chas10q0215.htm
UNITED
STATES
SECURITIES
AND
EXCHANGE COMMISSION
Washington,
D.C.20549
Form
10-QSB
(Mark
One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly
period ended December 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition
period from _______________ to _______________.
Commission
file
number: 000-49687
China
Agro
Sciences Corp.
(Exact
name of
registrant as specified in its charter)
Florida
(State
or
other jurisdiction of
incorporation
or organization)
|
33-0961490
(I.R.S.
Employer
Identification
No.)
|
|
|
101
Xinanyao Street,
Jinzhou District
Dalian,
Liaoning Province
(Address
of
principal executive offices)
|
PRC
116100
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code (212) 232-0120
|
|
(Former
name
or former address, if changed since last report.)
|
Indicate
by check
mark whether the registrant (1) has filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past
90 days. Yes X No
Indicate
by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer [ ]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ X ]
|
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act). Yes____ No _X_
.
Applicable
only to
corporate issuers:
Indicate
the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date. As of February 19, 2008, there were 20,050,000
shares of common stock, par value $0.001, issued and outstanding.
China
Agro
Sciences Corp.
TABLE
OF
CONTENTS
PART
I
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|
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ITEM
1
|
FINANCIAL
STATEMENTS
|
4
-10
|
ITEM
2
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS.
|
11
|
ITEM
3
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
16
|
ITEM
4
|
CONTROLS
AND
PROCEDURES
|
17
|
ITEM
4A(T)
|
CONTROLS
AND
PROCEDURES
|
18
|
PART
II
|
|
19
|
ITEM
1
|
LEGAL
PROCEEDINGS
|
19
|
ITEM
1A
|
RISK
FACTORS
|
19
|
ITEM
2
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
19
|
ITEM
3
|
DEFAULTS
UPON SENIOR SECURITIES
|
19
|
ITEM
4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
19
|
ITEM
5
|
OTHER
INFORMATION
|
19
|
ITEM
6
|
EXHIBITS
|
19
|
PART
I
This
Quarterly
Report includes forward-looking statements within the meaning of the Securities
Exchange Act of 1934 (the “Exchange Act”). These statements are based on
management’s beliefs and assumptions, and on information currently available to
management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth under
the heading “Management’s Discussion and Analysis of Financial Condition or Plan
of Operation.” Forward-looking statements also include statements in which words
such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,”
“consider” or similar expressions are used.
Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. The Company’s future results and shareholder
values may differ materially from those expressed in these forward-looking
statements. Readers are cautioned not to put undue reliance on any
forward-looking statements.
ITEM
1 Financial
Statements
CHINA
AGRO SCIENCES CORP.
CONSOLIDATED
BALANCE SHEET
DECEMBER
31, 2007
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
|
$ |
100,758 |
|
Prepaid
financial
consulting expenses
|
|
|
360,977 |
|
Due
from affiliated company
|
|
|
135,793 |
|
Other
current assets
|
|
|
6,284 |
|
TOTAL
CURRENT ASSETS
|
|
|
603,812 |
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
4,078,243 |
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
4,682,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’EQUITY
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$ |
850,987 |
|
Accrued
expenses
|
|
|
10,282 |
|
TOTAL
CURRENT LIABILITIES
|
|
|
861,269 |
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
350,976 |
|
|
|
|
|
|
STOCKHOLDERS’EQUITY:
|
|
|
|
|
Common
stock,
$0.001 par value
|
|
|
|
|
100,000,000
shares authorized
|
|
|
|
|
20,050,000
shares issued and outstanding
|
|
|
20,000 |
|
Additional
paid-in capital
|
|
|
3,738,900 |
|
Accumulated
deficit
|
|
|
(845,488 |
)
|
Accumulated
other comprehensive income
|
|
|
556,398 |
|
TOTAL
STOCKHOLDERS’EQUITY
|
|
|
3,469,810 |
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’EQUITY
|
|
$ |
4,682,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to financial statements
CHINA
AGRO
SCIENCES CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
THREE MONTHS ENDED DECEMBER, 31
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
105,310 |
|
|
|
208,644 |
|
Other
income
|
|
|
(33,882 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
71,428 |
|
|
|
208,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$ |
(71,428 |
) |
|
$ |
(208,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
|
$ |
(*) |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
20,050,000 |
|
|
|
