In addition to historical information,
this report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. You can identify such forward-looking statements by terms such as “anticipates,” “believes,”
“could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “would” and similar
expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect
to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. These forward-looking statements may include, among other things, statements
relating to:
Also, forward-looking statements represent
our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference
in this report, or that we filed as exhibits to this report, in their entirety and with the understanding that our actual future
results may be materially different from what we expect.
Except as required by law, we assume no
obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from
those anticipated in any forward-looking statements, even if new information becomes available in the future.
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82,953,941
|
|
|
$
|
72,259,804
|
|
Accounts receivable, net
|
|
|
138,984,949
|
|
|
|
145,190,160
|
|
Inventories
|
|
|
146,848,526
|
|
|
|
162,013,889
|
|
Prepaid expenses and other current assets
|
|
|
3,305,910
|
|
|
|
2,776,370
|
|
Amount due from related parties
|
|
|
79,380
|
|
|
|
0
|
|
Advances to suppliers, net
|
|
|
29,136,516
|
|
|
|
32,713,817
|
|
Total Current Assets
|
|
|
401,309,221
|
|
|
|
414,954,039
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
24,830,646
|
|
|
|
26,669,938
|
|
Other Assets
|
|
|
264,294
|
|
|
|
267,907
|
|
Other Non-current Assets
|
|
|
12,375,236
|
|
|
|
13,352,645
|
|
Intangible Assets, Net
|
|
|
16,758,281
|
|
|
|
17,881,449
|
|
Goodwill
|
|
|
7,560,742
|
|
|
|
7,874,421
|
|
Total Assets
|
|
$
|
463,098,420
|
|
|
$
|
481,000,399
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,349,392
|
|
|
$
|
19,004,548
|
|
Customer deposits
|
|
|
6,164,137
|
|
|
|
6,514,619
|
|
Accrued expenses and other payables
|
|
|
11,995,286
|
|
|
|
12,029,722
|
|
Amount due to related parties
|
|
|
3,800,160
|
|
|
|
3,641,945
|
|
Taxes payable
|
|
|
29,621,164
|
|
|
|
31,357,690
|
|
Short term loans
|
|
|
3,774,600
|
|
|
|
3,640,000
|
|
Interest payable
|
|
|
698,301
|
|
|
|
720,720
|
|
Derivative liability
|
|
|
2,620
|
|
|
|
18,162
|
|
Convertible notes payable
|
|
|
7,238,358
|
|
|
|
7,517,307
|
|
Total Current Liabilities
|
|
|
80,644,018
|
|
|
|
84,444,714
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
$
|
80,644,018
|
|
|
|
84,444,714
|
|
|
|
|
|
|
|
|
|
|
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, 4,977,479 and 3,986,912 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively
|
|
|
4,977
|
|
|
|
3,987
|
|
Additional paid-in capital
|
|
|
148,593,455
|
|
|
|
138,012,445
|
|
Statutory reserve
|
|
|
31,306,794
|
|
|
|
31,237,891
|
|
Retained earnings
|
|
|
239,737,872
|
|
|
|
247,122,574
|
|
Accumulated other comprehensive income
|
|
|
(37,188,696
|
)
|
|
|
(19,821,211
|
)
|
Total Stockholders’ Equity
|
|
|
382,454,402
|
|
|
|
396,555,686
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
463,098,420
|
|
|
$
|
481,000,399
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Sales
|
|
|
|
|
|
|
Jinong
|
|
$
|
19,054,816
|
|
|
$
|
22,496,533
|
|
Gufeng
|
|
|
16,323,217
|
|
|
|
17,473,251
|
|
Yuxing
|
|
|
2,539,711
|
|
|
|
2,387,546
|
|
VIEs - others
|
|
|
12,903,827
|
|
|
|
15,597,476
|
|
Net sales
|
|
|
50,821,571
|
|
|
|
57,954,806
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
10,492,530
|
|
|
|
11,203,172
|
|
Gufeng
|
|
|
14,454,008
|
|
|
|
15,304,863
|
|
Yuxing
|
|
|
2,051,996
|
|
|
|
2,047,163
|
|
VIEs - others
|
|
|
10,663,790
|
|
|
|
12,929,968
|
|
Cost of goods sold
|
|
|
37,662,324
|
|
|
|
41,485,166
|
|
Gross profit
|
|
|
13,159,247
|
|
|
|
16,469,640
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
3,630,355
|
|
|
|
3,420,427
|
|
General and administrative expenses
|
|
|
16,341,792
|
|
|
|
2,309,359
|
|
Total operating expenses
|
|
|
19,972,147
|
|
|
|
5,729,786
|
|
Income from operations
|
|
|
(6,812,900
|
)
|
|
|
10,739,854
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(30,191
|
)
|
|
|
(38,330
|
)
|
Interest income
|
|
|
53,624
|
|
|
|
127,383
|
|
Interest expense
|
|
|
(77,202
|
)
|
|
|
(162,686
|
)
|
Total other income (expense)
|
|
|
(53,769
|
)
|
|
|
(73,633
|
)
|
Income before income taxes
|
|
|
(6,866,668
|
)
|
|
|
10,666,221
|
|
Provision for income taxes
|
|
|
449,131
|
|
|
|
1,654,416
|
|
Net income
|
|
|
(7,315,799
|
)
|
|
|
9,011,805
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(17,367,485
|
)
|
|
|
(15,987,792
|
)
|
Comprehensive income (loss)
|
|
$
|
(24,683,284
|
)
|
|
$
|
(6,975,987
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
4,504,510
|
|
|
|
3,241,412
|
|
Basic net earnings per share
