TIDMBODI
RNS Number : 7681N
Bodisen Biotech Inc
11 September 2013
11 September 2013
Bodisen Biotech, Inc.
Results for the six month period ended 30 June 2013
Review & Extracts of the Form10-Q as required by the
Securities & Exchange Commission
Bodisen Biotech, Inc. (the "Company") (OTC Pink Sheets: BBCZ;
London AIM: BODI; website: www.bodisen.com) recently announced its
six months unaudited results for the period ended 30 June 2013,
which are extracted from the Company's Form 10-Q filed with the
SEC.
Result of Operations
Three Months Ended June 30, 2013 as Compared to Three Months
Ended June 30, 2012
Three Months Ended
June 30, Change
---------------------------------
2013 2012 $ %
-------------------- -----------------
Revenue $ 682,357 $ 1,428,557 $ (746,200) (52.2)
-------------------- ----------------- -----------------
Cost of revenue 473,786 1,138,190 (664,404) (58.4)
-------------------- ----------------- -----------------
Gross profit 208,571 290,367 (81,796) (28.2)
Operating expenses
Selling expenses 6,737 47,973 (41,236) (86.0)
General and administrative
expenses 1,098,398 1,320,993 (222,595) (16.9)
Total operating
expenses 1,105,135 1,368,966 (263,831) (19.3)
Loss from operations (896,564) (1,078,599) 182,035 (16.9)
Non-operating income
(expense):
Other income (expense) (405,519) (1,676) (403,843) 24,095.6
Interest income 77 385 (308) (80.0)
Interest expense (20,971) (5,278) (15,693) 297.3
-------------------- ----------------- -----------------
Total non-operating
income(expense) (426,413) (6,569) (419,844) 6,391.3
Net loss $ (1,322,977) $ (1,085,168) $ (237,809) 21.9
==================== ================= =================
Revenue: We generated revenue of $682,357 for the three months
ended June 30, 2013, a decrease of $746,200 or 52.2%, compared to
$1,428,557 for the three months ended June 30, 2012. The decrease
in revenue is primarily attributable to the Company's new products
not receiving market acceptance by customers.
Gross Profit: We generated a gross profit of $208,571 for the
three months ended June 30, 2013, a decrease of $81,796 or 28.2%,
compared to $290,367 for the three months ended June 30, 2012.
Gross margin (gross profit as a percentage of revenue), was 30.6%
for the three months ended June 30, 2013, compared to 20.3% for the
three months ended June 30, 2012. The increase in the gross margin
percentage was primarily attributable to the provision of deferred
revenue under the cost recovery method which is affected by the
timing of collections of our account receivable.
Selling Expenses: Aggregated selling expenses accounted for
$6,737 of our operating expenses for the three months ended June
30, 2013, a decrease of $41,236 or 86.0%, compared to $47,973 for
the three months ended June 30, 2012. The decrease in our
aggregated selling expense is primarily attributable to a decrease
in advertising expenses.
General and Administrative Expenses: General and administrative
expenses accounted for $1,098,398 of our operating expenses for the
three months ended June 30, 2013, a decrease of $222,595 or 16.9%,
compared to $1,320,993 for the three months ended June 30, 2012.
The decrease is principally due to the increase in our bad debt
allowance of account receivable balance of approximately $650,000
and a decrease in research and development expenses of
approximately $960,000.
Non Operating Income and Expenses: We had total non-operating
expenses of $426,413 for the three months ended June 30, 2013, a
change of $419,844 compared to $6,569 for the three months ended
June 30, 2012. The change is principally due to:
i. a decrease in interest expense of $5,173 (due to full
settlement of the bank loan in January 2012) during the three
months ended June 30, 2013 compared to the three months ended June
30, 2012;
Ii an increase in loss on disposal of property and equipment of
approximately $415,000 during the three months ended June 30, 2013
compared to the three months ended June 30, 2012.
Net loss: We had a net loss of $1,322,977 for the three months
ended June 30, 2013, a change of $91,841 compared to $1,085,168 for
the three months ended June 30, 2012. The change is due to reasons
described above, principally the decrease in revenue and increase
in non operating expense.
Six Months Ended June 30, 2013 as Compared to Six Months Ended
June 30, 2012
Six Months Ended
June 30, Change
------------------------------
2013 2012 $ %
------------------- ----------------
Revenue $ 934,221 $ 2,509,523 $ (1,575,302) (62.8)
Cost of revenue 698,252 1,890,532 (1,192,280) (63.1)
------------------- ---------------- ----------------
Gross profit 235,969 618,991 (383,022) (61.9)
Operating expenses
Selling expenses 26,061 549,601 (523,540) (95.3)
General and administrative
expenses 1,597,978 2,139,602 (541,624) (25.3)
Total operating
expenses 1,624,039 2,689,203 (1,065,164) (39.6)
Loss from operations (1,388,070) (2,070,212) 682,142 (33.0)
Non-operating income
(expense):
Other income (expense) (405,755) (2,288) (403,467) 17,634.0
Interest income 359 20,761 (20,402) (98.3)
Interest expense (56,770) (16,589) (40,181) 242.2
------------------- ---------------- ----------------
Total non-operating
income(expense) (462,166) 1,884 (464,050) -
Net loss $ (1,850,236) $ (2,068,328) $ 218,092 10.5
=================== ================ ================
Revenue: We generated revenue of $934,221 for the six months
ended June 30, 2013, a decrease of $1,575,302 or 62.8%, compared to
$2,509,523 for the six months ended June 30, 2012. The decrease in
revenue is primarily attributable to the Company's new products not
receiving market acceptance by customers.
Gross Profit: We generated a gross profit of $235,969 for the
six months ended June 30, 2013, a decrease of $383,022 or 61.9%,
compared to $618,991 for the six months ended June 30, 2012. Gross
margin (gross profit as a percentage of revenue), was 25.3% for the
six months ended June 30, 2013, compared to 24.7% for the six
months ended June 30, 2012. The increase in the gross margin was
primarily attributable to the provision of deferred revenue under
the cost recovery method which is affected by the timing of
collections of our accounts.
