Attached files
Washington,
D.C. 20549
FORM
10-Q
|
|
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Quarterly Period Ended December 31, 2009
|
|
[
] TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Transition Period From ____to _____
000-53146
(Commission
File Number)
MAN SHING AGRICULTURAL
HOLDINGS, INC.
(Exact
name of small business issuer as specified in its charter)
|
Nevada
|
88-0450667
|
|
(State
or other jurisdiction of
|
(IRS
Employer Identification No.)
|
|
incorporation
or organization)
|
Unit
1005, 10/F, Tower B
Hunghom
Commercial Centre
37
Ma Tau Wai Road, Hunghom
Kowloon, Hong
Kong
(Address
of principal executive offices)
(852) 2850
6336
(Issuer's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) 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 Website, if any, every Interactive Date File required to be
submitted 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 [ ] 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
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
|
|
|
Non-accelerated
filer
|
(Do
not check if a smaller reporting company)
|
|
Accelerated
filer
|
|
|
Smaller
reporting company
|
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Number of
shares of preferred stock outstanding as of February 1,
2010: 3,600,000
Number of
shares of common stock outstanding as of February 1,
2010: 35,501,963
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
The
discussion contained in this 10-Q under the Securities Exchange Act of 1934, as
amended, contains forward-looking statements that involve risks and
uncertainties. The issuer's actual results could differ significantly from those
discussed herein. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the
Company believes," "management believes" and similar language, including those
set forth in the discussions under "Notes to Financial Statements" and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-Q. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.
|
TABLE OF
CONTENTS
|
|
|
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
|
3
|
|
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
10
|
|
ITEM
3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
12
|
| ITEM 4. CONTROLS AND PROCEDURES | 12 |
|
ITEM
4T. CONTROLS AND PROCEDURES
|
12
|
|
PART
II. OTHER INFORMATION
|
|
|
ITEM
1. LEGAL PROCEEDINGS
|
13
|
|
ITEM
1A. RISK FACTORS
|
13
|
|
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
13
|
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
13
|
|
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
13
|
|
ITEM
5. OTHER INFORMATION
|
13
|
|
ITEM
6. EXHIBITS
|
14
|
|
SIGNATURES
|
15
|
|
INDEX
TO EXHIBITS
|
16
|
2
ITEM
1.CONSOLIDATED FINANCIAL STATEMENTS
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
Unaudited
Condensed Consolidated Balance Sheets as of December 31, 2009 and June 30,
2009
|
4
|
|
Unaudited
Condensed Consolidated Statements of Operations - For the Three and Six
Months Ended December 31, 2009 and 2008
|
5
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows - For the Six Months Ended
December 31, 2009 and 2008
|
6
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
3
|
Man
Shing Agricultural Holdings, Inc. and Subsidiaries
|
||||||||
|
Unaudited
Consolidated Balance Sheets
|
||||||||
|
As
of December 31, 2009 and June 30, 2009
|
||||||||
|
ASSETS
|
31/Dec/2009
|
30/Jun/2009
|
||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 57,912 | $ | 86,408 | ||||
|
Accounts
receivable, trade
|
1,178,479 | 2,479,117 | ||||||
|
Inventory
|
6,694,394 | 730,066 | ||||||
|
Prepayment
|
259,058 | 1,437,450 | ||||||
|
Other
receivable
|
79,981 | |||||||
|
TOTAL
CURRENT ASSETS
|
$ | 8,269,824 | $ | 4,733,041 | ||||
|
FIXED
ASSETS
|
||||||||
|
Property,
plant, and equipment
|
844,759 | 631,362 | ||||||
|
Accumulated
depreciation
|
(122,023 | ) | (89,706 | ) | ||||
|
NET
FIXED ASSETS
|
$ | 722,736 | $ | 541,656 | ||||
|
TOTAL
ASSETS
|
$ | 8,992,560 | $ | 5,274,697 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Short-term
borrowings
|
$ | 292,903 | $ | 73,186 | ||||
|
Notes
payable
|
$ | 450,000 | $ | - | ||||
|
Accounts
payable
|
1,260,745 | 346,482 | ||||||
|
Other
payables and accrued liabilities
|
828,765 | 460,048 | ||||||
|
Due
to shareholders'
|
100,309 | 100,304 | ||||||
|
Received
in advance
|
60,877 | 128,355 | ||||||
|
Tax
payable
|
52,757 | 57,272 | ||||||
|
TOTAL
CURRENT LIABILITIES
|
$ | 3,046,356 | $ | 1,165,647 | ||||
|
TOTAL
LIABILITIES
|
$ | 3,046,356 | $ | 1,165,647 | ||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Preferred
stock
|
$ | 3,600 | $ | 3,700 | ||||
|
Common
stock
|
34,503 | $ | 33,002 | |||||
|
Additional
paid-in capital
|
(343,102 | ) | $ | (36,700 | ) | |||
|
Accumulated
other comprehensive income(loss)
|
90,927 | 133,433 | ||||||
|
Statutory
reserves
|
2,134,501 | 249,362 | ||||||
|
Accumulated
earnings (deficit)
|
4,025,775 | 3,726,253 | ||||||
|
TOTAL
STOCKHOLDERS' EQUITY
|
$ | 5,946,204 | $ | 4,109,050 | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 8,992,560 | $ | 5,274,697 | ||||
|
Control
|
0 | 0 | ||||||
4
|
Man
Shing Agricultural Holdings, Inc. and Subsidiaries
|
||||||||||||||||
|
Unaudited
Consolidated Statements of Operations and Comprehensive
Income
|
||||||||||||||||
|
For
the Three and Six Months ended December 31, 2009 and
2008
|
||||||||||||||||
|
For
the Three months Ended
|
For
the Six months Ended
|
|||||||||||||||
|
31/Dec/2009
|
31/Dec/2008
|
31/Dec/2009
|
31/Dec/2008
|
|||||||||||||
|
|
|
|
||||||||||||||
|
Revenues
|
||||||||||||||||
|
Sales
|
$ | 5,168,941 | $ | 1,042,068 | $ | 9,790,467 | $ | 2,335,367 | ||||||||
|
Cost
of sales
|
3,425,589 | 678,679 | 6,755,171 | 1,716,184 | ||||||||||||
|
Gross
profits
|
1,743,352 | 363,389 | 3,035,296 | 619,182 | ||||||||||||
|
Operating
expenses
|
||||||||||||||||
|
Selling
and marketing
|
$ | 383,180 | $ | 127,024 | $ | 463,303 | $ | 192,151 | ||||||||
|
General
and administrative
|
190,091 | 14,439 | 239,990 | 25,974 | ||||||||||||
|
Total
Operating Expenses
|
573,271 | 141,463 | 703,293 | 218,125 | ||||||||||||
|
Income
(Loss) from Operations
|
1,170,081 | 221,926 | 2,332,003 | 401,057 | ||||||||||||
|
Other
income (expenses)
|
||||||||||||||||
|
Finance
income (costs)
|
$ | (10,109 | ) | $ | (7,705 | ) | $ | (16,341 | ) | $ | (15,255 | ) | ||||
|
Non-operating
income (expense)
|
2,047 | - | 4,237 | - | ||||||||||||
|
Total
other income (loss)
|
(8,062 | ) | (7,705 | ) | (12,104 | ) | (15,255 | ) | ||||||||
|
Income
(loss) from Operations
|
1,162,019 | 214,221 | 2,319,899 | 385,803 | ||||||||||||
|
Income
taxes
|
- | 46 | - | 46 | ||||||||||||
|
Net
Income (Loss)
|
1,162,019 | 214,175 | 2,319,899 | 385,757 | ||||||||||||
|
Other
comprehensive income (loss)
|
||||||||||||||||
|
Foreign
currency translation gain (loss)
|
(43,319 | ) | (2,724 | ) | (41,360 | ) | 5,245 | |||||||||
|
Comprehensive
income (loss)
|
$ | 1,118,700 | $ | 211,451 | $ | 2,278,539 | $ | 391,002 | ||||||||
|
Earnings
(loss) per share
|
||||||||||||||||
|
Basic
|
34,124,185 | 33,001,963 | 20,150,852 | 33,001,963 | ||||||||||||
|
Dilute
|
70,124,185 | 70,001,963 | 56,578,630 | 70,001,963 | ||||||||||||
|
Weighted
average number of shares outstanding
|
||||||||||||||||
|
Basic
|
