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EX-31.1 - CEO SECTION 302 CERTIFICATION - Asia Green Agriculture Corpexhibit31-1.htm
EX-31.2 - CFO SECTION 302 CERTIFICATION - Asia Green Agriculture Corpexhibit31-2.htm
EX-32.1 - CEO & CFO SECTION 906 CERTIFICATION - Asia Green Agriculture Corpexhibit32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q /A

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

[ ] 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 000-53343

ASIA GREEN AGRICULTURE CORPORATION
(Exact name of registrant as specified in its charter)

Nevada 26-2809270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
Shuinan Industrial Area, Songxi County  
Fujian Province, China 353500
(Address of principal executive offices) (Zip Code)

(86) 0599-2335520
(Issuer's telephone number, including area code)

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 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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
    (do not check if a smaller  
    reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

Class Outstanding at March 31, 2011
Common Stock, $0.001 per share 36,823,626 shares

1



ASIA GREEN AGRICULTURE CORPORATION
 
Quarterly Report on Form 10-Q
 
For the Quarterly Period Ended March 31, 2011
 
TABLE OF CONTENTS

      Page
       
EXPLANATORY NOTE 3
   
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 3
       
PART I —FINANCIAL INFORMATION 4
Item 1. FINANCIAL STATEMENTS 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 39
Item 4. CONTROLS AND PROCEDURES 39
       
PART II —OTHER INFORMATION 40
Item 1. LEGAL PROCEEDINGS 40
Item 1A. RISK FACTORS 40
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 41
Item 3. DEFAULTS UPON SENIOR SECURITIES 41
Item 4. (REMOVED AND RESERVED) 41
Item 5. OTHER INFORMATION 41
Item 6. EXHIBITS 41
       
SIGNATURES 42
       
EXHIBIT INDEX 43

2


EXPLANATORY NOTE

This amendment revises our Form 10-Q filed with the Commission on May 16, 2011 to conform to the changes made as a result of the Staff’s comments regarding our Registration Statement on Form S-1 (No. 333-169486).

In this report, unless the context otherwise requires, the terms “AGAC,” “Company,” “we,” “us,” and “our” refer to Asia Green Agriculture Corporation (formerly known as SMSA Palestine Acquisition Corp.), a Nevada corporation and/or its subsidiaries, as the case may be. We are a Nevada holding company and conduct substantially all of our business through our operating subsidiary Fujian Yada Group Co., Ltd. in China.

On August 20, 2010, we entered into an Exchange Agreement (the "Exchange Agreement") with Sino Oriental Agriculture Group Ltd. ("Sino Oriental") and the shareholders of Sino Oriental. In connection the Exchange Agreement we issued 29,214,043 shares of our common stock to the shareholders of Sino Oriental, in exchange for all of the issued and outstanding capital stock of Sino Oriental. Prior to the Exchange Agreement, we were a shell company with nominal operations. Sino Oriental, through its wholly owned subsidiaries operates a green and organic food production and manufacturing business in the People's Republic of China. The acquisition of Sino Oriental has been accounted for as a "reverse merger". Accordingly, the historical financial statements contained in this report reflect the operations of the business of Sino Oriental and its subsidiaries.

On January 18, 2011, we filed amended and restated Articles of Incorporation with the Nevada Secretary of State to give effect to (i) a 2.5 for 1 forward stock split and (ii) an increase in our authorized common stock from 100 million shares to 200 million shares and (iii) a name change from SMSA Palestine Acquisition Corporation to Asia Green Agriculture Corporation. The information in this report reflects the stock split, increase in authorized capital and name change.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This document contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words "anticipates", "believes", "estimates", "expects", "plans", "projects", "targets" and similar expressions. The forward-looking statements in this report speak only as of the date of this report. Except to the extent required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 1A and elsewhere in this report, as well as in the other reports and documents we file with the SEC.

3


PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Asia Green Agriculture Corporation
Condensed Consolidated Statements of Income and Comprehensive Income
For the three months ended March 31, 2011 and 2010
(Stated in US Dollars)

    Three months ended March 31  
    (Unaudited),  
    2011     2010  
             
Sales revenue $ 25,938,996   $ 22,654,906  
Cost of sales   (18,050,227 )   (15,789,780 )
             
Gross profit   7,888,769     6,865,126  
             
Operating expenses            
     Administrative expenses   1,494,344     275,443  
     Selling expenses   461,295     193,251  
             
    1,955,639     468,694  
             
Income from operations   5,933,130     6,396,432  
     Government grant income   81,615     16,550  
     Other income - net   192,311     234,922  
     Net finance costs - Note 9   (29,010 )   (236,985 )
             
Income before income taxes   6,178,046     6,410,919  
Income taxes - Note 8   (176,557 )   (359,202 )
             
Net income $ 6,001,489   $ 6,051,717  
             
Other comprehensive income            
     Foreign currency translation adjustments   375,083     2,150  
             
Total comprehensive income $ 6,376,572   $ 6,053,867  
             
Earnings per share: basic and diluted - Note 10 $ 0.163   $ 0.207  
             
Weighted average number of shares outstanding: basic and diluted   36,823,626     29,214,043  

See the accompanying notes to condensed consolidated financial statements

4



Asia Green Agriculture Corporation
Condensed Consolidated Balance Sheets
As of March 31, 2011 and December 31, 2010
(Stated in US Dollars)

    March 31,     December 31,  
    2011     2010  
    (Unaudited)     (Audited)  
             
ASSETS            
   Current assets            
       Cash and cash equivalents $ 5,012,411   $ 9,988,422  
       Restricted cash - Note 4   865,714     941,923  
       Trade receivables, net - Note 5   25,317,777     20,872,620  
       Other receivables, prepayments and deposits - Note 6   2,215,664     4,015,880  
       Inventories - Note 7   24,567,946     15,109,102  
       Income tax recoverable   93,018     24,754  
       Deferred tax assets   207,559     364,674  
             
   Total current assets   58,280,089     51,317,375  
   Property, plant and equipment, net - Note 11   12,204,020     11,834,344  
   Deposit for acquisition of property, plant and equipment   243,520     241,984  
   Land use rights - Note 12   17,152,740     17,207,149  
             
TOTAL ASSETS $ 87,880,369   $ 80,600,852  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
             
LIABILITIES            
   Current liabilities            
       Trade payables - Note 4 $ 6,994,000   $ 4,996,069  
       Bills payable - Note 4   -     877,192  
       Receipts in advance   213,505     169,344  
       Loans from third parties - Note 16   152,200     151,240  
       Other payables and accrued expenses - Note 13   6,805,215     8,081,576  
       Amounts due to related parties - Note 14   141,636     794,199  
       Secured short-term borrowings - Note 15   7,224,934     6,232,600  
       Current maturities of secured long-term borrowings - Note 15   -     22,686  
             
   Total current liabilities   21,531,490     21,324,906  
   Deferred tax liabilities   27,993     28,051  
   Secured long-term borrowings - Note 15   -     -  
             
TOTAL LIABILITIES   21,559,483     21,352,957  
             
COMMITMENTS AND CONTINGENCIES - Note 20            
             
STOCKHOLDERS’ EQUITY            
   Preferred stock: par value $0.001 per share; authorized 10,000,000 shares in 2011 and
     2010; none issued and outstanding
 
   
 
   Common stock: par value $0.001 per share; authorized
     200,000,000 shares in 2011 and 2010
     36,823,626 shares issued and outstanding in 2011 and 2010
 

36,824
   

36,824
 
   Additional paid-in capital   18,282,235     17,585,816  
   Statutory reserve   5,402,613     4,572,033  
   Accumulated other comprehensive income   2,739,711     2,364,628  
   Retained earnings   39,859,503     34,688,594  
             
TOTAL STOCKHOLDERS’ EQUITY   66,320,886     59,247,895  
             
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 87,880,369   $ 80,600,852  

See the accompanying notes to condensed consolidated financial statements

5



Asia Green Agriculture Corporation
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(Stated in US Dollars)

                            Accumulated              
    Common stock     Additional           other              
    No. of           paid-in     Statutory      comprehensive      Retained        
    shares     Amount     capital     reserve     income     earnings     Total  
Balance, December 31, 2010   36,823,626   $ 36,824   $ 17,585,816   $ 4,572,033   $ 2,364,628   $ 34,688,594   $ 59,247,895  
Foreign currency translation adjustments   -     -     -     -     375,083     -     375,083  
Net income   -     -     -     -     -     6,001,489     6,001,489  
Appropriation to statutory reserve   -     -         830,580     -     (830,580 )   -  
Share-based compensation   -     -     696,419     -     -     -     696,419  
Balance, March 31, 2011   36,823,626   $ 36,824   $ 18,282,235   $ 5,402,613   $ 2,739,711   $ 39,859,503   $ 66,320,886  

See the accompanying notes to condensed consolidated financial statements

6



Asia Green Agriculture Corporation
Condensed Consolidated Statement of Cash Flows
For the three months ended March 31, 2011 and 2010
(Stated in US Dollars)

    Three months ended March 31,  
    (Unaudited)  
    2011     2010  
Cash flows from operating activities            
   Net income $ 6,001,489   $ 6,051,717  
   Adjustments to reconcile net income to net cash (used in) provided by operating activities :-        
       Depreciation and amortization   298,886     124,245  
       Gain on disposal of property, plant and equipment   -     (50,210 )
       Deferred taxes   159,174     116,005  
       Unrealized gain of forward exchange contracts   (192,296 )   (38,845 )
       Reversal of provision for obsolete inventories   (6,912 )   (216,318 )
       Provision for (reversal of) doubtful debts   65,410     (150,802 )
       Share-based compensation   696,419     -  
   Changes in operating assets and liabilities :-            
       Trade receivables   (4,377,511 )   (1,136,236 )
       Other receivables, prepayments and deposits   1,850,592     (4,911,013 )
       Inventories   (9,354,797 )   2,287,328  
       Trade payables   1,966,450     745,117  
       Restricted cash held as collateral for forward exchange contracts   (182,616 )   -  
       Receipts in advance   43,080     (103,380 )
       Other payables and accrued expenses   2,192,642     603,412  
       Income tax payable   (68,098 )   180,591  
             
Net cash flows (used in) provided by operating activities   (908,088 )   3,501,611  
             
Cash flows from investing activities            
   Payments to acquire and for deposit for acquisition of property, plant and equipment   (429,793 )   (210,481 )
   Proceeds from disposal of property, plant and equipment   -     236,171  
   Payment to acquire land use rights   (3,351,515 )  
-
 
Net cash flows (used in) provided by investing activities   (3,781,308 )   25,690  
             
Cash flows from financing activities            
   Proceeds from secured borrowings   4,346,261     2,438,790  
   Repayments of secured borrowings   (3,416,441 )   (3,963,950 )
   Increase in loans from third parties   -     455,642  
   Decrease (increase) in restricted cash held as collateral for bills payable   264,793     (121,717 )
   (Decrease) increase in bills payable   (882,644 )   381,290  
   Repayments to related parties   (657,191 )   (3,055,557 )
             
Net cash flows used in financing activities   (345,222 )   (3,865,502 )
             
Effect of foreign currency translation on cash and cash equivalents   58,607     (117 )
             
Net decrease in cash and cash equivalents   (4,976,011 )   (338,318 )
Cash and cash equivalents - beginning of period   9,988,422     420,801  
             
Cash and cash equivalents – end of period $ 5,012,411   $ 82,483  
             
Supplemental disclosures for cash flow information            
   Cash paid for :-            
     Interest, net of capitalized interest $ 106,172   $ 170,738  
     Income taxes $ 17,383   $ 51,209  

See the accompanying notes to Condensed Consolidated Financial Statements

7



Asia Green Agriculture Corporation
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)

1.

