chinaswine10q093009.htm
U.
S. Securities and Exchange Commission
Washington,
D. C. 20549
FORM
10-Q
[X] QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
[
] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _____ to _____
Commission
File Number 0-12792
|
CHINA
SWINE GENETICS, INC.
|
(Name
of Registrant as Specified in its
Charter)
|
|
|
Delaware
|
84-0916585
|
(State
or Other Jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
|
1077 Ala Napunani Street,
Honolulu, HI 96818
|
(Address
of principal executive offices)
|
808-429-5954
|
(Issuer's telephone
number)
|
Indicate
by check mark whether the Registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files.) Yes
No ____
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes [ ] No [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
One)
Large
accelerated filer
Accelerated filer
Non-accelerated filer
Small reporting company [X]
APPLICABLE
ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of
each of the Registrant's classes of common stock, as of the latest practicable
date: On November13, 2009, there were 20,031,181 shares of Common Stock, par
value $.001 per share, outstanding.
CHINA
SWINE GENETICS, INC.
FORM
10-Q
QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2009
TABLE OF
CONTENTS
PART
I - FINANCIAL INFORMATION
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Item
1: Financial Statements
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F-1
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Item
2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
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17
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Item
3: Quantitative and Qualitative Disclosures about Market
Risk
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20
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Item
4: Controls and Procedures
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20
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PART
II - OTHER INFORMATION
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Item
1: Legal Proceedings
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21
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Item
1A: Risk Factors
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21
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Item
2: Unregistered Sales of Equity Securities and Use of
Proceeds
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21
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Item
3: Defaults Upon Senior Securities
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21
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Item
4: Submission of Matters to a Vote of Security Holders
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21
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Item
5: Other Information
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21
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Item
6: Exhibits
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21
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Part
I
Financial
Information
Item
1. Financial
Statements
China
Swine Genetics, Inc. (f/k/a Apogee Robotics, Inc.) and
Subsidiaries
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|
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Condensed
Consolidated Balance Sheets
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September
30, 2009
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June
30, 2009
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(Unaudited)
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(Audited)
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Assets
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|
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|
|
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Current
Assets:
|
|
|
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Cash
and equivalents
|
|
$ |
1,090,470 |
|
|
$ |
82,854 |
|
Accounts
receivable
|
|
|
- |
|
|
|
634,550 |
|
Inventories
|
|
|
784,841 |
|
|
|
998,600 |
|
Advanced
to suppliers, net
|
|
|
24,309,278 |
|
|
|
20,654,804 |
|
Prepayments
and other current assets
|
|
|
94,023 |
|
|
|
146,789 |
|
Total
Current Assets
|
|
|
26,278,612 |
|
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|
22,517,597 |
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|
|
|
|
|
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Property,
Plant, Equipment and Breeding Stock, net
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2,264,215 |
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2,486,610 |
|
Total
Long-Term Assets
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2,264,215 |
|
|
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2,486,610 |
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|
|
|
|
|
|
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Total
Assets
|
|
|
28,542,827 |
|
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|
25,004,207 |
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|
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Liabilities and
Equity
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Current
Liabilities:
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Accounts
payable and accrued expenses
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|
364,388 |
|
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|
447,565 |
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Customer
deposit
|
|
|
28,868 |
|
|
|
4,270 |
|
Loans
payable, net, current maturities
|
|
|
1,084,139 |
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|
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1,068,909 |
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Loans
from shareholders/officers, net
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|
|
- |
|
|
|
11,024,211 |
|
Deferred
interest income
|
|
|
14,548 |
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29,077 |
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Other
current liabilities
|
|
|
41,995 |
|
|
|
64,593 |
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Total
Current Liabilities
|
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|
1,533,938 |
|
|
|
12,638,625 |
|
|
|
|
|
|
|
|
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Total
Liabilities
|
|
|
1,533,938 |
|
|
|
12,638,625 |
|
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|
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|
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Equity:
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China
Swine Genetics Inc. Shareholders' Equity:
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|
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|
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|
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Preferred
Stock, $0.001 par value, 9,995,200 shares authorized,
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|
|
|
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zero
shares issued and outstanding, respectively *
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- |
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- |
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Series
A Convertible Preferred Stock ,$0.001 par value,
|
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|
|
|
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4,800
shares authorized, 4,646.05933 shares issued
and
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|
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outstanding,
respectively *
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5 |
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5 |
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Common
stock, $0.001 par value, 300,000,000 shares
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|
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authorized,
72,598 issued and outstanding, respectively *
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73 |
|
|
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73 |
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Additional
paid-in capital *
|
|
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15,212,412 |
|
|
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4,043,176 |
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Reserve
funds
|
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|
2,434,675 |
|
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1,874,970 |
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Retained
earnings
|
|
|
8,296,266 |
|
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5,295,496 |
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Accumulated
other comprehensive income
|
|
|
737,825 |
|
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|
720,415 |
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Total
China Swine Genetics Inc. Shareholders' Equity
|
|
|
26,681,256 |
|
|
|
11,934,135 |
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Noncontrolling
Interest
|
|
|
327,633 |
|
|
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431,447 |
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Total
Equity
|
|
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27,008,889 |
|
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12,365,582 |
|
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|
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|
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Total
Liabilities and Equity
|
|
$ |
28,542,827 |
|
|
$ |
25,004,207 |
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*:
As restated to show recapitalization and reverse split.
