UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

       For the transition period from ____________ to ____________

Commission File Number 001-34260

CHINA GREEN AGRICULTURE, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
36-3526027
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)

3 rd Floor, Borough A, Block A, No. 181,
South Taibai Road, Xi’an, Shaanxi Province,
              People’s Republic of China  710065            
 (Address of principal executive offices) (Zip Code)

                                +86-29-88266368                        
(Issuer's telephone number, including area code)


Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No 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.

Large accelerated filer     o
Accelerated filer              x
Non-accelerated filer      o
( Do not check if a smaller reporting company )
Smaller reporting company    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x


APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  26,845,859 shares of common stock, $.001 par value, as of May 6, 2011.

 
 

 
 
TABLE OF CONTENTS
 
PART I      
 
FINANCIAL INFORMATION
 
Page
         
Item 1.
 
Financial Statements.
  3
         
   
Consolidated Balance Sheets
   
   
As of March 31, 2011 and June 30, 2010 (Unaudited)
  3
         
   
Consolidated Statements of Income and Comprehensive Income
   
   
For the Three and Nine Months Ended March 31, 2011 and 2010 (Unaudited)
  4
         
   
Consolidated Statements of Cash Flows
   
   
For the Nine Months Ended March 31, 2011 and 2010 (Unaudited)
  5
         
   
Notes to Consolidated Financial Statements
   
   
As of March 31, 2011 (Unaudited)
  6
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  33
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
  44
         
Item 4.
 
Controls and Procedures
  45
         
PART II     
 
OTHER INFORMATION
   
         
Item 1.
 
Legal Proceedings
  46
         
Item 1A.
 
Risk Factors
  46
         
Item 6.
 
Exhibits
  46
         
Signatures
  47
         
Exhibits/Certifications
  48

 
2

 
 
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2011 AND JUNE 30, 2010
(UNAUDITED)
 
             
ASSETS
 
   
March 31, 2011
   
June 30, 2010
 
             
Current Assets
           
Cash and cash equivalents
  $ 66,939,510     $ 62,335,437  
Accounts receivable, net
    25,349,120       15,571,888  
Inventories
    28,716,618       11,262,647  
Other assets
    1,229,912       86,824  
Related party receivables
    -       -  
Advances to suppliers
    17,789,047       221,280  
Total Current Assets
    140,024,207       89,478,076  
                 
Plant, Property and Equipment, Net
    48,735,290       29,368,515  
                 
Construction In Progress
    12,753,126       257,077  
                 
Other Assets - Non Current
    1,776,676       1,098,704  
                 
Intangible Assets, Net
    27,448,735       11,585,570  
                 
Goodwill
    4,317,821       -  
                 
Total Assets
  $ 235,055,855     $ 131,787,942  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current Liabilities
               
Accounts payable
  $ 9,656,661     $ 328,124  
Advances from customers
    25,067,151       41,645  
Accrued expenses and other payables
    8,071,421       507,705  
Amount due to related parties
    69,554       68,164  
Taxes payable
    8,051,854       2,304,382  
Short term loans
    6,337,050       -  
Other short-term liability
    6,754,964       -  
Total Current Liabilities
    64,008,655       3,250,020  
                 
Stockholders' Equity
               
Preferred Stock, $.001 par value, 20,000,000 shares authorized, Zero
shares issued and outstanding
      -  
Common stock, $.001 par value, 115,197,165 shares authorized, 25,935,487
and 24,572,328 shares issued, and  26,845,860 and 24,572,328, shares
outstanding as of March 31, 2011 and June 30, 2010, respectively)
    25,936       24,573  
Additional paid-in capital
    89,876,979       75,755,682  
Statutory reserve
    8,844,102       5,864,648  
Retained earnings
    64,046,976       43,536,408  
Accumulated other comprehensive income
    8,253,207       3,356,611  
Total Stockholders' Equity
    171,047,200       128,537,922  
                 
Total Liabilities and Stockholders' Equity
  $ 235,055,855     $ 131,787,942  
                 
The accompanying notes are an integral part of these consolidated financial statements.
         
 
 
3

 
 
CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF  INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2011 AND 2010
(UNAUDITED)
 
   
For the Three Months Ended March 31,
   
For the Nine Months Ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
Sales
                       
Jinong
  $ 16,208,041     $ 11,264,754     $ 47,030,563     $ 30,554,200  
Gufeng
    26,127,821       -       66,804,752       -  
Jintai
    2,317,422       2,177,523       5,612,628       5,337,013  
Net sales
    44,653,284       13,442,277       119,447,943       35,891,213  
Cost of goods sold
                               
Jinong
    6,060,998       4,206,699       19,705,968       11,209,185  
Gufeng
    20,300,721       -       54,199,998       -  
Jintai
    1,252,056       1,125,017       3,030,315       2,842,735  
Cost of goods sold
    27,613,775       5,331,716       76,936,281       14,051,920  
Gross profit
    17,039,509       8,110,561       42,511,662       21,839,293  
Operating expenses
                               
Selling expenses
    1,662,851       566,966       4,667,842       1,302,733  
General and administrative expenses
    3,251,804       1,335,229       8,221,055       2,683,959  
Total operating expenses
    4,914,655       1,902,195       12,888,897       3,986,692  
Income from operations
    12,124,854       6,208,366       29,622,765       17,852,601  
Other income (expense)
                               
Other income (expense)
    (45,788 )     492       (55,647 )     1,045  
Interest income
    59,430       118,539       212,346       200,461  
Interest expense
    (154,292 )     (6,813 )     (448,819 )     (112,457 )
Total other income (expense)
    (140,650 )     112,218       (292,120 )     89,049  
Income before income taxes
    11,984,204       6,320,584       29,330,645       17,941,650  
Provision for income taxes
    2,511,459       987,786       5,840,623       2,640,584  
Net income
    9,472,745       5,332,798       23,490,022       15,301,066  
Other comprehensive income
                               
Foreign currency translation gain/(loss)
    1,144,289       (23,832 )     4,896,596       (17,478 )
Comprehensive income
  $ 10,617,034     $ 5,308,966     $ 28,386,618     $ 15,283,588  
                                 
Basic weighted average shares outstanding
    25,936,713       24,418,325       25,932,497       23,098,783  
Basic net earnings per share
  $ 0.37     $ 0.22     $ 0.91     $ 0.66  
Diluted weighted average shares outstanding
    26,729,495       24,425,325       26,345,583       23,105,783  
Diluted net earnings per share
  0.35     $ 0.22     $ 0.89     $ 0.66  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
 
CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2011 AND 2010
(UNAUDITED)
 
             
   
2011
   
2010
 
Cash flows from operating activities
           
Net income
  $ 23,490,022     $ 15,301,066  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Issuance of equity for compensation
    2,573,785       1,259,992  
Cancelation of previously issued shares for services
    (31,056 )     -  
Depreciation
    2,813,573       1,545,413  
Amortization
    786,007       205,018  
                 
Decrease / (Increase) in current assets, net of effects from acquisitions:
               
Accounts receivable
    (8,760,007 )     (5,125,906 )
Other receivables
    (183,839 )     (158,415 )
Inventories
    1,521,043       (3,701,733 )
Advances to suppliers
    (15,724,052 )     (66,279 )
Other assets
    (1,185,965 )     (73,784 )
(Decrease) / Increase in current liabilities, net of effects from acquisitions:
               
Accounts payable
    3,198,918       166,957  
Advances form customers
    5,096,171       37,171  
Tax payables
    5,559,685       (1,725,159 )
Other payables and accrued expenses
    5,344,211       (282,450 )
Net cash provided by operating activities
    24,498,496       7,381,891  
                 
Cash flows from investing activities
               
Purchase of plant, property, and equipment
    (4,168,604 )     (3,528,331 )
Purchase of intangible assets
    (55,814 )     (10,776,152 )
Acquisition of Gufeng, net of cash acquired
    (6,720,539 )     -  
Amounts increase in construction in progress
    (11,503,067 )     (31,859 )
Advances to suppliers - non current
    (1,701,804 )     (392,695 )
Net cash used in investing activities
    (24,149,828 )     (14,729,037 )
                 
Cash flows from financing activities
               
Repayment of loan
    -       (3,179,115 )
Borrows of loan
    2,253,000       -  
Shares issuance cost
    -       (2,232,302 )
Proceeds from issuance of shares
    -       53,063,824  
Restricted cash
    -       83,148  
Net cash provided by financing activities
    2,253,000       47,735,555  
                 
Effect of exchange rate change on cash and cash equivalents
    2,002,405       49,455  
Net increase in cash and cash equivalents
    4,604,073       40,437,864  
                 
Cash and cash equivalents, beginning balance
    62,335,437       17,795,447  
Cash and cash equivalents, ending balance
  $ 66,939,510     $ 58,233,311  
                 
Supplement disclosure of cash flow information
               
Interest expense paid
  $ (417,236 )   $ (95,740 )
Income taxes paid
  $ (312,497 )   $ (3,081,381 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
5

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

China Green Agriculture, Inc. (the “Company”), through its subsidiaries, is engaged in the research, development, production, distribution and sale of humic acid-based compound fertilizer, compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizer, highly-concentrated water-soluble fertilizer, and mixed organic-inorganic compound fertilizer and the development, production and distribution of agricultural products. The Company was incorporated in 1987, but entered its current lines of business in December 2007.

The Company’s corporate structure as of March 31, 2011 is set forth in the diagram below:

 
 
 
6

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
  NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein.  It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2010.  The Company follows the same accounting policies in preparation of interim reports.  Results of operations for the interim periods are not indicative of annual results.

Principle of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Jintai, Yuxing, Gufeng and Tianjuyuan. 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.

Subsequent Events

The Company evaluates events subsequent to the end of the fiscal quarter through the date the financial statements are filed with the Commission for recognition or disclosure in the consolidated financial statements. Events that provide additional evidence about material conditions that existed at the date of the balance sheet are evaluated for recognition in the consolidated financial statements. Events that provide evidence about conditions that did not exist at the date of the balance sheet but occurred after the balance sheet date are evaluated for disclosure in the notes to the consolidated financial statements.
 
 
7

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Cash and cash equivalents and concentration of cash

For statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit with state owned banks in the Peoples Republic of China (“PRC”) and banks in the United States, and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains balances at financial institutions which, from time to time, may exceed deposit insurance limits for the banks located in the United States. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. Cash overdraft as of balance sheet date will be reflected as liabilities in the balance sheet. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
 
Accounts receivable

The Company's policy is to maintain reserves for potential credit losses on accounts receivable. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are written off through a charge to the valuation allowance. As of March 31, 2011 and June 30, 2010, the Company had accounts receivable of $ 25,349,120 and $15,571,888, net of allowance for doubtful accounts of $233,339 and $193,403, respectively.

Inventories

Inventory is valued at the lower of cost (determined on a weighted average basis) or market. Inventories consist of raw materials, work in process, finished goods and packaging materials. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.

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
10-25 years
Agricultural assets
8 years
Machinery and equipment
5-15 years
Vehicles
3-5 years
 
 
8

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Construction in Progress

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. Costs classified to construction in progress include all costs of obtaining the asset and bringing it to the location and condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and are placed into service. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed as incurred.

Long-Lived Assets

The Company tests long-lived assets 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.

Intangible Assets

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with definitive lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute directly or indirectly to the entity’s future cash flows. The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 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 has not recorded impairment of intangible assets as of March 31, 2011 and June 30, 2010, respectively.

Fair Value Measurement and Disclosures

Our accounting for Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level one — Quoted market prices in active markets for identical assets or liabilities;
 
 
9

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company had no assets and liabilities measured at fair value at March 31, 2011.
 
The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair values due to the short maturities of these instruments.

Revenue recognition

Sales revenue is recognized on 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 collectability 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 discounts are normally not granted after products are delivered.

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

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.
 
 
10

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Foreign currency translation

The reporting currency of the Company is the US dollar. The functional currency of the Company and Green New Jersey is the US dollar. The functional currency of Jinong and its subsidiaries Jintai and Yuxing is the Chinese Yuan or Renminbi (“RMB”). For the subsidiaries whose functional currencies are other than the US dollar, all asset and liability accounts were translated at the exchange rate on the balance sheet date; stockholder's equity is translated at the historical rates and items in the cash flow statements are translated at the average rate in each applicable period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. The resulting translation 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.

Segment reporting

The Company utilizes 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.

As of March 31, 2011, the Company, through its subsidiaries is engaged in the following businesses: fertilizer products (Jinong), fertilizer products (Gufeng and Tianjuyuan), agricultural products (Jintai) and research and development (Yuxing).

Fair values of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, accounts payable, other payables, 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.
 
 
11

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Statement of cash flows

The Company's cash flows from operations are calculated based on 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.

 
Earnings per share

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.
 
