XI'AN, China, Aug. 17 /PRNewswire-Asia/ -- China Agri-Business, Inc. ("China Agri" or the "Company," OTC Bulletin Board: CHBU), a manufacturer and distributor of organic agricultural application products in China, today reported higher sales, net income, and earnings per share for the second quarter 2010.
Second quarter 2010 highlights
-- Sales increased 391% to $3,452,574 in the second quarter 2010from
$703,875 in the second quarter 2009.
-- Gross profit increased 134% to $1,207,644 in the second quarter 2010
from $515,223 in 2009.
-- Net income increased 205% to $753,221 in the second quarter 2010 from
$246,901 in the second quarter 2009.
-- Basic earnings per common share increased 200% to $0.06 in the second
quarter 2010 from $0.02 in the second quarter 2009.
-- Diluted earnings per common share increased 150% to $0.05 in the second
quarter 2010 from $0.02 in the second quarter 2009.
-- As of July 31, 2010, China Agri-Business had established 346 Direct
sales stores and about 100 Super chain branded stores.
Mr. Liping Deng, Chief Executive Officer, President, and Director of China Agri-Business, Inc., said, "Our 391 percent growth in sales and 205 percent growth in net income in the second quarter 2010 over the second quarter of last year was primarily due to our aggressive expansion of our direct sales stores. In the first half of 2010, our sales increased 326 percent and net income increased 207 percent, compared with the first half of 2009.
"We are continuing to grow. We opened 101 new direct sales stores in the second quarter and another 46 stores in July, so our direct sales stores totaled 346 at the end of July. We expect to reach our year 2010 target of 500 direct sales stores early, by the end of October 2010.
"In our stores, farmers can learn about all the products in our stores from our knowledgeable sales staff. The staff also provides technical assistance to help farmers make the smartest decisions about the best products to use to benefit their product quality and yields in the current growing season, and also to help them keep their soil healthy for sustained successful growing in the years ahead. Of course, in our stores they can purchase fertilizer products, including our own organic fertilizers and complementary products manufactured by other companies. We also help them with access to information that is helpful for successful farming, for before, during, and after the growing seasons. Our products and information cover most of the crops that are grown in our market regions. We also assist with after sales service.
"Our direct sales stores are one part of our new business model that consists of several resources and actions. First is sourcing of raw materials to make our non-toxic and organic products that help farmers increase crop yields and productivity. Second is flexible manufacturing that includes our own production and expansions, plus capacity at plants where we can hire the production to be done as needed. Third is marketing, distribution, and sales, which is where our rapid expansion of our direct sales stores is very important. Fourth is to continue to seek more innovative and more effective products so we are increasingly helpful to the farmers as they grow food for the nation and grow a good profit for themselves. Fifth, of course, is to earn an attractive return on investment for the company and its shareholders, and to continue to reinvest for future growth through geographic market expansion and new and improved products, processes, technologies, and production. And sixth, which is most important, is that we view our relationship with the farmers, as a long-term mutually beneficial partnership to be sustained across many years; they are colleagues and friends, not just customers.
"So, as we are strengthening our connection with farmers, to increase their yields and productivity, we also expect to benefit from higher sales, higher market share, and gradually improving returns on investment in the years to come. We believe our broad offering of products, services, and close involvement and assistance with our farming friends should encourage them to be loyal long-term customers for China Agri.
"With our new business model and related long-term growth programs, we believe our actions will create long-term value for our shareholders. We are very pleased with our results for the first half of 2010."
Sales
China Agri-Business manufactures and markets more than 50 organic biochemical agricultural application products, including non-toxic fertilizers, bactericides, and fungicides, that are used in farming. Crops grown with the Company's products are eligible to qualify for the "AA Green Food" rating in China.
Sales for the three months ended June 30, 2010 totaled $3,452,574, an increase of $2,748,699 or 391% compared with sales of $703,875 for the three months ended June 30, 2009. Sales of internally made products increased $397,102 to $1,100,977 for the three months ended June 30, 2010 from $703,875 for the comparable period in 2009. Retail sales of fertilizer products in our direct sale stores was $2,351,597 for the three months ended June 30, 2010 compared with $0 in the comparable period of 2009.
The increase in total sales was primarily attributable to positive responses to our "New Agriculture-Generator" campaign, which was designed to expand our distribution network directly and to establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China. Sales from our direct sales stores amounted to $2,764,522, approximately 80% of total sales, in the three months ended June 30, 2010. Sales from our super chain branded stores amounted to $185,864, approximately 5% of total sales, in the three months ended June 30, 2010, an increase of $57,479 or 45% as compared with $128,385 in the same period of 2009. Sales from our traditional sales network amounted to $502,188, a decrease of $73,302 or 13% compared with $575,490 in the three months ended June 30, 2009.
