CHINA GREEN AGRICULTURE, INC.
300 Walnut Street, Suite 245, Des Moines, Iowa 50309
March 13, 2015
ViaEdgar
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Mail Stop: 3561
Washington, D.C. 20549
Attention: Melissa Raminpour, Branch Chief
| Re: | China Green Agriculture, Inc. Form 10-K for the Fiscal Year Ended June 30, 2014 Filed September 15, 2014 File No. 001-34260 |
Dear Ms. Raminpour:
China Green Agriculture, Inc., a Nevada corporation (the “Company” or “we”), is in receipt of the letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) dated February 27, 2015 (the “Comment Letter”) to the Company, with respect to the Company’s Annual Report on Form 10-K for the year ended June 30, 2014 (the “Form 10-K”). We hereby file via EDGAR our response to the Comment Letter. The text of the Staff's comment is set forth in italics below, followed by the response of the Company.
Form 10-K for the Year Ended June 30, 2014
Notes to Consolidated Financial Statements
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Deferred assets, page F-8
| 1. | We note from your response to prior comment 6 that you have capitalized amounts given to distributors to help them expand their place of business, improve signage and appearance in an effort to better present your brand name and image and to make your products more accessible to the end customers. Please provide us further detail on the nature of each asset type capitalized as deferred assets. In this regard, your response states you believe these items “would ordinarily be capitalized as fixed assets.” Please address why they are properly capitalized in your response. Also, as part of your response, please clarify whether you purchased assets directly for the distributor, or you reimbursed the distributor with cash. If the latter is the case, please clarify how you ensure the reimbursements go toward the appropriate assets. |
Response:
The deferred assets consist of items inside the distributors’ stores such as furniture, racks, cabinets, and display units, and items outside or attached to the distributors’ stores such as signage and billboards. These types of assets would be capitalized as fixed assets if the Company actually owned the stores or utilized the assets for its own operations. These assets would also be capitalized as leasehold improvements if the Company leased these stores from the distributors. Therefore, the Company believes that under the U.S. generally accepted accounting principles, these types of assets purchases are properly capitalized. In addition, the Company believes that these assets are properly classified as deferred assets because if a distributor breaches, defaults, or terminates the agreement with the Company within a three-year period, a proportionate amount expended by the Company is to be repaid by the distributor. The Chairman of the Board of directors of the Company guaranteed to the Company of amounts remaining unpaid due from distributors.
The assets inside the distributors’ stores are custom made to fit the layout of each individual store and the signage and billboards are also custom designed to fit the specific location. The assets were purchased by the Company directly from the manufacturers and installed in the distributors’ stores. The Company wants to maintain control over the quality of the items being purchased as well as making them uniform among all the distributor locations.
Below is a summary of the deferred assets by Chinese Province at December 31, 2014:
| US Dollars | ||||||||||||
| Accumulated | Net | |||||||||||
| Province | Cost | Amortization | Balance | |||||||||
| Signage/billboards | ||||||||||||
| Anhui | 3,678,631 | 1,786,883 | 1,891,748 | |||||||||
| Fujian | 2,262,221 | 1,098,867 | 1,163,354 | |||||||||
| Gansu | 2,799,807 | 1,359,997 | 1,439,810 | |||||||||
| Guangdong | 2,849,276 | 1,384,027 | 1,465,249 | |||||||||
| Guangxi | 2,302,075 | 1,118,225 | 1,183,850 | |||||||||
| Guizhou | 447,205 | 217,229 | 229,976 | |||||||||
| Hainan | 250,485 | 121,672 | 128,813 | |||||||||
| Hebei | 2,509,965 | 1,219,207 | 1,290,758 | |||||||||
| Henan | 2,577,615 | 1,252,069 | 1,325,546 | |||||||||
| Heilongjiang | 3,003,751 | 1,459,063 | 1,544,688 | |||||||||
| Hubei | 2,214,038 | 1,075,462 | 1,138,576 | |||||||||
