TIDMBODI
RNS Number : 4920C
Bodisen Biotech Inc
16 April 2013
16 April 2013
BODISEN BIOTECH, INC.
Audited Results for the year ended 31 December 2012
Review and Extracts of the Form 10-K as required by the
Securities and Exchange Commission
Consolidated Statements of Operations and other Comprehensive
Income (loss)
For the years ended December 31, 2012 and 2011
2012 2011
$ $
Revenue 8,055,958 7,684,778
Cost of Revenue 6,942,342 5,608,858
---------------- ----------------
Gross profit 1,113,616 2,075,920
Operating expenses
Selling expenses 637,058 844,903
General and administrative expenses (note 2) 4,950,485 3,491,847
Write down of property and equipment (note 3) 9,057,267 -
---------------- ----------------
Total operating expenses 14,644,810 4,336,750
---------------- ----------------
Loss from operations (13,531,194) (2,260,830)
Non-operating income (expense):
Other income (expense) (856) (111,757)
Write down of investment in marketable security (2,774,742) -
(note 6)
Interest income 21,369 207,962
Interest expense (84,379) (145,747)
---------------- ----------------
Total non-operating income (2,838,608) (49,542)
---------------- ----------------
Net loss (16,369,802) (2,310,372)
Other comprehensive income
Foreign currency translation gain 479,103 1,220,453
Unrealised loss on marketable equity security (1,156,164) (7,569,713)
Reclassification for other-than-temporary loss 2,774,742 -
on marketable equity security
---------------- ----------------
Total other comprehensive loss 2,097,681 (6,349,250)
---------------- ----------------
Comprehensive loss (14,272,121) (8,659,632)
========= =========
Weighted average shares outstanding :
Basic 21,510,250 21,510,250
========= =========
Diluted 21,510,250 21,510,250
========= =========
Earnings (loss) per share:
Basic (0.76) (0.11)
========= =========
Diluted (0.76) (0.11)
========= =========
Bodisen Biotech, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 2012
Accumulated
Other Total
Common Stock Additional Comprehensive Statutory Accumulated Stockholders'
Paid
Shares Amount in Capital Income Reserve Deficit Equity
Balance, December 31,
2010 21,510,250 2,151 35,345,542 15,225,304 4,314,488 (12,050,032) 42,837,453
Change in foreign
currency
translation gain - - - 1,220,453 - - 1,220,453
Change in unrealized
gain on marketable
equity security, net
of tax - - - (7,569,713) - - (7,569,713)
Net loss - - - - - (2,310,372) (2,310,372)
Transfer of statutory - - - - - - -
reserve
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31,
2011 21,510,250 2,151 35,345,542 8,876,044 4,314,488 (14,360,404) 34,177,821
Change in foreign
currency
translation gain - - - 479,103 - - 479,103
Change in unrealized
gain on marketable
equity security, net
of tax - - - (1,156,164) - - (1,156,164)
Reclassification for
other-than-temporary
loss on marketable
equity security - - - 2,774,742 - - 2,774,742
Net loss - - - - - (16,369,802) (16,369,802)
Transfer to statutory - - - - - - -
reserve
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31,
2012 21,510,250 2,151 35,345,542 10,973,725 4,314,488 (30,730,206) 19,905,700
====== ====== ====== ====== ====== ====== ======
Consolidated Balance Sheet
As of December 31, 2012 and 2011
31 December 31 December
2012 2011
$ $
ASSETS
CURRENT ASSETS:
Cash 294,539 935,375
Accounts receivable and other receivable,
net of allowance for doubtful accounts of
$475,122 and $158,384 3,584,676 3,840,546
Other receivables 3,963 19,215
Note receivable - 1,415,700
Inventory 2,166,992 2,149,262
Advances to suppliers 39,576 498,960
Prepaid expense and other current assets 4,391 6,944
--------------------- ---------------------
Total current assets 6,094,137 8,866,002
PROPERTY AND EQUIPMENT, net 11,541,347 22,003,784
MARKETABLE SECURITY, AVAILABLE-FOR-SALE 282,603 1,211,154
INTANGIBLE ASSETS, net 4,776,979 4,852,720
--------------------- ---------------------
TOTAL ASSETS 22,695,066 36,933,660
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 532,266 702,253
Accrued expenses 76,984 81,437
Deferred revenue 753,616 556,449
Bank loan 1,426,500 1,415,700
--------------------- ---------------------
Total current liabilities 2,789,366 2,755,839
Long-term bank loan - -
=========== ===========
TOTAL LIABILITIES: 2,789,366 2,755,839
=========== ===========
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 per share; authorized
5,000,000 shares;
nil issued and outstanding - -
Common stock, $0.0001 per share; 30,000,000
shares authorized and 21,510,250 shared
issued and outstanding 2,151 2,151
Additional paid-in capital 35,345,542 35,345,542
Accumulated other comprehensive income 10,973,725 8,876,044
Statutory reserve 4,314,488 4,314,488
Retained Earnings (30,730,206) (14,360,404)
--------------------- ---------------------
Total stockholders' equity 19,905,700 34,177,821
--------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 22,695,066 36,933,660
=========== ===========
Consolidated Statements of Cash Flows
For the years ended December 31, 2012 and 2011
2012 2011
$ $
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (16,369,802) (2,310,372)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,695,280 1,832,487
Allowance for (recovery of) bad debts 315,530 722,965
Write down of property and equipment 9,057,267 -
Write down of investment 2,774,742 -
(Gain) on disposal of equipment (4,579) -
(Increase) / decrease in assets:
Accounts receivable (30,361) 89,152
Other receivables 15,399 (9,536)
Inventory (1,334) (892,486)
Advances to suppliers 463,190 188,339
Prepaid expense 2,605 1,941
Increase / (decrease) in current liabilities:
Accounts payable (175,265) (590,891)
Accrued expenses (192,921) (54,650)
Deferred revenue 3,552 (1,101,280)
Other payables (8,544) (692,580)
--------------------- ---------------------
Net cash used in operating activities (2,069,399) (2,816,911)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (16,005) (12,686)
Payment from sale of property and equipment 11,095 154,800
Proceeds from repayment of note receivable 1,425,600 -
--------------------- ---------------------
Net cash provided by investing activities 1,420,690 142,114
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 1,424,700 -
Payment of bank loan (1,425,600) (154,800)
--------------------- ---------------------
Net cash used in financing activities (900) (154,800)
--------------------- ---------------------
Effect of exchange rate changes on
cash and cash equivalents 8,773 89,763
--------------------- ---------------------
NET DECREASE IN CASH (640,836) (2,739,834)
CASH, BEGINNING OF PERIOD 935,375 3,675,209
--------------------- ---------------------
CASH, END OF PERIOD 294,539 935,375
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid 83,379 145,747
=========== ===========
Income taxes paid - -
=========== ===========
SUPPLEMENTAL NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfer of construction in process
to property and equipment - -
=========== ===========
EXTRACT FROM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following information should be read in conjunction with our
selected consolidated financial and operating data and the
accompanying consolidated financial statements and related notes
thereto included elsewhere in this annual report. The following
discussion may contain forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ
materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed below
and elsewhere in this annual report, particularly in "Risk Factors"
and "Note Regarding Forward Looking Statements." Virtually all of
our revenues and expenses are denominated in Renminbi ("RMB"), the
currency of the People's Republic of China. Because we report our
financial statements in U.S. dollars, we are exposed to translation
risk resulting from fluctuations of exchange rates between the RMB
and the U.S. dollar. There is no assurance that exchange rates
between the RMB and the U.S. dollar will remain stable. A
devaluation of the RMB relative to the U.S. dollar could adversely
affect our business, financial condition and results of operations.