As of July 31, 2010, the Company had established 346 direct sales stores which are controlled and managed directly by the Company, and approximately 100 super chain branded stores, the majority of which were located in the Shaanxi province, with additional stores in the Hunan and Sichuan provinces.
Sales by distribution channel
Three Months Ended
June 30, 2010 June 30, 2009
Direct sales stores $2,764,522 80.07% $-- 0.00%
Super chain branded
stores 185,864 5.38% 128,385 18.24%
Traditional sales
network 502,188 14.55% 575,490 81.76%
Total Sales $3,452,574 100.00% $703,875 100.00%
Cost of goods sold, gross profit, and gross profit margin
Cost of goods sold for the three months ended June 30, 2010 totaled $2,244,930, an increase of $2,056,278, compared with cost of goods sold of $188,652 for the three months ended June 30, 2009. Gross profit margin (gross profit divided by sales) was 35%, a decrease of 38 percentage points from 73% for the three months ended June 30, 2009. The increase in cost of goods sold and decrease in gross profit margin was attributable to our new sales model and new direct sales stores.
The gross profit margin of our internally made products was 67% and 73% for the three months ended June 30, 2010 and 2009, respectively. The decrease in gross profit margin on our internally made products was the result of the production of our new acquired potassium and magnesium fertilizer products which have a gross profit margin rate of 50%. The gross profit margin for our retail sales of fertilizer products from other manufacturers in our direct sales stores was 22%.
Operating and other expenses for the second quarters of 2010 and 2009.
Three Months Ended June 30,
2010 2009
Gross Profit $1,207,644 $515,223
Selling and marketing 244,440 94,524
Professional fees 50,452 31,663
Depreciation and amortization
expenses 15,014 11,878
Other general and administrative
expenses 95,927 80,729
Total selling, general and administrative
expenses 405,833 218,794
Income from operations 801,811 296,429
Interest income 5,715 6,279
Interest expense (54,305) (55,807)
Net Income $753,221 $246,901
Selling and marketing
Selling and marketing expenses were $244,440 for the three months ended June 30, 2010, an increase of $149,916 from $94,524 in the same period of 2009. The increase in selling and marketing expense was primarily attributable to the expansion of our direct sales stores.
Professional fees
Professional fees were $50,452 for the three months ended June 30, 2010, an increase of $18,789 from $31,663 in the comparable period of 2009. We expect such expenses will remain high in the future as a public company. Professional fees consist of audit and review fees, legal and attorney fees, director fees, and contracted professional service fees.
Other general and administrative expenses
Other general and administrative expenses were $95,927 for the three months ended June 30, 2010, an increase of $15,198 or 19%, compared with $80,729 for the three months ended June 30, 2009. The increase in other general and administrative expenses in the three months ended June 30, 2010 were primarily attributable to the increase of in research and development expenses and other expenses in connection with the expansion of our direct sales stores.
Interest expense
Interest expense was $54,305 in the three months ended June 30, 2010, which included amortization of deferred financing costs of $24,444, amortization of fair value of warrants of $18,214, amortization of a beneficial conversion feature of $6,040, and loan interest of $3,750. These expenses relate to the convertible notes issued in September 2008. Interest expense in the same period of 2009 was $55,807.
Net income
Net income for the three months ended June 30, 2010 was $753,221, an increase of $506,320 or 205% from net income of $246,901 for the three months ended June 30, 2009. The increase in net income primarily resulted from our New Agriculture-Generator campaign that consisted of expansion of China Agri's direct sales store network.
Results for six months ended June 30, 2010
The factors that influenced China Agri's second quarter 2010 results and comparisons with the second quarter of 2009, including sales, cost of goods sold, gross profit margin, operating and other expenses, and net income, were essentially the same factors for the results of the six months ended June 30, 2010 and the comparisons with the first half of the year 2009. Please see China Agri's filing of August 16, 2010 with the Securities and Exchange Commission on Form 10-Q for more detailed information about the first half year 2010 results and comparisons. The Form 10-Q can be found at the SEC's website at http://tinyurl.com/SEC-GOV-CHBU-10Q .
Foreign currency translation
The functional currency of the China Agri-Business operating company in China (Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd.) is the renminbi ("RMB"), also known as Chinese yuan. China Agri-Business financial position and results of operations, reported in U.S. dollars, are affected by changes in the exchange rates between the RMB and the dollar.
Liquidity and capital resources
As of June 30, 2010, cash and cash equivalents totaled $10,344,306, up $718,649 or 7% from $9,625,657 as of December 31, 2009. As of June 30, 2010, 84% of the Company's total assets consisted of cash and cash equivalents compared with 87% as of December 31, 2009.
Net cash provided by operating activities was $1,074,143 and $453,712 for the six months ended June 30, 2010 and 2009, respectively. The increase resulted from the increase in net income in the six months ended June 30, 2010.
