UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10−Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2011
[ ] 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: 001-34440
CHINA NUTRIFRUIT GROUP
LIMITED
(Exact Name of Registrant as Specified in Its
Charter)
Nevada
|
87-0395695
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
incorporation or organization)
|
Identification No.)
|
5th Floor, Chuangye Building, Chuangye Plaza
Industrial
Zone 3, Daqing Hi-Tech Industrial Development Zone
Daqing, Heilongjiang
163316
Peoples Republic of China
(Address of principal executive
offices, Zip Code)
(+86) 459-8972870
(Registrants
telephone number, including area code)
_______________________________________________________________
(Former
name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No [_]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [_]
|
Accelerated filer [_]
|
|
|
Non-accelerated filer [_]
(Do not check if a smaller
reporting company)
|
Smaller reporting company [X]
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
The number of shares outstanding of each of the issuers
classes of common stock, as of February 13, 2012 is as follows:
Class of Securities
|
Shares Outstanding
|
Common Stock, $0.001 par value
|
36,915,762
|
|
CHINA NUTRIFRUIT GROUP LIMITED
|
|
|
Quarterly Report on Form 10-Q
|
For Three and
Nine Months Ended December 31, 2011
|
TABLE OF CONTENTS
|
|
|
|
PART I
FINANCIAL
INFORMATION
|
|
|
|
Item 1.
|
Financial Statements
|
2
|
Item 2.
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
27
|
Item 3.
|
Quantitative and Qualitative
Disclosures About Market Risk
|
35
|
Item 4.
|
Controls and Procedures
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35
|
|
|
|
PART II
OTHER
INFORMATION
|
|
|
|
Item 1.
|
Legal Proceedings
|
36
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Item 1A.
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Risk Factors
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36
|
Item 2.
|
Unregistered Sales of Equity Securities and Use
of Proceeds
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36
|
Item 3.
|
Defaults Upon Senior Securities
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36
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Item 4.
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(Removed and Reserved)
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36
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Item 5.
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Other Information
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36
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Item 6.
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Exhibits
|
36
|
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
THREE AND NINE MONTHS ENDED DECEMBER 31, 2011
|
Contents
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Page
|
Condensed Consolidated Balance Sheets as of
December 31, 2011 (unaudited) and March 31, 2011
|
3
|
Condensed Consolidated Statements of Income for the three
and nine months ended December 31, 2011 and 2010 (unaudited)
|
4
|
Condensed Consolidated Statements of Cash
Flows for the nine months ended December 31, 2011 and 2010 (unaudited)
|
5
|
Notes to the Condensed Consolidated Financial Statements
(unaudited)
|
6
|
2
|
CHINA NUTRIFRUIT GROUP LIMITED AND
SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Stated in US
Dollars)
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2011
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
13,300,218
|
|
$
|
43,542,075
|
|
Trade receivables, net of allowance
|
|
11,528,807
|
|
|
12,476,652
|
|
Inventories, net
|
|
43,350,669
|
|
|
6,419,152
|
|
Prepayments and deposits
|
|
7,760,608
|
|
|
264,878
|
|
Other current assets
|
|
66,338
|
|
|
1,527
|
|
Total current assets
|
|
76,006,640
|
|
|
62,704,284
|
|
Property and equipment, net
|
|
50,191,204
|
|
|
20,312,005
|
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Prepayments and deposits
|
|
801,952
|
|
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10,983,404
|
|
Construction in progress
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994,706
|
|
|
5,915,395
|
|
Deferred tax assets
|
|
784,687
|
|
|
909,879
|
|
Land use rights, net
|
|
189,947
|
|
|
188,199
|
|
TOTAL ASSETS
|
$
|
128,969,136
|
|
$
|
101,013,166
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
|
Other payables and accrued expenses
|
$
|
3,083,506
|
|
$
|
3,312,525
|
|
Receipt in advance
|
|
1,274,083
|
|
|
-
|
|
Bank borrowings
|
|
22,204,724
|
|
|
-
|
|
Due to a director
|
|
-
|
|
|
946,550
|
|
Trade payables
|
|
134,961
|
|
|
130,276
|
|
Income taxes payable
|
|
670,725
|
|
|
3,351,631
|
|
Total current liabilities
|
|
27,367,999
|
|
|
7,740,982
|
|
Bank borrowings
|
|
1,259,843
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
28,627,842
|
|
|
7,740,982
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
Contingencies (Note 15)
|
|
|
|
|
|
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Shareholders' equity
|
|
|
|
|
|
|
Preferred stock
Authorized: 5,000,000 shares, par value
$0.001
|
|
|
|
|
|
|
Issued and outstanding: 330,860 shares as
at December 31, 2011;
(330,860 as at March 31, 2011)
|
|
331
|
|
|
331
|
|
Common stock
Authorized: 120,000,000 shares, par value
$0.001
|
|
|
|
|
|
|
Issued and outstanding: 36,915,762 shares
as at December 31, 2011;
(36,915,762 shares as at March 31, 2011)
|
|
36,916
|
|
|
36,916
|
|
Additional paid-in-capital
|
|
36,492,566
|
|
|
36,492,566
|
|
Statutory reserves - restricted
|
|
9,399,141
|
|
|
6,850,422
|
|
Accumulated other comprehensive income
|
|
7,014,098
|
|
|
3,951,431
|
|
Retained earnings
|
|
47,398,242
|
|
|
45,940,518
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
100,341,294
|
|
|
93,272,184
|
|
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
|
$
|
128,969,136
|
|
$
|
101,013,166
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
CHINA NUTRIFRUIT GROUP LIMITED AND
SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
(Stated in US
Dollars)
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
21,612,680
|
|
$
|
22,136,504
|
|
$
|
51,697,983
|
|
$
|
54,955,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
(17,010,425
|
)
|
|
(11,856,020
|
)
|
|
(37,363,569
|
)
|
|
(29,600,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
4,602,255
|
|
|
10,280,484
|
|
|
14,334,414
|
|
|
25,355,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
(669,121
|
)
|
|
(1,111,697
|
)
|
|
(1,820,357
|
)
|
|
(2,369,675
|
)
|
General and administrative expenses
|
|
(1,832,266
|
)
|
|
(807,231
|
)
|
|
(4,880,150
|
)
|
|
(2,503,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
2,100,868
|
|
|
8,361,556
|
|
|
7,633,907
|
|
|
20,482,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
(312,177
|
)
|
|
-
|
|
|
(427,393
|
)
|
|
-
|
|
Other income
|
|
8,791
|
|
|
8,988
|
|
|
120,431
|
|
|
57,009
|
|
Total other income (expenses)
|
|
(303,386
|
)
|
|
8,988
|
|
|
(306,962
|
)
|
|
57,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
1,797,482
|
|
|
8,370,544
|
|
|
7,326,945
|
|
|
20,539,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
(713,656
|
)
|
|
(2,131,289
|
)
|
|
(2,556,452
|
)
|
|
(5,317,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
1,083,826
|
|
|
6,239,255
|
|
|
4,770,493
|
|
|
15,221,377
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
640,843
|
|
|
1,092,793
|
|
|
3,062,667
|
|
|
2,668,212
|
|
Comprehensive income
|
$
|
1,724,669
|
|
$
|
7,332,048
|
|
$
|
7,833,160
|
|
$
|
17,889,589
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.02
|
|
$
|
0.16
|
|
$
|
0.11
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
0.03
|
|
$
|
0.15
|
|
$
|
0.12
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
36,915,762
|
|
|
36,762,896
|
|
|
36,915,762
|
|
|
36,703,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
40,224,362
|
|
|
40,375,048
|
|
|
40,224,362
|
|
|
40,350,605
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
CHINA NUTRIFRUIT GROUP LIMITED AND
SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
(Stated in US
Dollars)
|
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Operating activities:
|
|
|
|
|
|
|
Net earnings
|
$
|
4,770,493
|
|
$
|
15,221,377
|
|
Adjustments to reconcile net
earnings to net cash used in operating activities
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
2,781,423
|
|
|
1,489,507
|
|
Benefit
for deferred income taxes
|
|
125,192
|
|
|
117,392
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Trade
receivables, net
|
|
1,200,038
|
|
|
5,644,090
|
|
Inventories
|
|
(36,455,075
|
)
|
|
(15,705,832
|
)
|
Prepayments and deposits
|
|
(6,988,639
|
)
|
|
(10,025,807
|
)
|
Other current assets
|
|
(64,684
|
)
|
|
114,703
|
|
Trade
payables
|
|
1,245,908
|
|
|
232,288
|
|
Income taxes payable
|
|
(1,615,464
|
)
|
|
(218,770
|
)
|
Other
payables and accrued expenses
|
|
(2,731,010
|
)
|
|
(629,515
|
)
|
Net cash used in operating activities
|
|
(37,731,818
|
)
|
|
(3,760,567
|
)
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(15,930,152
|
)
|
|
(4,333,519
|
)
|
Addition to construction in progress
|
|
-
|
|
|
(5,084,541
|
)
|
Net cash used in investing activities
|
|
(15,930,152
|
)
|
|
(9,418,060
|
)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Proceeds from bank borrowings
|
|
23,464,567
|
|
|
-
|
|
Dividend paid
|
|
(764,050
|
)
|
|
(809,550
|
)
|
Amount due to a director
|
|
(955,316
|
)
|
|
-
|
|
Proceeds from private placement held in
escrow account
|
|
-
|
|
|
931,630
|
|
Net cash provided by financing activities
|
|
21,745,201
|
|
|
122,080
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
(31,916,769
|
)
|
|
(13,056,547
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
1,674,912
|
|
|
1,398,816
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period
|
|
43,542,075
|
|
|
35,994,443
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and proceeds from private
placement held in escrow account at end of
the period
|
$
|
13,300,218
|
|
$
|
24,336,712
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
information:
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
Income taxes
|
$
|
5,168,559
|
|
$
|
5,418,475
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
427,393
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES
Nature of Business
China Nutrifruit Group Limited (the Company) was originally
incorporated in the state of Utah on April 22, 1983 and changed its domicile
from Utah to Nevada in April 1999. The Company had no business activities or
meaningful operations, income producing assets or significant operating capital
since at least 1989 until it acquired Fezdale Investments Limited (Fezdale) on
August 14, 2008.