See "Risk Factors." We do not engage in currency hedging and to
date, inflation has not had a material impact on our business.
Unless otherwise specified, references to Notes to our consolidated
financial statements are to the Notes to our audited consolidated
financial statements as of December 31, 2012 and 2011 and for the
two-year period ended December 31, 2012.
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.
Bodisen Biotech, Inc. was incorporated on January 14, 2000 in
Delaware, and our principal place of business is based in the
People's Republic of China. Our principal executive offices are
located at: Room 2001, FanMeiBuilding, No. 1 NaguanZhengjie, Xi'an,
Shaanxi, China, 7100068. Our telephone number is
+011-86-29-87074957. Our current structure is the result of a
series of mergers and other combinations, including a reverse
triangular merger with our predecessor, Stratabid.com, Inc.
Industry Background and Markets
The People's Republic of China is the exclusive market for our
organic compound fertilizers. We sell our products within a group
of 20 Chinese agricultural provinces and government-controlled
cities. Approximately 80% of our sales are attributable to the
local Shaanxi province, 8% of sales are attributable to Henan
province, and 5% of sales are attributable to the neighboring
Shanxi province. We also sell a smaller percentage of our products
to additional provinces and government controlled cities, including
Ningxia province, Guangdong province and Heilongjiang province.
Although the People's Republic of China has the world's largest
population of over 1.3 billion people, its arable land on a per
capita basis is only 0.09 hectares (Source: 2006 China Statistical
Yearbook), or less than one-sixth of that present in the United
States (Source: U.S. State Department, www.america.gov). This
combination of limited arable land and a large and growing
population has created a significant need to increase the amount of
crops per hectare in the People's Republic of China.
Our Business and Products
As noted above in the "Business Overview" section of this
report, we manufacture over 60 products which are considered
organic compound fertilizers.
Organic compound fertilizers are our leading products,
accounting for approximately 100% and 100%of our revenue in 2012
and 2011, respectively.
Organic fertilizers are composed of natural nutritional elements
that not only improve the quality and yield of the crops but also
improve the soil quality; this in turn improves the yield. Organic
compound fertilizer accelerates reproduction of soil microbes to
improve soil quality through the decomposition of organic material
and the improvement of the soil's retention of nitrogen. Moreover,
this application can activate dormant soil by increasing soil
nitrates and moisture content that otherwise is not enhanced by
traditional chemical fertilizers. This process controls the release
of nutritional elements that enhances the quality, quantity and
health of crops. Although organic compound fertilizers typically
are more expensive than chemical fertilizers, we believe that the
extra cost is justified by the increase of yield and quality and,
consequently, the increased margin attained at the market.
Plants tend to easily absorb organic fertilizer without many of
the side effects found in chemical fertilizer products, and this
organic process strengthens photosynthesis, which improves the
overall health of a plant in resisting drought and disease.
Organic fertilizers also improve the cation exchange capacity,
or "CEC," of soil, which refers to the soil's ability to hold
positively charged ions (cations), making them available for uptake
by the plant roots. This not only allows for improved uptake of
nutrients by the plant but can also reduce leaching, which is of
particular concern in sandy soil. Leaching moves nutrients away
from the plant roots and into the subsurface water. Additional
functions of organic compound fertilizer include:
-- preserving nitrogen and improving soil fertility;
-- allowing phosphorus and potash fertilizer to gradually dissolve;
-- promoting disease resistance; and
-- activating and maintaining soil moisture content.
Our organic fertilizer line includes compound organic
fertilizers containing organic matter content levels of 20%, 25%,
35% and 45%. Each of these organic compound fertilizers can then be
further narrowed into one of the following product types: wide
field, fruit, vegetable, melon or pepper. We also produce various
"Bulk Blend" or "BB" organic fertilizers, which contain organic
matter content levels of 35%, 40% and 54%. In addition, we produce
various solid organic fertilizers.
Our process for manufacturing organic compound fertilizer
products has received ISO 9001: 2000 certification. ISO 9000 has
become an international reference for quality management
requirements in business-to-business dealings, and the ISO 9000
family is primarily concerned with quality management.
Methods of Distribution
We currently sell each of the products identified above through
a network of over 98 regional distributors in the People's Republic
of China. These distributors in turn sell the products to the
end-users (typically farmers). Typically, we enter into
non-exclusive, short-term written distribution agreements with our
distributors. Upon signing a distribution agreement, the
distributor will indicate its intent to purchase specified
products, and we agree to provide those products upon the
distributor's request. We generally make sales to distributors on a
rolling basis. This means that there is a lag between when we
deliver our products to our distributors (and recognize revenues
for those shipments) and when we receive payment for those
products. Typically, accounts are settled anywhere from one to two
months and up to seven months after delivery of our products, often
in connection with an order for additional product, although we may
extend other payment terms to our distributors depending on their
ability to pay. We also make advances to suppliers for the purchase
of their materials. The products are then sold to farmers and other
end-users by the distributor.