Net cash used in investing activities was $419,413 for the six months ended June 30, 2010. In the first quarter of 2010, the Company acquired additional product rights for $118,000 (800,000 RMB) and related machinery and equipment from a vendor for $295,000 (2,000,000 RMB). The Company also spent $6,413 on other equipment. During the first quarter 2009, the Company received total proceeds of $131,760 from the disposal of unused equipment and product rights and spent $608 on equipment. Net cash used in financing activities included a repayment of a long-term loan of $4,471 and $0, respectively, for the six months ended June 30, 2010 and 2009.
About China Agri-Business, Inc.
China Agri-Business, Inc., through its operating company in China, Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd. (Xinsheng), manufactures and sells non-toxic fertilizer, bactericide, and fungicide products used for farming in China. Crops grown with Xinsheng's products are eligible to qualify for the "AA Green Food" rating administered by the China Green Food Development Center, an agency under the jurisdiction of the Ministry of Agriculture of the People's Republic of China (however, the Company's products themselves do not bear the "AA green food" designation). The green food rating system consists of an "A" rating and a more stringent "AA" rating. The "AA" rating indicates that the crops contain minimal chemical residue from fertilizers.
The Company's two primary product groups are organic fertilizer (Xinsheng Luyuan brand) and bactericides (Xinsheng Lufeng brand). China Agri-Business has a total of five brands and produces more than 50 different applications, including products designed to stimulate plant growth, condition soil, and prevent and cure plant diseases and parasites. The Company has products for a variety of crops, including fruit plants, orchard trees, vegetables, potatoes, and cotton. The products can be used either alone or to supplement other products. The Company's Xinsheng manufacturing facilities are located in Xi'an, Shaanxi province, China.
For more information about China Agri-Business, please visit http://www.chinaagri-business.com .
Safe Harbor and Cautionary Statement
This press release contains forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "plans," "will," "intends," "seek," "scheduled," "future," "potential," "continue," "estimates," "anticipates," "hopes," "goal," "objective," "expects," "may," "should," "could" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We caution you that no statements contained in this news release should be construed as a guarantee or assurance of future performance or results. You should not place undue reliance upon any forward-looking statements. Forward-looking statements involve risks and uncertainties, including those discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009 and in other reports we file with the Securities and Exchange Commission ("SEC"). The actual results that we achieve may differ materially from any forward-looking statements due to the effect of such risks and uncertainties. These forward-looking statements are based on current expectations, and, except as required by law, we assume no obligation to update this information whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in our Annual Report on Form 10-K for the year ended December 31, 2009 and in our other reports we may file with the SEC that attempt to advise interested parties of the risks that may affect our business, financial condition and results of operations.
For more information, please contact:
Delong Zhou
Chief Financial Officer
Tel: +1-917-825-2997
Email: delongcpa@hotmail.com
China Agri-Business, Inc.
Building 2, Unit 1, 15th Floor
Ling Xian Xin Cheng
86 Gaoxin Road
Hi-Tech Industrial Development Zone
Xi'an, Shaanxi, China 710065
Tel: +86-29-6859-6556 or 6557
Web: http://www.chinaagri-business.com
Christensen
Mr. Yuanyuan Chen (English and Chinese)
Tel: +86-10-5971-2001 in Beijing
Mobile: +86-139-2337-7882 in Beijing
Email: ychen@christensenir.com
Mr. Tom Myers (English)
Mobile: +86-139-1141-3520 in Beijing
Email: tmyers@christensenir.com
Ms. Kathy Li (English and Chinese)
Tel: +1-212-618-1978
Email: kli@christensenir.com
Financial Statements Follow
China Agri-Business, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
For The Three Months For The Six Months Ended
Ended June 30, June 30,
2010 2009 2010 2009
Sales of products $3,452,574 $703,875 $4,993,515 $1,173,447
Cost of goods sold 2,244,930 188,652 3,110,048 334,894
Gross profit 1,207,644 515,223 1,883,467 838,553
Selling, general and
administrative expenses 405,833 218,794 701,092 383,145
Income from operations 801,811 296,429 1,182,375 455,408
Interest and other
income 5,715 6,279 12,194 10,798
Interest expense (54,305) (55,807) (109,540) (112,389)
Income before income
taxes 753,221 246,901 1,085,029 353,817
Income taxes -- -- -- --
Net income $753,221 $246,901 $1,085,029 $353,817
Earnings per common share:
Basic $0.06 $0.02 $0.08 $0.03
Diluted $0.05 $0.02 $0.08 $0.03
Weighted average number
of common shares used
to compute earnings per
common share:
Basic 12,958,574 12,958,574 12,958,574 12,958,574
Diluted 13,958,574 13,958,574 13,958,574 13,958,574
Comprehensive Income:
Net income $753,221 $246,901 $1,085,029 $353,817
Other comprehensive
income - foreign
currency translation
adjustment 76,365 (11,032) 75,709 (10,999)
Comprehensive Income $829,586 $235,869 $1,160,738 $342,818
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Balance Sheets
June 30, December 31,
2010 2009
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $10,344,306 $9,625,657
Accounts receivable, net of
allowance for doubtful accounts
of $7,740 and $8,300, respectively 36,262 28,310
Inventory 282,624 138,253
Other receivables 7,965 7,911
Prepaid expenses 14,869 25,396
Total Current Assets 10,686,026 9,825,527
Property, plant and equipment, net of
accumulated depreciation of $235,260
and $202,921, respectively 610,763 337,995
Investment in Tine Technology 885,000 879,000
Deferred financing costs, net of
accumulated amortization of
$184,092 and $134,550, respectively 23,190 72,732
Intangible assets, net of accumulated
amortization of $17,002 and $13,115,
respectively 117,951 3,724
Total Assets $12,322,930 $11,118,978
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $9,131 $8,779
Current portion of convertible
notes, net of unamortized debt
discounts of $23,715 and
$72,499, respectively 476,285 427,501
Accounts payable and accrued
liabilities 284,248 286,128
Total Current Liabilities 769,664 722,408
Long-term Liabilities
Long-term debt 101,576 105,618
Total Long-term Liabilities 101,576 105,618
Total Liabilities 871,240 828,026
Stockholders' Equity
Undesignated preferred stock, par
value $.001 per share; authorized
4,900,000 shares; none issued -- --
Common stock, par value $.001 per
share; authorized 100,000,000
shares, issued and outstanding
12,958,574 and 12,958,574,
respectively 12,959 12,959
Additional paid-in capital 4,370,212 4,370,212
Retained earnings 5,793,502 4,708,473
Accumulated other comprehensive
income 1,275,017 1,199,308
Total stockholders' equity 11,451,690 10,290,952
Total Liabilities and Stockholders'
Equity $12,322,930 $11,118,978
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
2010 2009
Operating activities
Net income $1,085,029 $353,817
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Reduction in) allowance for
doubtful accounts (612) (560)
Depreciation of property, plant
and equipment 30,744 20,558
Amortization of intangible assets
and deferred financing costs 53,314 60,290
Amortization of debt discount and
fair value of warrants 48,784 50,695
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (7,392) 8,545
Increase in other receivable -- (3,901)
Increase in inventory (144,371) (31,954)
Decrease in prepaid expenses 10,527 5,855
Decrease in accounts payable and
accrued liabilities (1,880) (9,633)
Net cash provided by operating
activities 1,074,143 453,712
Investing activities
Proceeds from return of unused
manufacturing equipment and
production rights to respective
vendors for cash equal to the
assets' book value -- 131,760
Purchase of equipment (301,413) (608)
Purchase of products rights (118,000) --
Net cash provided by (used in)
investing activities (419,413) 131,152
Financing activities
Repayment of long-term debt (4,471) --
Net cash (used in) financing
activities (4,471) --
Effect of exchange rate changes on
cash and cash equivalents 68,390 (9,567)
Increase in cash and cash equivalents 718,649 575,297
Cash and cash equivalents, beginning
of period 9,625,657 8,312,636
Cash and cash equivalents, end of
period $10,344,306 $8,887,933
Supplemental Disclosures of Cash Flow
Information
Interest paid $3,714 $--
Income taxes paid $-- $--
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2010 (Unaudited) and the Year Ended
December 31, 2009
Common Additional
Common Stock Stock Paid-in
Shares Amount Capital
Balance, December 31, 2008 12,958,574 $12,959 $4,369,786
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 -- -- --
Foreign currency translation
adjustment -- -- --
Balance, December 31, 2009 12,958,574 12,959 4,370,212
Net income for the six months ended
June 30, 2010 (Unaudited) -- -- --
Foreign currency translation
adjustment (Unaudited) -- -- --
Balance, June 30, 2010 (Unaudited) 12,958,574 $12,959 $4,370,212
Accumulated
Other
Retained Comprehensive
Earnings Income Total
Balance, December 31, 2008 $3,654,212 $1,185,676 $9,222,633
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 1,054,261 -- 1,054,261
Foreign currency translation
adjustment -- 13,632 13,632
Balance, December 31, 2009 4,708,473 1,199,308 10,290,952
Net income for the six months ended
June 30, 2010 (Unaudited) 1,085,029 -- 1,085,029
Foreign currency translation
adjustment (Unaudited) -- 75,709 75,709
Balance, June 30, 2010 (Unaudited) $5,793,502 $1,275,017 $11,451,690
The accompanying notes are an integral part of these financial statements.