The components of basic and diluted earnings per share consist of the following:

   
Three Months Ended
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
  
 
2011
   
2010
   
2011
   
2010
 
Net Income for Basic Earnings Per Share
 
$
9,472,745
   
$
5,332,798
   
$
 
23,490,022
   
$
15,301,066
 
Basic Weighted Average Number of Shares
   
25,936,713
     
24,418,325
     
25,932,497
     
23,098,783
 
Net Income per Share – Basic
   
0.37
     
0.22
     
0.91
     
0.66
 
Net Income for Diluted Earnings Per Share
   
9,472,745
     
5,332,7988
     
23,490,022
     
15,301,066
 
Diluted Weighted Average Number of Shares
   
26,729,495
     
24,425,325
     
26,345,583
     
23,105,783
 
Net Income per Share – Diluted
 
$
0.35
   
$
0.22
   
$
0.89
   
$
0.66
 

Recent accounting pronouncements

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures   which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures.  ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal year beginning after December 15, 2010 (the Company’s fiscal year 2011); early adoption is permitted.  The Company is currently evaluating the impact of adopting ASU 2010-06 on its financial statements.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20 (ASU 2010-20),   Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses , which amends the guidance with ASC Topic 310, Receivables to facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses. The amendments in ASU No. 2010-20 also require an entity to provide additional disclosures such as a rollforward schedule of the allowance for credit losses on a portfolio segment basis, credit quality indicators of financing receivables and the aging of past due financing receivables. The adoption of ASU No. 2010-20 did not have an impact on the financial statements and footnotes.
 
 
12

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
NOTE 3 – ACQUISITION

Beijing Gufeng Chemical Products Co., Ltd. (“Gufeng”) was founded in 1993. Its wholly-owned subsidiary Beijing Tianjuyuan Fertilizer Co., Ltd. (“Tianjuyuan”) was founded in 2001 and was acquired by Gufeng on May 4, 2010. Both companies are based in Beijing, and registered to produce compound fertilizer, blended fertilizer, organic compound fertilizer and mixed, organic-inorganic compound fertilizer and sell their products throughout China and abroad.
 
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan by purchasing all of Gufeng’s outstanding equity interests and delivering acquisition consideration of approximately $8.8 million cash and approximately 1.4 million shares of the Company’s common stock (valued at approximately $11.6 million) to the former shareholders of Gufeng or their designees (the “Gufeng Shareholders”). Additionally, the Company may be required to deliver up to an additional 0.9 million shares of common stock, which are being held in escrow (the “Escrowed Shares”), to be released based upon achievement of following conditions:

1)  If Gufeng achieves certain sales revenue targets for its fiscal year ending June 30, 2011 (the “Sales Target”), 341,390 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders, which is subject to adjustment based on a three-tier system.   If Gufeng achieves at least 80% of the Sales Target, then 227,593 of the Escrowed Shares will be released from escrow to the Gufeng Shareholder, and if Gufeng achieves at least 60% of the Sales Target, then 113,797 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders.

2)  If Gufeng achieves certain net profit after tax targets for its fiscal year ending June 30, 2011 (the “Profit Target”), 341,390 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders, which is subject to adjustment based on a three-tier system.   If Gufeng achieves at least 80% of the Profit Target, then 227,593 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders, and if Gufeng achieves at least 60% of the Profit Target, then 113,797 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders.

3)  If Gufeng obtains a land use right with respect to certain real property located in China, along with ownership of the buildings thereon, then 227,593 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders.
 
 
13

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Any Escrowed Shares that are not released from escrow to the Gufeng Shareholders for failure to achieve the conditions described above will be forfeited and returned to the Company for cancellation.  While the Escrowed Shares are held in escrow, the Gufeng Shareholders will retain all voting rights with respect to the Shares.

The Company has recognized a liability based on the acquisition date fair value of the acquisition-related contingent consideration based on the probability of the achievement of the targets. Based on the Company’s estimation, an initial liability of $2.9 million (341,390 shares) was recorded. During the measurement period in the current quarter, the Company increased the contingent consideration liability to $6.8 million (796,576 shares) based on a revised estimated target achievement. Changes in the fair value of the acquisition-related contingent consideration during the measurement period, including changes from events after the acquisition date, such as changes in the Company’s estimate of the revenue and net income expected to be achieved and changes in their stock price, are being recognized in goodwill in the period in which the estimated fair value changes. The accompanying consolidated financial statements include the financial results of these companies from the date of acquisition.

The estimated fair values of net assets acquired and presented below are preliminary and are based on the information that was available as of the acquisition date and prior to the filing of this Quarterly Report on Form 10-Q. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the Company is awaiting the finalization of certain third-party valuations to finalize those fair values. Thus, the preliminary measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation and complete the purchase price allocations as soon as practicable, but no later than one year from the respective acquisition date.

The following table summarizes the fair values of the assets acquired and liabilities assumed from the acquisition of Gufeng. Since the acquisition and the initial preliminary purchase price allocation, net adjustments of $10.0 million were made to the fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments are summarized in the table presented below.
 
($ in millions)
 
Purchase Price
 
$
27.2
 
Fair Value of Assets Acquired:
       
Current assets
   
25.1
 
Fixed assets
   
17.3
 
Intangible assets
   
15.8
 
Other assets
   
-
 
Total Assets Acquired
 
$
58.2
 
   
Fair Value of Liabilities Assumed:
       
Current liabilities
 
$
15.9
 
Deferred revenue
   
19.4
 
Deferred tax liabilities, net
   
-
 
Total Liabilities Assumed
 
$
35.3
 
   
Goodwill (1)
 
$
4.3
 

(1)   The goodwill of $4.3 million is non-deductible for tax purposes.
 
 
14

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
The following table summarizes the preliminary fair value of amortizable and indefinite-lived intangible assets as of their respective acquisition dates:

Gufeng at July 2, 2010
 
($ in millions)
 
Fair Value
   
Estimated useful life
(in years)
 
Amortizable intangible assets:
           
Customer relationships
 
$
8.4
     
10
 
                 
Indefinite-lived intangibles:
               
Trademarks
 
$
7.4
         
                 
Total intangible assets acquired
 
$
15.8
         

Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined comparative financial information presents the results of operations of the Company as they may have appeared if the acquisition of Gufeng had been completed on July 1, 2009.

