As
filed
with the Securities and Exchange Commission on April 10, 2006
Registration
No. 333-[____]
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
____________________________
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
_____________________________
BODISEN
BIOTECH, INC.
(Name
of
small business issuer in its charter)
Delaware
|
|
5191
|
|
98-0381367
|
(State
or other Jurisdiction of
Incorporation or Organization)
|
|
(Primary
Standard Industrial Classification
Code Number)
|
|
(I.R.S.
Employer Identification No.)
|
North
Part of Xinquia Road, Yang Ling Agricultural High-Tech
Industries
Demonstration Zone, Yang Ling,
People's
Republic of China 712100
(Address
and telephone number of principal executive offices and principal place of
business)
Qiong
Wang,
Chief Executive Officer
Bodisen
Biotech, Inc.
North
Part of Xinquia Road, Yang Ling Agricultural High-Tech
Industries
Demonstration Zone, Yang Ling,
People's
Republic of China 712100
86-29-87074957
(Name,
address and telephone number of agent for service)
Copies
to:
Marc
J. Ross, Esq.
Yoel
Goldfeder, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21st Flr.
New
York, New York 10018
(212)
930-9700
(212)
930-9725 (fax)
APPROXIMATE
DATE OF PROPOSED SALE TO THE PUBLIC:
From
time
to time after this Registration Statement becomes effective.
If
any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [x ]
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ________
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. _________
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. _________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. _________
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
|
|
Number
of Shares to be registered
|
|
Proposed
maximum offering price per share
|
|
Proposed
maximum aggregate offering price
|
|
Amount
of registration fee
|
|
Common
Stock, $0.0001 par value
|
|
|
380,179
|
|
$
|
16.77(1
|
)
|
$
|
6,375,601.83
|
|
$
|
682.19
|
|
Common
Stock, $0.0001 par value issuable upon exercise of
Warrants
|
|
|
133,333
|
|
$
|
7.50
(2
|
)
|
$
|
999,997.50
|
|
$
|
107.00
|
|
|
|
|
513,512
|
|
|
|
|
$
|
7,375,599.33
|
|
$
|
789.19
|
|
|
(1)
|
Estimated
solely for purposes of calculating the registration fee in accordance
with
Rule 457(c) and Rule 457(g) under the Securities Act of 1933, using
the
average of the high and low price as reported on the American Stock
Exchange on April 7, 2006, which was $16.77 per
share.
|
|
(2)
|
Calculated
in accordance with Rule 457(g)(1).
|
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The
information in this Prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
is
filed with the Securities and Exchange Commission and becomes effective.
This
Prospectus is not an offer to sell these securities and is not soliciting
an
offer to buy these securities in any state where the sale is not
permitted.
PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 10, 2006
BODISEN
BIOTECH, INC.
513,512 SHARES
OF
COMMON
STOCK
This
prospectus relates to the resale by the selling stockholders of up to 513,512
shares of our common stock including up to 133,333 shares of common stock
issuable upon the exercise of common stock purchase warrants. The selling
stockholders may sell common stock from time to time in the principal market
on
which the stock is traded at the prevailing market price or in negotiated
transactions. The selling stockholders may be deemed underwriters of the
shares
of common stock, which they are offering. We will pay the expenses of
registering these shares.
We
are
not selling any shares of common stock in this offering and therefore will
not
receive any proceeds from the sale of common stock hereunder. We may receive
proceeds from any exercise of outstanding warrants. The warrants may also
be
exercised by surrender of the warrants in exchange for an equal value of
shares
in accordance with the terms of the warrants.
Our
common stock is listed on the American Stock Exchange under the symbol "BBC."
The last reported sales price per share of our common stock as reported by
the
American Stock Exchnage on April 7, 2006, was $16.79.
Investing
in these securities involves significant risks. See "Risk Factors" beginning
on
page 7.
No
other
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. None of the proceeds from the sale of stock
by
the selling stockholders will be placed in escrow, trust or any similar account.
We
may
amend or supplement this prospectus from time to time by filing amendments
or
supplements as required. You should read the entire prospectus and any
amendments or supplements carefully before you make your investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this Prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is ________, 2006.
Table
Of Contents
Prospectus
Summary
|
3
|
|
|
Risk
Factors
|
4
|
|
|
Use
Of Proceeds
|
4
|
|
|
Market
For Common Equity And Related Stockholder Matters
|
8
|
|
|
Business
|
9
|
|
|
Facilities
|
17
|
|
|
Employees
|
17
|
|
|
Legal
Proceedings
|
17
|
|
|
Management
|
18
|
|
|
Security
Ownership Of Certain Beneficial Owners And
Management
|
21
|
|
|
Description
Of Securities To Be Registered
|
21
|
|
|
Indemnification
For Securities Act Liabilities
|
22
|
|
|
Plan
Of Distribution
|
22
|
|
|
Penny
Stock
|
22
|
|
|
Selling
Stockholders
|
24
|
|
|
Legal
Matters
|
25
|
|
|
Experts
|
25
|
|
|
Available
Information
|
25
|
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the "risk factors" section,
the
financial statements and the notes to the financial statements. As
used
throughout this prospectus, the terms “Bodisen Biotech,” “BBC,” the “Company,”
“we,” “us,” and “our” refer to Bodisen Biotech, Inc.
BODISEN
BIOTECH, INC.
We
are
primarily engaged in developing, manufacturing and selling organic fertilizers
and pesticides in The People’s Republic of China.
For
the
fiscal year ended December 31, 2005, we had revenue of $30,975,350, with gross
profits of $11,504,229.
We
were
incorporated on January 14, 2000 in Delaware and our principal place of business
is based in The People’s Republic of China. We are located at: Bodisen Biotech,
Inc., North Part of Xinquia Road, Yang Ling AG, High-Tech Industries
Demonstration Zone, Yang Ling, China 712100, Telephone:
+862987074957.
The Offering |
|
Common stock offered by
selling
stockholders |
513,512 shares, including
up to
133,333 shares of common stock issuable upon the exercise of common
stock
purchase warrants at an exercise price of $7.50 per share |
Common stock to be outstanding
after the offering |
18,310,250 shares |
Use of proceeds |
We will not receive any
proceeds
from the sale of the common stock hereunder. See “Use of Proceeds” for a
complete description. |
AMEX Symbol |
BBC |
Summary
of Recent Transaction
On
March
15, 2006, we completed a private placement offering of 380,179 shares our common
stock, par value $0.0001 per share, to accredited investors for an aggregate
purchase price of approximately $5,322,506. The aforementioned securities were
sold in reliance upon the exemption afforded by the provisions of Regulation
S,
as promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of
our
stock could go down. This means you could lose all or a part of your investment.
Risks
Related To Our Business
Our
management owns a significant amount of the Common Stock, giving them influence
or control in corporate transactions and other matters, and their interests
could differ from those of other stockholders.
Our
principal executive officers, Wang Qiong and Chen Bo, own approximately 40.3%
of
the Existing Common Stock. As a result, they are in a position to significantly
influence or control the outcome of matters requiring a stockholder vote,
including the election of directors, the adoption of any amendment to the
Certificate of Incorporation and By-Laws, and the approval of significant
corporate transactions. Their control may delay or prevent a change of control
on terms favorable to our other stockholders and may adversely affect your
voting and other stockholders rights.
We
may require additional financing in the future and a failure to obtain such
required financing will inhibit our ability to grow.
The
continued growth of our business may require additional funding from time to
time. Funding would be used for general corporate purposes, which may include
acquisitions, investments, repayment of debt, capital expenditures, repurchase
of our capital stock and any other purposes that we may specify in any
supplement to this admission document. Obtaining additional funding would be
subject to a number of factors, including market conditions, operational
performance and investor sentiment. These factors may make the timing, amount,
terms and conditions of additional funding unattractive, or unavailable, to
us.
The
terms of any future financing may adversely affect your interest as
stockholders.
If
we
require additional financing in the future, we may be required to incur
indebtedness or issue equity securities, the terms of which may adversely affect
your interests in us. For example, the issuance of additional indebtedness
may
be senior in right of payment to your shares upon our liquidation. In addition,
indebtedness may be under terms that make the operation of its business more
difficult because the lender’s consent will be required before we can take
certain actions. Similarly, the terms of any equity securities we issue may
be
senior in right of payment of dividends to your Common Stock and may contain
superior rights and other rights as compared to your Common Stock. Further,
any
such issuance of equity securities may dilute your interest in us.
Our
corporate structure may subject our stockholders to two levels of taxation
on
the payment of dividends or the disposition of its operating subsidiary, thereby
substantially reducing the return on its stockholders’
investment.
If
Yang
Ling, our wholly-owned subsidiary, pays a dividend to us, its parent company,
for distribution to the stockholders as a dividend, or if Yang Ling (rather
than
us, its parent company) is ultimately sold, the dividend or the proceeds of
that
transaction would be subject to two levels of tax - one at the parent corporate
level and one at the parent stockholder level. Because our operations are
conducted through Yang Ling in China, any dividends payable by us must come
from
Yang Ling and it is more likely that Yang Ling, rather than the parent company,
will ultimately be sold. Thus, if Yang Ling pays a dividend to us in the future
or if Yang Ling is sold in the future, those proceeds may be subject to two
levels of taxation: (i) we will pay tax on the dividend or sale proceeds
received from Yang Ling, and (ii) our stockholders will pay tax on the
distribution of the dividend or the proceeds of the sale. These two levels
of
taxation will effectively reduce the financial return on your investment in
us.
We
do not anticipate paying dividends on the Common Stock.
We
have
never paid dividends on our Common Stock and do not anticipate paying dividends
in the foreseeable future. Our Directors intend to follow a policy of retaining
all of our earnings, if any, to finance the development and expansion of our
business.
We
may not be able to adequately protect and maintain our intellectual
property.
Our
success will depend on our ability to continue to develop and market fertilizer
and pesticide products. We protect our proprietary technology and formulae
by
keeping such technology or formulae confidential. If such technology or formulae
are disclosed to a third party that is not under an obligation to keep the
technology confidential or are accidentally disclosed, we may not be able to
protect our technology or formulae against being exploited by third parties.
We
currently have not applied for patents for our technology products or formulae
as our Directors believe an application for such patents would result in public
knowledge of our proprietary technology and formulae.
Our
success depends on our management team and other key personnel, the loss of
any
of whom could disrupt our business operations.
Our
future success will depend in substantial part on the continued service of
our
senior management, including Mrs. Wang Qiong, our Chairman and Chief Executive
Officer, Chen Bo, our President, and Wang Chunsheng, our Chief Operational
Officer. The loss of the services of one or more of our key personnel could
impede implementation of our business plan and result in reduced profitability.
We do not carry key person life or other insurance in respect of any of our
officers or employees. Our future success will also depend on the continued
ability to attract, retain and motivate highly qualified technical sales and
marketing customer support. Because of the rapid growth of the economy in The
People’s Republic of China, competition for qualified personnel is intense. We
cannot guarantee that we will be able to retain our key personnel or that we
will be able to attract, assimilate or retain qualified personnel in the
future.
Restrictions
on making distributions
The
Company is a legal entity separate and distinct from its operating subsidiary,
Yang Ling, which is an indirect subsidiary of the Company. The Company’s
revenues (on a parent company only basis) would be derived entirely from
dividends paid to the Company by Yang Ling. The Chinese government exerts
significant influence over the economy of The People’s Republic of China, and
there may be regulatory restrictions on Yang Ling’s ability to make
distributions of cash to the Company.
Risks
Related To Agricultural Industry in The People’s Republic of
China
Our
success depends upon the development of The People’s Republic of China’s
agricultural industry.
The
People’s Republic of China is currently the world’s most populous country and
one of the largest producers and consumers of agricultural products. Roughly
half of The People’s Republic of China’s labour force is engaged in agriculture,
even though only about 10% of the land is suitable for cultivation. Although
The
People’s Republic of China hopes to further increase agricultural production,
incomes for Chinese farmers are stagnating. Despite the Chinese government’s
continued emphasis on agricultural self-sufficiency, inadequate port facilities
and a lack of warehousing and cold storage facilities impedes the domestic
agricultural trade. Where we rely on the local farmer to purchase our products,
which are generally purchased under a “Cash on Delivery” or on 9-12 months
credit, a farmer’s inability to sell his agricultural goods could therefore
hinder his ability to timely pay his credit obligations to us.
We
do not have supplier contracts with all of our trade
vendors.
Typically
for the agricultural industry in The People’s Republic of China, we do not have
supplier contracts with all of our trade vendors. Where we do not have contracts
in place, business is conducted on an order-by-order basis. Despite our not
having supplier contracts in place in every case, the Directors believe that
we
have very good relations with the agricultural vendor community.
Risks
Related To The People’s Republic of China
The
People’s Republic of China’s Economic Policies could affect our
Business.
Substantially
all of our assets are located in The People’s Republic of China and
substantially all of our revenue is derived from our operations in The People’s
Republic of China. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in The People’s Republic of China.
While
The
People’s Republic of China’s economy has experienced significant growth in the
past twenty years, such growth has been uneven, both geographically and among
various sectors of the economy. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall economy of The People’s Republic of
China, but they may also have a negative effect on us. For example,
operating results and financial condition may be adversely affected by the
government control over capital investments or changes in tax regulations.