|
|
$
|
(1.62
|
)
|
|
$
|
2.78
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
4,504,510
|
|
|
|
3,241,412
|
|
Diluted net earnings per share
|
|
$
|
(1.62
|
)
|
|
|
2.78
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2019 AND 2018
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
Total
|
|
|
|
Number
|
|
|
Common
|
|
|
Paid In
|
|
|
Statutory
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Of Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Reserve
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
BALANCE, JUNE 30, 2019
|
|
|
3,986,912
|
|
|
$
|
3,987
|
|
|
$
|
138,012,445
|
|
|
|
31,237,891
|
|
|
|
247,122,574
|
|
|
|
(19,821,211
|
)
|
|
|
396,555,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,315,799
|
)
|
|
|
|
|
|
|
(7,315,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock
|
|
|
931,000
|
|
|
|
931
|
|
|
|
10,251,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,252,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for accrued expenses
|
|
|
59,567
|
|
|
|
60
|
|
|
|
329,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,903
|
|
|
|
(68,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,367,484
|
)
|
|
|
(17,367,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30, 2019
|
|
|
4,977,479
|
|
|
$
|
4,978
|
|
|
$
|
148,593,454
|
|
|
$
|
31,306,794
|
|
|
$
|
239,737,872
|
|
|
$
|
(37,188,696
|
)
|
|
$
|
382,454,402
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
Total
|
|
|
|
Number
|
|
|
Common
|
|
|
Paid In
|
|
|
Statutory
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Of Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Reserve
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
BALANCE, JUNE 30, 2018
|
|
|
3,241,413
|
|
|
$
|
3,242
|
|
|
$
|
129,372,690
|
|
|
|
30,947,344
|
|
|
|
235,822,726
|
|
|
|
(3,598,215
|
)
|
|
|
392,547,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,011,805
|
|
|
|
|
|
|
|
9,011,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632,903
|
|
|
|
(632,903
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,987,792
|
)
|
|
|
(15,987,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30, 2018
|
|
|
3,241,414
|
|
|
$
|
3,243
|
|
|
$
|
129,372,689
|
|
|
$
|
31,580,247
|
|
|
$
|
244,201,628
|
|
|
$
|
(19,586,007
|
)
|
|
$
|
385,571,799
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
(7,315,799
|
)
|
|
$
|
9,011,805
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,188,190
|
|
|
|
1,226,500
|
|
Gain (Loss) on disposal of property, plant and equipment
|
|
|
33,435
|
|
|
|
4,451
|
|
Amortization of debt discount
|
|
|
20,899
|
|
|
|
103,219
|
|
Change in fair value of derivative liability
|
|
|
(15,104
|
)
|
|
|
(101,807
|
)
|
Changes in operating assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
429,665
|
|
|
|
31,722,160
|
|
Amount due from related parties
|
|
|
(80,911
|
)
|
|
|
(22,165
|
)
|
Other current assets
|
|
|
(652,477
|
)
|
|
|
1,012,668
|
|
Inventories
|
|
|
8,879,490
|
|
|
|
(34,434,298
|
)
|
Advances to suppliers
|
|
|
2,317,991
|
|
|
|
5,850,761
|
|
Other assets
|
|
|
454,095
|
)
|
|
|
(1,472,705
|
)
|
Changes in operating liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(924,134
|
)
|
|
|
(3,737,493
|
)
|
Customer deposits
|
|
|
(92,725
|
)
|
|
|
(1,218,707
|
)
|
Tax payables
|
|
|
(1,674,708
|
)
|
|
|
(457,945
|
)
|
Accrued expenses and other payables
|
|
|
505,315
|
|
|
|
962,954
|
|
Interest payable
|
|
|
6,412
|
|
|
|
69,442
|
|
Net cash provided by (used in) operating activities
|
|
|
3,079,634
|
|
|
|
8,518,839
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of plant, property, and equipment
|
|
|
(11,401
|
)
|
|
|
(31,273
|
)
|
Change in construction in process
|
|
|
(7,195
|
)
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
|
(18,596
|
)
|
|
|
(31,273
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common stock
|
|
|
10,252,000
|
|
|
|
|
|
Proceeds from loans
|
|
|
279,600
|
|
|
|
|
|
Advance from related party
|
|
|
200,000
|
|
|
|
|
|
Repayment of loans
|
|
|
-
|
|
|
|
(191,056
|
)
|
Net cash provided by (used in) financing activities
|
|
|
10,731,600
|
|
|
|
(191,056
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
(3,098,502
|
)
|
|
|
(5,947,491
|
)
|
Net increase in cash and cash equivalents
|
|
|
10,694,136
|
|
|
|
2,349,019
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
72,259,804
|
|
|
|
150,805,639
|
|
Cash and cash equivalents, ending balance
|
|
$
|
82,953,940
|
|
|
$
|
153,154,657
|
|
|
|
|
|
|
|
|
|
|
Supplement disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
70,789
|
|
|
$
|
106,597
|
|
Income taxes paid
|
|
$
|
2,661,878
|
|
|
$
|
2,118,026
|
|
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, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred
to as “the sales VIEs” or “the sales VIE companies”.