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The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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China
Swine Genetics, Inc. (f/k/a Apogee Robotics, Inc.) and
Subsidiaries
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Condensed
Consolidated Statements of Operations (Unaudited)
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|
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For
Three Months Ended September 30,
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2009
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|
|
2008
|
|
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Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
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Revenues
|
|
$ |
21,895,508 |
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|
$ |
11,514,522 |
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Cost
of Goods Sold
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|
17,167,862 |
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|
9,301,840 |
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Gross
Profit
|
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|
4,727,646 |
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|
2,212,682 |
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Operating
Expenses
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Selling
expenses
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|
671,363 |
|
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|
387,757 |
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General
and administrative expenses
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|
68,172 |
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|
163,465 |
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Bad
debt for advanced to suppliers
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|
178,830 |
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|
3,753 |
|
Total
Operating Expenses
|
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|
918,365 |
|
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|
554,975 |
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|
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|
|
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Income
From Operations
|
|
|
3,809,281 |
|
|
|
1,657,707 |
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|
|
|
|
|
|
|
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Other
Income (Expenses)
|
|
|
|
|
|
|
|
|
Interest income
(expenses), net
|
|
|
554 |
|
|
|
(19,220 |
) |
Other
expenses, net
|
|
|
(6,242 |
) |
|
|
(819 |
) |
Loss
on fixed assets disposal
|
|
|
(107,753 |
) |
|
|
(100,643 |
) |
Loss
on inventory disposal
|
|
|
(239,179 |
) |
|
|
(60,034 |
) |
Total
Other Expenses
|
|
|
(352,620 |
) |
|
|
(180,716 |
) |
|
|
|
|
|
|
|
|
|
Income
Before Income Taxes
|
|
|
3,456,661 |
|
|
|
1,476,991 |
|
Income
Tax Provision
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
Income Before Noncontrolling Interest
|
|
|
3,456,661 |
|
|
|
1,476,991 |
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to the noncontrolling interest
|
|
|
(103,814 |
) |
|
|
(56,064 |
) |
|
|
|
|
|
|
|
|
|
Net
Income Attributable to China Swine Genetics Inc
|
|
$ |
3,560,475 |
|
|
$ |
1,533,055 |
|
|
|
|
|
|
|
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|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
-
Basic
|
|
$ |
49.04 |
|
|
$ |
21.12 |
|
-
Diluted
|
|
$ |
0.18 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
Weighted
Common Shares Outstanding *
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
72,598 |
|
|
|
72,598 |
|
-
Diluted
|
|
|
20,031,181 |
|
|
|
20,031,181 |
|
|
|
|
|
|
|
|
|
|
*:
As restated to show recapitalization and reverse split.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
China
Swine Genetics, Inc. (f/k/a Apogee Robotics, Inc.) and
Subsidiaries
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Comprehensive Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net
Income Before Noncontrolling Interest
|
|
$ |
3,456,661 |
|
|
$ |
1,476,991 |
|
Other
Comprehensive (Loss) Income:
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Income
|
|
|
17,410 |
|
|
|
207,877 |
|
Comprehensive
Income
|
|
$ |
3,474,071 |
|
|
$ |
1,684,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
China
Swine Genetics, Inc. (f/k/a Apogee Robotics, Inc.) and
Subsidiaries
|
|
|
|
|
|
|
Consolidated Statements
of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
For
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
Income
|
|
$ |
3,560,475 |
|
|
$ |
1,533,055 |
|
Adjustments
to Reconcile Net Income to Net Cash Provided
by Operating Activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
131,668 |
|
|
|
241,149 |
|
Bad
debt adjustment
|
|
|
178,830 |
|
|
|
3,753 |
|
Net
income attributable to noncontrolling interest
|
|
|
(103,814 |
) |
|
|
(56,064 |
) |
Loss on
disposal of fixed assets
|
|
|
107,753 |
|
|
|
100,643 |
|
Loss on
disposal of inventory
|
|
|
239,179 |
|
|
|
60,034 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
634,550 |
|
|
|
335 |
|
Inventories
|
|
|
(29,720 |
) |
|
|
(573,814 |
) |
Advanced to suppliers
|
|
|
(3,817,792 |
) |
|
|
(748,333 |
) |
Prepayments and other current assets
|
|
|
52,826 |
|
|
|
(7,622 |
) |
Accounts payable and accrued expenses
|
|
|
(83,410 |
) |
|
|
208,771 |
|
Customer deposit
|
|
|
24,580 |
|
|
|
30,616 |
|
Deferred interest income
|
|
|
(14,538 |
) |
|
|
(17,759 |
) |
Other current liabilities
|
|
|
(22,625 |
) |
|
|
7,842 |
|
Net
Cash Provided by Operating Activities
|
|
|
857,962 |
|
|
|
782,606 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Payment
for purchase of equipment
|
|
|
(34,571 |
) |
|
|
(3,944 |
) |
Payment
for construction in progress
|
|
|
- |
|
|
|
(7,609 |
) |
Proceeds from
sale of property and equipment
|
|
|
23,760 |
|
|
|
27,018 |
|
Net
Cash (Used in) Provided by Investing Activities
|
|
|
(10,811 |
) |
|
|
15,465 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from
loans payable
|
|
|
- |
|
|
|
497,356 |
|
Repayment of
loans payable
|
|
|
- |
|
|
|
(441,833 |
) |
Proceeds from
discount on loan payable
|
|
|
14,538 |
|
|
|
17,759 |
|
Payments for
loans to shareholders/officers
|
|
|
(4,585 |
) |
|
|
(31,665 |
) |
Proceeds the
repayment of loans by shareholders/officers
|
|
|
147,701 |
|
|
|
29,910 |
|
Net
Cash Provided by Financing Activities
|
|
|
157,654 |
|
|
|
71,527 |
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Equivalents
|
|
|
1,004,804 |
|
|
|
869,598 |
|
Effect
of Exchange Rate Changes on Cash
|
|
|
2,811 |
|
|
|
3,485 |
|
Cash
and Equivalents at Beginning of Period
|
|
|
82,854 |
|
|
|
140,270 |
|
Cash
and Equivalents at End of Period
|
|
$ |
1,090,470 |
|
|
$ |
1,013,353 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
- |
|
|
$ |
8,174 |
|
Income
taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Inventory
transferred out to be breeding stock in fixed assets
|
|
$ |
4,801 |
|
|
$ |
11,601 |
|
Construction in
progress transferred out to be fixed assets
|
|
$ |
- |
|
|
$ |
113,749 |
|
Majority
shareholder gave up debt of the Company
|
|
$ |
11,169,236 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
China
Swine Genetics Inc (f/k/a Apogee Robotics, Inc.) and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
1.
|
Interim
financial statements:
|
The
unaudited condensed consolidated financial statements of China Swine Genetics
Inc (f/k/a Apogee Robotics, Inc.) (the "Company") and subsidiary have been
prepared in accordance with U.S. generally accepted accounting principles
for interim financial information and pursuant to the requirements for reporting
on Form 10-Q. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for annual financial statements. However, the information included in
these interim financial statements reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial position and
the consolidated results of operations. Results shown for interim periods are
not necessarily indicative of the results to be obtained for a full year. The
consolidated balance sheet information as of June 30, 2009 was derived from the
audited consolidated financial statements included in the Company's Annual
Report on Form 10-K. These interim financial statements should be read in
conjunction with that report.