On August 14, 2008, the Company acquired all of the equity
interests of Fezdale, a British Virgin Islands (the BVI) corporation, through
a share exchange transaction (the Share Exchange Transaction), with the result
that the shareholders of Fezdale became the beneficial owners of 83.5% of the
Companys common stock. As a result of such Share Exchange Transaction, Fezdale
became a wholly-owned subsidiary of the Company and the former shareholders of
Fezdale became the Companys controlling shareholders. Accordingly, all
references to shares of Fezdales ordinary shares were restated to reflect the
equivalent numbers of the common stock of China Nutrifruit Group Limited.
Accounting principles generally accepted in the United States
of America (US GAAP) require that a company whose shareholders retain the
majority interest in a combined business be treated as the acquirer for
accounting purposes. As a result, in the Share Exchange Transaction, Fezdale is
treated as the accounting acquirer and China Nutrifruit Group Limited is treated
as the acquired party. Accordingly, the Share Exchange Transaction was accounted
for a recapitalization of the Company. The equity section of the accompanying
financial statements was restated to reflect the recapitalization of the Company
due to the Share Exchange Transaction as of the first day of the first period
presented. The assets and liabilities acquired that, for accounting purposes,
were deemed to have been acquired by Fezdale were not significant.
Also, on August 14, 2008, the Companys majority shareholder,
Yiu Fai Kung (Mr. Kung), entered into escrow agreements with the private
placement investors and HFG International, Limited (HFG). Mr. Kung will
deliver a certain number of shares of the Companys common stock owned by him to
the investors and HFG pro-rata in accordance with their respective investment
amount for no additional consideration if:
The after tax net income for the fiscal year ending on March
31, 2009 was less than $13,919,707 and fiscal year ending on March 31, 2010 was
less than $18,495,315; and
The return to Mr. Kung of any of the make good shares placed in
escrow by him is considered to be a separate compensatory arrangement because
Mr. Kung is a director of the Companys subsidiary Fezdale. Accordingly, if any
of the required earnings targets are met and shares are returned to Mr. Kung,
the Company will recognize a non-cash compensation cost at that time equal to
the then fair value of the shares returned (up to a total of 5,599,598 shares).
For the year ended March 31, 2009, the earnings target for 2009 of net income of
$13,955,178 (before any charges related to the release of any shares from
escrow) was met. Accordingly, the Company has recorded a non-cash charge to
compensation cost of $9,519,316.6 in the fourth quarter of 2009 related to the
release from escrow to Mr. Kung of 2,799,799 shares.
For the year ended March 31, 2010, the earnings target for 2009
of net income of $18,495,315 was met. Accordingly, 2,799,799 shares were
released to Mr. Kung from escrow.
On September 4, 2009, the Companys common stock was approved
by the NYSE Amex for listing and registration.
6
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
On December 31, 2009, the Company entered into a securities
purchase agreement (the Private Placement Transaction) with certain accredited
investors (Investors) and effected the initial closing of the purchase and
sale of 359,502 units (the Unit) at $33.00 per Unit. Each Unit consisted of
one share of the Companys newly-designated Series A Convertible Preferred
Stock, par value $0.001 per share (Series A Preferred Stock) and one warrant
(the Warrant) to purchase 2.5 shares of the Companys common stock, par value
$0.001 per share. The Series A Preferred Stock is convertible into ten shares of
the Companys common stock (subject to customary adjustments) and the Company is
obligated to register the underlying shares of common stock within thirty days
of the closing date. In connection with the initial closing of the offering, the
Company raised $11.86 million.
On October 8, 2009, the Company effected the second and final
closing of the Financing and issued 43,916 units (the Unit) for $33.00 per
Unit for gross proceeds of $1,449,000.
On September 3, 2010, the Company paid dividends of $809,550 to
the holders of Series A Preferred Stock.
On September 3, 2011, the Company paid dividends of $764,050 to
the holders of Series A Preferred Stock.
Fezdale Investments Limited
Fezdale is a private limited liability company incorporated in
BVI on August 22, 2007.
In November 2007, Solar Sun Holdings Limited (Solar Sun), a
subsidiary of Fezdale, entered in a share purchase agreement with nine owners of
Daqing Longheda Food Company Limited (Longheda) under which the nine owners of
Longheda transferred 75% equity interests in Longheda to Solar Sun for
RMB40,000,000 or $5.87 million. In May 2008, the nine founders of Longheda
transferred the remaining 25% equity interests in Longheda to Solar Sun. After
the transfer, Longheda became a wholly owned subsidiary of Solar Sun.
Solar Sun Holdings Limited
Solar Sun is a private limited liability company (the PLLC)
incorporated in Hong Kong on September 12, 2007. Solar Sun is a holding company
and has no assets or operations other than its ownership of Longheda.
Daqing Longheda Food Company Limited
Longheda was incorporated in Heilongjiang province of Peoples
Republic of China (the PRC) in June 2004. Longheda manufactures and sells a
variety of food products processed from specialty premium fruits that grow in
Northeast China. Currently, Longheda processes four types of premium specialty
fruits, including golden berry, crab apple, blueberry and raspberry, and sells
fresh fruits. Longheda currently has four types of fruit based products,
including fruit concentrate, nectar, glazed fruits and concentrate pulp.
Longheda sells its products through an extensive sales and distribution network.
The fresh fruits are mainly sold to fruit supermarkets and stores while the
processed fruit products are mainly sold to manufacturers for further processing
into fruit juice and other fruit related products.
7
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Jumbo Gloss Limited
Jumbo Gloss Limited (Jumbo Gloss) is a PLLC incorporated in
BVI on October 13, 2009. Jumbo Gloss is a holding company and has no assets or
operations other than its ownership of Daqing Senyang Fruit and Vegetable Food
Technology Co., Ltd.
Daqing Senyang Fruit and Vegetable Food Technology Co.,
Ltd
Daqing Senyang Fruit and Vegetable Food Technology Co., Ltd
(Senyang) was incorporated in Heilongjiang province of the PRC in June 2010.
Senyang owns vegetable powder products facility in Daqing. Up to the date of
this report, Senyang still not obtained the production certificate.
Basis of presentation
The interim condensed consolidated financial statements include
the accounts of China Nutrifruit Group Limited and its subsidiaries (the
Group). The interim condensed consolidated financial statements were prepared
in accordance with the US GAAP. All significant intercompany transactions and
balances were eliminated.
The interim condensed consolidated financial statements are
unaudited and, in our opinion, include all adjustments, consisting of normal
recurring adjustments and accruals necessary for a fair representation of our
condensed consolidated balance sheets, operating results, and cash flows for the
periods presented. Operating results for the periods presented are not
necessarily indicatives of the annual results for the year ending March 31,
2011. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with the US GAAP were condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission (the SEC).
Segment information
The Group identifies and classifies its operating segments
based on the nature of products with similar economic characteristics. No
segment information is provided as the Group only has one business and
geographical segment. The Groups reportable segment is the manufacture and sale
of food products, which operations are located in the PRC and sales were
predominately made to customers located in the PRC.
Construction in progress
Construction in progress represents plant and properties under
construction and is stated at cost less accumulated impairment losses. This
includes cost of construction, plant and equipment and other direct costs plus
borrowing costs which include interest charges and exchange differences arising
from foreign currency borrowings used to finance these projects during the
construction period, to the extent these are regarded as an adjustment to
interest costs.
Construction in progress is not depreciated until such time as
the assets are completed and ready for their intended use.
8
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Use of estimates
The preparation of the interim condensed consolidated financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from these estimates.
Economic and political risks
The Groups operations are conducted in the PRC. According the
Groups business, financial position maybe influenced by the political, economic
and legal environment in the PRC, and by the general state of the PRCs
economy.
The Groups operations in the PRC are subject to special
considerations and significant risk not typically associated with companies in
North America. These include risks associated with, among others, the political,
economic and legal environmental and foreign currency exchange. The Groups
results may be adversely affected by changes in the political and social
conditions in the PRC, and in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation, among other things.
Earnings per share
Basic earnings per share is computed by dividing net operating
results for the reporting period attributable to common shareholders by the
weighted average number of common stocks outstanding during the period. Diluted
earnings per share is calculated by dividing net operating results for the
reporting period attributable to common shareholders by the weighted average
number of common stocks outstanding and the dilutive effect of common stock
equivalents.
Cash and cash equivalents
The Group considers all highly liquid investments with an
original maturity date of three months or less to be cash equivalents.
Trade accounts receivable
In the normal course of business, the Group extends credit to
customers. Trade accounts receivable, less allowance for doubtful accounts,
reflect the net realizable value of receivables, and approximate fair value. On
a regular basis, the Group evaluates its trade accounts receivable and
establishes an allowance for doubtful accounts based on a combination of
specific customer circumstances, credit conditions, and payment history. A
receivable is considered past due if payments have not been received within the
agreed upon invoice terms. No allowance for doubtful accounts at December 31,
2011 was recorded.
9
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Inventories
The cost of finished products inventories includes raw
materials, direct labor and indirect production costs. Inventories are stated at
the lower of cost or market. The Group uses first-in, first-out methods to value
its inventories. During the idle production period, overhead costs include
depreciation are treated as current-period charges, which are expensed to
general and administrative expense instead of costs of inventories.
Fair value of financial instruments
The carrying amount of certain of the Groups financial
instruments, including cash and cash equivalents, trade receivables, trade
payables, other current assets, other payables and accrued expenses,
approximates fair value due to the relatively short maturity.
Property and equipment, net
Property and equipment are recorded at cost and are depreciated
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred. The principal estimated useful
lives generally are: buildings 20 years; leasehold improvements 10 years;
machinery - 10 years, furniture, fixture and office equipment 5 years; motor
vehicles 5 years. Depreciation of property and equipment was $1,230,611,
$2,946,191, $552,782 and $1,487,353 for the three and nine months ended December
31, 2011 and 2010 respectively.