The
Company’s corporate structure as of September 30, 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 one natural person, who is not affiliated to the Company (“Yuxing’s Owner”). Effective the same day,
Yuxing’s Owner entered into a series of contractual agreements with Jinong pursuant to which Yuxing became the VIE of Jinong.
VIE
assessment
A
VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated
financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities
of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s
expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights
of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive
the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or
are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered
a VIE, the Company first performs a qualitative analysis, which requires certain subjective decisions regarding its assessments,
including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along
to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a
qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the
design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that
the entity was designed to pass along to its variable interest holders. When the primary beneficiary could not be identified through
a qualitative analysis, we used internal cash flow models to compute and allocate expected losses or expected residual returns
to each variable interest holder based upon the relative contractual rights and preferences of each interest holder in the VIE’s
capital structure.
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues
and expenses during the reporting periods. Management makes these estimates using the best information available at the time the
estimates are made. However, actual results could differ materially from those results.
Cash
and cash equivalents and concentration of cash
For
statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit with state owned
banks in the Peoples Republic of China (“PRC”) and banks in the United States, and other highly-liquid investments
with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of
cash in three major banks in China. The aggregate cash in such accounts and on hand as of September 30, 2019 and June 30, 2019
were $82,826,326 and $72,178,448, respectively. There is no insurance securing these deposits in China. In addition, the Company
also had $127,615 and $81,356 in cash in two banks in the United States as of September 30, 2019 and June 30, 2019 respectively.
Cash overdraft as of balance sheet date will be reflected as liabilities in the balance sheet. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Accounts
receivable
The Company’s policy is to
maintain reserves for potential credit losses on accounts receivable. Management regularly reviews the composition of
accounts receivable and analyzes customer credit worthiness, current economic trends and changes in customer payment patterns
to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are written off through a
charge to the valuation allowance. As of September 30, 2019, and June 30, 2019, the Company had accounts receivable of
$138,984,949 and $145,190,160, net of allowance for doubtful accounts of $27,993,503 and $33,515,410, respectively. The
Company adopts no policy to accept product returns after the sales delivery.
Inventories
Inventory
is valued at the lower of cost (determined on a weighted average basis) or market. Inventories consist of raw materials, work
in process, finished goods and packaging materials. The Company reviews its inventories regularly for possible obsolete goods
and establishes reserves when determined necessary. At September 30, 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 definitive
lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute
directly or indirectly to the entity’s future cash flows. The Company evaluates intangible assets for impairment at least
annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever
any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair
value. The Company has not recorded impairment of intangible assets as of September 30, 2019 and 2018 respectively.
Customer
deposits
Payments
received before all the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. When all revenue
recognition criteria are met, the customer deposits are recognized as revenue. As of September 30, 2019, and June 30, 2019, the
Company had customer deposits of $6,164,137 and $6,514,619, 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
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net Income for Basic Earnings Per Share
|
|
$
|
(7,315,799
|
)
|
|
$
|
9,011,805
|
|
Basic Weighted Average Number of Shares
|
|
|
4,504,510
|
|
|
|
3,241,412
|
|
Net Income Per Share – Basic
|
|
$
|
(1.62
|
)
|
|
$
|
2.78
|
|
Net Income for Diluted Earnings Per Share
|
|
$
|
(7,315,799
|
)
|
|
$
|
9,011,805
|
|
Diluted Weighted Average Number of Shares
|
|
|
4,504,510
|
|
|
|
3,241,412
|
|
Net Income Per Share – Diluted
|
|
$
|
(1.62
|
)
|
|
$
|
2.78
|
|
Recent
accounting pronouncements
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 in 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.
