have not yet
established an effective risk assessment system that enables us to
collect related information comprehensively and systematically,
assess risks in a timely, realistic manner, and take appropriate
measures to control risks effectively. The Company is working with
its outside consultant to devise an effective risk assessment
system and our Chief Financial Officer Junyan Tong is responsible
for overseeing such measures.
-- As of the quarter ended June 30, 2011, we are working to
strengthen efforts to establish an effective communication system
with clear procedures that will enable us to collect, process and
deliver information related to internal controls in a timely
fashion. Due to our limited staff, our Chief Financial Officer, Mr.
Tong, will initially be primarily responsible for collecting and
delivering such information among the different levels of Company
management.
We believe that the foregoing steps will remediate the
significant deficiency identified above, and we will continue to
monitor the effectiveness of these steps and make any changes that
our management deems appropriate.
Notwithstanding the conclusion that our internal control over
financial reporting was not effective as of the end of the period
covered by this report, the Chief Executive Officer and the Chief
Financial Officer believe that the financial statements and other
information contained in this quarterly report present fairly, in
all material respects, our business, financial condition and
results of operations. Nothing has come to the attention of
management that causes them to believe that any material
inaccuracies or errors exist in our financial statements as of June
30, 2011.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial
reporting (as defined in Rule 13a-15f under the Exchange Act) that
occurred during the quarter ended June 30, 2011 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
A copy of our Form 10-Q is available at:
www.sec.gov/Archives/edgar/data/1178552/000114420411047409/v231248_10q.h
tm
Copies may also be obtained by contacting the Investor Relations
Department at our corporate offices by sending an e-mail message to
info@bodisen.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMGMRGVZGMZG
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