XI'AN, China, Aug. 17 /PRNewswire-Asia-FirstCall/ -- China Agri-Business, Inc. ("China Agri" or the "Company," OTC Bulletin Board: CHBU), a manufacturer and distributor of organic agricultural application products in China, today reported higher sales, net income, and earnings per share for the second quarter 2010.
Second quarter 2010 highlights
-- Sales increased 391% to $3,452,574 in the second quarter 2010from
$703,875 in the second quarter 2009.
-- Gross profit increased 134% to $1,207,644 in the second quarter 2010
from $515,223 in 2009.
-- Net income increased 205% to $753,221 in the second quarter 2010 from
$246,901 in the second quarter 2009.
-- Basic earnings per common share increased 200% to $0.06 in the second
quarter 2010 from $0.02 in the second quarter 2009.
-- Diluted earnings per common share increased 150% to $0.05 in the second
quarter 2010 from $0.02 in the second quarter 2009.
-- As of July 31, 2010, China Agri-Business had established 346 Direct
sales stores and about 100 Super chain branded stores.
Mr. Liping Deng, Chief Executive Officer, President, and Director of China Agri-Business, Inc., said, "Our 391 percent growth in sales and 205 percent growth in net income in the second quarter 2010 over the second quarter of last year was primarily due to our aggressive expansion of our direct sales stores. In the first half of 2010, our sales increased 326 percent and net income increased 207 percent, compared with the first half of 2009.
"We are continuing to grow. We opened 101 new direct sales stores in the second quarter and another 46 stores in July, so our direct sales stores totaled 346 at the end of July. We expect to reach our year 2010 target of 500 direct sales stores early, by the end of October 2010.
"In our stores, farmers can learn about all the products in our stores from our knowledgeable sales staff. The staff also provides technical assistance to help farmers make the smartest decisions about the best products to use to benefit their product quality and yields in the current growing season, and also to help them keep their soil healthy for sustained successful growing in the years ahead. Of course, in our stores they can purchase fertilizer products, including our own organic fertilizers and complementary products manufactured by other companies. We also help them with access to information that is helpful for successful farming, for before, during, and after the growing seasons. Our products and information cover most of the crops that are grown in our market regions. We also assist with after sales service.
"Our direct sales stores are one part of our new business model that consists of several resources and actions. First is sourcing of raw materials to make our non-toxic and organic products that help farmers increase crop yields and productivity. Second is flexible manufacturing that includes our own production and expansions, plus capacity at plants where we can hire the production to be done as needed. Third is marketing, distribution, and sales, which is where our rapid expansion of our direct sales stores is very important. Fourth is to continue to seek more innovative and more effective products so we are increasingly helpful to the farmers as they grow food for the nation and grow a good profit for themselves. Fifth, of course, is to earn an attractive return on investment for the company and its shareholders, and to continue to reinvest for future growth through geographic market expansion and new and improved products, processes, technologies, and production. And sixth, which is most important, is that we view our relationship with the farmers, as a long-term mutually beneficial partnership to be sustained across many years; they are colleagues and friends, not just customers.
"So, as we are strengthening our connection with farmers, to increase their yields and productivity, we also expect to benefit from higher sales, higher market share, and gradually improving returns on investment in the years to come. We believe our broad offering of products, services, and close involvement and assistance with our farming friends should encourage them to be loyal long-term customers for China Agri.
"With our new business model and related long-term growth programs, we believe our actions will create long-term value for our shareholders. We are very pleased with our results for the first half of 2010."
Sales
China Agri-Business manufactures and markets more than 50 organic biochemical agricultural application products, including non-toxic fertilizers, bactericides, and fungicides, that are used in farming. Crops grown with the Company's products are eligible to qualify for the "AA Green Food" rating in China.
Sales for the three months ended June 30, 2010 totaled $3,452,574, an increase of $2,748,699 or 391% compared with sales of $703,875 for the three months ended June 30, 2009. Sales of internally made products increased $397,102 to $1,100,977 for the three months ended June 30, 2010 from $703,875 for the comparable period in 2009. Retail sales of fertilizer products in our direct sale stores was $2,351,597 for the three months ended June 30, 2010 compared with $0 in the comparable period of 2009.
The increase in total sales was primarily attributable to positive responses to our "New Agriculture-Generator" campaign, which was designed to expand our distribution network directly and to establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China. Sales from our direct sales stores amounted to $2,764,522, approximately 80% of total sales, in the three months ended June 30, 2010. Sales from our super chain branded stores amounted to $185,864, approximately 5% of total sales, in the three months ended June 30, 2010, an increase of $57,479 or 45% as compared with $128,385 in the same period of 2009. Sales from our traditional sales network amounted to $502,188, a decrease of $73,302 or 13% compared with $575,490 in the three months ended June 30, 2009.
