As
filed with the Securities and Exchange Commission on February 8,
2008
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHINA
GREEN AGRICULTURE, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Nevada
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2870
|
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36-3526027
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|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
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3
rd
Floor,
Borough A, Block A. No.181, South Taibai Road, Xi’an, Shaanxi
Province,
People’s
Republic of China 710065
Tel:
+86-29-88266386
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s
Principal Executive Offices)
United
Corporate Services, Inc.
202
South
Minnesota Street
Carson
City, Nevada 89703
Tel:
1-800-899-8648
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent
For Service)
Copies
to:
Darren
Ofsink, Esq.
GUZOV
OFSINK LLC
600
Madison Avenue, 14th Floor
New
York,
NY 10022
Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this Registration Statement.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
o
Large
accelerated filer
o
Accelerated filer
o
Non-accelerated filer (Do not check if a smaller reporting company)
x
Smaller reporting company
CALCULATION
OF REGISTRATION FEE
|
Title
of each
class
of securities
to
be registered
|
Amount
to
be
registered
(1)
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Proposed
maximum
offering
price
per
unit(2)
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Proposed
maximum
aggregate
offering
price
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Amount
of
registration
fee
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|||||||||
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Common
stock, par value $.001 per share
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6,425,002
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$
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3.25
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(3)
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$
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20,881,257
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$
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820.63
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|||||
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(1)
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Pursuant
to Rule 416 promulgated under the Securities Act of 1933, as amended,
there are also registered hereunder such indeterminate number of
additional shares as may be issued to the selling stockholders to
prevent
dilution resulting from stock splits, stock dividends or similar
issuance.
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(2)
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Includes
(i) 6,313,616 shares of common stock issued to 31 accredited investors
(the “Investors”) in a private placement of our common stock that was
completed on December 26, 2007, (ii) 111,386 shares of common stock
issued
to two of our former directors and executive officers on December
26,
2007.
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(3)
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Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457. As of the date hereof, while our common stock is quoted
on the
over-the-counter Bulletin Board, there has been no trading. Accordingly,
in determining the offering price, we selected $3.25 per share, the
price
the Investors paid in the private
placement.
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The
Registrant amends this registration statement on such date or dates as may
be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
hereafter become effective in accordance with Section 8(a) of the Securities
Act
of 1933, or until the registration statement shall become effective on such
date
as the Commission, acting pursuant to Section 8(a), may
determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED FEBRUARY 8, 2008
PRELIMINARY
PROSPECTUS
CHINA
GREEN AGRICULTURE, INC.
6,425,002
Shares
of Common Stock
Offered
by Selling Stockholders
This
prospectus relates to the resale by the selling stockholders identified in
this
prospectus of up to 6,425,002 shares of our common stock, including (i)
6,313,616 shares of common stock issued to the investors in a private placement
of our common stock that was completed on December 26, 2007 and (ii) 111,386
shares of common stock issued to two of our former directors and executive
officers on December 26, 2007.
The
selling stockholders may offer all or part of their shares for resale from
time
to time through public or private transactions, at either prevailing market
prices or at privately negotiated prices. We will not receive any of the
proceeds from the sale of the shares by the selling stockholders. We will pay
all of the registration expenses incurred in connection with this offering
(estimated to be approximately $268,820) but the selling stockholders will
pay
all of the selling commissions, brokerage fees and related
expenses.
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“CGAG”.
There
is
a limited market for our common stock. The shares are being offered by the
selling stockholders in anticipation of the continued development of a secondary
trading market in our common stock. We cannot give you any assurance that an
active trading market in our common stock will develop, or if an active market
does develop, that it will continue.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 11 for a discussion of certain risk factors that you should
consider. You should read the entire prospectus before making an investment
decision.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is February 8, 2008
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About
This Prospectus
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5
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Cautionary
Note Regarding Forward Looking Statements
and
Other Information Contained in this Prospectus
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5
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Prospectus
Summary
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7
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Risk
Factors
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10
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Selling
Stockholders
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20
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Plan
of Distribution
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26
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Use
of Proceeds
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28
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Market
For Common Equity
And
Related Stockholder Matters
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28
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Management's
Discussion and Analysis of Financial Condition
and
Results of Operations
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31
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Business
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39
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Properties
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54
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Legal
Proceedings
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55
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Directors,
Executive Officers, Promoters and Control Persons
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56
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Executive
Compensation
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58
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Security
Ownership of Certain Beneficial Owners and Management
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59
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Transactions
with Related Persons, Promoters and Certain Control Persons; Corporate
Governance
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61
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Description
of Securities to be Registered
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62
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Changes
in and Disagreements with Accountants
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63
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Legal
Matters
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64
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Experts
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64
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Where
You Can Find More Information
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64
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Financial
Statements
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F-1
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ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information other than that contained
in
this prospectus. The selling stockholders are offering to sell and seeking
offers to buy shares of our common stock only in jurisdictions where offers
and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of its delivery
or of any sale of our common stock. This prospectus will be updated and, as
updated, will be made available for delivery to the extent required by the
federal securities laws.
No
person
is authorized in connection with this prospectus to give any information or
to
make any representations about us, the selling stockholders, the securities
offered hereby or any matter discussed in this prospectus, other than the
information and representations contained in this prospectus. If any other
information or representation is given or made, such information or
representation may not be relied upon as having been authorized by us or any
selling stockholder. This prospectus does not constitute an offer to sell,
or a
solicitation of an offer to buy the securities in any circumstance under which
the offer or solicitation is unlawful. Neither the delivery of this prospectus
nor any distribution of securities in accordance with this prospectus shall,
under any circumstances, imply that there has been no change in our affairs
since the date of this prospectus. This prospectus will be updated and updated
prospectuses made available for delivery to the extent required by the federal
securities laws.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS
This
prospectus contains some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical
or
current facts. Forward
-looking
statements involve risks and uncertainties. Forward-looking statements include
statements regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategies, (c) anticipated trends
in our industries, (d) our future financing plans and (e) our anticipated needs
for working capital. They are generally identifiable by use of the words "may,"
"will," "should," "anticipate," "estimate," "plans," “potential," "projects,"
"continuing," "ongoing," "expects," "management believes," "we believe," "we
intend" or the negative of these words or other variations on these words or
comparable terminology. These statements may be found under "Management's
Discussion and Analysis of Financial Condition and Plan of Operation" and
"Business," as well as in this prospectus generally.
In
particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, the outcome of contingencies
such
as legal proceedings, and financial results.
Any
or
all of our forward-looking statements in this report may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or
by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially
as
a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur. You
should not place undue reliance on these forward-looking statements.
Currency
Unless
otherwise noted, all currency figures in this filing are in U.S.dollars.
References to "yuan" or "RMB" are to the Chinese yuan (also known as the
Renminbi). According to xe.com, as of February 8, 2008, $1 = 7.1891
yuan.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information you should consider before
investing in our common stock. You should read the entire prospectus, including
"Risk Factors” (beginning on page 11) and the consolidated financial statements
(beginning on page F-1) and the related notes before making an investment
decision. Except as otherwise specifically stated or unless the context
otherwise requires, the terms “Company,” we," "our" and "us" refer collectively
to China Green Agriculture, Inc. (“Green Nevada”, formerly known Discovery
Technologies, Inc.), a corporation incorporated in the State of Nevada; Green
Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary
of Green Nevada incorporated in the State of New Jersey; Shaanxi TechTeam Jinong
Humic Acid Product Co., Ltd. (“Techteam”), a wholly-owned subsidiary of Green
New Jersey organized under the laws of the People’s Republic of China (the
“PRC”) and Xi’an Jintai Agriculture Technology Development Company (“Jintai”),
wholly-owned subsidiary of Techteam in the PRC.
The
Company
The
Company, through Techteam, researches, develops, manufactures and distributes
humic acid based liquid compound fertilizer in 27 provinces in China. Humic
acid
is an essential natural, organic ingredient for a balanced, fertile soil, and
it
is one of the major constituents of organic matter.
The
Company was incorporated under the laws of the state of Kansas in February
1987,
but had no operations from December 1996 to December 2007. In October 2007,
the
Company was reincorporated in the state of Nevada, and, on December 26, 2007,
acquired all of the issued and outstanding capital stock of Green New Jersey
which owns 100% of the capital stock of Techteam simultaneous with a private
placement of $20,519,255. Techteam also owns 100% capital stock of Jintai.
After
the acquisition of Green New Jersey, the Company changed its name from Discovery
Technologies, Inc. to China Green Agriculture, Inc..
Our
current structure is set forth in the diagram below:
Our
Contact Information
Our
principal executive offices are located at 3
rd
Floor,
Borough A, Block A. No.181, South Taibai Road, Xi’an, Shaanxi Province, People’s
Republic of China 710065. Our telephone number is +86-29-88266386.
The
Offering
Offering
by Selling Stockholders
This
prospectus relates to the resale by the selling stockholders identified in
this
prospectus of up
to
6,425,002 shares of our common stock
including
6,313,616 shares issued to the investors in the private placement of our common
stock that was consummated on December 26, 2007, and 111,386 shares of common
stock issued to two of our former directors and executive officers on the same
date.
No
shares
are being offered for sale by the Company.
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Total
shares of common stock outstanding prior to the Offering
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18,314,017
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|||
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Common
stock offered by the Company
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0
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|||
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Total
shares of common stock offered by the selling stockholders
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6,425,002
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|||
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Total
shares of common stock to be outstanding after the
Offering
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18,314,017
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|||
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Use
of Proceeds
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We
will not receive any of the proceeds from the sales of the shares
by the
selling stockholders.
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|||
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Our
OTC Bulletin Board Trading Symbol
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CGAG
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|||
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Risk
Factors
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See
"Risk Factors" beginning on page 11
and other information included in this prospectus for a discussion
of
factors you should consider before deciding to invest in shares of
our
common stock.
|
Background
On
December 26, 2007, we consummated with 31 accredited investors (the “Investors”)
a private placement of our common stock for an aggregate purchase price of
$20,519,255 (the “Private Placement”). We received approximately $18,602,723 as
net proceeds from this financing, including $4,250,000 as holdback escrow (see
our description in
“Selling
Stockholders - Background”
).
In
connection with the private placement we entered into a registration rights
agreement with the selling stockholders, which granted the selling stockholders
registration rights with respect to the shares of common stock they purchased
in
the private placement. In addition, we granted “piggy-back” registration rights
to Sanford Schwartz and Michael Friess, the Company’s former directors and
executive officers, pursuant to which we included 111,386 shares of common
stock
in this registration statement.
Under
the
terms of the registration rights agreement we are required to cause our
registration statement to be declared effective by the Commission on the earlier
to occur of the following dates (the “Effective Date”):
|
o
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May
24, 2008, or
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o
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the
fifth trading day (i.e., the fifth day on which securities exchanges
are
open for business) following the day on which the Commission notifies
us
that the registration statement will not be reviewed or is no longer
subject to further review and comments by the Commission.
|
Our
failure to meet this schedule and other timetables provided in the registration
rights agreement could result in the imposition of liquidated damages as
follows: in the event the registration statement is not declared effective
by
the applicable Effective Date, an additional $181,538 for each whole or partial
month after the Effective Date until the registration statement is effective.
The aggregate of all such liquidated damages are subject to a cap of $1,815,384.
Please
see
“Selling
Stockholders - Background”
in
this
prospectus for disclosure of the material terms of the other agreements entered
into by us on December 26, 2007 in connection with the Private Placement.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this prospectus before deciding to invest in our common stock.
Risks
Related to our Business
Our
success depends on our management team and other key personnel, the loss of
any
of whom could disrupt our business operations
.
Our
future success will depend in substantial part on the continued services of
our
senior management. The loss of the services of one or more of our key personnel
could impede implementation of our business plan and result in reduced
profitability. Our future success will also depend on the continued ability
to
attract, retain and motivate highly qualified technical sales and marketing
customer support. Because of the rapid growth of the economy in the PRC,
competition for qualified personnel is intense. We cannot guarantee that we
will
be able to retain our key personnel or that we will be able to attract,
assimilate or retain qualified personnel in the future. If we are unsuccessful
in our efforts in this regard, it could have an adverse effect on our business,
financial condition and results of operations.
Any
disruption of the operations in our factories would damage our business.
Our
operations could be interrupted by fire, flood, earthquake and other events
beyond our control for which we do not carry adequate insurance. Any disruption
of the operations in our factories would have a significant negative impact
on
out ability to manufacture and deliver products, which would cause a potential
diminution in sales, the cancellation of orders, damage to our reputation and
potential lawsuits.
Any
significant fluctuation in price of our raw materials may have a material
adverse effect on the manufacturing cost of our products.
The
prices for the raw materials that we use in the manufacture of our fertilizer
products are subject to market forces largely beyond our control, including
the
price of coal, our energy costs, organic chemical feedstock costs, market
demand, and freight costs. The prices for these raw materials may fluctuate
significantly based upon changes in these forces. If we are unable to pass
any
raw material price increases through to our customers, we could incur
significant losses and a diminution of the market price of our common
stock.
Adverse
weather conditions could reduce demand for our products.
The
demand for our organic liquid compound fertilizer products fluctuates
significantly with weather conditions, which may delay the application of the
fertilizer or render it unnecessary at all. If any natural disasters, such
as
snowstorm, flood, drought, hail, tornadoes or earthquakes, occur, demand for
our
products would likely be reduced.
The
industry in which we do business is highly competitive and we face competition
from numerous fertilizer manufacturers in China and elsewhere
.
We
compete with numerous local Chinese fertilizer manufacturers. Although we may
have greater resources than many of our competitors, most of which are small
local fertilizer companies, it is possible that these competitors have better
access in certain local markets to customers and prospects, an enhanced ability
to customize products to a particular region or locality and established local
distribution channels within a small region. Furthermore, China’s access into
the World Trade Organization could lead to increased foreign competition for
us.
International producers and traders import products into China that generally
are of higher quality than those produced in the local Chinese market. If we
are
not successful in our marketing and advertising efforts to increase awareness
of
our brands, our revenues could decline and it could have a material adverse
effect on our business, financial condition and results of
operations.
We
may encounter substantial competition in our business and our failure to compete
effectively may adversely affect our ability to generate revenue.
We
believe that existing and new competitors will continue to improve the design
and performance of their products and to introduce new products with competitive
price and performance characteristics. We expect that we will be required to
continue to invest in product development and productivity improvements to
compete effectively in our markets. Our competitors could develop a more
efficient product or undertake more aggressive and costly marketing campaigns
than ours, which may adversely affect our marketing strategies and could have
a
material adverse effect on our business, results of operations and financial
condition.
Our
major
competitors may be better able than we to successfully endure downturns in
our
industrial sector. In periods of reduced demand for our products, we can either
choose to maintain market share by reducing our selling prices to meet
competition or maintain selling prices, which would likely sacrifice market
share. Sales and overall profitability would be reduced in either case. In
addition, we cannot assure you that additional competitors will not enter our
existing markets, or that we will be able to compete successfully against
existing or new competition.
We
may not be able to obtain regulatory or governmental approvals for our
products.
The
manufacture and sale of our agricultural products in the PRC is regulated by
the
PRC and the Shaanxi Provincial Government. The legal and regulatory regime
governing our industry is evolving, and we may become subject to different,
including more stringent, requirements than those currently applicable to us.
We
may be vulnerable to local and national government agencies or other parties
who
wish to renegotiate the terms and conditions of, or terminate their agreements
or other understandings with us, or implement new or more stringent
requirements, which may require us to suspend or delay production of their
products.
Potential
environmental liability could have a material adverse effect on our operations
and financial condition.
To
the
knowledge of our management team, neither the production nor the sale of our
products constitutes activities, or generates materials that create any
environmental hazards or requires our business operations to comply with PRC
environmental laws. Although it
has not
been alleged by PRC government officials that we have violated any current
environmental regulations, we cannot assure you that the PRC government will
not
amend the current PRC environmental protection laws and regulations. Our
business and operating results may be materially and adversely affected if
we
were to be held liable for violating existing environmental regulations or
if we
were to increase expenditures to comply with environmental regulations affecting
our operations.
We
do
not have key man insurance on our Chairman, President and CEO, on whom we rely
for the management of our business.
We
depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Mr. Tao Li, our CEO,
President and Chairman of the Board. The loss of the services of Mr. Li, for
any
reason, may have a material adverse effect on our business and prospects. We
cannot assure you that the services of Mr. Li will continue to be available
to
us, or that we will be able to find a suitable replacement for him. We do not
carry key man life insurance for any key personnel.
We
do
not presently maintain product liability insurance, and our property and
equipment insurance does not cover the full value of our property and equipment,
which leaves us with exposure in the event of loss or damage to our properties
or claims filed against us.
We
currently do not carry any product liability or other similar insurance. Unlike
the U.S. and other countries, product liability claims and lawsuits are
extremely rare in the PRC. However, we cannot assure you that we would not
face
liability in the event of the failure of any of our products. We cannot assure
you that, especially as China’s domestic consumer economy and industrial economy
continues to expand, product liability exposures and litigation will not become
more commonplace in the PRC, or that we will not face product liability exposure
or actual liability as we expand our sales into international markets, like
the
United States, where product liability claims are more
prevalent.
Except
for property and automobile insurance, we do not have other insurance such
as
business liability or disruption insurance coverage for our operations in the
PRC.
Risks
Related to Doing Business in the PRC
.
We
face the risk that changes in the policies of the PRC government could have
a
significant impact upon the business we may be able to conduct in the PRC and
the profitability of such business.
The
PRC’s
economy is in a transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on economic conditions in China. The PRC government has
confirmed that economic development will follow the model of a market economy,
such as the United States. Under this direction, we believe that the PRC will
continue to strengthen its economic and trading relationships with foreign
countries and business development in the PRC will follow market forces. While
we believe that this trend will continue, we cannot assure you that this will
be
the case. Our interests may be adversely affected by changes in policies by
the
PRC government, including:
|
·
|
changes
in laws, regulations or their
interpretation
|
|
·
|
confiscatory
taxation
|
|
·
|
restrictions
on currency conversion, imports or sources of
supplies
|
|
·
|
expropriation
or nationalization of private
enterprises.
|
Although
the PRC government has been pursuing economic reform policies for more than
two
decades, we cannot assure you that the government will continue to pursue such
policies or that such policies may not be significantly altered, especially
in
the event of a change in leadership, social or political disruption, or other
circumstances affecting the PRC's political, economic and social
life.
The
PRC laws and regulations governing our current business operations are sometimes
vague and uncertain. Any changes in such PRC laws and regulations may have
a
material and adverse effect on our business.
There
are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing our business, and the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. We and any future subsidiaries are
considered foreign persons or foreign funded enterprises under PRC laws, and
as
a result, we are required to comply with PRC laws and regulations. These laws
and regulations are sometimes vague and may be subject to future changes, and
their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New
laws
and regulations that affect existing and proposed future businesses may also
be
applied retroactively. We cannot predict what effect the interpretation of
existing or new PRC laws or regulations may have on our businesses.
A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect our customers, demand for our services and our
business.
All
of
our operations are conducted in the PRC and almost all of our revenues are
generated from sales in the PRC. Although the PRC economy has grown
significantly in recent years, we cannot assure you that such growth will
continue. The environmental protection industry in the PRC is growing, but
we do
not know how sensitive we are to a slowdown in economic growth or other adverse
changes in the PRC economy which may affect demand for our products. A slowdown
in overall economic growth, an economic downturn or recession or other adverse
economic developments in the PRC may materially reduce the demand for our
products and materially and adversely affect our business.
Inflation
in the PRC could negatively affect our profitability and
growth.
While
the
PRC economy has experienced rapid growth, it has been uneven among various
sectors of the economy and in different geographical areas of the country.
Rapid
economic growth can lead to growth in the money supply and rising inflation.
If
prices for our products do not rise at a rate that is sufficient to fully absorb
inflation-driven increases in our costs of supplies, our profitability can
be
adversely affected.
In
order
to control inflation in the past, the PRC government has imposed controls on
bank credits, limits on loans for fixed assets and restrictions on state bank
lending. The implementation of these and other similar policies can impede
economic growth. In October 2004, the People’s Bank of China, the PRC’s central
bank, raised interest rates for the first time in nearly a decade and indicated
in a statement that the measure was prompted by inflationary concerns in the
Chinese economy. Repeated rises in interest rates by the central bank would
likely slow economic activity in China which could, in turn, materially increase
our costs and also reduce demand for our products.
TechTeam
and Jintai are subject to restrictions on paying dividends and making other
payments to our subsidiary, Green New Jersey; as a result, we might therefore,
be unable to pay dividends to you.
We
are a
holding company incorporated in the State of Nevada and do not have any assets
or conduct any business operations other than our investments in our
subsidiaries, Green New Jersey, TechTeam and Jintai. As a result of our holding
company structure, we rely entirely on dividends payments from TechTeam and
Jintai, our subsidiaries in China. PRC regulations currently permit payment
of
dividends only out of accumulated profits, as determined in accordance with
PRC
accounting standards and regulations. Our subsidiaries are also required to
set
aside a portion of its after-tax profits according to PRC accounting standards
and regulations to fund certain reserve funds. The PRC government also imposes
controls on the conversion of RMB into foreign currencies and the remittance
of
currencies out of the PRC. We may experience difficulties in completing the
administrative procedures necessary to obtain and remit foreign currency.
Furthermore, if Green New Jersey, TechTeam or Jintai incurs debt on its own
in
the future, the instruments governing the debt may restrict its ability to
pay
dividends or make other payments. If we or Green New Jersey are unable to
receive all of the revenues from TechTeam and Jintai’s operations, we may be
unable to pay dividends on our common stock.
Governmental
control of currency conversion may affect the value of your
investment.
The
PRC
government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of the PRC. We receive
substantially all of our revenues in RMB, which is currently not a freely
convertible currency. Shortages in the availability of foreign currency may
restrict our ability to remit sufficient foreign currency to pay dividends,
or
otherwise satisfy foreign currency dominated obligations. Under existing PRC
foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate governmental authorities is
required where RMB is to be converted into foreign currency and remitted out
of
PRC to pay capital expenses such as the repayment of bank loans denominated
in
foreign currencies.
The
PRC
government also may at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents us from obtaining sufficient foreign currency to satisfy our
currency demands, we may not be able to pay certain of our expenses as they
come
due.
The
fluctuation of RMB may materially and adversely affect your
investment.
The
value
of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in the PRC's political and economic
conditions. As we rely entirely on revenues earned in the PRC, any significant
revaluation of RMB may materially and adversely affect our cash flows, revenues
and financial condition. For example, to the extent that we need to convert
U.S.
dollars we receive from an offering of our securities into RMB for our
operations, appreciation of the RMB against the U.S. dollar could have a
material adverse effect on our business, financial condition and results of
operations. Conversely, if we decide to convert our RMB into U.S. dollars for
the purpose of making dividend payments on our common stock or for other
business purposes and the U.S. dollar appreciates against the RMB, the U.S.
dollar equivalent of the RMB we convert would be reduced. In addition, the
depreciation of significant U.S. dollar denominated assets could result in
a
charge to our income statement and a reduction in the value of these assets.
On
July
21, 2005, the PRC government changed its policy of tying the value of the RMB
to
the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within
a narrow and managed band against a basket of certain foreign currencies. This
change in policy has resulted in an approximately 9% appreciation of the RMB
against the U.S. dollar. There remains significant international pressure on
the
PRC government to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the RMB against the
U.S. dollar.
Recent
PRC regulations relating to the establishment of offshore special purpose
companies by PRC domestic residents and registration requirements for employee
stock ownership plans or share option plans may subject our PRC resident
beneficial owners or the plan participants to personal liability, limit our
ability to inject capital into our PRC subsidiaries, limit our subsidiaries’
ability to increase their registered capital or distribute profits to us, or
may
otherwise adversely affect us.
The
China
State Administration of Foreign Exchange (“SAFE”) issued a public notice in
October 2005 requiring PRC domestic residents to register with the local SAFE
branch before establishing or controlling any company outside of China for
the
purpose of capital financing with assets or equities of PRC companies, referred
to in the notice as an “offshore special purpose company.” PRC domestic
residents who are shareholders of offshore special purpose companies and have
completed round trip investments but did not make foreign exchange registrations
for overseas investments before November 1, 2005 were retroactively required
to
register with the local SAFE branch before March 31, 2006. PRC resident
shareholders are also required to amend their registrations with the local
SAFE
in certain circumstances. After consultation with China counsel, we do not
believe that any of our PRC domestic resident shareholders are subject to the
SAFE registration requirement, however, we cannot provide any assurances that
all of our shareholders who are PRC residents will not be required to make
or
obtain any applicable registrations or approvals required by these SAFE
regulations in the future. The failure or inability of our PRC resident
shareholders to comply with the registration procedures set forth therein may
subject us to fines and legal sanctions, restrict our cross-border investment
activities, or limit our PRC subsidiaries’ ability to distribute dividends or
obtain foreign-exchange-dominated loans to our company.
As
it is
uncertain how the SAFE regulations will be interpreted or implemented, we cannot
predict how these regulations will affect our business operations or future
strategy. For example, we may be subject to more stringent review and approval
process with respect to our foreign exchange activities, such as remittance
of
dividends and foreign-currency-denominated borrowings, which may adversely
affect our results of operations and financial condition. In addition, if we
decide to acquire a PRC domestic company, we cannot assure you that we or the
owners of such company, as the case may be, will be able to obtain the necessary
approvals or complete the necessary filings and registrations required by the
SAFE regulations. This may restrict our ability to implement our acquisition
strategy and could adversely affect our business and prospects.
In
December 2006, the People’s Bank of China promulgated the Implementation Rules
of the Administrative Measures for Individual Foreign Exchange, or the
Individual Foreign Exchange Rules, setting forth the respective requirements
for
foreign exchange transactions by PRC individuals under either the current
account or the capital account. In January 2007, SAFE issued implementing rules
for the Individual Foreign Exchange Rules, which, among other things, specified
approval requirements for certain capital account transactions such as a PRC
citizen’s participation in the employee stock ownership plans or stock option
plans of an overseas publicly-listed company. On March 28, 2007, SAFE
promulgated the Application Procedure of Foreign Exchange Administration for
Domestic Individuals Participating in Employee Stock Holding Plan or Stock
Option Plan of Overseas-Listed Company, or the Stock Option Rule. Under the
Stock Option Rule, PRC citizens who are granted stock options by an overseas
publicly-listed company are required, through a PRC agent or PRC subsidiary
of
such overseas publicly-listed company, to register with SAFE and complete
certain other procedures. We and our PRC employees who may be granted stock
options are subject to the Stock Option Rule. If we or our PRC optionees fail
to
comply with these regulations, we or our PRC optionees may be subject to fines
and legal sanctions.
Regulations
on Employee Share Options may subject us and/or our PRC employees to regulatory
liability.
