UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended September 30, 2007
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For
the
transition period from ________________ to _______________
001-32616
(Commission
file number)
BODISEN
BIOTECH, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
98-0381367
|
(State
or Other Jurisdiction
|
(IRS
Employer
|
of
Incorporation or Organization)
|
Identification
No.)
|
Room
2001, FanMei Building
No.
1 Naguan Zhengjie
Xi’an,
Shaanxi 710068
People’s
Republic of China
(Address
of Principal Executive Offices)
86-29-870749
(Registrant’s
Telephone Number, Including Area Code)
North
Part of Xinquia Road, Yang Ling AG
High-Tech
Industries Demonstration Zone
Yang
Ling, China 712100/A
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that
the
registrant was required to file such reports), and (2) has been subject to
such
filing requirements for the past 90 days. Yes
x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act). (Check
one):
Large
accelerated filer o Accelerated
filer x
Non-accelerated filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: As
of November 12, 2007: 18,310,250 shares of common stock
outstanding
BODISEN
BIOTECH, INC.
Index
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Page
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Number
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PART
I.
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements
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Consolidated
Balance Sheet as of September 30, 2007 (unaudited)
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2
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Consolidated
Statements of Operations and Other Comprehensive Income
|
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|
|
(Loss)
for the three and nine months ended September 30,
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|
2007
and 2006 (unaudited)
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3
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Consolidated
Statements of Cash Flows for the
|
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|
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nine
months ended September 30, 2007 and 2006 (unaudited)
|
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4
|
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|
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|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
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5
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|
Item
2.
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Management's
Discussion and Analysis of Financial Condition
|
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and
Results of Operations
|
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17
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Item
3.
|
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Quantitative
and Qualitative Disclosures About Market Risk
|
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23
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|
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|
Item
4.
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Controls
and Procedures
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24
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PART
II.
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OTHER
INFORMATION
|
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25
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Item
1.
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Legal
Proceedings
|
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25
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Item
1A.
|
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Risk
Factors
|
|
25
|
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|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
25
|
|
|
|
|
|
Item
3.
|
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Defaults
Upon Senior Securities
|
|
25
|
|
|
|
|
|
Item
4.
|
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Submission
of Matters to a Vote of Security Holders
|
|
25
|
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|
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|
Item
5.
|
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Other
Information
|
|
25
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Item
6.
|
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Exhibits
|
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25
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SIGNATURES
|
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26
|
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
962,534
|
|
$
|
11,824,327
|
|
Accounts
receivable, net of allowance for
|
|
|
|
|
|
|
|
doubtful
accounts of $901,621 and $659,653
|
|
|
24,729,956
|
|
|
18,875,368
|
|
Other
receivable
|
|
|
2,130,282
|
|
|
888,230
|
|
Inventory
|
|
|
1,258,339
|
|
|
1,794,585
|
|
Advances
to suppliers
|
|
|
8,853,953
|
|
|
12,662,139
|
|
Prepaid
expense and other current assets
|
|
|
4,452,306
|
|
|
195,821
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
42,387,370
|
|
|
46,240,470
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
5,249,471
|
|
|
5,195,283
|
|
|
|
|
|
|
|
|
|
CONSTRUCTION
IN PROGRESS
|
|
|
7,481,447
|
|
|
3,669,807
|
|
|
|
|
|
|
|
|
|
MARKETABLE
SECURITY
|
|
|
14,239,999
|
|
|
6,500,869
|
|
|
|
|
|
|
|
|
|
INTANGIBLE
ASSETS, net
|
|
|
2,032,211
|
|
|
2,054,346
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
3,698,060
|
|
|
3,553,433
|
|
|
|
|
|
|
|
|
|
LOAN
RECEIVABLE
|
|
|
2,297,236
|
|
|
1,982,410
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
77,385,794
|
|
$
|
69,196,618
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
989,106
|
|
$
|
1,022,352
|
|
Accrued
expenses
|
|
|
136,217
|
|
|
347,948
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,125,323
|
|
|
1,370,300
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 per share; authorized 5,000,000 shares;
|
|
|
|
|
|
|
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nil
issued and outstanding
|
|
|
|
|
|
|
|
Common
stock, $0.0001 per share; authorized 30,000,000 shares;
|
|
|
|
|
|
|
|
issued
and outstanding 18,310,250 and 18,310,250
|
|
|
1,831
|
|
|
1,831
|
|
Additional
paid-in capital
|
|
|
33,860,062
|
|
|
33,860,062
|
|
Other
comprehensive income
|
|
|
15,688,846
|
|
|
5,431,910
|
|
Statutory
reserve
|
|
|
4,314,488
|
|
|
4,314,488
|
|
Retained
earnings
|
|
|
22,395,244
|
|
|
24,218,027
|
|
Total
stockholders' equity
|
|
|
76,260,471
|
|
|
67,826,318
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
77,385,794
|
|
$
|
69,196,618
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(LOSS)
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$
|
2,314,059
|
|
$
|
12,713,217
|
|
$
|
10,494,694
|
|
|
39,630,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
1,207,774
|
|
|
7,839,351
|
|
|
5,876,565
|
|
|
24,108,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,106,285
|
|
|
4,873,866
|
|
|
4,618,129
|
|
|
15,522,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
596,921
|
|
|
557,965
|
|
|
1,276,208
|
|
|
1,703,608
|
|
General
and administrative expenses
|
|
|
2,879,530
|
|
|
1,154,673
|
|
|
5,423,524
|
|
|
2,005,635
|
|
Total
operating expenses
|
|
|
3,476,451
|
|
|
1,712,638
|
|
|
6,699,732
|
|
|
3,709,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(2,370,166
|
)
|
|
3,161,228
|
|
|
(2,081,603
|
)
|
|
11,812,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(639,729
|
)
|
|
(31,771
|
)
|
|
(143
|
)
|
|
500,604
