UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2005
[ ] 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 333-99101
BODISEN BIOTECH, INC.
(Name of small business issuer in its charter)
Delaware 98-0381367
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
North Part of Xinquia Road, Yang Ling Agricultural
High-Tech Industries Demonstration Zone, Yang Ling, People's
Republic of China 712100
(Address of principal executive offices)
86-29-87074957
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act, during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2005 there were
15,289,259 shares of common stock, par value $.0001 per share
Table of Contents
Part I. Financial Information
Item 1 Financial Statements (Unaudited):
Consolidated Balance Sheet
for the Six Months Ended June 30, 2005 ........................................................... 2
Consolidated Statements of Income
for the Three Months and Six Months Ended June 30, 2005 and 2004.................................. 3
Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 2005 and 2004................................................... 4
Notes to Condensed Consolidated Financial Statements.............................................. 5
Item 2 Management's Discussion and Analysis or Plan of Operation......................................... 15
Item 3 Controls and Procedures........................................................................... 18
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K.................................................................. 19
Signatures...................................................................................................... 20
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
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BODISEN BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2005
(Unaudited)
AS OF JUNE 30, 2005
---------------------------------
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 2,492,212
Accounts receivable, net 7,086,000
Advances to suppliers 823,863
Advance to officer 2,383,217
Prepaid expenses 458,294
Inventory 1,043,932
Other Assets 1,113,714
---------------------------------
Total current assets 15,401,232
PROPERTY AND EQUIPMENT, net 4,821,119
INTANGIBLE ASSETS, net 2,134,699
---------------------------------
TOTAL ASSETS $ 22,357,050
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 739,312
Other payable 352,067
Accrued expenses 127,822
Notes payable 980,100
Convertible debenture, net discount due to beneficial conversion 2,265,927
---------------------------------
Total current liabilities 4,465,228
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 per share; authorized 5,000,000 shares;
none issued -
Common stock, $0.0001 per share; authorized 30,000,000 shares;
issued and outstanding 15,289,259 shares 1,529
Additional paid in capital 7,020,971
Statutory reserve 1,594,253
Retained earnings 9,275,069
---------------------------------
Total stockholders' equity 17,891,822
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,357,050
=================================
The accompanying notes are an integral part of these consolidated financial statements.
2
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BODISEN BIOTECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTH FOR THE SIX MONTH
PERIODS ENDED PERIODS ENDED
JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2004
--------------------------------------------------------------------------------
Net revenue $ 8,416,805 $ 4,230,205 $ 13,118,480 $ 6,416,294
Cost of revenue 5,161,141 2,242,833 8,208,639 3,556,137
--------------------------------------------------------------------------------
Gross profit 3,255,664 1,987,372 4,909,841 2,860,157
Operating expenses
Selling expenses 231,768 107,609 379,908 230,955
General and administrative expenses 14,709 126,740 709,882 353,454
--------------------------------------------------------------------------------
Total operating expenses 246,477 234,349 1,089,790 584,409
--------------------------------------------------------------------------------
Income from operations 3,009,187 1,753,023 3,820,051 2,275,748
Non-operating Income (expense):
Interest income 48,055 - 48,055 -
Other income - 82,088 - 7,752
Interest expense (365,228) (11,096) (379,360) (38,511)
--------------------------------------------------------------------------------
Total non-operating income (expense) (317,173) 70,992 (331,305) (30,759)
--------------------------------------------------------------------------------
Income before income tax 2,692,014 1,824,015 3,488,746 2,244,990
Provision for income tax - - - -
--------------------------------------------------------------------------------
Net Income 2,692,014 1,824,015 3,488,746 2,244,990
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain - (1,474) - 39,101
--------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 2,692,014 $ 1,822,541 $ 3,488,746 $ 2,284,091
================================================================================
Basic weighted average shares outstanding 15,272,926 15,268,000 15,270,759 15,268,000
================================================================================
