China Green Agriculture, Inc. - FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended December 31, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____________ to ____________

Commission File Number 001-34260

CHINA GREEN AGRICULTURE, INC.

(Exact name of registrant as specified in its charter)

Nevada	36-3526027
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

	3 rd Floor, Borough A, Block A, No. 181,
	South Taibai Road, Xi’an, Shaanxi Province,
	People’s Republic of China 710065
	(Address of principal executive offices) (Zip Code)

	+86-29-88266368
	(Issuer's telephone number, including area code)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
( 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 o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of February 8, 2011, there were 26,848,259 shares of common stock, $.001 par value per share, issued, of which 25,937,887 were outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Balance Sheets	4
	As of December 31, 2010 and June 30, 2010 (Unaudited)

	Consolidated Statements of Income and Comprehensive Income	5
	For the Three and Six Months Ended December 31, 2010 and 2009 (Unaudited)

	Consolidated Statements of Cash Flows	6
	For the Six Months Ended December 31, 2010 and 2009 (Unaudited)

	Notes to Consolidated Financial Statements	7
	As of December 31, 2010 (Unaudited)

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	44

Item 6.	Exhibits	44

Signatures		45

Exhibits/Certifications		46

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2010 AND JUNE 30, 2010

(UNAUDITED)

	December 31, 2010		June 30, 2010

ASSETS

Current Assets
Cash and cash equivalents	$	56,686,587	$	62,335,437
Accounts receivable, net		14,585,377		15,571,888
Inventories		30,151,381		11,262,647
Other assets		326,937		86,824
Related party receivables		185,268		-
Advances to suppliers		15,779,347		221,280
Total Current Assets		117,714,897		89,478,076

Plant, Property and Equipment, Net		47,327,181		29,368,515

Construction In Progress		2,929,923		257,077

Other Assets - Non Current		6,302,902		1,098,704

Intangible Assets, Net		27,517,452		11,585,570

Goodwill		1,419,836		-

Total Assets	$	203,212,191	$	131,787,942

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$	3,045,089	$	328,124
Unearned revenue		19,507,197		41,645
Accrued expenses and other payables		5,540,615		507,705
Amount due to related parties		69,349		68,164
Taxes payable		5,464,640		2,304,382
Short term loans		6,295,550		-
Other short-term liability		3,859,977		-
Total Current Liabilities		43,782,417		3,250,020

Stockholders’ Equity
Preferred Stock, $.001 par value, 20,000,000 shares authorized, Zero shares issued and outstanding
Common stock, $.001 par value, 115,197,165 shares authorized, 26,848,260 and 24,572,328 shares issued, and 25,937,887 and 24,572,328 shares outstanding, as of December 31, 2010 and June 30, 2010, respectively)		25,938		24,573
Additional paid-in capital		88,876,585		75,755,682
Statutory reserve		7,257,675		5,864,648
Retained earnings		56,160,658		43,536,408
Accumulated other comprehensive income		7,108,918		3,356,611
Total Stockholders’ Equity		159,429,774		128,537,922

Total Liabilities and Stockholders’ Equity	$	203,212,191	$	131,787,942

The accompanying notes are an integral part of these consolidated financial statements.

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2010 AND 2009

(UNAUDITED)

	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2010			2009			2010			2009
Sales
Jinong	$	14,251,229		$	9,110,797		$	30,822,522		$	19,289,446
Gufeng		18,875,897			-			40,676,931			-
Jintai		2,184,612			2,061,319			3,295,206			3,159,490
Net sales		35,311,738		$	11,172,116			74,794,659			22,448,936
Cost of goods sold
Jinong		6,791,183			3,267,122			13,644,970			7,002,486
Gufeng		14,998,764			-			33,899,277			-
Jintai		1,188,965			1,135,221			1,778,259			1,717,718
Cost of goods sold		22,978,912			4,402,343			49,322,506			8,720,204
Gross profit		12,332,826			6,769,773			25,472,153			13,728,732
Operating expenses
Selling expenses		1,589,006			520,096			3,004,991			735,767
General and administrative expenses		2,871,064			814,551			4,969,251			1,348,730
Total operating expenses		4,460,070			1,334,647			7,974,242			2,084,497
Income from operations		7,872,756			5,435,126			17,497,911			11,644,235
Other income (expense)
Other income (expense)		2,084			(413	)		(9,859	)		553
Interest income		87,925			52,656			152,916			81,922
Interest expense		(117,852	)		(44,335	)		(294,527	)		(105,644	)
Total other income (expense)		(27,843	)		7,908			(151,470	)		(23,169	)
Income before income taxes		7,844,913			5,443,034			17,346,441			11,621,066
Provision for income taxes		1,615,421			722,041			3,329,164			1,652,798
Net income		6,229,492			4,720,993			14,017,277			9,968,268
Other comprehensive income
Foreign currency translation gain/(loss)		2,458,260			31,284			3,752,307			6,354
Comprehensive income	$	8,687,752		$	4,752,277		$	17,769,584		$	9,974,622

Basic weighted average shares outstanding		25,937,866			23,266,097			25,930,424			22,450,562
Basic net earnings per share	$	0.24		$	0.20		$	0.54		$	0.44
Diluted weighted average shares outstanding		26,393,072			23,286,653			26,383,123			22,471,118
Diluted net earnings per share		0.24			0.20			0.53			0.44

The accompanying notes are an integral part of these consolidated financial statements.

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECMEBER 31, 2010 AND 2009

(UNAUDITED)

	2010			2009
Cash flows from operating activities
Net income	$	14,017,277		$	9,968,268
Adjustments to reconcile net income to net cash provided by operating activities

Issuance of equity for compensation		1,542,337			-
Depreciation		1,715,800			986,663
Amortization		480,953			150,318

Decrease / (Increase) in current assets, net of effects from acquisitions:
Accounts receivable		1,721,402			(2,797,999	)
Other receivables		(662,984	)		(321	)
Inventories		(85,162	)		(2,719,957	)
Advances to suppliers		(19,956,392	)		(142,513	)
Other assets		45,480			(35,952	)
(Decrease) / Increase in current liabilities, net of effects from acquisitions:
Accounts payable		(3,263,212	)		(395,573	)
Unearned revenue		(244,631	)		141,422
Tax payables		3,029,953			391,854
Other payables and accrued expenses		2,862,260			436,338
Net cash provided by operating activities		1,203,081			5,982,548