|
|
Interest
income
|
|
|
83,418
|
|
|
60,835
|
|
|
262,870
|
|
|
118,129
|
|
Interest
expense
|
|
|
(1,531
|
)
|
|
(247
|
)
|
|
(3,907
|
)
|
|
(679,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-operating income (expense)
|
|
|
(557,842
|
)
|
|
28,817
|
|
|
258,820
|
|
|
(60,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(2,928,008
|
)
|
|
3,190,045
|
|
|
(1,822,783
|
)
|
|
11,752,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss)
|
|
|
859,916
|
|
|
662,012
|
|
|
2,517,806
|
|
|
780,115
|
|
Unrealized
gain (loss) on marketable equity security
|
|
|
5,200,695
|
|
|
165,102
|
|
|
7,739,130
|
|
|
(928,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income (loss)
|
|
$
|
3,132,603
|
|
$
|
4,017,159
|
|
$
|
8,434,153
|
|
$
|
11,603,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,310,250
|
|
|
18,176,917
|
|
|
18,310,250
|
|
|
17,859,878
|
|
Diluted
|
|
|
18,310,250
|
|
|
18,303,299
|
|
|
18,310,250
|
|
|
18,002,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
$
|
0.18
|
|
$
|
(0.10
|
)
|
$
|
0.66
|
|
Diluted
|
|
$
|
(0.16
|
)
|
$
|
0.17
|
|
$
|
(0.10
|
)
|
$
|
0.65
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,822,783
|
)
|
$
|
11,752,366
|
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
354,753
|
|
|
335,842
|
|
Amortization
of debt discounts
|
|
|
-
|
|
|
603,886
|
|
Exchange
gain (loss)
|
|
|
-
|
|
|
(16,828
|
)
|
Value
of vested option issued to directors
|
|
|
-
|
|
|
7,523
|
|
Allowance
for bad debts
|
|
|
210,095
|
|
|
-
|
|
(Increase)
/ decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(5,469,096
|
)
|
|
(12,336,536
|
)
|
Other
receivable & Loan Receivable
|
|
|
(1,407,655
|
)
|
|
(4,968,421
|
)
|
Inventory
|
|
|
598,013
|
|
|
(246,935
|
)
|
Advances
to suppliers
|
|
|
4,243,485
|
|
|
(3,599,885
|
)
|
Prepaid
expense
|
|
|
(4,159,646
|
)
|
|
-
|
|
Other
assets
|
|
|
-
|
|
|
3,960
|
|
Increase
/ (decrease) in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(57,313
|
)
|
|
99,935
|
|
Other
payable
|
|
|
-
|
|
|
3,374,315
|
|
Accrued
expenses
|
|
|
(221,025
|
)
|
|
51,735
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(7,731,172
|
)
|
|
(4,939,043
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(91,381
|
)
|
|
(386,268
|
)
|
Additions
to construction in progress
|
|
|
(3,582,845
|
)
|
|
(789,911
|
)
|
Investments
|
|
|
-
|
|
|
(735,536
|
)
|
Payments
for other assets
|
|
|
(44,168
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(3,718,394
|
)
|
|
(1,911,715
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
on note payable
|
|
|
-
|
|
|
(5,000,000
|
)
|
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
26,682,511
|
|
Payment
of offering costs
|
|
|
-
|
|
|
(6,132,707
|
)
|
Proceeds
from the exercise of warrants
|
|
|
-
|
|
|
220,160
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
15,769,964
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
587,773
|
|
|
27,832
|
|
|
|
|
|
|
|
|
|
NET
INCREASE /(DECREASE) IN CASH & CASH
EQUIVALENTS
|
|
|
(10,861,793
|
)
|
|
8,947,038
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
11,824,327
|
|
|
6,276,897
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
962,534
|
|
$
|
15,223,935
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
$
|
112,500
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
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.
On
February 24, 2004, Bodisen International, Inc. (“BII”), the non-operative
holding company of BBST (accounting acquirer) consummated a merger agreement
with Stratabid.com, Inc. (legal acquirer) (“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 because 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 (BII) being treated as the continuing entity. The historical financial
statements presented are those of BII.
As
a
result of the reverse merger transaction described above the historical
financial statements presented are those of BBST, the operating
entity.
In
March
2005, Bodisen Biotech Inc. completed a $3 million convertible debenture private
placement through an institutional investor. Approximately $651,000 in
incremental and direct expenses relating to this private placement has been
amortized over the term of the convertible debenture. None of the expenses
were
paid directly to the institutional investor. The net proceeds from this offering
were invested as initial start-up capital in a newly created 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 (“BBST”), Bodisen Biotech, Inc.’s operating subsidiary in China, which
resulted in Agricultural owning 100% of BBST.
In
June
2006, BBST created another wholly owned subsidiary in the Uygur autonomous
region of Xinjiang, China by the name of Bodisen Agriculture Material Co. Ltd.
(“Material”).
Basis
of Presentation
The
unaudited consolidated financial statements have been prepared by Bodisen
Biotech, Inc. (the “Company”), pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished herein reflects
all adjustments (consisting of normal recurring accruals and adjustments) which
are, in the opinion of management, necessary to fairly present the operating
results for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States
of
America have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the Company’s Annual
Report on Form 10-K. The results of the nine months ended September 30, 2007
are
not necessarily indicative of the results to be expected for the full year
ending December 31, 2007.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Foreign
Currency Translation
As
of
September 30, 2007, 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”.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. However, as discussed in Note
16,
there are certain law suits filed by investors against the Company and the
company is subject to potential claims from certain investors who have a
right to receive the Company’s shares. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management's
responses in regard to these matters are also described in Note 16. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
It is possible that accounting estimates and assumptions may be material to
the
Company due to the levels of subjectivity and judgment involved.
Accounts
Receivable
The
Company maintains reserves for potential credit losses for accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. Reserves are recorded based on the Company’s
historical collection history.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
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 $8,853,953 and $12,662,139 at September 30, 2007 and December 31, 2006,
respectively.
Property
& Equipment and 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
|
The
following are the details of the property and equipment at September 30, 2007
and December 31, 2006, respectively:
|
|
2007
|
|
2006
|
|
Operating
equipment
|
|
$
|
996,212
|
|
$
|
946,252
|
|
Vehicles
|
|
|
703,248
|
|
|
597,239
|
|
Office
equipment
|
|
|
79,510
|
|
|
74,944
|
|
Buildings
|
|
|
4,610,371
|
|
|
4,426,559
|
|
|
|
|
6,389,341
|
|
|
6,044,994
|
|
Less
accumulated depreciation
|
|
|
(1,139,870
|
)
|
|
(849,711
|
)
|
|
|
$
|
5,249,471
|
|
$
|
5,195,283
|
|
Depreciation
expense for the nine months ended September 30, 2007 and 2006 was $249,554
and
$235,292, respectively.
On
September 30, 2007 and December 31, 2006, the Company had “Capital Work in
Progress” representing the construction in progress of the Company’s
manufacturing plant amounting $7,481,447 and $3,669,807 respectively.
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.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
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.