   
For the Three
       
   
Months Ended
   
For the Nine
 
($ in millions, except per share data)
 
March 31,
2010
   
Months Ended
March 31, 2010
 
Net Sales
 
$
27.4
   
$
75.9
 
Net Income
 
$
6.0
   
$
18.1
 
Basic earnings per share
 
$
0.25
   
$
0.79
 
Diluted earnings per share
 
$
0.25
   
$
0.79
 

 
15

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 


 
   
For the Three
       
   
Months Ended
   
For the Nine
 
($ in millions, except per share data)
 
March 31,
2010
   
Months Ended
March 31, 2010
 
Net Sales
 
$
30.5
   
$
79.1
 
Net Income
 
$
6.4
   
$
18.5
 
Basic earnings per share
 
$
0.26
   
$
0.80
 
Diluted earnings per share
 
$
0.26
   
$
0.80
 

Acquisition related expenses consist of integration related professional services, certain business combination adjustments after the measurement period or purchase price allocation period has ended, and certain other operating expenses, net.
 
Pretax charges approximating $0.2 million were recorded for acquisition and integration related costs in the nine-month period ended March 31, 2011.  These charges were recorded as general and administrative expenses.  As the acquisition took place on July 2, 2010, the Company’s statement of income for the period ended March 31, 2011 included the operations of the Company and Gufeng.

NOTE 4 – INVENTORIES

Inventories consisted of the following as of March 31, 2011 and June 30, 2010:

   
March 31,
   
June 30,
 
   
2011
   
2010
 
                 
Raw materials
 
$
4,883,524
   
$
314,267
 
                 
Supplies and packing materials
   
845,839
     
113,146
 
                 
Work in progress
   
172,412
     
10,686,325
 
                 
Finished goods
   
22,814,843
     
148,909
 
                 
Total
 
$
28,716,618
   
$
11,262,647
 

NOTE 5 – OTHER CURRENT ASSETS

Other current assets consisted of the following as of March 31, 2011 and June, 30 2010:

   
March 31,
   
June 30,
 
   
2011
   
2010
 
                 
Advancement
 
$
1,203,245
   
$
41,875
 
                 
Promotional material
   
-
     
44,949
 
                 
Prepaid insurance
   
26,667
     
-
 
                 
Total
 
$
1,229,912
   
$
86,824
 
 
Advancement represents advances made to non-related parties and employees. The amounts were unsecured, interest free, and due on demand.
 
 
16

 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following as of March 31, 2011 and June, 30, 2010:

   
March 31,
   
June 30,
 
   
2011
   
2010
 
                 
Building and improvements
 
$
20,983,676
   
$
11,719,363
 
                 
Auto
   
1,346,126
     
117,295
 
                 
Machinery and equipment
   
37,290,921
     
21,628,525
 
                 
Agriculture assets
   
       1,585,412
     
1,528,898
 
                 
Total property, plant and equipment
   
61,206,135
     
34,994,081
 
                 
Less: accumulated depreciation
   
(12,470,845)
     
(5,625,566
)
                 
Total
 
$
48,735,290
   
$
29,368,515
 

Depreciation expenses for the three months ended March 31, 2011 and 2010 were $1,097,773 and $558,750, respectively. Depreciation expenses for the nine months ended March 31, 2011 and 2010 were $2,813,573 and $1,545,413, respectively.

Agriculture assets consist of reproductive trees that are expected to be commercially productive for a period of eight years.

NOTE 7 – CONSTRUCTION IN PROGRESS

As of March 31, 2011 and June 30, 2010, construction in progress, representing construction for a new product line and other buildings amounted to $ 12,753,126 and $257,077, respectively.
 
 
17

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
NOTE 8 - INTANGIBLE ASSETS

Intangible assets consist of the following as of March 31, 2011 and June 30, 2010:

   
March 31,
   
June 30,
 
   
2011
   
2010
 
                 
Land use rights, net
 
$
              11,999,757
   
$
11,495,058
 
                 
Technology patent, net
   
                      15,749
     
90,512
 
                 
Customer relationships, net
   
                7,908,868
     
-
 
                 
Trademarks
   
                7,524,361
     
-
 
                 
Total
 
$
27,448,735
   
$
11,585,570
 
 
LAND USE RIGHTS

On September 25, 2009, Yuxing was granted a land use right for approximately 88 acres (353,000 square meters or 3.8 million square feet) by the People’s Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi Province. The fair value of the related intangible asset was determined to be the respective cost of RMB 73,184,895 (or $11,102,149). The intangible asset is being amortized over the grant period of 50 years.
 
On August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately 11 acres (42,726 square meters or 459,898 square feet) at Ping Gu District, Beijing. The purchase cost was recorded at RMB 1,045,950 (or $158,670). The intangible asset is being amortized over the grant period of 50 years.

On August 16, 2001, Jinong received a land use right as a contribution from a shareholder, which was granted by the People’s Government and Land & Resources Bureau of Yanling District, Shaanxi Province. The fair value of the related intangible asset at the time of the contribution was determined to be RMB 7,285,099 (or $1,105,150). The intangible asset is being amortized over the grant period of 50 years.

The Land Use Rights consist of the following as of March 31, 2011 and June 30, 2010:
 
 
18

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
   
March 31,
   
June 30,
 
   
2011
   
2010
 
                 
Land use rights
 
$
              12,447,485
   
$
11,866,105
 
                 
Less: accumulated amortization
   
                 (447,728)
)
   
(371,047
)
                 
Total land use rights, net
 
$
              11,999,757
   
$
11,495,058
 

TECHNOLOGY PATENT
 
On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $891,248). The intangible asset is being amortized over the patent period of 10 years.

The technology know-how consisted of the following as of March 31, 2011 and June 30, 2010:

   
March 31,
   
June 30,
 
   
2011
   
2010
 
Technology know-how
 
$
                   897,123
   
$
866,338
 
                 
Less: accumulated amortization
   
                 (881,374)
)
   
(775,826
)
                 
Total technology know-how, net
 
$
                      15,749
   
$
90,512
 
 
CUSTOMER RELATIONSHIP
 
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired customer relationships was estimated to be RMB 55,992,980 (or $8,494,135) and is amortized over the remaining useful life of ten years. See Note 3.

   
March 31,
   
June 30,
 
   
2011
   
2010
 
Customer relationships
 
$
                8,550,128
   
$
-
 
                 
Less: accumulated amortization
   
                 (641,260)
)
   
-
 
                 
Total customer relationships, net
 
$
                7,908,868
   
$
-
 
 
 
19

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
TRADEMARKS

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired trademarks was estimated to be $7,475,086 and is subject to an annual impairment test. See Note 3.

Total amortization expenses of intangible assets for the three months ended March 31, 2011 and 2010 amounted to $305,054 and $54,701, respectively. Total amortization expenses of intangible assets for the nine months ended March 31, 2011 and 2010 amounted to $786,007 and $205,018, respectively.
 
