BODISEN BIOTECH, INC Files SEC form
10KSB, Annual Report
Form 10KSB for BODISEN BIOTECH, INC
Item 6. Management's Discussion and Analysis or Plan of
Some of the information in this Form 10-KSB contains
forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue," or similar words. You should read
statements that contain these words carefully because they:
- discuss our future expectations;
- contain projections of our future results of operations or of
our financial condition; and
- state other "forward-looking" information.
We believe it is important to communicate our expectations.
However, there may be events in the future that we are not able to
accurately predict or over which we have no control. Our actual
results and the timing of certain events could differ materially
from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in our filings
with the Securities and Exchange Commission.
We are incorporated under the laws of the state of Delaware and
are headquartered in the Shaanxi Province, People's Republic of
China. We engage in the business of manufacturing and marketing a
brand of organic fertilizer in China. We produce numerous
proprietary product lines, from pesticides to crop specific
fertilizer. These products are then marketed and sold to farmers
throughout the 20 provinces of China. We conduct research and
development to further improve existing products and develop new
formulas and products.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires us 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
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
We maintain reserves for potential credit losses on accounts
receivable. 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.
Reserves are recorded primarily on a specific identification
Inventories are valued at the lower of cost (determined on a
weighted average basis) or market. We compare the cost of
inventories with the market value and allowance is made for writing
down the inventories to their market value, if lower.
Property & 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: 30 years for building, 10 years for machinery, 5 years for
office equipment and 8 years for vehicles.
Intangible assets consist of rights to use land and proprietary
technology rights to fertilizers. 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. 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. Potential
impairment of goodwill after July 1, 2002 is being evaluated in
accordance with SFAS No. 142. The SFAS No. 142 is applicable to the
financial statements of the Company beginning July 1, 2002.
Our revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 104. Sales revenue is recognized at the
date of shipment to customers when a formal arrangement exists, the
price is fixed or determinable, the delivery is completed, no other
significant obligations by us exist and collectibility is reasonably
assured. Payments received before all of the relevant criteria for
revenue recognition are satisfied are recorded as unearned
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 prescribes accounting and
reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock
purchase plans and stock appreciation rights. SFAS No. 123 requires
compensation expense to be recorded (i) using the new fair value
method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for stock
issued to employees" (APB 25) and related interpretations with
proforma disclosure of what net income and earnings per share would
have been had we adopted the new fair value method. We use the
intrinsic value method prescribed by APB 25 and have opted for the
disclosure provisions of SFAS No. 123.
We utilize SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
period end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to
According to the Provisional Regulations of the People's Republic
of China on Income Tax, the Document of Reductions and Exemptions of
Income Tax for us have been approved by the local tax bureau and the
Management Regulation of Yang Ling Agricultural High-Tech Industries
Demonstration Zone. We are exempted from income tax in our first two
years of operations.
Foreign Currency Transactions and Comprehensive Income (Loss)
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. Our transactions occur in Chinese Renminbi.
The unit of Renminbi is in Yuan.
Recent Accounting Pronouncements
In November 2004, the FASB has issued FASB Statement No. 151,
"Inventory Costs, an Amendment of ARB No. 43, Chapter 4" ("FAS No.
151"). The amendments made by FAS No. 151 are intended to improve
financial reporting by clarifying that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and by
requiring the allocation of fixed production overheads to inventory
based on the normal capacity of the production facilities.
The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier application is
permitted for inventory costs incurred during fiscal years beginning
after November 23, 2004. The provisions of FAS No. 151 will be
applied prospectively. The Company does not expect the adoption of
FAS No. 151 to have a material impact on its consolidated financial
position, results of operations or cash flows.
In December 2004, the FASB issued FASB Statement No. 123R,
"Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS
No. 123R"). FAS No. 123R requires companies to recognize in the
statement of operations the grant- date fair value of stock options
and other equity-based compensation issued to employees. FAS No.
123R is effective beginning in the Company's second quarter of
fiscal 2005. The Company is in process of evaluating the impact of
this pronouncements on its consolidated financial position, results
of operations or cash flows.
In December 2004, the FASB issued SFAS Statement No. 153,
"Exchanges of Nonmonetary Assets." The Statement is an amendment of
APB Opinion No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not
have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial
In March 2004, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments." The EITF
reached a consensus about the criteria that should be used to
determine when an investment is considered impaired, whether that
impairment is other-than-temporary, and the measurement of an
impairment loss and how that criteria should be applied to
investments accounted for under SFAS No. 115, "ACCOUNTING IN CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES." EITF 03-01 also included
accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures
about unrealized losses that have not been recognized as
other-than-temporary impairments. Additionally, EITF 03-01 includes
new disclosure requirements for investments that are deemed to be
temporarily impaired. In September 2004, the Financial Accounting
Standards Board (FASB) delayed the accounting provisions of EITF
03-01; however the disclosure requirements remain effective for
annual reports ending after June 15, 2004. The Company will evaluate
the impact of EITF 03-01 once final guidance is issued.
Twelve Months Ended December 31, 2004 Compared To Twelve Months
Ended December 31, 2003
Revenue. The Company generated revenues of $16,225,896 for the
twelve months ended December 31, 2004, an increase of $6,442,112 or
65.84%, compared to $9,783,784 for the twelve months ended December
31, 2003. The growth in revenue was primarily attributable to the
increase in customer base through the implementation of the strategy
to franchise wholesale distribution to provinces outside of Shaanxi
and the building of the Bodisen brand name.
Gross profit. The Company achieved a gross profit of $6,571,931
for the twelve months ended December 31, 2004, an increase of
$3,494,229 or 113.5%, compared to $3,077,702 for the twelve months
ended December 31, 2003. Gross margin, as a percentage of revenues,
increased from 31.46% for the twelve months ended December 31, 2003,
to 40.5% for the twelve months ended December 31, 2004. The increase
in gross margin was attributable to the average 10% price increase
for the compound fertilizer line of products which constitute 60% of
Operating expenses. The Company incurred operating expenses of
$1,523,350 an increase of $319,143 or 27%, compared to $1,204,207
for the twelve months ended December 31, 2003. These operating
expenses are related to increased sales and marketing costs related
to the 65.84% increase in sales for 2004, as well as the hiring of
138 additional employees by the Company.
Net Income. Net income increased by 155% to $5,027,403, an
increase of $3,057,042, from $1,970,361. Earnings per share (EPS)
rose to $0.33 in 2004 from $0.13 in 2003. The increase was
attributable to the substantial growth in demand for the Company's
products throughout China, increased sales of products with a higher
profit margin and the relatively low operating expenses resultant
from doing business in China.
Liquidity and Capital Resources.
As of December 31, 2004 Bodisen Biotech, Inc. had $2,121,811 cash
and cash equivalents on hand, compared to $2,974,773 cash and cash
equivalents on hand as of December 31, 2003.
For December 31, 2004 accounts payable was $112,344 and short
term loans was $980,100. Cash outflows for investing activities
increased from $1,608,837 to $2,778,136 as a result of additions
made to work in progress and acquisitions of property and equipment.
The Company's accounts receivable for the year ended December 31,
2004, were $4,988,984. Based on past performance and current
expectations, we believe our cash and cash equivalents, cash
generated from operations, as well as future possible cash
investments, will satisfy our working capital needs, capital
expenditures and other liquidity requirements associated with our
operations. On March 16, 2005, we completed a $3.0 million
financing. The proceeds of the financing are intended for
acquisition of other businesses, purchase of raw materials and
The majority of Bodisen Biotech, Inc. revenues and majority of
the expenses in 2004 were denominated primarily in Renminbi ("RMB"),
the currency of the People's Republic of China. There is no
assurance that exchange rates between the RMB and the U.S. dollar
will remain stable. A devaluation of the RMB relative to the U.S.
dollar could adversely affect our business, financial condition and
results of operations. We do not engage in currency hedging.
Inflation has not had a material impact on our business.