Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
☐
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
133,909,463
|
|
|
$
|
123,050,548
|
|
Accounts receivable, net
|
|
|
102,418,604
|
|
|
|
140,252,335
|
|
Inventories
|
|
|
119,601,723
|
|
|
|
78,013,891
|
|
Prepaid expenses and other current assets
|
|
|
2,668,581
|
|
|
|
4,201,782
|
|
Amount due from related parties
|
|
|
1,534,566
|
|
|
|
1,412,844
|
|
Advances to suppliers, net
|
|
|
18,756,906
|
|
|
|
24,023,062
|
|
Total Current Assets
|
|
|
378,889,843
|
|
|
|
370,954,462
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
33,384,182
|
|
|
|
34,191,332
|
|
Deferred Asset, Net
|
|
|
213,289
|
|
|
|
864,070
|
|
Other Assets
|
|
|
290,458
|
|
|
|
279,031
|
|
Other Non-current Assets
|
|
|
17,388,889
|
|
|
|
17,829,621
|
|
Intangible Assets, Net
|
|
|
22,446,433
|
|
|
|
22,911,876
|
|
Goodwill
|
|
|
8,654,923
|
|
|
|
8,651,238
|
|
Total Assets
|
|
$
|
461,268,017
|
|
|
$
|
455,681,630
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
24,124,592
|
|
|
$
|
19,643,897
|
|
Customer deposits
|
|
|
5,849,222
|
|
|
|
7,046,570
|
|
Accrued expenses and other payables
|
|
|
9,333,065
|
|
|
|
9,135,313
|
|
Amount due to related parties
|
|
|
3,071,621
|
|
|
|
3,071,102
|
|
Taxes payable
|
|
|
713,343
|
|
|
|
2,690,407
|
|
Short term loans
|
|
|
6,327,630
|
|
|
|
7,678,111
|
|
Interest payable
|
|
|
328,030
|
|
|
|
256,904
|
|
Derivative liability
|
|
|
116,350
|
|
|
|
195,812
|
|
Total Current Liabilities
|
|
|
49,863,853
|
|
|
|
49,718,116
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Long-term loan
|
|
|
0
|
|
|
|
3,549
|
|
Convertible notes payable
|
|
|
8,541,065
|
|
|
|
8,431,912
|
|
Total Liabilities
|
|
$
|
58,404,918
|
|
|
$
|
58,153,577
|
|
|
|
|
|
|
|
|
|
|
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, 38,551,265, shares issued and outstanding as of September 30, 2017 and June 30, 2017, respectively
|
|
|
38,551
|
|
|
|
38,551
|
|
Additional paid-in capital
|
|
|
128,915,651
|
|
|
|
128,915,651
|
|
Statutory reserve
|
|
|
29,583,184
|
|
|
|
28,962,302
|
|
Retained earnings
|
|
|
249,212,939
|
|
|
|
244,738,993
|
|
Accumulated other comprehensive income
|
|
|
(4,887,226
|
)
|
|
|
(5,127,444
|
)
|
Total Stockholders’ Equity
|
|
|
402,863,099
|
|
|
|
397,528,052
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
461,268,017
|
|
|
$
|
455,681,629
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
Three Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
|
|
|
|
|
Jinong
|
|
$
|
26,773,760
|
|
|
$
|
31,427,720
|
|
Gufeng
|
|
|
18,222,066
|
|
|
|
15,809,514
|
|
Yuxing
|
|
|
1,792,643
|
|
|
|
1,355,411
|
|
VIEs - others
|
|
|
15,980,034
|
|
|
|
13,291,977
|
|
Net sales
|
|
|
62,768,503
|
|
|
|
61,884,622
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
13,112,756
|
|
|
|
13,269,230
|
|
Gufeng
|
|
|
15,986,429
|
|
|
|
13,385,077
|
|
Yuxing
|
|
|
1,392,553
|
|
|
|
1,045,608
|
|
VIEs - others
|
|
|
13,208,764
|
|
|
|
10,753,679
|
|
Cost of goods sold
|
|
|
43,700,502
|
|
|
|
38,453,594
|
|
Gross profit
|
|
|
19,068,001
|
|
|
|
23,431,028
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
5,179,004
|
|
|
|
5,012,068
|
|
Selling expenses - amortization of deferred asset
|
|
|
|
|
|
|
6,108,782
|
|
General and administrative expenses
|
|
|
6,972,622
|
|
|
|
3,231,487
|
|
Total operating expenses
|
|
|
12,151,626
|
|
|
|
14,352,337
|
|
Income from operations
|
|
|
6,916,375
|
|
|
|
9,078,691
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(7,231
|
)
|
|
|
(41,057
|
)
|
Interest income
|
|
|
87,914
|
|
|
|
76,622
|
|
Interest expense
|
|
|
(179,575
|
)
|
|
|
(138,545
|
)
|
Total other income (expense)
|
|
|
(98,892
|
)
|
|
|
(102,980
|
)
|
Income before income taxes
|
|
|
6,817,483
|
|
|
|
8,975,711
|
|
Provision for income taxes
|
|
|
1,722,655
|
|
|
|
1,624,131
|
|
Net income
|
|
|
5,094,828
|
|
|
|
7,351,580
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
240,218
|
|
|
|
(1,205,884
|
)
|
Comprehensive income (loss)
|
|
$
|
5,335,046
|
|
|
$
|
6,145,696
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
38,185,277
|
|
|
|
37,648,605
|
|
Basic net earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.20
|
|
Diluted weighted average shares outstanding
|
|
|
38,185,277
|
|
|
|
37,648,605
|
|
Diluted net earnings per share
|
|
|
0.13
|
|
|
|
0.20
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,094,828
|
|
|
$
|
7,351,580
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Issuance of common stock and stock options for compensation
|
|
|
0
|
|
|
|
143,151
|
|
Depreciation and amortization
|
|
|
1,933,943
|
|
|
|
7,380,446
|
|
Gain (Loss) on disposal of property, plant and equipment
|
|
|
15,109
|
|
|
|
1,706
|
|
Amortization of debt discount
|
|
|
105,293
|
|
|
|
77,963
|
|
Change in fair value of derivative liability
|
|
|
(79,343
|
)
|
|
|
(12,731
|
)
|
Changes in operating assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
37,797,596
|
|
|
|
255,659
|
|
Amount due from related parties
|
|
|
(121,120
|
)
|
|
|
(215,152
|
)
|
Other current assets
|
|
|
1,531,095
|
|
|
|
(556,857
|
)
|
Inventories
|
|
|
(41,449,116
|
)
|
|
|
8,043,544
|
|
Advances to suppliers
|
|
|
5,262,996
|
|
|
|
(4,494,718
|
)
|
Other assets
|
|
|
447,190
|
|
|
|
8,425
|
|
Changes in operating liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
4,461,065
|
|
|
|
701,559
|
|
Customer deposits
|
|
|
(1,197,303
|
)
|
|
|
(4,126,961
|
)
|
Tax payables
|
|
|
(1,973,188
|
)
|
|
|
(3,537,594
|
)
|
Accrued expenses and other payables
|
|
|
195,492
|
|
|
|
(5,931,180
|
)
|
Interest payable
|
|
|
70,836
|
|
|
|
57,373
|
|
Net cash provided by operating activities
|
|
|
12,095,373
|
|
|
|
5,146,213
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of plant, property, and equipment
|
|
|
(5,929
|
)
|
|
|
(71,470
|
)
|
Change in construction in process
|
|
|
(11,280
|
)
|
|
|
0
|
|
Net cash used in investing activities
|
|
|
(17,209
|
)
|
|
|
(71,470
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from loans
|
|
|
1,802,500
|
|
|
|
1,499,940
|
|
Repayment of loans
|
|
|
(3,156,300
|
)
|
|
|
(1,499,940
|
)
|
Advance from related party
|
|
|
0
|
|
|
|
300,000
|
|
Net cash provided by financing activities
|
|
|
(1,353,800
|
)
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
134,551
|
|
|
|
(150,170
|
)
|
Net increase in cash and cash equivalents
|
|
|
10,858,915
|
|
|
|
5,224,573
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
123,050,548
|
|
|
|
102,896,486
|
|
Cash and cash equivalents, ending balance
|
|
$
|
133,909,463
|
|
|
$
|
108,121,059
|
|
|
|
|
|
|
|
|
|
|
Supplement disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
725,317
|
|
|
$
|
117,506
|
|
Income taxes paid
|
|
$
|
3,695,843
|
|
|
$
|
6,724,632
|
|
The
accompanying notes are an integral part of these 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 TechTeam Jinong Humic 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”), Songyuan Jinyangguang Sannong Service
Co., Ltd. (“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei
District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), Aksu Xindeguo 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”).
Yuxing,
Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred to as
the “the VIE Companies”; Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may
also collectively be referred to as “the sales VIEs” or “the sales VIE companies”.
The
Company’s corporate structure as of September 30, 2017 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, and the VIE Companies. All significant inter-company accounts and transactions have been eliminated
in consolidation.
