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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bodisen | LSE:BODI | London | Ordinary Share | COM STK USD0.0001 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Bodisen Biotech Inc
19 September 2008
19 September 2008
Bodisen Biotech, Inc.
Results for the six month period ended 30 June 2008
Bodisen Biotech, Inc. (the "Company") (OTC Pink Sheets: BBCZ; London AIM: BODI; website: www.bodisen.com).
Financial highlights
- Net Revenue for the six month period of $2.075m down from $8.18m by the comparable period impacted by the abnormally cold spring
in Shaanxi which affected planting.
- Net income increased to $2.18m for the period compared to $1.1m for the comparable period. The improvement was primarily due to a
bad debt recovery of $2.9m.
Result of Operations
Six months ended June 30, 2008 compared to six months ended June 30, 2007
Revenue. We generated revenues of $2,075,054 for the six months ended June 30, 2008, a decrease of $6,105,581 or 74.6%, compared to
$8,180,635 for the six months ended June 30, 2007. The significant decrease in revenue was due to the abnormally cold spring time weather of
Shaanxi province, which affected crop plantings and decreased the use of fertilizer.
Gross Profit. We achieved a gross profit of $783,924 for the six months ended June 30, 2008, a decrease of $2,727,920 or 77.7%, compared
to $3,511,844 for the six months ended June 30, 2007. The decrease in gross profit was due to the significant decrease in revenue as a
result of decreased sales. Gross margin (gross profit as a percentage of revenues), decreased, from 42.9% for the six months ended June 30,
2007, to 37.8% for the six months ended June 30, 2008 primarily as a result of an increase in raw material costs.
Operating expenses. We incurred operating expenses of $1,744,629 for the six months ended June 30, 2008, a decrease of $1,478,652 or
45.9% compared to $3,223,281 for the six months ended June 30, 2007. The decrease was also due to an overall reduction in overhead due to
the decrease in sales.
Aggregated selling expenses accounted for $378,179 of our operating expenses for the six months ended June 30, 2008, a decrease of
$301,108 or 44.3% compared to $679,287 for the six months ended June 30, 2007. The decrease in our aggregated selling expenses is due to the
significant decrease in sales. General and administrative expenses accounted for the remainder of our operating expenses of $1,366,450 for
the six months ended June 30, 2008, which increased $1,177,544 compared to $2,543,994 for the six months ended June 30, 2007. The decrease
was also due to an overall reduction in overhead due to the decrease in sales.
Non Operating income and expenses. We had total non-operating income of $3,103,897 for the six months ended June 30, 2008 compared to
total non-operating expense of $816,662 for the six months ended June 30, 2007. Other income was $2,963,152 for the six months ended June
30, 2008 compared to $639,586 for the six months ended June 30, 2007. The change is primarily due to a bad debt recovery of $2,936,149
during the six months ended June 30, 2008. Total non-operating income includes interest income of $140,745 for the six months ended June 30,
2008 compared to only $179,452 of interest income for the six months ended June 30, 2007.
Net Income. Net income increased by 97.6% to $2,184,378 for the six months ended June 30, 2008 compared to net income of $1,105,225 for
the six months ended June 30, 2007. We had earnings (loss) per share of $0.12 for the six months ended June 30, 2008 compared to earnings
per share of $0.06 for the six months ended June 30, 2007.
About Bodisen Biotech, Inc.
Bodisen Biotech, Inc. is a leading manufacturer of liquid and organic compound fertilizers, pesticides, insecticides and agricultural
raw material 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 files annual and periodic reports with the U.S. Securities and Exchange Commission, which are accessible at
www.sec.gov.
Safe Harbor Statement
This press release may contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These statements are based on the current expectations or beliefs of Bodisen Biotech, Inc. management and are
subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the
forward-looking statements.
Enquiries:
Bodisen Biotech, Inc.