AMORTIZATION EXPENSE
 
Estimated amortization expenses of intangible assets for the next five (5) twelve-month periods-ended March 31, 2011, are as follows:

March 31, 2012
 
$
                1,011,548
 
March 31, 2013
   
                   995,799
 
March 31, 2014
   
                   995,799
 
March 31, 2015
   
                   995,799
 
March 31, 2016
   
                   995,799
 

NOTE 9 - AMOUNT DUE TO RELATED PARTIES

As of March 31, 2011 and June 30, 2010, the amount due to related parties was $ 69,554 and $68,164, respectively.  These amounts represent unsecured, non-interest bearing loans that are due on demand.  These loans are not subject to written agreements.  

NOTE 10 - ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consisted of the following as of March 31, 2011 and June 30, 2010:

   
March 31,
   
June 30,
 
   
2011
   
2010
 
                 
Payroll payable
 
$
220,701
   
$
8,848
 
                 
Welfare payable
   
323,458
     
164,051
 
                 
Accrued expenses
   
1,567,553
     
334,806
 
                 
Other payables
   
5,841,219
     
-
 
                 
Other levy payable
   
118,489
     
-
 
             
-
 
                 
Total
 
$
8,071,421
   
$
507,705
 
 
 
20

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
NOTE 11 - LOAN PAYABLES

The short-term loans payable consist of four loans which mature on dates ranging from April 8, 2011 through February 1, 2012 with an interest rate of 7.26%. The loans are collateralized by the Company’s land use rights.

The interest expenses from these short-term loans were $ 152,318 and $6,813 for three months ended March 31, 2011 and 2010, respectively. The interest expenses from these short-term loans were $ 417,236 and $112,457 for the nine months ended March 31, 2011 and 2010, respectively.

NOTE 12 - TAXES PAYABLE

Enterprise Income Tax

Effective January 1, 2008, the new Enterprise Income Tax (“EIT”) law of the PRC replaced the existing tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new EIT rate of 25% replaced the 33% rate that was applicable to both DEs and FIEs. The two year tax exemption and three year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, as a result of the expiration of its tax exemption on December 31, 2007, and accordingly, it made provision for income taxes for the three months ended March 31, 2011 and 2010 of $ 1,186,257 and $ 987,786 , respectively, and $ 3,398,795 and $ 2,640,584 for the nine months ended March 31, 2011 and 2010, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to an EIT rate of  25% and thus it made provision for income taxes of $ 1,116,755 and $ 2,233,381 for the three and nine months ended March 31, 2011, respectively. Jintai has been exempt from paying income tax since its formation as it produces products which fall into the tax exemption list set out in the EIT. This exemption is expected to last as long as the applicable provisions of the EIT do not change.

Value-Added Tax

All of the Company’s fertilizer products that are produced and sold in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On April 29, 2008, the PRC State of Administration of Taxation (SAT) released Notice #56, Exemption of VAT for Organic Fertilizer Products , which allows certain fertilizer products to be exempt from VAT beginning June 1, 2008. The Company submitted the application for exemption in May 2009, which was granted effective September 1, 2009, continuing through December 31, 2015. The VAT exemption applies to all agricultural products sold by Jintai, and all but a nominal amount of agricultural products sold by Jinong.
 
 
21

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
  Income Taxes and Related Payables

Taxes payable consisted of the following as of March 31, 2011 and June 30, 2010:

   
March  31,
   
June 30,
 
   
2011
   
2010
 
VAT provision (credit)
 
$
24,127
   
$
(24,655
)
Income tax payable
   
7,694,457
     
2,020,253
 
Other levies
   
333,270
     
308,784
 
Total
 
$
 
8,051,854
   
$
2,304,382
 

Income Taxes in the Consolidated Statements of Operations and Comprehensive Income

The provision for income taxes for the nine months ended March 31, 2011 and 2010 consisted of the following:

   
March 31,
   
March 31,
 
  
 
2011
   
2010
 
Current Tax
 
$
 
5,840,623
   
$
 
2,640,584
 
Deferred Tax
   
-
     
-
 
Total
 
$
5,840,623
   
$
2,640,584
 

Tax Rate Reconciliation

Substantially all of the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of operations and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 34% to income before income taxes for the nine months ended March 31, 2011 and 2010 for the following reasons:
 
 
22

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
March 31, 2011

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
                                               (Unaudited)
 
   
China
   
United States
       
      15% - 25 %       34 %    
Total
 
                       
Pretax income (loss)
    34,573,848             (5,243,203 )           29,330,645  
                                     
Expected income tax expense (benefit)
    8,643,462       25.0 %     (1,782,689 )     34.0 %     6,860,773  
High-tech income benefits on Jinong
    (2,338,639 )     (6.8 ) %     -       -       (2,338,639 )
Income tax benefit of nontaxable income on Jintai
    (603,406 )     (1.7 ) %     -       -       (603,406 )
Income tax benefit of nontaxable income on Yuxing
    139,206       0.4 %     -       -       139,206  
   Change in valuation allowance on deferred tax asset from US tax benefit
    -               1,782,689       (34.0 ) %     1,782,689  
Actual tax expense
    5,840,623       16.9 %     -       - %     19.9 %
 
March 31, 2010
                                       
   
China
   
United States
         
      15%- 25 %       34 %    
Total
 
                                         
Pretax income (loss)
    19,643,016               (1,701,366 )             17,941,650  
                                         
Expected income tax expense (benefit)
    4,910,754       25.0 %     (578,464 )     34.0 %     4,332,290  
High-tech income benefits on Jinong
    (1,725,932 )     (8.8 ) %                     (1,725,932 )
Income tax benefit of nontaxable income on Jintai
    (562,470 )     (2.9 ) %                     (562,470 )
Income tax benefit of nontaxable income on Yuxing
    18,232       0.1 %                     18,232  
  Change in valuation allowance on deferred tax asset from US tax benefit
                    578,464       (34.0 ) %        
Actual tax expense
    2,640,584       13.4 %     -       - %     14.7 %

NOTE 13 – STOCKHOLDERS’ EQUITY

Reclassification of Temporary Equity

On December 26, 2007 the Company issued 6,313,617 shares (the “Shares”) of common stock to 31 accredited investors (the “Investors”) at $3.25 per share in a private placement (the “Private Placement”). The Securities Purchase Agreement (“SPA”) set forth a contingency which gave the Investors the right to redeem the Shares in the event the Share Exchange was forced to be unwound as a result of any material adverse effect due to PRC governmental actions. As a result of the redemption feature, the Company recorded the Private Placement as temporary equity. In July 2009, the Investors and the Company entered into a Waiver and Consent pursuant to which the Investors consented to waive all their rights associated with the liquidated damages under Section 4.16 of the SPA. As a result, such temporary equity was no longer necessary for the purposes of the Company’s balance sheet as of June 30, 2010.
 
