Item
1. Financial Statements
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
June
30,
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
116,574,852
|
|
|
$
|
102,896,486
|
|
Accounts
receivable, net
|
|
|
125,035,022
|
|
|
|
117,055,376
|
|
Inventories
|
|
|
64,255,981
|
|
|
|
87,436,315
|
|
Prepaid
expenses and other current assets
|
|
|
1,725,644
|
|
|
|
1,329,098
|
|
Advances
to suppliers, net
|
|
|
28,707,243
|
|
|
|
26,863,959
|
|
Total
Current Assets
|
|
|
336,298,742
|
|
|
|
335,581,234
|
|
|
|
|
|
|
|
|
|
|
Plant,
Property and Equipment, Net
|
|
|
34,201,866
|
|
|
|
37,569,739
|
|
Deferred
Asset, Net
|
|
|
3,536,984
|
|
|
|
13,431,621
|
|
Other
Assets
|
|
|
309,495
|
|
|
|
379,047
|
|
Intangible
Assets, Net
|
|
|
21,993,441
|
|
|
|
23,840,048
|
|
Goodwill
|
|
|
7,635,779
|
|
|
|
7,980,838
|
|
Total
Assets
|
|
$
|
403,976,307
|
|
|
$
|
418,782,527
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
5,577,064
|
|
|
$
|
5,246,153
|
|
Customer
deposits
|
|
|
5,413,319
|
|
|
|
8,578,341
|
|
Accrued
expenses and other payables
|
|
|
9,067,827
|
|
|
|
16,414,392
|
|
Amount
due to related parties
|
|
|
2,726,125
|
|
|
|
2,473,004
|
|
Taxes
payable
|
|
|
1,841,182
|
|
|
|
4,104,218
|
|
Short
term loans
|
|
|
4,463,783
|
|
|
|
4,665,500
|
|
Interest
payable
|
|
|
110,155
|
|
|
|
-
|
|
Derivative
liability
|
|
|
64,780
|
|
|
|
144,818
|
|
Total
Current Liabilities
|
|
|
29,264,235
|
|
|
|
41,626,426
|
|
|
|
|
|
|
|
|
|
|
Long-term
Liabilities
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
6,534,263
|
|
|
|
6,671,769
|
|
Total
Liabilities
|
|
|
35,798,498
|
|
|
|
48,298,195
|
|
|
|
|
|
|
|
|
|
|
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, 38,518,605 and 36,978,605 shares issued and outstanding as of December
31, 2016 and June 30, 2016, respectively
|
|
|
38,518
|
|
|
|
37,648
|
|
Additional
paid-in capital
|
|
|
128,876,011
|
|
|
|
127,593,932
|
|
Statutory
reserve
|
|
|
28,317,770
|
|
|
|
27,203,861
|
|
Retained
earnings
|
|
|
233,088,961
|
|
|
|
221,345,279
|
|
Accumulated
other comprehensive loss
|
|
|
(22,143,451
|
)
|
|
|
(5,696,388
|
)
|
Total
Stockholders' Equity
|
|
|
368,177,809
|
|
|
|
370,484,332
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
403,976,307
|
|
|
$
|
418,782,527
|
|
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
26,825,674
|
|
|
$
|
31,302,561
|
|
|
$
|
58,253,394
|
|
|
$
|
66,010,365
|
|
Gufeng
|
|
|
21,066,559
|
|
|
|
23,579,674
|
|
|
|
36,876,073
|
|
|
|
41,814,506
|
|
Yuxing
|
|
|
2,454,314
|
|
|
|
2,083,765
|
|
|
|
3,809,725
|
|
|
|
3,325,400
|
|
VIEs
|
|
|
8,398,466
|
|
|
|
-
|
|
|
|
21,690,443
|
|
|
|
-
|
|
Net sales
|
|
|
58,745,013
|
|
|
|
56,966,000
|
|
|
|
120,629,635
|
|
|
|
111,150,271
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
12,332,360
|
|
|
|
13,434,686
|
|
|
|
25,601,590
|
|
|
|
27,975,071
|
|
Gufeng
|
|
|
18,138,659
|
|
|
|
19,712,848
|
|
|
|
31,523,736
|
|
|
|
34,458,522
|
|
Yuxing
|
|
|
1,934,046
|
|
|
|
1,182,898
|
|
|
|
2,979,654
|
|
|
|
1,892,948
|
|
VIEs
|
|
|
7,159,707
|
|
|
|
-
|
|
|
|
17,913,386
|
|
|
|
-
|
|
Cost of goods sold
|
|
|
39,564,772
|
|
|
|
34,330,432
|
|
|
|
78,018,366
|
|
|
|
64,326,541
|
|
Gross profit
|
|
|
19,180,241
|
|
|
|
22,635,568
|
|
|
|
42,611,269
|
|
|
|
46,823,730
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
3,965,382
|
|
|
|
5,285,103
|
|
|
|
8,977,450
|
|
|
|
7,628,858
|
|
Selling expenses - amortization of deferred asset
|
|
|
3,475,438
|
|
|
|
8,664,752
|
|
|
|
9,584,220
|
|
|
|
18,377,467
|
|
General and administrative expenses
|
|
|
4,633,905
|
|
|
|
2,905,982
|
|
|
|
7,865,392
|
|
|
|
5,659,624
|
|
Total operating expenses
|
|
|
12,074,725
|
|
|
|
16,855,837
|
|
|
|
26,427,062
|
|
|
|
31,665,949
|
|
Income from operations
|
|
|
7,105,516
|
|
|
|
5,779,731
|
|
|
|
16,184,207
|
|
|
|
15,157,781
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(114,115
|
)
|
|
|
729
|
|
|
|
(155,172
|
)
|
|
|
(3,834
|
)
|
Interest income
|
|
|
76,494
|
|
|
|
74,270
|
|
|
|
153,116
|
|
|
|
152,932
|
|
Interest expense
|
|
|
(93,246
|
)
|
|
|
(302,644
|
)
|
|
|
(231,791
|
)
|
|
|
(731,679
|
)
|
Total other income (expense)
|
|
|
(130,867
|
)
|
|
|
(227,645
|
)
|
|
|
(233,847
|
)
|
|
|
(582,581
|
)
|
Income before income taxes
|
|
|
6,974,649
|
|
|
|
5,552,086
|
|
|
|
15,950,360
|
|
|
|
14,575,200
|
|
Provision for income taxes
|
|
|
1,468,638
|
|
|
|
1,284,551
|
|
|
|
3,092,769
|
|
|
|
3,061,993
|
|
Net income
|
|
|
5,506,011
|
|
|
|
4,267,535
|
|
|
|
12,857,591
|
|
|
|
11,513,207
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(1,205,884
|
)
|
|
|
(7,616,129
|
)
|
|
|
(16,447,063
|
)
|
|
|
(22,728,368
|
)
|
Comprehensive income (loss)
|
|
$
|
4,300,127
|
|
|
$
|
(3,348,594
|
)
|
|
$
|
(3,589,472
|
)
|
|
$
|
(11,215,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
37,658,062
|
|
|
|
36,933,002
|
|
|
|
37,653,333
|
|
|
|
36,436,026
|
|
Basic net earnings per share
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
Diluted weighted average shares outstanding
|
|
|
37,658,062
|
|
|
|
36,933,002
|
|
|
|
37,653,333
|
|
|
|
36,436,026
|
|
Diluted net earnings per share
|
|
|
0.15
|
|
|
|
0.12
|
|
|
|
0.34
|
|
|
|
0.32
|
|
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
CHINA
GREEN AGRICULTURE INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(UNAUDITED)
|
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,857,591
|
|
|
$
|
11,513,207
|
|
Adjustments
to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Issuance
of common stock and stock options for compensation
|
|
|
1,282,949
|
|
|
|
2,378,736
|
|
Depreciation
and amortization
|
|
|
12,115,909
|
|
|
|
21,445,891
|
|
Loss
on disposal of property, plant and equipment
|
|
|
109,304
|
|
|
|
345
|
|
Amortization
of debt discount
|
|
|
155,335
|
|
|
|
-
|
|
Change
in fair value of derivative liability
|
|
|
(75,918
|
)
|
|
|
-
|
|
Changes
in operating assets
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(13,419,107
|
)
|
|
|
(1,295,393
|
)
|
Amount
due from related parties
|
|
|
-
|
|
|
|
(154,303
|
)
|
Other
current assets
|
|
|
(467,184
|
)
|
|
|
88,817
|
|
Inventories
|
|
|
19,962,979
|
|
|
|
(23,618,284
|
)
|
Advances
to suppliers
|
|
|
(3,091,976
|
)
|
|
|
(9,078,019
|
)
|
Other
assets
|
|
|
121,719
|
|
|
|
40,385
|
|
Changes
in operating liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
564,376
|
|
|
|
130,081
|
|
Customer
deposits
|
|
|
(2,875,222
|
)
|
|
|
16,653,368
|
|
Tax
payables
|
|
|
(2,146,115
|
)
|
|
|
(2,646,182
|
)
|
Accrued
expenses and other payables
|
|
|
(7,029,002
|
)
|
|
|
228,171
|
|
Interest
payable
|
|
|
113,352
|
|
|
|
-
|
|
Net
cash provided by operating activities
|
|
|
18,178,990
|
|
|
|
15,686,820
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of plant, property, and equipment
|
|
|
(74,353
|
)
|
|
|
(15,665
|
)
|
Net
cash used in investing activities
|
|
|
(74,353
|
)
|
|
|
(15,665
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of common stock
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from loans
|
|
|
-
|
|
|
|
4,424,000
|
|
Repayment
of loans
|
|
|
-
|
|
|
|
(7,900,000
|
)
|
Advance
from related party
|
|
|
300,000
|
|
|
|
200,000
|
|
Net
cash provided by financing activities
|
|
|
300,000
|
|
|
|
(3,276,000
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate change on cash and cash equivalents
|
|
|
(4,726,271
|
)
|
|
|
(5,810,344
|
)
|
Net
increase in cash and cash equivalents
|
|
|
13,678,366
|
|
|
|
6,584,811
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning balance
|
|
|
102,896,486
|
|
|
|
92,982,564
|
|
Cash
and cash equivalents, ending balance
|
|
$
|
116,574,852
|
|
|
$
|
99,567,375
|
|
|
|
|
|
|
|
|
|
|
Supplement
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest
expense paid
|
|
$
|
231,791
|
|
|
$
|
731,679
|
|
Income
taxes paid
|
|
$
|
7,047,713
|
|
|
$
|
2,763,253
|
|
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
China Green Agriculture, Inc. (the “Company”,
“Parent Company” or “Green Nevada”), 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, slow-release fertilizers, highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer
and the development, production and distribution of agricultural products.
Unless the context indicates otherwise,
as used in the notes to the financial statements of the Company, the following are the references herein of all the subsidiaries
of the Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada,
incorporated in the State of New Jersey; (ii) Shaanxi TechTeamJinongHumic Acid Product Co., Ltd. (“Jinong”), a wholly-owned
subsidiary of Green New Jersey organized under the laws of the PRC; (iii) Xi’an Hu County Yuxing Agriculture Technology Development
Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”) in the in the People’s Republic of China
(the “PRC”) controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng Chemical Products
Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (v) Beijing Tianjuyuan Fertilizer Co., Ltd.,
Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
On June 30, 2016 the Company, through
its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the
shareholders of the following six companies that are organized under the laws of the PRC and would be deemed VIEs: Shaanxi Lishijie
Agrochemical Co., Ltd. (“Lishijie”), SongyuanJinyangguangSannong Service Co., Ltd. (“Jinyangguang”), Shenqiu
County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei District Wangtian Agricultural Materials Co.,
Ltd. (“Wangtian”), AksuXindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), and Xinjiang Xinyulei Eco-agriculture
Science and Technology co., Ltd. (“Xinyulei”). On January 1, 2017, the Company, through its wholly-owned subsidiary
Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders of the following
two companies that are organized under the laws of the PRC and would be deemed VIEs Sunwu County Xiangrong Agricultural Materials
Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”). Please refer to Subsequent event
in Note 17.