Effective
June 16, 2013, Yuxing was converted from being a wholly-owned foreign enterprise 100% owned by Jinong to a domestic
enterprise 100% owned by one natural person, who is not affiliated with the Company (“Yuxing’s Owner”).
Effective the same day, Yuxing’s Owner entered into a series of contractual agreements with Jinong pursuant to which
Yuxing became the VIE of Jinong.
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 performs 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 three 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
September 30, 2017 and June 30, 2017 were $133,909,463 and $122,907,629, respectively. The Company had $133,904,929 and
$122,764,710 in cash in banks in China, and also had $4,534 and $142,919 in cash in two banks in the United States as of
September 30, 2017 and June 30, 2017, respectively. Cash overdrafts as of a 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 September 30, 2017, and June 30, 2017, the Company had accounts receivable
of $118,077,557 and $151,122,602, net of allowance for doubtful accounts of $14,124,387 and $9,457,423, respectively.
Inventories
Inventory
is valued at the lower of cost (determined on a weighted average basis) or market. Inventories consist of raw materials; work
in process, finished goods and packaging materials. The Company reviews its inventories regularly for possible obsolete goods
and establishes reserves when determined necessary.
Deferred
assets
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 three months ended September 30, 2017 and 2016, the Company amortized $650,781 and $7,274,334
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, has guaranteed repayment of any amounts due to the Company remaining unpaid 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 U.S. generally accepted accounting principles, these types of asset 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 Company’s Chairman, Mr. Li, has guaranteed repayment of any amounts due to the Company remaining unpaid
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 September 30, 2017, and June 30,
2017, the Company had customer deposits of $5,849,222 and $7,046,570, respectively.
Earnings
per share
Basic
earnings per share are 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
|
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
Net Income for Basic Earnings Per Share
|
|
$
|
5,094,828
|
|
|
$
|
7,351,580
|
|
Basic Weighted Average Number of Shares
|
|
|
38,185,277
|
|
|
|
37,648,605
|
|
Net Income Per Share – Basic
|
|
$
|
0.13
|
|
|
$
|
0.20
|
|
Net Income for Diluted Earnings Per Share
|
|
$
|
5,094,828
|
|
|
$
|
7,351,580
|
|
Diluted Weighted Average Number of Shares
|
|
|
38,185,277
|
|
|
|
37,648,605
|
|
Net Income Per Share – Diluted
|
|
$
|
0.13
|
|
|
$
|
0.20
|
|
Recent
accounting pronouncements
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.
In
April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensing” (“ASU 2016-10”), which clarifies the following two aspects of Topic 606: (a)
identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core
principle of the guidance in Topic 606. The new guidance is effective for annual
periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim
period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of
adopting this standard on its consolidated financial statements.
In
May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission
of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-06 Pursuant to Staff Announcements at the March 3, 2016
EITF Meeting” (“ASU 2016-11”), which clarifies revenue and expense recognition for freight costs, accounting
for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer. The new guidance is
effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will
be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact
of adopting this standard on its consolidated financial statements.
In
May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients” (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability,
noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues
and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. The new guidance
is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which
will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the
impact of adopting this standard on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, regarding ASC Topic 230 “Statement of Cash Flows.” This update addresses eight
specific cash flow issues with the objective of reducing the existing diversity in practice. The new guidance is effective for
annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption
is permitted. The Company does not expect the adoption of this standard to have a significant effect on our consolidated financial
statements.
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash”(“ASU
2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update is effective
in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The adoption of
this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the
changes in restricted cash activity, which is currently recognized in Other financing activities, on the Statements of Consolidated
Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents and restricted cash
reported within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated Cash Flows. The Company
anticipates adopting this new guidance effective January 1, 2018. The Company is currently evaluating this guidance and the impact
it will have on the Consolidated Financial Statements and disclosures.
In
January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating
when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of
2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated
financial statements.
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of
modification accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the
terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities that
offer share based payment awards, ASU 2017-09 is effective for interim and annual reporting periods beginning after
December 15, 2017. The Company is currently assessing the impact of ASU 2017-09 on its condensed consolidated financial
statements.
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 was 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:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Raw materials
|
|
$
|
52,701,804
|
|
|
$
|
39,397,711
|
|
Supplies and packing materials
|
|
$
|
670,356
|
|
|
$
|
540,151
|
|
Work in progress
|
|
$
|
416,417
|
|
|
$
|
421,496
|
|
Finished goods
|
|
$
|
65,813,146
|
|
|
$
|
37,655,533
|
|
Total
|
|
$
|
119,601,723
|
|
|
$
|
78,013,891
|
|
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Building and improvements
|
|
$
|
40,132,482
|
|
|
$
|
40,113,868
|
|
Auto
|
|
|
3,459,709
|
|
|
|
3,473,352
|
|
Machinery and equipment
|
|
|
18,771,451
|
|
|
|
18,760,880
|
|
Agriculture assets
|
|
|
764,965
|
|
|
|
764,660
|
|
Total property, plant and equipment
|
|
|
63,128,608
|
|
|
|
63,111,079
|
|
Less: accumulated depreciation
|
|
|
(29,744,426
|
)
|
|
|
(28,919,747
|
)
|
Total
|
|
$
|
33,384,182
|
|
|
$
|
34,191,332
|
|
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Land use rights, net
|
|
$
|
10,063,213
|
|
|
$
|
10,121,591
|
|
Technology patent, net
|
|
|
0
|
|
|
|
-
|
|
Customer relationships, net
|
|
|
5,234,379
|
|
|
|
5,578,641
|
|
Non-compete agreement
|
|
|
1,027,175
|
|
|
|
1,092,584
|
|
Trademarks
|
|
|
6,121,666
|
|
|
|
6,119,059
|
|
Total
|
|
$
|
22,446,433
|
|
|
$
|
22,911,876
|
|
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 $10,999,690). 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 $157,206).
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 $1,094,950). The intangible asset is being amortized over
the grant period of 50 years.
The
Land Use Rights consisted of the following:
|
|
September 30,
|
|
|
June
30,
|
|
|
|
2017
|
|
|
2017
|
|
Land use rights
|
|
$
|
12,251,846
|
|
|
|
12,246,630
|
|
Less: accumulated amortization
|
|
|
(2,188,632
|
))
|
|
|
(2,125,039
|
)
|
Total land use rights, net
|
|
$
|
10,063,214
|
|
|
|
10,121,591
|
|
TECHNOLOGY
PATENT
On August 16, 2001, Jinong was issued
a technology patent related to a proprietary formula used in the production of humic acid. The fair value of the related intangible
asset was determined to be the respective cost of RMB 5,875,068 (or $883,023) 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 of the acquired technology patent was estimated to be RMB9,200,000
(or $1,382,760) and is amortized over the remaining useful life of six years using the straight-line method. As of June 30, 2016,
this technology patent is fully amortized.
The
technology know-how consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Technology know-how
|
|
$
|
2,265,783
|
|
|
$
|
2,264,818
|
|
Less: accumulated amortization
|
|
|
(2,265,783
|
)
|
|
|
(2,264,818
|
)
|
Total technology know-how, net
|
|
$
|
-
|
|
|
$
|
-
|
|
CUSTOMER
RELATIONSHIPS
On July
2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired customer relationships
was estimated to be RMB65,000,000 (or $9,769,500) and is amortized over the remaining useful life of ten years. On June 30, 2016
and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired customer relationships was estimated
to be RMB16,472,179 (or $2,475,769) and is amortized over the remaining useful life of seven to ten years.
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Customer relationships
|
|
$
|
12,763,063
|
|
|
$
|
12,757,628
|
|
Less: accumulated amortization
|
|
|
(7,528,684
|
)
|
|
|
(7,178,987
|
)
|
Total customer relationships, net
|
|
$
|
5,234,379
|
|
|
$
|
5,578,641
|
|
NON-COMPETE
AGREEMENT
On July
2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired non-compete agreement
was estimated to be RMB1,320,000 (or $198,396) and is amortized over the remaining useful life of five years using the straight
line method. On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired
non-compete agreements was estimated to be RMB6,150,683 (or $924,448) and is amortized over the remaining useful life of five years
using the straight line method.
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Non-compete agreement
|
|
$
|
1,515,862
|
|
|
$
|
1,515,218
|
|
Less: accumulated amortization
|
|
|
(488,687
|
)
|
|
|
(422,634
|
)
|
Total non-compete agreement, net
|
|
$
|
1,027,175
|
|
|
$
|
1,092,584
|
|
TRADEMARKS
On July 2, 2010, the Company
acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value of the acquired trademarks was estimated
to be RMB40,700,000 (or $6,117,210) and is subject to an annual impairment test.
AMORTIZATION
EXPENSE
Estimated amortization expenses
of intangible assets for the next five twelve months periods ended September 30, are as follows:
Twelve Months Ended on September 30,
|
|
Expense
($)
|
|
2018
|
|
|
1,895,082
|
|
2019
|
|
|
1,895,082
|
|
2020
|
|
|
1,856,229
|
|
2021
|
|
|
747,981
|
|
2022
|
|
|
576,933
|
|
NOTE
6 – OTHER NON-CURRENT ASSETS
Other non-current assets
mainly include advance payments related to leasing land for use by the Company. As of September 30, 2017, the balance of
other non-current assets was $17,388,889, which was the lease fee advances for agriculture lands that the Company engaged in
Shiquan County from 2018 to 2027.
In
March 2017, Jinong entered into a lease agreement for approximately 3,400 mu, and 2600 hectare agriculture lands in Shiquan
County, Shaanxi Province. The lease was from April 2017 and was renewable for every ten-year period up to 2066. The aggregate
leasing fee was approximately RMB 13 million per annum, The Company had made 10-year advances of leasing fee per lease terms.
The Company has amortized $.5 million as expenses for the three months ended September 30, 2017.
Estimated
amortization expenses of the lease advance payments for the next four twelve-month periods ended September 30 and thereafter
are as follows:
Twelve months ending September 30,
|
|
|
|
2018
|
|
$
|
2,017,778
|
|
2019
|
|
$
|
2,017,778
|
|
2020
|
|
$
|
2,017,778
|
|
2021
|
|
$
|
2,017,778
|
|
2022 and thereafter
|
|
$
|
11,335,556
|
|
NOTE 7 - ACCRUED
EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Payroll payable
|
|
$
|
126,652
|
|
|
$
|
103,412
|
|
Welfare payable
|
|
|
154,304
|
|
|
|
154,239
|
|
Accrued expenses
|
|
|
4,893,584
|
|
|
|
4,863,988
|
|
Other payables
|
|
|
4,032,474
|
|
|
|
3,887,676
|
|
Other levy payable
|
|
|
126,051
|
|
|
|
125,998
|
|
Total
|
|
$
|
9,333,065
|
|
|
$
|
9,135,313
|
|
NOTE
8 - RELATED PARTIES TRANSACTIONS
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 $3,832,650). For the three months ended September 30, 2017 and 2016, Yuxing has sold approximately $133,690 and $694,259 products to 900LH.com.
The
amount due from 900LH.com to Yuxing was $1,534,566 and $1,412,844 as of September 30, 2017 and June 30, 2017, respectively.
As
of September 30, 2017, and June 30, 2017, the amount due to related parties was $3,071,621 and $3,071,102, respectively. As
of September 30, 2017, and June 30, 2017, $1,051,100 and $1,051,652, 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. As of September 30, 2017, and June 30, 2017, the Company owed Mr. Tao Li, Chairman and CEO of the
Company, unsecured, non-interest-bearing advances of $1,950,000. These advances are not subject to written agreements.
As
of September 30, 2017, and September 2017, the Company’s subsidiary, Jinong, owed 900LH.com $605,000 and $30,720 respectively.
On June 29, 2016,
Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”),
of which Mr. Tao Li, Chairman and CEO of the Company, serves as Chairman of its board of directors. Pursuant to the lease, Jinong
rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provides for a
two-year term effective as of July 1, 2016 with monthly rent of RMB24,480 (approximately $3,679)
NOTE
9- LOAN PAYABLES
As of September 30, 2017, the
short-term loan payables consisted of four loans which mature on dates ranging from October 25, 2017 through July 30, 2018
with interest rates ranging from 5.22% to 6.31%. Loan No. 2 in the table below is guaranteed with parent
company’s credit from Jinong: Loans No. 1 and 2 below are collateralized by Tianjuyuan’s land use right and
building ownership right.
No.
|
|
Payee
|
|
Loan period per
agreement
|
|
Interest
Rate
|
|
|
September 30,
2016
|
|
1
|
|
Postal Saving Bank of China - Pinggu Branch
|
|
March 24, 2017 – March 5, 2018
|
|
|
6.31
|
%
|
|
$
|
4,509,000
|
|
2
|
|
Bank of Beijing - Pinggu Branch
|
|
June 9, 2017-June 8, 2018
|
|
|
5.22
|
%
|
|
|
1,503,000
|
|
3
|
|
Beijing Agriculture Investment -small loan
|
|
August 1, 2017-July 30, 2018
|
|
|
5.50
|
%
|
|
|
150,300
|
|
4
|
|
Bank of China-Anhui
|
|
November 25, 2016-October 25, 2017
|
|
|
LPR
|
*
|
|
|
165,330
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
6,327,630
|
|
*LPR
stands for Loan Prime Rate. The LPR rate is a 1-year lending rate used by commercial banks to their top grade borrowers whose
credit are comparable to the interbank borrowing creditworthiness in China. The LPR rate is a variable rate and is published
along with Shanghai Interbank Offer Rates daily.
Gufeng
repaid RMB10,000,000 ($1,503,000) bank loan to Beijing Bank in July 2017, and borrowed RMB1,000,000 ($150,300) from Beijing Agriculture
Investment in August 2017.
As of June 30, 2017, the short-term
loan payables consisted of four loans which mature on dates ranging from July 28, 2017 through June 8, 2018 with interest
rates ranging from 5.22% to 6.31%. Loans No. 2 to 3 in the table below are guaranteed with parent company’s
credit from Jinong; Loans No. 1 and 2 below are collateralized by Tianjuyan’s land use right and building ownership
right.
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest Rate
|
|
|
June 30,
2017
|
|
1
|
|
Postal Saving Bank of China - Pinggu Branch
|
|
March 24, 2017 – March 5, 2018
|
|
|
6.31
|
%
|
|
|
4,507,080
|
|
2
|
|
Bank of Beijing - Pinggu Branch
|
|
June 9, 2017-June 8, 2018
|
|
|
5.22
|
%
|
|
|
1,502,360
|
|
3
|
|
Bank of Beijing - Pinggu Branch
|
|
June 28, 2016 -July 28, 2017
|
|
|
5.22
|
%
|
|
$
|
1,502,360
|
|
4
|
|
Bank of China-Anhui
|
|
November 25, 2016-October25, 2017
|
|
|
LPR
|
*
|
|
$
|
166,311
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
7,678,111
|
|
*LPR stands for Loan Prime Rate. The
LPR rate is a 1-year lending rate used by commercial banks to their top grade borrowers whose credit are comparable to the
interbank borrowing creditworthiness in China. The LPR rate is a variable rate and is published along with Shanghai Interbank
Offer Rates daily.
The
interest expense from short-term loans was $179,575 and $138,545 for the three months ended September 30, 2017 and 2016, respectively.
NOTE
10 – CONVERTIBLE NOTES PAYABLE
Relating
to the acquisition of the sales VIE Companies, the Company subsidiary, Jinong, issued convertible notes payable to the shareholders
of sales VIE Companies twice, in the aggregate notional amount of RMB 63,000,000 ($9,462,600) with a term of three years and an
annual interest rate of 3%.
No.
|
|
Related Acquisitions of Sales VIEs
|
|
Issuance Date
|
|
Maturity Date
|
|
Notional Interest Rate
|
|
|
Conversion Price
|
|
|
Notional Amount
(in RMB)
|
|
1
|
|
Wangtian, Lishijie, Shenqiu, Xindeguo, Xinyulei, Jinyangguang
|
|
June 30, 2016
|
|
June 30, 2019
|
|
|
3
|
%
|
|
$
|
5.00
|
|
|
|
51,000,000
|
|
2
|
|
Fengnong, Xiangrong
|
|
January 1, 2017
|
|
December 31, 2019
|
|
|
3
|
%
|
|
$
|
5.00
|
|
|
|
12,000,000
|
|
The
convertible notes take priority over the preferred stock and common stock of Jinong, and any other class or series of capital
stock Jinong issues in the future in terms of interest 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
maturity 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 52,826,779 (or $8,541,095) and RMB 56,124,446
($8,431,912) as of September 30, 2017 and June 30, 2017, respectively. The difference between the fair value of the notes and
the face amount of the notes is being amortized to accretion implied interest expense over the three-year life of the notes. As
of September 30, 2017, the accumulated amortization of this discount into accretion expenses was $483,716.
NOTE
11 – 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, because of the expiration of its tax exemption on December 31, 2007. Accordingly, it made provision
for income taxes for the three-month period ended June 30, 2017 and 2016 of $1,013,134 and $987,512, 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 $511,796 and $307,735 for the three months ended September 30, 2017 and 2016, respectively.
Value-Added
Tax
Certain
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.
Income
Taxes and Related Payables
|
|
Sept 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
VAT provision
|
|
$
|
(538,043
|
)
|
|
$
|
(575,872
|
)
|
Income tax payable
|
|
|
582,425
|
|
|
|
2,229,735
|
|
Other levies
|
|
|
668,962
|
|
|
|
1,036,544
|
|
Total
|
|
$
|
713,344
|
|
|
$
|
2,690,407
|
|
The
provision for income taxes consists of the following
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Current tax - foreign
|
|
$
|
1,722,655
|
|
|
$
|
1,295,248
|
|
Deferred tax
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,722,655
|
|
|
$
|
1,295,248
|
|
Our
effective tax rates were approximately 25% and 15% for the three months ended September 30, 2017 and 2016, 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 three months ended
September 30, 2017 and 2016 for the following reasons:
September
30, 2017
Tax
Rate Reconciliation
|
|
China
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
30-Sep-17
|
|
15% - 25%
|
|
|
|
|
|
34%
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
7,015,501
|
|
|
|
|
|
|
$
|
(198,017
|
)
|
|
|
|
|
|
$
|
6,817,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
1,753,875
|
|
|
|
0.250
|
|
|
|
(67,326
|
)
|
|
|
34
|
%
|
|
|
1,686,549
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(675,422
|
)
|
|
|
-0.096
|
|
|
|
|
|
|
|
|
|
|
|
(675,422
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
644,202
|
|
|
|
0.092
|
|
|
|
|
|
|
|
|
|
|
|
644,202
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
0
|
|
|
|
|
|
|
|
67,326
|
|
|
|
-34
|
%
|
|
|
67,326
|
|
|
|
|
|
Actual tax expense
|
|
$
|
1,722,655
|
|
|
|
24.6
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
1,722,655
|
|
|
|
25.3
|
%
|
September
30, 2016
|
|
China
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
15% - 25%
|
|
|
|
|
|
34%
|
|
|
|
|
|
Total
|
|
|
|
|
Pretax income (loss)
|
|
$
|
8,965,900
|
|
|
|
|
|
|
|
(346,122
|
)
|
|
|
|
|
|
$
|
8,619,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
2,241,475
|
|
|
|
25.0
|
%
|
|
|
(117,682
|
)
|
|
|
34.0
|
%
|
|
|
2,123,794
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(593,485
|
)
|
|
|
(6.6
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(593,485
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
(352,742
|
)
|
|
|
(3.9
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(352,742
|
)
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
117,682
|
|
|
|
(34.0
|
)%
|
|
|
117,681
|
|
|
|
|
|
Actual tax expense
|
|
$
|
1,295,248
|
|
|
|
14.4
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
1,295,248
|
|
|
|
15.0
|
%
|
NOTE
12 – STOCKHOLDERS’ EQUITY
Common
Stock
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.
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 September 30, 2017, 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
13 –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 six vendors from each of which the Company purchased more than 10% of its raw materials, with the total of 64.6% of its raw
materials for the three month ended September 30, 2017. Total purchases from these six vendors amounted to $52,430,050 for the
three-month period ended September 30, 2017.
There
were two vendors from which the Company purchased 17.9% and 12.4%, respectively, of its raw materials for the three-month ended September 30,
2016. Total purchases from these two vendors amounted to $5,502,130 for the three-month period ended September 30, 2016.
No
customer accounted for over 10% of the Company’s sales for the three months ended September 30, 2017 and
2016.
NOTE
14 – SEGMENT REPORTING
As
of September 30, 2017, the Company was organized into four main business segments based on location and product: Jinong (fertilizer
production), Gufeng (fertilizer production), Yuxing (agricultural products production) and the sales VIEs. 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 September 30,
|
|
Revenues from unaffiliated customers:
|
|
2017
|
|
|
2016
|
|
Jinong
|
|
$
|
26,773,760
|
|
|
$
|
31,427,720
|
|
Gufeng
|
|
|
18,222,066
|
|
|
|
15,809,514
|
|
Yuxing
|
|
|
1,792,643
|
|
|
|
1,355,411
|
|
Sales VIEs
|
|
|
15,980,034
|
|
|
|
13,291,977
|
|
Consolidated
|
|
$
|
62,768,503
|
|
|
$
|
61,884,622
|
|
|
|
|
|
|
|
|
|
|
Operating income :
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
6,766,075
|
|
|
$
|
6,379,220
|
|
Gufeng
|
|
|
2,106,213
|
|
|
|
1,085,083
|
|
Yuxing
|
|
|
175,473
|
|
|
|
157,030
|
|
Sales VIEs
|
|
|
(1,933,369
|
)
|
|
|
1,803,480
|
|
Reconciling item (1)
|
|
|
2
|
|
|
|
0
|
|
Reconciling item (2)
|
|
|
(198,019
|
)
|
|
|
(346,122
|
)
|
Consolidated
|
|
$
|
6,916,375
|
|
|
$
|
9,078,691
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
5,741,090
|
|
|
$
|
5,346,288
|
|
Gufeng
|
|
|
1,489,067
|
|
|
|
716,486
|
|
Yuxing
|
|
|
175,622
|
|
|
|
157,080
|
|
Sales VIEs
|
|
|
(2,112,934
|
)
|
|
|
1,477,848
|
|
Reconciling item (1)
|
|
|
2
|
|
|
|
0
|
|
Reconciling item (2)
|
|
|
(198,019
|
)
|
|
|
(346,122
|
)
|
Consolidated
|
|
$
|
5,094,828
|
|
|
$
|
7,351,580
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
853,743
|
|
|
$
|
6,313,089
|
|
Gufeng
|
|
|
547,757
|
|
|
|
627,309
|
|
Yuxing
|
|
|
312,519
|
|
|
|
313,916
|
|
Sales VIEs
|
|
|
219,923
|
|
|
|
126,132
|
|
Consolidated
|
|
$
|
1,933,943
|
|
|
$
|
7,380,446
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
70,836
|
|
|
|
57,373
|
|
Gufeng
|
|
|
104,723
|
|
|
|
60,133
|
|
Yuxing
|
|
|
0
|
|
|
|
|
|
Sales VIEs
|
|
|
4,016
|
|
|
|
|
|
Consolidated
|
|
$
|
179,575
|
|
|
$
|
117,506
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
3,341
|
|
|
$
|
1,222
|
|
Gufeng
|
|
|
13,868
|
|
|
|
4,443
|
|
Yuxing
|
|
|
0
|
|
|
|
555
|
|
Sales VIEs
|
|
|
0
|
|
|
|
0
|
|
Consolidated
|
|
$
|
17,209
|
|
|
$
|
6,220
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Identifiable assets:
|
|
|
|
|
|
|
Jinong
|
|
$
|
218,278,643
|
|
|
$
|
213,355,900
|
|
Gufeng
|
|
|
155,693,090
|
|
|
|
156,648,924
|
|
Yuxing
|
|
|
41,215,745
|
|
|
|
40,965,345
|
|
Sales VIEs
|
|
|
46,078,885
|
|
|
|
44,571,422
|
|
Reconciling item (1)
|
|
|
4,533
|
|
|
|
142,918
|
|
Reconciling item (2)
|
|
|
(2,879
|
)
|
|
|
(2,879
|
)
|
Consolidated
|
|
$
|
461,268,017
|
|
|
$
|
455,681,630
|
|
(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
15 – COMMITMENTS AND CONTINGENCIES
On June
29, 2016, Jinong renewed 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 $3,679 (approximately 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 $782 (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 $445 (RMB 2,958).
Accordingly,
the Company recorded an aggregate of $14,716 and $14,679 as rent expenses from these committed property leases for the three-month
periods ended September 30, 2017 and 2016, respectively. The contingent rent expenses herein for the next five twelve-month periods
ended September 30, are as follows:
Years ending September 30,
|
|
|
|
2018
|
|
$
|
40,794
|
|
2019
|
|
|
5,335
|
|
2020
|
|
|
5,335
|
|
2021
|
|
|
5,335
|
|
2022
|
|
|
5,335
|
|
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 and January 1, 2017, 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 sales VIE Companies.
Jinong,
the sales VIE Companies, and the shareholders of the sales VIE Companies also entered into a series of contractual agreements
for the sales VIE Companies to qualify as VIEs (the “VIE Agreements”).
As
a result of these contractual arrangements with Yuxing and the sales VIE Companies, the Company is entitled to substantially
all of the economic benefits of Yuxing and the sales VIE Companies. The following financial statement amounts and balances of
the VIEs are included in the accompanying consolidated financial statements as of September 30, 2017 and June 30,
2017:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
435,663
|
|
|
$
|
374,587
|
|
Accounts receivable, net
|
|
|
35,285,929
|
|
|
|
30,687,859
|
|
Inventories
|
|
|
20,455,260
|
|
|
|
21,314,940
|
|
Other current assets
|
|
|
875,844
|
|
|
|
2,195,156
|
|
Advances to suppliers
|
|
|
1,659,285
|
|
|
|
2,380,812
|
|
Total Current Assets
|
|
|
58,711,981
|
|
|
|
56,953,354
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
12,144,778
|
|
|
|
12,418,906
|
|
Other assets
|
|
|
225,604
|
|
|
|
225,508
|
|
Intangible Assets, Net
|
|
|
12,782,774
|
|
|
|
13,002,818
|
|
Goodwill
|
|
|
3,838,673
|
|
|
|
3,837,038
|
|
Total Assets
|
|
$
|
87,703,810
|
|
|
$
|
86,437,624
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term loan
|
|
$
|
165,330
|
|
|
$
|
166,311
|
|
Accounts payable
|
|
|
22,774,309
|
|
|
|
18,355,921
|
|
Customer deposits
|
|
|
275,109
|
|
|
|
1,375,785
|
|
Accrued expenses and other payables
|
|
|
3,202,795
|
|
|
|
4,000,179
|
|
Amount due to related parties
|
|
|
43,259,450
|
|
|
|
42,741,043
|
|
Total Current Liabilities
|
|
$
|
69,676,993
|
|
|
$
|
66,472,928
|
|
Long-term Loan
|
|
|
0
|
|
|
|
3,549
|
|
Total Liabilities
|
|
$
|
69,676,993
|
|
|
$
|
66,476,477
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
18,026,817
|
|
|
|
19,961,147
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
|
87,703,810
|
|
|
$
|
86,437,624
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
17,772,675
|
|
|
$
|
14,647,388
|
|
Expenses
|
|
|
14,601,317
|
|
|
|
13,012,462
|
|
Net income
|
|
$
|
(1,937,314
|
)
|
|
$
|
1,634,926
|
|
NOTE
17 – 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 Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan
Jinyangguang Sannong Service Co., Ltd., Shenqiu County Zhenbai Agriculture Co., Ltd., Weinan City Linwei District Wangtian Agricultural
Materials Co., Ltd., Aksu Xindeguo Agricultural Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science and Technology
Co., Ltd.
Subsequently,
on January 1, 2017, Jinong entered into similar strategic acquisition agreements and a series of contractual agreements to qualify
as VIEs with the shareholders of Sunwu County Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed Co., Ltd.
The
VIE Agreements are as follows:
Entrusted
Management Agreements
Pursuant
to the terms of certain Entrusted Management Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the shareholders
of the sales VIE Companies (the “Entrusted Management Agreements”), the sales 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 sales VIE Companies’ operations, assets and personnel, has the right
to control all the sales VIE Companies’ cash flows through an entrusted bank account, is entitled to the sales VIE Companies’
net profits as a management fee, is obligated to pay all the sales VIE Companies’ payables and loan payments, and bears
all losses of the sales 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 sales VIE Companies; or (iii) Jinong acquires all the assets or
equity of the sales 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 and January 1, 2017, between Jinong and the
sales VIE companies (the “Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to
the sales VIE companies. The sales 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 sales VIE companies; or (iii) Jinong acquires
the sales 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 and January 1, 2017, among Jinong and
the shareholders of the sales VIE companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders
of the sales 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 sales VIE companies, including the appointment
and election of directors of the sales 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 the assets or equity of the sales VIE companies.
Exclusive
Option Agreements
Pursuant
to the terms of certain Exclusive Option Agreements dated June 30, 2016 and January 1, 2017, among Jinong, the sales VIE companies,
and the shareholders of the sales VIE companies (the “Exclusive Option Agreements”), the shareholders of the sales
VIE companies granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire the sales 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 sales 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 sales 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 and January 1, 2017, among Jinong and the shareholders of
the sales VIE companies (the “Pledge Agreements”), the shareholders of the sales VIE companies pledged all of their
equity interests in the sales 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 and January 1, 2017, among Jinong and the shareholders of the
sales VIE companies (the “Non-Compete Agreements”), the shareholders of the sales 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. If the shareholders
of the sales VIE companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; if
the damages are difficult to determine, remedies bore the shareholders of the sales 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:
For
acquisitions made on June 30, 2016:
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
|
|
Goodwill
|
|
|
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 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 made on June 30, 2016 was paid in July and August 2016.
For
acquisitions made on January 1, 2017:
Working Capital
|
|
$
|
941,192
|
|
Machinery and equipment
|
|
|
222,875
|
|
Intangible assets
|
|
|
1440
|
|
Goodwill
|
|
|
684,400
|
|
Customer Relationship
|
|
|
522,028
|
|
Non-compete Agreement
|
|
|
392,852
|
|
Purchase price
|
|
$
|
2,764,787
|
|
A
summary of the purchase consideration paid is below:
Cash
|
|
$
|
1,201,888
|
|
Convertible notes
|
|
|
1,559,350
|
|
Derivative liability
|
|
|
3,549
|
|
|
|
$
|
2,764,787
|
|
The
cash component of the purchase price for these acquisitions made on January 1, 2017 was paid during March 2017.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion
and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors,
such as the slow-down of the global financial markets and its impact on economic growth in general, the competition in the fertilizer
industry and the impact of such competition on pricing, revenues and margins, the weather conditions in the areas where our customers
are based, the cost of attracting and retaining highly skilled personnel, the prospects for future acquisitions, and the factors
set forth elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements.
In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report
will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report.
The
forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal
securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the
date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about our intentions
contained in this report is a statement of our intention as of the date of this report and is based upon, among other things,
the existing regulatory environment, industry conditions, market conditions and prices, and our assumptions as of such date. We
may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.
Unless
the context indicates otherwise, as used in the 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 TechTeam Jinong Humic 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 in the PRC (“VIE”)
controlled by Jinong through contractual agreements; (iv) Shaanxi Lishijie Agrochemical Co., Ltd. (“Lishijie”), a
VIE controlled by Jinong through contractual agreements; (v) Songyuan Jinyangguang Sannong Service Co., Ltd. (“Jinyangguang”),
a VIE in the PRC controlled by Jinong through contractual agreements; (vi) Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai
Agri”), a VIE controlled by Jinong through contractual agreements; (vii) Weinan City Linwei District Wangtian Agricultural
Materials Co., Ltd. (“Wangtian”), a VIE controlled by Jinong through contractual agreements; (viii) Aksu Xindeguo
Agricultural Materials Co., Ltd. (“Xindeguo”), a VIE controlled by Jinong through contractual agreements; (ix) Xinjiang
Xinyulei Eco-agriculture Science and Technology Co., Ltd (“Xinyulei”), a VIE controlled by Jinong through contractual
agreements; (x) Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), a VIE controlled by Jinong
through contractual agreements; (xi) Anhui Fengnong Seed Co., Ltd. (“Fengnong”), a VIE controlled by Jinong through
contractual agreements; (xii) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”);
and (xiii) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
Yuxing, Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred
to as the “the VIE Companies”; Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong
may also collectively be referred to as “the sales VIEs” or “the sales 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 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,
Yuxing. 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. For financial reporting purposes,
our operations are organized into three business segments: fertilizer products (Jinong), fertilizer products (Gufeng) and agricultural
products production (Yuxing).
The
fertilizer business conducted by Jinong and Gufeng generated approximately 71.7% and 76.3% of our total revenues for the three
months ended September 30, 2017 and 2016, respectively. The sales VIEs generated 25.5% and 21.5% of our revenues for the three
months ended September 30, 2017 and 2016, respectively. Yuxing serves as a research and development base for our fertilizer products.
Fertilizer
Products
As
of September 30, 2017, we had developed and produced a total of 720 different fertilizer products in use, of which 136 were developed
and produced by Jinong, 333 by Gufeng, and 251 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
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change 2016 to 2017
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
Jinong
|
|
|
14,525
|
|
|
|
9,680
|
|
|
|
4,845
|
|
|
|
50.1
|
%
|
Gufeng
|
|
|
54,608
|
|
|
|
45,531
|
|
|
|
9,077
|
|
|
|
19.9
|
%
|
|
|
|
69,133
|
|
|
|
55,211
|
|
|
|
13,922
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(revenue per tons)
|
|
Jinong
|
|
$
|
1,980
|
|
|
$
|
3,272
|
|
Gufeng
|
|
|
374
|
|
|
|
347
|
|
For
the three months ended September 30, 2017, we sold approximately 69,133 metric tons of fertilizer products, as compared to 55,211
metric tons for the three months ended September 30, 2016. For the three months ended September 30, 2017, Jinong sold approximately
14,525 metric tons of fertilizer products, as compared to 9,680 metric tons for the three months ended September 30, 2016. For
the three months ended September 30, 2017, Gufeng sold approximately 54,608 metric tons of fertilizer products, as compared to
45,531 metric tons for the three months ended September 30, 2016.
Our
sales of fertilizer products to customers in five provinces within China accounted for approximately 56.2% of our
fertilizer revenue for the three months ended September 30, 2017. Specifically, the provinces and their respective percentage
contributing to our fertilizer revenues were: Hebei (19.1%), Shaanxi (10.9%), Heilongjiang (8.7%), Liaoning (7.5%) and Inner
Mongolia (5.4%).
As
of September 30, 2017, we had a total of 1,931 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled
municipalities in China. Jinong had 1,121 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 2.92% of its fertilizer revenues for the three
months ended September 30, 2017. Gufeng had 312 distributors, including some large state-owned enterprises. Gufeng’s top
five distributors accounted for 69.9% of its revenues for the three months ended September 30, 2017.
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 and municipalities that accounted for 76.3% of our agricultural products revenue
for the three months ended September 30, 2017 were Shaanxi (61.8%), Sichuan (8.9%), and Zhejiang (5.6%).
Recent
Developments
New
Products
During the three months ended
September 30, 2017, Jinong launched 2 new fertilizer products and added 9 new distributors. During the three months ended
September 30, 2017, Gufeng launched 1 new fertilizer products and added 5 new distributors.
Strategic
Acquisitions
On
June 30, 2016 and January 1, 2017, through 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 identified below
(the “Targets”).
June
30, 2016:
|
|
|
|
Cash
|
|
|
Principal of
|
|
|
|
|
|
Payment for
|
|
|
Notes for
|
|
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
Company Name
|
|
Business Scope
|
|
(RMB
[1]
)
|
|
|
(RMB)
|
|
Shaanxi Lishijie Agrochemical Co., Ltd.
|
|
Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
|
10,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Songyuan Jinyangguang Sannong Service Co., Ltd.
|
|
Promotion and consulting services regarding agricultural technologies; Retail sales of chemical fertilizers (including compound fertilizers and organic fertilizers); Wholesale and retail sales of pesticides, agricultural machinery and accessories; Collection of agricultural information; Development of saline-alkali soil; Promotion and development of high-efficiency agriculture and related information technology solutions for agriculture, agricultural and biological engineering high technologies; E-commerce; Cultivation of freshwater fish, poultry, fruits, flowers, vegetables, and seeds; Recycling and complex utilization of straw and stalk; Technology transfer and training; Recycling of agricultural materials ; Ecological industry planning.
|
|
|
8,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Shenqiu County Zhenbai Agriculture Co., Ltd.
|
|
Cultivation of crops; Storage, sales, preliminary processing and logistics distribution of agricultural by-products; Promotion and application of agricultural technologies; Purchase and sales of agricultural materials; Electronic commerce.
|
|
|
3,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd.
|
|
Promotion and application of new agricultural technologies; Professional prevention of plant diseases and insect pests; Sales of plant protection products, plastic mulches, material, chemical fertilizers, pesticides, agricultural medicines, micronutrient fertilizers, hormones, agricultural machinery and medicines, and gardening tools.
|
|
|
6,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Aksu Xindeguo Agricultural Materials Co., Ltd.
|
|
Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers, plant growth regulators, agricultural machineries, and water economizers; Consulting services for agricultural technologies; Purchase and sales of agricultural by- products.
|
|
|
10,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd
|
|
Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, organic fertilizers, plant growth regulators, agricultural machineries, and water economizers; Purchase and sales of agricultural by-products; Cultivation of fruits and vegetables; Consulting services and training for agricultural technologies; Storage services; Sales of articles of daily use, food and oil; On-line sales of the above-mentioned products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
37,000,000
|
|
|
|
51,000,000
|
|
(1) The exchange rate between RMB and U.S. dollars on June 30, 2016 is RMB1=US$0.1508, according to the exchange rate published by
Bank of China.
January
1, 2017:
|
|
|
|
Cash
|
|
|
Principal of
|
|
|
|
|
|
Payment for
|
|
|
Notes for
|
|
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
Company Name
|
|
Business Scope
|
|
(RMB
[1]
)
|
|
|
(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
|
|
(2) 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 retaining possession of the equity interests and continuing 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 aggregate
amount of RMB45,000,000 (approximately $6,731,600) to be paid by Jinong within three days following the execution of the SAA,
ACN and the VIE Agreements, and convertible notes with an aggregate face value of RMB 63,000,000 (approximately $9,418,800) with
an annual fixed compound interest rate of 3% and term of three years.
Jinong
acquired the Targets using the VIE arrangement based on our need to further develop our business and comply with the regulatory
requirements under the PRC laws.
As
our business focuses on the production of fertilizer, all our business activities intertwine with those in the agriculture industry
in China. Specifically, we deal with compliance, regulation, safety, inspection, and licenses in fertilizer production, farm land
use and transfer, growing and distribution of agriculture goods, agriculture basic supplies, seeds, pesticides, and trades of
grains. It is an industry in which heavy regulations get implemented and strictly enforced. In addition, E-commerce, which is
also under strict government regulation in the PRC, has lately become a sales and distribution channel for agricultural products.
Currently, we are developing an online platform to connect the physical distribution network we either own or lease.
Compared
with the regulatory environment in other jurisdictions, the regulatory environment in the PRC is unique. For example, the “M&A
Rules” purports to require that an offshore special purpose vehicle controlled directly or indirectly by PRC companies or
individuals and formed for purposes of overseas listing through acquisition of PRC domestic interests held by such PRC companies
or individuals obtain the approval of the China Securities Regulatory Commission (the “CSRC”) prior to the listing
and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC
published procedures regarding its approval of overseas listings by special purpose vehicles.
For
both e-commerce and agriculture industries, PRC regulators limit the investment from foreign entities and set particularly rules
for foreign-owned entities to conduct business. We expect these limitations on foreign-owned entities will continue to exist in
e-commerce and agriculture industries. The VIE arrangement, however, provides feasibility for obtaining administrative approval
process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity.
The VIE agreements reduce uncertainty and the current limitation risk. It is our understanding that the VIE agreements, as well
as the control we obtained through VIE arrangement, are valid and enforceable. Such legal structure does not violate the known,
published, and current PRC laws. While there are substantial uncertainties regarding the interpretation and application of PRC
Laws and future PRC laws and regulations, and there can be no assurance that the PRC authorities will take a view that is not
contrary to or otherwise different from our belief and understanding stated above, we believe the substantial difficulty that
we experienced previously to conduct business in agriculture as a foreign ownership ca be greatly reduced by the VIE arrangement.
Further, as an integral part of the VIE arrangement, the underlying equity pledge agreements provide legal protection for the
control we obtained. Pursuant to the equity pledge agreements, we have completed the equity pledge processes with the Targets
to ensure the complete control of the interests in the Targets. The shareholders of the Targets are not entitled to transfer any
shares to a third party under the exclusive option agreements. If necessary, they may transfer shares to our company without consideration.
While
the VIE arrangement provides us with the feasibility to conduct our business in the E-Commerce and agriculture industries, validity
and enforceability of VIE arrangement is subject to (i) any applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws affecting creditors’ rights generally, (ii) possible judicial or administrative actions or any
PRC Laws affecting creditors’ rights, (iii) certain equitable, legal or statutory principles affecting the validity and
enforceability of contractual rights generally under concepts of public interest, interests of the State, national security, reasonableness,
good faith and fair dealing, and applicable statutes of limitation; (iv) any circumstance in connection with formulation, execution
or implementation of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercive
at the conclusions thereof; and (v) judicial discretion with respect to the availability of indemnifications, remedies or defenses,
the calculation of damages, the entitlement to attorney’s fees and other costs, and the waiver of immunity from jurisdiction
of any court or from legal process. Validity and enforceability of VIE arrangement is also subject to risk derived from the discretion
of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC. As a result, there
can no assurance that any of such PRC Laws will not be changed, amended or replaced in the immediate future or in the longer term
with or without retrospective effect.
Results
of Operations
Three Months ended September 30,
2017 Compared to the Three Months ended September 30, 2016.
|
|
2017
|
|
|
2016
|
|
|
Change $
|
|
|
Change %
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
26,773,760
|
|
|
|
31,427,720
|
|
|
|
(4,653,960
|
)
|
|
|
-14.8
|
%
|
Gufeng
|
|
|
18,222,066
|
|
|
|
15,809,514
|
|
|
|
2,412,552
|
|
|
|
15.3
|
%
|
Yuxing
|
|
|
1,792,643
|
|
|
|
1,355,411
|
|
|
|
437,232
|
|
|
|
32.3
|
%
|
Sales VIEs
|
|
|
15,980,034
|
|
|
|
13,291,977
|
|
|
|
2,688,057
|
|
|
|
20.2
|
%
|
Net sales
|
|
|
62,768,503
|
|
|
|
61,884,622
|
|
|
|
883,881
|
|
|
|
1.4
|
%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
13,112,756
|
|
|
|
13,269,230
|
|
|
|
(156,474
|
)
|
|
|
-1.2
|
%
|
Gufeng
|
|
|
15,986,429
|
|
|
|
13,385,077
|
|
|
|
2,601,352
|
|
|
|
19.4
|
%
|
Yuxing
|
|
|
1,392,553
|
|
|
|
1,045,608
|
|
|
|
346,945
|
|
|
|
33.2
|
%
|
Sales VIEs
|
|
|
13,208,764
|
|
|
|
10,753,679
|
|
|
|
2,455,085
|
|
|
|
22.8
|
%
|
Cost of goods sold
|
|
|
43,700,502
|
|
|
|
38,453,594
|
|
|
|
5,246,908
|
|
|
|
13.6
|
%
|
Gross profit
|
|
|
19,068,001
|
|
|
|
23,431,028
|
|
|
|
(4,363,027
|
)
|
|
|
-18.6
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
5,179,004
|
|
|
|
5,012,068
|
|
|
|
166,936
|
|
|
|
3.3
|
%
|
Selling expenses - amortization of deferred asset
|
|
|
|
|
|
|
6,108,782
|
|
|
|
(6,108,782
|
)
|
|
|
-100.0
|
%
|
General and administrative expenses
|
|
|
6,972,622
|
|
|
|
3,231,487
|
|
|
|
3,741,135
|
|
|
|
115.8
|
%
|
Total operating expenses
|
|
|
12,151,626
|
|
|
|
14,352,337
|
|
|
|
(2,200,711
|
)
|
|
|
-15.3
|
%
|
Income from operations
|
|
|
6,916,375
|
|
|
|
9,078,691
|
|
|
|
(2,162,316
|
)
|
|
|
-23.8
|
%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(7,231
|
)
|
|
|
(40,057
|
)
|
|
|
32,826
|
|
|
|
-81.9
|
%
|
Interest income
|
|
|
87,914
|
|
|
|
76,622
|
|
|
|
11,292
|
|
|
|
14.7
|
%
|
Interest expense
|
|
|
(179,575
|
)
|
|
|
(138,545
|
)
|
|
|
(41,030
|
)
|
|
|
29.6
|
%
|
Total other income (expense)
|
|
|
(98,892
|
)
|
|
|
(101,980
|
)
|
|
|
3,088
|
|
|
|
-3.0
|
%
|
Income before income taxes
|
|
|
6,817,483
|
|
|
|
8,976,711
|
|
|
|
(2,159,228
|
)
|
|
|
-24.1
|
%
|
Provision for income taxes
|
|
|
1,722,655
|
|
|
|
1,624,131
|
|
|
|
98,524
|
|
|
|
6.1
|
%
|
Net income
|
|
|
5,094,828
|
|
|
|
7,352,580
|
|
|
|
(2,257,752
|
)
|
|
|
-30.7
|
%
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
240,218
|
|
|
|
(1,205,884
|
)
|
|
|
1,446,102
|
|
|
|
-119.9
|
%
|
Comprehensive income (loss)
|
|
|
5,335,046
|
|
|
|
6,145,696
|
|
|
|
(810,650
|
)
|
|
|
-13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
38,185,277
|
|
|
|
37,648,605
|
|
|
|
536,672
|
|
|
|
1.4
|
%
|
Basic net earnings per share
|
|
|
0.13
|
|
|
|
0.20
|
|
|
|
(0.07
|
)
|
|
|
-34.5
|
%
|
Diluted weighted average shares outstanding
|
|
|
38,185,277
|
|
|
|
37,648,605
|
|
|
|
536,672
|
|
|
|
1.4
|
%
|
Diluted net earnings per share
|
|
|
0.13
|
|
|
|
0.20
|
|
|
|
(0.07
|
)
|
|
|
-34.5
|
%
|
Net
Sales
Total
net sales for the three months ended September 30, 2017 were $62,768,503, an increase of $883,881 or 1.4%, from $61,884,622 for
the three months ended September 30, 2016. This increase was primarily due to an increase in sales VIE’s and Yuxing’s
net sales.
For
the three months ended September 30, 2017, Jinong’s net sales decreased $4,653,960, or 14.8%, to $26,773,760 from $31,427,720
for the three months ended September 30, 2016. This decrease was mainly attributable to the decrease in Jinong’s sales volume
in the last three months.
For
the three months ended September 30, 2017, Gufeng’s net sales were $18,222,066, an increase of $2,412,552, or 15.3% from
$15,809,514 for the three months ended September 30, 2016. This increase was mainly attributable to the increase in market demand
during the last three months.
For
the three months ended September 30, 2017, Yuxing’s net sales were $1,792,643, an increase of $437,232 or 32.3%, from $1,355,411
for the three months ended September 30, 2016. The increase was mainly attributable to the increase in market demand and the higher
prices on Yuxing’s top grade flowers during the three months ended September 30, 2017.
Cost
of Goods Sold
Total
cost of goods sold for the three months ended September 30, 2017 was $43,700,502, an increase of $5,246,908, or 13.6%, from $38,453,594
for the three months ended September 30, 2016. The increase was mainly due to the increase in sales VIE’s and Gufeng’s
cost of goods sold which increased 22.8% and 19.4% respectively
.
Cost
of goods sold by Jinong for the three months ended September 30, 2017 was $13,112,756, a decrease of $156,474, or 1.2%, from $13,269,230
for the three months ended September 30, 2016. The decrease in cost of goods was primarily attributable to the 14.8% decrease
in net sale during the last three months.
Cost
of goods sold by Gufeng for the three months ended September 30, 2017 was $15,986,429, an increase of $2,601,352, or 19.4%, from
$13,385,077 for the three months ended September 30, 2016. This increase was primarily attributable to the more products sold
during the last three months.
For
three months ended September 30, 2017, cost of goods sold by Yuxing was $1,392,553, an increase of $346,945, or 33.2%, from $1,045,608
for the three months ended September 30, 2016. This increase was mainly due to the increase in Yuxing’s net sales and the
labor costs.
Gross
Profit
Total
gross profit for the three months ended September 30, 2017 decreased by $4,363,027, or 18.6%, to $19,068,001, as compared to $23,431,028
for the three months ended September 30, 2016. Gross profit margin was 30.4% and 37.9% for the three months ended September 30,
2017 and 2016, respectively.
Gross
profit generated by Jinong decreased by $4,497,486, or 24.8%, to $13,661,004 for the three months ended September 30, 2017 from
$18,158,490 for the three months ended September 30, 2016. Gross profit margin from Jinong’s sales was approximately 51.0%
and 57.8% for the three months ended September 30, 2017 and 2016, respectively. The decrease in gross profit margin was mainly
due to higher raw material cost and higher packaging cost.
For
the three months ended September 30, 2017, gross profit generated by Gufeng was $2,235,637, a decrease of $188,800, or 7.8%,
from $2,424,437 for the three months ended September 30, 2016. Gross profit margin from Gufeng’s sales was
approximately 12.3% and 15.3% for the three months ended September 30, 2017 and 2016, respectively. The decrease in gross
profit percentage was mainly due to the increase in product costs and the decrease in sales prices.
For
the three months ended September 30, 2017, gross profit generated by Yuxing was $400,090, an increase of $90,287, or 29.1% from
$309,803 for the three months ended September 30, 2016. The gross profit margin was approximately 22.3% and 22.9% for the three
months ended September 30, 2017 and 2016, respectively, which is slightly decreased.
Gross
profit generated by VIEs increased by $232,972, or 9.2%, to $2,771,270 for the three months ended September 30, 2017 from $ 2,538,298
for the three months ended September 30, 2016. Gross profit margin from VIE’s sales was approximately 17.3% and 19.1% for
the three months ended September 30, 2017 and 2016, respectively. The decrease in gross profit margin was mainly due to the increase
in product costs and the decrease in sales prices.
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 $5,179,004, or 8.3%, of net sales for the three months ended September 30, 2017, as
compared to $5,012,068, or 8.1% of net sales for the three months ended September 30, 2016, an increase of $166,936, or 3.3%.
The
selling expenses of Yuxing were $9,646 or 0.5% of Yuxing’s net sales for the three months ended September 30, 2017, as compared
to $7,711 or 0.6% of Yuxing’s net sales for the three months ended September 30, 2016. The selling expenses of Gufeng were
$95,776 or 0.5% of Gufeng’s net sales for the three months ended September 30, 2017, as compared to $145,328 or 0.9% of
Gufeng’s net sales for the three months ended September 30, 2016. The selling expenses of Jinong for the three months ended
September 30, 2017 were $4,843,178 or 18.1% of Jinong’s net sales, as compared to selling expenses of $4,505,121 or 14.2%
of Jinong’s net sales for the three months ended September 30, 2016. The increase in Jinong’s selling expenses was
due to Jinong’s expanded marketing efforts.
Selling
Expenses – amortization of deferred assets
Our
selling expenses - amortization of our deferred assets were $649,496 for the three months ended September 30, 2017, as compared
to $6,108,782, or 9.8% of net sales for the three months ended September 30, 2016. This decrease was due to the fact that the
deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets during the three
months ended September 30, 2017.
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 litigation. General and administrative expenses were $6,972,622, or 11.1% of net sales for the three
months ended September 30, 2017, as compared to $3,231,487, or 5.2%, of net sales for the three months ended September 30, 2016,
an increase of $3,741,135, or 115.8%.
Total
Other Expenses
Total other expenses
consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total
other expense for the three months ended September 30, 2017 was $98,892, as compared to $101,980 for the three months ended September
30, 2016, a decrease in expense of $3,088, or 3.0%. The decrease in total other expense was largely resulted from a net gain of
$79,343 on fair value change of derivative liabilities in the convertible notes during the three months ended September 30, 2017
as compared to a lesser net gain of $2,924 during the three months ended September 30, 2016, offset by the increase in net interest
expenses.
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 $1,013,134
for the three months ended September 30, 2017, as compared to $987,512 for the three months ended September 30, 2016, an increase
of $25,622, or 2.6%.
Gufeng
is subject to a tax rate of 25%, incurred income tax expenses of $534,686 for the three months ended September 30, 2017, as compared
to $307,735 for the three months ended September 30, 2016, an increase of $228,311, or 74.2%, which was primarily due to Gufeng’s
increased net income.
Yuxing
has no income tax for the three months ended September 30, 2017 and 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 three months ended September 30, 2017 was $5,094,828, a decrease of $2,256,752, or 30.7%, compared to $7,351,580
for the three months ended September 30, 2016. Net income as a percentage of total net sales was approximately 8.1% and 11.9%
for the three months ended September 30, 2017 and 2016, respectively.
Discussion
of Segment Profitability Measures
As
of September 30, 2017, we were engaged in the following businesses: the production and sale of fertilizers through Jinong and
Gufeng, the production and sale of high-quality agricultural products by Yuxing, and the sales of agriculture materials by the
sales VIEs. For financial reporting purpose, our operations were organized into four main business segments based on locations
and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and
the sales VIEs. Each of the segments has its own annual budget about 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 decreased by $394,802, or 7.4% to $5,741,090 for three months ended September 30, 2017, from $5,346,288
for the three months ended September 30, 2016. The decrease was principally due to decreased net sales and higher selling expenses.
For
Gufeng, the net income increased by $887,571 or 123.9% to $1,604,057 for three months ended September 30, 2017 from $716,486 for
three months ended September 30, 2016. The increase was principally due to the increase in net sales.
For
Yuxing, the net income increased $18,310 or 11.7% to $175,390 for three months ended September 30, 2017 from $157,080 for three
months ended September 30, 2016. The increase was mainly due to the increase in net sales.
For
the sales VIEs, the net income was $-2,112,936 for year ended September 30, 2017, decreased by $3,590,784 or 243%, from $1,477,848
for three months ended September 30, 2016. The decrease was mainly due to the increase in general and administrative expenses
for the sales VIEs.
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 September 30, 2017, cash and cash equivalents were $133,909,463, an increase of $10,858,915, or 8.8%, from $123,050,548 as
of June 30, 2017.
We
intend to use some of the remaining net proceeds from the Public Offerings, as well as other working capital if required, 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. Yuxing purchased a set of agricultural products
testing equipment for the year of 2016. 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:
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash provided by operating activities
|
|
$
|
12,095,373
|
|
|
$
|
5,146,213
|
|
Net cash used in investing activities
|
|
|
(17,209
|
)
|
|
|
(71,470
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(1,353,800
|
)
|
|
|
300,000
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
134,551
|
|
|
|
(150,170
|
)
|
Net increase in cash and cash equivalents
|
|
|
10,858,915
|
|
|
|
5,224,573
|
|
Cash and cash equivalents, beginning balance
|
|
|
123,050,548
|
|
|
|
102,896,486
|
|
Cash and cash equivalents, ending balance
|
|
$
|
133,909,463
|
|
|
$
|
108,121,059
|
|
Operating
Activities
Net
cash provided in operating activities was $12,095,373 for the three months ended September 30, 2017, an increase of
$6,949,140, or 135.0% from cash provided by operating activities of $5,146,213 for the three months ended September 30, 2016.
The increase was mainly attributable to an increase in accounts payable, decrease in advances to suppliers and decrease in
inventories during the three months ended September 30, 2017 as compared to the same period in 2016.
Investing
Activities
Net
cash used in investing activities for the three months ended September 30, 2017 was $17,209, compared to cash used in investing
activities of $71,470 for the three months ended September 30, 2016. The different was due to Company purchased less plant, property
and equipment during the last three months compared to the same period last year.
Financing
Activities
Net
cash used by financing activities for the three months ended September 30, 2017 was $1,353,800, compared to $300,000 net
cash provided in financing activities for the three months ended September 30, 2016, which was largely due to $3,156,300 in
repayment of loans for the three months ended September 30, 2017, compared to $1,499,940 in the same period last
year.
As
of September 30, 2017 and June 30, 2017, our loans payable were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Short term loans payable:
|
|
$
|
6,327,630
|
|
|
$
|
7,678,111
|
|
Total
|
|
$
|
6,327,630
|
|
|
$
|
7,678,111
|
|
Accounts
Receivable
We
had accounts receivable of $103,953,170 as of September 30, 2017, as compared to $141,665,179 as of June 30, 2017, a decrease
of $37,712,009 or 26.6%. The decrease was primarily attributable to Gufeng’s accounts receivable. As of September 30, 2017,
Gufeng’s accounts receivable was $24,481,326, a decrease of $40,682,102 or 62.4% compared to $65,163,428 as of June 30, 2017.
Allowance
for doubtful accounts in accounts receivable for the three months ended September 30, 2017 was $14,124,387, from $9,457,423 as of
June 30, 2017. And the allowance for doubtful accounts as a percentage of accounts receivable was 12.0% as of September 30, 2017
and 6.3% as of June 30, 2017.
Deferred
assets
We had deferred assets of $213,289 as
of September 30, 2017, as compared to $864,070 as of June 30, 2017. During the three months, we assisted the distributors in certain
marketing efforts and developing standard stores 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 if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement
with us earlier than the contractual terms, the unamortized portion of the amount owed by the distributor is payable to us immediately.
The Company’s Chairman, Mr. Li, has guaranteed repayment of any amounts due to the Company remaining unpaid from distributors.
Inventories
We
had inventories of $119,601,723 as of September 30, 2017, as compared to $78,013,891 as of June 30, 2017, an increase of $41,587,823,
or 53.3.0%. The increase was primarily attributable to Jinong’s inventory. As of September 30, 2017, Jinong’s inventory
was $1,213,208, compared to $980,159 as of June 30, 2017.
Advances
to Suppliers
We
had advances to suppliers of $18,756,906 as of September 30, 2017 as compared to $24,023,062 as of June 30, 2017, representing
a decrease of $5,266,156 or 21.9%.
Our inventory level may fluctuate from time to time, depending how quickly the raw material
is consumed and replenished during the production process, and how soon the finished goods are sold. The replenishment of raw material
relies on management’s estimate of numerous factors, including but not limited to, the raw materials future price, and
spot price along with it 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 times of slow sales and insufficient inventories in peak times.
Accounts
Payable
We
had accounts payable of $24,124,592 as of September 30, 2017 as compared to $19,643,897 as of June 30, 2017, representing an increase
of $4,480,695, or 22.8%. The increase was primarily due to the increase of accounts payable for VIEs. They have accounts payable of
$22,774,309 as of September 30, 2017 as compared to $18,355,921 as of June 30, 2017, representing an increase of $4,418,388, or
24.1%.
Unearned
Revenue (Customer Deposits)
We
had customer deposits of $5,849,222 as of September 30, 2017 as compared to $7,046,570 as of June 30, 2017, representing
a decrease of $1,197,348, or 17.0%. The decrease was mainly attributable to VIE’s $275,109 unearned revenue as
of September 30, 2017, compared to $1,375,785 unearned revenue as of June 30, 2017, caused by the advance deposits made
by clients. This decrease was due to seasonal fluctuation and we expect to deliver products to our customers during the next
three months at which time we will recognize the revenue.
Off-Balance
Sheet Arrangements
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 are outstanding for more than 180 days will be accounted as allowance for bad debts, and any accounts
receivable of Yuxing that are 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 if the distributors are actively selling our products. If a distributor defaults, breaches,
or terminates the agreement with us earlier than the realization of the contractual terms, the unamortized portion of the amount
owed by the distributor is to be refunded to us immediately. The Company’s Chairman, Mr. Li, has guaranteed repayment
of any amounts due to the Company remaining unpaid from distributors.
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 way management
disaggregates a company.
As
of September 30, 2017, we were organized into eleven main business units: Jinong (fertilizer production), Gufeng (fertilizer
production), Yuxing (agricultural products production), Lishijie (agriculture sales), Jinyangguang (agriculture sales), Zhenbai
Agri (agriculture sales), Wangtian (agriculture sales), Xindeguo (agriculture sales), Xinyulei (agriculture sales), Fengnong (agriculture
sales) and Xiangrong (agriculture sales). For financial reporting purpose, our operations were organized into four main business
segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural
products production) and the sales VIEs. Each of the segments has its own annual budget regarding development, production and
sales.
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 the 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
the 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 the U.S. dollars and RMB. If RMB depreciates against the 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 September 30, 2017, our accumulated other comprehensive loss was $4.9 million. We have not entered into any hedging
transactions in an effort to reduce our exposure to foreign exchange risk. The value of the Renminbi against the U.S. dollar and
other currencies is affected by, among other things, changes in China’s political and economic conditions. Between January
1, 2014 and September 30, 2017, China’s currency dropped by a cumulative 9.6% against the U.S. dollar, making Chinese exports
cheaper and imports into China more expensive by that percentage. The effect on trade can be substantial. Moreover, it is possible
that in the future, the PRC authorities may lift restrictions on fluctuations in the Renminbi 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 interest. The amount of short-term debt outstanding as of September 30, 2017 and June 30, 2017
was $6.3 million and $7.7 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 was no material change in interest rates for short-term bank loans renewed during the
three months ended September 30, 2017. 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 September 30, 2017 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 September 30, 2017 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.