China Agritech today announced that the Nasdaq Hearings Panel has denied the request of the Company for continued listing and has determined to delist and suspend trading of the shares on The Nasdaq Stock Market effective at the open of business on Friday, May 20, 2011. The Company's shares are expected to subsequently trade on the OTC Market.
The Company remains committed to dispelling the allegations made against our Company. The independent investigation is proceeding under the supervision of the Special Committee. The Company expects the investigation will be completed within the next couple of months. The Company is dedicated to providing accurate and complete information to our shareholders and is focused on completing the investigation and audit process so that concerns about the Company can be properly addressed. The Company expects to be able to file the 2010 10-K within a reasonable time period after the completion of the investigation and audit process.
On March 13, 2011, the Company announced that it formed a special committee of its board in order to investigate certain allegations made by third parties with respect to the Company and certain related issues and that the Company would not be able to meet the its Form 10-K filing deadline. E&Y informed the Company that, in its view, there was a material omission of fact from the Company's press release relating to the formation of the special committee, as the press release did not specifically disclose that the independent investigation was related to issues which were identified during the performance of the Company's year end audit. E&Y further advised the Company's representatives that E&Y may resign as the Company's auditors if a revised press release was not issued. The Company, however, believed that the specific disclosure in the press release about the investigation combined with the disclosure of the indefinite delay in the 10-K filing, was a clear indication to the market that issues had arisen in connection with the annual audit which would have to be addressed.
E&Y informed the Company that the issues identified in performing their audit may, if further investigated, have adverse implications for the financial statements covering the three quarterly reports filed by the Company on Form 10-Q during 2010, and advised the Audit Committee to inform the predecessor auditors of the issues identified, so that they can assess the impact on prior financial reports.
The NASDAQ Stock Market announced that trading was halted today in China Agritech (CAGC) at 07:34:32 a.m. Eastern Time for "additional information requested" from the company at a last price of $6.88. Trading will remain halted until China Agritech, Inc. has fully satisfied NASDAQ's request for additional information.
China Agritech today announced that the Board of Directors, based on the suggestion of the Company's Audit Committee, has dismissed Ernst & Young Hua Ming as the Company's independent auditor starting from March 14, 2011. The dismissal of Ernst & Young Hua Ming was made after thorough consideration by the Audit Committee, and the Board of Directors of the Company. The decision to dismiss the auditor was the result of Ernst & Young (China) Advisory Limited Beijing Branch Office entering into a SOX 404 service agreement including performing the test of the Company's internal controls from 2008 to 2010. Recently, the public and the management team have raised doubts about this service agreement's impact on Ernst & Young Hua Ming's independence to act as the Company's auditor. In order to give the public fair and truthful financial results, the Board of Directors came to the above decision. The Company is actively seeking a new auditor to finish the audit work for 2010 and file with the Securities and Exchange Commission with the least delay possible.
China Agritech announced that it has formed a Special Committee (the "Committee") of its Board of Directors in order to investigate certain allegations made by third parties with respect to the Company and certain related issues. The Committee will consist of five members, including Gene Michael Bennett, Lunzhang Dai, and Hailin Zhang, who are members of the Audit Committee of the Board of Directors, and Zheng Wang and Xuenong Zhang, who are members of Board of Directors. The Committee will retain its own independent counsel and forensic accounting firm to advise the Committee in connection with its investigation.
Considering that the investigation will not get underway until next week, the Company will not be able to meet the March 16, 2011 filing deadline for its Form 10-K and will be filing for an extension of time to file its Form 10-K. In addition, because the Form 10-K will not be able to be filed until the investigation is complete, the Company is not able to predict when the filing will take place.
China Agritech announced that it has expanded its sales partnership with China National Agrochemical Corporation (CNAC) for the Company's Green Vitality organic granular compound fertilizer products. Pursuant to the agreement, China Agritech will supply Green Vitality organic granular compound fertilizers worth an estimated value of US$6.8 million through December 2011.