Revenue recognition
The Group recognizes revenue from sales of products, where
persuasive evidence of an arrangement exists, delivery has occurred, the
sellers price is fixed or determinable and collectibility is reasonably
assured. This generally occurs when the customer receives the product or at the
time title passes to the customer. Customers generally do not have the right to
return product unless damaged or defective. Net sales are comprised of gross
sales reduced by customer returns, trade promotions and discounts.
Shipping and handling costs
Shipping and handling costs are included in selling expenses.
The shipping and handling costs for the three and nine months ended December 31,
2011 and 2010 were $440,009, $2,155,589, $856,936 and $1,799,142
respectively.
Impairment of long-lived assets
Long-lived assets, except indefinite-lived intangible assets,
are reviewed for impairment when circumstances indicate the carrying value of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to future net cash
flows estimated by the Group to be generated by such assets. If such assets are
considered to be impaired, the impairment to be recognized is the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of by sale are recorded as held for sale at the lower of
carrying value or estimated net realizable value. During the periods, no
impairment on long-lived assets was recorded by the Group.
10
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
All land in the PRC is owned by the PRC government. The
government in the PRC, according to the relevant PRC law, may sell the right to
use the land for a specific period of time. Thus, all of the Groups land
located in the PRC is considered leasehold land and is stated at cost less
accumulated amortization and any recognized impairment loss. Amortization is
provided over the term of the land use right agreements on a straight-line
basis, which is 50 years and will expire in 2055.
Negative goodwill
Negative goodwill represents the excess fair value of the net
tangible and identifiable intangible assets acquired in a business combination
over the purchase price. The negative goodwill is allocated as a pro rate
reduction of the amounts assigned to the assets acquired excluding financial
assets, deferred taxes and other current assets. If negative goodwill exceeds
the amount of those assets, the remaining excess shall be recognized as an
extraordinary gain in the period which the business combination is
completed.
Other income recognition
Other income is comprised of interest income and others.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts the estimated future cash receipts through the
expected life of the loan to the loans net carrying amount.
Advertising costs
Advertising costs are expensed as incurred. The total
advertising costs were $13,522, $29,434, $33,691 and $49,094 for the three and
nine months ended December 31, 2011 and 2010 respectively.
Foreign currency translation
The accompanying financial statements are presented in United
States dollars. The functional currency of the Group is Renminbi, RMB. The
financial statements are translated into United States dollars from RMB at
year-end exchange rates as to assets and liabilities and average exchange rates
as to revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
Statement of financial position
|
|
December 31, 2011
|
RMB6.35 to
US$1.00
|
March 31, 2011
|
RMB6.55 to US$1.00
|
|
|
Statement of income and comprehensive income
|
|
For the nine months ended December 31, 2011
|
RMB6.41 to
US$1.00
|
For the nine months ended December 31, 2010
|
RMB6.77 to US$1.00
|
11
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
As at December 31, 2011, RMB79,148,892 or US$13,244,711 (March
31, 2011: RMB284,742,770 or US$43,471,515) is not freely convertible into
foreign currency and all foreign exchange transactions must take place through
authorized institutions. No representation is made that the RMB amounts could
have been, or could be, converted into US$ at the rates used in translation.
Surplus reserve fund
The Companys subsidiary in PRC is required to transfer 10
percent of its net income, as determined in accordance with the PRC accounting
rules and regulations, to a statutory surplus reserve fund until such reserve
balance reaches 50 percent of that subsidiarys paid-in capital.
The transfer to this reserve must be made before distribution
of any dividends to owners. The surplus reserve fund is non-distributable other
than during liquidation and can be used to fund previous years' losses, if any,
and may be utilized for business expansion or converted into equity by raising
equity from existing owners in proportion to their equity holdings.
Common welfare fund
The Companys subsidiary in PRC is required to transfer 5
percent to 10 percent of its net income, as determined in accordance with the
PRC accounting rules and regulations, to the statutory common welfare fund. This
fund can only be utilized on capital items for the collective benefit of that
subsidiarys employees, such as construction of dormitories, cafeteria
facilities, and other staff welfare facilities. This fund is non-distributable
other than upon liquidation. The transfer to this fund must be made before
distribution of any dividends to owners.
Related party transactions
A related party is generally defined as (i) any person that
holds 10% or more of the Groups securities and their immediate families, (ii)
the Groups management, (iii) someone that directly or indirectly controls, is
controlled by or is under common control with the Group, or (iv) anyone who can
significantly influence the management or operating decisions of the Group. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.
Income taxes
The Group accounts for income taxes under the provision of
Accounting Standards Codification 740 (ASC 740), resulting in two components
of income tax expense: current and deferred. Current income tax expense
approximates taxes to be paid or refunded for the relevant periods. Deferred tax
liabilities and assets are the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
established, when necessary, to reduce net deferred tax assets to the amount
expected to be realized. Our foreign subsidiaries are taxed in local
jurisdictions at local statutory rates. The Groups operations are primarily
located in PRC and subject to PRC profits tax.
12
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued ASU No. 2011-05, Presentation of
Comprehensive Income. ASU 2011-05 eliminates the option to report other
comprehensive income and its components in the statement of changes in
stockholders equity and requires an entity to present the total of
comprehensive income, the components of net income and the components of other
comprehensive income either in a single continuous statement or in two separate
but consecutive statements. This pronouncement is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2011. We
believe the adoption of ASU 2011-05 concerns presentation and disclosure only
and will not have an impact on our consolidated financial position or results of
operations.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles
Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance
in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity
the option to make a qualitative evaluation about the likelihood of goodwill
impairment to determine whether it should calculate the fair value of a
reporting unit. The amendments also improve previous guidance by expanding upon
the examples of events and circumstances that an entity should consider between
annual impairment tests in determining whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. Also, the
amendments improve the examples of events and circumstances that an entity
having a reporting unit with a zero or negative carrying amount should consider
in determining whether to measure an impairment loss, if any, under the second
step of the goodwill impairment test. The amendments in this ASU are effective
for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted, including for
annual and interim goodwill impairment tests performed as of a date before
September 15, 2011, if an entity's financial statements for the most recent
annual or interim period have not yet been issued. The adoption of this guidance
is not expected to have a material impact on the Company's financial position or
results of operations.
Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force (EITF)), the American Institute of
Certified Public Accountants (AICPA), and the SEC did not or are not believed
by management to have a material impact on the Company's present or future
financial statements.
13
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 3. EARNINGS PER SHARE
The computations of basic and diluted earnings per share for
the three and nine months ended December 31 are as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
1,083,826
|
|
$
|
6,239,255
|
|
$
|
4,770,493
|
|
$
|
15,221,377
|
|
Less: dividends on preferred
stock
|
|
(191,072
|
)
|
|
(205,347
|
)
|
|
(573,215
|
)
|
|
(618,298
|
)
|
Net earnings for basic earnings per share
|
$
|
892,754
|
|
$
|
6,033,908
|
|
$
|
4,197,278
|
|
$
|
15,160,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for basic earnings per share
|
$
|
892,754
|
|
$
|
6,033,908
|
|
$
|
4,197,278
|
|
$
|
15,160,079
|
|
Add: dividends on preferred
stock
|
|
191,072
|
|
|
205,347
|
|
|
(573,215
|
)
|
|
618,298
|
|
Net earnings for diluted earnings per share
|
$
|
1,083,826
|
|
$
|
6,239,255
|
|
$
|
4,770,493
|
|
$
|
15,221,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock
outstanding
|
|
36,915,762
|
|
|
36,762,896
|
|
|
36,915,762
|
|
|
36,703,018
|
|
Effect of dilutive preferred stock
|
|
3,308,600
|
|
|
3,606,966
|
|
|
3,308,600
|
|
|
3,636,436
|
|
Effect of dilutive warrant
|
|
-
|
|
|
5,186
|
|
|
-
|
|
|
11,151
|
|
Weighted average common stock and dilutive
potential common stock
|
|
40,224,362
|
|
|
40,375,048
|
|
|
40,224,362
|
|
|
40,350,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
$
|
0.02
|
|
$
|
0.16
|
|
$
|
0.11
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share
|
$
|
0.03
|
|
$
|
0.15
|
|
$
|
0.12
|
|
$
|
0.38
|
|
14
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 4. INVENTORY, NET
At December 31, 2011 and March 31, 2011, inventory is comprised
of the following:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2011
|
|
Finished goods
|
$
|
43,174,733
|
|
$
|
6,324,862
|
|
Raw material
|
|
175,936
|
|
|
94,290
|
|
|
$
|
43,350,669
|
|
$
|
6,419,152
|
|
NOTE 5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, at December 31, 2011 and March 31,
2011 are summarized as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2011
|
|
Buildings
|
$
|
10,943,710
|
|
$
|
5,652,084
|
|
Leasehold improvement
|
|
5,211,693
|
|
|
1,398,033
|
|
Machinery
|
|
41,469,125
|
|
|
19,190,848
|
|
Furniture, fixtures and office equipment
|
|
18,874
|
|
|
15,378
|
|
Motor vehicles
|
|
43,805
|
|
|
41,556
|
|
|
|
|
|
|
|
|
Total
|
|
57,687,207
|
|
|
26,297,899
|
|
Less: accumulated depreciation
|
|
(7,496,003
|
)
|
|
(5,985,894
|
)
|
|
$
|
50,191,204
|
|
$
|
20,312,005
|
|
As of December 31, 2011, buildings, leasehold improvement and
machinery, of buildings, leasehold improvement and machinery, of $4,214,206
(March 31, 2011: $4,289,330), $985,426 (March 31, 2011: $1,054,948) and $880,125
(March 31, 2011: $942,218) respectively, were pledged to secure the unused
banking facilities obtained by the Group. (Note 14)
15
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 6. PREPAYMENTS AND DEPOSITS
Prepayments and deposits by major categories are summarized as
follows at December 31, 2011 and March 31, 2011:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2011
|
|
Classified as current assets
|
|
|
|
|
|
|
Prepaid expenses
|
$
|
69,626
|
|
$
|
264,878
|
|
Prepaid value-added tax
|
|
7,690,982
|
|
|
-
|
|
|
|
7,760,608
|
|
|
264,878
|
|
|
|
|
|
|
|
|
Classified as non-current assets
|
|
|
|
|
|
|
Prepayment for property and
equipment
|
|
-
|
|
|
10,205,951
|
|
Prepayment for land use right
|
|
801,952
|
|
|
777,453
|
|
|
|
801,952
|
|
|
10,983,404
|
|
|
$
|
8,562,560
|
|
$
|
11,248,282
|
|
NOTE 7. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued expenses by major categories at
December 31, 2011 and March 31, 2011 are summarized as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2011
|
|
Accruals
|
$
|
963,442
|
|
$
|
968,822
|
|
Value added tax payables
|
|
-
|
|
|
1,545,707
|
|
Other payables
|
|
2,120,064
|
|
|
797,996
|
|
|
$
|
3,083,506
|
|
$
|
3,312,525
|
|
The other payables mainly comprised amounts payable to the
suppliers of property and equipment, amounting to $1,748,782 and $431,612 as of
December 31, 2011 and March 31, 2011 respectively.