20,050,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less than $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to financial statements
CHINA
AGRO SCIENCES CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
THREE MONTHS ENDED
DECEMBER31,
|
|
2007 |
|
2006 |
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(71,428 |
) |
|
|
$ |
(208,644 |
) |
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
|
to
net cash provided by (used in)operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
33,497 |
|
|
|
|
117,182 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
- |
|
|
|
|
2,045,549 |
|
Inventories
|
|
|
- |
|
|
|
|
(76,089 |
) |
Prepaid
financial consulting expenses
|
|
|
55,535 |
|
|
|
|
(544,129 |
) |
Other
current assets
|
|
|
2,532 |
|
|
|
|
- |
|
Accounts
payable
|
|
|
(164,811 |
) |
|
|
|
(502,020 |
) |
Accrued
expenses
|
|
|
(23,704 |
) |
|
|
|
(28,534 |
) |
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(168,379 |
) |
|
|
|
803,315 |
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
- |
|
|
|
|
(22,935 |
) |
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
- |
|
|
|
|
(22,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Loans
from affiliated company
|
|
|
154,888 |
|
|
|
|
(734,880 |
) |
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
154,888 |
|
|
|
|
(734,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE ON CASH
|
|
|
(22 |
) |
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH
|
|
|
(13,513 |
) |
|
|
|
45,248 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH –
BEGINNING OF PERIOD
|
|
|
114,271 |
|
|
|
|
103,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH –
END OF PERIOD
|
|
$ |
100,758 |
|
|
|
$ |
149,065 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
10,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to financial statements
CHINA
AGRO SCIENCES CORP.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(Unaudited)
1
NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Business
description
The
company currently is not in operation. The Company specialized in the
manufacturing, sale and distribution of herbicides and pesticides to reduce
or
eliminate the amount of agricultural produce lost to plant diseases and
insects. Their manufacturing and distribution operations are based in
the PRC, which is where all of the Company’s sales to date had
occurred.
Accounting
methods
The
Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a fiscal year ending on September
30th.
Uses
of estimates in the preparation of financial statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net revenue and expenses during each reporting
period. Actual results could differ from those
estimates.
Property
and equipment
Property
and equipment are recorded at cost. Depreciation is provided in
amounts sufficient to amortize the cost of the related assets over their useful
lives using the straight line method for financial reporting
purposes.
|
Maintenance,
repairs and minor renewals are charged to expense when incurred.
Replacements and major renewals are capitalized.
|
|
Impairment
of long-lived assets
|
The
Company accounts for the impairment of long-lived assets in accordance with
SFAS
No. 144, “Accounting
for the Impairment or Disposal of Long-Lived
Assets”. Long-lived assets are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be
recoverable. For assets that are to be held and used, an impairment
is recognized when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. If
impairment exists, an adjustment is made to write the asset down to its fair
value, and a loss is recorded as the difference between the carrying value
and
fair value. Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as
applicable. Assets to be disposed of are carried at the lower of
carrying value or estimated net realizable value.
Deferred
income taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (ASFAS
109") which requires that deferred tax assets and liabilities be recognized
for
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. In addition, SFAS 109 requires recognition of future tax
benefits, such as carryforwards, to the extent that realization of such benefits
is more likely than not and that a valuation allowance be provided when it
is
more likely than not that some portion of the deferred tax asset will not be
realized.
Currency
translation
Since
the
Company operates primarily in the PRC, the Company's
functional currency is the Chinese Yuan ("RMB"). Revenue
and expense accounts are translated at the average rates during the period,
and
balance sheet items are translated at year-end rates. Translation
adjustments arising from the use of differing exchange rates from period to
period are included as a component of stockholders' equity. Gains and
losses from foreign currency transactions are recognized in current
operations.