The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany balances and transactions have
been eliminated.
2.
|
Organization
and Nature of Operations
|
China
Swine Genetics Inc (f/k/a Apogee Robotics, Inc.) (the "Company") was founded as
a Colorado corporation on June 29, 1983 and was reinstated by Colorado on March
15, 2007. The Company's Board of Directors and shareholders approved a change of
domicile from Colorado to Delaware on December 6, 2007. In connection with the
Company's change of domicile from Colorado to Delaware, the Company's authorized
capital stock was changed to increase the authorized capital stock to
310,000,000 of which 300,000,000 are classified as common stock, par value
$0.001 per share, and 10,000,000 are classified as Preferred Stock, par value
$0.001 per share, issuable in series with such powers, designations, preferences
and relative, participating, optional or other specific rights, and
qualifications, limitations or restrictions thereof, as the Board may fix from
time to time by resolution or resolutions. For at least ten years prior to
August 13, 2009, the Company had not engaged in any business
operations.
On August
13, 2009 China Swine Genetics Inc (f/k/a Apogee Robotics Inc.) acquired all of
the outstanding capital stock of Advanced Swine Genetics, Inc., a Nevada
corporation (“Advanced Swine”). In exchange for the outstanding shares of
Advanced Swine, China Swine Genetics Inc (f/k/a Apogee Robotics Inc.) issued
4,646.05933 shares of its Series A Convertible Preferred Stock to the
shareholders of Advanced Swine (the “Share Exchange”). Each share of
Series A Preferred Stock is convertible into Four Thousand One Hundred Sixty-Six
and ⅔ (4,166.6666) shares of China Swine Genetics Inc (f/k/a Apogee Robotics
Inc.) common stock.
As
permitted by Delaware General Corporation Law, in order to better represent the
Company’s business, the Company has adopted a resolution to change the name of
the Company from Apogee Robotics, Inc. to “China Swine Genetics, Inc.” The
Certificate of Amendment of Certificate of Incorporation was filed on September
9, 2009, effective on September 30, 2009.
Concurrent
with the name change, a 1 for 24 reverse split was effected on September 30,
2009. Shareholders with 1 or more but fewer than 100 shares after the
reverse split were issued shares to increase their holdings to 100
shares. All other fractional shares resulting from the reverse split
were purchased by the Company for $5.28 per share.
Advanced
Swine was incorporated under the laws of Nevada on June 29, 2007. It has
initiated no business activity. On February 28, 2008, Advanced Swine acquired
100% ownership equity of Heilongjiang Senyu Animal Husbandry Co., Ltd.
(“Senyu”). Most of Advanced Swine’s activities are conducted through its wholly
own subsidiary in PRC.
Senyu was
incorporated on September 3, 2004, under the law of Heilongjiang Jiamusi
District of the People Republic of China (“PRC”). On December 20, 2007, Advanced
Swine signed a stock transfer agreement with Senyu, which contemplated that it
would acquire all the ownership interest in Senyu. The certificate of approval
for Senyu to accept foreign investment in PRC was issued on February 4, 2008 by
the Investment Promotion Bureau of Heilongjiang Province, and the updated
operation certificate of Senyu with the new shareholder’s name was issued on
February 28, 2008 by Jiamusi Administration for Industry and Commerce. As a
result, Senyu became a foreign wholly owned enterprise on February 28,
2008.
Senyu was
originally founded with registered capital of $1,208,211(equivalent to RMB10
million) on August 27, 2004 and increased its registered capital to $6,165,762
(equivalent to RMB50 million) and $9,933,896 (equivalent to RMB80 million) on
January 18 and August 29, 2006, respectively.
Senyu
remained development stage and incurred minor selling expenses and significant
general and administrative expenses prior to September, 2005. In September 2005,
Senyu accepted its order for the sale of merchandise hogs and genetic boars that
it had raised. Since then Senyu has operated its business
as a farmer enterprise for breeding, feeding, and marketing the grandparent and
parent generation boars, and merchandise hogs.
In
December 2005, Senyu established a joint venture with Polar Genetics Co., Ltd.,
a Canadian corporation (the “foreign partner”), called Sino-Canadian Senyu-Polar
Swine Genetics Company Limited (“Sino-Canadian”) with expected registered
capital of $2,068,368 (equivalent to RMB16.7 million). According to
the joint venture agreement, Senyu and its foreign partner are required to
contribute $1,238,543 (equivalent RMB10 million) and 600 primary genetic boars
worth $829,825 (equivalent RMB6.7 million) in order to own 60% and 40% of the
joint venture, respectively. This joint venture had been approved by
Heilongjiang government on March 30, 2006, and the actual capital $1,246,028
(equivalent RMB10 million) was contributed by Senyu on May 22, 2006. Its foreign
partner did not contribute 600 primary genetic boars worth $891,788 (equivalent
RMB6.7 million) until October 12, 2007, which, due to customs processing, were
not released to the Sino-Canadian until November 27,
2007. Accordingly, Senyu fully owned this joint venture until
November 27, 2007. This joint venture remained development stage and incurred
start-up cost prior to November, 27, 2007
The
Company’s fiscal year ended on June 30. The accompanying condensed consolidated
financial statements of operations and cash flows included activities for the
three months ended September 30, 2009 and 2008, respectively.
b.
|
Principle
of Consolidation
|
The
accompanying unaudited condensed consolidated financial statements present the
financial position, results of operations and cash flows of the Company and all
entities in which the Company has a controlling voting interest. The unaudited
condensed consolidated financial statements also include the accounts of any
variable interest entities in which the Company is considered to be the primary
beneficiary and such entities are required to be consolidated in accordance with
accounting principles generally accepted in the United States (“US GAAP”). These
consolidated financial statements include the financial statements of China
Swine Genetics, Inc (f/k/a Apogee Robotics, Inc.) and its subsidiaries. All
significant intercompany transactions and balances are eliminated in
consolidation.