Corporate information and general

     
(i)

Asia Green Agriculture Corporation (formerly known as SMSA Palestine Acquisition Corp.) (the “Company”) was organized on May 21, 2008 as a Nevada corporation to effect the reincorporation of Senior Management Services of Palestine, Inc., a Texas corporation, mandated by the plan of reorganization discussed below.

     

The Company’s emergence from Chapter 11 of Title 11 of the United States Code on August 1, 2007 created the combination of a change in majority ownership and voting control - that is, loss of control by the then-existing stockholders, a court-approved reorganization, and a reliable measure of the entity’s fair value - resulting in a fresh start, creating, in substance, a new reporting entity. Accordingly, the Company, post bankruptcy, had no significant assets, liabilities or operating activities. Therefore, the Company, as a new reporting entity, qualified as a “development stage enterprise” as defined in Development Stage Entities topic of the FASB Accounting Standards Codification and as a shell company as defined in Rule 405 under the Securities Act of 1933, (Securities Act), and Rule 12b-2 under the Securities Exchange Act of 1934, (Exchange Act).

     

On November 4, 2009, the Company entered into a share purchase agreement with Yang Yongjie (“Mr. Yang”), a resident of the People’s Republic of China (the “PRC”), pursuant to which he acquired 11.25 million shares of our common stock for $4,500 cash or $0.001 per share (as adjusted for a 2.5 for 1 forward stock split on January 18, 2011 (the “Forward Stock Split”)).

     

Prior to the completion of reverse takeover transaction (“RTO”) on August 20, 2010 as mentioned in Note 2(vi), the Company was a development stage company for development of the Chinese restaurant concept. Following the completion of RTO on August 20, 2010, the Company commenced to be engaged in the production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products.

     
(ii)

Misaky Industrial Limited (“Misaky”) was incorporated in Hong Kong on December 10, 2004 as a limited liability company with authorized capital of HK$10,000, divided into 10,000 common shares of HK$1 par value each, of which 3,001 common shares were issued and paid up. Before the acquisition by Sino Oriental Agriculture Group Limited (“Sino Oriental”) as described in note 2(v), Misaky was wholly owned by Mr. Youdai Zhan (“Mr. Zhan”) through a trust agreement with Mr. Yangbo Cai, (“Mr. Cai”). The sole director of Misaky is Mr. Zhan. The principal business of Misaky is an investment holding and only holds 100% equity interest in Fujian Yada Group Co., Ltd. (“Fujian Yada”).

     
(iii)

Sino Oriental Agriculture Group Limited (“Sino Oriental”) was incorporated in the British Virgin Islands (the “BVI”) on January 4, 2010 as a limited liability company with authorized, issued and paid up capital of $50,000, divided into 50,000 common shares of $1 par value each. Prior to the completion of RTO on August 20, 2010, the 50,000 common shares were held by Mr. Zhan through a trust agreement with Mr. Cai and other noncontrolling shareholders. The sole director of Sino Oriental is Mr. Zhan. The principal business of Sino Oriental is an investment holding and only holds 100% equity interest in the Misaky.

     
(iv)

Fujian Yada was established in the PRC on February 6, 2001 as a limited liability company. The then paid up capital of Renminbi (“RMB”) 30,000,000 was held as to 97% by Mr, Zhan and 3% by Madam Liufeng Zhou, Mr. Zhan’s spouse respectively and was transferred to Misaky on May 26, 2010 as stated in Note 2(iv). On August 26, 2010, Fujian Yada increased its paid up capital to RMB118,000,000. The principal activities of Fujian Yada are production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products.

     
(v)

Fujian Yaxin Food Co., Ltd. (“Yaxin”) was established in the PRC on April 2, 2007 as a limited

8



 

liability company. Before the acquisition by the Fujian Yada as stated in Note 2(i), the paid up capital of RMB10,000,000 was wholly held by Mr. Zhan. The principal activities of Yaxin are production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products.

     
  (vi)

Fujian Shengda Import & Export Trading Co., Ltd. (“Shengda”) was established in the PRC on June 5, 2007 as a limited liability company. Before the acquisition by the Fujian Yada as stated in Note 2(ii), the paid up capital of RMB5,000,000 was held as to 90% by Mr. Zhan and 10% by Madam Liufeng Zhou, Mr. Zhan’s spouse. The principal activity of Shengda is trading of the Company’s agricultural products to oversea customers.

     
  (vii)

Fujian Xinda Food Co., Ltd. (“Xinda”) was established in the PRC on February 5, 2005 as a limited liability company. Before the acquisition by the Company as stated in Note 2(iii), the paid up capital of RMB5,000,000 was held as to 30% by Mr. Zhan and 70% by Madam Liufeng Zhou, Mr. Zhan’s spouse. The principal activities of Xinda are production and marketing of bamboo shoots.

     
  (viii)

Shanghai Yada Green Food Co., Ltd. (“Shanghai Yada”) was established in the PRC on September 15, 2010 as a limited liability company with registered and paid up capital of RMB2,000,000 and is a wholly owned subsidiary of Fujian Yada. The principal activities of Shanghai Yada are trading and marketing of food products.

     
  (ix)

Fuzhou Yada Green Food Co., Ltd. (“Fuzhou Yada”) was established in the PRC on October 15, 2010 as a limited liability company with registered and paid up capital of RMB1,000,000 and is a wholly owned subsidiary of Fujian Yada. The principal activities of Fuzhou Yada are trading and marketing of food products.

     
  (x)

Shixing Yada Forestry Development Co., Ltd. (“Shixing Yada”) was established in the PRC on November 26, 2010 as a limited liability company with registered and paid up capital of RMB3,000,000 and is wholly owned subsidiary of Fujian Yada. The principal activities of Shixing Yada are production and marketing of bamboo related products.

     
  (xi)

Yudu Yada Forestry Co., Ltd. (“Yudu Yada”) was established in the PRC on November 10, 2010 as a limited liability company with registered and paid up capital of RMB3,000,000 and is wholly owned subsidiary of Fujian Yada. The principal activities of Yudu Yada are production and marketing of bamboo related products.

     
  (xii)

Jianyang Yaxin Agriculture and Forestry Development Co., Ltd. (“Jianyang Yaxin”) was established in the PRC on October 12, 2010 as a limited liability company with registered and paid up capital of RMB2,000,000 and is wholly owned subsidiary of Fujian Yaxin. The principal activities of Jiantyang Yaxin are production and marketing of fresh and processed produce, including bamboos, bamboo shoots, cucumber, corn, mushrooms and other agricultural products.


2.

Reorganization

     

To rationalize the group structure, the Company, Fujian Yada, Yaxin, Shengda and Xinda reorganized their group structure (the “Reorganization”) as follows :-

     
(i)

Fujian Yada entered into two separate agreements with Mr. Zhan to acquire Mr. Zhan’s 90% and 10% equity interest in Yaxin on April 10, 2008 and October 26, 2009 respectively at cash considerations of RMB9,000,000 (equivalent to $1,320,300) and RMB1,000,000 (equivalent to $146,700) respectively, equivalent to the paid up capital of Yaxin.

     
(ii)

Fujian Yada entered into two separate agreements with Mr. Zhan and his spouse, Madam Liufeng Zhou to acquire their 100% equity interest in Shengda on April 8, 2008 and October 26, 2009 respectively at cash considerations of RMB4,500,000 (equivalent to $660,150) and RMB500,000 (equivalent to $73,350), equivalent to the paid up capital of Shengda.

9



  (iii)

On March 23, 2008, Fujian Yada entered into an agreement with Mr. Zhan and his spouse, Madam Liufeng Zhou to acquire their 95% equity interest of Xinda at a cash consideration of RMB475,000 (equivalent to $69,683), equivalent to the then Xinda’s 95% paid up capital of RMB500,000. On October 26, 2009, the Company acquired their remaining 5% equity interest of Xinda at a cash consideration of RMB250,000 (equivalent to $36,675), equivalent to the then Xinda’s 5% paid up capital of RMB5,000,000.

     
  (iv)

On April 13, 2010, Mr. Zhan and Madam Liufeng Zhou, Mr. Zhan’s spouse, entered into an agreement with Misaky, a limited liability company incorporated in Hong Kong, pursuant to which Misaky agreed to acquire their 100% equity interest in the Fujian Yada at a cash consideration of RMB31,157,000.

     
  (v)

On July 2, 2010, the shareholder of Misaky, Mr. Cai, entered into an agreement with Sino Oriental, pursuant to which Sino Oriental agreed to acquire 100% equity interest in Misaky at a cash consideration of HK$3,001, equivalent to the issued and paid up share capital of Misaky.

     
  (vi)

On August 20, 2010, the Company entered into a share exchange agreement with the shareholders of Sino Oriental to acquire their 100% of the issued and outstanding common shares in Sino Oriental by issuance of 29,214,043 shares of the Company’s common stock with par value of $0.001 each (as adjusted for the Forward Stock Split). On the same date, the Company entered into a share cancellation agreement with Mr. Yang, the shareholder of the Company, pursuant to which Mr. Yang agreed to surrender for cancellation of 9,738,180 shares (as adjusted for the Forward Stock Split) of the Company’s outstanding common stock. On the same date, Mr. Zhan was appointed as a director of the Company and entered into an option agreement with Mr. Cai pursuant to which Mr. Zhan has an option to purchase all the equity interest in the Company held by Mr. Cai at a consideration of $84,981,327 at any time during the two years period commencing on the 180th day following the signing day of this option agreement.


The aggregate cash consideration of $2,306,858 paid to Mr. Zhan and his spouse, Madam Liufeng Zhou stated in Notes 2 (i), (ii) and (iii) was recorded as deemed distributions of $2,050,133 in 2008 and $256,725 in 2009 in connection of the transactions. Upon the completion of Reorganization on August 20, 2010, Fujian Yada, Yaxin, Shengda and Xinda became the wholly owned subsidiaries of the Company.

   
3.

Summary of significant accounting policies

   

Basis of consolidation and presentation

   

Before and immediately after the completion of Reorganization, the Company, Misaky, Sino Oriental, Fujian Yada, Yaxin, Shengda and Xinda were under the common control of Mr. Zhan and his spouse, Madam Liufeng Zhou. Accordingly, accounting for recapitalization is adopted for the preparation of condensed consolidated financial statements to present the combined results of operations and financial position of the Company, Misaky, Sino Oriental, Fujian Yada, Yaxin, Shengda and Xinda as if the current group structure, which means that Misaky, Sino Oriental, Fujian Yada, Yaxin, Shengda and Xinda are wholly owned subsidiaries of the Company, had been in existence at the beginning of the reporting period. The 29,214,043 shares (as adjusted for the Forward Stock Split) of the Company’s common stock issued for RTO are deemed the opening common stock since January 1, 2009 to reflect the recapitalization.

   

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulation and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010.

   

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

10


The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and other receivables, prepayment and deposits. As of March 31, 2011 and December 31, 2010, substantially all of the Company’s cash and cash equivalents and restricted cash were held by major financial institutions located in the PRC, which the management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade receivables.

As of March 31, 2011 and December 31, 2010, the Company did not have any balance of gross trade receivables due from individual customer that represented 10% or more of the Company’s gross trade receivables.

During the three months period ended March 31, 2011 and 2010, the Company did not have sales to any individual customer that represented 10% or more of the Company’s consolidated sales.

Fair value of financial instruments

The Company adopted ASC 820 (previously Statement of Financial Accounting Standards (“SFAS”) No. 157) on January 1, 2008. The adoption of ASC 820 did not materially impact the Company’s financial position, results of operations or cash flows.

ASC 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which fair value option was not elected. The carrying amounts of the financial assets and liabilities approximate to their fair values due to short maturities or the applicable interest rates approximate the current market rates.

The fair values of secured borrowings are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Derivative financial instruments

The Company accounts for derivative financial instruments in accordance with the Topic ASC 815 “Derivatives and Hedging”. The topic requires the Company to recognize the value of derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as a hedge and qualifies as part of a hedging relationship.