16
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 8.BANK BORROWINGS
The Company's borrowings consist of the following:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Borrowings, due within one year
|
$
|
22,204,724
|
|
$
|
-
|
|
Borrowings due after one year
|
|
1,259,843
|
|
|
-
|
|
|
$
|
23,964,567
|
|
$
|
-
|
|
The interest rates are based on benchmark lending rate issued
by Peoples Bank of China (Lending Rate) plus a certain percentage and subject
to the change of Lending Rate. The range of effective interest rates (which are
also equal to contracted interest rates) on the Companys borrowings for the
period ended December 31, 2011 was 8.26 % per annum.
NOTE 9. PROVISION FOR INCOME TAXES
The provision for income tax is as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
$
|
671,599
|
|
$
|
2,091,951
|
|
$
|
2,431,260
|
|
$
|
5,200,539
|
|
Other jurisdictions
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
42,057
|
|
|
39,338
|
|
|
125,192
|
|
|
117,392
|
|
Other jurisdictions
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$
|
713,656
|
|
$
|
2,131,289
|
|
$
|
2,556,452
|
|
$
|
5,317,931
|
|
17
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Deferred tax assets
The source of significant temporary difference that gives rise
to the deferred tax asset is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Difference between book and tax basis of
land use right and property and equipment
|
$
|
784,687
|
|
$
|
909,879
|
|
Tax losses carryforward
|
|
1,504,465
|
|
|
1,097,331
|
|
Less: valuation allowance
|
|
(1,504,465
|
)
|
|
(1,097,331
|
)
|
Net deferred tax assets
|
$
|
784,687
|
|
$
|
909,879
|
|
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that all of the assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in each tax jurisdiction
during the periods in which temporary differences in those jurisdictions become
deductible. Management considers the projected future taxable income and tax
planning strategies in making this assessment.
The Company has provided valuation allowances of $1,504,465 and
$1,097,331 in respect of federal net operating loss and foreign unused tax loss
carryforwards, respectively, which it does not expect to utilize. As of December
31, 2011, the Company has net operating loss and foreign unused tax loss
carryfowards of $3,126,220 (March 31, 2011: $2,699,300) and $2,011,137 (March
31, 2011: $912,879).
The total valuation allowance between periods presented
increased by $407,134 (March 31, 2011: $401,905) and such increase was
attributable to the tax effect on foreign tax losses incurred for the nine
months ended December 31, 2011 of $149,442 (March 31, 2011: $52,734) at enacted
foreign profit tax rates and the tax effect on federal net operating loss
incurred for the nine months ended December 31, 2011 of $257,712 (March 31,
2011: $349,171) at the federal tax rate of 35%.
18
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Income taxes
A reconciliation of the provision for income tax calculated
using the statutory federal income tax rate and state and local income tax rate
to the Companys provision for income taxes for the nine months ended December
31 is as follows:
|
|
Three months
|
|
|
Nine months
|
|
|
|
ended December 31,
|
|
|
ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Provision for income taxes at statutory
rate of 35%
|
$
|
1,249,162
|
|
$
|
2,929,690
|
|
$
|
3,523,159
|
|
$
|
7,188,758
|
|
Chinese tax rate difference
|
|
(190,693
|
)
|
|
(823,883
|
)
|
|
(740,242
|
)
|
|
(2,033,041
|
)
|
Non-deductible expenses and non- assessable
profits
|
|
(526,085
|
)
|
|
(56,240
|
)
|
|
(758,791
|
)
|
|
(153,626
|
)
|
Changes in valuation allowance
|
|
139,215
|
|
|
41,550
|
|
|
407,134
|
|
|
197,614
|
|
Tax effect of non-deductible temporary
difference recognized
|
|
42,057
|
|
|
40,172
|
|
|
125,192
|
|
|
118,226
|
|
Income taxes
|
$
|
713,656
|
|
$
|
2,131,289
|
|
$
|
2,556,452
|
|
$
|
5,317,931
|
|
Pretax earnings of a foreign subsidiary are subject to U.S.
taxation when effectively repatriated. U.S. income taxes and foreign withholding
taxes were not provided on undistributed earnings of foreign subsidiaries. The
Company intends to reinvest these earnings indefinitely in its foreign
subsidiaries. It is not practical to determine the amount of undistributed
earnings or income tax payable in the event the Company repatriated all
undistributed foreign earnings. However, if these earnings were distributed to
the U.S. in the form of dividends or otherwise, the Company would be subject to
additional U.S. income taxes and foreign withholding taxes, offset by an
adjustment for foreign tax credits.
NOTE 10. SHAREHOLDERS EQUITY
General
The Companys total authorized capital at December 31, 2011 and
March 31, 2011, is 125,000,000 shares of which 120,000,000 shares are common
stock of par value $0.001 and 5,000,000 shares are preferred stock of par value
$0.001.
19
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Series A Preferred Stock
In connection with the first closing of Private Placement
Transaction on December 31, 2009, certain investors received 359,502 shares of
Series A Preferred Stock.
In connection with the second and final closing of Private
Placement Transaction on October 8, 2009, certain investors received 43,916
shares of Series A Preferred Stock. A summary of terms of Series A Preferred
Stock as follows:
Ranking
With respect to rights upon liquidation, winding-up or
dissolution, the Series A Preferred Stock ranks senior to the Companys common
stock and any other classes or series of stock of the Company not designated as
ranking senior to or pari passu with the Series A Preferred Stock.
Voting
The holders of the Series A Preferred Stock will vote on an "as
converted" basis, together with the common stock, as a single class, in
connection with any proposal submitted to the Companys shareholders, except as
required by Nevada law.
Conversion
Shares of the Series A Preferred Stock are optionally
convertible into fully paid and non-assessable shares of common stock at a
conversion rate calculated by dividing (A) $33.00 per share (the "Liquidation
Preference Amount") by (B) the conversion price, which is initially $3.30 per
share, subject to adjustment as provided in the Certificate of Designation.
Initially, each share of Series A Preferred Stock is convertible into 10 shares
of common stock.
Mandatory Conversion
The Company may convert outstanding Series A Preferred Stock
into shares of common stock upon (i) the closing of a sale by the Company of
shares of common stock in a registered public offering in which the Company
sells shares of its stock for at least $10 million in gross proceeds and the
holders of the Series A Convertible Preferred Stock are able to offer and sell
at least 50% of the common stock that would be received upon such mandatory
conversion ("Qualified Sale") or (ii) when the average of the daily closing
price of the common stock for at least 30 consecutive trading days is not less
than $4.25 and the daily trading volume during each of those 30 trading days
exceeds 75,000 shares (a "Market Forced Conversion," and collectively with a
Qualified Sale, a "Forced Conversion"). The conversion rate to be applied in
effecting a Forced Conversion is calculated by dividing the Liquidation
Preference Amount per share by $2.75 (in the event of a Qualified Sale) or $3.30
(in the event of a Market Forced Conversion), as the case may be, subject to
adjustment as provided in the Certificate of Designation. In addition, in
connection with a Qualified Sale Forced Conversion, the Company will pay to the
holder for each share of Series A Preferred Stock so converted a per share
amount equal to seven percent (7%) of the original issue price plus all accrued
and unpaid dividends
20
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
Dividends
Each share of Series A Preferred Stock is entitled to receive
cumulative dividends at the annual rate of 7% on the Liquidation Preference
Amount thereof. Such dividends are payable annually on September 1 beginning
with the first date after December 31, 2009 and any optional conversion date in
cash.
Liquidation
In the event of the liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock then outstanding will be entitled to receive, out of
the assets of the Company available for distribution to its shareholders, $33.00
per share plus accrued but unpaid dividends, before any payment shall be made or
any assets distributed to the holders of the Common Stock or any other class or
series of stock issued by the Company not designated as ranking senior to or
pari passu with the Series A Preferred Stock in respect of the right to
participate in distributions or payments upon a liquidation event.
Redemption
At any time on or after less than 10% of the originally issued
shares of Series A Preferred Stock shall remain outstanding and subject to the
satisfaction of certain conditions, the Company may redeem all shares of Series
A Preferred Stock then outstanding at one hundred and one percent (101%) of the
Liquidation Preference Amount, plus any accrued and unpaid dividends. A holder
of then outstanding Series A Preferred Stock may also, upon the satisfaction of
the foregoing conditions and at the option of such holder, request the Company
to redeem all or any of its shares of Series A Preferred Stock at the same
price.
Warrants
In connection with the private placement which closed on
October 10, 2008, WLT Brothers Capital, Inc., Wentworth Securities, Inc. and
Euro Pacific Capital, Inc., the Companys placement agents, received, as partial
compensation, warrants to purchase 66,171, 95,781 and 54,057 shares of the
Companys common stock, respectively. The warrants have a term of 3 years and
are immediately exercisable at $2.78 per share, subject to the usual adjustments
for certain corporate events.
21
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
The Company valued the warrants by Trinomial option pricing
model at $331,357 which was recorded as cost of raising capital against
additional paid-in capital. The Company estimated the fair value of each warrant
award on the date of grant using the Trinomial option pricing model and the
assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Treasury Constant
Maturity at the time of grant. The assumptions used to value options granted
during the year ended March 31, 2010 were as follows:
Risk free interest rate
|
|
3.479%
|
|
Expected volatility
|
|
59.92%
|
|
Expected dividend rate
|
|
-%
|
|
Expected life (years)
|
|
3
|
|
In connection with the first closing of Private Placement
Transaction which closed on December 31, 2009, certain investors received
359,502 warrants to purchase 898,777 shares of the Companys common stock. The
warrants have a term of 4 years and are immediately exercisable at $3.30 per
share, subject to customary adjustments.