The
accompanying unaudited condensed consolidated financial statements are prepared
in accordance with US GAAP. This basis of accounting differs from that used in
the statutory accounts of some of the Company’s subsidiaries, which were
prepared in accordance with the accounting principles and relevant financial
regulations applicable to enterprises with foreign investment in the PRC (“PRC
GAAP”). Necessary adjustments were made to the Subsidiary’s statutory accounts
to conform to US GAAP to be included in these consolidated financial
statements.
4.
|
Summary
of Significant Accounting Policies
|
The
preparation of unaudited condensed consolidated financial statements in
conformity with accounting principal generally accepted in United States
requires management to make estimates and assumptions that affect the amount
reported in the unaudited condensed consolidated financial statements and the
accompany notes. Significant estimates in 2009 and 2008 include the estimated
useful lives and fair values of the assets. Actual results could differ from
those estimates.
b.
|
Foreign
Currency Translation
|
The
accompanying unaudited condensed consolidated financial statements are presented
in United States dollars. The Company’s functional currency is the Renminbi
(“RMB”). The unaudited condensed consolidated financial statements are
translated to U.S. dollars using year-end rates of exchange for assets and
liabilities, average rates of exchange for the period for revenues, costs, and
expenses, and historical capital contribution rate of exchange for capital
contribution. Net gains and losses resulting from foreign exchange transactions
are included in the statements of operations.
The
following rates are used in translating the RMB to the U.S. Dollar presentation
disclosed in these condensed consolidated financial statements for the three
months ended September 30, 2009 and 2008, respectively.
|
|
|
For
The Three Months Ended September 30,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
and liabilities
|
the
three months ended rate of US
|
|
$ |
0.14649 |
|
|
$ |
0.14728 |
|
/RMB
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
and expenses
|
average
rate of US
|
|
$ |
0.14639 |
|
|
$ |
0.14625 |
|
/RMB
|
Revenues
from products sales are recorded when both title to the goods and risk of
ownership have transferred to the customer upon shipment, provided that no
significant obligations remain. Net sales reflect units shipped at selling
prices reduced by certain sales allowances.
The
Company and its USA subsidiary, Advanced Swine, are subjected to U.S. federal
income taxes, and State of Delaware and State of Nevada annual franchise tax,
respectively. Its PRC subsidiaries were exempt from the income tax per PRC tax
laws and regulation that exempt companies engaged in the agricultural breeding
of livestock. Therefore, for the three months ended September 30,
2009 and 2008, the Company was not subject to any income taxes.
The
Company follows ASC 740 - “Accounting for Income Taxes,” which requires
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 tax assets and liabilities are based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
e.
|
Recent Accounting
Pronouncements
|
In
June 2009, the FASB issued ASC 105, the FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162. The FASB Accounting Standards
Codification TM (“Codification”) will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date of ASC 105, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All
other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. ASC 105 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Adoption of ASC 105 is not expected to have a material impact on the
Company’s results of operations or financial position.
In
June 2009, the FASB issued ASC 810, Amendments to FASB Interpretation
No. 46(R), which improves financial reporting by enterprises involved with
variable interest entities. ASC 810 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities , as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (2) concerns
about the application of certain key provisions of FIN 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise’s involvement in a
variable interest entity. ASC 810 shall be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of ASC 810 is not expected to have a
material impact on the Company’s results of operations or financial
position.
In
May 2009, the FASB issued ASC 855, Subsequent Events, which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. An entity should apply the requirements of ASC 855 to
interim or annual financial periods ending after June 15, 2009. Adoption of
ASC 855 did not have a material impact on the Company’s results of operations or
financial position.
Inventories
on September 30, 2009 and June 30, 2009 consisted of the following:
|
|
September
30, 2009
|
|
|
June
30, 2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Raw
materials
|
|
$ |
56,045 |
|
|
$ |
57,106 |
|
Work
in progress
|
|
|
591,127 |
|
|
|
615,487 |
|
Finished
goods
|
|
|
137,669 |
|
|
|
326,007 |
|
Total
|
|
$ |
784,841 |
|
|
$ |
998,600 |
|
6.
|
Advanced
to suppliers, net
|
In order to raise good quality
commercial hogs, and control the quality of feeding materials and procedures,
Senyu signed a cooperation agreement with Heilongjiang WangDa Feedstuff Co.,
Ltd. (“WangDa”), a professional feeding materials provider and a purchasing
agent for good quality commercial hogs, on October 11, 2007. Pursuant to the
terms of the agreement, Senyu agreed to loan money to WangDa to support WangDa’s
farmers using good quality feedstuffs to raise their commercial hogs, and then
sell those hogs to Senyu once they mature. WangDa can offset the loan amount
from Senyu once it delivered the farmers’ commercial hogs to Senyu. In order to
extend farmer- base production model and acquire significant amounts of hogs in
the near future from WangDa, Senyu loaned the amounts of $25,326,489 (equivalent
to approximately RMB 172.89 million) to WangDa as of September 30, 2009. Senyu
adopted a bad debt allowance of 5% of the principal amount that it advanced to
the supplier for the three months ended September 30, 2009 and for the fiscal
year ended June 30, 2009. Accordingly, the bad debt allowances were $1,266,324
and $1,086,681 as of September 30, 2009 and June 30, 2009, respectively.
Including the amount of advance to suppliers by the joint venture,
Sino-Canadian, the Company had total net amount advanced to suppliers as of
September 30, 2009 and June 30, 2009 consisted of the
following:
|
|
September
30, 2009
|
|
|
June
30, 2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Advanced
to suppliers
|
|
|
25,575,602 |
|
|
|
21,741,485 |
|
Less:
Accumulated bad debt allowance
|
|
|
1,266,324 |
|
|
|
1,086,681 |
|
Advanced
to suppliers, net
|
|
|
24,309,278 |
|
|
|
20,654,804 |
|
Senyu
also signed a supplementary agreement with WangDa on December 12, 2008 to secure
Senyu’s loan to WangDa. Pursuant to the supplementary agreement, once WangDa
breached the term of cooperation agreement, Senyu can execute the following
rights to secure its loans to WangDa: (1) step into WangDa’s shoes with no other
condition, and acquire all creditor’s right of WangDa from contracted farmers,
(2) If these creditor’s rights still could not satisfy the loss from Senyu, then
Senyu will have a creditor’s right on WangDa’s assets, these assets include and
not limited to the building, equipment, and working capital of
WangDa.
