CORRESP 1 filename1.htm

 

CHINA GREEN AGRICULTURE, INC.

300 Walnut Street, Suite 245, Des Moines, Iowa 50309

 

 

 

March 13, 2015

 

Via Edgar

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

 

 

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