x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended March 31, 2009
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the transition period from __________ to
__________
|
Maryland
|
20-3912942
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
PART I
|
-
|
FINANCIAL
INFORMATION
|
3
|
|
Item
1.
|
Financial
Statements
|
3
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
4
|
||
Item
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
8
|
||
Item
4.
|
Controls
and Procedures
|
8
|
||
PART II
|
-
|
OTHER
INFORMATION
|
10
|
|
Item
1.
|
Legal
Proceedings
|
10
|
||
Item
1A.
|
Risk
Factors
|
10
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
10
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
10
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
10
|
||
Item
5.
|
Other
Information
|
10
|
||
Item
6.
|
Exhibits
|
10
|
||
Signatures
|
11
|
Page
|
||
Condensed
Consolidated Balance Sheets
as
of March 31, 2009 (Unaudited) and December 31, 2008
|
F-1
|
|
Condensed
Consolidated Statements of Operations
for
the three months ended March 31, 2009 and 2008 (Unaudited)
|
F-2
|
|
Condensed
Consolidated Statements of Stockholders’ Equity
for
the three months ended March 31, 2009 (Unaudited) and
the
year ended December 31, 2008
|
F-3
|
|
Condensed
Consolidated Statements of Cash Flows
for
the three months ended March 31, 2009 and 2008 (Unaudited)
|
F-4
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
F-5
-
F-13
|
March
31,
2009
|
December
31,
2008
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 8,570,966 | $ | 8,312,636 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $6,587
and $6,524, respectively
|
37,881 | 45,165 | ||||||
Inventory
|
65,217 | 47,113 | ||||||
Other
receivables
|
7,320 | 7,329 | ||||||
Prepaid
expenses
|
29,441 | 22,345 | ||||||
Total
Current Assets
|
8,710,825 | 8,434,588 | ||||||
Property,
plant and equipment, net
|
126,922 | 231,278 | ||||||
Investment
in Tienwe Technology
|
878,400 | 879,420 | ||||||
Deferred
financing costs, net of accumulated amortization of $55,777 and $28,403,
respectively
|
151,505 | 178,879 | ||||||
Intangible
assets, net
|
19,044 | 59,495 | ||||||
Total
Assets
|
$ | 9,886,696 | $ | 9,783,660 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 215,701 | $ | 234,007 | ||||
Total
Current Liabilities
|
215,701 | 234,007 | ||||||
Long
Term Liabilities
|
||||||||
Convertible
notes, net
|
352,478 | 327,020 | ||||||
Total
Liabilities
|
568,179 | 561,027 | ||||||
Stockholders'
Equity
|
||||||||
Undesignated
preferred stock, par value $.001 per share; authorized 4,900,000 shares;
none issued
|
- | - | ||||||
Common
stock, par value $.001 per share; authorized 100,000,000
shares,
issued
and outstanding 12,958,574 and 12,958,574, respectively
|
12,959 | 12,959 | ||||||
Additional
paid-in capital
|
4,369,786 | 4,369,786 | ||||||
Retained
earnings
|
3,761,128 | 3,654,212 | ||||||
Accumulated
other comprehensive income
|
1,174,644 | 1,185,676 | ||||||
Total
stockholders' equity
|
9,318,517 | 9,222,633 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 9,886,696 | $ | 9,783,660 |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Sales
of products
|
$ | 469,572 | $ | 339,444 | ||||
Cost
of goods sold
|
146,242 | 103,591 | ||||||
Gross
profit
|
323,330 | 235,853 | ||||||
Selling,
general and administrative expenses
|
164,351 | 124,434 | ||||||
Income
from operations
|
158,979 | 111,419 | ||||||
Interest
and other income
|
4,519 | 4,909 | ||||||
Interest
expense
|
(56,582 | ) | - | |||||
Income
before income taxes
|
106,916 | 116,328 | ||||||
Income
taxes
|
- | - | ||||||
Net
income
|
$ | 106,916 | $ | 116,328 | ||||
Earnings
per common share:
|
||||||||
Basic
|
$ | 0.01 | $ | 0.01 | ||||
Diluted
|
$ | 0.01 | $ | 0.01 | ||||
Weighted
average number of common shares used to compute earnings per common
share:
|
||||||||
Basic
|
12,958,574 | 12,958,574 | ||||||
Diluted
|
13,958,574 | 12,958,574 |
Common Stock
Shares
|
Common Stock
Amount
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
|
Total
|
|||||||||||||||||||
Balance,
December 31, 2007
|
12,958,574 | $ | 12,959 | $ | 4,150,636 | 2,308,873 | $ | 656,164 | $ | 7,128,632 | ||||||||||||||
Relative
fair value of warrants and beneficial conversion feature
included in sale of convertible notes
|
- | - | 199,230 | - | - | 199,230 | ||||||||||||||||||
Fair
value of Placement Agent warrants
|
- | - | 19,920 | - | - | 19,920 | ||||||||||||||||||
Net
income for the year ended December 31, 2008
|
- | - | - | 1,345,339 | - | 1,345,339 | ||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | 529,512 | 529,512 | ||||||||||||||||||
Balance,
December 31, 2008
|
12,958,574 | 12,959 | 4,369,786 | 3,654,212 | 1,185,676 | 9,222,633 | ||||||||||||||||||
Net
income for the three months ended March 31, 2009
(Unaudited)
|
- | - | - | 106,916 | - | 106,916 | ||||||||||||||||||
Foreign
currency translation adjustment (Unaudited)
|
- | - | - | - | (11,032 | ) | (11,032 | ) | ||||||||||||||||
Balance,
March 31, 2009 (Unaudited)
|
12,958,574 | $ | 12,959 | $ | 4,369,786 | $ | 3,761,128 | $ | 1,174,644 | $ | 9,318,517 |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Operating
activities
|
||||||||
Net
income
|
$ | 106,916 | $ | 116,328 | ||||
Adjustments
to reconcile net income to net cash provided
by (used in) operating activities:
|
||||||||
Bad
debt expense
|
70 | - | ||||||
Depreciation
of property, plant and equipment
|
10,262 | 12,881 | ||||||
Amortization
of intangible assets and deferred financing costs
|
30,421 | 4,684 | ||||||
Amortization
of debt discount and fair value of warrants
|
25,458 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
in accounts receivable
|
7,221 | 31,462 | ||||||
Increase
in other receivable
|
- | (276 | ) | |||||
Increase
in inventory
|
(18,104 | ) | (17,034 | ) | ||||
(Increase)/decrease
in prepaid expenses
|
(7,096 | ) | 3,334 | |||||
Decrease
in accounts payable and accrued liabilities
|
(18,306 | ) | (5,201 | ) | ||||
Net
cash provided by operating activities
|
136,842 | 146,178 | ||||||
Investing
activities
|
||||||||
Proceeds
from disposal of fixed assets and intangible assets
|
131,760 | - | ||||||
Property,
plant and equipment additions
|
(608 | ) | - | |||||
Net
cash provided by investing activities
|
131,152 | - | ||||||
Financing
activities
|
||||||||
Net
cash provided by financing activities
|
- | - | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
(9,664 | ) | 245,740 | |||||
Increase
in cash and cash equivalents
|
258,330 | 391,918 | ||||||
Cash
and cash equivalents, beginning of period
|
8,312,636 | 5,984,448 | ||||||
Cash
and cash equivalents, end of period
|
$ | 8,570,966 | $ | 6,376,366 |
Inventory
consists of:
|
March
31,
|
December
31,
|
||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Raw
materials
|
$ | 50,156 | $ | 39,125 | ||||
Finished
goods
|
11,613 | 4,536 | ||||||
Other
|
3,448 | 3,452 | ||||||
Total
inventory
|
$ | 65,217 | $ | 47,113 |
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Building
|
$ | 19,676 | $ | 19,699 | ||||
Transportation
equipment
|
222,833 | 223,092 | ||||||
Manufacturing
equipment and machinery
|
37,048 | 146,034 | ||||||
Office
equipment
|
18,502 | 3,508 | ||||||
298,059 | 392,333 | |||||||
Less
accumulated depreciation
|
171,137 | 161,055 | ||||||
Property,
plant and equipment, net
|
$ | 126,922 | $ | 231,278 |
March
31,
2009
|
December
31,
2008
|
|||||||
(Unaudited)
|
||||||||
Placement
Agent commissions
|
$ | 40,000 | $ | 40,000 | ||||
Placement
Agent expense allowance
|
25,000 | 25,000 | ||||||
Fair
value of Placement Agent warrants
|
19,920 | 19,920 | ||||||
Legal
and other fees
|
122,362 | 122,362 | ||||||
Total
|