Bo Chen 0086 29 8707 4957
Charles Stanley Securities
Richard Thompson / Philip Davies 020 7149 6000
CONSOLIDATED BALANCE SHEET
June 30, 2008
June 30, 2008 June 30, 2007*
$ $
ASSETS
CURRENT ASSETS:
Cash & cash equivalents 526,940 6,476,725
Accounts receivable, net of
allowance for doubtful
accounts of $23,863,766 and
$843,115 1,772,146 22,998,581
Other receivable 4,082,359 2,075,025
Inventory 1,924,224 2,849,141
Advances to suppliers 9,245,625 8,800,115
Prepaid expense and other 5,414,476 4,802,322
current assets
-------------------- --------------------
----- -----
Total current assets 22,965,770 48,001,909
PROPERTY & EQUIPMENT, net 5,518,793 5,243,316
CONSTRUCTION IN PROGRESS 8,291,463 4,627,339
MARKETABLE SECURITY 12,382,608 9,039,304
INTANGIBLE ASSETS, net 2,104,163 2,037,638
OTHER ASSETS 3,947,304 3,735,503
LOAN RECEIVABLE 2,682,557 2,187,118
-------------------- --------------------
----- -----
TOTAL ASSETS 57,892,658 74,872,127
============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable 894,916 1,503,501
Accrued expenses 181,231 240,758
-------------------- --------------------
----- -----
Total current liabilities 1,076,147 1,744,259
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 per
share; authorised 5,000,000
shares; nil issued and
outstanding
Common stock, $0.0001 per
share; authorised 30,000,000
shares; issued and outstanding
18,310,250 and 18, 310,250 1,831 1,831
shares
Additional paid in capital 33,860,062 33,860,062
Other comprehensive income 17,565,117 16,520,775
Statutory reserve 4,314,488 4,314,488
Retained earnings 1,075,013 (1,109,365)
-------------------- --------------------
----- -----
Total stockholders' equity 56,816,511 73,127,868
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
57,892,658 74,872,127
============== ==============
* The 2007 balance sheet figures are taken from the SEC 10-Q for the quarterly period ended 30 June 2007.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
Three Month Periods Ended Six Month Periods Ended
June 30 June 30
2008 2007 2008 2007
$ $ $ $
Net revenue 1,166,535 3,172,163 2,075,054 8,180,635
Cost of revenue 723,842 1,650,541 1,291,130 4,668,791
------------------ ------------------ ------------------ ------------------
Gross profit 442,693 1,521,622 783,924 3,511,844
Operating expenses:
Selling expenses 195,920 330,273 378,179 679,287
General and administrative 707,106 (628,515) 1,366,450 2,543,994
expenses
------------------ ------------------ ------------------ ------------------
Total operating expenses 903,026 (298,242) 1,744,629 3,223,281
------------------ ------------------ ------------------ ------------------
Income (loss) from operations (460,333) 1,819,864 (960,705) 288,563
Non-operating Income
(expense):
Other income (expense), net 751,093 706,783 2,963,152 639,586
Interest income 84,497 89,443 140,745 179,452
Interest expense - (1,319) - (2,376)
------------------ ------------------ ------------------ ------------------
Total non-operating income 835,590 794,907 3,103,897 816,662
(expense)
Loss before provision for 375,257 2,614,771 2,143,192 1,105,225
income taxes
Provision for income taxes 41,186 - 41,186 -
------------------ ------------------ ------------------ ------------------
Net income 416,443 2,614,771 2,184,378 1,105,225
Other comprehensive income
Foreign currency translation 1,001,703 1,016,214 2,901,733 1,657,890
(loss)
Unrealised gain (loss) on 5,035,594 (1,857,391) 2,538,435
marketable equity security 1,424,000
------------------ ------------------ ------------------ ------------------
Comprehensive Income 2,842,146 8,666,579 3,228,720 5,301,550
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 18,310,250 18,310,250 18,310,250 18,310,250
========== ========== ========== ==========
Diluted 18,310,250 18,310,250 18,310,250 18,310,250
========== ========== ========== ==========
Earnings per share:
Basic 0.02 0.14 0.12 0.06
========== ========== ========== ==========
Diluted 0.02 0.14 0.12 0.06
========== ========== ========== ==========
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Month Periods Ended
June 30,
2008 2007
$ $
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income 2,184,378 1,105,225
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortisation 249,464 233,997
Allowance for bad debts (3,136,901) 163,965
(Increase)/decrease in assets:
Accounts receivable 2,051,191 (3,744,199)
Other receivable & Loan (1,684,248) (1,298,803)
Receivable
Inventory (651,759) (994,158)
Advances to suppliers 1,092,778 4,138,508
Prepaid expense 132,114 (4,540,439)
Other assets (154,344) -
Increase/(decrease) in current
liabilities:
Accounts payable and accrud (375,204) 100,119
expenses
Other payable - 184,306
-------------------- ----------------------
--
Net cash provided by (used in) (292,531) (4,651,479)
operating activities
-------------------- ----------------------
--
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of property and (47,933) (77,330)
equipment
Additions to construction in (70,430) (849,900)
progress
Proceeds from other assets 96,093 (87,717)
-------------------- ----------------------
--
Net cash used in investing (22,270) (1,014,947)
activities
-------------------- ----------------------
--
Effect of exchange rate changes
on cash and cash equivalents 224,335 318,824
-------------------- ----------------------
--
NET DECREASE IN CASH & CASH (90,466) (5,347,602)
EQUIVALENTS
CASH & CASH EQUIVALENTS,
BEGINNING OF PERIOD 617,406 11,824,327
-------------------- ----------------------
--
CASH & CASH EQUIVALENTS, ENDING 526,940 6,476,725
OF PERIOD
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid - -
============ ============
Income taxes paid - -
============ ============
NOTES
Note 1 - Organization and Basis of Presentation
Organisation and Line of Business
Yang Ling Bodisen Biology Science and Technology Development Company Limited ("BBST") was founded in the People's Republic of China on
August 31, 2001. BBST, located in Yang Ling Agricultural High-Tech Industries Demonstration Zone, is primarily engaged in developing,
manufacturing and selling pesticides and compound organic fertilizers in the People's Republic of China.
