African Gold Acquisition Corpor (NYSE:AGAC)

Asia Green Agriculture Corporation
Condensed Consolidated Statements of Income and Comprehensive Income
For the three and six months ended June 30, 2014 and 2013
(Stated in US Dollars)

Management Discussion and Analysis

Net Sales. Our net sales consist of revenue derived from the sales of our products, less discounts and returns. For the three months ended June 30, 2014, our net sales were $16.0 million compared to $21.7 million for the same period of last year, a decrease of $5.7 million or approximately 26%. The decrease was primarily due to decreased sales volume in the second quarter of 2014. Of the decrease in net sales, approximately $7.0 million was attributable to decreased sales volume of our products, while approximately $0.7 million due to higher average selling prices of our products and approximately $0.6 million was due to the appreciation of the RMB against the US dollars.

Net Income. Our net income attributable to Company’s common stockholders decreased by $4.5 million or approximately 88%, to $0.6 million for the three months ended June 30, 2014 from $5.1 million for the three months ended June 30, 2013. The main reasons for the decrease of our net income were due to change in our key components of our results of operations discussed above.

Item 4.01 Changes in Registrant’s Certifying Accountant.

Resignation of PKF Hong Kong

On August 12, 2014, PKF, Certified Public Accountants, Hong Kong, China, a member firm of PKF International Limited network of legally independent firms (“PKF Hong Kong”) notified us that it was resigning as our registered independent accounting firm. PKF Hong Kong has informed us that their decision to resign at this time was solely the result of its decision to withdraw from acting as an independent accounting firm for United States public companies.

The auditor’s reports that PKF Hong Kong issued in connection with our financial statements for the years ended December 31, 2013 and 2012 did not contain any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

During the years ended December 31, 2013 and 2012, there were no disagreements between us and PKF Hong Kong on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to PKF Hong Kong’s satisfaction, would have caused them to make reference thereto in their reports on our financial statements for such periods.

During the years ended December 31, 2013 and 2012 and through August 12, 2014, no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K, occurred.

We provided PKF Hong Kong with a copy of the disclosure set forth under this Item 4.01 and requested that PKF Hong Kong furnish a letter addressed to the Securities & Exchange Commission stating whether or not it agrees with the above statements. A copy of the letter from PKF Hong Kong is filed with this report as Exhibit 16.1.

Appointment of PKF Littlejohn LLP

On August 14, 2014 our audit committee approved the appointment of PKF Littlejohn LLP of London, United Kingdom, to serve as our registered independent accounting firm. PKF Littlejohn LLP is a member of the PKF International Limited network, as is PKF Hong Kong, and has been engaged to review the financial statements that will be included in our upcoming Quarterly Report on Form 10-Q.

We did not have any consultations with PKF Littlejohn LLP during the two years ended December 31, 2013 and the subsequent interim period through the date of engagement. Prior to the engagement, we had not consulted with PKF Littlejohn LLP with respect to (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable event” (as those terms are defined in Item 304 of Regulation S-K).

Item 8.01 Other Events.

As previously reported on Form 8-K filed on November 21, 2013 (the “Prior Form 8-K”), the Board of Directors of Asia Green Agriculture Corporation (the “Company”; OTCBB: AGAC) received a preliminary non-binding proposal from Mr. Youdai Zhan, Chairman and Chief Executive Officer of the Company, to acquire all of the outstanding shares of common stock of the Company not currently owned, legally or beneficially, by Mr. Zhan, for $0.55 per share in cash. If implemented, the proposal would result in a “going private transaction” and the Company becoming a privately-held company.

In response to the proposal, as also reported in the Prior Form 8-K, the Company’s Board of Directors formed a special committee of independent directors consisting of Messrs. Cheng Sing Wai, Lum Pak Sum and Mak Ka Wing Patrick (the “Special Committee”) to evaluate and negotiate the proposed transaction with Mr. Zhan. The Special Committee retained Duff & Phelps Securities LLC and Duff & Phelps, LLC as its financial advisor and Sheppard, Mullin, Richter & Hampton LLP as legal counsel to assist it with the review and negotiations.

The Special Committee reviewed possible transaction structures, including long-form merger, involving a front-end tender offer and a top-up option, and analyzed key deal terms and provisions to protect the minority stockholders and assure fairness in the transaction.