Cash flows from investing activities
Purchase of plant, property, and equipment		(1,990,803	)		(2,440,748	)
Purchase of intangible assets		-			(10,703,302	)
Acquisition of Gufeng, net of cash acquired		(6,720,539	)		-
Amounts increase in construction in progress		(1,847,306	)		(4,730	)
Net cash used in investing activities		(10,558,648	)		(13,148,780	)

Cash flows from financing activities
Repayment of loan		-			(979,876	)
Borrows of loan		2,238,000			-
Proceeds from issuance of shares		-			51,373,234
Restricted cash		-			46,683
Net cash provided by financing activities		2,238,000			50,440,041

Effect of exchange rate change on cash and cash equivalents		1,468,717			114,236
Net increase (decrease) in cash and cash equivalents		(5,648,850	)		43,388,045

Cash and cash equivalents, beginning balance		62,335,437			17,795,447
Cash and cash equivalents, ending balance	$	56,686,587		$	61,183,492

Supplement disclosure of cash flow information
Interest expense paid	$	116,105		$	(88,936	)
Income taxes paid	$	316,320		$	-

The accompanying notes are an integral part of these consolidated financial statements.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

China Green Agriculture, Inc. (the “Company”), through its subsidiaries, is engaged in the research, development, production, distribution and sale of humic acid-based compound fertilizer, compound fertilizer, blended fertilizer, organic compound fertilizer and mixed organic-inorganic compound fertilizer and the development, production and distribution of agricultural products. The Company was incorporated in 1987, but entered its current lines of business in December 2007.

The Company’s corporate structure as of December 31, 2010 is set forth in the diagram below:

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2010. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.

Principle of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Jintai, Yuxing, Gufeng and Tianjuyuan. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Subsequent Events

The Company evaluates events subsequent to the end of the fiscal quarter through the date the financial statements are filed with the Commission for recognition or disclosure in the consolidated financial statements. Events that provide additional evidence about material conditions that existed at the date of the balance sheet are evaluated for recognition in the consolidated financial statements. Events that provide evidence about conditions that did not exist at the date of the balance sheet but occurred after the balance sheet date are evaluated for disclosure in the notes to the consolidated financial statements.

Cash and cash equivalents and concentration of cash

For statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit with state owned banks in the Peoples Republic of China (“PRC”) and banks in the United States, and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains balances at financial institutions which, from time to time, may exceed deposit insurance limits for the banks located in the United States. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. Cash overdraft as of balance sheet date will be reflected as liabilities in the balance sheet. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Accounts receivable

The Company's policy is to maintain reserves for potential credit losses on accounts receivable. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are written off through a charge to the valuation allowance. As of December 31, 2010 and June 30, 2010, the Company had accounts receivable of $14,585,377 and $15,571,888, net of allowance for doubtful accounts of $222,008 and $193,403, respectively.

Inventories

Inventory is valued at the lower of cost (determined on a weighted average basis) or market. Inventories consist of raw materials, work in process, finished goods and packaging materials. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.

Property, plant and equipment

Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of plant, property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

	Estimated Useful Life
Building	10-25 years
Agricultural assets	8 years
Machinery and equipment	5-15 years
Vehicles	3-5 years

Construction in Progress

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. Costs classified to construction in progress include all costs of obtaining the asset and bringing it to the location and condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and are placed into service. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed as incurred.

Long-Lived Assets

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

Intangible Assets

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with definitive lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute directly or indirectly to the entity’s future cash flows. The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company has not recorded impairment of intangible assets as of December 31, 2010 and June 30, 2010, respectively.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Fair Value Measurement and Disclosures

Our accounting for Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level one — Quoted market prices in active markets for identical assets or liabilities;

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company had no assets and liabilities measured at fair value at December 31, 2010.

The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair values due to the short maturities of these instruments.

Revenue recognition

Sales revenue is recognized on the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. As of December 31, 2010 and June 30, 2010, the Company had unearned revenues of $19,507,197 and $41,645, respectively.

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discounts are normally not granted after products are delivered.

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Income taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

Foreign currency translation

The reporting currency of the Company is the US dollar. The functional currency of the Company and Green New Jersey is the US dollar. The functional currency of Jinong and its subsidiaries Jintai and Yuxing is the Chinese Yuan or Renminbi (“RMB”). For the subsidiaries whose functional currencies are other than the US dollar, all asset and liability accounts were translated at the exchange rate on the balance sheet date; stockholder's equity is translated at the historical rates and items in the cash flow statements are translated at the average rate in each applicable period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Segment reporting

The Company utilizes the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

As of December 31, 2010, the Company, through its subsidiaries is engaged in the following businesses: fertilizer products (Jinong and Gufeng), agricultural products (Jintai) and research and development (Yuxing).

Fair values of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, accounts payable, other payables, tax payable, and related party advances and borrowings.

As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.

Statement of cash flows

The Company's cash flows from operations are calculated based on the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Earnings per share

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

The components of basic and diluted earnings per share consist of the following:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2010		2009		2010		2009
Net Income for Basic Earnings Per Share	$	6,229,492	$	4,720,993	$	14,017,277	$	9,968,268
Basic Weighted Average Number of Shares		25,937,866		23,266,097		25,930,424		22,450,562
Net Income per Share – Basic		0.24		0.20		0.54		0.44
Net Income for Diluted Earnings Per Share		6,229,492		4,720,993		14,017,277		9,968,268
Diluted Weighted Average Number of Shares		26,393,072		23,286,653		26,383,123		22,471,118
Net Income per Share – Diluted	$	0.24	$	0.20	$	0.53	$	0.44

Recent accounting pronouncements

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal year beginning after December 15, 2010 (the Company’s fiscal year 2011); early adoption is permitted. The Company is currently evaluating the impact of adopting ASU -2010-06 on its financial statements.

In July 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” ASU No. 2010-20 amends the guidance with ASC Topic 310, “Receivables” to facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses. The amendments in ASU No. 2010-20 also require an entity to provide additional disclosures such as a rollforward schedule of the allowance for credit losses on a portfolio segment basis, credit quality indicators of financing receivables and the aging of past due financing receivables. The adoption of ASU No. 2010-20 did not have an impact on the financial statements and footnotes.