The
economy of The People’s Republic of China has been changing from a planned
economy to a more market-oriented economy. In recent years the Chinese
government has implemented measures emphasizing the utilization of market forces
for economic reform and the reduction of state ownership of productive assets,
and the establishment of corporate governance in business enterprises; however,
a substantial portion of productive assets in The People’s Republic of China are
still owned by the Chinese government. In addition, the Chinese government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over The
People’s Republic of China’s economic growth through the allocation of
resources, the control of payment of foreign currency- denominated obligations,
the setting of monetary policy and the provision of preferential treatment
to
particular industries or companies.
Capital
outflow policies in The People’s Republic of China may hamper our ability to
remit income to the United States.
The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations may require us to comply with complex regulations
for the movement of capital. Although our Directors believe that we are
currently in compliance with these regulations, should these regulations or
the
interpretation of them by courts or regulatory agencies change; we may not
be
able to remit all income earned and proceeds received in connection with its
operations or from the sale of its operating subsidiary to our stockholders.
Although
the Group does not import goods into or export goods out of The People’s
Republic of China, fluctuation of the Renminbi may indirectly affect our
financial condition by affecting the volume of cross- border money
flow.
The
value
of the Renminbi fluctuates and is subject to changes in The People’s Republic of
China’s political and economic conditions. Since 1994, the conversion of
Renminbi into foreign currencies, including United States dollars, has been
based on rates set by the People’s Bank of China which are set based upon the
interbank foreign exchange market rates and current exchange rates of a basket
of currencies on the world financial markets. As of April 7, 2006, the exchange
rate between the Renminbi and the United States dollar was 8.0145 Renminbi
to
every one United States dollar.
We
may face obstacles from the communist system in The People’s Republic of
China.
Foreign
companies conducting operations in The People’s Republic of China face
significant political, economic and legal risks. The Communist regime in The
People’s Republic of China, including a cumbersome bureaucracy, may hinder
Western investment.
We
may have difficulty establishing adequate management, legal and financial
controls in The People’s Republic of China.
The
People’s Republic of China historically has not adopted a Western style of
management and financial reporting concepts and practices, modern banking,
computer or other control systems. We may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in The People’s
Republic of China. As a result of these factors, we may experience difficulty
in
establishing management, legal and financial controls, collecting financial
data
and preparing financial statements, books of account and corporate records
and
instituting business practices that meet Western standards.
It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in The People’s Republic of
China.
Because
our Executive Officers and several of our Directors, including, the chairman
of
our Board of Directors, are Chinese citizens it may be difficult, if not
impossible, to acquire jurisdiction over these persons in the event a lawsuit
is
initiated against us and/or our officers and directors by a stockholder or
group
of stockholders in the United States. Also, because the majority of our assets
are located in The People’s Republic of China it would also be extremely
difficult to access those assets to satisfy an award entered against us in
a
United States court.
We
may face judicial corruption in The People’s Republic of
China.
Another
obstacle to foreign investment in The People’s Republic of China is corruption.
There is no assurance that we will be able to obtain recourse, if desired,
through The People’s Republic of China’s poorly developed and sometimes corrupt
judicial systems.
The
admission of The People’s Republic of China into the World Trade Organization
could lead to increased foreign competition for us.
Domestic
competition in the compound fertilizer industry is largely fragmented and
foreign competition is minimal. However, as a result of The People’s Republic of
China becoming a member of the World Trade Organization (“WTO”), import
restrictions on agricultural products are expected to be reduced. With the
lowering of import restrictions and the WTO’s requirement for a reduction of
import tariffs as condition of membership, such reduced import restrictions
and
tariffs for us may result in an increase of foreign products and could in turn
lead to increased competition in the domestic agricultural market.
The
Group may not be able to obtain regulatory approvals for its
products.
The
manufacture and sale of agricultural products in The People’s Republic of China
is regulated by the People’s Republic of China and the Shaanxi Provincial
Government. Although our licenses and regulatory filings are current, the
uncertain legal environment of The People’s Republic of China and its industry
may be vulnerable to local government agencies or other parties who wish to
renegotiate the terms and conditions of, or terminate their agreements or other
understandings with us.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of shares to be offered by the selling
stockholders. The proceeds from the sale of each selling stockholders’ common
stock will belong to that selling stockholder. However, we may receive the
sale
price of any common stock we sell to the selling stockholders upon exercise
of
outstanding warrants.
Unless
otherwise indicated in the applicable prospectus supplement, we anticipate
that
any net proceeds from the sale of the securities that we may offer under this
prospectus and any accompanying prospectus supplement will be used for general
corporate purposes. General corporate purposes may include acquisitions,
investments, repayment of debt, capital expenditures, repurchase of our capital
stock and any other purposes that we may specify in any prospectus supplement.
We may invest the net proceeds temporarily until we use them for their stated
purpose.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is traded on the American Stock Exchange under the symbol “BBC.”
Prior to August 29, 2005, our common stock traded on the Over-the-Counter
Bulletin Board under the symbol "BBOI." The following table sets forth the
high
and low bid prices of our Common Stock for the periods indicated. The quotations
set forth below reflect inter-dealer prices, without retail mark-up, markdown
or
commission and may not represent actual transactions.
|
|
2006
|
|
|
|
High*
|
|
Low*
|
|
1st
Quarter
|
|
$
|
21.97
|
|
$
|
13.14
|
|
|
|
|
|
|
2005
|
|
|
|
High*
|
|
|
Low*
|
|
1st
Quarter
|
|
$
|
6.30
|
|
$
|
5.05
|
|
2nd
Quarter
|
|
|
6.25
|
|
|
5.04
|
|
3rd
Quarter
|
|
|
7.87
|
|
|
5.10
|
|
4th
Quarter
|
|
|
15.94
|
|
|
6.12
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
High*
|
|
|
Low*
|
|
1st
Quarter
|
|
$
|
13.90
|
|
$
|
0.25
|
|
2nd
Quarter
|
|
|
7.62
|
|
|
4.40
|
|
3rd
Quarter
|
|
|
8.60
|
|
|
6.10
|
|
4th
Quarter
|
|
|
7.31
|
|
|
5.60
|
|
As
of
April 7, 2006, there were approximately 896 holders of record of our common
stock.
Dividends
We
have
never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table shows information with respect to each equity compensation
plan
under which our common stock is authorized for issuance as of the fiscal year
ended December 31, 2005.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
category
|
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
|
Number
of securities
remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
136,000
|
|
$
|
5.39
|
|
|
864,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security
holders
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
136,000
|
|
$
|
5.39
|
|
|
864,000
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking
Statements
The
information in this report contains forward-looking statements. All statements
other than statements of historical fact made in this report are forward
looking. In particular, the statements herein regarding industry prospects
and
future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of
words such as “believes,” “estimates,” “could,” “possibly,” “probably,”
anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other
variations or similar words. No assurances can be given that the future results
anticipated by the forward-looking statements will be achieved. Forward-looking
statements reflect management’s current expectations and are inherently
uncertain. Our actual results may differ significantly from management’s
expectations.
The
following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative
of
actual operating results in the future. Such discussion represents only the
best
present assessment of our management.
Overview
The
Company is incorporated under the laws of the state of Delaware and its
operating subsidiary, Yang Ling, is headquartered in the Shaanxi Province,
The
People’s Republic of China. The Group engages in the business of manufacturing
and marketing organic fertilizers and pesticides in The People’s Republic of
China. It produces numerous product lines, from pesticides to crop specific
fertilizers. These products are then marketed and sold to over 150 wholesalers
throughout the 20 provinces of The People’s Republic of China. The Group
conducts research and development to further improve existing products and
develop new formulae and products.
Significant
Accounting Policies
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires the Group to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Accounts
receivable
The
Group
maintains reserves for potential credit losses on accounts receivable. It
reviews the composition of accounts receivable and analyze historical bad debts,
customer concentrations, customer credit worthiness, current economic trends
and
changes in customer payment patterns to evaluate the adequacy of these reserves.
Reserves are recorded primarily on a specific identification basis.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Group compares the cost of inventories with the market value and
allowance is made for writing down the inventories to their market value, if
lower.
Property
and equipment
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed
of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of: 30 years for building, 10
years for machinery, 5 years for office equipment and 8 years for vehicles.
Intangible
assets
Intangible
assets consist of rights to use land and proprietary technology rights to
fertilizers. The Company evaluates intangible assets for impairment, at least
on
an annual basis and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill
is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test
is
performed to measure the amount of impairment loss. Potential impairment of
goodwill after July 1, 2002 is being evaluated in accordance with SFAS No.
142.
The SFAS No. 142 is applicable to the financial statements of the Group
beginning July 1, 2002.
Revenue
recognition
The
Group’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations by the Group exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
Stock-based
compensation
In
October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No.
123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Group adopted the new fair value method.
The
Group uses the intrinsic value method prescribed by APB 25 and have opted for
the disclosure provisions of SFAS No. 123.
Income
taxes
The
Group
utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
According
to the Provisional Regulations of the People’s Republic of China on Income Tax,
the Document of Reductions and Exemptions of Income Tax for the Group have
been
approved by the local tax bureau and the Management Regulation of Yang Ling
Agricultural High-Tech Industries Demonstration Zone. The Group is exempted
from
income tax in its first two years of operations.
Foreign
currency transactions and comprehensive income (loss)
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain statements, however, require entities to
report specific changes in assets and liabilities, such as gain or loss on
foreign currency translation, as a separate component of the equity section
of
the balance sheet. Such items, along with net income, are components of
comprehensive income. Transactions occur in Chinese Renminbi. The unit of
Renminbi is in Yuan.
Recent
Accounting Pronouncements
In
November 2004, the FASB has issued FASB Statement No. 151, “Inventory Costs, an
Amendment of ARB No. 43, Chapter 4” (“FAS No. 151”). The amendments made by FAS
No. 151 are intended to improve financial reporting by clarifying that abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and by requiring
the
allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities.
The
guidance is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23, 2004. The provisions
of FAS No. 151 will be applied prospectively. The Company does not expect the
adoption of FAS No. 151 to have a material impact on its consolidated financial
position, results of operations or cash flows.
In
December 2004, the FASB issued FASB Statement No. 123R, “Share-Based Payment, an
Amendment of FASB Statement No. 123” (“FAS No. 123R”). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair
value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company’s second quarter of fiscal 2005.
The Company is in process of evaluating the impact of this pronouncements on
its
consolidated financial position, results of operations or cash flows.
In
December 2004, the FASB issued SFAS Statement No. 153, “Exchanges of
Non-monetary Assets.” The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non- monetary assets
that do not have commercial substance. The Company believes that the adoption
of
this standard will have no material impact on its financial statements.
In
March
2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments.” The EITF reached a consensus about the criteria that
should be used to determine when an investment is considered impaired, whether
that impairment is other-than-temporary, and the measurement of an impairment
loss and how that criteria should be applied to investments accounted for under
SFAS No. 115, “Accounting In Certain Investments In Debt And Equity Securities.”
EITF 03-01 also included accounting considerations subsequent to the recognition
of an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. Additionally, EITF 03-01 includes new disclosure requirements
for
investments that are deemed to be temporarily impaired. In September 2004,
the
Financial Accounting Standards Board (FASB) delayed the accounting provisions
of
EITF 03-01; however the disclosure requirements remain effective for annual
reports ending after June 15, 2004. The Company will evaluate the impact of
EITF
03-01 once final guidance is issued.
Year
Ended December 31, 2005 compared to Year Ended December 31,
2004
Revenue.
The Company generated revenues of $30,975,350 for the twelve months ended
December 31, 2005, an increase of $14,749,454 or 90.9%, compared to $16,225,896
for the twelve months ended December 31, 2004. The growth in revenue was
primarily attributable to the increase in our customer base as we continue
to
aggressively market our products and the growing awareness in the agricultural
industry in the markets in which we do business of the efficacy of our products.
The Bodisen brand name has become synonymous with proven higher crop yields.
The
completion of our new factory in early 2005 enabled us to meet the growing
demand for all of our products.
Gross
profit. The Company achieved a gross profit of $11,504,229 for the twelve months
ended December 31, 2005, an increase of $4,932,298 or 75.1%, compared to
$6,571,931 for the twelve months ended December 31, 2004. Gross margin, as
a
percentage of revenues, decreased from 40.5% for the twelve months ended
December 31, 2004, to 37.1% for the twelve months ended December 31, 2005.
The
decrease in gross margin was primarily attributable to increased costs of raw
materials, as well as an increase in the costs of shipping our products. The
widespread increase in the cost of all raw materials in China lead us to seek
the $5,000,000 short term note payable in December 2005, so that we could lock
in raw materials prices at off season levels for 2006.
Operating
expenses. The Company incurred operating expenses of $2,431,753 an increase
of
$908,403 or 59.6%, compared to $1,523,350 for the twelve months ended December
31, 2004. These operating expenses are related to increased sales and marketing
costs related to the 90.9% increase in sales for 2005.
Aggregated
selling expenses of $935,444 account for expenses related to costs associated
with sales and marketing of the Company's products and with transportation
of
Company's products. As we continue to grow revenues, we are selling Bodisen
products greater distances from our factories, leading to increased shipping
costs, most notably on the compound fertilizer product which is sold in 50
kilogram (110 pounds) units. The increase in the cost of fuel experienced in
the
second, third and fourth quarters of 2005 has also had an effect on operating
expenses. Operating expenses include general and administrative expenses of
$1,496,309 for the twelve months ended December 31, 2005 and relate to cost
of
maintaining the company's facilities, salaries and research and
development.