Yuxing, Lishijie, Jinyangguang, Zhenbai,
Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred to as the “the VIE Companies”
The
Company’s current corporate structure as of is set forth in the diagram below:
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle
of consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New
Jersey, Jinong, Gufeng, Tianjuyuan, Yuxing and the VIE Companies. All significant inter-company accounts and transactions have
been eliminated in consolidation.
VIE
assessment
A
VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated
financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities
of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s
expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights
of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive
the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or
are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered
a VIE, the Company first perform a qualitative analysis, which requires certain subjective decisions regarding its assessments,
including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along
to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a
qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the
design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that
the entity was designed to pass along to its variable interest holders. When the primary beneficiary could not be identified through
a qualitative analysis, we used internal cash flow models to compute and allocate expected losses or expected residual returns
to each variable interest holder based upon the relative contractual rights and preferences of each interest holder in the VIE’s
capital structure.
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.
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 six months or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of cash
in three major banks in China. The aggregate cash in such accounts and on hand as of December 31, 2016 and June 30, 2016 were
$116,574,852 and $102,896,486, respectively. In addition, the Company also had $20,538 and $167,495 in cash in two banks in the
United States as of December 31, 2016 and June 30, 2016, respectively. 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.
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, 2016 and June 30, 2016, the Company had accounts receivable of $125,035,022
and $117,055,376, net of allowance for doubtful accounts of $4,343,762 and $397,123, respectively. The Company adopts no policy
to accept product returns post to the sales delivery.
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.
Deferred
asset
Deferred
assets represent amounts that the distributors owed to the Company in their marketing efforts and developing standard stores to
expand the Company’s products’ competitiveness and market shares. The amount owed to the Company to assist its distributors
will be expensed over three years which is the term as stated in the cooperation agreement, as long as the distributors are actively
selling the Company’s products. For the six months ended December 31, 2016 and 2015, the Company amortized $9,584,220 and
$21,430,699, respectively, of the deferred assets. If a distributor breaches, defaults, or terminates the agreement with the Company
within the three-year period, the outstanding unamortized portion of the amount owed will become payable to the Company immediately.
The Company’s Chairman, Mr. Li, guaranteed to the Company of amounts remaining unpaid due from distributors.
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.
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.
Customer
deposits
Payments
received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. When all
revenue recognition criteria are met, the customer deposits are recognized as revenue. As of December 31, 2016 and June 30, 2016,
the Company had customer deposits of $5,413,319 and $8,578,341, respectively.
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
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net Income for Basic Earnings Per Share
|
|
$
|
5,506,011
|
|
|
$
|
4,267,535
|
|
Basic Weighted Average Number of Shares
|
|
|
37,658,062
|
|
|
|
36,933,002
|
|
Net Income Per Share – Basic
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
Net Income for Diluted Earnings Per Share
|
|
$
|
5,506,011
|
|
|
$
|
4,267,535
|
|
Diluted Weighted Average Number of Shares
|
|
|
37,658,062
|
|
|
|
36,933,002
|
|
Net Income Per Share – Diluted
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
|
Six Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net Income for Basic Earnings Per Share
|
|
$
|
12,857,591
|
|
|
$
|
11,513,207
|
|
Basic Weighted Average Number of Shares
|
|
|
37,653,333
|
|
|
|
36,436,026
|
|
Net Income Per Share – Basic
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
Net Income for Diluted Earnings Per Share
|
|
$
|
12,857,591
|
|
|
$
|
11,513,207
|
|
Diluted Weighted Average Number of Shares
|
|
|
37,653,333
|
|
|
|
36,436,026
|
|
Net Income Per Share – Diluted
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
Recent
accounting pronouncements
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition
guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.
ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required
within the revenue recognition process than are required under existing U.S. GAAP. This pronouncement is effective for annual
reporting periods beginning after December 15, 2016, and is to be applied using one of two retrospective application methods,
with early application not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on
its consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. The new guidance requires
that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance
sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods.
The Company does not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position,
results of operations, or cash flows.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The guidance in ASU No. 2016-02 supersedes the lease
recognition requirements in ASC Topic 840,
Leases (FAS 13)
. ASU 2016-02 requires an entity to recognize assets and liabilities
arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently
evaluating the effect this standard will have on its consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share Based Payment Accounting
, to simplify several aspects
of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for annual periods beginning
after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted, including adoption in an
interim period. The Company is currently evaluating the impact of the adoption of this newly issued guidance to its consolidated
financial statements.
On November 17, 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash. It is intended to reduce diversity in the presentation of restricted cash
and restricted cash equivalents in the statement of cash flows. The new standard requires that restricted cash and restricted cash
equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result,
entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents
in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 including interim
periods within those fiscal years. Earlier adoption is permitted. The Company maintains restricted cash balances and upon adoption
of this standard, the Company will show restricted cash as part of cash and restricted cash equivalents.
In January 2017, the FASB issued Accounting
Standards Update No. 2017-01, Clarifying the Definition of a Business, which clarifies and provides a more robust framework to
use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively
on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods
within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance
date or effective date and only when the transactions have not been reported in issued or made available for issuance financial
statements. The Company does not expect the adoption to have any significant impact on its Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04,
Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which
a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates
existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by
hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had
been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim
periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates
after January 1, 2017. The Company will apply this guidance to applicable impairment tests after the adoption date.
Other recent accounting pronouncements
issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
financial statements.
NOTE
3 - INVENTORIES
Inventories
consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Raw materials
|
|
$
|
23,724,037
|
|
|
$
|
29,926,762
|
|
Supplies and packing materials
|
|
$
|
599,843
|
|
|
$
|
444,373
|
|
Work in progress
|
|
$
|
422,539
|
|
|
$
|
408,820
|
|
Finished goods
|
|
$
|
39,509,562
|
|
|
$
|
56,656,360
|
|
Total
|
|
$
|
64,255,981
|
|
|
$
|
87,436,315
|
|
NOTE
4 - PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Building and improvements
|
|
$
|
40,614,431
|
|
|
$
|
42,489,975
|
|
Auto
|
|
|
899,674
|
|
|
|
937,642
|
|
Machinery and equipment
|
|
|
17,993,602
|
|
|
|
19,015,420
|
|
Agriculture assets
|
|
|
732,865
|
|
|
|
765,983
|
|
Total property, plant and equipment
|
|
|
60,240,572
|
|
|
|
63,209,020
|
|
Less: accumulated depreciation
|
|
|
(26,038,706
|
)
|
|
|
(25,639,281
|
)
|
Total
|
|
$
|
34,201,866
|
|
|
$
|
37,569,739
|
|
NOTE
5 - INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Land use rights, net
|
|
$
|
9,816,682
|
|
|
$
|
10,381,215
|
|
Technology patent, net
|
|
|
4,053
|
|
|
|
4,462
|
|
Customer relationships, net
|
|
|
5,515,101
|
|
|
|
6,403,343
|
|
Non-compete agreement
|
|
|
797,090
|
|
|
|
925,678
|
|
Trademarks
|
|
|
5,860,515
|
|
|
|
6,125,350
|
|
Total
|
|
$
|
21,993,441
|
|
|
$
|
23,840,048
|
|
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 RMB73,184,895 (or $10,538,113). The intangible asset
is being amortized over the grant period of 50 years using the straight line method.
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 RMB1,045,950 (or $150,609).
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 Yangling District, Shaanxi Province. The fair value of the related intangible asset
at the time of the contribution was determined to be RMB7,285,099 (or $1,049,003). The intangible asset is being amortized
over the grant period of 50 years.
The
Land Use Rights consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Land use rights
|
|
$
|
11,737,725
|
|
|
$
|
12,268,150
|
|
Less: accumulated amortization
|
|
|
(1,921,043
|
)
|
|
|
(1,886,935
|
)
|
Total land use rights, net
|
|
$
|
9,816,682
|
|
|
$
|
10,381,215
|
|
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 $845,969) and is
being amortized over the patent period of 10 years using the straight line method. This technology patent has been fully amortized.
On
July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired technology
patent was estimated to be RMB9,200,000 (or $1,324,736) and is amortized over the remaining useful life of six years using the
straight line method.
The
technology know-how consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Technology know-how
|
|
$
|
2,174,973
|
|
|
$
|
2,273,260
|
|
Less: accumulated amortization
|
|
|
(2,170,920
|
)
|
|
|
(2,268,798
|
)
|
Total technology know-how, net
|
|
$
|
4,053
|
|
|
$
|
4,462
|
|
CUSTOMER
RELATIONSHIP
On
July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired customer
relationships was estimated to be RMB65,000,000 (or $9,360,000) and is amortized over the remaining useful life of ten years.
On June 30, 2016, the Company acquired the VIE Companies. The fair value on the acquired customer relationships was estimated
to be RMB16,442,531 (or $2,367,609) and is amortized over the remaining useful life of seven to ten years.
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Customer relationships
|
|
$
|
11,727,154
|
|
|
$
|
12,257,100
|
|
Less: accumulated amortization
|
|
|
(6,212,053
|
)
|
|
|
(5,853,757
|
)
|
Total customer relationships, net
|
|
$
|
5,515,101
|
|
|
$
|
6,403,343
|
|
NON-COMPETE
AGREEMENT
On
July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired non-compete
agreement was estimated to be RMB1,320,000 (or $190,080) and is amortized over the remaining useful life of five years using the
straight line method. On June 30, 2016, the Company acquired the VIE Companies. The fair value on the acquired non-compete
agreements were estimated to be RMB6,150,683 (or $885,698) and is amortized over the remaining useful life of five years using
the straight line method.
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Non-compete agreement
|
|
$
|
1,075,726
|
|
|
$
|
1,124,338
|
|
Less: accumulated amortization
|
|
|
(278,636
|
)
|
|
|
(198,660
|
)
|
Total non-compete agreement, net
|
|
$
|
797,090
|
|
|
$
|
925,678
|
|
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 RMB40,700,000 (or $5,860,515) and is subject to an annual impairment test.
AMORTIZATION
EXPENSE
Estimated
amortization expenses of intangible assets for the next five twelve months periods ended December 31, 2016, are as follows:
Years Ending December 31,
|
|
Expense ($)
|
|
2017
|
|
|
1,635,094
|
|
2018
|
|
|
1,635,094
|
|
2019
|
|
|
1,635,094
|
|
2020
|
|
|
1,635,094
|
|
2021
|
|
|
1,078,551
|
|
NOTE
6 - ACCRUED EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Payroll payable
|
|
$
|
77,039
|
|
|
$
|
58,704
|
|
Welfare payable
|
|
|
147,829
|
|
|
|
154,510
|
|
Accrued expenses
|
|
|
4,574,577
|
|
|
|
4,450,306
|
|
Other payables
|
|
|
4,147,620
|
|
|
|
11,624,653
|
|
Other levy payable
|
|
|
120,762
|
|
|
|
126,219
|
|
Total
|
|
$
|
9,067,827
|
|
|
$
|
16,414,392
|
|
NOTE
7 - AMOUNT DUE TO RELATED PARTIES
As
of December 31, 2016 and June 30, 2016, the amount due to related parties was $2,726,125 and $2,473,004, respectively. As
of December 31, 2016 and June 30, 2016, $1,007,951 and $1,092,243, respectively were amounts that Gufeng borrowed from a related
party, Xi’an Techteam Science & Technology Industry (Group) Co. Ltd., a company controlled by Mr. Tao Li, Chairman and
CEO of the Company, representing unsecured, non-interest bearing loans that are due on demand. These loans are not
subject to written agreements.
At the end of December 2015, Yuxing entered
into a sales agreement with the Company’s affiliate, 900LH.com Food Co., Ltd. ("900LH.com", previously announced
as Xi'an Gem Grain Co., Ltd) pursuant to which Yuxing is to supply various vegetables to 900LH.com for its incoming seasonal sales
at the holidays and year ends (the “Sales Agreement”). The contingent contracted value of the Sales Agreement is RMB
25,500,000 (approximately $3,671,822). For the six months ended December 31, 2016, Yuxing has sold approximately $839,562 products
to 900LH.com.