Selling Expenses: Aggregated selling expenses accounted for
$26,061 of our operating expenses for the six months ended June 30,
2013, a decrease of $523,540 or 95.3%, compared to $549,601 for the
six months ended June 30, 2012. The decrease in our aggregated
selling expense is primarily attributable to a decrease in
advertising expenses.
General and Administrative Expenses: General and administrative
expenses accounted for $1,597,978 of our operating expenses for the
six months ended June 30, 2013, a decrease of $541,624 or 25.3%,
compared to $2,139,602 for the six months ended June 30, 2012. The
decrease is principally due to the increase in our bade debt
allowance of account receivable balance of approximately $685,000
and a decrease in research and development expenses of
approximately $960,000 during the six months ended June 30, 2013
compared to the six months ended June 30, 2012.
Non Operating Income and Expenses: We had total non-operating
expenses of $426,166 for the six months ended June 30, 2013, a
change of $464,050 compared to income of $1,884 for the six months
ended June 30, 2012. The change is principally due to:
i. a decrease in interest income of $20,402 (due to full
repayment of the note receivable in January 2012) during the six
months ended June 30, 2013 compared to the six months ended June
30, 2012;
ii. an increase in interest expense of $40,181 (due to full
settlement of the bank loan in May 2013) during the six months
ended June 30, 2013 compared to the six months ended June 30,
2012.
Iii an increase in loss on disposal of property and equipment of
approximately $403,467 during the six months ended June 30, 2013
compared to the six months ended June 30, 2012.
Net loss: We had a net loss of $1,850,236 for the six months
ended June 30, 2013, a change of $218,092 compared to $2,068,328
for the six months ended June 30, 2012. The change is due to
reasons described above, principally the decrease in revenue and
increase in non-operating expense.
Liquidity and Capital Resources
We are primarily a parent holding company for the operations
carried out by our operating subsidiary, Yang Ling, which carries
out its activities in the People's Republic of China. Because of
our holding company structure, our ability to meet our cash
requirements apart from our financing activities, including payment
of dividends on our common stock, if any, substantially depends
upon the receipt of dividends from our subsidiaries, particularly
Yang Ling.
As of June 30, 2013, we had $149,230 of cash compared to
$294,539 as of December 31, 2012.
Cash balance decreased to $145,309 as of June 30, 2013 as
compared with $294,539 as of December 31, 2012 due to repayment of
bank loan and advance to a related party during the period. As of
June 30, 2013, the Company therefore maintained an inventory of
finished goods of $1,003,436 in line with the Company's budgeted
sales for the first half of 2013. This has a negative impact on the
cash balance. On March 19, 2013, the chairman issued an undertaking
that the chairman will give his every endeavor and best effort to
obtain necessary and adequate funding to meet the Company's
financial obligations as and when they are required thereby
warranting that the manufacturing operations of the Company will
not be affected.
While we have funded our operations since inception from
operations and through private placements of equity securities and
loans, there can be no assurance that adequate financing will
continue to be available to us and, if available, on terms that are
favorable to us.
We believe that we will require additional financing to carry
out our intended objectives during the next twelve months. There
can be no assurance, however, that such financing will be available
or, if it is available, that we will be able to structure such
financing on terms acceptable to us and that it will be sufficient
to fund our cash requirements until we can reach a level of
profitable operations and positive cash flows. If we are unable to
obtain the financing necessary to support our operations, we may be
unable to continue as a going concern. We currently have no firm
commitments for any additional capital.
A downturn in the United States stock and debt markets could
make it more difficult to obtain financing through the issuance of
equity or debt securities. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or
experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or
debt securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our shares of
common stock or the debt securities may cause us to be subject to
restrictive covenants. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or
experience unexpected cash requirements that would force us to seek
additional financing. If additional financing is not available or
is not available on acceptable terms, we will have to curtail our
operations.
Cash Flows
Operating: We received $474,834 of cash for operating activities
for the six months ended June 30, 2013 compared to cash used of
$1,943,690 of cash used in operating activities for the six months
ended June 30, 2012. The cash used in operating consisted of a net
loss of $1,850,236 offset by non cash expenses of depreciation and
amortization of $561,483, an increase in allowance for bad debts of
$661,793 loss on disposal of equipment of $414,176 and due from a
related party of $934,584.
Investing: Our investing activities for the six months ended
June 30, 2013 provided cash of $817,020 representing proceeds from
sale of equipment $817,020 for the six months ended June 30, 2013,
compared to cash provided by investing activities of $1,409,507 for
the six months ended June 30, 2012 representing the addition of
property and equipment from $15,994 and proceeds from a note
receivable of $1,425,501 during this comparable period.
Financing. During the six months ended June 30, 2013, we used
$1,441,800 in financing activities by repaying our bank loan.
During the six months ended June 30, 2012, we received and paid
back $1,425,501 in bank loans.
Off-Balance Sheet Arrangements
We currently do not have any material off-balance sheet
arrangements except for the remaining pre-payments under the
land-lease arrangement described above.
About Bodisen Biotech, Inc.
Bodisen Biotech, Inc. is a manufacturer of liquid and organic
compound fertilizers, pesticides, insecticides and agricultural raw
material certified by the Petroleum Chemical Industry
Administrative office of China (Chemical Petroleum Production
Administrative Bureau), Shaanxi provincial government and Chinese
government. The company is headquartered in Shaanxi province and is
a Delaware corporation. The company files annual and periodic
reports with the U.S. Securities and Exchange Commission, which are
accessible at www.sec.gov.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements are
based on the current expectations or beliefs of Bodisen Biotech,
Inc. management and are subject to a number of factors and
uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements.
