China Green Agriculture (NYSE:CGA)

Ken Ren – China Green Agriculture – Chief Financial Officer

Let me spend a few minutes updating you on a few of our strategic initiatives. In the fiscal year 2010, we introduced 23 new products, including nine new high margin liquid fertilizer products in the fourth quarter alone. We added 43 new distributors during the past twelve months bringing our total number of distributors to 573 number of distributors. Having signed agreements with existing distributors to becoming authorized reseller of our products in 608 of their retail stores, we are aggressively expanding our distribution. Finally, we have opened 15 directly-owned stores since launching our pilot program in January 2010. The Company owned and operated stores enhanced China Green Agriculture brands in new markets where we do not compete our existing distributors. In June, we completed each one of our research and development centers, completing the construction of a hundred sunlight greenhouses on our 88 acre facility in Beijing. The land purchase prior subsidy reported in our SEC filing is accurate and truly reflects the total cost per U.S. debt. The transaction was constructed through a land transfer acquisition from a state owned entity. It was not conducted at a public auction from the Land and the Natural Resource Bureau. The purchase cost was reported at approximately $10.8 million, which included our land transfer fee, land compensation fee, land use rights transfer fee, state tax, registration fee, survey and mapping fee, and appraisal fee.

The land purchase prior subsidy reported in our SEC filing is accurate and truly reflects the total cost per U.S. debt. The transaction was constructed through a land transfer acquisition from a state owned entity. It was not conducted at a public auction from the Land and the Natural Resource Bureau. The purchase cost was reported at approximately $10.8 million, which included our land transfer fee, land compensation fee, land use rights transfer fee, state tax, registration fee, survey and mapping fee, and appraisal fee.

In July, we completed seedling conservation and expected seedling transportation, transplantation, for this a hundred greenhouses by October 2010.  We were also on schedule to complete Phase II of the project, which includes the construction of 12 intelligent greenhouses by the end of calendar year 2011.  Once completed, this new research and development opportunity will allow us to introduce more customized, higher margin fertilizer products and the conservation of more agriculture products.
 
We also launched nine new liquid-based fertilizer products, accounting for almost 4% of our fertilizer revenues in the fourth quarter.  We also added 21 new distributors during the quarter and selected over 300 stores as China Green Agriculture authorized retailers of our JiNong branded humic acid-based compound fertilizer products.  We need to first lay the foundation for sustained growth in our fully line product and revenues and profit margins.
 
In July, we closed our acquisition of Gufeng and its wholly-owned subsidiary Tianjuyuan for a total purchase price of approximately $31.8 million in cash and stock as we disclosed in our 8-K filed on July 7, 2010.  We also intend to provide up to $14.7 million to Gufeng for their working capital needs in the future as needed.
 
In the three months ended March 31, 2010 Gufeng’s revenue increased 22.4% to $17.1 million, and net income increased 46.8% to $1.1 million.  We continue to believe that Gufeng will contribute at least 88.4% in revenue and at least $10.6 million in net income for the fiscal 2011, which will end on June 30, 2011.  I will provide a detailed breakdown of our financial projections regarding Gufeng in a minute when I discuss our fiscal year 2011 guidance.
 
Let me review the strategic rationale for this acquisition.  Gufeng improves our competitive position in three ways.  It provides us with significantly greater capacity to 355k metric tons per year, it advances our distribution by 26.0% to over 700 distributors, and it broadens our portfolio of organic and non-organic fertilizer to serve a larger base of customers.  We have already discussed several images with Gufeng’s management team that we will implement over the next 3 to 12 months.

Now, our guidance, for the fiscal year ending June 30, 2011, we are forecasting revenues of $150.5 million to $152.8 million, net income of $36.2 million to $36.8 million, and earnings per share of $1.35 to $1.37 based on $26.8 million weighted average shares with presenting growth of 188%, 72.6%, and 49.5%, respectively.
 
For the first quarter ended September 30, 2010, we expect revenues of $38.2 million to $38.6 million, net income of $7.7 million to $8.0 million, and earnings per share of $0.29 to $0.30 based on $26.8 million weighted average shares.
 
This guidance reflects the anticipated strong sales resulting from the Company's increased production capacity from 55k metric tons to 355k metric tons, which reflect a full year contribution from Gufeng incorporating our consolidated fiscal year 2011, financial guidance is approximately $88.4 million of revenue and $10.6 million of net income from Gufeng.

Currently, one-third of Gufeng's 300k metric tons production facility is capable of producing organic compound fertilizers.  We plan to invest $7.7 million in capital expenditures for Gufeng, which include $1.3 million to convert existing 100k metric tons of production facility from chemical fertilizers to higher market humic acid-based organic compound fertilizers with full conversions to be completed by the end of the calendar year 2010.  In addition, we will also spend $6.3 million to build a new 200k metric ton production line, which will produce humic acid organic compound fertilizers with construction beginning this September and the production commencing by March 2011.  Upon completion Gufeng's production capacity will increase by 66.0% to 500k metric tons, out of which 400k metric tons will be producing humic acid-based organic compound fertilizers.
 
In addition, we will spend approximately $14.7 million on working capital to ramp up Gufeng's production utilization from the current 60.0% to 80.0% by annual fiscal 2012.  Once we are able to fully transition Gufeng's production and distribution to our target levels, we expect a $140 million in revenue contribution from Gufeng in fiscal 2012.  We also expect Gufeng's gross margin to improve from approximately 10.0% in the fiscal third quarter ended March 2010 to 20% by the fiscal fourth quarter ended June 30, 2011.
 
Finally, we expect Gufeng to introduce 15 new products and add over 30 new distributors in the fiscal year 2010, two months after closing acquisition.  Management remains very confident about the financial and strategic benefits that this acquisition will provide for our Company and to our shareholders.
 
Before I conclude my prepared remarks, I would like to discuss our strong operating model.  We ended fiscal year 2010 with over $62 million of cash and cash equivalents and no debt on our balance sheet, $86.2 million of working capital generated $12.2 million of cash flows from operation, and have minimal bad debt exposure.
 
We were able to sustain a healthy growth in profits and cash flows for several reasons.  Our value-added products increased our customers' yields; thereby, improving their sales and profits.  We have a significant opportunity to grow our market share in a highly risk fragmented fertilizer market in China by introducing new products and expanding in new territories.
 
The ongoing research and development efforts and significantly expanded manufacturing capacity and the product portfolio from Gufeng provides the foundation of future growth.  In September 2009, JiNong was granted with a value-added tax exemption from September 1, 2009 to December 31, 2015 by the Local Taxation Bureau.  We have ongoing productivity discussions with local and central government officials about ways we can help reduce pollution and improve the welfare of newer farmers.
 
On the corporate governance front, we are committed by abiding the high standards that comes with being a NYSE-listed Company.  As such, management is evaluating and looking to implement specific action items to help us accomplish this goal.  I, along with the rest of our management team and board of directors, remain extremely confident in our ability to execute and with the integrity of our financial controls to ensure accurate and complete reporting.  We look forward to providing you with current updates on improvements we make in this regard.

 This concludes our prepared remarks for the fourth quarter of fiscal year 2010. I would now like to invite listeners to ask any questions you may have with Chairman Mr. Li and myself.