Each year we participate in the Yang Ling region's annual
agricultural trade fair and exhibition. Many of our distributors
attend this trade fair, and the event accounts for the vast
majority of our sales contracts. Sales are then made pursuant to
these contracts throughout the year.
We expect to distribute products that are manufactured in our
new Xinjiang facility through similar arrangements with
distributors; however, we have not yet established relationships
with distributors. The construction of our Xinjiang facility is
nearly finished and we are in the process of applying production
license from government.
We expect to distribute products that are manufactured in our
new Xinjiang facility through similar arrangements with
distributors; however, we have not yet established relationships
with distributors. The construction of our Xinjiang facility is
nearly finished and we are in the process of applying production
license from government.
Intellectual property
We rely on trade secret protection for our proprietary
technology and formulae. We currently do not own any patents and
have not applied for any patents on our proprietary technology and
formulae. A patent application requires a detailed description of
our technology and formulae, which would then be made available to
the general public. We believe that a patent application and
disclosure would be detrimental to our business, as it would reveal
features unique to our products. Most of our intellectual property
was developed in-house or with various universities and research
laboratories (which may not be owned by our company).
We hold certain government approved intellectual property rights
in our trade secrets and proprietary information. Certain
intellectual property rights in the People's Republic of China are
decided by the government registry, and we have registered our
formulae and proprietary information with the Chinese government.
We hold certificates for these rights, which must be registered on
an annual basis.
We also own trademarks in the "Bodisen" name, which are used on
all products.
Seasonality and Volatility
The fertilizer and pesticide businesses are highly seasonal,
based upon the planting, growing and harvesting cycles. The
seasonality of these industries has its primary effect on the sales
volume of our product. Typically, we experience a higher sales
volume in the second and third quarters, with a lower volume in the
first and fourth quarters.
Our sales volume can be volatile as a result of a number of
factors, including:
-- Weather patterns and field conditions (particularly during
periods of high fertilizer consumption);
-- Quantities of fertilizers imported to primary markets;
-- Current and projected grain inventories and prices, which are
heavily influenced by U.S. exports, worldwide grain markers, and
domestic demands (food, feed, biofuel);
-- Government regulation, intervention and unexpected changes in government policies; and
-- The reputation of our products and company in the marketplace.
In addition to the effect on sales volume, certain factors may
have an effect on the prices of our organic fertilizer, pesticide
and insecticide products. These factors include raw material and
other product related costs, as well as expenses related to our
workforce and employees.
Inventory and Working Capital
For each of our products, we maintain an inventory system to
meet customer demands. Typically, we produce our products upon
receipt of customer orders. We do, however, hold excess inventory
to ensure an adequate supply of products. We maintain a larger
inventory for "in-season" products, while our inventory for out of
season products is less.
In order to ensure a continuous allotment of goods and raw
materials, we operate on an advanced payment system with our
suppliers. We pay our suppliers based on our projected needs for
raw materials and other supplies, which allows us to maintain a
stock of such materials and supplies sufficient to sustain
continued production.
We do not have policies related to warranties or the return of
merchandise. We do, however, provide our customers with extended
payment terms and payment options.
Although each company in the fertilizer, pesticide and
insecticide industry adopts its own practices based on its
employees, equipment, materials and other resources, we believe
that our operations are generally consistent with those of other
companies in the industry. We are continuing in our efforts to
ensure that we exceed industry expectations for product quality,
development and overall performance.
Sales and Marketing
We market and promote the Bodisen brand through trade fairs,
conventions and the print media, and through television and radio
advertising in the People's Republic of China. As noted previously,
a significant portion of our sales are generated directly or
indirectly via the annual trade fair and agricultural exhibition in
Yang Ling. Because the end-users of our products are local farmers,
we also conduct educational seminars to promote products and
organic fertilizers directly to farmers. In addition, we send our
promotional team to the countryside and other agricultural areas to
advance product recognition through field tests. To capture
additional markets, we distribute free samples of our products to
new areas, allowing for a product trial period. The results of
these trials are then made known to surrounding areas. The cost of
such efforts is not material and is typically offset by new sales
in those test zones.
Our primary tasks with respect to sales goals are to strengthen
our home market in the Shaanxi province and to expand the market
outside the Shaanxi province into new districts where our products
are not well established.
It is our intention to increase marketing in regions where our
products are not well known. We anticipate that once we commence
operations in our new facility in Xinjiang, we will begin efforts
to promote and market our products within that region. In addition,
we expect to engage in general promotion of our products through
national newspapers in the People's Republic of China, where we
plan to explain the advantages of the high-tech nature of our
environmentally friendly product lines. Although we considered
selling exclusive franchise opportunities to new wholesale agents,
we have since decided against proceeding with any such
projects.
Customers
We sell our products directly to over 98 regional distributors
in the People's Republic of China through written sales contracts.
Typically, these non-exclusive distribution contracts have a
one-year term and, upon signing the contract, the distributor will
indicate its intent to purchase a certain quantity of our products.
Distributors who fail to place orders for the quantities estimated
under these contracts are generally not held responsible for
failing to place orders reflecting the estimated quantity.
All of our sales currently are directed to our distributors, and
we do not make any sales directly to farmers or other end users of
our products.
2 customers Hao Xi Gang and Feng Yuan Zheng, accounted for
11.59% and 8.85% of the Company's sales for the year ended December
31, 2012. 2 customers Hao Xi Gang and Yang Ling Xin Sheng Trading
Company Limited, accounted for 11.66% and 7.99% of the Company's
sales for the year ended December 31, 2011, respectively. Three
customers accounted for 2.1% and 1.72% of the Company's sales for
the year ended December 31, 2010.
In November 2011 agricultural trade fair and exhibition in Yang
Ling, we received approximately $6.6 million in commitments for
2012. In November 2012 agricultural trade fair and exhibition in
Yang Ling, we received approximately $6 million in commitments for
2013.
Competition
The organic fertilizer industry in the People's Republic of
China is largely fragmented with most competitors operating small
regional factories, serving local requirements. Most companies in
this industry do not widely promote their products. We have not yet
identified any competitors in the Shaanxi province that operate in
all of our product lines (organic compound fertilizer, liquid
fertilizer and pesticide and insecticides). We believe that we
occupy nearly 20%of the Shaanxi fertilizer market, and that no
fertilizer company possesses a larger market share in Shaanxi. This
conclusion is based on our knowledge of the ShaanxiProvince's land
and area and its fertilizer needs. Our competitive position in the
fertilizer industry is strengthened by our emphasis on the use of
"environmentally friendly" fertilizer products.