Senyu has
renewed corporation agreement with WangDa effective January 1, 2009. SenYu still
finances WangDa, with fixed profit margins set by SenYu, and WangDa in turn
finances the farmers, providing fodder on credit at discount rates obtained
through volume purchasing power. WangDa also guarantees the repurchase of mature
hogs that meet SenYu’s quality standards. Once WangDa breached the term of
cooperation agreement, Senyu can still execute the above rights to secure its
loans to Wangda.
7.
|
Prepayments
and Other Current Assets
|
As of
September 30, 2009 and June 30, 2009, prepayments and other current assets
consisted of the following:
|
|
September
30, 2009
|
|
|
June
30, 2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Prepaid
rent
|
|
$ |
61,881 |
|
|
$ |
46,263 |
|
Advance
to employees
|
|
|
15,230 |
|
|
|
39,313 |
|
Other
receivable
|
|
|
16,912 |
|
|
|
61,213 |
|
Total
|
|
$ |
94,023 |
|
|
$ |
146,789 |
|
8.
|
Property,
Plant, Equipment, and Breeding Stock,
net
|
Property,
Improvements, Equipment, and Breeding Stock, less accumulated depreciation,
consisted of the following:
|
|
September
30, 2009
|
|
|
June
30, 2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Land
improvements
|
|
$ |
278,350 |
|
|
$ |
278,173 |
|
Leasehold
improvements
|
|
|
100,146 |
|
|
|
65,533 |
|
Buildings
|
|
|
1,764,277 |
|
|
|
1,763,151 |
|
Machinery
and equipment
|
|
|
687,505 |
|
|
|
687,065 |
|
Breeding
stock
|
|
|
491,358 |
|
|
|
866,821 |
|
Sub-Total
|
|
|
3,321,636 |
|
|
|
3,660,743 |
|
Less:
Accumulated depreciation
|
|
|
1,057,421 |
|
|
|
1,174,133 |
|
Total
|
|
$ |
2,264,215 |
|
|
$ |
2,486,610 |
|
Depreciation
expenses for the three months ended September 30, 2009 and 2008 were $131,668
and $241,149 respectively. Loss on disposal of fixed assets for the three months
ended September 30, 2009 and 2008 was $107,753 and $100,643
respectively.
Loan
payable as of September 30, 2009 and June 30, 2008 consisted of the
following:
Loans
payable, net, current maturities
|
|
|
|
|
|
|
|
|
September
30, 2009
|
|
|
June
30, 2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
On
December 1 and 16, 2005, the Company obtained loans in amounts
of RMB2.8 million (equivalent to $410,176 and $409,915 as of
September 30, 2009 and June 30, 2009, respectively) and RMB0.7 million
(equivalent to $102,545 and $102,479 as of September 30, 2009 and June 30,
2009, respectively) from Jiamusi Government Financial Bureau ("JGFB") by
pledging certain buildings in Huanan, which have a carrying value of
approximately RMB2.6 million (equivalent to $380,878 ). The term of the
debt was originally from October 31, 2005 to 2007. Since the Company is an
agricultural enterprise and its business is supported by the Chinese
Government, these loans do not bear interest, and the original due date
had been extended to December 31, 2008. Furthermore, before December 31,
2008, the due dates of these loans have been rescheduled to December 31,
2009.
|
|
$ |
512,721 |
|
|
$ |
512,394 |
|
|
|
|
|
|
|
|
|
|
On
April 20 and September 25, 2007, the subsidiary of the Company,
Sino-Canadian, obtained loans in amounts of RMB1.5 million (equivalent to
$219,737 and $219,597 as of September 30, 2009 and June 30, 2009,
respectively) and RMB0.5 million (equivalent to $73,246 and $73,199 as of
September 30, 2009 and June 30, 2009, respectively) from TangYuan
Government Financial Bureau ("TGFB") by pledging certain buildings in
Heijinhe, which have a carrying value of approximately RMB5.1 million
(equivalent to $747,107 ). The term of the debt was originally from
January 1, 2007 to December 31, 2008. Since the Chinese government
supports the Company's business, these loans do not bear interest and all
of their due dates have been extended to December 31,
2009.
|
|
|
292,983 |
|
|
|
292,796 |
|
|
|
|
|
|
|
|
|
|
On
May 9, 2007, the Company obtained a loan in amount of RMB2 million
(equivalent to $292,983 and $292,796 as of September 30, 2009 and June 30,
2009, respectively) from JGFB by pledging certain buildings in Huanan,
which have a carrying value of approximately RMB1.5 million (equivalent to
$219,737 ). The term of the debt was originally from January 1, 2007 to
December 31, 2008. Since the government support the Company's
business, this loan does not bear interest and the due date
have been extended to December 31, 2009 by JGFB on June 16,
2008.
|
|
|
292,983 |
|
|
|
292,796 |
|
|
|
|
|
|
|
|
|
|
Total
loans payable, current maturities
|
|
$ |
1,098,687 |
|
|
$ |
1,097,986 |
|
Less:
discount on loans payable, current
|
|
|
14,548 |
|
|
|
29,077 |
|
Total
loans payable, net, current maturities
|
|
$ |
1,084,139 |
|
|
$ |
1,068,909 |
|
10.
|
Loan
from Shareholders/Officers,
Net
|
Amounts
loan from shareholders/officers are unsecured, non-interest bearing, and have no
set repayment date.
At the
end of the fiscal quarter, in order to increase the working capital of the
Company, the majority shareholder, Mr. Ligang Shang, waived his right to collect
the Company’s debt to him in amount of $11,169,236. That sum was
added to paid-in capital as of September 30, 2009.