During the negotiations with the Special Committee, Mr. Zhan received a number of unsolicited inquiries from certain unaffiliated stockholders of the Company who indicated an interest in potentially rolling over their shares into a newly formed corporation Asia Green Food Enterprise Limited (the “Parent”) and continuing their investment in the Company. These unaffiliated stockholders were comprised of (i) certain stockholders that participated in the private placement of $15.3 million of common stock and warrants that took place on August 20, 2010, and (ii) certain stockholders affiliated with the Company’s major stockholder when the Company operated under its former name SMSA Palestine Acquisition Corp. Subsequently, Mr. Zhan notified (the “Notification”) the Board of Directors, including the members of the Special Committee, that certain stockholders holding approximately 93.6% of the Company’s common stock (the “Buyer Group”) intended to contribute their shares to the Parent . Mr. Zhan also advised the Board of Directors that the Parent intended to create a subsidiary entity, AGF Industrial Limited (the “MergerSub”), and effect a short form merger of the MergerSub with and into the Company under Chapter 92A.180 of the Nevada Revised Statutes. Upon consummation of this merger, the Company would be the surviving entity and all shares of the Company’s common stock (other than shares held by MergerSub and any treasury shares or shares for which dissenter’s rights have been properly exercised and not withdrawn or lost) would be cancelled and exchanged for the right to receive the merger price of $0.60 per share of common stock.

Asia Green Agriculture Corporation
Condensed Consolidated Statements of Income and Comprehensive Income
For the three months ended March 31, 2014 and 2013
(Stated in US Dollars)

Management Discussion and Analysis

Net Sales

Our net sales consist of revenue derived from the sale of our products, less discounts and returns. For the three months ended March 31, 2014, our net sales were $35.3 million compared to $36.0 million for the same period of last year, a decrease of $0.7 million or approximately 1.9% . Of such decrease, approximately $7.8 million was attributable to decreased sales volume of our products, primarily as a result of lower supply attributable to dry weather conditions. This decrease was partly offset by approximately $6.1 million due to higher average selling prices of our products. The impact of RMB appreciation against US$ was approximately $1.0 million during the first quarter of 2014.

Net Income

Our net income attributable to Company’s common stockholders decreased by $0.6 million or approximately 6.9%, to $8.1 million for the three months ended March 31, 2014 from $8.7 million for the three months ended March 31, 2013. The main reason for the decrease of our net income was due to the decrease in net sales discussed above.

Management Discussion and Analysis

Results of Operations

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Net sales

Our net sales consist of revenue derived from the sale of our food products, less discounts and returns. For the year ended December 31, 2013, our net sales were $128.7 million compared to $125.7 million for the same period of last year, an increase of $3.0 million or approximately 2%. The increase was due to the appreciation of the RMB against the U.S. dollars, which resulted in an increase of net sales of $3.3 million. Without the change in currency conversion, our net revenue number was relatively unchanged. We experienced a $1.3 million increase in net sales as a result of increases in our average selling prices for our products. These increases were offset by approximately $1.6 million due to lower average sales volume of our products for the current year.

Net income

Our net income decreased by approximately $3 million, or approximately 8%, to approximately $34.4 million for the year ended December 31, 2013 from approximately $37.4 million for the year ended December 31, 2012. The main reasons for the deterioration of our net income were due to the changes in our other key components of results of operations discussed above.

Item 8.01 Other Events. 

The special committee of independent directors of the Board of Directors of Asia Green Agriculture Corporation (the “Company”; OTCBB: AGAC), consisting of Messrs. Cheng Sing Wai, Lum Pak Sum and Mak Ka Wing Patrick (the “Special Committee”), has appointed Duff & Phelps Securities LLC and Duff & Phelps, LLC (together, “Duff & Phelps”) as its independent financial advisor. In addition, the Special Committee has retained Sheppard, Mullin, Richter & Hampton LLP to serve as its legal counsel.

As previously reported on Form 8-K filed on November 21, 2013, the Company received a preliminary non-binding proposal from Mr. Youdai Zhan, Chairman and Chief Executive Officer of the Company, to acquire all of the outstanding shares of common stock of the Company not currently owned, legally or beneficially, by Mr. Zhan, for $0.55 per share in cash. If implemented, the proposal would result in the Company becoming a privately-held company. Duff & Phelps will provide financial advisory services to assist the Special Committee in the performance of its duties and the evaluation and negotiation the proposed transaction with Mr. Zhan.

Item 1. FINANCIAL STATEMENTS.

We have been gaining brand recognition in China, especially in Fujian Province. At June 30, 2011 we had expanded our sales to approximately 1,200 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.

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 that 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 growth strategy is currently centered on the following five initiatives:

• Expand our planting bases.
• 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.
• Further enhance our brand recognition.

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. Further enhance our brand recognition.

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 $8.1 million as of December 31, 2010, 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.

Our capital expenditures were approximately $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 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.

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.

GeoTeam Note: The ability to meet capital expenditures from internal sources was not as clear in the third quarter 10Q when compared to this  2010 10K.