We believe that our only international competitor is DuPont.
Research and Development
In 2011, the budget on research and development was $0 because
company is engaged in Xinjiang new facility's operation and test
for the last two years and do not develop any new products.
In 2012, the budget on research and development was $2,536,000
because the company developed new products.
Government and Environmental Regulation
Our products and services are subject to regulation by
governmental agencies in the People's Republic of China and Shaanxi
Province. Business and company registrations, along with the
products, are certified on a regular basis and must be in
compliance with the laws and regulations of the People's Republic
of China and provincial and local governments and industry
agencies, which are controlled and monitored through the issuance
of licenses. We believe that we have complied with all
registrations and requirements for the issuance and maintenance of
the licenses required of us by the governing bodies. As of the date
of this annual report, all of our license fees and filings are
current. Our licenses include:
National Certificate for Production of Industrial Products
The National Certificate for Production of Industrial Products
for compounded fertilizers was issued by the National Industrial
Products Production License Office on February 27, 2004. This
certificate, on renewal, is valid until February 26, 2014.
Certificate for Pesticide Registration
Pesticide registration is required for the production of liquid
fertilizer and issued by the Ministry of Agriculture of the
People's Republic of China. This registration also applies to our
production of insecticides.
Production standard
We are registered with Bureau of Quality Controls and
Technology, Shaanxi Provincial Government, Xi'an.
The cost of obtaining and maintaining these licenses is not
prohibitive and it is illegal to do business without these
licenses. If we were to lose any of these licenses, we would only
have a limited time to reapply for such licenses and would face
possible regulatory fines.
While we are subject to relevant environmental laws and
regulations that require outlay of capital and the obtaining of
relevant permits, we do not anticipate any extraordinary capital
expenditures in 2012 for such purposes. We did not make any
extraordinary capital expenditures in 2012 or 2011 related to
compliance with environmental laws and regulations, including
expenditures necessary to obtain relevant permits.
Our new Mancozeb product is awaiting government approval. Prior
to the launch of our Mancozeb product, the Chinese government
pesticide office instituted a review of all pesticide production
companies. As a result, we suspended the installation of our
Mancozeb facility pending completion of this government review.
Although we continue to work with the government and local
authorities to advance the approval process, we have not yet
received such approval and do not know when such approval will be
received, if at all. Once the government has completed its review
and subject to receipt of approval, we expect to continue the
installation and launch of the Mancozeb facility.
Except for approvals that have already been obtained, our
anticipated new facility in Xinjiang will not require any
additional permits or authorizations.
Employees
As of December 31, 2012, we had a total of 132 employees. Of
these employees, approximately 11 were executives and senior
managers, 16 were business and accounting staff, 2 were warehouse
and purchasing staff, and 4 were drivers or secretaries. The
balance consists of production workers. We have not experienced any
work stoppages and we consider relations with our employees to be
good. We are not a party to any collective bargaining
agreements.
Properties
Our principal executive offices are located in leased office
space located at Room 2001, FanMei Building No. 1 NaguanZhengjie,
Xian, Shaanxi province, People's Republic of China, 710068, and the
telephone number is +011-86-29-87074957. The office space is
approximately 328 square meters in area and we lease the space at a
rate of RMB 53 per square meter per year.
We also maintain two separate factories in Yang Ling, China,
situated at differing locations within the Yang Ling Agriculture
High-Tech Industries Demonstration Zone. These two factories occupy
an aggregate of approximately 56,745 square meters of land and
contain our three production lines, as well as office buildings,
warehouses and two research laboratories. These leases require
monthly rental payments of $2,755, and the leases expire in
2013.
We have entered into land-lease arrangements for the
above-mentioned factories. We do not own any land because, under
the People's Republic of China's governmental regulations, the
government owns all land.
In connection with an agreement with the city government of A La
Er, China (which is located in the Uygur autonomous region of
Xinjiang, China), we agreed to invest in the construction of a
manufacturing facility that will be able to produce up to 200,000
metric tons of fertilizer and pesticide products. This facility is
located in Xinjiang, China and is approximately 120 acres (80,000
square meters). We believe that, with the strong government support
that we are receiving and the regional market demand for fertilizer
and pesticide products, Xinjiang represents a significant long-term
growth opportunity for Bodisen. We began construction of the
facility in April 2006 and originally believed construction would
be completed in November 2006. However, there have been a series of
delays, including delays caused by local weather conditions (an
early winter, late spring and frequent sandstorms). To date, we
have spent approximately $14.8 million on this facility. Although,
as of December 31, 2009, construction of the facility was complete,
we are waiting for government approval of our production license
before we can commence operations.
In August 2006, we entered into a 30-year land-lease arrangement
with the government of the People's Republic of China for the
80,000 square meter plot of land in Xinjiang, under which we
pre-paid $2,529,818 upon execution of the contract of lease expense
for the next 15 years. We agreed to make a prepayment for the
subsequent eight years in November 2021 and will make a final
pre-payment in November 2029 for the remaining seven years. The
annual lease expense amounts to approximately $169,580. On July 15,
2008, the Company entered into a 50 year land rights agreement for
the rights to use the 80,000 square meter plot of land.
Following the 2006 admission of our shares to trading on the AIM
market of the London Stock Exchange plc, we indicated that we
intended to use certain proceeds from that offering to construct an
additional facility in Northeast China. We have since decided not
to pursue this project at this time.
We believe that our owned and leased properties, along with the
properties being developed in our current facility expansion plans,
will be sufficient for our current and immediately foreseeable
operating needs.
Available Information
We file electronically with the Securities and Exchange
Commission, or the "SEC," our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934. The public may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 100 F Street, NE,
Washington, DC20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
address of that site is http://www.sec.gov.