Basic earnings per share $ 0.18 $ 0.12 $ 0.23 $ 0.15
================================================================================
Diluted weighted average shares outstanding 15,692,205 15,284,690 15,562,010 15,276,345
================================================================================
Diluted earnings per share $ 0.17 $ 0.12 $ 0.22 $ 0.15
================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
3
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BODISEN BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2005 JUNE 30, 2004
------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,488,746 $ 2,244,989
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 100,512 148,133
Amortization of beneficial conversion feature 259,505 -
(Increase) / decrease in current assets:
Accounts receivable (2,097,016) (1,057,606)
Advances to suppliers (68,653) (82,628)
Inventory (276,588) 306,976
Other assets (1,523,272) (12,900)
Increase / (decrease) in current liabilities:
Accounts payable 626,968 (1,258,146)
Unearned revenue - (15,888)
Other payables 352,067 361,881
Accrued expenses (136,680) 3,750
Others (68,855) -
------------------------------------------------------
Net cash provided in operating activities 656,734 638,561
------------------------------------------------------
Effect of exchange rate on cash - 39,101
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property & equipment (1,871,116) (292,196)
Work in Progress - (787,870)
------------------------------------------------------
Net cash used in investing activities (1,871,116) (1,080,066)
------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan repayment - (3,000)
Proceeds from Convertible Debt 3,000,000 -
Advance to officer (1,415,217) -
------------------------------------------------------
Net cash provided by financing activities 1,584,783 (3,000)
------------------------------------------------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 370,401 (405,404)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 2,121,811 2,974,773
------------------------------------------------------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 2,492,212 $ 2,569,369
======================================================
The accompanying notes are an integral part of these consolidated financial statements.
4
BODISEN BIOTECH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Yang Ling Bodisen Biology Science and Technology Development Company Limited
("BBST") was founded in the People's Republic of China on August 31, 2001. BBST,
located in Yang Ling Agricultural High-Tech Industries Demonstration Zone, is
primarily engaged in developing, manufacturing and selling pesticides and
compound organic fertilizers in the People's Republic of China. Bodisen
International, Inc. ("BII") is a Delaware Corporation, incorporated on November
19, 2003. BII was a non-operative holding company of BBST. On December 15, 2003,
BII entered in to an agreement with all the shareholders of BBST to exchange all
of the outstanding stock of BII for all the issued and outstanding stock of
BBST. After the consummation of the agreement, the former shareholders of BBST
owned 1500 shares of common stock of BII, which represents 100% of BII's issued
and outstanding shares. For U.S. Federal income tax purpose, the transaction was
intended to be qualified as a tax-free transaction under section 351 of the
Internal Revenue Code of 1986, as amended.
The exchange of shares with BBST has been accounted for as a reverse acquisition
under the purchase method of accounting since the shareholders of the BBST
obtained control of the consolidated entity. Accordingly, the merger of the two
companies has been recorded as a recapitalization of BBST, with BBST being
treated as the continuing entity. The historical financial statements presented
are those of BBST. The continuing company has retained December 31 as its fiscal
year end. The financial statements of the legal acquirer are not significant;
therefore, no pro forma financial information is submitted.
On February 24, 2004, BII consummated a merger agreement with Stratabid.com,
Inc. ("Stratabid"), a Delaware corporation, to exchange 12,000,000 shares of
Stratabid to the shareholders of BII, in which BII merged into Bodisen Holdings,
Inc. (BHI), an acquisition subsidiary of Stratabid, with BHI being the surviving
entity. As a part of the merger, Stratabid cancelled 3,000,000 shares of its
issued and outstanding stock owned by its former president and declared a stock
dividend of three shares on each share of its common stock outstanding for all
stockholders on record as of February 27, 2004.
Stratabid was incorporated in the State of Delaware on January 14, 2000 and
before the merger, was a start-up stage Internet based commercial mortgage
origination business based in Vancouver, BC, Canada.
The exchange of shares with Stratabid has been accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the "Company"). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company being treated as the continuing entity. The financial statements of
legal acquiree are not significant; therefore, no pro forma financial
information is submitted.
