1 BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X relating to smaller reporting companies. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009.
The balance sheet at September 30, 2008 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
2 GOING CONCERN
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.
3 DUE TO AFFILIATED COMPANY
This amount is non-interest bearing and due on demand. The Company has imputed interest of $21,000 at the rate of 4% per annum for the nine months ended June 30, 2009.
4 LONG-TERM DEBT
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 ($34,000) commencing in August 2010, plus interest, with the final payment due in July 2020.
Future principal loan payments are as follows:
Nine months ended June 30th (using current year exchange rates) |
|
2010 |
|
$ |
34,135 |
|
2011 |
|
|
34,135 |
|
2012 |
|
|
34,135 |
|
2013 |
|
|
34,135 |
|
2014 |
|
|
34,135 |
|
Thereafter |
|
|
204,365 |
|
|
|
$ |
375,040 |
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking” statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company that is based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the
Company’s management. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in other filings made by the company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
Summary Overview
On March 17, 2006, China Agro Sciences Corp., a Florida corporation formerly known as M-GAB Development Corporation entered into an Agreement and Plan of Merger 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.
After the merger transaction between our subsidiary, Dalian, and 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 Ye Shun and
Runze the discussion herein relates to the operations of those two entities.
Ye Shun is a Hong Kong registered enterprise that has its ownership in Runze as its primary asset. Runze is a state-appointed pesticide manufacturer in China. Through Runze, we specialize in the manufacturing of various pesticides and herbicides, particularly the herbicide Acetochlor. However, during the quarterly period ended
June 30, 2009, we did not sell any product or have any revenues as a result of not being able to utilize DHC’s facilities because of the new regulation regarding all manufacturing plants being in “chemical zones.” Although we hope to be able to manufacture product in the near future, we may not be able to do so and would have to undertake a significant expense in building a new manufacturing facility if we decided to continue with our current business plan and manufacture herbicides and
pesticides.
Results of operations
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Results of Operations
|
|
Three Months Ended
June 30, 2009 |
|
|
Three Months Ended
June 30, 2008 |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
- |
|
|
|
- |
|
Cost of revenue |
|
|
- |
|
|
|
- |
|
Gross Profit |
|
|
- |
|
|
|
- |
|
Total Costs and Expenses |
|
|
152,599 |
|
|
|
116,638 |
|
Net income (loss) |
|
$ |
(152,599 |
) |
|
$ |
(116,638 |
) |
Revenues
We had no revenues for the three months ended June 30, 2009, 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 during those periods. Building a new manufacturing facility in a “chemical zone” 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 June 30, 2009, were $0 compared to $0 for the three months ended June 30, 2008. We did not have any cost of sales for the three-month periods ended June 30, 2009 and 2008 because we did not sell any products during these periods.
Gross Profit
We had no gross profit during the three-month periods ended June 30, 2009 or 2008 because we did not manufacture any products during these two periods.
Total Costs and Expenses
Our total costs and expenses were $152,599 for the three months ended June 30, 2009, representing an increase of $35,961 or 30% as compared to that of $116,638 for the same period one year ago. For the period ended June 30, 2009, our total costs and expenses consisted of general and administrative expenses of $135,924 and interest expense
of $12,675.
Our general and administrative expenses primarily consisted of amortized costs related to financial consulting expenses, and depreciation expense, salaries and wages. We believe our total costs and expenses of $152,599 for the three months ended June 30, 2009 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 June 30, 2009 totaled $152,599 compared to net loss of $116,638 for the comparable period one year ago. The difference is attributable to the difference in our total costs and expenses. We anticipate this net loss to be fairly indicative
of future quarters in which we do not manufacture our own products.
Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008
Results of Operations
|
|
Nine Months Ended
June 30, 2009 |
|
|
Nine Months Ended
June 30, 2008 |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
- |
|
|
|
- |
|
Cost of revenue |
|
|
- |
|
|
|
- |
|
Gross Profit |
|
|
- |
|
|
|
- |
|
Total Costs and Expenses |
|
|
413,545 |
|
|
|
282,147 |
|
Net income (loss) |
|
$ |
(413,545 |
) |
|
$ |
(282,147 |
) |
Revenues
For the same reasons stated above, we did not have any revenues for nine months ended June 30, 2009, compared to no revenues for the same nine-month period one year ago. We do not expect to generate revenues unless we are able to begin producing products utilizing a third party’s manufacturing facility. We do not have any
arrangements to produce product at any third parties’ facilities and do not believe it is likely that we will be able to make such an arrangement due to our current inability to pay for the use of such facilities.
Cost of Sales
Our cost of sales for the nine months ended June 30, 2009, were $0 compared to nil for the same period one year ago. As noted above, we did not have any cost of sales during these periods because we did not have any sales during these nine-month periods.
Gross Profit
Our gross profit was nil for the nine months ended June 30, 2009 and 2008 because we did not manufacture any products during these two periods.
Total Costs and Expenses
Our total operating expenses were $413,545 for the nine months ended June 30, 2009, representing a 46.5% increase compared to the same period one year ago of $282,147. For the nine-month period ending June 30, 2009, our operating expenses consisted of general
and administrative expenses of $379,071, and interest expense of $34,474.
Our general and administrative expenses primarily consisted of amortized costs related to financial consulting expenses, and depreciation expense, salaries and wages.
We
believe our total costs and expenses of $413,545 for the nine months ended June 30, 2009 are fairly indicative of our total costs and expenses for a nine-month period in which we do not manufacture any products.