Results of Operations
Year ended December 31, 2012 compared to year ended December 31,
2011
Years Ended
December, 31 Change
2012 2011 $ %
Revenue 8,055,958 7,684,778 371,180 4.8
---------------- ---------------- ---------------- ----------------
Cost of revenue 6,942,342 5,608,858 1,333,484 23.8
---------------- ---------------- ---------------- ----------------
Gross profit 1,113,616 2,075,920 (962,304) (46.4)
Operating expenses
Selling expenses 637,058 844,903 (207,845) (24.6)
General and administrative
expenses 4,950,485 3,491,847 1,458,638 41.8
Write down of property
and equipment 9,057,267 - 9,057,267 100.0
---------------- ---------------- ---------------- ----------------
Total operating expenses 14,644,810 4,336,750 10,308,060 237.7
---------------- ---------------- ---------------- ----------------
Loss from operations (13,531,194) (2,260,830) (11,270,364) 498.5
Non-operating income (expense);
Other income (expense) (856) (111,757) 110,901 (99.2)
Write down of investment
in marketable security (2,774,742) - (2,774,742) 100.0
Interest income 21,369 207,962 (186,593) (89.7)
Interest expense (84,379) (145,747) 61,368 (42.1)
---------------- ---------------- ---------------- ----------------
Total non-operating income
(expense) (2,838,608) (49,542) (2,789,966) 5,629.7
---------------- ---------------- ---------------- ----------------
Net loss (16,369,802) (2,310,372) (14,059,430) 608.5
======== ======== ======== ========
Revenue: We generated revenue of $8,055,958 for the year ended
December 31, 2012, an increase of $371,180 or 4.8%, compared to
$7,684,778 for the year ended December 31, 2011. The increase in
revenue is primarily attributable to increased demand from
customers for our new fertilizer.
Gross Profit: We generated a gross profit of $1,113,616 for the
year ended December 31, 2012, a decrease of $962,304 or 46.4%,
compared to $2,075,920 for the year ended December 31, 2011. Gross
margin (gross profit as a percentage of revenue), was 13.8% for the
year ended December 31, 2012, compared to 27.0% for the year ended
December 31, 2011. The decrease in the gross margin percentage was
primarily attributable to the provision of deferred revenue under
the cost recovery method which is affected by the timing of
collections of our accounts receivable, offset by higher costs for
raw materials.
Selling Expenses: Aggregated selling expenses accounted for
$637,058 of our operating expenses for the year ended December 31,
2012, a decrease of $207,845 or 24.6%, compared to $844,903 for the
year ended December 31, 2011. The decrease in our aggregated
selling expense is primarily attributable to a decrease in
advertising expenses in China of approximately $226,000 during the
year ended December 31, 2012 compared to the year ended December
31, 2011 off-set by an increase in stevedoring expenses of
approximately $18,000 for the year ended December 31, 2012 compared
to the year ended December 31, 2011.
General and Administrative Expenses: General and administrative
expenses accounted for $4,950,485 of our operating expenses for the
year ended December 31, 2012, an increase of $1,458,638 or 41.8%,
compared to $3,491,847 for the year ended December 31, 2011. The
increase is principally due to:
i. an increase in research and development expenses of
approximately $2,536,000 for the year ended December 31, 2012
compared to the year ended December 31, 2011;
ii. a decrease in our bad debt expense (due to our strengthening
its control policy over credit extended to customers) for the year
ended December 31, 2012 compared to the year ended December 31,
2011 of approximately $422,000;
iii. a decrease in repair expenses of approximately $752,000 for
the year ended December 31, 2012 compared to the year ended
December 31, 2011.
Non Operating Income and Expenses: We had total non-operating
expenses of $2,838,608 for the year ended December 31, 2012, a
change of $2,789,066 compared to $49,542 for the year ended
December 31, 2011. The change is principally due to:
i. a decrease in interest income of approximately $186,000 (due
to full repayment of the note receivable in January 2012) during
the year ended December 31, 2012 compared to the year ended
December 31, 2011;
ii. a decrease in interest expense of approximately $62,000 (due
to full settlement of the bank loan in January 2012) during the
year ended December 31, 2012 compared to the year ended December
31, 2011.
iii. a write down investment in marketable security of
approximately $2,775,000 of a long-term equity investment that was
deemed to be other than temporary. There was no such write down in
2011.
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 December 31, 2012, we had $294,539 of cash compared to
$935,375 as of December 31, 2011.
Cash balance decreased $640,836 as of December 31, 2012 as
compared with $935,375 as of December 31, 2011 due to raw material
costs increasing significantly during the year. For the purpose of
cost reduction, the Company has implemented a policy to build up a
higher reserve of raw materials inventory through careful
procurements in light of anticipated rising prices on raw
materials. As raw materials relate to the manufacturing of organic
fertilizers, liquid fertilizers, pesticides and insecticides, they
are better preserved in the nature of finished goods. As of
December 31, 2012, the Company therefore maintained an inventory of
finished goods of $1,673,812 in line with the Company's budgeted
sales for the first half of 2013. This has a negative impact on the
cash balance. On March 19, 2013, the chairman issued an undertaking
that the chairman will give his every endeavor and best effort to
obtain necessary and adequate funding to meet the Company's
financial obligations as and when they are required thereby
warranting that the manufacturing operations of the Company will
not be affected.
While we have funded our operations since inception from
operations and through private placements of equity securities and
loans, there can be no assurance that adequate financing will
continue to be available to us and, if available, on terms that are
favorable to us.
We believe that we will require additional financing to carry
out our intended objectives during the next twelve months. There
can be no assurance, however, that such financing will be available
or, if it is available, that we will be able to structure such
financing on terms acceptable to us and that it will be sufficient
to fund our cash requirements until we can reach a level of
profitable operations and positive cash flows. If we are unable to
obtain the financing necessary to support our operations, we may be
unable to continue as a going concern. We currently have no firm
commitments for any additional capital.
A downturn in the United States stock and debt markets could
make it more difficult to obtain financing through the issuance of
equity or debt securities. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or
experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or
debt securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our shares of
common stock or the debt securities may cause us to be subject to
restrictive covenants. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or
experience unexpected cash requirements that would force us to seek
additional financing. If additional financing is not available or
is not available on acceptable terms, we will have to curtail our
operations.
Cash Flows
Operating: We used $2,069,399 of cash for operating activities
for the year ended December 31, 2012 compared to $2,816,911 of cash
used in operating activities for the year ended December 31, 2011.
The cash used in operating consisted of a net loss of $16,369,802
offset by non cash expenses of depreciation and amortization of
$1,695,280. We had a loss of $9,057,267 for the write down of
property and equipment and a loss of $2,774,742 for the write down
of an investment which are a non cash transaction.
Investing: Our investing activities for the year ended December
31, 2012 provided cash of $1,420,690, representing the addition of
property and equipment of $16,005 and proceeds from a note
receivable of $1,425,600 compared to cash provided by investing
activities of $142,114 for the year ended December 31, 2011
representing the addition of property and equipment from $12,686
and proceeds from a note receivable of $154,800 during this
comparable period.