Under
the
Implementation Rules of the Administrative Measures for Individual Foreign
Exchange, or the Individual Foreign Exchange Rules, issued on January 5,
2007 by the SAFE, PRC citizens who are granted shares or share options by an
overseas listed company according to its employee share option or share
incentive plan are required, through the PRC subsidiary of such overseas listed
company or any other qualified PRC agent, to register with the SAFE and complete
certain other procedures related to the share option or other share incentive
plan. Foreign exchange income received from the sale of shares or dividends
distributed by the overseas listed company may be remitted into a foreign
currency account of such PRC citizen or be exchanged into Renminbi. Our PRC
citizen employees who have been granted share options, or PRC option holders,
are subject to the Individual Foreign Exchange Rules. If we or our PRC citizen
employees fail to comply with these regulations, we or our PRC option holders
may be subject to fines and legal sanctions.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect our operations.
A
renewed
outbreak of SARS or another widespread public health problem in the PRC, where
all of our revenue is derived, could have an adverse effect on our operations.
Our operations may be impacted by a number of health-related factors, including
quarantines or closures of some of our offices that would adversely disrupt
our
operations.
Any
of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.
Because
our principal assets are located outside of the United States and because all
of
our directors and all our officers reside outside of the United States, it
may
be difficult for you to use the United States Federal securities laws to enforce
your rights against us and our officers or to enforce judgments of United States
courts against us or them in the PRC.
All
of
our present officers and directors reside outside of the United States. In
addition, our operating subsidiaries, TechTeam and Jintai, are located in the
PRC and substantially all of their assets are located outside of the United
States. It may therefore be difficult for investors in the United States to
enforce their legal rights based on the civil liability provisions of the United
States Federal securities laws against us in the courts of either the United
States or the PRC and, even if civil judgments are obtained in courts of the
United States, to enforce such judgments in PRC courts. Further, it is unclear
if extradition treaties now in effect between the United States and the PRC
would permit effective enforcement against us or our officers and directors
of
criminal penalties, under the United States Federal securities laws or
otherwise.
We
may face obstacles from the communist system in the PRC.
Foreign
companies conducting operations in PRC face significant political, economic
and
legal risks. The Communist regime in the PRC, which includes a cumbersome
bureaucracy, may hinder western investment.
We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.
The
PRC
historically has not adopted a western style of management and financial
reporting concepts and practices, as in modern banking, computer and other
control systems. We may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC. As a result of these factors,
we may experience difficulty in establishing management, legal and financial
controls, collecting financial data and preparing financial statements, books
of
account and corporate records and instituting business practices that meet
western standards. Therefore, we may, in turn, experience difficulties in
implementing and maintaining adequate internal controls as will be required
under Section 404 of the Sarbanes Oxley Act of 2002.
Risks
Related to an Investment in our Common Stock
.
Our
officers, directors and affiliates control us through their positions and stock
ownership and their interests may differ from other
stockholders.
Our
Chairman, President and CEO, Mr. Tao Li, has the voting rights on 6,535,676,
or
36% of our common stock
.
As a
result, he is able to influence the outcome of stockholder votes on various
matters, including the election of directors and extraordinary corporate
transactions, including business combinations.
The
interests of Mr. Li may differ from other stockholders. Furthermore, the current
ratios of ownership of our common stock reduce the public float and liquidity
of
our common stock which can in turn affect the market price of our common
stock.
We
are unlikely to pay cash dividends in the foreseeable future.
We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate.
Should
we
decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends
or
other payments from our operating subsidiary. In addition, our operating
subsidiaries, from time to time, may be subject to restrictions on its ability
to make distributions to us, including as a result of restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions. See “Market for Our Common Stock -
Dividends.”
There
is currently a limited trading market for our Common Stock.
Our
common stock was added to the OTC Bulletin Board (the “OTC-BB”) daily list on
August 28, 2007. Since that time there has been only sporadic trading in shares
of our common stock.
There
is
no established trading market for our common stock and our common stock may
never be included for trading on any stock exchange or through any other
quotation system (including, without limitation, the NASDAQ Stock Market) other
than the OTC-BB. You may not be able to sell your shares due to the absence
of a
trading market.
Our
common stock may be also subject to the "penny stock" rules to the extent that
the price drops below $5.00 per share, which require delivery of a schedule
explaining the penny stock market and the associated risks before any sale.
These requirements may further limit your ability to sell your shares. For
more
information, please see
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. – Penny Stock
Regulations of this prospectus.
Our
Common Stock is illiquid and subject to price volatility unrelated to our
operations.
The
market price of our common stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or
us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.
A
large number of shares will be eligible for future sale and may depress our
stock price.
Following
the registration for resale of the shares of our common stock we issued in
the
Private Placement, we could have up to 6,425,002 shares that are freely
tradable.
Sales
of
substantial amounts of common stock, or the perception that such sales could
occur, could adversely affect the market price of our common stock and could
impair our ability to raise capital through the sale of our equity
securities.
We
are responsible for the indemnification of our officers and
directors.
Our
Bylaws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against costs and expenses incurred
by
them in any litigation to which they become a party arising from their
association with or activities on our behalf. Consequently, we may be required
to expend substantial funds to satisfy these indemnity obligations.
SELLING
STOCKHOLDERS
This
prospectus relates to the resale by the selling stockholders identified in
the
table below from time to time of up to a total of
6,425,002
shares of common stock
.
Other
than
Michael
Friess and Sanford Schwartz
,
each of
the selling stockholders acquired his or its common stock as an investor in
our
private placement transaction consummated on December 26, 2007.
Michael
Friess and Sanford Schwartz were issued an aggregate of 111,386 shares of our
common stock in connection with the redemption of an aggregate of 246,148 shares
of common stock they held prior to December 26, 2007
.
All of
the selling stockholders are “accredited investors” within the meaning of Rule
501 of Regulation D promulgated under the Securities Act.
Except
for
Michael
Friess and Sanford Schwartz
,
who had
been the Company’s directors and executive officers from June 2006 to December
26, 2007, none of the selling stockholders has held a position as an officer
or
director of the Company, nor has any selling stockholder had a material
relationship of any kind with the Company.
The
table
set forth below lists the names of the selling stockholders as well as (i)
the
number of shares of common stock acquired by the selling stockholders in the
Private Placement (all of which are being registered for resale), and (ii)
the
number of shares of common stock being registered on behalf of Michael Friess
and Sanford Schwartz pursuant to the “piggy-back” registration rights that we
granted to them.
Each
selling stockholder may offer for sale all or part of the shares from time
to
time. The table below assumes that the selling stockholders will sell all of
the
shares offered for sale and that they beneficially own no other shares other
than those (i) acquired in the Private Placement, and (ii) in the case of
Michael Friess and Sanford Schwartz, those being registered on their behalf.
Accordingly, it is being assumed that they will beneficially own no shares
of
common stock upon completion of the offering. A selling stockholder is under
no
obligation, however, to sell any shares immediately pursuant to this prospectus,
nor is a selling stockholder obligated to sell all or any portion of his or
its
shares at any time.
|
Name of Selling Stockholder
(20)
|
Number of
Shares of
Common
Stock
Owned
Prior to the
Offering
|
Percentage
Of Shares
Beneficially
Owned
Prior to the
Offering
(1) |
Maximum
Number of
Shares to be
Sold
|
Percentage
Ownership
After the
Offering
(%) (2)
|
|||||||||
|
Investors
in the December 26, 2007 Private Placement
|
|||||||||||||
|
Alder
Capital Partners I, L.P. (3)
|
215,385
|
1.2
|
%
|
215,385
|
0
|
%
|
|||||||
|
Alder
Offshore Master Fund, L.P. (3)
|
92,308
|
0.5
|
%
|
92,308
|
0
|
%
|
|||||||
|
Ancora
Greater China Fund, LP (4)
|
200,000
|
1.1
|
%
|
200,000
|
0
|
%
|
|||||||
|
Ardsley
Offshore Fund, Ltd.(5)
|
312,000
|
1.7
|
%
|
312,000
|
0
|
%
|
|||||||
|
Ardsley
Partners Fund II, LP (5)
|
463,000
|
2.5
|
%
|
463,000
|
0
|
%
|
|||||||
|
Ardsley
Partners Institutional Fund, L.P. (5)
|
288,500
|
1.6
|
%
|
288,500
|
0
|
%
|
|||||||
|
Bai
Ye Feng
|
92,308
|
0.5
|
%
|
92,308
|
0
|
%
|
|||||||
|
Bruce
A. Shear
|
10,270
|
0.1
|
%
|
10,270
|
0
|
%
|
|||||||
|
Chestnut
Ridge Partners, LP (6)
|
153,846
|
0.8
|
%
|
153,846
|
0
|
%
|
|||||||
|
Dennis
Jason Wong, Sole Trustee of the Dennis & Shannon Wong Family
Trust
|
61,538
|
0.3
|
%
|
61,538
|
0
|
%
|
|||||||
|
Eric
E. Shear
|
10,250
|
0.1
|
%
|
10,250
|
0
|
%
|
|||||||
|
Gary
R. Hawkins
|
154,000
|
0.8
|
%
|
154,000
|
0
|
%
|
|||||||
|
Guerrilla
Partners LP (7)
|
141,538
|
0.8
|
%
|
141,538
|
0
|
%
|
|||||||
|
Heller
Capital Investments, LLC (8)
|
200,000
|
1.1
|
%
|
200,000
|
0
|
%
|
|||||||
|
Hua –
Mei 21
st
Century Partners, LP (7)
|
320,000
|
1.7
|
%
|
320,000
|
0
|
%
|
|||||||
|
Jayhawk
Private Equity Co-Invest Fund, L.P. (9)
|
9,113
|
0.05
|
%
|
9,113
|
0
|
%
|
|||||||
|
Jayhawk
Private Equity Fund, L.P. (9)
|
144,733
|
0.8
|
%
|
144,733
|
0
|
%
|
|||||||
|
Keyrock
Partners L.P. (10)
|
75,000
|
0.4
|
%
|
75,000
|
0
|
%
|
|||||||
|
Lumen
Capital Limited Partnership (11)
|
41,923
|
0.2
|
%
|
41,923
|
0
|
%
|
|||||||
|
Marion
Lynton (12)
|
11,500
|
0.1
|
%
|
11,500
|
0
|
%
|
|||||||
|
Matthew
Hayden
|
46,154
|
0.3
|
%
|
46,154
|
0
|
%
|
|||||||
|
MidSouth
Investor Fund L.P. (13)
|
153,846
|
0.8
|
%
|
153,846
|
0
|
%
|
|||||||
|
Pinnacle
China Fund LP (14)
|
907,692
|
4.9
|
%
|
907,692
|
0
|
%
|
|||||||
|
Professional
Offshore Opportunity Fund, Ltd. (15)
|
307,692
|
1.7
|
%
|
307,692
|
0
|
%
|
|||||||
|
Richard
D. Squires
|
33,846
|
0.2
|
%
|
33,846
|
0
|
%
|
|||||||
|
Sandor
Capital Master Fund, L.P. (16)
|
185,000
|
1.0
|
%
|
185,000
|
0
|
%
|
|||||||
|
Silver
Rock I, Ltd. (17)
|
75,000
|
0.4
|
%
|
75,000
|
0
|
%
|
|||||||
|
Squires
Family, L.P. (18)
|
73,846
|
0.4
|
%
|
73,846
|
0
|
%
|
|||||||
|
Steven
Shear
|
10,250
|
0.1
|
%
|
10,250
|
0
|
%
|
|||||||
|
The
Pinnacle Fund LP (14)
|
907,693
|
4.9
|
%
|
907,693
|
0
|
%
|
|||||||
|
Whitebox
Intermarket Partners, L.P. (19)
|
615,385
|
3.4
|
%
|
615,385
|
0
|
%
|
|||||||
|
Subtotal
|
6,313,616
|
34.5
|
%
|
6,313,616
|
0
|
%
|
|||||||
|
Former
Directors and Officers
|
|||||||||||||
|
Michael
Friess
|
55,693
|
0.3
|
%
|
55,693
|
0
|
%
|
|||||||
|
Sanford
Schwartz
|
55,693
|
0.3
|
%
|
55,693
|
0
|
%
|
|||||||
|
Subtotal
|
111,386
|
0.6
|
%
|
111,386
|
0
|
%
|
|||||||
|
Total
|
6,425,002
|
35.1
|
%
|
6,425,002
|
0
|
%
|
|
(1)
|
Based
on 18,314,017 shares of common
stock
issued and outstanding as of the date of this
prospectus.
|
|
(2)
|
Assumes
the sale of all shares offered by the selling
stockholders.
|
|
(3)
|
Mike
Licosati has the voting and investment powers over the shares held
by
Alder Capital Partners I, L.P. and Alder Offshore Master Fund,
L.P..
|
|
(4)
|
John
P. Micklitsch has the voting and investment powers over the shares
held by
Ancora Greater China Fund, LP..
|
|
(5)
|
Philip
J. Hempleman has the voting and investment powers over the shares
held by
Ardsley Offshore Fund, Ltd., Ardsley Partners Fund II, LP and Ardsley
Partners Institutional Fund, L.P..
|
|
(6)
|
Kenneth
Pasternak has the voting and investment powers over the shares held
by
Chestnut Ridge Partners, LP.
|
|
(7)
|
Peter
Siris and Leigh S. Curry has the shared voting and investment powers
over
the shares held by Guerrilla Partners LP and Hua - Mei 21st Century
Partners, LP.
|
|
(8)
|
Ronald
Heller has the voting and investment powers over the shares held
by Heller
Capital Investments, LLC.
|
|
(9)
|
Kent
C. McCarthy has the voting and investment powers over the shares
held by
Jayhawk Private Equity Co-Invest Fund, L.P. and Jayhawk Private Equity
Fund, L.P..
|
|
(10)
|
Stephen
J. Carter has the voting and investment powers over the shares held
by Keyrock Partners L.P..
|
|
(11)
|
Allan
Lichtenberg has the voting and investment powers over the shares
held by
Lumen Capital Limited Partnership.
|
|
(12)
|
Ardsley
Advisory Partners, a registered investment advisor, is the advisor
to the
Marion Lynton’s account and therefore has voting and investment powers
over the shares held by Marion
Lynton.
|
|
(13)
|
Lyman
O. Heidtke has the voting and investment powers over the shares held
by
MidSouth Investor Fund L.P..
|
|
(14)
|
Barry
M. Kitt exercises investment discretion and control over the shares
of
common stock of the issuer held by The Pinnacle Fund, L.P., a Texas
limited partnership ("Pinnacle") and Pinnacle China Fund, L.P., a
Texas
limited partnership ("Pinnacle China"). Mr. Kitt may be deemed to
be the
beneficial owner of the shares of common stock beneficially owned
by
Pinnacle and Pinnacle China, but hereby disclaims beneficial ownership
of
the shares of common stock reported herein to the extent of his direct
or
indirect pecuniary interest therein. Each of The Pinnacle Fund, L.P.
and
Pinnacle China Fund, L.P. owns 4.96% of the total outstanding shares
of
common stock prior to the offering.
|
|
(15)
|
Howard
Berger has the voting and investment powers over the shares held
by
Professional Offshore Opportunity Fund,
Ltd..
|
|
(16)
|
John
S. Lemak has the voting and investment powers over the shares held
by
Sandor Capital Master Fund, L.P..
|
|
(17)
|
Rima
Salam has the voting and investment powers over the shares held by
Silver
Rock I, Ltd..
|
|
(18)
|
Richard
D. Squires has the voting and investment powers over the shares held
by
Squires Family, L.P..
|
|
(19)
|
Andrew
J Redleaf is the managing member of the general partner and has the
voting
and investment powers over the shares held by Whitebox Intermarket
Partners, L.P..
|
|
(20)
|
None
of the Selling Stockholders are broker-dealers or affiliates of
broker-dealers.
|
Background
On
December 26, 2007, we consummated with 31 accredited investors (the “Investors”)
a private placement of our common stock for an aggregate purchase price of
$20,519,255 (the “Private Placement” as defined under “The Offering -
Background” of this prospectus). These securities were offered and sold in the
Private Placement without registration under the Securities Act of 1933 (the
“Securities Act”), in reliance on an exemption from registration under
Regulation D, Section 506, and Section 4(2) of the Securities Act.
The
agreements we entered into with the Investors includes a Securities Purchase
Agreement, a Registration Rights Agreement , a Lockup Agreement and various
ancillary agreements and certificates, disclosure schedules and exhibits in
connection therewith. The following is a summary of their material
terms.
Securities
Purchase Agreement.
Among
other things, the Securities Purchase Agreement: (i) establishes targets for
after tax net income and earnings per share for our fiscal year ending June
30,
2009 at not less than $12,000,000 and $0.609, respectively (the “2009 Targets”);
(ii) provides for liquidated damages in the event that PRC governmental policies
or actions have a material adverse effect on the transactions contemplated
by
the Share Exchange Agreement (a “Material Adverse Effect”); and (iii) requires
us to hire a new, fully qualified chief financial officer (“CFO”) satisfactory
to the Investors. In order to secure our obligation to meet the 2009 Targets,
Mr. To has placed 3,156,808 shares of common stock (“2009 Make Good Shares”)
into an escrow account pursuant to the terms of the Make Good Escrow Agreement
by and among us, Mr. To, the Investors and the escrow agent named therein.
In
the event we do not achieve either of the 2009 Targets, the 3,156,808 shares
of
common stock will be conveyed to the Investors pro-rata in accordance with
their
respective investment amount for no additional consideration. In the event
that
we meet the 2009 Targets, the 3,156,808 shares will be transferred to Mr. Tao
Li. If PRC governmental actions or policies result in a Material Adverse Effect,
as defined in the Securities Purchase Agreement, that cannot be reversed or
cured to the Investors’ reasonable satisfaction, we will be obligated to pay to
the Investors as liquidated damages the entire principal amount of their
investment, with interest at 10% per annum.
Covenants:
The
Securities Purchase Agreement contains certain covenants on our part, including
the following:
(a).
Board
of Directors.
Within
120 days following the closing, the Company is required to nominate a
five-member Board of Directors of the Company, a majority of which shall be
independent, as defined under the Nasdaq Marketplace Rules, and to take all
actions and obtain all authorizations, consents and approvals as are required
to
be obtained in order to effect the election of those nominees. As of the date
of
this prospectus, the Company has three directors among whom there is one
independent director. The Company shall appoint an additional two independent
directors within 120 days following the closing.
(b).
Chief
Financial Officer.
Within
three months following the closing, the Company is required to hire a chief
financial officer (“CFO”) who is a certified public accountant, fluent in
English and an expert in US GAAP and auditing procedures and compliance for
US
public companies or who is reasonably approved by the lead investor’s approval.
(c).
Investor
Relations Firm.
Within
thirty days following the closing, the Company is required to hire either of
CCG
Elite, Hayden Communications, or Integrated Corporate Relations. On January
23,
2008, the Company has retained CCG Elite to provide the investor relations
service.
In
connection with the above three post-closing covenants, the Company has
deposited an aggregate of $4,250,000 from the gross proceeds of the Private
Placement in the escrow account pursuant to the Holdback Escrow Agreement by
and
among the Company, the Investors and the escrow agent named therein. In the
event the Company fails to comply with any of the above convents in a timely
fashion, it is to incur liquidated damages of 1% per month of the gross proceeds
of the Private Placement, to be subtracted from the holdback escrow fund, until
its compliance with such covenants.
Registration
Rights Agreement.
Within
45
days of the closing of the Private Placement (the “Filing Date”), the Company is
obligated to file a registration statement with the Commission covering and
registering for re-sale all of the common stock offered and sold in the Private
Placement. If a registration statement is not filed by the Filing Date, we
will
be obligated to pay the Investors liquidated damages equal in amount to one
percent (1%) of the principal amount subscribed for by the Investors for each
month (or part thereof) after the Filing Date until the registration statement
is filed (“Filing Damages”).
If
the
registration statement is not declared effective by the Commission within 150
days after the closing of the Private Placement (the “Effective Date”), we will
be obligated to pay further liquidated damages to the Investors equal in amount
to one percent (1%) of the principal amount subscribed for by the Investors
for
each month (or part thereof) after the Effective Date until the registration
statement is effective (“Effectiveness Damages”).
The
aggregate of Filing Damages and Effectiveness Damages is subject to a cap of
ten
percent (10%).
Lock-Up
Agreement.
Under
the
Lockup Agreement, Yinshing David To and Mr. Tao Li, agree not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, sell short, grant any option, right or warrant
to
purchase, lend or otherwise transfer or dispose of any shares of common stock,
or enter into any swap or other arrangement that transfers any economic
consequences of ownership of common stock until the one year anniversary of
the
earlier of (i) the effective date of the registration statement resulting not
less than seventy-five (75%) of the Investors’ shares and the 2009 Make Good
Shares (collectively, the “Registrable Shares”), or (ii) the date on which all
of the Registrable Shares can be sold without volume restrictions under Rule
144.
Plan
of Distribution
The
Selling Stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market or trading facility on
which the shares are traded or quoted or in private transactions. These sales
may be at fixed or negotiated prices. The Selling Stockholders may use any
one
or more of the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
to
cover short sales made after the date that this Registration Statement
is
declared effective by the Commission;
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
Selling Stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
Selling Stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of Common Stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon
the
Company being notified in writing by a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of Common
Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement
to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder
and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of Common Stock were sold, (iv)the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference
in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon the Company being notified in writing by a Selling Stockholder that
a donee
or pledgee intends to sell more than 500 shares of Common Stock, a supplement
to
this prospectus will be filed if then required in accordance with applicable
securities law.
The
Selling Stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of
the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
Securities will be paid by the Selling Stockholder and/or the purchasers. Each
Selling Stockholder has represented and warranted to the Company that it
acquired the securities subject to this Registration Statement in the ordinary
course of such Selling Stockholder’s business and, at the time of its purchase
of such securities such Selling Stockholder had no agreements or understandings,
directly or indirectly, with any person to distribute any such securities.
The
Company has advised each Selling Stockholder that it may not use shares
registered on this Registration Statement to cover short sales of common stock
made prior to the date on which this Registration Statement shall have been
declared effective by the Commission. If a Selling Stockholder uses this
prospectus for any sale of the common stock, it will be subject to the
prospectus delivery requirements of the Securities Act. The Selling Stockholders
will be responsible to comply with the applicable provisions of the Securities
Act and Exchange Act, and the rules and regulations thereunder promulgated,
including, without limitation, Regulation M, as applicable to such Selling
Stockholders in connection with resales of their respective shares under this
Registration Statement.
The
Company is required to pay all fees and expenses incident to the registration
of
the shares, but the Company will not receive any proceeds from the sale of
the
common stock. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sales of the shares by the selling
stockholders.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
We
have
two classes of equity securities: (i) common stock, par value $.001 per share,
18,314,017 shares of which are outstanding as of the date of this prospectus,
held by approximately 646 shareholders of record, which does not reflect the
number of persons or entities who held stock in nominee or "street" name through
various brokerage firms, and (ii) preferred stock, par value $.001 per share,
of
which no shares are outstanding. Our common stock is quoted on the
Over-the-Counter Bulletin Board ("OTC-BB") under the symbol “CGAG”.
Our
common stock was approved for quotation on the over-the-counter Bulletin Board
on August 28, 2007. Since that time there has been no trading in shares of
our
common stock.
Dividends
Our
board
of directors has not declared a dividend on our common stock during the last
two
fiscal years or the subsequent interim period and we do not anticipate the
payments of dividends in the near future as we intend to reinvest our profits
to
grow our business.
The payment of dividends, if any, is at the discretion of the Board of Directors and is contingent on the Company's revenues and earnings, capital requirements, financial conditions and the ability of our operating subsidiary, Techteam, to obtain approval to send monies out of the PRC. The PRC's national currency, the Yuan, is not a freely convertible currency. Please refer to the risk factors "Governmental control of currency conversion may affect the value of your investment," "The fluctuation of the Renminbi may harm your investment;" and "Recent PRC regulations relating to the establishment of offshore special purpose companies.”
Securities
Authorized for Issuance Pursuant to Option Agreement
On
January 31, 2008, our Board of Directors authorized the Company to grant each
of
the persons listed in the following table (the “Grantees”) an aggregate of
123,000 options to purchase our common stock (the “Options”). Such Options have
a term of three years and are exercisable at $3.25.
|
Name
|
Number of Common Stock
Underlying the Options |
|||
|
Chuanbo
Zhao
|
20,000
|
|||
|
Yu
Hao
|
20,000
|
|||
|
Jie
Ma
|
20,000
|
|||
|
Xilong
Wang
|
10,000
|
|||
|
Ale
Fan
|
6,000
|
|||
|
Heng
Song
|
6,000
|
|||
|
Yufan
Zhang
|
5,000
|
|||
|
Jun
Xu
|
5,000
|
|||
|
Wanjiao
Wang
|
5,000
|
|||
|
Qiong
Li
|
5,000
|
|||
|
Zhi
Li
|
5,000
|
|||
|
Juan
Liu
|
2,000
|
|||
|
Lixiang
Chen
|
2,000
|
|||
|
Yingxia
Ma
|
2,000
|
|||
|
Yong
Liu
|
2,000
|
|||
|
Xiaoyan
Huang
|
2,000
|
|||
|
Yan
Zhuang
|
2,000
|
|||
|
Wei
Pu
|
2,000
|
|||
|
Mingli
Wang
|
2,000
|
|||
|
Total:
|
123,000
|
|||
Penny
Stock Regulations
The
Securities Enforcement and Penny Stock Reform Act of 1990
The
Commission has adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Penny stocks are generally equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the Nasdaq system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system).
A
purchaser is purchasing penny stock which limits the ability to sell the stock.
The shares offered by this prospectus constitute penny stock under the
Securities and Exchange Act. The shares will remain penny stocks for the
foreseeable future. The classification of penny stock makes it more difficult
for a broker-dealer to sell the stock into a secondary market, which makes
it
more difficult for a purchaser to liquidate his/her investment. Any
broker-dealer engaged by the purchaser for the purpose of selling his or her
shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities
and
Exchange Act. Rather than creating a need to comply with those rules, some
broker-dealers will refuse to attempt to sell penny stock.
The
penny
stock rules require a broker-dealer, prior to a transaction in a penny stock
not
otherwise exempt from those rules, to deliver a standardized risk disclosure
document prepared by the Commission, which:
·
contains a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
·
contains a description of the broker's or dealer's duties to the customer and
of
the rights and remedies available to the customer with respect to a violation
to
such duties or other requirements of the Securities Act of 1934, as amended;
·
contains a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and the significance of the spread
between the bid and ask price;
·
contains a toll-free telephone number for inquiries on disciplinary actions;
·
defines
significant terms in the disclosure document or in the conduct of trading penny
stocks; and
·
contains such other information and is in such form (including language, type,
size and format) as the Commission shall require by rule or regulation;
The
broker-dealer also must provide, prior to effecting any transaction in a penny
stock, to the customer:
·
the
bid
and offer quotations for the penny stock;
·
the
compensation of the broker-dealer and its salesperson in the transaction;
·
the
number of shares to which such bid and ask prices apply, or other comparable
information relating to the depth and liquidity of the market for such stock;
and
·
monthly
account statements showing the market value of each penny stock held in the
customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the consolidated financial condition and
results of operations should be read with our consolidated financial statements
and related notes appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. The actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including,
but not limited to, those set forth under “Risk Factors” and elsewhere in this
prospectus.