The Company enters into foreign currency forward exchange contracts (“forward exchange contracts”) to manage its exposure to the foreign currency exchange risk related to the trade receivable denominated in Japanese Yen (“JPY”). The Company does not enter into forward exchange contracts for trading or speculative purposes. In accordance with US GAAP, the forward exchange contracts are considered as “derivatives not designated as hedging instruments”. Therefore, the foreign exchange contracts are recorded at fair value, with the gain or loss on these transactions recorded in the condensed consolidated statements of income and comprehensive income within “other income - net” in the period in which they occur. As of March 31, 2011 and December 31, 2010, the Company had outstanding forward exchange contracts to sell totaling JPY667,000,000 and JPY667,000,000 respectively with maturities of less than one year.

11


Fair value measurements

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available :-

  Level 1 - Quoted prices in active markets for identical assets or liabilities.
  Level 2 - Observable inputs other than quoted prices in active markets for identical assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

The following items recorded or measured at fair value on a recurring basis in the accompanying condensed consolidated financial statements were based on the use of Level 2 inputs as of March 31, 2011 and December 31, 2010:

    Included in the following              
    items of condensed              
    consolidated     Total fair value measurement  
    balance sheets     as of  
          March 31,     December 31,  
          2011     2010  
          (Unaudited)     (Audited)  
                   
Derivative financial assets - forward exchange contracts   Other receivables, prepayments and deposits   $ 26,224   $ 1,089  
                   
Derivative financial liabilities - forward exchange contracts   Other payables and accrued expenses   $ 533,758   $ 696,530  

    Included in the following              
    items of condensed              
    consolidated statements of              
    income and comprehensive     Three months ended  
    income     March 31,  
          2011     2010  
          (Unaudited)     (Unaudited)  
Realized loss recorded - forward exchange contracts       $ -   $ (6,795 )
Unrealized gain recorded - forward exchange contracts         192,296     38,845  
                   
Total gain recorded   Other income - net   $ 192,296   $ 32,050  

The Company estimates the fair value of forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. There were no changes in valuation techniques during the three months period ended March 31, 2011 and 2010.

12


Recently issued accounting pronouncements

In July 2010, the FASB issued ASU 2010-20 “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. The objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. Under ASU 2010-20, an entity is required to provide disclosures so that financial statement users can evaluate the nature of the credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed to arrive at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. ASU 2010-20 is applicable to all entities, both public and non-public and is effective for interim and annual reporting periods ending on or after December 15, 2010. Comparative disclosure for earlier reporting periods that ended before initial adoption is encouraged but not required. However, comparative disclosures are required to be disclosed for those reporting periods ending after initial adoption. The adoption of this ASU update has no material impact on the Company’s financial statements.

The FASB issued Accounting Standards Update (ASU) No. 2011-01, “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20”. The amendments in this Update temporarily delay the effective date of the disclosure about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructuring for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The adoption of this ASU update has no material impact on the Company’s financial statements.

The FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. The amendments to Topic 310 clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debts in foreseeable future without the modification. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a troubled debt restructuring. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies – Loss Contingencies. The adoption of this ASU update has no material impact on the Company’s financial statements.

4.

Restricted cash, bills payable and trade payables

   

Restricted cash as of March 31, 2011 and December 31, 2010 consist of the following:-


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Bank deposits held as collateral for forward exchange contracts - Note (a) $ 865,714   $ 678,765  
  Bank deposits held as collateral for bills payable - Note (b)   -     263,158  
               
    $ 865,714   $ 941,923  

  (a)

When the Company enters into forward exchange contracts with the bank, it is required to place deposits with reference to the nominal amount. These deposits will be used to settle loss on the forward exchange contracts or return to the Company at the earlier of maturity date or exercise date.

13



  (b)

When the Company intends or is requested to settle its suppliers by issuance of bills, it is required to place deposits with banks equal to 30% - 40% of the bills amount at the time of issuance. The bills payable was guaranteed by third parties and secured by certain property, plant and equipment of the Company included in Note 15 (c) (i). These deposits will be used to settle the bills at maturity.

     
  (c)

Trade payables represent trade creditors on open account. They are interest-free and unsecured. The normal credit term given by these suppliers to the Company ranges from one to three months.


5.

Trade receivables, net


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Trade receivables $ 25,443,194   $ 20,932,240  
  Less : Allowance for doubtful accounts   (125,417 )   (59,620 )
               
  Balance at end of period $ 25,317,777   $ 20,872,620  

Trade receivables with carrying value of $1,596,224 and $719,318 as of March 31, 2011 and December 31, 2010 was pledged as collateral under certain loan agreements (see Note 15) respectively.

Provision for (reversal of) doubtful debts of $65,410 and $(150,802) were charged to operations during the three months ended March 31, 2011 and 2010 respectively.

6.

Other receivables, prepayments and deposits


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Prepayments $ 819,313   $ 2,536,078  
  Deposits   901,938     896,657  
  Derivative financial assets - forward exchange contracts - Note 3  

  26,224

   

  1,089

 
  Other receivables   408,189     582,056  
               
    $ 2,215,664   $ 4,015,880  

7.

Inventories


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Raw materials and packaging materials $ 900,451   $ 38,027  
  Bamboo and other growing crops   18,010,834     11,695,082  
  Finished goods   5,660,239     3,386,417  
               
      24,571,524     15,119,526  
  Less: Provision for obsolete inventories   (3,578 )   (10,424 )
               
    $ 24,567,946   $ 15,109,102  

As of March 31, 2011 and December 31, 2010, the inventories with carrying amount of $680,605 and $746,728 were pledged as collateral under certain loan agreements (see Note 15).

Reversal of provision for obsolete inventories of $6,912 and $216,318 were charged to operations during the three months ended March 31, 2011 and 2010 respectively.

14



8.

Income taxes

   

United States

   

Asia Green Agriculture Corporation is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no taxable income in this jurisdiction for the reporting period.

   

BVI

   

Sino Oriental is incorporated in the BVI and, under the current laws of the BVI, are not subject to income taxes.

   

Hong Kong

   

Misaky is incorporated in Hong Kong and subject to profit tax rate of 16.5% on the assessable profits during the years. No provision for Hong Kong profit tax has been made on Misaky as Misaky had no taxable income in this jurisdiction for the reporting period.

   

PRC

   

Pursuant to the new PRC’s enterprise income tax (“EIT”) law, Fujian Yada, Yaxin, Xinda, Shengda, Shanghai Yada, Fuzhou Yada, Shixing Yada, Yudu Yada and Jiangyang Yaxin are subject to EIT at the statutory rate of 25%. In addition, the Company’s profits generated from its fresh produce and certain processed produce, which have been qualified as agriculture product under the EIT law, are exempted from EIT.

   

In July 2006, the FASB issued ASC 740-10-25 (previously Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The Company adopted this ASC 740-10-25 on January 1, 2007. Under the new CIT Law which became effective on January 1, 2008, the Company may be deemed to be a resident enterprise by the PRC tax authorities. If the Company was deemed to be resident enterprise, the Company may be subject to the CIT at 25% on the worldwide taxable income and dividends paid from PRC subsidiaries to their overseas holding companies may be exempted from 10% PRC withholding tax. Except for certain immaterial interest income from bank deposits placed with financial institutions outside the PRC, all of the Company’s income is generated from the PRC operation. Given the immaterial amount of income generated from outside the PRC and the PRC subsidiaries do not intend to pay dividends for the foreseeable future, the management considers that the impact arising from resident enterprise on the Company’s financial position is not significant. The management evaluated the Company’s overall tax positions and considered that no provision for uncertainty in income taxes is necessary as of March 31, 2011.

   
9.

Net finance costs

   

Details of finance costs are summarized as follows :-


      Three months ended March 31,  
      (Unaudited)  
      2011     2010  
               
  Total interest cost incurred, net of capitalized interest $ 106,172   $ 170,738  
  Less: Interest income   (6,267 )   (8,285 )
            Government grant for interest incurred   (105,050 )   -  
               
  Net interest cost   (5,145 )   162,453  
  Other finance costs   34,155     74,532  
    $ 29,010   $ 236,985  

15




10.

Earnings per share

   

During the reporting periods, potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. 1,359,113 anti-dilutive warrants and 3,093,258 share options (as adjusted for the Forward Stock Split) were excluded from the calculation of earnings per share for three months period ended March 31, 2011. Accordingly, the basic and diluted earnings per share are the same.

   

The per share data reflects the reorganization of stockholders’ equity as if the Reorganization occurred as of the beginning of the first period presented and has been adjusted to reflect the Forward Stock Split effected on January 18, 2011.

   
11.

Property, plant and equipment, net


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
  Cost :-            
     Buildings $ 10,411,538   $ 10,345,868  
     Plant and machinery   1,400,797     1,398,711  
     Motor vehicles   196,095     194,362  
     Electronic equipment   153,926     131,384  
     Leasehold improvements   38,446     38,203  
               
      12,200,802     12,108,528  
  Accumulated depreciation   (2,238,647 )   (2,090,087 )
  Construction in progress   2,241,865     1,815,903  
               
  Net $ 12,204,020   $ 11,834,344  

  (i)

During the reporting periods, depreciation charge is included in :-


      Three months ended March 31,  
      (Unaudited)  
      2011     2010  
               
  Cost of sales and overheads of inventories $ 125,646   $ 77,716  
  Selling expenses   491     453  
  Administrative expenses   9,139     42,160  
               
    $ 135,276   $ 120,329  

 

As of March 31, 2011 and December 31, 2010, buildings and plant and machinery with carrying amount of $8,525,848 and $8,521,316 were pledged as collateral under certain loan and bills payable arrangements, respectively (Note 15).

     
 

During the three months ended March 31, 2011 there was no disposal of fixed assets. During the three months ended March 31, 2010, property, plant and equipment with net book value of $185,961 were disposed of at a consideration of $236,171, resulting in a gain of $50,210.

     
 

For the three months ended March 31, 2011 and 2010, the Company capitalized interest of Nil and $39,533 to the cost of property, plant and equipment, respectively.

     
  (ii)

Construction in progress :-

16


Construction in progress mainly comprises capital expenditure for construction of the Company’s new offices and factories.

12.

Land use rights


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
  Land use rights            
  - for office premises, production facilities and warehouse $ 2,112,787   $ 2,099,461  
  - for growing and plantation   15,426,736     15,329,432  
  Accumulated amortization   (386,783 )   (221,744 )
               
    $ 17,152,740   $ 17,207,149  

The Company obtained the right from the relevant PRC land authority for a period of fifty years to use the land on which the office premises, production facilities and warehouse of the Company are situated. As of March 31, 2011 and December 2010, land use rights with carrying amounts of $715,474 and $714,963 were pledged as collateral under certain loan arrangements (Note 15).

   

On the other hand, the Company obtained several rights from the relevant PRC local rural village cooperatives for period ranged from twenty to thirty years to use the land for growing and plantation purpose for producing the Company’s fresh produce.

   

During the three months ended March 31, 2011 and 2010, amortization amounted to $163,610 and $3,916 respectively. The estimated amortization expense for each of the five succeeding years is approximately $223,000 each year.

   
13.

Other payables and accrued expenses


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Payables for acquisition of land use rights for growing and plantation purpose and related restoration fee $ 2,269,099   $ 4,048,813  
  Withholding tax payable - Note 13(b)   608,800     604,960  
  Pension payable - Note 13(a)   603,877     538,427  
  Derivative financial liabilities - forward exchange contracts - Note 3   533,758     696,530  
  VAT payable   876,904     1,127,599  
  Salaries payable   299,819     191,434  
  Accrued audit fee   144,590     128,554  
  Liquidated damage payable - Note 20   290,861     177,507  
  Other payables   1,177,507     567,752  
               
    $ 6,805,215   $ 8,081,576  

  (a)

Pension payable represents accrued staff medical, industry injury claims, labor and unemployment insurances, all of which are third parties insurance and the insurance premiums are based on certain percentage of salaries. The obligations of the Company are limited to those premiums contributed by the Company.