Financing. During the year ended December 31, 2012, we used
$1,425,600 of cash for the full repayment of our bank loan and
received $1,424,700 from the proceeds of another new bank loan. Our
financing activities used $154,800 cash as a result of the partial
repayment of a bank loan for the year ended December 31, 2011.
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.
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 December 2011, the FASB issued guidance on offsetting assets
and liabilities and disclosure requirements in Accounting Standards
Update No. 2011-11, Disclosures about Offsetting Assets and
Liabilities ("Update 2011-11"). Update 2011-11 requires that
entities disclose both gross and net information about instruments
and transactions eligible for offsetting the statement of financial
position as well as instruments and transactions subject to an
agreement similar to a master netting agreement. In addition, the
standard requires disclosure of collateral received and posted in
connection with master netting agreements or similar arrangements.
Update 2011-11 is effective for annual reporting periods beginning
on or after January 1, 2013, and interim periods with those annual
periods. The implementation of the disclosure requirement is not
expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
In February 2013, the FASB issued ASU No. 2013-02, which amends
the authoritative accounting guidance under ASC Topic 220
"Comprehensive Income." The amendments do not change the current
requirements for reporting net income or other comprehensive income
in financial statements. However, the amendments require an entity
to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the
statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but
only if the amount reclassified is required under generally
accepted accounting principles in the United States of America
("GAAP") to be reclassified to net income in its entirety in the
same reporting period. For other amounts that are not required
under GAAP to be reclassified in their entirety to net income, an
entity is required to cross-reference to other disclosures required
under GAAP that provide additional detail about those amounts. The
amendments in this update are effective prospectively for reporting
periods beginning after December 15, 2013. Early adoption is
permitted. Adoption of this update is not expected to have a
material effect on the Company's consolidated results of operations
or financial condition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Basis of Presentation
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 - Going Concern
The accompanying audited consolidated financial statements have
been prepared assuming the Company will continue as a going
concern. As shown in the accompanying consolidated financial
statements, the Company incurred a net loss of $16,369,802 for the
year ended December 31, 2012 and had accumulated losses of
$30,730,206 at December 31, 2012. These create an uncertainty about
the Company's ability to continue as a going concern. In this
regard, the Company's Chairman has issued a letter of undertaking
that he will provide financial support to the Company (Note 16).
The consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America. All significant
intercompany transactions and balances have been eliminated. The
Company's functional currency is the Chinese Yuan Renminbi ("RMB");
however the accompanying consolidated financial statements have
been translated and presented in United States Dollars ($ 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.
Contingencies
Certain conditions may exist as of the date the financial
statements are issues, which may result in a loss to the Company
but which will only be resolved when one or more future events
occur or fail to occur. The Company's management and legal counsel
asses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the
Company's legal counsel evaluates the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of
the amount of relief sought or expected to be sought. There were no
contingencies of the type as of December 31, 2012 and 2011.
If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be
accrued in the Company's financial statements. If the assessment
indicates that a potential material loss contingency is not
probable but it is reasonably possible, or is probable but cannot
be estimated, then the nature of the contingency liability,
together with an estimate of the range of possible loss if
determinable and material would be disclosed. There were no
contingencies of this type as of December 31, 2012 and 2011.
Loss contingencies considered to be remote by management are
generally not disclosed unless they involve guarantees, in which
case the guarantee would be disclosed.
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. Allowance for doubtful accounts as
of December 31, 2012 and 2011 were $475,122 and $158,384,
respectively.
Advances to Suppliers
The Company advances to certain vendors for purchase of its
material. The advances to suppliers are interest free and
unsecured.
Inventories
Inventories are valued at the lower of cost (determined on a
weighted average basis) or market. The Management compares the cost
of inventories with the market value and allowance is made for
writing down their inventories to market value, if lower.
Property and 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
December 31, 2012 and 2011, respectively:
2012 2011
----------- ------------
Operating equipment $ 4,036,291 $ 10,500,004
Vehicles 64,510 633,860
Office equipment 7,594 76,011
Buildings 7,432,952 15,432,646
----------- ------------
11,541,347 26,642,521
Less accumulated depreciation - (4,638,737)
Property and equipment, net $ 11,541,347 $ 22,003,784
=========== ============
Depreciation expense for the years ended December 31, 2012 and
2011 was $1,582,519 and $1,696,310, respectively. During the year
ended December 31, 2012, the Company took an impairment charge of
$9,057,267 related to its property and equipment. There was no
impairment charge taken during the year ended December 31,
2011.
Impairment losses are required to be reflected as a permanent
write-down of the cost basis of the affected assets. Accordingly,
previously recorded depreciation on the impaired property and
equipment (i.e., accumulated depreciation) has been eliminated as
of December 31, 2012 which was the date of the impairment charge.
Depreciation will be recorded based on the new cost basis and
remaining estimated useful life of property and equipment beginning
January 1, 2013.
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 at December 31, 2012, the Company took an impairment charge
related to its property and equipment for $9,057,267. At December
31, 2011, 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 years ended December
31, 2012 and 2011 as the valuation report for the fair value of the
land use rights exceeded the carrying value.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, other receivables,
notes receivable, advances to suppliers and accounts payable, the
carrying amounts approximate their fair values due to their short
maturities. In addition, the Company has a note payable with
financial institutions. The carrying amount of note payable
approximates its 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 following table represents our assets and liabilities by
level measured at fair value on a recurring basis as of December
31, 2012 and 2011.
December 31, 2012
Description Level 1 Level 2 Level 3
Assets
Marketable securities $ 282,603 $ - $ -
December 31, 2011
Description Level 1 Level 2 Level 3
Assets
Marketable securities $ 1,211,154 $ - $ -
The following table represents our assets and liabilities by
level measured at fair value on a non-recurring basis as of
December 31, 2012 and 2011.
December 31, 2012
Description Level 1 Level 2 Level 3 Loss for
the
year ended
December
31 2012
Assets
Property and equipment $ - $ - $ 11,541,347 $ 9,057,267
December 31, 2011
Description Level 1 Level 2 Level 3 Loss for
the
year ended
December
31 2011
Assets
Property and equipment $ - $ - $ - $ -
Based on a quotation made by an independent third party, whose
quotation was arrived at with reference to second-hand market
conditions, and estimated remaining useful lives of the property
and equipment in the nature of machineries. Property and equipment
with carrying amount of $20,598,614 were written down to their fair
value of $11,541,347, resulting in an impairment charge of
$9,057,267, which was included in net loss for the year ended
December 31, 2012.