Enquiries:
Bodisen Biotech, Inc.
Lin Wang 0086 29 8707 4957
Charles Stanley Securities
(Nominated Adviser)
Russell Cook / Carl Holmes 020 7149 6000
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE
INCOME (LOSS) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30,
2012 AND 2011 (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
$ $ $ $
Revenue 682,357 1,428,557 934,221 2,509,523
------------ ------------ ------------ ------------
Cost of revenue 473,786 1,138,190 698,252 1,890,532
------------ ------------ ------------ ------------
Gross profit 208,571 290,367 235,969 618,991
Operating expenses
Selling expenses 6,737 47,973 26,061 549,601
General and administrative
expenses (note
2) 1,098,398 1,320,993 1,597,978 2,139,602
Total operating
expenses 1,105,135 1,368,966 1,624,039 2,689,203
Loss from operations (896,564) (1,078,599) (1,388,070) (2,070,212)
Non-operating income
(expense):
Other income (expense) (405,519) (1,676) (405,755) (2,288)
Interest income 77 385 359 20,761
Interest expense (20,971) (5,278) (56,770) (16,589)
------------ ------------ ------------ ------------
Total non-operating
income (expense) (426,413) (6,569) (462,166) 1,884
Net loss (1,322,977) (1,085,168) (1,850,236) (2,068,328)
Other comprehensive
loss
Foreign currency
translation gain 384,302 19,631 390,517 230,586
Unrealized gain
(loss) on marketable
equity security (282,603) (2,331,471) (70,651) 60,558
------------ ------------ ------------ ------------
Total other comprehensive
income (loss) 101,699 (2,311,840) 319,866 291,144
------------ ------------ ------------ ------------
Comprehensive income
(loss) (1,221,278) $ (3,397,008) $ (1,530,370) $ (1,777,184)
============ ============ ============ ============
Weighted average
shares outstanding
:
Basic 21,150,250 21,150,250 21,150,250 21,150,250
============ ============ ============ ============
Diluted 21,150,250 21,150,250 21,150,250 21,150,250
============ ============ ============ ============
Earnings (loss)
per share:
Basic (0.06) (0.05) (0.09) (0.10)
============ ============ ============ ============
Diluted (0.06) (0.05) (0.09) (0.10)
============ ============ ============ ============
CONSOLIDATED BALANCE SHEETS
June December
30, 31,
Notes 2013 2012
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 149,230 $ 294,539
Accounts receivable, net
of allowance for
doubtful accounts of $1,153,418
and $475,122 3 1,705,873 3,584,676
Other receivables 26,546 3,963
Due from a related party 4 943,918 -
Inventory 5 1,506,643 2,166,992
Advances to suppliers 3 45,210 39,576
Prepaid expense and other
current assets 19,198 4,391
Total current assets 4,396,618 6,094,137
PROPERTY AND EQUIPMENT,
net 3 10,028,611 11,541,347
MARKETABLE SECURITY, AVAILABLE-FOR-SALE 6 211,952 282,603
INTANGIBLE ASSETS, net 7 4,818,883 4,776,979
TOTAL ASSETS $ 19,456,064 $ 22,695,066
============= ===================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 367,854 $ 532,266
Accrued expenses 67,249 76,984
Deferred revenue 3 645,631 753,616
Bank loan 8 - 1,426,500
Total current liabilities 1,080,734 2,789,366
Long-term bank loan - -
TOTAL LIABILITIES 1,080,734 2,789,366
------------- -------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001
per share; authorized 5,000,000
shares;
nil issued and outstanding - -
Common stock, $0.0001 per
share; 30,000,000 shares
authorized
and 21,510,250 shares issued
and outstanding 2,151 2,151
Additional paid-in capital 35,345,542 35,345,542
Accumulated other comprehensive
income 3 11,293,591 10,973,725
Statutory reserve 11 4,314,488 4,314,488
Accumulated deficit (32,580,442) (30,730,206)
--------------- -------------------
Total stockholders' equity 18,375,330 19,905,700
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 19,456,064 $ 22,695,066
=============== ===================
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 2013 and 2012
Six Months Ended June
30,
2013 2012
----------------- ---------------------------
(unaudited) (unaudited)
$ $
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss (1,850,236) (2,068,328)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 561,483 849,434
Allowance of (recovery
of) bad debts 661,793 (22,583)
Loss on disposal of equipment 414,176 -
(Increase) / decrease
in assets:
Accounts receivable 1,272,326 2,374,191
Other receivables (22,279) 11,731
Inventory 698,490 (2,636,881)
Due from a related party (934,584) -
Advances to suppliers (4,762) (529,469)
Prepaid expense (14,570) (15,433)
Increase / (decrease)
in current liabilities:
Accounts payable (173,544) 353,277
Accrued expenses (28,956) (27,647)
Deferred revenue (122,452) (239,607)
Other payables 17,949 7,625
Net cash provided by
(used in) operating activities 474,834 (1,943,690)
----------------- ---------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of property
and equipment - 15,994
Proceeds from sale of
property and equipment 817,020 -
---------------------------
Proceeds from repayment
of note receivable - 1,425,501
---------------------------
Net cash provided by
investing activities 817,020 1,409,507
----------------- ---------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank loan - 1,425,501
Repayment of bank loan (1,441,800) (1,425,501)
---------------------------
Net cash used in financing
activities (1,441,800) -
----------------- ---------------------------
Effect of exchange rate
changes on cash and cash
equivalents 4,637 6,550
----------------- ---------------------------
NET DECREASE IN CASH (145,309) (527,633)
CASH, BEGINNING OF PERIOD 294,539 935,375
----------------- ---------------------------
CASH, END OF PERIOD 149,230 407,742
================= ===========================
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Interest paid 56,770 16,589
======= =======
Income taxes paid - -
======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 2013 AND 2012 (UNAUDITED)
Note 1 - Organization and Basis of Presentation
The unaudited consolidated financial statements have been
prepared by Bodisen Biotech, Inc., a Delaware corporation (the
"Company" or "Bodisen"), pursuant to the rules and regulations of
the Securities Exchange Commission ("SEC"). The information
furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly present the operating results for
the respective periods. Certain information and footnote
disclosures normally present in annual consolidated financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2012. The results for the six months ended June 30,
2013 are not necessarily indicative of the results to be expected
for the full year ending December 31, 2013.