5
In March 2005, Bodisen Biotech Inc. completed a $3 million private placement
through institutional investors. The net proceeds from this offering were sent
to China towards capital contribution of the registration of a wholly owned
Bodisen subsidiary by the name of "Yang Ling Bodisen Agricultural Technology
Co., Ltd. ("Agricultural"). In June 2005, Agricultural completed a transaction
with Yang Ling Bodisen Biology Science and Technology Development Company
Limited ("Yang Ling"), Bodisen Biotech, Inc.'s operating subsidiary in China,
which resulted in Agricultural owning 100% of Yang Ling.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results for any future period. These statements should be read
in conjunction with the Company's audited financial statements and notes thereto
for the fiscal year ended December 31, 2004.
Accounts receivable
The Company maintains reserves for potential credit losses on 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. Terms of the sales vary from COD
through a credit term up to 9 to 12 months. Reserves are recorded primarily on a
specific identification basis. Allowance for doubtful debts amounted to $252,948
at June 30, 2005.
Advances to suppliers
The Company advances to certain vendors for purchase of its material. The
advances to suppliers are interest free and unsecured. The advances amounted to
$823,863 at June 30, 2005.
6
Income taxes
The Company utilizes 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 be realized. 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 the Company had been approved by the local tax
bureau and the Yang Ling Agricultural High-Tech Industries Demonstration Zone.
The Company is exempted from income tax through March 31, 2005.
In March 2005, Bodisen Biotech Inc. formed a new 100% wholly owned subsidiary
name Yang Ling Bodisen Agricultural Technology Co., Ltd. ("Agricultural") in
China. Under Chinese laws, a newly formed wholly owned subsidiary of a foreign
company enjoys the favorable tax treatment of income tax exemption for the first
two years and 50% of normal income tax for the following 3 years. In order to
extend the advantage of tax benefits, in June 2005, Agricultural completed a
transaction with Yang Ling Bodisen Biology Science and Technology Development
Company Limited ("Yang Ling", Bodisen Biotech, Inc.'s operating subsidiary in
China), which resulted in Agricultural owning 100% of Yang Ling.
Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
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. The functional currency of the Company is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains are classified as
an item of other comprehensive income in the stockholders' equity section of the
consolidated balance sheet. During the six month period ended June 30, 2005
comprehensive income in the consolidated statements of operation included no
translation gain and in the six month period of June 30, 2004 the consolidated
statements of operation included translation gains of $39,101.
7
Segment reporting
The Company consists of one reportable business segment. All revenue is from
customers in People's Republic of China. All of the Company's assets are located
in People's Republic of China.
Recent Pronouncements
On May 15, 2003, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity." SFAS 150 changes the
accounting for certain financial instruments that, under previous guidance,
could be classified as equity or "mezzanine" equity, by now requiring those
instruments to be classified as liabilities (or assets in some circumstances) in
the statement of financial position. Further, SFAS 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. SFAS 150
affects an entity's classification of the following freestanding instruments: a)
Mandatorily redeemable instruments b) Financial instruments to repurchase an
entity's own equity instruments c) Financial instruments embodying obligations
that the issuer must or could choose to settle by issuing a variable number of
its shares or other equity instruments based solely on (i) a fixed monetary
amount known at inception or (ii) something other than changes in its own equity
instruments d) SFAS 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety. The guidance in SFAS 150 is
generally effective for all financial instruments entered into or modified after
May 31, 2003, and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. For private companies, mandatorily
redeemable financial instruments are subject to the provisions of SFAS 150 for
the fiscal period beginning after December 15, 2003. The Company does not expect
the adoption of SFAS No. 150 to have a material impact on its financial position
or results of operations or cash flows.
In December 2003, FASB issued a revised Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46R). FIN 46R addresses consolidation by
business enterprises of variable interest entities and significantly changes the
consolidation application of consolidation policies to variable interest
entities and, thus improves comparability between enterprises engaged in similar
activities when those activities are conducted through variable interest
entities. The Company does not hold any variable interest entities.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." This statement applies to all voluntary changes in accounting
principle and requires retrospective application to prior periods financial
statements of changes in accounting principle, unless this would be
impracticable. This statement also makes a distinction between "retrospective
application" of an accounting principle and the "restatement" of financial
statements to reflect the correction of an error. This statement is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We are evaluating the effect the adoption of this
interpretation will have on its financial position, cash flows and results of
operations.