Net
Income. Net income increased by 47.6% to $7,421,112, an increase of $2,393,709,
from $5,027,403. Earnings per share (EPS) rose to $0.48 in 2005 from $0.33
in
2004. The
increase was attributed to the growth in the demand for the Company's products
as we enter new markets throughout China. This growth occurred as a result
of
management's discipline with respect to costs and attention to the bottom line
despite a decrease in gross margins.
Liquidity
and Capital Resources
As
of
December 31, 2005 Bodisen Biotech, Inc. had $6,276,897cash and cash equivalents
on hand, compared to $2,121,811 cash and cash equivalents on hand as of December
31, 2004.
For
December 31, 2005 accounts payable was $49,893, other payables were $18,773
and
short term loans was $4,396,114, reflecting the $5,000,000 note issued December
8, 2005 and subsequently paid. Cash outflows for investing activities increased
from $2,778,136 to $5,768,028 as a result of additions made to construction
in
progress, acquisitions of property and equipment and the purchase of marketable
securities. The Company's accounts receivable for the year ended December 31,
2005, were $7,478,152. Based on past performance and current expectations,
we
believe our cash and cash equivalents and cash generated from operations will
satisfy our working capital needs, capital expenditures and other liquidity
requirements associated with our operations.
On
March
16, 2005, we completed a $3 million convertible debenture private placement
through an institutional investor. We issued
a
one year 9% debenture convertible into shares of common stock by dividing the
aggregate principal and accrued interest by a conversion price of $4.80; and
three year warrants to purchase 187,500 shares of common stock at $4.80 per
share, In connection with the placement a three year warrant was issued to
purchase 40,000 shares of common stock at $6.88 per share. During the course
of
2005 the note was fully converted to 657,402 shares of common stock. All of
the
warrants were exercised during December 2005 and January 2006. The
net
proceeds from this offering were used towards capital contribution of the
registration of a wholly-owned Bodisen subsidiary, Yang Ling Bodisen
Agricultural Technology Co., Ltd. During December 2005, 1950,500 warrants were
exercised, the proceeds from these warrants was $955,040. In January 2006 a
total of 32,000 warrants were exercised, the proceeds were $220,160. The
proceeds from the exercise of the warrants was used for general corporate
purposes.
On
February 3, 2006, we entered into an agreement to sell 1,643,836 shares of
our
common stock at 730 pence (approximately $12.99). These shares are to be traded
on the AIM Market of the London Stock Exchange. The resulting proceeds were
approximately 12,000,000 British pounds sterling (approximately $21,360,000).
The proceeds are intended for construction of two factories in the Northwest
and
Northeast of China, allowing us to greatly increase the geographical area in
which we can sell our products by overcoming the logistical issues in selling
and shipping our products over increasingly greater distances. In addition,
proceeds will also be used to purchase raw materials and for general corporate
purposes.
On
March
15, 2006 we completed a financing of US$5,322,506 by issuing 380,179 restricted
shares of common stock at $14.00 per share to private institutional investors
in
a private placement. The proceeds of this financing are to be used to repay
the
$5,000,000 short term note plus interest which we entered into on December
2005.
The
majority of Bodisen Biotech, Inc. revenues and majority of the expenses in
2005
were denominated primarily in Renminbi ("RMB"), the currency of the People's
Republic of China. There is no assurance that exchange rates between the RMB
and
the U.S. dollar will remain stable. A devaluation of the RMB relative to the
U.S. dollar could adversely affect our business, financial condition and results
of operations. We do not engage in currency hedging. Inflation has not had
a
material impact on our business.
BUSINESS
Overview
of Business
We
were
incorporated on January 14, 2000 in Delaware and our principal place of business
is based in The People’s Republic of China. We are primarily engaged in
developing, manufacturing and selling organic fertilizers and pesticides in
The
People’s Republic of China.
Business
Our
sole
operating subsidiary, Yang Ling, was founded in The People’s Republic of China
on August 31, 2001 and is headquartered in the Shaanxi Province, People’s
Republic of China. Yang Ling primarily manufactures and markets organic
fertilizers and pesticides to 20 agricultural provinces of China. We produce
numerous proprietary product lines, from pesticides to crop specific fertilizer,
which are then marketed and sold to farmers. We conduct research and development
to further improve existing products and to develop new formulas and products.
History
Prior
to
March 1, 2004, the Company was called Stratabid.com, Inc. The Company was a
startup stage Internet-based commercial mortgage origination business. The
Company operated primarily through its wholly-owned subsidiary, Stratabid.com
Online (B.C.) Ltd. (“Stratabid.com Online”), which provided services throughout
Canada.
Yang
Ling
was founded in the People’s Republic of China on August 31, 2001. Yang Ling,
located in Yang Ling Agricultural High-Tech Industries Demonstration Zone,
was
primarily engaged in developing, manufacturing and selling pesticides and
compound organic fertilizers in the People’s Republic of China. On November 19,
2003, Yang Ling incorporated Bodisen International, Inc. (“BII”), a Delaware
corporation, as a non-operative holding company.
On
January 14, 2004, the Company created a wholly-owned subsidiary corporation
known as Bodisen Holdings, Inc., a Delaware corporation, (“BHI”), to pursue a
merger with BII the parent of Yang Ling. On February 11, 2004, the Company
and
BHI entered into an Agreement and Plan of Merger with BII and the shareholders
of BII, providing for the merger of BII into BHI, with BHI being the surviving
entity in the merger. The transactions provided for in the Agreement and Plan
of
Merger closed on February 24, 2004. In the merger, the Company acquired 100%
of
BII’s outstanding stock in exchange for the issuance by the Company of 3 million
shares of its Common Stock to the holders of BII shares. The Common Stock issued
in the merger constituted approximately 66% of the outstanding shares of the
Company after the merger. After the merger, the Company paid a 3 for 1 stock
dividend and then, by prior agreement, redeemed 3 million post dividend shares
held by the Company’s former CEO. After these transactions, the shareholders of
BII held approximately 79% of the Common Stock outstanding. On February 25,
2004, the Company sold Stratabid.com Online to Derrek Wasson, the Company’s
former CEO. On March 1, 2004, the Company changed its name from Stratabid.com,
Inc. to Bodisen Biotech, Inc.
In
March
2005 Bodisen Biotech Inc. formed a wholly-owned subsidiary by the name of “Yang
Ling Bodisen Agricultural Technology Co., Ltd. (“Agricultural”). In June 2005,
Agricultural completed a transaction with Yang Ling Bodisen Biology Science
and
Technology Development Company Limited (“Yang Ling”), Bodisen Biotech, Inc.’s
operating subsidiary in China, which resulted in Agricultural owning 100% of
Yang Ling.
The
Group
has developed the product line to over 60 items, and, the Directors believe,
been successful in building the Bodisen brand name. The central government
of
The People’s Republic of China has mandated that farmers increase crop yields in
order to decrease the nation’s dependence on food imports, as well as the
growing emphasis on the need to use “environmentally friendly” fertilizers, has
also been a factor in the growth of the business of the Group.
Products
The
Group
manufactures over 60 package products, which are broken down into 3 product
line
categories:
Organic
compound fertilizer
These
products are the Group’s leading product category, accounting for approximately
67% of Group turnover. Plants tend to easily absorb organic fertilizer without
the side effects found in synthetic chemical fertilizer products, and this
organic process strengthens photosynthesis, which improves the overall health
of
a plant in resisting drought and disease. The International Organization for
Standardization (ISO 9001: 2000) has qualified Bodisen’s organic compound
fertilizer products.
Organic
fertilizers improve the cation exchange capacity, or “CEC” of soil which is its
ability to hold positively charged ions (cations), making them available for
uptake by the plant roots. This not only allows for improved uptake of nutrients
by the plant but can also reduce leaching, which is of particular concern in
sandy soil. Leaching moves nutrients away from the plant roots and into the
subsurface water. Principal functions include:
•
preserving nitrogen and improving the soil fertility;
•
allowing phosphorous and potash fertilizer to gradually dissolve;
•
promoting disease resistance; and
•
activating and maintaining soil moisture content.
Liquid
fertilizers
These
products account for approximately 19% of Group turnover. The early application
of liquid fertilizers aids absorption of the key elements and nutrients of
the
fertilizer which may increase the rate of photosynthesis and improves the health
of the plant making it more resistant to disease. The liquid fertilizer
increases the plant’s yield and shortens the time to harvest whilst heightening
the colour and lustre of fruit and vegetables.
The
liquid fertilizer is sold to the farmer in a concentrated form and needs to
be
mixed by the farmer with water before spraying onto the plant. Since the liquid
fertilizer is applied directly to the plant it is more easily absorbed by the
plant.
Pesticides
These
products account for approximately 14% of Group turnover. Bodisen’s pesticide
products can be applied to all fruit trees and vegetable crops; it will also
reduce the numbers of harmful insects that reduce overall crop yields.
Market
Information
Organic
fertilizers are composed of natural nutritional elements that not only improve
the quality and yield of the crops but also improve the soil quality; this
in
turn improves the yield. Organic compound fertilizer accelerates reproduction
of
soil microbes to improve soil quality through the decomposition of organic
material and the improvement of the soil’s retention of nitrogen. Moreover, this
application can activate dormant soil by increasing soil nitrates and moisture
content that otherwise is not enhanced by traditional chemical fertilizers.
This
process controls the release of nutritional elements that enhances the quality,
quantity and health of crops. To encourage farmers, of which there are 800
million in The People’s Republic of China, to remain on their land, the
government recently eliminated an agriculture tax, which effectively increased
their disposable income by 20%. Although organic compound fertilizers are more
expensive than chemical fertilizers, the Directors believe that the extra cost
is justified by the increase of quality and yield and, consequently, the
increased margin attained at the market.
Sales
and Marketing
The
Group’s products are sold directly to over 150 wholesalers in The People’s
Republic of China, through written sales contracts.
The
Bodisen brand has been marketed and promoted through trade fairs, conventions
and the print media, and through television and radio advertising in The
People’s Republic of China. Since the end-user for its products is the local
farmer, educational seminars to promote products and organic fertilizers
directly to farmers are extensively used. To capture a share of the market,
free
samples of the products are distributed to allow a trial period to take place,
the results of which are made know to the surrounding area. The cost of this
is
not material and is often offset by new sales in that test zone.
The
primary tasks in respect of sales and marketing are to strengthen the home
market in the Shaanxi province and to expand the market outside the Shaanxi
province into new districts where the Group’s products are not well established.
It
is our
intention to increase marketing in regions where our products are not well
known. In addition, promotion of the products through national newspapers in
China explaining the advantages of the high-tech nature of its environmentally
friendly product lines will be undertaken. In order to enter the untapped
markets of western China, the Company will explore selling exclusive franchise
opportunities to new wholesale agents.
Raw
Materials
There
are
numerous suppliers of raw materials in the Shaanxi Province of China. To
manufacture the organic compound fertilizer Bodisen uses carbamide, ammonium,
potassium chloride and zeolite powder. Carbamide, potassium chloride, bluestone,
zinc sulfate, borax, citric acid and bitter salt, together with other materials
are used to manufacture liquid fertilizer. Pesticides are manufactured using
Mieduowie, zinc sulphur phosphor, emulsification agents, Dimethylbenzene, sulfur
powder and Fumeishuang.
The
Company has short-term material supplier contracts with its 19 major suppliers.
Business with other suppliers is conducted on an order-by-order basis, a
practice that is typical throughout the agrochemical industry in The People’s
Republic of China. The Directors believe that the Group has very good relations
with the agricultural supplier community.
Research
and Development
The
research and development team consists of four professionals, who perform
administrative and ministerial functions. Much of the research is done in close
cooperation with universities and research laboratories in the Yang Ling and
Xian Metropolitan areas with related costs incurred by such universities and
research laboratories and not by the Company. In 2005, the Company budgeted
to
spend U.S.$130,000 on research and development, the majority of which was
dedicated to existing research programs. The following projects were commenced
in 2004 and are currently scheduled for completion in 2006:
Pesticides
projects
Project
Ion is the study of copper, zinc and manganese ions in combination with silver
ions to control and remove crop disease brought about by fungi. The objective
is
to determine whether the combination of these metal ions will prohibit the
release of an intrusive enzyme from fungi that kills crops in China.
Project
Fly is the development of a protein abstract from a common fly to develop
bacteria-based pesticides, which may have a better effect on a plant’s
resistance to insects. This project seeks to isolate a series of anti-bacteria
peptides from the proteins of a common fly. This kind of anti-bacteria peptide
could effectively control many pathogens which may prove more effective than
the
pesticides which are currently available.
Fertilizer
projects
Project
Amino Acid is a program that was developed to build a new compound fertilizer
product, based on a proactive amino acid enzyme.
Project
Build utilizes a technique for the manufacturing of organic compound fertilizer,
which could enhance the quality of organic fertilizer products.
Intellectual
property
The
Group
owns trademarks in the “Bodisen” name, which is used on all products. Bodisen is
also a recognized trade name in the provinces in The People’s Republic of China
in which the Group conducts business. Bodisen protects its proprietary
technology and formulae by keeping such technology and formulae confidential.
If
such technology or formulae are disclosed to a third party that is not under
an
obligation of confidentiality or are accidentally disclosed, Bodisen may not
be
able to protect its technology against being exploited by third parties. The
Directors believe this is adequate protection. The Company acquired rights
for
fluid and compound fertilizer technology from a third party. Most intellectual
property was developed in-house or with various universities and research
laboratories (which may not be owned by Bodisen). Only certain key executives
of
the Company have knowledge of such proprietary technology and formulae. The
Directors believe that there are adequate systems in place to prevent disclosure
of the proprietary technology and formulae. Since the Company does not hold
patents for its products, the Company may not be in a position to adequately
protect its intellectual property rights. See “Risk Factors” in Part I.