The Company valued the warrants by Trinomial Option Pricing
Model at $1,361,295 which was used to calculate the portion of proceeds from
private placement transaction arising from warrants to record as additional
paid-in capital. The Company estimated the fair value of each warrant award on
the date of grant using the Trinomial Option Pricing Model and the assumption
noted in the following table. Expected volatility is based on the historical and
implied volatility of a peer group of publicly traded entities. The expected
term of options gave consideration to historical exercises, post-vesting
cancellations and the options contractual term. The risk-free rate for the
expected term of the option is based on the U.S. Government Bond at the time of
grant. The assumptions used to value options granted were as follows during
fiscal 2010:
Risk free interest rate
|
|
2.264%
|
|
Expected volatility
|
|
56.03%
|
|
Expected dividend rate
|
|
-%
|
|
Expected life (years)
|
|
4
|
|
22
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
In connection with the first closing of Private Placement
Transaction on December 31, 2009, WLT Brothers Capital, Inc. and Euro Pacific
Capital, Inc., the Companys placement agents, received on October 8, 2009, as
partial compensation, 86,281 warrants to purchase 215,703 shares of the
Companys common stock. The warrants have a term of 4 years and are immediately
exercisable at $3.30 per share, subject to customary adjustments.
The Company valued the warrants by Trinomial Option Pricing
Model at $326,705 which was recorded as cost of raising capital against
additional paid-in capital. The Company estimated the fair value of each warrant
award on the date of grant using the Trinomial Option Pricing Model and the
assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Government Bond at the
time of grant. The assumptions used to value options granted were as follows
during fiscal 2010:
Risk free interest rate
|
|
2.264%
|
|
Expected volatility
|
|
56.03%
|
|
Expected dividend rate
|
|
-%
|
|
Expected life (years)
|
|
4
|
|
In connection with the second and final closing of Private
Placement Transaction which closed on October 8, 2009, certain investors
received 43,916 warrants to purchase 109,790 shares of the Companys common
stock. The warrants have a term of 4 years and are immediately exercisable at
$3.30 per share, subject to customary adjustments.
The Company valued the warrants by Trinomial Option Pricing
Model at $168,549 which was used to calculate the portion of proceeds from
private placement transaction arising from warrants to record as additional
paid-in capital. The Company estimated the fair value of each warrant award on
the date of grant using the Trinomial Option Pricing Model and the assumption
noted in the following table. Expected volatility is based on the historical and
implied volatility of a peer group of publicly traded entities. The expected
term of options gave consideration to historical exercises, post-vesting
cancellations and the options contractual term. The risk-free rate for the
expected term of the option is based on the U.S. Government Bond at the time of
grant. The assumptions used to value options granted were as follows during
fiscal 2010:
Risk free interest rate
|
|
2.324%
|
|
Expected volatility
|
|
51.62%
|
|
Expected dividend rate
|
|
-%
|
|
Expected life (years)
|
|
4
|
|
23
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
In connection with the second and final closing of Private
Placement Transaction which closed on October 8, 2009, certain placement agents
received 10,540 warrants to purchase 26,349 shares of the Companys common
stock. The warrants have a term of 4 years and are immediately exercisable at
$3.30 per share, subject to customary adjustments.
The Company valued the warrants by Trinomial Option Pricing
Model at $40,450 which was recorded as cost of raising capital against
additional paid-in capital. The Company estimated the fair value of each warrant
award on the date of grant using the Trinomial Option Pricing Model and the
assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Government Bond at the
time of grant. The assumptions used to value options granted were as follows
during fiscal 2010:
Risk free interest rate
|
|
2.324%
|
|
Expected volatility
|
|
51.62%
|
|
Expected dividend rate
|
|
-%
|
|
Expected life (years)
|
|
4
|
|
The following is the movement of warrants during the nine
months ended December 31, 2011:
|
|
|
|
|
Granted
|
|
|
Exercised
|
|
|
Outstanding at
|
|
|
|
|
|
|
Outstanding at
|
|
|
during the
|
|
|
during the
|
|
|
December 31,
|
|
|
Exercise
|
|
Date of grant
|
|
April 1, 2011
|
|
|
period
|
|
|
period
|
|
|
2011
|
|
|
price
|
|
October 10, 2008
|
|
120,228
|
|
|
-
|
|
|
-
|
|
|
120,228
|
|
$
|
2.78
|
|
December 31, 2009
|
|
359,502
|
|
|
-
|
|
|
-
|
|
|
359,502
|
|
$
|
3.30
|
|
October 8, 2009
|
|
140,737
|
|
|
-
|
|
|
-
|
|
|
140,737
|
|
$
|
3.30
|
|
|
|
620,467
|
|
|
-
|
|
|
-
|
|
|
620,467
|
|
|
|
|
Weighted average exercise price
|
$
|
3.20
|
|
|
-
|
|
|
-
|
|
$
|
3.20
|
|
|
|
|
24
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
The following is the movement of warrants during the nine
months ended December 31, 2010:
|
|
|
|
|
Granted
|
|
|
Exercised
|
|
|
Outstanding at
|
|
|
|
|
|
|
Outstanding at
|
|
|
during the
|
|
|
during the
|
|
|
December 31,
|
|
|
Exercise
|
|
Date of grant
|
|
April 1, 2010
|
|
|
period
|
|
|
period
|
|
|
2010
|
|
|
price
|
|
October 10, 2008
|
|
120,228
|
|
|
-
|
|
|
-
|
|
|
120,228
|
|
$
|
2.78
|
|
December 31, 2009
|
|
359,502
|
|
|
-
|
|
|
-
|
|
|
359,502
|
|
$
|
3.30
|
|
October 8, 2009
|
|
140,737
|
|
|
-
|
|
|
-
|
|
|
140,737
|
|
$
|
3.30
|
|
|
|
620,467
|
|
|
-
|
|
|
-
|
|
|
620,467
|
|
|
|
|
Weighted average exercise price
|
$
|
3.20
|
|
|
-
|
|
|
-
|
|
$
|
3.20
|
|
|
|
|
NOTE 11. PRC CONTRIBUTION PLAN
Employees of the Group are entitled to retirement benefits
calculated with reference to their salaries basis upon retirement and their
length of service in accordance with a PRC government-managed retirement plan.
The PRC government is directly responsible for the payments of the benefits to
these retired employees. The Group is required to make contributions to the
government-managed retirement plan based on certain percentages of the
employees monthly salaries. The amounts contributed by the Group were $56,029,
$153,062, $32,763 and $124,297 for the three and nine months ended December 31,
2011 and 2010 respectively.
NOTE 12. CONCENTRATION OF RISK
Credit Risk
Financial instruments that potentially subject the Group to
significant concentration of credit risk consist primarily of cash and cash
equivalents. As of December 31, 2011, substantially all of the Groups cash and
cash equivalents were held by major financial institutions located in the PRC,
which management believes are of high credit quality.
Groups operations are in China
All of the Groups products are produced in China. The Groups
operations are subject to various political, economic, and other risks and
uncertainties inherent in China. Among other risks, the Groups operations are
subject to the risks of transfer of funds; domestic and international customs
and tariffs; changing taxation policies; foreign exchange restrictions; and
political conditions and governmental regulations.
25
China Nutrifruit Group Limited and Subsidiaries
|
Notes to Condensed Consolidated Financial Statements
|
December 31, 2011 and 2010 (Unaudited)
|
(Stated in U.S. Dollars)
|
NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES
Operating Lease Commitments
As of December 31, 2011, the Group did not have any significant
operating lease commitments.
Rent for the three and nine months ended December 31, 2011 and
2010 was $3,150, $14,198, $4,500 and $13,268 respectively.
Capital Commitments
As of December 31, 2011, the Group had the followings
outstanding capital expenditure commitments:
Authorized and contracted, but not provided for:
|
|
|
|
Construction in progress
|
$
|
663,137
|
|
NOTE 14. UNUSED SECURED CREDIT FACILITIES
As of December 31, 2011, the Group had $2,967,826 (March 31,
2011: $2,877,206) unused credit facilities granted by banks. Those banking
facilities were secured by land use rights, buildings, leasehold improvement and
machinery, of $187,730 (March 31, 2011: $188,199), $4,214,206 (March 31, 2011:
$4,289,330), $985,426 (March 31, 2011: $1,054,948) and $880,125 (March 31, 2011:
$942,218) respectively.
NOTE 15. CONTINGENCIES
In December 2011, the Company was informed by its subsidiarys
customer (the Customer) that the Group's concentrate juice and glazed fruit
products contain higher than specified levels of sodium. The Customer has
requested the Group for a full refund of the purchased products. During the
period from 1 August 2011 to 31 December 2011, the Group has recognized the
sales to the Customer of approximately RMB41,045,176 or USD 6,463,807. In
response to this matter, the Group is currently performing independent
laboratory tests to verify the product quality claims of the Customer. If
verified, the Group is prepared to coordinate a voluntary recall and refund to
the Customer.
As the results of the independent laboratory tests did not
available and the Company did not obtain any documents from the Customer as of
the date of this report, the Company considers that the probability of an
unfavorable outcome on this claim is still uncertain and, therefore, no
contingent liability has been recorded as at December 31, 2011. The effect of
the financial statement cannot be verified up to the date of this report.
NOTE 16. SUBSEQUENT EVENTS
The Company evaluated all events or transactions through the
date of this filing, which is the date the financial statements were issued.
During this period, other than those disclosed above, the Company did not have
any material subsequent events that impacted the consolidated financial
statements.
26
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains
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. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A Risk Factors included in our Annual Report on Form
10-K for the year ended March 31, 2011, as well as assumptions, which, if they
were to ever materialize or prove incorrect, could cause the results of the
Company to differ materially from those expressed or implied by such
forward-looking statements.
Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation, except as required by law, to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context, all references in
this report to:
-
we, the Company, us, our company, our, and China Nutrifruit
are to the combined businesses of China Nutrifruit Group Limited, a Nevada
corporation, and its wholly-owned subsidiaries: Fezdale, Solar Sun, Jumbo
Glass, Daqing Longheda and Daqing Senyang
-
Fezdale are to Fezdale Investments Limited, a British Virgin Islands
company;
-
Solar Sun are to Solar Sun Holdings Limited, a Hong Kong company;
-
Jumbo Gloss are to Jumbo Gloss Limited, a British Virgin Islands
company;
-
Daqing Longheda are to Daqing Longheda Food Company Limited, a PRC
company;
-
Daqing Senyang are to Daqing Senyang Fruit and Vegetable Food Technology
Company Limited, a PRC company;
-
China and PRC are to the Peoples Republic of China;
-
SEC are to the United States Securities and Exchange Commission;
-
Securities Act are to the Securities Act of 1933, as amended;
-
Exchange Act are to the Securities Exchange Act of 1934, as amended;
-
RMB are to Renminbi, the legal currency of China; and
-
U.S. dollar, $, USD and US$ are to the legal currency of the
United States.
Overview
We are a leading producer of premium specialty fruit based
products in China. We are primarily engaged, through our indirect Chinese
subsidiaries, in developing, processing, marketing and distributing a variety of
food products processed primarily from premium specialty fruits grown in
Northeast China, mainly including golden berries, crab apples, blueberries,
raspberries, blackcurrant and sea buckthorn. Our primary product offerings
include concentrate juice, nectar, glazed fruits as well as fresh fruits.
We sell our products through an extensive nationwide sales and
distribution network covering 18 provinces in China. As of December 31, 2011,
this network was comprised of approximately 44 distributors. Our processed fruit
products are mainly sold to food producers for further processing into fruit juice
and other fruit based foods, and our fresh fruits are mainly sold to fruit
supermarkets.
27
Our manufacturing facilities are located in Daqing City,
Mudanjiang City and Zhaoyuan, Heilongjiang Province, China where an abundant
supply of various premium specialty fruits is readily available. We currently
have seven fruit and vegetable processing lines with an aggregate capacity of
approximately 39,760 tons. We recently completed technological upgrades to our
glazed fruit production lines in Daqing and installation of additional
processing equipment to our concentrate juice production lines in Mudanjiang,
thereby increasing our annual concentrate juice production capacity by 50% to
reach 9,000 tons. Such upgrades are expected to contribute to our continuing
efforts to improve operational efficiency and productivity, and expand our
product portfolio as we begin production of our new cherry tomato glazed fruit
products and golden berry dried fruit products. In addition, we recently
completed constructing a new multi-purpose concentrate paste production line in
Zhaoyuan, Heilongjiang province with a production capacity of approximately
9,600 tons. We are in the process of obtaining the production permit for fruit
and vegetable powder products and concentrate paste products from the local
government, and will start sales of these products after we obtain such
permit.
Third Fiscal Quarter Summary
In the third quarter of fiscal year 2012, our net sales, gross
margin and net income decreased mainly because of a significant increase in the
prices of our raw material fruit supply and production costs in this fiscal
years production season. The price of agricultural products in our industry can
vary greatly from season-to-season for a variety of reasons, both within and
beyond the control of our company. Some of the reasons include weather patterns
and seasonal variations, agricultural disease, technological developments in
growth enhancement products like fertilizers, macro-economic trends such as
inflation and labor costs and other factors. In the third fiscal quarter, our
industry experienced sharp increases in the price of our raw material fruit
supply. Our raw material fruit costs rose from approximately 74% to 217% as
compared to the same period last year, due mostly to inflation in
China and higher labor costs. Although we raised the per unit pricing of most of
our products in an effort to mitigate the compression of our margins, we could
not pass on the entire increase in our production cost to our customers as we
endeavored to maintain our market share and competitiveness. Accordingly, the
price increases were generally less than the increase in raw material and direct
labor costs. All products sold in this quarter were produced after our new
production season began on July 25, 2011.
In December 2011, the Company was informed by a customer that
the Company's concentrate juice and glazed fruit products contain higher than
specified levels of sodium. The customer has requested for a full refund for the
purchased products. During the period from August 1, 2011 to December 31, 2011,
the Company has recognized the sales to the customer of approximately RMB41
million, or USD $6.5 million. In response to this matter, the Company is
currently performing independent laboratory tests to verify the product quality
claims of the customer. If verified, the Company is prepared to coordinate a
voluntary recall and refund to the customer.
As the results of the independent laboratory tests are not yet
available and the Company has not obtained any documents from the customer as of
the date of this report, the Company considers that the probability of an
unfavorable outcome on this claim is still uncertain and, therefore, no
contingent liability has been recorded as at December 31, 2011.
The following sets forth certain key financial information for
the third fiscal quarter.
-
Net Sales
: Net sales decreased $0.5 million, or 2.4%, to
$21.6 million for the three months ended December 31, 2011, from $22.1 million
for the same period last year.
-
Gross Margin
: Gross margin was 21.3% for the three months
ended December 31, 2011, as compared to 46.4% for the same period last year.
-
Net Income
: Net income decreased $5.1 million, or 82.6%, to
$1.1 million for the three months ended December 31, 2011, from $6.2 million
for the same period last year.
-
Fully Diluted Earnings Per Share
: Fully diluted earnings per
share was $0.03 for the three months ended December 31, 2011, as compared to
$0.15 for the same period last year.
28
Results of Operations
Comparison of Three Months Ended December 31, 2011 and
December 31, 2010
The following table sets forth key components of our results of
operations for the periods indicated, in dollars and as a percentage of sales
revenue.
(All amounts, other than percentages and per share numbers, in
thousands of U.S. dollars)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
In
|
|
|
Percentage
|
|
|
In
|
|
|
Percentage
|
|
|
|
Thousands
|
|
|
of Net Sales
|
|
|
Thousands
|
|
|
of Net Sales
|
|
Net Sales
|
$
|
21,613
|
|
|
100.0%
|
|
$
|
22,137
|
|
|
100.0%
|
|
Costs of sales
|
|
17,011
|
|
|
78.7%
|
|
|
11,856
|
|
|
53.6%
|
|
Gross profit
|
|
4,602
|
|
|
21.3%
|
|
|
10,281
|
|
|
46.4%
|
|
Selling expenses
|
|
669
|
|
|
3.1%
|
|
|
1,112
|
|
|
5.0%
|
|
General and administrative expenses
|
|
1,832
|
|
|
8.5%
|
|
|
807
|
|
|
3.6%
|
|
Other income
|
|
9
|
|
|
0.0%
|
|
|
9
|
|
|
0.0%
|
|
Interest expenses
|
|
312
|
|
|
1.4%
|
|
|
-
|
|
|
-
|
|
Income before income taxes
|
|
1,798
|
|
|
8.3%
|
|
|
8,371
|
|
|
37.8%
|
|
Income taxes
|
|
714
|
|
|
3.3%
|
|
|
2,132
|
|
|
9.6%
|
|
Net income
|
|
1,085
|
|
|
5.0%
|
|
|
6,239
|
|
|
28.2%
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.02
|
|
|
|
|
$
|
0.16
|
|
|
|
|
Diluted
|
$
|
0.03
|
|
|
|
|
$
|
0.15
|
|
|
|
|
The functional currency of the Company is RMB, however, our
financial information is expressed in USD. The results of operations reported in
the table above are based on the exchange rate of RMB 6.35 to $1 for the three
months ended December 31, 2011, and the rate of RMB 6.667 to $1 for the three
months ended December 31, 2010.
Net Sales
Net sales consist of revenue from the sale of our fruit and
fruit based products. Our net sales decreased $0.5 million, or 2.4%, to $21.6
million for the three months ended December 31, 2011, from $22.1 million for the
three months ended December 31, 2010. During this fiscal quarter, the average
sales price of most of our products increased substantially. The demand for our
glazed fruit and nectar products in this fiscal quarter still have a moderate
increase. However, concentrate pulp products did not generate any revenue in
this fiscal quarter. In response to rising production input costs, we made a
decision in the second quarter to temporarily suspend cooperation with our OEM
factories for the concentrate pulp products. We made this decision in order to
mitigate the compression of our profit margin as we could not pass our cost
escalations onto our customers in the form of higher prices. Due to the more
stringent application process for food producers following the outbreak of food
safety problems in Taiwan last summer, our application for production permits
for the new fruit and vegetable powder and concentrate paste product lines has
been delayed. As a result, we have temporarily suspended production of these new
products. We expect that it may take approximately nine months for us to
complete the necessary paperwork and reviews of the production permits and we do
not expect these product segments to contribute to our financial performance in
fiscal year 2013.
The following table sets forth the percentage of net sales
generated by each product for the three months ended December 31, 2011 and
2010:
29
(All amounts, other than percentages, in thousands of U.S.
dollars)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
In
|
|
|
Percentage
|
|
|
In
|
|
|
Percentage
|
|
Product
|
|
Thousands
|
|
|
of Net Sales
|
|
|
Thousands
|
|
|
of Net Sales
|
|
Fresh fruit
|
$
|
35
|
|
|
0.2%
|
|
$
|
763
|
|
|
3.4%
|
|
Glazed fruit
|
|
10,777
|
|
|
49.9%
|
|
|
6,040
|
|
|
27.3%
|
|
Nectar
|
|
1,629
|
|
|
7.5%
|
|
|
1,297
|
|
|
5.9%
|
|
Concentrate juice
|
|
9,172
|
|
|
42.4%
|
|
|
9,164
|
|
|
41.4%
|
|
Concentrate pulp
|
|
-
|
|
|
-
|
|
|
4,873
|
|
|
22.0%
|
|
Total
|
$
|
21,613
|
|
|
100.0%
|
|
$
|
22,137
|
|
|
100.0%
|
|
Cost of Sales
Cost of sales is primarily comprised of the costs of our raw
materials, labor, overhead and sales tax. The cost of sales increased $5.1
million, or 43.5%, to $17.0 million for the three months ended December 31,
2011, from $11.9 million for the three months ended December 31, 2010. Cost of
sales as a percentage of net sales was 78.7% for the three months ended December
31, 2011, as compared to 53.6% for the same period last year. Our industry
experienced a significant surge in the pricing of agricultural products
resulting from inflationary pressures in Chinas economy and higher labor
costs. Our raw material fruit supply costs rose dramatically during our
production season in the second and third quarter, increasing in the range of
74% to 217% as compared to last year. In addition, we experienced an
approximately 30% increase in labor costs beginning in July 2011.
