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