Government
and Environmental Regulation
Bodisen’s
products and services are subject to material regulation by governmental
agencies in The People’s Republic of China and Shaanxi Province responsible for
the agricultural industry. Business and company registrations, along with the
products, are certified on a regular basis and must be in compliance with the
laws and regulations of the state, local governments and industry agencies,
which are controlled and monitored through the issuance of licenses. To date,
the Group has been compliant with all registrations and requirements for the
issuance and maintenance of all licenses required by the governing bodies.
As of
the date of this document, all license fees and filings are current. These
licenses obtained by the Group include:
National
Certificate for Production of Industrial Products
The
National Certificate for Production of Industrial Products for compounded
fertilizers was issued by the National Industrial Products Production License
Office on February 27, 2004. The National Certificate for Production of
Industrial Products will be valid until February 26, 2009.
Certificate
for pesticide registration
Pesticide
registration is required for the production of liquid fertilizer and issued
by
Ministry of Agriculture, People’s Republic of China.
Production
standard
The
Company is registered with Bureau of Quality Controls and Technology, Shaanxi
Provincial Government, Xi’an.
The
cost
of obtaining and maintaining these licenses is not prohibitive, and it is
illegal to do business without these licenses. If the Group were to lose any
of
these licenses, it would only have a limited time to reapply for such licenses
and would face possible regulatory fines. The Group is subject to relevant
environmental laws and regulations that require the outlay of capital and the
obtaining of relevant permits in order to engage in business
operations.
Competition
The
Directors consider that in The People’s Republic of China the compound
fertilizer industry is largely fragmented with most competitors operating small
regional factories, serving local requirements. Most companies in this industry
in The People’s Republic of China do not promote their products through brand
name recognition. Bodisen has not yet identified any competition in the Shaanxi
province that operates in all three segments (compound, liquid and pesticide)
of
the organic fertilizer business. The Directors believe that the Company’s most
significant Chinese competitor is Tian Bang Shaanxi and that the only
international competing company is DuPont.
FACILITIES
The
Group’s principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanxi province, People’s Republic of China, 712100 and the telephone number is
+86-29-87074957. The Company owns two factories, which include three production
lines, an office building, one warehouse, and two research laboratories which
are located on 10,900 square meters of land. The Group completed a new 609,840
square foot manufacturing facility on March 15, 2005 and in November 2005 the
Company broke ground on a new facility, adjacent to the facility completed
in
March 2005, for production of a new product line. The Directors believe that
its
property, along with the properties being developed in its current facility
expansion plans, will be sufficient for its current and immediately foreseeable
operating needs.
EMPLOYEES
As
of
April 7, 2006 we had a total of 889 employees of which approximately 6 are
executive and senior managers, 69 are business and accounting staff, 6 are
warehouse and purchasing staff, 14 are drivers or secretaries and 794 production
workers. We have not experienced any work stoppages and we consider relations
with our employees to be good. We are not a party to any collective bargaining
agreements.
LEGAL
PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings,
which arise in the ordinary course of business. We are not currently aware
of
any such legal proceedings or claims.
MANAGEMENT
Executive
Officers and Directors
Below
are
the names and certain information regarding our executive officers and
directors:
Name
|
Age
|
Position
|
Wang
Qiong
|
41
|
Chairman
and Chief Executive Officer
|
Bo
Chen
|
48
|
Executive
Director and President
|
Patrick
McManus
|
51
|
Director
|
David
Gatton
|
52
|
Director
|
Weirui
Wan
|
64
|
Director
|
Wang
Chunsheng
|
42
|
Chief
Operating Officer
|
Yiliang
Lai
|
40
|
Chief
Financial Officer
|
Officers
are elected annually by the Board of Directors, at our annual meeting, to hold
such office until an officer’s successor has been duly appointed and qualified,
unless an officer sooner dies, resigns or is removed by the Board.
Background
of Executive Officers and Directors
Wang
Qiong,
Chairman
and Chief Executive Officer of Bodisen and Yang Ling - Mrs. Wang Qiong has
served as the Chairman of the Board of Bodisen since the merger of BHI and
BII
and she has been on the board of Yang Ling since Yang Ling was founded in August
2001. Mrs. Wang Qiong has over 10 years experience in the fertilizer and
chemical industry. From 1997 to May 2001, she was the Chief Executive Officer
and President of Shaanxi Bodisen Chemical Co., Ltd., which changed its name
to
Bodisen International, Inc. on August 31, 2001. From May 1996 to December 1997,
she was the President of Yang Ling Kangyuan Agricultural Chemical Company,
a
company dedicated to the research and development of agricultural products.
Mrs.
Wang Qiong graduated from North-West Agronomy College, with a Bachelor of
Science degree in 1986.
Bo
Chen, Director
and President of Bodisen and Yang Ling - Mr. Chen, the President of Bodisen,
is
one of its original founders and stockholders. From August 1997 to August 2001,
Mr. Bo Chen was Chief Operations Officer and Chief Technology Officer of Shaanxi
Bodisen Chemical Co., Ltd. From July 1994 to December 1997, he was the Chief
Executive Officer and President of Yang Ling Shikanglu Chemurgical Technology
Development Co., Ltd. Mr. Chen currently sits on the Board of Directors of
China
Natural Gas, Inc. as Vice Chairman of the Board. Mr. Chen received his Bachelor
of Science degree from Shaanxi Normal College in July 1984.
Patrick
McManus, Director
of Bodisen - Mr. Patrick McManus, CPA, J.D joined Bodisen’s Board of Directors
on May 1, 2004 as an independent board member. Mr. McManus brings over 25 years
of experience in business, finance and law to Bodisen. He was elected Mayor
of
the City of Lynn, Massachusetts in 1992 and served in this position until his
retirement to the private practice of law and accounting in 2002. While serving
the City of Lynn as its Mayor, he was elected a member and trustee of the
Executive Committee of the U.S. Conference of Mayors (USCM) with responsibility
for developing policy for the USCM. He also served as the Chairman of the USCM
Science and Technology Subcommittee, the Urban Water Council, and the USCM
Audit
Committee. Mayor McManus started his career in business with the General
Electric Company in 1979, and was a Professor of Business and Finance at Salem
State College in Massachusetts. Mayor McManus is an expert on China. He was
instrumental in establishing a close alliance as well as coordinating a regular
exchange of visits by members of the U.S. Conference of Mayors and the China
Association of Mayors. Mr. McManus has been a Certified Public Accountant since
1985. Mr. McManus received his Juris Doctorate from Boston College Law School
and an MBA from Suffolk University
David
Gatton, Director
of Bodisen - Mr. Gatton joined Bodisen’s Board of Directors on May 1, 2004 as an
independent board member. Since 1985 Mr. Gatton has served as the Chairman
and
President of Development Initiatives, Inc, a Washington, DC-based government
relations firm specializing in urban affairs, business development and
marketing, serving a variety of public and private clients. Mr. Gatton advises
cities, organizations, and companies on business development strategies,
public/private partnerships and marketing initiatives. He has advised various
organizations on tax reform, economic development initiatives and a variety
of
environmental laws, including the reauthorization of the following Acts of
the
United States: the Clean Water Act, the Safe Drinking Water Act, the Resource
Conservation and Recovery Act, Superfund and the Clean Air Act. Some of Mr.
Gatton’s major accomplishments include: development of U.S. Sino Memorandum of
Cooperation between U.S. and China Association of Mayors, development of a
national brownfield redevelopment initiative, development of several multifamily
low- and moderate-income housing developments, business development strategies
for various private firms, and assistance in development of economic development
projects for numerous cities. Mr. Gatton holds a B.A. from Cornell College,
and
a Master’s degree from Harvard University.
Weirui
Wan, Director
of Bodisen - Mr. Weirui Wan joined Bodisen’s Board of Directors on May 1, 2004
as an independent board member. Mr. Wan has over 40 years of experience in
management and leadership positions in the agricultural sector in China. He
started his career in 1967 as an agricultural scientist at the Chinese Academy
of Water and Soil Preservation, China’s leading government agency on soil and
agricultural studies. In 1984, Mr. Wan was appointed the position of Deputy
Director of the Chinese Academy of Water and Soil Preservation. In 1997, Mr.
Wan
moved to the city of Yang Ling and was appointed Deputy Governor of the Yang
Ling Agricultural High-Tech Industries Demonstration Zone and was in charge
of
building the zone into the agricultural hub of China. Mr. Wan retired as Deputy
Governor in 2001 and is currently on the Advisory Board of Yang Ling
Agricultural High-Tech Industries Demonstration Zone. Mr. Wan graduated from
Beijing University of Agriculture in 1967 with a Bachelor’s degree in
Agriculture.
Wang
Chunsheng, Chief
Operating Officer of Bodisen, Executive Vice President and Chief Operating
Officer of Yang Ling - Mr. Wang Chunsheng, joined Bodisen in September 2001
as
Chief Operations Officer. From September 1999 to August 2001, Mr. Wang Chunsheng
was Vice General Manager of the Shaanxi Bodisen Chemical Co. Ltd. responsible
for sales and marketing. From January 1997 to July 1999, he held a position
as
Senior Sales Manager with the Yang Ling Kangyuan Agricultural Chemical Company.
Mr. Wang Chunsheng holds agronomist certification.
Yiliang
Lai, Chief
Financial Officer of Bodisen and Yang Ling - On November 1, 2005, the Company
promoted Yiliang Lai to the position of Chief Financial Officer. Mr Lai joined
the Company as a financial controller in March 2005. Mr Lai has extensive
experience in accounting and auditing matters. He started his career as an
accountant at China Shipping in 1986 and in 1999 he joined the CPA firm ShenZhen
CaiXin as an auditor. In 2001, Mr Lai joined Shaanxi Kaida Limited as head
of
accounting and in 2002 he joined Xi’an Hongsheng Biotech as Chief Financial
Officer. Mr Lai is a Certified Public Accountant in China as well as a Certified
Auditor.
Board
of Directors
Our
Directors are elected by the vote of a plurality in interest of the holders
of
our voting stock and hold office for a term of one year and until a successor
has been elected and qualified.
A
majority of the authorized number of directors constitutes a quorum of the
Board
for the transaction of business. The directors must be present at the meeting
to
constitute a quorum. However, any action required or permitted to be taken
by
the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.
Directors
may receive compensation for their services and reimbursement for their expenses
as shall be determined from time to time by resolution of the Board.
Executive
Compensation
The
following table sets forth all compensation paid in respect of our Chief
Executive Officer and those individuals who received compensation in excess
of
$100,000 per year (collectively, the "Named Executive Officers") for our last
three completed fiscal years.
SUMMARY
COMPENSATION TABLE
|
|
|
|
Long
Term Compensation
|
|
|
|
Annual
Compensation
|
|
Awards
|
|
Payouts
|
|
Name
And
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual
Compensation
($)
|
|
Restricted
Stock
Compensation
($)
|
|
Securities
Under-
Lying
Options/
SARs
(#)
|
|
LTIP
Payouts
($)
|
|
All Other
Compensation
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wang
Qiong, Chief Executive Officer and Chairman
|
|
|
2005
2004
2003
|
|
|
31,450
23,220
4,400
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
N/A
N/A
N/A
|
|
|
N/A
N/A
N/A
|
|
|
N/A
N/A
N/A
|
|
|
N/A
N/A
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derek
Wasson, Former Chief Executive Officer
|
|
|
2005
2004
2003
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
32,694
(1
|
)
|
|
N/A
N/A
N/A
|
|
|
N/A
N/A
N/A
|
|
|
N/A
N/A
N/A
|
|
|
N/A
N/A
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents consulting fees paid.
EQUITY
COMPENSATION PLAN INFORMATION
There
has
been no common stock authorized for issuance with respect to any equity
compensation plan as of the fiscal year ended December 31, 2005.
Employment
Agreements
There
are
currently no employment agreements between the Company and any of its named
executive officers.
Option
Grants During 2005 Fiscal Year
The
following table provides information related to options granted to the named
executive officers during the 2005 fiscal year. The Company does not have any
outstanding stock appreciation rights.
Name
|
|
No.
of Securities Underlying Options Granted (#)
|
|
%
of Total Options Granted to Employees in Fiscal Year
|
|
Exercise
Price ($/Sh)
|
|
Expiration
Date
|
|
David
Gatton
|
|
|
13,000
|
|
|
50
|
%
|
$
|
6.72
|
|
|
October
4, 2010
|
|
Patrick
McManus
|
|
|
13,000
|
|
|
50
|
%
|
$
|
6.72
|
|
|
October
4, 2010
|
|
Aggregated
Option Exercises During 2005 Fiscal Year and Fiscal Year-End Option
Values
The
following table provides information related to employee options exercised
by
the named executive officers during the 2005 fiscal year and number and value
of
such options held at fiscal year-end.
|
|
Shares
Acquired
|
|
Value
|
|
Number
of Securities Underlying Unexercised Options at Fiscal Year- End
(#)
|
|
Value
of Unexercised In-the-Money Options at Fiscal Year- End ($)
(1)
|
|
Name
|
|
on
Exercise (#)
|
|
Realized
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
David
Gatton
|
|
|
N/A
|
|
|
N/A
|
|
|
63,875
|
|
|
4,125
|
|
|
550,235
|
|
|
35,405
|
|
Patrick
McManus
|
|
|
N/A
|
|
|
N/A
|
|
|
63,875
|
|
|
4,125
|
|
|
550,235
|
|
|
35,405
|
|
(1)
Based
on the closing price of $14.00, at December 30, 2005.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of March 29, 2006 with
respect to the beneficial ownership of the outstanding common stock by (i)
any
holder of more than five (5%) percent; (ii) each of our named executive officers
and directors; and (iii) our directors and executive officers as a group. Except
as otherwise indicated, each of the stockholders listed below has sole voting
and investment power over the shares beneficially owned.