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 the Chinese
Yuan
Renminbi. Translation gains of $4,316,193 at September 30, 2007 are classified
as an item of other comprehensive income in the stockholders’ equity section of
the consolidated balance sheet. During the nine months ended September 30,
2007
and 2006, other comprehensive income in the consolidated statements of
operations and other comprehensive income included translation gains of
$2,517,806 and $780,115, respectively.
Recent
Pronouncements
In
February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115.” The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. The Company is analyzing the
potential accounting treatment.
FASB
Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
issued in November 2005 and addresses the determination of when an investment
is
considered impaired, whether the impairment on an investment is
other-than-temporary and how to measure an impairment loss. The FSP also
addresses accounting considerations subsequent to the recognition of
other-than-temporary impairments on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The FSP replaces the impairment guidance
on
Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
existing authoritative literature concerning other-than-temporary
determinations. Under the FSP, losses arising from impairment deemed to be
other-than-temporary, must be recognized in earnings at an amount equal to
the
entire difference between the securities cost and its fair value at the
financial statement date, without considering partial recoveries subsequent
to
that date. The FSP also required that an investor recognize other-than-temporary
impairment losses when a decision to sell a security has been made and the
investor does not expect the fair value of the security to fully recover prior
to the expected time of sale. The FSP is effective for reporting periods
beginning after December 15, 2005. The adoption of this statement had no
material impact on the Company’s consolidated financial statements.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
FASB
Interpretation 48 prescribes a recognition threshold and a measurement attribute
for the financial statement recognition and measurement of a tax position
taken
or expected to be taken in a tax return. Benefits from tax positions should
be
recognized in the financial statements only when it is more likely than not
that
the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. The
amount
of tax benefits to be recognized for a tax position that meets the
more-likely-than-not recognition threshold is measured as the largest amount
of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. Tax benefits relating to tax positions that previously
failed to meet the more-likely-than-not recognition threshold should be
recognized in the first subsequent financial reporting period in which that
threshold is met or certain other events have occurred. Previously recognized
tax benefits relating to tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the
first
subsequent financial reporting period in which that threshold is no longer
met.
Interpretation 48 also provides guidance on the accounting for and disclosure
of
tax reserves for unrecognized tax benefits, interest and penalties and
accounting in interim periods. Interpretation 48 is effective for fiscal
years
beginning after December 15, 2006. The change in net assets as a result of
applying this pronouncement will be a change in accounting principle with
the
cumulative effect of the change required to be treated as an adjustment to
the
opening balance of retained earnings on January 1, 2007, except in certain
cases
involving uncertainties relating to income taxes in purchase business
combinations. In such instances, the impact of the adoption of Interpretation
48
will result in an adjustment to goodwill. The adoption of this standard had
no
material impact on the Company’s consolidated financial
statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”),
which provides interpretive guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
quarter of 2006 with no impact on its consolidated financial statements.
Note
3 - Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of Bodisen
Biotech, Inc., its 100% wholly-owned subsidiaries Bodisen Holdings, Inc. (BHI),
Yang Ling Bodisen Agricultural Technology Co., Ltd (Agricultural), which was
incorporated in March 2005, and Bodisen Agriculture Material Co., Ltd.
(Material), which was incorporated in June 2006, as well as the accounts of
Agricultural’s 100% wholly- owned subsidiary Yang Ling Bodisen Biology Science
and Technology Development Company Limited (BBST). All significant inter-company
accounts and transactions have been eliminated in consolidation.
Note
4 - Inventory
Inventory
at September 30, 2007 and December 31, 2006 consisted of the
following:
|
|
2007
|
|
2006
|
|
Raw
Material
|
|
$
|
838,013
|
|
$
|
1,257,883
|
|
Packaging
|
|
|
169,956
|
|
|
161,923
|
|
Finished
Goods
|
|
|
433,244
|
|
|
550,280
|
|
Consumables
|
|
|
326
|
|
|
395
|
|
|
|
|
1,441,539
|
|
|
1,970,481
|
|
Less
Obsolescence Reserve
|
|
|
(183,200
|
)
|
|
(175,896
|
)
|
|
|
$
|
1,258,339
|
|
$
|
1,794,585
|
|
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
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 September
30, 2007 and December 31, 2006, the fair value of this investment was
$14,239,999 and $6,500,869, respectively. As a result of the change in fair
value of this investment the Company recorded an unrealized gain of $7,739,130
and an unrealized loss of $928,695 for the nine months ended September 30,
2007
and 2006, respectively; which is included in other comprehensive income (loss).
At September 30, 2007, this represented an 7.1% interest in China Natural Gas,
Inc.
Note
6 -Other Long-term Assets
During
the nine month period ended September 30, 2007, the Company acquired a 19.5%
and
a 19.8% interest in two local companies by investing a total amount of
$1,156,861 in cash.
In
August, 2006, the Company entered into a land lease agreement for 30 years.
The
annual lease expense approximately amounts to $169,580. The lease expense for
the next 15 years amounting to $2,529,818 has been prepaid on signing of the
agreement. The payment schedule for the remaining 15 years as follows
:
|
in
November, 2021 - prepayment for next 8 years commencing on November
2021
and
|
|
|
·
|
in
November, 2029 - prepayment of remaining 7 years commencing on November
2029
|
The
land
lease prepayment as of September 30, 2007 and December 31, 2006 can be
summarized as follows:
|
|
2007
|
|
2006
|
|
Prepaid
Lease (for 15 years)
|
|
$
|
2,548,704
|
|
$
|
2,569,818
|
|
Current
portion
|
|
|
180,440
|
|
|
173,246
|
|
Long-term
portion
|
|
$
|
2,368,264
|
|
$
|
2,396,572
|
|
The
amortization expense for the nine months ended September 30, 2007 and 2006
was
$135,330 and $0 respectively.
Amortization
expense for the prepayment of land lease over the next five fiscal years is
estimated to be: 2007-$169,500, 2008-$169,500, 2009-$169,500, 2010-$169,500
and
2011-$169,500.
Note
7 - Loan Receivable
In
August
2006, the Company entered into an agreement to loan $1,165,320 to an unrelated
party. The loan is unsecured, payable by April 2008 and carries an interest
rate
of 13% per annum. Interest receivable on this loan was $198,383 and $68,191
as
of September 30, 2007 and December 31, 2006 respectively.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
In
November 2006, the Company entered into an agreement to loan $762,638 to an
unrelated party. The loan is unsecured, payable by December 2008 and carries
an
interest rate of 13% per annum. Interest receivable on this loan is $105,856
and
$6,214 as of September 30, 2007 and December 31, 2006 respectively.
