UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________
Commission File Number 001-34260
CHINA GREEN AGRICULTURE, INC.
(Exact name of registrant as specified in its charter)
Nevada |
|
36-3526027 |
(State
or other jurisdiction of |
|
(IRS
Employer |
incorporation
or organization) |
|
Identification
No.) |
|
3rd floor, Borough A, Block A. No. 181, South Taibai
Road, Xi’an, Shaanxi province, PRC 710065
|
|
|
(Address
of principal executive offices) (Zip Code) |
|
|
+86-29-88266368 |
|
|
(Issuer's
telephone number, including area code) |
|
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes ☒ No ☐
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.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
|
Emerging
growth company |
☐ |
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.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common
Stock |
|
CGA |
|
NYSE |
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
47,816,945 shares of common stock, $.001 par value, as of May 10,
2019.
TABLE OF CONTENTS
|
|
Page |
|
|
|
PART
I |
FINANCIAL
INFORMATION |
1 |
|
|
|
Item
1. |
Financial
Statements |
1 |
|
|
|
|
Consolidated
Condensed Balance Sheets As of March 31, 2019 and June 30, 2018
(Unaudited) |
1 |
|
|
|
|
Consolidated
Condensed Statements of Income and Comprehensive Income For the
Three and Nine months Ended March 31, 2019 and 2018
(Unaudited) |
2 |
|
|
|
|
Consolidated
Condensed Statements of Cash Flows For the Nine months Ended March
31, 2019 and 2018 (Unaudited) |
3 |
|
|
|
|
Notes
to Consolidated Condensed Financial Statements As of March 31,
2019 (Unaudited) |
4 |
|
|
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
25 |
|
|
|
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk |
41 |
|
|
|
Item
4. |
Controls
and Procedures |
42 |
|
|
|
PART
II |
OTHER
INFORMATION |
43 |
|
|
|
Item
1 |
Legal
Proceedings. |
43 |
|
|
|
Item 1A |
Risk
Factors. |
43 |
|
|
|
Item 2 |
Unregistered Sales of
Equity Securities and Use of Proceeds. |
43 |
|
|
|
Item 3 |
Defaults Upon Senior
Securities. |
43 |
|
|
|
Item 4 |
Mine Safety
Disclosures. |
43 |
|
|
|
Item 5. |
Other
Information. |
43 |
|
|
|
Item
6. |
Exhibits |
43 |
|
|
|
Signatures |
44 |
|
|
Exhibits/Certifications |
45 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2019
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
69,242,037 |
|
|
$ |
150,805,639 |
|
Accounts receivable, net |
|
|
154,557,359 |
|
|
|
174,460,937 |
|
Inventories |
|
|
132,579,212 |
|
|
|
53,784,814 |
|
Prepaid expenses and other current assets |
|
|
4,887,732 |
|
|
|
2,945,247 |
|
Amount due from related parties |
|
|
0 |
|
|
|
235,551 |
|
Advances to suppliers, net |
|
|
51,055,495 |
|
|
|
25,194,463 |
|
Total Current Assets |
|
|
412,321,835 |
|
|
|
407,426,651 |
|
|
|
|
|
|
|
|
|
|
Plant,
Property and Equipment, Net |
|
|
28,120,511 |
|
|
|
30,894,683 |
|
Other Assets |
|
|
274,163 |
|
|
|
294,550 |
|
Other Non-current Assets |
|
|
14,164,932 |
|
|
|
15,885,696 |
|
Intangible Assets, Net |
|
|
18,736,458 |
|
|
|
20,317,914 |
|
Goodwill |
|
|
8,058,302 |
|
|
|
8,166,467 |
|
Total Assets |
|
$ |
481,676,201 |
|
|
$ |
482,985,960 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
9,436,035 |
|
|
$ |
27,128,921 |
|
Customer deposits |
|
|
7,793,572 |
|
|
|
7,251,967 |
|
Accrued expenses and other payables |
|
|
11,218,642 |
|
|
|
10,207,058 |
|
Amount due to related parties |
|
|
3,666,440 |
|
|
|
3,271,619 |
|
Taxes payable |
|
|
33,176,555 |
|
|
|
29,952,206 |
|
Short term loans |
|
|
4,470,000 |
|
|
|
4,726,300 |
|
Interest payable |
|
|
667,148 |
|
|
|
462,060 |
|
Derivative liability |
|
|
1,690 |
|
|
|
66,143 |
|
Total Current Liabilities |
|
|
70,430,082 |
|
|
|
83,066,274 |
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities |
|
|
|
|
|
|
|
|
Convertible notes payable |
|
|
7,588,201 |
|
|
|
7,371,899 |
|
Total Liabilities |
|
$ |
78,018,283 |
|
|
$ |
90,438,173 |
|
|
|
|
|
|
|
|
|
|
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, 39,546,945 and 38,896,945, shares issued and
outstanding as of March 31, 2019 and June 30, 2018,
respectively |
|
|
39,547 |
|
|
|
38,897 |
|
Additional paid-in capital |
|
|
129,706,886 |
|
|
|
129,337,035 |
|
Statutory reserve |
|
|
31,196,016 |
|
|
|
30,947,344 |
|
Retained earnings |
|
|
252,209,492 |
|
|
|
235,822,726 |
|
Accumulated other comprehensive income |
|
|
(9,494,023 |
) |
|
|
(3,598,215 |
) |
Total Stockholders’ Equity |
|
|
403,657,917 |
|
|
|
392,547,787 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
481,676,201 |
|
|
$ |
482,985,960 |
|
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
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
22,077,336 |
|
|
$ |
27,490,333 |
|
|
$ |
61,561,229 |
|
|
$ |
80,475,373 |
|
Gufeng |
|
|
67,167,427 |
|
|
|
38,932,597 |
|
|
|
106,996,368 |
|
|
|
81,602,384 |
|
Yuxing |
|
|
2,817,942 |
|
|
|
3,041,891 |
|
|
|
7,828,981 |
|
|
|
6,788,282 |
|
VIEs
- others |
|
|
16,057,865 |
|
|
|
13,086,062 |
|
|
|
41,943,261 |
|
|
|
39,412,820 |
|
Net
sales |
|
|
108,120,570 |
|
|
|
82,550,883 |
|
|
|
218,329,839 |
|
|
|
208,278,859 |
|
Cost
of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
11,091,419 |
|
|
|
13,526,095 |
|
|
|
31,289,473 |
|
|
|
39,904,678 |
|
Gufeng |
|
|
59,475,263 |
|
|
|
34,114,896 |
|
|
|
94,544,943 |
|
|
|
71,261,349 |
|
Yuxing |
|
|
2,445,246 |
|
|
|
2,517,989 |
|
|
|
6,658,975 |
|
|
|
5,446,780 |
|
VIEs
- others |
|
|
13,951,667 |
|
|
|
11,231,992 |
|
|
|
35,965,608 |
|
|
|
33,060,645 |
|
Cost
of goods sold |
|
|
86,963,595 |
|
|
|
61,390,972 |
|
|
|
168,458,999 |
|
|
|
149,673,452 |
|
Gross
profit |
|
|
21,156,975 |
|
|
|
21,159,911 |
|
|
|
49,870,840 |
|
|
|
58,605,407 |
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
6,880,994 |
|
|
|
3,553,306 |
|
|
|
18,370,524 |
|
|
|
16,375,971 |
|
General
and administrative expenses |
|
|
6,826,669 |
|
|
|
7,980,606 |
|
|
|
9,036,397 |
|
|
|
15,798,290 |
|
Total
operating expenses |
|
|
13,707,663 |
|
|
|
11,533,912 |
|
|
|
27,406,921 |
|
|
|
32,174,261 |
|
Income
from operations |
|
|
7,449,312 |
|
|
|
9,625,999 |
|
|
|
22,463,919 |
|
|
|
26,431,146 |
|
Other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
(101,350 |
) |
|
|
(145,311 |
) |
|
|
(327,433 |
) |
|
|
(760,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
55,168 |
|
|
|
138,009 |
|
|
|
278,509 |
|
|
|
356,172 |
|
Interest
expense |
|
|
(145,621 |
) |
|
|
(178,478 |
) |
|
|
(457,885 |
) |
|
|
(452,640 |
)) |
Total
other income (expense) |
|
|
(191,803 |
) |
|
|
(185,780 |
) |
|
|
(506,809 |
) |
|
|
(856,792 |
)) |
Income
before income taxes |
|
|
7,257,509 |
|
|
|
9,440,220 |
|
|
|
21,957,110 |
|
|
|
25,574,353 |
|
Provision
for income taxes |
|
|
2,139,610 |
|
|
|
1,813,187 |
|
|
|
5,321,671 |
|
|
|
5,066,780 |
|
Net
income from continuing operations, net of
tax |
|
|
5,117,899 |
|
|
|
7,627,033 |
|
|
|
16,635,439 |
|
|
|
20,507,573 |
|
Net
income from discontinued operation, net of tax |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
40,394 |
|
Net
income, net of tax |
|
|
5,117,899 |
|
|
|
7,627,033 |
|
|
|
16,635,439 |
|
|
|
20,547,967 |
|
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss) |
|
|
10,564,053 |
|
|
|
16,213,419 |
|
|
|
(5,895,808 |
) |
|
|
24,710,375 |
|
Comprehensive
income (loss) |
|
$ |
15,681,952 |
|
|
$ |
23,840,452 |
|
|
$ |
10,739,631 |
|
|
$ |
45,258,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding |
|
|
39,546,944 |
|
|
|
38,551,264 |
|
|
|
39,165,010 |
|
|
|
38,551,264 |
|
Basic
net earnings per share |
|
$ |
0.13 |
|
|
$ |
0.20 |
|
|
$ |
0.42 |
|
|
$ |
0.53 |
|
Diluted
weighted average shares outstanding |
|
|
39,546,944 |
|
|
|
38,551,264 |
|
|
|
39,165,010 |
|
|
|
38,551,264 |
|
Diluted
net earnings per share |
|
|
0.13 |
|
|
|
0.20 |
|
|
|
0.42 |
|
|
|
0.53 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine Months Ended
March 31,
|
|
|
|
2019 |
|
|
2018 |
|
Cash flows
from operating activities |
|
|
|
|
|
|
Net income |
|
$ |
16,635,439 |
|
|
$ |
20,507,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,671,827 |
|
|
|
4,730,892 |
|
Gain (Loss) on disposal of plant, property and equipment |
|
|
4,524 |
|
|
|
24,756 |
|
Amortization of debt discount |
|
|
308,815 |
|
|
|
490,280 |
|
Issuance of common stock for consulting services |
|
|
370,500 |
|
|
|
- |
|
Change in fair value of derivative liability |
|
|
(62,539 |
) |
|
|
(67,798 |
) |
Changes in operating assets |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
17,305,498 |
|
|
|
(10,988,222 |
) |
Amount due from related parties |
|
|
228,635 |
|
|
|
902,528 |
|
Other current assets |
|
|
18,524 |
|
|
|
1,149,289 |
|
Inventories |
|
|
(78,208,217 |
) |
|
|
1,818,951 |
|
Advances to suppliers |
|
|
(25,766,902 |
) |
|
|
6,607,926 |
|
Other assets |
|
|
(481,965 |
) |
|
|
1,527,225 |
|
Changes in operating liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(17,053,253 |
) |
|
|
1,256,821 |
|
Customer deposits |
|
|
627,242 |
|
|
|
(2,549,836 |
) |
Tax payables |
|
|
3,183,956 |
|
|
|
1,325,136 |
|
Accrued expenses and other payables |
|
|
1,045,892 |
|
|
|
2,184,753 |
|
Interest payable |
|
|
207,758 |
|
|
|
216,553 |
|
Net
cash provided by (used in) continuing operating activities |
|
|
(77,964,267 |
) |
|
|
29,136,827 |
|
Net cash provided by (used in) discontinued operating
activities |
|
|
0 |
|
|
|
(702,062 |
) |
Net cash provided by (used in) operating activities |
|
|
(77,964,267 |
) |
|
|
28,434,765 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of plant, property, and equipment |
|
|
(59,096 |
) |
|
|
(33,207 |
) |
Cash paid for acquisition, net |
|
|
- |
|
|
|
(8,219 |
) |
Change in construction in process |
|
|
16,216 |
|
|
|
(14,265 |
) |
Net cash used in investing activities |
|
|
(42,880 |
) |
|
|
(55,691 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of loans |
|
|
(190,536 |
) |
|
|
(6,130,802 |
) |
Advance from related parties |
|
|
409,230 |
|
|
|
195,013 |
|
Net cash provided by (used in) financing activities |
|
|
218,694 |
|
|
|
(5,935,789 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents |
|
|
(3,775,148 |
) |
|
|
8,145,894 |
|
Net
increase in cash and cash equivalents |
|
|
(81,563,601 |
) |
|
|
30,589,179 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance |
|
|
150,805,639 |
|
|
|
123,050,548 |
|
Cash and cash equivalents, ending balance |
|
$ |
69,242,037 |
|
|
$ |
153,639,728 |
|
|
|
|
|
|
|
|
|
|
Supplement disclosure of cash flow information |
|
|
|
|
|
|
|
|
Interest expense paid |
|
$ |
106,307 |
|
|
$ |
311,667 |
|
Income taxes paid |
|
$ |
2,137,715 |
|
|
$ |
3,741,644 |
|
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 this Report, 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”).
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, discontinued the strategic acquisition
agreements and the series of contractual agreements with the
shareholders of Zhenbai.
Yuxing, Lishijie, Jinyangguang, 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 March 31, 2019 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 of 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
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 People’s 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 March 31, 2019 and June 30, 2018 were $69,242,037 and
$150,805,639, respectively. The Company had $69,089,192 and
$150,785,737 in cash in banks in China, and also had $152,845 and
$19,902 in cash in two banks in the United States as of March 31,
2019 and June 30, 2018, 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 March 31, 2019, and June
30, 2018, the Company had accounts receivable of $154,557,359 and
$174,460,937, net of allowance for doubtful accounts of $23,158,524
and $24,551,796, 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. On March
31, 2019 and 2018, the Company had no reserve for obsolete
goods.
Intangible Assets
The Company records intangible assets acquired individually or as
part of a group at fair value. Intangible assets with definite
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.
The Company has not recorded an impairment of intangible assets as
of March 31, 2019 and 2018 respectively.
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 March 31, 2019, and June 30, 2018, the
Company had customer deposits of $7,793,572 and $7,251,967,
respectively.
Earnings per share
Basic earnings per share is computed based on the weighted average
number of shares of common stock outstanding during the period.
Diluted earnings per share is computed based on the weighted
average number of shares of common stock plus the effect of
dilutive potential common shares outstanding during the period
using the treasury stock method. Dilutive potential common shares
include outstanding stock options and stock awards.
The components of basic and diluted earnings per share consist of
the following:
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2019 |
|
|
2018 |
|
Net Income from continuing operations for Basic Earnings Per
Share |
|
|
5,117,899 |
|
|
|
7,627,033 |
|
Net
Income from discontinued operations for Basic Earnings Per
Share |
|
$ |
0 |
|
|
$ |
0 |
|
Basic Weighted
Average Number of Shares |
|
|
39,546,944 |
|
|
|
38,511,264 |
|
Basic
net earnings per share from continuing operations |
|
|
0.13 |
|
|
|
0.20 |
|
Basic
net earnings per share from discontinued operations |
|
$ |
0 |
|
|
$ |
0 |
|
Net
Income from continuing operations for Diluted Earnings Per
Share |
|
|
5,117,899 |
|
|
|
7,627,033 |
|
Net
Income from discontinued operations for Diluted Earnings Per
Share |
|
$ |
0 |
|
|
$ |
0 |
|
Diluted
Weighted Average Number of Shares |
|
|
39,546,944 |
|
|
|
38,511,264 |
|
Diluted net earnings per share from continuing operations |
|
|
0.13 |
|
|
|
0.20 |
|
Diluted net earnings per share from discontinued operations |
|
$ |
0 |
|
|
$ |
0 |
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2019 |
|
|
2018 |
|
Net Income from continuing operations for Basic Earnings Per
Share |
|
|
16,635,439 |
|
|
|
20,507,573 |
|
Net
Income from discontinued operation for Basic Earnings Per
Share |
|
$ |
0 |
|
|
$ |
40,394 |
|
Basic Weighted
Average Number of Shares |
|
|
39,165,010 |
|
|
|
38,551,264 |
|
Basic
net earnings per share from continuing operations |
|
|
0.42 |
|
|
|
0.53 |
|
Basic
net earnings per share from discontinued operations |
|
$ |
0 |
|
|
$ |
0 |
|
Net
Income from continuing operations for Diluted Earnings Per
Share |
|
|
16,635,439 |
|
|
|
20,507,573 |
|
Net
Income from discontinued operations for Diluted Earnings Per
Share |
|
$ |
0 |
|
|
$ |
40,394 |
|
Diluted
Weighted Average Number of Shares |
|
|
39,165,010 |
|
|
|
38,551,264 |
|
Diluted net earnings per share from continuing operations |
|
|
0.42 |
|
|
|
0.53 |
|
Diluted net earnings per share from discontinued operations |
|
$ |
0 |
|
|
$ |
0 |
|
Recent accounting pronouncements
Revenue Recognition: In May 2014, the FASB
issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers: Topic 606 (ASU
2014-09), to supersede nearly all existing revenue recognition
guidance under U.S. GAAP. The core principle of ASU 2014-09 is to
recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration that is
expected to be received for those goods or services. ASU 2014-09
defines a five-step process to achieve this core principle and, in
doing so, it is possible more judgment and estimates may be
required within the revenue recognition process that is required
under existing U.S. GAAP, including identifying performance
obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating
the transaction price to each separate performance obligation. ASU
2014-09 is effective for us in our first quarter of fiscal 2018
using either of two methods: (i) retrospective to each prior
reporting period presented with the option to elect certain
practical expedients as defined within ASU 2014-09 (full
retrospective method); or (ii) retrospective with the
cumulative effect of initially applying ASU 2014-09 recognized at
the date of initial application and providing certain additional
disclosures as defined per ASU 2014-09 (modified retrospective
method). We are currently assessing the impact on our consolidated
financial statements and have not yet selected a transition
approach.
Disclosure of Going Concern Uncertainties : In August
2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going
Concern (ASU 2014-15), to provide guidance on management’s
responsibility in evaluating whether there is substantial doubt
about a company’s ability to continue as a going concern and to
provide related footnote disclosures. ASU 2014-15 is effective for
us in our fourth quarter of fiscal 2017 with early adoption
permitted. We do not believe the impact of our pending adoption of
ASU 2014-15 on the Company’s financial statements will be
material.
Financial instrument : In January 2016, the FASB
issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities” (“ASU 2016-01”). The standard addresses
certain aspects of recognition, measurement, presentation, and
disclosure of financial instruments. ASU 2016-01 is effective for
fiscal years, and interim periods within those years, beginning
after December 15, 2017, and early adoption is not permitted.
Accordingly, the standard is effective for us on September 1, 2018.
We are currently evaluating the impact that the standard will have
on our consolidated financial statements.
Leases : In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance
on lease amendments to the FASB Accounting Standard Codification.
This ASU will be effective for us beginning on May 1, 2019. We are
currently in the process of evaluating the impact of the adoption
of ASU 2016-2 on our consolidated financial statements.
Stock-based Compensation : In March 2016, the
FASB issued ASU 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment
Accounting (ASU 2016-09). ASU 2016-09 changes how companies
account for certain aspects of stock-based awards to employees,
including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification
in the statement of cash flows. ASU 2016-09 is effective for us in
the first quarter of 2018, and earlier adoption is permitted.
We are still evaluating the effect that this guidance will have on
our consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses: In June
2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (Topic 326): The amendments in this Update require a
financial asset (or a group of financial assets) measured at an
amortized cost basis to be presented at the net amount expected to
be collected. The amendments broaden the information that an entity
must consider in developing its expected credit loss estimate for
assets measured either collectively or individually. The use of
forecasted information incorporates more timely information in the
estimate of expected credit loss, which will be more
decision-useful to users of the financial statements. ASU 2016-13
is effective for the Company for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal
years. Early adoption is allowed as of the fiscal years beginning
after December 15, 2018, including interim periods within those
fiscal years. The Company is still evaluating the effect that this
guidance will have on the Company’s consolidated financial
statements and related disclosures.
Statement of Cash Flows: In August 2016, the
FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The
amendments in this Update apply to all entities, including both
business entities and not-for-profit entities that are required to
present a statement of cash flows under Topic 230. The amendments
in this Update provide guidance on the following eight specific
cash flow issues. The amendments are an improvement to GAAP because
they provide guidance for each of the eight issues, thereby
reducing the current and potential future diversity in practice
described above. ASU 2016-15 is effective for the Company for
fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Early adoption is permitted,
including adoption in an interim period. The Company is still
evaluating the effect that this guidance will have on the Company’s
consolidated financial statements and related disclosures.
Statement of Cash Flows: 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 are 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 July 1, 2018. The Company is
currently evaluating this guidance and the impact it will have on
the Consolidated Financial Statements and disclosures.
Business Combination : 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.
Stock-based Compensation : 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 are 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 are not believed by management to have a
material impact on the Company’s present or future financial
statements.
NOTE 3 – INVENTORIES
Inventories consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Raw materials |
|
$ |
88,221,690 |
|
|
$ |
13,154,465 |
|
Supplies and packing materials |
|
$ |
511,574 |
|
|
$ |
566,254 |
|
Work
in progress |
|
$ |
403,463 |
|
|
$ |
417,130 |
|
Finished goods |
|
$ |
43,442,485 |
|
|
$ |
39,646,965 |
|
Total |
|
$ |
132,579,212 |
|
|
$ |
53,784,814 |
|
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Building and improvements |
|
$ |
39,785,362 |
|
|
$ |
40,319,393 |
|
Auto |
|
|
3,467,594 |
|
|
|
3,504,028 |
|
Machinery and equipment |
|
|
18,546,840 |
|
|
|
18,765,192 |
|
Agriculture assets |
|
|
758,349 |
|
|
|
768,528 |
|
Total property, plant and equipment |
|
|
62,558,145 |
|
|
|
63,357,141 |
|
Less: accumulated depreciation |
|
|
(34,437,635 |
)) |
|
|
(32,462,458 |
) |
Total |
|
$ |
28,120,511 |
|
|
$ |
30,894,683 |
|
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Land use rights, net |
|
$ |
9,619,316 |
|
|
$ |
9,930,420 |
|
Technology patent, net |
|
|
3,187 |
|
|
|
3,570 |
|
Customer relationships, net |
|
|
2,551,841 |
|
|
|
3,578,724 |
|
Non-compete agreement |
|
|
497,814 |
|
|
|
659,500 |
|
Trademarks |
|
|
6,064,300 |
|
|
|
6,145,700 |
|
Total |
|
$ |
18,736,458 |
|
|
$ |
20,317,914 |
|
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 $10,904,549). 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 RMB 1,045,950 (or $155,847). 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 $1,085,480). The intangible asset is being amortized over
the grant period of 50 years.
The Land Use Rights consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Land use rights |
|
$ |
12,145,874 |
|
|
$ |
12,308,907 |
|
Less: accumulated amortization |
|
|
(2,526,557 |
)) |
|
|
(2,378,488 |
) |
Total land use rights, net |
|
$ |
9,619,317 |
|
|
$ |
9,930,419 |
|
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 RMB5, 875,068 (or $875,385) and is being
amortized over the patent period of 10 years using the straight
line method. This technology patent has been fully amortized.
On July 2, 2010, the Company acquired Gufeng and its wholly-owned
subsidiary Tianjuyuan. The fair value on the acquired technology
patent was estimated to be RMB9, 200,000 (or $1,370,800) and is
amortized over the remaining useful life of six years using the
straight line method.
The technology know-how consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Technology know-how |
|
$ |
2,251,081 |
|
|
$ |
2,276,335 |
|
Less: accumulated amortization |
|
|
(2,251,081 |
) |
|
|
(2,276,335 |
) |
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 $9,685,000)
and is amortized over the remaining useful life of ten years. On
June 30, 2016, and January 1, 2017 the Company acquired the VIE
Companies. The fair value of the acquired customer relationships
was estimated to be RMB14,729,602 (or $2,194,711) and is amortized
over the remaining useful life of seven to ten years.
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Customer relationships |
|
$ |
11,879,712 |
|
|
$ |
12,039,169 |
|
Less: accumulated amortization |
|
|
(9,327,871 |
) |
|
|
(8,460,445 |
) |
Total customer relationships, net |
|
$ |
2,551,841 |
|
|
$ |
3,578,724 |
|
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 $196,680) 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 VIE Companies. The fair value of the
acquired non-compete agreements was estimated to be RMB6,843,439
(or $1,019,672) and is amortized over the remaining useful life of
five years using the straight line method.
|
|
March
31, |
|
|
June
30, |
|
|
|
2019 |
|
|
2018 |
|
Non-compete
agreement |
|
$ |
1,216,352 |
|
|
$ |
1,232,680 |
|
Less:
accumulated amortization |
|
|
(718,538) |
) |
|
|
(573,180 |
) |
Total
non-compete agreement, net |
|
$ |
497,814 |
|
|
$ |
659,500 |
|
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 $6,064,300) and
is subject to an annual impairment test.
AMORTIZATION EXPENSE
Estimated amortization expenses of intangible assets for the next
five twelve months periods ending March 31, are as follows:
Twelve Months Ending March 31, |
|
Expense
($) |
|
2020 |
|
|
1,865,109 |
|
2021 |
|
|
1,096,543 |
|
2022 |
|
|
681,884 |
|
2023 |
|
|
577,619 |
|
2024 |
|
|
464,116 |
|
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 March 31, 2019, the
balance of other non-current assets was $16,165,257, consisting of
the lease fee advances for agriculture lands that the Company
engaged in Shiquan County from 2019 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 $1.5 million as expenses for the nine months
ended March 31, 2019.
Estimated amortization expenses of the lease advance payments for
the next four twelve-month periods ended March 31 and thereafter
are as follows:
Twelve months ending March 31, |
|
|
|
2020 |
|
$ |
2,000,325 |
|
2021 |
|
$ |
2,000,325 |
|
2022 |
|
$ |
2,000,325 |
|
2023 |
|
$ |
2,000,325 |
|
2024 and thereafter |
|
$ |
8,163,957 |
|
NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Payroll payable |
|
$ |
27,020 |
|
|
$ |
13,788 |
|
Welfare payable |
|
|
152,970 |
|
|
|
155,023 |
|
Accrued expenses |
|
|
6,475,802 |
|
|
|
5,368,348 |
|
Other
payables |
|
|
4,437,889 |
|
|
|
4,543,261 |
|
Other levy payable |
|
|
124,961 |
|
|
|
126,638 |
|
Total |
|
$ |
11,218,642 |
|
|
$ |
10,207,058 |
|
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 $3,799,500).
For the nine months ended March 31, 2019 and 2018, Yuxing has sold
approximately $185,311 and $206,902 products to 900LH.com.
The amount due from 900LH.com to Yuxing was $0 and $235,551 as of
March 31, 2019 and June 30, 2018, respectively.
As of March 31, 2019, and June 30, 2018, the amount due to related
parties was $3,666,440 and $3,271,619, respectively. As
of March 31, 2019, and June 30, 2018, $1,043,000 and $1,057,000,
respectively were amounts that Gufeng borrowed from a related
party, Xi’an Techteam Science & Technology Industry (Group) Co.
Ltd., a company controlled by Mr. Zhuoyu 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 March 31, 2019, and June 30, 2018, the Company’s subsidiary,
Jinong, owed 900LH.com $412,193 and $388,353, respectively.
On June 29, 2018,
Jinong renewed the office lease with Kingtone
Information Technology Co., Ltd. (“Kingtone Information”), of which
Mr. Zhuoyu 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 four-year term
effective as of July 1, 2018, with a monthly rent of RMB24,480
(approximately $3,648)
NOTE 9 – LOAN PAYABLES
As of March 31, 2019, the short-term loan payables consisted of two
loans which mature on dates ranging from May 21 through June 18,
2019, with interest rates ranging from 5.22% to 6.31%. Both loans
are collateralized by Tianjuyuan’s land use right and building
ownership right.
No. |
|
Payee |
|
Loan period per agreement |
|
Interest Rate |
|
|
March 31,
2019 |
|
1 |
|
Bank of Beijing - Pinggu Branch |
|
May 22, 2018-May 21, 2019 |
|
|
5.22 |
% |
|
|
1,490,000 |
|
2 |
|
Postal Saving Bank of China - Pinggu Branch |
|
June 19, 2018-June 18, 2019 |
|
|
6.31 |
% |
|
|
2,980,000 |
|
|
|
Total |
|
|
|
|
|
|
|
$ |
4,470,000 |
|
The interest expense from short-term loans was $457,885 and
$452,640 for the nine months ended March 31, 2019 and 2018,
respectively.
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Relating to the acquisition of the VIE Companies, the Company
subsidiary, Jinong, issued to the VIE Companies shareholders
convertible notes payable twice, in the aggregate notional amount
of RMB 51,000,000 ($7,599,000) 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 |
|
|
|
39,000,000 |
|
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
stocks Jinong issues in the future in terms of interests and
payments in the event of any liquidation, dissolution or winding up
of Jinong. On or after the third anniversary of the issuance date
of the note, noteholders may request Jinong to process the note
conversion to convert the note into shares of the Company’s common
stock. The notes cannot be converted prior to the 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. Due to the discontinuation of VIE agreements
with Zhenbai’s shareholders, certain convertible notes issued on
June 30, 2016, with a face amount of RMB 12,000,000 ($1,788,000)
were tendered back to the Company. All outstanding balance of
unpaid principal and accrued interest in the tendered convertible
notes were forfeited.
The Company determined that the fair value of the convertible notes
payable outstanding was RMB 50,927,525 (or $7,588,201) and RMB48,
820,525 ($7,274,258) as of March 31, 2019 and June 30, 2018,
respectively. Aside from the forfeiture of the convertible notes
previously issued to Zhenbai’s shareholders, 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 March 31, 2019, the accumulated
amortization of this discount into accretion expenses was
$1,230,864.
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, as a result of the expiration of its tax
exemption on December 31, 2007. Accordingly, it made provision for
income taxes for the nine months ended March 31, 2019 and 2018 of
$1,007,503 and $2,689,188, 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 $ 2,916,912 and
$1,899,873 for the nine months ended March 31, 2019 and 2018,
respectively.
Value-Added Tax
All of the Company’s fertilizer products that are produced and sold
in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13%
of the gross sales price. On April 29, 2008, the PRC State of
Administration of Taxation (SAT) released Notice #56, “
Exemption of VAT for Organic Fertilizer Products ”, which
allows certain fertilizer products to be exempt from VAT beginning
June 1, 2008. The Company submitted the application for exemption
in May 2009, which was granted effective September 1, 2009,
continuing through December 31, 2015. On August 10, 2015 and August
28, 2015, the SAT released Notice #90. “ Reinstatement of VAT
for Fertilizer Products ”, and Notice #97, “ Supplementary
Reinstatement of VAT for Fertilizer Products ”, which restore
the VAT of 13% of the gross sales price on certain fertilizer
products includes non-organic fertilizer products starting from
September 1, 2015, but granted taxpayers a reduced rate of 3% from
September 1, 2015 through June 30, 2016.
Income Taxes and Related Payables
Taxes payable consisted of the following:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
VAT provision |
|
$ |
(469,900 |
) |
|
$ |
(449,140 |
) |
Income tax payable |
|
|
3,636,081 |
|
|
|
554,065 |
|
Other levies |
|
|
999,839 |
|
|
|
836,747 |
|
Total |
|
$ |
4,166,020 |
|
|
$ |
941,672 |
|
The provision for income taxes consists of the following:
|
|
March 31,
2019 |
|
|
June 30,
2018 |
|
Current tax - foreign |
|
$ |
5,321,671 |
|
|
$ |
6,841,592 |
|
Repatriation Tax |
|
|
- |
|
|
|
29,010,535 |
|
Total |
|
$ |
5,321,671 |
|
|
$ |
35,852,127 |
|
Tax Rate Reconciliation
Our effective tax rates were approximately 24.2% and 19.8% for the
nine months ended March 31, 2019 and 2018, 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 21% to income before income taxes for
the nine months ended March 31, 2019 and 2018 for the following
reasons:
March
31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
United States |
|
|
|
|
|
|
|
|
|
15% - 25% |
|
|
34% |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) |
|
$ |
23,320,275 |
|
|
|
- |
|
|
|
(1,363,166 |
) |
|
|
|
|
|
|
- |
|
|
$ |
21,957,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit) |
|
|
5,830,069 |
|
|
|
25.0 |
% |
|
|
(286,265 |
) |
|
|
|
|
|
|
21.0 |
% |
|
|
5,543,804 |
|
|
|
|
|
High-tech income benefits on Jinong |
|
|
(671,669 |
) |
|
|
(2.9 |
)% |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(671,669 |
) |
|
|
|
|
Losses from subsidiaries in which no benefit is recognized |
|
|
163,271 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
163,271 |
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax
benefit |
|
|
0 |
|
|
|
- |
|
|
|
286,265 |
|
|
|
|
|
|
|
(21.0 |
)% |
|
|
286,265 |
|
|
|
|
|
Actual tax expense |
|
$ |
5,321,671 |
|
|
|
22.8 |
% |
|
$ |
- |
|
|
|
|
|
|
|
- |
% |
|
$ |
5,321,671 |
|
|
|
24.2 |
% |
March
31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
United States |
|
|
|
|
|
|
|
|
|
15% - 25% |
|
|
34% |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) |
|
$ |
26,650,476 |
|
|
|
- |
|
|
|
(1,035,728 |
) |
|
|
|
|
|
|
- |
|
|
$ |
25,614,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit) |
|
|
6,662,619 |
|
|
|
25.0 |
% |
|
|
(352,147 |
) |
|
|
|
|
|
|
34.0 |
% |
|
|
6,310,472 |
|
|
|
|
|
High-tech income benefits on Jinong |
|
|
(2,689,188 |
) |
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(2,689,188 |
) |
|
|
|
|
Losses from subsidiaries in which no benefit is recognized |
|
|
(1,093,349 |
) |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(1,093,349 |
) |
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax
benefit |
|
|
0 |
|
|
|
- |
|
|
|
352,147 |
|
|
|
352,147 |
|
|
|
(34.0 |
)% |
|
|
352,147 |
|
|
|
|
|
Actual tax expense |
|
$ |
5,066,780 |
|
|
|
19 |
% |
|
$ |
- |
|
|
|
|
|
|
|
- |
% |
|
$ |
5,066,780 |
|
|
|
19.8 |
% |
NOTE 12 – STOCKHOLDERS’ EQUITY
Common Stock
There was no issuance share of common stock during the three and
nine months ended March 31, 2019.
As of March 31, 2019, and June 30, 2018, there were 39,546,945 and
38,896,945 shares of common stock issued and outstanding.
On April 25, 2019, the Company entered into a Stock Purchase
Agreement (the “SPA”) with certain non-US persons, as defined in
Regulation S promulgated under the Securities Act of 1933, in
connection with a private placement offering of 6,000,000 shares of
common stock, par value $0.001 per share, of the Company. The
purchase price per share of the offering is $1.00. On April 26,
2019, the Company issued 6,000,000 Shares of the Company’s Common
Stock, par value $0.001 per share, pursuant to the SPA. The Shares
issued in the offering are exempt from the registration
requirements of the Securities Act, pursuant to Section 4(a)(2) of
the Securities Act and/or Regulation S promulgated
thereunder.
On May 10, 2019, the Company sold 2,270,000 shares of common stock
at the price of $1.00 per share for total proceeds of $2,270,000 to
certain third-party individuals. The issuances were completed
pursuant to the exemption from registration provided by Regulation
S promulgated under the Securities Act of 1933, as amended.
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 March 31, 2019, 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 three vendors, from which the Company purchased 14.2%,
13.7% and 11.8% of its raw materials for fertilizer manufacturing
during the year ended March 31, 2019. Total purchase from these
three vendors was amounted to $58,658,521 as March 31,
2019.
None of the vendors accounted over 10% of the Company’s purchase of
raw materials and supplies for the nine months ended March 31,
2018.
None of the customers accounted over 10% of the Company’s sales for
the nine months ended March 31, 2019 and 2018.
NOTE 14 – SEGMENT REPORTING
As of March 31, 2019, 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
March 31, |
|
|
Nine Months Ended
March 31, |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues from
unaffiliated customers: |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
22,077,336 |
|
|
$ |
27,490,333 |
|
|
$ |
61,561,229 |
|
|
$ |
80,475,373 |
|
Gufeng |
|
|
67,167,427 |
|
|
|
38,932,597 |
|
|
|
106,996,368 |
|
|
|
81,602,384 |
|
Yuxing |
|
|
2,817,942 |
|
|
|
3,041,891 |
|
|
|
7,828,981 |
|
|
|
6,788,282 |
|
VIES |
|
|
16,057,865 |
|
|
|
13,086,062 |
|
|
|
41,943,261 |
|
|
|
39,412,820 |
|
Consolidated |
|
$ |
108,120,570 |
|
|
$ |
82,550,883 |
|
|
$ |
218,329,839 |
|
|
$ |
208,278,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
(2,210,904 |
) |
|
$ |
5,704,281 |
|
|
$ |
6,888,634 |
|
|
$ |
18,047,510 |
|
Gufeng |
|
|
7,111,832 |
|
|
|
3,210,959 |
|
|
|
11,214,341 |
|
|
|
7,866,697 |
|
Yuxing |
|
|
125,839 |
) |
|
|
(951,474 |
) |
|
|
(3,477,668 |
) |
|
|
(553,726 |
) |
VIES |
|
|
2,821,741 |
|
|
|
2,067,194 |
|
|
|
9,201,792 |
|
|
|
2,106,396 |
|
Reconciling item (1) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Reconciling item (2) |
|
|
(399,196 |
) |
|
|
(404,960 |
) |
|
|
(1,363,180 |
) |
|
|
(1,035,731 |
) |
Consolidated |
|
$ |
7,449,312 |
|
|
$ |
9,625,999 |
|
|
$ |
22,463,919 |
|
|
$ |
26,431,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
(1,980,471 |
) |
|
$ |
4,778,486 |
|
|
$ |
5,709,185 |
|
|
$ |
15,238,735 |
|
Gufeng |
|
|
5,260,432 |
|
|
|
2,310,042 |
|
|
|
8,111,897 |
|
|
|
5,526,873 |
|
Yuxing |
|
|
125,259 |
|
|
|
(951,805 |
) |
|
|
(3,478,089 |
) |
|
|
(553,314 |
) |
VIES |
|
|
2,111,941 |
|
|
|
1,892,425 |
|
|
|
7,668,280 |
|
|
|
1,653,220 |
|
Reconciling item (1) |
|
|
4 |
|
|
|
0 |
|
|
|
14 |
|
|
|
4 |
|
Reconciling item (2) |
|
|
(399,196 |
) |
|
|
(404,960 |
) |
|
|
(1,363,180 |
) |
|
|
(1,035,731 |
) |
Reconciling item (3) |
|
|
(68 |
) |
|
|
2,844 |
|
|
|
(12,667 |
) |
|
|
(322,214 |
) |
Consolidated |
|
$ |
5,117,901 |
|
|
$ |
7,627,033 |
|
|
$ |
16,635,441 |
|
|
$ |
20,507,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
199,460 |
|
|
$ |
226,678 |
|
|
$ |
592,424 |
|
|
$ |
1,502,805 |
|
Gufeng |
|
|
542,033 |
|
|
|
574,120 |
|
|
|
1,607,957 |
|
|
|
1,674,176 |
|
Yuxing |
|
|
307,835 |
|
|
|
327,729 |
|
|
|
912,554 |
|
|
|
955,530 |
|
VIES |
|
|
188,309 |
|
|
|
195,922 |
|
|
|
558,892 |
|
|
|
568,835 |
|
Consolidated |
|
$ |
1,237,638 |
|
|
$ |
1,324,449 |
|
|
$ |
3,671,827 |
|
|
$ |
4,701,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
70,000 |
|
|
|
74,270 |
|
|
|
207,758 |
|
|
|
216,553 |
|
Gufeng |
|
|
75,621 |
|
|
|
105,299 |
|
|
|
250,127 |
|
|
|
311,667 |
|
Yuxing |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Sales VIEs |
|
|
0 |
|
|
|
(1,091 |
) |
|
|
0 |
|
|
|
(75,580 |
) |
Consolidated |
|
$ |
145,621 |
|
|
$ |
178,478 |
|
|
$ |
457,885 |
|
|
$ |
452,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
781 |
|
|
$ |
537 |
|
|
$ |
4,273 |
|
|
$ |
4,686 |
|
Gufeng |
|
|
394 |
|
|
|
(11,286 |
) |
|
|
45,998 |
|
|
|
2,878 |
|
Yuxing |
|
|
726 |
|
|
|
350 |
|
|
|
8,825 |
|
|
|
5,122 |
|
VIES |
|
|
0 |
|
|
|
20,520 |
|
|
|
0 |
|
|
|
20,520 |
|
Consolidated |
|
$ |
1,901 |
|
|
$ |
10,120 |
|
|
$ |
59,096 |
|
|
$ |
33,207 |
|
|
|
As of |
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Identifiable
assets: |
|
|
|
|
|
|
Jinong |
|
$ |
148,860,709 |
|
|
$ |
226,335,489 |
|
Gufeng |
|
|
255,784,087 |
|
|
|
168,572,947 |
|
|
|
|
|
|
|
|
|
|
Sales
VIES |
|
|
76,434,439 |
|
|
|
87,567,782 |
|
Reconciling item (1) |
|
|
599,845 |
|
|
|
512,622 |
|
Reconciling item (2) |
|
|
(2,879 |
)) |
|
|
(2,879 |
) |
Consolidated |
|
$ |
481,676,200 |
|
|
$ |
482,985,960 |
|
(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. |
(3) |
Reconciling
amounts refer to the adjustment for net gain on derivative
liability on convertible bonds. |
NOTE 15 – COMMITMENTS AND CONTINGENCIES
On June 29, 2018, 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 four-year term effective as
of July 1, 2018, with a monthly rent of $3,648 (approximately
RMB 24,480).
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 $441
(RMB 2,958).
Accordingly, the Company recorded an aggregate of $36,794 and
$44,252 as rent expenses from these committed property leases for
the nine-month periods ended March 31, 2019 and 2018, respectively.
The contingent rent expenses herein for the next five twelve-month
periods ended March 31 are as follows:
Twelve Months ending March 31, |
|
|
|
2020 |
|
$ |
49,059 |
|
2021 |
|
|
49,059 |
|
2022 |
|
|
49,059 |
|
2023 |
|
|
49,059 |
|
2024 |
|
|
49,059 |
|
NOTE 16 – VARIABLE INTEREST ENTITIES
In accordance with accounting standards regarding consolidation of
variable interest entities, VIEs are generally entities that lack
enough 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 most 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 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”).
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, exited the VIE agreements with the shareholders
of Zhenbai.
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 VIE Companies. The
following financial statement amounts and balances of the VIEs were
included in the accompanying consolidated financial statements as
of March 31, 2019 and June 30, 2018:
|
|
March 31, |
|
|
June 30, |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
970,474 |
|
|
$ |
982,312 |
|
Accounts receivable, net |
|
|
22,545,084 |
|
|
|
38,295,505 |
|
Inventories |
|
|
23,002,341 |
|
|
|
21,133,970 |
|
Other
current assets |
|
|
648,132 |
|
|
|
988,051 |
|
Related party receivable |
|
|
0 |
|
|
|
(359,005 |
|
Advances to suppliers |
|
|
4,848,280 |
|
|
|
848,458 |
|
Total Current Assets |
|
|
52,014,311 |
|
|
|
61,889,291 |
|
|
|
|
|
|
|
|
|
|
Plant,
Property and Equipment, Net |
|
|
10,271,628 |
|
|
|
11,206,667 |
|
Other
assets |
|
|
223,652 |
|
|
|
226,654 |
|
Intangible Assets, Net |
|
|
10,641,139 |
|
|
|
11,348,180 |
|
Goodwill |
|
|
3,283,709 |
|
|
|
3,319,732 |
|
Total Assets |
|
$ |
76,434,439 |
|
|
$ |
87,990,524 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Short-term loan |
|
$ |
- |
|
|
$ |
- |
|
Accounts payable |
|
|
7,833,312 |
|
|
|
25,584,614 |
|
Customer deposits |
|
|
1,021,889 |
|
|
|
841,694 |
|
Accrued expenses and other payables |
|
|
5,297,819 |
|
|
|
3,896,340 |
|
Amount due to related parties |
|
|
43,257,584 |
|
|
|
43,339,286 |
|
Total Current Liabilities |
|
$ |
57,410,604 |
|
|
$ |
73,661,934 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
$ |
57,410,604 |
|
|
$ |
73,661,934 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
19,023,835 |
|
|
|
14,328,590 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
|
76,434,439 |
|
|
$ |
87,990,524 |
|
|
|
Three months ended
Three Months Ended
March 31, |
|
|
Nine months ended
Nine Months Ended
March 31, |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue |
|
$ |
18,875,808 |
|
|
$ |
16,127,953 |
|
|
$ |
49,772,242 |
|
|
$ |
47,205,271 |
|
Expenses |
|
|
16,638,610 |
|
|
|
13,749,981 |
|
|
|
45,582,052 |
|
|
|
39,340,523 |
|
Net income (loss) |
|
$ |
2,237,198 |
|
|
$ |
940,622 |
|
|
$ |
4,190,190 |
|
|
$ |
1,140,302 |
|
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.
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, discontinued the strategic acquisition
agreements and the series of contractual agreements with the
shareholders of Zhenbai.
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 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.
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, discontinued the strategic acquisition
agreements and the series of contractual agreements with the
shareholders of Zhenbai. In return, the shareholders of Zhenbai
agreed to tender the whole payment consideration in the SAA back to
the Company with early termination penalties. The convertible notes
paid to Zhenbai’s shareholders and the accrued interest has been
forfeited.
For the discontinuation of Zhenbai made on November 30, 2017, the
Company gave up the control of the following assets in Zhenbai:
Working Capital |
|
$ |
1,175,696 |
|
Intangible assets |
|
|
893,780 |
|
Customer Relationship |
|
|
682,604 |
|
Non-compete Agreement |
|
|
211,176 |
|
Goodwill |
|
|
536,819 |
|
Total Asset |
|
$ |
2,606,296 |
|
In return, the purchase consideration returned to the Company from
Zhenbai’s shareholders is summarized below:
Cash |
|
$ |
459,900 |
|
Interest Payable |
|
|
82,782 |
|
Convertible notes |
|
|
1,719,336 |
|
Derivative liability |
|
|
13,312 |
|
Total Payback |
|
$ |
2,275,330 |
|
Net Loss |
|
|
(330,966 |
) |
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 contain forward-looking statements that involve
significant risks and uncertainties. As a result of many factors,
such as the slow-down of the macro-economic environment in China
and its impact on economic growth in general, the competition in
the fertilizer industry and the impact of such competition on
pricing, revenues and margins, the weather conditions in the areas
where our customers are based, the cost of attracting and retaining
highly skilled personnel, the prospects for future acquisitions,
and the factors set forth elsewhere in this report, our actual
results may differ materially from those anticipated in these
forward-looking statements. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
statements contained in this report will in fact occur. You should
not place undue reliance on the forward-looking statements
contained in this report.
The forward-looking statements speak only as of the date on
which they are made, and, except to the extent required by U.S.
federal securities laws, we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the
occurrence of unanticipated events. Further, the information
about our intentions contained in this report is a statement of our
intention as of the date of this report and is based upon, among
other things, the existing regulatory environment, industry
conditions, market conditions and prices, and our assumptions as of
such date. We may change our intentions, at any time and
without notice, based upon any changes in such factors, in our
assumptions or otherwise.
Unless the context indicates otherwise, as used in the notes to
the financial statements of the Company, the following are the
references herein of all the subsidiaries of the Company (i) Green
Agriculture Holding Corporation (“Green New Jersey”), a
wholly-owned subsidiary of Green Nevada incorporated in the State
of New Jersey; (ii) Shaanxi 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) Weinan City Linwei District Wangtian
Agricultural Materials Co., Ltd. (“Wangtian”), a VIE controlled by
Jinong through contractual agreements; (vii) Aksu Xindeguo
Agricultural Materials Co., Ltd. (“Xindeguo”), a VIE controlled by
Jinong through contractual agreements; (vii) Xinjiang Xinyulei
Eco-agriculture Science and Technology Co., Ltd (“Xinyulei”), a VIE
controlled by Jinong through contractual agreements; (ix) Sunwu
County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), a
VIE controlled by Jinong through contractual agreements; (x) Anhui
Fengnong Seed Co., Ltd. (“Fengnong”), a VIE controlled by Jinong
through contractual agreements; (xi) Beijing Gufeng Chemical
Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC
(“Gufeng”); and (xii) Beijing Tianjuyuan Fertilizer Co., Ltd.,
Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”). Yuxing,
Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong,
and Fengnong may also collectively be referred to as the “the VIE
Companies”; Lishijie, Jinyangguang, 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 91.4% and 90.3% of our total revenues for the nine
months ended March 31, 2019 and 2018, respectively. Yuxing serves
as a research and development base for our fertilizer products.
Fertilizer Products
As of March 31, 2019, we had developed and produced a total of 727
different fertilizer products in use, of which 143 were developed
and produced by Jinong and 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
March 31, |
|
|
Change from
2018 to 2019 |
|
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% |
|
|
|
(metric tons) |
|
|
|
|
|
|
|
Jinong |
|
|
17,014 |
|
|
|
12,606 |
|
|
|
4,408 |
|
|
|
35.0 |
% |
Gufeng |
|
|
190,691 |
|
|
|
104,207 |
|
|
|
86,484 |
|
|
|
83.0 |
% |
|
|
|
207,704 |
|
|
|
116,813 |
|
|
|
90,891 |
|
|
|
77.8 |
% |
|
|
Three Months Ended
March 31, |
|
|
|
2019 |
|
|
2018 |
|
|
|
(revenue per ton) |
|
Jinong |
|
$ |
1,324 |
|
|
$ |
2,302 |
|
Gufeng |
|
|
357 |
|
|
|
382 |
|
|
|
Nine months Ended
March 31, |
|
|
Change from
2018 to 2019 |
|
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% |
|
|
|
(metric tons) |
|
|
|
|
|
|
|
Jinong |
|
|
53,008 |
|
|
|
40,297 |
|
|
|
12,711 |
|
|
|
31.5 |
% |
Gufeng |
|
|
305,288 |
|
|
|
225,053 |
|
|
|
80,235 |
|
|
|
35.7 |
% |
|
|
|
358,295 |
|
|
|
265,350 |
|
|
|
92,945 |
|
|
|
35.0 |
% |
|
|
Nine months Ended
March 31, |
|
|
|
2019 |
|
|
2018 |
|
|
|
(revenue per ton) |
|
Jinong |
|
$ |
1,209 |
|
|
$ |
2,205 |
|
Gufeng |
|
|
349 |
|
|
|
375 |
|
For the three months ended March 31, 2019, we sold approximately
207,704 metric tons of fertilizer products, as compared to 116,813
metric tons for the three months ended March 31, 2018. For the
three months ended March 31, 2019, Jinong sold approximately 17,014
metric tons of fertilizer products, an increase of 4.408 metric
tons, or 35.0%, as compared to 12,606 metric tons for the three
months ended March 31, 2018. For the three months ended March 31,
2019, Gufeng sold approximately 190,691 metric tons of fertilizer
products, as compared to 104,207 metric tons for the three months
ended March 31, 2018, an increase of 86,484 metric tons, or
83.0%.
For the nine months ended March 31, 2019, we sold approximately
358,295 metric tons of fertilizer products, as compared to 265,350
metric tons for the nine months ended March 31, 2018. For the nine
months ended March 31, 2019, Jinong sold approximately 53,008
metric tons of fertilizer products, an increase of 12,711 metric
tons, or 31.5%, as compared to 40,297 metric tons for the nine
months ended March 31, 2018. For the nine months ended March 31,
2019, Gufeng sold approximately 305,288 metric tons of fertilizer
products, an increase of 80,235 metric tons, or 35.7%, as compared
to 225,053 metric tons for the nine months ended March 31,
2018.
Our sales of fertilizer products to customers in five provinces
accounted for approximately 55.9% of our fertilizer revenue for the
three months ended March 31, 2019. Specifically, the provinces
and their respective percentage contributed to our fertilizer
revenues were: Hebei (24.1%), Shaanxi (9.2%), Heilongjiang (8.3%),
Liaoning (7.3%), and Shandong (7.0%)
As of March 31, 2019, we had a total of 2,033 distributors covering
22 provinces, 4 autonomous regions and 4 central
government-controlled municipalities in China. Jinong had 1,211
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 5.1% of its fertilizer revenues for the
three months ended March 31, 2019. Gufeng had 324 distributors,
including some large state-owned enterprises. Gufeng’s top five
distributors accounted for 84.9% of its revenues for the three
months ended March 31, 2019.
Agricultural Products
Through Yuxing, we develop, produce and sell high-quality flowers,
green vegetables and fruits to local marketplaces and various
horticulture and planting companies. We also use certain of
Yuxing’s greenhouse facilities to conduct research and development
activities for our fertilizer products. The three PRC provinces
that accounted for 83.4% of our agricultural products revenue for
the three months ended March 31, 2019 were Shaanxi (71.6%), Sichuan
(7.1%), and Gansu (4.6%).
Recent Developments
New products and distributors
During the three months ended March 31, 2019, Jinong launched 1 new
fertilizer products and added 44 new distributors during this
period. Gufeng did not launch any new fertilizer products but 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. [2] |
|
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. |
(2) |
On
November 30, 2017, the Company, through its wholly-owned subsidiary
Jinong, discontinued the strategic acquisition agreements and the
series of contractual agreements with the shareholders of Zhenbai.
In return, the shareholders of Zhenbai agreed to tender the whole
payment consideration in the SAA back to the Company with early
termination penalties. The convertible notes paid to Zhenbai’s
shareholders and the accrued interest has been
forfeited. |
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 $6,705,000) to
be paid by Jinong within three days following the execution of the
SAA, ACN and the VIE Agreements, and convertible notes with an
aggregate face value of RMB 63,000,000 (approximately $9,387,000)
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, farmland 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 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 a 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 can 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 are 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.
Business development
Results of Operations
Three Months ended March 31, 2019 Compared to the Three
Months ended March 31, 2018.
|
|
Three Months Ended
March 31, |
|
|
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
Change$ |
|
|
Change% |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
22,077,336 |
|
|
|
27,490,333 |
|
|
|
(5,412,997 |
) |
|
|
-19.7 |
% |
Gufeng |
|
|
67,167,427 |
|
|
|
38,932,597 |
|
|
|
28,234,830 |
|
|
|
72.5 |
% |
Yuxing |
|
|
2,817,942 |
|
|
|
3,041,891 |
|
|
|
(223,949 |
) |
|
|
-7.4 |
% |
VIEs-others |
|
|
16,057,865 |
|
|
|
13,086,062 |
|
|
|
2,971,803 |
|
|
|
22.7 |
% |
Net sales |
|
|
108,120,570 |
|
|
|
82,550,883 |
|
|
|
25,569,687 |
|
|
|
31.0 |
% |
Cost
of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
11,091,419 |
|
|
|
13,526,095 |
|
|
|
(2,434,676 |
) |
|
|
-18.0 |
% |
Gufeng |
|
|
59,475,263 |
|
|
|
34,114,896 |
|
|
|
25,360,367 |
|
|
|
74.3 |
% |
Yuxing |
|
|
2,445,246 |
|
|
|
2,517,989 |
|
|
|
(72,743 |
) |
|
|
-2.9 |
% |
VIEs |
|
|
13,951,667 |
|
|
|
11,231,992 |
|
|
|
2,719,675 |
|
|
|
24.2 |
% |
Cost of goods sold |
|
|
86,963,595 |
|
|
|
61,390,972 |
|
|
|
25,572,623 |
|
|
|
41.7 |
% |
Gross profit |
|
|
21,156,975 |
|
|
|
21,159,911 |
|
|
|
(2,936 |
) |
|
|
0.0 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
6,880,994 |
|
|
|
3,553,306 |
|
|
|
3,327,688 |
|
|
|
93.7 |
% |
General and administrative expenses |
|
|
6,826,669 |
|
|
|
7,980,606 |
|
|
|
(1,153,937 |
) |
|
|
-14.5 |
% |
Total operating expenses |
|
|
13,707,663 |
|
|
|
11,533,912 |
|
|
|
2,173,751 |
|
|
|
18.8 |
% |
Income from operations |
|
|
7,449,312 |
|
|
|
9,625,999 |
|
|
|
(2,176,687 |
) |
|
|
-22.6 |
% |
Other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
(101,350 |
) |
|
|
(145,311 |
) |
|
|
43,961 |
|
|
|
-30.3 |
% |
Interest income |
|
|
55,168 |
|
|
|
138,009 |
|
|
|
(82,841 |
) |
|
|
-60.0 |
% |
Interest expense |
|
|
(145,621 |
) |
|
|
(178,478 |
) |
|
|
32,857 |
|
|
|
-18.4 |
% |
Total other income (expense) |
|
|
(191,803 |
) |
|
|
(185,780 |
|
|
|
(6,023 |
) |
|
|
3.2 |
% |
Income before income taxes |
|
|
7,257,509 |
|
|
|
9,440,220 |
|
|
|
(2,182,711 |
) |
|
|
-23.1 |
% |
Provision for income taxes |
|
|
2,139,610 |
|
|
|
1,813,187 |
|
|
|
326,423 |
|
|
|
18.0 |
% |
Net income |
|
|
5,117,899 |
|
|
|
7,627,033 |
|
|
|
(2,509,134 |
) |
|
|
-32.9 |
% |
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
10,564,053 |
|
|
|
16,213,419 |
|
|
|
(5,649,366 |
) |
|
|
-34.8 |
% |
Comprehensive income (loss) |
|
|
15,681,952 |
|
|
|
23,840,452 |
|
|
|
(8,158,500 |
) |
|
|
-34.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
39,546,944 |
|
|
|
38,551,264 |
|
|
|
995,680 |
|
|
|
2.6 |
% |
Basic net earnings per share |
|
|
0.13 |
|
|
|
0.20 |
|
|
|
(0.06 |
) |
|
|
-32.5 |
% |
Diluted weighted average shares outstanding |
|
|
39,546,944 |
|
|
|
38,551,264 |
|
|
|
995,680 |
|
|
|
2.6 |
% |
Diluted net earnings per share |
|
|
0.13 |
|
|
|
0.20 |
|
|
|
(0.06 |
) |
|
|
-32.5 |
% |
Net Sales
Total net sales for the three months ended March 31, 2019 were
$108,120,570, an increase of $25,569,687, or 31.0%, from
$82,550,883 for the three months ended March 31, 2018.This increase
was largely due to the increase in Gufeng’s sales volume.
For the three months ended March 31, 2019, Jinong’s net sales
decreased by $5,412,997, or 19.7%, to $22,077,336 from $27,490,333
for the three months ended March 31, 2018. The decrease was due to
the change of market strategy. Jinong sold more low-selling price
products answering to market demand.
For the three months ended March 31, 2019, Gufeng’s net sales were
$67,167,427, an increase of $28,234,830 or 72.5% from $38,932,597
for the three months ended March 31, 2018. This increase was mainly
attributable to Gufeng’s increase in sales volume during the three
months ended March 31, 2019.
For the three months ended March 31, 2019, Yuxing’s net sales were
$2,817,942, a decrease of $223,949 or 7.4%, from $3,041,891
during the three months ended March 31, 2018. The decrease was
mainly due to the decrease in market demand.
For the three months ended March 31, 2019, VIEs’ net sales were
$16,057,865, an increase of $2,971,803 or 22.7%, from $13,086,062
for the three months ended March 31, 2018. The increase was mainly
attributable to the increase in market demand during the last three
months.
Cost of Goods Sold
Total cost of goods sold for the three months ended March 31, 2019
was $86,963,595, an increase of $25,572,623, or 41.7%, from
$61,390,972 for the three months ended March 31, 2018. The increase
was mainly due to the increase in sales volumes for Gufeng and
Jinong.
Cost of goods sold by Jinong for the three months ended March 31,
2019 was $11,091,419, a decrease of $2,434,676, or 18.0%, from
$13,526,095 for the three months ended March 31, 2018. The decrease
for cost of goods sold was primarily due to the decrease in
Jinong’s net sales during the last three months.
Cost of goods sold by Gufeng for the three months ended March 31,
2019 was $59,475,263, an increase of $25,360,367, or 74.3%, from
$34,114,896 for the three months ended March 31, 2018. This
increase was primarily attributable to the more products sold
during the last three months.
For the three months ended March 31, 2019, cost of goods sold by
Yuxing was $2,445,246, a decrease of $72,743, or 2.9%, from
$2,517,989 for the three months ended March 31, 2018. This decrease
was mainly due to the decrease in Yuxing’s net sales during the
last three months.
Cost of goods sold by VIEs for the three months ended March 31,
2019 was $13,951,667, an increase of $2,719,675, or 24.2%, from
$11,231,992 for the three months ended March 31, 2018. This
increase was primarily attributable to the greater number of
products sold during the last three months.
Gross Profit
Total gross profit for the three months ended March 31, 2019
decreased by $2,936 to $21,156,975, as compared to $21,159,911 for
the three months ended March 31, 2018. Gross profit margin was
19.6% and 25.6% for the three months ended March 31, 2019 and 2018,
respectively. The decrease in gross profit margin was mainly due to
the decrease in Jinong’s net sales since Jinong is the most
profitable business segment, with 49.8% of gross profit margin.
Gross profit generated by Jinong decreased by $2,978,321, or 21.3%,
to $10,985,917 for the three months ended March 31, 2019 from
$13,964,238 for the three months ended March 31, 2018. Gross profit
margin from Jinong’s sales was approximately 49.8% and 50.8% for
the three months ended March 31, 2019 and 2018, respectively. The
decrease in gross profit margin was mainly due to the lower selling
price during the last three months.
For the three months ended March 31, 2019, gross profit generated
by Gufeng was $7,692,164, an increase of $2,874,463, or 59.7%, from
$4,817,701, for the three months ended March 31, 2018. Gross profit
margin from Gufeng’s sales was approximately 11.5% and 12.4% for
the three months ended March 31, 2019 and 2018, respectively. The
decrease in gross profit margin was mainly due to the higher labor
cost and raw materials cost during the three months ended March 31,
2019.
For the three months ended March 31, 2019, gross profit generated
by Yuxing was $372,696, a decrease of $151,206 or 28.9% from
$523,902 for the three months ended March 31, 2018. The gross
profit margin was approximately 13.2% and 17.2% for the three
months ended March 31, 2019 and 2018, respectively. The decrease in
gross profit margin was mainly due to the higher cost of raw
materials during the three months ended March 31, 2019.
Gross profit generated by VIEs increased by $ 252,128, or 13.6%, to
$2,106,198 for the three months ended March 31, 2019 from
$1,854,070 for the three months ended March 31, 2018. Gross profit
margin from VIE’s sales was approximately 13.1% and 14.2% for the
three months ended March 31, 2019 and 2018, respectively.
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 $6,880,994, or
6.4%, of net sales for the three months ended March 31, 2019, as
compared to $3,553,306, or 4.3%, of net sales for the three months
ended March 31, 2018, an increase of $3,327,688, or 93.7%. The
selling expenses of Jinong for the three months ended March 31,
2019 were $6,480,278, or 29.4%, of Jinong’s net sales, as compared
to selling expenses of $3,162,789, or 11.5%of Jinong’s net sales
for the three months ended March 31, 2018. The selling
expenses of Yuxing were $14,779, or 0.5%, of Yuxing’s net sales for
the three months ended March 31, 2019, as compared to $12,691, or
0.4%, of Yuxing’s net sales for the three months ended March 31,
2018. The selling expenses of Gufeng were $46,228, or 0.1%, of
Gufeng’s net sales for the three months ended March 31, 2019, as
compared to $94,665, or 0.2%, of Gufeng’s net sales for the three
months ended March 31, 2018. The selling expenses of VIEs were
$291,617, or 1.8%, of VIEs’ net sales for the three months ended
March 31, 2019, as compared to $283,161, or 2.2%, of VIEs’ net
sales for the three months ended March 31, 2018.
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 $6,826,669, or 6.3%, of net sales for
the three months ended March 31, 2019, as compared to $7,980,606,
or 9.7%, of net sales for the three months ended March 31, 2018, a
decrease of $1,153,937, or 14.5%. The decrease in general and
administrative expenses was mainly due to Gufeng, which had
$486,010 of general and administrative expenses during the last
three months, a decrease of $1,026,061 or 67.9% as compared to
$1,512,071 of general and administrative expenses for the three
months ended March 31, 2018.
Total Other Income and Expense
Total other income and expense consisted of income from subsidies
received from the PRC government, interest income, interest
expenses and bank charges. The total other expense for the three
months ended March 31, 2019 was $191,803 as compared to total other
expense of $185,780 for the three months ended March 31, 2018, a
decrease of $6,023, or 3.2%. The decrease in total other expense
mainly resulted from the decrease for bank charges.
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 0 for the
three months ended March 31, 2019, as compared to $860,801 for the
three months ended March 31, 2018, a decrease of $860,801 or
100%.
Gufeng, subject to a tax rate of 25%, incurred income tax expenses
of $1,775,037 for the three months ended March 31, 2019, as
compared to $764,051 for the three months ended March 31, 2018, an
increase of $1,010,986, or 132.3%.
Yuxing has no income tax for the three months ended March 31, 2019
as a result of being exempted from paying income tax due to the
fact its products fall into the tax exemption list set out in the
EIT.
Net Income
Net income for the three months ended March 31, 2019 was
$5,117,899, a decrease of $2,509,134, or 32.9%, compared to
$7,627,033 for the three months ended March 31, 2018. Net income as
a percentage of total net sales was approximately 4.7% and 9.2% for
the three months ended March 31, 2019 and 2018, respectively. The
decrease in net income was mainly due to higher selling expense
during the last three months.
Nine months ended March 31, 2019 Compared to the Nine months
ended March 31, 2018.
|
|
Nine Months Ended
March 31, |
|
|
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
Change$ |
|
|
Change% |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
61,561,229 |
|
|
|
80,475,373 |
|
|
|
(18,914,144 |
) |
|
|
-23.5 |
% |
Gufeng |
|
|
106,996,368 |
|
|
|
81,602,384 |
|
|
|
25,393,984 |
|
|
|
31.1 |
% |
Yuxing |
|
|
7,828,981 |
|
|
|
6,788,282 |
|
|
|
1,040,699 |
|
|
|
15.3 |
% |
VIEs |
|
|
41,943,261 |
|
|
|
39,412,820 |
|
|
|
2,530,441 |
|
|
|
6.4 |
% |
Net sales |
|
|
218,329,839 |
|
|
|
208,278,859 |
|
|
|
10,050,980 |
|
|
|
4.8 |
% |
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
31,289,473 |
|
|
|
39,904,678 |
|
|
|
(8,615,205 |
) |
|
|
-21.6 |
% |
Gufeng |
|
|
94,544,943 |
|
|
|
71,261,349 |
|
|
|
23,283,594 |
|
|
|
32.7 |
% |
Yuxing |
|
|
6,658,975 |
|
|
|
5,446,780 |
|
|
|
1,212,195 |
|
|
|
22.3 |
% |
VIEs |
|
|
35,965,608 |
|
|
|
33,060,645 |
|
|
|
2,904,963 |
|
|
|
8.8 |
% |
Cost of goods sold |
|
|
168,458,999 |
|
|
|
149,673,452 |
|
|
|
18,785,547 |
|
|
|
12.6 |
% |
Gross
profit |
|
|
49,870,840 |
|
|
|
58,605,407 |
|
|
|
(8,734,567 |
) |
|
|
-14.9 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
18,370,524 |
|
|
|
16,375,971 |
|
|
|
1,994,553 |
|
|
|
12.2 |
% |
General and administrative expenses |
|
|
9,036,397 |
|
|
|
15,798,290 |
|
|
|
(6,761,894 |
) |
|
|
-42.8 |
% |
Total operating expenses |
|
|
27,406,921 |
|
|
|
32,174,261 |
|
|
|
(4,767,341 |
) |
|
|
-14.8 |
% |
Income from operations |
|
|
22,463,919 |
|
|
|
26,431,146 |
|
|
|
(3,967,226 |
) |
|
|
-15.0 |
% |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
(327,433 |
) |
|
|
(760,324 |
) |
|
|
432,891 |
|
|
|
-56.9 |
% |
Interest income |
|
|
278,509 |
|
|
|
356,172 |
|
|
|
(77,663 |
) |
|
|
-21.8 |
% |
Interest expense |
|
|
(457,885 |
) |
|
|
(452,640 |
) |
|
|
(5,245 |
) |
|
|
1.2 |
% |
Total other
income (expense) |
|
|
(506,809 |
) |
|
|
(856,792 |
) |
|
|
349,983 |
|
|
|
-40.8 |
% |
Income before
income taxes |
|
|
21,957,110 |
|
|
|
25,574,353 |
|
|
|
(3,617,243 |
) |
|
|
-14.1 |
% |
Provision for
income taxes |
|
|
5,321,671 |
|
|
|
5,066,780 |
|
|
|
254,891 |
|
|
|
5.0 |
% |
Net income from continuing
operations, net of tax |
|
|
16,635,439 |
|
|
|
20,507,573 |
|
|
|
(3,872,134 |
) |
|
|
-18.9 |
% |
Net income from discontinued
operation, net of tax |
|
|
0 |
|
|
|
40,394 |
|
|
|
(40,394 |
) |
|
|
-100 |
% |
Net income, net of tax |
|
|
16,635,439 |
|
|
|
20,547,967 |
|
|
|
(3,912,528 |
) |
|
|
-19.0 |
% |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
(5,895,808 |
) |
|
|
24,710,375 |
|
|
|
(30,606,183 |
) |
|
|
-123.9 |
% |
Comprehensive income (loss) |
|
$ |
10,739,631 |
|
|
|
45,258,342 |
|
|
|
(34,518,711 |
) |
|
|
-76.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding |
|
|
39,165,010 |
|
|
|
38,551,264 |
|
|
|
613,746 |
|
|
|
1.6 |
% |
Basic net earnings per share |
|
$ |
0.42 |
|
|
|
0.53 |
|
|
|
(0.11 |
) |
|
|
-20.3 |
% |
Diluted weighted average shares
outstanding |
|
|
39,165,010 |
|
|
|
38,551,264 |
|
|
|
613,746 |
|
|
|
1.6 |
% |
Diluted net earnings per share |
|
|
0.42 |
|
|
|
0.53 |
|
|
|
(0.11 |
) |
|
|
-20.3 |
% |
Net Sales
Total net sales for the nine months ended March 31, 2019 were
$218,329,839, an increase of $9,046,811, or 4.3%, from $209,283,028
for the nine months ended March 31, 2018.This increase was largely
due to the increase of Gufeng’s net sales offset by decrease in
Jinong’s net sales for the nine months ended March 31, 2019.
For the nine months ended March 31, 2019, Jinong’s net sales
decreased of $18,914,144, or 23.5%, to $61,561,229 from $80,475,373
for the nine months ended March 31, 2018. This decrease was mainly
due to Jinong’s increased weight for lower-selling price products
sales in Jinong’s total sales, which was result of Jinong’s
implementation of its sales strategy that rebalances the production
of fertilizer types during the last nine months.
For the nine months ended March 31, 2019, Gufeng’s net sales were
$106,996,368, an increase of $25,393,984, or 31.1%, from
$81,602,384 for the nine months ended March 31, 2018. This increase
was mainly attributable to Gufeng’s higher sales volumes to answer
market demand during the nine months ended March 31, 2019.
For the nine months ended March 31, 2019, Yuxing’s net sales were
$7,828,981, an increase of $1,040,699, or 15.3%, from
$6,788,282 during the nine months ended March 31, 2018.
For the nine months ended March 31, 2019, VIEs’ net sales were $
41,943,261, an increase of $2,530,441 or 6.4% from $39,412,820 for
the nine months ended March 31, 2018. This increase was mainly
attributable to the increase in VIEs’ sales volume, which was
result of the increase in market demand during the nine months
ended March 31, 2019.
Cost of Goods Sold
Total cost of goods sold for the nine months ended March 31, 2019
was $168,458,999, an increase of $18,785,547, or 12.6%, from
$149,673,452 for the nine months ended March 31, 2018. This
increase was mainly due to the increase in Gufeng’s net sales.
Cost of goods sold by Jinong for the nine months ended March 31,
2019 was $31,289,473, a decrease of $8,615,205, or 21.6%, from
$39,904,678 for the nine months ended March 31, 2018. The decrease
was primarily due to the decrease in Jinong’s net sales during the
nine months ended March 31, 2019.
Cost of goods sold by Gufeng for the nine months ended March 31,
2019 was $94,544,943, an increase of $23,283,594, or 32.7%, from
$71,261,349 for the nine months ended March 31, 2018. This increase
was primarily attributable to the more products sold during the
last nine months.
For the nine months ended March 31, 2019, cost of goods sold by
Yuxing was $6,658,975, an increase of $1,212,195, or 22.3%, from
$5,446,780 for the nine months ended March 31, 2018. This increase
was mainly attributable to the increase in Yuxing’s net
sales.
Cost of goods sold by VIEs for the nine months ended March 31, 2019
was $35,965,608, an increase of $2,904,963, or 8.8%, from
$33,060,645 for the nine months ended March 31, 2018. This increase
was primarily attributable to the increase in net sales during the
last nine months.
Gross Profit
Total gross profit for the nine months ended March 31, 2019
decreased by $8,734,567, or 14.9%, to $49,870,840, as compared to
$58,605,407 for the nine months ended March 31, 2018. Gross profit
margin was 22.8% and 28.1% for the nine months ended March 31, 2019
and 2018, respectively. The decrease in gross profit margin was
mainly due to the decrease in Jinong’s net sales since Jinong is
the most profitable business segment with 49.2% of gross profit
margin.
Gross profit generated by Jinong decreased by $10,298,939, or
25.4%, to $30,271,756 for the nine months ended March 31, 2019 from
$40,570,695 for the nine months ended March 31, 2018. Gross profit
margin from Jinong’s sales was approximately 49.2% and 50.4% for
the nine months ended March 31, 2019 and 2018, respectively. The
decrease in gross profit margin was mainly due to lower selling
prices.
For the nine months ended March 31, 2019, gross profit generated by
Gufeng was $12,451,425, an increase of $2,110,390, or 20.4%, from
$10,341,502 for the nine months ended March 31, 2018. Gross profit
margin from Gufeng’s sales was approximately 11.6% and 12.7% for
the nine months ended March 31, 2019 and 2018, respectively. The
decrease in gross profit percentage was mainly due to the decreased
weight for higher-margin products sales in Gufeng’s total
sales.
For the nine months ended March 31, 2019, gross profit generated by
Yuxing was $1,170,006, a decrease of $171,496, or 12.8% from
$1,341,502 for the nine months ended March 31, 2018. The
gross profit margin was approximately 14.9% and 19.8% for the nine
months ended March 31, 2019 and 2018, respectively. The decrease in
gross profit margin was mainly due to the higher labor cost during
the nine months ended March 31, 2019.
For the nine months ended March 31, 2019, gross profits generated
by VIEs were $5,977,653, a decrease of $374,522, or 5.9%, from
$6,352,175 for the nine months ended March 31, 2018. Gross profit
margin from VIEs’ sales was approximately 14.3% and 16.1% for the
nine months ended March 31, 2019 and 2018, respectively. The
decrease in gross profit percentage was mainly due to lower selling
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 $18,370,524, or
8.4%, of net sales for the nine months ended March 31, 2019, as
compared to $16,375,971, or 7.9% of net sales for the nine months
ended March 31, 2018, an increase of $1,994,553, or 12.2%. The
selling expenses of Jinong for the nine months ended March 31, 2019
were $16,538,328, or 26.9% of Jinong’s net sales, as compared to
selling expenses of $15,178,740, or 18.9% of Jinong’s net sales for
the nine months ended March 31, 2018. The selling expenses of
Yuxing were $42,952 or 0.5% of Yuxing’s net sales for the nine
months ended March 31, 2019, as compared to $32,835 or 1.1% of
Yuxing’s net sales for the nine months ended March 31, 2018.The
selling expenses of Gufeng were $331,949 or 0.3% of Gufeng’s net
sales for the nine months ended March 31, 2019, as compared to
$380,386 or 1.0% of Gufeng’s net sales for the nine months ended
March 31, 2018. The selling expenses of VIEs were $1,457,296, or
3.5%, of VIEs’ net sales for the nine months ended March 31, 2019,
as compared to $784,010, or 2.0% of VIEs’ net sales for the nine
months ended March 31, 2018.
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 $9,036,397, or 4.1% of net sales for
the nine months ended March 31, 2019, as compared to $15,798,290,
or 7.6%, of net sales for the nine months ended March 31, 2018, a
decrease of $6,761,894, or 42.8%. The decrease in general and
administrative expenses was mainly due to the adjustment for bad
debt expense during the last nine months.
Total Other Income and Expenses
Total other income and expenses consisted of income from subsidies
received from the PRC government, interest income, interest
expenses and bank charges. The total other expense for the nine
months ended March 31, 2019 was $506,809, as compared to $856,792
for the nine months ended March 31, 2018, a decrease of $349,983,
or 40.8%. The decrease was mainly due to the decrease for bank
charges.
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 $1,007,503 for
the nine months ended March 31, 2019, as compared to $2,689,188 for
the nine months ended March 31, 2018, a decrease of $1,681,685, or
62.5%.
Gufeng, subject to a tax rate of 25%, incurred income tax expenses
of $ 2,768,465 for the nine months ended March 31, 2019, as
compared to $1,899,873 for the nine months ended March 31, 2018, an
increase of $ 868,592, or 45.7%.
Yuxing has no income tax for the nine months ended March 31, 2019
as a result of being exempted from paying income tax, due to the
fact that its products fall into the tax exemption list set out in
the EIT.
Net Income
Net income for the nine months ended March 31, 2019 was
$16,635,439, a decrease of $3,912,528, or 19.0%, compared to
$20,547,967 for the nine months ended March 31, 2018. Net income as
a percentage of total net sales was approximately 7.6% and 9.8 %
for the nine months ended March 31, 2019 and 2018,
respectively.
Discussion of Segment Profitability Measures
As of March 31, 2019, 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 for 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, net income decreased by $9,619,550 or 62.8% to
$5,709,185 for the nine months ended March 31, 2019 from
$15,238,735 for the nine months ended March 31, 2018. The decrease
was principally due to a decrease in net sales.
For Gufeng, net income increased by $2,585,024 or 46.8% to
$8,111,897 for the nine months ended March 31, 2019 from $5,526,873
for the nine months ended March 31, 2018. The increase was
principally due to a significant increase in net sales.
For Yuxing, net losses increased by $2,924,775 or 528.6% to net
losses of $3,478,089 for the nine months ended March 31, 2019 from
$553,314 for the nine months ended March 31, 2018. The increase of
net losses was mainly due to a virus infection. Yuxing's major
products are flowers, green vegetables and fruits. The virus killed
many of the plants.
For the VIEs, the net income was $7,668,280 for year ended March
31, 2019, increased by $7,332,607 or 2,184.4%, from $335,673 for
nine months ended March 31, 2018. The increase was mainly due to
the decrease in general and administrative expenses for the sales
VIEs caused by the adjustment for bad debt expense.
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 March 31, 2019, cash and cash equivalents were $69,242,037, a
decrease of $81,563,602, or 54.1%, from $150,805,639 as of June 30,
2018.
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:
|
|
Nine Months Ended
March 31, |
|
|
|
2019 |
|
|
2018 |
|
Net cash provided by (used in) operating activities |
|
$ |
(77,964,267 |
) |
|
$ |
28,434,766 |
|
Net
cash provided by (used in) investing activities |
|
|
(42,880 |
) |
|
|
(55,691 |
) |
Net
cash provided by (used in) financing activities |
|
|
218,694 |
|
|
|
(5,935,789 |
|
Effect of exchange rate change on cash and cash equivalents |
|
|
(3,775,148 |
) |
|
|
8,145,894 |
) |
Net
increase (decrease) in cash and cash equivalents |
|
|
(81,563,601 |
) |
|
|
30,589,179 |
|
Cash and cash equivalents, beginning balance |
|
|
150,805,639 |
|
|
|
123,050,548 |
|
Cash and cash equivalents, ending balance |
|
$ |
69,242,037 |
|
|
$ |
153,639,728 |
|
Operating Activities
Net cash used in operating activities was $77,964,267 for the nine
months ended March 31, 2019, an increase of $106,399,032, or
374.2%, compared to net cash provided of $ 28,434,766 for
the nine months ended March 31, 2018. The increase of net cash
used in was mainly attributable to the increase in inventory,
advances to suppliers and other assets, offset by a decrease in
account receivable during the nine months ended March 31, 2019 as
compared to the same period in 2018.
Investing Activities
Net cash used in investing activities for the nine months ended
March 31, 2019 was $42,880, a decrease of $12,811, or 23.0%, from
$55,691 for the nine months ended March 31, 2018. The decrease was
mainly attributable to the decrease in purchase of plant, property,
and equipment.
Financing Activities
Net cash provided by in financing activities for the nine months
ended March 31, 2019 was $218,694, an increase of $6,154,483 or
103.7%, compared to cash provided by financing activities of $
5,935,789 for the nine months ended March 31, 2018, which was
largely due to we had repayment of loans for the nine months ended
March 31, 2018.
As of March 31, 2019, and June 30, 2018, our loans payables were as
follows:
|
|
March 31, 2019 |
|
|
June 30,
2018 |
|
Short term loans payable: |
|
$ |
4,470,000 |
|
|
$ |
4,726,300 |
|
Total |
|
$ |
4,470,000 |
|
|
$ |
4,726,300 |
|
Accounts Receivable
We had accounts receivable of $177,715,883 as of March 31, 2019, as
compared to $178,750,045 as of June 30, 2018, a decrease of
$1,034,162 or 0.6%, which is mainly attributable to Jinong. As of
March 31, 2019, Jinong had accounts receivable of $56,507,852, a
decrease of $5,020,922 or 8.2%, compared to $ 61,528,774 as of June
30, 2018.
Allowance for doubtful accounts in accounts receivable for the nine
months ended March 31, 2019 was $23,158,524, an increase of $
3,700,005 from $19,458,519 as of June 30, 2018, and the allowance
for doubtful accounts as a percentage of accounts receivable was
13.0% as of March 31, 2019 and 10.9% as of June 30, 2018.
Deferred assets
We had no deferred assets as of March 31, 2019 or June 30, 2018.
During the nine 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 deferred assets had been fully amortized as
of March 31, 2019.
Inventories
We had inventory of $132,579,212 as of March 31, 2019, as compared
to $ 53,784,814 as of June 30, 2018, an increase of $78,794,398, or
146.5%. The increase was primarily attributable to Gufeng’s
inventory. Gufeng’s inventory was $108,304,666 as of March 31,
2019, an increase of $ 52,287,318 or 93.3% compared to $ 56,017,348
as of June 30, 2018.
Advances to Suppliers
We had advances to suppliers of $51,055,495 as of March 31, 2019 as
compared to $25,194,463 as of June 30, 2018, representing an
increase of $25,861,032 or 102.6%. 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 its 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 $9,436,035 as of March 31, 2019 as
compared to $27,128,921 as of June 30, 2018, representing a
decrease of $17,692,886, or 65.2%. The decrease was primarily due
to the decrease of accounts payable for Gufeng. Gufeng’s accounts
payable were $548,395 as of March 31, 2019 as compared to
$1,782,064 as of June 30, 2018, representing a decrease of
$1,233,669, or 69.2%.
Unearned Revenue (Customer Deposits)
We had unearned revenue of $7,793,572 as of March 31, 2019 as
compared to $7,251,967 as of June 30, 2018, representing an
increase of $541,605, or 7.5%. The increase was mainly
attributable to the increase of unearned revenue for Gufeng.
Gufeng’s unearned revenue was $ 5,415,715 as of March 31, 2019,
compared to $ 3,178,157 unearned revenue as of June 30, 2018,
representing an increase of $ 2,237,558, or 70.4%. This increase
was a 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 the 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 the relevant criteria for revenue
recognition are satisfied are recorded as unearned revenue.
Our revenue consists of the 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 the 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 creditworthiness, 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 an
allowance for bad debts, and any accounts receivable of Yuxing that
are outstanding for more than 90 days will be accounted as an
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 deferred
assets had been fully amortized as of March 31, 2019.
Segment reporting
FASB ASC 280 requires the 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 March 31, 2019, we were organized into ten main business
units: Jinong (fertilizer production), Gufeng (fertilizer
production), Yuxing (agricultural products production), Lishijie
(agriculture sales), Jinyangguang (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 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 March 31, 2019, our accumulated other
comprehensive income was $9.5 million. We have not entered into any
hedging transactions in an effort to reduce our exposure to foreign
exchange risk. The value of RMB against the U.S. dollar and other
currencies is affected by, among other things, changes in the PRC’s
political and economic conditions. Between July 1, 2018
and
March 31, 2019, China’s currency dropped by a cumulative 1.3%
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
RMB exchange rate and lessen intervention in the foreign exchange
market.
Interest Rate Risk
We deposit surplus funds with Chinese banks earning daily interest.
We do not invest in any instruments for trading purposes. All of
our outstanding debt instruments carry fixed rates of interests.
The amount of short-term debt outstanding as of March 31, 2019 and
June 30, 2018 was $4.5 million and $4.7 million, respectively. We
are exposed to interest rate risk primarily with respect to our
short-term bank loans. Although the interest rates, which are based
on the banks’ prime rates with respect to our short-term loans, are
fixed for the terms of the loans, the terms are typically three to
twelve months for short-term bank loans and interest rates are
subject to change upon renewal. There were no material changes in
interest rates for short-term bank loans renewed during the three
months ended March 31, 2019. The original loan term on average is
one year, and the remaining average life of the short term-loans is
approximately three 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
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934 (“Exchange Act”), at the conclusion of the period ended March
31, 2019 we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, 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 Chief Executive Officer and
Chief Financial Officer concluded that as of the end of the period
covered by this 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 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 Chief
Executive Officer and Chief Financial Officer, 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 March 31, 2019 that have materially
affected or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no other actions, suits, proceedings, inquiries or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a material adverse effect.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
There were no unregistered sales of the Company’s equity securities
during the three months ended March 31, 2019, that were not
otherwise disclosed in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest,
sinking or purchase fund installment, or any other material
default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
There is no other information required to be disclosed under this
item which was not previously disclosed.
Item 6. Exhibits
The exhibits required by this item are set forth in the Exhibit
Index attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
CHINA
GREEN AGRICULTURE, INC. |
|
|
|
Date:
May 15, 2019 |
By: |
/s/
Zhuoyu “Richard” Li |
|
Name: |
Zhuoyu
“Richard” Li |
|
Title: |
Chief
Executive Officer |
|
|
(principal
executive officer) |
|
|
|
Date:
May 15, 2019 |
By: |
/s/
Yongcheng Yang |
|
Name: |
Yongcheng
Yang |
|
Title: |
Chief
Financial Officer |
|
|
(principal
financial officer and
principal
accounting officer) |
EXHIBIT INDEX
* Filed herewith
+ In accordance with the SEC Release 33-8238, deemed being
furnished and not filed.
45