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 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.
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.
Income
Tax: In March 2018, the FASB issued ASU 2018-05 which amends ASC 740, “Income Taxes,” to provide guidance
on accounting for the tax effects of the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”) pursuant
to Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB
118”), which provides guidance on accounting for the tax effects of the Tax Act. Under SAB 118, companies are able to record
a reasonable estimate of the impact of the Tax Act if one is able to be determined and report it as a provisional amount during
the measurement period. The measurement period is not to extend beyond one year from the enactment date.
NOTE
3 – INVENTORIES
Inventories
consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Raw materials
|
|
$
|
62,610,039
|
|
|
$
|
102,268,620
|
|
Supplies and packing materials
|
|
$
|
479,704
|
|
|
$
|
496,138
|
|
Work in progress
|
|
$
|
368,578
|
|
|
$
|
390,708
|
|
Finished goods
|
|
$
|
83,390,205
|
|
|
$
|
58,858,423
|
|
Total
|
|
$
|
146,848,526
|
|
|
$
|
162,013,889
|
|
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Building and improvements
|
|
$
|
37,328,816
|
|
|
$
|
38,877,508
|
|
Auto
|
|
|
3,137,269
|
|
|
|
3,391,040
|
|
Machinery and equipment
|
|
|
17,375,507
|
|
|
|
18,125,539
|
|
Agriculture assets
|
|
|
0
|
|
|
|
741,044
|
|
Total property, plant and equipment
|
|
|
57,841,592
|
|
|
|
61,135,130
|
|
Less: accumulated depreciation
|
|
|
(33,010,946
|
)
|
|
|
(34,465,192
|
)
|
Total
|
|
$
|
24,830,646
|
|
|
$
|
26,669,938
|
|
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Land use rights, net
|
|
$
|
8,913,053
|
|
|
$
|
9,341,327
|
|
Technology patent, net
|
|
|
2,360
|
|
|
|
3,004
|
|
Customer relationships, net
|
|
|
1,781,605
|
|
|
|
2,174,564
|
|
Non-compete agreement
|
|
|
371,403
|
|
|
|
436,634
|
|
Trademarks
|
|
|
5,689,860
|
|
|
|
5,925,920
|
|
Total
|
|
$
|
16,758,281
|
|
|
$
|
17,881,449
|
|
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 $10,231,248). The intangible asset
is being amortized over the grant period of 50 years using the straight-line method.
On
August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately 11 acres (42,726
square meters or 459,898 square feet) at Ping Gu District, Beijing. The purchase cost was recorded at RMB1,045,950 (or $146,224).
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 $1,018,457). The intangible asset is being amortized over
the grant period of 50 years.
The
Land Use Rights consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Land use rights
|
|
$
|
11,395,929
|
|
|
|
11,868,721
|
|
Less: accumulated amortization
|
|
|
(2,482,876
|
)
|
|
|
(2,527,394
|
)
|
Total land use rights, net
|
|
$
|
8,913,053
|
|
|
|
9,341,327
|
|
TECHNOLOGY
PATENT
On
August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humic acid.
The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $821,335) and is
being amortized over the patent period of 10 years using the straight-line method. This technology patent has been fully amortized.
On
July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired technology
patent was estimated to be RMB9,200,000 (or $1,286,160) and is amortized over the remaining useful life of six years using the
straight-line method. As of June 30, 2019, this technology patent is fully amortized.
The
technology know-how consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Technology know-how
|
|
$
|
2,111,639
|
|
|
$
|
2,199,247
|
|
Less: accumulated amortization
|
|
|
(2,109,280
|
)
|
|
|
(2,196,243
|
)
|
Total technology know-how, net
|
|
$
|
2,360
|
|
|
$
|
3,004
|
|
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 $9,087,000) and is amortized over the remaining useful life of ten years.
On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired customer relationships
was estimated to be RMB16,472,179 (or $2,302,811) and is amortized over the remaining useful life of seven to ten years.
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Customer relationships
|
|
$
|
11,146,198
|
|
|
$
|
11,608,629
|
|
Less: accumulated amortization
|
|
|
(9,364,594
|
)
|
|
|
(9,434,065
|
)
|
Total customer relationships, net
|
|
$
|
1,781,605
|
|
|
$
|
2,174,564
|
|
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 $184,536) and is amortized over the remaining useful life of five years using the
straight line method. On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the
acquired non-compete agreements was estimated to be RMB6,150,683 (or $859,865) and is amortized over the remaining useful life
of five years using the straight line method.
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Non-compete agreement
|
|
$
|
1,141,248
|
|
|
$
|
1,188,597
|
|
Less: accumulated amortization
|
|
|
(769,845
|
)
|
|
|
(751,963
|
)
|
Total non-compete agreement, net
|
|
$
|
371,403
|
|
|
$
|
436,634
|
|
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 $5,689,860) and is subject to an annual impairment test.
AMORTIZATION
EXPENSE
Estimated
amortization expenses of intangible assets for the next five twelve months periods ended September 30, are as follows:
Twelve Months Ended on September 30,
|
|
Expense ($)
|
|
2020
|
|
|
1,501,676
|
|
2021
|
|
|
744,046
|
|
2022
|
|
|
560,232
|
|
2023
|
|
|
509,657
|
|
2024
|
|
|
371,644
|
|
NOTE
6 – OTHER NON-CURRENT ASSETS
Other
non-current assets mainly include advance payments related to leasing land for use by the Company. As of September 30, 2019, the
balance of other non-current assets was $14,252,051, which was 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 $0.1 million as expenses for the three months ended September 30, 2019.
Estimated
amortization expenses of the lease advance payments for the next four twelve-month periods ended September 30 and thereafter are
as follows:
Twelve months ending September 30,
|
|
|
|
2020
|
|
$
|
1,876,815
|
|
2021
|
|
$
|
1,876,815
|
|
2022
|
|
$
|
1,876,815
|
|
2023
|
|
$
|
1,876,815
|
|
2024 and thereafter
|
|
$
|
6,744,791
|
|
NOTE
7 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Payroll payable
|
|
$
|
23,135
|
|
|
$
|
24,891
|
|
Welfare payable
|
|
|
143,524
|
|
|
|
149,479
|
|
Accrued expenses
|
|
|
6,713,152
|
|
|
|
6,847,041
|
|
Other payables
|
|
|
4,998,230
|
|
|
|
4,886,202
|
|
Other levy payable
|
|
|
117,245
|
|
|
|
122,109
|
|
Total
|
|
$
|
11,995,286
|
|
|
$
|
12,029,722
|
|
NOTE
8 – AMOUNT DUE TO RELATED PARTIES
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 $3,564,900). For the three months Ended September 30, 2019 and 2018, Yuxing has sold approximately
$199,469 and $71,962 products to 900LH.com.
As
of September 30, 2019, and June 30, 2019, the amount due to related parties was $3,800,160 and $3,641,945, respectively. As
of September 30, 2019, and June 30, 2019, $978,600 and $1,019,200, 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 September 30, 2019, and June 30, 2019, the Company’s subsidiary, Jinong, owed 900LH.com $384,282 and $400,225, respectively.
On
July 1, 2018, Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”),
of which Mr. Zhuoyu Li, Chairman and CEO of the Company, served as Chairman. Pursuant to the lease, Jinong rented 612 square meters
(approximately 6,588 square feet) of office space from Kingtone Information. The lease provides for a two-year term effective
as of July 1, 2018 with monthly rent of RMB24,480 (approximately $3,422).
NOTE
9 – LOAN PAYABLES
As
of September 30, 2019, the short-term loan payables consisted of three loans which mature on dates ranging from June 2, 2020 through
June 27, 2020 with interest rates ranging from 5.22% to 6.31%. All loans are collateralized by Tianjuyuan’s land use right
and building ownership right.
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest Rate
|
|
|
September 30,
2018
|
|
1
|
|
Postal Saving Bank of China - Pinggu Branch
|
|
June 3, 2019-June 2, 2020
|
|
|
6.31
|
%
|
|
|
2,760,000
|
|
2
|
|
Beijing Bank - Pinggu Branch
|
|
June 28, 2019-June 27, 2020
|
|
|
5.22
|
%
|
|
|
699,000
|
|
3
|
|
Beijing Bank - Pinggu Branch
|
|
August 14, 2019-June 27, 2020
|
|
|
5.22
|
%
|
|
|
279,600
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
3,774,600
|
|
The
interest expense from short-term loans was $70,789 and $93,122 for the period ended September 30, 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 ($7,129,800) 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, 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
mature date. The per share conversion price of the notes is the higher of the following: (i) $5.00 per share or (ii) 75% of the
closing price of the Company’s common stock on the date the noteholder delivers the conversion notice. 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 ($1,677,600) 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 was RMB 51,776,525 ($7,238,358) and RMB 51,629,859 ($7,217,854)
as of September 30, 2019 and June 30, 2019, 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 September 30, 2019, the accumulated
amortization of this discount into accretion expenses was $1,354,691.
NOTE
11 – TAXES PAYABLE
Enterprise
Income Tax
Effective
January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”)
and Foreign Invested Enterprises (“FIEs”). The EIT rate of 25% replaced the 33% rate that was applicable to both DEs
and FIEs. The two-year tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs was eliminated.
Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, because of the expiration
of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the three-month period ended September
30, 2019 and 2018 of $449,131 and $1,654,416, respectively, which is mainly due to the operating income from VIEs.
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.
On
April 28, 2017, the PRC State of Administration of Taxation (SAT) released Notice 2017 #37, “Notice on Policy of Reduced
Value Added Tax Rate,” under which, effective July 1, 2017, all of the Company’s fertilizer products that are
produced and sold in the PRC are subject to a Chinese Value-Added Tax (VAT) of 11% of the gross sales price. The tax rate was
reduced 2% from 13%.
On
April 4, 2018, the PRC State of Administration of Taxation (SAT) released Notice 2018 #32, “Notice on Adjustment of VAT
Tax Rate,” under which, effective May 1, 2018, all of the Company’s fertilizer products that are produced and
sold in the PRC are subject to a Chinese Value-Added Tax (VAT) of 10% of the gross sales price. The tax rate was reduced 1% from
11%.
On March 20, 2019, the PRC State of Administration
of Taxation (SAT) released Notice 2019 #39, “Announcement on Policies Concerning Deepening the Reform of Value Added
Tax,” under which, effective April 1, 2019, all of the Company’s fertilizer products that are produced and sold
in the PRC are subject to a Chinese Value-Added Tax (VAT) of 9% of the gross sales price. The tax rate was reduced 1% from 10%.
Income
Taxes and Related Payables
|
|
Sept 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
VAT provision
|
|
$
|
(395,421
|
)
|
|
$
|
(424,535
|
)
|
Income tax payable
|
|
|
(179,628
|
)
|
|
|
1,550,830
|
|
Other levies
|
|
|
1,185,679
|
|
|
|
1,220,859
|
|
Total
|
|
$
|
610,630
|
|
|
$
|
2,347,154
|
|
The
provision for income taxes consists of the following
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current tax - foreign
|
|
$
|
449,131
|
|
|
$
|
1,654,416
|
|
Deferred tax
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
449,131
|
|
|
$
|
1,654,416
|
|
Tax
Rate Reconciliation
Our effective tax rates were approximately
-6.5% and 15.5% for the three Months Ended September 30, 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 three months Ended September 30, 2019 and 2018 for the following reasons:
September
30, 2019
|
|
China
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
15% - 25%
|
|
|
|
|
|
21%
|
|
|
|
|
|
Total
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(6,527,995
|
)
|
|
|
|
|
|
|
(338,673
|
)
|
|
|
|
|
|
$
|
(6,866,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
(1,631,999
|
)
|
|
|
25.0
|
%
|
|
|
(71,121
|
)
|
|
|
21.0
|
%
|
|
|
(1,703,120
|
)
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(61,659
|
)
|
|
|
0.9
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
(61,659
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
2,142,789
|
|
|
|
(32.8
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,142,789
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
71,121
|
|
|
|
(21.0
|
)%
|
|
|
71,121
|
|
|
|
|
|
Actual tax expense
|
|
$
|
449,131
|
|
|
|
(6.9
|
)%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
449,131
|
|
|
|
(6.5
|
)%
|
September
30, 2018
|
|
China
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
|
|
|
|
|
|
15%
- 25%
|
|
|
|
|
|
21%
|
|
|
|
|
|
Total
|
|
|
|
|
Pretax income (loss)
|
|
$
|
11,287,985
|
|
|
|
|
|
|
|
(621,765
|
)
|
|
|
|
|
|
$
|
10,666,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
2,821,996
|
|
|
|
25.0
|
%
|
|
|
(130,571
|
)
|
|
|
21.0
|
%
|
|
|
2,691,426
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(1,041,180
|
)
|
|
|
(9.5
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,041,180
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit
is recognized
|
|
|
(126,400
|
)
|
|
|
(1.1
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(126,400
|
)
|
|
|
|
|
Change in valuation allowance on deferred tax
asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
130,571
|
|
|
|
(21.0
|
)%
|
|
|
130,571
|
|
|
|
|
|
Actual tax expense
|
|
$
|
1,654,416
|
|
|
|
14.7
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
1,654,416
|
|
|
|
15.5
|
%
|
NOTE
12 – STOCKHOLDERS’ EQUITY
Common
Stock
On
July 2, 2019, the Company issued 59,567 shares of common stock to pay off consulting services under the 2009 Plan. The value of
the stock was $330,000 and was based on the fair value of the Company’s common stock on the grant date.
On
August 13, 2019, the Company sold 212,000 shares of common stock at the price of $10.00 per share for total proceeds of $2,120,000
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.
On August 15, 2019, Shaanxi Baoyu Science
and Technology Investment Company, a limited liability investment company incorporated in the People’s Republic of China
(“Shaanxi Baoyu”), entered into a certain Stock Purchase Agreement (the “SPA”) pursuant to Regulation
S promulgated under the Securities Act of 1933 with the Company in connection with a private placement offering of 471,000 shares
of Common Stock, par value $0.001 per share, of the Company. The purchase price per share of the offering was $12.00 for total
proceeds of $5,652,000. On August 16, 2019, the Company issued 471,000 Shares of the Company’s Common Stock, par value $0.001
per share, to Shaanxi Baoyu, pursuant to the SPA.
On August 19, 2019, the Company sold 248,000
shares of common stock at the price of $10.00 per share for total proceeds of $2,480,000 to certain unrelated individuals. The
issuances were completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities
Act of 1933, as amended.
On November 15, 2019, the Company issued
995,000 shares of common stock at the price of $5.00 per share for the total amount of $4,975,000 to the holders of the Company’s
convertible notes payable in connection with the payment of the convertible notes’ principal and interests. The convertible
notes were issued on June 30, 2016 and matured on June 30, 2019.
There were no shares of common stock issued during the quarter
ended September 30, 2018.
As of September 30, 2019, and June 30,
2019, there were 4,977,479 and 3,986,912 shares of common stock issued and outstanding, respectively.
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.
As
of September 30, 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
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 only one vendor from which
the Company purchased more than 10% of its raw materials, with the total of 10.6% of its raw materials for the three months ended
September 30, 2019. Total purchases from this vendor are $1,859,830 for the three-month period ended September 30, 2019.
There
were four vendors from each of which the Company purchased more than 10% of its raw materials, with the total of 47.6% of its
raw materials for the three months ended September 30, 2018. Total purchases from these four vendors amounted to $26,676,809 for
the three-month period ended September 30, 2018.
No customer accounted for over 10% of the Company’s sales
for the three months Ended September 30, 2019 and 2018.
NOTE
14 – SEGMENT REPORTING
The Company is organized into four main
business segments, based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural
products production) and the sales VIEs. Each of the four operating segments referenced above has separate and distinct general
ledgers. The chief operating decision maker (“CODM”) receives financial information, including revenue, gross margin,
operating income and net income produced from the various general ledger systems to make decisions about allocating resources
and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income by segment.
|
|
Three Months Ended September 30,
|
|
Revenues from unaffiliated customers:
|
|
2019
|
|
|
2018
|
|
Jinong
|
|
$
|
19,054,816
|
|
|
$
|
22,496,533
|
|
Gufeng
|
|
|
16,323,217
|
|
|
|
17,473,251
|
|
Yuxing
|
|
|
2,539,711
|
|
|
|
2,387,546
|
|
Sales VIEs
|
|
|
12,903,827
|
|
|
|
15,597,474
|
|
Consolidated
|
|
$
|
50,821,571
|
|
|
$
|
57,954,804
|
|
|
|
|
|
|
|
|
|
|
Operating income :
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
578,043
|
|
|
$
|
6,928,090
|
|
Gufeng
|
|
|
(11,500,258
|
)
|
|
|
1,609,052
|
|
Yuxing
|
|
|
154,678
|
|
|
|
193,177
|
|
Sales VIEs
|
|
|
4,293,317
|
|
|
|
2,631,299
|
|
Reconciling item (1)
|
|
|
0
|
|
|
|
0
|
|
Reconciling item (2)
|
|
|
(338,680
|
)
|
|
|
(621,764
|
)
|
Consolidated
|
|
$
|
(6,812,900
|
)
|
|
$
|
10,739,854
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
524,101
|
|
|
$
|
5,900,016
|
|
Gufeng
|
|
|
(11,511,954
|
)
|
|
|
1,120,344
|
|
Yuxing
|
|
|
154,555
|
|
|
|
193,178
|
|
Sales VIEs
|
|
|
3,868,486
|
|
|
|
2,420,029
|
|
Reconciling item (1)
|
|
|
6
|
|
|
|
2
|
|
Reconciling item (2)
|
|
|
(338,680
|
)
|
|
|
(621,766
|
)
|
Reconciling item (3)
|
|
|
(12,315
|
)
|
|
|
|
|
Consolidated
|
|
$
|
(7,315,800
|
)
|
|
$
|
9,011,805
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
191,078
|
|
|
$
|
198,258
|
|
Gufeng
|
|
|
520,335
|
|
|
|
536,619
|
|
Yuxing
|
|
|
295,654
|
|
|
|
304,818
|
|
Sales VIEs
|
|
|
181,123
|
|
|
|
186,806
|
|
Consolidated
|
|
$
|
1,188,190
|
|
|
$
|
1,226,500
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
6,412
|
|
|
|
69,442
|
|
Gufeng
|
|
|
70,789
|
|
|
|
93,122
|
|
Sales VIEs
|
|
|
1
|
|
|
|
123
|
|
Consolidated
|
|
$
|
77,202
|
|
|
$
|
162,686
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
4,578
|
|
|
$
|
3,036
|
|
Gufeng
|
|
|
0
|
|
|
|
26,988
|
|
Yuxing
|
|
|
6,823
|
|
|
|
1,249
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
11,401
|
|
|
$
|
31,273
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Identifiable assets:
|
|
|
|
|
|
|
Jinong
|
|
$
|
156,085,819
|
|
|
$
|
149,166,251
|
|
Gufeng
|
|
|
227,464,880
|
|
|
|
253,149,321
|
|
Yuxing
|
|
|
34,138,271
|
|
|
|
35,900,242
|
|
Sales VIEs
|
|
|
44,865,318
|
|
|
|
42,269,307
|
|
Reconciling item (1)
|
|
|
547,012
|
|
|
|
518,158
|
|
Reconciling item (2)
|
|
|
(2,879
|
)
|
|
|
(2,879
|
)
|
Consolidated
|
|
$
|
463,098,420
|
|
|
$
|
481,000,399
|
|
|
(1)
|
Reconciling
amounts refer to the unallocated assets or expenses of Green New Jersey.