Note
8- Intangible Assets
Net
intangible assets at September 30, 2007 and December 31, 2006 were as follows:
|
|
2007
|
|
2006
|
|
Rights
to use land
|
|
$
|
1,824,350
|
|
$
|
1,741,386
|
|
Fertilizers
proprietary technology rights
|
|
|
1,067,688
|
|
|
1,052,120
|
|
|
|
|
|
|
|
2,793,506
|
|
Less
Accumulated amortization
|
|
|
(859,827
|
)
|
|
(739,160
|
)
|
|
|
$
|
2,032,211
|
|
$
|
2,054,346
|
|
The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shaanxi, People’s
Republic of China. The Company leases land per a real estate contract with
the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.
During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.
The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty years. The
“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 these
fertilizers proprietary technology rights over a period of ten
years.
Amortization
expense for the Company’s intangible assets for the nine month periods ended
September 30, 2007 and 2006 amounted to $105,455 and $100,550,
respectively.
Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be: 2007-$130,000, 2008-$130,000, 2009-$130,000, 2010-$130,000
and
2011-$130,000.
Note
9 - Stock Options and Warrants
Stock
Options
The
Company adopted SFAS No. 123 (Revised 2004), Share
Based Payment (“SFAS
No. 123R”), under the modified-prospective transition method on
January 1, 2006. SFAS No. 123R requires companies to measure and
recognize the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value. Share-based compensation
recognized under the modified-prospective transition method of SFAS
No. 123R includes share-based compensation based on the grant-date fair
value determined in accordance with the original provisions of SFAS
No. 123, Accounting
for Stock-Based Compensation, for
all
share-based payments granted prior to and not yet vested as of January 1,
2006 and share-based compensation based on the grant-date fair-value determined
in accordance with SFAS No. 123R for all share-based payments granted after
January 1, 2006. SFAS No. 123R eliminates the ability to account for
the award of these instruments under the intrinsic value method proscribed
by
Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees,
and
allowed under the original provisions of SFAS No. 123. Prior to the
adoption of SFAS No. 123R, the Company accounted for its stock option plans
using the intrinsic value method in accordance with the provisions of APB
Opinion No. 25 and related interpretations.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Following
is a summary of the stock option activity:
|
|
Options
outstanding
|
|
Weighted
Average Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Outstanding,
December 31, 2006
|
|
|
136,000
|
|
$
|
5.39
|
|
$
|
50,000
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
Outstanding,
September 30, 2007
|
|
|
136,000
|
|
$
|
5.39
|
|
$
|
0
|
|
Following
is a summary of the status of options outstanding at September 30, 2007:
|
|
Outstanding
Options
|
|
|
|
Exercisable
Options
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price
|
|
Number
|
|
Average
Remaining Contractual Life
|
|
Average
Exercise Price
|
|
Number
|
|
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5.00
|
|
|
100,000
|
|
|
1.68
|
|
$
|
5.00
|
|
|
100,000
|
|
$
|
5.00
|
|
|
|
$
|
5.80
|
|
|
10,000
|
|
|
2.25
|
|
$
|
5.80
|
|
|
10,000
|
|
$
|
5.80
|
|
|
|
$
|
6.72
|
|
|
26,000
|
|
|
3.02
|
|
$
|
6.72
|
|
|
26,000
|
|
$
|
6.72
|
|
Note
10 - Employee Welfare Plans
The
Company has established its own employee welfare plan in accordance with Chinese
law and regulations. The Company makes annual contributions of 14% of all
employees’ salaries to employee welfare plan. The total expense for the above
plan were $0 and $0 for the nine months ended September 30, 2007 and 2006,
respectively. The Company has recorded welfare payable of $70,014 and $263,034
at September 30, 2007 and December 31, 2006, respectively, which is included
in
accrued expenses in the accompanying consolidated balance sheet.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Note
11 - Statutory Common Welfare Fund
As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
i. |
Making
up cumulative prior years’ losses, if any;
|
ii. |
Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the
fund
amounts to 50% of the Company’s registered capital;
|
iii. |
Allocations
of 5-10% of income after tax, as determined under PRC accounting
rules and
regulations, to the Company’s “Statutory common welfare fund”, which is
established for the purpose of providing employee facilities and
other
collective benefits to the Company’s employees; and
|
iv. |
Allocations
to the discretionary surplus reserve, if approved in the stockholders’
general meeting.
|
Pursuant
to the new Corporate Law effective on January 1, 2006, there is now only one
"Statutory surplus reserve" requirement. The reserve is 10 percent of income
after tax, not to exceed 50 percent of registered capital.
Pursuant
to the "Circular of the Ministry of Finance ( MOF) on the Issue of Corporate
Financial Management after the Corporate Law Enforced" (No.67 [2006]), effective
on April 1, 2006, issued by the MOF, the companies will transfer the balance
of
SCWF as of December 31, 2005 to Statutory Surplus Reserve. Any deficit in the
SCWF will be charged in turn to Statutory Surplus Reserve, additional paid-in
capital and undistributed profit of previous years. If a deficit still remains,
it should be transferred to retained earnings and be reduced to zero by a
transfer from after tax profit of following years. At December 31, 2006, the
Company did not have a deficit in the SCWF.
The
Company has appropriated $0 and $621,345 as reserve for the statutory surplus
reserve and welfare fund for the nine months ended September 30, 2007 and 2006,
respectively.
Note
12 - Statutory Reserve
In
accordance with the Chinese Company Law, the Company has allocated 10% of its
annual net income, amounting $0 and $1,242,693 as statutory reserve for the
nine
months ended September 30, 2007 and 2006, respectively.
Note
13 - Earnings Per Share
Earnings
per share for nine months ended September 30, 2007 and 2006 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”.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
|
|
Three
Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(2,928,008
|
)
|
|
|
|
|
|
|
$
|
3,190,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
shares outstanding
|
|
|
|
|
|
18,310,250
|
|
|
|
|
|
|
|
|
18,176,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(2,928,008
|
)
|
|
|
|
|
|
|
$
|
3,190,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
shares outstanding
|
|
|
|
|
|
18,310,250
|
|
|
|
|
|
|
|
|
18,176,917
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
75,544
|
|
|
|
|
Warrants
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
50,838
|
|
|
|
|
|
|
|
|
|
|
18,310,250
|
|
|
|
|
|
|
|
|
18,303,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
$
|
0.17
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,822,783
|
)
|
|
|
|
|
|
|
$
|
11,752,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
shares outstanding
|
|
|
|
|
|
18,310,250
|
|
|
|
|
|
|
|
|
17,859,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,822,783
|
)
|
|
|
|
|
|
|
$
|
11,752,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
shares outstanding
|
|
|
|
|
|
18,310,250
|
|
|
|
|
|
|
|
|
17,859,878
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
82,476
|
|
|
|
|
Warrants
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
60,285
|
|
|
|
|
|
|
|
|
|
|
18,310,250
|
|
|
|
|
|
|
|
|
18,002,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
$
|
0.65
|
|
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Note
14 - Current Vulnerability Due to Certain Concentrations
Three
vendors provided 70.3%, 10.5% and 7.5% of the Company’s raw materials for the
nine months ended September 30, 2007 and three vendors provided 44.9%, 15.5%
and
14.9%, of the Company’s raw materials for the nine months ended September 30,
2006.
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
15 - Reclassifications
Certain
prior period amounts have been reclassified to conform to the nine months ended
September 30, 2007 presentation.
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Note
16 - Litigation
The
Company is involved in a variety of claims, suits, investigations and
proceedings that arise from time to time in the ordinary course of its business,
including actions with respect to contracts, intellectual property (IP), product
liability, employment, benefits, securities, and other matters. These
actions may be commenced by a number of different constituents, including
competitors, partners, clients, current or former employees, government and
regulatory agencies, stockholders, and representatives of the locations in
which
we do business. The following is a discussion of some of the more significant
legal matters involving the Company.
In
late
2006, various shareholders of the Company filed eight purported class actions
in
the U.S. District Court for the Southern District of New York against the
Company and certain of its officers and directors (among others), asserting
claims under the federal securities laws. The complaints contain general
and non-specific allegations about prior financial disclosures and its internal
controls and a prior, now-terminated relationship with a financial
advisor.
The
eight
actions are Stephanie Tabor vs. Bodisen, Inc., et al., Case No. 06-13220 (filed
November 2006), Fraser Laschinger vs. Bodisen, Inc., et al., Case No. 06-13254
(filed November 2006), Anthony DeSantis vs. Bodisen, Inc., et. al., Case
No. 06-13454 (filed November 2006), Yuchen Zhou vs. Bodisen, Inc., et. al.,
Case No. 06-13567 (filed November 2006), William E. Cowley vs. Bodisen,
Inc., et. al., Case No. 06-13739 (filed December 2006), Ronald Stubblefield
vs. Bodisen, Inc., et. al., Case No. 06-14449 (filed December 2006), Adam
Cohen vs. Bodisen, Inc., et. al., Case No. 06-15179 (filed December 2006)
and Lawrence M. Cohen vs. Bodisen, Inc., et. al., Case No. 06-15399 (filed
December 2006).
The
court
has consolidated each of the actions into a single proceeding. The time
for the Company to respond formally to these lawsuits has not come and thus,
the
Company has not done so. The complaints do not specify an amount of
damages that plaintiffs seek.
Because
these matters are in early stages, we cannot comment on whether an adverse
outcome is probable or otherwise. While we believe we have meritorious
defenses to each of these actions and intend to defend them vigorously, an
adverse outcome in one or more of these matters could have a material adverse
effect on its business, financial condition, results of operations or
liquidity.
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
The
following information should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this
quarterly report and our annual audited consolidated financial statements and
related notes included in our annual report on Form 10-K for the year ended
December 31, 2006, which was filed with the Securities and Exchange Commission
on April 30, 2007 (the “Form 10-K”). The following discussion may contain
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed below and in the
Form 10-K, particularly under “Risk Factors” and “Note Regarding Forward-Looking
Statements.”
Virtually
all of our revenues and expenses were denominated in Renminbi ("RMB"), the
currency of the People's Republic of China. Because we report our financial
statements in U.S. dollars, we are exposed to translation risk resulting from
fluctuations of exchange rates between the RMB and the U.S. dollar. There is
no
assurance that exchange rates between the RMB and the U.S. dollar will remain
stable. A devaluation of the RMB relative to the U.S. dollar could adversely
affect our business, financial condition and results of operations. See “Risk
Factors” in the Form 10-K. We do not engage in currency hedging and to date,
inflation has not had a material impact on our business.
Overview
We
are
incorporated under the laws of the state of Delaware and our operating
subsidiary, Yang Ling, is headquartered in Shaanxi Province, the People’s
Republic of China. We are engaged in developing, manufacturing and selling
organic fertilizers, liquid fertilizers, pesticides and insecticides in the
People’s Republic of China and produce numerous proprietary product lines, from
pesticides to crop-specific fertilizers. We market and sell our products to
distributors throughout the People's Republic of China, and these distributors,
in turn, sell our products to farmers. We also conduct research and development
to further improve existing products and develop new formulas and
products.
Critical
Accounting Policies
The
accounting and reporting policies that we use affect our consolidated financial
statements. Certain of our accounting and reporting policies are critical to
an
understanding of our results of operations and financial condition, and in
some
cases, the application of these policies can be significantly affected by the
estimates, judgments and assumptions made by management during the preparation
of our consolidated financial statements. These accounting and reporting
policies are described below. See Note 2 to our annual consolidated financial
statements included in the Form 10-K for further discussion of our accounting
policies.
Accounts
receivable
We
maintain reserves for potential credit losses on accounts receivable and record
them primarily on a specific identification basis. In order to establish
reserves, we review the composition of accounts receivable and analyze
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. This analysis and evaluation requires the use of
judgments and estimates. Because of the nature of the evaluation, certain of
the
judgments and estimates are subject to change, which may require adjustments
in
future periods.
Inventories
We
value
inventories at the lower of cost (determined on a weighted average basis) or
market. When evaluating our inventory, we compare the cost with the market
value
and make allowance to write them down to market value, if lower. The
determination of market value requires the use of estimates and judgment by
our
management.
Intangible
assets
Since
July 1, 2002, we have evaluated potential goodwill impairment in accordance
with
SFAS No. 142, which applied to our financial statements beginning July 1, 2002.
We evaluate intangible assets for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the carrying value
may
not be recoverable from its estimated future cash flows. This evaluation
requires the use of judgments and estimates, in particular with respect to
recoverability. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment
loss.
Recent
Accounting Pronouncements
In
February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115.” The Statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. We are currently analyzing
the
effect of this pronouncement on our financial statements.
FASB
Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
issued in November 2005 and addresses the determination of when an investment
is
considered impaired, whether the impairment on an investment is
other-than-temporary and how to measure an impairment loss. The FSP also
addresses accounting considerations subsequent to the recognition of
other-than-temporary impairments on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The FSP replaces the impairment guidance
on
Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
existing authoritative literature concerning other-than-temporary
determinations. Under the FSP, losses arising from impairment deemed to be
other-than-temporary, must be recognized in earnings at an amount equal to
the
entire difference between the securities cost and its fair value at the
financial statement date, without considering partial recoveries subsequent
to
that date. The FSP also required that an investor recognize other-than-temporary
impairment losses when a decision to sell a security has been made and the
investor does not expect the fair value of the security to fully recover prior
to the expected time of sale. The FSP is effective for reporting periods
beginning after December 15, 2005. The adoption of this statement had no
material impact on our consolidated financial statements.
FASB
Interpretation 48 prescribes a recognition threshold and a measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. Benefits from tax positions should
be
recognized in the financial statements only when it is more likely than not
that
the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. The amount
of tax benefits to be recognized for a tax position that meets the
more-likely-than-not recognition threshold is measured as the largest amount
of
benefit that is greater than 50% likely of being realized upon ultimate
settlement. Tax benefits relating to tax positions that previously failed to
meet the more-likely-than-not recognition threshold should be recognized in
the
first subsequent financial reporting period in which that threshold is met
or
certain other events have occurred. Previously recognized tax benefits relating
to tax positions that no longer meet the more-likely-than-not recognition
threshold should be derecognized in the first subsequent financial reporting
period in which that threshold is no longer met. Interpretation 48 also provides
guidance on the accounting for and disclosure of tax reserves for unrecognized
tax benefits, interest and penalties and accounting in interim periods.
Interpretation 48 is effective for fiscal years beginning after December 15,
2006. The change in net assets as a result of applying this pronouncement will
be a change in accounting principle with the cumulative effect of the change
required to be treated as an adjustment to the opening balance of retained
earnings on January 1, 2007, except in certain cases involving uncertainties
relating to income taxes in purchase business combinations. In such instances,
the impact of the adoption of Interpretation 48 will result in an adjustment
to
goodwill. The adoption of this standard had no material impact on our
consolidated financial statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements,” (“SAB
108”),which provides interpretive guidance on the consideration of the effects
of prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. We adopted SAB 108 in the fourth quarter
of
2006 with no impact on our consolidated financial statements.
Three
months ended September 30, 2007 compared to Three months ended September 30,
2006
Revenue.
We generated revenues of $2,314,059 for the three months ended September 30,
2007, a decrease of $10,399,158 or 81.8%, compared to $12,713,217 for the three
months ended September 30, 2006. The significant decrease in revenue was due
to
the fact that we had a much smaller customer base in the three months ended
September 30, 2007 as compared to September 30, 2006 (as a result of the loss
of
customers following our delisting from the American Stock Exchange, or Amex),
as
well as, to a lesser extent, a storm and drought, which affected crop plantings
in the three-month period and decreased the use of fertilizers.
Gross
Profit. We achieved a gross profit of $1,106,285 for the three months ended
September 30, 2007, a decrease of $3,767,581 or 77.3%, compared to $4,873,866
for the three months ended September 30, 2006. The significant decrease in
gross
profit was due to the significant decrease in revenue, which resulted from
decreased sales, and, to a lesser extent, increased commodities prices which
increased our costs of revenues. Gross margin (gross profit as a percentage
of
revenues), increased from 38.3% for the three months ended September 30, 2006,
to 47.8% for the three months ended September 30, 2007 primarily due to changes
in overall product mix comprising sales.
Operating
expenses. We incurred net operating expenses of $3,476,451 for the three months
ended September 30, 2007, an increase of $1,763,813 or 103.0% compared to
$1,712,638 for the three months ended September 30, 2006. The significant
increase is due to a loss of approximately $1,700,000 due to storm damage in
August 2007. Excluding the effects of the storm damage, our operating expenses
increased slightly, primarily due to increased labor costs.
Aggregated
selling expenses accounted for $596,921 of our operating expenses for the three
months ended September 30, 2007, an increase of $38,956 or 6.9% compared to
$557,965 for the three months ended September 30, 2006. The increase in our
aggregated selling expenses is due to increased labor costs, which offset the
reduction in transportation costs. Our overall transportation costs decreased
as
a result of lower sales volume, but were negatively affected by the continued
increases in petroleum prices. General and administrative expenses accounted
for
the remainder of our operating expenses of $2,879,530 for the three months
ended
September 30, 2007, which increased $1,724,857 or 149.4% compared to $1,154,673
for the three months ended September 30, 2006. The significant increase in
general and administrative expenses is due a loss of approximately $1,700,000
due to storm damage in August 2007.
Non
Operating Income and Expenses. We had total non-operating expense of $557,842
for the three months ended September 30, 2007 compared to total non-operating
income of $28,817 for the three months ended September 30, 2006. Other expense
amounted to $639,729 for the three months ended September 30, 2007 compared
to
$31,771 for three months ended September 30, 2006. The increase is primarily
the
result of a foreign currency transaction loss. Total non-operating income
includes interest income of $83,418 for the three months ended September 30,
2007 compared to only $60,835 for the three months ended September 30, 2006.
The
increase in interest income in 2007 is due to full-year effects of our increased
cash balance resulting from our sale of stock in the first quarter of 2006.
Total non-operating income for the three months ended September 30, 2007 also
includes interest expense of $1,531 compared to $247 for the three months ended
September 30, 2006.
Net
Income (loss). For the foregoing reasons, we had a net loss of $2,928,008 for
the three months ended September 30, 2007 compared to net income of $3,190,045
for the three months ended September 30, 2006. We had earnings (loss) per share
of $(0.16) and $0.18 for the three months ended September 30, 2007 and 2006,
respectively.
Nine
months ended September 30, 2007 compared to nine months ended September
30,
2006
Revenue.
We generated revenues of $10,494,694 for the nine months ended September 30,
2007, a decrease of $29,136,072 or 73.5%, compared to $39,630,766 for the nine
months ended September 30, 2006. The significant decrease in revenue was due
to
the decline in our customer base, which decreased following our delisting from
the Amex and, to a lesser extent, the abnormally cold Spring time weather of
Shaanxi province as well as a storm and drought in the third quarter of 2007,
all of which affected crop plantings and decreased the use of
fertilizer.