The
Company enters into forward commercial hog sales contracts with its major
customers to decrease its market risk in the ordinary course of business. The
Company utilizes forward contracts to establish adequate sales to minimize the
risk of market fluctuations. The Company continually monitors its overall market
position and fair value. The contracts information listed as
follows:
Contract
#
|
|
Sales
Contracts
|
|
Client's
Name
|
|
Contract
Term
|
|
Sales
Quantities
|
1
|
|
Merchandise
hogs sales
|
|
Beijing
Da Hongmen
|
|
from
September 28, 2009
|
|
120
thousand hogs per year
|
|
|
|
|
|
|
to
September 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Merchandise
hogs sales
|
|
Beijing
Fifth Meat Processing Factory
|
from
August 29, 2009
|
|
180
thousand hogs per year
|
|
|
|
|
|
|
to
August 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Price
|
|
Hog
Average Weight
|
|
Hogs
Quality
|
|
Penalty
|
1
|
|
market
value in Beijing area
|
From
75 to 90kg
|
|
second
or/and third generation
|
1%
penalty if the merchandise
|
|
|
|
|
|
|
of
merchandise hogs
|
|
hogs
delivered late
|
|
|
|
|
|
|
|
|
|
2
|
|
market
value in Beijing area
|
|
From
75 to 90kg
|
|
second
or/and third generation
|
1%
penalty if the merchandise
|
|
|
|
|
|
|
of
merchandise hogs
|
|
hogs
delivered late
|
The
Company leases office space, employee living space, and certain pigsties under
non-cancelable operating leases. The rental expenses under operating leases were
$46,730 and $46,684 in the three months ended September 30, 2009 and 2008,
respectively. Future minimum rental commitments on September 30, 2009, are as
follows:
For
The Three Months Ending September 30,
|
|
Amount
|
|
2010
|
|
$ |
186,924 |
|
2011
|
|
|
53,458 |
|
2012
|
|
|
2,122 |
|
2013
|
|
|
1,465 |
|
2014
|
|
|
1,465 |
|
Thereafter
|
|
|
29,787 |
|
Total minimum
payments required
|
|
$ |
275,221 |
|
a. Series
A Convertible Preferred Stock
In
exchange for the outstanding shares of Advanced Swine, the Company issued
4,646.05933 shares of its Series A Convertible Preferred Stock to the
shareholders of Advanced Swine (the “Share Exchange”). Each share of
Series A Preferred Stock is convertible into Four Thousand One Hundred Sixty-Six
and ⅔ (4,166.6666) shares of common stock of China Swine Genetics, Inc. (f/k/a
Apogee Robotics, Inc.). There were 4,800 shares of Series A Preferred Shares
authorized, with par value $0.001 per share, as of September 30, 2009 and June
30, 2009, respectively.
Upon
completion of the Share Exchange, there were 4,646.05933 outstanding shares of
Series A Convertible Preferred Stock that are convertible into 19,358,581 shares
of common stock. The Series A Preferred Shares have voting rights
equal to the number of common shares into which they are
convertible.
If a
dividend is declared, the holder of Series A Convertible Preferred Stock will be
entitled to participate in the dividend as if the shares had been converted to
common stock. In the event of a liquidation of China Swine Genetics,
Inc. (f/k/a Apogee Robotics, Inc), the holder of each share of Series A
Convertible Preferred Stock will receive $.01 per share, then participate in the
liquidation as if the Series A shares had been converted to common
stock. The holder of Series A Preferred Shares has voting rights
equal to the number of common shares into which the Series A shares are
convertible. China Swine Genetics, Inc. (f/k/a Apogee Robotics, Inc)
may redeem the Series A Convertible Preferred Stock for a price of $.01 per
share at any time when there is sufficient authorized common stock for
conversion of the Series A shares.
b. Preferred
Stock
The Board
of Directors of the Company is authorized to designate the preferred stock
in classes, and to determine the rights, privileges and limitations of the
shares in each class. There were 9,995,200 shares of Preferred Stock authorized,
par value $0.001 per share, and zero shares of Preferred Stock outstanding and
issued as of September 30, 2009 and June 30, 2009, respectively.
After the change of domicile
from Colorado to Delaware on December 6, 2007, the Company had 300,000,000
authorized shares common stock, with par value $0.001 per share. After giving
effect to the one for twenty-four reverse split on September 30,
2009, in which the holders of one or more and less than 100 shares received
shares to bring their holdings to 100, the Company had 72,598 and
72,598 shares of common stock outstanding and issued as of September 30, 2009
and June 30, 2009, respectively.
Holders
of the Company are entitled to one vote for each share in the election of
directors and in all other matters to be voted on by the
stockholders. There is no cumulative voting in the election of
directors. Holders of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors with
respect to the Common Stock out of funds legally available therefore and, in the
event of liquidation, dissolution or winding up of the Company, to share
proportionally in all assets remaining after payment of
liabilities. The holders of Common Stock have no pre-emptive or
conversions rights and are not subject to further calls or
assessments. There are no redemption or sinking fund provisions
applicable to the Common Stock.
Effective
on September 30, 2009 the Company implemented a reverse split of its common
stock. No fractional
shares or scrip were issued; rather, in the case of each shareholder who held
less than one whole share or held 100 or more shares after the Reverse Split,
the Company will purchase any fractional share resulting from the Reverse Split
for $5.28 per share. In the case of each shareholder who would
otherwise hold at least one but fewer than 100 shares as a result of the Reverse
Split, the Company will issue a number of shares equal to the difference between
the shares held by the shareholder and 100, so that each such shareholder will
own 100 whole shares.
All
presentations regarding outstanding common stock in these financial statements
have been adjusted to reflect the reverse stock split as if it had occurred on
July 1, 2007.
e.
Additional
Paid-In Capital
The
additional paid-in capital represents the excess of the aggregate fair value of
the capital contributed over the par value of the stock issued. There was
$15,212,412 and $4,043,176 additional paid-in capital as of September 30, 2009
and June 30, 2009, respectively.
13.
|
Concentration
of Business
|
a.
Financial Risks
The
Company provides credit in the normal course of business. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends, and other information.
The
Company advances funds to its supplier, WangDa. The Company also performs
ongoing credit evaluations of its advances and maintains allowances for doubtful
amounts based on factors surrounding the credit risk of its
suppliers.
b.