Organization and Line of Business
The accompanying consolidated financial statements include the
accounts of Bodisen Biotech, Inc., its 100% wholly-owned
subsidiaries Bodisen Holdings, Inc. (BHI), Yang Ling Bodisen
Agricultural Technology Co., Ltd ("Agricultural"), which was
incorporated in March 2005, and Sinkiang Bodisen Agriculture
Material Co., Ltd. ("Material"), which was incorporated in June
2006, as well as the accounts of Agricultural's 100% wholly- owned
subsidiary Yang Ling Bodisen Biology Science and Technology
Development Company Limited ("BBST"). The Company is engaged in
developing, manufacturing and selling organic fertilizers, liquid
fertilizers, pesticides and insecticides in the People's Republic
of China and produces numerous proprietary product lines, from
pesticides to crop-specific fertilizers. The Company markets and
sells its products to distributors throughout the People's Republic
of China, and these distributors, in turn, sell the products to
farmers.
Note 2 - Going Concern
The accompanying audited consolidated financial statements have
been prepared assuming the Company will continue as a going
concern. As shown in the accompanying consolidated financial
statements, the Company incurred a net loss of $1,850,236 for the
six months ended June 30, 2013 and had accumulated losses of
$32,580,442 at June 30, 2013. These create an uncertainty about the
Company's ability to continue as a going concern. In this regard,
the Company's Chairman has issued a letter of undertaking that he
will provide financial support to the Company (Note 15). The
consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a
going concern.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America. All significant
intercompany transactions and balances have been eliminated. The
Company's functional currency is the Chinese Yuan Renminbi ("RMB");
however the accompanying consolidated financial statements have
been translated and presented in United States Dollars ($ or
"USD").
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. It is possible that accounting estimates and
assumptions may be material to the Company due to the levels of
subjectivity and judgment involved.
Contingencies
Certain conditions may exist as of the date the financial
statements are issues, which may result in a loss to the Company
but which will only be resolved when one or more future events
occur or fail to occur. The Company's management and legal counsel
assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the
Company's legal counsel evaluates the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of
the amount of relief sought or expected to be sought. There were no
contingencies of the type as of June 30, 2013 and December 31,
2012.
If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be
accrued in the Company's financial statements. If the assessment
indicates that a potential material loss contingency is not
probable but it is reasonably possible, or is probable but cannot
be estimated, then the nature of the contingency liability,
together with an estimate of the range of possible loss if
determinable and material would be disclosed. There were no
contingencies of this type as of June 30, 2013 and December 31,
2012.
Loss contingencies considered to be remote by management are
generally not disclosed unless they involve guarantees, in which
case the guarantee would be disclosed.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash in time
deposits, certificates of deposit and all highly liquid debt
instruments with original maturities of three months or less.
Accounts Receivable
The Company maintains reserves for potential credit losses for
accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves. Reserves are recorded based on the Company's
historical collection history. Allowance for doubtful accounts as
of June 30, 2013 and December 31, 2012 were $1,153,418 and
$475,122, respectively.
Advances to Suppliers
The Company advances to certain vendors for purchase of its
material. The advances to suppliers are interest free and
unsecured.
Inventories
Inventories are valued at the lower of cost (determined on a
weighted average basis) or market. The Management compares the cost
of inventories with the market value and allowance is made for
writing down their inventories to market value, if lower.
Property and Equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to earnings as incurred;
additions, renewals and betterments are capitalized. When property
and equipment are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the
straight-line method for substantially all assets with estimated
lives of:
Operating equipment 10 years
Vehicles 8 years
Office equipment 5 years
Buildings 30 years
The following are the details of the property and equipment at
June 30, 2013 and December 31, 2012, respectively:
June December
30, 31,
---------------- --------------------
2013 2012
---------------- --------------------
Operating equipment $ 2,772,760 $ 4,036,291
Vehicles 60,999 64,510
Office Equipment 7,017 7,594
Buildings 7,587,708 7,432,952
---------------- --------------------
11,428,484 11,541,347
Less accumulated depreciation (399,873) -
Property and equipment, net $ 10,028,611 $ 11,541,347
================ ====================
Depreciation expense for the three and six months ended June 30,
2013 and 2012 was $252,222 and $504,498 and $395,308 and $793,093,
respectively.
Marketable Securities
The Company applies the guidance of ASC Topic 320
"Investments-Debt and Equity Securities," which requires
investments in equity securities to be classified as either trading
securities or available-for-sale securities. Marketable securities
that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and are
reported at fair value, with unrealized gains and losses recognized
in earnings. Marketable equity securities not classified as trading
are classified as available for sale, and are carried at fair
market value, with the unrealized gains and losses, net of tax,
included in the determination of comprehensive income and reported
in shareholders' equity.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360, "Property,
Plant, and Equipment," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. ASC
360 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount
exceeds the fair value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except
that fair values are reduced for the cost of disposal. At June 30,
2013, there was no impairment of its long-lived assets. Based on
its review at December 31, 2012, the Company took an impairment
charge related to its property and equipment for $9,057,267.