Overview
We
research, develop, manufacture and distribute humic acid based liquid compound
fertilizer in 27 provinces in China. Humic acid is an essential natural, organic
ingredient for a balanced, fertile soil, and it is one of the major constituents
of organic matter. China is both the world’s largest manufacturer and consumer
of fertilizer. As of 2005, the Chinese fertilizer market accounted for 33%
of
the total world output and 35% of the total world consumption. We estimate
that
by the middle of this century, per capita farmland in China will be only 16%
of
world average levels.
In
2005,
compound fertilizer accounted for 27% of the total fertilizer consumed in China;
however the quality is generally very low leading to ecosystem degradation.
(Source: Ministry of Agriculture of the PRC). Organic compound fertilizer
comprises a balance of both organic and inorganic substances, thereby combining
the speedy effectiveness of chemical fertilizers with the environmental benefits
of the organic ones, hence ensuring vast room for its future development in
the
Chinese agricultural production system.
Our
multi-tiered product strategy allows us to tailor our products to different
needs and preferences of the Chinese fertilizer market, which varies greatly
across the country. For example, in Southern and Eastern China, farmers are
able
to grow high margin crops such as fruit and seasonal vegetables where climate
and rainfall permits, hence they can gain more return on investment from more
expensive, specialized fertilizers whereas in Northwest areas, farmers’ low
profit margin crops prevent farmers from investing too much on fertilizer
thereby necessitating a more broad spectrum, low cost fertilizer.
Roughly 20 million farmers are using our products. We produce and sell 10,000 metric tons per year, with average per mu usage of 120 ml per year, per time (the liquid fertilizer is in very concentrated form, and is mixed with water).
We
conduct our research and development activities through our wholly owned
subsidiary, Xi’an Jintai Agriculture Technology Development Company through
which we also sell high quality fruits and vegetables which are grown in our
research greenhouses to airlines, hotels and restaurants. The Company owns
its
137,000 square meter research and development facility. Our research and
development capabilities allow us to develop products that are tailored to
farmers’ specific needs in different regions, different crops, humidity, weather
and soil conditions that require special fertilizers.
We
have
developed more than 100 different fertilizer products. The leading five
provinces by revenue are Heilongjiang, Guangdong, Xinjiang, Shandong, and
Henan.
Recent
Development
On
December 26, 2007, we completed our Private Placement of 6,313,616 shares of
our
common stock for $20,519,255 in gross proceeds. We intend to use the proceeds
of
the Private Placement to buy capital equipment and expand our production and
facilities.
THREE
MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30,
2006.
Results
of Operations:
The
following table shows our operating results for the three months ended September
30, 2007 and September 30, 2006.
|
Three Months ended
September 30, 2007 |
Three Months ended
September 30, 2006 |
||||||
|
Sales
Revenue
|
$
|
7,191,021
|
$
|
4,791,313
|
|||
|
Cost
of goods sold
|
$
|
2,773,762
|
$
|
1,781,291
|
|||
|
Gross
profit
|
$
|
4,417,259
|
$
|
3,010,022
|
|||
|
Selling,
General and Administrative Expenses
|
$
|
302,323
|
$
|
428,806
|
|||
|
Operating
Income
|
$
|
4,114,937
|
$
|
2,581,216
|
|||
|
Other
Net Income (expense)
|
$ |
(83,165
|
)
|
$ |
(90,162
|
)
|
|
|
Income
Before Income Taxes
|
$
|
4,031,772
|
$
|
2,491,055
|
|||
|
Provision
for Income Taxes
|
-
|
$
|
199,880
|
||||
|
Foreign
currency translation gain (loss)
|
$
|
174,461
|
$
|
35,266
|
|||
|
Net
Income
|
$
|
4,206,233
|
$
|
2,326,441
|
|||
Sales revenue for the three months ended September 30, 2007 was $7,191,021, an increase of $2,399,708, or 50.1%, compared with the corresponding period in 2006. This increase was the result of an increase in sales volume due to expansion of our sales network, the launch of new products and the addition of our newly acquired greenhouse facility which contributed $1,602,264 of sales over the same period.
Cost
of
goods sold for the three months ended September 30, 2007 was $2,773,762, an
increase of $992,471, or 55.7%, compared with the corresponding period in 2006.
The increase in cost of goods sold was primarily due to the increase in our
sales volume. The incremental increase in cost of goods sold was due to an
increase in the price of packaging materials for this period. We intend to
use a
portion of the proceeds from the Private Placement to produce packaging
materials internally. We believe that in-house production of packaging materials
will result in lowering cost of goods sold, assuming that all other costs remain
the same.
Gross
profit for the three months ended September 30, 2007 was $4,417,259, an increase
of $1,407,237, or 46.7%, compared with the corresponding period in 2006. The
increase in our gross profit was due to the increase in our sales revenue.
Selling,
general and administrative expenses for the three months ended September 30,
2007 was $302,323, a decrease of $126,483 or 29.5% compared with the
corresponding period in 2006. The decrease in selling, general and
administrative expenses was due to the shift of part of the advertising, product
promotion and logistic costs from us to our distributors.
Net
income for the three months ended September 30, 2007 was $4,206,233, an increase
of $1,879,792, or 80.8%, compared with the corresponding period in 2006. This
increase was the result of an increase in sales revenue due to expansion of
our
sales network, the launch of new products, a contribution of $983,624 of net
income from our newly acquired greenhouse facility and a decrease in our
expenses. The increase in net income was also due to an exemption from tax
for
2007 according to the Preferential Tax for Foreign Invested Enterprises,
resulting in a relative gain of $322,542 and a foreign currency translation
relative gain of $139,195. If these two factors are deducted from net income
the
resulting increase would be 61% instead of 80.8%.
Liquidity
and Capital Resources
We
have
historically financed our operations and capital expenditures principally
through bank loans, and cash provided by operations. We are using the net
proceeds of the Private Placement to finance the purchase of capital equipment
and an expansion of our facilities and production. We believe that our existing
cash, cash equivalents and cash flows from operations and from the Private
Placement will be sufficient to meet our presently anticipated future cash
needs
for at least the next 12 months. We may, however, require additional cash
resources due to changing business conditions or other future developments,
including any investments or acquisitions we may decide to pursue. There can
be
no assurance that such additional investment will be available to us, or if
available, that it will be available on terms acceptable to us.
LOANS
As
of
September 30, 2007, our loans payable were as follows:
|
Short
term loans payable:
|
|
|||
|
Xi’an
City Commercial Branch
|
$
|
2,001,923
|
||
|
Xi’an
Agriculture Credit Union
|
507,153
|
|||
|
Agriculture
Bank
|
1,801,729
|
|||
|
Total
|
$
|
4,310,805
|
||
As
of
September 30, 2007, we had a loan payable of $2,001,923 to Xi’an City Commercial
Bank in China, with an annual interest rate of 9.585%, and due on April 1,
2008.
The loan is secured by land use rights and buildings owned by us.
As
of
September 30, 2007, we had a loan payable of $507,153 to Xi’an Agriculture
Credit Union, with an annual interest rate of 9.216%, and due on September
26,
2007. The loan has been extended to September 16, 2008 with an annual interest
rate of 11,795%. The loan is guaranteed by a former shareholder. Our former
shareholder paid interest expenses of $12,393 and $10,991 as of September 30,
2007 and 2006 for this loan. We recorded the interest expense paid by the former
shareholder as contributed capital.
As
of
September 30, 2007, we had a loan payable of $1,801,729 to the Agricultural
Bank
in China, with an annual interest rate of 7.488%, and due on September 26,
2007.
On March 27, 2008, the loan was extended to March 27, 2008. The loan is
guaranteed by a former shareholder.
Interest
expense was $92,569 and $91,369 for three months ended September 30, 2007 and
2006, respectively.
Cash
and cash equivalents
For
statement of cash flows purposes, we consider all cash on hand and in banks,
including accounts in book overdraft positions, certificates of deposit and
other highly-liquid investments with maturities of three months or less, when
purchased, to be cash and cash equivalents. As of September 30, 2007, cash
and
cash equivalents amounted to $107,400.
Accounts
receivable
Our
policy is to maintain reserves for potential credit losses on 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. As of September 30, 2007, we had
accounts receivable of $6,046,270, net of allowance for doubtful accounts of
$
222,276. This is an increase of 126% compared to the same period in 2006. This
increase resulted form the following factors: (i) sales increased by
approximately 50%, the Chinese central government implemented policies to
support agriculture and farmers and encourage the use of “green” products and
(iii) China experienced unusually inclement weather in 2007 which resulted
in an
increase in demand for fertilizer products to increase yields. We believe that
these factors present the opportunity to encourage farmers to use our products
and we therefore, decided to implement two types of payment terms. For the
first, we require 50% payment in advance, and 50% payment after delivery. For
the second, we require one payment collected after the autumn harvest from
October to December. Distributors are required to guarantee
payments.
Inventories
Inventories
consist of the following as of September 30, 2007:
|
Supplies,
packing and raw materials
|
$
|
244,039
|
||
|
Finished
goods
|
1,710,152
|
|||
|
Totals
|
$
|
1,954,191
|
Tax
payables
Tax
payables consist of the following as of September 30, 2007
|
VAT
payable
|
$
|
2,547,065
|
||
|
Income
tax payable
|
308,657
|
|||
|
Other
levies
|
221,235
|
|||
|
Total
|
$
|
3,076,957
|
Property,
plant and equipment
Property,
plant and equipment consist of the following as of September 30,
2007
|
Building
and improvements
|
$
|
7,338,102
|
||
|
Vehicle
|
21,728
|
|||
|
Machinery
and equipments
|
5,247,490
|
|||
|
Totals
|
12,607,320
|
|||
|
Less:
accumulated depreciation
|
(873,090
|
)
|
||
|
|
$
|
11,734,230
|
Depreciation
expenses for the three months ended September 30, 2006 and 2007 were $31,304
and
$208,898, respectively.
THE FISCAL YEAR ENDED JUNE 30, 2007 COMPARED WITH THE FISCAL YEAR ENDED JUNE 30, 2006.
Results
of Operations:
The
following table shows the operating results of TechTeam for the fiscal years
ended June 30, 2007 and June 30, 2006.
|
Fiscal Year ended
June 30, 2007 |
Fiscal Year ended
June 30, 2006 |
||||||
|
Sales
Revenue
|
$
|
15,184,343
|
$
|
7,888,763
|
|||
|
Cost
of goods sold
|
6,556,524
|
3,515.022
|
|||||
|
Gross
profit
|
8,627,820
|
4,373,741
|
|||||
|
Selling,
General and Administrative Expenses
|
1,011,686
|
1,464,466
|
|||||
|
Operating
Income
|
7,616,133
|
2,909,275
|
|||||
|
Other
Net Income (expense)
|
(402,379
|
)
|
(187,075
|
)
|
|||
|
Income
Before Income Taxes
|
7,213,754
|
2,722,200
|
|||||
|
Provision
for Income Taxes
|
(295,012
|
)
|
-
|
||||
|
Foreign
currency translation gain (loss)
|
261,432
|
(17,669
|
)
|
||||
|
Net
Income
|
$
|
7,180,173
|
$
|
2,704,531
|
|||
Sales
revenue for fiscal 2007 was $15,184,343, an increase of $7,295,580 which
represents a 92.5% increase compared with fiscal 2006. The reason for the
increase was the increase of sales volume due to the expansion of our sales
network the launch of new products and a contribution of $1,853,717 in revenue
from our newly acquired greenhouse facility.
Cost
of
goods sold for fiscal 2007 was $6,556,524 an increase of $3,041,502 which
represents an increase of 86.5% compared with 2006. The increase in the cost
of
goods was due to increase in sales volume.
Gross
profit for fiscal 2007 was $8,627,820, an increase of $4,254,079 which
represents an increase of 97.3% compared with fiscal 2006. The increase in
gross
profit was due to increase in sales revenue.
Our
Selling, General and Administrative expenses for fiscal 2007 were $1,011,686,
a
decrease of $452, 780, which represents a decrease of 30.9%, compared with
fiscal 2006. The reason for this was due to decrease in research and development
expense. There was previously a concentration of expenditures for outsourced
research and development in the years of 2003 to 2005. In the fiscal year ending
June 30, 2007, our greenhouse facility was acquired hence reducing research
and
development expenses that were outsourced.
The other expenses for fiscal 2007 and 2006 were $402,379 and $187,075 respectively. The 115% increase was due to increased interest expense and inventory count loss due to returns of goods damaged in transit, primarily damaged packaging. We believe this inventory count loss is a controllable non-recurring expense.
Net
income for fiscal 2007 was $7,180,173, an increase of $4,475,642 which
represents an increase of 165.5% compared with fiscal 2006. The reason for
this
was an increase in sales revenue, a contribution of $682,905 in net income
from
our newly acquired greenhouse facility and decrease in expenses.
Operating
Activities
Net
cash
provided by operating activities for fiscal 2007 was $8,783,528, compared to
$2,349,077 provided by operating activities for fiscal 2006. The increase in
net
cash provided by operating activities was due to an increase in our sales
revenue.
Investing
Activities
Net
cash
used in investing activities for fiscal 2007 was $9,768,909 compared to $32,975
used in investing activities for fiscal 2006. The cash was spent on the
acquisition of our research and development and greenhouse facilities. This
research and development is essential to our production of over 100 types of
special purpose fertilizers. Because the resulting vegetables and plants
cultivated for research purposes are sold, our greenhouse research and
development facility is a profit center.
Financing
Activities
Net
cash
provided by financing activities for fiscal 2007 was $1,018,301 compared with
net cash used by financing activities for fiscal 2006 of ($2,294,907). The
cash
inflow was due to short term borrowing from related parties to make up a
shortfall in working capital resulting from the purchase of the greenhouse
buildings. This borrowing was paid off entirely in September 2007.
Loans
As
of
June 30, 2007, the loan payables are as followed:
|
Short
term loans payable:
|
||||
|
Xi’an
City Commercial Branch
|
$
|
1,970,580
|
||
|
Xi’an
Agriculture Credit Union
|
499,214
|
|||
|
Agriculture
Bank
|
1,773,522
|
|||
|
Total
|
$
|
4,243,316
|
As
of
June 30, 2007, we had a loan payable of $1,970,580 to Xi’an City Commercial Bank
in China, with an annual interest rate of 9.585%, and due on April 1, 2008.
The
loan is secured by our land use rights and buildings.
As of June 30, 2007, we had a loan payable of $499,214 to Xi’an Agriculture Credit Union, with an annual interest rate of 9.216%, and due on September 26, 2007. The loan is guaranteed by a former shareholder. Our former shareholder paid interest expenses of $45,439 and $27,737 as of June 30, 2007, and 2006 for this loan. We recorded the interest expenses paid by the shareholder as contributed capital.
As
of
June 30, 2007, we had a loan payable of $1,773,522 to the Agricultural Bank
in
China, with an annual interest rate of 7.488%, and due on March 27, 2007. On
March 28, 2007, the loan was extended to March 27, 2008. The loan is guaranteed
by our former shareholder.
The
interest expense was $361,254 and $229,115 for the years ended June 30, 2007
and
2006.
Accounts
receivable
As
of
June 30, 2007, we had accounts receivable of $1,885,351, net of allowance of
$218,796. The accounts receivable as of June 30, 2007 includes a receivable
from
a related party amounting $43,363.
INVENTORIES
Inventories
consist of the following as of June, 2007:
|
Supplies,
packing and raw materials
|
$
|
153,498
|
||
|
Finished
goods
|
1,620,303
|
|||
|
Totals
|
$
|
1,773,802
|
The
supplies, packing and raw materials of the company consists of supplies, packing
and chemicals in the amount of $148,467 and supplies, packing and seeds for
in
the amount of $5,031 as of June 30, 2007. The finished goods consist of flowers
and vegetables.
TAX
PAYABLES
Tax
payables consist of the following as of June 30, 2007:
|
VAT
payable
|
$
|
1,824,259
|
||
|
Income
tax payable
|
302,907
|
|||
|
Other
levies
|
149,554
|
|||
|
Total
|
$
|
2,276,720
|
PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following as of June 30, 2007:
|
Building
and improvements
|
$
|
7,223,219
|
||
|
Vehicle
|
21,387
|
|||
|
Machinery
and equipments
|
5,165,338
|
|||
|
Construction
in progress
|
42,707
|
|||
|
Total
property, plant and equipment
|
12,452,651
|
|||
|
Less:
accumulated depreciation
|
(652,013
|
)
|
||
|
Net
property plant and equipment
|
$
|
11,800,638
|
Depreciation expenses for the years ended June 30, 2007 and 2006 were $372,862 and $149,092, respectively.
Foreign
currency translation
The
reporting currency of the Company is the US dollar. We use our local currency,
Renminbi (RMB), as our functional currency. Results of operations and cash
flow
are translated at average exchange rates during the period, and assets and
liabilities are translated at the unified exchange rate at the end of the
period. Translation adjustments resulting from this process are included in
accumulated other comprehensive income in the statement of shareholders' equity.
Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in
the
results of operations as incurred.
BUSINESS
Our
History
We
were
incorporated under the laws of the state of Kansas in February 1987. We were
formed to design, manufacture and market video products that transmit pictures
over standard voice-grade telephone lines.
In December, 1996 the Company ceased operations. The State of Kansas involuntarily dissolved the Company effective December 1996. On December 4, 2006 the State of Kansas reinstated the Company's corporate charter. On June 30, 2006, Craig T. Rogers, the sole remaining director, appointed new directors, Michael Friess, Sanford Schwartz and John Venette, and then resigned as an officer and director of the Company. Our Board of Directors then appointed Michael Friess as President and CEO and John Venette as Secretary, Treasurer and Chief Financial Officer. We then opted to become a "blank check" company and to further engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
On
February 15, 2007 we held a shareholder meeting to amend the Articles of
Incorporation and to increase our authorized capital stock to eight hundred
million (800,000,000) shares, to change the par value of our common stock to
"no
par value" and to elect Michael Friess, Sanford Schwartz and John Venette to
serve on our Board of Directors.
On March 15, 2007, we issued 15,000,000 shares of common stock to two individuals (Sanford Schwartz and Michael Friess), for a $10,000 cash payment.
On
October 16, 2007, we reincorporated in the state of Nevada by merging with
a
newly formed Nevada corporation. On the same date, the outstanding shares of
our
common stock were reduced from 18,746,196 shares to approximately 2,082,910
shares through a 9 for 1 reverse split.
From
December 1996 until December 26, 2007, we did not engage in any operations
and
were dormant.
On
December 18, 2007, the Company filed a Certificate of Change with the Secretary
of State of the State of Nevada whereby it effected a 6.771 for 1 reverse split
of its Common Stock which reduced the authorized shares of common stock from
780,000,000 shares to 115,197,165 and the issued and outstanding shares of
common stock from 2,082,910 shares to 307,627 shares.
On
December 26, 2007, we acquired 100% capital stock of Green New Jersey, through
a
share exchange in which we issued a controlling number of shares of our common
stock to Green New Jersey’s shareholders in exchange for 100% of Green New
Jersey’s shares of common stock (the “Share Exchange”). Immediately prior to the
Share Exchange, we redeemed 246,148 shares of common stock held by Michael
Friess and Sanford Schwartz (the “Redemption”) for $550,000 and issued 111,386
new shares of common stock to Messrs. Schwartz and Friess, who then appointed
Tao Li as our Director and Chief Executive Officer and who proceeded to effect
the Share Exchange.
The
funds
used to consummate the Redemption were provided from the proceeds of a private
placement of our common stock to 31 accredited investors (the “Investors”)(the
“Private Placement”) that closed on December 26, 2007, in connection with the
Share Exchange. The Private Placement resulted in gross proceeds of $20,519,255
from the sale of 6,313,616 shares of common stock.
As
a
result of the above transactions, we ceased being a shell company as such term
is defined in Rule 12b-2 under the Securities Exchange Act and own 100% of
Green
New Jersey which is a holding company for Techteam. Techteam is engaged in
the
research, development, production and distribution of humic acid organic liquid
compound fertilizer and owns 100% capital stock of Jintai, which conducts
fertilizer research and development activities and sells high quality fruits
and
vegetables grown in its research greenhouses.
Effective
February 5, 2008, the Company changed its name from Discovery Technologies,
Inc.
to China Green Agriculture, Inc. to better reflect its business. Related to
the
name change, the trading symbol changed from DCOV.OB to CGAG.OB on the same
day.
Organizational
History of Green Agriculture Holding Corporation
Green
New
Jersey was incorporated under the laws of New Jersey on January 27, 2007. Until
the consummation of the Share Exchange, Yinshing David To, Paul Hickey and
Greg
Freihofner, (collectively, the “Green Stockholders”) owned 100% of the
outstanding capital stock of Green New Jersey. Paul Hickey and Greg Freihofner
are registered representatives of Hickey Freihofner Capital, a Division of
Brill
Securities, Inc., a member of FINRA, MSRB, SIPC, and the Company’s placement
agent for the Private Placement and they each owned 2.45% of Green New Jersey.
Organizational
History of Shaanxi TechTeam Jinong Humic Acid Product Co.,
Ltd.
TechTeam
was formed on July 28, 1998, under PRC law under the original name of Yangling
Jinong Humic Acid Product Co., Ltd. In October 2006 the name of TechTeam was
changed to its current name, Shaanxi TechTeam Jinong Humic Acid Product Co.,
Ltd. On August 24, 2007, TechTeam converted from a PRC domestic company status
to a wholly foreign owned enterprise status by obtaining the approval from
Shaanxi Department of Commerce dated August 3, 2007 approving Green New Jersey’s
purchase of 100% of the capital stock of Techteam from Techteam’s shareholders
for a price of approximately $4.09 million and the approval of Xi’an
Administration for Industry and Commerce dated August 24, 2007. On January
2,
2008, we paid the purchase price by using part of the proceeds from the Private
Placement. Techteam’s shareholders agreed to, and caused the purchase price to
be delivered to Techteam for use as working capital as required by the
Securities Purchase Agreement entered into in connection with the Private
Placement.
Since
its
founding, TechTeam has been engaged in the business of developing, producing
and
distributing humic acid liquid compound fertilizer throughout most of the PRC.
Overview
of the Business
Products
TechTeam
is engaged in the research, development, production and distribution of humic
acid organic liquid compound fertilizer (“humic acid organic liquid compound
fertilizer”). We believe that TechTeam has one of the most advanced automated
humic acid production lines in China.
Humic
acid is an essential natural, organic ingredient for a balanced, fertile soil.
Humic acid is one of the major constituents of organic matter in fertile soil,
making a vital contribution to the quality of the soil’s composition. When plant
or animal matter decomposes, it naturally turns into a form of humic acid-rich
material, such as peat, lignite or weathered coal. In nature, this complex
organic element, humic acid, improves soil structure and aeration, nutrient
absorption, water retention, increases the soil’s buffering capacity against
fluctuations in pH levels, reduces soil crusting problems and erosion from
wind
and water and
radical
toxic pollutants. Humic acid promotes
the
development of root systems, seed germination, overall plant development,
health, resistance to stress, and overall appearance.
We
believe that no known synthetic material can match humic acid's effectiveness
and versatility.
The
pure
humic acid used in TechTeam’s fertilizer is distilled and extracted from
weathered coal by way of alkaline digestion and acid recrystallization. Benefits
of using TechTeam’s products are to stimulate growth, yield, protect plants from
drought, disease and temperature damage while improving soil structure and
enhancing soil fertility. TechTeam has a multi-tiered line of 106 products,
covering three product categories: Broad Spectrum (general use), Functional
(enhances certain characteristics) and Tailored (for very specific crops).
“Green”
Certification
All
of
our fertilizer products are certified by the PRC government as green products
for growing Grade AA “Green” foods. Green food certified by the China Green Food
Research Center can be divided into 2 groups: grade A (allowed to use certain
amount of chemical materials) and Grade AA (containing little or no chemical
materials - also know as organic food). The Green food certification came about
in response to the overuse of fertilizers and pesticides in China, as well
as
the use of unsafe fertilizers and pesticides, which led to the sale of products
with dangerous and high concentrations of harmful chemicals and several
publicized incidents of food-caused illness. In addition to creating a dangerous
situation for domestic consumers, it also created problems for China’s food
exporters which, in many cases, were barred from exporting to certain countries
which have minimum acceptable standards for pesticide and chemical
use.
In
1990,
the PRC Ministry of Agriculture began to encourage the production of Green
foods, which are foods that are safe, free from pollutants and harmful
chemicals, and of good quality. In 1992, the PRC Ministry of Agriculture
established the China Green Food Research Center with a number of branches
charged with inspecting food quality and provincial level centers to monitor
local food quality in each province. The China Green Food Research Center is
a
private, for profit entity. In 1993, the Ministry of Agriculture established
regulations on the use of Green food labeling. In 1994, the PRC government
issued an "Agenda in the 21st Century", in which there was specific discussion
over the development of a Green food industry. In 1996, an identifying trademark
for Green foods was registered in the PRC and put into use.
In
1997,
the PRC State Council approved the "Plan to Improve Nutrition in Chinese
People's Diets," which called for more Green foods to protect people's heath
and
well being.
Today,
with the rapid growth of PRC's economy and per capita income, people have become
more health conscious. As a result, there is a growing market demand for Green
food products. Fruits and vegetables labeled as Green are generally available
in
supermarkets throughout the PRC and are typically sold at higher
prices.
According
to the Journal of Organic Systems, a scientific journal particular to organic
systems published by a group of professors in Australia and New Zealand, China
may be at the onset of an organic agriculture revolution. From 2000 to 2006,
China has moved from 45th to second position in the world in number of hectares
under organic management. China now has more land under organic horticulture
than any other country. In the year 2005/2006, China added 12% to the world's
organic area. This accounted for 63% of the world's annual increase in organic
land, and China now has 11% of the world's organically managed land.
According to the People's Daily Online, by 2003, there were 2,047 Green food producers in China which sold approximately 72.3 billion RMB of food to the domestic market and more than $1 billion to the overseas market.
Our
products have quickly gained market share and general acceptance due to their
high, consistent quality and tailored advantages. We believe that we are one
of
the top producers and suppliers of humic acid organic liquid compound fertilizer
in the PRC with an annual production capacity of 10,000 metric tons (1 metric
ton=1,000kg). We currently produce a total of 106 different organic fertilizer
products.