     
  (b)

On March 21, 2009, Yada declared a dividend of RMB20,000,000 of which RMB16,000,000 (equivalent to $2,347,200 as of March 31, 2009) was transferred to amounts due to related parties in accordance with a loan agreement entered into between Mr. Zhan, and Madam Liufeng Zhou, Mr. Zhan’s spouse and the Company. The remaining balance of RMB4,000,000 (equivalent to $608,800 as of March 31, 2011), representing withholding tax payable on dividend declared in accordance with PRC Tax Law, was included in other payables and accrued expenses (Note 13).

17



14.

Amounts due to related parties

   

The amounts represent amounts due to Mr. Zhan and Madam Liufeng Zhou, Mr. Zhan’s spouse, and are interest-free, unsecured and repayable on demand.

   
15.

Secured borrowings


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Secured short-term borrowings - Note 15(a) $ 7,224,934   $ 6,232,600  
  Current maturities of secured long-term borrowings   -     22,686  
               
    $ 7,224,934   $ 6,255,286  
               
  Secured long-term borrowings - Note 15(b) Interest bearing :- - at 14.4% per annum $ -   $ 22,686  
  Less: current maturities   -     (22,686 )
               
    $ -   $ -  

Notes :-

  (a)

The weighted-average interest rate on short-term borrowings as of March 31, 2011 and December 31, 2010, were 5.85% and 5.41%, respectively.

     
  (b)

Long-term borrowings were repayable as follows :-


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Within one year $ -   $ 22,686  
  After one year but within two years   -     -  
               
    $ -   $ 22,686  

  (c)

The amount represents a loan from Financial Bureau, Songxi County of the PRC through an entrusted loan arrangement with a bank.

     
 

As of March 31, 2011, the Company’s banking facilities were composed of the following :-


            Amount        
  Facilities granted   Granted     utilized     Unused  
                     
  Secured bank loans $ 7,224,934   $ 7,224,934   $ -  

The secured borrowings and bills payable were secured by the following :-

  (i)

The Company’s assets with following carrying values :-


     

March 31,

    December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Property, plant and equipment (Note 11) $ 8,525,848   $ 8,521,316  
  Trade receivable (Note 5)   1,596,224     719,318  
  Land use rights (Note 12)   715,474     714,963  
  Inventories (Note 7)   680,605     746,728  
               
    $ 11,518,151   $ 10,702,325  

18




  (ii)

Guarantees executed by third parties;

  (iii)

Guarantees executed by Mr. Zhan and Madam Liufeng Zhou, Mr. Zhan’s spouse; and

  (iv)

Guarantees executed by certain staff of the Company.


During the reporting periods, there was no covenant requirement under the banking facilities granted to the Company.

   
16.

Loans from third parties


      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Non-interest bearing $ 152,200   $ 151,240  

All the loans from third parties are unsecured and repayable on demand or within one year.

   
17.

Defined contribution plan

   

The Company has a defined contribution plan for all qualified employees in the PRC. The employer and its employees are each required to make contributions to the plan at the rates specified in the plan. The only obligation of the Company with respect to retirement scheme is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in the future years. The defined contribution plan contributions were charged to the condensed consolidated statements of income and comprehensive income. The Company recorded defined contribution plan expenses of $82,350 and $48,398 for the three months ended March 31, 2011 and 2010 respectively.

   
18.

Statutory reserve

   

In accordance with the relevant laws and regulations of PRC, it is required that not less than 10% of its net income (the percentage is upon approval from the board of directors’ meeting), after offsetting any prior years’ losses, for PRC tax reporting purpose to the statutory reserve.

   

When the balance of such reserve reaches 50% of the registered capital, any further appropriation is optional. Upon approval from the board of directors of the Company, the statutory reserve can mainly be used to offset accumulated losses or increase capital.

   
19.

Make good escrow agreement

   

In connection with a private placement completed on August 20, 2010, Mr. Cai, the major shareholder of the Company, entered into a make good escrow agreement (the "Escrow Arrangement") with the investors under the private placement pursuant to which he agreed to place 4,848,525 shares (as adjusted for the Forward Stock Split) of our common stock (the “Make Good Share”) owned by him in an escrow account administrated by an escrow agent. In the event of the Company fail to achieve the earnings per share targets of 2010 and 2011, the escrow agent shall distribute the Make Good Share to the investors on a pro rate basis for any shortfall.

   

For the purpose of the Escrow Arrangement, the earnings per share targets of 2010 and 2011 shall be determined by $18,176,145 and $27,264,218 divided by the total number of shares of common stock outstanding (as adjusted for the Forward Stock Split) immediately following the closing of the private placement respectively. As of December 31, 2010, the Company achieved the earnings per share target of 2010 and the Make Good Share will be released to Mr. Cai when the Company achieves earnings per share target of 2011.

19



Since Mr. Cai is only a major stockholder without taking any management position of the Company and the release or cancellation of Make Good Share is not contingent on continued employment of any management shareholders, in accordance with ASC 718-10-S99-2, the Company considered that the presumption of compensation in this Escrow Arrangement should be overcome and that no compensation charge should be recognized. The Escrow Arrangement should be recorded as an inducement to facilitate the private placement on behalf of the Company. Accordingly, the transaction shall be recorded as a reduction of proceeds from the private placement in an amount equal to the estimated fair value of the Make Good Share of $1,160,114 on August 20, 2010, the date of the Make Good Escrow Agreement and completion of the private placement, with corresponding credit to additional paid-in capital. The fair value of the Make Good Share was estimated, at the date of Make Good Escrow Agreement, by reference to the estimated placing price per share of the Company’s common stock in the private placement completed on August 20, 2010 and the probability of any shortfall in earnings per share targets of 2010 and 2011 estimated by the management.

   
20.

Commitments and contingencies

   

Capital commitment

   

As of March 31, 2011, and December 31, 2010, the Company had capital commitments of $4,149,749 and 4,545,236, respectively, in relation to the construction of new building facility and cold storage facility.

   

Operating lease commitment

   

The Company leases certain land lease contracts under operating leases. The future minimum lease payments under non-cancelable operating leases are as follows at March 31, 2011 :-


  2011 $ 3,312,742  
  2012   3,290,225  
  2013   3,277,170  
  2014   3,277,170  
  2015   3,267,024  
  Thereafter   49,916,146  
         
    $ 66,340,477  

Rental expense for operating leases amounted to $829,562 and $577,973 for the years ended March 31, 2011 and 2010, respectively, have been recorded in cost of sales and inventories.

Registration payment arrangement

On August 20, 2010, the Company completed a private placement of 4,848,525 shares (as adjusted for the Forward Stock Split) of common stock and warrants in order to purchase up to 969,717 shares (as adjusted for the Forward Stock Split) of common stock at an exercise price of $3.78 per share (as adjusted for the Forward Stock Split). In connection with the private placement, warrants to purchase up to 339,396 shares (as adjusted for the Forward Stock Split) of common stock at an exercise price of $3.78 per share (as adjusted for the Forward Stock Split) were issued to the Placement Agent.

Pursuant to a registration rights agreement, the Company was required to file a registration statement (the “Registration Statement”) under the Securities Act of 1933, as amended, (i) registering for resale by the investors 4,848,525 shares (as adjustment for the Forward Stock Split) of common stock and warrants in order to purchase up to 969,717 shares (as adjustment for the Forward Stock Split) of common stock issued to the investors; and (ii) registering for resale for the Placement Agents for the warrants to purchase up to 339,396 shares (as adjustment for the Forward Stock Split) of common stock (all of the foregoing securities being collectively referred herein as the “Registrable Securities”). The Company agreed to use its best

20


efforts to file the Registration Statement within 30 days from the closing date, dated August 20, 2010 (the “Closing Date”), (the “Registration Filing Date”) and to have the Registration Statement declared effective prior to the 150th day following the Closing Date (the “Registration Effective Date”).

In the event that (i) the Registration Statement has not been filed on or prior to the Registration Filing Date or declared effective by the SEC on or before the Registration Effective Date; and (ii) the Registrable Securities included in such Registration Statement are not saleable under Rule 144, the Company shall pay to each investor as liquidated damages, a cash payment equal to 0.5% per month of the aggregated amount invested by such investors in the private placement until the registration statement has been filed and/or declared effective, but the maximum amount of liquidated damages is capped at 6% on aggregated amount invested by such investors. In accordance with ASC 450 “Contingencies”, the Company records a liability in the condensed consolidated financial statements for these contingencies when a loss is known or considered probable and the amount can be reasonably estimated. In accordance with FASB ASC 825-20, if the Company determines a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. Up to the date of approval of these condensed consolidated financial statements, the Registration Statement was not declared effective and the provision of liquidated damages was made in an amount of $290,861 as of March 31, 2011 with reference to the estimated effective date of Registration Statement. Liquidated damage of $113,354 was recognized and allocated to administrative expenses for the three months ended March 31, 2011. Up to the date of approval of these condensed consolidated financial statements, in the opinion of the directors it is not probable that the Company will be required to make any further material payments under the registration rights arrangement and therefore no further provision for such liability has been made.

21. Share based compensation

The Company granted share options and warrants to employees, directors and consultants to reward for services.

Stock option plan

Under the stock option plan adopted by the Company in 2010, 3,093,258 share options with exercisable period of 10 years were granted to the management and employees of the Company on February 14, 2011 of which, 184,123 share options are vesting on March 18, 2011 with an exercise price of $3.94, 184,122 share options are vesting on March 18, 2012 with an exercise price equal to 125% of the market price of the Company’s common stock on that vesting date, 908,338 share options are vesting on February 14, 2012 and 1,816,675 share options are vesting in equal amounts on the first day of each quarter during a four years period commencing from February 15, 2012 with an exercise price of $4. All the share options granted are subject to the option holders continuing to be the management or employee of the Company before the respective vesting dates.

A summary of share option plan activity for the three-months ended March 31, 2011 is presented as below:

        Weigthed              
            average              
            Exercise     Remaining     Aggregate  
      Number of     price     contractual     intrinsic  
      shares     per share     Term     value (1)
                           
  Outstanding as of January 1, 2011   -   $ -              
  Granted   3,093,258     4.13              
  Exercised   -     -              
  Forfeited   -     -              
  Cancelled   -     -              
                           
  Outstanding as of March 31, 2011   3,093,258   $ 4.13     0.9-4.9 years   $ -  
                           
  Exercisable as of March 31, 2011   184,123   $ 3.94     -   $ -  

21



  (1)

No aggregate intrinsic value as the weighted average exercise price of options $4.13 is in excess of the values of the Company’s common stock as of March 31, 2011.

The weighted average grant-date fair values of options granted during 2011 was $1.81 per share. Compensation expense of $594,512 arising from abovementioned share options granted was recognized and allocated $511,395 to administrative expenses and $83,117 to selling expenses for three months ended March 31, 2011.

The fair value of the above option awards was estimated on the date of grant using the Binomial Option Valuation Model together with the following assumptions.

  Expected volatility 56.80%
  Expected dividends Nil
  Expected life 10 years
  Risk-free interest rate 3.69%

As of March 31, 2011, there were unrecognized compensation costs of $4,994,015 related to the above non-vested share options which expected to be recognized over approximately 5 years.

Warrant

On February 10, 2011, the Company issued warrants to a service provider to purchase up to 50,000 shares of the Company's common stock at a price of $4.00 per share in exchange for investor relations service provided to the Company. These warrants have exercisable period over 5 years commencing from February 10, 2011.