Major Customers
The
following summarizes sales to major customers (each represented 10% or more of
the Company’s total sales revenues):
|
|
Sold
to
|
|
Number
of
|
|
Percentage
of
|
For
The Three Months Ended September 30,
|
|
Major
Customers
|
|
Customers
|
|
Total
Sales Revenue
|
2009
|
|
$ 21,573,195
|
|
2
|
|
98.53%
|
2008
|
|
$ 11,264,780
|
|
2
|
|
98.60%
|
b.
Major
Suppliers
The
following summarizes purchases from major suppliers (each represented 10% or
more of purchased):
|
|
Purchased
from
|
|
Number
of
|
|
Percentage
of
|
For
The Three Months Ended September 30,
|
|
Major
Suppliers
|
|
Suppliers
|
|
Total
Purchased
|
2009
|
|
$ 17,002,245
|
|
1
|
|
99.93%
|
2008
|
|
$ 6,952,960
|
|
1
|
|
76.26%
|
Substantially
all of the Company's operations are carried out in the PRC. Accordingly, the
Company's business is subject to considerations and risks atypical to those in
the United States, including changes in the political, economic, social, legal,
and tax environments in PRC, as well as changes in inflation and interest rates.
Changes in laws and regulations concerning PRC’s purchases and sales of daily
commodities, and insurance agency business could significantly affect the
Company’s future operating results and financial position.
On
October 28, 2009, 4,646.05933 issued and outstanding shares of Series A
Convertible Preferred Stock were converted into 19,958,583 shares of Common
Stock. As a result, there were 20,031,181 shares of Common Stock, par value
$.001 per share, outstanding and issued as of November 13,
2009.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In
addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
“believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,”
“projects,” or similar expressions. These forward-looking statements represent
Management’s belief as to the future of China Swine Genetics,
Inc. Whether those beliefs become reality will depend on many factors
that are not under Management’s control. Many risks and uncertainties
exist that could cause actual results to differ materially from those reflected
in these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in the section entitled “Risk
Factors” contained in Item 1A of the Company’s Annual Report on Form 10-K for
the year ended June 30, 2009. Readers are cautioned not to place undue reliance
on these forward-looking statements. We undertake no obligation to revise or
publicly release the results of any revision to these forward-looking
statements.
Corporate
Structure
We are a holding
company. Our business operations are conducted in the People’s
Republic of China (“PRC”) by two subsidiaries:
SenYu:
|
Heilongjiang
SenYu Animal Husbandry Co., Ltd., a corporation organized in the
PRC. We own 100% of the equity in SenYu.
|
|
|
Sino-Canadian
JV:
|
Sino-Canadian
Senyu-Polar Swine Genetics Company Limited, a joint venture company
organized in the PRC. We own 60% of the equity in Sino Canadian
JV.
|
|
|
SenYu and Sino-Canadian JV engage in
the business of breeding and raising hogs and piglets, then distributing them to
slaughter facilities and pork distributors in the PRC. Our objective is to
establish ourselves as a leading producer and distributor of commercial hogs and
piglets in the PRC.
Result of
Operations
SenYu
commenced operations in 2004, and has grown to be one of the leading commercial
hogs and piglets producers and distributor in northeast China. We realized
$30,435,126 in revenue during SenYu’s 2008 fiscal year, an increase of 23%
compared to the $24,715,057 that SenYu realized during the year ended June 30,
2007. In fiscal 2009, our revenues grew to $50,392,533, an increase of 66% over
SenYu’s fiscal 2008. The increase in revenues reflects our rapid
development in both production and marketing efforts.
Our
growth continued in the first quarter of fiscal 2010. During the
three months ended September 30, 2009, our revenue of $21,895,508 represented a
90% increase over revenue of $11,514,522 realized in the three months ended
September 30, 2008. Our policy of committing all of our available
cash resources to the expansion of the herds under our control is the primary
cause of our revenue growth. As we utilize the cash from our prior
profits to expand the number of farmers involved in our program, we build on
past success.
It is in
the nature of our business that our cost of sales will rise almost in proportion
to our revenues. Since the greater portion of cost of sales is fodder
expense, the only efficiencies we are likely to achieve will occur if the price
of grain falls. During the 2009 fiscal year, the opposite occurred,
as agricultural foodstuffs increased in price, in part due to international
demand for corn products to be used for fuel. In the first quarter of
fiscal 2010, however, the international recession has reduced the demand for
corn, resulting in somewhat lower fodder costs. As a result our gross
margin rose from 19.2% in the three months ended September 30, 2008 to 21.6% in
the three months ended September 30, 2009. In general, we expect that
our gross margins will fall within the range from 17% to 23% realized in fiscal
2009 and 2008, depending primarily on the market price of pig
fodder.
Our
general and administrative expenses fell sharply, from $163,465 in the first
quarter of fiscal 2009 to $68,172 in the recent quarter. That
reduction is anomalous, however, as the prior quarter’s level of administrative
expense more accurately reflected our trends. Moreover, we expect
that our selling, general and administrative expenses will increase in
proportion to the growth of our business activity in the coming
periods. In addition, we will now bear the ongoing expenses
attributable to being a U.S. public, reporting company.
Our
selling expenses rose at a pace slightly less than our revenues, from $387,757
in the three months ended September 30, 2008 to $671,363 in the three months
ended September 30, 2009, an increase of 73%. The increase resulted
from our expansion of selling efforts, in particular our development of a
selling network involving Golden Lotus and WangDa, and our development of a
shipping program between Jiamusi and Beijing using the services of Jiamusi
Shunlida Transporting Co., Ltd. In addition, as the net amount of our
advances to WangDa increased significantly during the 2009 fiscal year, we
determined that an allowance for the risk of default was
appropriate. For that reason we now record an allowance equal to 5%
of the balance of our advances to WangDa. This led to an expense of
$178,830 in the three months ended September 30, 2009.
In order
to maximize the return on our investment in swine, we routinely cull breeding
sows that have lost their productivity. In addition, our herds are
subject to ordinary risks of mortality. If a hog dies before sale and
before we have fully depreciated our investment in the hog, we incur an expense
equal to the unamortized cost of the hog. Such incidences of swine
mortality caused us an expense of $346,932 in the three months ended September
30, 2009, recorded as “loss on fixed asset disposal” or “loss on inventory
disposal” depending on the category of the deceased hog. In the three
months ended September 30, 2008, our mortality losses were only
$160,677. This category of expense will vary from quarter to quarter,
depending on factors such as weather, disease, and other seasonal
factors.
