China Agri-Business Comments on Financial Results for the Year 2009
XI'AN, China, April 22 /PRNewswire-Asia-FirstCall/ -- China Agri-Business, Inc. ("China Agri" or "the Company," OTC Bulletin Board: CHBU), a manufacturer and distributor of organic agricultural application products in China, today commented on its financial results for the year ended December 31, 2009, which were filed on SEC Form 10-K on April 15, 2010.
Year 2009 Highlights
-- Sales increased 4.0% to $3.04 million in 2009 from $2.92 million
in 2008.
-- Gross profit decreased 6.3% to $1.97 million in 2009 from $2.10 million
in 2008.
-- Net income decreased 21.6% to $1.05 million in 2009 from $1.35 million
in 2008.
-- Diluted earnings per common share decreased 20.0% to $0.08 in 2009 from
$0.10 in 2008.
-- At year end 2009, China Agri had 49 direct sales stores, most of which
were added during the year.
-- At year end 2009, China Agri had 103 independent stores enrolled in its
Super Chain Sales Partner Program in 2009, most of which were added
during the year.
Mr. Liping Deng, Chief Executive Officer, President, and Director of China Agri-Business, commented on the Company's results for 2009 and the Company's outlook, "In the fourth quarter of 2008, we started an aggressive initiative that we call the 'New Agriculture-Generator.' The primary purpose of the initiative is to expand our business by creating our own sales network of direct sales stores for our products and also by partnering with existing stores to create a super chain of branded stores that feature China Agri's products. We believe this initiative will create closer relationships for us with farmers in the rural areas of China where our direct sales stores and the super chain stores are located.
"We made great progress as we expanded both of these channels in 2009. By year end 2009, we had 49 direct sales stores, controlled and managed by us, and 103 branded super chain stores. Those are just the start. These two distribution channels in 2009 together accounted for 34 percent of our sales for the year; two years ago, neither channel existed. The remaining 66 percent of our sales in 2009 were distributed through the traditional sales network that consists of independent wholesalers, distributors, and retailers.
"We expect to continue establishing direct sales stores in 2010, at a relatively rapid rate. For example, in the first quarter 2010, we opened approximately 200 additional direct sales stores in the Shaanxi and Hunan provinces, timed to capture sales near the start of the outdoor growing season. We expect to continue that aggressive expansion and believe we can have as many as 500 direct sales stores operating by the end of the year 2010. "
Another component of our New Agriculture-Generator initiative is establishing, in conjunction with participating retailers, a club membership system that will enable the Company to measure and monitor the use of its products by farmers and to improve the Company's efforts to provide training and other support services to farmers.
In addition to the Company's continued market-expanding efforts, the Company acquired a new product license to produce potassium and magnesium fertilizer on February 14, 2010. The license cost is approximately $117,000. The estimated cost relating to associated production equipment is approximately $293,000. The Company believes that acquiring licenses to existing products will enable it to increase revenues more quickly than by solely relying on developing its own new products. The Company will continue to look for such licensing opportunities in the future.
Mr. Deng summarized, "Clearly, we were very aggressive in 2009 in expanding our distribution channels, getting direct contact with farmers, and gaining access to land use rights to prepare for our future growth, all while continuing to manufacture our organic agricultural application products that help farmers grow more and better crops. These efforts added expenses in 2009, which pressured our net income.
"As we continue our expansion and long-term growth programs in 2010, although they are likely to continue to pressure net income, we believe that they will create long-term value for our shareholders. An additional benefit is the support and encouragement we give to farmers, which we believe should further support our growth and success. We look forward to 2010 with great excitement."
Sales
We manufacture and market more than 50 organic biochemical agricultural application products, including non-toxic fertilizers, bactericides and fungicides that are used in farming. Crops grown with our products are eligible to qualify for the "AA Green Food" rating in China.
Sales for the year ended December 31, 2009 increased $116,175 or 4.0 percent to $3,038,560 in 2009 from $2,922,385 in 2008. The increase in sales is mainly attributable to positive responses to our "New Agriculture- Generator" campaign, partly offset by lower sales through the traditional sales network.
Sales by distribution channel
Sales from our "Super Chain Sales Partner Program," which was designed to expand our own branded store distribution network and establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China, totaled $619,637 or 20.4 percent of total sales in 2009.
Sales from our "Direct Sales Store Program" totaled $414,356 or about 13.6 percent of total sales in 2009. Products sold through this channel are sold directly to the retailer who sells the products to the customer. In this channel, the retailer typically is an independent business and is not owned or affiliated with us, except as one of several suppliers for the retailer's business. Since the direct sales program was new in 2009, the Company had no sales through this "direct to stores" channel in 2008.