Name
of Beneficial Owner (1)
|
|
Number
of Shares Beneficially Owned
|
|
Percentage
of Shares Beneficially Owned (2)
|
|
Wang
Qiong (3)
|
|
|
3,748,780
|
|
|
20.6
|
%
|
Bo
Chen (4)
|
|
|
3,584,096
|
|
|
19.7
|
%
|
Patrick
McManus
|
|
|
68,000
|
|
|
*
|
|
David
Gatton
|
|
|
68,000
|
|
|
*
|
|
Weirui
Wan
|
|
|
0
|
|
|
*
|
|
Wang
Chunsheng
|
|
|
0
|
|
|
*
|
|
Yiliang
Lai.
|
|
|
0
|
|
|
*
|
|
All
officers and directors as a group (7 persons)
|
|
|
7,462,626
|
|
|
40.8
|
%
|
*
Less
than 1%.
|
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is c/o
Bodisen Biotech, Inc., North Part of Xinquia Road, Yang Ling AG,
High-Tech
Industries Demonstration Zone, Yang Ling, China 712100.
|
|
(2)
|
Applicable
percentage ownership is based on 18,176,917 shares of common stock
outstanding as of April 7, 2006, together with securities exercisable
or
convertible into shares of common stock within 60 days of April
7, 2006
for each stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities.
Shares of
common stock that are currently exercisable or exercisable within
60 days
of April 7, 2006 are deemed to be beneficially owned by the person
holding
such securities for the purpose of computing the percentage of
ownership
of such person, but are not treated as outstanding for the purpose
of
computing the percentage ownership of any other
person.
|
|
(3)
|
Of
the shares beneficially owned by Wang Qiong, 3,028,780 are owned
by a
dependent daughter.
|
|
(4)
|
Of
the shares beneficially owned by Bo Chen, 2,894,096 are owned by
a
dependent son.
|
No
Director, executive officer, affiliate or any owner of record or beneficial
owner of more than 5% of any class of voting securities of the Company is a
party adverse to the Company or has a material interest adverse to the
Company.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
COMMON
STOCK
Our
authorized capital stock consists of 30,000,000 shares of common stock at a
par
value of $0.0001 per share and 5,000,000 shares of preferred stock, par value
$0.0001. As of April 7, 2006, there were 18,176,917 shares of our common stock
issued and outstanding and no shares of preferred stock outstanding.
Holders
of our common stock are entitled to one vote for each share on all matters
submitted to a stockholder vote. Holders of common stock do not have cumulative
voting rights. Therefore, holders of a majority of the shares of common stock
voting for the election of directors can elect all of the directors. Holders
of
our common stock representing a majority of the voting power of our capital
stock issued, outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of stockholders.
A
vote by the holders of a majority of our outstanding shares is required to
effectuate certain fundamental corporate changes such as liquidation, merger
or
an amendment to our articles of incorporation.
Holders
of our common stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available funds. In the
event of liquidation, dissolution or winding up, each outstanding share entitles
its holder to participate pro rata in all assets that remain after payment
of
liabilities and after providing for each class of stock, if any, having
preference over the common stock. Our common stock has no pre-emptive rights,
no
conversion rights and there are no redemption provisions applicable to our
common stock.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Under
Delaware law, we may indemnify our directors or officers or other persons who
were or are threatened to be made a party to an action, suit or proceeding
because the person is or was our director, officer, employee or agent, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with the
action, suit or proceeding if the person:
(i)
acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and
(ii)
with
respect to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful.
Our
bylaws include indemnification provisions under which we have agreed to
indemnify our directors and officers from and against certain claims arising
from or related to future acts or omissions as our directors or officers, except
in relation to matters as to which any such director or officer was personally
involved in the situation giving rise to the injury or unless such officer
or
director committed a criminal offense.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers, and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of ours in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their respective pledgees, donees, assignees
and
other successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. The selling stockholders may use any one or more
of
the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately-negotiated
transactions;
|
|
·
|
short
sales that are not violations of the laws and regulations of any
state or
the United States;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
through
the writing of options on the
shares;
|
|
·
|
a
combination of any such methods of sale; and
|
|
·
|
any
other method permitted pursuant to applicable law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus. The selling stockholders
shall have the sole and absolute discretion not to accept any purchase offer
or
make any sale of shares if they deem the purchase price to be unsatisfactory
at
any particular time.
The
selling stockholders may also engage in short sales against the box, puts and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
The
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves
or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or
the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and
at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in
this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of
any
of the shares offered in this prospectus, may be deemed to be "underwriters"
as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholders,
but excluding brokerage commissions or underwriter discounts.
The
selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The
selling stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
The
selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales
of
any of the shares by, the selling stockholders or any other such person. In
the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions
or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion.
In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We
have
agreed to indemnify the selling stockholders, or their transferees or assignees,
against certain liabilities, including liabilities under the Securities Act
of
1933, as amended, or to contribute to payments the selling stockholders or
their
respective pledgees, donees, transferees or other successors in interest, may
be
required to make in respect of such liabilities.
If
the
selling stockholders notify us that they have a material arrangement with a
broker-dealer for the resale of the common stock, then we would be required
to
amend the registration statement of which this prospectus is a part, and file
a
prospectus supplement to describe the agreements between the selling
stockholders and the broker-dealer.
SELLING
STOCKHOLDERS
The
following table sets forth the common stock ownership of the selling
stockholders as of April 7, 2006. The selling stockholders acquired their
securities through a private placement offering which closed on March 15, 2006.
We
will
not receive any proceeds from the resale of the common stock by the selling
stockholders. Assuming all the shares registered below are sold by the selling
stockholders, none of the selling stockholders will continue to own any shares
of our common stock. Other than as set forth in the following table, the selling
stockholders have not held any position or office or had any other material
relationship with us or any of our predecessors or affiliates within the past
three years. In addition, except as set forth below, the selling stockholders
are not registered broker-dealers.
Name
|
|
Total
Shares
Owned and Issuable Upon Exercise of Warrants Before
Offering
|
|
Number
of
Shares
Offered for Sale
|
|
Number
of
Shares
Owned After Completion of Offering (1)
|
|
Percentage
of Common Stock Owned After Completion of Offering
(2)
|
|
Charlemagne
Capital (3)
|
|
|
63,047
|
|
|
63,047
|
|
|
0
|
|
|
0
|
%
|
Credo
Capital plc (4)
|
|
|
55,000
|
|
|
55,000
|
|
|
0
|
|
|
0
|
%
|
Eagle
& Dominion Euro-American Fund Limited (5)
|
|
|
16,000
|
|
|
16,000
|
|
|
0
|
|
|
0
|
%
|
Eagle
& Dominion Euro-American Fund Limited Partnership (5)
|
|
|
4,000
|
|
|
4,000
|
|
|
0
|
|
|
0
|
%
|
Savoy
Investment Management (6)
|
|
|
10,000
|
|
|
10,000
|
|
|
0
|
|
|
0
|
%
|
York
Capital Management Limited (7)
|
|
|
232,132
|
|
|
232,132
|
|
|
0
|
|
|
0
|
%
|
Amaranth
Partners L.L.C. (8)
|
|
|
133,333
|
|
|
133,333
|
|
|
0
|
|
|
0
|
%
|
*
Less
than 1%.
|
(1)
|
Assumes
that all securities registered will be sold.
|
|
(2)
|
Applicable
percentage ownership is based on 18,176,917 shares of common stock
outstanding as of April 7, 2006, together with securities exercisable
or
convertible into shares of common stock within 60 days of April 7,
2006
for each stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. Shares
of
common stock that are currently exercisable or exercisable within
60 days
of April 7, 2006 are deemed to be beneficially owned by the person
holding
such securities for the purpose of computing the percentage of ownership
of such person, but are not treated as outstanding for the purpose
of
computing the percentage ownership of any other
person.
|
|
(3)
|
Sangeeta
Uberoi has the voting and dispositive rights over the shares held
by
Charlemagne Capital.
|
|
(4)
|
Jarrod
Khan has the voting and dispositive rights over the shares held by
Credo Capital
plc.
|
|
(5)
|
Duncan
Byatt has the voting and dispositive rights over the shares held
by Eagle
& Dominion Euro-American Fund Limited Partnership and Eagle &
Dominion Euro-American Fund
Limited.
|
|
(6)
|
Alex
Millett has the voting and dispositive rights over the shares held
by
Savoy Investment Management.
|
|
(7)
|
Russell
Winfield has the voting and dispositive rights over the shares held
by
York Capital Management
Limited.
|
|
(8)
|
Nicholas
M. Maounis has
the voting and dispositive rights over the shares held by Amaranth
Partners L.L.C.
|
LEGAL
MATTERS
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby.
EXPERTS
Our
financial statements as of December 31, 2005 and 2004 and the related
consolidated statements of operations, stockholders' equity and cash flows
for
the period of December 31, 2005 and 2004, appearing in this prospectus and
registration statement have been audited by Kabani & Company, Inc.,
independent registered public accountants, as set forth on their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE
INFORMATION
We
have
filed with the SEC a registration statement on Form SB-2 to register the
securities offered by this prospectus. For future information about us and
the
securities offered under this prospectus, you may refer to the registration
statement and to the exhibits filed as a part of the registration
statement.
In
addition, after the effective date of this prospectus, we will be required
to
file annual, quarterly, and current reports, or other information with the
SEC
as provided by the Securities Exchange Act. You may read and copy any reports,
statements or other information we file at the SEC's public reference facility
maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the
operation of the public reference room. Our SEC filings are also available
to
the public through the SEC Internet site at http\\www.sec.gov.
Bodisen
Biotech, Inc. and Subsidiaries
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
F-1 |
|
|
|
Financial
Statements:
|
|
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2005
|
F-2
|
|
|
|
|
Consolidated
Statements of Income and Other Comprehensive Income for the years
ended
December 31, 2005 and 2004
|
F-3
|
|
|
|
|
Consolidated
Statement of Stockholders' Equity for the years ended December
31, 2005
and 2004
|
F-4
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005
and
2004
|
F-5
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
Report
of
Independent Registered Public Accounting Firm
Board
of
Directors and Stockholders of
Bodisen
Biotech, Inc.
We
have
audited the accompanying consolidated balance sheet of Bodisen Biotech, Inc.
(a
Delaware corporation) and subsidiaries as of December 31, 2005, and the related
consolidated statements of income and other comprehensive income, stockholders'
equity, and cash flows for the years ended December 31, 2005 and 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bodisen
Biotech, Inc. and Subsidiaries as of December 31, 2005, and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 2005 and 2004, in conformity with U.S. generally accepted
accounting principles.