8
3. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Bodisen Biotech, Inc. (from the merger date), its 100% wholly-owned subsidiary
Bodisen Holdings, Inc. ("BHI"), BHI's 100% wholly-owned subsidiary Yang Ling
Bodisen Biology Science and Technology Development Company Limited, and a new
100% wholly-owned subsidiary incorporated in March 2005 named Yang Ling Bodisen
Agricultural Technology Co, Ltd. All significant inter-company accounts and
transactions have been eliminated in consolidation.
4. MAJOR VENDORS
Five vendors provided 81% of the Company's raw materials for the six month
period ended June 30, 2005. The payable balance for these parties amounted to
$401,784.
5. ADVANCE TO OFFICER
During the six months period, the Company advanced $2,383,217 to its
officer as short term loan. This loan is interest free, unsecured, and
payable upon demand.
6. INTANGIBLE ASSETS
Net intangible assets at June 30, 2005 were as follows:
Rights to use land $ 1,669,042
Fertilizers proprietary technology rights 968,000
---------------
2,637,042
Less Accumulated amortization (502,343)
---------------
$ 2,134,699
===============
The Company's office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, 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
"Rights to use land" is being amortized over 50 year's period.
9
The Company acquired Fluid and Compound Fertilizers proprietary technology
rights with a life ending December 31, 2011. The Company is amortizing
Fertilizers proprietary technology rights over a period of ten years.
Amortization expense for the Company's intangible assets for the six month
period ending June 30, 2005 and 2004 amounted to $64,940 each period.
Amortization expense for the Company's intangible assets over the next five
fiscal years is estimated to be: 2006-$130,000, 2007-$130,000, 2008-$130,000,
2009-$130,000 and 2010-$100,000.
7. SHAREHOLDERS' EQUITY
On February 24, 2004, BII entered into a merger agreement with Stratabid.com,
Inc. (Stratabid) to exchange 12,000,000 shares of Stratabid to the shareholders
of BII (note 12). As a part of the merger, Stratabid cancelled 3,000,000 shares
of its issued and outstanding stock owned by a majority shareholder and declared
a stock dividend of three shares on each share of its common stock outstanding
for all stockholders on record as of February 27, 2004, after the merger
agreement. The Company has a total of 15,289,259 shares of common stock
outstanding as of June 30, 2005.
8. CONVERTIBLE DEBENTURE
On March 16, 2005, the Company completed a private placement offering. The
Company received the sum of $3 million and issued a one year 9% debenture
convertible into shares of common stock by dividing the aggregate principal and
accrued interest by a conversion price of $4.80; and three year warrants to
purchase 187,500 shares of common stock at $4.80 per share.
This debenture was considered to have an embedded beneficial conversion feature
because the conversion price was less than the quoted market price at the time
of the issuance. Accordingly, the beneficial conversion feature was valued
separately and the intrinsic value in the amount of $476,875 was recorded as an
increase to additional pay-in capital and a corresponding amount, less the
amortized interest costs of $138,490, was recorded as a reduction of the
carrying value of the convertible debenture.
In connection to the convertible debenture, the Company issued three year
warrants to purchase 187,500 shares of common stock at $4.80 per share and three
year warrants to purchase 40,000 shares of common stock at $6.88 per share. The
aggregate fair value of these warrants in the amount of $416,703 was recorded as
increase to additional pay-in capital, and a corresponding amount, less the
amortized interest costs of $121,015, was recorded as a reduction of the
carrying value of the convertible debenture.
10
9. STOCK OPTIONS
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies' interim reporting period
ending January 31, 2003.
In compliance with SFAS No. 148, the Company has elected to continue to follow
the intrinsic value method in accounting for its stock-based employee
compensation plan as defined by APB No. 25 and has made the applicable
disclosures below.