2
GOING CONCERN AND IMPAIRMENT LOSS
The
financial statements have been prepared using accounting principles generally
accepted in the United States of America applicable for a going concern, which
assumes that the Company will realize its assets and discharge its liabilities
in the ordinary course of business. The Company’s ability to continue
as a going concern is dependent on, among other things, its ability to achieve
profitable operations, to maintain its existing financing and to obtain
additional financing to meet its obligations and to pay its liabilities when
they come due. The Company is currently pursuing new debt and equity
financing in conjunction with proposed future acquisitions and
operations.
At
the
present time, the Company does not have sufficient working capital to meet
its
needs. The Company intends to raise additional funds through the
issuance of equity or convertible debt securities. There can be no
assurance that additional financing will be available on terms favorable to
the
Company, or at all. The inability to raise the additional funds could
cause the Company to cease all operations.
In
May
2007, the Company received a notice from the Chinese National Environmental
Bureau that all chemical manufacturing facilities must be located in designated
“chemical zones” going forward, and for manufacturing plants not located there
now will have to be relocated. The Company’s manufacturing facility
is not currently located in a “chemical zone” and, therefore, it will be forced
to move the facility to a “chemical zone” at some point in the next one to two
years. As a result, the Company has incurred an impairment loss
representing the net book value of equipment. The impairment loss was booked
in
the year ended September 30, 2007.
A
summary
of property and equipment and the estimated lives used in the computation of
depreciation and amortization as of December 31, 2007 is as
follows:
Furniture,
fixtures and office equipment
|
$ 21,080
|
|
5-7
years
|
Building
and building improvements
|
4,460,094
|
|
40
years
|
Automobile
|
29,208
|
|
5
years
|
|
4,510,382
|
|
|
Accumulated
depreciation
|
432,139
|
|
|
|
$4,078,243
|
|
|
4
DUE FROM AFFILIATED COMPANY
This
amount is non-interest bearing and due on demand.
5
LONG-TERM DEBT
The
Company entered into a loan agreement in July 2005. This obligation
bears interest at 0.3% over the prime rate in effect in the PRC and is payable
interest only through July 2009, followed by annual principal installments
of
approximately 233,000 RMB ($30,000) commencing in August 2010, plus
interest.
Future
principal loan payments are as follows:
|
Year
ended September 30,
|
|
2010
|
$
31,907
|
|
|
2011
|
31,907
|
|
|
Thereafter
|
287,162
|
|
6
RELATED PARTY TRANSACTIONS
During
the three months ended December 31, 2007 and 2006, the Company exchanged
$49,356 and $324,787 of finished goods purchased from an affiliated company
with
vendors in repayment of accounts payables.
The
Company had various advances and repayments with an affiliated company as
follows:
|
|
DECEMBER
31, 2007
|
SEPTEMBER
30, 2007
|
|
Current
assets
|
$135,793
|
|
$291,345
|
|
|
|
|
|
Vulnerability
due to Operations in PRC
The
Company's
operations may be adversely affected by significant political, economic and
social uncertainties in the PRC. Although the PRC government has been
pursuing economic reform policies for more than 20 years, no assurance can
be
given that the PRC government will continue to pursue such policies or that
such
policies may not be significantly altered, especially in the event of a change
in leadership, social or political disruption or unforeseen circumstances
affecting the PRC's
political, economic and social conditions. There is also no guarantee
that the PRC government's
pursuit of economic reforms will be consistent or effective.
Substantially
all of the Company's
businesses are transacted in RMB, which is not freely
convertible. The People's
Bank of China or other banks are authorized to buy and sell foreign currencies
at the exchange rates quoted by the People's
Bank of China. Approval of foreign currency payments by the
People's
Bank of China or other institutions requires submitting a payment application
form together with suppliers’ invoices, shipping documents and signed
contracts.
Concentration
of Credit Risk
Cash
is
currently the only financial instrument that potentially subjects the Company
to
significant concentration of credit risk. The Company maintains its
cash with various banks and trust companies located in China which are not
insured or otherwise protected. Should any of these institutions
holding the Company’s cash become insolvent, or if the Company is unable to
withdraw funds for any reason, the Company could lose the cash on deposit with
that institution.
Environmental
issues
The
Company conducts business in an industry that is subject to a broad array of
environmental laws and regulations. The production of the products
the Company intends to produce will create pollutants. The Company
will incur significant costs if additional government regulations are introduced
to protect the environment.