Revenue Recognition and Deferred Revenue
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.
Profit not yet recognized is recorded as deferred revenue as a
current liability.
Advertising Costs
The Company expenses the cost of advertising as incurred or, as
appropriate, the first time the advertising takes place. For the
years ended December 31, 2012 and 2011, the Company incurred
advertising expenses of $494,925 and $716,337, respectively.
Shipping and Handling Costs
Shipping and handling costs consist primarily of transportation
charges for delivery of goods to customers and are included in
selling, general and administrative expenses. The Company expenses
all shipping cost when they are incurred. For the years ended
December 31, 2012 and 2011, the Company incurred transportation
charges of $54,791 and $50,121, respectively.
Research and Development
The Company accounts for research and development costs in
accordance with ASC 730-10, all research and development costs must
be charged to expense as incurred. Accordingly, internal research
and development costs are expensed as incurred. Third party
research and development costs are expensed when the contract work
has been performed or as milestone results have been achieved as
defined under the applicable agreement. Company-sponsored research
and development costs related to both present and future products
are expensed in the period incurred.
Included in general and administrative expenses are substantial
research and development expenditure that the Company incurred
during the year for development of a new fertilizer (to be more
exact, this is not a new fertilizer but different mixes and
proportion of components making up the fertilizer for different
regions in China, see explanation below), approximately $2,536,000
(RMB 16 million). Substantial research and development expenses
were incurred as:
i. Fertilizer is made up of different components at different mixes (or proportions).
ii. However, because China is such a vast country, different
farming areas have different climates (weather, moisture, rainfall
period over the year, how much rainfall in different periods of the
year and so forth).
iii. Research and development are incurred to ascertain what are
the correct mixes or proportions of components of the fertilizers
to satisfy farmers in different regions. In fact, the local farmers
voice out problems with the fertilizer they have been sold. To meet
customer's needs, the Company has to and needs to continue with
such kind of research and development investment.
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. The Company recognizes in the statement of
operations the fair value at the vesting date for stock options and
other equity-based compensation issued to non-employees. There were
no options outstanding as of December 31, 2012.
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 $10,973,725 and $10,494,622 at December 31, 2012 and 2011,
respectively are classified as an item of other comprehensive
income in the stockholders' equity section of the consolidated
balance sheet. During the years ended December 31, 2012 and 2011
other comprehensive income in the consolidated statements of
operations and other comprehensive income included translation
gains of $479,103 and $1,220,453, and unrealized (loss) on
marketable equity security of $(1,156,164) and $(7,569,713),
respectively. A detail of accumulated other comprehensive income is
summarized below:
Foreign Unrealized Total Other
Currency Gain (loss) Comprehensive
$ $ Income
$
----------- ------------- ---------------
Balance, December 31, 2010 9,274,169 5,951,135 15,225,304
Adjustments 1,220,453 (7,569,713) (6,349,260)
----------- ------------- ---------------
Balance, December 31, 2011 10,494,622 (1,618,578) 8,876,044
Adjustments 479,103 (1,156,164) (677,061)
----------- ------------- ---------------
Reclassification for other-than-temporary
loss on marketable equity security - 2,774,742 2,774,742
=========== ============= ===============
Balance, December 31, 2012 10,973,725 - 10,973,725
=========== ============= ===============
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 no
options as of December 31, 2012 and 426,000 options as of December
31, 2011 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 December 2011, the FASB issued guidance on offsetting assets
and liabilities and disclosure requirements in Accounting Standards
Update No. 2011-11, Disclosures about Offsetting Assets and
Liabilities ("Update 2011-11"). Update 2011-11 requires that
entities disclose both gross and net information about instruments
and transactions eligible for offsetting the statement of financial
position as well as instruments and transactions subject to an
agreement similar to a master netting agreement. In addition, the
standard requires disclosure of collateral received and posted in
connection with master netting agreements or similar arrangements.
Update 2011-11 is effective for annual reporting periods beginning
on or after January 1, 2013, and interim periods with those annual
periods. The implementation of the disclosure requirement is not
expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
In February 2013, the FASB issued ASU No. 2013-02, which amends
the authoritative accounting guidance under ASC Topic 220
"Comprehensive Income." The amendments do not change the current
requirements for reporting net income or other comprehensive income
in financial statements. However, the amendments require an entity
to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the
statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but
only if the amount reclassified is required under generally
accepted accounting principles in the United States of America
("GAAP") to be reclassified to net income in its entirety in the
same reporting period. For other amounts that are not required
under GAAP to be reclassified in their entirety to net income, an
entity is required to cross-reference to other disclosures required
under GAAP that provide additional detail about those amounts. The
amendments in this update are effective prospectively for reporting
periods beginning after December 15, 2013. Early adoption is
permitted. Adoption of this update is not expected to have a
material effect on the Company's consolidated results of operations
or financial condition.
As of December 31, 2012, there are no recently issued accounting
standards not yet adopted that would have a material effect on the
Company's financial statements.
Note 4 - Note Receivable
The note receivable balance at December 31, 2011 was unsecured,
interest bearing at 9.1% per annum and was repaid in full on
January 18, 2012. The proceeds received on January 18, 2012 were
used to pay back the bank loan (see note 8). The note receivable
arose during the quarter ended March 31, 2012 and was unsecured,
non interest bearing and was originally due on April 22, 2012. The
note receivable was repaid in full on April 22, 2012
Note 5 - Inventory
Inventory at December 31, 2012 and 2011 consisted of the
following:
2012 2011
---------- ----------
Raw materials $ 407,837 $ 638,878
Packaging 83,343 74,343
Finished goods 1,673,812 1,436,041
---------- ----------
$ 2,166,992 $ 2,149,262
========== ==========
Note 6 - 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 December 31, 2012
and 2011, the fair value of the investment is $282,603 and
$1,211,154, respectively, which is reflected in the consolidated
balance sheet. The Company recognized an unrealized (loss) of
$(1,156,164) and $(7,569,713) for the years ended December 31, 2012
and 2011, respectively, in equity. At December 31, 2012, the
Company determined that the decline in value of its investment in
China Pediatric (a marketable equity security) was
other-than-temporary resulting in the cumulative unrealized loss on
this marketable equity security totaling $2,774,742 being
reclassified from accumulated other comprehensive income to
retained earnings.