Had the Company determined employee stock based compensation cost based on a
fair value model at the grant date for its stock options under SFAS 123, the
Company's net earnings per share would have been adjusted to the pro forma
amounts for the six month period ended June 30, 2005 as follow ($ in thousands,
except per share amounts):
------------------------------------------------- -------------------------------- ------------------------------
Six month period ended Six month period ended
June 30, 2005 June 30, 2004
------------------------------------------------- -------------------------------- ------------------------------
Net Income - as reported $3,488 $2,244
------------------------------------------------- -------------------------------- ------------------------------
Stock-Based employee compensation expense
included in reported net income, net of tax
------------------------------------------------- -------------------------------- ------------------------------
Total stock-based employee compensation under (12) 0
fair-value-based method for all rewards, net of
tax
------------------------------------------------- -------------------------------- ------------------------------
Pro forma net income $3,476 $2,244
------------------------------------------------- -------------------------------- ------------------------------
Earnings per share:
Six month period ended Six month period ended
June 30, 2005 June 30, 2004
------------------------------------- ----------------------------------- -----------------------------------
Basic, as reported $0.23 $0.15
------------------------------------- ----------------------------------- -----------------------------------
Diluted, as reported $0.22 $0.15
------------------------------------- ----------------------------------- -----------------------------------
Basic, pro forma $0.23 $0.15
------------------------------------- ----------------------------------- -----------------------------------
Diluted, pro forma $0.22 $0.15
------------------------------------- ----------------------------------- -----------------------------------
In 2004 the board of directors approved the creation of the 2004 Stock Option
Plan. This plan provides for the grant of incentive stock options to employees,
directors and consultants. Options issued under this plan will expire over a
maximum term of five years from the date of grant.
11
Pursuant to the Stock Option Plan, the Company granted 110,000 stock options to
two Directors (55,000 options each) during the year ended December 31, 2004, of
which 100,000 stock options was granted on June 4, 2004 and the balance of the
10,000 was granted on Dec. 28, 2004.
On the first 100,000 stock options granted, 50,000 stock options vested
immediately and 50,000 stock options became vested over 8 equal quarterly
installments, with the first installment vesting at the end of the second
quarter of 2004. The 10,000 stock options granted on Dec. 28, 2004 vested on
Dec. 31, 2004.
The option exercise price was $5 for the first 100,000 stock options which was
the same as fair value of the shares at the time of granting of the options. The
option exercise price was $5.80 for the second 10,000 stock options which was
the same as fair value of the shares at the time of granting of the options.
The Company did not grant any option during the six month period ended June 30,
2005.
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Statement of Financial Accounting Standard No. 95.
The Company paid $379,360 and $38,511 for interest and $0 for income tax during
the six month period ended June 30, 2005 and 2004, respectively.
11. STATUTORY COMMON WELFARE FUND AND RESERVE
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
shareholders' general meeting.
12
In accordance with the Chinese Company Law, the company has allocated 10% of its
annual net income, amounting $348,875 and $224,499 as statutory reserve for the
six month period ended June 30, 2005 and 2004, respectively.
The Company makes annual contributions of 14% of all employees' salaries to
employee welfare plan. The total expense for the above plan $36,924 and
$27,595 for the six month period ended June 30, 2005 and 2004, respectively.
12. FACTORY LOCATION AND LEASE COMMITMENTS
BBST's principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling, Shanxi
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 rent of the office building
is $121 a month from May 20, 2004 through May 20, 2005. BBST also leases a
warehouse in Yang Ling near the site of Bodisen's factories. Total future
commitment through June 30, 2005 amounts to $1,276.
13. EARNINGS PER SHARE
Earnings per share for six month periods ended June 30, 2005 and 2004 were
determined by dividing net income for the periods by the weighted average number
of both basic and diluted shares of common stock and common stock equivalents
outstanding.
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
----------------------------------------- ----------------------------------- -----------------------------------
Six month period ended Six month period ended
June 30, 2005 June 30, 2004
----------------------------------------- ----------------------------------- -----------------------------------
Weighted average common shares
outstanding 15,270,759 15,268,000
----------------------------------------- ----------------------------------- -----------------------------------
Effect of dilutive securities: stock
options 291,251 8,345
----------------------------------------- ----------------------------------- -----------------------------------
Weighted average common shares
outstanding and common share equivalents 15,562,010 15,276,345
----------------------------------------- ----------------------------------- -----------------------------------
13
14. MERGER AGREEMENT
On February 11, 2004, Stratabid entered into an Agreement and Plan of Merger
with Bodisen Acquisition Corp., a Delaware corporation ("BAC") wholly-owned by
Stratabid, Bodisen International, Inc., a Delaware corporation ("BII") and the
shareholders of BII. BII has one 100% wholly-owned subsidiary in Shanxi, China,
Yang Ling Bodisen Biology Science and Technology Development Company Limited
("BBST"). Under the terms of the agreement, BAC acquired 100 percent of BII's
stock in exchange for the issuance by Stratabid of three million shares of its
common stock to the holders of BII. The new shares constitute approximately 79
percent of the outstanding shares of Stratabid, which changed its name to
Bodisen Biotech, Inc. (the "Company"). The Agreement and Plan of Merger was
closed on February 24, 2004.