As of July 31, 2010, the Company had established 346 direct sales stores which are controlled and managed directly by the Company, and approximately 100 super chain branded stores, the majority of which were located in the Shaanxi province, with additional stores in the Hunan and Sichuan provinces.
Sales by distribution channel
Three Months Ended
June 30, 2010 June 30, 2009
Direct sales stores $2,764,522 80.07% $-- 0.00%
Super chain branded
stores 185,864 5.38% 128,385 18.24%
Traditional sales
network 502,188 14.55% 575,490 81.76%
Total Sales $3,452,574 100.00% $703,875 100.00%
Cost of goods sold, gross profit, and gross profit margin
Cost of goods sold for the three months ended June 30, 2010 totaled $2,244,930, an increase of $2,056,278, compared with cost of goods sold of $188,652 for the three months ended June 30, 2009. Gross profit margin (gross profit divided by sales) was 35%, a decrease of 38 percentage points from 73% for the three months ended June 30, 2009. The increase in cost of goods sold and decrease in gross profit margin was attributable to our new sales model and new direct sales stores.
The gross profit margin of our internally made products was 67% and 73% for the three months ended June 30, 2010 and 2009, respectively. The decrease in gross profit margin on our internally made products was the result of the production of our new acquired potassium and magnesium fertilizer products which have a gross profit margin rate of 50%. The gross profit margin for our retail sales of fertilizer products from other manufacturers in our direct sales stores was 22%.
Operating and other expenses for the second quarters of 2010 and 2009.
Three Months Ended June 30,
2010 2009
Gross Profit $1,207,644 $515,223
Selling and marketing 244,440 94,524
Professional fees 50,452 31,663
Depreciation and amortization
expenses 15,014 11,878
Other general and administrative
expenses 95,927 80,729
Total selling, general and administrative
expenses 405,833 218,794
Income from operations 801,811 296,429
Interest income 5,715 6,279
Interest expense (54,305) (55,807)
Net Income $753,221 $246,901
Selling and marketing expenses were $244,440 for the three months ended June 30, 2010, an increase of $149,916 from $94,524 in the same period of 2009. The increase in selling and marketing expense was primarily attributable to the expansion of our direct sales stores.
Professional fees
Professional fees were $50,452 for the three months ended June 30, 2010, an increase of $18,789 from $31,663 in the comparable period of 2009. We expect such expenses will remain high in the future as a public company. Professional fees consist of audit and review fees, legal and attorney fees, director fees, and contracted professional service fees.
Other general and administrative expenses
Other general and administrative expenses were $95,927 for the three months ended June 30, 2010, an increase of $15,198 or 19%, compared with $80,729 for the three months ended June 30, 2009. The increase in other general and administrative expenses in the three months ended June 30, 2010 were primarily attributable to the increase of in research and development expenses and other expenses in connection with the expansion of our direct sales stores.
Interest expense
Interest expense was $54,305 in the three months ended June 30, 2010, which included amortization of deferred financing costs of $24,444, amortization of fair value of warrants of $18,214, amortization of a beneficial conversion feature of $6,040, and loan interest of $3,750. These expenses relate to the convertible notes issued in September 2008. Interest expense in the same period of 2009 was $55,807.
Net income for the three months ended June 30, 2010 was $753,221, an increase of $506,320 or 205% from net income of $246,901 for the three months ended June 30, 2009. The increase in net income primarily resulted from our New Agriculture-Generator campaign that consisted of expansion of China Agri's direct sales store network.
Results for six months ended June 30, 2010
The factors that influenced China Agri's second quarter 2010 results and comparisons with the second quarter of 2009, including sales, cost of goods sold, gross profit margin, operating and other expenses, and net income, were essentially the same factors for the results of the six months ended June 30, 2010 and the comparisons with the first half of the year 2009. Please see China Agri's filing of August 16, 2010 with the Securities and Exchange Commission on Form 10-Q for more detailed information about the first half year 2010 results and comparisons. The Form 10-Q can be found at the SEC's website at http://tinyurl.com/SEC-GOV-CHBU-10Q .
Foreign currency translation
The functional currency of the China Agri-Business operating company in China (Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd.) is the renminbi ("RMB"), also known as Chinese yuan. China Agri-Business financial position and results of operations, reported in U.S. dollars, are affected by changes in the exchange rates between the RMB and the dollar.
Liquidity and capital resources
As of June 30, 2010, cash and cash equivalents totaled $10,344,306, up $718,649 or 7% from $9,625,657 as of December 31, 2009. As of June 30, 2010, 84% of the Company's total assets consisted of cash and cash equivalents compared with 87% as of December 31, 2009.
Net cash provided by operating activities was $1,074,143 and $453,712 for the six months ended June 30, 2010 and 2009, respectively. The increase resulted from the increase in net income in the six months ended June 30, 2010.