207,282 | 207,282 | ||||||
Less:
accumulated amortization
|
(55,777
|
) | (28,403 | ) | ||||
Deferred
Financing Costs, end of period
|
$ | 151,505 | $ | 178,879 |
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Product
rights
|
$ | 52,704 | $ | 90,141 | ||||
Patent
|
14,640 | 14,657 | ||||||
Trademark
|
2,187 | 2,190 | ||||||
Total
|
69,531 | 106,988 | ||||||
Less
accumulated amortization
|
50,487 | 47,493 | ||||||
Intangible
assets, net
|
$ | 19,044 | $ | 59,495 |
March
31,
2,009
|
December
31,
2008
|
|||||||
(Unaudited)
|
||||||||
Convertible
notes - face amount
|
$ | 500,000 | $ | 500,000 | ||||
Less:
|
||||||||
Debt
discount attributable to the relative fair value of
warrants
|
(149,615 | ) | (149,615 | ) | ||||
Debt
discount attributable to the intrinsic value of the beneficial
conversion feature
|
(49,615 | ) | (49,615 | ) | ||||
Less
accumulated amortization of debt discounts
|
51,708 | 26,250 | ||||||
Convertible
notes payable, net
|
$ | 352,478 | $ | 327,020 |
March
31,
2009
|
Year
Ended
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Outstanding
at beginning of period
|
1,387,580 | 807,580 | ||||||
Warrants
issued
|
- | 580,000 | ||||||
Warrants
exercised
|
- | - | ||||||
Warrants
expired
|
- | - | ||||||
Outstanding
at end of period
|
1,387,580 | 1,387,580 | ||||||
Exercisable
at end of period
|
1,387,580 | 1,387,580 |
Date
Issued
|
Expiration
Date
|
Number
of
Warrants
|
Weighted
Average
Exercise
Price
|
|||||||||
May
31, 2006
|
May
31, 2009
|
10,000 | $ | 1.50 | ||||||||
October
11, 2007
|
October
10, 2010
|
379,800 | 1.50 | |||||||||
October
11, 2007
|
October
10, 2010
|
379,800 | 2.00 | |||||||||
October
11, 2007
|
October
10, 2012
|
37,980 | 1.00 | |||||||||
September
29, 2008
|
September
29, 2011
|
80,000 | 1.00 | |||||||||
September
29, 2008
|
September
29, 2011
|
500,000 | 1.50 | |||||||||
Total
|
1,387,580 | $ | 1.59 |
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Expected
tax at 35%
|
$ | 37,421 | $ | 40,715 | ||||
Tax
effect of unutilized losses of China Agri and Meixin
|
39,507 | 13,341 | ||||||
Effect
of PRC income tax exemption granted to Xinsheng
|
(54,949 | ) | (38,611 | ) | ||||
Permanent
difference relating to Xinsheng's earnings to be permanently
invested in operations outside the United States
|
(21,979 | ) | (15,445 | ) | ||||
Actual
provision for income taxes
|
$ | - | $ | - |
Year
ending
March
31,
|
Minimum
Rent
|
|||
2010
|
$ | 69,158 | ||
2011
|
53,640 | |||
Total
|
$ | 122,798 |
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Sales
|
$ | 469,572 | $ | 339,444 | ||||
Cost
of Goods Sold
|
146,242 | 103,591 | ||||||
Gross
Profit
|
$ | 323,330 | $ | 235,853 | ||||
Gross
Profit Margin
|
68.86 | % | 69.48 | % |
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Gross
Profit
|
$ | 323,330 | $ | 235,853 | ||||
Selling
and marketing
|
56,400 | 44,213 | ||||||
Professional
fees
|
29,000 | 29,000 | ||||||
Depreciation
and amortization expenses
|
11,843 | 16,170 | ||||||
Other
general and administrative
|
67,108 | 35,051 | ||||||
Total
selling, general and administrative
|
164,351 | 124,434 | ||||||
Income
from operations
|
158,979 | 111,419 | ||||||
Interest
expense
|
(56,582 | ) | - | |||||
Interest
income
|
4,519 | 4,909 | ||||||
Net
Income
|
$ | 106,916 | $ | 116,328 |
Exhibit
No.
|
Description
|
31.1
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section
302.
|
31.2
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section
302.
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section
1350.
|
32.2
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section
1350.
|
CHINA
AGRI-BUSINESS, INC.
|
|
/s/
Liping Deng
|
|
Liping
Deng
|
|
President,
Chief Executive Officer, Director (Principal Executive
Officer)
|
|
/s/
Xiaolong Zhou
|
|
Xiaolong
Zhou
|
|
Chief
Financial Officer (Principal Accounting and Financial
Officer)
|