Gross
Profit. We achieved a gross profit of $4,618,129 for the nine months ended
September 30, 2007, a decrease of $10,903,912 or 70.2%, compared to $15,522,041
for the nine months ended September 30, 2006. The significant decrease in gross
profit was due to the significant decrease in revenue as result of decreased
sales, and, to a lesser extent, increased commodities prices which increased
our
costs of revenues. Gross margin (gross profit as a percentage of revenues),
increased, from 39.2% for the nine months ended September 30, 2006, to 44.0%
for
the nine months ended September 30, 2007 primarily due to changes in overall
product mix comprising sales.
Operating
expenses. We incurred operating expenses of $6,699,732 for the nine months
ended
September 30, 2007, an increase of $2,990,489 or 80.6% compared to $3,709,243
for the nine months ended September 30, 2006. The significant increase in our
operating expenses is related to legal fees associated with litigation and
other
matters in connection with the Amex delisting and a loss of
approximately $1,700,000 due to storm damage in August 2007.
Aggregated
selling expenses accounted for $1,276,208 of our operating expenses for the
nine
months ended September 30, 2007, a decrease of $427,400 or 25.1% compared to
$1,703,608 for the nine months ended September 30, 2006. The decrease in our
aggregated selling expenses is primarily due the reduction in transportation
costs, which continued to be negatively affected by the continued increases
in
petroleum prices. The reduction in our transportation costs was partially offset
by increased labor costs. General and administrative expenses accounted for
the
remainder of our operating expenses of $5,423,524 for the nine months ended
September 30, 2007, which increased $3,417,889 or 170.4% compared to $2,005,635
for the nine months ended September 30, 2006. The significant increase in our
general and administrative expenses is primarily related to legal fees
associated with litigation and other matters in connection with the Amex
delisting and a loss of approximately $1,700,000 due to storm damage in
August 2007.
Non
Operating Income and Expenses. We had total non-operating income of $258,820
for
the nine months ended September 30, 2007 compared to total non-operating expense
of $60,432 for the nine months ended September 30, 2006. We had other expense
of
$143 for the nine months ended September 30, 2007 compared to other income
of
$500,604 for nine months ended September 30,2006. In 2006, other income was
due
to the effects of a foreign currency transaction gain, which we did not have
in
2007. Total non-operating income includes interest income of $262,870 for the
nine months ended September 30, 2007 compared to only $118,129 of interest
income for the nine months ended September 30, 2006. The increase in interest
income for the nine months ended September 30, 2007 is due to the full year
effects of the increased cash balance that resulted from our sale of stock
in
the first quarter of 2006. Total non-operating income for the nine months ended
September 30, 2007 also includes interest expense of only $3,907 compared to
$679,165 for the nine months ended September 30, 2006. The majority of the
interest expense in the nine months ended September 30, 2006 relates to the
$5
million note issued December 8, 2005, which was repaid during March
2006.
Net
Income (Loss). For the foregoing reasons, we had a net loss of $1,822,783 for
the nine months ended September 30, 2007, a decrease of $13,575,149 or 115.5%
compared to net income of $11,752,366 for the nine months ended September 30,
2006. We had earnings (loss) per share of $(0.10) for the nine months ended
September 30, 2007 compared to earnings per share of $0.66 for the nine months
ended September 30, 2006.
We
are
primarily a parent holding company for the operations carried out by our
indirect operating subsidiary, Yang Ling, which carries out its activities
in
the People’s Republic of China. Because of our holding company structure, our
ability to meet our cash requirements apart from our financing activities,
including payment of dividends on our common stock, if any, substantially
depends upon the receipt of dividends from our subsidiaries, particularly Yang
Ling.
As
of
September 30, 2007, we had $962,534 of cash and cash equivalents compared to
$11,824,327 as of December 31, 2006. The significant decrease in cash is due
to
a significant decrease in cash provided by our operating activities as a result
of an increase cash used to finance our working capital needs and the decrease
in our net income.
Cash
Flows
We
used
$7,731,172 of cash to finance our operating activities for the nine months
ended
September 30, 2007 compared to $4,939,043 of cash for operating activities
for
the nine months ended September 30, 2006. This significant increase in the
use
of cash to finance our operating activities is principally due to the
significant decrease in net income from operations, which was only partially
offset by our decreased working capital needs.
Our
investing activities used $3,718,394 of cash for the nine months ended September
30, 2007, compared to $1,911,715 of cash used for investing activities for
the
nine months ended September 30, 2006. We used cash of $3,582,845 in connection
with additions to construction in process.
We
did
not generate any cash from financing activities for the nine months ended
September 30, 2007 compared to $15,769,964 of cash generated from financing
activities for the nine months ended September 30, 2006, in connection with
the
sale of our common stock in the second quarter of 2006.
Financing
Activities
On
February 3, 2006, we entered into an agreement to sell 1,643,836 shares of
our
common stock at 730 pence per share (approximately $12.99 per share). These
shares currently trade on the AIM Market of the London Stock Exchange plc.
We
received approximately £12,000,000 (approximately $21,360,000) of gross
proceeds, which were intended for construction of two factories (one in the
Northwest and one in the Northeast of the People’s Republic of China), as well
as the purchase of raw materials and for general corporate purposes. We have
since decided not to pursue construction of the factory in the
Northeast.
On
March
15, 2006, we raised $5,322,506 from the issuance of 380,179 restricted shares
of
common stock at $14.00 per share to institutional investors in a private
placement. We used the proceeds of this financing to repay the $5,000,000
short-term note issued in December 2005.
For
additional information relating to our financing activities, see Notes 9, 10
and
11 to our annual consolidated financial statements included in the Form
10-K.
Based
on
past performance and current expectations, we believe our cash and cash
equivalents and cash generated from operations will satisfy our current working
capital needs, capital expenditures and other liquidity requirements associated
with our operations. However, to the extent our allowance for bad debts in
insufficient to cover our actual bad debt experience, our liquidity would be
negatively impacted.
Loan
Receivables
In
August
2006, we made an unsecured loan of $1,153,260 to one of our
suppliers. Because we will receive interest payments (at a rate of
13% per annum) on this amount from the supplier, we account for this as a loan
rather than an advance to a supplier. This loan is to be repaid by April
2008. In November 2006, we made an unsecured $754,745 advance payment
to a company for the installation of a facility to house a new compound
fertilizer production line in a new building. Because the building that
will house the facility was only recently completed, the installation of that
facility has not yet occurred. We accounted for this as a loan under
applicable accounting rules because the advance payment bears interest at rate
of 13% per annum. For more information relating to these loan receivables,
see Note 2 to our annual consolidated financial statements included in the
Form
10-K.