Intangible Assets
Intangible assets consist of Rights to use land and Fertilizers
proprietary technology rights. The Company follows ASC Topic 350 in
accounting for intangible assets, which requires impairment losses
to be recorded when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by the assets are
less than the assets' carrying amounts. There were no impairment
losses recorded on intangible assets for the three and six months
ended June 30, 2013 and 2012 as the valuation report for the fair
value of the land use rights exceeded the carrying value.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, other receivables,
advances to suppliers and accounts payable, the carrying amounts
approximate their fair values due to their short maturities.
Fair Value Measurements
ASC Topic 820, "Fair Value Measurements and Disclosures,"
requires disclosure of the fair value of financial instruments held
by the Company. ASC Topic 825, "Financial Instruments," defines
fair value, and establishes a three-level valuation hierarchy for
disclosures of fair value measurement that enhances disclosure
requirements for fair value measures. The three levels of valuation
hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices
for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
financial instrument.
Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
The following table represents our assets and liabilities by
level measured at fair value on a recurring basis as of June 30,
2013 and December 31, 2012.
Level Level Level
June 30, 2013 1 2 3
-------------- --------------- -----------------
Assets Description
Marketable securities $ 211,952 $ - $ -
December 31, 2012 Level 1 Level 2 Level 3
-------------- --------------- -----------------
Assets Description
Marketable securities $ 282,603 $ - $ -
The Company did not identify any other non-recurring assets and
liabilities that are required to be presented in the consolidated
balance sheets at fair value in accordance with ASC 825.
Revenue Recognition and Deferred Revenue
The Company's revenue recognition policies are in compliance
with Staff accounting bulletin (SAB) 104. Because collection is not
reasonably assured, sales revenue is recognized using the cost
recovery method. Under the cost recovery method, no profit is
recognized until collections exceed the cost of the goods sold.
Profit not yet recognized is recorded as deferred revenue as a
current liability.
Advertising Costs
The Company expenses the cost of advertising as incurred or, as
appropriate, the first time the advertising takes place. For the
three and six months ended June 30, 2013, the Company incurred
advertising expenses of $0 and $12,816, respectively. For the three
and six months ended June 30, 2012, the Company incurred
advertising expenses of $12,149 and $473,688, respectively.
Shipping and Handling Costs
Shipping and handling costs consist primarily of transportation
charges for delivery of goods to customers and are included in
selling, general and administrative expenses. The Company expenses
all shipping cost when they are incurred. For the three and six
months ended June 30, 2013, the Company incurred transportation
charges of $0 and $0, respectively. For the three and six months
ended June 30, 2012, the Company incurred transportation charges of
$20,587 and $35,186, respectively.
Research and Development
The Company accounts for research and development costs in
accordance with ASC 730-10, all research and development costs must
be charged to expense as incurred. Accordingly, internal research
and development costs are expensed as incurred. Third party
research and development costs are expensed when the contract work
has been performed or as milestone results have been achieved as
defined under the applicable agreement. Company-sponsored research
and development costs related to both present and future products
are expensed in the period incurred.
Stock-Based Compensation
The Company records stock-based compensation in accordance with
ASC Topic 718, "Compensation - Stock Compensation." ASC 718
requires companies to measure compensation cost for stock-based
employee compensation at fair value at the grant date and recognize
the expense over the employee's requisite service period. The
Company recognizes in the statement of operations the grant-date
fair value of stock options and other equity-based compensation
issued to employees. The Company recognizes in the statement of
operations the fair value at the vesting date for stock options and
other equity-based compensation issued to non-employees. There were
no options outstanding as of June 30, 2013.
Income Taxes
The Company accounts for income taxes in accordance with ASC
Topic 740, "Income Taxes." ASC 740 requires a company to use the
asset and liability method of accounting for income taxes, whereby
deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Under ASC 740, a tax position is recognized as a benefit only if
it is "more likely than not" that the tax position would be
sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount of
tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the "more likely than
not" test, no tax benefit is recorded. The adoption had no effect
on the Company's consolidated financial statements.
Foreign Currency Translation
The accounts of the Company's Chinese subsidiaries are
maintained in the RMB and the accounts of the U.S. parent company
are maintained in the USD. The accounts of the Chinese subsidiaries
are were translated into USD in accordance with Accounting
Standards Codification ("ASC") Topic 830 "Foreign Currency
Matters," with the RMB as the functional currency for the Chinese
subsidiaries. According to Topic 830, all assets and liabilities
were translated at the exchange rate on the balance sheet date,
stockholders' equity is translated at historical rates and
statement of operations items are translated at the weighted
average exchange rate for the period. The resulting translation
adjustments are reported under other comprehensive income in
accordance with ASC Topic 220, "Comprehensive Income." Gains and
losses resulting from the translations of foreign currency
transactions and balances are reflected in the statement of
operations.
Foreign Currency Transactions and Comprehensive Income
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Certain
statements, however, require entities to report specific changes in
assets and liabilities, such as gain or loss on foreign currency
translation, as a separate component of the equity section of the
balance sheet. Such items, along with net income, are components of
comprehensive income. The functional currency of the Company's
Chinese subsidiaries is the Chinese Yuan Renminbi. Translation
gains of $11,364,242 and $10,973,725 at June 30, 2013 and December
31, 2012, respectively are classified as an item of other
comprehensive income in the stockholders' equity section of the
consolidated balance sheet. During the three and six months ended
June 30, 2013 and 2012 other comprehensive income in the
consolidated statements of operations and other comprehensive
income included translation gains of $384,302 and $390,517 and
$19,631 and $230,586, and unrealized gain (loss) on marketable
equity security of ($0) and ($70,651) and ($2,331,471) and $60,558,
respectively. A detail of accumulated other comprehensive income is
summarized below:
Total
Other
Foreign Unrealized Comprehensive
Currency Gain (loss) Income
Balance, December
31, 2012 $ 10,973,725 $ - $ 10,973,725
Adjustments 390,517 (70,651) 319,866
Balance, June
30, 2013 $ 11,364,243 $ (70,651) $ 11,293,570
============= ========================== =============
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with the ASC
Topic 260, "Earnings Per Share." Basic earnings per share is based
upon the weighted average number of common shares outstanding.