Sales through traditional independent distributors totaled $2,004,567 or 66.0 percent of total sales in 2009.
At year end 2009, the Company had 103 branded super chain stores, with the majority those located at Shaanxi province and the Hunan province. In addition, the Company had 49 direct sales stores, which are controlled and managed directly by the Company. These direct sales stores are located in the Shaanxi province.
Cost of goods sold, gross profit, and gross profit margin
Direct
Sale Branded Traditional
Total Stores Stores Sales
Sales in 2009 $3,038,560 $414,356 $619,637 $2,004,567
Cost of Goods Sold 1,065,599 297,418 182,143 586,038
Gross Profit $1,972,961 $116,938 $437,494 $1,418,529
Gross Profit Margin 64.93% 28.22% 70.60% 70.76%
Cost of goods sold increased $248,127 or 30.4 percent to $1,065,599 in 2009 from $817,472 in 2008. The increase in cost of goods sold and decrease of gross profit margin was mainly due to our new expansion into direct sales stores. To attract more farmers to our direct sales stores by offering a broad range of fertilizers, we also sell fertilizers made by other companies. The gross margin on these third-party fertilizers is about 20 percent. During 2009, third-party products totaled $297,906 of the cost of goods sold. We did not have direct sale stores in 2008.
Gross profit decreased $131,952 or 6.3 percent to $1,972,961 in 2009 from $2,104,913 in 2008. The decrease in gross profit was due mainly to our new selling efforts explained above.
Gross profit margin (gross profit as a percent of sales) was 64.9 percent in 2009, down 7.1 percentage points from 72.0 percent in 2008. The decrease resulted mainly from our selling efforts mentioned above. We expect our gross profit will continue to be somewhat lower in 2010 due mainly to the expansion of our new distribution channels.
Comparison of net income for the year ended December 31, 2009 and 2008:
2009 2008
Gross profit $1,972,961 $2,104,913
Selling and marketing 212,754 316,272
Professional fees 228,587 174,869
Depreciation and amortization expenses 46,602 60,947
Other general and administrative expenses 220,099 177,190
Total selling, general, and administrative
expenses 708,042 729,278
Income from operations 1,264,919 1,375,635
Interest income 23,315 28,107
Interest expense (225,288) (58,403)
Loss on disposal of assets (8,685) --
Net income $1,054,261 $1,345,339
Selling and marketing expenses
Selling and marketing expenses decreased $103,518 or 32.7 percent to $212,754 in 2009 from $316,272 in 2008. The decrease of selling and marketing expense was primarily due to the absence in 2009 of our launch of our "Super Chain Sales Partner Program" during fourth quarter of 2008. Approximately $190,000 was expensed for this initiative during the fourth quarter 2008.
Professional fees
Total professional fees increased $53,718 or 30.7 percent to $228,587 in 2009 from $174,869 in 2008. We expect professional fees will remain high in the future primarily because we are a public company. Professional fees consist of audit and review fees, legal and attorney fees, director fees, and contracted professional service fees.
Other general and administrative expenses
Other general and administrative expenses increased $42,909 or 24.2 percent to $220,099 in 2009 from $177,190 in 2008. Higher other general and administrative expenses in 2009 were mainly due to an increase of $25,346 in research and development expenses. Other general and administrative expenses generally consist of wages and related benefits, research and development expenses, rent and utility expenses, office expenses, bad debt expense, and travel and miscellaneous expenses.
Interest expense
Interest expense increased $166,885 or 285.7 percent to $225,288 in 2009 from $58,403 in 2008. Interest expense in 2009 consisted of amortization of deferred financing costs of $106,147, amortization of fair value of warrants of $75,458, amortization of beneficial conversion feature of $25,023, and loan interest of $18,660. These expenses related to the convertible notes issued in September 2008. The Company paid $15,000 in interest to the investors in September 2009.
Tax-exempt status in the People's Republic of China
Xinsheng is subject to a 25 percent standard enterprise income tax in China. Due to Xinsheng's agricultural activities, the National Tax Bureau in Xi'an High-Tech Development Zone granted Xinsheng annual exemptions from this tax for the years ending December 31, 2009 and 2008.
For purposes of comparison, had we been subject to the 25 percent income tax, our operating cash flow and net income would have been reduced by approximately $385,235 in 2009 and $387,626 in 2008.
Net income
Net income decreased $291,078 or 21.6 percent to $1,054,261 in 2009 from $1,345,339 in 2008, primarily due to the higher cost of goods sold and the increase in noncash interest expense as explained above.