ITEM
2
|
Managements
Discussion and Analysis of Financial Condition and Results of Operations.
|
Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by
their very nature, uncertain and risky. These risks and
uncertainties include international, national and local general economic and
market conditions; demographic changes; our ability to sustain, manage, or
forecast growth; our ability to successfully make and integrate acquisitions;
existing government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; competition; fluctuations and
difficulty in forecasting operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and
retain qualified personnel; the ability to protect technology; and other risks
that might be detailed from time to time in our filings with the Securities
and
Exchange Commission.
Although
the forward-looking statements in this Quarterly Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties,
the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. You are urged
to carefully review and consider the various disclosures made by us in this
report and in our other reports as we attempt to advise interested parties
of
the risks and factors that may affect our business, financial condition, and
results of operations and prospects.
Overview
As
a
result of the merger transaction between our subsidiary, Dalian Acquisition
Corp. (“Dalian”), and Dalian Holding Corp. (“DHC”), all of our operations are
conducted through our subsidiary, DHC, which conducts all of its operations
through its subsidiary, Ye Shun, and its wholly-owned subsidiary,
Runze. Therefore, since our relevant operations post merger are
conducted through Runze the discussion herein relates to the operations of
that
entity as DHC and Ye Shun do not have any operations independent of Runze’s
operations.
Ye
Shun is a Hong Kong registered enterprise that has its ownership in Runze as
its
primary asset and its only operating asset. Runze is a
state-appointed pesticide manufacturer in China. In the past, through
Runze, we specialized in the manufacturing of pesticides and herbicides,
particularly the herbicide Acetochlor. However, during the fiscal
year, which ended September 30, 2007, and continuing through the quarter ended
December 31, 2007, we did not sell any product or have any revenues as a result
of not being able to utilize DRC’s facilities and the new regulation regarding
all manufacturing plants being in “chemical zones.” In Summer 2007,
we received a notice from the Chinese National Environmental Bureau that all
chemical manufacturing facilities must be located in designated “chemical zones”
going forward, and for manufacturing plants not currently located in a “chemical
zone” will have to be relocated. Our manufacturing facility is not
located in a “chemical zone” and, therefore, if we wish to manufacture products
at our own manufacturing plant we will be forced to build a new facility in
an
approved “chemical zone.” Currently, management does not believe we
will attempt to build a new manufacturing plant in a designated chemical
zone. Therefore, based on the location of our current manufacturing
plant our management has determined that our manufacturing equipment is of
little or no value and has been categorized as an impaired asset on our current
audited financial statements.
In
addition to not building a new plant, we also currently do not believe we
will
be permitted to use DRC’s manufacturing facilities to manufacture our product to
sell to unrelated third parties as we have in the past because their
manufacturing facilities are also not located in a “chemical zone” and they will
be forced to move their plant. We believe DRC will utilize their
manufacturing capacity until the time they must move their plant, if they
choose
to do so, to manufacture their own product. Additionally, even if we
were able to utilize DRC’s manufacturing facilities to manufacture our product
there is no guarantee we will receive a discounted rate if we are allowed
to use
their facilities, and currently, even with the discounted rate, do not have
the
funds to pay DRC to utilize their facility.
Although
we hope to be able to manufacture product in 2008, based on the above factors
our management does not believe that is likely and is contemplating
discontinuing our current business plan of manufacturing herbicides and
pesticides.
Background
We
were
incorporated under the name M-GAB Development Corporation in March
2001. From inception through early 2003, our business was the
development, marketing, and distribution of an interactive travel
brochure. On May 16, 2003, we filed an election to be treated as a
business development company (“BDC”) under the Investment Company Act of 1940
(the “1940 Act”), which became effective on the date of filing. As a
BDC we never made any investments into eligible portfolio
companies.
On
March
17, 2006, China Agro Sciences Corp., a Florida corporation formerly known as
M-GAB Development Corporation (hereinafter “We” or ?癈hina Agro”) entered into an
Agreement and Plan of Merger (the “Agreement”) with Dalian Holding Corp., a
Florida corporation (formerly known as China Agro Sciences Corp.)