Diluted earnings per share is based on the assumption that all
dilutive convertible shares and stock warrants were converted or
exercised. Dilution is computed by applying the treasury stock
method. Under this method, warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock
at the average market price during the period. There were no
options as of June 30, 2013 and 2012 that were excluded from the
diluted loss per share calculation due to their exercise price
being greater than the Company's average stock price for the
year.
Statement of Cash Flows
In accordance with ASC Topic 230, "Statement of Cash Flows,"
cash flows from the Company's operations are calculated based upon
the local currencies using the average translation rates. As a
result, amounts related to assets and liabilities reported on the
consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated
balance sheets.
Segment Reporting
ASC Topic 280, "Segment Report," requires use of the "management
approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments
within the company for making operating decisions and assessing
performance. ASC Topic 280 has no effect on the Company's
consolidated financial statements as the Company consists of one
reportable business segment. All revenue is from customers in
People's Republic of China and all of the Company's assets are
located in People's Republic of China.
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, which amends
the authoritative accounting guidance under ASC Topic 220
Comprehensive Income. The amendments do not change the current
requirements for reporting net income or other comprehensive income
in financial statements. However, the amendments require an entity
to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the
statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but
only if the amount reclassified is required under generally
accepted accounting principles in the United States ("GAAP") to be
reclassified to net income in its entirety in the same reporting
period. For other amounts that are not required under GAAP to be
reclassified in their entirety to net income, an entity is required
to cross-reference to other disclosures required under GAAP that
provide additional detail about those amounts. The amendments in
this update are effective prospectively for reporting periods
beginning after December 15, 2013. Early adoption is permitted.
Adoption of this update is not expected to have a material effect
on the Company's consolidated results of operations or financial
condition.
As of June 30, 2013, there are no recently issued accounting
standards not yet adopted that would have a material effect on the
Company's financial statements.
Note 4 - Due From a Related Party
The Company had a receivable due from a related party. As of
June 30, 3013 and December 31, 2012, the amount due from a related
party was $943,918 and $0, respectively.
Note 5 - Inventory
Inventory at June 30, 2013 and December 31, 2012 consisted of
the following:
June December
30, 31,
----------------- -----------------
2013 2012
----------------- -----------------
Raw materials $ 416,328 $ 407,837
Packaging 86,879 85,343
Finished goods 1,003,436 1,673,812
----------------- -----------------
$ 1,506,643 $ 2,166,992
================= =================
Note 6 - Marketable Security
During 2008, the Company exchanged $3,291,264 of receivables for
a 28.8% ownership interest in a Chinese company, Shanxi Jiali
Pharmaceutical Co. Ltd ("Jiali"). The Company had written down the
value of this investment by $987,860 at December 31, 2008. This
investment was originally accounted for under the equity method and
the Company recorded equity income in this investment through
September 30, 2009. During the fourth quarter of 2009, Jiali was
purchased by China Pediatric Pharmaceuticals, Inc. ("China
Pediatric"), a public company. After the transaction, the Company
owned 18.8% (or 2,018,590 shares) of China Pediatric. The Company
then changed the accounting method for the investment from the
equity method to the fair value method. At the date of the change,
the investment was valued at $2,829,732. As of June 30, 2013 and
December 31, 2012, the fair value of the investment is $211,952 and
$282,603, respectively, which is reflected in the consolidated
balance sheet. The Company recognized an unrealized gain (loss) of
$(282,603) and ($2,331,471) and ($70,651) and $60,558 for the three
and six months ended June 30, 2013 and 2012, respectively, which is
reflected in accumulated other comprehensive income in the
consolidated statement of stockholder's equity. At December 31,
2012, the Company determined that the decline in value of its
investment in China Pediatric (a marketable equity security) was
other-than-temporary resulting in the cumulative unrealized loss on
this marketable equity security totaling $2,774,742 being
reclassified from accumulated other comprehensive income to
retained earnings.
Note 7- Intangible Assets
Net intangible assets at June 30, 2013 and December 31, 2012
were as follows:
June December
30, 31,
2013 2012
--------------- ---------------
Rights to use land $ 5,613,681 $ 5,406,639
Fertilizers proprietary technology rights 1,294,400 1,268,000
--------------- ---------------
6,908,081 6,674,639
Less accumulated amortization (2,089,198) (1,897,660)
Intangibles, net $ 4,818,883 $ 4,776,979
=============== ===============
The Company's office and manufacturing site is located in Yang
Ling Agricultural High-Tech Industries Demonstration Zone in the
province of Shaanxi, People's Republic of China. The Company leases
land per a real estate contract with the government of People's
Republic of China for a period from November 2001 through November
2051. Per the People's Republic of China's governmental
regulations, the Government owns all land.
During July 2003, the Company leased another parcel of land per
a real estate contract with the government of the People's Republic
of China for a period from July 2003 through June 2053.
The Company has recognized the amounts paid for the acquisition
of rights to use land as intangible asset and amortizing over a
period of fifty years.
The Company acquired Fluid and Compound Fertilizers proprietary
technology rights on January 1, 2001 with a life ended December 31,
2011. The amortization of Fertilizers proprietary technology rights
was over a period of ten years and was amortized in full during
2011.
On July 15, 2008, the Company entered into a 50 year land rights
agreement.
Amortization expense for the Company's intangible assets
amounted to $28,943 and $56,985 and $28,845 and $56,341 for the
three and six months ended June 30, 2013 and 2012, respectively.