At the grant date, the fair value of warrants issued was approximately $2.04 each. Compensation expense of $101,907 arising from abovementioned warrant issued was recognized and allocated to administrative expenses for the three months ended March 31, 2011.

The fair value of the above warrant issued was estimated on the date of grant using the Binomial Option Valuation Model together with the following assumptions.

  Stock price and exercise price $ 4.00  
  Expected volatility   57.28%  
  Expected dividends   Nil  
  Expected life   5 years  
  Risk-free interest rate   2.41%  

As of March 31, 2011, there were no unrecognized compensation costs related to the above warrants.

   
22.

Segment information

   

The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly fresh produce and processed produce and operating results of the Company and, as such, the Company has determined that the Company has two operating segments as defined by ASC 280, “Segments Reporting” (previously SFAS 131): Fresh produce and processed produce.

   

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on reportable operating segments’ gross profit. There is no inter-segment sales or transfers during the three months ended March 31, 2011 and 2010. Management does not track segment assets and, therefore, segment assets information is not presented.

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    Fresh produce     Processed produce     Total  
    Three months ended     Three months ended     Three months ended  
    March 31, (Unaudited)     March 31, (Unaudited)     March 31, (Unaudited)  
    2011     2010     2011     2010     2011     2010  
                                     
Revenue from external customers $ 20,378,378   $ 15,311,079   $ 5,560,618   $ 7,343,827   $ 25,938,996   $ 22,654,906  
Segment profit $ 6,687,325   $ 5,047,287   $ 1,201,444   $ 1,817,839   $ 7,888,769   $ 6,865,126  

A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.

      Three months ended March 31,  
      (Unaudited)  
      2011     2010  
               
  Total consolidated revenue $ 25,938,996   $ 22,654,906  
               
  Total profit for reportable segments $ 7,888,769   $ 6,865,126  
  Unallocated amounts relating to operations :-            
   Administrative expenses   (1,494,344 )   (275,443 )
   Selling expenses   (461,295 )   (193,251 )
   Government grant income   81,615     16,550  
   Other income - net   192,311     234,922  
   Net finance costs   (29,010 )   (236,985 )
               
  Income before income taxes $ 6,178,046   $ 6,410,919  

All of the Company’s long-live assets are located in the PRC. Geographic information about the revenues, which are classified based on the customers, is set out as follows :-

      Three months ended March 31,  
      (Unaudited)  
      2011     2010  
               
  PRC $ 24,503,908   $ 21,651,102  
  Japan   1,435,088     1,003,804  
               
  Total $ 25,938,996   $ 22,654,906  

23.

Related party transactions

   

Apart from the transactions as disclosed in notes 2, 14, 15, 19, 20 and 21 to the condensed consolidated financial statements, the Company had no other material transactions with its related parties during the three months ended March 31, 2011 and 2010.

   
24.

Subsequent events

   

The Company evaluated all events or transactions that occurred after March 31, 2011 and has determined that no material recognizable nor subsequent events or transactions which would require recognition or disclosure in the condensed consolidated financial statements, other than noted herein.

23


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements”. You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see “Special Note Regarding Forward Looking Statements” at the beginning of this report.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this report.

OVERVIEW

We are a green and organic food company with headquarters in Fujian Province, China. We currently provide over 100 kinds of fresh and processed products in three principal categories, bamboo shoot products, fresh vegetables and fruit, and processed vegetables. Bamboo shoot products accounted for approximately 52% of our revenue in 2010 and 79% of our revenue in the first quarter of 2011, while fresh vegetables and fruit accounted for approximately 28% and 16% of revenue, processed vegetables for 7% and 5% of revenue, and bamboo wood for 13% and 0% of revenue, respectively.

We have a vertically integrated operation consisting of planting, manufacturing and sales of final products. We can supply most of the fresh raw material for our products from our own land. We view our integrated operations as key to the quality of our products, as we monitor substantially all of our products from seed to ultimate sale. Accordingly, our ability to grow is dependent in part on the size of lands we control under lease, and our processing and storage capacity. We are currently experiencing rapid growth in our business and continually seek to procure additional lands for planting. We anticipate making capital expenditures over the next nine to twenty-one months to increase our cold storage capacity, increase production resources and establish new corporate offices.

We conduct our operations in China and sell products in 10 provinces and administrative regions in China as well as the Japanese market. We derived approximately 94% of our revenue in 2010 and in the first quarter of 2011 in China and approximately 6% in Japan.

Agricultural products are naturally subject to seasonality tied to their local growing season. For example, our fresh bamboo shoots, an important revenue driver, are only available for sale from approximately December through April. As a result, our fourth and first quarter revenues tend to be significantly higher than our second and third quarter revenues. We seek to offset the impact of seasonality on our revenues by managing a diversified portfolio of products. In addition to product diversification, we use cold storage facilities to preserve some of our fresh products to extend their season and time market sales to improve gross margin. We also maintain research and development facilities which focus on the development of unique products which either have unique size or flavor characteristics or which have the potential to expand the market for products, such as our high PH bamboo shoots.

We believe that investments we made in physical facilities and planting bases in 2010 establish a strong foundation for growth during the remainder of 2011 and beyond. Our current growth strategy is currently centered on the following five initiatives:

  • Expand our planting base.

  • Improve our profitability by continuously introducing new high value added products.

  • Further expand our domestic sales and distribution network and enter new markets.

  • Increase our cold storage capacity.

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  • Further enhance our brand recognition.

We are continuing to invest in new forest and planting bases. The table below summarizes our planting bases as of December 31, 2010 and March 31, 2011.

  December 31, 2010 March 31, 2011
Bamboo forest
30,500 acres
(123.43 square kilometers)
30,500 acres
(123.43square kilometers)
Vegetables & Fruits
12,500 acres
(50.59 square kilometers)
12,500 acres
(50.59 square kilometers)

We launched the sale of our proprietary high PH bamboo shoot product line in April 2010, and have experienced gross margins of approximately 73% on sales of that product through March 31, 2011. Overall, our gross margins for the quarter ended March 31, 2011 were 30%, similar to our gross margins of 30% for the quarter ended March 31, 2010. Our gross margin remained flat because of a similar product mix of sales in the three months ended March 31, 2011 and 2010. No sales of our higher gross margin bamboo wood were made in either quarter; no sales of our higher gross margin high PH bamboo shoots were made in the first quarter of 2010; and only immaterial sales of such high PH bamboo shoots were made in the first quarter of 2011. Our high PH bamboo shoots maintain freshness and are generally sold in the "off season," when fresh bamboo shoots are not available. The season of fresh bamboo shoots is from December to April. Historically, we have generally sold bamboo wood in the second half of the year, and consistent with this practice made no sales of bamboo wood in the first quarter. Through our research and development initiatives we plan to introduce at least one or two new products per year with the potential capture higher gross margins and improve profitability.

We currently sell through distributors and members of our own sales force to farmers' markets, supermarkets, food manufacturers, restaurants and retailers in China. The following table shows the number of internal sales team members, outside sales agents and markets served at December 31, 2010 and March 31, 2011.

  December 31, 2010 March 31, 2011
Internal Sales Team Members 56 62
Distributors 100 143

During the remainder of 2011, we plan to expand our sales network domestically, with our focus on the cities of Jinan, Nanjing, Beijing, Tianjin and Harbin. We have no immediate plans to expand our international sales presence beyond Japan.

We had a 6,000 metric ton cold storage facility as at March 31, 2011 for storing fresh and semi-finished products. We are adding 5,500 metric ton cold storage facility in order to meet the requirements of our existing products and the anticipated need for recent new product launches. As of March 31, 2011, the construction work was underway.

We have been gaining brand recognition in China, especially in Fujian Province. At March 31, 2011 we had expanded our sales to approximately 800 supermarket stores. We plan to further enhance our name recognition through establishing branded counters at supermarkets. We are also opening Yada-branded distribution locations. We have opened five locations and plan to continue opening additional centers in select locations in China.

RECENT DEVELOPMENTS

On August 20, 2010, we entered into an exchange agreement with Sino Oriental Agriculture Group Ltd. and the shareholders of Sino Oriental Agriculture Group Ltd, pursuant to which all of the shareholders of Sino Oriental Agriculture Group Ltd. transferred all of the issued and outstanding stock of Sino Oriental Agriculture Group Ltd. to us, and in exchange we issued to such shareholders 29,214,043 newly issued shares of our common stock. In connection with this exchange we acquired the business of Fujian Yada, our current operating subsidiary. The transaction was accounted for as a reverse merger.

Also on August 20, 2010 we closed the transactions under a securities purchase agreement dated July 23, 2010 with certain institutional investors, pursuant to which we sold 1,939,407 units of common stock and warrants for an aggregate purchase price of approximately $15.3 million. We used the proceeds of that offering to expand our physical facilities and to increase our planting bases.

Net sales for the first quarter of 2011 were $25.9 million, an increase of approximately 14% over net sales in the first quarter of, 2010 . Net income for the first quarter of 2011 was $6.0 million, a slight decrease of approximately 1%, compared to the quarter ended March 31, 2010.

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CRITICAL ACCOUNTING POLICIES

Cash and cash equivalents

Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less. As of March 31, 2011, almost all the cash and cash equivalents were denominated in RMB and were placed with banks in the PRC. They are not freely convertible into foreign currencies and the remittance of these funds out of the PRC is subject to exchange control restrictions imposed by the PRC government. The remaining insignificant balance of cash and cash equivalents were denominated in United States Dollars and Japanese Yen.

Restricted cash

Deposits in banks pledged as securities for bills payable and forward foreign currency exchange contracts (See Note 4 to the Consolidated Financial Statements on page 13 that are restricted in use are classified as restricted cash under current assets.

Allowance for doubtful debts

We extend unsecured credit to certain customers ranging from one to three months in the normal course of business. We do not accrue interest on trade accounts receivable.

We establish an allowance for doubtful accounts based on management's assessment of the collectibility of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance; we consider the historical level of credit losses and apply percentages to aged receivable categories. We make judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitor current economic trends that might impact the level of credit losses in the future. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

Based on the above assessment, during the reporting years, we established the general provisioning policy to make an allowance equivalent to 30% of gross amount of trade receivables due between one and two years and 100% of gross amount of accounts receivable due over 2 years. Additional specific provision is made against trade receivables whenever they are considered to be doubtful. Bad debts are written off when identified.

Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by us and no significant additional bad debts have been expensed. This general provisioning policy has not changed in the past since its establishment and the management considers the general provisioning policy adequate and does not expect to change this established policy in the near future.

Inventories

Inventories are stated at the lower of cost or market. Cost is computed using the weighted average cost method for finished goods, raw materials and packaging materials. Finished goods include fresh and processed produce while raw materials and packaging materials consist primarily of purchased fresh and processed produce and containers.

Expenditures on bamboo and other growing crops are valued at the lower of cost or market and are deferred and charged to cost of sales when the related produce is harvested and sold. The deferred growing costs included in inventories in the consolidated balance sheets consist primarily of land rental cost and service costs.

In assessing the ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase or decrease with our projected demand requirements and market conditions. We estimate the demand requirements based on market conditions, forecasts prepared by our customers, sales contracts and orders in hand.

In addition, we estimate net realizable value based on intended use, current market value and inventory ageing analyses. We write down the inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.

Based on the above assessment, we established a general provision to make a 20% provision for inventories aged between one and two years and 100% provision for inventories aged over 2 years.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.

26


Depreciation is provided on the straight-line basis (after taking into account the respective estimated residual values) over the estimated useful lives of property, plant and equipment. The principal useful lives and residual value are as follows:

    Estimated useful     Residual value  
    lives        
Buildings   30 years     5%  
Plant and machinery   5 - 10 years     5%  
Motor vehicles   5 years     5%  
Electronic equipment   5 years     5%  
Leasehold improvement   Over lease term     -  

Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

Construction in progress mainly represents expenditures in respect of our offices and factories under construction. All direct costs relating to the acquisition or construction of our offices and factories are capitalized as construction in progress. No depreciation is provided in respect of construction in progress.