(“DHC”). This transaction closed on May 1, 2006, at which time, in
accordance with the Agreement, DHC merged with DaLian Acquisition Corp, a
Florida corporation that was our wholly-owned subsidiary (“DaLian”) (the
“Merger”). As a result of the merger, DaLian merged into DHC, with
DHC remaining as the surviving entity and our wholly-owned subsidiary, DaLian,
ceased to exist, and we issued 13,449,488 shares of our common stock to the
former shareholders of DHC.
Prior
to
DaLian’s merger with DHC, DHC had acquired all the outstanding common stock of
Ye Shun International (“Ye Shun”), a company that owns all the outstanding
common stock of DaLian Runze Chemurgy Co., Ltd. (“Runze”). In the
transaction in which Ye Shun purchased all the outstanding stock of Runze,
Runze
was determined to be the accounting acquirer. In the transaction in
which DHC acquired all the outstanding common stock of Ye Shun, Ye Shun was
determined to be the accounting acquirer. Ye Shun is a Hong Kong
registered enterprise. Runze is classified by the Chinese government
as an enterprise entity with 100% of its capital coming from Hong
Kong. As a result of the Merger, on April 28, 2006, we filed a Form
N-54C and terminated our status as a business development company and, through
our wholly-owned subsidiary, commenced operations, specializing in the sale
and
distribution of pesticides and herbicides, and consequently ceased being a
development stage company. Our only operations are conducted through
our wholly-owned subsidiary, which controls the assets of Runze. The
term “we” as used throughout this document refers to China Agro Sciences Corp.,
DaLian, and the operations of Runze, which are controlled by DHC.
Our
subsidiary owns Runze, an entity that was originally formed by the current
management and principal shareholders of Dalian Raiser Chemurgy Co., Ltd.
(“DRC”) and subsequently sold to Ye Shun. DRC is a state-appointed
manufacturer located in the Peoples Republic of China. Mr. Zhengquan
Wang, our Chief Executive Officer, Chief Financial Officer and a Director,
is
the President and Chairman of the Board of DRC. Runze contains
all our operations and the majority of our assets.
During
the quarter ended March 31, 2005, a market maker filed an application to list
our securities on the OTC Bulletin Board. On October 10, 2005, we
were informed by the NASD that our common stock was approved by the NASD for
trading on the OTC Bulletin Board. Our trading symbol is
CHAS.
Our
merger transaction closed on May 1, 2006. The merger transaction is
accounted for using the reverse purchase method of accounting for financial
reporting purposes since: (i) prior to this transaction China Agro had little
or
no substantial assets or business operations, (ii) post-closing, the former
owners of DHC now own approximately 95% of China Agro and therefore control
China Agro, and (iii) post-closing, the only continuing business operations
of
China Agro are those of DHC. In accordance with the reverse purchase
method of accounting the historical financial numbers disclosed in this
quarterly report are those historical numbers of DHC and Runze and does not
cover our previous operations as a BDC.
Three
Months Ended December 31, 2007 Compared to Three Months Ended December 31,
2006
Results
of
Operations
|
|
Three
Months Ended
December
31,
2007
|
|
|
Three
Months Ended
December
31,
2006
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
-
|
|
|
-
|
|
Cost
of revenue
|
|
-
|
|
|
-
|
|
Gross
Profit
|
|
-
|
|
|
-
|
|
Total
Costs and Expenses
|
|
105,310
|
|
|
208,644
|
|
Net
income (loss)
|
$
|
(71,428
|
)
|
$
|
(208,644
|
)
|
Revenues
We
had no
revenues for three months ended December 31, 2007, compared to no revenues
for
the same period one year ago. Going forward we will not be able to
manufacture product at our existing plant due to the new “chemical zone”
regulation. Therefore, if we are not able to contract with a third
party to utilize a qualified manufacturing facility to produce our products
we
will be not be able to manufacture product in the future and we will not
have
any revenues. In order to build a new manufacturing facility in a
“chemical zone” it would be at a substantial cost to the company and our
management does not believe that is likely to occur and we may seek an
alternative business in the future.