Foreign currency translation
Xinsheng's functional currency is the Chinese renminbi ("RMB"). The appreciation of the RMB against the U.S. dollar will have a positive effect on our cash position, and vice versa. For the year 2009, the exchange rate had a positive effect of $14,563 on our cash flows. For the year 2008, the exchange rate had a positive effect of $471,334 on cash flows.
Liquidity and capital resources
Cash and cash equivalents increased $1,313,021 or 15.8 percent to $9,625,657 at December 31, 2009 from $8,312,636 at year end 2008. Cash and cash equivalents accounted for 86.6 percent of total assets at December 31, 2009, compared with 85.0 percent of total assets at year end 2008.
Net cash provided by operating activities was $1,296,338 in 2009 and $1,549,516 in 2008. The decrease resulted primarily from the reduction in net income in 2009.
Net cash provided by investing activities was $4,923 in 2009 and $(5,300) in 2008. In the first quarter 2009, the Company received total proceeds of $131,760 from the disposal of unused equipment and product rights. Cash used in investing activities for the acquisition of property, plant, and equipment was $(126,837) in 2009 and $(5,300) in 2008.
Net cash used in financing activities was $(2,803) in 2009 and was primarily a repayment on a mortgage loan to a bank. Net cash provided by financing activities was $312,638 in 2008, which was due to proceeds of $500,000 from a private placement of convertible notes and warrants, less financing costs of $187,362.
Sources of liquidity
We presently do not have any available credit, bank financing, or other external sources of liquidity. We believe that our existing cash resources will be sufficient to meet our existing operating requirements for the foreseeable future. However, we are seeking opportunities to expand our manufacturing and distribution capabilities in the PRC that may require an investment beyond our existing cash resources. Accordingly, we expect that we will require additional funding through additional equity and or debt financings. However, there can be no assurance that any additional financing will become available to us, and if available, on terms acceptable to us.
The conversion of our outstanding notes and exercise of our outstanding warrants into shares of common stock would have a dilutive effect on our common stock, which would in turn reduce our ability to raise additional funds on favorable terms. In addition, the subsequent sale on the open market of any shares of common stock issued upon conversion of our outstanding notes and exercise of our outstanding warrants could affect our stock price which would in turn reduce our ability to raise additional funds on favorable terms.
Any financing, if available, may involve restrictive covenants that may affect our ability to conduct our business or raise additional funds on acceptable terms. If we are unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back, or discontinue our expansion plans.
About China Agri-Business, Inc.
China Agri-Business, Inc., through its operating company in China, Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd., manufactures and sells non-toxic fertilizer, bactericide, and fungicide products used for farming in China. Crops grown with Xinsheng's products are eligible to qualify for the "AA Green Food" rating administered by the China Green Food Development Center, an agency under the jurisdiction of the Ministry of Agriculture of the People's Republic of China (However, our products themselves do not bear the "AA green food" designation). The green food rating system consists of an "A" rating and a more stringent "AA" rating. The "AA" rating indicates that the crops contain minimal chemical residue from fertilizers.
The Company's two primary product groups are organic fertilizer (Xinsheng Luyuan brand) and bactericides (Xinsheng Lufeng brand). The Company has a total of five brands and produces more than 50 different applications, including products designed to stimulate plant growth, condition soil, and prevent and cure plant diseases and parasites. The Company has products for a variety of crops, including potatoes, vegetables, cotton, and fruit plants, and orchard trees. The products can be used either alone or to supplement other products. The Company's Xinsheng's manufacturing facilities are located in Xi'an, Shaanxi province, China.
For more information about China Agri, please visit http://www.chinaagri- business.com .
Safe Harbor and Cautionary Statement
This document contains forward-looking information about the Company's operating results and business prospects that involve substantial risks and uncertainties. Statements that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements include, but are not limited to, statements about the Company's plans, objectives, expectations, strategies, intentions, or other characterizations of future events or circumstances and are generally identified by the words anticipates, believes, could, estimates, expects, intends, may, plans, seeks, would, and similar expressions.
Because these forward-looking statements are subject to a number of risks and uncertainties, the Company's actual results could differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading "Risk Factors" in China Agri's annual report on Form 10-K for the year 2009 and other documents the Company files with the United States Securities and Exchange Commission, which are available at http://www.sec.gov. The Company assumes no obligation to update any such forward-looking statements except as required by law.
For more information, please contact:
Delong Zhou CPA, P.C.
Chief Financial Officer
Tel: +1-917-825-2997
Email: [email protected]
China Agri-Business, Inc.