Note 7- Intangible Assets
Net intangible assets at December 31, 2012 and 2011 were as
follows:
2012 2011
------------ ------------
Rights to use land $ 5,406,639 $ 5,365,705
Fertilizers proprietary technology
rights 1,258,000 1,258,400
------------ ------------
6,674,639 6,624,105
Less accumulated amortization (1,897,660) (1,771,385)
Intangibles, net $ 4,776,979 $ 4,852,720
============ ============
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, 2001 with a life ended December 31,
2011. The amortization of Fertilizers proprietary technology rights
was over a period of ten years and was amortized in full during
2011.
On July 15, 2008, the Company entered into a 50 year land rights
agreement.
Amortization expense for the Company's intangible assets
amounted to $112,761 and $136,177 for the years ended December 31,
2012 and 2011, respectively. Amortization of intangible assets for
the next five years are as follows:
Year End Amount
------------ ----------
2013 $ 108,133
2014 108,133
2015 108,133
2016 108,133
2017 108,133
Thereafter 4,236,314
$ 4,776,979
==========
Note 8 - Bank Loan
On March 19, 2010, the Company obtained a bank loan for
10,000,000 RMB (approximately $1,517,000). The loan bears an 8.1%
annual interest rate, matures on March 19, 2012 and was secured by
the Company's rights to use land and facility. This bank loan was
repaid in full on January 18, 2012. During the quarter ended June
30, 2012, the Company obtained another bank loan for 9,000,000 RMB
(approximately $1,425,600). The loan bears a 9.84% annual interest
rate, matures on May 27, 2013 and is secured by the Company's
intangible assets in the nature of rights to use the land.
Note 9 - Stockholders Equity
Common stock
There was no stock based compensation incurred during the years
ended December 31, 2012.
Note 10 - 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. From January 1, 2007 onwards, no provision for
employee welfare is allowed in accordance with the revised PRC
regulations. The total expense for the above plan were $0 for the
years ended December 31, 2012 and 2011. The Company has recorded
welfare payable of $0 at December 31, 2012 and 2011.
Note 11 - 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 years ended December 31,
2012 and 2011.
Note 12 - Factory Location and Lease Commitments
The Company's principal executive offices are located in the
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. The Company leases its office
premises under an operating lease agreement that requires monthly
rental payments of $2,755 and the leases expire in 2013.
Future minimum lease payments under operating leases are as
follows, by years as of December 31, 2012:
Year End Amount
---------- -------
2013 $ 4,030
Note 13 - Current Vulnerability Due to Certain
Concentrations
Three vendors provided 16%, 16% and 15% of the Company's raw
materials for the year ended December 31, 2012 and two vendors
provided 23%, and 21% of the Company's raw materials for the year
ended December 31, 2011.
Two customers accounted for 14% and 9% of the Company's sales
for the year ended December 31, 2012. Two customers accounted for
17% and 12% of the Company's sales for the year ended December 31,
2011.
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 14 - Income Taxes
At December 31, 2012, the Company has available for US and China
income tax purposes a net operating loss carry forward of
approximately $6,120,000 and $13,120,000, respectively that begin
to expire in 2019 and 2022, respectively. These net operating loss
carry forwards may be used to offset future taxable income. The
Company is no longer subject to US income tax examinations by tax
authorities for years before 2009. The Company has provided a
valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings
history of the Company; it is more likely than not that the
benefits will not be realized. All or portion of the remaining
valuation allowance may be reduced in future years based on an
assessment of earnings sufficient to fully utilize these potential
tax benefits. Currently the Company is not subject to examination
by major tax jurisdictions, but the tax authority in PRC has the
right to examine the Company's tax position in all past years.
At December 31, 2012 and 2011, the significant components of the
deferred tax assets (liabilities) are summarized below:
December 31, December 31,
2012 2011
------------- -------------
Deferred tax assets:
Net operating loss - United States $ 2,082,000 $ 1,985,000
Net operating loss - China 3,279,000 1,651,000
Write down of property and equipment
- China 2,264,000 -
Unrealised investment loss - 405,000
Deferred revenue 188,000 139,000
Allowance for doubtful accounts 119,000 40,000
Total deferred tax assets 7,932,000 4,220,000
Deferred tax liability:
Unrealised investment gain - -
------------- -------------
Total deferred liability - -
------------- -------------
Net deferred tax asset 7,932,000 4,220,000
Less valuation allowance $ (7,932,000) $ (4,220,000)
------------- -------------
$ - $ -
============= =============
The valuation allowance increased by $3,712,000 and $2,499,000,
respectively, during the years ended December 31, 2012 and
2011.
The reconciliation of the effective income tax rate to the
federal statutory rate for the years ended December 31, 2012 and
2011 is as follows:
2012 2011
-------- --------
Federal income tax rate (34.0%) (34.0%)
Foreign tax rate difference 9.0% 9.0%
Use of prior year NOLs 0.0% 0.0%
Increase in valuation allowance 25.0% 25.0%
-------- --------
Effective income tax rate 0.0% 0.0%
======== ========
Note 15 - Litigation
From time to time, the Company 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 the Company's business. The
Company is currently not aware of any such legal proceedings or
claims that it believes would or could have, individually or in the
aggregate, a material adverse affect on the Company's business,
financial condition, results of operations or liquidity.
Note 16 - Chairman Financial Undertaking
On March 19, 2013, the Chairman of the Board issued an
undertaking that he will give his every endeavor and effort to
obtain necessary and adequate funding to meet the Company's
financial obligations as when they are required thereby warranting
that the manufacturing operations of the Company will not be
affected. As of the date hereof no such funding has been needed by
the Company. However, there can be no assurance that the Chairman
will be successful in this undertaking.
Note 17 - Subsequent Events
Pursuant to ASC 855-10, the Company has evaluated all events or
transactions that occurred from January 1, 2013, through the filing
with the SEC. The Company did not have any material recognizable
subsequent events during this period.
Our website is located at http://www.bodisen.com.
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.
Enquiries:
Charles Stanley Securities
(Nominated Adviser)
Russell Cook / Carl Holmes 020 7149 6000
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR NKADPNBKDNQD
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