On June 29, 2016,
Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”),
where Mr. Tao Li, Chairman and CEO of the Company, serves as its Chairman. Pursuant to the lease, Jinong rented 612 square meters
(approximately 6,588 square feet) of office space from Kingtone Information. The lease provided for a two-year term effective
as of July 1, 2016 with monthly rent of RMB26,684 (approximately $3,842).
NOTE
8 - LOAN PAYABLES
As
of December 31, 2016, the short-term loan payables consisted of three loans which mature on dates ranging from January 19, 2016
through July 28, 2017 with interest rates ranging from 4.87% to 5.22%. The loans No. 1 and 2 below are collateralized by Tianjuyan’s
land use right and building ownership right. The loans No. 3 is guaranteed by Jinong’s credit.
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest Rate
|
|
|
December 31,
2016
|
|
1
|
|
Agriculture Bank of China-Pinggu Branch
|
|
May 18, 2016 – Mar. 17, 2017
|
|
|
4.87
|
%
|
|
$
|
1,871,909
|
|
2
|
|
Agriculture Bank of China-Pinggu Branch
|
|
Jan. 19, 2016 – Jan. 17, 2017
|
|
|
5.00
|
%
|
|
|
1,151,944
|
|
3
|
|
Beijing Bank-Pinggu Branch
|
|
July 28, 2016 – July 28, 2017
|
|
|
5.22
|
%
|
|
|
1,439,930
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
4,463,783
|
|
As
of June 30, 2016, the short-term loan payables consisted of three loans which mature on dates ranging from May 18, 2016 through
March 17, 2017 with interest rates ranging from 4.87% to 5.82%. The loans No. 1 and 3 below are collateralized by Tianjuyan’s
land use right and building ownership right. The loans No. 2 is guaranteed by Jinong’s credit.
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest Rate
|
|
|
June 30,
2016
|
|
1
|
|
Agriculture Bank of China-Pinggu Branch
|
|
May. 18, 2016 – Mar. 17, 2017
|
|
|
4.87
|
%
|
|
$
|
1,956,500
|
|
2
|
|
Beijing Bank-Pinggu Branch
|
|
Aug. 11, 2015 – Aug. 2, 2016
|
|
|
5.82
|
%
|
|
|
1,505,000
|
|
3
|
|
Agriculture Bank of China-Pinggu Branch
|
|
Jan. 19, 2016 – Jan. 17, 2017
|
|
|
5.00
|
%
|
|
|
1,204,000
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
4,665,500
|
|
The
interest expense from short-term loans was $231,791 and $731,679 for the six months ended December 31, 2016 and 2015, respectively.
NOTE
9 - CONVERTIBLE NOTES PAYABLE
In
connection with the acquisition of the VIE Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders
convertible notes payable in the aggregate amount of RMB 51,000,000 ($7,344,000) with a term of three years and an annual interest
rate of 3%. The convertible notes take priority over the preferred stock and common stock of Jinong, and any other class or series
of capital stocks Jinong issues in the future in terms of interests and payments in the event of any liquidation, dissolution
or winding up of Jinong. On or after the third anniversary of the issuance date of the note, noteholders may request Jinong to
process the note conversion to convert the note into shares of the Company’s common stock. The notes cannot be converted
prior to the mature date. The per share conversion price of the notes is the higher of the following: (i) $5.00 per share or (ii)
75% of the closing price of the Company’s common stock on the date the noteholder delivers the conversion notice.
The
Company determined that the fair value of the convertible notes payable was RMB 45,379,032 ($6,534,263) and RMB 44,330,692 ($6,383,620)
as of December 31, 2016 and June 30, 2016, respectively, which was due to the lower than market interest rate and the conversion
feature. The difference between the fair value of the notes and the face amount of the notes will be amortized to interest expense
over the three year life of the notes. As of December 31, 2016, the amortization of this discount into interest expenses was $1,048,340.
NOTE
10 - TAXES PAYABLE
Enterprise
Income Tax
Effective
January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”)
and Foreign Invested Enterprises (“FIEs”). The 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. Accordingly, it made provision for income taxes for the six months ended
December 31, 2016 and 2015 of $1,879,465 and $1,805,667, 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 $792,503 and $1,256,325 for the six months ended
December 31, 2016 and 2015, respectively.
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.
On August 10, 2015 and August 28, 2015, the SAT released Notice #90. “
Reinstatement
of VAT for Fertilizer Products
”, and Notice #97, “
Supplementary Reinstatement of VAT for Fertilizer Products
”,
which restore the VAT of 13% of the gross sales price on certain fertilizer products includes non organic fertilizer products
starting from September 1, 2015, but granted tax payers a reduced rate of 3% from September 1, 2015 through June 30, 2016.
Income
Taxes and Related Payables
Taxes
payable consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
VAT provision
|
|
$
|
(255,765
|
)
|
|
$
|
2,218
|
|
Income tax payable
|
|
|
1,482,816
|
|
|
|
3,445,480
|
|
Other levies
|
|
|
614,131
|
|
|
|
656,520
|
|
Total
|
|
$
|
1,841,182
|
|
|
$
|
4,104,218
|
|
The
provision for income taxes consists of the following:
|
|
December 31,
2016
|
|
|
June 30,
2016
|
|
Current tax - foreign
|
|
$
|
3,092,769
|
|
|
$
|
7,371,967
|
|
Deferred tax
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
3,092,769
|
|
|
$
|
7,371,967
|
|
Tax
Rate Reconciliation
Our
effective tax rates were approximately 19.4% and 26.7% for six months ended December 31, 2016 and 2015, respectively. 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 income 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, 2016 and 2015 for the following
reasons:
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
15% - 25%
|
|
|
34%
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
17,806,630
|
|
|
|
|
|
|
|
(1,856,270
|
)
|
|
|
|
|
|
$
|
15,950,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
4,451,658
|
|
|
|
25.0
|
%
|
|
|
(631,132
|
)
|
|
|
34.0
|
%
|
|
|
3,820,526
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(1,139,344
|
)
|
|
|
(6
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,139,344
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
(219,544
|
)
|
|
|
(1
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(219,544
|
)
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
631,132
|
|
|
|
(34.0
|
)%
|
|
|
631,132
|
|
|
|
|
|
Actual tax expense
|
|
$
|
3,092,769
|
|
|
|
17
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
3,092,769
|
|
|
|
19.4
|
%
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
15% - 25%
|
|
|
34%
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
14,575,200
|
|
|
|
|
|
|
|
(3,107,045
|
)
|
|
|
|
|
|
$
|
11,468,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
3,643,800
|
|
|
|
25.0
|
%
|
|
|
(1,056,395
|
)
|
|
|
34.0
|
%
|
|
|
2,587,405
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(1,145,841
|
)
|
|
|
(7.9
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,145,841
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
564,034
|
|
|
|
3.9
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
564,034
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
1,056,395
|
|
|
|
(34.0
|
)%
|
|
|
1,056,395
|
|
|
|
|
|
Actual tax expense
|
|
$
|
3,061,993
|
|
|
|
21
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
3,061,993
|
|
|
|
26.7
|
%
|
NOTE
11 - STOCKHOLDERS’ EQUITY
Common
Stock
On September 30, 2014, the Company granted
an aggregate of 1,750,000 shares of restricted stock under the 2009 Plan to certain executive officers, directors and employees,
among which (i) 240,000 shares of restricted stock to Mr. Tao Li, the CEO; (ii) 100,000 shares of restricted stock to Mr. Ken Ren,
the CFO, (iii) 40,000 shares of restricted stock to Mr. Yizhao Zhang, 30,000 shares of restricted stock to Ms. Yiru Shi, and 20,000
shares of restricted stock to Mr. Lianfu Liu, each an independent director of the Company; and (iv) 1,320,000 shares of restricted
stock to key employees. The stock grants are subject to time-based vesting schedules, vesting in various installments
until March 31, 2015 for the CFO and the three independent directors, until June 30, 2015 for the CEO and until December 31, 2016
for the employees. The value of the restricted stock awards was $3,675,000 and is based on the fair value of the Company’s
common stock on the grant date. This amount is being amortized to compensation expense over the vesting periods for the various
awards. As of June 30, 2016 the unamortized portion of the compensation expense was $235,264 which was fully amortized to expense
during the period ended December 31, 2016.
On
September 28, 2015, the Company granted an aggregate of 1,000,000 shares of restricted stock under the 2009 Plan to certain key
employees. The stock grants are subject to time-based vesting schedules, vesting in various installments until June 30, 2016.
The value of the restricted stock awards was $1,660,000 and is based on the fair value of the Company’s common stock on
the grant date. This amount is being amortized to compensation expense over the vesting periods for the various awards.
On
June 26, 2016, the Company granted an aggregate of 670,000 shares of restricted stock under the 2009 Plan to certain key employees.
The stock grants vest immediately. The value of the restricted stock awards was $897,800 and is based on the fair value of the
Company’s common stock on the grant date.
On
December 30, 2016, the Company granted an aggregate of 870,000 shares of restricted stock under the 2009 Plan to certain key employees.
The stock grants vest immediately. The value of the restricted stock awards was $1,044,000 and is based on the fair value of the
Company’s common stock on the grant date.
The
following table sets forth changes in compensation-related restricted stock awards during years ended December 31, 2016 and 2015:
|
|
|
|
|
Fair
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Per share
|
|
Outstanding (unvested) at June 30, 2016
|
|
|
588,000
|
|
|
$
|
235,264
|
|
|
|
|
|
Granted
|
|
|
870,000
|
|
|
|
1,044,000
|
|
|
$
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(1,458,000
|
)
|
|
|
(1,279,264
|
)
|
|
|
|
|
Outstanding (unvested) at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
As
of December 31, 2016, the unamortized expense related to the grant of restricted shares of common stock was nil. The fair
value of the restricted common stock awards was based on the closing price of the Company’s common stock on the grant date.
The fair value of the common stock awarded is amortized over the various vesting terms of each grant.
Preferred
Stock
Under
the Company’s Articles of Incorporation, the Board 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, 2016, the Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of
which no shares are issued or outstanding.
NOTE
12 - CONCENTRATIONS
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
environment 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
were two vendors from which the Company purchased 20.1% and 14.6% of its raw materials for the three month ended December 31,
2016. Total purchase from these two venders amounted to $10,100,403 as of December 31, 2016.
There
were two vendors from which the Company purchased 29.8% and 16.4% of its raw materials for the three months ended December 31,
2015. Total purchase from these two vendors amounted to $40,065,118 as of December 31, 2015.
None
customer accounted over 10% of the Company’s sales for the three months ended December 31, 2016.
One
customer was accounted for 26.6% of the Company’s sales for the three months ended December 31, 2015.