Net cash used in investing activities was $419,413 for the six months ended June 30, 2010. In the first quarter of 2010, the Company acquired additional product rights for $118,000 (800,000 RMB) and related machinery and equipment from a vendor for $295,000 (2,000,000 RMB). The Company also spent $6,413 on other equipment. During the first quarter 2009, the Company received total proceeds of $131,760 from the disposal of unused equipment and product rights and spent $608 on equipment. Net cash used in financing activities included a repayment of a long-term loan of $4,471 and $0, respectively, for the six months ended June 30, 2010 and 2009.
About China Agri-Business, Inc.
China Agri-Business, Inc., through its operating company in China, Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd. (Xinsheng), manufactures and sells non-toxic fertilizer, bactericide, and fungicide products used for farming in China. Crops grown with Xinsheng's products are eligible to qualify for the "AA Green Food" rating administered by the China Green Food Development Center, an agency under the jurisdiction of the Ministry of Agriculture of the People's Republic of China (however, the Company's products themselves do not bear the "AA green food" designation). The green food rating system consists of an "A" rating and a more stringent "AA" rating. The "AA" rating indicates that the crops contain minimal chemical residue from fertilizers.
The Company's two primary product groups are organic fertilizer (Xinsheng Luyuan brand) and bactericides (Xinsheng Lufeng brand). China Agri-Business has a total of five brands and produces more than 50 different applications, including products designed to stimulate plant growth, condition soil, and prevent and cure plant diseases and parasites. The Company has products for a variety of crops, including fruit plants, orchard trees, vegetables, potatoes, and cotton. The products can be used either alone or to supplement other products. The Company's Xinsheng manufacturing facilities are located in Xi'an, Shaanxi province, China.
For more information about China Agri-Business, please visit http://www.chinaagri-business.com .
Safe Harbor and Cautionary Statement
This press release contains forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "plans," "will," "intends," "seek," "scheduled," "future," "potential," "continue," "estimates," "anticipates," "hopes," "goal," "objective," "expects," "may," "should," "could" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We caution you that no statements contained in this news release should be construed as a guarantee or assurance of future performance or results. You should not place undue reliance upon any forward-looking statements. Forward-looking statements involve risks and uncertainties, including those discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009 and in other reports we file with the Securities and Exchange Commission ("SEC"). The actual results that we achieve may differ materially from any forward-looking statements due to the effect of such risks and uncertainties. These forward-looking statements are based on current expectations, and, except as required by law, we assume no obligation to update this information whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in our Annual Report on Form 10-K for the year ended December 31, 2009 and in our other reports we may file with the SEC that attempt to advise interested parties of the risks that may affect our business, financial condition and results of operations.
For more information, please contact:
Delong Zhou
Chief Financial Officer
Tel: +1-917-825-2997
Email: delongcpa@hotmail.com
China Agri-Business, Inc.
Building 2, Unit 1, 15th Floor
Ling Xian Xin Cheng
86 Gaoxin Road
Hi-Tech Industrial Development Zone
Xi'an, Shaanxi, China 710065
Tel: +86-29-6859-6556 or 6557
Web: http://www.chinaagri-business.com
Christensen
Mr. Yuanyuan Chen (English and Chinese)
Tel: +86-10-5971-2001 in Beijing
Mobile: +86-139-2337-7882 in Beijing
Email: ychen@christensenir.com
Mr. Tom Myers (English)
Mobile: +86-139-1141-3520 in Beijing
Email: tmyers@christensenir.com
Ms. Kathy Li (English and Chinese)
Tel: +1-212-618-1978
Email: kli@christensenir.com
China Agri-Business, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
For The Three Months For The Six Months Ended
Ended June 30, June 30,
2010 2009 2010 2009
Sales of products $3,452,574 $703,875 $4,993,515 $1,173,447
Cost of goods sold 2,244,930 188,652 3,110,048 334,894
Gross profit 1,207,644 515,223 1,883,467 838,553
Selling, general and
administrative expenses 405,833 218,794 701,092 383,145
Income from operations 801,811 296,429 1,182,375 455,408
Interest and other
income 5,715 6,279 12,194 10,798
Interest expense (54,305) (55,807) (109,540) (112,389)
Income before income
taxes 753,221 246,901 1,085,029 353,817
Income taxes -- -- -- --
Net income $753,221 $246,901 $1,085,029 $353,817
Earnings per common share:
Basic $0.06 $0.02 $0.08 $0.03
Diluted $0.05 $0.02 $0.08 $0.03
Weighted average number
of common shares used
to compute earnings per
common share:
Basic 12,958,574 12,958,574 12,958,574 12,958,574
Diluted 13,958,574 13,958,574 13,958,574 13,958,574
Comprehensive Income:
Net income $753,221 $246,901 $1,085,029 $353,817
Other comprehensive
income - foreign
currency translation
adjustment 76,365 (11,032) 75,709 (10,999)
The accompanying notes are an integral part of these financial
statements.