|
|
/s/ Kabani
& Company, Inc. |
|
Certified
Public Accountants |
|
Los
Angeles,
California February 22, 2006 |
|
Bodisen
Biotech, Inc. and Subsidiaries
Consolidated
Balance Sheet
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
& cash equivalents
|
|
$
|
6,276,897
|
|
Accounts
receivable, net of allowance for doubtful accounts of $263,376
|
|
|
7,478,152
|
|
Other
receivable
|
|
|
1,037,683
|
|
Inventory
|
|
|
1,180,007
|
|
Advances
to suppliers
|
|
|
4,563,471
|
|
Prepaid
expense
|
|
|
60,635
|
|
Other
current assets
|
|
|
3,440
|
|
Total
current assets
|
|
|
20,600,285
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
4,887,841
|
|
|
|
|
|
|
CONSTRUCTION
IN PROGRESS
|
|
|
1,872,945
|
|
|
|
|
|
|
MARKETABLE
SECURITY
|
|
|
6,810,434
|
|
|
|
|
|
|
INTANGIBLE
ASSETS
|
|
|
2,119,587
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
36,291,092
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Note
payable, net of discount of $603,886
|
|
$
|
4,396,114
|
|
Accounts
payable
|
|
|
49,893
|
|
Other
payables
|
|
|
18,773
|
|
Accrued
expenses
|
|
|
409,209
|
|
Total
current liabilities
|
|
|
4,873,989
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
Preferred
stock, $0.0001 per share; authorized 5,000,000 shares; none issued
|
|
|
|
|
Common
stock, $0.0001 per share; authorized 30,000,000 shares; issued
and outstanding 16,120,902
|
|
|
1,613
|
|
Additional
paid-in capital
|
|
|
12,082,793
|
|
Other
comprehensive income
|
|
|
4,531,009
|
|
Statutory
reserve
|
|
|
2,366,931
|
|
Retained
earnings
|
|
|
12,434,757
|
|
Total
stockholders' equity
|
|
|
31,417,103
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
36,291,092
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Bodisen
Biotech, Inc. and Subsidiaries
Consolidated
Statements of Income and Comprehensive Income
|
|
Years
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$
|
30,975,350
|
|
$
|
16,225,896
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
19,471,121
|
|
|
9,653,965
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
11,504,229
|
|
|
6,571,931
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
935,444
|
|
|
615,549
|
|
General
and administrative expenses
|
|
|
1,496,309
|
|
|
907,801
|
|
Total
operating expenses
|
|
|
2,431,753
|
|
|
1,523,350
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
9,072,476
|
|
|
5,048,581
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
137,870
|
|
|
7,623
|
|
Interest
income
|
|
|
(121,410
|
)
|
|
45,338
|
|
Interest
expense
|
|
|
(1,667,824
|
)
|
|
(74,139
|
)
|
|
|
|
|
|
|
|
|
Total
non-operating income (expense)
|
|
|
(1,651,364
|
)
|
|
(21,178
|
)
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,421,112
|
|
$
|
5,027,403
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
519,066
|
|
|
68,855
|
|
Unrealized
gain on marketable equity security
|
|
|
3,943,088
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
11,883,266
|
|
$
|
5,096,258
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding :
|
|
|
|
|
|
|
|
Basic
|
|
|
15,427,494
|
|
|
15,268,000
|
|
Diluted
|
|
|
15,589,336
|
|
|
15,328,356
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.48
|
|
$
|
0.33
|
|
Diluted
|
|
$
|
0.48
|
|
$
|
0.33
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Bodisen
Biotech, Inc. and Subsidiaries
Consolidated
Statement of Stockholders' Equity
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
|
Additional
Paid
|
|
Comprehensive
|
|
Statutory
|
|
Retained
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
in
Capital
|
|
Income
|
|
Reserve
|
|
Earnings
|
|
Equity
|
|
Balance
January 1, 2004
|
|
|
15,268,000
|
|
$
|
1,527
|
|
$
|
5,991,823
|
|
$
|
-
|
|
$
|
263,794
|
|
$
|
2,089,379
|
|
$
|
8,346,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
68,855
|
|
|
|
|
|
|
|
|
68,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,027,403
|
|
|
5,027,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754,111
|
|
|
(754,111
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2004
|
|
|
15,268,000
|
|
|
1,527
|
|
|
5,991,823
|
|
|
68,855
|
|
|
1,017,905
|
|
|
6,362,671
|
|
|
13,442,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debenture and interest to
common stock
|
|
|
657,402
|
|
|
66
|
|
|
3,155,498
|
|
|
|
|
|
|
|
|
|
|
|
3,155,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants for cash
|
|
|
195,500
|
|
|
20
|
|
|
955,020
|
|
|
|
|
|
|
|
|
|
|
|
955,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of beneficial conversion feature in connection with
$3 million convertible note
|
|
|
|
|
|
|
|
|
803,381
|
|
|
|
|
|
|
|
|
|
|
|
803,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of warrants issued in connection with $3 million convertible
note
|
|
|
|
|
|
|
|
|
365,881
|
|
|
|
|
|
|
|
|
|
|
|
365,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of warrants issued in connection with $5 million note
payable
|
|
|
|
|
|
|
|
|
811,190
|
|
|
|
|
|
|
|
|
|
|
|
811,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
519,066
|
|
|
|
|
|
|
|
|
519,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on marketable equity security
|
|
|
|
|
|
|
|
|
|
|
|
3,943,088
|
|
|
|
|
|
|
|
|
3,943,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,421,112
|
|
|
7,421,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,349,026
|
|
|
(1,349,026
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2005
|
|
|
16,120,902
|
|
$
|
1,613
|
|
$
|
12,082,793
|
|
$
|
4,531,009
|
|
$
|
2,366,931
|
|
$
|
12,434,757
|
|
$
|
31,417,103
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Bodisen
Biotech, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
Years
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
$
|
7,421,112
|
|
$
|
5,027,403
|
|
Adjustments
to reconcile net income to net cash provided in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
324,638
|
|
|
302,803
|
|
Common
stock issued for interest expense
|
|
|
155,564
|
|
|
-
|
|
Amortization
of debt discounts
|
|
|
1,376,566
|
|
|
-
|
|
(Increase)
/ decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,333,365
|
)
|
|
(3,166,143
|
)
|
Other
receivable
|
|
|
(987,322
|
)
|
|
|
|
Inventory
|
|
|
(388,251
|
)
|
|
51,612
|
|
Advances
to suppliers
|
|
|
(3,732,975
|
)
|
|
1,178,306
|
|
Prepaid
expense
|
|
|
(45,290
|
)
|
|
|
|
Other
assets
|
|
|
(3,388
|
)
|
|
(48,736
|
)
|
Increase
/ (decrease) in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(63,927
|
)
|
|
(1,521,819
|
)
|
Unearned
revenue
|
|
|
-
|
|
|
(15,888
|
)
|
Other
payables
|
|
|
(11,716
|
)
|
|
(35,350
|
)
|
Accrued
expenses
|
|
|
111,369
|
|
|
196,031
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,823,015
|
|
|
1,968,219
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Issuance
of loan receivable
|
|
|
-
|
|
|
(968,000
|
)
|
Payment
on loan receivable
|
|
|
976,368
|
|
|
-
|
|
Acquisition
of property and equipment
|
|
|
(3,642,530
|
)
|
|
(435,814
|
)
|
Additions
to construction in progress
|
|
|
(234,520
|
)
|
|
(1,374,322
|
)
|
Purchase
of marketable security
|
|
|
(2,867,346
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(5,768,028
|
)
|
|
(2,778,136
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
on note payable
|
|
|
(976,368
|
)
|
|
(111,900
|
)
|
Loans
made to officers
|
|
|
(2,383,217
|
)
|
|
-
|
|
Repayments
of loans to officers
|
|
|
2,383,217
|
|
|
-
|
|
Proceeds
from issuance of convertible note
|
|
|
3,000,000
|
|
|
-
|
|
Proceeds
from issuance of note payable
|
|
|
5,000,000
|
|
|
-
|
|
Proceeds
from the exercise of warrants
|
|
|
955,040
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
7,978,672
|
|
|
(111,900
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
121,427
|
|
|
68,855
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS
|
|
|
4,155,086
|
|
|
(852,962
|
)
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
|
|
2,121,811
|
|
|
2,974,773
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, ENDING BALANCE
|
|
$
|
6,276,897
|
|
$
|
2,121,811
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
68,144
|
|
$
|
60,231
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Note
1 - Organization and Basis of Presentation
Organization
and Line of Business
Yang
Ling
Bodisen Biology Science and Technology Development Company Limited (“BBST”) was
founded in the People’s Republic of China on August 31, 2001. BBST, located in
Yang Ling Agricultural High-Tech Industries Demonstration Zone, is primarily
engaged in developing, manufacturing and selling pesticides and compound organic
fertilizers in the People’s Republic of China. Bodisen International, Inc.
(“BII”) is a Delaware Corporation, incorporated on November 19, 2003. BII was a
non-operative holding company of BBST. On December 15, 2003, BII entered in
to
an agreement with all the stockholders of BBST to exchange all of the
outstanding stock of BII for all the issued and outstanding stock of BBST.
After
the consummation of the agreement, the former stockholders of BBST own 1,500
shares of common stock of BII, which represent 100% of BII’s issued and
outstanding shares. For U.S. Federal income tax purpose, the transaction is
intended to be qualified as a tax-free transaction under section 351 of the
Internal Revenue Code of 1986, as amended.
The
exchange of shares with BBST has been accounted for as a reverse acquisition
under the purchase method of accounting since the stockholders of the BBST
obtained control of the consolidated entity. Accordingly, the merger of the
two
companies has been recorded as a recapitalization of BBST, with BBST being
treated as the continuing entity. The historical financial statements presented
are those of BBST. The continuing company has retained December 31 as its fiscal
year end. The financial statements of the legal acquirer are not significant;
therefore, no pro forma financial information is submitted.
On
February 24, 2004, BII consummated a merger agreement with Stratabid.com, Inc.
(“Stratabid”), a Delaware corporation, to exchange 12,000,000 shares of
Stratabid to the stockholders of BII, in which BII merged into Bodisen Holdings,
Inc. (BHI), an acquisition subsidiary of Stratabid, with BHI being the surviving
entity. As a part of the merger, Stratabid cancelled 3,000,000 shares of its
issued and outstanding stock owned by its former president and declared a stock
dividend of three shares on each share of its common stock outstanding for
all
stockholders on record as of February 27, 2004.
Stratabid
was incorporated in the State of Delaware on January 14, 2000 and before the
merger, was a start- up stage Internet based commercial mortgage origination
business based in Vancouver, BC, Canada.
The
exchange of shares with Stratabid has been accounted for as a reverse
acquisition under the purchase method of accounting since the stockholders
of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the “Company”). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company being treated as the continuing entity. The financial statements of
legal acquirer are not significant; therefore, no pro forma financial
information is submitted.
In
March
2005, Bodisen Biotech Inc. completed a $3 million convertible debenture private
placement through an institutional investor. Approximately $651,000 in expenses
relating to this private placement has been amortized over the term of the
convertible debenture. The net proceeds from this offering were sent to China
towards capital contribution of the registration of a wholly-owned Bodisen
subsidiary by the name of “Yang Ling Bodisen Agricultural Technology Co., Ltd.
(“Agricultural”). In June 2005, Agricultural completed a transaction with Yang
Ling Bodisen Biology Science and Technology Development Company Limited (“Yang
Ling”), Bodisen Biotech, Inc.’s operating subsidiary in China, which resulted in
Agricultural owning 100% of Yang Ling.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
The Company’s functional currency is the Chinese Renminbi; however the
accompanying consolidated financial statements have been translated and
presented in United States Dollars ($).
Foreign
Currency Translation
As
of
December 31, 2005 and 2004, the accounts of the Company were maintained, and
their consolidated financial statements were expressed in the Chinese Yuan
Renminbi (CNY). Such consolidated financial statements were translated into
U.S.
Dollars (USD) in accordance with Statement of Financial Accounts Standards
("SFAS") No. 52, "Foreign Currency Translation," with the CNY as the functional
currency. According to the Statement, all assets and liabilities were translated
at the exchange rate on the balance sheet date, stockholder's equity are
translated at the historical rates and statement of operations items are
translated at the weighted average exchange rate for the year. The resulting
translation adjustments are reported under other comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income
Note
2 - Summary of Significant Accounting Policies
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash in hand and cash in time deposits, certificates
of
deposit and all highly liquid debt instruments with original maturities of
three
months or less.
Accounts
Receivable
The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. Terms of the sales vary from COD through a credit
term up to 9 to 12 months. Reserves are recorded primarily on a specific
identification basis. Allowance for doubtful debts amounted to $263,376 as
at
December 31, 2005.
Advances
to Suppliers
The
Company advances to certain vendors for purchase of its material. The advances
to suppliers are interest free and unsecured. The advances to suppliers amounted
to $4,563,471 at December 31, 2005.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down their inventories to market value, if
lower.
Loan
Receivable
On
December 8, 2004, the Company entered in to an agreement to loan $968,000 to
an
unrelated party. The loan was unsecured, payable by December 7, 2005 and carried
an interest rate of 8.7% per annum. The amount was repaid in full by the due
date.
Property
& Equipment & Capital Work In Progress
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed
of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of:
Operating
equipment
|
10
years
|
Vehicles
|
8
years
|
Office
equipment
|
5
years
|
Buildings
|
30
years
|
At
December 31, 2005, the following are the details of the property and
equipment:
Operating
equipment
|
|
$
|
923,688
|
|
Vehicles
|
|
|
362,780
|
|
Office
equipment
|
|
|
63,403
|
|
Buildings
|
|
|
4,142,129
|
|
|
|
|
5,492,000
|
|
Less
accumulated depreciation
|
|
|
(604,159
|
)
|
|
|
$
|
4,887,841
|
|
Depreciation
expense for the years ended December 31, 2005 and 2004 was $193,634 and
$172,622, respectively.
On
December 31, 2005, the Company has “Capital Work in Progress” representing the
construction in progress of the Company’s manufacturing plant amounting
$1,872,945.
Marketable
Securities
Marketable
securities consist of 2,063,768 shares of China Natural Gas, Inc. (traded on
the
OTCBB: CHNG). This investment is classified as available-for-sale as the Company
plans to hold this investment for the long-term. This investment is reported
at
fair value with unrealized gains and losses included in other comprehensive
income. The fair value is determined by using the securities quoted market
price
as obtained from stock exchanges on which the security trades.
Investment
income, principally dividends, is recorded when earned. Realized capital gains
and losses are calculated based on the cost of securities sold, which is
determined by the "identified cost" method.
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of December 31, 2005 there were no significant impairments of its
long-lived assets.
Intangible
Assets
Intangible
assets consist of Rights to use land and Fertilizers proprietary technology
rights. The Company evaluates intangible assets for impairment, at least on
an
annual basis and whenever events or changes in circumstances indicate that
the
carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill
is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test
is
performed to measure the amount of impairment loss.
Fair
Value of Financial Instruments
Statement
of financial accounting standard No. 107, Disclosures about fair value of
financial instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Revenue
Recognition
The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company
exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
Advertising
Costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
December 31, 2005 and 2004 were insignificant.
Stock-Based
Compensation
In
October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No.
123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method.
The
Company uses the intrinsic value method prescribed by APB 25 and has opted
for
the disclosure provisions of SFAS No.123.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
According
to the Provisional Regulations of the People’s Republic of China on Income Tax,
the Document of Reductions and Exemptions of Income Tax for the Company had
been
approved by the local tax bureau and the Yang Ling Agricultural High-Tech
Industries Demonstration Zone. The Company is exempted from income tax through
October 2007.