GeoTeam Note: 2010 vs. 2009 fourth quarter EPS was $0.13 vs. $0.23

We have a 1,500 metric ton cold storage facility for storing fresh and semi-finished products, which is fully utilized. We are investing approximately $2.9 million in a new 10,000 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 November 2010, the construction plan has been finalized and the construction work has commenced.

We have been gaining brand recognition in China, especially in Fujian Province.  We will further enhance our branding through branded counters in supermarkets. We also plan to open a number of new exclusive Yada-branded distribution locations in select locations in China. At September 30, 2010 we had expanded our sales to approximately 700 supermarket stores and had opened 3 Yada-branded distribution locations.

We believe that our cash on hand, and cash flow from operations, will meet our expected capital expenditure and working capital requirements for the next 12 months.

In connection with the Securities Purchase Agreement, the Majority Shareholder entered into a make good escrow agreement (the "Make Good Escrow Agreement") pursuant to which he pledged to the investors that invested under the terms of the Securities Purchase Agreement, 1,939,407 shares of our common stock owned by the Majority Shareholder. The shares will be released from the pledge if we meet certain operating milestones contained in the Make Good Escrow Agreement. If we fail to meet the operating milestones, then the investors will have the right to receive the shares pursuant to the pledge and the terms of the Make Good Escrow Agreement.  The make good EPS target is defined as net income divided by shares outstanding at the time of the close which appears to about 14,729,756 (does not include warrants or proposed reverse split).

2010 EPS make good target: $18,176,145 divided by commons shares outstanding= $1.23 

2011 EPS make good target: $27,264,218 divided by commons shares outstanding= $1.85

GeoTeam® 2009 Pro-forma EPS calculation:  $0.91

On August 20, 2010 Sino Oriental became a public entity via a reverse merger transaction.

Concurrent Private placement:

On August 20, 2010, under the terms of the Securities Purchase Agreement, we sold 1,939,407 units, each consisting of one share of our common stock and a warrant to purchase one-fifth of a share of our common stock, to certain institutional investors for a total of $15.3 million.

Company Snapshot:

Green and organic food producer

Industry Snapshot:

• Bamboo is a group of perennial evergreen plants and is one of the fastest growing woody plants in the world. Bamboo shoots are new bamboo culms that come out of the ground. They are edible and widely used in a number of Asian dishes and broths.
  
• China has over 10 million total acres (40,468 square kilometers) of bamboo forest, placing it first in the world (Source: China Bamboo Shoot Association).  China is also the largest producer of bamboo shoot products with over 90% of global market share (Source: China Bamboo Shoot Association).  The overall Chinese bamboo shoot industry is highly fragmented; there are currently over 2,000 bamboo shoot companies in China.  Based on information from the China Bamboo Shoot Association and our estimate, we believe that we are one of the largest producers of bamboo shoot products in China.
  
• The global organic food market has experienced over 30% growth in the past few years. China is one of the world's fastest growing markets for organic food products both in terms of consumer demand and commercial production

Post Merger Share Calculation:

•   5,000,004: Pre reverse merger outstanding shares
•   3,895,272: Shares cancelled as part of the Share Exchange
• 11,685,617: Newly issued shares of Common Stock
•   1,939,407: Shares associated with private placement
•     387,881 : Warrants associated with private placement exercisable @ $9.45 per share
•      135,759: Warrants issued to financial institutions exercisable @ $9.45 per share

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  15,253,396

Please not that we are taking a closer look at the share count. Although we did not find any supporting language in recent filings, we suspect that the shell company may have enacted a forward stock split and subsequent reverse split that has not yet been refelcted in the price.

Financial Snapshot:

Three months ended June 30, 2010

• Net sales were $10.0 million compared to $4.8 million for the same period last year, an increase of $5.2 million or 109%.
  
• Our net income increased by $1.6 million or 294%, to $2.1 million for the three months ended June 30, 2010 from $0.5 million for the three months ended June 30, 2009.

Fiscal year ended 2009

• For the fiscal year ended 2009 our net sales were $39.8 million compared to $25.8 million for the same period last year, an increase of $14.0 million or 54%.
  
• Our net income increased $5.4 million or 81%, to $12.1 million for the fiscal year ended 2009 from $6.7 million for the fiscal year ended 2008.

GeoTeam note: The company has retained a top 100 auditor:

On August 19, 2010, our board of directors recommended and approved the engagement of PKF Hong Kong effective as our independent accountant to audit our financial statements for its fiscal year ended December 31, 2010. 

We have audited the accompanying consolidated balance sheets of Fujian Yada Group Co., Ltd. (the "Company") and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).