Cost
of
Sales
Our
cost
of sales for the three months ended December 31, 2007, were $0 compared to
$0
for the year ended December 31, 2006. Our cost of sales for the
three-month periods ended December 31, 2007 and 2006 were $0 because we did
not sell any products during these period.
Gross
Profit
We
had no
gross profit during the three-month periods ended December 31, 2007 or 2006
because we did not manufacture any products during these two
periods.
Total
Costs and
Expenses
Our
total
costs and expenses were $71,428 for the three months ended December 31, 2007,
compared to $208,644 for the same period one year ago. For the period
ended December 31, 2007, our total costs and expenses were $105,310 for general
and administrative expenses, which primarily consisted of $33,497 in
depreciation expense, $54,571 in amortization of prepaid financial
consulting expenses and $6,250 in salaries, plus other income of
$33,882 related mostly to the use of impaired equipment in the repayment of
accounts payables. For
the
three months ended December 31, 2006 our general and administrative expenses
of
$208,644 consisted primarily of amortized costs related to financial
consulting services which totaled approximately $80,000 and depreciation of
$117,000.
We
believe our total costs and expenses
of $71,428 for the three months ended December 31, 2007 are fairly indicative
of
our total costs and expenses for a three-month period in which we do not
manufacture any products.
Net
Income
(Loss)
Net
loss
for the three months ended December 31, 2007 totaled $71,428 compared
to net loss of $208,644 for the comparable period one year ago. The
difference is largely attributable to our other income of $33,882 related mostly
to the use of impaired equipment in the repayment of accounts payables and
a
decrease in administrative expenses. We anticipate this net loss to
be fairly indicative of future quarters in which we do not manufacture our
own
products. As a comparison, our net loss for the three months ended
December 31, 2006, another three-month period in which we did not
manufacture any products, was $208,644, but we did not have other income during
this period.
Liquidity
and Capital Resources
Introduction
As
of December 31, 2007,
we had cash and cash equivalents
totaling $100,758,
no
accounts receivable since we didn’t
manufacture any product, no
inventory
since
we didn’t’
manufacture any product, prepaid financial consulting
expense
of $360,977,
due from an affiliated company of
$135,793,
and other current assets totaling $6,284. The
prepaid financial
consulting expense is an amount we prepaid to individual consultants for general
advice and guidance. Our total current liabilities as of December 31, 2007,
were $861,269
consisting of $850,987 in accounts
payable and
$10,282 in accrued
expenses. All of our
accounts payable were due to unrelated third parties
and we had no
amounts due to related parties. Currently we do not believe
we will be able to fund operations out of our sales of herbicides and
pesticides going forward since we are not currently
manufacturing any
products for sale. If we are not able to fund our operations from
sales of products then we will likely fund operations through the sale of our
stock and from loans.
Our
significant balance sheet accounts
as of December 31,
2007, compared to the end
of our last fiscal year
were:
|
|
As
of
December
31,
2007
|
|
As
of
September
30, 2007
|
|
Change
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
$
|
100,758
|
$
|
114,271
|
$
|
(13,513)
|
Accounts
receivable
|
|
-
|
|
-
|
|
-
|
Inventories
|
|
-
|
|
-
|
|
-
|
Prepaid
expenses
|
|
360,977
|
|
405,271
|
|
(44,294)
|
Due
from an affiliated
company
|
|
135,793
|
|
291,345
|
|
(155,552)
|
Accounts
payable
|
|
(850,987)
|
|
(996,894)
|
|
145,907
|
Total
current
liabilities
|
$
|
(861,269)
|
$
|
(1,029,962)
|
$
|
168,693
|
Cash
Requirements
We
believe that our available
funds will provide us with adequate capital for at least
the next three to six months; however, to the extent that we make
acquisitions or are forced to move our manufacturing facility, we may require
additional capital for the acquisition, for the operation of the combined
companies, or the relocation of our manufacturing facility. We cannot
assure that such funding will be available.