Land use rights

Land use rights are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the terms of the lease obtained from the relevant PRC land authority.

Impairment of long-lived assets

Long-lived assets are tested for impairment in accordance with ASC 360-10-45 "Impairment or Disposal of Long-Lived Assets" (previously Statement of Financial Accounting Standards ("SFAS") No. 144). We periodically evaluate potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We recognize impairment of long-lived assets in the event that the net book values of such assets exceed the future undiscounted cash flows attributable to such assets. During the reporting periods, we have not identified any indicators that would require testing for impairment.

Capitalized interest

The interest cost associated with the major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of our outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

Revenue recognition

Revenue from sales of the Company’s products, including fresh produce and processed produce, is recognized upon customer acceptance, which occurs at the time of delivery to customer, provided persuasive evidence of an arrangement exists, such as signed sales contract, the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are delivered to its customers with no significant post-delivery obligation on our part, the sales price is fixed or determinable and collection is reasonably assured. We do not provide our customers with contractual rights of return and post-delivery discount for any of our products, including fresh produce and processed produce. When any significant post-delivery performance obligation exists, revenue is recognized only after such obligation is fulfilled. We evaluate the terms of sales agreement with our customer for fresh produce and processed produce in order to determine whether any significant post-delivery performance obligations exist. Currently, the sales under fresh produce and processed produce segments do not include any terms which may impose any significant post-delivery performance obligations.

Revenue from sales of our product represents the invoiced value of goods, net of the value-added tax (“VAT”). Our processed produce products that are sold in the PRC are subject to VAT at a rate of 17 percent of the gross sales price. This VAT may be offset by VAT paid on raw materials, other materials or costs included in the cost of producing our processed produce products.

28


Government grants

Government grants are received for compensation of finance costs already incurred or for good performance and are recognized when the approval documents are obtained from the relevant government authorities.

For compensation of finance costs, we match and offset the government grants with the finance costs as specified in the grant approval document in the corresponding period when such expenses are incurred. Government grants received for good performance are recognized as income in the period they become recognizable.

Cost of sales

Cost of sales consists primarily of land rental cost and service costs, materials costs, purchasing and receiving costs, inspection costs, wages, employee compensation, depreciation and related costs, which are directly attributable to the cost of fresh and processed produce and production of products. Write-down of inventories to lower of cost or market is also recorded in cost of sales.

Administrative expenses

Administrative expenses consist primarily of office expenses, entertainment, traveling expenses, depreciation, audit fee, salaries and staff pension which are incurred at the administrative level and exchange difference.

Selling expenses

Selling expenses consist primarily of advertising, salaries and transportation costs incurred during the selling activities.

Income taxes

We use the asset and liability method of accounting for income taxes pursuant to ASC 740 "Income Taxes" (previously SFAS No. 109). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

We file separate tax returns in the United States and China. Income taxes of the Company's PRC subsidiary are calculated in accordance with taxation principles currently effective in the PRC. For Asia Green Agriculture Corporation, applicable U.S. tax laws are followed. We expect that the tax rate of 25% currently applicable to our Fujian Yada operating subsidiary will remain unchanged in the remainder of 2011.

In 2007, China passed the New EIT Law and its implementing rules, both of which became effective on January 1, 2008. The New EIT Law significantly curtails tax incentives granted to foreign-invested enterprises under the previous law. The New EIT Law, however, (i) reduces the statutory rate of enterprise income tax from 33% to 25%, (ii) permits companies to continue to enjoy their existing tax incentives, adjusted by certain transitional phase-out rules, and (iii) introduces new tax incentives, subject to various qualification criteria.

Substantially all of our income may be derived from dividends we receive from our PRC operating subsidiaries. The New EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes. We expect that such 10% withholding tax will apply to dividends paid to us by our PRC subsidiaries but this treatment will depend on our status as a non-resident enterprise . For detailed discussion of PRC tax issues related to resident enterprise status, see "Risk Factors — Risks Associated with Doing Business in China — Under the New EIT Law, we may be classified as a 'resident enterprise' of China." Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.

Advertising, transportation, research and development expenses

Advertising, transportation, research and development expenses are charged to expense as incurred.

Dividends

Dividends are recorded in our financial statements in the period in which they are declared.

29


Comprehensive income

We have adopted ASC 220, "Comprehensive Income" (previously SFAS No. 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Components of comprehensive income include net income and foreign currency translation adjustments.

Foreign currency translation

Our functional currency is the RMB and RMB is not freely convertible into foreign currencies. We maintain our financial statements in our functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, our financial statements that are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholder's equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders' equity.

Derivative financial instruments

We account for derivative financial instruments in accordance with the Topic ASC 815 "Derivatives and Hedging". The topic requires us to recognize the value of derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as a hedge and qualifies as part of a hedging relationship.

We enter into foreign currency forward exchange contracts ("forward exchange contracts") to manage its exposure to the foreign currency exchange risk related to the trade receivables denominated in Japanese Yen. We do not enter into forward exchange contracts for trading or speculative purposes. In accordance with US GAAP, the forward exchange contracts are considered as "derivatives not designated as hedging instruments". Therefore, the forward exchange contracts are recorded at fair value, with the gain or loss on these transactions recorded in the consolidated statements of income within "other net income (loss)" in the period in which they occur.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.

(All amounts, other than percentage, in thousands of US dollars)

    For the three months     For the three months  
Item   ended     ended  
    March 31, 2011     March 31, 2010  
(Unaudited)   (As reported)     (As reported)  
    In     As a     In     As a  
    Thousands     Percentage     Thousands     Percentage  
          of           of  
          Net Sales           Net Sales  
Net sales $  25,939     100%     22,655     100%  
Cost of sales   (18,050 )   (70)%     (15,790 )   (70)%  
Gross profit   7,889     30%     6,865     30%  
Selling and administrative expenses   (1,956 )   (7)%     (469 )   (2)%  
Operating income   5,933     23%     6,396     28%  
Government grant income   82     0%     17     0%  
Other net income   192     1%     235     1%  
Net finance costs   (29 )   0%     (237 )   (1)%
Income before income taxes   6,178     24%     6,411     28%  
Income taxes   (177 )   (1)%     (359 )   (1)%  
Net income   6,001     23%     6,052     27%  

30


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 6.5712 to $1 for the three months ended March 31, 2011 and the rate of RMB 6.8190 to $1 for the three months ended March 31, 2010.

Net Sales. Our net sales consist of revenue derived from the sale of our food products, less discounts and returns. For the three months ended March 31, 2011, our net sales were $25.9 million compared to $22.7 million for the same period last year, an increase of $3.2 million or approximately 14%. The increase was primarily due to increased production capacity from our expanded planting bases. Of such increase, approximately $2.8 million was attributable to increased sales volume of our products, while approximately $0.4 million was due to higher average selling prices of our products.

Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor, overhead and sales tax. For the three months ended March 31, 2011 our cost of sales were $18.1 million compared to $15.8 million for the same period last year, an increase of $2.3 million or approximately 14%. This increase was primarily due to the increase of sales volume. As a percentage of net sales, our cost of sales remained at approximately 70% for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010.

Gross Profit and Gross Margin. Our gross profit is equal to our net revenues less our cost of sales. Our gross profit was $7.9 million for the three months ended, March 31, 2011 compared to $6.9 million for the same period last year, an increase of $1.0 million or approximately 15 percent. Gross profit as a percentage of net sales was approximately 30% and 30% for the three months ended March 31, 2011 and 2010, respectively. Our gross margin remained flat because of a similar product mix of sales in the three months ended March 31, 2011 and 2010. No sales of our higher gross margin bamboo wood were made in either quarter; no sales of our higher gross margin high PH bamboo shoots were made in the first quarter of 2010; and only immaterial sales of such high PH bamboo shoots were made in the first quarter of 2011. Our high PH bamboo shoots maintain freshness and are generally sold in the "off season," when fresh bamboo shoots are not available. The season of fresh bamboo shoots is from December to April. Historically, we have generally sold bamboo wood in the second half of the year, and consistent with this practice made no sales of bamboo wood in the first quarter.

Selling and Administrative Expenses. Our selling and administrative expenses increased $1.5 million, or approximately 317%, to $2.0 million for the three months ended March 31, 2011 from $0.5 million for the three months ended March 31, 2010.

Our selling expenses include sales commissions, the cost of promotional materials, salaries and fringe benefits of sales personnel, transportation costs and other sales related costs. Our selling expenses increased to $0.5 million for the three months ended March 31, 2011, from $0.2 million for the three months ended March 31, 2010. As a percentage of net sales, selling expenses for the three months ended March 31, 2011 were approximately 1.8% of net sales, as compared to 0.9% for the three months ended March 31, 2010. Both the dollar and percentage increase of our selling expenses is primarily attributable to the increase in the expenses associated with our sales expansion in Chinese domestic market, and to a lesser extent to employee share options granted.

Our administrative expenses primarily include the costs associated with staff and support personnel who manage our business activities, office expense, professional fees paid to third parties, foreign exchange expense, and depreciation of non-production facilities. Our administrative expenses increased $1.2 million, or approximately 443%, to $1.5 million for the three months ended March 31, 2011 from $0.3 million for the three months ended March 31, 2011. The increase is mainly attributed to compensation expense of approximately $0.5 million arising from the grant of employee share options; an increase in salaries of approximately $0.1 million; provision for liquidated damages of approximately $0.1 million to certain investors as discussed in Note 20 to our condensed consolidated financial statements filed herewith; professional fees of approximately $0.1 million paid to third-party service providers, including counsel, our investor relations firm and an independent appraisal firm; and compensation expense of approximately $0.1 million arising from the grant of warrants to an investor relations firm that we did not incur during the three months ended March 31, 2010. An increase in travel expense of approximately $0.02 million and other factors also contributed to such increase. As a percentage of net sales, administrative expenses increased to approximately 5.8% for the three months ended March 31, 2011 from 1.2% for the three months ended March 31, 2010.

Net Finance Costs. Our net finance costs decreased to approximately $0 million for the three months ended March 31, 2011 from approximately $0.2 million for the three months ended March 31, 2010. The decrease is mainly due to government subsidies for agricultural producers for interest expenses set off in the amount of approximately $0.1 million. If such government subsidies decrease in the future, interest expense set off will also decrease and the results of our operations and cash flow may be adversely affected; however, we do not expect any such adverse effect to be significant.

Income Taxes. We had income taxes of $0.2 million for the three months ended March 31, 2011, as compared to $0.3 million for the three months ended March 31, 2010. This slight decrease was primarily attributable to our decreased taxable profit for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010.

Net Income. Our net income decreased by $0.1 million or approximately 1%, to $6.0 million for the three months ended March 31, 2011. The slight decline on our net income was caused primarily by an increase in gross profit that was more than offset by increases in our sales and administrative expenses.

Liquidity and Capital Resources

As of March 31, 2011, we had cash and cash equivalents of approximately $5.0 million, compared to approximately $10.0 million for December 31, 2010. Our accounts receivable at March 31, 2011 were $25.3 million, compared to $20.9 million at December 31, 2010. Our days’ sales outstanding decreased to 88 days as at March 31, 2011 from 106 days as at December 31, 2010. The decrease was primarily due to a higher portion of sales of fresh products

31


which generally have a shorter payment cycle during the three months ended 31 March 2011 as compared to the three months ended 31 December 2010. We finished the first quarter with working capital of $58.3 million, compared to $51.3 million at December 31, 2010.