Gross Profit
Gross profit is equal to net sales less cost of sales. Gross
profit decreased by $5.7 million to $4.6 million for the three months ended
December 31, 2011, from $10.3 million for the three months ended December 31,
2010. Gross profit as a percentage of net sales decreased to 21.3% for the three
months ended December 31, 2011, as compared to 46.4% for the same period last
year. The significant decrease in gross margin was mainly driven by a
significant increase in raw material cost and direct labor cost in the
production season in 2011. During this years production season, the cost of raw
material fruit supply increased in the range of 74% to 217% as compared to last
year. The gross margins for our glazed fruit, nectar and concentrate juice
products for the three months ended December 31, 2011 were approximately 22.2%,
41.1% and 16.9%, as compared to approximately 54.2%, 67.7% and 41.1% for the
same period last year, respectively.
Selling and General and Administrative
Expenses
Selling and general and administrative expenses increased $0.6
million, or 30.4%, to $2.5 million for the three months ended December 31, 2011,
from $1.9 million for the three months ended December 31, 2010.
Selling expenses include sales commissions, transportation
expenses, the cost of advertising and promotional materials, salaries and fringe
benefits of sales personnel and other sales related costs. Selling expenses
decreased $0.4 million, or 39.8%, to $0.7 million for the three months ended
December 31, 2011 from $1.1 million for the three months ended December 31,
2010. As a percentage of net sales, selling expenses decreased to 3.1% for the
three months ended December 31, 2011 from 5.0% for the same period last year.
The decrease in selling expenses was mainly due to the decrease in sales volume
in this fiscal quarter.
General and administrative expenses include the costs
associated with staff and support personnel who manage our business activities,
depreciation charge for fixed assets, including idle production line, and
professional fees paid to third parties. Our general and administrative expenses
increased $1.0 million, or 127.0%, to $1.8 million for the three months ended
December 31, 2011, from $0.8 million for the three months ended December 31,
2010. As a percentage of net sales, general and administrative expenses
increased to 8.5% for the three months ended December 31, 2011, from 3.6% for
the same period last year. The increase in general and administrative expenses
in this quarter was mainly attributable to the expenses associated with the
operation of Daqing Senyang and the new factory in Zhaoyuan. The general and
administrative expenses for both factories was approximately $0,5 million for
the three months ended December 31, 2011. In addition, we experienced an
increase in compensation paid to our administrative staff in this quarter.
30
Income before Income Taxes
Income before income taxes decreased $6.6 million, or 78.5%, to
$1.8 million for the three months ended December 31, 2011 from $8.4 million for
the three months ended December 31, 2010. Income before income taxes as a
percentage of net sales decreased from 37.8% for the three months ended December
31, 2010 to 8.3% for the three months ended December 31, 2011. The percentage
decrease was primarily attributable to the decrease in gross margin as discussed
above.
Provision for Income Taxes
The provision for income taxes decreased $1.4 million, or
66.5%, to $0.7 million for the three months ended December 31, 2011 from $2.1
million for the three months ended December 31, 2010. The decrease in the
provision for income taxes was mainly attributed to the decrease in taxable
income.
We file separate tax returns in the United States and China.
Income taxes of our PRC subsidiaries are calculated in accordance with taxation
principles currently effective in the PRC. For China Nutrifruit Group Limited,
applicable U.S. tax laws are followed. The applicable tax rate for our PRC
operating subsidiaries, Daqing Longheda and Daqing Senyang, was 25% in 2011.
Net Income
Net income decreased $5.1 million, or 82.6%, to $1.1 million
for the three months ended December 31, 2011 from $6.2 million for the three
months ended December 31, 2010, as a result of the cumulative effect of the
factors discussed above.
Comparison of Nine Months Ended December 31, 2011 and
December 31, 2010
The following table sets forth key components of our results of
operations for the periods indicated, in dollars and as a percentage of sales
revenue.
(All amounts, other than percentages and per share numbers, in
thousands of U.S. dollars)
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
In
|
|
|
Percentage
|
|
|
In
|
|
|
Percentage
|
|
|
|
Thousands
|
|
|
of Net Sales
|
|
|
Thousands
|
|
|
of Net Sales
|
|
Net Sales
|
$
|
51,698
|
|
|
100.0%
|
|
$
|
54,956
|
|
|
100.0%
|
|
Costs of sales
|
|
37,364
|
|
|
72.3%
|
|
|
29,600
|
|
|
53.9%
|
|
Gross profit
|
|
14,334
|
|
|
27.7%
|
|
|
25,356
|
|
|
46.1%
|
|
Selling expenses
|
|
1,820
|
|
|
3.5%
|
|
|
2,370
|
|
|
4.3%
|
|
General and administrative expenses
|
|
4,880
|
|
|
9.4%
|
|
|
2,504
|
|
|
4.6%
|
|
Other income
|
|
120
|
|
|
0.2%
|
|
|
57
|
|
|
0.1%
|
|
Interest expenses
|
|
427
|
|
|
0.8%
|
|
|
-
|
|
|
-
|
|
Income before income taxes
|
|
7,327
|
|
|
14.2%
|
|
|
20,539
|
|
|
37.4%
|
|
Income taxes
|
|
2,556
|
|
|
4.9%
|
|
|
5,318
|
|
|
9.7%
|
|
Net income
|
|
4,771
|
|
|
9.3%
|
|
|
15,221
|
|
|
27.7%
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.11
|
|
|
|
|
$
|
0.40
|
|
|
|
|
Diluted
|
$
|
0.12
|
|
|
|
|
$
|
0.38
|
|
|
|
|
The functional currency of the Company is RMB, however, our
financial information is expressed in USD. The results of operations reported in
the table above is based on the exchange rate of RMB 6.41 to $1 for the nine
months ended December 31, 2011 and the rate of RMB 6.772 to $1 for the nine
months ended December 31, 2010.
Net Sales
We experienced a decrease in net sales during the nine months
ended December 31, 2011. Net sales decreased $3.3 million, or 5.9%, to $51.7
million for the nine months ended December 31, 2011, from $55.0 million for the
nine months ended December 31, 2010. Such decrease was mainly attributable to
the decrease in net sales in the second and third fiscal quarters. The revenue from sales of concentrate juice products
decreased $1.3 million, or 4.9%, to $25.3 million for the nine months ended
December 31, 2011 from $26.7 million for the same period last year. Net sales
from concentrate pulp products decreased $8.4 million, or 8.4%, to $1.0 million
for the nine months ended December 31, 2011 from $9.4 million for the same
period last year. As discussed above, we made a strategic decision to
temporarily suspend production of concentrate pulp products in the second fiscal
quarter this year. The revenue from glazed fruit increased $6.3 million, or
54.5%, to $17.98 million for the nine months ended December 31, 2011 due to
increasing demand from our customers. The increase partially mitigated the
decrease of sales from concentrate juice and concentrate pulp.
31
The following table sets forth percentage of net sales
generated by each product for the nine months ended December 31, 2011 and
2010:
(All amounts, other than percentages, in thousands of U.S.
dollars)
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
In
|
|
|
Percentage
|
|
|
In
|
|
|
Percentage
|
|
Product
|
|
Thousands
|
|
|
of Net Sales
|
|
|
Thousands
|
|
|
of Net Sales
|
|
Fresh fruit
|
$
|
2,068
|
|
|
4.0%
|
|
$
|
2,243
|
|
|
4.1%
|
|
Glazed fruit
|
|
17,978
|
|
|
34.8%
|
|
|
11,635
|
|
|
21.2%
|
|
Nectar
|
|
5,312
|
|
|
10.3%
|
|
|
5,056
|
|
|
9.2%
|
|
Concentrate juice
|
|
25,344
|
|
|
49.0%
|
|
|
26,663
|
|
|
48.5%
|
|
Concentrate pulp
|
|
996
|
|
|
1.9%
|
|
|
9,359
|
|
|
17.0%
|
|
Total
|
$
|
51,698
|
|
|
100.0%
|
|
$
|
54,956
|
|
|
100.0%
|
|
Cost of Sales
Cost of sales increased $7.8 million, or 26.2%, to $37.4
million for the nine months ended December 31, 2011 from $29.6 million for the
nine months ended December 31, 2010. The increase in cost of sales was higher in
our second and third fiscal quarters than in the first fiscal quarter for the
reasons mentioned above in the quarterly comparison. Overall, for the nine
months ended December 31, 2011, our cost of sales escalated, mostly due to
inflationary pressures in China and higher labor costs. We experienced a
significant price surge of our raw material fruit supply in our second and third
fiscal quarters, with such increase ranging from 74% to 217% as compared to the
same period last year. Labor costs increased approximately 30%
from July 2011 until December 31, 2011. Cost of sales as a percentage of net sales was 72.3% for
the nine months ended December 31, 2011, as compared to 53.9% for the same
period last year.
Gross Profit
Gross profit decreased by $11.1 million to $14.3 million for
the nine months ended December 31, 2011 from $25.4 million for the nine months
ended December 31, 2010. Gross profit as a percentage of net sales decreased to
27.7% for the nine months ended December 31, 2011, as compared to 46.1% for the
same period last year. As explained above, the increase of our costs of sales
outpaced the price increases that we were able to implement for our products.
The gross margins for our glazed fruit, nectar, and concentrate juice products
for the nine months ended December 31, 2011 were approximately 30.6%, 44.1% and
22.7%, respectively, as compared to approximately 53.2%, 68.2% and 43.2% for the
same period last year.
Selling and General and Administrative
Expenses
Selling and general and administrative expenses increased $1.8
million, or 37.5%, to $6.7 million for the nine months ended December 31, 2011
from $4.9 million for the nine months ended December 31, 2010.