In
March
2005, Bodisen Biotech Inc. formed a new 100% wholly-owned subsidiary named
Yang
Ling Bodisen Agricultural Technology Co., Ltd. (“Agricultural”) in China. Under
Chinese law, a newly formed wholly owned subsidiary of a foreign company enjoys
an income tax exemption for the first two years and a 50% reduction of normal
income tax rates for the following 3 years. In order to extend such tax
benefits, in June 2005, Agricultural completed a transaction with Yang Ling
Bodisen Biology Science and Technology Development Company Limited (“Yang Ling”,
Bodisen Biotech, Inc.’s operating subsidiary in China), which resulted in
Agricultural owning 100% of Yang Ling.
If
the
Company had not been exempt from paying income taxes during the years ended
December 31, 2005 and 2004, income tax expense would have been approximately
$2,859,000 and $1,659,000, respectively, and earnings per share would have
been
reduced by $0.19 and $0.11, respectively.
Foreign
Currency Transactions and Comprehensive Income
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain statements, however, require entities to
report specific changes in assets and liabilities, such as gain or loss on
foreign currency translation, as a separate component of the equity section
of
the balance sheet. Such items, along with net income, are components of
comprehensive income. The functional currency of the Company is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains of $587,921 at
December 31, 2005 are classified as an item of other comprehensive income in
the
stockholders’ equity section of the consolidated balance sheet. During the years
ended December 31, 2005 and 2004, other comprehensive income in the consolidated
statements of income and other comprehensive income included translation gains
of $519,066 and $68,855, respectively.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
all
periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
Statement
of Cash Flows
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” cash flows from the Company’s operations are calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
is based on the way a company’s management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company.
SFAS
131 has no effect on the Company’s consolidated financial statements as the
Company consists of one reportable business segment. All revenue is from
customers in People’s Republic of China. All of the Company’s assets are located
in People’s Republic of China.
Recent
Pronouncements
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principle and
requires retrospective application to prior periods' financial statements of
changes in accounting principle, unless this would be impracticable. This
statement also makes a distinction between “retrospective application” of an
accounting principle and the “restatement” of financial statements to reflect
the correction of an error. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005.
In
February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company’s first fiscal year that begins
after September 15, 2006.
In
December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an
Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair
value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company's first quarter of fiscal 2006.
In
June
2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance
on
determining the amortization period for leasehold improvements acquired in
a
business combination or acquired subsequent to lease inception. The guidance
in
EITF 05-6 will be applied prospectively and is effective for periods beginning
after June 29, 2005. EITF 05-6 is not expected to have a material effect on
its
consolidated financial position or results of operations.
The
Company believes that the adoption of these standards will have no material
impact on its financial statements.
Note
3 - Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of Bodisen
Biotech, Inc., its 100% wholly-owned subsidiary Bodisen Holdings, Inc. (“BHI”),
BHI’s 100% wholly- owned subsidiary Yang Ling Bodisen Biology Science and
Technology Development Company Limited, and a 100% wholly-owned subsidiary,
incorporated in March 2005, named Yang Ling Bodisen Agricultural Technology
Co.,
Ltd. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Note
4 - Advances to officers
During
the six month period ending June 30, 2005, the Company advanced $2,383,217
to 4
officers as a short term loan. Said loan was interest free, unsecured, and
payable upon demand. These loans were repaid during the quarter ended September
30, 2005.
Note
5 - Marketable Security
During
the year ended December 31, 2005, the Company purchased 2,063,768 shares of
China Natural Gas, Inc. (traded on the OTCBB: CHNG) for $2,867,346. At December
31, 2005, the fair value of this investment was $6,810,434 which resulted in
an
unrealized gain of $3,943,088 which is included in other comprehensive income.
At December 31, 2005, this represented a 10.2% interest in China Natural Gas,
Inc.
Note
6 - Intangible Assets
Net
intangible assets at December 31, 2005 were as follows:
Rights
to use land
|
|
$
|
1,693,833
|
|
Fertilizers
proprietary technology rights
|
|
|
991,304
|
|
|
|
|
2,685,137
|
|
Less
Accumulated amortization
|
|
|
(565,550
|
)
|
|
|
$
|
2,119,587
|
|
The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, People’s
Republic of China. The Company leases land per a real estate contract with
the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.
During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.
The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty years. The
“Rights to use land” is being amortized over a 50 year period.
The
Company acquired Fluid and Compound Fertilizers proprietary technology rights
with a life ending December 31, 2011. The Company is amortizing Fertilizers
proprietary technology rights over a period of ten years.
Amortization
expense for the Company’s intangible assets for the years ended December 31,
2005 and 2004 amounted to $131,004 and $130,181, respectively.
Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be: 2006-$130,000, 2007-$130,000, 2008-$130,000, 2009-$130,000
and
2010-$130,000.
Note
7 - Short-Term Loans
At
December 31, 2004, the Company had three short-term notes payable outstanding
that totaled $980,100. During the year ended December 31, 2005, all three notes
were repaid in full.
Note
8 - Note Payable
On
December 8, 2005, the Company issued a $5,000,000 note payable to Amaranth
Partners LLC that accrues interest at 9% per annum and is due on March 8, 2006.
In connection with this note payable agreement, the Company also issued to
Amaranth Partners LLC a warrant to purchase 133,333 shares of the Company common
stock for $7.50 per shares. The Company first determined the value of the note
and the fair value of the detachable warrants issued in connection with this
note payable. The estimated value of the warrants of $968,282 was determined
using the Black-Scholes option pricing model and the following assumptions:
term
of 5 years, a risk free interest rate of 4.00%, a dividend yield of 0% and
volatility of 31%. The face amount of the note payable of $5,000,000 was
proportionately allocated to the note payable and the warrant in the amount
of
$4,188,810 and $811,190, respectively. The amount allocated to the warrants
of
$811,190 was recorded as a discount on the note payable and will be amortized
over the year life of the note payable. For the year ended December 31, 2005
$207,304 has been amortized to interest expense, due to the passage of time.
The
unamortized discount at December 31, 2005 amounted to $603,886.
Note
9 - Convertible Debenture
On
March
16, 2005, the Company completed a private placement offering. The Company
received $3,000,000 and issued a one year 9% debenture convertible into shares
of common stock by dividing the aggregate principal and accrued interest by
a
conversion price of $4.80; and three year warrants to purchase 187,500 shares
of
common stock at $4.80 per share and three year warrants to purchase 40,000
shares of common stock at $6.88 per share.
This
debenture was considered to have an embedded beneficial conversion feature
because the conversion price was less than the quoted market price at the time
of the issuance. The Company allocated the proceeds of the debt between the
warrant and the debt based on relative fair values which amounted to $365,881
and $2,634,119. The beneficial conversion feature of $803,381 was recorded
separately based on the intrinsic value method per EITF 00-27. During the year
ended December 31, 2005, the entire $3,000,000 convertible debenture and
$155,564 of accrued interest were converted into 657,402 shares of the Company’s
common stock. In addition, since the entire principal balance of the convertible
debenture was converted into common stock, the entire debt discount of
$1,169,262 was amortized to interest expense.
Note
10 - Stockholders’ Equity
On
February 24, 2004, BII entered into a merger agreement with Stratabid.com,
Inc.
(Stratabid) to exchange 12,000,000 shares of Stratabid to the stockholders
of
BII (Note 18). As a part of the merger, Stratabid cancelled 3,000,000 shares
of
its issued and outstanding stock owned by a majority stockholder and declared
a
stock dividend of three shares on each share of its common stock outstanding
for
all stockholders on record as of February 27, 2004, after the merger agreement.
During
the year ended December 31, 2005, the Company issued 657,402 share of common
stock in connection with the conversion of a $3,000,000 convertible debenture
and $155,564 of accrued interest. In addition, the Company also issued 195,500
shares of common stock upon the exercise of warrants and received proceeds
of
$955,040.
Note
11 - Stock Options and Warrants
Stock
Options
In
December 2002, the FASB issued SFAS No. 148 “Accounting for Stock Based
Compensation- Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123,
“Accounting for Stock Based Compensation”, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies’ interim reporting period
ending January 31, 2003.
In
compliance with FAS No. 148, the Company has elected to continue to follow
the
intrinsic value method in accounting for its stock-based employee compensation
plan as defined by APB No. 25 and has made the applicable disclosures below.
In
2004
the board of directors approved the creation of the 2004 Stock Option Plan.
This
plan provides for the grant of incentive stock options to employees, directors
and consultants. Options issued under this plan will expire over a maximum
term
of five years from the date of grant.
Pursuant
to the Stock Option Plan, during the year ended December 31, 2004, the Company
granted 110,000 stock options to two directors (55,000 options each), of which
100,000 stock options was granted on June 4, 2004 and the balance of the 10,000
was granted on December 28, 2004.
On
the
first 100,000 stock options granted, 50,000 stock options vested immediately
and
50,000 stock options became vested over 8 equal quarterly installments, with
the
first installment vesting at the end of the second quarter of 2004. The 10,000
stock options granted on December 28, 2004 vested on December 31, 2004.
The
option exercise price was $5 for the first 100,000 stock options which was
the
same as fair value of the shares at the time of granting of the options. The
option exercise price was $5.80 for the second 10,000 stock options which was
the same as fair value of the shares at the time of granting of the options.
On
October 4, 2005, the Company granted 26,000 stock options to two directors
(13,000 options each). 20,000 stock options vested immediately and the remaining
6,000 stock options became vested over the next three months. The option
exercise price was $6.72 which was the same as fair value of the shares at
the
time of granting of the options.
Following
is a summary of the stock option activity:
Outstanding,
December 31, 2003
|
|
|
-
|
|
Granted
|
|
|
110,000
|
|
Forfeited
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
Outstanding,
December 31, 2004
|
|
|
110,000
|
|
Granted
|
|
|
26,000
|
|
Forfeited
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
Outstanding,
December 31, 2005
|
|
|
136,000
|
|
Following
is a summary of the status of options outstanding at December 31, 2005:
Outstanding
Options
|
|
|
|
Exercisable
Options
|
|
Exercise
Price
|
|
Number
|
|
Average
Remaining Contractual Life
|
|
Average
Exercise Price
|
|
Number
|
|
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.00
|
|
|
100,000
|
|
|
3.42
|
|
$
|
5.00
|
|
|
93,750
|
|
$
|
5.00
|
|
$5.80
|
|
|
10,000
|
|
|
3.99
|
|
$
|
5.80
|
|
|
10,000
|
|
$
|
5.80
|
|
$6.72
|
|
|
26,000
|
|
|
4.76
|
|
$
|
6.72
|
|
|
24,000
|
|
$
|
6.72
|
|
For
options granted during the year ended December 31, 2005, the weighted-average
fair value of such options was $3.76.
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
Risk-free
interest rate
|
|
|
4.0
|
%
|
Expected
life of the options
|
|
|
5.00
years
|
Expected
volatility
|
|
|
62
|
%
|
Expected
dividend yield
|
|
|
0
|
|
For
options granted during the year ended December 31, 2004, the weighted-average
fair value of such options was $1.92.
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
First
100,000 stock options granted on June 4, 2004:
Risk-free
interest rate
|
|
|
4.0
|
%
|
Expected
life of the options
|
|
|
5.00
years
|
Expected
volatility
|
|
|
35
|
%
|
Expected
dividend yield
|
|
|
0
|
|
Second
10,000 stock options granted on December 28, 2004
Risk-free
interest rate
|
|
|
4.0
|
%
|
Expected
life of the options
|
|
|
5.00
years
|
Expected
volatility
|
|
|
40
|
%
|
Expected
dividend yield
|
|
|
0
|
|
Had
the
Company determined employee stock based compensation cost based on a fair value
model at the grant date for its stock options under SFAS 123, the Company’s net
earnings per share would have been adjusted to the pro forma amounts for the
years ended December 31, 2004 as follow ($ in thousands, except per share
amounts):
|
|
2005
|
|
2004
|
|
Net
income:
|
|
|
|
|
|
As
reported
|
|
$
|
7,421,112
|
|
$
|
5,027,403
|
|
Stock-Based
employee compensation expense included in reported net income, net
of
tax
|
|
|
—
|
|
|
—
|
|
Total
stock-based employee compensation expense determined under
fair-value-based method for all rewards, net of tax
|
|
|
(106,000
|
)
|
|
(153,000
|
)
|
Pro
forma
|
|
$
|
7,315,112
|
|
$
|
4,874,403
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.48
|
|
$
|
0.33
|
|
Pro
forma
|
|
$
|
0.47
|
|
$
|
0.32
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.48
|
|
$
|
0.33
|
|
Pro
forma
|
|
$
|
0.47
|
|
$
|
0.32
|
|
Warrants
Following
is a summary of the warrant activity:
Outstanding,
December 31, 2004
|
|
|
-
|
|
Granted
|
|
|
360,833
|
|
Forfeited
|
|
|
-
|
|
Exercised
|
|
|
195,500
|
|
Outstanding,
December 31, 2005
|
|
|
165,333
|
|
Following
is a summary of the status of warrants outstanding at December 31, 2005:
Outstanding
Warrants
|
|
|
|
Exercisable
Warrants
|
|
Exercise
Price
|
|
Number
|
|
Average
Remaining Contractual Life
|
|
Average
Exercise Price
|
|
Number
|
|
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$6.88
|
|
|
32,000
|
|
|
2.21
|
|
$
|
6.88
|
|
|
32,000
|
|
$
|
6.88
|
|
$7.50
|
|
|
133,333
|
|
|
4.94
|
|
$
|
7.50
|
|
|
133,333
|
|
$
|
7.50
|
|
Note
12 - Supplemental Disclosure of Cash Flows
The
Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
Note
13 - Employee Welfare Plans
The
Company has established its own employee welfare plan in accordance with Chinese
law and regulations. The Company makes annual contributions of 14% of all
employees’ salaries to employee welfare plan. The total expense for the above
plan $82,705 and $80,761 for the years ended December 31, 2005 and 2004,
respectively. The Company has recorded welfare payable of $260,071 at December
31, 2005 which is included in accrued expenses in the accompanying consolidated
balance sheet.