Industry
and Principal Markets
We
currently market our fertilizer products to private wholesalers and retailers
of
agricultural farm products in 27 provinces in the PRC. The leading five
provinces by revenue for the fiscal year ended June 30, 2007 were Heilongjiang
(9.99%), Guangdong (7.81%), Xinjiang (6.59%), Shandong (5.81%), and Henan
(5.80%). Their geographically diverse distribution protects our leading national
market position from regional competitors.
We
utilize a multi-tiered product strategy pursuant to which we tailor our products
to different needs and preferences of the Chinese fertilizer market, which
vary
greatly across the country. For example, in Southern and Eastern China, farmers
are able to grow high margin crops such as fruit and seasonal vegetables where
climate and rainfall permits. Therefore, they can gain more return on investment
from more expensive, specialized fertilizers. In the Northwest areas, however,
farmers’ low profit margin crops prevent them from investing too much in
fertilizer and therefore, we market a broader spectrum, low-cost fertilizer
in
that area.
We
produce and sell approximately 10,000 metric tons of organic fertilizer products
per year. Our fertilizers are very concentrated liquids which require an
application of approximately 120 milliliter (“ml”) per mu, per time with the
consideration of the different crops and regions if a farmer has 4 mu of land
in
China (1 mu = .165 acres).
Our
research and development capabilities, described more fully below, allow us
to
develop products that are tailored to farmers’ specific needs in different
regions, different crops, humidity, weather and soil conditions that require
special fertilizers. For example, our “Red Medlar” product is specially designed
for medlar (
a
small,
brown, apple like fruit, hard and bitter when ripe and eaten only when partly
decayed)
in the
Ningxia Autonomous Region. This product can effectively increase medlar yield
and protect it from foliar disease (the most common culprit for decreased yields
of medlar) and at the same time increase the quality of the fruit.
China
is
both the world’s largest manufacturer and consumer of fertilizer. As of 2005,
Chinese fertilizer accounted for 33% of the total world output and 35% of the
total world consumption (Source: China National Agricultural Means of Production
Circulation Association). In the future, we believe a greater emphasis will
be
put on the development of organic compound fertilizers for the following
reasons:
Shrinking Arable land and Exploding Population in the PRC
In
2005,
per capita farmland in China was only 940 square meters, which is approximately
40% of the world level (Source: The Ministry of Land and Resource, PRC). It
is
predicted that by the middle of the 21
st
century,
the Chinese population will reach 1.6 billion (Source: News Office of the State
Council, PRC) and assuming that the current decreasing trend of farmland in
China continues, arable land has been predicted to decrease by half (Lester
R
Brown,
Who
Will Feed China?,
World
Watch). This implies that by the middle of this century, per capita farmland
in
China may be only 16% of the world average level. Moreover, it is estimated
that
by 2030, global warming may further reduce China’s current grain production by
5-10% (Source: State Meteorological Administration). Faced with shrinking arable
land resources, an exploding population and global warming effects, we believe
that high yielding and environmentally sustainable fertilizers will be crucial
to China’s agricultural production.
Environmental
Concerns
In
2005,
Chinese farmers used approximately 47.66 million metric tons of chemical
fertilizers (Source: Chinese Statistic Bureau 2006 Yearbook), or about 400
kg
per hectare (1 hectare=10,000m
2
)
of
farmland, which is far above the acceptable safe limit of 225 kg per hectare
in
developed countries (Source: Chinese Environmental Science Research
Institution).
After
a
long period of chemical fertilizer overuse on China’s farmland, accumulated
heavy metals have hardened the soil and reduced its fertility. Surface water
has, and is being eutrophicated (nutrient-enriched, meaning an increase in
chemicals resulting in severe reductions in water quality and in fish and other
animal populations). However, balanced Green fertilizers which contain humic
acid, by increasing nutrient uptake, not only reduce the amount of traditional
chemical fertilizers needed per hectare, but also cleanse the soil of the
existing chemical residue and stimulate crop growth, thus further improving
the
stability of the soil’s ecosystem. Also, today, we believe people are more aware
of the need for high-quality Green agricultural products, consequently,
non-polluting, residueless Green fertilizer is in growing demand in order to
satisfy the market for safe and Green food.
Trend
In
2003,
only 25% of the fertilizers used in China’s agricultural industry were organic
(Source: Agriculture Technology Promotion Centre).
However,
agriculture specialists suggest that the optimal ratio of organic versus
chemical fertilizer should be around 50% as it is in developed
countries
(Source:
Chinese Chemical & Industrial Technology Research Institute). In 2005,
compound fertilizer accounted for 27% of the total fertilizer consumed in China.
However, the quality of such fertilizer is generally very low leading to
ecosystem degradation (Source: Ministry of Agriculture of the PRC).
Organic
compound fertilizer comprises a balance of both organic and inorganic
substances, thereby combining the speedy effectiveness of chemical fertilizers
with the environmental benefits of the organic ones, thus ensuring significant
room for its future development in the Chinese agricultural production system.
Principal
products and services
Our
core
product is humic acid organic liquid compound fertilizer. The principal raw
material used in this product is weathered coal, which is primarily identified
by its well-developed “oxidation rims”
along
boundaries and fissures of the coal.
humic
acid organic liquid compound fertilizer is made when weathered coal has been
processed by extraction, filtering and condensation. The resulting material
is
then chelated (to combine a metal ion with a chemical compound to form a ring)
with inorganic nutrient elements (such as nitrogen, phosphorus and potassium)
and microelements nutrient (such as cuprum, iron, zinc, manganese, boron, and
molybdenum.) by adding active and catalytic agents.
Humic
acid exhibits a high cation exchange (a chemical process in which cations of
like charge are exchanged equally between a solid and a solution.) capacity
which serves to chelate plant nutrient elements and release them as the plant
requires. The chelation process holds the nutrients in the soil solution and
prevents their leaching and runoff. Also, humic acids can bind soil toxins
along
with plant nutrients, thereby strongly stabilizing soils. The regular use of
humic acid organic liquid compound fertilizer enable fertilizer, insecticide,
herbicide and water use to be cut by up to a half or more.
This
mechanism is important to environmental protection, since it prevents
contamination of water sources caused by runoff.
Our
fertilizers perform the following functions:
1.
Stimulate
seed germination and viability, root respiration, formation and growth.
2.
Produce
thicker, greener, and healthier foliage.
3.
Produce
more, larger, longer lasting, and more beautiful flowers.
4.
Increase
significantly the protein, vitamin, and mineral contents of most fruits and
vegetables.
5.
Help
retain water-soluble inorganic fertilizers in soils releasing them as needed
to
the growing plants to make soil more fertile and productive.
6.
Increase
the water retention of soil to help plants to resist drought.
7.
Reduce
fertilizer requirements and increase yields in most crops.
8.
Increase
aeration of the soil.
Our
106
products can be divided into three main functional types:
1.
Broad
Spectrum Type: Can be applied to all kinds of crops.
2.
Functional
Type: Has certain special effects on crops. Examples are growth regulation
fertilizer and fertilizer for promoting blooming and fruiting.
3.
Tailored
Type: Target specific crops. Examples are specific fertilizers for strawberries
and specific fertilizer for gourd vegetables.
Our
products are dark brown to black in color, and principally used as a foliar
fertilizer (a liquid, water soluble fertilizer applied to a plant’s foliage by a
fine spray so that the plant can absorb the nutrients through its leaves),
or
sprayed directly on soil or injected into the irrigation systems.
Marketing
Our
sales
staff is trained to knowledgeably work with distributors and customers providing
the right product and after-sales support. In addition, the sales staff shares
its knowledge base by organizing training courses about agricultural techniques
that are offered to the public on a regular basis.
The
Chinese fertilizer market is generally a commoditized industry. We use our
multi-tiered branding strategy to target different market segments with tailored
products. Currently, “JINONG” is our high end product, “ZHIMEIZI,” “LEPUSHI”
and: LIBANGNONG” are our middle tier products and “WEIYINONG” is our lower tier
product. The JINONG line has a total of 50 products, and accounted for
approximately 70% and 62% of our sales revenue and net income, respectively,
for
the fiscal year ended June 30, 2007.
We
have a
team of five marketing personnel in our principal office who collect and
correlate marketing data from across the 27 provinces. By industry norms, we
believe that our product development cycle of 3 to 9 months is relatively short.
Due to our comprehensive data gathering network, we are able to assemble
nationwide market analyses, ascertain new product needs, estimate demand and
customer demographics and develop new products.
Although
we utilize television advertisements and mass media, the majority of our
marketing efforts are conducted through joint activities with our distributors.
Through our distributors, TechTeam has contracted approximately 100 local
personnel, who do on-site marketing using pamphlets, brochures and posters
at
the point of sale outlets and do after sales services. Techteam itself has
a
staff of 85 marketing personnel. Our staff works with and trains distributors
and retail clients through lectures and interactive meetings. Our staff
emphasizes the technological components of our products to help end users
understand the differences in products available and how to use them.
Word-of-mouth advertising and sample trials of new products in new areas are
essential. Also, we have has set up nation-wide hotlines to answer customer
questions and has constructed an SMS text message platform to have real-time
interaction with farmers. We have recently commenced use of this platform which
is currently available only in certain areas.
Raw
Materials and Suppliers
Among
all
the three materials that can be utilized to produce humic acid (weathered coal,
lignite and peat), we have chosen weathered coal as our principal raw material
because it is abundant and relatively cheap (about $50/metric ton). Although
there are numerous weathered coal suppliers, our principal supplier is the
Lupoling Coal Mine Industry and Trade Company of Jinzhong City located in the
Shaanxi Province. We utilize spectral analysis technology to select the raw
material with the best quality, and we have specially trained buyers to make
sure the quality and consistency of the raw materials are maintained.
In addition to weathered coal, we also utilize up to 60 different components in our production process, all of which can be readily obtained from numerous sources in local markets.
Our
products are packaged in bottles, bags and boxes. Each type of packaging
material, along with packaging labels, are purchased from 3 to 4 manufacturers.
These materials are readily available.
Distribution,
Sales Network, Customers
In
1978,
the “supply and marketing cooperative” system, a state-owned distribution
network from national, provincial level down to township and village level,
was
replaced by private wholesalers and retailers who became the principal
distributors of agricultural materials. In this highly fragmented market, we
were able to set up our own sales network by establishing our distribution
through strategic relationships with private wholesalers or distributors.
Currently,
we sell our products through a carefully constructed network of about 450
regional distributors covering 27 provinces in China. The distributors in turn
sell the products to the smaller, local retail outlets who then sell to the
end
users (typically farmers). We do not grant provincial or regional exclusivity
because there is currently no single distributor sufficiently strong enough
to
warrant exclusivity. We enter into non-exclusive written distribution agreements
with chosen distributors who demonstrate their ability in local business
experience and sufficient regional sales networks. The distribution agreements
do not dictate distribution quantity because changes in local market condition
and weather changes can dramatically affect sales quotas.
We
have
established representative offices and sales outlets in Beijing, Tianjin,
Shanghai and Chongqing. These regional offices allow us to more effectively
coordinate national sales and marketing teams. In addition, our sales department
works closely with distributors in various provinces to promote our products,
maintain our profile and to continue to cultivate relationships.
We
also
manufacture humic acid organic liquid compound fertilizer for export to foreign
countries, including India, Ecuador, Pakistan and Lebanon through contracted
distributors. Total revenues from exported products currently account for
approximately 1% of TechTeam’s sales revenue. We anticipate that this amount can
increase significantly as we have recently contracted with foreign distributors
to sell our products.
For
the
fiscal year ended June 30, 2007, sales through our top 10 distributors accounted
for approximately 10% of our annual revenue, with the highest proportion of
sales that any one customer represented accounting for approximately 1.32%
of
sales revenue. As we do not have a significant concentration of customers,
we
believe that the loss of any one customer would not have any significant effect
on our business.
Competition
The
Chinese fertilizer industry is highly fragmented. In 2005, there were
approximately 1,924 manufacturers, of which approximately 80% were small local,
regional manufacturers (Source: Chinese Fertilizer Net). Currently, our
competitors are numerous small-sized local manufacturers, 3-4 larger national
competitors, and 2-3 international companies.
Small
competitors are generally amino acid compound fertilizer producers, who are
very
price competitive. The smaller companies, however, tend to lack sufficient
quality control or process control technologies which lead to inconsistent
quality.
Currently,
TechTeam is competing with following larger national or regional competitors:
1.
Agritech (China) Fertilizer Co., Ltd.
As
a
wholly-owned Chinese subsidiary of China Agritech Inc, a U.S. listed company
(OTCBB:CAGC), Agritech is engaged in the research and development, manufacture,
sales and technical support of hi-tech Green agricultural resources with green
organic high-effect liquid compound fertilizer as its core product. Its
production was approximately 9000 metric tons in 2006.
2.
Qiqihaer Fuer Agriculture Co., Ltd, Heilongjiang Province
Established
in 1986, Fuer Agriculture Co., Ltd. is engaged in research and development,
manufacture and sales of high-tech foliar fertilizers, compound fertilizers,
biological pesticide and improved seeds. Its annual production volume is
approximately 1,500 metric tons for foliar fertilizers and 10,000 metric tons
for compound fertilizers. We are competing with this company principally in
the
Heilongjiang province.
3.
Heze Exploitation Region Caozhou Chamurgy Co., Ltd.
The
Heze
Exploitation Region Caozhou Chamurgy Co., Ltd. is an agricultural products
company. Its principal products include foliar, water flush, compound, organic
fertilizer and pesticides. Its products are sold in 30 provinces in China.
4.
Guangxi Beihai Penshibao Co., Ltd.
Founded
in 1985, Guangxi Beihai Penshibao Co., Ltd. is a wholly foreign owned enterprise
engaged in research, production, and promotion of foliar fertilizer. Its total
assets in 2004 were $14.4 million, and its total revenue in 2006 was $33.3
million.
In
December 2006, the Chinese fertilizer market was fully opened to foreign
companies, meaning foreign fertilizer companies could set up manufacturing
bases
in China and compete directly with domestic companies in the Chinese fertilizer
market. According to its WTO commitment, in January 2007, the PRC has increased
its fertilizer import quota and reduced the import tariffs on foreign fertilizer
to 1%.
Foreign
fertilizers are subject to import quotas as follows: carbamide 3.3 million
metric tons, phosphor 6.9 million metric tons, and compound fertilizer 3.45
million metric tons. Foreign fertilizer brands are generally more expensive
than
domestic fertilizer brands, and as a result, as of 2005, only 4.1 million metric
tons of fertilizer were imported, out of total consumption of 47.66 million
metric tons, or 8.6% (Source: China Customs). Therefore, we do not consider
foreign competition to be significant at this time.
Our
principal foreign competitors are:
1.
Cuikang (Hong Kong) Co., Ltd.
Cuikang
(Hong Kong) Co., Ltd. Is the China distributor and manufacturer of plant
nutrition products in Southern and Northern China for Yara Phosyn Ltd, which
was
established in 1967 in Pocklington, England. The company is engaged in research
and development, manufacturing, processing and marketing for nutrition products
for plants. As global market leader, Yara Phosyn today controls a truly
international business with over 90% of sales coming from overseas
markets.
2.
Beihai Komix activated liquid fertilizer Co., Ltd.
Beihai
Komix activated liquid fertilizer company is a wholly foreign owned company
authorized to produce and sell Komix liquid fertilizer which is broad spectrum
liquid compound type, and a tailored liquid compound type of fertilizer.
Competitive
Advantages
We
believe that we have the following five competitive advantages:
1.
Nation-wide sales network
Under
the
PRC planned economy before 1978, all agricultural production material was
purchased and distributed by a “supply and marketing cooperative” system, which
was a network of state-owned distributors from national and provincial level
down to the township and village level. However, after reforms, all “supply and
marketing cooperatives” became private wholesalers or retailers. In this highly
fragmented market, we were able to set up our own distribution channels with
private distributors and link them together. We have over 450 distributors
nation-wide across 27 provinces which sell its products to retail stores
scattered in villages and townships across China.
2.
Strong research and development
Our
research and development
is
managed effectively. Typically, it takes only three to nine months from the
decision to develop a new product to mass production, which ensures product
flow
and helps to maintain market share. Our
strong
research and development department is based at our intelligent greenhouse
facilities. The advanced equipment and soil-free techniques in such facilities
simulate the natural environment in different areas and control selected
factors. As a result, 60%-70% of TechTeam’s experimental work can be done in the
greenhouse, thereby speeding up product development cycles, and cutting costs
without sacrificing accuracy of results. Moreover, the agricultural products
grown in the greenhouse facility are sold to high end supermarkets and airline
companies, making our research and development activities a profit center.
During the fiscal year ended June 30, 2006, we generated revenue of $2 million
from our research and development
base
and
we anticipate that this source of revenue can grow in the future. For more
information on our research and development activities, please refer to
“Research and Development; Growth Strategy” on page 23 of this Current
Report.
3.
Well known brand
As
a
result of TechTeam’s high quality products, strong research and development
force, a nation—wide sales network and effective marketing efforts, our Jinong
and other four brands are enjoying higher market exposure and bigger market
share. TechTeam believes that its customers’ purchasing decisions are often
based on strong brand recognition.
4.
Automated Production Line and Process
All
of
our major production procedures are controlled by a centralized computer system
with access rights management, and our
47,000
square meter production facility’s
production
line is fully automated. Our automated systems ensure that content in each
product is measured exactly according to its recipe by linking the computer
server with the electronic weights on each of the material input bins. In
addition, spectral analysis is used to accurately check the composition of
materials.
5.
After sales services
We
have
contracted with more than 100 local sales people to do on-site marketing for
our
products. The sales personnel speak local dialects and are familiar with local
farmers’ needs. We have one district manager responsible for all the marketing
personnel and services in each region.
Intellectual
Property
Xi’an
Techteam Science and Technology Industry (Group) Co., Ltd. (the “Group
Company”), a company in which Mr. Tao Li has a controlling interest, is the
registered owner of the following trademark. The application for the
transfer of the registered owner from the Group Company to Techteam was
submitted to the PRC Trademark Office on October 15, 2007. During the interim
period from the date of the transfer application through the date the transfer
is effective, pursuant to a Trademark License Agreement by and between the
Group
Company and Techteam dated December 19, 2007, Techteam received an irrevocable,
royalty free, exclusive license on the trademark.
| Jinong (“Farmers’ Helper”) | Registration number: No. 1357523 |
The
following three trademarks are held under the name of Techteam’s predecessor,
Yanglin Techteam Jinong Humic Acid Product Co., Ltd. (“Yanglin”). Yanglin and
Techteam have applied with the PRC State Trademark Offices for the update of
registered owner’s information to reflect Techteam’s company name and address.
| Libangnong (“Farmer’s Mighty Helper”) | Registration number: No.1503 | |
| Zhimeizi (“Make Plants Grow with Luster”) | Registration number: No. 1504 | |
| Lepushi (“Make Farming Pleasant”) | Registration number: No. 1428 |
Techteam
has also applied for two patents: one for a fertilizer formulation and one
for
our proprietary production line and manufacturing processes.
In
addition to trademark and patent protection law in China, we also rely on
contractual confidentiality provisions to protect our intellectual property
rights and brand. Our research and development personnel and executive officers
are subject to confidentiality agreements to keep our proprietary information
confidential. In addition, they are subject to a covenant not to compete
following the termination of employment with our Company and they agree that
any
work product belongs to our Company. We also take the further steps of limiting
the number of people involved in production and, instead, of making available
lists of ingredients in fertilizers to production employees, we refer to them
by
numbers.
Employees
TechTeam
has 123 full-time employees. Of that amount, 27 are in administration, finance
and research and development, 11 in production and 85 in marketing and sales.
Research
and Development; Growth Strategy
In
2006,
we invested approximately $10 million to purchase and construct an advanced
intelligent greenhouse to serve as our research and development base. We believe
it has quickly become one of the leading green fertilizer research facilities
in
China. Flowers, fruits and vegetables that are grown for experimental testing
of
TechTeam’s humic acid organic liquid compound fertilizers in the greenhouses are
of high quality and value and are sold to local supermarkets and airline
companies. We sold approximately $2 million of these products during the first
two quarters of fiscal 2007 and we believe these sales, which make our research
and development facility a profit center, provide us with a significant
strategic advantage.
Our
research and development center covers approximately 137,000 square meters,
and
consists of six intelligent greenhouses, made by ACM-China Greenhouse
Engineering (Shanghai) Co., Ltd., the China branch of the Spanish manufacturer
of greenhouse facilities. In addition, the facility is equipped with an advanced
drip irrigation system supplied by Eldar-Shany Technology Co., Ltd. of Israel.
We also have water purification equipment supplied by Beijing Nuobaijing Science
& Technology Development Co., Ltd., a professional supplier of water
purification facilities, which allow us to perform tests with different pH
levels of water.
We
have
six technicians running and overseeing the research and development center.
We
also cooperate with the Shanghai Academy of Agricultural Science and contract
with experts in the humic acid fertilizer industry as technical consultants
to
provide support for our research and development, quality inspection and staff
training.
The
Company’s current research and development facilities are separated into two
parts. In one part, design and analysis is performed. At the second part,
testing is conducted. The locations are about a 60 minute drive apart. We plan
to further enhance our research and development capabilities by using part
of
the capital raised in the Private Placement to construct and equip an improved
facility on the same grounds as our greenhouses.
New
Product Development Process
Quickly
developing new products and reducing the product development cycles are the
principal purposes of our research and development facilities. There are eight
distinct phases in our product develop cycle:
1.
Market
Research: Front line staff continually collects new field data relating to
changes in market demand such as new product market size, price sensitivity
and
competition.
2.
Feasibility
Study Report: A team of five staff members correlate the data from across China
and compile a written feasibility study report on the basis of the information
collected detailing the product, expected market size, pricing, segmentation,
competition.
3.
Research
and Development Budget: A budget is calculated for the potential revenue and
cost of developing the new product.
4.
Research
and Development Approval: The budget report is presented for the CEO’s
approval.
5.
Laboratory
Sample and Test: Samples are made and tested in the laboratory using advanced
spectral analysis equipment.
6.
Field
Experiments: Field experiments are carried out, usually in the
greenhouse.
7.
Trial
Sales.
8.
Mass
Production.
New
Products Developed in 2007
With
our
strong and advanced research and development, we have developed more than 106
products. In early 2007, six new products were developed:
1.
Guokangmei
Green Nutriment Fertilizer: Supplies nutrients to strength and enhance fruit
size and sugar content.
2.
Jinong
Shizhuang: Balances the nutrients, stimulates the activity of plant enzymes
and
improves the quality and accelerates the growth of plants.
3.
Libangnong Humic Acid Potassium Fertilizer: Supplies potassium for the plants
to
improve the quality, and increases the vitamin and sugar content.
4.
Zhimeizi
Organic Liquid Compound Fertilizer: Meets the overall needs for nitrogen,
phosphor and potassium of plants.
5.
Yichongwang
No.1: Used by irrigating to the soil to stimulate seed germination and
viability, and root respiration and formation.
6.
Citrus
Fertilizer: a tailored fertilizer for citrus, to quickly supply elements to
promote blooming and prevent shattering, to enhance orange size and increase
sugar and vitamin content.
In
addition to developing new humic acid based fertilizer products, we are carrying
out some projects to develop derivatives from humic acid; examples are humic
acid liquid film mulch and humic acid sodium fodder additives. Also, some
soil-less seeding and breeding of colored-leaf plants, rare-flowers and new
species of fruits and vegetables are in the research stages.
Manufacturing
Process
Our
production procedure is scientifically designed and its automated production
line and strict quality control system ensures consistent high quality. Our
fully-automated production line is run by a central control system and only
needs the input of control technicians. The machinery and vats for the line
have
been supplied by a local medical machinery manufacturer and the automated
control systems were developed by us. Our access rights management system
ensures that our proprietary ingredient mixes are protected at all times. Also,
by linking the computer server with the electronic weights on each of the
material input bins, the exact quantity of each element is delivered every
time,
thus maintaining quality and reducing waste.
The
production facility is housed in a 47,000 sq. meter building. This facility
contains a total of 21 vats, 9 of which have a volume of 8 metric tons (1,000
kg), 2 with a volume of 12 metric tons, 8 with volume of 2 metric tons and
2
with volume of 1 metric ton. Eleven employees are dedicated to production.
Inventory
Our
efficient production methods allow for low inventory levels, which are typically
less than one week’s finished stock, with the majority of orders being shipped
directly to the client after production. We typically carry an inventory of
six
months of weathered coal.
Government
Regulation
Our
products and services are subject to regulation by governmental agencies in
the
PRC 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 PRC and provincial and local governments and
industry agencies, which are controlled and monitored through the issuance
of
licenses. Our licenses include:
Operating
license
Our
operating license enables us to undertake research and development, production,
sales and services of humic acid liquid fertilizer, sales of pesticides, and
export and import of products, technology and equipment. The registration No.
is
6100001020488, and it is valid between March 7, 2006 and March 6, 2010. Once
the
term has expired, the license is renewable.
Fertilizer
Registration
Fertilizer
registration is required for the production of liquid fertilizer and issued
by
the Ministry of Agriculture of the PRC. The registration numbers are:
Agriculture Fertilizer No. 467 (2004) No.1053, (2004) No.1054, (2004) No. 1427,
and (2004) No.1428.
PROPERTIES
Principal
Office and Manufacturing Facilities
Our
principal executive offices are located at 3rd floor, Borough A, Block A. No.
181, South Taibai Road, Xi’an, Shaanxi province, PRC, 710065, and the telephone
number is 011-86-29-88266386. The office space is approximately 800 square
meters in area.
We
also
own a factory in Yang Ling Agriculture High-tech Demonstration Zone, situated
in
No. 6 Guhua 5 Road, Yangling Xi’an, Shaanxi province, PRC, 712100. The factory
occupies an aggregate of approximately 47,081 square meters of land and contains
our production lines, office buildings, warehouses and research laboratories.
TechTeam’s
wholly owned subsidiary, Xi’an Jintai Agriculture Technology Development
Company, is located in Caotan Modern Agriculture Development Zone in the
northern suburb area of Xi’an. The Company has nine intelligent greenhouses and
six affiliated buildings, occupying a total area of approximately137,000 square
meters.
There
is
no private ownership of land in China. All land ownership is held by the
government of the PRC, its agencies and collectives. Land use rights can be
transferred upon approval by the land administrative authorities of the PRC
(State Land Administration Bureau) upon payment of the required land transfer
fee. We own the land use rights for the land on which our manufacturing facility
is situated, which have a term of 50 years from 2001. We lease the 137,000
square meters of land used for our research and development facility from Xi’an
Jinong Hi-tech Agriculture Demonstration Zone for 10 years with an annual rent
of approximately $13,690.