NOTE
13 - SEGMENT REPORTING
As of December 31, 2016, the Company was organized
into four main business segments based on location and product, including fertilizer production with Jinong, fertilizer production
with Gufeng , agricultural products production with Yuxing and distribution of agricultural products with the acquisition of the
VIE Companies completed as of June 30, 2016. Each of the four operating segments referenced above has separate and distinct general
ledgers. The chief operating decision maker (“CODM”) receives financial information, including revenue, gross margin,
operating income and net income produced from the various general ledger systems to make decisions about allocating resources
and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income by segment
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
Revenues from unaffiliated customers:
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Jinong
|
|
$
|
26,825,674
|
|
|
$
|
31,302,561
|
|
|
$
|
58,253,394
|
|
|
$
|
66,010,365
|
|
Gufeng
|
|
|
21,066,559
|
|
|
|
23,579,674
|
|
|
|
36,876,073
|
|
|
|
41,814,506
|
|
Yuxing
|
|
|
2,454,314
|
|
|
|
2,083,765
|
|
|
|
3,809,725
|
|
|
|
3,325,400
|
|
VIES
|
|
|
8,398,466
|
|
|
|
-
|
|
|
|
21,690,443
|
|
|
|
-
|
|
Consolidated
|
|
$
|
58,745,013
|
|
|
$
|
56,966,000
|
|
|
$
|
120,629,635
|
|
|
$
|
111,150,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
5,740,784
|
|
|
$
|
3,698,620
|
|
|
$
|
12,120,004
|
|
|
$
|
11,654,274
|
|
Gufeng
|
|
|
1,906,816
|
|
|
|
3,052,879
|
|
|
|
2,991,899
|
|
|
|
5,662,832
|
|
Yuxing
|
|
|
330,780
|
|
|
|
511,213
|
|
|
|
487,810
|
|
|
|
917,510
|
|
VIES
|
|
|
637,284
|
|
|
|
-
|
|
|
|
2,440,764
|
|
|
|
-
|
|
Reconciling item (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reconciling item (2)
|
|
|
-
|
|
|
|
297,606
|
|
|
|
-
|
|
|
|
(219,754
|
)
|
Reconciling item (2)--stock compensation
|
|
|
(1,510,148
|
)
|
|
|
(1,780,587
|
)
|
|
|
(1,856,270
|
)
|
|
|
(2,857,081
|
)
|
Consolidated
|
|
$
|
7,105,516
|
|
|
$
|
5,779,731
|
|
|
$
|
16,184,207
|
|
|
$
|
15,157,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
4,849,485
|
|
|
$
|
3,187,514
|
|
|
$
|
10,195,773
|
|
|
$
|
10,000,365
|
|
Gufeng
|
|
|
1,268,439
|
|
|
|
2,049,897
|
|
|
|
1,984,925
|
|
|
|
3,670,264
|
|
Yuxing
|
|
|
330,509
|
|
|
|
513,099
|
|
|
|
487,589
|
|
|
|
919,384
|
|
VIES
|
|
|
567,726
|
|
|
|
-
|
|
|
|
2,045,574
|
|
|
|
-
|
|
Reconciling item (1)
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
29
|
|
Reconciling item (2)
|
|
|
(1,510,148
|
)
|
|
|
(1,477,980
|
)
|
|
|
(1,856,270
|
)
|
|
|
(3,076,835
|
)
|
Consolidated
|
|
$
|
5,506,011
|
|
|
$
|
4,272,535
|
|
|
$
|
12,857,591
|
|
|
$
|
11,513,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
3,675,142
|
|
|
$
|
9,358,107
|
|
|
$
|
9,988,231
|
|
|
$
|
19,292,089
|
|
Gufeng
|
|
|
631,041
|
|
|
|
728,466
|
|
|
|
1,258,350
|
|
|
|
1,474,061
|
|
Yuxing
|
|
|
306,210
|
|
|
|
336,433
|
|
|
|
620,126
|
|
|
|
679,741
|
|
VIES
|
|
|
123,070
|
|
|
|
-
|
|
|
|
249,202
|
|
|
|
-
|
|
Consolidated
|
|
$
|
4,735,463
|
|
|
$
|
10,423,006
|
|
|
$
|
12,115,909
|
|
|
$
|
21,445,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
55,979
|
|
|
|
-
|
|
|
|
113,352
|
|
|
|
-
|
|
Gufeng
|
|
|
58,306
|
|
|
|
302,644
|
|
|
|
118,439
|
|
|
|
731,679
|
|
Consolidated
|
|
$
|
114,285
|
|
|
$
|
302,644
|
|
|
$
|
231,791
|
|
|
$
|
731,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
571
|
|
|
$
|
6,643
|
|
|
$
|
1,793
|
|
|
$
|
6,643
|
|
Gufeng
|
|
|
556
|
|
|
|
-
|
|
|
|
4,999
|
|
|
|
1,770
|
|
Yuxing
|
|
|
-
|
|
|
|
6,449
|
|
|
|
548
|
|
|
|
7,252
|
|
VIES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consolidated
|
|
$
|
1,127
|
|
|
$
|
13,092
|
|
|
$
|
7,340
|
|
|
$
|
15,665
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Identifiable assets:
|
|
|
|
|
|
|
Jinong
|
|
$
|
194,544,513
|
|
|
$
|
198,599,977
|
|
Gufeng
|
|
|
143,819,547
|
|
|
|
149,891,328
|
|
Yuxing
|
|
|
41,925,427
|
|
|
|
45,448,157
|
|
VIES June 30, 2016
|
|
|
23,666,211
|
|
|
|
24,675,499
|
|
Reconciling item (1)
|
|
|
23,487
|
|
|
|
170,444
|
|
Reconciling item (2)
|
|
|
(2,878
|
)
|
|
|
(2,878
|
)
|
Consolidated
|
|
$
|
403,976,307
|
|
|
$
|
418,782,527
|
|
(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.
NOTE
14 - COMMITMENTS AND CONTINGENCIES
On June
29, 2016, Jinong signed an office lease with Kingtone Information. Pursuant to the lease, Jinong rented 612 square meters
(approximately 6,588 square feet) of office space from Kingtone Information. The lease provided for a two-year term effective
as of July 1, 2016 with monthly rent of $3,525 (RMB 24,480).
In
January 2008, Jintai signed a ten-year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly
rent of $749 (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 $426 (RMB 2,958).
Accordingly,
the Company recorded an aggregate of $28,198 and $28,261 as rent expenses for the six months ended December 31, 2016 and 2015,
respectively. Rent expenses for the next five years ended December 31, are as follows:
Years ending December 31,
|
|
|
|
2017
|
|
$
|
56,396
|
|
2018
|
|
|
47,411
|
|
2019
|
|
|
47,411
|
|
2020
|
|
|
47,411
|
|
2021
|
|
|
47,411
|
|
NOTE
15 - BUSINESS COMBINATIONS
On June 30, 2016, the Company, through its
wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements
to qualify as VIEs with the shareholders of the VIE Companies.
Jinong,
the VIE Companies, and the shareholders of the VIE Companies also entered into a series of contractual agreements for the VIE
Companies to qualify as VIEs (the “VIE Agreements”). The VIE Agreements are as follows:
Entrusted
Management Agreements
Pursuant
to the terms of certain Entrusted Management Agreements dated June 30, 2016, between Jinong and the shareholders of the VIE Companies
(the “Entrusted Management Agreements”), the VIE Companies and their shareholders agreed to entrust the operations
and management of its business to Jinong. According to the Entrusted Management Agreement, Jinong possesses the full and exclusive
right to manage the VIE Companies’ operations, assets and personnel, has the right to control all of the VIE Companies'
cash flows through an entrusted bank account, is entitled to the VIE Companies' net profits as a management fee, is obligated
to pay all of the VIE Companies’ payables and loan payments, and bears all losses of the VIE Companies. The Entrusted Management
Agreements will remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the
VIE Companies; or (iii) Jinong acquires all of the assets or equity of the VIE Companies (as more fully described below under
“Exclusive Option Agreements”).
Exclusive
Technology Supply Agreements
Pursuant
to the terms of certain Exclusive Technology Supply Agreements dated June 30, 2016, between Jinong and the VIE Companies (the
“Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to the VIE Companies. The VIE
Companies agreed to pay Jinong all fees payable for technology supply prior to making any payments under the Entrusted Management
Agreement. The Exclusive Technology Supply Agreements shall remain in effect until (i) the parties mutually agree to terminate
the agreement; (ii) the dissolution of the VIE Companies; or (iii) Jinong acquires the VIE Companies (as more fully described
below under “Exclusive Option Agreements”).
Shareholder’s
Voting Proxy Agreements
Pursuant
to the terms of certain Shareholder’s Voting Proxy Agreements dated June 30, 2016, among Jinong and the shareholders of
the VIE Companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders of the VIE Companies irrevocably
appointed Jinong as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant
to PRC law and the Articles of Association of the VIE Companies, including the appointment and election of directors of the VIE
Companies. Jinong agreed that it shall maintain a board of directors, the composition and appointment of which shall be approved
by the Board of the Company. The Shareholder’s Voting Proxy Agreements will remain in effect until Jinong acquires all of
the assets or equity of the VIE Companies.
Exclusive
Option Agreements
Pursuant
to the terms of certain Exclusive Option Agreements dated June 30, 2016, among Jinong, the VIE Companies, and the shareholders
of the VIE Companies (the “Exclusive Option Agreements”), the shareholders of the VIE Companies granted Jinong an
irrevocable and exclusive purchase option (the “Option”) to acquire the VIE Companies’ equity interests and/or
remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions.
The Option is exercisable at any time at Jinong’s discretion so long as such exercise and subsequent acquisition of the
VIE Companies does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and
memorialized in the future by definitive agreements setting forth the kind and value of such consideration. Jinong may transfer
all rights and obligations under the Exclusive Option Agreements to any third parties without the approval of the shareholders
of the VIE Companies so long as a written notice is provided. The Exclusive Option Agreements may be terminated by mutual agreements
or by 30 days written notice by Jinong.
Equity
Pledge Agreements
Pursuant
to the terms of certain Equity Pledge Agreements dated June 30, 2016, among Jinong and the shareholders of the VIE Companies (the
“Pledge Agreements”), the shareholders of the VIE Companies pledged all of their equity interests in the VIE Companies
to Jinong, including the proceeds thereof, to guarantee all of Jinong's rights and benefits under the Entrusted Management Agreements,
the Exclusive Technology Supply Agreements, the Shareholder’ Voting Proxy Agreements and the Exclusive Option Agreements.
Prior to termination of the Pledge Agreements, the pledged equity interests cannot be transferred without Jinong's prior written
consent. The Pledge Agreements may be terminated only upon the written agreement of the parties.
Non-Compete
Agreements
Pursuant
to the terms of certain Non-Compete Agreements dated June 30, 2016, among Jinong and the shareholders of the VIE Companies (the
“Non-Compete Agreements”), the shareholders of the VIE Companies agreed that during the period beginning on the initial
date of their services with Jinong, and ending five (5) years after termination of their services with Jinong, without Jinong’s
prior written consent, they will not provide services or accept positions including but not limited to partners, directors, shareholders,
managers, proxies or consultants, provided by any profit making organizations with businesses that may compete with Jinong. They
will not solicit or interfere with any of the Jinong’s customers, or solicit, induce, recruit or encourage any person engaged
or employed by Jinong to terminate his or her service or engagement. In the event that the shareholders of the VIE Companies breach
the non-compete obligations contained therein, Jinong is entitled to all loss and damages; in the event that the damages are difficult
to determine, remedies bore the shareholders of the VIE Companies shall be no less than 50% of the salaries and other expenses
Jinong provided in the past.
The
Company entered into these VIE Agreements as a way for the Company to have more control over the distribution of its products.
The transactions are accounted for as business combinations in accordance with ASC 805. A summary of the purchase price allocations
at fair value is below:
Cash
|
|
$
|
708,737
|
|
Accounts receivable
|
|
|
6,422,850
|
|
Advances to suppliers
|
|
|
1,803,180
|
|
Prepaid expenses and other current assets
|
|
|
807,645
|
|
Inventories
|
|
|
7,787,043
|
|
Machinery and equipment
|
|
|
140,868
|
|
Intangible assets
|
|
|
270,900
|
|
Other assets
|
|
|
3,404,741
|
|
Good will
|
|
|
3,158,179
|
|
Accounts payable
|
|
|
(3,962,670
|
)
|
Customer deposits
|
|
|
(3,486,150
|
)
|
Accrued expenses and other payables
|
|
|
(4,653,324
|
)
|
Taxes payable
|
|
|
(16,912
|
)
|
Purchase price
|
|
$
|
12,385,087
|
|
A
summary of the purchase consideration paid for the VIE Companies is below:
Cash
|
|
$
|
5,568,500
|
|
Convertible notes
|
|
|
6,671,769
|
|
Derivative liability
|
|
|
144,818
|
|
|
|
$
|
12,385,087
|
|
The
cash component of the purchase price for these acquisitions was paid in September 2016.
NOTE
16 - VARIABLE INTEREST ENTITIES
In
accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack
sufficient equity to finance their activities without additional financial support from other parties or whose equity holders
lack adequate decision making ability. All VIEs with which a company is involved must be evaluated to determine the primary beneficiary
of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
Green
Nevada through one of its subsidiaries, Jinong, entered into a series of agreements (the “VIE Agreements”) with Yuxing
for it to qualify as a VIE, effective June 16, 2013.
The
Company has concluded, based on the contractual arrangements, that Yuxing is a VIE and that the Company’s wholly-owned subsidiary,
Jinong, absorbs a majority of the risk of loss from the activities of Yuxing, thereby enabling the Company, through Jinong, to
receive a majority of Yuxing expected residual returns.