 
23

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Common Stock
  
The Company issued 4,025,000 shares of common stock at a public offering price of $7.15 per share in an underwritten offering and received total gross proceeds of approximately $28.8 million on July 24, 2009. The shares were sold under the Company's previously filed shelf registration statement, which was declared effective by the Commission on June 12, 2009 (the “Shelf S-3”). The Company uses the net proceeds to expand its production facilities through the construction of new greenhouses at Yuxing.
 
The Company completed the sale of 1,282,052 shares of common stock at a public offering price of $15.60 per share on November 25, 2009 in a registered direct offering for gross proceeds of approximately $20 million. On December 16, 2009, the placement agent exercised rights to place up to 320,512 additional shares of common stock at a price of $15.60 per share, for additional gross proceeds of $4,999,987. The shares were sold under the Shelf S-3.

On January 3, 2010, the Company made a one-time grant of an aggregate of 120,000 shares of restricted common stock of the Company to certain members of management and officers under the 2009 Equity Incentive Plan of the Company. Pursuant to the terms of the grant, one-third of the shares vested on February 2, 2010, one-third of the shares vested on December 31, 2010 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010 and the remaining one-third of the shares will vest on December 31, 2011 if certain financial performance targets are achieved for the fiscal year ending June 30, 2011. Additionally, the Company made a one-time grant of an aggregate of 22,961 shares of performance-based restricted common stock to certain officers, which vests in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010.

On February 10, 2010, the Company made a one-time grant of an aggregate of 50,700 shares of restricted common stock to a director and certain key employees under the 2009 Equity Incentive Plan. Pursuant to the terms of the grant, one-third of the shares vested on March 10, 2010, one-third of the shares vested on December 31, 2010 and the remaining one-third of the shares will vest on December 31, 2011 if certain financial targets are achieved. Additionally, the Company also granted to a director and certain key employees an aggregate of 70,500 shares of performance-based restricted common stock, which automatically vests in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved both net sales and income from operations targets for the fiscal year ended June 30, 2010.
 
On February 10, 2010, the Company issued a total of 8,000 shares of restricted common stock under its 2009 Equity Incentive Plan to a consultant pursuant to the terms of a service agreement, half of which was vested on August 9, 2010 and half of which was forfeited due to the disengagement of the service on September 15, 2010.
 
On July 2, 1010, the Company issued a total of 2,275,931 shares of common stock to Gufeng’s previous shareholders or their designees. Of the shares being issued in the acquisition, 40% are being  held in escrow pending satisfaction of certain conditions such as make good targets set for Gufeng for the fiscal year ended June 30, 2011. See Note 3.
 
 
24

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
On March 31, 2011, the Company issued a total of 356,000 shares of restricted common stock of the Company to certain members of management and officers under its 2009 Equity Incentive Plan. Pursuant to the terms of the grant, 8,000 shares of restricted common stock will be vested on April 30, 2011, 129,000 shares vest on June 2, 2011, 129,000 shares vest on December 31,2011 and 90,000 shares vest on December 31, 2012.

Preferred Stock

Under the Company’s articles of incorporation, the board of directors has the authority, without further action by stockholders, to designate up to 20,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock.  If the Company sells preferred stock under its registration statement on Form S-3, it will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series in the certificate of designation relating to that series and will file the certificate of designation that describes the terms of the series of preferred stock the Company offers before the issuance of the related series of preferred stock.

As of March 31, 2011, the Company had 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are outstanding.

NOTE 14 – STOCK OPTIONS

On August 17, 2009, some directors, officers and employees exercised options to purchase an aggregate of 84,500 shares of common stock in a cashless manner and received 61,239 shares of common stock as a result of the cashless exercise.

On January 3, 2010, the Company made a one-time grant of options to purchase an aggregate of 150,000 shares of common stock to certain officers and directors under the 2009 Equity Incentive Plan at an exercise price of $14.70 per share, the closing price of common stock on the previous trading day. Pursuant to the terms of the grant, one-third of the options vested on February 2, 2010, one-third of the options vested on December 31, 2010 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010 and the remaining one-third of the options will vest on December 31, 2011 if certain financial performance targets are achieved for the fiscal year ending June 30, 2011.

On January 3, 2010, the Company also made a grant of performance-based options to purchase an aggregate of 45,291 shares of common stock to certain officers and directors under the 2009 Equity Incentive Plan at an exercise price of $14.70 per share, the closing price of the common stock on the previous trading day. Pursuant to the terms of the grant, the options automatically vest in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010.
 
 
25

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
On February 3, 2010, one independent director resigned and all his vested and unvested options were forfeited pursuant to his grant agreement with the Company.

On February 7, 2010, the Company appointed a new independent director and issued to him performance-based options to purchase 10,000 shares of common stock under the 2009 Equity Incentive Plan at an exercise price of $14.02 per share, the closing price of the common stock on the previous trading day. Pursuant to the terms of the grant, one-third of the options vested on March 8, 2010, one-third of the options will vested on December 31, 2010 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010 and the remaining one-third of the options will vest on December 31, 2011 if certain financial performance targets are achieved for the fiscal year ending June 30, 2011.

On March 31, 2011, the Compensation Committee of the Board of Directors of the Company resolved to cancel all those outstanding unvested options to purchase an aggregate of 65,096 shares of common stock granted in February and March 2010  under the 2009 Equity Incentive Plan .

 
The Company’s calculations are made using the Black-Scholes option-pricing model with the following weighted average assumptions: expected life of 2 years; 75.2%-75.6% stock price volatility; risk-free interest rate of 1.63% and no dividends during the expected term. Stock compensation expense is recognized based on awards expected to vest. The forfeitures are estimated at the time of grant and revised in subsequent periods pursuant to actual forfeitures, if it is different from those estimates. During the three months ended March 31, 2011 and 2010, the Company recognized stock-based compensation expense of $ 1,031,449 and $ 1,238,425 , respectively. During the nine months ended March 31, 2011 and 2010, the Company recognized stock-based compensation expense of $ 2,573,785 and $ 1,259,992 , respectively.
 