Add: Building 2, Unit 1, 15th Floor
Ling Xian Xin Cheng
86 Gaoxin Road
Hi-Tech Industrial Development Zone
Xi'an, Shaanxi, China 710065
Tel: +86-29-6859-6556 or 6557
Web: http://www.chinaagri-business.com
Christensen
Mr. Yuanyuan Chen (English and Chinese)
Tel: +86-10-5971-2001 in Beijing
Mobile: +86-139-2337-7882 in Beijing
Email: [email protected]
Mr. Tom Myers (English)
Mobile: +86-139-1141-3520 in Beijing
Email: [email protected]
Ms. Kathy Li (English and Chinese)
Tel: +1-212-618-1978
Email: [email protected]
Financial statements follow
China Agri-Business, Inc.
Consolidated Statements of Income and Comprehensive Income
For The Three Months and Years Ended December 31, 2009 and 2008
Three months ended
December 31, Year ended December 31,
U.S. dollars 2009 2008 2009 2008
(Unaudited) (Unaudited) (Audited) (Audited)
Sales of products $ 1,247,656 $ 787,894 $ 3,038,560 $ 2,922,385
Cost of goods sold 546,118 204,673 1,065,599 817,472
Gross profit 701,538 583,221 1,972,961 2,104,913
Selling, general and
administrative
expenses 188,592 369,241 708,042 729,278
Income from operations 512,946 213,980 1,264,919 1,375,635
Interest and other
income 6,243 6,373 23,315 28,107
Loss on impairment of
products rights (8,685) -- (8,685) --
Income before interest
expense and taxes 510,504 220,353 1,279,549 1,403,742
Interest expense (57,878) (57,785) (225,288) (58,403)
Income before income
taxes 452,626 162,568 1,054,261 1,345,339
Income taxes -- -- -- --
Net income 452,626 162,568 1,054,261 1,345,339
Other comprehensive
income (loss) -
foreign currency
translations
adjustment 17,718 (32,908) 13,632 529,512
Comprehensive income $ 470,344 $ 129,660 $ 1,067,893 $ 1,874,851
Earnings per common
share:
Basic $ 0.03 $ 0.01 $ 0.08 $ 0.10
Diluted $ 0.04 $ 0.01 $ 0.08 $ 0.10
Weighted average
number of common
shares used to
compute earnings per
common share:
Basic 12,958,574 12,958,574 12,958,574 12,958,574
Diluted 13,958,574 13,966,732 13,958,574 13,216,108
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Consolidated Balance Sheets
As of December 31, 2009 and 2008
As of December 31,
U.S. dollars 2009 2008
Assets
Current Assets
Cash and cash equivalents $ 9,625,657 $ 8,312,636
Accounts receivable, net of
allowance for doubtful accounts of
$8,300 and $6,524, respectively 28,310 45,165
Inventory 138,253 47,113
Other receivables 7,911 7,329
Prepaid expenses 25,396 22,345
Total current assets 9,825,527 8,434,588
Property, plant and equipment, net
of accumulated depreciation of
$202,921 and $161,055, respectively 337,995 231,278
Investment in Tienwe Technology 879,000 879,420
Deferred financing costs, net of
accumulated amortization of
$134,550 and $28,403, respectively 72,732 178,879
Intangible assets, net of
accumulated amortization of $13,115
and $47,493, respectively 3,724 59,495
Total assets $11,118,978 $ 9,783,660
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 8,779 $ --
Current portion of convertible
notes, net of unamortized debt
discounts of $72,499 and $0,
respectively 427,501 --
Accounts payable and accrued liabilities 286,128 234,007
Total current liabilities 722,408 234,007
Long-term Liabilities
Long-term debt 105,618 --
Convertible notes, net of
unamortized debt discounts $0 and
$172,980, respectively -- 327,020
Total long-term liabilities 105,618 327,020
Total liabilities 828,026 561,027
Stockholders' Equity
Undesignated preferred stock, par
value $.001 per share; authorized
4,900,000 shares; none issued -- --
Common stock, par value $.001 per
share; authorized 100,000,000
shares, issued and outstanding
12,958,574 and 12,958,574,
respectively 12,959 12,959
Additional paid-in capital 4,370,212 4,369,786
Retained earnings 4,708,473 3,654,212
Accumulated other comprehensive
income 1,199,308 1,185,676
Total stockholders' equity 10,290,952 9,222,633
Total liabilities and stockholders'
equity $11,118,978 $9,783,660
The accompanying notes are an integral part of these financial
statements.
China Agri-Business, Inc.