On February 24, 2004, Bodisen International, Inc. ("BII"), the non-operative holding company of BBST (accounting acquirer) consummated a
merger agreement with Stratabid.com, Inc. (legal acquirer) ("Stratabid"), a Delaware corporation, to exchange 12,000,000 shares of Stratabid
to the stockholders of BII, in which BII merged into Bodisen Holdings, Inc. (BHI), an acquisition subsidiary of Stratabid, with BHI being
the surviving entity. As a part of the merger, Stratabid cancelled 3,000,000 shares of its issued and outstanding stock owned by its former
president and declared a stock dividend of three shares on each share of its common stock outstanding for all stockholders on record as of
February 27, 2004.
Stratabid was incorporated in the State of Delaware on January 14, 2000 and before the merger, was a start- up stage Internet based
commercial mortgage origination business based in Vancouver, BC, Canada.
The exchange of shares with Stratabid has been accounted for as a reverse acquisition under the purchase method of accounting because
the stockholders of BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed Bodisen Biotech, Inc. (the "Company").
Accordingly, the merger of the two companies has been recorded as a recapitalization of the Company, with the Company (BII) being treated as
the continuing entity. The historical financial statements presented are those of BII.
As a result of the reverse merger transaction described above the historical financial statements presented are those of BBST, the
operating entity.
In March 2005, Bodisen Biotech Inc. completed a $3 million convertible debenture private placement through an institutional investor.
Approximately $651,000 in incremental and direct expenses relating to this private placement has been amortized over the term of the
convertible debenture. None of the expenses were paid directly to the institutional investor. The net proceeds from this offering were
invested as initial start-up capital in a newly created wholly-owned Bodisen subsidiary by the name of "Yang Ling Bodisen Agricultural
Technology Co., Ltd. ("Agricultural"). In June 2005, Agricultural completed a transaction with Yang Ling Bodisen Biology Science and
Technology Development Company Limited ("BBST"), Bodisen Biotech, Inc.'s operating subsidiary in China, which resulted in Agricultural
owning 100% of BBST.
In June 2006, BBST created another wholly owned subsidiary in the Uygur autonomous region of Xinjiang, China by the name of Bodisen
Agriculture Material Co. Ltd. ("Material"). Material had no operations during the year ended December 31, 2006.
Basis of Presentation
The unaudited consolidated financial statements have been prepared by Bodisen Biotech, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the
respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K. The results of the six months ended June 30, 2008 are not necessarily
indicative of the results to be expected for the full year ending December 31, 2008.
Foreign Currency Translation
The accounts of the Company were maintained, and their consolidated financial statements were expressed in the Chinese Yuan Renminbi
(CNY). Such consolidated financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts
Standards ("SFAS") No. 52, "Foreign Currency Translation," with the CNY as the functional currency. According to the Statement, all assets
and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates
and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments
are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income".
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
However, as discussed in Note 14, there are certain law suits filed by investors against the Company and the Company is subject to potential
claims from certain investors who have a right to receive the Company's shares. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management's responses in regard to these matters are also described in Note 14. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material
to the Company due to the levels of subjectivity and judgment involved.
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 for accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in
customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded based on the Company's historical collection
history.
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 $9,245,625 and $9,741,090 at June 30, 2008 and December 31, 2007, 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.
Property & Equipment and Capital Work In Progress
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions,
renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and
equipment is provided using the straight-line method for substantially all assets with estimated lives of:
Operating equipment 10 years
Vehicles 8 years
Office equipment 5 years
Buildings 30 years
The following are the details of the property and equipment at June 30, 2008 and December 31, 2007, respectively:
June 30 December 31
2008 2007
Operating equipment 1,100,427 1,025,862
Vehicles 756,545 722,360
Office equipment 87,074 81,671
Buildings 5,092,744 4,735,665
7,036,790 6,565,558
Less accumulated depreciation (1,517,997 (1,259,304
5,518,793 5,306,254
Depreciation expense for the six months ended June 30, 2008 and 2007 was $173,173 and $188,842, respectively.
On June 30, 2008 and December 31, 2007, the Company had "Capital Work in Progress" representing the construction in progress of the
Company's manufacturing plant amounting $8,291,463 and $7,722,756 respectively.
Marketable Securities
Marketable securities consist of 2,063,768 shares of China Natural Gas, Inc. (traded on the OTCBB: CHNG). This investment is classified
as available-for-sale as the Company plans to hold this investment for the long-term. This investment is reported at fair value with
unrealized gains and losses included in other comprehensive income. The fair value is determined by using the securities quoted market price
as obtained from stock exchanges on which the security trades.
Investment income, principally dividends, is recorded when earned. Realized capital gains and losses are calculated based on the cost of
securities sold, which is determined by the "identified cost" method.
Long-Lived Assets
The Company applies the provisions of 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 June 30, 2008 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
On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a
three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The
carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a
reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The three levels are defined as follow:
- Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
- Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
- Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following table represents our assets and liabilities by level measured at fair value on a recurring basis at June 30, 2008.
Description Level 1 Level 2 Level 3
Assets
Marketable securities $ - $ 12,382,608 $ -
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 Six
Months Ended June 30,
2008 2007
Compound fertilizer $ 1,950,228 $ 3,785,326
Liquid fertilizer 74,211 2,787,746
Pesticide 50,615 1,607,563
$ 2,075,054 $ 8,180,635
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 six months ended June 30, 2008 and 2007 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.
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 was exempted from income tax through October 2007.
In March 2005, Bodisen Biotech Inc. formed Agricultural. 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 BBST, which resulted in Agricultural owning 100% of BBST.
Foreign Currency Transactions and Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain
statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency
translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of
comprehensive income. The functional currency of the Company is the Chinese Yuan Renminbi. Translation gains of $8,049,855 at June 30, 2008
are classified as an item of other comprehensive income in the stockholders' equity section of the consolidated balance sheet. During the
six months ended June 30, 2008 and 2007, other comprehensive income in the consolidated statements of operations and other comprehensive
income included translation gains of $2,901,733 and $1,657,890, 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). Earnings (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 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities". SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for
fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial position and
results of operations.
In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services
Received for use in Future Research and Development Activities" ("FSP EITF 07-3"), which addresses whether nonrefundable advance payments
for goods or services that used or rendered for research and development activities should be expensed when the advance payment is made or
when the research and development activity has been performed. Management is currently evaluating the effect of this pronouncement on
financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations." SFAS No. 141R changes how a reporting enterprise
accounts for the acquisition of a business. SFAS No. 141R requires an acquiring entity to recognize all the assets acquired and liabilities
assumed in a transaction at the acquisition-date fair value, with limited exceptions, and applies to a wider range of transactions or
events. SFAS No. 141R is effective for fiscal years beginning on or after December 15, 2008 and early adoption and retrospective application
is prohibited.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements", which is an amendment
of Accounting Research Bulletin ("ARB") No. 51. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 changes the way the
consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts
attributable to both parent and the noncontrolling interest. SFAS 160 is effective for the fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. Based on current conditions, the Company does not expect the adoption of SFAS 160 to
have a significant impact on its results of operations or financial position.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB
Statement No. 133." SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect
an entity's financial position, financial performance, and cash flows. Based on current conditions, the Company does not expect the adoption
of SFAS 161 to have a significant impact on its results of operations or financial position.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the
GAAP hierarchy). SFAS 162 will not have an impact on the Company's financial statements.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement
No. 60." The scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement,
issued by enterprises included within the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial guarantee contracts
issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee
insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). SFAS 163
also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 163 will not have an impact on the Company's financial
statements.
Note 3 - Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Bodisen Biotech, Inc., its 100% wholly-owned subsidiaries
Bodisen Holdings, Inc. (BHI), Yang Ling Bodisen Agricultural Technology Co., Ltd (Agricultural), which was incorporated in March 2005, and
Sinkiang Bodisen Agriculture Material Co., Ltd. (Material), which was incorporated in June 2006, as well as the accounts of Agricultural's
100% wholly- owned subsidiary Yang Ling Bodisen Biology Science and Technology Development Company Limited (BBST). All significant
inter-company accounts and transactions have been eliminated in consolidation.
Note 4 - Inventory
Inventory at June 30, 2008 and December 31, 2007 consisted of the following:
June 30, December 31,
2008 2007
Raw Material $ 499,403 $ 425,542
Packaging 361,122 250,018
Finished Goods 1,263,615 691,730
Consumables 357 336
2,124,497 1,367,626
Less Obsolescence Reserve (200,275 ) (188,178 )
Inventory, net $ 1,924,222 $ 1,179,448
Note 5 - Marketable Security
During the year ended December 31, 2005, the Company purchased 2,063,768 shares of China Natural Gas, Inc. (traded on the OTCBB: CHNG)
for $2,867,346. At June 30, 2008 and December 31, 2007, the fair value of this investment was $12,382,608 and $14,239,999, respectively. As
a result of the change in fair value of this investment the Company recorded an unrealized gain (loss) of ($1,857,391) and $2,538,435 the
six months ended June 30, 2008 and 2007, respectively; which is included in other comprehensive income (loss). At June 30, 2008, this
represented a 7.1% interest in China Natural Gas, Inc.
Note 6 -Other Long-term Assets
During 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
2008 2007
Prepaid Lease (for 15 years) $ 2,786,244 $ 2,617,962
Current portion 197,258 185,344
Long-term portion $ 2,588,986 $ 2,432,618
The amortization expense for the six months ended June 30, 2008 and 2007 was $98,629 and $87,718 respectively.
Amortization expense for the prepayment of land lease over the next five fiscal years is estimated to be: 2008-$169,500, 2009-$169,500,
2010-$169,500, 2011-$169,500, 2012 - $169,500.
Note 7 - Loan Receivable
In August 2006, the Company entered into an agreement to loan $1,306,745 to an unrelated party. The loan is unsecured, payable by August
2008 and carries an interest rate of 13% per annum. Interest receivable on this loan was $342,369 and $192,472 at June 30, 2008 and December
31, 2007, respectively.
In November 2006, the Company entered into an agreement to loan $814,096 to an unrelated party. The loan is unsecured, payable by
November 2008 and carries an interest rate of 13% per annum. Interest receivable on this loan was $219,347 and $125,962, at June 30, 2008
and December 31, 2007, respectively.
Note 8- Intangible Assets
Net intangible assets at June 30, 2008 and December 31, 2007 were as follows:
2008 2007
Rights to use land $ 1,994,385 $ 1,873,929
Fertilizers proprietary technology 1,167,200 1,096,704
rights
3,161,585 2,970,633
Less Accumulated amortization (1,057,422 ) (919,981 )
$ 2,104,163 $ 2,050,652
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 six month periods ended June 30, 2008 and 2007 amounted to $76,291 and
$69,641, respectively.
Amortization expense for the Company's intangible assets over the next five fiscal years is estimated to be: 2008-$130,000,
2009-$130,000, 2010-$130,000 and 2011-$130,000 and 2012- $130,000.
Note 9 - Stock Options and Warrants
Stock Options
Following is a summary of the stock option activity:
Options Weighted Aggregate
outstanding Average Intrinsic
Exercise Value
Price
Outstanding, December 31, 2007 136,000 $ 5.39 $ 0
Granted - -
Forfeited - -
Exercised - -
Outstanding, June 30, 2008 136,000 $ 5.39 $ 0
Following is a summary of the status of options outstanding at June 30, 2008:
Outstanding Options Exercisable Options
Exercise Number Average Average Exercise Number Average
Price Remaining Price Exercis
Contractual e
Life Price
$5.00 100,000 1.18 $ 5.00 100,000 $ 5.00
$5.80 10,000 1.75 $ 5.80 10,000 $ 5.80
$6.72 26,000 2.51 $ 6.72 26,000 $ 6.72
Note 10 - Employee Welfare Plans
The Company has established its own employee welfare plan in accordance with Chinese law and regulations. The Company makes annual
contributions of 14% of all employees' salaries to employee welfare plan. The total expense for the above plan were $0 and $0 for the six
months ended June 30, 2008 and 2007, respectively. The Company has recorded welfare payable of $31,991 and $71,908 at June 30, 2008 and
December 31, 2007, respectively, which is included in accrued expenses in the accompanying consolidated balance sheet.
Note 11 - Statutory Common Welfare Fund
As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends
after appropriation has been made for the following:
i. Making up cumulative prior years* losses, if any;
ii. Allocations to the *Statutory surplus reserve* of at least 10% of income after tax, as determined under PRC accounting rules and
regulations, until the fund amounts to 50% of the Company*s registered capital;
iii. Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company*s *Statutory
common welfare fund*, which is established for the purpose of providing employee facilities and other collective benefits to the Company*s
employees; and
iv. Allocations to the discretionary surplus reserve, if approved in the stockholders* general meeting.
Pursuant to the new Corporate Law effective on January 1, 2006, there is now only one "Statutory surplus reserve" requirement. The
reserve is 10 percent of income after tax, not to exceed 50 percent of registered capital.
Pursuant to the "Circular of the Ministry of Finance ( MOF) on the Issue of Corporate Financial Management after the Corporate Law
Enforced" (No.67 [2006]), effective on April 1, 2006, issued by the MOF, the companies will transfer the balance of SCWF as of December 31,
2005 to Statutory Surplus Reserve. Any deficit in the SCWF will be charged in turn to Statutory Surplus Reserve, additional paid-in capital
and undistributed profit of previous years. If a deficit still remains, it should be transferred to retained earnings and be reduced to zero
by a transfer from after tax profit of following years. At December 31, 2006, the Company did not have a deficit in the SCWF.
The Company has appropriated $0 and $0 as reserve for the statutory surplus reserve and welfare fund for the six months ended June 30,
2008 and 2007, respectively.
Note 12 - Earnings Per Share
Earnings per share for six months ended June 30, 2008 and 2007 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. There is no difference between
basic and diluted earnings per shares for the six months ended June 30, 2008 and 2007. For 2007, the Company reported a net loss therefore
and common stock equivalents would be anti-dilutive. For 2008, the exercise price for all options outstanding was greater than the average
stock price for the quarter, therefore there were no common stock equivalents.
Note 13 - Current Vulnerability Due to Certain Concentrations
Two vendors provided 82.6% and 12.5%of the Company's raw materials for the six months ended June 30, 2008 and vendors provided 70.3%,
10.5% and 7.5%, of the Company's raw materials for the six months ended June 30, 2007.
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 14 - 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 it
does business. The following is a discussion of some of the more significant legal matters involving the Company.
In late 2006, various shareholders of the Company filed eight purported class actions in the U.S. District Court for the Southern
District of New York against the Company and certain of its officers and directors (among others), asserting claims under the federal
securities laws. The complaints contain allegations about prior financial disclosures and its internal controls and a prior, now-terminated
relationship with a financial advisor.
The eight actions are Stephanie Tabor vs. Bodisen, Inc., et al., Case No. 06-13220 (filed November 2006), Fraser Laschinger vs. Bodisen,
Inc., et al., Case No. 06-13254 (filed November 2006), Anthony DeSantis vs. Bodisen, Inc., et. al., Case No. 06-13454 (filed November 2006),
Yuchen Zhou vs. Bodisen, Inc., et. al., Case No. 06-13567 (filed November 2006), William E. Cowley vs. Bodisen, Inc., et. al., Case No.
06-13739 (filed December 2006), Ronald Stubblefield vs. Bodisen, Inc., et. al., Case No. 06-14449 (filed December 2006), Adam Cohen vs.
Bodisen, Inc., et. al., Case No. 06-15179 (filed December 2006) and Lawrence M. Cohen vs. Bodisen, Inc., et. al., Case No. 06-15399 (filed
December 2006). Plaintiffs have not specified an amount of damages they seek. Last year, the Court consolidated each of the actions into a
single proceeding.
In 2008, defendants in the action, including the Company, filed motions to dismiss the proceeding and to strike certain allegations in
the complaint. The Court has not scheduled a hearing on these motions.
Because these consolidated actions are in an early stage, the Company cannot comment on whether an adverse outcome is probable or
otherwise. While the Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously, an
adverse outcome in one or more of these matters could have a material adverse effect on its business, financial condition, results of
operations or liquidity.
In 2007, Ji Xiang, a shareholder of China Natural Gas (and son of its Chairman and CEO) instituted litigation in the Chinese court
system in Shaanxi province challenging the validity of the Company's ownership of 2,063,768 shares of China Natural Gas common stock. The
Company obtained these shares in September 2005 in a share transfer agreement and asserts that it has fully performed its obligations under
the agreement and is entitled to own the shares. The parties in the Chinese litigation have submitted their evidence and now await a
decision from the Chinese court. Also, in January 2008, the same shareholder instituted litigation in a Utah state court against Yangling
Bodisen Biotech Development Co. Ltd. and Interwest Transfer Co. (China Natural Gas's transfer agent) seeking to prevent the Company from
selling its shares in China Natural Gas. Plaintiff has obtained an order from the Utah court provisionally preventing the Company from
selling the China Natural Gas shares pending a decision on the merits of the underlying dispute. The Company intends to vigorously and thoroughly defend itself against this claim. While the Company believes
it will prevail in these litigation matters and establish its right of ownership to the China Natural Gas shares, an adverse outcome could
have a material adverse effect on its business, financial condition, results of operations or liquidity.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our consolidated financial statements and related notes thereto included
elsewhere in this quarterly report and our annual audited consolidated financial statements and related notes included in our annual report
on Form 10-K for the year ended December 31, 2007, which was filed with the Securities and Exchange Commission on April 15, 2008 (the "Form
10-K"). The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed below and in the Form 10-K, particularly under "Risk Factors" and "Note
Regarding Forward-Looking Statements."
Virtually all of our revenues and expenses were denominated in Renminbi ("RMB"), the currency of the People's Republic of China. Because
we report our financial statements in U.S. dollars, we are exposed to translation risk resulting from fluctuations of exchange rates between
the RMB and the U.S. dollar. There is no assurance that exchange rates between the RMB and the U.S. dollar will remain stable. A devaluation
of the RMB relative to the U.S. dollar could adversely affect our business, financial condition and results of operations. See "Risk
Factors" in the Form 10-K. We do not engage in currency hedging and to date, inflation has not had a material impact on our business.
Overview
We are incorporated under the laws of the state of Delaware and our operating subsidiary, Yang Ling, is headquartered in Shaanxi
Province, the People's Republic of China. We are engaged in developing, manufacturing and selling organic fertilizers, liquid fertilizers,
pesticides and insecticides in the People's Republic of China and produce numerous proprietary product lines, from pesticides to
crop-specific fertilizers. We market and sell our products to distributors throughout the People's Republic of China, and these
distributors, in turn, sell our products to farmers. We also conduct research and development to further improve existing products and
develop new formulas and products.
Critical Accounting Policies
The accounting and reporting policies that we use affect our consolidated financial statements. Certain of our accounting and reporting
policies are critical to an understanding of our results of operations and financial condition, and in some cases, the application of these
policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our
consolidated financial statements. These accounting and reporting policies are described below. See Note 2 to our consolidated financial
statements for further discussion of our accounting policies.
Accounts receivable
We maintain reserves for potential credit losses on accounts receivable and record them primarily on a specific identification basis. In
order to establish reserves, we review the composition of accounts receivable and analyze historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
This analysis and evaluation requires the use of judgments and estimates. Because of the nature of the evaluation, certain of the judgments
and estimates are subject to change, which may require adjustments in future periods.
Inventories
We value inventories at the lower of cost (determined on a weighted average basis) or market. When evaluating our inventory, we compare
the cost with the market value and make allowance to write them down to market value, if lower. The determination of market value requires
the use of estimates and judgment by our management.
Intangible assets
Since July 1, 2002, we have evaluated potential goodwill impairment in accordance with SFAS No. 142, which applied to our financial
statements beginning July 1, 2002. We evaluate intangible assets for impairment, at least on an annual basis and whenever events or changes
in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. This evaluation requires the
use of judgments and estimates, in particular with respect to recoverability. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering
a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the
net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to
measure the amount of impairment loss.
Recent Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS 159 permits
entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
We are currently assessing the impact of SFAS 159 on our financial position and results of operations.
In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities" ("FSP EITF 07-3"), which addresses whether nonrefundable advance payments
for goods or services used or rendered for research and development activities should be expensed when the advance payment is made or when
the research and development activity has been performed. Management is currently evaluating the effect of this pronouncement on our
financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations." SFAS 141R changes how a reporting enterprise
accounts for the acquisition of a business. SFAS 141R requires an acquiring entity to recognize all the assets acquired and liabilities
assumed in a transaction at the acquisition-date fair value, with limited exceptions, and applies to a wider range of transactions or
events. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. Early adoption and retrospective application is
prohibited.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements," which is an amendment
of ARB No. 51. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. SFAS 160 changes the way the consolidated income statement is
presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest. SFAS 160 is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, we do not expect the adoption of SFAS 160 to have a significant impact on our results of
operations or financial position.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB
Statement No. 133." SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows. Based on current conditions, we do not expect the adoption of
SFAS 161 to have a significant impact on our results of operations or financial position.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP in the United States. SFAS 162 will not have an impact on our financial
statements.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement
No. 60." The scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement,
issued by enterprises included within the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial guarantee contracts
issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee
insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). SFAS 163
also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 163 will not have an impact on our financial statements.