0.03 | 0.01 | 0.11 | 0.01 | ||||||||||||
|
Dilute
|
0.02 | ** | 0.04 | 0.01 | ||||||||||||
|
**
Less than $.01
|
||||||||||||||||
5
|
Man
Shing Agricultural Holdings, Inc. and Subsidiaries
|
||||||||
|
Unaudited
Consolidated Statements of Cash Flows
|
||||||||
|
For
the Six Months ended December 31, 2009 and 2008
|
||||||||
|
31/Dec/2009
|
31/Dec/2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
2,319,579 | 385,757 | ||||||
|
Adjustments
to reconcile net income (loss) to
|
||||||||
|
net
cash (used in) operating activities:
|
||||||||
|
Depreciation
|
31,585 | 6,049 | ||||||
|
Stock-based
compensation to service providers
|
125,000 | - | ||||||
|
Accounts
receivable, trade
|
1,301,771 | (359,739 | ) | |||||
|
Prepayment
|
1,178,981 | 92,668 | ||||||
|
Inventory
|
(5,962,972 | ) | (56,919 | ) | ||||
|
Other
receivable
|
(79,968 | ) | 33,538 | |||||
|
Accounts
payable
|
1,048,373 | (20,410 | ) | |||||
|
Tax
payable
|
(4,545 | ) | (3,759 | ) | ||||
|
Other
payable
|
70,859 | 52,922 | ||||||
|
Received
in advance
|
(67,537 | ) | 185 | |||||
|
NET
CASH (USED IN) OPERATING ACTIVITIES
|
(38,875 | ) | 130,292 | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase
of property, plant, and equipment
|
(213,345 | ) | (41,348 | ) | ||||
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
(213,345 | ) | (41,348 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Due
to shareholders
|
$ | 2,755 | $ | - | ||||
|
Preceeds
of loan
|
219,642 | - | ||||||
|
Notes
payable
|
- | |||||||
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
222,397 | - | ||||||
|
FOREIGN
CURRENCY TRANSLATION ADJUSTMENT
|
1,328 | 696 | ||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(28,496 | ) | 89,639 | |||||
|
CASH
AND CASH EQUIVALENTS:
|
||||||||
|
Beginning
of period
|
86,408 | 136,270 | ||||||
|
End
of period
|
$ | 57,912 | $ | 225,909 | ||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Cash
paid for:
|
||||||||
|
Interest
|
5,813 | 5,761 | ||||||
|
Income
taxes
|
- | - | ||||||
6
MAN
SHING AGRICULTURAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
(STATED
IN US DOLLARS)
|
1.
|
BASIS
OF PRESENTATION
|
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with both generally accepted accounting principles for
interim financial information, and the instructions to Form 10-Q and Article 8
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting of normal recurring
accruals) that are, in the opinion of management, considered necessary for a
fair presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
The
unaudited condensed consolidated financial statements and related disclosures
have been prepared with the presumption that users of the interim financial
information have read or have access to the Company’s annual audited
consolidated financial statements for the preceding fiscal year. Accordingly,
these unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the related
notes for the year ended June 30, 2009 thereto contained in the Current Report
on Form 8-K filed on August 21, 2009, and its amendments.
|
2.
|
ORGANIZATION
BACKGROUND
|
Man Shing
Agricultural Holdings, Inc. (the “Company”) was incorporated on February 8, 2000
under the laws of the State of Nevada. From the beginning of 2003
until December 31, 2007 the Company had no operations and no assets and was
considered as a dormant company. Subsequent to December 31, 2007, the
Company began operating in the real estate industry and engaged in the business
of buying, selling, renting, and improving real estate.
As of
August 20, 2009, the Company entered into a Plan of Exchange (the “Agreement”)
between and among the Company, Hero Capital Profits Limited, a company organized
and existing under the laws of the British Virgin Islands (including its
successors and assigns “HCP”), Weifang Xinsheng Food Co., Ltd., a company
organized and existing under the laws of the People’s Republic of China
(“Xinsheng”), the shareholders of Xinsheng (the “Xinsheng Shareholders”) and the
Company’s Majority Shareholder. Pursuant to the terms of the Agreement, the
Company acquired one hundred percent (100%) of the issued and outstanding share
capital of HCP from the HCP Shareholders in exchange for a new issuance
32,800,000 shares of common stock of the Company and the simultaneous transfer
of 3,535,000 shares of the Company’s Preferred Stock to the HCP shareholders,
held in the name of the Northeast Nominee Trust (Duane Bennett, Former President
of the Company as trustee), which gave the HCP shareholders an interest in the
Company representing 99.38% of the issued and outstanding shares. Upon
completion of the exchange, HCP and Xinsheng became the Company’s wholly-owned
subsidiaries. All of these conditions to closing have been met, and the Company,
HCP, Xinsheng, the Xinsheng Shareholders and the Company’s Majority Shareholders
declared the exchange transaction consummated on August 20, 2009.
The
Exchange and the Transfer have been respectively accounted for as reverse
acquisition and recapitalization of the Company and HCP / Xinsheng whereby HCP /
Xinsheng is deemed to be the accounting acquirer (legal acquiree) and the
Company to be the accounting acquiree (legal acquirer) under the Exchange. The
unaudited condensed consolidated financial statements are in substance those of
Xinsheng, with the assets and liabilities, and revenues and expenses, of the
Company and HCP being included effective from the respective consummation dates
of the Exchange and the Transfer.
The
Company and its subsidiaries are hereinafter referred to as (the
"Company").
On
September 2, 2009, the Company changed its name to Man Shing Agricultural
Holdings, Inc. to more accurately reflect the Company’s business after a stock
exchange transaction with HCP and Xinsheng.
Additionally,
on June 25, 2009, the Company’s board of directors authorized and approved a
reverse stock split (the “Reverse Split”) of the Company’s common stock on the
basis of one share for one hundred shares currently issued and outstanding.
Accordingly, the number of issued and outstanding shares decreased from
20,196,200 shares to 201,962 shares. The Reverse Split was effective on
September 2, 2009.
|
3.
|
DESCRIPTION
OF BUSINESS
|
The
Company’s primary business operations are engaged in the production and
processing of fresh vegetables, including ginger, onion, garlic and leek. The
Company strives to provide high quality products to the Company’s customers. The
Company has 110,000 square meters of factor space and utilize 3.335 million
square meters of farm land, which is one of the largest ginger farm lands in the
region. The Company complies with the ISO9002 and the HACCP food safety
standards. All of the Company’s farm land has been certified by the Organic Crop
Improvement Association and has met the Japan Agricultural Standards for
production of organic foods. The Company’s processing factory has also met the
requirement of the British Retail Consortium Global Food Standard and the TESCO,
a UK supermarket, food safety standards. Under the Company’s close monitoring
and supervision program, the Company believes the Company can ensure that all
products produced are in compliance with food safety standards from around the
world.