Sources
and
Uses of Cash
Operations
Net
cash
used in operating activities of $168,379 for the three months ended December
31,
2007 was primarily a result of the net lossof $71,428, a reduction in
accounts payable and accrued expenses of $188,515, offset by depreciation of
$33,497, a reduction of prepaid expenses and other current by $58,067. Our
net
cash provided by operating activities totaled $803,315 for the same three-month
period one year ago. The primary difference between the two periods
is in the period ended December 31, 2006 we collected accounts receivable of
$2,045,549, prepaid financial consulting expenses of $544,129, accrued accounts
payable of $502,020, had inventories of $76,089 and accrued expenses of
$28,534.
Investing
Net
cash
used in investing activities totaled $0 for the three months ended December
31,
2007, as compared to $22,935 for the same period one year ago. During the
same period in 2006, we had investing activities related to the purchase of
property and equipment, totaling $22,935.
Financing
Net
cash
provided by financing activities totaled $154,888 for the three months ended
December 31, 2007 related to loans from an affiliated party. The
$734,880 in net cash used in financing activities for the three months ended
December 31, 2006, was the result of the repayment of loan to an affiliated
party.
Debt
Instruments,
Guarantees, and Related Covenants
Our
related party debt is non-interest
bearing and payable on demand. Our long term debt obligation
bears interest at 0.3% over the prime rate in effect in the PRC and is payable
interest only through July 2009, followed by annual installments of
approximately 233,000 RMB ($29,000).
Critical
Accounting Policies
The
preparation of our financial statements that are in conformity with
accounting principles generally accepted in the United States of America require
our management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities as well as the disclosure of
contingent assets and liabilities at the date of the financial
statements. The same also applies for reported amounts of
revenues and expenses during the reporting period. As such, in
accordance with the use of accounting principles generally accepted in the
United States of America, our actual realized results may differ from
management’s initial estimates as reported. A summary of our
significant accounting policies are located in the notes to the financial
statements which are an integral component of this filing.
ITEM
3
Quantitative and Qualitative Disclosures About Market Risk
We
are
exposed to market risks, which include interest rate changes in United States
of
America and the People’s Republic of China, commodity prices and, to a lesser
extent, foreign exchange rates. We do not engage in financial
transactions for trading or speculative purposes.
Interest
Rate Risk. The
interest payable on our long term debt is based on variable interest rates
and
therefore affected by changes in market interest rates in People’s Republic of
China. In addition, there may be interest charged on our accounts
payable, as well as interest we charge on our accounts receivable, depending
on
their age. Typically these interest rates are fixed are not affected
by changes in market interest rates.
Commodity
Prices. We are
exposed to fluctuation in market prices for our raw materials. To
mitigate risk associated with increases in market prices and commodity
availability, we negotiate
contracts with favorable terms directly with vendors. We
do not enter into forward
contracts or other market instruments as a means of achieving our objectives
or
minimizing our risk exposures on these materials.
Foreign
Currency Risks. Our
market risk associated with foreign currency rates is not considered to be
material. To date, we
have only had minor amounts of transactions that were denominated in currencies
other than the currency of the country of origin, and, therefore, we have
only minimal exposure to foreign currency exchange risk. We do not
hedge against foreign currency risks and believe that foreign currency exchange
risk is immaterial to our current business.
ITEM
4
Controls and Procedures
We
conducted an evaluation, with the
participation of our Chief Executive Officer and Chief Financial Officer, of
the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, as of December 31, 2007,
to ensure that information required to be disclosed by us in the reports filed
or submitted by us under the Exchange Act is recorded, processed, summarized
and
reported, within the time periods specified in the Securities Exchange
Commission’s rules and forms, including to ensure that information required to
be disclosed by us in the reports filed or submitted by us under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of December 31, 2007, our
disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses described below.
In
light of the material weaknesses
described below, we performed additional analysis and other post-closing
procedures to ensure our consolidated financial statements were prepared in
accordance with generally accepted accounting
principles. Accordingly, we believe that the consolidated financial
statements included in this report fairly present, in all material respects,
our
financial condition, results of operations and cash flows for the periods
presented.
A
material weakness is a control
deficiency (within the meaning of the Public Company Accounting Oversight Board
(PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or
detected. Management has identified the following three material
weaknesses which have caused management to conclude that, as of December 31,
2007, our disclosure controls and procedures were not effective at the
reasonable assurance level:
1.