For information regarding these and other recent accounting pronouncements and their expected impact on our future financial condition
or results of operations, see Note 2 to our consolidated financial statements.
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 June 30, 2008, we had $526,940 of cash and cash equivalents compared to $617,406 as of December 31, 2007. Based on past
performance and current expectations, we believe our cash and cash equivalents and cash generated from operations will satisfy our current
working capital needs, capital expenditures and other liquidity requirements associated with our operations. However, to the extent our
allowance for bad debts in insufficient to cover our actual bad debt experience, our liquidity would be negatively impacted.
Cash Flows
Our operating activities used net cash of $292,531 for the six months ended June 30, 2008 compared to net cash of $4,651,479 used for
operating activities for the six months ended June 30, 2007. This decrease in the use of cash in operating activities is principally due to
the increase in net income from operations and receipts of customer payments.
Our investing activities used $22,270 of cash for the six months ended June 30, 2008, compared to $1,014,947 of cash used in investing
activities for the six months ended June 30, 2007.
Loan Receivables
In August 2006, we made an unsecured loan of $1,306,745 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 August 2008. In November 2006, we made an unsecured $814,096 advance payment to a company for the installation of a facility to
house a new compound fertilizer production line in a new building. The installation of that facility occurred in November 2007. We
accounted for this as a loan under applicable accounting rules because the advance payment bears interest at rate of 13% per annum and is to
be repaid by November 2008. For more information relating to these loan receivables, see Note 7 to our condensed consolidated financial
statements included elsewhere in this quarterly report on Form 10-Q.
Contractual Commitments
In August 2006, we entered into a 30-year land-lease arrangement with the government of the People's Republic of China, under which we
pre-paid $2,529,818 upon execution of the contract of lease expense for the next 15 years. We agreed to make a prepayment for the next eight
years in November 2021, and will make a final pre-payment in November 2029 for the remaining seven years. The annual lease expense amounts
to approximately $169,580. For further information regarding this arrangement, see Note 7 to our annual consolidated financial statements
included in the Form 10-K. Our land-lease arrangement is currently our only material on- and off-balance sheet expected or contractually
committed future obligation.
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 annual consolidated financial statements included the Form 10-K.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
N/A
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act))
as of June 30, 2008. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be
disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2008, there were no changes in our internal control over financial reporting that have materially
affected our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business.
Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business. Other than the matters described below, we are currently not aware of any such legal proceedings or claims that we
believe would or could have, individually or in the aggregate, a material adverse affect on our business, financial condition, results of
operations or liquidity.
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 allegations about the our prior financial disclosures and our internal controls and a prior,
now-terminated relationship with a financial advisor. The complaints do not specify an amount of damages that plaintiffs seek.
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).
In 2008, defendants in the action, including our company, filed motions to dismiss the proceeding and to strike certain allegations in
the complaint. The Court has not scheduled a hearing on these motions.
Because these consolidated actions are in an early stage, 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.
In 2007, Ji Xiang, a shareholder of China Natural Gas (and son of its Chairman and CEO) instituted litigation in the Chinese court
system in Shaanxi province challenging the validity of our ownership of 2,063,768 shares of China Natural Gas common stock. We obtained
these shares in September 2005 in a share transfer agreement and assert that we have fully performed our obligations under the agreement and
are entitled to own the shares. The parties in the Chinese litigation have submitted their evidence and now await a decision from the
Chinese court. Also, in January 2008, the same shareholder instituted litigation in a Utah state court against Yangling Bodisen Biotech
Development Co. Ltd. and Interwest Transfer Co. (China Natural Gas's transfer agent) seeking to prevent us from selling our shares in China
Natural Gas. Plaintiff has obtained an order from the Utah court provisionally preventing us from selling the China Natural Gas shares
pending a decision on the merits of the underlying dispute. We intend to vigorously and thoroughly defend our company against this claim. While we believe we will prevail in these litigation matters and
establish our right of ownership to the China Natural Gas shares, an adverse outcome could have a material adverse effect on our business,
financial condition, results of operations or liquidity.
Item 1A. Risk Factors
There have been no material changes from the disclosure provided in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
This information is provided by RNS
The company news service from the London Stock Exchange
END
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