LEGAL
PROCEEDINGS
We
know
of no material, active, pending or threatened proceeding against us, Green
New
Jersey, TechTeam or Jintai, nor are we involved as a plaintiff in any material
proceeding or pending litigation.
DIRECTORS
AND EXECUTIVE OFFICERS
The
Company’s Directors and Executive Officers
Each
of
our current executive officers and each of our directors is a resident of the
PRC. As a result, it may be difficult for investors to affect service of process
within the United States upon them or to enforce court judgments obtained
against them in the United States courts.
|
Directors
and Executive Officers
|
Position/Title
|
Age
|
||
|
Tao
Li
|
Chairman,
Chief Executive Officer and President
|
42
|
||
|
Hao
Yu
|
Director
and Chief Financial Officer
|
41
|
||
|
Lian
Fu Liu
|
Director
|
69
|
The
following sets forth biographical information regarding the above Officers
and
Directors. In addition, it is anticipated that an additional two independent
directors will be appointed within 120 days of the closing of the Private
Placement pursuant to the requirements of the Securities Purchase
Agreement.
Tao
Li, Chairman of the Board of Directors, Chief Executive Officer and
President.
Mr. Li
has served as the President and CEO of TechTeam since 2000. Mr. Li established
Xi’an TechTeam Industry (Group) Co., Ltd. in 1996 and established TechTeam in
2000. He graduated from Northwest Polytechnic University and obtained his
Master’s degree in heat and metal treatment. Mr. Li is the current Vice Chairman
of the China Green Food Association. Previously, he has held positions at the
World Bank Loan Office of China Education Commission, National Key Laboratory
for Low Temperature Technology, and Northwest Polytechnic University. Mr. Li
is
active in Shaanxi Province business and trade organizations including as a
member of the CPPCC Shaanxi Committee, the Shaanxi Provincial Decision-Making
Consultation Committee, Vice Chairman of the Shaanxi Provincial Federation
of
Industry and Commerce, Vice President of the Shaanxi Overseas Friendship
Association, Vice Chairman of the Shaanxi Provincial Credit Association, Vice
Chairman of the Shaanxi Provincial Youth Entrepreneurs Association, Vice
Chairman of the Xi’an Municipal Federation of Industry and Commerce and Vice
Chairman of the Xi’an Municipal Youth Entrepreneurs Association.
Yu
Hao, Director and Chief Financial Officer.
Mr. Hao
has served as its Director of Finance at TechTeam since 2002. Prior to that,
he
was a financial manager for Shaanxi Fengxiang Automobile Repair Plant, and
Shaanxi Baoji Xinsanwei Import & Export Trading Co., Ltd. Mr. Hao holds a
degree in Accounting from Northwest Institute of Light Industry.
Lian
Fu Liu, Director.
Mr. Liu
has served as the Chairman of the China Green Food Association since 1998.
From
1992 to 1998, Mr. Liu was a Director and Senior Engineer for the China Green
Food Development Center. Prior to that, Mr. Liu was a Vice Director of the
PRC
Ministry of Agriculture. Mr. Li graduated from Beijing Forestry University
and
studied soil conservation.
Directors
and Executive Officers of TechTeam
TechTeam’s
current executive officers and Directors are as follows:
|
Directors
and Executive Officers
|
Position/Title
|
Age
|
||
|
Tao
Li
|
Director
and Chief Executive Officer and President
|
42
|
||
|
Xianglan
Li
|
General
Engineer
|
68
|
||
|
Yumin
Liu
|
Technical
Director
|
69
|
||
|
Yu
Hao
|
Financial
Manager
|
41
|
||
|
Feng
Wang
|
Sales
Director
|
31
|
||
|
XiuPing
Ren
|
Director
|
32
|
||
|
HaiHong
Xu
|
Director
|
34
|
||
|
WanJiao
Wang
|
Director
|
27
|
||
|
Xue
Tao Chen
|
Director
|
37
|
Xianglan
Li, General Engineer
.
Professor Li has served as general engineer at TechTeam since 2000. Professor
Li
graduated from Northwest A&F University and is an expert in Chinese soil
organic content.
Yumin
Liu, Technical Director
.
Professor Liu has served as Technical Director at TechTeam since 2000. Professor
Liu graduated from Northwest A&F University and is a well-known expert in
Agriculture, Geography and Soil & Water Conservation.
Wang
Feng, Sales Director
.
Mr.
Wang is the Director of Sales at TechTeam and has been with us since August
2002. Mr. Wang previously was our sales manager in the Guangdong and Gansu
areas.
XiuPing
Ren, Director.
Mr. Ren
is the Deputy Director of the Group Office of TechTeam and has been with us
since 2004. From 1999 to 2004 Mr. Ren held positions as Director of Human
Resources and Director of Market Planning of Xi’an Minsheng Group.
HaiHong
Xu, Director.
Mr. Xu
has served as the Director of the Administrative Group of TechTeam since 2007.
He previously held positions with Xi'an Techteam Engineering & Industry
(Group) Co., Ltd., Shaanxi Tongli Information Technology Co., Ltd and Xi'an
Minsheng Group.
WanJiao
Wang, Director.
Mr. Wang
has served as the Director of the Administrative Group of TechTeam since 2006.
He previously held the position of Deputy Director of the Administration Office
at Yangling Jinong Humic Acid Product Co., Ltd.
XueTao
Chen, Director.
Mr. Chen
has served as the General Manger of Shaanxi Tongli Computer System Co., Ltd
since 2002. He previously held a position as Vice General Manger at Xi'an
Yuansheng Investment Co., Ltd.
There
are
no family relationships among our directors or executive officers. To our
knowledge, none of our directors and executive officers (including the
directors
and
executive officers of our subsidiaries) has been involved in any of the
following proceeding during the past five years:
| 1. |
any
bankruptcy petition filed by or against any business of which such
person
was a general partner or executive officer either at the time of
the
bankruptcy or within two years prior to that
time;
|
| 2. |
any
conviction in a criminal proceeding or being subject to a pending
criminal
proceeding (excluding traffic violations and other minor
offenses);
|
| 3. |
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting
his
involvement in any type of business, securities or banking activities;
or
|
| 4. |
being
found by a court of competent jurisdiction (in a civil action), the
SEC or
the Commodity Futures Trading Commission to have violated a federal
or
state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
|
Audit
Committee Financial Expert
Our
board
of directors currently acts as our audit committee. We currently do not have
a
member who qualifies as an “audit committee financial expert” as defined in Item
401(e) of Regulation S-B and is “independent” as the term is used in Item 7(d)
(3) (iv) of Schedule 14A under the Securities Exchange Act. Our board of
directors is in the process of searching for a suitable candidate for this
position.
Audit
Committee
We
have
not yet appointed an audit committee. At the present time, we believe that
the
members of board of directors are collectively capable of analyzing and
evaluating our financial statements and understanding internal controls and
procedures for financial reporting.
EXECUTIVE
COMPENSATION
The
Company’s executive officers hold the same position with Green New Jersey and
TechTeam. The Company’s executive officers currently do not receive any
compensation for serving as executive officers of the Company or Green New
Jersey, but are compensated by and through TechTeam. The following table sets
forth information concerning cash and non-cash compensation paid by TechTeam
to
its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer
for each of the two fiscal years ended June 30, 2007 and June 30, 2006. No
executive officer of the Company, Green New Jersey or TechTeam received
compensation in excess of $100,000 for any of those two years.
|
Name and
Principal Position |
Year Ended
|
Salary ($)
|
Bonus
($)
|
Stock
Awards
|
Non-Equity
Incentive Plan
Compensation
(S) |
Non-
Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total ($)
|
|||||||||||||||||
|
Tao
Li
CEO
and President
|
06/30/2006
|
$
|
4863.24
|
-
|
-
|
-
|
-
|
$
|
2763.94
|
$
|
7627.18
|
||||||||||||||
|
(PEO)
|
06/30/2007
|
$
|
4863.24
|
-
|
-
|
-
|
-
|
$
|
2963.94
|
$
|
7627.18
|
||||||||||||||
|
Yu
Hao
CFO
|
06/30/2006
|
$
|
8105.40
|
-
|
-
|
-
|
-
|
$
|
939.38
|
$
|
9044.78
|
||||||||||||||
|
(PFO)
|
06/30/2007
|
$
|
8105.40
|
-
|
-
|
-
|
-
|
$
|
939.38
|
$
|
9044.78
|
||||||||||||||
Outstanding
Equity Awards at Fiscal Year-End.
There
were no individual grants of stock options to purchase our common stock made
to
the named executive officers in the Summary Compensation Table above during
the
fiscal year ended June 30, 2007.
On
January 31, 2008, we granted 20,000 stock options to our CFO, Mr. Yu
Hao with a term of three years with an exercise price of $3.25.
The
following table provides information on all restricted stock and stock option
awards held by our named executive officer as of the date of this prospectus.
|
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercis-able
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
|
|||||||||||||||||||
|
Yu Hao
CFO
(PFO)
|
20,000
|
—
|
0
|
3.25
|
01/29/2011
|
—
|
—
|
—
|
—
|
|||||||||||||||||||
Employment
Agreements
Tao
Li.
Pursuant
to an employment agreement between Techteam and Mr. Tao Li dated March 22,
2007,
Tao Li is employed by Techteam as its Chief Executive Officer. The term of
the
agreement is from March 22, 2007 to March 21, 2009. The agreement is
terminable by either party with 30 day prior written notice.
Hao
Yu.
Pursuant
to an employment agreement between Techteam and Mr. Yu Hao dated October 15,
2006, Mr. Yu Hao is employed by Techteam as its Chief Financial Officer. The
term of the agreement is from October 15, 2006 to October 14, 2008. The
agreement is terminable by either party with 30 day prior written
notice.
Director
Compensation
We
have
no formal or informal arrangements or agreements to compensate our directors
for
services they provide as directors. We plan to implement a compensation program
for our independent directors, which we anticipate will include such elements
as
an annual retainer, meeting attendance fees and stock options. The details
of
such compensation program will be negotiated with each such
director.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth certain information as of the date of this prospectus
with respect to the beneficial ownership of our common stock, the sole
outstanding class of our voting securities, by (i) any person or group owning
more than 5% of each class of voting securities, (ii) each director, (iii)
each
executive officer named in the Summary Compensation Table in the section
entitled “Executive Compensation” below and (iv) all executive officers and
directors as a group.
As
of the
date of this prospectus, an aggregate of 18,314,017 shares of our common stock
were outstanding.
In
determining the percent of common stock owned by a person as of the date of
this
prospectus, we divided (a) the number of shares of common stock beneficially
owned by such person, by (b) the sum of the total shares of common stock
outstanding on the date of this prospectus, plus the number of shares of common
stock beneficially owned by such person which were not outstanding, but which
could be acquired by the person within 60 days after the date herein upon
exercise of options, if any.
|
Title
of Class
|
Name
and Address of Beneficial
Owners (1) (2) |
Amount
and
Nature of Beneficial Ownership |
Percent
of
Class |
||||
|
Greater
Than 5% Shareholders
|
|||||||
|
Common
Stock
|
Yinshing
David To
|
10,241,893
|
(3) |
55.6
|
% | ||
|
Directors
and Executive Officers
|
|||||||
|
Common
Stock
|
Tao
Li
|
0
|
(4) |
0
|
% | ||
|
Common
Stock
|
Yu
Hao
|
20,000
|
(5) |
1
|
% | ||
|
Common
Stock
|
Lian
Fu Liu
|
0
|
0
|
% | |||
|
All executive officers and directors as a group
|
20,000
|
1
|
% |
| (1) |
Pursuant
to Rule 13d-3 under the Exchange Act, a person has beneficial ownership
of
any securities as to which such person, directly or indirectly, through
any contract, arrangement, undertaking, relationship or otherwise
has or
shares voting power and/or investment power or as to which such person
has
the right to acquire such voting and/or investment power within 60
days.
|
| (2) |
Unless
otherwise stated, each beneficial owner has sole power to vote and
dispose
of the shares and the address of such person is c/o Shaanxi TechTeam
Jinong Humic Acid Product Co., Ltd., at 3rd Floor, Borough A, Block
A.
No.181, South Taibai Road, Xian, Shaanxi Province, People’s Republic of
China 710065.
|
| (3) |
Among
the 10,241,893 shares of the common stock: (i) 6,535,676 shares of
Common
Stock are Earn In Shares pursuant to an agreement between Mr. Li
and Mr.
To as more fully described under footnote (4) below; (ii) 3,156,808
shares
of common stock are placed in an escrow account pursuant to the Make
Good
Escrow Agreement by and among the Company, Mr. To, the Investors
and the
escrow agent named therein. In the event that the Company does not
achieve
not less than $12,000,000 for after tax net income and $0.609 for
earnings
per share for our fiscal year ending June 30, 2009, respectively
(the
“2009 Targets”), the 3,156,808 shares of common stock will be conveyed to
the Investors for no additional consideration. In the event that
the
Company meets the 2009 Targets, the 3,156,808 shares will be transferred
to Mr. Li; and (iii) Mr. To is the beneficial owner 549,409 shares
of
common stock.
|
| (4) |
Pursuant
to an agreement entered into between our Chairman, President and
Chief
Executive Officer, Tao Li, and Yinshing David To, Mr. Li has the
opportunity to acquire up to 6,535,676 shares of our common stock
(the
“Earn In Shares”), from Mr. To, upon the occurrence of the conditions
described below.
|
|
Condition
|
Number
of Mr.
To's
Shares
which
may be
acquired
|
|||
|
Entry
by Mr. Li and TechTeam into a new binding employment agreement for
a term
of not less than five years for Mr. Li to serve as TechTeam's Chief
Executive Officer and Chairman of its Board of Directors.
|
3,267,838
|
|||
|
The
U.S. Securities and Exchange Commission declaring a registration
statement
filed by the Company under the Securities Act of 1933 effective,
or,
investors who purchased common stock from the Company pursuant to
the
Securities Purchase Agreement dated as of December 24, 2007 being
able to
sell their common stock under Rule 144, as then effective under the
U.S.
Securities Act of 1933, as amended.
|
1,089,279
|
|||
|
TechTeam
achieving not less than $7,000,000 in pre tax profits, as determined
under
United States Generally Accepted Accounting Principles consistently
applied (“US GAAP”) for the fiscal year ending June 30,
2008.
|
1,089,279
|
|||
|
TechTeam
achieving not less than $4,000,000 in pre tax profits, as determined
under
United States Generally Accepted Accounting Principles consistently
applied (“US GAAP”) for the six months ended December 31,
2008.
|
1,089,280
|
|||
The
purposes of the arrangement between Mr. Li and Mr. To are: (i) to incentivize
Mr. Li in connection with TechTeam’s business and (ii) to comply with PRC laws
and rules which regulate the acquisition of PRC companies by non-PRC entities.
Mr.
Li
and Mr. To have also entered into a voting trust agreement, pursuant to which
Mr. Li has the right to vote the Earn In Shares on all matters.
| (5) |
On
January 31, 2008, we granted 20,000 shares of stock options to our
CFO,
Mr. Yu Hao for a term of three years with an exercise price of $3.25.
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS; CORPORATE
GOVERNANCE
During
the fiscal years ended June 30, 2006 and June 30, 2007, the former shareholders
of TechTeam advanced a total of $666,618 to TechTeam as unsecured, non-interest
bearing loans which are due on demand.
As
the
date of this prospectus, Techteam owes $135,947 to its officers and
shareholders. Such advance from the officers and shareholders to Techteam was
unsecured, non-interest bearing and due on demand.
Issuance
of Common Stock to Former Majority Shareholder
On
December 26, 2007, we acquired 100% capital stock of Green New Jersey, through
a
share exchange in which we issued 10,770,668 shares of our common stock to
Green
New Jersey’s shareholders in exchange for 100% of Green New Jersey’s shares of
common stock (the “Share Exchange”). Immediately prior to the Share Exchange, we
redeemed 246,148 shares of common stock held by Michael Friess and Sanford
Schwartz (the “Redemption”) for $550,000 and issued 111,386 new shares of common
stock to Michael Friess and Sanford Schwartz.
Procedures
for Approval of Related Party Transactions
Our
policy is that our board of directors is charged with reviewing and approving
all potential related party transactions. All such related party
transactions are then required to be reported under applicable SEC rules.
Otherwise, we have not adopted procedures for review of, or standards for
approval of, these transactions, but instead review such transactions on a
case-by-case basis.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
Authorized
Capital Stock
.
Our
authorized capital stock consists of: (i) 115,197,165 shares of common stock,
par value $0.001 per share, of which there are 18,314,017 shares issued and
outstanding as of the date of this prospectus; and (ii) 20,000,000 shares of
“blank check” preferred stock, par value $0.001 per share, of which no shares
are issued and outstanding.
The
following is a summary of the material terms of our capital stock. This summary
is subject to and is qualified in its entirety by the Company’s Articles of
Incorporation, By-laws and the applicable provisions of Nevada law.
Holders
of shares of common stock are entitled to one vote for each share on all matters
to be voted on by the stockholders. According to our charter documents, holders
of our common stock do not have preemptive rights, and are not entitled to
cumulative voting rights. There are no conversion or redemption rights or
sinking funds provided for our stockholders. Shares of common stock share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available for distribution
as
dividends. In the event of a liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. All of the outstanding
shares of common stock are fully paid and non-assessable.
The
preferred stock may be issued from time to in one or more series, each series
having such voting, dividend and other rights and preferences as the Company’s
board of directors establish in the resolutions providing for their issuance.
All shares of preferred stock in any one series shall be identical with each
other in all respects.
Transfer
Agent and Registrar
Our
independent stock transfer agent is Corporate Stock Transfer, Inc., located
in
Denver, Colorado. Their mailing address is 3200 Cherry Creek Dr. South, Suite
430, Denver, CO 80209. Their phone number is 303-282-4800 and fax number is
303-282-5800.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
On
January 28, 2008, our Board of Directors approved the termination of Schumacher
& Associates, Inc. (“Schumacher”) as our independent certified public
accounting firm.
Concurrent
with this action, our Board of Directors appointed Kabani & Company, Inc.
(“Kabani”) as our new independent certified public accounting firm. Kabani is
located at 6033 West Century Blvd., Suite 810, Los Angeles, CA 90045, and has
been auditing the financial statements of Green New Jersey and its wholly owned
subsidiary Techteam. Accordingly, management elected to continue this existing
relationship with Kabani and engage it as the Company’s independent auditors.
Our
financial statements for the years ended June 30, 2007 and 2006 were audited
by
Schumacher. Schumacher’s reports on our financial statements for the two most
recent fiscal years did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles, except for the addition of an explanatory paragraph
regarding the Company’s ability to continue as a going concern.
During
the years ended June 30, 2007 and 2006, the interim period ended September
30,
2007, and through the date of the discontinuance of Schumacher’s engagement as
the Company’s independent accountant, there were no disagreements with
Schumacher on any matter of accounting principles or practices, financial
statement disclosure, auditing scope or procedure, which disagreements, if
not
resolved to the satisfaction of Schumacher, would have caused it to make
reference to the subject matter of the disagreement in its report on our
financial statements for such periods.
During
the fiscal years ended June 30, 2007 and 2006, the interim period ended
September 30,2007, and through the date of the discontinuance of Schumacher’s
engagement, there were no reportable events as defined under Item 304(a)(1)(v)
of Regulation S-K adopted by the Commission.
The
Company has provided Schumacher with a copy of this registration statement
prior
to its filing with the Commission and requested them to furnish a letter
addressed to the SEC stating whether it agrees with the statements made above.
A
copy of such letter from Schumacher to the Commission dated January 28, 2008
is
herein attached as Exhibit 16.1.
During
the period the Company engaged Schumacher, neither the Company nor anyone on
the
Company's behalf consulted with Kabani regarding either (i) the application
of
accounting principles to a specified transaction, either contemplated or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements or (ii) any matter that was either the subject of a
disagreement or a reportable event.
L
EGAL
MATTERS
Our
counsel, Guzov Ofsink, LLC, located at 600 Madison Avenue, 14th Floor, New
York,
New York 10022, is passing upon the validity of the issuance of the common
stock
that we are offering under this prospectus.
EXPERTS
Kabani
& Company, Inc.
,
independent public accountants located at
6033
West
Century Blvd., Suite 810, Los Angeles, CA 90045
,
have
audited the financial statements of Green New Jersey, Techteam included in
this
registration statement, and
Schumacher
& Associates, Inc.
,
independent certified public accountants, located at 2525 15th Street, Suite
3H
Denver, CO 80211, have audited the financial statements of Discovery
Technologies, Inc., the predecessor of the Company, included in this
registration statement, each to the extent, and for the periods set forth in
their respective reports. We have relied upon such reports, given upon the
authority of such firms as experts in accounting and auditing.
FINANCIAL
STATEMENTS
Green
New
Jersey’s unaudited consolidated financial statements for the three months ended
September 30, 2007 and the notes thereto,
Green
New
Jersey’s audited consolidated financial statements for the period from January
27, 2007 (inception) to June 30, 2007 and the notes thereto,
Techteam’s
audited financial statements for the fiscal years ended June 30, 2007 and 2006,
and Discovery Technologies, Inc.’s audited financial statements for the fiscal
years ended June 30, 2007 and 2006, together with the report of the independent
certified public accounting firm thereon and the notes thereto, are presented
beginning at page F-1.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the U.S. Securities and Exchange Commission (the “SEC”), located on
100 F Street NE, Washington, D.C. 20549, Current Reports on Form 8-K, Quarterly
Reports on form 10-QSB, Annual Reports on Form 10-KSB, and other reports,
statements and information as required under the Securities Exchange Act of
1934, as amended.
The
reports, statements and other information that we have filed with the SEC may
be
read and copied at the Commission's Public Reference Room at 100 F Street NE,
Washington, D.C. 20549. The public may obtain information on the operation
of
the Public Reference Room by calling the Commission at 1-800-SEC-0330.
The
SEC
maintains a web site (HTTP://WWW.SEC.GOV.) that contains the registration
statements, reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC such as us. You
may
access our SEC filings electronically at this SEC website. These SEC filings
are
also available to the public from commercial document retrieval
services.
SHAANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND
SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
TO
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Financial Statements:
|
||
|
Consolidated
Balance Sheet
|
F-3
|
|
|
Consolidated
Income Statements
|
F-4
|
|
|
Consolidated
Statement of Stockholders’ Equity
|
F-5
|
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
to F-19
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
SHANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD
AND
SUBSIDIARY
Xian,
China
We
have
audited the accompanying combined balance sheet of Shanxi Techteam Jinong
Humic
Acid Product Co., Ltd and Subsidiary, as of June 30, 2007 and the related
consolidated statements of income, members' equity and cash flows for
the years
ended June 30, 2007 and 2006. These consolidated financial statements
are the
responsibility of the Company's management. Our responsibility is to
express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Techteam Jinong Humic
Acid
Product Co., Ltd and Subsidiary, as of June 30, 2007, and the results
of their
operations and their cash flows for the years ended June 30, 2007 and
2006, in
conformity with accounting principles generally accepted in the United
States of
America.