Amortization of intangible assets for the next five years are as
follows:
Year End Amount
----------- -----------------
2013 57,554
2014 115,109
2015 115,109
2016 115,109
2017 115,109
Thereafter 4,300,893
$ 4,818,883
=================
Note 8 - Bank Loan
During the quarter ended June 30, 2012, the Company obtained a
bank loan for 9,000,000 RMB (approximately $1,425,600). The loan
bears a 9.84% annual interest rate, matures on May 27, 2013 and is
secured by the Company's intangible assets in the nature of rights
to use the land. The loan was repaid in full on it due date.
Note 9 - Stockholders Equity
Common stock
There was no stock based compensation incurred during the three
and six months ended June 30, 2013.
Note 10 - Employee Welfare Plans
The Company has established its own employee welfare plan in
accordance with Chinese law and regulations. The Company makes
annual contributions of 14% of all employees' salaries to employee
welfare plan. From January 1, 2007 onwards, no provision for
employee welfare is allowed in accordance with the revised PRC
regulations. The total expense for the above plan were $0 for the
three and six months ended June 30, 2013 and 2012. The Company has
recorded welfare payable of $0 at June 30, 2013 and December 31,
2012.
Note 11 - Statutory Common Welfare Fund
As stipulated by the Company Law of the People's Republic of
China (PRC), net income after taxation can only be distributed as
dividends after appropriation has been made for the following:
i. Making up cumulative prior years' losses, if any;
ii. Allocations to the "Statutory surplus reserve" of at least
10% of income after tax, as determined under PRC accounting rules
and regulations, until the fund amounts to 50% of the Company's
registered capital;
iii. Allocations of 5-10% of income after tax, as determined
under PRC accounting rules and regulations, to the Company's
"Statutory common welfare fund", which is established for the
purpose of providing employee facilities and other collective
benefits to the Company's employees; and
iv. Allocations to the discretionary surplus reserve, if
approved in the stockholders' general meeting.
Pursuant to the new Corporate Law effective on January 1, 2006,
there is now only one "Statutory surplus reserve" requirement. The
reserve is 10 percent of income after tax, not to exceed 50 percent
of registered capital.
The Company did not appropriate a reserve for the statutory
surplus reserve and welfare fund for the three and six months ended
June 30, 2013 and 2012.
Note 12 - Factory Location and Lease Commitments
The Company's principal executive offices are located in the
Shaanxi province, People's Republic of China. BBST owns two
factories, which includes three production lines, an office
building, one warehouse, and two research labs and, is located on
10,900 square meters of land. The Company leases its office
premises under an operating lease agreement that requires monthly
rental payments of $3,152 and the leases expire in 2018.
Future minimum lease payments under operating leases are as
follows, by years as of June 30, 2013:
Year End Amount
--------- ---------------
2013 18,912
2014 37,824
2015 37,824
2016 37,824
2017 37,824
2018 4,612
$ 174,820
===============
Note 13 - Current Vulnerability Due to Certain
Concentrations
No vendors provided over 10% of the Company's raw materials for
the six months ended June 30, 2013 and two vendors provided 17%,
and 14% of the Company's raw materials for the six months ended
June 30, 2012.
Four customers accounted for 35%, 22% and 20% and 13% of the
Company's sales for the six months ended June 30, 2013. Two
customers accounted for 30% and 14% of the Company's sales for the
six months ended June 30, 2012.
The Company's operations are carried out in the PRC.
Accordingly, the Company's business, financial condition and
results of operations may be influenced by the political, economic
and legal environments in the PRC, by the general state of the
PRC's economy. The Company's business may be influenced by changes
in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
Note 14 - Litigation
From time to time, the Company may become involved in various
lawsuits and legal proceedings that arise in the ordinary course of
business. Litigation is, however, subject to inherent
uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm the Company's business. The
Company is currently not aware of any such legal proceedings or
claims that it believes would or could have, individually or in the
aggregate, a material adverse affect on the Company's business,
financial condition, results of operations or liquidity.
Note 15 - Chairman Financial Undertaking
On March 19, 2013, the Chairman of the Board issued an
undertaking that he will give his every endeavor and effort to
obtain necessary and adequate funding to meet the Company's
financial obligations as when they are required thereby warranting
that the manufacturing operations of the Company will not be
affected. As of the date hereof no such funding has been needed by
the Company. However, there can be no assurance that the Chairman
will be successful in this undertaking.
Note 16 - Subsequent Events
Pursuant to ASC 855-10, the Company has evaluated all events or
transactions that occurred from July 1, 2013, through the filing
with the SEC. The Company did not have any material recognizable
subsequent events during this period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). We have based these
forward-looking statements on our current expectations and
projections about future events. These forward-looking statements
are subject to known and unknown risks, uncertainties and
assumptions about us that may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could,"
"would," "expect," "plan," anticipate," believe," estimate, "
continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those listed under the
heading "Risk Factors" and those listed in our other SEC filings.
The following discussion should be read in conjunction with our
Financial Statements and related notes thereto included elsewhere
in this Quarterly Report. Throughout this Quarterly Report we will
refer to Bodisen Biotech, Inc., together with its subsidiaries, as
"Bodisen," the "Company," "we, " "us," and "our."
Overview
We are incorporated under the laws of the state of Delaware and
our operating subsidiary, Yang Ling, is headquartered in Shaanxi
Province, the People's Republic of China. We are engaged in
developing, manufacturing and selling organic fertilizers, liquid
fertilizers, pesticides and insecticides in the People's Republic
of China and produce numerous proprietary product lines, from
pesticides to crop-specific fertilizers. We market and sell our
products to distributors throughout the People's Republic of China,
and these distributors, in turn, sell our products to farmers. We
also conduct research and development to further improve existing
products and develop new formulas and products.
Critical Accounting Policies and Estimates
Our financial statements and related public financial
information are based on the application of accounting principles
generally accepted in the United States ("US GAAP"). US GAAP
requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an
impact on the assets, liabilities, revenues and expenses amounts
reported. These estimates can also affect supplemental information
contained in our external disclosures including information
regarding contingencies, risk and financial condition. We believe
our use of estimates and underlying accounting assumptions adhere
to GAAP and are consistently and conservatively applied. We base
our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our
financial statements.