On June 30, 2016, the Company, through its
wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements
to qualify as VIEs with the shareholders of the VIE Companies.
Jinong,
the VIE Companies, and the shareholders of the VIE Companies also entered into a series of contractual agreements for the VIE
Companies to qualify as VIEs (the “VIE Agreements”).
As
a result of these contractual arrangements, with Yuxing and the VIE Companies the Company is entitled to substantially all of
the economic benefits of Yuxing and the VIE Companies. The following financial statement amounts and balances of the VIEs were
included in the accompanying consolidated financial statements as of December 31, 2016 and June 30, 2016:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,030,482
|
|
|
$
|
1,017,841
|
|
Accounts receivable, net
|
|
|
9,596,532
|
|
|
|
7,050,201
|
|
Inventories
|
|
|
23,999,754
|
|
|
|
26,370,202
|
|
Other current assets
|
|
|
1,709,991
|
|
|
|
1,875,912
|
|
Advances to suppliers
|
|
|
2,119,048
|
|
|
|
4,900,524
|
|
Total Current Assets
|
|
|
38,455,807
|
|
|
|
41,214,680
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
12,292,713
|
|
|
|
13,377,817
|
|
Other assets
|
|
|
216,136
|
|
|
|
334,264
|
|
Intangible Assets, Net
|
|
|
12,017,863
|
|
|
|
12,913,776
|
|
Goodwill
|
|
|
3,021,632
|
|
|
|
3,158,179
|
|
Total Assets
|
|
$
|
66,004,151
|
|
|
$
|
70,998,716
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,308,607
|
|
|
$
|
3,840,052
|
|
Customer deposits
|
|
|
1,803,140
|
|
|
|
3,486,150
|
|
Accrued expenses and other payables
|
|
|
3,304,318
|
|
|
|
5,580,642
|
|
Amount due to related parties
|
|
|
39,722,237
|
|
|
|
43,478,158
|
|
Total Current Liabilities
|
|
|
49,560,557
|
|
|
|
56,385,002
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
16,443,594
|
|
|
|
14,613,714
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
66,004,151
|
|
|
$
|
70,998,716
|
|
|
|
Three
months ended
December 31,
|
|
|
Six
months ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
10,852,779
|
|
|
$
|
2,083,765
|
|
|
$
|
25,500,167
|
|
|
$
|
3,325,400
|
|
Expenses
|
|
|
9,954,543
|
|
|
|
1,570,665
|
|
|
|
22,967,005
|
|
|
|
2,406,015
|
|
Net income (loss)
|
|
$
|
898,236
|
|
|
$
|
513,100
|
|
|
$
|
2,533,162
|
|
|
$
|
919,385
|
|
NOTE 17 – SUBSEQUENT EVENTS
On January 1, 2017, the Company, through
its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the
shareholders of the following two companies that are organized under the laws of the PRC and would be deemed VIEs Sunwu County
Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”).
Jinong, entered into (i) Strategic Acquisition Agreements (the “SAA”), and (ii) Agreements for Convertible Notes (the
“ACN”), with the shareholders of the two companies (“Targets”). The transaction represented by the SAA,
ACN and the VIE Agreements as defined below are collectively referred to as the “Strategic Acquisitions.”
Company Name
|
|
Business Scope
|
|
Cash Payment for Acquisition (USD)
|
|
|
Principal of Notes for Acquisition (USD)
|
|
Sunwu County Xiangrong Agricultural Materials Co., Ltd.
|
|
Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
$
|
576,000
|
|
|
$
|
864,000
|
|
Anhui Fengnong Seed Co., Ltd.
|
|
Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers and plant growth regulators
|
|
$
|
576,000
|
|
|
$
|
864,000
|
|
Total
|
|
|
|
$
|
1,152,000
|
|
|
$
|
1,728,000
|
|
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 macro-economic environment in China 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 notes to the financial statements of the Company, the following are the references herein of all the subsidiaries
of the Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada,
incorporated in the State of New Jersey; (ii) Shaanxi TechTeamJinongHumic Acid Product Co., Ltd. (“Jinong”), a wholly-owned
subsidiary of Green New Jersey organized under the laws of the People’s Republic of China (the “PRC”); (iii)
Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”)
in the PRC controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng Chemical Products Co., Ltd., a
wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), (v) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s
wholly-owned subsidiary in the PRC (“Tianjuyuan”), Shaanxi Lishijie Agrochemical Co., Ltd.(“Lishijie”),
a VIE in the PRC controlled by Jinong, SongyuanJinyangguangSannong Service Co., Ltd., (“Jinyangguang”), a VIE in the
PRC controlled by Jinong, Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), a VIE in the PRC controlled by
Jinong, Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), a VIE in the PRC controlled
by Jinong, AksuXindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), a VIE in the PRC controlled by Jinong, Xinjiang
Xinyulei Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”), a VIE in the PRC controlled by Jinong. Sunwu
County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”). Anhui Fengnong Seed Co., Ltd.(“Fengnong”).
Yuxing, Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred
to as the “the VIE Companies”
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 and Gufeng (including Gufeng’s subsidiary Tianjuyuan), and our VIE Companies. Our primary business is fertilizer
products, specifically humic-acid based compound fertilizer produced by Jinong and compound fertilizer, blended fertilizer, organic
compound fertilizer, slow-release fertilizer, highly-concentrated water-soluble fertilizer and mixed organic-inorganic compound
fertilizer produced by Gufeng. In addition, through Yuxing, we develop and produce various agricultural products, such as top-grade
fruits, vegetables, flowers and colored seedlings. Also through the VIE Companies, we have entered the distribution business of
agricultural business. For financial reporting purposes, our operations are organized into four business segments: fertilizer
products (Jinong), fertilizer products (Gufeng), agricultural products (Yuxing) and fertilizer product distribution (VIE Companies).
The fertilizer business conducted by Jinong
and Gufeng generated approximately 78.9% and 97.0% of our total revenues for the six months ended December 31, 2016 and 2015,
respectively. Yuxing serves as a research and development base for our fertilizer products. The VIE Companies serves as in-house
distribution channels for our fertilizer products, forming a vertical business integration.
Fertilizer
Products
As
of December 31, 2016, we had developed and produced a total of 668 different fertilizer products in use, of which 132 were developed
and produced by Jinong and 332 by Gufeng, and 224 by the VIE companies.
Below
is a table that shows the metric tons of fertilizer sold by Jinong and Gufeng and the revenue per ton for the periods indicated:
|
|
Three Months Ended December 31,
|
|
|
Change from 2015 to 2016
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
Jinong
|
|
|
8,955
|
|
|
|
9,539
|
|
|
|
(584
|
)
|
|
|
(6.1
|
)%
|
Gufeng
|
|
|
63,167
|
|
|
|
62,775
|
|
|
|
392
|
|
|
|
0.6
|
%
|
|
|
|
72,122
|
|
|
|
72,314
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
(revenue per ton)
|
|
Jinong
|
|
$
|
2,996
|
|
|
$
|
3,374
|
|
Gufeng
|
|
|
334
|
|
|
|
367
|
|
|
|
|
Six Months Ended
December 31,
|
|
|
|
Change from 2015 to 2016
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
Amount
|
|
|
|
%
|
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
18,635
|
|
|
|
19,603
|
|
|
|
(968
|
)
|
|
|
(4.9
|
)%
|
Gufeng
|
|
|
108,698
|
|
|
|
108,397
|
|
|
|
301
|
|
|
|
0.3
|
%
|
|
|
|
127,333
|
|
|
|
128,000
|
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
Six
Months Ended
December 31,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
(revenue per ton)
|
|
Jinong
|
|
$
|
3,126
|
|
|
$
|
3,406
|
|
Gufeng
|
|
|
339
|
|
|
|
384
|
|
For
the three months ended December 31, 2016, we sold approximately 72,122 metric tons of fertilizer products, as compared to 72,314
metric tons for the three months ended December 31, 2015. For the three months ended December 31, 2016, Jinong sold approximately
8,955 metric tons of fertilizer products, a decrease of 584 metric tons, or 6.1%, as compared to 9,539 metric tons for the three
months ended December 31, 2015. For the three months ended December 31, 2016, Gufeng sold approximately 63,167 metric tons of
fertilizer products, as compared to 62,775 metric tons for the three months ended December 31, 2015.
For
the six months ended December 31, 2016, we sold approximately 127,333 metric tons of fertilizer products, as compared to 128,000
metric tons for the six months ended December 31, 2015. For the six months ended December 31, 2016, Jinong sold approximately
18,635 metric tons of fertilizer products, a decrease of 968 metric tons, or 4.9%, as compared to 19,603 metric tons for the six
months ended December 31, 2015. For the six months ended December 31, 2016, Gufeng sold approximately 108,698 metric tons of fertilizer
products, as compared to 108,397 metric tons for the six months ended December 31, 2015.
Our sales of fertilizer products to five provinces
accounted for approximately 49.8% of our fertilizer revenue for the three months ended December 31, 2016. Specifically, the
provinces and their respective percentage contributed to our fertilizer revenues were: Hebei (18.3%), Heilongjiang (10.8%), Shaanxi
(8.5%), Liaoning (6.0%), and Inner Mongolia (6.1%).
As
of December 31, 2016, we had a total of 1,919 distributors covering 27 provinces, four autonomous regions and three central government-controlled
municipalities in China. Jinong had 1,086 distributors in China. Jinong’s sales are not dependent on any single distributor
or any group of distributors. Jinong’s top five distributors accounted for 2.6% of its fertilizer revenues for the three
months ended December 31, 2016. Gufeng had 305 distributors, including some large state-owned enterprises. Gufeng’s top
five distributors accounted for 77.3% of its revenues for the three months ended December 31, 2016.
Agricultural
Products
Through
Yuxing, 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 Yuxing’s greenhouse facilities to conduct research and development activities
for our fertilizer products. The three PRC provinces that accounted for 85.5% of our agricultural products revenue for the three
months ended December 31, 2016 were Shaanxi (74.8%), Sichuan (6.5%), and Gansu (4.2%).
Recent
Developments
New
products and distributors
During the three months ended December 31,
2016, Jinong did not launch any new fertilizer product. However, Jinong added 2 new distributors during this period. Gufeng did
not launch any new fertilizer products, but added four new distributors during the three months ended December 31, 2016.
Strategic
Acquisitions
As
previously reported, on January 1, 2017, through Jinong, as authorized by our board of directors and Jinong, we entered into (i)
Strategic Acquisition Agreements (the “SAA”), and (ii) Agreements for Convertible Notes (the “ACN”), with
the shareholders of the companies as listed below (the “Targets”). The transaction represented by the SAA, ACN and
the VIE Agreements as defined below are collectively referred to as the “Strategic Acquisitions.”
Company Name
|
|
Business Scope
|
|
Cash Payment for Acquisition
(RMB
[1]
)
|
|
|
Principal of Notes for Acquisition
(RMB)
|
|
Sunwu County Xiangrong Agricultural Materials Co., Ltd.
|
|
Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
Anhui Fengnong Seed Co., Ltd.
|
|
Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers and plant growth regulators
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
Total
|
|
|
|
|
8,000,000
|
|
|
|
12,000,000
|
|
[1]
|
RMB: Abbreviation for renminbi, the official currency
of the People’s Republic of China where Jinong and the Targets operate. The exchange rate between RMB and U.S. dollars on
January 1, 2017 is RMB1=US$0.144, according to the exchange rate published by Bank of China.
|
Pursuant
to the SAA and the ACN, the shareholders of the Targets, while be in possession of the equity interests and will continue to be
the legal owners of such interests, agreed to pledge and entrust all of their equity interests, including the proceeds thereof
but excluding any claims or encumbrances, and the operations and management of its business to Jinong, in exchange of an aggregated
amount of RMB8,000,000 (approximately $1,152,000) to be paid by Jinong within three days following the execution of the SAA, ACN
and the VIE Agreements, and convertible notes with an aggregated face value of RMB12,000,000 (approximately $1,728,000) with an
annual fixed compound interest rate of 3% and term of three years.