"We are excited about the expansion of our relationship with CNAC, which is one of the largest players in the Chinese agricultural market with over 1,000 points of sale nationwide. This new contract further acknowledges the superior quality of our organic granular fertilizers, and the potential yield enhancement and economic benefits our products can provide to the large number of farming communities in China. Going forward, we are confident that our high-quality organic compound fertilizers will reach a wider audience of farmers in China through our comprehensive distribution channels that capitalize on our regional distribution center network, as well as our strategic relationships with major domestic agricultural enterprises such as CNAC and SinoChem."
Entering the fourth quarter, weather conditions have become stable throughout China. Our granular sales are now accelerating. Seasonally, fourth quarter is the strongest quarter for granular products with solid payment receipt, as we have changed the payment terms for granular products from 90 days in the beginning of the year to current term of cash on delivery. The price of agricultural products, especially the cost-efficient and reliable organic fertilizers, has been rebounding as seeding resumes. We are capitalizing on this favorable trend to try our best to achieve our annual target.
The Company remains committed to, and is in the process of, engaging a "Big Four" auditing firm soon, which will conduct the audit of the Company's 2010 financial results. A formal contract is expected to be signed and announced following the 2010 third quarter financial results release.
Regarding the recent market rumors, the Company believes such statements are intended to damage China Agritech's corporate image and the credibility of its management. The Company believes it has not been involved in any improper related-party transactions and management has not taken part in activities against their professional integrity. The Company considers the reputation and integrity of China Agritech to be of utmost importance to its future success and thus intends to vigorously defend it.
The Company is confident to achieve its annual guidance for the year ending December 31, 2010 with revenues expected to reach approximately $114 million and non-GAAP net income, which excludes the change in the fair value of warrants issued, gain on extinguishment of warrant liability, and stock- based compensation, of approximately $23.5 million. These targets are based upon the Company's current views on operating and market conditions, which are subject to change. The Board has decided to engage a Big Four accounting firm. Final selection will be announced within the next one month.
The Company reiterates its guidance for the year ending December 31, 2010 with revenues expected to reach approximately $114 million and non-GAAP net income, which excludes the change in the fair value of warrants issued, gain on extinguishment of warrant liability, and stock-based compensation, of approximately $23.5 million, representing a year-over-year growth of 50% and 45% on revenues and non-GAAP net income, respectively.
"While we are encouraged by our solid performance in the first half of the year, we expect that the second half will be stronger as the peak farming season is unfolding and our products are gaining traction. Our balance sheet is now strengthened and we expect that our cash flow will continue to improve. With our product portfolio, growing R&D capability, nationwide distribution footprint and strong financial standing, we believe that we are well positioned to capture the wave of the organic food market growth in China."
The Company reiterates its guidance for the year ending December 31, 2010 with revenues expected to reach approximately $114 million and non-GAAP net income, which excludes the change in the fair value of warrants issued and stock-based compensation, of approximately $23.5 million, representing a year-over-year growth of 50% and 45% on revenues and non-GAAP net income respectively. "We remain confident that 2010 will be another strong year for us, as our production capacity is expanding and market acceptance for our granular organic fertilizer is growing. We will continue to strengthen our channels and services to attract more farmers to test and adopt our products. As the Chinese government continues to increase agricultural investment, agricultural material subsidies directly for farmers to purchase fertilizers are expected to increase year-by-year. After seven consecutive years of grain harvest, the overall fertilizer consumption is likely to remain at a high level in 2010."
The Company's guidance for fiscal year 2010 includes revenues of approximately $114 million and non-GAAP net income, excluding change in fair value of warrants issued and stock based compensation, of approximately $23.5 million, representing a year-over-year growth of 50% and 45% on revenues and non-GAAP net income respectively. "With the combination of a severe drought in western China, deterioration of soil quality due to pollution, and insufficient arable land throughout China exacerbated by rapid urbanization, we believe that agriculture will very likely return as the focal point of Chinese economic development in 2010. Sustaining development and improving agricultural product yields are among the most important areas where the Chinese government places strong emphasis and is renewing its support. As a leader in organic fertilizers in China, we remain focused on market share expansion and new market penetration to build long-term shareholders' value."