The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

Cash Flow
(All amounts in thousands of U.S. dollars)

      Three months Ended     Year Ended  
      March 31,     December 31  
      (Unaudited)     (Audited)  
      2011     2010     2010     2009  
  Net cash provided by (used in) operating activities $  (908 ) $  3,501   $  15,409   $ 1,235  
  Net cash provided by (used in) investing activities   (3,781 )   26     (15,299 )   (2,026 )
  Net cash provided by (used in) financing activities   (345 )   (3,866 )   9,043     1,129  
  Effect of exchange rate on cash and cash equivalents   58     -     414     --  
  Cash and cash equivalents at the beginning of the period   9,988     421     421     83  
  Cash and cash equivalents at the end of the period   5,012     82     9,988     421  

Cash Flows from Operating Activities.

Net cash used in operating activities was $0.9 million for three months ended March 31, 2011, compared to $3.5 million provided by operating activities for three months ended March 31, 2010. The change was primarily attributable to increase in inventories.

Our days' sales outstanding decreased to 88 days as at March 31, 2011 from 106 days as at December 31, 2010. The decrease was due to a higher portion of sales of fresh products which generally have a shorter payment cycle during the three months ended 31 March 2011 as compared to the three months ended 31 December 2010.

Cash Flows from Investing Activities.

Net cash used in investing activities for the three months ended March 31, 2011 was $3.8 million compared to $0.0 million for the three months ended March 31, 2010. The increase of net cash used in investing activities was primarily attributable to the expansion of planting bases and production facilities. During the three months ended March 31, 2011 we invested $0.4 million to acquire property, plant and equipment and an additional $3.4 million to acquire land use rights.

32


Cash Flows from Financing Activities.

Net cash used in financing activities was $0.3 million in the three months ended March 31, 2011 compared to 3.9 million used in financing activities for the three months ended March 31, 2010. The decrease in net cash used in financing activities was mainly attributable to lower repayments to third parties and increased net proceeds from secured borrowings.

As of March 31, 2011 and December 31, 2010, the Company's banking facilities were composed of the following:

 (All amounts, other than percentages, in thousands of U.S. dollars)

      March 31,     December 31,  
      2011     2010  
      (Unaudited)     (Audited)  
               
  Secured short-term borrowings $  7,225   $  6,233  
  Current maturities of secured long-term borrowings   --     23  
               
    $  7,225   $  6,256  
               
  Secured long-term borrowings            
  Interest bearing :            
  - at 14.4% per annum   --     23  
               
      -     23  
  Less: current maturities   --     (23 )
               
    $  -   $  --  

We had the following financing arrangements as of March 31, 2011, including those with third parties:

  • Fujian Shengda Food Co., Ltd entered into a Maximum Amount Mortgage Contract on March 19, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB4,130,000, or $618,615 mortgage to secure certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.

  • Fujian Shengda Food Co., Ltd entered into a Maximum Amount Mortgage Contract on February 27, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB15,160,000, or $2,270,753 mortgage to secure certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.

  • Fujian Shengda Food Development Co., Ltd. entered into a Maximum Amount Mortgage Contract on April, 2009 with Industrial and Commercial Bank of China Limited Jianyang Sub-branch to provide a RMB4,710,000, or $705,491 mortgage to secure certain debts owed to Industrial and Commercial Bank of China Limited Jianyang Sub- branch by Fujian Yaxin Food Co., Ltd.

  • Fujian Shengda Food Co., Ltd. entered into a Maximum Amount Mortgage Contract on March, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB7,840,000, or $1,174,321 mortgage to secure certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.

33


  • Fujian Shengda Import & Export Trading Co., Ltd., an indirectly owned subsidiary of the Company, entered into a Maximum Mortgage Contract on February 27, 2009 with China Construction Bank Corporation Ltd Songxi Branch to provide a RMB29,000,000, or $4,343,788 mortgage guarantee for certain debts owed to China Construction Bank Corporation Ltd Songxi Branch by Fujian Shengda Food Development Co., Ltd.

  • Fujian Yaxin Food Co., Ltd entered into a Maximum Amount Loan Contract on April 7, 2010 with Business Department of Jianyang Rural Cooperatives to provide a maximum-amount of RMB2,800,000, or $423,472 loan within the period from April 7, 2010 to April 6, 2011. Borrower shall not misuse the loan and can only use the loan for the purposes as provided in each loan contract, otherwise a penalty interest rate (100% of the loan interest rate) will be charged.

  • Fujian Yaxin Food Co., Ltd entered into a Maximum Amount Mortgage Contract on April 7, 2010 with Business Department of Jianyang Rural Cooperatives to provide a maximum-amount of RMB2,800,000, or $423,472 mortgage to secure the maximum-amount loan owed to Jianyang Rural Cooperatives by Fujian Yaxin Food Co., Ltd.

  • Fujian Yada Group Co., Ltd. entered into a Credit Line Agreement on July 21, 2010 with Bank of China Limited Nanping Branch whereby Bank of China Limited Nanping Branch provides Fujian Yada Group Co., Ltd. with a credit line of RMB20,000,000, or $2,995,716, for which Mr. Zhan Youdai, Fujian Fulaimeng Wood Technology Co., Ltd., and Songxi Yasheng Food Co., Ltd, and Fujian Yada Group Co., Ltd. provide guarantee.

34


  • Each of Mr. Zhan Youdai, Fujian Fulaimen Wood Technology Co., Ltd. and Songxi Yasheng Food Co., Ltd. entered into a Maximum Guarantee Contract on July 21, 2010 with Bank of China Limited Nanping Branch to guarantee a maximum of RMB20,000,000, or $2,995,716 for debts owed to Bank of China Limited Nanping Branch by Fujian Yada Group Co., Ltd.

  • Fujian Yada Group Co., Ltd. entered into a Domestic Commercial Invoice Discounting Agreement on July 21, 2010 with Bank of China Limited Nanping Branch in connection with line of discount RMB20,000,000, or $2,995,716.

  • Fujian Yada Group Co., Ltd. entered into a Maximum-amount Mortgage Contract on July 21, 2010 with Bank of China Limited Nanping Branch to secure a maximum loan of RMB4,932,418, or $738,806. Without written content of Bank of China Limited Nanping Branch, Fujian Yada Group Co., Ltd. may not transfer, lease, lend, make financial contribution in form of material object, re-handle, reconstruct or dispose of or in any other manner all or part of the collaterals.

  • Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on November 26, 2010 to borrow from China Construction Bank Corporation Ltd Songxi Branch the amount of RMB8,000,000 $1,209,921 for the purpose of capital turnover, and the annual interest rate of the loan shall be 10% higher than the benchmark interest rate announced by the People’s Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from November 26, 2010 to November 26, 2011. Proceeds of the loan may be used for permitted purposes only, otherwise a 100% penalty applies.

  • Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on November 26, 2010 with Songxi Sub-branch of Construction Bank of China Co., Ltd. to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd., an indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB8,000,000, or $1,209,921.

  • Fujian Yada Group Co., Ltd entered into a Mortgage Loan Agreement on February 16, 2010 to borrow from Songxi County rural Credit Cooperative Business Department the amount of RMB6,000,000, or $913,200 for purpose of processing raw materials of agricultural and sideline products, and the monthly interest of the loan shall be 0.793333%. The term of such Mortgage Loan Agreement shall be from February 16, 2010 to August 15, 2011. The loan shall be only used for purposes in accordance with the Mortgage Loan Agreement.

  • Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on February 16, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB2,900,000, or $441,380 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the People’s Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from February 16, 2011 to February 16, 2012.

  • Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on February 16, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, and indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB2,900,000, or $441,380.

35



  • Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on February 16, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB3,100,000, or $471,820 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the People’s Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from February 16, 2011 to February 16, 2012.

  • Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on February 16, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, and indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB3,100,000, or  $471,820.

  • Fujian Yada Group Co., Ltd. entered into a RMB Fund Loan Contract on March 2, 2011 to borrow from Songxi Sub-branch of Construction Bank of Co., Ltd the amount of RMB5,000,000, or $761,000 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the People’s Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from March 2, 2011 to February 2, 2012.

  • Mr. Zhan Youdai and Ms. Zhou Liufeng entered into a Natural Person Guarantee Contract on March 2, 2011 with Songxi Sub-branch of Construction Bank of China Co., Ltd to assume the several and joint guarantee liability for the loan under a RMB Fund Loan Contract between Fujian Yada Group Co., Ltd, and indirectly owned subsidiary of the Company, and Songxi Sub-branch of Construction Bank of China Co., Ltd. valued at RMB5,000,000, or $761,000.

  • Fujian Yada Group Co., Ltd and Industrial and Commercial Bank of China Limited Jianyang Sub-branch entered into a Maximum Amount Guarantee Contract on June 28, 2010 to guarantee a maximum of RMB20,000,000, or $3,044,001 for debts within the period from June 28, 2010 to June 27, 2011 owed to the Industrial and Commercial Bank of China Limited Jianyang Sub-branch by Fujian Yaxin Food Group Co., Ltd.

  • Fujian Yaxin Food Co., Ltd. entered into a Domestic Factoring Contract on January 31, 2011 to borrow from Industrial and Commercial Bank of China Limited Jianyang Sub-branch the amount of RMB2,600,000, or $395,720 for purpose of capital turnover, and the annual interest rate of the loan shall be benchmark interest rate announced by the People’s Bank of China as of the value date. The term of such RMB Fund Loan Contract shall be from January 31, 2011 to the date when Fujian Yaxin Food Co., Ltd fulfills all the obligations under the Domestic Factoring Contract.

The following table summarizes key elements of the aforementioned twenty-two financing arrangements:

Contract





Bank





Borrower/
Mortgager/
Guarantor



Loan/Mortgaged/
Guaranteed
Amount



Repayment Term
of the Loan/
Repayment Term
of the Loan
Covered by
Mortgage/Guarant
ee
Interest Rate





Maturity





Maximum
Amount
Mortgage
Contract
China
Construction
Bank Corporation
Ltd Songxi
Branch
Fujian Shengda
Food Co., Ltd.


$618,615



March 19, 2009 to
March 19, 2012


N/A



March 19, 2012



Maximum
Amount
Mortgage
Contract
China
Construction
Bank Corporation
Ltd Songxi
Branch
Fujian Shengda
Food Co., Ltd


$2,270,753



February 27, 2009
to February 27,
2012

N/A



February 27, 2012



Maximum
Amount
Mortgage
Contract
Industrial and
Commercial Bank
of China Limited
Jianyang Sub-
branch
Fujian Shengda
Food
Development Co.,
Ltd.
$705,491



April 1, 2009 to
March 31, 2011


N/A



March 31, 2011



36



Maximum Amount Mortgage
Contract
China Construction
Bank Corporation
Ltd Songxi Branch
Fujian Shengda Food Co., Ltd.

$1,174,321

March, 2009 to March 2012

N/A

March 2012

Maximum Amount
Mortgage
Contract
China Construction
Bank Corporation
Ltd Songxi
Branch
Fujian Shengda Import & Export Trading Co., Ltd. $4,343,788 February 27, 2009 to February 27, 2012 N/A February 27, 2012
Maximum
Amount Loan
Contract
Business
Department of
Jianyang Rural
Cooperatives
Fujian Yaxin
Food Co., Ltd

$423,472


April 7, 2010 to
April 6, 2011

N/A


April 6,2011


Maximum
Amount
Mortgage
Contract
Business
Department of
Jianyang Rural
Cooperatives
Fujian Yaxin
Food Co., Ltd

$423,472


April 7, 2010 to
April 6, 2011

N/A


April 6, 2011


Credit Line
Agreement
Bank of China
Limited Nanping
Branch
Fujian Yada
Group Co., Ltd.
$2,995,716 (credit
line)
July 21, 2010 to
June 18, 2011
N/A

June 18, 2011

Maximum
Guarantee
Contract


Bank of China
Limited Nanping
Branch


Mr. Zhan Youdai,
Fujian Fulaimen
Wood Technology
Co., Ltd. and
Songxi Yasheng
Food Co., Ltd.
$2,995,716




July 21, 2010 to
June 18, 2011



N/A




June 18, 2011




Domestic
Commercial
Invoice
Discounting
Agreement
Bank of China
Limited Nanping
Branch

Fujian Yada
Group Co., Ltd.