Results
of Operations
Three
months ended December 31, 2016 Compared to the Three months ended December 31, 2015.
|
|
Three
Months Ended December 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change$
|
|
|
Change%
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
26,825,674
|
|
|
$
|
31,302,561
|
|
|
|
(4,476,887
|
)
|
|
|
-14.3
|
%
|
Gufeng
|
|
|
21,066,559
|
|
|
|
23,579,674
|
|
|
|
(2,513,115
|
)
|
|
|
-10.7
|
%
|
Yuxing
|
|
|
2,454,314
|
|
|
|
2,083,765
|
|
|
|
370,549
|
|
|
|
17.8
|
%
|
VIEs
|
|
|
8,398,466
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
58,745,013
|
|
|
|
56,966,000
|
|
|
|
1,779,013
|
|
|
|
3.1
|
%
|
Cost
of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
12,332,360
|
|
|
|
13,434,686
|
|
|
|
(1,102,326
|
)
|
|
|
-8.2
|
%
|
Gufeng
|
|
|
18,138,659
|
|
|
|
19,712,848
|
|
|
|
(1,574,189
|
)
|
|
|
-8.0
|
%
|
Yuxing
|
|
|
1,934,046
|
|
|
|
1,182,898
|
|
|
|
751,148
|
|
|
|
63.5
|
%
|
VIEs
|
|
|
7,159,707
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
39,564,772
|
|
|
|
34,330,432
|
|
|
|
5,234,340
|
|
|
|
15.2
|
%
|
Gross
profit
|
|
|
19,180,241
|
|
|
|
22,635,568
|
|
|
|
(3,455,327
|
)
|
|
|
-15.3
|
%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
3,965,382
|
|
|
|
5,285,103
|
|
|
|
(1,319,721
|
)
|
|
|
-25.0
|
%
|
Selling
expenses - amortization of deferred asset
|
|
|
3,475,438
|
|
|
|
8,664,752
|
|
|
|
(5,189,314
|
)
|
|
|
-59.9
|
%
|
General
and administrative expenses
|
|
|
4,633,905
|
|
|
|
2,905,982
|
|
|
|
1,727,923
|
|
|
|
59.5
|
%
|
Total
operating expenses
|
|
|
12,074,725
|
|
|
|
16,855,837
|
|
|
|
(4,781,112
|
)
|
|
|
-28.4
|
%
|
Income
from operations
|
|
|
7,105,516
|
|
|
|
5,779,731
|
|
|
|
1,325,785
|
|
|
|
22.9
|
%
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(114,115
|
)
|
|
|
729
|
|
|
|
(114,844
|
)
|
|
|
-15753.6
|
%
|
Interest
income
|
|
|
76,494
|
|
|
|
74,270
|
|
|
|
2,224
|
|
|
|
3.0
|
%
|
Interest
expense
|
|
|
(93,246
|
)
|
|
|
(302,644
|
)
|
|
|
209,398
|
|
|
|
-69.2
|
%
|
Total
other income (expense)
|
|
|
(130,867
|
)
|
|
|
(227,645
|
)
|
|
|
96,778
|
|
|
|
-42.5
|
%
|
Income
before income taxes
|
|
|
6,974,649
|
|
|
|
5,552,086
|
|
|
|
1,422,563
|
|
|
|
25.6
|
%
|
Provision
for income taxes
|
|
|
1,468,638
|
|
|
|
1,284,551
|
|
|
|
184,087
|
|
|
|
14.3
|
%
|
Net
income
|
|
|
5,506,011
|
|
|
|
4,267,535
|
|
|
|
1,238,476
|
|
|
|
29.0
|
%
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss)
|
|
|
(1,205,884
|
)
|
|
|
(7,616,129
|
)
|
|
|
6,410,245
|
|
|
|
-84.2
|
%
|
Comprehensive
income (loss)
|
|
$
|
4,300,127
|
|
|
$
|
(3,348,594
|
)
|
|
|
7,648,721
|
|
|
|
-228.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average shares outstanding
|
|
|
37,658,062
|
|
|
|
36,933,002
|
|
|
|
725,060
|
|
|
|
2.0
|
%
|
Basic net
earnings per share
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
|
0
|
|
|
|
26.5
|
%
|
Diluted weighted
average shares outstanding
|
|
|
37,658,062
|
|
|
|
36,933,002
|
|
|
|
725,060
|
|
|
|
2.0
|
%
|
Diluted net
earnings per share
|
|
|
0.15
|
|
|
|
0.12
|
|
|
|
0
|
|
|
|
26.5
|
%
|
Net
Sales
Total
net sales for the three months ended December 31, 2016 were $58,745,013, an increase of $1,779,013, or 3.1%, from $56,966,000
for the three months ended December 31, 2015.
This
increase was largely due to the inclusion of VIEs’ net sales during the three months ended December 31, 2016, which contributed
approximately $8.4 million, or 14.3%, of the total net sales. The total net sales without including VIEs’ net sales for
the three months ended December 31, 2016 were $50,346,547, a decrease of $6,619,453, or 11.6%, from the same period a year ago.
For
the three months ended December 31, 2016, Jinong’s net sales decreased by $4,476,887, or 14.3%, to $26,825,674 from
$31,302,561 for the three months ended December 31, 2015. This decrease was mainly attributable to the decrease in
Jinong’s sales volume, which was result of Jinong’s implementation of its new sales strategy that further focuses
on producing high-margin liquid fertilizer during the last three months.
For
the three months ended December 31, 2016, Gufeng’s net sales were $21,066,559, a decrease of $2,513,115 or 10.7% from $23,579,674
for the three months ended December 31, 2015. This decrease was mainly attributable to Gufeng’s lowering selling prices
to answer to market demand during the three months ended December 31, 2016.
For
the three months ended December 31, 2016, Yuxing’s net sales were $2,454,314, an increase of $370,549 or 17.8%, from
$2,083,765 during the three months ended December 31, 2015. The increase was mainly attributable to the increase in market demand
and the higher prices on Yuxing’s top-grade flowers.
Cost
of Goods Sold
Total cost of goods sold for the three months ended
December 31, 2016 was $39,564,772, an increase of $5,234,340, or 15.2%, from $34,330,432 for the three months ended December 31,
2015. The increase was mainly due to the production and sale of VIEs’ products, which accounted for $7,159,707, or 18.1%
of total cost of goods sold. The total cost of goods sold without including VIEs’ cost of goods sold for the three months
ended December 31, 2016 was $32,405,065, a decrease of $1,925,367, or 5.6%, from the same period a year ago.
Cost
of goods sold by Jinong for the three months ended December 31, 2016 was $12,332,360, a decrease of $1,102,326, or 8.2%, from
$13,434,686 for the three months ended December 31, 2015. The decrease in cost of goods sold was primarily attributable to the
decreased in net sales during the last three months.
Cost
of goods sold by Gufeng for the three months ended December 31, 2016 was $18,138,659, a decrease of $1,574,189, or 8.0%, from
$19,712,848 for the three months ended December 31, 2015. This decrease was primarily attributable to the less products sold during
the last three months.
For
the three months ended December 31, 2016, cost of goods sold by Yuxing was $1,934,046, an increase of $751,148, or 63.5%, from
$1,182,898 for the three months ended December 31, 2015. This increase was mainly due to the increase in Yuxing’s net sales
and the labor cost.
Gross
Profit
Total gross profit for the three months ended December
31, 2016 decreased by $3,455,327 to $19,180,241, as compared to $22,635,568 for the three months ended December 31, 2015. Gross
profit margin was 32.6% and 39.7% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit
margin was mainly due to the Jinong, Gufeng and Yuxing’s decreased gross margins for the three months ended December 31,
2016, compared to the same period last year.
Gross
profit generated by Jinong decreased by $3,374,561, or 18.9%, to $14,493,314 for the three months ended December 31, 2016 from
$17,867,875 for the three months ended December 31, 2015. Gross profit margin from Jinong’s sales was approximately 54.0%
and 57.1% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly
due to the higher raw material cost and packaging cost.
For
the three months ended December 31, 2016, gross profit generated by Gufeng was $2,927,900, a decrease of $938,926, or 24.3%, from
$3,866,826 for the three months ended December 31, 2015. Gross profit margin from Gufeng’s sales was approximately 13.9%
and 16.4% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit percentage was mainly
due to the increased weight for lower-margin products sales in Gufeng’s total sales answering to market demand.
For
the three months ended December 31, 2016, gross profit generated by Yuxing was $520,268, a decrease of $380,599, or 42.2% from
$900,867 for the three months ended December 31, 2015. The gross profit margin was approximately 21.2% and 43.2% for the
three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to the higher
labor cost during the three months ended December 31, 2016.
Gross profit generated by VIEs were $1,238,759 with
a gross profit margin of approximately 14.7% for the three months ended December 31, 2016.
Selling
Expenses
Our selling expenses consisted primarily of salaries
of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $3,965,382,
or 6.8%, of net sales for the three months ended December 31, 2016, as compared to $5,285,103 or 9.3% of net sales for the three
months ended December 31, 2015, a decrease of $1,319,721, or 25.0%. The selling expenses of VIEs were $248,248, or 3.0%, of VIEs’
net sales. The selling expenses of Yuxing were $11,264 or 0.5% of Yuxing’s net sales for the three months ended December
31, 2016, as compared to $135,466, or 6.5% of Yuxing’s net sales for the three months ended December 31, 2015. The selling
expenses of Gufeng were $68,080 or 0.3% of Gufeng’s net sales for the three months ended December 31, 2016, as compared to
$110,972, or 0.5% of Gufeng’s net sales for the three months ended December 31, 2015. The selling expenses of Jinong for
the three months ended December 31, 2016 were $3,637,790 or 13.6% of Jinong’s net sales, as compared to selling expenses
of $5,038,665, or 16.1% of Jinong’s net sales for the three months ended December 31, 2015.
Selling
Expenses – amortization of deferred assets
Our selling expenses - amortization of our deferred
assets were $3,475,438, or 5.9%, of net sales for the three months ended December 31, 2016, as compared to $8,664,752 or 15.2%
of net sales for the three months ended December 31, 2015, a decrease of $5,189,314, or 59.9%. This decrease was due to the fact
that some of the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets
during the three months ended December 31, 2016.
General
and Administrative Expenses
General
and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation and travel
expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred
and accrued for certain litigations. General and administrative expenses were $4,633,905, or 7.9% of net sales for the three months
ended December 31, 2016, as compared to $2,905,982, or 5.1%, of net sales for the three months ended December 31, 2015, an increase
of $1,727,923, or 59.5%. The increase in general and administrative expenses was mainly due to VIEs, which had $208,164 general
and administrative expenses during the last three months.
Total
Other Expenses
Total
other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank
charges. The total other expense for the three months ended December 31, 2016 was $130,867, as compared to $227,645 for the three
months ended December 31, 2015, a decrease of $96,778, or 42.5%. The decrease in total other expense was partly resulted from
interest expense decreased by $209,398 or 69.2%, to $130,867 during the three months ended December 31, 2016 as compared to $302,644
during the three months ended December 31, 2015, due to a lesser amount of short-term loans.
Income
Taxes
Jinong
is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise
Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of $891,953
for the three months ended December 31, 2016, as compared to $584,959 for the three months ended December 31, 2015, an increase
of $306,994, or 52.5%.
Gufeng,
subject to a tax rate of 25%, incurred income tax expenses of $484,768 for the three months ended December 31, 2016, as compared
to $699,591 for the three months ended December 31, 2015, a decrease of $214,823, or 30.7%.
Yuxing
has no income tax for the three months ended December 31, 2016 as a result of being exempted from paying income tax due to the
fact its products fall into the tax exemption list set out in the EIT.
Net
Income
Net
income for the three months ended December 31, 2016 was $5,506,011, an increase of $1,238,476, or 29.0%, compared to $4,267,535
for the three months ended December 31, 2015. Net income as a percentage of total net sales was approximately 9.4% and 7.5% for
the three months ended December 31, 2016 and 2015, respectively.
Six
months ended December 31, 2016 Compared to the Six months ended December 31, 2015.