Options outstanding as of March 31, 2011 and related weighted average price and intrinsic value are as follows:
 
 
26

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
         
Weighted
       
         
Average
       
   
Number
   
Exercise
   
Aggregate
 
   
of Shares
   
Price
   
Intrinsic Value
 
Outstanding, June 30, 2009
   
121,500
   
$
4.49
         
Granted
   
205,291
   
$
14.67
         
Forfeited/Canceled
   
(22,000
)
 
$
9.95
         
Exercised
   
(109,500
)
 
$
4.32
         
Outstanding, June 30, 2010
   
195,291
   
$
14.67
         
Granted
   
-
     
-
         
Forfeited/Canceled
   
(80,192)
   
 $
14.67
         
Exercised
   
-
                 
Outstanding, March 31, 2010
   
115,099
   
$
14.66
   
$
-
 
Exercisable. March 31, 2010
   
115,099
   
$
14.66
   
$
-
 
                         
Forfeited/Canceled
    80,192      
-
     
-
 
  
     
-
     
 
       

The following table summarizes the options outstanding as of March 31, 2011:
 
Options outstanding
 
               
Weighted
 
         
Weighted
   
Average
 
   
Number
   
Average
   
Remaining
 
Range of
 
Outstanding as of
   
Exercise
   
Contractual Life
 
Exercise Price
 
March 31, 2011
   
Price
   
(Years)
 
                   
14.02-14.70
   
115,099
     
14.67
     
1.0
 

NOTE 15 – SIGNIFICANT RISKS AND UNCERTAINTIES INCLUDING BUSINESS AND CREDIT CONCENTRATIONS AND LITIGIATION
 
Market Concentration
 
All of the Company's revenue-generating operations are conducted 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 North America and Western Europe. These include risks associated with, among other things , the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.
 
 
27

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
Vendor and Customer Concentration
 
There were two vendors from which the Company purchased more than 10% of its raw materials for the three months ended March 31, 2011, with each vendor individually accounting for about 14% and 10%, respectively. Accounts payable to these two vendors amounted to $509,882 and  as of March 31, 2011.
 
One vendor accounted for over 10% of the Company’s total purchases for the three months ended March 31, 2010. Accounts payable to this vender amounted to $104,812 as of March 31, 2010. 

There was no customer that accounted for over 10% of the total sales for the three months ended March 31, 2011 and 2010.

Concentration of Cash
 
The Company maintains large sums of cash in three major banks in China. The aggregate balance in such accounts as of March 31, 2011 was $65,359,907. There is no insurance securing these deposits in China. In addition, the Company also had $1,579,603 in cash in two banks in the United States as of March 31, 2011, with $500,000 secured by the U.S. Federal Deposit Insurance Corporation.

Litigation
 
On October 15, 2010, a class action lawsuit was filed against the Company and certain of its current and former officers in the United States District Court for the District of Nevada on behalf of purchasers of the Company’s common stock between November 12, 2009 and September 1, 2010.  The complaint alleges that the Company and certain of its current and former officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by making material misstatements and omissions in the Company's financial statements and related disclosure during the class period. The plaintiffs claim that such allegedly misleading financial statements inflated the price of the Company’s common stock and seek monetary damages in an amount to be determined at trial. On April 27, 2011, the court appointed the lead plaintiff and lead plaintiff's counsel.
 
On December 10, 2010, a complaint was filed by one of the Company shareholders, purportedly on the Company’s behalf, against certain of the Company’s officers and directors in the First Judicial District Court of the State of Nevada in and for Carson City. The complaint alleges, among other things, various violations of state law by such officers and directors, including breach of fiduciary duty, waste of corporate assets and unjust enrichment. The plaintiff requests among other remedies, restitution from such officers and directors and reform to the Company’s corporate governance and internal procedures.

On January 5, 2011, a complaint was filed by two of the Company’s shareholders, purportedly on the Company’s behalf, against certain of the Company’s officers and directors and other parties, in the United States District Court, District of Columbia. The complaint alleges, among other things, that such officers and directors breached their fiduciary duties by knowingly filing inaccurate and inconsistent financial statements and other filings with the Commission and by failing to correct such allegedly inaccurate financial disclosure. The plaintiffs request the court to, among other remedies, award the Company damages in the amount sustained by the defendants’ alleged breach of fiduciary duties and other violations of law, and award such other equitable relief to remedy the defendant’s breaches of fiduciary duties and other violations of law.
 
 
28

 
 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
On January 12, 2011, two separate complaints were filed by different shareholders, derivatively on the Company’s behalf, against certain of the Company’s current and former officers and directors and against the Company, as nominal defendant, in the Eighth Juridical District Court, Clark County, Nevada. Each of the complaints allege, among other things, that the defendants breached their fiduciary duties by disseminating false and misleading information to shareholders via public filings and other communications, failing to maintain internal controls and procedures and failing to properly oversee and manage the company. Each of the complaints also allege unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets by the defendants. Each of the plaintiffs requests the court to, among other remedies, award damages caused by the breach of defendants’ fiduciary duties, award the Company restitution from such officers and directors and cause the Company to put to a vote of the Company’s shareholders certain actions to reform the Company’s corporate governance and internal procedures.

The Company intends to vigorously defend each of these lawsuits.

NOTE 16 – SEGMENT REPORTING

The Company was organized into four main business segments: fertilizer production (Jinong), fertilizer production (Gufeng and Tianjuyuan ), agricultural products production (Jintai) and research and development center that is currently under construction (Yuxing). The following tables present a summary of our businesses’ and operating segments’ results.
 

 
29

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 


   
For the three months ended
March 31,
 
             
Revenues from unaffiliated customers:
 
2011
   
2010
 
Jinong
  $ 16,208,041     $ 11,264,754  
Gufeng
    26,127,821       -  
Jintai
    2,317,422       2,177,523  
Yuxing
    -       -  
Consolidated
  $ 44,653,284     $ 13,442,277  
Operating income :
               
Jinong
  $ 8,983,380     $ 6,346,348  
Gufeng
    4,319,589       -  
Jintai
    1,007,390       972,571  
Yuxing
    39,684       (10 )
Reconciling item (1)
    -       -  
Reconciling item (2)
    (1,193,741 )     127,882  
Reconciling item (2)--stock compensation
    (1,031,448 )     (1,238,425 )
Consolidated
  $ 12,124,854     $ 6,208,366  
Net income:
               