We do not have written documentation of our internal control policies and
procedures. Written documentation of key internal controls over financial
reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and will
be
applicable to us for the year ending September 30, 2008. Management evaluated
the impact of our failure to have written documentation of our internal controls
and procedures on our assessment of our disclosure controls and procedures
and
has concluded that the control deficiency that resulted represented a material
weakness.
2.
We do not have sufficient segregation of duties within accounting functions,
which is a basic internal control. Due to our size and nature, segregation
of
all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of transactions,
the
custody of assets and the recording of transactions should be performed by
separate individuals. Management evaluated the impact of our failure to have
segregation of duties on our assessment of our disclosure controls and
procedures and has concluded that the control deficiency that resulted
represented a material weakness.
3.
We have had a number of audit adjustments. Audit adjustments are the result
of a
failure of the internal controls to prevent or detect misstatements of
accounting information. The failure could be due to inadequate design of the
internal controls or to a misapplication or override of controls. Management
evaluated the impact of our significant number of audit adjustments and has
concluded that the control deficiency that resulted represented a material
weakness.
To
address these material weaknesses,
management performed additional analyses and other procedures to ensure that
the
financial statements included herein fairly present, in all material respects,
our financial position, results of operations and cash flows for the periods
presented.
Remediation
of Material
Weaknesses
We
have attempted to remediate the
material weaknesses in our disclosure controls and procedures identified above
by working with our independent registered public accounting firm and refining
our internal procedures. To date, we have not been successful in
reducing the number of audit adjustments, but will continue our efforts in
the
coming fiscal year.
Changes
in Internal Control
over Financial Reporting
Except
as noted above, there were no
changes in our internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
ITEM
4A(T)
Controls and Procedures
We
are
not required to furnish the information required by this item until we report
on
our fiscal year ending September 30, 2008.
PART
II
ITEM
1
Legal Proceedings
In
the
ordinary course of business, we may be from time to time involved in various
pending or threatened legal actions. The litigation process is
inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon our financial condition and/or results
of operations. However, in the opinion of our management, matters
currently pending or threatened against us are not expected to have a material
adverse effect on our financial position or results of operations.
ITEM
1A
Risk Factors
On
at
least an annual basis, we are required to provide our shareholders with a
statement of risk factors and other considerations for their
review. Our risk factors have not substantially changed since our
Annual Report on Form 10-K for the period ended September 30, 2007, and our
risk
factors can be found in that filing.
ITEM
2
Unregistered Sales of Equity Securities and Use of Proceeds
There
have been no events that are required to be reported under this
Item.
ITEM
3
Defaults Upon Senior Securities
There
have been no events that are required to be reported under this
Item.
ITEM
4
Submission of Matters to a Vote of Security Holders
There
have been no events that are required to be reported under this
Item.
ITEM
5
Other Information
SEC
Comments
On
February 15, 2007, we received initial comments from the Securities and Exchange
Commission regarding our Annual Report on Form 10-K and our First Amended
Annual
Report on Form 10-K/A for the year ended September 30, 2006. We have
since responded and received follow up comments and are in the process of
responding to those comments. After we have completed the comment
process we will file a third amendment to our Annual Report on Form 10-K/A
for
the year ended September 30, 2006. Additionally, we do not know if
the comments impact the disclosure in this Quarterly Report. If the
comments impact this Quarterly Report we will file an amended Quarterly Report,
if necessary.
ITEM
6
Exhibits
31.1
|
|
Rule
13a-14(a)/15d-14(a)
Certification of Chief Executive Officer
|
|
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a)
Certification of Chief Financial
Officer
|
|
|
|
32.1
|
|
Chief
Executive Officer Certification Pursuant to 18 USC, Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Chief
Financial Officer Certification Pursuant to 18 USC, Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In
accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
China
Agro Sciences Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated: February
19, 2008
|
|
/s/
Zhengquan Wang |
|
By:
|
Zhengquan
Wang
|
|
|
President,
Director,
|
|
|
Chief
Executive Officer,
|
|
|
Chief
Financial Officer,
|
|
|
Principal
Accounting Officer
|
|
|
|