Contractual
Commitments
In
August
2006, we entered into a 30-year land-lease arrangement with the government
of
the People’s Republic of China, under which we pre-paid $2,529,818 upon
execution of the contract of lease expense for the next 15 years. We agreed
to
make a prepayment for the next eight years in November 2021, and will make
a
final pre-payment in November 2029 for the remaining seven years. The annual
lease expense amounts to approximately $169,580. For further information
regarding this arrangement, see Note 7 to our annual consolidated financial
statements included in the Form 10-K. Our land-lease arrangement is currently
our only material on- and off-balance sheet expected or contractually committed
future obligation.
We
currently do not have any material off-balance sheet arrangements except for
the
remaining pre-payments under the land-lease arrangement described above and
in
Note 7 to our annual consolidated financial statements included the Form
10-K.
ITEM
3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign
Exchange Risks
While
our
reporting currency is the U.S. dollar, all of our consolidated revenues and
consolidated costs and expenses are denominated in RMB. All of our assets are
denominated in RMB except for cash. As a result, we are exposed to foreign
exchange risk as our revenues and results of operations may be affected by
fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB
depreciates against the U.S. dollar, the value of our RMB revenues, earnings
and
assets as expressed in our U.S. dollar financial statements will decline. We
have not entered into any hedging transactions in an effort to reduce our
exposure to foreign exchange risk.
Investment
Risk
We
are
exposed to market risk as it relates to changes in the market value of our
investments in public companies. We invest in equity instruments of public
companies for business and strategic purposes and we have classified these
securities as available-for-sale. These available-for-sale equity investments
are subject to significant fluctuations in fair market value due to the
volatility of the stock market and the industries in which these companies
participate. Our objective in managing our exposure to stock market fluctuations
is to minimize the impact of stock market declines to our earnings and cash
flows. There are, however, a number of factors beyond our control. Continued
market volatility, as well as mergers and acquisitions, have the potential
to
have a material impact on our results of operations in future
periods.
We
are
also exposed to changes in the value of our investments in non-public companies,
including start-up companies. These long-term equity investments in technology
companies are subject to significant fluctuations in fair value due to the
volatility of the industries in which these companies participate and other
factors.
Inflation
Inflationary
factors such as increases in the cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net revenues if the
selling prices of our products do not increase with these increased
costs.
The
Chief
Executive Officer and Chief Financial Officer conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of
1934, as amended (the Exchange Act)) as of the end of the period covered by
this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
not
effective as of the end of the period covered by this report to ensure that
information required to be disclosed in the reports that we file or submit
under
the Exchange Act is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow
timely decisions regarding required disclosures. The reasons that our Chief
Executive Officer and Chief Financial Officer arrived at this conclusion
are:
· |
Our
delisting from the Amex.
As described in our current report on Form 8-K dated March 28, 2007
(the
“March 2007 Form 8-K”), including the Exhibit thereto, the Amex delivered
notice to us confirming that it intended to strike our common stock
from
the Amex. As described in the March 2007 Form 8-K, the precise basis
for
the Amex delisting determination called into question certain disclosures
(or the failure to make certain disclosures) in the reports that
we filed
or submitted under the Exchange Act. Although we do not accept any
of the
determinations or any related factual or legal conclusions of the
staff of
the Amex regarding our company, our Chief Executive Officer and Chief
Financial Officer cannot make a determination at this time that our
disclosure controls and procedures were effective as of the end of
the
period covered by this report.
|
· |
Our
inability to timely file this quarterly report on Form
10-Q.
Effective disclosure controls and procedures ensure that management
receives information as appropriate to allow timely decisions regarding
required disclosures. Because of the substantial time and resources
that
we have devoted to our investigation of the conclusions of the staff
of
the Amex regarding our company as set out in the March 2007 8-K,
information required to be disclosed in this quarterly report on
Form 10-Q
was not accumulated and communicated to our management as appropriate
to
allow timely decisions regarding the disclosures required in this
quarterly report. For this reason, we were not able to file this
quarterly
report within the time period prescribed and our management is not
able to
make a determination at this time that our disclosure controls and
procedures were effective as of the end of the period covered by
this
report.
|
· |
Our
inability to complete the Management’s Annual Report on Internal Control
over Financial Reporting.
For the reasons described in the Form 10-K under “Internal Control over
Financial Reporting,” our management’s assessment of our internal controls
over financial reporting was substantially delayed and was not complete
as
of the date of the Form 10-K. Because we were not able to complete
this
report within the time period prescribed and include such report
in the
Form 10-K, our management is not able to make a determination at
this time
that our disclosure controls and procedures were effective as of
the end
of the period covered by this
report.
|
In
light
of the foregoing, we intend to work diligently with our Board of Directors
and
outside advisors to design and implement more formal disclosure controls and
procedures to ensure that such procedures are effective.
Notwithstanding
the conclusion that our disclosure controls and procedures were not effective
as
of the end of the period covered by this report, the Chief Executive Officer
and
the Chief Financial Officer believe that the financial statements and other
information contained in this annual report present fairly, in all material
respects, our business, financial condition and results of
operations.
Part
II. OTHER
INFORMATION
Item
1. Legal
Proceedings
None.
Item
1A. Risk
Factors
None.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
None
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
None.
Item
5. Other
Information
None.
Item
6. Exhibits
3.1
|
|
Certificate
of Incorporation (incorporated by reference to Company’s Form SB-2 filed
September 3, 2002)
|
|
|
|
3.2
|
|
By-Laws
(incorporated by reference to Company’s Form SB-2 filed September 3,
2002).
|
|
|
|
10.1
|
|
Bodisen
Biotech, Inc. 2004 Stock Option Plan (incorporated by reference to
Company’s Form 10-KSB filed March 31, 2005)
|
|
|
|
10.2
|
|
Form
of Bodisen Biotech, Inc. Nonstatutory Stock Option Agreement (incorporated
by reference to Company’s Form 10-KSB filed March 31,
2005)
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d
14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
|
32.1
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Bodisen
Biotech, Inc.
|
|
|
|
November
21, 2007
|
By:
|
/s/ Bo
Chen
|
|
Bo
Chen
Chairman,
Chief Executive Officer and President
(Principal
Executive Officer)
|
|
|
|
November
21, 2007
|
By:
|
/s/ Junyan
Tong
|
|
JunYan
Tong
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
|