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
$
|
|
|
Change %
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
58,253,394
|
|
|
$
|
66,010,365
|
|
|
|
(7,756,971
|
)
|
|
|
-11.8
|
%
|
Gufeng
|
|
|
36,876,073
|
|
|
|
41,814,506
|
|
|
|
(4,938,433
|
)
|
|
|
-11.8
|
%
|
Yuxing
|
|
|
3,809,725
|
|
|
|
3,325,400
|
|
|
|
484,325
|
|
|
|
14.6
|
%
|
VIEs
|
|
|
21,690,443
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
120,629,635
|
|
|
|
111,150,271
|
|
|
|
9,479,364
|
|
|
|
8.5
|
%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
25,601,590
|
|
|
|
27,975,071
|
|
|
|
(2,373,481
|
)
|
|
|
-8.5
|
%
|
Gufeng
|
|
|
31,523,736
|
|
|
|
34,458,522
|
|
|
|
(2,934,786
|
)
|
|
|
-8.5
|
%
|
Yuxing
|
|
|
2,979,654
|
|
|
|
1,892,948
|
|
|
|
1,086,706
|
|
|
|
57.4
|
%
|
VIEs
|
|
|
17,913,386
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
78,018,366
|
|
|
|
64,326,541
|
|
|
|
13,691,825
|
|
|
|
21.3
|
%
|
Gross profit
|
|
|
42,611,269
|
|
|
|
46,823,730
|
|
|
|
(4,212,461
|
)
|
|
|
-9.0
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
8,977,450
|
|
|
|
7,628,858
|
|
|
|
1,348,592
|
|
|
|
17.7
|
%
|
Selling expenses - amortization of deferred asset
|
|
|
9,584,220
|
|
|
|
18,377,467
|
|
|
|
(8,793,247
|
)
|
|
|
-47.8
|
%
|
General and administrative expenses
|
|
|
7,865,392
|
|
|
|
5,659,624
|
|
|
|
2,205,768
|
|
|
|
39.0
|
%
|
Total operating expenses
|
|
|
26,427,062
|
|
|
|
31,665,949
|
|
|
|
(5,238,887
|
)
|
|
|
-16.5
|
%
|
Income from operations
|
|
|
16,184,207
|
|
|
|
15,157,781
|
|
|
|
1,026,426
|
|
|
|
6.8
|
%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(155,172
|
)
|
|
|
(3,834
|
)
|
|
|
(151,338
|
)
|
|
|
3947.3
|
%
|
Interest income
|
|
|
153,116
|
|
|
|
152,932
|
|
|
|
184
|
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(231,791
|
)
|
|
|
(731,679
|
)
|
|
|
499,888
|
|
|
|
-68.3
|
%
|
Total other income (expense)
|
|
|
(233,847
|
)
|
|
|
(582,581
|
)
|
|
|
348,734
|
|
|
|
-59.9
|
%
|
Income before income taxes
|
|
|
15,950,360
|
|
|
|
14,575,200
|
|
|
|
1,375,160
|
|
|
|
9.4
|
%
|
Provision for income taxes
|
|
|
3,092,769
|
|
|
|
3,061,993
|
|
|
|
30,776
|
|
|
|
1.0
|
%
|
Net income
|
|
|
12,857,591
|
|
|
|
11,513,207
|
|
|
|
1,344,384
|
|
|
|
11.7
|
%
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(16,447,063
|
)
|
|
|
(22,728,368
|
)
|
|
|
6,281,305
|
|
|
|
-27.6
|
%
|
Comprehensive income (loss)
|
|
$
|
(3,589,472
|
)
|
|
$
|
(11,215,161
|
)
|
|
|
7,625,689
|
|
|
|
-68.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
37,653,333
|
|
|
|
36,436,026
|
|
|
|
1,217,307
|
|
|
|
3.3
|
%
|
Basic net earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
|
0
|
|
|
|
8.1
|
%
|
Diluted weighted average shares outstanding
|
|
|
37,653,333
|
|
|
|
36,436,026
|
|
|
|
1,217,307
|
|
|
|
3.3
|
%
|
Diluted net earnings per share
|
|
|
0.34
|
|
|
|
0.32
|
|
|
|
0
|
|
|
|
8.1
|
%
|
Net
Sales
Total
net sales for the six months ended December 31, 2016 were $120,629,635, an increase of $9,479,364, or 8.5%, from $111,150,271
for the six months ended December 31, 2015.
This
increase was largely due to the inclusion of VIEs’ net sales during the six months ended December 31, 2016, which contributed
approximately $21.7 million, or 18.0%, of the total net sales. The total net sales without including VIEs’ net sales for
the six months ended December 31, 2016 were $98,939,192, a decrease of $12,211,079, or 11.0%, from the same period a year ago.
For
the six months ended December 31, 2016, Jinong’s net sales decreased of $7,756,971, or 11.8%, to $58,253,394 from $66,010,365
for the six months ended December 31, 2015. This decrease was mainly attributable to the decrease in Jinong’s sales volume,
which was result of Jinong’s implementation of its new sales strategy that further focuses on producing high-margin liquid
fertilizer during the last six months.
For
the six months ended December 31, 2016, Gufeng’s net sales were $36,876,073, a decrease of $4,938,433 or 11.8% from $41,814,506
for the six months ended December 31, 2015. This decrease was mainly attributable to Gufeng’s lowering selling prices to
answer to market demand during the six months ended December 31, 2016.
For
the six months ended December 31, 2016, Yuxing’s net sales were $3,809,725, an increase of $484,325 or 14.6%, from
$3,325,400 during the six months ended December 31, 2015. The increase was mainly attributable to the increase in market demand
and higher prices on Yuxing’s top-grade flowers.
Cost
of Goods Sold
Total
cost of goods sold for the six months ended December 31, 2016 was $78,018,366, an increase of $13,691,825, or 21.3%, from $64,326,541
for the six months ended December 31, 2015. This increase was mainly due to the production and sale of VIEs’ products, which
accounted for $17,913,386, or 23.0% of total cost of goods sold. The total cost of goods sold without including VIEs’ cost
of goods sold for the three months ended December 31, 2016 was $60,104,980, a decrease of $4,221,561, or 6.6%, from the same period
a year ago.
Cost
of goods sold by Jinong for the six months ended December 31, 2016 was $25,601,590, a decrease of $2,373,481, or 8.5%, from $27,975,071
for the six months ended December 31, 2015. The decrease was primarily attributable to its lower net sales.
Cost
of goods sold by Gufeng for the six months ended December 31, 2016 was $31,523,736, a decrease of $2,934,786, or 8.5%, from $34,458,522
for the six months ended December 31, 2015. This decrease was primarily attributable to the less products sold during the last
six months. .
For
the six months ended December 31, 2016, cost of goods sold by Yuxing was $2,979,654, an increase of $1,086,706, or 57.4%, from
$1,892,948 for the six months ended December 31, 2015. This increase was mainly due to the increase in Yuxing’s net sales
and the higher labor costs.
Gross
Profit
Total
gross profit for the six months ended December 31, 2016 decreased by $4,212,461 to $42,611,269, as compared to $46,823,730 for
the six months ended December 31, 2015. Gross profit margin was 35.3% and 42.1% for the six months ended December 31, 2016 and
2015, respectively.
Gross
profit generated by Jinong decreased by $5,383,490, or 14.2%, to $32,651,804 for the six months ended December 31, 2016 from $38,035,294
for the six months ended December 31, 2015. Gross profit margin from Jinong’s sales was approximately 56.1% and 57.6% for
the six months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to higher raw
material cost and higher packaging cost.
For
the six months ended December 31, 2016, gross profit generated by Gufeng was $5,352,337, a decrease of $2,003,647, or 27.2%, from
$7,355,984 for the six months ended December 31, 2015. Gross profit margin from Gufeng’s sales was approximately 14.6% and
17.6% for the six months ended December 31, 2016 and 2015, respectively. The decrease in gross profit percentage was mainly due
to the increased weight for lower-margin products sales in Gufeng’s total sales answering to market demand.
For
the six months ended December 31, 2016, gross profit generated by Yuxing was $830,071, a decrease of $602,381, or 42.1% from $1,432,452for
the six months ended December 31, 2015. The gross profit margin was approximately 21.8% and 43.1% for the six months ended
December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to the higher labor cost during the
six months ended December 31, 2016.Gross profit generated by VIEs were $3,777,057 with a gross profit margin of approximately
17.4% for the six months ended December 31, 2016.
Selling
Expenses
Our selling expenses consisted primarily of
salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses
were $8,977,450, or 7.4%, of net sales for the six months ended December 31, 2016, as compared to $7,628,858 or 6.9% of net
sales for the six months ended December 31, 2015, an increase of $1,348,592, or 17.7%. This increase was primarily due to
Jinong, and the inclusion of VIEs’ selling expenses for the six months ended December 31, 2016. The selling expenses of
VIEs were $602,156, or 2.8%, of VIEs’ net sales. The selling expenses of Yuxing were $18,975 or 0.5% of Yuxing’s
net sales for the six months ended December 31, 2016, as compared to $143,171, or 4.3% of Yuxing’s net sales for the
six months ended December 31, 2015. The selling expenses of Gufeng were $213,408 or 0.6% of Gufeng’s net sales for the
six months ended December 31, 2016, as compared to $263,657, or 0.6% of Gufeng’s net sales for the six months ended
December 31, 2015. The selling expenses of Jinong for the six months ended December 31, 2016 were $8,142,911 or 14.0% of
Jinong’s net sales, as compared to selling expenses of $7,222,030, or 10.9% of Jinong’s net sales for the six
months ended December 31, 2015. The increase in Jinong’s selling expenses was due to Jinong’s expanded marketing
efforts and the increase in shipping costs.
Selling
Expenses – amortization of deferred assets
Our selling expenses - amortization of our deferred
assets were $9,584,220, or 7.9%, of net sales for the six months ended December 31, 2016, as compared to $18,377,467 or 16.5% of
net sales for the six months ended December 31, 2015, a decrease of $8,793,247, or 47.8%. This decrease was due to the fact that
some of the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets during
the six months ended December 31, 2016.
General
and Administrative Expenses
General
and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation and travel
expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred
and accrued for certain litigations. General and administrative expenses were $7,865,392, or 6.5% of net sales for the six months
ended December 31, 2016, as compared to $5,659,624, or 5.1%, of net sales for the six months ended December 31, 2015, an increase
of $2,205,768, or 39.0%. The increase in general and administrative expenses was mainly due to VIEs, which had $734,137 general
and administrative expenses during the last three months.
Total
Other Expenses
Total
other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank
charges. The total other expense for the six months ended December 31, 2016 was $233,847, as compared to $582,581 for the six
months ended December 31, 2015, a decrease of $348,734, or 59.9%. The decrease in total other expense was partly resulted from
interest expense decreased by $499,888 or 68.3%, to $231,791 during the six months ended December 31, 2016 as compared to $731,679
during the six months ended December 31, 2015, due to a lesser amount of short-term loans.
Income
Taxes
Jinong
is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise
Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of $1,879,465
for the six months ended December 31, 2016, as compared to $1,805,667 for the six months ended December 31, 2015, an increase
of $73,798, or 4.1%.
Gufeng,
subject to a tax rate of 25%, incurred income tax expenses of $792,503 for the six months ended December 31, 2016, as compared
to $1,256,325 for the six months ended December 31, 2015, a decrease of $463,822, or 36.9%.
Yuxing
has no income tax for the six months ended December 31, 2016 as a result of being exempted from paying income tax due to its products
fall into the tax exemption list set out in the EIT.
Net
Income
Net
income for the six months ended December 31, 2016 was $12,857,591, an increase of $1,344,384, or 11.7%, compared to $11,513,207
for the six months ended December 31, 2015. Net income as a percentage of total net sales was approximately 10.7% and 10.4 % for
the six months ended December 31, 2016 and 2015, respectively.
Discussion
of Segment Profitability Measures
As of December 31, 2016, we were engaged in
the following businesses: i) the production and sale of fertilizers through Jinong and Gufeng, ii) the production and sale of
high-quality agricultural products by Yuxing, and iii) the distribution of agricultural products through the VIE Companies For
financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong
(fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production) and VIE Companies (agricultural
products distribution). Each of the segments has its own annual budget with regard to development, production and sales.