BII's Chairman of the Board was appointed the Company's Chief Executive Officer.
At the Effective Time, by virtue of the Merger and without any action on the
part of the BAC, BII or the BII Shareholders, the shares of capital stock of
each of BII and the BAC were converted as follows:
(a) Capital Stock of the BAC. Each issued and outstanding share of the BAC's
capital stock continued to be issued and outstanding and was converted into one
share of validly issued, fully paid, and non-assessable common stock of the
Surviving Company (Bodisen Holdings, Inc.). Each stock certificate of the BAC
evidencing ownership of any such shares continued to evidence ownership of such
shares of capital stock of the Surviving Company.
(b) Conversion of BII Shares. Each BII Share that was issued and outstanding at
the Effective Time was automatically cancelled and extinguished and converted,
without any action on the part of the holder thereof, into the right to receive
at the time and in the amounts described in the Agreement an amount of
Acquisition Shares equal to the number of Acquisition Shares divided by the
number of BII Shares outstanding immediately prior to Closing. All such BII
Shares, so converted, were no longer outstanding and were automatically
cancelled and retired and ceased to exist, and each holder of a certificate
representing any such shares ceased to have any rights with respect thereto,
except the right to receive the Acquisition Shares paid in consideration
therefore upon the surrender of such certificate in accordance with the
Agreement.
(c) Within thirty (30) days from the Closing Date, Stratabid was required to
sell its business operations, as they exist immediately prior to the Closing, to
Derek Wasson, former president. In consideration of the sale, Mr. Wasson
returned 750,000 Company Common Shares to Stratabid for cancellation. In
addition, Mr. Wasson forgave all indebtedness owed by Stratabid to Mr. Wasson.
Other than indebtedness of BII, Stratabid had no indebtedness or other liability
of any kind or nature after the sale of the business to Mr. Wasson, save and
except for liabilities incurred in connection with the Merger.
15. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
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.
16. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the period
ended June 30, 2005 presentation.
14
BODISEN BIOTECH, INC.
Management's Discussion and Analysis or Plan of Operation
Item 2. Management's Discussion and Analysis or Plan of Operation
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto set forth in Item
1 of this Quarterly Report. In addition to historical information, this
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions, which could cause actual results to differ
materially from Management's expectations. Factors that could cause differences
include, but are not limited to, expected market demand for the Company's
services, fluctuations in pricing for products distributed by the Company and
services offered by competitors, as well as general conditions of the
agricultural products marketplace.
Some of the information in this Form 10-QSB 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:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o 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.
15
Three Months Ended June 30, 2005 Compared To Three Months Ended June 30, 2004
Revenue. For the three month period ended June 30, 2005 as compared to the three
month period ended June 30, 2004, the Company generated net revenues of
$8,416,805 and $4,230,205, respectively, reflecting an increase of $4,186,600 or
99%. The increase in revenues was primarily attributable to the completion of
our new manufacturing facility which had a major impact on our capacity, and a
renewed focus on marketing efforts as we entered new territories, resulting in
increases in our customer base and related volume of recurring and new customer
sales.
Gross profit. The Company achieved a gross profit of $3,255,664 for the three
months ended June 30, 2005, an increase of $1,268,292 or 64%, compared to
$1,987,372 for the three months ended June 30, 2004. Gross margin, as a
percentage of revenues, decreased from 47% for the three months ended June 30,
2004, to 39% for the three months ended June 30, 2005. The decrease in gross
margin was primarily attributable to increased costs of raw materials, as well
as an increase in the costs of shipping our products. The main component of the
shipping cost is the increase in the cost of fuel. Our gross margins have
decreased as a result of the widespread increase in the cost of all raw
materials in China.