Consolidated Statements of Cash Flows
For the Three Months and Years Ended December 31, 2009 and 2008
Three months ended
December 31, Year ended December 31,
U.S. dollars 2009 2008 2009 2008
(Unaudited) (Unaudited) (Audited) (Audited)
Operating activities
Net income $452,626 $162,568 $1,054,261 $1,345,339
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Provision for
(reduction in)
allowance for
doubtful accounts 3,235 (32,103) 1,758 (18,785)
Depreciation of
property, plant,
and equipment 13,504 10,345 42,673 47,374
Amortization of
intangible assets
and deferred
financing costs 26,007 32,694 115,627 47,726
Amortization of debt
discount and fair
value of warrants 25,202 -- 100,907 26,250
Loss on impairment
of products rights 8,685 8,685 8,685 --
Changes in operating
assets and
liabilities:
Decrease in accounts
receivable (3,135) 29,350 15,079 37,420
Increase in other
receivable (582) 35 (582) (474)
Increase (decrease)
in inventory (25,310) 22,768 (91,140) 13,469
Decrease (increase)
in prepaid expenses 6,434 (18,117) (3,051) (16,610)
Increase (decrease)
in accounts payable
and accrued
liabilities 60,457 (9,110) 52,121 67,807
Net cash provided by
operating activities 567,123 224,680 1,296,338 1,549,516
Investing activities
Proceeds from return of
unused manufacturing
equipment and
production rights to
respective vendors for
cash equal to the
asset's current Company
book value -- -- 131,760 --
Property, plant, and
equipment additions 117,808 (558) (126,837) (5,300)
Net cash used in
investing activities 117,808 (558) 4,923 (5,300)
Financing activities
Proceeds from long-
term debt (117,200) -- -- --
Repayment of long-term
debt (2,107) -- (2,803) --
Proceeds from
convertible notes -- 16,320 -- 500,000
Financing costs -- (73,162) -- (187,362)
Net cash provided by
(used in) financing
activities (119,307) (56,842) (2,803) 312,638
Effect of exchange
rate changes on cash
and cash equivalents 16,567 (23,916) 14,563 471,334
Increase in cash and
cash equivalents 582,191 143,364 1,313,021 2,328,188
Cash and cash
equivalents,
beginning of period 9,043,466 8,169,272 8,312,636 5,984,448
Cash and cash
equivalents, end of
period $9,625,657 $8,312,636 $9,625,657 $8,312,636
Supplemental
Disclosures of Cash
Flow Information
Interest paid $ 2,500 $ -- $ 17,500 $ --
Income taxes paid $ -- $ -- $ -- $ --
Supplemental Schedule
of Non-cash Investing
and Financing
Activities
Cost of building
acquired $ 244,073 -- $ 244,073 --
Less, purchase price
paid in cash 126,873 -- 126,873 --
Cost of building
acquired, net of
purchase price paid
in cash $ 117,200 -- $ 117,200 --
Relative fair value of
warrants and
beneficial conversion
feature $ -- $ (19,920) $ -- $ 199,230
Fair value of Placement
Agent warrants recorded
as financial cost,
deferred financing
costs and additional
paid-in capital $ 426 $ 19,920 $ 426 $ 19,920
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2009 and 2008
Common Common Additional
Stock Stock Paid-in
Shares Amount Capital
Balance, December 31, 2007 12,958,574 $12,959 $4,150,636
Relative fair value of warrants and
beneficial conversion feature
included in sale of convertible
notes -- -- 199,230
Fair value of Placement Agent
warrants -- -- 19,920
Net income for the year ended
December 31, 2008 -- -- --
Foreign currency translation
adjustment -- -- --
Balance, December 31, 2008 12,958,574 12,959 --
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 -- -- --
Foreign currency translation
adjustment -- -- --
Balance, December 31, 2009 12,958,574 $12,959 $4,370,212
Accumulated
Other
Retained Comprehensive
Earnings Income Total
Balance, December 31, 2007 $2,308,873 $656,164 $7,128,632
Relative fair value of warrants and
beneficial conversion feature
included in sale of convertible
notes -- -- 199,230
Fair value of Placement Agent
warrants -- -- 19,920
Net income for the year ended
December 31, 2008 1,345,339 -- 1,345,339
Foreign currency translation
adjustment -- 529,512 529,512
Balance, December 31, 2008 3,654,212 1,185,676 9,222,633
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 1,054,261 -- 1,054,261
Foreign currency translation
adjustment -- 13,632 13,632
Balance, December 31, 2009 $4,708,473 $1,199,308 $10,290,952
The accompanying notes are an integral part of these financial statements.
SOURCE China Agri-Business, Inc.
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