Although,
under U.S. accounting principles, we realized $3,456,661 in net pre-tax income
for the three months ended September 30, 2009, our taxable income as calculated
under Chinese principles was considerably higher. We are, however,
enjoying an exemption from income tax granted by the government of China to
businesses engaged in agricultural breeding of livestock. But for
that exemption, our income under Chinese accounting principles would be taxed at
the national rate of 25%.
During
the 2009 fiscal year, Sino-Canadian J.V., the joint venture in which we hold 60%
of the equity, incurred a net loss of approximately $259,535. On our
Statements of Operations, the 40% of that loss allocable to our joint venture
partner was attributed to “Noncontrolling Interest” and added to our net
income. In the future, if Sino-Canadian realizes a net profit, the
40% of that gain allocable to our joint venture partner will likewise be
deducted from our net income. Our net income for the first quarter of
fiscal year 2010, after that deduction, totaled $3,560,475.
Our
business operates primarily in Chinese Renminbi (“RMB”), but we report our
results in our SEC filings in U.S. Dollars. The conversion of our accounts
from RMB to Dollars will result in translation adjustments. While our net
income will be added to the retained earnings on our balance sheet; the
translation adjustments will be added to a line item on our balance sheet
labeled “accumulated other comprehensive income,” since they will be more
reflective of changes in the relative values of U.S. and Chinese currencies than
of the success of our business. During the three months ended September
30, 2009, the effect of converting our financial results to Dollars was to add
$17,410 to our accumulated other comprehensive income. During the
first quarter of fiscal 2009, when the exchange rate between the Renminbi and
the Dollar was much more volatile, foreign currency translation added $207,877
to our accumulated other comprehensive income.
Liquidity and Capital
Resources
After our founders made the initial
contribution of our registered capital, the growth of our business has been
funded, primarily, by the revenues resulted from our business operations and by
loans from our shareholders. As a result, at June 30, 2009, we had no long term
debts. We did, however, owe $11,169,236 to our majority shareholder,
Ligang Shang, representing funds he loaned to Advanced Swine during our
development period. At the end of the recent quarter, however, Mr.
Shang agreed to waive his right to collect that sum, and contributed it to the
capital of the Company. Accordingly, our working capital increased by
the amount of the cancelled loan, as did our paid-in capital.
Our working capital, therefore, at
September 30, 2009 totaled $24,744,674, an increase of $14,865,702 from our
$9,878,972 in working capital as of June 30, 2008. The increase was
approximately equal to sum of the debt cancelled by Ligang Shang and our net
income, $3,560,475 for the quarter ended September 30, 2009. In
general, since we carry only a small amount of accounts receivable, and an
inventory suitable only for sale in the current season, our working capital will
tend to ebb and flow in proportion to our net income.
Included in our September 30, 2009
working capital was $24,309,278 recorded as advanced to our
suppliers. In order to raise good quality commercial hogs, and
control the quality of feeding materials and procedures, we entered into a
cooperation agreement with WangDa, our major feedstuff supplier, to provide our
farmers fodder to raise their commercial hogs. The supplier can offset the loan
amount from us once it delivers the farmers’ commercial hogs to us. Primarily as a result of
our use of cash for this purpose, our operations provided us only $857,962 in
cash, despite $3,560,475 in net income during the quarter ended September 30,
2009. While we continue to see opportunities for growth in the
Chinese pork market, we intend to continue to devote our cash resources to
expansion in this manner.
We currently have $1,084,139 in loans
payable to non-affiliates, including $805,704 due to an agency of the government
of Jiamusi and $292,983 due to an agency of the government of TangYuan, with a
total discount on loans payable of $14,548. All of the loans are
interest-free and all of them are payable on December 31, 2009. The
payment date for each of these loans has been extended in the past, as these
agencies have made the loans for the purpose of supporting our
operations. We expect the loans will again be
extended. The policy of the government, however, is that it will not
formalize a loan extension more than 15 days before the maturity
date.
Our
business plan contemplates that we will invest approximately $15 million dollars
on expansion of our facilities and increase in the roster of our franchisee
farmers, in order to reach our goal of producing one million commercial hogs in
2011. Implementation of this plan will require an investment in the Company of
significant funds. Our plan is to sell a portion of our equity in order to
obtain the necessary funds. To date, however, we have received no
commitment from any source for funds.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition or results of
operations.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM
4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and
procedures.
The term “disclosure controls and
procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Securities
Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and
reported within required time periods. “Disclosure controls and
procedures” include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
The Company’s management, with the
participation of the Chief Executive Officer and the Chief Financial Officer,
has evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by this report (the “Evaluation
Date”). Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer have concluded that, as of the Evaluation Date, such
controls and procedures were effective.
(b) Changes in internal
controls.
The term “internal control over
financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a
company that is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. The Company’s management, with the participation of the Chief
Executive Officer and Chief Financial Officer, has evaluated any changes in the
Company’s internal control over financial reporting that occurred during the
fiscal quarter covered by this report, and they have concluded that there was no
change to the Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
None
Item
1A. Risk Factors
There has
been no material change in the risk factors set forth in Item 1A of the
Company’s Annual Report on Form 10-K for the year ended June 30,
2009.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
We have
not sold any equity securities during the quarter ended September 30, 2009 that
were not previously disclosed in a current report on Form 8-K that was filed
during that period.
Item
3. Defaults Upon Senior Securities
There
were no defaults upon senior securities during the three-month period ended on
September 30, 2009.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the three-month
period ended on September 30, 2009.
Item
5. Other Information
None.
Item
6. Exhibits
31.1
|
Rule
13a-14(a) Certification – CEO
|
31.2
|
Rule
13a-14(a) Certification - CFO
|
32
|
Rule
13a-14(b) Certifications
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
CHINA
SWINE GENETICS, INC.
|
Date:
November 16, 2009
|
By:
/s/ Zhenyu
Shang
|
|
Zhenyu
Shang , Chief
Executive Officer
|