NOTE 3 – ACQUISITION

Beijing Gufeng Chemical Products Co., Ltd. (“Gufeng”) was founded in 1993. Its wholly-owned subsidiary Beijing Tianjuyuan Fertilizer Co., Ltd. (“Tianjuyuan”) was founded in 2001 and was acquired by Gufeng on May 4, 2010. Both companies are based in Beijing, and registered to produce compound fertilizer, blended fertilizer, organic compound fertilizer and mixed, organic-inorganic compound fertilizer and sell their products throughout China and abroad.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan by purchasing all of Gufeng’s outstanding equity interests and delivering acquisition consideration of approximately $8.8 million cash and approximately 1.4 million shares of the Company’s common stock (valued at approximately $11.6 million) to the former shareholders of Gufeng or their designees (the “Gufeng Shareholders”). Additionally, the Company may be required to deliver up to an additional 0.9 million shares of common stock, which are being held in escrow (the “Escrowed Shares”), to be released based upon achievement of following conditions:

1) If Gufeng achieves certain sales revenue targets for its fiscal year ending June 30, 2011 (the “Sales Target”), 341,390 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders, which is subject to adjustment based on a three-tier system. If Gufeng achieves at least 80% of the Sales Target, then 227,593 of the Escrowed Shares will be released from escrow to the Gufeng Shareholder, and if Gufeng achieves at least 60% of the Sales Target, then 113,797 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders.

2) If Gufeng achieves certain net profit after tax targets for its fiscal year ending June 30, 2011 (the “Profit Target”), 341,390 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders, which is subject to adjustment based on a three-tier system. If Gufeng achieves at least 80% of the Profit Target, then 227,593 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders, and if Gufeng achieves at least 60% of the Profit Target, then 113,797 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders.

3) If Gufeng obtains a land use right with respect to certain real property located in China, along with ownership of the buildings thereon, then 227,593 of the Escrowed Shares will be released from escrow to the Gufeng Shareholders.

Any Escrowed Shares that are not released from escrow to the Gufeng Shareholders for failure to achieve the conditions described above will be forfeited and returned to the Company for cancellation. While the Escrowed Shares are held in escrow, the Gufeng Shareholders will retain all voting rights with respect to the Shares.

The Company has recognized a liability based on the acquisition date fair value of the acquisition-related contingent consideration based on the probability of the achievement of the targets. Based on the Company’s estimation, an initial liability of $2.9 million (341,390 shares) was recorded. During the measurement period in the current quarter, the Company increased the contingent consideration liability to $3.9 million (455,186 shares) based on a revised estimated target achievement. Changes in the fair value of the acquisition-related contingent consideration during the measurement period, including changes from events after the acquisition date, such as changes in the Company’s estimate of the revenue and net income expected to be achieved and changes in their stock price, are being recognized in goodwill in the period in which the estimated fair value changes. The accompanying consolidated financial statements include the financial results of these companies from the date of acquisition.

The estimated fair values of net assets acquired and presented below are preliminary and are based on the information that was available as of the acquisition date and prior to the filing of this Quarterly Report on Form 10-Q. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the Company is awaiting the finalization of certain third-party valuations to finalize those fair values. Thus, the preliminary measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation and complete the purchase price allocations as soon as practicable, but no later than one year from the respective acquisition date.

The following table summarizes the fair values of the assets acquired and liabilities assumed from the acquisition of Gufeng. Since the acquisition and the initial preliminary purchase price allocation, net adjustments of $12.5 million were made to the fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments are summarized in the table presented below.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

($ in millions)
Purchase Price	$	24.3
Fair Value of Assets Acquired:
Current assets		25.1
Fixed assets		17.3
Intangible assets		15.8
Other assets		-
Total Assets Acquired	$	58.2

Fair Value of Liabilities Assumed:
Current liabilities	$	15.9
Deferred revenue		19.4
Deferred tax liabilities, net		-
Total Liabilities Assumed	$	35.3

Goodwill (1)	$	1.4

(1) The goodwill of $1.4 million is non-deductible for tax purposes.

The following table summarizes the preliminary fair value of amortizable and indefinite-lived intangible assets as of their respective acquisition dates:

Gufeng at July 2, 2010
($ in millions)	Fair Value		Estimated useful life (in years)
Amortizable intangible assets:
Customer relationships	$	8.4		10

Indefinite-lived intangibles:
Trademarks	$	7.4

Total intangible assets acquired	$	15.8

Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined comparative financial information presents the results of operations of the Company as they may have appeared if the acquisition of Gufeng had been completed on July 1, 2009.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

	For the Three
	Months Ended		For the Six
($ in millions, except per share data)	December 31, 2010		Months Ended December 31, 2010
Net Sales	$	19.7	$	48.5
Net Income	$	5.3	$	12.1
Basic earnings per share	$	0.23	$	0.54
Diluted earnings per share	$	0.23	$	0.54

Acquisition related expenses consist of integration related professional services, certain business combination adjustments after the measurement period or purchase price allocation period has ended, and certain other operating expenses, net.

Pretax charges approximating $0.2 million were recorded for acquisition and integration related costs in the period ended December 31, 2010. These charges were recorded as general and administrative expenses. As the acquisition took place on July 2, 2010, the Company’s statement of income for the period ended December 31, 2010 included the operations of the Company and Gufeng.

NOTE 4 – INVENTORIES

Inventories consisted of the following as of December 31, 2010 and June 30, 2010:

	December 31,		June 30,
	2010		2010
Raw materials	$	4,754,015	$	314,267
Supplies and packing materials		856,257		113,146
Work in progress		91,026		10,686,325
Finished goods		24,450,083		148,909
Total	$	30,151,381	$	11,262,647

NOTE 5 – OTHER CURRENT ASSETS

Other current assets consisted of the following as of December 31, 2010 and June, 30 2010:

	December 31,		June 30,
	2010		2010
Advancement	$	208,125	$	41,875
Promotional material		72,145		44,949
Prepaid insurance		46,667		-
Total	$	326,937	$	86,824

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Advancement represents advances made to non-related parties and employees. The amounts were unsecured, interest free, and due on demand.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following as of December 31, 2010 and June, 30, 2010:

	December 31,			June 30,
	2010			2010
Building and improvements	$	37,406,782		$	11,719,363
Auto		1,353,601			117,295
Machinery and equipment		18,470,958			21,628,525
Agriculture assets		1,387,896			1,528,898
Total property, plant and equipment		58,619,237			34,994,081
Less: accumulated depreciation		(11,292,056	)		(5,625,566	)
Total	$	47,327,181		$	29,368,515

Depreciation expenses for the three months ended December 31, 2010 and 2009 were $862,837 and $542,448, respectively. Depreciation expenses for the six months ended December 31, 2010 and 2009 were $1,715,800 and $986,663, respectively.

Agriculture assets consist of reproductive trees that are expected to be commercially productive for a period of eight years.

NOTE 7 – CONSTRUCTION IN PROGRESS

As of December 31, 2010 and June 30, 2010, construction in progress, representing construction for a new product line and other buildings amounted to $2,929,923 and $257,077, respectively.

NOTE 8 - INTANGIBLE ASSETS

Intangible assets consist of the following as of December 31, 2010 and June 30, 2010:

	December 31,		June 30,
	2010		2010
Land use rights, net	$	11,920,948	$	11,495,058
Technology patent, net		51,990		90,512
Customer relationships, net		8,069,428		-
Trademarks		7,475,086		-
Total	$	27,517,452	$	11,585,570

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

LAND USE RIGHT

On September 25, 2009, Yuxing was granted a land use right for approximately 88 acres (353,000 square meters or 3.8 million square feet) by the People’s Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi Province. The fair value of the related intangible asset was determined to be the respective cost of RMB 73,184,895 (or $11,102,149). The intangible asset is being amortized over the grant period of 50 years.

On August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately 11 acres (42,726 square meters or 459,898 square feet) at Ping Gu District, Beijing. The purchase cost was recorded at RMB 1,045,950 (or $158,670). The intangible asset is being amortized over the grant period of 50 years.

On August 16, 2001, Jinong received a land use right as a contribution from a shareholder, which was granted by the People’s Government and Land & Resources Bureau of Yanling District, Shaanxi Province. The fair value of the related intangible asset at the time of the contribution was determined to be RMB 7,285,099 (or $1,105,150). The intangible asset is being amortized over the grant period of 50 years.

The Land Use Rights consist of the following as of December 31, 2010 and June 30, 2010:

	December 31,			June 30,
	2010			2010
Land use rights	$	12,365,969		$	11,866,105
Less: accumulated amortization		(445,021	)		(371,047	)
Total land use rights, net	$	11,920,948		$	11,495,058

TECHNOLOGY PATENT

On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $891,248). The intangible asset is being amortized over the patent period of 10 years.

The technology know-how consisted of the following as of December 31, 2010 and June 30, 2010:

	December 31,			June 30,
	2010			2010
Technology know-how	$	891,248		$	866,338
Less: accumulated amortization		(839,258	)		(775,826	)
Total technology know-how, net	$	51,990		$	90,512

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

CUSTOMER RELATIONSHIP

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired customer relationships was estimated to be RMB 55,992,980 (or $8,494,135) and is amortized over the remaining useful life of ten years. See Note 3.

	December 31,			June 30,
	2010			2010
Customer relationships	$	8,494,135		$	-
Less: accumulated amortization		(424,707	)		-
Total customer relationships, net	$	8,069,428		$	-

TRADEMARKS

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired trademarks was estimated to be $7,475,086 and is subject to an annual impairment test. See Note 3.

Total amortization expenses of intangible assets for the three months ended December 31, 2010 and 2009 amounted to $399,810 and $107,132, respectively. Total amortization expenses of intangible assets for the six months ended December 31, 2010 and 2009 amounted to $480,953 and $150,318, respectively.

AMORTIZATION EXPENSE

Estimated amortization expenses of intangible assets for the next five (5) twelve-month periods-ended December 31, 2010, are as follows:

December 31, 2011	$	1,077,909
December 31, 2012		984,768
December 31, 2013		984,768
December 31, 2014		984,768
December 31, 2015		984,768

NOTE 9 - AMOUNT DUE TO RELATED PARTIES

As of December 31, 2010 and June 30, 2010, the amount due to related parties was $69,349 and $68,164, respectively. These amounts represent unsecured, non-interest bearing loans that are due on demand. These loans are not subject to written agreements.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

NOTE 10 - ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consisted of the following as of December 31, 2010 and June 30, 2010:

	December 31,		June 30,
	2010		2010
Payroll payable	$	164,483	$	8,848
Welfare payable		321,340		164,051
Accrued expenses		881,417		334,806
Other payables		3,558,606		-
Other levy payable		149,346		-
Accrued legal		465,423		-
Total	$	5,540,615	$	507,705

NOTE 11 - LOAN PAYABLES

The short-term loans payable consist of four loans which mature on dates ranging from January 13, 2011 through June 17, 2011 with interest rates ranging from 5.58% to 6.37%. The loans are collateralized by the Company’s land use rights.

The interest expense from these short-term loans were $117,852 and $44,335 for three months ended December 31, 2010 and 2009, respectively. The interest expenses from these short-term loans were $294,527 and $105,644 for the six months ended December 31, 2010 and 2009, respectively.

NOTE 12 - TAXES PAYABLE

Enterprise Income Tax

Effective January 1, 2008, the new Enterprise Income Tax (“EIT”) law of the PRC replaced the existing tax laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new EIT rate of 25% replaced the 33% rate that was applicable to both DES and FIEs. The two year tax exemption and three year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, as a result of the expiration of its tax exemption on December 31, 2007, and accordingly, it made provision for income taxes for the three months ended December 31, 2010 and 2009 of $925,129 and $1,645,525, respectively, and $2,212,538 and $2,576,282 for the six months ended December 31, 2010 and 2009, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to 25% EIT rate and thus it made provision for income taxes of $690,292 and $1,116,626 for the three and six months ended December 31, 2010, respectively. Jintai has been exempt from paying income tax since its formation as it produces products which fall into the tax exemption list set out in the EIT. This exemption is expected to last as long as the applicable provisions of the EIT do not change.

Value-Added Tax

All of the Company’s fertilizer products that are produced and sold in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On April 29, 2008, the PRC State of Administration of Taxation (SAT) released Notice #56, “Exemption of VAT for Organic Fertilizer Products”, which allows certain fertilizer products to be exempt from VAT beginning June 1, 2008. The Company submitted the application for exemption in May 2009, which was granted effective September 1, 2009, continuing through December 31, 2015. The VAT exemption applies to all agricultural products sold by Jintai, and all but a nominal amount of agricultural products sold by Jinong.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Income Taxes and Related Payables

Taxes payable consisted of the following as of December 31, 2010 and June 30, 2010:

	December 31,		June 30,
	2010		2010
VAT provision (credit)	$	3,996	$	(24,655	)
Income tax payable		5,144,042		2,020,253
Other levies		316,602		308,784
Total	$	5,464,640	$	2,304,382

Income Taxes in the Consolidated Statements of Operations and Comprehensive Income

The provision for income taxes for the six months ended December 31, 2010 and 2009 consisted of the following:

	December 31,		December 31,
	2010		2009
Current Tax	$	3,329,164	$	1,652,798
Deferred Tax		-		-
Total	$	3,329,164	$	1,652,798

Tax Rate Reconciliation

Substantially all of the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of operations and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 34% to income before income taxes for the six months ended December 31, 2010 and 2009 for the following reasons:

	December 31, 2010
	China					United States
	15% - 25%					34%					`Total

Pretax income (loss)		20,365,391					(3,018,950	)				17,346,441

Expected income tax expense (benefit)		5,091,348		25.0	%		(1,026,443	)	34.0	%		4,064,905
High-tech income benefits on Jinong		(1,475,026	)	(7.2	)%							(1,475,026	)
Income tax benefit of nontaxable income on Jintai		(351,565	)	(1.7	)%							(351,565	)
Other		64,407		0.3	%							64,407
Change in valuation allowance on deferred tax asset from US tax benefit							1,026,443		(34.0	)%		1,026,443
Actual tax expense		3,329,164		16.3	%		-		-	%		19.2	%

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

	December 31, 2009
	China					United States
	15% - 25%					34%					Total

Pretax income (loss)		12,222,996					(601,930	)				11,621,066

Expected income tax expense (benefit)		3,055,749		25.0	%		(204,656	)	34.0	%		2,851,093
High-tech income benefits on Jinong		(1,101,866	)	(9.0	)%							(1,101,866	)
Income tax benefit of nontaxable income on Jintai		(319,315	)	(2.6	)%							(319,315	)
Other		18,230		0.1	%							18,230
Change in valuation allowance on deferred tax asset from US tax benefit							204,656		(34.0	)%
Actual tax expense		1,652,798		13.5	%		-		-	%		14.2	%

NOTE 13 – STOCKHOLDERS’ EQUITY

Reclassification of Temporary Equity

On December 26, 2007 the Company issued 6,313,617 shares (the “Shares”) of common stock to 31 accredited investors (the “Investors”) at $3.25 per share in a private placement (the “Private Placement”). The Securities Purchase Agreement (“SPA”) set forth a contingency which gave the Investors the right to redeem the Shares in the event the Share Exchange was forced to be unwound as a result of any material adverse effect due to PRC governmental actions. As a result of the redemption feature, the Company recorded the Private Placement as temporary equity. In July 2009, the Investors and the Company entered into a Waiver and Consent pursuant to which the Investors consented to waive all their rights associated with the liquidated damages under Section 4.16 of SPA. As a result, such temporary equity was no longer necessary for the purposes of the Company’s balance sheet as of June 30, 2010.

Common Stock

The Company issued 4,025,000 shares of common stock at a public offering price of $7.15 per share in an underwritten offering and received total gross proceeds of approximately $28.8 million on July 24, 2009. The shares were sold under the Company's previously filed shelf registration statement, which was declared effective by the Commission on June 12, 2009 (the “Shelf S-3”). The Company uses the net proceeds to expand its production facilities through the construction of new greenhouse at Yuxing.

The Company completed the sale of 1,282,052 shares of common stock at a public offering price of $15.60 per share on November 25, 2009 in a registered direct offering for gross proceeds of approximately $20 million. On December 16, 2009, the placement agent exercised rights to place up to 320,512 additional shares of common stock at a price of $15.60 per share, for additional gross proceeds of $4,999,987. The shares were sold under the Shelf S-3.

On January 3, 2010, the Company made a one-time grant of an aggregate of 120,000 shares of restricted common stock of the Company to certain members of management and officers under the 2009 Equity Incentive Plan of the Company. Pursuant to the terms of the grant, one-third of the shares vested on February 2, 2010, one-third of the shares vested on December 31, 2010 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010 and the remaining one-third of the shares will vest on December 31, 2011 if certain financial performance targets are achieved for the fiscal year ending June 30, 2011. Additionally, the Company made a one-time grant of an aggregate of 22,961 shares of performance-based restricted common stock to certain officers, which vests in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

On February 10, 2010, the Company made a one-time grant of an aggregate of 50,700 shares of restricted common stock to certain independent directors and key employees under the 2009 Equity Incentive Plan. Pursuant to the terms of the grant, one-third of the shares vested on March 10, 2010, one-third of the shares vested on December 31, 2010 and the remaining one-third of the shares will vest on December 31, 2011 if certain financial targets are achieved. Additionally, the Company also granted to certain independent directors and key employees an aggregate of 70,500 shares of performance-based restricted common stock, which automatically vests in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved both net sales and income from operations targets for the fiscal year ended June 30, 2010.

On February 10, 2010, the Company issued a total of 8,000 shares of restricted common stock under its 2009 Equity Incentive Plan to a consultant pursuant to the terms of a service agreement, half of which was vested on August 9, 2010 and half of which was forfeited due to the disengagement of the service on September 15, 2010.

On July 2, 1010, the Company issued a total of 2,275,931 shares of common stock to Gufeng’s previous shareholders or their designees. Of the shares being issued in the acquisition, 40% will be held in escrow pending satisfaction of certain conditions such as make good targets set for Gufeng for the fiscal year ended June 30, 2011. See Note 3.

Preferred Stock

Under the Company’s articles of incorporation, the board of directors has the authority, without further action by stockholders, to designate up to 20,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. If the Company sells preferred stock under its registration statement on Form S-3, it will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series in the certificate of designation relating to that series and will file the certificate of designation that describes the terms of the series of preferred stock the Company offers before the issuance of the related series of preferred stock.

As of December 31, 2010, the Company had 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are outstanding.

NOTE 14 – STOCK OPTIONS

On August 17, 2009, some directors, officers and employees exercised options to purchase an aggregate of 84,500 shares of common stock in a cashless manner and received 61,239 shares of common stock as a result of the cashless exercise.

On January 3, 2010, the Company made a one-time grant of options to purchase an aggregate of 150,000 shares of common stock to certain officers and directors under the 2009 Equity Incentive Plan at an exercise price of $14.70 per share, the closing price of common stock on the previous trading day. Pursuant to the terms of the grant, one-third of the options vested on February 2, 2010, one-third of the options vested on December 31, 2010 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010 and the remaining one-third of the options will vest on December 31, 2011 if certain financial performance targets are achieved for the fiscal year ending June 30, 2011.

On January 3, 2010, the Company also made a grant of performance-based options to purchase an aggregate of 45,291 shares of common stock to certain officers and directors under the 2009 Equity Incentive Plan at an exercise price of $14.70 per share, the closing price of the common stock on the previous trading day. Pursuant to the terms of the grant, the options automatically vest in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

On February 3, 2010, one independent director resigned and all his vested and unvested options were forfeited pursuant to his grant agreement with the Company.

On February 7, 2010, the Company appointed a new independent director and issued to him performance-based options to purchase 10,000 shares of common stock under the 2009 Equity Incentive Plan at an exercise price of $14.02 per share, the closing price of the common stock on the previous trading day. Pursuant to the terms of the grant, one-third of the options vested on March 8, 2010, one-third of the options will vested on December 31, 2010 because the Company achieved certain financial performance targets for the fiscal year ended June 30, 2010 and the remaining one-third of the options will vest on December 31, 2011 if certain financial performance targets are achieved for the fiscal year ending June 30, 2011.

The Company’s calculations are made using the Black-Scholes option-pricing model with the following weighted average assumptions: expected life of 2 years; 75.2%-75.6% stock price volatility; risk-free interest rate of 1.63% and no dividends during the expected term. Stock compensation expense is recognized based on awards expected to vest. The forfeitures are estimated at the time of grant and revised in subsequent periods pursuant to actual forfeitures, if it is different from those estimates. During the three months ended December 31, 2010 and 2009, the Company recognized stock-based compensation expense of $898,261 and $0, respectively. During the six months ended December 31, 2010 and 2009, the Company recognized stock-based compensation expense of $1,542,336 and $0, respectively.

Options outstanding as of December 31, 2010 and related weighted average price and intrinsic value are as follows:

				Weighted
				Average
	Number			Exercise		Aggregate
	of Shares			Price		Intrinsic Value
Outstanding, June 30, 2009		121,500		$	4.49
Granted		205,291		$	14.67
Forfeited/Canceled		(22,000	)	$	9.95
Exercised		(109,500	)	$	4.32
Outstanding, June 30, 2010		195,291		$	14.67
Granted		-			-
Forfeited/Canceled		-			-
Exercised		-
Outstanding, December 31, 2010		195,291		$	14.67	$	-
Exercisable. December 31, 2010		115,099		$	14.67	$	-

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

The following table summarizes the options outstanding as of December 31, 2010:

Options outstanding

Weighted

Average

Number

Average

Remaining

Range of

Outstanding as of

Exercise

Contractual Life

Exercise Price

December 31, 2010

Price

(Years)

14.02-14.70

195,291

14.67

1.31

The following table summarizes the options exercisable as of December 31, 2010:

Options Exercisable

Weighted

Average

Number

Average

Remaining

Range of

Outstanding as of

Exercise

Contractual Life

Exercise Price

December 31, 2010

Price

(Years)

14.02-14.70

115,099

14.67

1.31

NOTE 15 – SIGNIFICANT RISKS AND UNCERTAINTIES INCLUDING BUSINESS AND CREDIT CONCENTRATIONS AND LITIGIATION

Market Concentration

All of the Company's revenue-generating operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.

The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other things , the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.

Vendor and Customer Concentration

There was no vendor from which the Company purchased more than 10% of its raw materials for the six months ended December 31, 2010. There is no accounts payable to this vender as of December 31, 2010.

There was one vendor from which the Company purchased more than 10% of its raw materials for the six months ended December 31, 2009. There is no accounts payable to this vender as of December 31, 2009.

There was no customer that accounted for over 10% of the total sales for the six months ended December 31, 2010 and 2009.

Concentration of Cash

The Company maintains large sums of cash in three major banks in China. The aggregate balance in such accounts as of December 31, 2010 was $56,686,587. There is no insurance securing these deposits in China. In addition, the Company also had $2,263,307 in cash in two banks in the United States as of December 31, 2010, with $500,000 secured by the U.S. Federal Deposit Insurance Corporation.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

Litigation

On October 15, 2010, a class action lawsuit was filed against the Company and certain of its current and former officers in the United States District Court for the District of Nevada on behalf of purchasers of the Company’s common stock between November 12, 2009 and September 1, 2010. The complaint alleges that the Company and certain of its current and former officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by making material misstatements and omissions about the Company’s true financial condition. The complaint alleges, among other things, that the financial statements for the fiscal year ended June 30, 2010 included in the Company’s Annual Report on Form 10-K filed with the Commission are materially false and misleading on the basis that such financial statements materially differ from certain financial information the Company reported to certain governmental agencies in the People’s Republic of China. The plaintiffs claim that such allegedly misleading financial statements inflated the price of the Company’s common stock and seek monetary damages in an amount to be determined at trial.

On December 10, 2010, a complaint was filed by one of the Company shareholders, derivatively on the Company’s behalf, against certain of the Company’s officers and directors and against the Company, as a nominal defendant, in the First Judicial District Court of the State of Nevada in and for Carson City. The complaint alleges, among other things, various violations of state law by such officers and directors, including breach of fiduciary duty, waste of corporate assets and unjust enrichment. The plaintiff requests the court to, among other remedies, award us restitution from such officers and directors and cause the Company to put to a vote of the Company’s shareholders certain actions to reform the Company’s corporate governance and internal procedures.

On January 5, 2011, a complaint was filed by two of the Company’s shareholders, derivatively on the Company’s behalf, against certain of the Company’s officers and directors and other parties, and against the Company, as a nominal defendant, in the United States District Court, District of Columbia. The complaint alleges, among other things, that such officers and directors breached their fiduciary duties by knowingly filing inaccurate and inconsistent financial statements and other filings with the Commission and by failing to correct such allegedly inaccurate financial disclosure. The plaintiffs request the court to, among other remedies, award the Company damages in the amount sustained by the defendants’ alleged breach of fiduciary duties and other violations of law, and award such other equitable relief to remedy the defendant’s breaches of fiduciary duties and other violations of law.

On January 12, 2011, two separate complaints were filed by different shareholders, derivatively on the Company’s behalf, against certain of the Company’s current and former officers and directors and against the Company, as nominal defendant, in the Eighth Juridical District Court, Clark County, Nevada. Each of the complaints allege, among other things, that the defendants breached their fiduciary duties by disseminating false and misleading information to shareholders via public filings and other communications, failing to maintain internal controls and procedures and failing to properly oversee and manage the company. Each of the complaints also allege unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets by the defendants. Each of the plaintiffs requests the court to, among other remedies, award damages caused by the breach of defendants’ fiduciary duties, award the Company restitution from such officers and directors and cause the Company to put to a vote of the Company’s shareholders certain actions to reform the Company’s corporate governance and internal procedures.

The Company intends to vigorously defend each of these lawsuits.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

NOTE 16 – SEGMENT REPORTING

The Company was organized into four main business segments: fertilizer production (Jinong & Gufeng), agricultural products production (Jintai) and research and development center that is currently under construction (Yuxing). The following tables present a summary of our businesses’ and operating segments’ results.

	For the three months ended
	December 31,
	2010			2009
Revenues from unaffiliated customers:
Jinong	$	14,251,229		$	9,110,797
Gufeng		18,875,897			-
Jintai		2,184,612			2,061,319
Yuxing		-			-
Consolidated	$	35,311,738		$	11,172,116

Operating income :
Jinong	$	6,099,792		$	4,925,511
Gufeng		2,710,717			-
Jintai		968,805			839,233
Yuxing		(85,750	)		(55,077	)
Reconciling item (1)		-			-
Reconciling item (2)		(922,546	)		(274,541	)
Reconciling item (2)—stock compensation		(898,262	)		-
Consolidated	$	7,872,756		$	5,435,126

Net income:
Jinong	$	5,242,398		$	4,213,250
Gufeng		1,923,078			-
Jintai		968,787			839,304
Yuxing		(84,801	)		(55,071	)
Reconciling item (1)		840			5,323
Reconciling item (2)		(1,820,810	)		(274,541	)
Consolidated	$	6,229,492		$	4,728,265

Depreciation and Amortization:
Jinong	$	783,301		$	564,709
Gufeng		362,628			-
Jintai		42,355			31,355
Yuxing		74,363			53,517
Consolidated	$	1,262,647		$	649,581

Interest expense:
Jinong	$	-		$	44,335
Gufeng		117,852			-
Consolidated	$	117,852		$	44,335

Capital Expenditure:
Jinong	$	865,887		$	3,010
Gufeng		327,396			-
Jintai		-			-
Yuxing		20,851			4,730
Consolidated	$	1,214,134		$	7,740

(1) Reconciling amounts refer to the unallocated assets or expenses of Green New Jersey.

(2) Reconciling amounts refer to the unallocated assets or expenses of the parent company.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

	For the six months ended
	December 31,
	2010			2009
Revenues from unaffiliated customers:
Jinong	$	30,822,522		$	19,289,446
Gufeng		40,676,931			-
Jintai		3,295,206			3,159,490
Yuxing		-			-
Consolidated	$	74,794,659		$	22,448,936

Operating income :
Jinong	$	14,619,350		$	11,049,785
Gufeng		4,633,698			-
Jintai		1,406,251			1,277,140
Yuxing		(139,812	)		(72,924	)
Reconciling item (1)		-			-
Reconciling item (2)		(1,479,239	)		(609,766	)
Reconciling item (2)—stock compensation		(1,542,337	)		-
Consolidated	$	17,497,911		$	11,644,235

Net income:
Jinong	$	12,537,716		$	9,373,129
Gufeng		3,230,784			-
Jintai		1,406,260			1,277,260
Yuxing		(138,532	)		(72,918	)
Reconciling item (1)		2,627			7,835
Reconciling item (2)		(3,021,578	)		(617,038	)
Consolidated	$	14,017,277		$	9,968,268

Depreciation and Amortization:
Jinong	$	1,362,336		$	1,008,924
Gufeng		631,241			-
Jintai		73,729			56,701
Yuxing		129,447			71,356
Consolidated	$	2,196,753		$	1,136,981

Interest expense:
Jinong	$	-		$	105,644
Gufeng		294,527			-
Consolidated	$	294,527		$	105,644

Capital Expenditure:
Jinong	$	1,419,786		$	2,440,748
Gufeng		536,828			-
Jintai		-			-
Yuxing		34,189			10,708,032
Consolidated	$	1,990,803		$	13,148,780

Identifiable assets:
Jinong	$	101,717,304		$	88,658,686
Gufeng		65,284,782			-
Jintai		14,632,624			10,161,564
Yuxing		19,264,101			10,724,673
Reconciling item (1)		2,269,121			13,026,892
Reconciling item (2)		44,259			32,991
Consolidated	$	203,212,191		$	122,604,806

(1) Reconciling amounts refer to the unallocated assets or expenses of Green New Jersey.

(2) Reconciling amounts refer to the unallocated assets or expenses of the parent company.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

NOTE 17 - COMMITMENTS AND LEASES

In July 2007, Jinong signed an office lease with the Group Company at a monthly rent of $954 (RMB 6,460) per month. On September 30, 2010, Jinong cancelled this lease agreement with the Group Company without penalty and signed a two year lease effective as of July 1, 2010 directly with Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”), who owns the property. Kingtone Information is a Variable Interest Entity (“VIE”) controlled by Kingtone Wirelessinfo Solution Holoding Ltd. (“Kingtone Wirelessinfo”), whose Chairman and majority shareholder is Mr. Tao Li, the Chairman, President and Chief Executive Officer of the Company. According to the new lease agreement, the monthly rent is $1,596 (RMB 10,800).

In January 2008, Jintai signed a ten year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $768 (RMB 5,200).

In February 2004, Tianjuyuan signed a fifty year lease with the village committee of Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District, at a monthly rent of $437 (RMB 2,958).

Accordingly, the Company recorded an aggregate of $8,486 and $5,122 as rent expenses for the three months ended December 31, 2010 and 2009, respectively. The Company recorded an aggregate of $16,944 and $10,244 as rent expenses for the six months ended December 31, 2010 and 2009, respectively. Rent expenses for the next twelve month periods ended December 31, 2010 is as follows:

December 31, 2011	$	33,943
December 31, 2012		24,275
December 31, 2013		14,607
December 31, 2014		14,607
December 31, 2015		14,607

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as the slow-down of the global financial markets and its impact on economic growth in general, the competition in the fertilizer industry and the impact of such competition on pricing, revenues and margins, the weather conditions in the areas where our customers are based, the cost of attracting and retaining highly skilled personnel, the prospects for future acquisitions, and the factors set forth elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Unless the context indicates otherwise, as used in the following discussion, “Company”, “we,” “us,” and “our,” refer to (i) China Green Agriculture, Inc. (“Green Nevada”), a corporation incorporated in the State of Nevada; (ii) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the State of New Jersey; (iii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iv) Xi’an Jintai Agriculture Technology Development Company (“Jintai”), wholly-owned subsidiary of Jinong in the PRC, (v) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a wholly-owned subsidiary of Jinong in the PRC; (vi) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (vii) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).

Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (iii) “RMB”, “Yuan” and Renminbi are to the currency of the PRC or China.

Overview

We are engaged in the research, development, production and sale of various types of fertilizers and agricultural products in the PRC through our wholly-owned Chinese subsidiaries, Jinong, Jintai, Yuxing, Gufeng and Tianjuyuan. Our primary business is fertilizer products, specifically humic-acid based compound fertilizer produced by Jinong and compound fertilizer, blended fertilizer, organic compound fertilizer and mixed organic-inorganic compound fertilizer produced by Gufeng and Tianjuyuan. In addition, through Jintai and Yuxing, we develop and produce agricultural products, such as top-grade fruits, vegetables, flowers and colored seedlings. For financial reporting purposes, our operations are organized into four business segments: fertilizer products (Jinong), fertilizer products (Gufeng), agricultural products (Jintai) and research and development (Yuxing).