Note
14 - Statutory Common Welfare Fund
As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
|
i.
|
Making
up cumulative prior years’ losses, if any;
|
|
ii.
|
Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the
fund
amounts to 50% of the Company’s registered capital;
|
|
iii.
|
Allocations
of 5-10% of income after tax, as determined under PRC accounting
rules and
regulations, to the Company’s “Statutory common welfare fund”, which is
established for the purpose of providing employee facilities and
other
collective benefits to the Company’s employees; and
|
|
iv.
|
Allocations
to the discretionary surplus reserve, if approved in the stockholders’
general meeting.
|
The
Company established a reserve for the annual contribution of 5% of net income
to
the welfare fund in 2005 and 2004. The amount included in the statutory reserve
for the years ended December 31, 2005 and 2004 amounted to $449,675 and
$251,370, respectively.
Note
15 - Statutory Reserve
In
accordance with the Chinese Company Law, the company has allocated 10% of its
annual net income, amounting $899,351 and $502,741 as statutory reserve for
the
years ended December 31, 2005 and 2004, respectively.
Note
16 - Factory Location and Lease Commitments
BBST’s
principal executive offices are located at North Part of Xinquia Road, Yang
Ling
Agricultural High-Tech Industries Demonstration Zone Yang Ling, Shaanzi
province, People’s Republic of China. BBST owns two factories, which includes
three production lines, an office building, one warehouse, and two research
labs
and, is located on 10,900 square meters of land. The rent of the office building
is $121 a month from May 20, 2004 through May 20, 2005. BBST also leases
warehouses in Yang Ling near the site of Bodisen’s factories. The rent of the
warehouses is $194 a month from January 2005 through May 2005. Total future
commitment through June 30, 2005 amounts to $1,573.
The
Company has committed to pay $18,150 to an advertising agency for an advertising
campaign, by October 2006.
Note
17 - Earnings Per Share
Earnings
per share for years ended December 31, 2005 and 2004 were determined by dividing
net income for the periods by the weighted average number of both basic and
diluted shares of common stock and common stock equivalents outstanding.
The
following is an analysis of the differences between basic and diluted earnings
per common share in accordance with Statement of Financial Accounting Standards
No. 128, “Earnings Per Share”.
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,421,112
|
|
|
|
|
|
|
|
$
|
5,027,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighed
shares outstanding
|
|
|
|
|
|
15,427,494
|
|
|
|
|
|
|
|
|
15,268,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,421,112
|
|
|
|
|
|
|
|
$
|
5,027,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighed
shares outstanding
|
|
|
|
|
|
15,427,494
|
|
|
|
|
|
|
|
|
15,268,000
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
83,663
|
|
|
|
|
|
|
|
|
60,356
|
|
|
|
|
Warrants
|
|
|
|
|
|
78,179
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
15,589,336
|
|
|
|
|
|
|
|
|
15,328,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
$
|
0.33
|
|
Note
18 - Merger Agreement
On
February 11, 2004, Stratabid entered into an Agreement and Plan of Merger with
Bodisen Acquisition Corp., a Delaware corporation (“BAC”) wholly-owned by
Stratabid, Bodisen International, Inc., a Delaware corporation (“BII”) and the
stockholders of BII. BII has one 100% wholly-owned subsidiary in Shaanxi, China,
Yang Ling Bodisen Biology Science and Technology Development Company Limited
(“BBST”). Under the terms of the agreement, BAC acquired 100% of BII’s stock in
exchange for the issuance by Stratabid of three million shares of its common
stock to the holders of BII. The new shares constitute approximately 79% of
the
outstanding shares of Stratabid, which changed its name to Bodisen Biotech,
Inc.
(the “Company”). The Agreement and Plan of Merger was closed on February 24,
2004.
BII’s
Chairman of the Board was appointed the Company’s Chief Executive Officer.
At
the
Effective Time, by virtue of the Merger and without any action on the part
of
the BAC, BII or the BII Stockholders, the shares of capital stock of each of
BII
and the BAC were converted as follows:
|
i.
|
Capital
Stock of the BAC. Each issued and outstanding share of the BAC’s capital
stock continued to be issued and outstanding and was converted into
one
share of validly issued, fully paid, and non- assessable common stock
of
the Surviving Company (Bodisen Holdings, Inc.). Each stock certificate
of
the BAC evidencing ownership of any such shares continued to evidence
ownership of such shares of capital stock of the Surviving Company.
|
|
ii.
|
Conversion
of BII Shares. Each BII Share that was issued and outstanding at
the
Effective Time was automatically cancelled and extinguished and converted,
without any action on the part of the holder thereof, into the right
to
receive at the time and in the amounts described in the Agreement
an
amount of Acquisition Shares equal to the number of Acquisition Shares
divided by the number of BII Shares outstanding immediately prior
to
Closing. All such BII Shares, so converted, were no longer outstanding
and
were automatically cancelled and retired and ceased to exist, and
each
holder of a certificate representing any such shares ceased to have
any
rights with respect thereto, except the right to receive the Acquisition
Shares paid in consideration therefore upon the surrender of such
certificate in accordance with the Agreement.
|
|
iii.
|
Within
thirty (30) days from the Closing Date, Stratabid was required to
sell its
business operations, as they exist immediately prior to the Closing,
to
Derek Wasson, former president. In consideration of the sale, Mr.
Wasson
returned 750,000 Common Shares to Stratabid for cancellation. In
addition,
Mr. Wasson forgave all indebtedness owed by Stratabid to Mr. Wasson.
Other
than indebtedness of BII, Stratabid had no indebtedness or other
liability
of any kind or nature after the sale of the business to Mr. Wasson,
save
and except for liabilities incurred in connection with the Merger.
|
Note
19 - Current Vulnerability Due to Certain Concentrations
Four
vendors provided 29.9%, 22.4%, 11.6% and 11.2% of the Company’s raw materials
for the year ended December 31, 2005 and four vendors provided 25.9%, 19.9%,
14.0% and 10.0% of the Company’s raw materials for the year ended December 31,
2004. The payable balance for these parties amounted to $0 at December 31,
2005.
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by
the
political, economic and legal environments in the PRC, by the general state
of
the PRC’s economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods
of
taxation, among other things.
Note
20 - Reclassifications
Certain
prior period amounts have been reclassified to conform to the year ended
December 31, 2005 presentation.
Note
21 - Subsequent Events (Unaudited)
On
February 3, 2006, the Company entered into a placing agreement (the "Placing
Agreement") with Charles Stanley Securities ("Charles Stanley”) relating to the
sale of up to 1,643,836 shares of the Company's common stock. Pursuant to the
Placing Agreement, Charles Stanley has agreed to use its reasonable effort
to
sell all such shares of common stock at a price of 730 pence (approximately
US$12.99) per share, resulting in gross proceeds of approximately 12 million
British pounds sterling (approximately US$21,360,000).
In
connection with the placement, the Company's shares would be admitted to trading
on the AIM Market of the London Stock Exchange. The Company's shares will
continue to be listed on the American Stock Exchange.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i)
acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and
(ii)
with
respect to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful.
Our
bylaws include indemnification provisions under which we have agreed to
indemnify our directors and officers from and against certain claims arising
from or related to future acts or omissions as our directors or officers, except
in relation to matters as to which any such director or officer was personally
involved in the situation giving rise to the injury or unless such officer
or
director committed a criminal offense.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers, and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of ours in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth the costs and expenses, other than underwriting
discounts and commissions, if any, payable by the Registrant relating to the
sale of common stock being registered. All amounts are estimates except the
SEC
registration fee.
SEC
registration fee
|
|
$
|
789.19
|
|
Printing
and engraving expenses
|
|
$
|
5,000.00
|
|
Legal
fees and expenses
|
|
$
|
50,000.00
|
|
Accounting
fees and expenses
|
|
$
|
10,000.00
|
|
Miscellaneous
expenses
|
|
$
|
10,000.00
|
|
Total
|
|
$
|
75,789.19
|
|
The
Registrant has agreed to bear expenses incurred by the selling stockholders
that
relate to the registration of the shares of common stock being offered and
sold
by the selling stockholders.
On
February 24, 2004, the Company issued 3.0 million shares of its Common Stock
to
the stockholders of Bodisen International, Inc., in connection with the
acquisition of the Company’s current sole operating subsidiary, Yang Ling
Bodisen Biology Science and Technology Development Company Limited. See Item
1,
“Description of Business, Introduction and Background,” above. The sale was
effective pursuant to a private placement under Section 4(2) and/or Regulation
D
of the Securities Act of 1933, as amended.
On
March
15, 2006, we completed a private placement offering of 380,179 shares our common
stock, par value $0.0001 per share, to accredited investors for an aggregate
purchase price of approximately $5,322,506. The aforementioned securities were
sold in reliance upon the exemption afforded by the provisions of Regulation
S,
as promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
ITEM
27. EXHIBITS.
Exhibit
Number
|
Description
of Exhibit
|
3.1
|
Certificate
of Incorporation (incorporated by reference to Company’s Form SB-2 filed
September 3, 2002).
|
3.2
|
Amendment
to Certificate of Incorporation (incorporated by reference to Company’s
Form 10-KSB filed March 30, 2004).
|
3.3
|
By-Laws
(incorporated by reference to Company’s Form SB-2 filed September 3,
2002).
|
5.1
|
Opinion
of Sichenzia Ross Friedman Ference LLP
|
10.1
|
Loan
Agreement, dated as of September 28, 2003, between the Company and
Xianyang City Commercial Bank. (incorporated by reference to Company’s
Form 10-KSB filed March 30, 2004).
|
10.2
|
Bodisen
Biotech, Inc. 2004 Stock Option Plan (incorporated by reference to
Company’s Form 10-KSB filed March 31, 2005).
|
10.3
|
Form
of Bodisen Biotech, Inc. Nonstatutory Stock Option Agreement (incorporated
by reference to Company’s Form 10-KSB filed March 31,
2005).
|
21.1
|
List
of Subsidiaries
|
23.1
|
Consent
of Kabani & Company, Inc.
|
23.2
|
Consent
of Sichenzia Ross Friedman Ference LLP (contained in Exhibit
5.1)
|
ITEM
28. UNDERTAKINGS.
The
undersigned Company hereby undertakes to:
(1)
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act
if,
in the aggregate, the changes in volume and price represent no more than a
20%
change in the maximum aggregate offering price set forth in the "Calculation
of
Registration Fee" table in the effective registration statement, and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4)
For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means
of
any of the following communications, the undersigned small business issuer
will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to
Rule
424;
(ii)
Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(iii)
The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(iv)
Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that
in
the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the Company of expenses incurred or paid by a director, officer
or
controlling person of the Company in the successful defense of any action,
suit
or proceeding) is asserted by such director, officer or controlling person
in
connection with the securities being registered, the Company will, unless in
the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorizes this registration statement
to be signed on its behalf by the undersigned, in Yang Ling, China, on April
10,
2006.
|
|
|
|
BODISEN
BIOTECH, INC. |
|
|
|
|
By: |
/s/ Wang
Qiong |
|
Wang
Qiong |
|
Chief
Executive Officer (Principal Executive
Officer)
|
|
|
|
|
By: |
/s/ Yiliang
Lai |
|
Yiliang
Lai |
|
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
|
KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Wang Qiong and Yiliang Lai his true and lawful
attorneys-in-fact, with full power of substitution and resubstitution, for
him
and in his name, place and stead, in any and all capacities to sign any and
all
amendments (including post-effective amendments) to this registration statement
and to sign a registration statement pursuant to Section 462(b) of the
Securities Act of 1933, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, full power and authority
to do
and perform each and every act and thing requisite and necessary to be done
in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or his substitute or substitutes, may lawfully do or cause
to
be done by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated: Pursuant to the requirements of the Securities Act of
1933,
as amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/
Wang
Qiong
|
|
Chairman
and Chief Executive Officer
|
|
April
10, 2006
|
Wang
Qiong |
|
|
|
|
|
|
|
|
|
/s/
Yiliang Lai
|
|
Chief
Financial Officer
|
|
April
10, 2006
|
Yiliang
Lai |
|
|
|
|
|
|
|
|
|
/s/
Bo Chen
|
|
President
and Director
|
|
April
10, 2006
|
Bo
Chen |
|
|
|
|
|
|
|
|
|
/s/
Patrick McManus
|
|
Director
|
|
April
10, 2006
|
Patrick
McManus |
|
|
|
|
|
|
|
|
|
/s/
David Gatton
|
|
Director
|
|
April
10, 2006
|
David
Gatton |
|
|
|
|
|
|
|
|
|
/s/
Weirui Wan
|
|
Director
|
|
April
10, 2006
|
Weirui
Wan |
|
|
|
|