We believe the following is among the most critical accounting
policies that impact our consolidated financial statements. We
suggest that our significant accounting policies, as described in
our condensed consolidated financial statements in the Summary of
Significant Accounting Policies, be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Accounts receivable
We maintain reserves for potential credit losses on accounts
receivable and record them primarily on a specific identification
basis. In order to establish reserves, we review the composition of
accounts receivable and analyze historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves. This analysis and evaluation requires the use of
judgments and estimates. Because of the nature of the evaluation,
certain judgments and estimates are subject to change, which may
require adjustments in future periods.
Inventories
We value inventories at the lower of cost (determined on a
weighted average basis) or market. When evaluating our inventory,
we compare the cost with the market value and make allowance to
write them down to market value, if lower. The determination of
market value requires the use of estimates and judgment by our
management.
Intangible assets
We evaluate intangible assets for impairment, at least on an
annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its
estimated future cash flows. This evaluation requires the use of
judgments and estimates, in particular with respect to
recoverability. Recoverability of intangible assets, other
long-lived assets and, goodwill is measured by comparing their net
book value to the related projected undiscounted cash flows from
these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and
product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is
considered impaired, and a second test is performed to measure the
amount of impairment loss.
Revenue Recognition
Our revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 104. Because collection is not reasonably
assured, sales revenue is recognized using the cost recovery
method. Under the cost recovery method, no profit is recognized
until cash payments exceed the cost of the goods sold.
Recent Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, "Balance
Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities. This ASU requires an entity to disclose information
about offsetting and related arrangements to enable users of its
financial statements to understand the effect of those arrangements
on its financial position. In January 2013, this guidance was
amended by ASU 2013-01, "Clarifying the Scope of Disclosure about
Offsetting Assets and Liabilities," which limits the scope of ASU
No. 2011-11 to certain derivatives, repurchase and reverse
repurchase agreements, and securities borrowing and lending
transactions. This guidance is effective for annual and interim
reporting periods beginning on or after January 1, 2013. The
adoption of this standard did not have a material impact on the
consolidated results of operations, financial condition, or
liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of our Disclosure Controls
Disclosure Controls and Procedures
Evaluation of our Disclosure Controls
As of the end of the period covered by this Quarterly Report on
Form 10-Q, our principal executive officer and principal financial
officer have evaluated the effectiveness of our "disclosure
controls and procedures" ("Disclosure Controls"). Disclosure
Controls, as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), are procedures that
are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Exchange
Act, such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure
Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial
Officer as appropriate to allow timely decisions regarding required
disclosure. Our management does not expect that our Disclosure
Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the company
have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design
of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
During management's assessment of the effectiveness of
disclosure controls and procedures as of June 30, 2013, management
identified deficiencies related to (i) the U.S. GAAP expertise of
our internal accounting staff, (ii) a lack of segregation of duties
within accounting functions, (iii) our internal risk assessment
functions, and (iv) our communication functions.
A material weakness (within the meaning of PCAOB Auditing
Standard No. 5) is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
on a timely basis.
In order to correct the foregoing deficiencies, we have taken
the following remediation measures:
- Although our accounting staff is professional and experienced
in accounting requirements and procedures generally accepted in the
PRC, management has determined that they require additional
training and assistance in U.S. GAAP matters. Management has
determined that our internal audit function is also significantly
deficient due to insufficient qualified resources to perform
internal audit functions. We retained an outside consulting firm in
September 2006, which has since been assisting us in the
implementation of Section 404.
- We have committed to the establishment of effective internal
audit functions and have instituted various anti-fraud control and
financial and account management policies and procedures to
strengthen our internal controls over financial reporting. Due to
the scarcity of qualified candidates with extensive experience in
U.S. GAAP reporting and accounting in the region, we were not able
to hire sufficient internal audit resources before the end of 2010.
However, we will increase our search for qualified candidates with
assistance from recruiters and through referrals.
- 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, we will implement
procedures to assure that the initiation of transactions, the
custody of assets and the recording of transactions will be
performed by separate individuals.
- As of the quarter ended June 30, 2013, we have not yet
established an effective risk assessment system that enables us to
collect related information comprehensively and systematically,
assess risks in a timely, realistic manner, and take appropriate
measures to control risks effectively. The Company is working with
its outside consultant to devise an effective risk assessment
system and our Chief Financial Officer Junyan Tong is responsible
for overseeing such measures.
- As of the quarter ended June 30, 2013, we are working to
strengthen efforts to establish an effective communication system
with clear procedures that will enable us to collect, process and
deliver information related to internal controls in a timely
fashion. Due to our limited staff, our Chief Financial Officer, Ms.
Tong, will initially be primarily responsible for collecting and
delivering such information among the different levels of Company
management.
We believe that the foregoing steps will remediate the
significant deficiency identified above, and we will continue to
monitor the effectiveness of these steps and make any changes that
our management deems appropriate.
Notwithstanding the conclusion that our internal control over
financial reporting was not effective as of the end of the period
covered by this report, the Chief Executive Officer and the Chief
Financial Officer believe that the financial statements and other
information contained in this quarterly report present fairly, in
all material respects, our business, financial condition and
results of operations. Nothing has come to the attention of
management that causes them to believe that any material
inaccuracies or errors exist in our financial statements as of June
30, 2013.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial
reporting (as defined in Rule 13a-15f under the Exchange Act) that
occurred during the quarter ended June 30, 2013 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
A copy of our Form 10-Q is available at:
http://www.sec.gov/cgi-bin/browse-edgar?company=bodisen&owner=exclude&action=getcompany
Copies may also be obtained by contacting the Investor Relations
Department at our corporate offices by sending an e-mail message to
info@bodisen.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMGMLFMNGFZM
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