| Hunan | 1,450,438 | 704,546 | 745,892 | |||||||||
| Jilin | 2,108,503 | 1,024,198 | 1,084,305 | |||||||||
| Jiangsu | 2,277,865 | 1,106,466 | 1,171,399 | |||||||||
| Jiangxi | 1,769,037 | 859,304 | 909,733 | |||||||||
| Liaoning | 2,168,140 | 1,053,167 | 1,114,973 | |||||||||
| Inner Mongolia | 942,879 | 458,000 | 484,879 | |||||||||
| Ningxia | 805,210 | 391,128 | 414,082 | |||||||||
| Shandong | 3,970,344 | 1,928,582 | 2,041,762 | |||||||||
| Shanxi | 2,086,579 | 1,013,549 | 1,073,030 | |||||||||
| Shaanxi | 2,236,596 | 1,086,419 | 1,150,177 | |||||||||
| Shanghai | 287,930 | 139,861 | 148,069 | |||||||||
| Sichuan | 2,395,985 | 1,163,842 | 1,232,143 | |||||||||
| Tianjin | 286,417 | 139,126 | 147,291 | |||||||||
| Xinjiang | 2,707,637 | 1,315,226 | 1,392,411 | |||||||||
| Yunnan | 2,288,123 | 1,111,449 | 1,176,674 | |||||||||
| Zhejiang | 2,006,978 | 974,883 | 1,032,095 | |||||||||
| Chongqing | 508,584 | 247,043 | 261,541 | |||||||||
| Total signage/billboards | 55,192,314 | 26,809,490 | 28,382,824 | |||||||||
| 2 |
| Furniture/racks | ||||||||||||
| Anhui | 5,123,537 | 2,314,881 | 2,808,656 | |||||||||
| Fujian | 3,112,833 | 1,406,419 | 1,706,414 | |||||||||
| Gansu | 3,963,152 | 1,790,604 | 2,172,548 | |||||||||
| Guangdong | 3,866,940 | 1,747,133 | 2,119,807 | |||||||||
| Guangxi | 3,366,621 | 1,521,083 | 1,845,538 | |||||||||
| Guizhou | 646,928 | 292,290 | 354,638 | |||||||||
| Hainan | 358,436 | 161,946 | 196,490 | |||||||||
| Hebei | 3,617,578 | 1,634,468 | 1,983,110 | |||||||||
| Henan | 3,773,672 | 1,704,994 | 2,068,678 | |||||||||
| Heilongjiang | 4,357,757 | 1,968,891 | 2,388,866 | |||||||||
| Hubei | 3,200,594 | 1,446,069 | 1,754,525 | |||||||||
| Hunan | 2,087,604 | 943,206 | 1,144,398 | |||||||||
| Jilin | 3,036,080 | 1,371,740 | 1,664,340 | |||||||||
| Jiangsu | 3,178,483 | 1,436,080 | 1,742,403 | |||||||||
| Jiangxi | 2,586,125 | 1,168,444 | 1,417,681 | |||||||||
| Liaoning | 3,158,910 | 1,427,236 | 1,731,674 | |||||||||
| Inner Mongolia | 1,369,096 | 618,575 | 750,521 | |||||||||
| Ningxia | 1,167,291 | 527,397 | 639,894 | |||||||||
| Shandong | 5,788,671 | 2,615,396 | 3,173,275 | |||||||||
| Shanxi | 3,052,089 | 1,378,973 | 1,673,116 | |||||||||
| Shaanxi | 3,264,266 | 1,474,838 | 1,789,428 | |||||||||
| Shanghai | 422,084 | 190,703 | 231,381 | |||||||||
| Sichuan | 3,653,599 | 1,650,743 | 2,002,856 | |||||||||
| Tianjin | 412,396 | 186,326 | 226,070 | |||||||||
| Xinjiang | 4,010,815 | 1,812,138 | 2,198,677 | |||||||||
| Yunnan | 3,410,574 | 1,540,941 | 1,869,633 | |||||||||
| Zhejiang | 2,966,330 | 1,340,226 | 1,626,104 | |||||||||
| Chongqing | 737,129 | 333,044 | 404,085 | |||||||||
| Total furniture/racks | 79,689,590 | 36,004,784 | 43,684,806 | |||||||||
| Grand Total | 134,881,904 | 62,814,274 | 72,067,630 |
| 2. | In addition, explain to us your basis to record the related amortization expenses of the deferred assets under “selling expenses – amortization of deferred asset” line item rather than “cost of goods sold” in the Consolidated Statements of Income and Comprehensive Income. Refer to ASC 705-10-25.
Response:
The Company has reviewed the guidance in ASC 705-10-25 and believes that the amortization expense of the deferred assets closer resembles a selling expense than a cost of the product that would be included in cost of goods sold. The distributors do not buy the Company’s products for crop fertilization. As wholesalers, distributors buy large quantity of products from the Company, warehouse them, and resell to retailers. To resell, distributors make efforts in various means, to market, promote, and resell the Company’s products to retail customers via their retail network. The Company supports the distributors’ retail sales of the Company’s products. To do that, the Company provides the deferred assets herein and assists the distributors to improve their retail network with the deferred assets. |
| 3 |
We acknowledge that we are responsible for the accuracy and adequacy of the disclosure in the filing. We further acknowledge that Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing, and that we may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
| Sincerely, | |
| /s/ Ken Ren | |
| Ken Ren | |
| Chief Financial Officer |
| 4 |