China Agri-Business, Inc.
Condensed Consolidated Balance Sheets
June 30, December 31,
2010 2009
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $10,344,306 $9,625,657
Accounts receivable, net of
allowance for doubtful accounts
of $7,740 and $8,300, respectively 36,262 28,310
Inventory 282,624 138,253
Other receivables 7,965 7,911
Prepaid expenses 14,869 25,396
Total Current Assets 10,686,026 9,825,527
Property, plant and equipment, net of
accumulated depreciation of $235,260
and $202,921, respectively 610,763 337,995
Investment in Tine Technology 885,000 879,000
Deferred financing costs, net of
accumulated amortization of
$184,092 and $134,550, respectively 23,190 72,732
Intangible assets, net of accumulated
amortization of $17,002 and $13,115,
respectively 117,951 3,724
Total Assets $12,322,930 $11,118,978
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $9,131 $8,779
Current portion of convertible
notes, net of unamortized debt
discounts of $23,715 and
$72,499, respectively 476,285 427,501
Accounts payable and accrued
liabilities 284,248 286,128
Total Current Liabilities 769,664 722,408
Long-term Liabilities
Long-term debt 101,576 105,618
Total Long-term Liabilities 101,576 105,618
Total Liabilities 871,240 828,026
Stockholders' Equity
Undesignated preferred stock, par
value $.001 per share; authorized
4,900,000 shares; none issued -- --
Common stock, par value $.001 per
share; authorized 100,000,000
shares, issued and outstanding
12,958,574 and 12,958,574,
respectively 12,959 12,959
Additional paid-in capital 4,370,212 4,370,212
Retained earnings 5,793,502 4,708,473
Accumulated other comprehensive
income 1,275,017 1,199,308
Total stockholders' equity 11,451,690 10,290,952
Total Liabilities and Stockholders'
Equity $12,322,930 $11,118,978
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
2010 2009
Operating activities
Net income $1,085,029 $353,817
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Reduction in) allowance for
doubtful accounts (612) (560)
Depreciation of property, plant
and equipment 30,744 20,558
Amortization of intangible assets
and deferred financing costs 53,314 60,290
Amortization of debt discount and
fair value of warrants 48,784 50,695
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (7,392) 8,545
Increase in other receivable -- (3,901)
Increase in inventory (144,371) (31,954)
Decrease in prepaid expenses 10,527 5,855
Decrease in accounts payable and
accrued liabilities (1,880) (9,633)
Net cash provided by operating
activities 1,074,143 453,712
Investing activities
Proceeds from return of unused
manufacturing equipment and
production rights to respective
vendors for cash equal to the
assets' book value -- 131,760
Purchase of equipment (301,413) (608)
Purchase of products rights (118,000) --
Net cash provided by (used in)
investing activities (419,413) 131,152
Financing activities
Repayment of long-term debt (4,471) --
Net cash (used in) financing
activities (4,471) --
Effect of exchange rate changes on
cash and cash equivalents 68,390 (9,567)
Increase in cash and cash equivalents 718,649 575,297
Cash and cash equivalents, beginning
of period 9,625,657 8,312,636
Cash and cash equivalents, end of
period $10,344,306 $8,887,933
Supplemental Disclosures of Cash Flow
Information
Interest paid $3,714 $--
Income taxes paid $-- $--
statements.
China Agri-Business, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2010 (Unaudited) and the Year Ended
December 31, 2009
Common Additional
Common Stock Stock Paid-in
Shares Amount Capital
Balance, December 31, 2008 12,958,574 $12,959 $4,369,786
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 -- -- --
Foreign currency translation
adjustment -- -- --
Balance, December 31, 2009 12,958,574 12,959 4,370,212
Net income for the six months ended
June 30, 2010 (Unaudited) -- -- --
Foreign currency translation
adjustment (Unaudited) -- -- --
Balance, June 30, 2010 (Unaudited) 12,958,574 $12,959 $4,370,212
Accumulated
Other
Retained Comprehensive
Earnings Income Total
Balance, December 31, 2008 $3,654,212 $1,185,676 $9,222,633
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 1,054,261 -- 1,054,261
Foreign currency translation
adjustment -- 13,632 13,632
Balance, December 31, 2009 4,708,473 1,199,308 10,290,952
Net income for the six months ended
June 30, 2010 (Unaudited) 1,085,029 -- 1,085,029
Foreign currency translation
adjustment (Unaudited) -- 75,709 75,709
Balance, June 30, 2010 (Unaudited) $5,793,502 $1,275,017 $11,451,690
statements.