Operating expenses. The Company incurred operating expenses of $246,477 for the
three months ended June 30, 2005, a increase of $12,128 or 5%, compared to
$234,349 for the three months ended June 30, 2004. This increase is a direct
result of the increase in the use of sales and marketing staff and advertising
to push our revenues to a 99% increase over the same period a year ago.
Aggregated selling expenses of $231,768 account for expenses related to costs
associated with sales and marketing of the Company's products. Operating
expenses include general and administrative expenses of $14,709 for second
quarter 2005 and relate to cost of maintaining the company's facilities,
salaries and research and development.
Net Income. The Company's net income was $2,692,014 for the three months ended
June 30, 2005, an increase of $867,999 or 48% compared to $1,824,015 for the
three months ended June 30, 2004. The increase is attributed to the growth in
the demand for the Company's products as we enter new markets throughout China.
This growth has occurred despite a decrease in gross margins as a result of
management's discipline with respect to costs and attention to the importance of
successful marketing.
Six Months Ended June 30, 2005 Compared To Six Months Ended June 30, 2004
Revenue. For the six month period ended June 30, 2005 as compared to the six
month period ended June 30, 2004, the Company generated net revenues of
$13,118,480 and $6,416,294, respectively, reflecting an increase of $6,702,186
or 104%. The increase in revenues was primarily attributable to the completion
of our new manufacturing facility which had a major impact on our capacity, and
a renewed focus on marketing efforts as we entered new territories resulting in
increases in our customer base and related volume of recurring and new customer
sales.
Gross profit. The Company achieved a gross profit of $4,909,841 for the six
months ended June 30, 2005, an increase of $2,049,684 or 72%, compared to
$2,860,157 for the six months ended June 30, 2004. Gross margin, as a percentage
of revenues, decreased from 45% for the six months ended June 30, 2004, to 37%
for the six months ended June 30, 2005. The decrease in gross margin was
primarily attributable to increased costs of raw materials, as well as an
increase in the costs of shipping our products. The main component of the
shipping cost is the increase in the cost of fuel. Our gross margins have
decreased as a result of the widespread increase in the cost of all raw
materials in China.
Operating expenses. The Company incurred operating expenses of $1,089,790 for
the six months ended June 30, 2005, an increase of $505,381 or 86%, compared to
$584,409 for the six months ended June 30, 2004. This increase represents our
continued development and implementation of our business during 2005, and the
increase in revenue from the 2004 to 2005 period. Aggregated selling expenses of
$379,908 account for expenses related to costs associated with sales and
marketing of the Company's products. Operating expenses include general and
administrative expenses of $709,882 for the first half of 2005 and relate to
cost of maintaining the company's facilities, salaries and research and
development.
16
Net Income. The Company's net income was $3,488,746 for the six month ended June
30, 2005, an increase of $1,243,756 or 55% compared to $2,244,990 for the six
months ended June 30, 2004. The increase was attributed to the growth in the
demand for the Company's products as we enter new markets throughout China. This
growth has occurred despite a decrease in gross margins as a result of
management's discipline with respect to costs and attention to the bottom line.
Liquidity and Capital Resources
As of June 30, 2005 the Company had $2,492,212 cash and cash equivalents, and we
believe that our current cash needs for at least the next twelve months can be
met from working capital. The Company had net cash flows provided by operations
of $656,734 for the six month period ended June 30, 2005 as compared to net cash
provided by operations of $638,561 in the corresponding period last year. The
increase in net cash flows from operations in the current period as compared to
corresponding period last year, was mainly due to an incremental decrease in
advances to suppliers resulting in usage of cash flow $68,653.
The Company had a net increase in cash and cash equivalent of $370,401 in the
current period as compared to a net decrease of $405,404 in the corresponding
period last year.
The majority of the Company's revenues and expenses were denominated primarily
in Renminbi ("RMB"), the currency of the People's Republic of China. We do not
engage in currency hedging. Inflation has not had a material impact on our
business.