Each of the four operating segments referenced
above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) makes decisions with
respect to resources allocation and performance assessment upon receiving financial information, including revenue, gross margin,
operating income and net income produced from the various general ledger systems; however, net income by segment is the principal
benchmark to measure profit or loss adopted by the CODM.
For
Jinong, the net income increased by $195,406 or 2.0% to $10,195,772 for the six months ended December 31, 2016 from $10,000,366
for the six months ended December 31, 2015.
For
Gufeng, the net income decreased by $1,685,340 or 45.9% to $1,984,925 for the six months ended December 31, 2016 from $3,670,265
for the six months ended December 31, 2015.
For
Yuxing, the net income increased by $431,526 or 46.9% to $487,859 for the six months ended December 31, 2016 from $919,385 for
the six months ended December 31, 2015.
For the VIE Companies, as we did not have such business segment during the six months ended December 31, 2015,
the net income increased by $2,045,574 or 100% during the six months ended December 31, 2016.
Liquidity
and Capital Resources
Our
principal sources of liquidity include cash from operations, borrowings from local commercial banks and net proceeds of offerings
of our securities consummated in July 2009 and November/December 2009 (collectively the “Public Offerings”).
As of December 31, 2016, cash and cash equivalents
were $116,574,852, an increase of 13,678,366, or 13.3%, from $102,896,486 as of June 30, 2016.
We
intend to use our working capital to acquire new businesses, upgrade production lines and complete Yuxing’s new greenhouse
facilities for agriculture products located on 88 acres of land in Hu County, 18 kilometers southeast of Xi’an city. Our
liquidity needs have generally consisted of working capital necessary to finance receivables, raw material and finished goods
inventory. We believe that we have sufficient cash on hand and positive projected cash flow from operations to support our business
growth for the next twelve months to the extent we do not have further significant acquisitions or expansions. However, if events
or circumstances occur and we do not meet our operating plan as expected, we may be required to seek additional capital and/or
to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding
the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market conditions are
most advantageous, which may include additional debt and/or equity financings. There can be no assurance that any additional financing
will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing stockholders and any
debt financing may include restrictive covenants.
The
following table sets forth a summary of our cash flows for the periods indicated:
|
|
Six Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net cash provided by operating activities
|
|
$
|
18,178,990
|
|
|
$
|
15,686,820
|
|
Net cash used in investing activities
|
|
|
(74,353
|
)
|
|
|
(15,665
|
)
|
Net cash provided by (used in) financing activities
|
|
|
300,000
|
|
|
|
(3,276,000
|
)
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
(4,726,271
|
)
|
|
|
(5,810,344
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
13,678,366
|
|
|
|
6,584,811
|
|
Cash and cash equivalents, beginning balance
|
|
|
102,896,486
|
|
|
|
92,982,564
|
|
Cash and cash equivalents, ending balance
|
|
$
|
116,574,852
|
|
|
$
|
99,567,375
|
|
Operating
Activities
Net cash provided by operating activities was
$18,178,990 for the six months ended December 31, 2016, an increase of $2,492,170, or 15.9%, compared to $15,686,820 for the six
months ended December 31, 2015. The increase was mainly attributable to the decrease in net income, account receivable and customer
deposit, offset by an increase in inventories and advance to suppliers during the six months ended December 31, 2016 as compared
to the same period in 2015.
Investing
Activities
Net cash used in investing activities for the
six months ended December 31, 2016 was $74,353, an increase of $58,688, or 374.6% from $15,665 for the six months ended December
31, 2015. During the six months ended December 31, 2016, we purchased more plants, property and equipments compared to the same
period last year.
Financing
Activities
Net cash provided by financing activities for
the six months ended December 31, 2016 was $300,000, compared to cash used in financing activities of $3,276,000 for the six months
ended December 31, 2015, which was largely due to we had nil proceeds and repayment of loans for the three months ended December
31, 2016.
As
of December 31, 2016 and June 30, 2016, our loans payable were as follows:
|
|
December 31,
2016
|
|
|
June 30,
2016
|
|
Short term loans payable:
|
|
$
|
4,463,783
|
|
|
$
|
4,665,500
|
|
Total
|
|
$
|
4,463,783
|
|
|
$
|
4,665,500
|
|
Accounts
Receivable
We had accounts receivable of $125,035,022 as
of December 31, 2016, as compared to $117,055,376 as of June 30, 2016, an increase of $7,979,646 or 6.8%, which was mainly attributable
to Gufeng. As of December 31, 2016, Gufeng had account receivable of $64,297,179, an increase of $16,951,117, comparing to $47,346,062
as of June 30, 2016.
Allowance
for doubtful accounts in account receivable for the six months ended December 31, 2016 was $4,343,762, from $397,123 as of June
30, 2016. And the allowance for doubtful accounts as a percentage of accounts receivable was 3.0% as of December 31, 2016 and
0.3% as of June 30, 2016.
Deferred
assets
We
had deferred assets of $3,536,984 as of December 31, 2016, as compared to $13,431,621 as of June 30, 2016. We have been assisting
our distributors in certain marketing efforts and developing standard stores to enhance our competitive advantages and market
shares since December 31, 2015. Based on the distributor agreements, the amount owed by the distributors in certain marketing
efforts and store development will be expensed over three years as long as the distributors are actively selling our products.
If a distributor defaults, breaches, or terminates the agreement with us earlier than the realization of contractual terms, the
unamortized portion of the amount owed by the distributor has to be refunded to us immediately. The Company’s Chairman
and CEO, Mr. Li, provided credit backup to guarantee toward potential losses to the Company of any amounts due from distributors
in this matter.
Inventories
We had an inventory of $64,255,981 as of December
31, 2016, as compared to $87,436,315 as of June 30, 2016, a decrease of $23,180,334, or 26.5%. The decrease was primarily
attributable to Gufeng’s inventory. Gufeng’s inventory was $38,703,152 as of December 31, 2016, compared to $60,183,741
as of June 30, 2016.
Advances
to Suppliers
We had advances to suppliers of $28,707,243
as of December 31, 2016 as compared to $26,863,959 as of June 30, 2016, representing an increase of $1,843,284 or 6.9% which was
due to the large acquisition of raw material during the last six months. To ensure our ability to deliver compound fertilizer to
the distributor timely prior to the planting season, we need to have sufficient raw material in stock to stabilize the production.
To build up the inventory, we typically make advance payment to the suppliers to secure the supply of raw material of basic fertilizer.
Our inventory level may fluctuate from time to time, depending how fast the raw material gets consumed and replenished during the
production process, and how fast the finished goods get sold. The replenishment of raw material relies on the management’s
estimate of numerous factors, including but not limited to, the raw material’s future price, and spot price along with their volatility,
as well as the seasonal demand and future price of finished fertilizer products. Such estimate may not be accurate, and the purchase
decision of raw materials based on the estimate can cause excessive inventories in slow sales and insufficient inventories in peak
times.
Accounts
Payable
We had accounts payable of $5,577,064 as of
December 31, 2016 as compared to $5,246,153 as of June 30, 2016, representing an increase of $330,911, or 6.3%. The increase was
primarily due to the VIEs, which had $4,308,607 accounts payable as of December 31, 2016.
Unearned
Revenue (Customer Deposits)
We
had unearned revenue of $5,413,319 as of December 31, 2016 as compared to $8,578,341 as of June 30, 2016, representing a decrease
of $3,165,022, or 36.9%. The decrease was mainly attributable to Gufeng’s $2,427,946 unearned revenue as of December
31, 2016, compared to $4,381,169 unearned revenue as of June 30, 2016, caused by the advancement deposits made by client. This
decrease was seasonal fluctuation and we expect to deliver products to our customers during the next three months at which time
we will recognize the revenue.
We
do not have any off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect
the selection and application of accounting policies which require management to make significant estimates and judgments. See
Note 2 to our consolidated financial statements, “Basis of Presentation and Summary of Significant Accounting Policies.”
We believe that the following paragraphs reflect the most critical accounting policies that currently affect our financial condition
and results of operations:
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 estimates.
Revenue
recognition
Sales
revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, we have no other significant obligations and collectability is reasonably assured. Payments received
before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Our
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.
Cash
and cash equivalents
For
statement of cash flows purposes, we consider all cash on hand and in banks, certificates of deposit and other highly-liquid investments
with maturities of three months or less, when purchased, to be cash and cash equivalents.
Accounts
receivable
Our
policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves. Any accounts receivable of Jinong and Gufeng
that is outstanding for more than 180 days will be accounted as allowance for bad debts, and any accounts receivable of Yuxing
that is outstanding for more than 90 days will be accounted as allowance for bad debts.
Deferred
assets
Deferred
assets represent amounts the Company advanced to the distributors in their marketing and stores development to expand our competitive
advantage and market shares. Based on the distributor agreements, the amount owed by the distributors in certain marketing
efforts and store development will be expensed over three years as long as the distributors are actively selling our products.
If a distributor defaults, breaches, or terminates the agreement with us earlier than the realization the contractual terms, the
unamortized portion of the amount owed by the distributor has to be refunded to us immediately. The Company’s Chairman
and CEO, Mr. Li, provided credit backup guarantee toward potential losses to the Company of any amounts due from distributors
in this matter.
Segment
reporting
FASB
ASC 280 requires use of 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, 2016, we were organized into three main business segments: Jinong (fertilizer production), Gufeng (fertilizer
production) and Yuxing (agricultural products production).
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Disclosures
About Market Risk
We
may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the
risk that losses may occur as a result of movements in interest rates and equity prices. We currently do not, in the normal course
of business, use financial instruments that are subject to changes in financial market conditions.
Currency
Fluctuations and Foreign Currency Risk
Substantially
all of our revenues and expenses are denominated in RMB. However, we use U.S. dollar for financial reporting purposes. Conversion
of RMB into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system.
Although the PRC government has stated its intention to support the value of RMB, there can be no assurance that such exchange
rate will not again become volatile or that RMB will not devalue significantly against U.S. dollar. Exchange rate fluctuations
may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC.
Our
reporting currency is U.S. dollar. Except for U.S. holding companies, all of our consolidated revenues, consolidated costs and
expenses, and our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results
of operations may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. If RMB depreciates against U.S.
dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline.
Assets and liabilities are translated at the exchange rates as of the balance sheet dates, revenues and expenses are translated
at the average exchange rates, and shareholders’ equity is translated at historical exchange rates. Any resulting translation
adjustments are not included in determining net income but are included in determining other comprehensive income, a component
of shareholders’ equity. As of December 31, 2016, our accumulated other comprehensive income was $22.1 million. We have
not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of RMB against
U.S. dollar and other currencies is affected by, among other things, changes in the PRC’s political and economic conditions.
In 2016, China’s currency dropped by a cumulative 6.8% against the U.S. dollar. The effect on trade can be substantial.
Moreover, it is possible that, in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen
intervention in the foreign exchange market.
Interest
Rate Risk
We
deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. All
of our outstanding debt instruments carry fixed rates of interests. The amount of short-term debt outstanding as of December 31,
2016 and June 30, 2016 was $4.5 million and $4.7 million, respectively. We are exposed to interest rate risk primarily with respect
to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our
short-term loans, are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans
and interest rates are subject to change upon renewal. There were no material changes in interest rates for short-term bank loans
renewed during the three months ended December 31, 2016. The original loan term on average is one year, and the remaining average
life of the short term-loans is approximately five months.
Management
monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances
relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest
rate risk.
Credit
Risk
We
have not experienced significant credit risk, as most of our customers are long-term customers with superior payment records.
Our receivables are monitored regularly by our credit managers.
Inflation
Risk
Inflationary
factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. Although
we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high
rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with
these increased costs.
Item
4. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures
At
the conclusion of the period ended December 31, 2016 we carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),
of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our CEO
and CFO concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were
effective and adequately designed to ensure that the information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules
and forms, and that such information was accumulated and communicated to our management, including our CEO and CFO, in a manner
that allowed for timely decisions regarding required disclosure.
(b)
Changes in internal controls
There
were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph
(d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended December 31, 2016 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION