RNS Number:8423V
Bodisen Biotech Inc
01 May 2007
BODISEN BIOTECH, INC.
Audited Results for the year ended 31 December 2006
Review and Extracts of the Form 10-K as required by the Securities and Exchange
Commission
Our website is located at http://www.bodisen.com. We currently do not make our
annual reports on Form 10-K, quarterly reports on Form 10-Q or current reports
on Form 8-K or amendments thereto available on our website because the
information is available via the U.S. Securities and Exchange Commission's (or "
SEC") website. You may, however, obtain a free copy of such reports and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15
(d) of the U.S. Securities Exchange Act, as amended (15 U.S.C. 78m(a) or 78o(d))
on the day of filing with the SEC by contacting the Investor Relations
Department at our corporate offices by calling +86-29-87882072 or by sending an
e-mail message to info@bodisen.com.
A copy of our annual report on Form 10-K is available at: http://www.sec.gov/
Archives/edgar/data/1178552/000114420407021528/v073051_10k.htm
or at:
http://www.tinyurl.com/2nebus
Results of Operations
Year ended December 31, 2006 compared to year ended December 31, 2005
Revenue. We generated revenues of $43,626,984 for the year ended December 31,
2006, an increase of $12,651,634 or 40.8%, compared to $30,975,350 for the year
ended December 31, 2005. The growth in revenue was primarily attributable to the
increase in our customer base , which we believe resulted from growing awareness
of the efficacy of our products in the markets in which we do business in
connection with our continued efforts to aggressively market our products. We
believe that the Bodisen brand name has become synonymous with proven higher
crop yields. The completion of the new factory in early 2005 enabled us to meet
the growing demand for our products.
Gross Profit. We achieved a gross profit of $17,083,821 for the year ended
December 31, 2006, an increase of $5,579,592 or 48.5%, compared to $11,504,229
for the year ended December 31, 2005. Gross margin, as a percentage of revenues,
increased from 37.15% for the year ended December 31, 2005, to 39.2% for the
year ended December 31, 2006. The increase in gross margin was primarily
attributable to the price increases in our main products. During the year ended
December 31, 2006, we raised our prices two times. The first price increase was
in-line with increases throughout the industry, while the second resulted from
realization that the marketplace would support a premium for Bodisen brand
products. In addition, we entered into purchasing agreements to lock in 2005
price levels for all raw materials purchased during 2006 using $5,000,000 from
the short term note that issued in December 2005.
Operating expenses. We incurred operating expenses of $3,525,450 for the year
ended December 31, 2006, an increase of $1,093,697 or 45.0%, compared to
$2,431,753 for the year ended December 31, 2005. The increase in our operating
expenses is related to increased legal fees in connection with the litigation
described under Item 3 "Legal Proceedings" as well as our increased sales and
marketing costs in connection with our efforts to increase awareness of the
efficacy of our products, which efforts we believe resulted in the 40.8%
increase in sales for 2006.
Aggregated selling expenses accounted for $1,972,076 of our operating expenses
for the year ended December 31, 2006, an increase of $1,036,632 or 110.8%
compared to $935,444 for the year ended December 31, 2005. These increased
expenses related to costs associated with sales and marketing efforts related to
our products, as well as transportation of our products. As we continue to grow
revenues, we sell Bodisen products at greater distances from our factories,
which leads to increased shipping costs, most notably on the compound fertilizer
product that is sold in 50 kilogram (110 pounds) units. The increase in the cost
of fuel has also had an effect on operating expenses. General and administrative
expenses accounted for the remaining $1,553,374 of operating expenses for the
year ended December 31, 2006, compared to $1,496,309 for the year ended December
31, 2005, an increase of $57,065 or 3.8%. Operating expenses are related to the
cost of maintaining our facilities, salaries and research and development. The
increase in general and administrative expenses is due to higher legal fees.
Absent these legal fees, our general and administrative expenses decreased
because of improved cost control measures.
Non Operating Income and Expenses. We had total non-operating income of
$172,456 for the year ended December 31, 2006 compared to a total non-operating
expense of $1,651,364 for the year ended December 31, 2005. Total non-operating
income in 2006 included other income of $612,584, the majority of which relates
to foreign currency translation gain from the funds raised on the AIM Market of
the London Stock Exchange plc in the United Kingdom. In 2005, total
non-operating expense including other expense of $121,410, which related to a
$108,165 loss on the sale of fixed assets and a $13,245 exchange loss on a
foreign currency transaction. Total non-operating income includes interest
income of $240,527 for the year ended December 31, 2006 compared to $137,870 for
the year ended December 31, 2005. The increase in 2006 is due to the increase
in our cash balance as a result of the sale of stock in the first quarter of
2006. Interest expense included in total non-operating income for the year
ended December 31, 2006 was $680,655 compared to $1,667,824 for the year ended
December 31, 2005. In 2006, the majority of the interest expense relates to the
$5 million note issued December 8, 2005 and repaid during March 2006 ($603,886),
where in 2005, the majority of the interest expense related to the $3 million
convertible debenture issued March 16, 2005 and the $5 million note payable
issued December 8, 2005.
Net Income. For the foregoing reasons, net income increased by 85.0% to
$13,730,827 during the year ended December 31, 2006, an increase of $6,309,715,
from $7,421,112 for the year ended December 31, 2005. Our earnings per share
(EPS) rose to $0.76 for the year ended December 31, 2006 from $0.48 for the year
ended December 31, 2005.
Liquidity and Capital Resources
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 December 31, 2006, we had $11,824,327 of cash and cash equivalents
compared to $6,276,897 as of December 31, 2005. The significant increase in cash
is due to the sale of our stock during 2006 that resulted in gross proceeds of
$26,682,511 (or $20,549,804 after deducting offering expenses of $6,132,707).
We used $6,253,439 of these proceeds to establish a new compound fertilizer
production base at our new facility in Urumqi, Xinjiang, as well as $1,132,395
to invest in two local Chinese companies, with the remainder going towards our
working capital requirements, which increased as a result of our growing
operations.
Cash Flows
We used $5,920,097 of cash in our operating activities for the year ended
December 31, 2006 compared to generating $1,823,015 of cash from operating
activities in 2005. This significant increase in the use of cash in operating
activities is principally due to the increase in accounts receivable to
$18,875,368 as of December 31, 2006 compared to $7,478,152 in 2005 as well as an
increase in advances to suppliers to $7,775,011 as of December 31, 2006 compared
to $3,732,975 in 2005.
We used $5,629,351 of cash for investing activities for the year ended December
31, 2006, down slightly from $5,768,028 in 2005. In 2006 our investing
activities consisted primarily of our land-lease arrangement ($2,529,818), as
well as the investment in two local Chinese companies ($1,156,861), an increase
in construction in progress ($1,696,321) and the acquisition of property and
equipment ($451,358). In 2005, investing activities consisted primarily of the
acquisition of property and equipment ($3,642,530), primarily for our new
facility, and our investment in shares of China Natural Gas ($2,867,346).
We generated $16,769,964 of cash from our financing activities for the year
ended December 31, 2006 compared to $7,978,672 for the year ended December 31,
2005. The significant increase is due to the capital raised from the sale of our
common stock in the first 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 consolidated financial statements appearing elsewhere in this
annual report.
Based on past performance and current expectations, we believe our cash and cash
equivalents and cash generated from operations will satisfy our working capital
needs, capital expenditures and other liquidity requirements associated with our
operations.
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 consolidated financial statements appearing
elsewhere in this annual report.
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 consolidated financial statements.
Our land-lease arrangement is currently our only material on- and off-balance
sheet expected or contractually committed future obligation.
Off-Balance Sheet Arrangements
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 consolidated financial statements.
BODISEN BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
Years Ended December 31,
2006 2005 2004
Net Revenue $ 43,626,984 $ 30,975,350 $ 16,225,896
Cost of Revenue 26,543,163 19,471,121 9,653,965
Gross profit 17,083,821 11,504,229 6,571,931
Operating expenses
Selling expenses 1,972,076 935,444 615,549
General and administrative expenses 1,553,374 1,496,309 907,801
Total operating expenses 3,525,450 2,431,753 1,523,350
Income from operations 13,558,371 9,072,476 5,048,581
Non-operating income (expense):
Other income (expense) 612,584 (121,410) 7,623
Interest income 240,527 137,870 45,338
Interest expense (680,655) (1,667,824) (74,139)
Total non-operating income (expense) 172,456 (1,651,364) (21,178)
Net income 13,730,827 7,421,112 5,027,403
Other comprehensive income
Foreign currency translation gain 1,210,466 519,066 68,855
Unrealized gain (loss) on marketable equity (309,565) 3,943,088 -
security
Comprehensive Income $ 14,631,728 $ 11,883,266 $ 5,096,258
Weighted average shares outstanding :
Basic 17,966,090 15,427,494 15,268,000
Diluted 18,072,433 15,589,336 15,328,356
Earnings per share:
Basic $ 0.76 $ 0.48 $ 0.33
Diluted $ 0.76 $ 0.48 $ 0.33
The accompanying notes are an integral part of these consolidated financial
statements
BODISEN BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005
December 31, December 31,
2006 2005
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 11,824,327 $ 6,276,897
Accounts receivable, net of allowance for 18,875,368 7,478,152
doubtful accounts of $659,653 and $263,376
Other receivable 888,230 1,037,683
Inventory 1,794,585 1,180,007
Advances to suppliers 12,662,139 4,563,471
Prepaid expense and other current assets 195,821 64,075
Total current assets 46,240,470 20,600,285
PROPERTY AND EQUIPMENT, net 5,195,283 4,887,841
CONSTRUCTION IN PROGRESS 3,669,807 1,872,945
MARKETABLE SECURITY 6,500,869 6,810,434
INTANGIBLE ASSETS, net 2,054,346 2,119,587
OTHER ASSETS 3,553,433 -
LOAN RECEIVABLE 1,982,410 -
TOTAL ASSETS $ 69,196,618 $ 36,291,092
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, net of discount of $603,886 $ - $ 4,396,114
Accounts payable 1,022,352 49,893
Accrued expenses 347,948 427,982
Total current liabilities 1,370,300 4,873,989
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 per share; authorized 5,000,000
shares; nil issued and outstanding
Common stock, $0.0001 per share; authorized 30,000,000
shares; issued and outstanding 18,310,250 and 16,120,902 1,831 1,613
Additional paid-in capital 33,860,062 12,082,793
Other comprehensive income 5,431,910 4,531,009
Statutory reserve 4,314,488 2,366,931
Retained earnings 24,218,027 12,434,757
Total stockholders' equity 67,826,318 31,417,103
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 69,196,618 $ 36,291,092
The accompanying notes are an integral part of these consolidated financial
statements
BODISEN BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, 2004
Years Ended December 31,
2006 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,730,827 $ 7,421,112 $ 5,027,403
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 455,318 324,638 302,803
Common stock issued for interest expense - 155,564 -
Amortization of debt discounts 603,886 1,376,566 -
Exchange gain (451,867) - -
Value of vested option issued to directors 7,523 - -
(Increase) / decrease in assets:
Accounts receivable (10,906,475) (2,333,365) (3,166,143)
Other receivable & Loan Receivable (1,759,543) (987,322) -
Inventory (562,179) (388,251) 51,612
Advances to suppliers (7,775,011) (3,732,975) 1,178,306
Prepaid expense (133,967) (45,290) -
Other assets 3,482 (3,388) (48,736)
Increase / (decrease) in current
liabilities:
Accounts payable 959,335 (63,927) (1,521,819)
Unearned revenue - - (15,888)
Other payables (15,168) (11,716) (35,350)
Accrued expenses (76,258) 111,369 196,031
Net cash provided by (used in) operating (5,920,097) 1,823,015 1,968,219
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of loan receivable - - (968,000)
Payment on loan receivable - 976,368 -
Acquisition of property and equipment (451,358) (3,642,530) (435,814)
Additions to construction in progress (1,696,321) (234,520) (1,374,322)
Purchase of marketable security - (2,867,346) -
Acquistion of other assets (3,481,672) - -
Net cash used in investing activities (5,629,351) (5,768,028) (2,778,136)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable (5,000,000) (976,368) (111,900)
Loans made to officers - (2,383,217) -
Repayments of loans to officers - 2,383,217 -
Proceeds from issuance of convertible note - 3,000,000 -
Proceeds from issuance of note payable - 5,000,000 -
Proceeds from issuance of common stock 26,682,511 - -
Payment of offering costs (6,132,707) - -
Proceeds from the exercise of warrants 1,220,160 955,040 -
Net cash provided by / (used in) financing 16,769,964 7,978,672 (111,900)
activities
Effect of exchange rate changes on cash and cash 326,914 121,427 68,855
equivalents
NET INCREASE /(DECREASE) IN CASH & CASH EQUIVALENTS 5,547,430 4,155,086 (852,962)
CASH & CASH EQUIVALENTS, BEGINNING OF YEAR 6,276,897 2,121,811 2,974,773
CASH & CASH EQUIVALENTS, END OF YEAR $ 11,824,327 $ 6,276,897 $ 2,121,811
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 112,500 $ 68,144 $ 60,231
Income taxes paid $ - $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2006, 2005 and 2004
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 since the stockholders of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the "Company"). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company (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 $651,000 in
incremental and direct expenses relating to this private placement has been
amortized over the term of the convertible debenture. None of the expenses were
paid directly to the institutional investor. The net proceeds from this offering
were invested as initial start-up capital in a newly created wholly-owned
Bodisen subsidiary by the name of "Yang Ling Bodisen Agricultural Technology
Co., Ltd. ("Agricultural"). In June 2005, Agricultural completed a transaction
with Yang Ling Bodisen Biology Science and Technology Development Company
Limited ("BBST"), Bodisen Biotech, Inc.'s operating subsidiary in China, which
resulted in Agricultural owning 100% of BBST.
In June 2006, BBST created another wholly owned subsidiary in the province of
Sinkang, China by the name of Bodisen Agriculture Material Co. Ltd. ("Material
"). "Material" had no operations during the year ended December 31, 2006.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The Company's functional currency is the Chinese Renminbi; however the
accompanying consolidated financial statements have been translated and
presented in United States Dollars ($).
Foreign Currency Translation
As of December 31, 2005 and 2004, the accounts of the Company were maintained,
and their consolidated financial statements were expressed in the Chinese Yuan
Renminbi (CNY). Such consolidated financial statements were translated into U.S.
Dollars (USD) in accordance with Statement of Financial Accounts Standards
("SFAS") No. 52, "Foreign Currency Translation," with the CNY as the functional
currency. According to the Statement, all assets and liabilities were translated
at the exchange rate on the balance sheet date, stockholder's equity are
translated at the historical rates and statement of operations items are
translated at the weighted average exchange rate for the year. The resulting
translation adjustments are reported under other comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income."
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with original
maturities of three months or less.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Terms of the sales vary from COD
through a credit term up to 9 to 12 months. Reserves are recorded primarily on a
specific identification basis. Allowance for doubtful debts amounted to $659,653
and $263,376 as at December 31, 2006 and 2005, respectively.
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 $12,662,139 and $4,563,471 at December 31, 2006 and 2005,
respectively.
Inventories
Inventories are valued at the lower of cost (determined on a weighted average
basis) or market. The Management compares the cost of inventories with the
market value and allowance is made for writing down their inventories to market
value, if lower.
Loan Receivable
On December 8, 2004, the Company entered in to an agreement to loan $968,000 to
an unrelated party. The loan was unsecured, payable by December 7, 2005 and
carried an interest rate of 8.7% per annum. The amount was repaid in full by the
due date.
In August 2006, the Company entered into an agreement to loan $1,153,260 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 is $68,191.
In November 2006, the Company entered into an agreement to loan $754,745 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 $6,214.
Property & Equipment & Capital Work In Progress
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of:
Operating equipment 10 years
Vehicles 8 years
Office equipment 5 years
Buildings 30 years
At December 31, 2006 and 2005, the following are the details of the property and
equipment:
2006 2005
Operating equipment $ 946,252 $ 923,688
Vehicles 597,239 362,780
Office equipment 74,944 63,403
Buildings 4,426,559 4,142,129
6,044,994 5,492,000
Less accumulated depreciation (849,711) (604,159)
$ 5,195,283 $ 4,887,841
Depreciation expense for the years ended December 31, 2006, 2005 and 2004 was
$307,310, $193,634 and $172,622, respectively.
On December 31, 2006 and 2005, the Company has "Capital Work in Progress"
representing the construction in progress of the Company's manufacturing plant
amounting $3,669,807 and $1,872,945, respectively.
Marketable Security
Marketable security consists of 2,063,768 shares of China Natural Gas, Inc.
(traded on the OTCBB: CHNG). This investment is classified as available-for-sale
as the Company plans to hold this investment for the long-term. This investment
is reported at fair value with unrealized gains and losses included in other
comprehensive income. The fair value is determined by using the securities
quoted market price as obtained from stock exchanges on which the security
trades.
Investment income, principally dividends, is recorded when earned. Realized
capital gains and losses are calculated based on the cost of securities sold,
which is determined by the "identified cost" method.
Long-Lived Assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121, "
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. Based on its
review, the Company believes that, as of December 31, 2006 and 2005 there were
no significant impairments of its long-lived assets.
Intangible Assets
Intangible assets consist of Rights to use land and Fertilizers proprietary
technology rights. The Company evaluates intangible assets for impairment, at
least on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment loss.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectibility is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are satisfied are recorded
as unearned revenue.
The Company's revenue is earned in three product lines, which are as follows:
For the Years End December 31,
2006 2005 2004
Compound fertilizer $ 27,380,650 $ 20,639,633 $ 10,013,292
Liquid fertilizer 7,465,830 5,877,151 4,987,276
Pesticide 8,780,504 4,458,566 1,225,328
$ 43,626,984 $ 30,975,350 $ 16,225,896
Advertising Costs
The Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
December 31, 2006, 2005 and 2004 were insignificant.
Stock-Based Compensation
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
prescribed 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 our
stock option plans using the intrinsic value method in accordance with the
provisions of APB Opinion No. 25 and related interpretations.
Primarily as a result of adopting SFAS No. 123R, the Company recognized $7,523
in share-based compensation expense for the year ended December, 2006. There
were no new employee options granted during the year ended December 31, 2006;
however, the expense recognized of $7,523 relates to the vesting of options
issued to employees prior to January 1, 2006. The impact of this share-based
compensation expense on the Company's basic and diluted earnings per share was
$0.00 per share. The fair value of our stock options was estimated using the
Black-Scholes option pricing model.
For periods presented prior to the adoption of SFAS No. 123R, pro forma
information regarding net income and earnings per share as required by SFAS No.
123R has been determined as if we had accounted for our employee stock options
under the original provisions of SFAS No. 123. The fair value of these options
was estimated using the Black-Scholes option pricing model. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the option's vesting period. The pro forma expense to recognize
during the years ended December 31, 2005 and 2004 is presented in Note 12.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
According to the Provisional Regulations of the People's Republic of China on
Income Tax, the Document of Reductions and Exemptions of Income Tax for the
Company had been approved by the local tax bureau and the Yang Ling Agricultural
High-Tech Industries Demonstration Zone. The Company is exempted from income tax
through October 2007.
In March 2005, Bodisen Biotech Inc. formed a new 100% wholly-owned subsidiary
named Yang Ling Bodisen Agricultural Technology Co., Ltd. ("Agricultural") in
China. Under Chinese law, a newly formed wholly owned subsidiary of a foreign
company enjoys an income tax exemption for the first two years and a 50%
reduction of normal income tax rates for the following 3 years. In order to
extend such tax benefits, in June 2005, Agricultural completed a transaction
with Yang Ling Bodisen Biology Science and Technology Development Company
Limited ("BBST"), Bodisen Biotech, Inc.'s operating subsidiary in China which
resulted in Agricultural owning 100% of BBST.
If the Company had not been exempt from paying income taxes during the years
ended December 31, 2006, 2005 and 2004, income tax expense would have been
approximately $4,532,000, $2,859,000 and $1,659,000, respectively, and earnings
per share would have been reduced by $0.26, $0.19 and $0.11, respectively.
Foreign Currency Transactions and Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Certain statements, however, require
entities to report specific changes in assets and liabilities, such as gain or
loss on foreign currency translation, as a separate component of the equity
section of the balance sheet. Such items, along with net income, are components
of comprehensive income. The functional currency of the Company is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains of $1,798,387 and
$587,921 at December 31, 2006 and 2005, respectively, are classified as an item
of other comprehensive income in the stockholders' equity section of the
consolidated balance sheet. During the years ended December 31, 2006, 2005 and
2004, other comprehensive income in the consolidated statements of income and
other comprehensive income included translation gains of $1,210,466, $519,066
and $68,855, respectively.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Statement of Cash Flows
In accordance with Statement of Financial Accounting Standards No. 95, "
Statement of Cash Flows," cash flows from the Company's operations are
calculated based upon the local currencies. As a result, amounts related to
assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet.
Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
About Segments of an Enterprise and Related Information" requires use of the "
management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. SFAS
131 has no effect on the Company's consolidated financial statements as the
Company consists of one reportable business segment. All revenue is from
customers in People's Republic of China. All of the Company's assets are located
in People's Republic of China.
Recent Pronouncements
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company's first fiscal year that begins
after September 15, 2006. The Company has not evaluated the impact of this
pronouncement its financial statements.
In March 2006, FASB issued SFAS No. 156, "Accounting for Servicing of Financial
Assets - an amendment to FASB Statement No. 140." The new standard requires
recognition of servicing assets in connection with any obligation to service a
financial asset arising from 1) a servicing contract entered into as part of a
transfer of assets meeting the requirements for sale accounting, 2) the transfer
of assets to a special purpose entity in a guaranteed mortgage securitization
where the transferor retains a controlling interest in the securitized asset, or
3) an acquisition or assumption of obligations to service financial assets not
related to the servicer or its consolidated affiliates. The servicing assets and
liabilities must be measured at fair value initially, if practicable, and the
assets or liabilities must either be amortized or recorded at fair value at each
reporting date. The statement allows a one-time reclassification for entities
with servicing rights and subsequently requires separate presentation of
servicing assets and liabilities at fair value in the statement of financial
position. This statement is effective for the first fiscal year beginning after
September 15, 2006, with earlier adoption permitted. The Company does not
expect this implementation to have a material effect on our consolidated
financial statements.
In September 2006, FASB issued SFAS 157 'Fair Value Measurements'. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS 158 'Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements
No. 87, 88, 106, and 132(R)' This Statement improves financial reporting by
requiring an employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted net assets
of a not-for-profit organization. This Statement also improves financial
reporting by requiring an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. An employer with publicly traded equity securities is required to
initially recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal year ending
after December 15, 2006. An employer without publicly traded equity securities
is required to recognize the funded status of a defined benefit postretirement
plan and to provide the required disclosures as of the end of the fiscal year
ending after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes to
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of this
Statement in preparing those financial statements. The requirement to measure
plan assets and benefit obligations as of the date of the employer's fiscal
year-end statement of financial position is effective for fiscal years ending
after December 15, 2008. The management is currently evaluating the effect of
this pronouncement on financial statements.
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 will not have a 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 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. While the Company analysis of the
impact of adopting Interpretation 48 is not yet complete, it do not currently
anticipate it will have a 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 subsidiary Bodisen Holdings, Inc.
("BHI"), BHI's 100% wholly- owned subsidiary Yang Ling Bodisen Biology Science
and Technology Development Company Limited (BBST), a 100% wholly-owned
subsidiary, incorporated in March 2005, named Yang Ling Bodisen Agricultural
Technology Co., Ltd (Agricultural) and a 100% wholly-owned subsidiary,
incorporated in June 2006, named Sinkiang Bodisen Agriculture Material Co., Ltd.
(Material). All significant inter-company accounts and transactions have been
eliminated in consolidation.
Note 4 - Advances to officers
During the six month period ending June 30, 2005, the Company advanced
$2,383,217 to 4 officers as a short term loan. Said loan was interest free,
unsecured, and payable upon demand. These loans were repaid during the quarter
ended September 30, 2005.
Note 5 - Inventory
The inventory as of December 31, 2006 and 2005 consisted of the following :-
2006 2005
Raw Material $ 1,257,883 $ 650,745
Packaging 161,923 146,279
Finished Goods 550,280 549,533
Consumables 395 3,544
1,970,481 1,350,101
Less : Obsolescence Reserve (175,896) (170,093)
Net Inventory $ 1,794,585 $ 1,180,007
Note 6 - Marketable Security
During the year ended December 31, 2005, the Company purchased 2,063,768 shares
of China Natural Gas, Inc. (traded on the OTCBB: CHNG) for $2,867,346. At
December 31, 2006 and 2005, the fair value of this investment was $6,500,869 and
$6,810,434, respectively, which resulted in an unrealized gain (loss) of
($309,565) and $3,943,088 for the years ended December 31, 2006 and 2005,
respectively, which is included in other comprehensive income. At December 31,
2006, this represented an 8.5% interest in China Natural Gas, Inc. The CEO of
the Company was a former board member of China Natural Gas, Inc.
Note 7 -Other Long-term Assets
During the year ended December 31, 2006, 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 December 31, 2006 can be summarized as follows:
2006
Prepaid Lease (for 15 years) $ 2,569,818
Current portion 173,246
Long-term portion $ 2,396,572
The amortization expense as of December 31, 2006 was $28,264.
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 8 - Intangible Assets
Net intangible assets at December 31, 2006 and 2005 were as follows:
2006 2005
Rights to use land $ 1,741,386 $ 1,693,833
Fertilizers proprietary technology 1,025,120 991,304
rights
2,793,506 2,685,137
Less Accumulated amortization (739,160 ) (565,550 )
$ 2,054,346 $ 2,119,587
The Company's office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, People's
Republic of China. The Company leases land per a real estate contract with the
government of People's Republic of China for a period from November 2001 through
November 2051. Per the People's Republic of China's governmental regulations,
the Government owns all land.
During July 2003, the Company leased another parcel of land per a real estate
contract with the government of the People's Republic of China for a period from
July 2003 through June 2053.
The Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty years. The "
Rights to use land" is being amortized over a 50 year period.
The Company acquired Fluid and Compound Fertilizers proprietary technology
rights with a life ending December 31, 2011. The Company is amortizing
Fertilizers proprietary technology rights over a period of ten years.
Amortization expense for the Company's intangible assets for the years ended
December 31, 2006, 2005 and 2004 amounted to $134,636, $131,004 and $130,181,
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 - Short-Term Loans Payable
At December 31, 2004, the Company had three short-term notes payable outstanding
that totaled $980,100. During the year ended December 31, 2005, all three notes
were repaid in full.
Note 10 - Note Payable
On December 8, 2005, the Company issued a $5,000,000 note payable to Amaranth
Partners LLC that accrued interest at 9% per annum and was due on March 8, 2006.
In connection with this note payable agreement, the Company also issued to
Amaranth Partners LLC a warrant to purchase 133,333 shares of the Company common
stock for $7.50 per shares. The Company first determined the value of the note
and the fair value of the detachable warrants issued in connection with this
note payable. The estimated value of the warrants of $968,282 was determined
using the Black-Scholes option pricing model and the following assumptions: term
of 5 years, a risk free interest rate of 4.00%, a dividend yield of 0% and
volatility of 31%. The face amount of the note payable of $5,000,000 was
proportionately allocated to the note payable and the warrant in the amount of
$4,188,810 and $811,190, respectively. The amount allocated to the warrants of
$811,190 was recorded as a discount on the note payable and will be amortized
over the year life of the note payable. For the year ended December 31, 2006 and
2005 $603,886 and $207,304, respectively, has been amortized to interest
expense. The $5,000,000 note plus $112,500 of accrued interest were repaid in
March 2006.
Note 11 - Convertible Debenture
On March 16, 2005, the Company completed a private placement offering. The
Company received $3,000,000 and issued a one year 9% debenture convertible into
shares of common stock by dividing the aggregate principal and accrued interest
by a conversion price of $4.80; and three year warrants to purchase 187,500
shares of common stock at $4.80 per share and three year warrants to purchase
40,000 shares of common stock at $6.88 per share.
This debenture was considered to have an embedded beneficial conversion feature
because the conversion price was less than the quoted market price at the time
of the issuance. The Company allocated the proceeds of the debt between the
warrant and the debt based on relative fair values which amounted to $365,881
and $2,634,119. The beneficial conversion feature of $803,381 was recorded
separately based on the intrinsic value method per EITF 00-27. During the year
ended December 31, 2005, the entire $3,000,000 convertible debenture and
$155,564 of accrued interest were converted into 657,402 shares of the Company's
common stock. In addition, because the entire principal balance of the
convertible debenture was converted into common stock, the entire debt discount
of $1,169,262 was amortized to interest expense.
Note 12 - Stockholders' Equity
During the year ended December 31, 2005, the Company issued 657,402 share of
common stock in connection with the conversion of a $3,000,000 convertible
debenture and $155,564 of accrued interest. In addition, the Company also issued
195,500 shares of common stock upon the exercise of warrants and received
proceeds of $955,040.
On February 3, 2006, the Company entered into a placing agreement (the "Placing
Agreement") with Charles Stanley & Company Limited ("Charles Stanley") relating
to the sale of up to 1,643,836 shares of the Company's common stock. Pursuant to
the Placing Agreement, Charles Stanley agreed to use its reasonable efforts to
sell all such shares of common stock at a price of 730 pence (approximately
US$12.99) per share, resulting in gross proceeds of approximately 12 million
British pounds sterling (US$21,360,005). The Company incurred offering costs and
expenses of $5,144,356 related to this sale of common stock. Of this amount
$3,385,481 was paid to a firm that is associated with Benjamin Wey (who is the
president of New York Global Group).
In connection with the placement, the Company's shares were admitted to trading
on the AIM Market of the London Stock Exchange. The Company's shares would
continue to be listed on the American Stock Exchange.
On March 15, 2006, the Company completed financing of $5,322,506 by issuing
380,179 restricted shares of common stock of the Company at $14.00 per share to
institutional investors in a private placement pursuant to Regulation S. The
Company incurred offering costs and expenses of $988,351 related to this sale of
common stock. Of this amount $778,346 was paid to a firm that is associated with
Benjamin Wey. The proceeds from this financing were used to repay the $5 million
short term note that the Company entered in December 2005.
During the year ended December 31, 2006, 165,333 warrants were exercised and the
Company received proceeds of $1,220,160.
Prior to the Company effectuating a reverse merger, various individuals (the
"Investors") provided investment capital to a predecessor entity. After its
formation, the Company issued share certificates of common stock to reflect the
value of these investments. Pursuant to apparent agreement with the Investors,
the Company, issued the share certificates to certain individuals other than the
Investors, including two officers of the Company, who held title to those shares
as nominee for the benefit of the Investors. In late 2005, some of the Investors
began to request that the beneficially-held shares be transferred to them so
that they could hold the shares in their own names. All of the shares thus owned
were transferred with the exception of approximately 738,000 shares.
The nominees apparently do not assert any interest in or make any claim to the
remaining shares. The Company holds the original certificates representing
approximately 738,000 shares in its office in Xi'an, China, for the benefit of
the Investors or their assigns. The Company does not contest the rights of the
appropriate investors on the certificate and remains willing to effectuate the
transfer of the shares to appropriate investors or their assigns as the law
allows. The record holders of the share certificates do not dispute the rights
of the affected investors to receive the transfer of the shares as the law
permits.
The Company is not aware that any of the Investors has expressed the right to
receive any monetary compensation in the form of damages, interest or otherwise
in connection with the delivery of the shares. In consequence, the Company
expresses no view as to whether or not an unfavorable outcome would be probable
or remote or provide an estimate or range of potential loss if the outcome were
unfavorable in the event that an Investor or Investors asserts a claim.
Note 13 - Stock Options and Warrants
Stock Options
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation- Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "
Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies' interim reporting period
ending January 31, 2003.
In compliance with FAS No. 148, the Company has elected to continue to follow
the intrinsic value method in accounting for its stock-based employee
compensation plan as defined by APB No. 25 and has made the applicable
disclosures below.
In 2004 the board of directors approved the creation of the 2004 Stock Option
Plan. This plan provides for the grant of incentive stock options to employees,
directors and consultants. Options issued under this plan will expire over a
maximum term of five years from the date of grant.
Pursuant to the Stock Option Plan, during the year ended December 31, 2004, the
Company granted 110,000 stock options to two directors (55,000 options each), of
which 100,000 stock options was granted on June 4, 2004 and the balance of the
10,000 was granted on December 28, 2004.
On the first 100,000 stock options granted, 50,000 stock options vested
immediately and 50,000 stock options became vested over 8 equal quarterly
installments, with the first installment vesting at the end of the second
quarter of 2004. The 10,000 stock options granted on December 28, 2004 vested on
December 31, 2004.
The option exercise price was $5 for the first 100,000 stock options which was
the same as fair value of the shares at the time of granting of the options. The
option exercise price was $5.80 for the second 10,000 stock options which was
the same as fair value of the shares at the time of granting of the options.
On October 4, 2005, the Company granted 26,000 stock options to two directors
(13,000 options each). 20,000 stock options vested immediately and the remaining
6,000 stock options became vested over the next three months. The option
exercise price was $6.72 which was the same as fair value of the shares at the
time of granting of the options.
Following is a summary of the stock option activity:
Outstanding, December 31, 2003 -
Granted 110,000
Forfeited -
Exercised -
Outstanding, December 31, 2004 110,000
Granted 26,000
Forfeited -
Exercised -
Outstanding, December 31, 2005 136,000
Granted -
Forfeited -
Exercised -
Outstanding, December 31, 2006 136,000
The intrinsic value of the options outstanding at December 31, 2006 was $50,000.
Following is a summary of the status of options outstanding at December 31,
2006:
Outstanding Options Exercisable Options
Exercise Number Average Average Exercise Number Average
Remaining Price Exercise
Price Contractual Price
Life
$5.00 100,000 2.42 $5.00 93,750 $5.00
$5.80 10,000 2.99 $5.80 10,000 $5.80
$6.72 26,000 3.76 $6.72 24,000 $6.72
For options granted during the year ended December 31, 2005, the
weighted-average fair value of such options was $3.76.
The assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
Risk-free interest rate 4.0%
Expected life of the options 5.00 years
Expected volatility 62%
Expected dividend yield 0
For options granted during the year ended December 31, 2004, the
weighted-average fair value of such options was $1.92.
The assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
First 100,000 stock options granted on June 4, 2004:
Risk-free interest rate 4.0%
Expected life of the options 5.00 years
Expected volatility 35%
Expected dividend yield 0
Second 10,000 stock options granted on December 28, 2004
Risk-free interest rate 4.0%
Expected life of the options 5.00 years
Expected volatility 40%
Expected dividend yield 0
Had the Company determined employee stock based compensation cost based on a
fair value model at the grant date for its stock options under SFAS 123, the
Company's net earnings per share would have been adjusted to the pro forma
amounts for the years ended December 31, 2005 and 2004 as follows ($ in
thousands, except per share amounts):
2005 2004
Net income:
As reported $ 7,421,112 $ 5,027,403
Stock-Based employee compensation expense included in - -
reported net income, net of tax
Total stock-based employee compensation expense determined (106,000) (153,000)
under fair-value-based method for all rewards, net of tax
Pro forma $ 7,315,112 $ 4,874,403
Basic earnings per share:
As reported $ 0.48 $ 0.33
Pro forma $ 0.47 $ 0.32
Diluted earnings per share:
As reported $ 0.48 $ 0.33
Pro forma $ 0.47 $ 0.32
Warrants
Following is a summary of the warrant activity:
Outstanding, December 31, 2004 -
Granted 360,833
Forfeited -
Exercised (195,500)
Outstanding, December 31, 2005 165,333
Granted -
Forfeited -
Exercised (165,333) -
Outstanding, December 31, 2006 -
Note 14 - Supplemental Disclosure of Cash Flows
The Company prepares its statements of cash flows using the indirect method as
defined under SFAS No. 95.
The Company paid $112,500, $68,144 and $60,231 of interest and $0, $0 and $0 of
income taxes during the years ended December 31, 2006, 2005 and 2004,
respectively.
Note 15 - 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 the employee welfare plan. The total expense for the
welfare plan was $3,713, $82,705 and $80,761 for the years ended December 31,
2006, 2005 and 2004, respectively. The Company has recorded welfare payable of
$263,064 and $260,071 at December 31, 2006 and 2005, respectively, which is
included in accrued expenses in the accompanying consolidated balance sheet.
Note 16 - 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 $1,947,557, $1,349,026 and $754,111as reserve for
the statutory surplus reserve and welfare fund for the years ended December 31,
2006, 2005 and 2004, respectively.
Note 17 - Factory Location and Lease Commitments
BBST's principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanzi province, People's Republic of China. BBST owns two factories, which
includes three production lines, an office building, one warehouse, and two
research labs and, is located on 10,900 square meters of land. These leases
require monthly rental payments of $2,180 and the leases expire in 2013.
Note 18 - Earnings Per Share
Earnings per share for years ended December 31, 2006, 2005 and 2004 were
determined by dividing net income for the periods by the weighted average number
of both basic and diluted shares of common stock and common stock equivalents
outstanding.
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
Year Ended December 31,
2006 2005 2004
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
Basic earnings
per share
Net income $13,730,827 $7,421,112 $5,027,403
Weighed shares 17,966,090 15,427,494 15,268,000
outstanding
$0.76 $0.48 $0.33
Diluted earnings
per share
Net income $13,730,827 $7,421,112 $5,027,403
Weighed shares 17,966,090 15,427,494 15,268,000
outstanding
Effect of
dilutive securities
Options 66,074 83,663 60,356
Warrants 40,269 78,179 -
18,072,433 15,589,336 15,328,356
$0.76 $0.48 $0.33
Note 19 - Merger Agreement
On February 11, 2004, Stratabid entered into an Agreement and Plan of Merger
with Bodisen Acquisition Corp., a Delaware corporation ("BAC") wholly-owned by
Stratabid, Bodisen International, Inc., a Delaware corporation ("BII") and the
stockholders of BII. BII has one 100% wholly-owned subsidiary in Shaanxi, China,
Yang Ling Bodisen Biology Science and Technology Development Company Limited ("
BBST"). Under the terms of the agreement, BAC acquired 100% of BII's stock in
exchange for the issuance by Stratabid of three million shares of its common
stock to the holders of BII. The new shares constitute approximately 79% of the
outstanding shares of Stratabid, which changed its name to Bodisen Biotech, Inc.
(the "Company"). The Agreement and Plan of Merger was closed on February 24,
2004.
BII's Chairman of the Board was appointed the Company's Chief Executive Officer.
At the Effective Time, by virtue of the Merger and without any action on the
part of the BAC, BII or the BII Stockholders, the shares of capital stock of
each of BII and the BAC were converted as follows:
i. Capital Stock of the BAC. Each issued and outstanding share of the BAC's
capital stock continued to be issued and outstanding and was converted into
one share of validly issued, fully paid, and non- assessable common stock of
the Surviving Company (Bodisen Holdings, Inc.). Each stock certificate of
the BAC evidencing ownership of any such shares continued to evidence
ownership of such shares of capital stock of the Surviving Company.
ii. Conversion of BII Shares. Each BII Share that was issued and outstanding at
the Effective Time was automatically cancelled and extinguished and
converted, without any action on the part of the holder thereof, into the
right to receive at the time and in the amounts described in the Agreement
an amount of Acquisition Shares equal to the number of Acquisition Shares
divided by the number of BII Shares outstanding immediately prior to
Closing. All such BII Shares, so converted, were no longer outstanding and
were automatically cancelled and retired and ceased to exist, and each
holder of a certificate representing any such shares ceased to have any
rights with respect thereto, except the right to receive the Acquisition
Shares paid in consideration therefore upon the surrender of such
certificate in accordance with the Agreement.
iii. Within thirty (30) days from the Closing Date, Stratabid was required to
sell its business operations, as they existed immediately prior to the
Closing, to Derek Wasson, former president. . As part of the merger
transaction and in consideration of the sale, Mr. Wasson returned 750,000
(3,000,000 post-split) Common Shares to Stratabid for cancellation. The
return of 750,000 (3,000,000 post-split) shares by Mr. Wasson was canceled
concurrently with the merger as part of the recapitalization of the Company.
The return of these shares was recorded by Stratabid just prior to the
merger; therefore, the cancellation of these shares is not presented in the
accompanying financial statements since the merger has been accounted for as
a recapitalization of the Company. The accompanying financial statements
are those of the Company, not Stratabid. The net assets of Stratabid
recorded as part of recapitalization were after accounting for the returned
shares by Mr. Wasson. In addition, Mr. Wasson forgave all indebtedness owed
by Stratabid to Mr. Wasson. Other than indebtedness of BII, Stratabid had no
indebtedness or other liability of any kind or nature after the sale of the
business to Mr. Wasson, save and except for liabilities incurred in
connection with the Merger.
Note 20 - Current Vulnerability Due to Certain Concentrations
Three vendors provided 47.5%, 17.7% and 12.5% of the Company's raw materials for
the year ended December 31, 2006. Four vendors provided 29.9%, 22.4%, 11.6% and
11.2% of the Company's raw materials for the year ended December 31, 2005. Four
vendors provided 25.9%, 19.9%, 14.0% and 10.0% of the Company's raw materials
for the year ended December 31, 2004.
The 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 21 - Reclassifications
Certain prior period amounts have been reclassified to conform to the year ended
December 31, 2006 presentation.
Note 22 - Subsequent Events
On March 22, 2007, the American Stock Exchange ("Amex") delivered a notice to
the Company confirming that the Amex intends to strike the common stock of the
Company from the Amex by filing a delisting application with the Securities and
Exchange Commission (the "SEC").
The following is the basis for delisting the Company's common stock as
determined by the Amex staff and as set forth in the March 22, 2007 notice from
the Amex. The Company is required under applicable SEC and Amex provisions to
disclose the rules upon which a delisting is sought and the specific continued
listing deficiencies upon which the delisting is based. The recitation of what
the AMEX describes as determinations of its staff regarding the Company does not
mean that the Company accepts any of the staff determinations or any related
factual or legal conclusions.
A. Bodisen failed to comply with its Securities and Exchange reporting
obligations by filing incomplete, misleading and/or inaccurate information in
its public filings through the SEC's Electronic Data Gathering Analysis and
Retrieval ('EDGAR') system. The Company's actions in this regard raise
significant public interest concerns as well as constituting material violations
of federal and/or state securities laws. Specifically:
1. The Company's SEC filings contained incomplete, misleading and/or
inaccurate disclosures regarding the beneficial ownership of its securities by
certain officers and directors on several occasions, prior to and subsequent to
its listing on the Amex. These officers and directors knew or should have known
that certain filings including Forms 3, Forms 10KSB and 10KSB/A for the periods
ended December 31, 2004 and 2005 and the Form DEF 14-A filed on December 1, 2006
were incomplete, misleading and/or inaccurate yet failed to update and/or
correct the relevant disclosures contained therein in subsequent SEC filings.
2. The Company's disclosures in applicable registration statements and
periodic financial filings with respect to the net proceeds from the February 3,
2006 Placing Agreement related to its listing on the AIM Market of the London
Stock Exchange, and the offering costs and expenses related to its March 15,
2006 private placement were incomplete, inaccurate and/or misleading.
3. The Company provided incomplete, inaccurate and/or misleading
information related to its relationship with, and payments to, a consultancy
firm and its affiliates prior to and subsequent to its listing on the Amex in
applicable registration statements and periodic financial filings.
Based on the foregoing, Staff has determined that the Company is not in
compliance with Sections 132(a), 134, and 1101 of the Company Guide. In
addition, due to the public interest concerns, the Company is subject to
suspension from dealings on the Exchange pursuant to Sections 127 and 1003(f)
(iii) of the Company Guide."
B. The Company failed to provide public clarification to rumors and/or
reports related to the filing of various Forms 144 between August 1, 2006
through December 1, 2006. Specifically, notwithstanding articles in the press
concerning the filing of numerous Forms 144, the Company failed to make
appropriate public disclosure addressing the concerns related to the transfer or
sales of common stock by insiders and apparent inconsistencies with prior public
disclosure of controlling stock ownership, as required by Sections 132(a), 401
(a), 402(a) and 403 of the Company Guide."
C. Bodisen failed to provide information and documents reasonably
requested by the Staff related to the beneficial ownership of the Company's
securities held by certain officers and directors as required by Section 132(e)
of the Company Guide. Further, Bodisen has been unable to provide written
updates to the Staff as required pursuant to the terms of the acceptance of the
Company's plan or written responses to the Staff's information request dated
March 16, 2007, as required by Section 132(e) of the Company Guide."
D. Bodisen has internal control weaknesses related to its accounting and
financial reporting obligations which rise to the level of a public interest
concern. Based on information received by the Staff, the Company failed to
consistently review and reconcile its shareholders ownership records with those
of its transfer agent to ensure that its SEC filings and public disclosures were
accurate. In this regard, the Company continuously reported in its SEC filings
since listing on the Amex that certain officers either directly or indirectly
held an aggregate of 40% ownership in the Company's common stock,
notwithstanding that its transfer agent records were inconsistent with such
reports and disclosures. Further, by failing to reconcile these records, the
Company may have inaccurately reported its capitalization. Accordingly pursuant
to Sections 127 and 1003(f)(iii) of the Company Guide the Company is subject to
suspension from dealings on the Exchange."
The deficiencies described above evidence that the Company has
engaged in a pattern and practice of non-compliance with Amex listing
requirement encompassing a broad range of qualitative and corporate governance
concerns as well as violations of applicable federal and/or state securities
laws, which collectively rise to the level of a public interest concern and
subject Bodisen to delisting pursuant to Sections 127 and 1003(f) (iii) of the
Company Guide. In this regard, notwithstanding that it is the responsibility of
management and the board of directors to ensure that the Company operates in
compliance with all applicable laws, rules and regulations, the Company has
evidenced that it is unable to (i) effectively monitor its compliance with
federal and/or state securities laws, as well as Amex requirements, and (ii)
appropriately oversee the actions and activities of its consultants, agents and
advisors."
E. On March 20, 2007, Bodisen filed a Form 8-K which indicated that it
would be unable to timely file its Form 10-K for fiscal year ended December 31,
2006, and that the Company could not predict when it would file the report. To
date, the filing has not been made, as required by Sections 134 and 1101 of the
Amex Company Guide."
The Company has a limited right to appeal the basis for the delisting
determination by requesting a hearing with an Amex Listing Qualifications Panel.
The Company has determined not to appeal.
Note 23- 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 our company filed eight purported class
actions in the U.S. District Court for the Southern District of New York against
our company and certain of our 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 our 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 and as
of the date of this annual report, only plaintiffs in two of the actions have
served summons and complaint on our company. The time for us to respond
formally to these lawsuits has not come. Thus, we have not responded to any of
the complaints in these class actions. The complaints do not specify an amount
of damages that plaintiff 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 our business, financial condition, results of operations or liquidity.
About Bodisen Biotech, Inc.
Bodisen Biotech, Inc. (the "Company") is a leading manufacturer of organic
fertilizers, liquid fertilizers, pesticides and insecticides certified by the
Petroleum Chemical Industry Administrative office of China (Chemical Petroleum
Production Administrative Bureau), Shaanxi provincial government and Chinese
government. The Company is headquartered in Shaanxi province and is a Delaware
corporation. The Company's environmentally friendly "green" products have been
proven to improve soil and plant quality, and increase crop yields.
Safe Harbor Statement
This press release contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
statements that are not historical facts. These statements include financial
projections and estimates and their underlying assumptions, statements regarding
plans, objectives and expectations with respect to future events, operations,
products and services, and statements regarding future performance.
Forward-looking statements are generally identified by the words "expect," "
anticipates," "believes," "intends," "estimates," "plans" and similar
expressions. Although Bodisen Biotech, Inc.'s management believes that the
expectations reflected in such forward-looking statements are reasonable,
investors are cautioned that forward-looking information and statements are
subject to various risks and uncertainties, many of which are difficult to
predict and generally beyond the control of Bodisen Biotech, Inc., that could
cause actual results and developments to differ materially from those expressed
in, or implied or projected by, the forward-looking information and statements.
These risks and uncertainties include those discussed or identified in the
public filings with the SEC made by Bodisen Biotech, Inc., including those
listed under "Risk Factors" and "Note Regarding Forward-Looking Statements" in
Bodisen Biotech, Inc.'s annual report on Form 10-K for the year ended December
31, 2006. Other than as required by applicable law, Bodisen Biotech, Inc. does
not undertake any obligation to update or revise any forward-looking information
or statements.
Enquiries:
Charles Stanley Securities
Richard Thompson / Philip Davies 020 7149 6000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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