17
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as
of the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of the end of the period
covered by this report. There were no significant changes in internal controls
over financial reporting that occurred during the second quarter of 2005 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Certificate of Incorporation of the Company
3.2 Amendment to Certificate of Incorporation of the Company,
changing name to Bodisen Biotech, Inc.
3.3 By-Laws of the of the Company
4.1 Form of Debenture issued March 16, 2005
10.1 Loan Agreement, dated as of September 28, 2003, between the
Company and Xianyang City Commercial Bank
10.2 Bodisen Biotech, Inc. 2004 Stock Option Plan
10.3 Form of Bodisen Biotech, Inc. Nonstatutory Stock Option
Agreement
10.4 Securities Subscription Agreement dated March 16, 2005
between the Company and Amulet Limited
10.5 Registration Rights Agreement dated March 16, 2005 between
the Company and Amulet Limited
10.6 Form of Common Stock Warrant issued March 16, 2005
31.1 Certification by the Chief Executive Officer pursuant to
Rule 13a-14(a) or 15d-14(a)
31.2 Certification by the Chief Financial Officer pursuant to
Rule 13a-14(a) or 15d-14(a)
32.1 Certification of the Chief Executive Officer and the Chief
Financial Officer pursuant 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K during the quarter ended June 30, 2005:
None.
19
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.
Bodisen Biotech, Inc.
By: /s/ Wang Qiong
--------------
Name: Wang Qiong
Title: Chief Executive Officer
Date August 18, 2005 /s/ Wang Qiong
--------------
Wang Qiong
Chief Executive Officer
Date August 18, 2005 /s/ Shuiwang Wei
----------------
Shuiwang Wei
Chief Financial Officer
20
EXHIBIT INDEX
Exhibit Number Description Method of Filing
------------------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Filed as Exhibit 3.1 to the registration
Company statement on Form SB-2 filed with the
Commission on September 3, 2002.
3.2 Amendment to Certificate of Filed as Exhibit 3.2 to the annual report
Incorporation of the Company, changing on Form 10-KSB filed with the Commission
name to Bodisen Biotech, Inc. on March 30, 2004
3.3 By-Laws of the of the Company Filed as Exhibit 3.2 to the registration
statement on Form SB-2 filed with the
Commission on September 3, 2002
4.1 Form of Debenture issued March 16, 2005 Filed as Exhibit 10.6 to the registration
statement on Form SB-2 filed with the
Commission on April 22, 2005
10.1 Loan Agreement, dated as of September Filed as Exhibit 10.2 to the annual
28, 2003, between the Company and report on Form 10-KSB filed with the
Xianyang City Commercial Bank Commission on March 30, 2004
10.2 Bodisen Biotech, Inc. 2004 Stock Option Filed as Exhibit 10.2 to the annual
Plan report on Form 10-KSB filed with the
Commission on March 31, 2005.
10.3 Form of Bodisen Biotech, Inc. Filed as Exhibit 10.3 to the annual
Nonstatutory Stock Option Agreement report on Form 10-KSB filed with the
Commission on March 31, 2005.
10.4 Securities Subscription Agreement dated File as Exhibit 10.4 to the registration
March 16, 2005 between the Company and statement on Form SB-2 filed with the
Amulet Limited Commission on April 22, 2005
10.5 Registration Rights Agreement dated Filed as Exhibit 10.5 to the registration
March 16, 2005 between the Company and statement on Form SB-2 filed with the
Amulet Limited Commission on April 22, 2005
10.6 Form of Common Stock Warrant issued Filed as Exhibit 10.6 to the registration
March 16, 2005 statement on Form SB-2 filed with the
Commission on April 22, 2005
31.1 Certification by the Chief Executive Officer Filed herewith as Exhibit 31.1
pursuant to Rule 13a-14(a) or 15d-14(a)
31.2 Certification by the Chief Financial Officer Filed herewith as Exhibit 31.2
pursuant to Rule 13a-14(a) or 15d-14(a)
32.1 Certification of the Chief Executive Officer Filed herewith as Exhibit 32.1
and the Chief Financial Officer pursuant 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
21