Jinong
  $ 7,638,564     $ 5,459,624  
Gufeng
    3,011,116       -  
Jintai
    1,007,361       972,620  
Yuxing
    39,956       (9 )
Reconciling item (1)
    935       11,108  
Reconciling item (2)
    (2,225,187 )     (1,110,544 )
Consolidated
  $ 9,472,745     $ 5,332,798  
Depreciation and Amortization:
               
Jinong
  $ 763,187     $ 576,384  
Gufeng
    839,034       -  
Jintai
    61       36,943  
Yuxing
    1,225       123  
Consolidated
  $ 1,603,507     $ 613,450  
Interest expense:
               
Jinong
  $ -     $ 6,813  
Gufeng
    154,292       -  
Consolidated
  $ 154,292     $ 6,813  
Capital Expenditure:
               
Jinong
  $ 2,760,908     $ 1,141,930  
Gufeng
    8,480,706       -  
Jintai
    1,249,887       -  
Yuxing
    7,817,189       492,673  
Consolidated
  $ 22159025     $ 1,634,603  
Identifiable assets:
               
Jinong
  $ 108,780,211     $ 97,793,931  
Gufeng
    83,744,301       -  
Jintai
    16,057,776       11,431,367  
Yuxing
    21,005,409       11,102,841  
Reconciling item (1)
    1,585,420       3,637,316  
Reconciling item (2)
    3,882,738       (568 )
Consolidated
  $ 235,055,855     $ 123,964,887  
 
(1) Reconciling amounts refer to the unallocated assets or expenses of Green New Jersey.
(2) Reconciling amounts refer to the unallocated assets or expenses of the parent company.

 
30

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 

 
   
  For the nine months ended
March 31,
 
Revenues from unaffiliated customers:
 
2011
   
2010
 
Jinong
  $ 47,030,563     $ 30,554,200  
Gufeng
    66,804,752       -  
Jintai
    5,612,628       5,337,013  
Yuxing
    -       -  
Consolidated
  $ 119,447,943     $ 35,891,213  
Operating income :
               
Jinong
  $ 23,602,730     $ 17,396,134  
Gufeng
    8,953,287       -  
Jintai
    2,413,641       2,249,711  
Yuxing
    (100,128 )     (72,934 )
Reconciling item (1)
    -       -  
Reconciling item (2)
    (2,672,980 )     (460,318 )
Reconciling item (2)--stock compensation
    (2,573,785 )     (1,259,992 )
Consolidated
  $ 29,622,765     $ 17,852,601  
Net income:
               
Jinong
  $ 20,176,280     $ 14,825,480  
Gufeng
    6,241,900       -  
Jintai
    2,413,621       2,249,880  
Yuxing
    (98,576 )     (72,927 )
Reconciling item (1)
    3,562       18,943  
Reconciling item (2)
    (5,246,765 )     (1,720,310 )
Consolidated
  $ 23,490,022     $ 15,301,066  
Depreciation and Amortization:
               
Jinong
  $ 2,125,523     $ 1,585,308  
Gufeng
    1,470,275       -  
Jintai
    179       93,644  
Yuxing
    3,603       71,479  
Consolidated
  $ 3,599,580     $ 1,750,431  
Interest expense:
               
Jinong
  $ -     $ 112,457  
Gufeng
    448,819       -  
Consolidated
  $ 448,819     $ 112,457  
Capital Expenditure:
               
Jinong
  $ 4,180,694     $ 3,528,331  
Gufeng
    9,017,534       -  
Jintai
    1,249,887       -  
Yuxing
    7,851,378       11,200,705  
Consolidated
  $ 22,299,493     $ 14,729,036  
Identifiable assets:
               
Jinong
  $ 108,780,211     $ 97,793,931  
Gufeng
    83,744,301       -  
Jintai
    16,057,776       11,431,367  
Yuxing
    21,005,409       11,102,841  
Reconciling item (1)
    1,585,420       3,637,316  
Reconciling item (2)
    3,882,738       (568 )
Consolidated
  $ 235,055,855     $ 123,964,887  

(1) Reconciling amounts refer to the unallocated assets or expenses of Green New Jersey.
(2) Reconciling amounts refer to the unallocated assets or expenses of the parent company.
 
 
31

 
 
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 


NOTE 17 - COMMITMENTS AND LEASES

In July 2007, Jinong signed an office lease with the Group Company at a monthly rent of $954 (RMB 6,460) per month. On September 30, 2010, Jinong cancelled this lease agreement with the Group Company without penalty and signed a two year lease effective as of July 1, 2010 directly with Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”), who owns the property. Kingtone Information is a Variable Interest Entity (“VIE”) controlled by Kingtone Wirelessinfo Solution Holoding Ltd. (“Kingtone Wirelessinfo”), whose Chairman and majority shareholder is Mr. Tao Li, the Chairman, President and Chief Executive Officer of the Company. According to the new lease agreement, the monthly rent is $1,596 (RMB 10,800).
 
In January 2008, Jintai signed a ten year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $768 (RMB 5,200).
 
In February 2004, Tianjuyuan signed a fifty year lease with the village committee of Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District, at a monthly rent of $437 (RMB 2,958).
 
Accordingly, the Company recorded an aggregate of $8,656 and $5,123 as rent expenses for the three months ended March 31, 2011 and 2010, respectively. The Company recorded an aggregate of $25,600 and $20,491 as rent expenses for the nine months ended March 31, 2011 and 2010, respectively. Rent expenses for the next twelve month periods ended March 31, 2011 are as follows:

March 31, 2012
 
$
19,832
 
March 31, 2013
   
14,900
 
March 31, 2014
   
14,900
 
March 31, 2015
   
14,900
 
March 31, 2016
   
14,900
 

NOTE 18 – SUBSEQUENT EVENT

On April 12, 2011, the Company renewed a loan payable in the amount of $1,221,600 (RMB 8,000,000) that was due on April 8, 2011.  The loan payable has been extended to April 11, 2012   
 
 
32

 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as the slow-down of the global financial markets and its impact on economic growth in general, the competition in the fertilizer industry and the impact of such competition on pricing, revenues and margins, the weather conditions in the areas where our customers are based, the cost of attracting and retaining highly skilled personnel, the prospects for future acquisitions, and the factors set forth elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements. In light of this risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.  Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices and our assumptions as of such date.  We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Unless the context indicates otherwise, as used in the following discussion, “Company”, “we,” “us,” and “our,” refer to (i) China Green Agriculture, Inc. (“Green Nevada”), a corporation incorporated in the State of Nevada; (ii) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the State of New Jersey; (iii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iv) Xi’an Jintai Agriculture Technology Development Company (“Jintai”), wholly-owned subsid