$2,995,716



July 21, 2010 to
June 18, 2011


N/A



June 18, 2011



Maximum-Amount
Mortgage Contract
Bank of China Limited Nanping Branch Fujian Yada Group Co., Ltd. $738,806 July 21, 2010 to June 18, 2011 N/A June 18, 2011
RMB Fund
Loan Contract







China
Construction
Bank Corporation
Ltd. Songxi
Branch




Fujian Yada
Group Co., Ltd.







$1,209,921








November 26, 2010
to November 26,
2011






Annual interest
rate of the loan
shall be 10%
higher than the
benchmark
interest rate
announced by the
People’s Bank Of
China as of the
value date
November 26,
2011







Natural Person
Guarantee
Contract

Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd.
Mr. Zhan Youdai
and Ms. Zhou
Liufeng

$1,209,921



November 26, 2010
to November 26,
2011

N/A



November 26,
2011


Mortgage
Loan
Agreement

Songxi County
Rural Credit
Cooperative
Business
Department
Fujian Yada
Group Co., Ltd


$913, 200



February 16, 2010
to August 15, 2011


0.793333%
monthly


August 15, 2011



RMB Fund
Loan Contract





Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd.


Fujian Yada
Group Co., Ltd.





$441,380






February 16, 2011
to February 16,
2012




Annual interest
rate shall be the
benchmark
interest rate
announced by the
People’s Bank Of
China as of the
value date
February 16, 2012






Natural Person
Guarantee
Contract

Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd
Mr. Zhan Youdai
and Ms. Zhou
Liufeng

$441,380



February 16, 2011
to February 16,
2012

N/A



February 16, 2012



RMB Fund
Loan Contract




Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd.

Fujian Yada
Group Co., Ltd.




$471,820





February 16, 2011
to February 16,
2012



Annual interest
rate shall be the
benchmark
interest rate
announced by the
People’s Bank Of
China as of the value date
February 16, 2012





37



Natural Person
Guarantee
Contract

Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd
Mr. Zhan Youdai
and Ms. Zhou
Liufeng

$471,820



February 16, 2011
to February 16,
2012

N/A



February 16, 2012



RMB Fund
Loan Contract





Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd.


Fujian Yada
Group Co., Ltd.





$761,000






March 2, 2011 to
February 2, 2012





Annual interest
rate shall be the
benchmark
interest rate
announced by the
People’s Bank Of
China as of the
value date
February 2, 2012






Natural Person
Guarantee
Contract

Songxi Sub-
branch of
Construction
Bank of China
Co., Ltd
Mr. Zhan Youdai
and Ms. Zhou
Liufeng

$761,000



March 2, 2011 to
February 2, 2012


N/A



February 2, 2012



Maximum
Amount
Guarantee
Contract
Industrial and
Commercial Bank
of China Limited
Jianyang Sub-
branch
Fujian Yada
Group Co., Ltd


$3,044,001



June 28, 2010 to
June 27, 2013


N/A



June 27, 2013



Domestic
Factoring
Contract





Industrial and
Commercial Bank
of China Limited
Jianyang Sub-
branch



Fujian Yaxin
Food Co., Ltd






$395,720







January 31, 2011 to
the date when
Fujian Yaxin Food
Co., Lt fulfills all
the obligations
under the Contract


Annual interest
rate shall be the
benchmark
interest rate of the
loan announced
by the People’s
Bank Of China as
of the loan issuing
day
The date when
Fujian Yaxin
Food Co., Ltd.
fulfills all the
obligations under
the Contract


Solely for the convenience of the reader, the above amounts were converted from RMB to U.S. dollars at specified rates, as follows: for any contract entered into in the first quarter of 2011, the conversion rate was 6.5703 RMB per dollar; for any contract entered into in 2010, the conversion rate was 6.6120 RMB per dollar; and for any contract entered into 2009, the conversion rate was 6.6762 RMB per dollar.

Many of the financing agreements contain covenants prohibiting us from borrowing “substantial” amounts of money, or leasing or subsequently pledging already pledged assets, without the prior consent of each relevant lender. In addition, we are prohibited from selling a “significant” amount of its assets without prior consent from each relevant lender. The terms “significant” and “substantial” are not defined in the relevant contracts. In assessing our compliance with the financing agreements we have determined that a value exceeding approximately 10% of our total assets, or about $8.8 million as of March 31, 2011, would be significant or substantial and would trigger a requirement to obtain the prior consent of various lenders. However, the lenders may have a different interpretation of the limitation on our ability to borrow money or sell assets, and it may be lower than our understanding of the provisions of the loan agreements. If we were to inadvertently sell assets or borrow money with a value in excess of what our lenders believe is permissible without their consent, they could pursue breach of contract and other claims against us, which could harm our business and reputation.

Contingent Liabilities

We have made a provision of approximately $604,000 to cover potential liability with respect to certain unpaid social insurance obligations for full-time employees. We believe that the total potential liabilities include cost of rectifying non-compliance of the social insurance obligations for full-time employees and temporary workers, and the cost of rectifying non-compliance of the housing fund obligations for full-time employees and temporary workers, and may be as much as $1,499,000. See “Risk Factors—We may face claims or administrative penalties for non-execution of labor contracts or non-payment and/or underpayment of the social insurance and housing fund obligations in respect of our temporary workers and full-time employees.” in our annual report on Form 10-K for the year ended December 31, 2010. The provision reflects our good faith estimate of the costs of rectifying our non-compliance with these obligations; actual costs could be lower or higher. If we are required to rectify our non-compliance and the costs of doing so approach or exceed our good faith estimate, it would have a material adverse effect on our liquidity and capital resources.

Capital Expenditures

Our capital expenditures were approximately $0.5 million for the quarter ended March 31, 2011 and $19.5 million for the year ended December 31, 2010. Our capital expenditures were mainly used to acquire property, plant and equipment and land use rights to expand our production capacity. We currently estimate that our aggregate capital expenditures in fiscal year 2011 will be approximately $29 million, which we intend to use primarily for expansion of bamboo forests, constructing additional cold storage and preliminary processing facilities.

38


Capital Resources

At March 31, 2011 we did not have any unused credit facility that was available to us.

We believe that our cash on hand, and cash flow from operations will meet our expected capital expenditures and working capital requirements for at least the next 12 months. However, our cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part I, Item 1A titled “Risk Factors.” In addition, we may, in the future, require additional cash resources due to changed 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.

Recent Accounting Pronouncements

See Note 3 to our audited consolidated financial statements for the three months ended March 31, 2011 and 2010 beginning on page 13.

Item 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide disclosure under this item.

Item 4.      CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, on a timely basis; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934, as amended.

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2011 for the reasons discussed below related to material weaknesses in our internal control over financial reporting.

In our annual report on Form 10-K for the period ended December 31, 2010, we identified certain material weaknesses in our internal controls over financial reporting. These weaknesses included:

39


  1.

we extend credit to certain of our customers, but do not have detailed procedures in place for documenting our analysis, establishment or management of those credit terms;

     
  2.

we have not completed implementation of procedures to ensure our sight and verification of documentation and sales acknowledgements for delivery of product and revenue recognition;

     
  3.

we have limited staff and limited documented procedures for managing our procurement process and managing our inventory levels; and

     
  4.

we did not maintain sufficient in-house personnel resources with the technical accounting knowledge, expertise and training in the selection, application and implementation of GAAP, particularly with respect to certain complex or non-routine transactions.

The existence of these material weaknesses could impair our ability to provide timely and accurate financial information.

Changes in Internal Controls over Financial Reporting.

No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Internal Controls over Financial Reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1.      LEGAL PROCEEDINGS.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. As of the date of this report, we are not a party to any litigation which we believe would have a material adverse effect on our business operations or financial condition.

Item 1A.   RISK FACTORS.

You should carefully consider the risk factors discussed in our Report on Form 10-K filed March 31, 2011, as amended, the occurrence of which could materially affect harm our business, financial position and results of operations, before making an investment decision. Such risk factors are incorporated herein by reference.

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Item 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

On February 10, 2011, we issued a warrant to purchase 50,000 shares of common stock to CCG Investor Relations Partners LLC. The warrant is exercisable at a price of $4.00 per share and expires on February 10, 2016. The issuance of the warrant was made in reliance on the exemption provided by Section 4(2) of the Securities Act for theoffer and sale of securities not involving a public offering and Regulation S promulgated under Securities Act.

Item 3.      Defaults Upon Senior Securities.

     None.

Item 4.      (REMOVED AND RESERVED).

Item 5.      OTHER INFORMATION.

     None.

Item 6.      EXHIBITS.

     See the Exhibit Index immediately following the signature page of this report.

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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.

  ASIA GREEN AGRICULTURE CORPORATION
   
Date: June 17, 2011 /s/ Tsang Yin Chiu Stanley
  Tsang Yin Chiu Stanley, Chief Financial Officer
  (Principal Accounting Officer)

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Exhibit            
No.   Document Description     Incorporation by Reference  
   

 

 

 
3.1  

The Amended and Restated Articles of Incorporation of Asia Green Agriculture Corporation.

 

 

Filed as Exhibit 3.1 to the registrant’s Form S- 1/A filed on March 22, 2011

 
   

 

 

 
4.5  

SMSA Palestine Acquisition Corp. 2010 Stock Incentive Plan.

 

 

Filed as Exhibit 4.5 to the registrant’s Form S- 8 filed on February 18, 2011

 
   

 

 

 
10.1  

English Translation of the Mortgage Loan Agreement dated February 16, 2011 by and between Fujian Yada Group Co., Ltd and Songxi County Rural Credit Cooperative Business Department.

 

 

Filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.2  

English Translation of the RMB Fund Loan Contract dated February 16, 2011 by and between Fujian Yada Group Co., Ltd and China Construction Bank Co., Ltd Songxi Branch.

 

 

Filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.3  

English Translation of the Natural Person Guarantee Contract dated February 16, 2011 by and among Zhan Youdai, Zhou Liufeng and China Construction Bank Co., Ltd Songxi Branch.

 

 

Filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 

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10.4  

English Translation of the RMB Fund Loan Contract dated February 16, 2011 by and between Fujian Yada Group Co., Ltd and China Construction Bank Co., Ltd Songxi Branch.

 

 

Filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.5  

English Translation of the Natural Person Guarantee Contract dated February 16, 2011 by and among Zhan Youdai, Zhou Liufeng and China Construction Bank Co., Ltd Songxi Branch.

 

 

Filed as Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.6  

English Translation of the RMB Fund Loan Contract dated March 2, 2011 by and between Fujian Yada Group Co., Ltd and China Construction Bank Co., Ltd Songxi Branch.

 

 

Filed as Exhibit 10.6 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.7  

English Translation of the Natural Person Guarantee Contract dated March 2, 2011 by and among Zhan Youdai, Zhou Liufeng and China Construction Bank Co., Ltd Songxi Branch.

 

 

Filed as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.8  

English Translation of the Maximum Amount Guarantee Contract dated June 28, 2010 by and between Fujian Yada Group Co., Ltd and Industrial and Commercial Bank of China Limited Jianyang Sub- branch.

 

 

Filed as Exhibit 10.8 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
10.9  

English Translation of the Domestic Factoring Contract dated January 31, 2011 by and between Fujian Yaxin Food Co., Ltd and Industrial and Commercial Bank of China Limited Jianyang Sub-branch.

 

 

Filed as Exhibit 10.9 to the registrant's Quarterly Report on Form 10-Q filed on May 16, 2011

 
   

 

 

 

 

 
31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

   

 

 

 
31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

   

 

 

 
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C, Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

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