Certified
Public Accountants
Los
Angeles, California
September
17, 2007
|
SHAANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND
SUBSIDIARY
|
|
|
CONSOLIDATED
BALANCE SHEET
|
|
|
AS
OF JUNE 30, 2007
|
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|
SHAANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND
SUBSIDIARY
|
|
|
CONSOLIDATED
INCOME STATEMENTS
|
|
|
FOR
THE YEARS ENDED JUNE 30, 2007 AND
2006
|
|
June
30,
|
|
||||||
|
|
|
2007
|
|
2006
|
|||
|
Net
sales
|
|||||||
|
Jinong
|
$
|
13,330,626
|
$
|
7,888,763
|
|||
|
Jintai
|
1,853,717
|
-
|
|||||
|
Total
Net Sales
|
15,184,343
|
7,888,763
|
|||||
|
Cost
of goods sold
|
|||||||
|
Jinong
|
5,413,524
|
(3,515,022
|
)
|
||||
|
Jintai
|
1,143,000
|
-
|
|||||
|
Total
Cost of goods sold
|
(6,556,524
|
)
|
(3,515,022
|
)
|
|||
|
Gross
profit
|
8,627,820
|
4,373,741
|
|||||
|
Operating
expenses
|
|||||||
|
Selling
expenses
|
(616,479
|
)
|
(653,628
|
)
|
|||
|
Operating
and administrative expenses
|
(395,207
|
)
|
(810,837
|
)
|
|||
|
Total
operating expenses
|
(1,011,686
|
)
|
(1,464,466
|
)
|
|||
|
Income
from operations
|
7,616,133
|
2,909,275
|
|||||
|
Other
income (expense)
|
|||||||
|
Miscellenous
(expense) income
|
(41,125
|
)
|
42,040
|
||||
|
Interest
expense
|
(361,254
|
)
|
(229,115
|
)
|
|||
|
Total
other income (expense)
|
(402,379
|
)
|
(187,075
|
)
|
|||
|
Income
before income taxes
|
7,213,754
|
2,722,200
|
|||||
|
Provision
for income taxes
|
(295,012
|
)
|
-
|
||||
|
Net
income
|
6,918,742
|
2,722,200
|
|||||
|
Other
comprehensive income (loss)
|
|||||||
|
Foreign
currency translation gain (loss)
|
261,432
|
(17,669
|
)
|
||||
|
Comprehensive
income
|
$
|
7,180,173
|
$
|
2,704,531
|
|||
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||||
|
SHAANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND
SUBSIDIARY
|
|
|
STATEMENT
OF STOCKHOLDERS' EQUITY
|
|
|
FOR
THE YEARS ENDED JUNE 30, 2007 AND
2006
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
Total
|
|
|||||||
|
|
|
Share
|
|
Statutory
|
|
Retained
|
|
Comprehensive
|
|
Stockholders'
|
|
|||||
|
|
|
Capital
|
|
Reserve
|
|
Earning
|
|
Income
|
|
Equity
|
||||||
|
BALANCE,
JULY 1, 2005
|
$
|
2,539,673
|
$
|
-
|
$
|
(3,772,593
|
)
|
$
|
(44.00
|
)
|
$
|
(1,232,965
|
)
|
|||
|
Net
income for the year ended June 30, 2006
|
- | - | 2,722,200 | - | 2,722,200 | |||||||||||
|
Contribution
by related parties
|
46,013 | - | - | - | 46,013 | |||||||||||
|
Accumulative
other comprehensive loss
|
- | - | - | (17,669 | ) | -17,669 | ||||||||||
|
BALANCE,
JUNE 30, 2006
|
2,585,686 | - | (1,050,393 | ) | (17,713 | ) | 1,517,579 | |||||||||
|
Net
income for the year ended June 30, 2007
|
- | - | 6,918,742 | - | 6,918,742 | |||||||||||
|
Contribution
by related parties
|
67,602 | - | - | - | 67,602 | |||||||||||
|
Transfer
to statutory reserve
|
- | 880,252 | (880,252 | ) | - | - | ||||||||||
|
Accumulative
other comprehensive income
|
- | - | - | 261,432 | 261,432 | |||||||||||
|
BALANCE,
JUNE 30, 2007
|
$
|
2,653,287
|
$
|
880,252
|
$
|
4,988,097
|
$
|
243,718
|
$
|
8,765,355
|
||||||
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|
SHAANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND
SUBSIDIARY
|
||||
|
STATEMENTS
OF CASH FLOWS
|
||||
|
FOR
THE YEARS ENDED JUNE 30, 2007 AND
2006
|
|
2007
|
|
2006
|
|||||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
6,918,742
|
$
|
2,722,200
|
|||
|
Adjustments
to reconcile net income to net cash
|
|||||||
|
provided
by operating activities
|
|||||||
|
Share
capital contribution - rental and interest paid by
shareholders
|
65,894
|
45,580
|
|||||
|
Depreciation
|
372,862
|
149,092
|
|||||
|
Amortization
|
93,813
|
90,854
|
|||||
|
Decrease
/ (Increase) in current assets:
|
|||||||
|
Accounts
receivable
|
69,879
|
(1,096,160
|
)
|
||||
|
Accounts
receivable-related party
|
1,571
|
(30,150
|
)
|
||||
|
Other
receivables
|
93,115
|
(181,819
|
)
|
||||
|
Inventories
|
(578,072
|
)
|
(134,625
|
)
|
|||
|
Advances
to suppliers
|
(35,068
|
)
|
(106,648
|
)
|
|||
|
Other
assets
|
(8,038
|
)
|
(1,535
|
)
|
|||
|
(Decrease)
/ Increase in current liabilities:
|
|||||||
|
Accounts
payable
|
(169,063
|
)
|
174,522
|
||||
|
Unearned
revenue
|
(42,983
|
)
|
118,349
|
||||
|
Tax
payables
|
1,602,499
|
471,540
|
|||||
|
Accrued
expenses
|
49,575
|
163,157
|
|||||
|
Other
payables
|
348,802
|
(35,279
|
)
|
||||
|
Net
cash provided by operating activities
|
8,783,528
|
2,349,077
|
|||||
|
Cash
flows from investing activities
|
|||||||
|
Acquisition
of plant, property, and equipment
|
(9,739,708
|
)
|
(21,345
|
)
|
|||
|
Additions
to construction in progress
|
(29,201
|
)
|
(11,630
|
)
|
|||
|
Net
cash used in investing activities
|
(9,768,909
|
)
|
(32,975
|
)
|
|||
|
Cash
flows from financing activities
|
|||||||
|
Proceeds
from (repayment of) installment loan
|
(191,922
|
)
|
2,329,549
|
||||
|
Proceeds
from (payments to) related parties
|
1,210,223
|
(4,624,456
|
)
|
||||
|
Net
cash provided by (used in) financing activities
|
1,018,301
|
(2,294,907
|
)
|
||||
|
Effect
of exchange rate change on cash and cash
equivalents
|
3,173
|
1,027
|
|||||
|
Net
increase in cash and cash equivalents
|
36,092
|
22,222
|
|||||
|
Cash
and cash equivalents, beginning balance
|
45,623
|
23,402
|
|||||
|
Cash
and cash equivalents, ending balance
|
$
|
81,716
|
$
|
45,623
|
|||
|
Supplement
disclosure of cash flow information
|
|||||||
|
Interest
expense paid
|
$
|
322,734
|
$
|
155,161
|
|||
|
Income
taxes paid
|
$
|
-
|
$
|
-
|
|||
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||||
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION
AND DESCRIPTION OF
BUSINESS
|
Yangling
Techteam Jinong Humic Acid Product Co., Ltd. was founded in the People’s
Republic of China on June 19, 2000. On Febuary 28, 2006, Yangling Techteam
Jinong Humic Acid Product Co., Ltd changed name to be Shaanxi Techteam
Jinong
Humic Acid Product Co., Ltd. (“Techteam Jinong”, “the Company”).
On
January 19, 2007, Techteam Jinong incorporated X’an Jintai Agriculture
Technology Development Company (hereinafter as “Xi’an Jintai”), as the
Experimental Base and green fertilizer Research Institute of Techteam
Jinong.
The
Company and its subsidiary are engaged in the research and development,
manufacture, distribution and technique support of green organic fertilizer.
Xian Jonong’s main business is to produce and sell fertilizers, and Xi’an
Jintai’s main business is to sell the product which are the by- product (fruit
and vegetables) from the experiments of developing the fertilizers.
|
2.
|
BASIS
OF PRESETATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Principle
of consolidation
The
accompanying consolidated financial statements include the accounts of
the
Company and its wholly owned subsidiary-- Xi’an Jintai. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Use
of
estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the consolidated financial statements and the amount of revenues
and
expenses during the reporting periods. Management makes these estimates
using
the best information available at the time the estimates are made. However,
actual results could differ materially from those results.
Cash
and cash equivalents
For
Statement of Cash Flows purposes, the Company considers all cash on hand
and in
banks, including accounts in book overdraft positions, certificates of
deposit
and other highly-liquid investments with maturities of three months or
less,
when purchased, to be cash and cash equivalents. As of June 30, 2007, cash
and
cash equivalents amounted to $81,716.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts
receivable
The
Company's policy is to maintain reserves for potential credit losses on
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. As of June 30, 2007, the Company
had
accounts receivable of $1,885,351, net of allowance of $218,796. The accounts
receivable as of June 30, 2007 includes receivable from a related party
amounting $43,363.
Advances
to suppliers
The
Company advances to certain vendors for purchase of its material. As of
June,
2006, the advances to suppliers amounted to $208,026. Advances to suppliers
are
current, non interest bearing and unsecured.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis)
or net
realizable value. The management compares the cost of inventories with
the net
realizable value and an allowance is made for writing down the inventories
to
their net realizable value, if lower than the cost.
Property,
plant and equipment
Property,
plant and equipment are recorded at cost. Gains or losses on disposals
are
reflected as gain or loss in the year of disposal. The cost of improvements
that
extend the life of plant, property, and equipment are capitalized. These
capitalized costs may include structural improvements, equipment, and fixtures.
All ordinary repair and maintenance costs are expensed as incurred.
Depreciation
for financial reporting purposes is provided using the straight-line method
over
the estimated useful lives of the assets:
|
|
Estimated
|
|
|
|
Useful
Life
|
|
|
Building
and improvements
|
10-40
years
|
|
|
Machinery
and equipments
|
5-15
years
|
|
|
Vehicle
|
12
years
|
Statement
of Financial Accounting Standard No. 107, "Disclosures about Fair Value
of
Financial Instruments", requires that the Company disclose estimated fair
values
of financial instruments.
The
Company's financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other receivables, advances to suppliers, accounts
payable,
other payable, tax payable, and related party advances and borrowings.
As
of the
balance sheet dates, the estimated fair values of the financial instruments
were
not materially different from their carrying values as presented on the
balance
sheet. This is attributed to the short maturities of the instruments and
that
interest rates on the borrowings approximate those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment
The
Company applies the provisions of Statement of Financial Accounting Standard
No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
No.
144"), issued by the Financial Accounting Standards Board ("FASB"). FAS
No. 144
requires that long-lived assets be reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset
may not
be recoverable through the estimated undiscounted cash flows expected to
result
from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount
by which
the carrying value exceeds the fair value.
The
Company tests long-lived assets, including property, plant and equipment
and
intangible assets subject to periodic amortization, for recoverability
at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the net carrying amount is greater than its
fair
value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows
of other
groups of assets. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the future estimated cash flows expected
to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures
the
amount of impairment by comparing the carrying amount of the asset to its
fair
value. The estimation of fair value is generally measured by discounting
expected future cash flows as the rate the Company utilizes to evaluate
potential investments. The Company estimates fair value based on the information
available in making whatever estimates, judgments and projections are considered
necessary. There was no impairment of long-lived assets for the years ended
June
30, 2007 and 2006.
Revenue
recognition
The
Company's revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Sales revenue is recognized at the date of shipment
to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company
exist
and collectibility is reasonably assured. Payments received before all
of the
relevant criteria for revenue recognition are satisfied are recorded as
unearned
revenue. As of June 30, 2007, unearned revenue amounted to $81,341.Payments
received before all of the relevant criteria for revenue recognition are
satisfied are recorded as unearned revenue.
The
Company's revenue consists of invoiced value of goods, net of a value-added
tax
(VAT). No product return or sales discount allowance is made as products
delivered and accepted by customers are normally not returnable and sales
discount is normally not granted after products are delivered.
Advertising
costs
The
Company expenses the cost of advertising as incurred or, as appropriate,
the
first time the advertising takes place. Advertising costs for the years
ended
June 30, 2007, and 2006 were $333,913 and $398,228, respectively.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income
taxes
The
Company accounts for income taxes using an asset and liability approach
which
allows for the recognition and measurement of deferred tax assets based
upon the
likelihood of realization of tax benefits in future years. Under the asset
and
liability approach, deferred taxes are provided for the net tax effects
of
temporary differences between the carrying amounts of assets and liabilities
for
financial reporting purposes and the amounts used for income tax purposes.
A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.
The
Company records a valuation allowance for deferred tax assets, if any,
based on
its estimates of its future taxable income as well as its tax planning
strategies when it is more likely than not that a portion or all of its
deferred
tax assets will not be realized. If the Company is able to utilize more
of its
deferred tax assets than the net amount previously recorded when unanticipated
events occur, an adjustment to deferred tax assets would increase the Company
net income when those events occur. The Company does not have any significant
deferred tax asset or liabilities in the PRC tax jurisdiction.
Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
applicable to both DES and FIEs. The two years tax exemption, three years
50%
tax reduction tax holiday for production-oriented FIEs will be eliminated.
The
Company is currently evaluating the effect of the new EIT law will have
on its
financial position.
Foreign
currency translation
The
reporting currency of the Company is the US dollar. The Company uses their
local
currency, Renminbi (RMB), as their functional currency. Results of operations
and cash flow are translated at average exchange rates during the period,
and
assets and liabilities are translated at the unified exchange rate at the
end of
the period. Translation adjustments resulting from this process are included
in
accumulated other comprehensive income in the statement of shareholders'
equity.
Transaction gains and losses that arise from exchange rate fluctuations
on
transactions denominated in a currency other than the functional currency
are
included in the results of operations as incurred.
Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the consolidated statement of shareholders' equity
and
amounted to $243,718 as of June 30, 2007. Translation gain (loss) for the
year
ended June 30, 2007 and 2006 amounted to $261,432 and $(17,669),
respectively.
Segment
reporting
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
Segments of an Enterprise and Related Information" 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. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
During
the year ended June 30, 2006, the company was organized in one segment.
During
the year ended June 30, 2007, the Company was organized into two main business
segments: fertilizer production (Jinong) and sale of fruits and
vegetables (Jintai). The following table presents a summary of operating
information and certain year-end balance sheet information for the years
ended
June 30, 2007
|
|
||||
|
Revenues
from unaffiliated customers:
|
|
|||
|
Jinong
|
$
|
13,330,626
|
||
|
Jintai
|
1,853,716
|
|||
|
Consolidated
|
$
|
15,184,343
|
||
|
|
||||
|
COGS
from unaffiliated customers:
|
||||
|
Jinong
|
$
|
5,413,523.31
|
||
|
Jintai
|
1,143,000.19
|
|||
|
Consolidated
|
$
|
6,556,523.50
|
||
|
|
||||
|
Operating
income (loss):
|
||||
|
Jinong
|
$
|
6,933,283
|
||
|
Jintai
|
682,849
|
|||
|
Consolidated
|
$
|
7,616,133
|
||
|
|
||||
|
Identifiable
assets:
|
||||
|
Jinong
|
$
|
15,627,864
|
||
|
Jintai
|
1,471,910
|
|||
|
Consolidated
|
$
|
17,099,774
|
||
|
|
||||
|
Depreciation
and amortization:
|
||||
|
Jinong
|
$
|
466,674
|
||
|
Jintai
|
-
|
|||
|
Consolidated
|
$
|
466,674
|
||
|
|
||||
|
Capital
expenditures:
|
||||
|
Jinong
|
$
|
9,768,909
|
||
|
Jintai
|
-
|
|||
|
Consolidated
|
$
|
9,768,909
|
||
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Statement
of cash flows
In
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," cash flows from the Company's operations is calculated
based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows may not necessarily
agree
with changes in the corresponding balances on the balance sheet.
Recent
accounting pronouncements
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having
previously concluded in those accounting pronouncements that fair value
is the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting
by
requiring an employer to measure the funded status of a plan as of the
date of
its year-end statement of financial position, with limited exceptions.
An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and
to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year
ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes
to
financial statements for a fiscal year ending after December 15, 2006,
but
before June 16, 2007, unless it has applied the recognition provisions
of this
Statement in preparing those financial statements:
1.
A
brief description of the provisions of this Statement
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
The
date that adoption is required
3.
The
date the employer plans to adopt the recognition provisions of this Statement,
if earlier.
The
requirement to measure plan assets and benefit obligations as of the date
of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted subject
to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value
option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets
and
liabilities.
|
3.
|
OTHER
ASSETS
|
As
of
June 30, 2007, other assets comprised of following:
|
Other
receivable
|
$ | 157,132 | ||
|
Promotion
samples
|
30,032 | |||
| Total | $ | 187,164 |
Other
receivables represent advances made to non-related companies and employees.
The
amounts were unsecured, interest free, and due on demand.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
4.
|
INVENTORIES
|
Inventories
consist of the following as of June, 2007:
|
Supplies,
packing and raw materials
|
$
|
153,498
|
||
|
Finished
goods
|
1,620,303
|
|||
|
Totals
|
$
|
1,773,802
|
The
supplies, packing and raw materials of the company consists of supplies,
packing
and chemicals for Jinong in the amount of $148,467 and supplies, packing
and
seeds for Jintai in the amount of $5,031 as of June 30, 2007. The finished
goods
of the company consist of finished goods for Jinong in the amount of $223,785
and finished goods for Jintai, which are flowers and vegetables, in the
amount
of $1,396,518.
|
5.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment consist of the following as of June 30, 2007:
|
Building
and improvements
|
$
|
7,223,219
|
||
|
Vehicle
|
21,387
|
|||
|
Machinery
and equipments
|
5,165,338
|
|||
|
Construction
in progress
|
42,707
|
|||
|
Total
property, plant and equipment
|
12,452,651
|
|||
|
Less:
accumulated depreciation
|
(652,013
|
)
|
||
|
Net
property plant and equipment
|
$
|
11,800,638
|
Depreciation
expenses for the years ended June 30, 2007 and 2006 were $372,862 and $149,092,
respectively.
|
6.
|
INTAGIBLE
ASSETS
|
The
intangible assets comprised of following at June 30, 2007:
|
$
|
844,623
|
|||
|
Technology
know-how, net
|
318,455
|
|||
|
Total
|
$
|
1,163,078,
|
LAND
USE RIGHT
Per
the
People's Republic of China's governmental regulations, the Government owns
all
land. However, the government grants the user a “land use right” (the Right) to
use the land. 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.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
shareholder contributed the land use rights on August 16
th
,
2001.
The land use right was recorded at cost of $881,497. The land use right
is for
fifty years. The land use right consist of the followings as of June 30,
2007:
|
$
|
881,497
|
|||
|
Less:
accumulated amortization
|
(36,874
|
)
|
||
|
$
|
844,623
|
TECHNOLOGY
KNOW-HOW
The
shareholder contributed the technology know-how on August 16, 2001. The
technology know-how is recorded at cost of $710,883. This technology is
the
special formula to produce humid acid. The technology know-how is valid
for 10
years. The technology know-how consists of the following as of June 30,
2007:
|
Technology
Know-how
|
$
|
710,883
|
||
|
Less:
accumulated amortization
|
(392,
428
|
)
|
||
|
|
$
|
318,455
|
Total
amortization expenses of intangible assets for the years ended June 30,
2007 and
2006 amounted to $93,813 and $90,854 respectively. Amortization expenses
of
intangible assets for next five years after June 30, 2007 are as
follows:
|
$
|
93,813
|
|||
|
June
30, 2009
|
93,813
|
|||
|
June
30, 2010
|
93,813
|
|||
|
June
30, 2011
|
93,813
|
|||
|
June
30, 2012
|
93,813
|
|||
|
Total
|
$
|
469,065
|
|
7.
|
RELATED
PARTY TRANSACTIONS
|
AMOUNTS
DUE TO RELATED PARTIES
The
amounts due to related parties were the advances from the Company’s shareholders
and subsidiaries owned by the same major shareholders, and were unsecured,
non-interest bearing and
due
on
demand
.
As
of
June
30,
2007,
amount
due to related parties amounted to $
666,618
.
COMMITMENTS
AND LEASES
The
Company’s shareholder provided free building space for the Company. The Company
has recorded the rent expenses at the rent based on Xian house rental market
of
$20,455 and $17,843 for the years ended June 30, 2007 and 2006, as contributed
capital.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
ACCRUED
EXPENSES
AND OTHER PAYABLES
|
Accrued
expenses and other payables comprised of following at June 30,
2007:
|
Payroll
payable
|
$
|
30,081
|
||
|
Welfare
payable
|
173,376
|
|||
|
Interest
and other accrued expenses
|
61,315
|
|||
|
Other
levy payable
|
36,853
|
|||
|
Employee
advance
|
53,573
|
|||
|
Advances
to other unrelated companies- Due on demand, interest free and
unsecured
|
489,637
|
|||
|
Total
|
$
|
844,835
|
All
other
payables are due in demand, and interest free.
|
9.
|
LOAN
PAYABLES
|
As
of
June 30, 2007, the loans payable are as follows:
|
Short
term loans payable:
|
|
|||
|
Xian
City Commercial Branch
|
$
|
1,970,580
|
||
|
Xian
Agriculture Credit Union
|
499,214
|
|||
|
Agriculture
Bank
|
1,773,522
|
|||
|
Total
|
$
|
4,243,316
|
||
As
of June 30, 2007, the Company had a loan payable of $1,970,580 to Xian City
Commercial Bank in China, with an annual interest rate of 9.585%, and
due on
April 1, 2008. The loan is pledge by the land use right and property
of the
Company.
As
of June 30, 2007, the Company had a loan payable of $499,214 to
Xian
Agriculture Credit Union
,
with an
annual interest rate of 9.216%, and due on September 26, 2007. The loan
is
guaranteed by a former shareholder. The Company’s shareholder paid interest
expenses of $45,439 and $27,737 as of June 30, 2007 and 2006 for this
loan. The
Company has recorded the interest expenses paid by the shareholder as
contributed capital.
As
of June 30, 2007, the Company had a loan payable of $1,773,522 to
Agriculture Bank in China, with an annual interest rate of 7.488%, and
on March
28, 2007, the loan is extended to March 27, 2008. The loan is guaranteed
by the
former shareholder.
The
interest expenses are $361,254 and $229,115 for the years ended June
30, 2007
and 2006.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
10.
|
TAX
PAYABLES
|
Tax
payables consist of the following as of June 30, 2007:
|
VAT
payable
|
$
|
1,824,259
|
||
|
Income
tax payable
|
302,907
|
|||
|
Other
levies
|
149,554
|
|||
|
Total
|
$
|
2,276,720
|
|
11.
|
INCOME
TAXES
|
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances
are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. At June 30, 2007 and 2006, there was no significant
book to tax differences.
Local
PRC income tax
The
Company is governed by the Income Tax Law of the PRC concerning Chinese
registered limited liability companies. Under the Income Tax Laws of the
PRC,
Chinese enterprises are generally subject to an income tax at an effective
rate
of 33% (30% state income taxes plus 3% local income taxes) on income reported
in
the statutory financial statements after appropriate tax adjustments, unless
the
enterprise is located in a specially designated region for which more favorable
effective tax rates are applicable. The provision for income taxes for
years
ended June 30, 2007 and 2006 are $295,012 and $0 respectively. The Company
utilized its net operating loss from prior years, in the year ended June
30,
2006.
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate at June 30, 2007 and 2006
|
2007
|
2006
|
||||||
|
Tax
at statutory rate
|
34
|
%
|
34
|
%
|
|||
|
Foreign
tax rate difference
|
-19
|
%
|
-19
|
%
|
|||
|
Net
operating loss in other tax jurisdiction for where no benefit
is
realized
|
-2
|
%
|
-15
|
%
|
|||
|
13
|
%
|
0
|
%
|
||||
Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
applicable to both DES and FIEs. The two years tax exemption, three years
50%
tax reduction tax holiday for production-oriented FIEs will be eliminated.
The
Company is currently evaluating the effect of the new EIT law will have
on its
financial position.
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
12.
|
OTHER
INCOME (EXPENSES)
|
Other
income
(expenses) mainly consists of inventory count loss and interest expenses
and are
as follows for the year ended June 30, 2007 and 2006.
|
June
30,
|
|||||||
|
2007
|
2006
|
||||||
|
Other
(expense) income
|
$
|
(41,125
|
)
|
$
|
42,040
|
||
|
Interest
expense
|
(361,254
|
)
|
(229,115
|
)
|
|||
|
Total
other income (expense)
|
$
|
(402,379
|
)
|
$
|
(187,075
|
)
|
|
|
13.
|
CURRENT
VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS
|
The
Company's operations are all 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, and by the general
state
of the PRC's economy.
The
company's operations in the PRC are subject to specific considerations
and
significant risks not typically associated with companies in the North
America
and Western Europe. These include risks associated with, among others,
the
political, economic and legal environments and foreign currency exchange.
The
Company's results may be adversely affected 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.
|
14.
|
STATUTORY
RESERVES
|
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
|
SHA
ANXI
TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
iv)
|
Allocations
to the discretionary surplus reserve, if approved in the shareholders'
general meeting.
|
In
accordance with the Chinese Company Law, the company has allocated 10%
of its
net income to surplus. The amount included in the statutory reserves as
of June
30, 2007 and 2006 amounted to $586,834 and $0, respectively.
The
Company established a reserve for the annual contribution of 5% of net
income to
the common welfare fund. The amount included in the statutory reserves
as of
June 30, 2007 and 2006 amounted to $293,418 and $0, respectively.
|
15.
|
SUBSEQUENT
EVENTS
|
Green
Agriculture Holding Corporation (Green Holding) acquired 100% outstanding
shares
of the Company on August 3, 2007.Green Holding was incorporated on January
27,
2007 under the laws of the State of New Jersey with two shareholders owning
89%
and 11% of stock equity of the Company. Green Holding, through its Chinese
subsidiaries Techteam Jinong and Xi’an Jintai is engaged in the research and
development, manufacture, distribution and technique support of green organic
fertilizer.
GREEN
AGRICULTURE HOLDING CORPORATION AND SUBSIDIARY
INDEX
TO
CONSOLIDATED FINANCIAL INFORMATION
|
ANNUAL
FINANCIAL STATEMENTS
|
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
Balance
Sheet at June 30, 2007
|
|
F-3
|
|
|
Statement
of Operations for the period January 27, 2007 (Inception) to
June 30, 2007
|
|
F-4
|
|
|
Statement
of Stockholders' Deficit for the period January 27, 2007 (Inception)
to
June 30, 2007
|
|
F-5
|
|
|
Statement
of Cash Flows for the period January 27, 2007 (Inception) to
June 30,
2007
|
|
F-6
|
|
|
Notes
to Financial Statements
|
|
F-7
|
|
|
QUARTERLY
FINANCIAL STATEMENTS
|
|
Page
|
|
|
Unaudited
Consolidated Balance Sheet at September 30, 2007
|
|
F-10
|
|
|
Unaudited
Consolidated Income Statements for the three-months ended September
30,
2007 and 2006
|
|
F-11
|
|
|
Unaudited
Consolidated Statements of Cash Flows for the three-months
ended September
30, 2007 and 2006
|
|
F-12
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
|
F-13
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders
Green
Agriculture Holding Corporation
We
have
audited the accompanying balance sheet of Green Agriculture Holding Corporation
(a New Jersey Corporation), a development stage entity, as of June 30,
2007 and
the related statement of operations, stockholders' deficit, and cash flows
for
the period from January 27, 2007 (inception) through June 30, 2007. These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement. An
audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe
that our
audit provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Green Agriculture Holding
Corporation as of June 30, 2007, and the results of its operations and
its cash
flows for the period from January 27, 2007 (inception), to June 30, 2007,
in
conformity with accounting principles generally accepted in the United
States of
America..
The
Company’s financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates
the
realization of assets and liquidation of liabilities in the normal course
of
business. The Company’s has not earned any revenue since its inception. This
factor as discussed in Note 3 to the financial statements raises substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
KABANI
& COMPANY, INC.
CERTIFIED
PUBLIC ACCOUNTANTS
Los
Angeles, California
October
3, 2007
|
GREEN
AGRICULTURE HOLDING CORPORTAION
|
|
|
(A
development stage company)
|
|
|
BALANCE
SHEET
|
|
|
June
30, 2007
|
|
ASSETS
|
||||
|
CURRENT
ASSETS:
|
||||
|
Cash
& cash equivalents
|
$
|
-
|
||
|
Total
assets
|
$
|
-
|
||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||
|
CURRENT
LIABILITIES:
|
$
|
-
|
||
|
STOCKHOLDERS'
DEFICIT
|
||||
|
Common
stock, no par value; Authorized
|
||||
|
shares
100,000; Issued and outstanding shares 100
|
10
|
|||
|
Deficit
accumulated during the development stage
|
(10
|
)
|
||
|
Total
stockholders' deficit
|
-
|
|||
|
Total
liabilities and stockholders' deficit
|
$
|
-
|
||
|
GREEN
AGRICULTURE HOLDING CORPORTAION
|
|
|
(A
development stage company)
|
|
|
STATEMENT
OF OPERATIONS
|
|
|
FOR
THE PERIOD JANUARY 27, 2007 (INCEPTION) TO JUNE 30,
2007
|
|
Net
revenue
|
$
|
-
|
||
|
|
||||
|
Operating
expenses
|
10
|
|||
|
|
|
|||
|
Operating
loss
|
(10
|
)
|
||
|
|
||||
|
Provision
for income tax
|
-
|
|||
|
Net
loss
|
$
|
(10
|
)
|
|
|
|
||||
|
Basic
and diluted net loss per share
|
$
|
(0.10
|
)
|
|
|
|
||||
|
Basic
and diluted weighted average shares outstanding
|
100
|
|||
The
accompanying notes are an integral part of these financial
statements.
|
GREEN
AGRICULTURE HOLDING CORPORTAION
|
||||||||||||||
|
(A
development stage company)
|
||||||||||||||
|
STATEMENT
OF STOCKHOLDERS' DEFICIT
|
||||||||||||||
|
FOR
THE PERIOD JANUARY 27, 2007 (INCEPTION) TO JUNE 30,
2007
|
|
Deficit
|
|||||||||||||
|
Common
stock
|
accumulated
|
Total
|
|||||||||||
|
Number
of
|
during
develop-
|
stockholders'
|
|||||||||||
|
shares
|
Amount
|
ment
stage
|
deficit
|
||||||||||
|
Balance
at January 27, 2007 (inception)
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Issuance
of common stock
|
100
|
10
|
-
|
10
|
|||||||||
|
Net
loss for the period January 27, 2007 (inception)
|
|||||||||||||
|
through
June 30, 2007
|
-
|
-
|
(10
|
)
|
(10
|
)
|
|||||||
|
Balance
at June 30, 2007
|
100
|
$
|
10
|
$
|
(10
|
)
|
$
|
0
|
|||||
|
GREEN
AGRICULTURE HOLDING CORPORTAION
|
|
|
(A
development stage company)
|
|
|
STATEMENT
OF CASH FLOWS
|
|
|
FOR
THE PERIOD JANUARY 27, 2007 (INCEPTION) TO JUNE 30,
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||
|
Net
loss
|
$
|
(10
|
)
|
|
|
|
||||
|
Net
cash used in operating activities
|
(10
|
)
|
||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||
|
Issuance
of Common Stocks for cash
|
10
|
|||
|
Net
cash provided by financing activities
|
10
|
|||
|
NET
INCREASE IN CASH & CASH EQUIVALENTS
|
-
|
|||
|
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
-
|
|||
|
|
||||
|
CASH
& CASH EQUIVALENTS, ENDING BALANCE
|
$
|
-
|
||
GREEN
AGRICULTURE HOLDING CORPORTAION
(A
development stage company
)
NOTES
TO FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION
OF BUSINESS AND BASIS OF
PRESENTATION
|
Green
Agriculture Holding Corporation. (“the Company”) is a development stage
enterprise incorporated in the State of New Jersey on January 27, 2007.