Jintai and Yuxing also serve as a research and development base for our fertilizer products. The fertilizer business conducted by Jinong and Gufeng, which we acquired in July 2010, generated approximately 93.9% and 81.5% of our total revenues for the three months ended December 31, 2010 and 2009, respectively. In the six months ended December 31, 2010 and 2009, the fertilizer business conducted by Jinong and Gufeng generated 95.6% and 85.9% of our total revenues, respectively.

Fertilizer Products

As of December 31, 2010, we had developed and produced a total of 470 different fertilizer products, of which 166 and 304 were developed and produced by Jinong and Gufeng, respectively. Of these fertilizer products, 20 have been replaced by newer products.

For the three months ended December 31, 2010, we sold approximately 64,192 metric tons of fertilizer products, as compared to 3,836 metric tons for the three months ended December 31, 2009, which did not include sales of products by Gufeng. For the six months ended December 31, 2010, we sold approximately 150,655 metric tons of fertilizer products, as compared to 7,435 metric tons for the same period in 2009, which did not include sales of products by Gufeng. For the three months ended December 31, 2010, Jinong sold approximately 11,594 metric tons of fertilizer products, as compared to 3,065 metric tons for the three months ended December 31, 2009. For the six months ended December 31, 2010, Jinong sold approximately 22,235 metric tons of fertilizer products, as compared to 7,435 metric tons for the six months ended December 31, 2009. Gufeng sold approximately 52,598 metric tons of fertilizer products for the three months ended December 31, 2010. For the six months ended December 31, 2010, Gufeng sold approximately 128,420 metric tons of fertilizer products.

For the three months ended December 31, 2010, the top five provinces (or municipalities) of our total fertilizer sales accounted for 29.2% of total fertilizer revenues. The five provinces (or municipalities) and their respective percentage contribution to total fertilizer revenues were Hebei(7.0%), Jilin(6.8%),Liaoning (6.4%), Shaanxi (4.8%) and Beijing (4.1%). Jinong’s sales to the top five provinces accounted for approximately 37.1% of Jinong’s fertilizer revenue (or 15.0% of our total revenues). The five provinces and their respective percentage contribution to Jinong’s fertilizer revenues were Shaanxi (11.2%), Shandong (8.5%), Henan (6.2%), Anhui (6.1%) and Sichuan (5.1%). For the three months ended December 31, 2010, Gufeng’s sales of fertilizer products to the top five provinces accounted for approximately 39.2% of Gufeng’s fertilizer revenue (or 20.9% of our total revenues). The five provinces (or municipalities) and their respective percentage contribution to Gufeng’s fertilizer revenues were Jilin (10.1%), Hebei (9.0%), Liaoning (8.5%), Beijing (7.3%) and Inner Mongolia (4.3%).

A significant portion of our revenues are derived from sales in other countries. Gufeng exports blended fertilizer through contracted distributors to other countries including India, Zimbabwe, Mongolia, the Philippines and Brazil. The export revenues accounted for 51% of Gufeng’s fertilizer revenues (or 27.4% of our total revenues) for the three months ended December 31, 2010. In addition, we export humic-acid based compound fertilizer products and blended fertilizer products via contracted distributors. Jinong exports its humic-acid based compound fertilizers to other countries, including India, Ecuador, Pakistan and Lebanon. However, the revenues from Jinong’s export products currently account for less than 1% of our fertilizer revenues for the three months ended December 31, 2010. In December 2010, Gufeng entered into a new contract which will significantly increase Gufeng’s future export revenues. See “Recent Developments” below.

As of December 31, 2010, we had a total of 755 distributors covering 21 provinces, four autonomous regions and three central government-controlled municipalities in China. Jinong had 598 distributors in China. Jinong’s sales are not dependent on any one or group of distributors. Its top five distributors accounted for 1.8% of Jinong’s fertilizer revenues (or 0.7% of our total revenues) for the three months ended December 31, 2010. Gufeng had 157 distributors, including some large state-owned enterprises. Its top five distributors accounted for 89.5% of Gufeng’s revenues (or 47.8% of our total revenues) for the three months ended December 31, 2010.

Agricultural Products

Through Jintai, we develop, produce and sell high-quality flowers, green vegetables and fruits to local marketplaces and various horticulture and planting companies. We also use certain of Jintai’s and Yuxing’s greenhouse facilities to conduct research and development activities for our fertilizer products. The five PRC provinces which accounted for 100% of our agricultural products revenue (or 6.2% of our total revenues) for the three months ended December 31, 2010 were Shaanxi (86.1%), Sichuan (7.7%),Shanxi (4.7%), Ningxia (1.3%) and Qinghai (0.2%) .

Recent Developments

During the three months ended December 31, 2010, Jinong launched four new humic-acid based liquid and powder fertilizer products, including three powder fertilizers and one broad-spectrum liquid fertilizer. Jinong’s new products generated approximately $148,522 or 1.1%, of Jinong’s fertilizer revenues for the three months ended December 31, 2010. Jinong also added 10 new distributors during the three months ended December 31, 2010. Jinong’s new distributors accounted for approximately $44,465, or 0.3%, of Jinong’s fertilizer revenues for the three months ended December 31, 2010.

During the three months ended December 31, 2010, Gufeng launched two new humic acid-based blended and functional fertilizers. These new products generated approximately $393,664, or 2.1%, of Gufeng’s fertilizer revenues for the three months ended December 31, 2010. Gufeng also added five new distributors during the three months ended December 31, 2010, which accounted for approximately $143,840, or 0.8%, of Gufeng’s fertilizer revenues.

On December 22, 2010, Gufeng entered into a contract with Sinoagri Group Holding Company Limited, a company incorporated under the laws of the PRC (“Sinoagri”), pursuant to which Sinoagri agreed to purchase binary acid compound fertilizers from Gufeng in the range of 165,000 to 180,000 metric tons to be delivered from May 2011 to September 2011.

Results of Operations

The following table shows our operating results on a consolidated basis for the three months ended December 31, 2010 and 2009. It should be noted that our consolidated results for the 2009 period do not include the results of Gufeng and its subsidiary, Tianjuyuan, which were acquired on July 2, 2010.

Three months ended December 31,

Usenet FAQ Index

Documents

Other FAQs

China Green Agriculture, Inc. - FORM 10-Q - February 9, 2011