Selling expenses decreased $0.6 million, or 23.2%, to $1.8
million for the nine months ended December 31, 2011 from $2.4 million for the
nine months ended December 31, 2010. As a percentage of net sales, selling
expenses for the nine months ended December 31, 2011 decreased by 0.8% to 3.5%,
as compared to 4.3% for the nine months ended December 31, 2010. The decrease in
selling expenses was mainly due to the decrease in sales volume in the first
nine months ended December 31, 2011.
32
Our general and administrative expenses increased $2.4 million,
or 94.9%, to $4.9 million for the nine months ended December 31, 2011, from $2.5
million for the nine months ended December 31, 2010. As a percentage of net
sales, general and administrative expenses for the nine months ended December
31, 2011 increased by 4.8% to 9.4%, as compared to 4.6% for the nine months
ended December 31, 2010. The increase in general and administrative expenses in
the nine months ended December 31, 2011 was mainly attributable to the
recognition of professional expenses related to our proposed Taiwan Deposit
Receipt offering which was withdrawn in June 2011 and the beginning of
operations of our Daqing Senyang facility and start up costs for the new factory
in Zhaoyuan in the second quarter of this fiscal year. The general and
administrative expenses for both factories was approximately $0,7 million for
the nine months ended December 31, 2011 In addition, the increase in salary and
wages of staff also contributed to the increase in general and administrative
expenses this year.
Income before Income Taxes
Income before income taxes decreased $13.2 million, or 64.3%,
to $7.3 million for the nine months ended December 31, 2011 from $20.5 million
for the nine months ended December 31, 2010. Income before income taxes as a
percentage of net sales decreased from 37.4% for the nine months ended December
31, 2010 to 14.2% for the nine months ended December 31, 2011. The percentage
decrease was primarily due to the decrease in gross margin as discussed
above.
Provision for Income Taxes
The provision for income taxes decreased $2.8 million, or
51.9%, to $2.5 million for the nine months ended December 31, 2011 from $5.3
million for the nine months ended December 31, 2010. The decrease in the
provision for income taxes was mainly due to the decrease in taxable income.
Net Income
Net income decreased $10.5 million, or 68.7%, to $4.8 million
for the nine months ended December 31, 2011, from $15.2 million for the nine
months ended December 31, 2010, as a result of the cumulative effect of the
factors discussed above.
Liquidity and Capital Resources
As of December 31, 2011, we had cash and cash equivalents of
approximately $13.3 million. The following table sets forth a summary of our
cash flows for the periods indicated.
Cash Flow
(All amounts in thousands of U.S. dollars)
|
|
Nine Months Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Net cash used in operating activities
|
$
|
(37,732
|
)
|
$
|
(3,760
|
)
|
Net cash used in investing activities
|
|
(15,930
|
)
|
|
(9,418
|
)
|
Net provided by financing activities
|
|
21,745
|
|
|
122
|
|
Effect of exchange rates on cash and cash equivalents
|
|
1,675
|
|
|
1,399
|
|
Cash and cash equivalents at beginning of
the period
|
|
43,542
|
|
|
35,994
|
|
Cash and cash equivalents at end of period
|
|
13,300
|
|
|
24,337
|
|
Operating Activities
Net cash used in operating activities was $37.7 million for the
nine months ended December 31, 2011 as compared to $3.8 million for the nine
months ended December 31, 2010. The increase was mainly attributable to an
approximately $36.5 million cash outflow associated with inventory we built up
in this years production season to be sold during the rest of the fiscal year.
Investing Activities
During the nine months ended December 31, 2011, we invested
approximately $3.9 million to upgrade glazed fruit and concentrate juice
production lines in our Daqing and Mudanjiang facilities and approximately $11.3
million to construct a new concentrate paste production line in Zhaoyuan city.
In addition, we invested approximately $0.7 million on the completion of the fruit and vegetable powder factory. During
the nine months ended December 31, 2010, we used approximately $4.3 million to
upgrade concentrate juice production lines in our Daqing and Mudanjiang
facilities and approximately $5.1 million to construct the new fruit and
vegetable powder factory.
33
Financing Activities
Net cash provided by financing activities was $21.7 million for
the nine months ended December 31, 2011, mainly attributable to bank loans of
$23.5 million drawn down by Daqing Senyang and Daqing Longheda. We also repaid
an advance of $1.0 million from a director in the nine month period.
Furthermore, we paid $764,060 as dividends to holders of our Series A
Convertible Preferred Stock on September 1, 2011.
On February 23, 2010, Daqing Longheda entered into a $1.2
million (RMB 8.0 million) revolving credit facility with the Heilongjiang Rural
Credit Union with a term of three years. This facility is secured by our land
and buildings located in Daqing City. On February 25, 2010, we entered into
another $1.7 million (RMB 10.8 million) revolving credit facility with the
Longjiang Bank with a term of two years. This facility is secured by our land
and buildings in Mudanjiang City. Both facilities are for our working capital
needs during our production season. As of the date of this report, we have not
withdrawn any loan under either facility.
The table below sets forth the amount, starting date, term and
guarantor of each of our bank loans as of December 31, 2011.
(All amounts in million of U.S. dollars)
Lender
|
Amount*
|
Starting Date
|
Term
|
Guarantor**
|
Longjiang Bank
|
$7.9
|
May 20, 2011
|
1 year
|
Daqing Commercial
Guaranty Company Limited
|
Industrial & Commercial Bank of China
|
1.1
|
July 5, 2011
|
1 year
|
-
|
Longjiang Bank
|
3.1
|
August 3, 2011
|
1 year
|
Daqing Commercial
Guaranty Company Limited
|
China Construction Bank
|
0.3
|
September 23, 2011
|
1 year
|
Daqing Commercial Guaranty
Company Limited
|
China Construction Bank
|
1.3
|
September 23, 2011
|
2 years
|
Daqing Commercial
Guaranty Company Limited
|
Longjiang Bank
|
1.6
|
November 24, 2011
|
0.5 year
|
Daqing Commercial Guaranty
Company Limited
|
Longjiang Bank
|
2.2
|
December 6, 2011
|
1 year
|
Daqing Commercial
Guaranty Company Limited
|
Harbin Bank
|
0.6
|
December 15, 2011
|
1 year
|
Daqing Commercial Guaranty
Company Limited
|
China Construction Bank
|
2.4
|
December 23, 2011
|
1 year
|
Daqing Commercial
Guaranty Company Limited
|
China Construction Bank
|
2.4
|
December 28, 2011
|
0.5 year
|
Daqing Commercial Guaranty
Company Limited
|
Longjiang Bank
|
0.6
|
December 28, 2011
|
1 year
|
Daqing Commercial
Guaranty Company Limited
|
Total
|
$23.5
|
|
|
|
* Calculated on the basis that $1 = RMB 6.35.
** We pay
approximately $0.3 million (RMB1.6 million) to Daqing Commercial Guaranty
Company Limited, an unaffiliated third party, for the guarantees of our loans.
Capital Expenditures
Our capital expenditures were $15.9 million and $9.4 million
for the nine months ended December 31, 2011 and 2010, respectively. Our capital
expenditures were mainly used to upgrade and expand our production capacity. Our
planned capital expenditures for the fiscal year ending March 31, 2012 will be
mainly for upgrading existing production lines and expanding production capacity
by adding a new production line, including the construction of a refrigerated
warehouse in close proximity to our fruit and vegetable powder production line.
However, our actual capital expenditure may differ depending on our cash flow
status.
34
We believe that our currently available working capital, after
receiving the aggregate proceeds of our capital raising activities and credit
facilities referred to above, should be adequate to sustain our operations at
our current levels through at least the next twelve months. We may require
additional cash resources due to changing business conditions, implementation of
our strategy to expand our production capacity or other investments or
acquisitions we may decide to pursue. If our own financial resources are
insufficient to satisfy our capital requirements, we may seek to sell additional
equity or debt securities or obtain additional credit facilities. The sale of
additional equity securities could result in dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service obligations
and could require us to agree to operating and financial covenants that would
restrict our operations. Financing may not be available in amounts or on terms
acceptable to us, if at all. Any failure by us to raise additional funds on
terms favorable to us, or at all, could limit our ability to expand our business
operations and could harm our overall business prospects.
Critical Accounting Policies
Critical accounting policies are those we believe are most
important to portraying our financial conditions and results of operations and
also require the greatest amount of subjective or complex judgments by
management. Judgments and uncertainties regarding the application of these
policies may result in materially different amounts being reported under various
conditions or using different assumptions. There have been no material changes
to the critical accounting policies previously disclosed in our Annual Report on
Form 10-K for the fiscal year
ended March 31, 2011.
Recently Issued Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial
statements included elsewhere in this report.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital expenditures or capital resources that is
material to an investor in our securities.
Seasonality
The harvest season for our source fruits is generally from mid
July to mid November every year. As fruits cannot be stored at room temperature
for a long time, they must be processed as soon as they are harvested. Our fruit
processing production is generally busiest from mid-July to mid-November every
year. In this fiscal year, our production season started on July 25, 2011.
We generally experience higher sales in the second, third and
fourth fiscal quarters mainly due to (i) distributors efforts to obtain an
adequate supply of our fruit processing products before the fruit supply
diminishes after production ceases in November; and (ii) anticipation of higher
demand for processed fruit products as a result of festive seasons, such as the
Middle Autumn festival, Christmas and the Chinese New Year which are in the
second, third and fourth quarter of our fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
35
As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer, Mr. Changjun Yu, and Chief
Financial Officer, Mr. Colman Cheng, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of December 31, 2011.
Based on our assessment, Mr. Yu and Mr. Cheng determined that, as of December
31, 2011, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were effective to satisfy the objectives for which they are intended.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting identified in connection with the evaluation performed during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits
and legal proceedings, which arise, in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required to be in a
report on Form 8-K during the period covered by this report, but was not
reported. There have been no material changes to the procedures by which
security holders may recommend nominees to our board of directors.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of this report or
incorporated by reference:
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: February 14, 2012
|
CHINA NUTRIFRUIT GROUP LIMITED
|
|
|
|
|
By:
|
/s/ Changjun
Yu
|
|
|
Changjun Yu, Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
By:
|
/s/ Colman
Cheng
|
|
|
Colman Cheng, Chief Financial Officer
|
|
|
(Principal Financial Officer and
Principal
Accounting Officer)
|
37
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