The
Company has had no significant operations since its inception. The Company
is
authorized to do any legal business activity as controlled by New Jersey
law.
The
accounting policies of the Company are in accordance with generally accepted
accounting principles and conform to the standards applicable to development
stage companies. The Company’s fiscal year ends on June 30, 2007.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and cash equivalents
The
Company considers all liquid investments with a maturity of three months
or less
from the date of purchase that are readily convertible into cash to be
cash
equivalents.
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Revenue will be recognized when services are rendered.
Generally, the Company will extend credit to its customers/clients and
would not
require collateral. The Company will perform ongoing credit evaluations
of its
customers/clients.
Income
taxes
Deferred
income tax assets and liabilities are computed annually for differences
between
the financial statements and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
laws and
rates applicable to the periods in which the differences are expected to
affect
taxable income (loss). Valuation allowance is established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Basic
and diluted net loss per share
Net
loss
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. Basic net loss per share
is based upon the weighted average number of common shares outstanding.
Diluted
net loss per share is based on the assumption that all dilutive convertible
shares and stock options were converted or exercised. Dilution is computed
by
applying the treasury stock method. Under this method, options and 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.
GREEN
AGRICULTURE HOLDING CORPORTAION
(A
development stage company
)
NOTES
TO FINANCIAL STATEMENTS
Development
Stage Enterprise
The
Company is a development stage enterprise, as defined in Financial Accounting
Standards Board No. 7. The Company‘s planned principal operations have not
commenced, and, accordingly, no revenue has been derived during this
period.
|
3.
|
GOING
CONCERN
|
As
of
June 30, 2007, the Company has no operating history under its current structure,
which raises substantial doubt about the Company’s ability to continue as a
going concern. The Company’s has not earned any revenue from operations since
its inception. The financial statements do not include any adjustments
that
might be necessary if the Company is unable to continue as a going
concern.
Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the
ability to continue as a going concern. On August 3, 2007, the Company
acquired
100% outstanding shares of Shaanxi Techteam Jinong Humic Acid Product Co.,
Ltd
from its shareholders. Shaanxi Techteam Jinong Humic Acid Product Co.,
Ltd is a
fertilizer producer company which is located at Xian, Shaanxi Province
of the
People’s Republic of China
|
4.
|
SHAREHOLDERS’
EQUITY
|
The
Company has authorized 10,000 shares of common stock, no par value. On
the
formation of the Company, the Company issued 100 shares representing the
initial
capitalization of the Company to founders for $10.
|
5.
|
INCOME
TAXES
|
As
the
Company has not generated taxable income since its inception, no provision
for
income taxes has been made. At June 30, 2007, the Company did not have
any
significant net operating loss carry forwards, deferred tax liabilities
or
deferred tax assets.
|
6.
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOWS
|
The
Company prepares its statements of cash flows using the indirect method
as
defined under the Financial Accounting Standard No. 95.
The
Company has paid $0 for income tax and none for interest, since its inception
through June 30, 2007.
|
7.
|
SUBSEQUENT
EVENTS
|
On
August
3, 2007, the Company acquired 100% outstanding shares of Shaanxi Techteam
Jinong
Humic Acid Product Co., Ltd from its shareholders.
Shaanxi
Techteam Jinong Humic Acid Product Co., Ltd (Techteam Jinong) was incorporated
on June 19, 2000. Techteam Jinong is primarily engaged in the research
and
development, manufacture, distribution and technique support of green organic
fertilizer in the People’s Republic of China.
The
exchange of shares with Techteam Jinong will be accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders
of
Techteam Jinong obtained the control of the Combined Company. Accordingly,
the
merger of the two companies will be recorded as a recapitalization of Techteam
Jinong, with the Techteam Jinong being treated as the continuing entity.
GREEN
AGRICULTURE HOLDING CORPORTAION
(A
development stage company
)
NOTES
TO FINANCIAL STATEMENTS
The
condensed financial statements of Techteam Jinong, as on June 30, 2007,
are as
follows:
Balance
Sheet:
|
Total
current assets
|
$
|
4,136,059
|
||
|
Property
& equipment
|
11,800,638
|
|||
|
Deposits
|
1,163,078
|
|||
|
Total
assets
|
$
|
17,
099,775
|
||
|
Current
liabilities
|
$
|
8,334,420
|
||
|
Stockholders’
equity
|
8,765,355
|
|||
|
Total
liabilities and stockholders’ equity
|
$
|
17,099,775
|
||
|
Income
Statement:
|
||||
|
Net
Revenue
|
$
|
15,184,343
|
||
|
Cost
of revenue
|
6,556,524
|
|||
|
Gross
profit
|
8,627,820
|
|||
|
Total
Operating expenses
|
1,011,686
|
|||
|
Income
from operations
|
7,616,133
|
|||
|
Miscellaneous
expense
|
41,125
|
|||
|
Interest
expenses
|
361,254
|
|||
|
Provision
for income
|
295,012
|
|||
|
Net
income
|
$
|
6,918,742
|
|
GREEN
AGRICULTURE HOLDING CORPORATION AND SUBSIDIARIES
|
|
|
CONSOLIDATED
BALANCE SHEET
|
|
|
AS
OF SEPTEMBER 30, 2007
|
|
|
(UNAUDITED)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
GREEN
AGRICULTURE HOLDING CORPORATION AND SUBSIDIARIES
|
|
|
CONSOLIDATED
INCOME STATEMENTS
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND
2006
|
|
|
(UNAUDITED)
|
|
Three
Months Ended
September
30,
|
|
||||||
|
|
|
2007
|
|
2006
|
|||
|
Net
sales
|
7,191,021
|
4,791,313
|
|||||
|
Cost
of goods sold
|
2,773,762
|
1,781,291
|
|||||
|
Gross
profit
|
4,417,259
|
3,010,022
|
|||||
|
Operating
expenses
|
|||||||
|
Selling
expenses
|
151,705
|
209,681
|
|||||
|
Operating
and administrative expenses
|
150,618
|
219,125
|
|||||
|
Total
operating expenses
|
302,323
|
428,806
|
|||||
|
Income
from operations
|
4,114,937
|
2,581,216
|
|||||
|
Other
income (expense)
|
|||||||
|
Other
income
|
9,301
|
1,302
|
|||||
|
Interest
income
|
125
|
-
|
|||||
|
Interest
expense
|
(92,569
|
)
|
(91,369
|
)
|
|||
|
Bank
charges
|
(22
|
)
|
(94
|
)
|
|||
|
Total
other income (expense)
|
(83,165
|
)
|
(90,162
|
)
|
|||
|
Income
before income taxes
|
4,031,772
|
2,491,055
|
|||||
|
Provision
for income taxes
|
-
|
199,880
|
|||||
|
Net
income
|
4,031,772
|
2,291,175
|
|||||
|
Other
comprehensive income
|
|||||||
|
Foreign
currency translation gain
|
174,461
|
35,266
|
|||||
|
Comprehensive
income
|
$
|
4,206,233
|
$
|
2,326,441
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
GREEN
AGRICULTURE HOLDING CORPORATION AND SUBSIDIARIES
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND
2006
|
|
|
(UNAUDITED)
|
|
|
Three
Months Ended
September
30,
|
|
||||||
|
|
|
2007
|
|
2006
|
|||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
4,031,772
|
$
|
2,291,175
|
|||
|
Adjustments
to reconcile net income to net cash
|
|||||||
|
provided
by operating activities
|
|||||||
|
Share
capital contribution - rental and interest paid by
shareholders
|
14,337
|
15,511
|
|||||
|
Depreciation
|
208,898
|
31,304
|
|||||
|
Amortization
|
24,253
|
19,271
|
|||||
|
Decrease
/ (Increase) in current assets
|
|||||||
|
Accounts
receivable
|
(4,095,432
|
)
|
(831,613
|
)
|
|||
|
Other
receivables
|
69,214
|
236,846
|
|||||
|
Inventories
|
(150,870
|
)
|
358,768
|
||||
|
Advances
to suppliers
|
(318,984
|
)
|
141,979
|
||||
|
Other
assets
|
(2,374
|
)
|
29,819
|
||||
|
(Decrease)
/ Increase in current liabilities
|
|||||||
|
Accounts
payable
|
287,180
|
(152,909
|
)
|
||||
|
Unearned
revenue
|
94,036
|
(40,931
|
)
|
||||
|
Tax
payables
|
757,460
|
491,391
|
|||||
|
Accrued
expenses
|
(341,719
|
)
|
39,307
|
||||
|
Other
payables
|
(16,974
|
)
|
(40,234
|
)
|
|||
|
Net
cash provided by operating activities
|
560,796
|
2,589,683
|
|||||
|
Cash
flows from investing activities
|
|||||||
|
Acquisation
of plant, property, and equipment
|
-
|
(869
|
)
|
||||
|
Additions
to construction in progress
|
-
|
(22,237
|
)
|
||||
|
Net
cash used in investing activities
|
-
|
(23,105
|
)
|
||||
|
Cash
flows from financing activities
|
|||||||
|
Payments
to related parties
|
(536,621
|
)
|
(2,443,916
|
)
|
|||
|
Effect
of exchange rate change on cash and cash
equivalents
|
1,509
|
1,475
|
|||||
|
Net
increase in cash and cash equivalents
|
25,684
|
124,136
|
|||||
|
Cash
and cash equivalents, beginning balance
|
81,716
|
45,623
|
|||||
|
Cash
and cash equivalents, ending balance
|
$
|
107,400
|
$
|
169,759
|
|||
|
Supplement
disclosure of cash flow information
|
|||||||
|
Interest
expense paid
|
$
|
(92,674
|
)
|
$
|
(88,035
|
)
|
|
|
Income
taxes paid
|
$
|
-
|
$
|
-
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
ORGANIZATION
AND DESCRIPTION OF BUSINESS
Green
Agriculture Holding Corporation (“Green Holding”, “the Company”) acquired 100%
outstanding shares of Techteam Jinong on August 3, 2007. Green Holding
was
incorporated on January 27, 2007 under the laws of the State of New Jersey
with
two shareholders owning 89% and 11% of stock equity of the Company. Green
Holding, through its Chinese subsidiaries Techteam Jinong and Xi’an Jintai is
engaged in the research and development, manufacture, distribution and
technique
support of green organic fertilizer.
Yangling
Techteam Jinong Humic Acid Product Co., Ltd. was founded in the People’s
Republic of China on June 19, 2000. On Febuary 28, 2006, Yangling Techteam
Jinong Humic Acid Product Co., Ltd changed name to be Shaanxi Techteam
Jinong
Humic Acid Product Co., Ltd. (“Techteam Jinong”).
On
January 19, 2007, Techteam Jinong incorporated X’an Jintai Agriculture
Technology Development Company(hereinafter as “Xi’an Jintai”), as the
Experimental Base and green fertilizer Research Institute of Techteam
Jinong.
The
Company and its subsidiaries are engaged in the research and development,
manufacture, distribution and technique support of green organic fertilizer.
Xian Jonong’s main business is to produce and sell fertilizers, and Xi’an
Jintai’s main business is to sell the product which are the by- product (fruit
and vegetables) from the experiments of developing the fertilizers.
NOTE
2 - BASIS OF PRESETATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
accompanying unaudited financial statements of the Company have been prepared
in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information required
by
generally accepted accounting principles for complete financial statements.
In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative
of the
results for any future period. These statements should be read in conjunction
with the Company's audited financial statements and notes thereto for the
fiscal
year ended June 30, 2007. The results of the three month period ended September
30, 2007 are not necessarily indicative of the results to be expected for
the
full fiscal year ending June 30, 2008.
Principle
of consolidation
The
accompanying consolidated financial statements include the accounts of
the
Company and its wholly-owned subsidiaries
—
Techteam
Jinong
and Xi’an Jintai. All significant inter-company accounts and transactions have
been eliminated in consolidation.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Use
of
estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the consolidated financial statements and the amount of revenues
and
expenses during the reporting periods. Management makes these estimates
using
the best information available at the time the estimates are made. However,
actual results could differ materially from those results.
Cash
and cash equivalents
For
statement of cash flows purposes, the Company considers all cash on hand
and in
banks, including accounts in book overdraft positions, certificates of
deposit
and other highly-liquid investments with maturities of three months or
less,
when purchased, to be cash and cash equivalents. As of September 30, 2007,
cash
and cash equivalents amounted to $ 107,400.
Accounts
receivable
The
Company's policy is to maintain reserves for potential credit losses on
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. As of September 30, 2007, the
Company
had accounts receivable of $6,046,270, net of allowance of $
222,276.
Advances
to suppliers
The
Company advances to certain vendors for purchase of its material. As of
September, 2007, the advances to suppliers amounted to $533,084.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis)
or net
realizable value. The management compares the cost of inventories with
the net
realizable value and an allowance is made for writing down the inventories
to
their net realizable value, if lower than the cost.
Property,
plant and equipment
Property,
plant and equipment are recorded at cost. Gains or losses on disposals
are
reflected as gain or loss in the year of disposal. The cost of improvements
that
extend the life of plant, property, and equipment are capitalized. These
capitalized costs may include structural improvements, equipment, and fixtures.
All ordinary repair and maintenance costs are expensed as incurred.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Depreciation
for financial reporting purposes is provided using the straight-line method
over
the estimated useful lives of the assets: 5 to 15 years for machinery;
3 to 5
years for leasehold improvement, 5 to 10 years for office equipment; and
3 to 5
years for motor vehicles.
Impairment
The
Company applies the provisions of Statement of Financial Accounting Standard
No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
No.
144"), issued by the Financial Accounting Standards Board ("FASB"). FAS
No. 144
requires that long-lived assets be reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset
may not
be recoverable through the estimated undiscounted cash flows expected to
result
from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount
by which
the carrying value exceeds the fair value.
The
Company tests long-lived assets, including property, plant and equipment
and
intangible assets subject to periodic amortization, for recoverability
at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the net carrying amount is greater than its
fair
value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows
of other
groups of assets. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the future estimated cash flows expected
to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures
the
amount of impairment by comparing the carrying amount of the asset to its
fair
value. The estimation of fair value is generally measured by discounting
expected future cash flows as the rate the Company utilizes to evaluate
potential investments. The Company estimates fair value based on the information
available in making whatever estimates, judgments and projections are considered
necessary. There was no impairment of long-lived assets for the three months
ended September 30, 2007.
Revenue
recognition
The
Company's revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Sales revenue is recognized at the date of shipment
to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company
exist
and collectibility is reasonably assured. Payments received before all
of the
relevant criteria for revenue recognition are satisfied are recorded as
unearned
revenue.
The
Company's revenue consists of invoiced value of goods, net of a value-added
tax
(VAT). No product return or sales discount allowance is made as products
delivered and accepted by customers are normally not returnable and sales
discount is normally not granted after products are delivered.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Advertising
costs
The
Company expenses the cost of advertising as incurred or, as appropriate,
the
first time the advertising takes place. Advertising costs for the three
months
ended September 30, 2007 and 2006, were $ 23,125 and $ 142,427, respectively.
Income
taxes
The
Company accounts for income taxes using an asset and liability approach
which
allows for the recognition and measurement of deferred tax assets based
upon the
likelihood of realization of tax benefits in future years. Under the asset
and
liability approach, deferred taxes are provided for the net tax effects
of
temporary differences between the carrying amounts of assets and liabilities
for
financial reporting purposes and the amounts used for income tax purposes.
A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.
The
Company records a valuation allowance for deferred tax assets, if any,
based on
its estimates of its future taxable income as well as its tax planning
strategies when it is more likely than not that a portion or all of its
deferred
tax assets will not be realized. If the Company is able to utilize more
of its
deferred tax assets than the net amount previously recorded when unanticipated
events occur, an adjustment to deferred tax assets would increase the Company
net income when those events occur. The Company does not have any significant
deferred tax asset or liabilities in the PRC tax jurisdiction.
Foreign
currency translation
The
functional currency of the Company is RMB. The Company uses the United
States
dollar ("U.S. dollars") for financial reporting purposes. The Company's
subsidiaries maintain their books and records in their functional currency,
being the primary currency of the economic environment in which their operations
are conducted. In general, for consolidation purposes, the Company translates
the subsidiaries' assets and liabilities into U.S. dollars using the applicable
exchange rates prevailing at the balance sheet date, and the statement
of income
is translated at average exchange rates during the reporting period. Gain
or
loss on foreign currency transactions are reflected on the income statement.
Gain or loss on financial statement translation from foreign currency are
recorded as a separate component in the equity section of the balance sheet,
as
component of comprehensive income. The functional currency of the Company
is
Chinese Renminbi. In particular, Renminbi ("RMB"), the PRC's official currency,
is the functional currency of the Company. Until July 21, 2005, RMB had
been
pegged to US$ at the rate of RMB8.28: US$1.00. On July 21, 2005, the PRC
government reformed the exchange rate system into a managed floating exchange
rate system based on market supply and demand with reference to a basket
of
currencies. In addition, the exchange rate of RMB to US$ was adjusted to
RMB8.11: US$1.00 as of July 21, 2005. The People's Bank of China announces
the
closing price of a foreign currency such as US$ traded against RMB in the
inter-bank foreign exchange market after the closing of the market on each
working day, which will become the unified exchange rate for the trading
against
RMB on the following working day. The daily trading price of US$ against
RMB in
the inter-bank foreign exchange market is allowed to float within a band
of 0.3%
around the unified exchange rate published by the People's Bank of China.
This
quotation of exchange rates does not imply free convertibility of RMB to
other
foreign currencies. All foreign exchange transactions continue to take
place
either through the Bank of China or other banks authorized to buy and sell
foreign currencies at the exchange rates quoted by the People's Bank of
China.
Approval of foreign currency payments by the Bank of China or other institutions
required submitting a payment application form together with invoices,
shipping
documents and signed contracts.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Fair
values of financial instruments
Statement
of Financial Accounting Standard No. 107, "Disclosures about Fair Value
of
Financial Instruments", requires that the Company disclose estimated fair
values
of financial instruments.
The
Company's financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other receivables, advances to suppliers, accounts
payable,
other payable, tax payable, and related party advances and
borrowings.
As
of the
balance sheet dates, the estimated fair values of the financial instruments
were
not materially different from their carrying values as presented on the
balance
sheet. This is attributed to the short maturities of the instruments and
that
interest rates on the borrowings approximate those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.
Segment
reporting
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
Segments of an Enterprise and Related Information" 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. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company.
During
the three month ended September 30, 2006, the company was organized in
one
segment. During the three month ended September 30, 2007, the Company was
organized into two main business segments: produce fertilizer (Jinong)
and
agricultural products (Jintai). The following table presents a summary
of
operating information and certain year-end balance sheet information for
the
three month ended September 30, 2007.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
Three
months ended
September
30,
|
|||||||
|
2007
|
|
2006
|
|
||||
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|||
|
Revenues
from
unaffiliated
customers:
|
|||||||
|
Fertilizer
|
$
|
5,588,757
|
$
|
4,791,313
|
|||
|
Agricultural
products
|
1,602,264
|
-
|
|||||
|
Consolidated
|
$
|
7,191,021
|
$
|
4,791,313
|
|||
|
Operating
income :
|
|||||||
|
Fertilizer
|
$
|
3,131,416
|
$
|
2,581,216
|
|||
|
Agricultural
products
|
983,521
|
-
|
|||||
|
Consolidated
|
$
|
4,114,937
|
$
|
2,581,216
|
|||
|
Identifiable
assets:
|
|||||||
|
Fertilizer
|
$
|
19,913,001
|
$
|
11,470,487
|
|||
|
Agricultural
products
|
2,325,120
|
-
|
|||||
|
Reconciling
item (1)
|
(406,264
|
)
|
-
|
||||
|
Reconciling
item (2)
|
(133,461
|
)
|
-
|
||||
|
Consolidated
|
$
|
21,698,396
|
$
|
11,470,487
|
|||
|
Net
income
|
|||||||
|
Fertilizer
|
$
|
3,048,148
|
$
|
2,491,055
|
|||
|
Agricultural
products
|
983,624
|
-
|
|||||
|
Consolidated
|
$
|
4,031,772
|
$
|
2,491,055
|
|||
|
Interest
expense:
|
|||||||
|
Fertilizer
|
$
|
92,569
|
$
|
91,369
|
|||
|
Agricultural
products
|
-
|
-
|
|||||
|
Consolidated
|
$
|
92,569
|
$
|
91,369
|
|||
(1)
Reconciling amounts include adjustments to eliminate inter company
transactions.
(2)
Reconciling amounts include adjustments to eliminate inter company
investment.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Statement
of cash flows
In
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," cash flows from the Company's operations is calculated
based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows may not necessarily
agree
with changes in the corresponding balances on the balance sheet.
Recent
accounting pronouncements
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having
previously concluded in those accounting pronouncements that fair value
is the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting
by
requiring an employer to measure the funded status of a plan as of the
date of
its year-end statement of financial position, with limited exceptions.
An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and
to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year
ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes
to
financial statements for a fiscal year ending after December 15, 2006,
but
before June 16, 2007, unless it has applied the recognition provisions
of this
Statement in preparing those financial statements:
1.
A
brief description of the provisions of this Statement
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2.
The
date that adoption is required
3.
The
date the employer plans to adopt the recognition provisions of this Statement,
if earlier.
The
requirement to measure plan assets and benefit obligations as of the date
of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted subject
to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value
option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets
and
liabilities.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period
presentation.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 - INVENTORIES
Inventories
consist of the following as of September 30, 2007 :
|
Supplies,
packing and raw materials
|
$
|
244,039
|
||
|
Finished
goods
|
1,710,152
|
|||
|
Totals
|
$
|
1,954,191
|
NOTE
4 - OTHER ASSETS
As
of
September 30, 2007, other assets comprised of following:
|
Other
receivable
|
$
|
89,816
|
||
|
Promotion
samples
|
32,905
|
|||
|
Total
|
$
|
122,721
|
Other
receivables represent advances made to non-related companies and employees.
The
amounts were unsecured, interest free, and due on demand.
NOTE
5 - PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following as of September 30,
2007
|
Building
and improvements
|
$
|
7,338,102
|
||
|
Vehicle
|
21,728
|
|||
|
Machinery
and equipments
|
5,247,490
|
|||
|
Totals
|
12,607,320
|
|||
|
Less:
accumulated depreciation
|
(873,090
|
)
|
||
|
|
$
|
11,734,230
|
Depreciation
expenses for the three months ended September 30, 2006 and 2007 were $31,304
and
$208,898, respectively.
NOTE
6 - INTAGIBLE ASSETS
The
intangible assets comprised of following at September 30, 2007:
|
$
|
853,196
|
|||
|
Technology
know-how, net
|
303,917
|
|||
|
Total
|
$
|
1,157,113
|
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
LAND
USE RIGHT
Per
the
People's Republic of China's governmental regulations, the Government owns
all
land. However, the government grants the user a “land use right” (the Right) to
use the land. 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
shareholder contributed the land use rights on August 16
th
,
2001.
The land use right was recorded at cost of $972,280. The land use right
is for
fifty years. The land use right consist of the followings as of September
30,
2007:
|
$
|
972,280
|
|||
|
Less:
accumulated amortization
|
(119,084
|
)
|
||
|
$
|
853,196
|
TECHNOLOGY
KNOW-HOW
The
shareholder contributed the technology know-how on August 16, 2001. The
technology know-how is recorded at cost of $784,095. This technology is
the
special formula to produce humid acid. The technology know-how is valid
for 10
years. The technology know-how consists of the following as of September
30,
2007:
|
Technology
Know-how
|
$
|
784,095
|
||
|
Less:
accumulated amortization
|
(480,178
|
)
|
||
|
|
$
|
303,917
|
Total
amortization expenses of intangible assets for the years ended September
30,
2007 and 2006 amounted to $24,253 and $19,271 respectively. Amortization
expenses of intangible assets for next five years after September 30, 2007
are
as
follows:
|
$
|
93,813
|
|||
|
September
30, 2009
|
93,813
|
|||
|
September
30, 2010
|
93,813
|
|||
|
September
30, 2011
|
93,813
|
|||
|
September
30, 2012
|
93,813
|
|||
|
Total
|
$
|
469,065
|
NOTE
7 - AMOUNT DUE TO RELATED PARTIES
The
amount due to related parties were the advances from the Company’s officers and
shareholders, and was unsecured, non-interest bearing and
due
on
demand
.
As of
September
30, 2007,
amount
due to related parties amounted to $1
35,947.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 -
ACCRUED
EXPENSES
AND OTHER PAYABLES
Accrued
expenses and other payables of the following as of September 30,
2007:
|
Payroll
payable
|
$
|
32,527
|
||
|
Welfare
payable
|
201,421
|
|||
|
Interest
and other accrued expenses
|
58,167
|
|||
|
Other
levy payable
|
55,962
|
|||
|
Employee
advance
|
69,361
|
|||
|
Advances
to other unrelated companies- Due on demand, interest free and
unsecured
|
79,031
|
|||
|
Total
|
$
|
496,469
|
NOTE
9 -
LOAN
PAYABLES
As
of
September 30, 2007, the loans payable are as follows:
|
Short
term loans payable:
|
|
|||
|
Xian
City Commercial Branch
|
$
|
2,001,923
|
||
|
Xian
Agriculture Credit Union
|
507,153
|
|||
|
Agriculture
Bank
|
1,801,729
|
|||
|
Total
|
$
|
4,310,805
|
||
As
of September 30, 2007, the Company had a loan payable of $2,001,923 to Xian
City Commercial Bank in China, with an annual interest rate of 9.585%,
and due
on April 1, 2008. The loan is pledge by the land use right and property
of the
Company.
As
of
September 30, 2007, the Company had a loan payable of $507,153 to
Xian
Agriculture Credit Union
,
with an
annual interest rate of 9.216%, and due on September 26, 2007. On September
10,
2007, the loan was extended to September 16, 2008 with an annual interest
rate
of 11.795%. The loan is guaranteed by a former shareholder. The Company’s
shareholder paid interest expenses of $12,393 and $10,991 as of September
30,
2007 and 2006 for this loan. The Company has recorded the interest expenses
paid
by the shareholder as contributed capital.
As
of September 30, 2007, the Company had a loan payable of $1,801,729 to
Agriculture Bank in China, with an annual interest rate of 7.488%, and
due on
September 26, 2007. On March 28, 2007, the loan is extended to March
27, 2008.
The loan is guaranteed by the former shareholder.
The
interest expenses are $92,569 and $91,369 for three months ended September
30,
2007 and 2006.
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 - TAX PAYABLES
Tax
payables consist of the following as of September 30, 2007
|
VAT
payable
|
$
|
2,547,065
|
||
|
Income
tax payable
|
308,657
|
|||
|
Other
levies
|
221,235
|
|||
|
Total
|
$
|
3,076,957
|
||
NOTE
11 - OTHER INCOME (EXPENSES)
Other
income (expenses) mainly consist of interest expenses and subsidy income
from
government.
NOTE
12 - INCOME TAXES
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances
are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company is subject to PRC Enterprise Income Tax at a rate of 33% on the
net
income. For the year 2007, the company can enjoy tax-free benefit because
it
becomes a foreign invested company according to the PRC tax law. The income
tax
expenses for the three month ended September 30, 2007 and 2006 are $0 and
$199,880 respectively.
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate at September 30, 2007 and 2006:
|
2007
|
2006
|
||||||
|
Tax
at statutory rate
|
34
|
%
|
34
|
%
|
|||
|
Foreign
tax rate difference
|
-19
|
%
|
-19
|
%
|
|||
|
Net
operating loss in other tax jurisdiction for where no benefit
is
realized
|
-15
|
%
|
-7
|
%
|
|||
|
0
|
%
|
8
|
%
|
||||
GREEN
AGRICULTURE HOLDING CORPORTAION
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
applicable to both DES and FIEs. The two years tax exemption, three years
50%
tax reduction tax holiday for production-oriented FIEs will be eliminated.
The
Company is currently evaluating the effect of the new EIT law will have
on its
financial position
Due
to
non-operation in U.S. and tax free status in China, the Company had no
deferred
tax for the three months ended September 30, 2007 and 2006.
NOTE
13 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The
Company's operations are all 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, and by the general
state
of the PRC's economy.
The
company's operations in the PRC are subject to specific considerations
and
significant risks not typically associated with companies in the North
America
and Western Europe. These include risks associated with, among others,
the
political, economic and legal environments and foreign currency exchange.
The
Company's results may be adversely affected 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.
MAJOR
CUSTOMERS AND VENDORS
There
are
two vendors that are over 10% of the total purchase for the three months
ended
September 30, 2007 with each vendor individually accounting for about 14%
and
10%. There are two vendors that are over 10% of the total purchase for
the three
months ended September 30, 2006 with each vendor individually accounting
for
about 13% and 12%.
There
is
no customer that is accounted over 10% of the total sales as of three months
ended September 30, 2007 and 2006.
NOTE
14 - STATUTORY RESERVES
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;
|
INDEX
TO FINANCIAL STATEMENTS
DISCOVERY
TECHNOLOGIES, INC.
FINANCIAL
STATEMENTS
with
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Discovery
Technologies, Inc.
We
have
audited the accompanying balance sheet of Discovery Technologies, Inc. (A
Development Stage Company) as of June 30, 2007, and the related statements
of
operations, stockholders' (deficit), and cash flows for the two years ended
June
30, 2007 and 2006, and for the period from December 4, 2006 (date of
commencement of development stage) to June 30, 2007. These financial statements
are the responsibility of the Company's management. Our responsibility is
to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Discovery Technologies, Inc.
(A
Development Stage Company) as of June 30, 2007 and 2006, and the results
of its
operations, and its cash flows for the two years ended June 30, 2007 and
2006,
and for the period from December 4, 2006 (date of commencement of development
stage) to June 30, 2007, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As described in Note 1, the Company has
no
business operations and has working capital and stockholders’ deficits, which
raise substantial doubt about its ability to continue as a going concern.
Management's plan in regard to this matter is also discussed in Note 1. The
financial statements do not include any adjustments that might result from
the
outcome of these uncertainties.
Schumacher
& Associates, Inc.
Certified
Public Accountants
2525
Fifteenth Street, Suite 3H
Denver,
Colorado 80211
September
21, 2007
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
BALANCE
SHEET
June
30,
2007
ASSETS
|
Current
Assets:
|
||||
|
Cash
|
$
|
5,207
|
||
|
TOTAL
ASSETS
|
$
|
5,207
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
Current
Liabilities:
|
||||
|
Accounts
payable
|
$
|
14,723
|
||
|
Accounts
payable, related party
|
2,797
|
|||
|
Total
Current Liabilities
|
17,520
|
|||
|
TOTAL
LIABILITIES
|
17,520
|
Commitments
and contingencies (Notes 1,2,4 and 5)
|
Stockholders'
(DEFICIT):
|
||||
|
Common
stock, no par value 800,000,000 shares authorized, 18,746,196 issued
and
outstanding
|
1,062,470
|
|||
|
Accumulated
(deficit)
|
(1,052,470
|
)
|
||
|
Accumulated
(deficit) during development stage
|
(22,313
|
)
|
||
|
TOTAL
STOCKHOLDERS' (DEFICIT)
|
(12,313
|
)
|
||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
|
$
|
5,207
|
The
accompanying notes are an integral part of the financial statements.
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
|
For
the Year Ended
|
For
the
Period
from
December
4,
2006
(date
of
commencement
of
development
stage)
through
|
|||||||||
|
June
30, 2007
|
June
30, 2006
|
June
30, 2007
|
||||||||
|
Revenues
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Expenses:
|
||||||||||
|
Attorney
fees
|
2,716
|
-
|
2,716
|
|||||||
|
Audit
fees
|
10,000
|
-
|
10,000
|
|||||||
|
Bank
charges
|
3
|
-
|
3
|
|||||||
|
Contract
services fees
|
376
|
-
|
376
|
|||||||
|
Edgar
filing fees
|
460
|
-
|
460
|
|||||||
|
General
corporate fees
|
815
|
-
|
815
|
|||||||
|
Transfer
agent fees
|
7,897
|
-
|
7,897
|
|||||||
|
Office
supplies
|
46
|
-
|
46
|
|||||||
|
Net
(Loss)
|
$
|
(22,313
|
)
|
-
|
(22,313
|
)
|
||||
|
Per
Share
|
$
|
(0.003
|
)
|
$
|
nil
|
$ |
(0.002
|
)
|
||
|
Weighted
Average Number of Shares Outstanding
|
8,746,196
|
3,746,196
|
12,484,060
|
|||||||
The
accompanying notes are an integral part of the financial statements.
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
STATEMENT
OF CHANGES IN STOCKHOLDERS' (DEFICIT)
For
the
Period from July 1, 2005 through June 30, 2007
|
Common
Shares
|
Stock
Amount
|
Accumulated
(Deficit)
|
Accumulated
(Deficit)
During
Development
Stage
|
Total
|
||||||||||||
|
Balance
at July 1, 2005
|
3,746,196
|
1,052,470
|
(1,052,470
|
)
|
-
|
-
|
||||||||||
|
Net
loss- year ended June 30, 2006
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Balance
at June 30, 2006
|
3,746,196
|
1,052,470
|
(1,052,470
|
)
|
-
|
-
|
||||||||||
|
Issuance
of stock for cash at $.0007, March 15, 2007
|
15,000,000
|
10,000
|
-
|
-
|
10,000
|
|||||||||||
|
Net
loss- year ended June, 30 2007
|
-
|
-
|
-
|
(22,313
|
)
|
(22,313
|
)
|
|||||||||
|
Balance
at June, 30 2007
|
18,746,196
|
$
|
1,062,470
|
$
|
(1,052,470
|
)
|
$
|
(22,313
|
)
|
$
|
(12,313
|
)
|
||||
The
accompanying notes are an integral part of the financial statements.
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
|
For
the Year Ended
|
For
the
Period
from
December
4,
2006
(date
of
commencement
of
development
stage)
through
|
|||||||||
|
June
30,
2007
|
June
30,
2006
|
June
30,
2007
|
||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||
|
Net
(loss)
|
$
|
(22,313
|
)
|
$
|
-
|
$
|
(22,313
|
)
|
||
|
Adjustments
to reconcile net loss
to
net cash used in operating
activities:
|
||||||||||
|
Increase
in accounts payable
|
17,520
|
-
|
17,520
|
|||||||
|
Net
Cash (Used in) Operating Activities
|
(4,793
|
)
|
-
|
(4,793
|
)
|
|||||
|
Cash
Flows from Investing Activities
|
-
|
-
|
-
|
|||||||
|
Cash
Flows from Financing Activities
|
||||||||||
|
Issuance
of common stock For cash
|
10,000
|
-
|
10,000
|
|||||||
|
Net
Cash Provided by Financing Activities
|
10,000
|
-
|
10,000
|
|||||||
|
Increase
in Cash
|
5,207
|
-
|
5,207
|
|||||||
|
Cash,
Beginning of Period
|
-
|
-
|
-
|
|||||||
|
Cash,
End of Period
|
$
|
5,207
|
$
|
-
|
$
|
5,207
|
||||
|
Interest
Paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Income
Taxes Paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
The
accompanying notes are an integral part of the financial statements.
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
June
30,
2007
(1)
Summary of Accounting Policies, and Description of Business
This
summary of significant accounting policies of Discovery Technologies, Inc.
(Company), a “Development Stage Enterprise”, is presented to assist in
understanding the Company's financial statements. The financial statements
and
notes are representations of the Company's management who is responsible
for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles in the United States of America and have been
consistently applied in the preparation of the financial statements.
(a)
Organization and Description of Business
The
Company was incorporated as Discovery Technologies, Inc. in 1987 under the
laws
of the State of Kansas.
On
November 30, 1996, the Company was suspended from being a Kansas corporation
as
a result of non-filing of required documents by the state of Kansas. Since
December, 1996, the Company has not engaged in any operations and has been
dormant.
The
Company had been dormant from April 1991 until, the Company revived its charter
effective December 4, 2006 and commenced activities to again become a reporting
company with the SEC with the intention to become a publicly trading company.
The Company’s stock was listed on the Over the Counter Bulletin Board (OTC:
DSVY) on August 28
th
,
2007.
(b)
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management
to
make estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expenses
during
the reporting period. Actual results could differ from those estimates.
(c)
Per
Share Information
In
accordance with SFAS No. 128 - “Earnings Per Share”, the basic loss per common
share is computed by dividing net loss available to common stockholders by
the
weighted average number of common shares outstanding. In addition, per share
calculations reflect the effect of any reverse stock splits. Diluted loss
per
common share is computed similar to basic loss per common share except that
the
denominator is increased to include the number of additional common shares
that
would have been outstanding if the potential common shares had been issued
and
if the additional common shares were dilutive. At June 30, 2007, the Company
had
no stock equivalents that were anti-dilutive and excluded in the earnings
per
share computation. In addition, no calculation was made in regards to a reverse
stock split since none had occurred.
(d)
Basis
of Presentation - Going Concern
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which
contemplates continuation of the Company as a going concern. However, the
Company
has
no business operations and has working capital and stockholders’
deficits
,
which
raise substantial doubt about its ability to continue as a going concern.
In
view
of these matters, continuation as a going concern is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's
ability
to meet its financial requirements, raise additional capital, and the success
of
its future operations. Management has opted to resume the filing of Securities
and Exchange Commission (SEC) reporting documentation and then to seek a
business combination. Management believes that this plan provides an opportunity
for the Company to continue as a going concern.
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
June
30,
2007
(1)
Summary of Accounting Policies, Continued
(e)
Recent Accounting Pronouncements
There
were various accounting standards and interpretations issued during 2007
and
2006, none of which are expected to a have a material impact on the Company’s
financial position, operations or cash flows.
(f)
Risks
and Uncertainties
The
Company is subject to substantial business risks and uncertainties inherent
in
starting a new business. There is no assurance that the Company will be able
to
complete a business combination.
(g)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of temporary cash investments. The Company places
its
temporary cash investments with financial institutions. As of June 30, 2007,
the
Company did not have a concentration of credit risk since it had no temporary
cash investments in bank accounts in excess of the FDIC insured
amounts.
(h)
Revenue Recognition
The
Company has had no revenue since its corporate charter was reinstated.
(i)
Cash
and Cash Equivalents
The
Company considers cash and cash equivalents to consist of cash on hand and
demand deposits in banks with an initial maturity of 90 days or less.
(j)
Fair
Value of Financial Instruments
Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of Financial
Instruments." SFAS 107 requires disclosure of fair value information about
financial instruments when it is practicable to estimate that value. The
carrying amount of the Company's cash, accounts payable, and accounts
payable-related party approximate their estimated fair values due to their
short-term maturities.
(k)
Income Taxes
The
Company records deferred taxes in accordance with Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes." The statement
requires recognition of deferred tax assets and liabilities for temporary
differences between the tax bases of assets and liabilities and the amounts
at
which they are carried in the financial statements, the effect of net operating
losses, based upon the enacted tax rates in effect for the year in which
the
differences are expected to reverse. A valuation allowance is established
when
necessary to reduce deferred tax assets to the amount expected to be realized.
(l)
Development stage
Based
upon the Company's business plan, it is a development stage enterprise since
planned principal operations have not yet commenced. Accordingly, the Company
presents its financial statements in conformity with the accounting principals
generally accepted in the United States of America that apply in establishing
operating enterprises. As a development state enterprise, the Company discloses
the deficit accumulated during the development stage and the cumulative
statements of operations and cash flows from commencement of development
stage
to the current balance sheet date. The development stage began December 4,
2006
when the Company was reinstated as a Kansas corporation.
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
June
30,
2007
(1)
Summary of Accounting Policies, Continued
(m)
Other
The
Company has selected June 30 as its fiscal year end.
The
company has paid no dividends.
No
advertising expense has been incurred.
The
Company consists of one reportable business segment.
The
Company has not entered into any leases.
(2)
Income Taxes
Deferred
income taxes arise from temporary timing differences in the recognition of
income and expenses for financial reporting and tax purposes. The Company’s
deferred tax assets consist entirely of the benefit from net operating loss
(NOL) carry forwards. The net operating loss carry forward if not used, will
expire in various years through 2026, and is severely restricted as per the
Internal Revenue code due to the change in ownership. The Company’s deferred tax
assets are offset by a valuation allowance due to the uncertainty of the
realization of the net operating loss carryforwards. Net operating loss
carryforwards may be further limited by the change in control of the Company
described in Note 5 and other provisions of the tax laws. The net operating
loss
carryforwards have only been calculated for the period since the reinstatement
and no calculation or consideration has been made for the losses the company
incurred during previous operations which generally due to a change in control
severely reduce the benefits of net operating loss carryforwards.
The
Company’s deferred tax assets, valuation allowance, and change in valuation
allowance are as follows:
Income
taxes at the statutory rate are reconciled to the Company’s actual income taxes
as follows:
DISCOVERY
TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
June
30,
2007
(3)
Common Stock
Pursuant
to the Articles of Incorporation as amended, the Company is authorized to
issue
800,000,000 common shares with no par value.
In
connection with its corporate purposes, the Company made a registered public
offering of its common stock which became effective February 23, 1990, and
closed on May 24, 1990. The offering was made pursuant to a registration
statement under the Securities Act of 1933 filed with the Securities and
Exchange Commission on Form S-1.
On
March
15, 2007, the Company issued 15,000,000 shares of its common stock for $10,000
cash payment to the Company.
(4)
Related Party Transactions
The
Company uses the offices of its President for its minimal office facility
needs
for no consideration. No provision for these costs has been provided since
it
has been determined that they are immaterial.
On
March
15, 2007, the Company issued a total of 15,000,000 shares of its common stock
to
two directors of the Company for $10,000 cash. The capital was used to pay
for
the preparation of documents necessary to register the Company’s common stock
pursuant to Section 12 (g) of the Securities Exchange Act of 1934. This
transaction resulted in a change in control of the Company. The shares were
issued without registration under the Securities Act of 1933 in reliance
upon
Section 4(2) of the Act and Regulation D thereunder. No underwriters were
involved and no commissions or other consideration was paid in connection
with
the exchange.
During
the year ended June 30, 2007, a related party paid for expenses of the Company
totaling $2,797. The advances are uncollateralized, bear no interest and
are due
on demand.
(5)
Subsequent Events
Migratory
Merger and Common Stock Conversion
On
August
27, 2007 the Board of Directors unanimously adopted resolutions announcing
a
special meeting of shareholders to consider and act upon a proposed Agreement
and Plan of Merger, to reincorporate Discovery Technologies in the State
of
Nevada by merger with and into a Nevada corporation with the same name
(“Discovery Technologies Nevada”) which Discovery Technologies formed for such
purpose (the “Migratory Merger”). Shareholders will vote at the meeting to be
held on September 24, 2007 to approve the Agreement and Plan of Merger as
described in the definitive proxy materials filed with the Securities and
Exchange Commission.
In
accordance with the Agreement and Plan of Merger, Discovery Technologies
will
adopt the capital structure of Discovery Technologies Nevada, which includes
total authorized capital stock of 800,000,000 shares, of which 780,000,000
are
common stock, with a par value of $.001 per share (the "Discovery Technologies
Nevada Common Stock") and 20,000,000 shares are blank check preferred stock,
with a par value of $.001 per share (the "Preferred Stock"). In addition,
on the
Effective Date described below, the issued and outstanding shares of our
Common
Stock will automatically convert into shares of Discovery Technologies Nevada
Common Stock at a ratio of nine (9) shares of our currently outstanding Common
Stock for one (1) share of Discovery Technologies Nevada Common Stock
.
The
Board
believes that that Migratory Merger will make Discovery Technologies more
attractive for a potential business combination and therefore be in the best
interest of Discovery Technologies' shareholders and Discovery Technologies.
The
Migratory Merger will become effective on the date specified in the Articles
of
Merger, which is expected to be on or about October 15, 2007, (the "Effective
Date") . The Board reserves the right to elect not to proceed, and abandon,
the
Migratory Merger if it determines, in its sole discretion, that this proposal
is
not in the best interest of Discovery Technologies' shareholders.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Pursuant
to Article VII of our By-Laws, we shall, to the fullest extent permitted by
law,
indemnify any of our directors for monetary damages incurred for breach of
fiduciary duty as a director, except with respect to (i) a breach of the
director’s duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) liability specifically defined by law or (iv) a
transaction from which the director derived an improper personal benefit.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may be permitted to our directors or officers pursuant to the foregoing
provisions, we have been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable.
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
Although
we will not receive any of the proceeds from the sale of the shares being
registered in this registration statement, we have agreed to bear the costs
and
expenses of the registration of those shares. Our expenses in connection with
the issuance and distribution of the securities being registered are as
follows:
|
SEC
Registration Fee
|
$
|
820.63
|
||
|
Legal
Fees and Expenses*
|
$
|
150,000.00
|
||
|
Accounting
Fees and Expenses*
|
$
|
110,000.00 | ||
|
Printing
and Engraving Expenses *
|
$
|
5,000.00
|
||
|
Transfer
Agent's Fees*
|
$
|
3,000.00
|
||
|
Total*
|
$ | 268,820.63 |
*
Estimates
RECENT
SALES OF UNREGISTERED SECURITIES
Issuance
of Common Stock in Acquisition of Green New Jersey
Under
the
Share Exchange Agreement, on December 26, 2007, we issued 10,770,668 shares
of
our common stock in exchange for all of the outstanding shares of the common
stock of Green New Jersey. At the completion of that share exchange, Green
New
Jersey became the Company’s wholly owned subsidiary. The Share Exchange was
accomplished in reliance upon Section 4(2) of the Securities Act.
Issuance
of Common Stock in Private Placement
On
December 26, 2007, in the Private Placement through Hickey Freihofner Capital,
a
division of Brill Securities, Inc., a member of FINRA, MSRB, SIPC and an SEC
registered broker-dealer (“Hickey”), we sold 6,313,616 shares of our common
stock for $20,519,255 under a Securities Purchase Agreement by and among the
Company and the investors named therein dated as of December 24, 2007 (the
“Securities Purchase Agreement”).
In
the
Private Placement we sold the common stock in reliance upon the exemption from
registration provided by Rule 506 of Regulation D promulgated under the
Securities Act of 1933.
Under
the
Securities Purchase Agreement and Registration Rights Agreement, we are required
to register for resale each share of common stock sold therein.
In
connection with the Private Placement, Hickey, as placement agent, received
a
cash fee of 6% of the monies raised comprised of a 5% placement agent fee and
1%
for non-accountable expenses and foreign finders received 2%. Hickey entered
into a Selected Dealer Agreement with another FINRA members with which it shared
some of its placement agent fees.
Issuance
of Common Stock to Former Majority Shareholder
On
December 26, 2007, we acquired 100% capital stock of Green New Jersey, through
a
share exchange in which we issued 10,770,668 shares of our common stock to
Green
New Jersey’s shareholders in exchange for 100% of Green New Jersey’s shares of
common stock (the “Share Exchange”). Immediately prior to the Share Exchange, we
redeemed 246,148 shares of common stock held by Michael Friess and Sanford
Schwartz (the “Redemption”) for $550,000 and issued 111,386 new shares of common
stock to Michael Friess and Sanford Schwartz.
EXHIBITS
|
3.1
|
Articles
of Incorporation (1)
|
|
3.2
|
Bylaws
(1)
|
|
4.1
|
Specimen
Common Stock Certificate (2)
|
|
4.2
|
Certificate
of Change filed with the Secretary of State of the State of Nevada
on
December 18, 2007 (4)
|
|
4.3
|
Certificate
of Correction
|
|
5.1
|
Opinion
of Guzov Ofsink, LLC
|
|
10.1
|
Agreement
and Plan of Merger between Discovery Technologies, Inc. and Discovery
Technologies, Inc., dated August 27, 2007. (3)
|
|
10.2
|
Securities
Purchase Agreement by and among the Company, Green Agriculture Holding
Corporation, Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd.,
and the
investors named therein, dated December 24, 2007.
(4)
|
|
10.3
|
Share
Exchange Agreement by and among Green Agriculture Holding Corporation,
the
Company and the shareholders of Green New Jersey named therein, dated
December 24, 2007. (4)
|
| 10.4 |
Registration
Rights Agreement by and among the Company and the investors named
therein,
dated December 24, 2007. (4)
|
| 10.5 |
Lock-Up
Agreement between Mr. Yinshing David To, Mr. Tao Li and the Company,
dated
December 24, 2007.(4)
|
| 10.6 |
Closing
Escrow
Agreement by and among Green Agriculture Holding Corporation, the
investors named therein, and Tri-State Title & Escrow, LLC, as escrow
agent, dated December 24, 2007.(4)
|
| 10.7 |
Make
Good Escrow Agreement by and among the Company, the investors named
therein, Yinshing David To and Tri-State Title & Escrow, LLC, as
escrow agent, dated December 24,
2007.(4)
|
| 10.8 |
Holdback
Escrow Agreement by and among the Company, the investors named
therein,
and
Tri-State Title & Escrow, LLC, as escrow agent, dated December 24,
2007. (4)
|
| 10.9 |
Call
Option Agreement between Tao Li and Yinshing David To, dated December
24,
2007.
(4)
|
| 21 |
Description
of Subsidiaries of the Company. (4)
|
| 23.1 |
Consent
of Independent Registered Public Accounting Firm - Kabani
& Company,
Inc.
|
| 23.2 |
Consent
of Independent Registered Public Accounting Firm -
Schumacher & Associates,
Inc.
|
| 23.3 |
Consent
of
Counsel
to the use of the opinion annexed at Exhibit 5.1
(included
in opinion annexed at Exhibit
5.1)
|
| (1) |
Incorporated
by reference to our Quarterly Report on Form 10-QSB, for the quarter
ended
September 30, 2007, filed with the Commission on November 9,
2007.
|
| (2) |
Incorporated
by reference to our Form 10-SB12G filed with the Commission on May
24,
2007.
|
| (3) |
Incorporate
by reference to our Annual Report on Form 10-KSB, for the year ended
June
30, 2007, filed with the Commission on October 1,
2007.
|
| (4) |
Incorporate
by reference to our Current Report on Form 8-K filed with the Commission
on January 2, 2008.
|
UNDERTAKINGS
The
undersigned Registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
i.
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
ii.
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that was registered)
and any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no
more than a 20% change in the maximum aggregate offering price set forth in
the
"Calculation of Registration Fee" table in the effective Registration Statement;
(2)
That,
for
the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(3)
File
a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
(4)
Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer
will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Xi’an, the People’s
Republic of China, on February 8, 2008.
| China Green Agriculture, Inc. | ||
|
By:
|
/s/
Tao Li
|
|
|
|
Tao Li
|
|
|
|
President and Chief Executive Officer
|
|
|
|
(Principle Executive Officer)
|
|
|
By:
|
/s/
Yu Hao
|
|
|
|
Yu Hao
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principle Financial Officer and
Principal Accounting Officer) |
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities indicated on the
date
indicated:
|
Signature,
Name and Title
|
Date
|
|
|
/s/
Tao Li
|
February
8, 2008
|
|
|
Tao
Li
|
||
|
President,
Chief Executive Officer
(Principle Executive Officer) and Chairman of the Board |
||
|
/s/
Yu Hao
|
February
8, 2008
|
|
|
Yu
Hao
|
||
|
Chief
Financial Officer
|
||
|
(Principle
Financial Officer and
Principal Accounting Officer) |
||
|
Director
|
||
|
/s/
Lian Fu Liu
|
February
8, 2008
|
|
|
Lian
Fu Liu
|
||
|
Director
|
71