According
to a statistical survey published by the United Nation Food and Agriculture
Organization in June 2008, China produced around 285,000 tons of ginger in 2007
of which around 150,000 tons were exported.
For the
six months ended December 31, 2009, the Company has produced 27,224 tons of
ginger, which equals around 9% of total China production and 18% of total China
export (based on the 2007 numbers).
Our
Products
Fresh
Vegetables
Ginger Burdock
Onion Leeks
Peeled
Garlic
Frozen
Vegetables
Peeled
Ginger
Diced Garlic
Diced
Ginger
Garlic Puree
Ginger
Puree Cubes Garlic Puree Cubes
Ginger
Puree Diced
Onion
Ginger
Slice Peeled
Garlic
Our
customers
After
years of building up our reputation, we have earned trust from customers around
the world. Our customers include one of the world’s largest chain supermarkets
in Europe and a substantial ingredient producer in Japan. Our customers are
based all over the world including the UK and North America.
The
following table depicts our top five customers and their percentage of current
sales for the second quarter ended December 31, 2009.
Top 5
customers for the second quarter ended December 31, 2009
(Total
sales revenue for the six months ended December 31, 2009:
US$9,790,467)
|
Customer
|
Revenues
|
%
|
|||
|
1.
Customer A
|
US$2,570,806
|
26 | % | ||
|
US$1,184,876
|
12 | % | |||
|
3.
Customer C
|
US$916,542
|
9 | % | ||
|
4.
Customer D
|
US$693,178
|
7 | % | ||
|
5.
Customer E
|
US$555,743
|
6 | % | ||
|
Total
|
US$5,921,145
|
60 | % | ||
|
Market
|
%
of revenue contribution
|
|||
|
Japan
|
48
|
%
|
||
|
UK
|
35
|
%
|
||
|
Netherlands
|
10
|
%
|
||
|
US
|
7
|
%
|
||
|
Total
|
100
|
%
|
||
7
MAN
SHING AGRICULTURAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
(STATED
IN US DOLLARS)
|
4.
|
RECENTLY
ISSUED ACCOUNTING STANDARS
|
The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.
FASB
Accounting Standards Codification
(Accounting
Standards Update (“ASU”) 2009-01)
In
June 2009, FASB approved the FASB Accounting Standards Codification (“the
Codification”) as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission
(“SEC”), have been superseded by the Codification. All other non-grandfathered,
non-SEC accounting literature not included in the Codification has become
nonauthoritative. The Codification did not change GAAP, but instead introduced a
new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The Codification is effective for interim
or annual periods ending after September 15, 2009, and impacts the
Company’s financial statements as all future references to authoritative
accounting literature will be referenced in accordance with the Codification.
There have been no changes to the content of the Company’s financial statements
or disclosures as a result of implementing the Codification during the quarter
ended September 30, 2009.
As a
result of the Company’s implementation of the Codification during the quarter
ended September 30, 2009, previous references to new accounting standards and
literature are no longer applicable. In the current quarter financial
statements, the Company will provide reference to both new and old guidance to
assist in understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
Subsequent Events
(Included
in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously
SFAS No. 165 “Subsequent Events”)
SFAS
No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the financial
statements are issued or available to be issued (“subsequent events”). An entity
is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
financial statements are issued. SFAS No. 165 does not apply to subsequent
events or transactions that are within the scope of other GAAP and did not
result in significant changes in the subsequent events reported by the Company.
SFAS No. 165 became effective for interim or annual periods ending after
June 15, 2009 and did not impact the Company’s financial statements. The
Company evaluated for subsequent events through the issuance date of the
Company’s financial statements. No recognized or non-recognized subsequent
events were noted.
Determination
of the Useful Life of Intangible Assets
(Included
in ASC 350 “Intangibles — Goodwill and Other”, previously FSP SFAS
No. 142-3 “Determination of the Useful Lives of Intangible
Assets”)
FSP SFAS
No. 142-3 amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under previously issued goodwill and intangible
assets topics. This change was intended to improve the consistency between the
useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset under topics related to
business combinations and other GAAP. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FSP SFAS No. 142-3 became effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of FSP SFAS No. 142-3 did not impact the
Company’s financial statements.
Noncontrolling
Interests
(Included
in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling
Interests in Consolidated Financial Statements an amendment of ARB
No. 51”)
SFAS
No. 160 changed the accounting and reporting for minority interests such
that they will be recharacterized as noncontrolling interests and classified as
a component of equity. SFAS No. 160 became effective for fiscal years
beginning after December 15, 2008 with early application prohibited. The
Company implemented SFAS No. 160 at the start of fiscal 2009 and no longer
records an intangible asset when the purchase price of a noncontrolling interest
exceeds the book value at the time of buyout. Any excess or shortfall for
buyouts of noncontrolling interests in mature restaurants is recognized as an
adjustment to additional paid-in capital in stockholders’ equity. Any shortfall
resulting from the early buyout of noncontrolling interests will continue to be
recognized as a benefit in partner investment expense up to the initial amount
recognized at the time of buy-in. Additionally, operating losses can be
allocated to noncontrolling interests even when such allocation results in a
deficit balance (i.e. book value can go negative).
The
Company presents noncontrolling interests (previously shown as minority
interest) as a component of equity on its consolidated balance sheets. Minority
interest expense is no longer separately reported as a reduction to net income
on the consolidated income statement, but is instead shown below net income
under the heading “net income attributable to noncontrolling interests.” The
adoption of SFAS No. 160 did not have any other material impact on the
Company’s financial statements.
Consolidation
of Variable Interest Entities — Amended
(To
be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB
Interpretation No. 46(R)”)
SFAS
No. 167 amends FASB Interpretation No. 46(R) “Consolidation of
Variable Interest Entities regarding certain guidance for determining whether an
entity is a variable interest entity and modifies the methods allowed for
determining the primary beneficiary of a variable interest entity. The
amendments include: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. SFAS
No. 167 is effective for the first annual reporting period beginning after
November 15, 2009, with earlier adoption prohibited. The Company will adopt
SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on
the Company’s financial statements.
|
5.
|
Accounts
receivable, net
|
The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on
specifically identified amounts that management believes to be uncollectible. If
actual collections experience changes, revisions to the allowance may be
required. Based upon the aforementioned criteria, management has determined that
the allowances for doubtful accounts of $12,465 and $12,457 are required as of
December 31, 2009, and June 30, 2009, respectively.
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Accounts
receivable, gross
|
$ | 1,190,944 | $ | 2,491,574 | ||||
|
Less:
allowance for doubtful accounts
|
(12,465 | ) | (12,457 | ) | ||||
|
Accounts
receivable, net
|
$ | 1,178,479 | $ | 2,479,117 | ||||
|
6.
|
Inventories
|
|
December 31, 2009
|
June 30, 2009
|
|||||||
|
Inventories
|
$ | 6,694,394 | $ | 730,066 | ||||
For the
six months ended December 31, 2009 and the year ended June 30, 2009, no
provision for obsolete inventories was recorded by the Company.
8
MAN
SHING AGRICULTURAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
(STATED
IN US DOLLARS)
|
7.
|
Prepayments
|
The
balances of $259,058 and $1,437,450 as of December 31, 2009 and June 30, 2009,
respectively, represent prepaid rent, supplies and other items used in growing
and packaging of the ginger.
|
8.
|
Short-term
borrowing (Line of Credit)
|
On
September 30, 2009, the company entered a loan agreement with Bank of Weifang
for $292,903 (2,000,000 RMB). The loan has monthly interest rate of 6.885% and
matures in six months. As of December 31, 2009, the outstanding amount of this
loan is $292,903 (2,000,000 RMB).
|
9.
|
Notes
payable
|
Effective
September 9, 2009, the Company issued a secured note in the amount of $450,000
to a non-affiliate, which was secured by 2,250,000 shares of common stock of the
Company. The note is interest-free and due on March 8, 2010.
|
10.
|
Amount
due to shareholder
|
The
amount is interest-free, unsecured and repayable when the Company is in a
position to do so.
|
11.
|
Stockholders’
equity
|
On August
20, 2009, the Company executed the Plan of Exchange (the “POE”) among the
shareholders of the Company, HCP, the shareholders of HCP and Xinsheng, pursuant
to which the Company issued 32,800,000 new shares of common stock of the Company
to HCP shareholders and simultaneously transferred 3,535,000 shares of the
Company’s Preferred Stock to the HCP shareholders, held in the name of the
Northeast Nominee Trust, in exchange for 100% of the capital stock of HCP and
Xinsheng. Concurrently, the Company effectuated a 1 for 100 reverse split of its
common stock. All common stock and per share data for all periods presented in
these financial statements have been restated to give effect to the reverse
stock split.
On
September 17, 2009, 100,000 shares of Preferred stock were converted into
1,000,000 shares of common stock, based on a rate of 10 shares for one, per the
request of the preferred stockholder.
Immediately
following completion of the share exchange transaction and the preferred stock
conversion, the Company had a total of 34,001,963 shares of its common stock
issued and outstanding.
Pursuant
to a binding term sheet, dated November 26, 2009, the Company issued 1,500,000
shares of common stock on December 8, 2009 to an investor, of which 1,000,000
shares will be returned to the treasury in the event that no transaction closes
for any reason but not on any parties’ faults.
|
12.
|
Stock-based
compensation
|
On
December 8, 2009, the Company issued 1,500,000 shares of the Company’s common
stock to an investor for a contemplated investment, of which 1,000,000 shares
will be returned to the treasury in the event that no transaction closes for any
reason but not on any parties’ faults. The fair value of the irrevocable 500,000
shares was determined using the bid price of the Company’s common stock on the
grant date, at a price of $0.25 per share. Accordingly, the Company calculated
the stock-based compensation of $125,000 at its fair value.
|
13.
|
Concentration
and risk
|
The
Company's operations are carried out in the People’s Republic of China (“PRC”).
Accordingly, the Company's business, financial condition and results of
operations may be influenced by the political, economic and legal environment in
the PRC, and by the general state of the PRC's economy. The Company's operations
in the PRC are subject to specific considerations and significant risks not
typically associated with companies in North America and Western Europe. The
Company's results may be affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other
things.
|
(a)
|
Major
customers
|
For the
six months ended December 31, 2009 and the year ended June 30, 2009, 100% of the
Company’s assets were located in the PRC
The
Company had 4 customers that individually comprised 54% and 72% of net revenue
for the six months ended December 31, 2009 and the year ended June 30, 2009,
respectively.
For the six months
ended December 31, 2009
|
Customers
|
Revenues
|
Accounts
Receivable
|
||||||||||||
|
Customer
A
|
$ | 2,570,806 | 26 | % | $ | 113,787 | ||||||||
|
Customer
B
|
1,184,876 | 12 | % | 95,145 | ||||||||||
|
Customer
C
|
916,542 | 9 | % | 106,157 | ||||||||||
|
Customer
D
|
693,178 | 7 | % | 77,228 | ||||||||||
|
Total:
|
$ | 5,365,402 | 54 | % |
Total:
|
$ | 392,317 | |||||||
For the
year ended June 30, 2009
|
Customers
|
Revenues
|
Accounts
Receivable
|
||||||||||||
|
Customer
A
|
$ | 3,116,065 | 27 | % | $ | 824,005 | ||||||||
|
Customer
B
|
2,360,222 | 21 | % | 715,051 | ||||||||||
|
Customer
C
|
1,562,463 | 14 | % | 147,036 | ||||||||||
|
Customer
D
|
1,198,702 | 10 | % | 239,336 | ||||||||||
|
Total:
|
$ | 8,237,452 | 72 | % |
Total:
|
$ | 1,925,429 | |||||||
(b) Credit
risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition, but does not require collateral to support such
receivables.
|
14.
|
Subsequent
events
|
In
January of 2010, the Company entered into two Securities Purchase Agreements
with non-affiliated investors, pursuant to which the Investors agreed to
purchase up to One Million Five Hundred Thousand Dollars ($1,500,000) of
investment units (the “Units”), where each unit consists of a secured
convertible redeemable debenture in the amount of $100,000, along with 80,000
shares of the Company’s Common Stock, and one right to buy an additional Unit
for up to three years. Fifteen Units were purchased on the date of
the agreement for a total purchase price of One Million Five Hundred Thousand
Dollars ($1,500,000). The Debentures purchased by Investor shall have
a maturity date of three (3) years from the Closing Date.
9
FORWARD
LOOKING STATEMENTS
Certain
statements in this report, including statements of our expectations, intentions,
plans and beliefs, including those contained in or implied by "Management's
Discussion and Analysis" and the Notes to Unaudited Consolidated Financial
Statements, are "forward-looking statements", within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
are subject to certain events, risks and uncertainties that may be outside our
control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. We undertake no obligation to
update or revise any forward-looking statements. These forward-looking
statements include statements of management's plans and objectives for our
future operations and statements of future economic performance, information
regarding our expansion and possible results from expansion, our expected
growth, our capital budget and future capital requirements, the availability of
funds and our ability to meet future capital needs, the realization of our
deferred tax assets, and the assumptions described in this report underlying
such forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements, our expansion and acquisition strategy, our
ability to raise additional capital to finance our activities; the
effectiveness, profitability, and the marketability of our products; the future
trading of the common stock of MSAH; the ability of MSAH to operate as a public
company; our ability to protect our proprietary information; general economic
and business conditions; the volatility of our operating results and financial
condition; our ability to attract or retain qualified senior management
personnel and research and development staff; and other risks detailed from time
to time in its filings with the SEC, or otherwise.
DESCRIPTION
OF BUSINESS
General
As used
herein the terms "We", the "Company", "MSAH", the "Registrant," or the "Issuer"
refers to Man Shing Agricultural Holdings, Inc., its subsidiaries and
predecessors, unless indicated otherwise. We were incorporated on February 8,
2000 under the laws of the State of Nevada. From the beginning of
2003 until December 31, 2007 we had no operations and no assets. We
were a dormant company with no revenues. Subsequent to December 31,
2007, we began operating in the real estate industry and engaged in the business
of buying, selling, renting, and improving real estate.
As of
August 20, 2009, we entered into a Plan of Exchange (the “Agreement”) between
and among us, Hero Capital Profits Limited, a company organized and existing
under the laws of the British Virgin Islands (including its successors and
assigns “HCP”), Weifang Xinsheng Food Co., Ltd., a company organized and
existing under the laws of the People’s Republic of China (“Xinsheng”), the
shareholders of Xinsheng (the “Xinsheng Shareholders”) and our Majority
Shareholder. Pursuant to the terms of the Agreement, we acquired one hundred
percent (100%) of the issued and outstanding share capital of HCP from the HCP
Shareholders in exchange for a new issuance 32,800,000 shares of common stock of
MSAH and the simultaneous transfer of 3,535,000 shares of MSAH Preferred Stock
to the HCP shareholders, held in the name of the Northeast Nominee Trust (Duane
Bennett, President of MSAH as trustee), which gave the HCP shareholders an
interest in MSAH representing 99.38% of the issued and outstanding shares. Upon
completion of the exchange, HCP and Xinsheng became our wholly-owned
subsidiaries. All of these conditions to closing have been met, and we, HCP,
Xinsheng, the Xinsheng Shareholders and our Majority Shareholders declared the
exchange transaction consummated on August 20, 2009. The transaction was treated
for accounting purposes as a capital transaction and recapitalization by the
accounting acquirer and as a re-organization by the accounting
acquiree.
On
September 2, 2009, we changed our name to Man Shing Agricultural Holdings, Inc.
to more accurately reflect our business after a stock exchange transaction with
HCP and Xinsheng. Since the reverse merger was consummated, we have continued
operations of Xinsheng, a company which is principally engaged in the production
and processing of fresh vegetables, including ginger, onion, garlic and leek. We
strive to provide high quality products to our customers. We have 110,000 square
meters of factor space and utilize 3.335 million square meters of farm land,
which is one of the largest ginger farm lands in the region. We comply with the
ISO9002 and the HACCP food safety standards. All of our farm land has been
certified by the Organic Crop Improvement Association and has met the Japan
Agricultural Standards for production of organic foods. Our processing factory
has also met the requirement of the British Retail Consortium Global Food
Standard and the TESCO, a UK supermarket, food safety standards. Under our close
monitoring and supervision program, we believe we can ensure that all products
produced are in compliance with food safety standards from around the
world.
According
to a statistical survey published by the United Nation Food and Agriculture
Organization in June 2008, China produced around 285,000 tons of ginger in 2007
of which around 150,000 tons were exported.
For the
six months ended December 31, 2009, the Company has produced 27,224 tons of
ginger, which equals around 9% of total China production and 18% of total China
export (based on the 2007 numbers).
Our
Products
Fresh
Vegetables
Ginger Burdock
Onion Leeks
Peeled
Garlic
Frozen
Vegetables
Peeled
Ginger
Diced Garlic
Diced
Ginger
Garlic Puree
Ginger
Puree Cubes Garlic Puree Cubes
Ginger
Puree Diced
Onion
Ginger
Slice Peeled
Garlic
Our
customers
After
years of building up our reputation, we have earned trust from customers around
the world. Our customers include one of the world’s largest chain supermarkets
in Europe and a substantial ingredient producer in Japan. Our customers are
based all over the world including the UK and North America.
The
following table depicts our top five customers and their percentage of current
sales for the second quarter ended December 31, 2009.
Top 5
customers for the second quarter ended December 31, 2009
(Total
sales revenue for the six months ended December 31, 2009:
US$9,790,467)
|
Customer
|
Revenues
|
%
|
|||
|
1.
Customer A
|
US$2,570,806
|
26 | % | ||
|
US$1,184,876
|
12 | % | |||
|
3.
Customer C
|
US$916,542
|
9 | % | ||
|
4.
Customer D
|
US$693,178
|
7 | % | ||
|
5.
Customer E
|
US$555,743
|
6 | % | ||
|
Total
|
US$5,921,145
|
60 | % | ||
|
Market
|
%
of revenue contribution
|
|||
|
Japan
|
48
%
|
|||
|
UK
|
35
%
|
|||
|
Netherlands
|
10%
|
|||
|
US
|
7%
|
|||
|
Total
|
100%
|
|||
Competitive
Advantages
Our major
competitive advantage is that we have over 3.335 million square meters of
farmland with annual turnover of over USD11 million (RMB75 million). During the
fiscal year ended June 30, 2009, we export 26,000 tons of ginger, around 17% of
China’s total export share. For the six months ended December 31, 2009, the
Company has produced 27,224 tons of ginger, which equals around 9% of total
China production and 18% of total China export (based on the 2007 numbers).
Other competitive advantages include:
|
·
|
Small
local producers are unable to meet the strict export requirements but we
can meet those requirements;
|
|
·
|
Overseas
customers are willing to pay a high premium to obtain a safety assurance
from us;
|
|
·
|
Relatively
low labor cost in China as compared to other developing
countries;
|
|
·
|
Our
plant is situated in Weifang, a major farming region based in Shandong
province, China;
|
|
·
|
Local
governments have made inspections stricter and have recently rejected
sub-standard exporters but we comply with the highest safety
standards;
|
|
·
|
Local
governments have tightened the export license renewal procedures on local
producers;
|
|
·
|
The
current market and stricter government regulation will allow responsible
producers, like us to develop at a faster rate; and
|
|
·
|
The
demand for China’s frozen vegetables remains strong, thus our products
demand remains strong
|
Our social
responsibility
As an
agent of social and economic development, we realize the importance of
sustaining village development. We hire and train the local workforce hoping to
help raise the overall level of community prosperity.
10
RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31,
|
For
the three months
ended
December 31,
|
For
the six months
ended
December 31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Sales:
|
$ | 5,168,941 | $ | 1,042,068 | $ | 9,790,467 | $ | 2,335,367 | ||||||||
|
Cost
of Goods Sold:
|
3,425,589 | 678,679 | 6,755,171 | 1,716,184 | ||||||||||||
|
Operating
Expenses:
|
573,271 | 141,463 | 703,293 | 218,125 | ||||||||||||
|
Income
from Operations:
|
1,170,081 | 221,926 | 2,332,003 | 401,057 | ||||||||||||
|
Other
Income (Expenses):
|
(8,062 | ) | (7,705 | ) | (12,104 | ) | (15,255 | ) | ||||||||
|
Income
Taxes:
|
- | 46 | - | 46 | ||||||||||||
|
Net
Income:
|
1,162,019 | 214,175 | 2,319,899 | 385,757 | ||||||||||||
|
Other
Comprehensive Income (Loss):
|
(43,319 | ) | (2,724 | ) | (41,360 | ) | 5,245 | |||||||||
|
Total
Comprehensive Income:
|
$ | 1,118,700 | $ | 211,451 | $ | 2,278,539 | $ | 391,002 | ||||||||
Revenues
We had
net revenues of $5,168,941 and $9,790,467 for the three and six months ended
December 31, 2009, increased by $4,126,873 and $7,455,100 as compared to
$1,042,068 and $2,335,367 of the same periods ended December 31, 2008,
respectively. The sales revenues were due primarily to the sales of our frozen
and fresh ginger and other agricultural products. The increase in revenues was
due to our expanding business, our marketing strategy, our customer loyalty, and
the quality of our product and service.
We
recognize revenue when persuasive evidence of a sale exists, transfer of title
has occurred, the selling price is fixed or determinable and collectability is
reasonably assured. Sales revenue represents the invoiced value of goods, net of
a value-added tax (“VAT”). All of our products that are sold in the PRC are
subject to a Chinese value-added tax at a rate of 17% of the gross sales price
or at a rate approved by the Chinese local government. This VAT may be offset by
the VAT paid by us on raw materials and other materials included in the cost of
producing their finished product.
Our sales
arrangements are not subject to warranty. We did not record any product returns
for the three and six months ended December 31, 2009 and 2008.
Cost
of Sales
Cost of
sales primarily includes cost of sales to harvest and maintain our ginger and
other agricultural products. During the three and six months ended December 31,
2009, we had cost of sales of $3,425,589 and $6,755,171, or approximately 66%
and 69% of revenues respectively, versus cost of sales of $678,679 and
$1,716,184, or approximately 65% and 73% of revenues of the same periods in 2008
respectively. The cost of sales as a percentage of revenue decreased due the
large increase in sales and the more efficient use of supplies.
Gross
profit
We had
gross profit of $1,743,352 and $3,035,296 for three and six months ended
December 31, 2009, respectively, increased by 380% or 390% as compared to
the same periods ended December 31, 2008, respectively. Gross profit margin was
33.7% and 31% for the three and six months ended December 31, 2009,
respectively, as compared to 34.9% and 26.5% for the same periods in 2008,
respectively. Gross profit margin remained stable for the three-month periods
ended December 31, 2009 and 2008, but improved by 4.5% for the six-month period
ended December 31, 2009 as compared to the same period in 2008
respectively.
The
increase in gross profit margin for our ginger and agricultural products during
the three and six months ended December 31, 2009 was due primarily to the
increase in our selling prices and the reduce in cost in terms of material costs
and overheads, resulting from better utilization of our plantation and
processing facilities due to economies of scale from higher output
volume.
Expenses
Operating
expenses for the three and six months ended December 31, 2009 were $573,271 and
$703,293, respectively, compared to operating expenses of $141,463 and $218,125
for the same periods ended December 31, 2008, respectively. The increases in
operating expenses during the three and six months ended December 31, 2009 were
attributable to the increase in the sales and marketing expenses by $256,156 and
$271,152, respectively, in connection with the expansion in both existing and
new markets. We also had non-cash stock-based compensation of $125,000 during
the three months ended December 31, 2009, as a result of the issuance of 500,000
shares of common stock for services. The shares were valued based on the bid
price, or $.25 per share, on the date of the stock grant.
Income/Losses
We had a
net income of $1,162,019 and $2,319,899 for the three and six months periods
ended December 31, 2009, respectively, compared to $214,175 and $385,757 for the
same periods ended December 31, 2008, respectively. Our net income is a function
of revenues, cost of sales and other expenses as described above. The increase
in net income in 2009 was due primarily to the increase in sales of our fresh
and froze ginger and other agricultural products, as a result of our expanding
business, our marketing strategy, our customer loyalty, and the quality of our
product and service.
Impact
of Inflation.
We
believe that inflation has had a negligible effect on operations. We believe
that we can offset inflationary increases in the cost of operations by
increasing sales and improving operating efficiencies.
Liquidity
and Capital Resources
Cash
flows used in operating activities during the six months ended December 31, 2009
were $38,875, compared to cash flows of 130,292 provided by operating activities
during the six months ended December 31, 2008. Negative cash flows from
operations for the six months ended December 31, 2009 were due primarily to the
increase in inventory by $5,962,972, which was in connection with harvest of the
ginger, the increase in other receivable by $79,968 and the decrease in received
in advance by $67,537, partially offset by the net income of $2,319,579, the
decrease in accounts receivable and prepayment by $1,301,771 and $1,178,981,
respectively, and the increase in accounts payable by $1,048,373. Positive cash
flows from operations for the six months ended December 31, 2008 were due to the
net income of $385,757, the decrease in prepayment and other receivable by
$92,668 and $33,538, respectively, the increase in other payable by $52,922,
partially offset by the increase in account receivable by $359,739 and increase
in inventory by $56,919.
Cash
flows used in investing activities were $213,345 and $41,348 for the six months
ended December 31, 2009 and 2008, respectively, due primarily to the purchase of
property and equipment.
Cash
flows provided by financing activities were $222,397 for the six months ended
December 31, 2009, consisting of due to shareholders of $2,755 and proceeds from
loan of $219,642. We had no cash flows from financing activities during the six
months ended December 31, 2008.
Demand
for the products and services will be dependent on, among other things, market
acceptance of our products, fresh vegetables market in general, and general
economic conditions, which are cyclical in nature. Inasmuch as a major portion
of our activities is the receipt of revenues from the sales of our products, our
business operations may be adversely affected by our competitors and prolonged
recession periods.
Our
success will be dependent upon implementing our plan of operations and the risks
associated with our business plans. We engaged in the production and processing
of fresh vegetables, including ginger, onion, garlic and leek. We strive to
provide high quality products to our customers. We plan to strengthen our
position in the existing and new markets. We also plan to expand our operations
through aggressively marketing our products and our concept.
11
The
information to be reported under this item is not required of smaller reporting
companies.
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
specified time periods. Our Chief Executive Officer and its Chief Financial
Officer (collectively, the “Certifying Officers”) are responsible for
maintaining our disclosure controls and procedures. The controls and procedures
established by us are designed to provide reasonable assurance that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission’s rules and forms.
As of the
end of the period covered by this report, the Certifying Officers evaluated the
effectiveness of our disclosure controls and procedures. Based on the
evaluation, the Certifying Officers concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required
disclosure.
The
Certifying Officers have also concluded, based on their evaluation of our
controls and procedures that as of December 31, 2009, our internal controls over
financial reporting are effective and provide a reasonable assurance of
achieving their objective.
The
Certifying Officers have also concluded that there was no change in our internal
controls over financial reporting identified in connection with the evaluation
that occurred during our fourth fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 4T. CONTROLS AND
PROCEDURES
(a) Conclusions
regarding disclosure controls and procedures. Disclosure controls and
procedures are the Company’s controls and other procedures that are designed to
ensure that information required to be disclosed by the Company in the reports
that the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Exchange Act as of December 31, 2009,
and, based on their evaluation, as of the end of such period, the our disclosure
controls and procedures were effective as of the end of the period covered by
the Quarterly Report,
(b) Management’s
Report On Internal Control Over Financial Reporting. It is management’s
responsibilities to establish and maintain adequate internal controls over the
Company’s financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers and effected by the issuer’s
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of Consolidated Financial
Statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
• Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the issuer;
and
• Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of Consolidated Financial Statements in accordance with generally
accepted accounting principles and that receipts and expenditures of the issuer
are being made only in accordance with authorizations of management of the
issuer; and
• Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer’s assets that could have a
material effect on the Consolidated Financial Statements.
As of the
end of the period covered by the Quarterly Report, an evaluation was carried out
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our internal control over financial reporting.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework.
Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, internal controls over financial
reporting were effective as of the end of the period covered by the
Report.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
This
Quarterly Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Quarterly
Report.
(c) Changes in
internal control over financial reporting. There were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
12
PART II. OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
As of the
date of this report, we are not a party to any pending legal proceeding and are
not aware of any threatened legal proceeding.
ITEM
1A. RISK FACTORS
The
information to be reported under this item has not changed since the fiscal year
ended June 30, 2009, which was disclosed in the previously filed amendment to
Current report on Form 8-K/A, dated September 11, 2009.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
On
December 8, 2009, we issued 1,500,000 shares of our common stock to BR Credit
Corp. for a contemplated investment by BR Credit Corp., of which 1,000,000
shares will be returned to the treasury in the event that no transaction closes
for any reason but not on any parties’ faults. The shares were issued with
restrictive legend, pursuant to the Securities Act of 1933, as amended, and
applicable state law. Specifically, we relied on exemptions provided
by Section 4(2) of the Securities Act of 1933, as amended. We made this offering
based on the following facts: (1) the issuance was an isolated private
transaction which did not involve a public offering; (2) there was only one
offeree, (3) the offeree has agreed to the imposition of a restrictive legend on
the face of the stock certificate representing its shares, to the effect that it
will not resell the stock unless its shares are registered or an exemption from
registration is available; (4) the offeree was a sophisticated investor very
familiar with our company and stock-based transactions; (5) there were no
subsequent or contemporaneous public offerings of the stock; (6) the stock was
not broken down into smaller denominations; and (7) the negotiations for the
sale of the stock took place directly between the offeree and our
management.
In
January of 2010, pursuant to the Securities Purchase Agreements, dated January
4, 2010 and January 14, 2010, the Company’s Board of Directors will issue total
One Million Two Hundred Thousand (1,200,000) shares of the Company’s Common
Stock to the Investors in consideration of total $1,500,000 of Units
purchased. The shares were issued with restrictive legend, pursuant
to the Securities Act of 1933, as amended, and applicable state
law. Specifically, we relied on section 4(2) of the Securities Act of
1933. We issued these shares based on the following
facts: (1) the issuance was an isolated private transaction which did
not involve a public offering; (2) there were two offerees, (3) the offerees
have agreed to the imposition of a restrictive legend on the face of the stock
certificate representing their shares, to the effect that they will not resell
the stock unless the shares are registered or an exemption from registration is
available; (4) the offerees were a sophisticated investor very familiar with our
company and stock-based transactions; (5) there were no subsequent or
contemporaneous public offerings of the stock; (6) the stock was not broken down
into smaller denominations; and (7) the negotiations for the sale of the stock
took place directly between the offerees and our management.
We have
not had any default upon senior securities.
None.
On
January 4, 2010, the Company entered into a Securities Purchase Agreement with
China Angel Assets Management Limited (“China Angel”), pursuant to which, China
Angel agreed to purchase up to One Million Dollars ($1,000,000) of investment
units (the “Units”), where each unit consists of a secured convertible
redeemable debenture in the amount of $100,000, along with 80,000 shares of the
Company’s Common Stock, and one right to buy an additional Unit for up to three
years. One Million Dollars ($1,000,000) were funded on the date of
the agreement for a total purchase price of One Million Dollars
($1,000,000). The Debentures purchased by Investor shall have a
maturity date of three (3) years from the Closing Date of January 4, 2010. The
Securities Purchase Agreement is attached as Exhibit 10.1.
On
January 4, 2010, the Company issued ten (10) Senior Secured Convertible
Redeemable Debentures (the “Debenture” a specimen debenture is attached hereto
as Exhibit 10.2) in the amount of $100,000 each to China Angel pursuant to
exemptions from registration under the Securities Act of 1933, as amended and
pursuant to Regulation D and Regulation S there under. For value
received, the Company shall pay to the order of China Angel by January 3, 2013
in lawful money of the United States of America and in immediately available
funds the unpaid principal sum of One Hundred Thousand U.S. Dollars (US$100,000)
together with interest on the unpaid principal of the Debenture at the rate of
eight percent (8%) per annum (the “Interest Rate”) payable quarterly in cash, in
arrears. Upon default, the Interest Rate shall be increased to a rate of sixteen
percent (16%) per annum.
China
Angel maintains the option to convert all or any part of the principal amount of
the Debenture, plus accrued interest, into shares of Common Stock at a price per
share equal to two dollars ($2.00).
Upon the
occurrence of an Event of Default by the Company, China Angel has the option to
elect that the interest due and payable be paid in cash or in the form of Common
Stock. If paid in the form of Common Stock, that number of shares of
Common Stock with a value equal to the amount of interest due shall be
issued. The amount of stock to be issued will be calculated as
follows: the value of the stock shall be eighty-five percent (85%) of
the lower of: (i) the VWAP as quoted by Bloomberg L.P. on the date
the interest payment is due; or (ii) if the interest payment is not made when
due, the VWAP as quoted by Bloomberg L.P. on the date the interest payment is
made. No fractional shares will be issued; therefore, in the event
that the value of the Common Stock per share does not equal the total interest
due, the Company will pay the balance in cash.
The
Debenture is secured by a pro rata portion of a majority position in the
Company’s common stock owned by Mr. Shili Liu, the President of the Company,
pursuant to a Pledge Agreement, dated January 4, 2010. Mr. Shili Liu has agreed
to irrevocably pledge to China Angel Assets Management Limited, Six Million Two
Hundred and Eighty Six Thousand Two Hundred and Fifty (6,286,250) shares of his
own common stock and Eight Hundred and Thirty Nine Thousand Five Hundred and
Sixty Two (839,562) shares of his own preferred stock (equivalent to 14,681,870
shares of common stock) as collateral for Securities Purchase Agreement and the
Debentures. The Pledge Agreement is attached as Exhibit 10.3.
On
January 4, 2010, the Company and China Angel Assets Management Limited entered
into a Registration Rights Agreement, which was amended on February 3, 2010,
pursuant to which, the Company shall prepare and file, no later than 120 days
from February 3, 2010, a registration statement on Form S-1 under the 1933 Act
for the registration for the resale by China Angel Assets Management Limited at
least 5 times the number of shares which are anticipated to be issued upon
conversion of the units. The Registration Rights Agreement and the addendum are
attached as Exhibit 10.4 and Exhibit 10.5, respectively.
On
January 4, 2010, the Company and China Angel Assets Management Limited entered
into an Investor Rights Agreement. Pursuant to the Investor Rights Agreement,
the Investor shall have the right to purchase an additional Unit consisting of
one Debenture in the amount of $100,000 and 80,000 shares of the Company’s
Common Stock for a period of three (3) years from January 4, 2010. The complete
Investor Rights Agreement is attached as Exhibit 10.6.
On
January 14, 2010, the Company entered into a Securities Purchase Agreement with
Guang Dong Zhi Bo Investment Co., Ltd. (“Zhi Bo”), pursuant to which, Zhi Bo
agreed to purchase up to Five Hundred Thousand Dollars ($500,000) of investment
units (the “Units”), where each unit consists of a secured convertible
redeemable debenture in the amount of $100,000, along with 80,000 shares of the
Company’s Common Stock, and one right to buy an additional Unit for up to three
years. Five Units were purchased on the date of the agreement for a
total purchase price of Five Hundred Thousand Dollars ($500,000). The
Debentures purchased by Investor shall have a maturity date of three (3) years
from the Closing Date of January 18, 2010. The Securities Purchase Agreement is
attached as Exhibit 10.7.
On
January 14, 2010 the Company issued five (5) Secured Convertible Redeemable
Debentures (the “Debenture” a specimen debenture is attached hereto as Exhibit
10.8) in the amount of $100,000 each to Zhi Bo pursuant to exemptions from
registration under the Securities Act of 1933, as amended and pursuant to
Regulation D and/or Regulation S there under. For value received in
exchange for each of the five (5) Debentures, the Company shall pay to the order
of Zhi Bo by January 18, 2013 in lawful money of the United States of America
and in immediately available funds the unpaid principal sum of One Hundred
Thousand U.S. Dollars (US$100,000) together with interest on the unpaid
principal of the Debenture at the rate of eight percent (8%) per annum payable
quarterly in cash, in arrears. Upon default, the Interest Rate shall be
increased to a rate of sixteen percent (16%) per annum.
Zhi Bo
maintains the option to convert all or any part of the principal amount of the
Debenture, plus accrued interest, into shares of Common Stock at a price per
share equal to two dollars ($2.00).
Upon the
occurrence of an Event of Default (as defined in Exhibit 10.7 attached hereto)
by the Company, Zhi Bo has the option to elect that the interest due and payable
be paid in cash or in the form of Common Stock. If paid in the form
of Common Stock, that number of shares of Common Stock with a value equal to the
amount of interest due shall be issued. The amount of stock to be
issued will be calculated as follows: the value of the stock shall be
eighty-five percent (85%) of the lower of: (i) the VWAP as quoted by
Bloomberg L.P. on the date the interest payment is due; or (ii) if the interest
payment is not made when due, the VWAP as quoted by Bloomberg L.P. on the date
the interest payment is made. No fractional shares will be issued;
therefore, in the event that the value of the Common Stock per share does not
equal the total interest due, the Company will pay the balance in
cash.
The
Debenture is secured by a pro rata portion of a majority position in the
Company’s common stock owned by Mr. Shili Liu, the President of the Company,
pursuant to a Pledge Agreement, dated January 14, 2010. Mr. Shili Liu has agreed
to irrevocably pledge to Guang Dong Zhi Bo Investment Co., Ltd., Three Million
One Hundred and Forty Three Thousand One Hundred and Twenty Five (3,143,125)
shares of his own common stock and Four Hundred Nineteen Thousand and Seven
Hundred and Eighty One (419,781) shares of his own preferred stock (equivalent
to 7,340,935 shares of common stock) as collateral for the Units. The Pledge
Agreement is attached as Exhibit 10.9.
On
January 14, 2010, the Company and Guang Dong Zhi Bo Investment Co., Ltd. entered
into a Registration Rights Agreement. Pursuant to the Registration Right
Agreement, the Company shall prepare and file, no later than 30 days from
January 14, 2010, a registration statement on Form S-1 under the 1933 Act for
the registration for the resale by Guang Dong Zhi Bo Investment Co., Ltd. at
least 5 times the number of shares which are anticipated to be issued upon
conversion of the Debentures. The Registration Rights Agreement is attached as
Exhibit 10.10.
On
January 14, 2010, the Company and Guang Dong Zhi Bo Investment Co., Ltd. entered
into an Investor Rights Agreement. Pursuant to the Investor Rights Agreement,
the Investor shall have the right to purchase an additional Unit consisting of
one Debenture in the amount of $100,000 and 80,000 shares of the Company’s
Common Stock for a period of three (3) years from January 14,
2010. The complete Investor Rights Agreement is attached as Exhibit
10.11.
13
|
ITEM
6.
|
EXHIBITS
|
|
10.1
|
Securities
Purchase Agreement, dated as of January 4, 2010, by and among Man Shing
Agricultural Holdings, Inc. and China Angel Assets Management Limited
*
|
|
10.2
|
Senior
Secured Convertible Redeemable Debenture, dated as of January 4, 2010, by
and among Man Shing Agricultural Holdings, Inc. and China Angel Assets
Management Limited *
|
|
10.3
|
Pledge
Agreement between Man Shing Agricultural Holdings, Inc. and China Angel
Assets Management Limited and Greentree Financial Group, Inc.
*
|
|
10.4
|
Registration
Right Agreement dated as of January 4, 2010, by and among Man Shing
Agricultural Holdings, Inc. and China Angel Assets Management Limited
*
|
|
10.5
|
Addendum
to the Registration Right Agreement dated as of January 4, 2010, by and
among Man Shing Agricultural Holdings, Inc. and China Angel Assets
Management Limited
|
|
10.6
|
Investor
Right Agreement dated as of January 4, 2010, by and among Man Shing
Agricultural Holdings, Inc. and China Angel Asset Management Limited
*
|
|
10.7
|
Securities
Purchase Agreement, dated as of January 14, 2010, by and among Man Shing
Agricultural Holdings, Inc. and Guang Dong Zhi Bo Investment Co., Ltd.
**
|
|
10.8
|
Secured
Convertible Redeemable Debenture, dated as of January 18, 2010, by and
among Man Shing Agricultural Holdings, Inc. and Guang Dong Zhi Bo
Investment Co., Ltd. **
|
|
10.9
|
Pledge
Agreement, dated as of January 14, 2010, by and among Man Shing
Agricultural Holdings, Inc., Guang Dong Zhi Bo Investment Co., Ltd. and
Greentree Financial Group, Inc. **
|
|
10.10
|
Registration
Right Agreement dated as of January 14, 2010, by and among Man Shing
Agricultural Holdings, Inc. and Guang Dong Zhi Bo Investment Co., Ltd.
**
|
|
10.11
|
Investor
Rights Agreement dated as of January 14, 2010, by and among Man Shing
Agricultural Holdings, Inc. and Guang Dong Zhi Bo Investment Co., Ltd.
**
|
|
31.1
|
Certification
of Chief Executive Officer
|
|
|
31.2
|
Certification
of Chief Financial Officer
|
|
|
32.1
|
Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
|
* Previously
filed with an amendment to current report in Form 8-K/A, dated January 12,
2010
** Previously
filed with a current report in Form 8-K, dated January 20, 2010
Reports on Form 8-K filed in
the second quarter of 2009
|
(1)
|
On
November 3, 2009, we filed a current report in Form 8-K to announce change
in our certifying accountant.
|
Reports on Form 8-K filed
subsequent to the second quarter of 2009
|
(1)
|
On
January 7, 2010, we filed a current report in Form 8-K to announce that we
entered a Securities Purchase Agreement regarding the purchase up to One
Million Dollars ($1,000,000) of investment units (the “Units”), where each
unit consists of a secured convertible redeemable debenture in the amount
of $100,000, along with 80,000 shares of the Company’s Common Stock, and
one right to buy an additional Unit for up to three
years.
|
|
(2)
|
On
January 12, 2010, we filed an amendment to current report in Form 8-K/A to
amend the current report in Form 8-K filed on January 7,
2010.
|
|
(3)
|
On
January 20, 2010, we filed a current report in Form 8-K to announce that
we entered a Securities Purchase Agreement regarding the purchase up to
Five Hundred Thousand Dollars ($500,000) of investment units (the
“Units”), where each unit consists of a secured convertible redeemable
debenture in the amount of $100,000, along with 80,000 shares of the
Company’s Common Stock, and one right to buy an additional Unit for up to
three years.
|
14
SIG
NATURES
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, there
unto duly authorized.
|
MAN
SHING AGRICULTURAL HOLDINGS, INC.
|
||
|
Date:
February 12, 2010
|
By:
|
/s/ Eddie Cheung
|
|
Eddie
Cheung
CEO
|
||
15
|
Exhibit
No.
|
Description
|
|
| 10.5 | Addendum to Registration Rights Agreement | |
|
31.1
|
||
|
31.2
|
||
|
32.1
|
|
|
|
32.2
|