|
|
(2)
|
Reconciling
amounts refer to the unallocated assets or expenses of the Parent Company.
|
NOTE
15 – COMMITMENTS AND CONTINGENCIES
On
July 1, 2018, Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”),
of which Mr. Zhuoyu Li, Chairman and CEO of the Company, served as Chairman. Pursuant to the lease, Jinong rented 612 square meters
(approximately 6,588 square feet) of office space from Kingtone Information. The lease provides for a two-year term effective
as of July 1, 2018 with monthly rent of RMB24,480 (approximately $3,488).
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 RMB 2,958(approximately $422).
Accordingly,
the Company recorded an aggregate of $11,729 and $11,985 as rent expenses from these committed property leases for the three-month
periods ended September 30, 2019 and 2018, respectively. The contingent rent expenses herein for the next five twelve-month periods
ended September 30, are as follows:
Years ending September 30,
|
|
|
|
2020
|
|
$
|
46,918
|
|
2021
|
|
|
46,918
|
|
2022
|
|
|
46,918
|
|
2023
|
|
|
46,918
|
|
2024
|
|
|
46,918
|
|
NOTE
16 – VARIABLE INTEREST ENTITIES
In
accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack
sufficient equity to finance their activities without additional financial support from other parties or whose equity holders
lack adequate decision making ability. All VIEs with which a company is involved must be evaluated to determine the primary beneficiary
of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
Green
Nevada through one of its subsidiaries, Jinong, entered into a series of agreements (the “VIE Agreements”) with Yuxing
for it to qualify as a VIE, effective June 16, 2013.
The
Company has concluded, based on the contractual arrangements, that Yuxing is a VIE and that the Company’s wholly-owned subsidiary,
Jinong, absorbs a majority of the risk of loss from the activities of Yuxing, thereby enabling the Company, through Jinong, to
receive a majority of Yuxing expected residual returns.
On
June 30, 2016 and January 1, 2017, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition
agreements and also into a series of contractual agreements to qualify as VIEs with the shareholders of the sales VIE Companies.
Jinong,
the sales VIE Companies, and the shareholders of the sales VIE Companies also entered into a series of contractual agreements
for the sales VIE Companies to qualify as VIEs (the “VIE Agreements”).
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 September 30, 2019 and June 30, 2019:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
889,411
|
|
|
$
|
818,312
|
|
Accounts receivable, net
|
|
|
34,488,345
|
|
|
|
29,933,837
|
|
Inventories
|
|
|
19,863,016
|
|
|
|
19,944,011
|
|
Other current assets
|
|
|
961,931
|
|
|
|
475,001
|
|
Related party receivable
|
|
|
79,380
|
|
|
|
(1,031
|
)
|
Advances to suppliers
|
|
|
673,998
|
|
|
|
3,606,384
|
|
Total Current Assets
|
|
|
56,956,081
|
|
|
|
54,776,514
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
9,122,482
|
|
|
|
9,753,039
|
|
Other assets
|
|
|
216,902
|
|
|
|
218,549
|
|
Intangible Assets, Net
|
|
|
9,627,167
|
|
|
|
10,212,668
|
|
Goodwill
|
|
|
3,080,957
|
|
|
|
3,208,779
|
|
Total Assets
|
|
$
|
79,003,589
|
|
|
$
|
78,169,549
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
15,764,216
|
|
|
|
17,250,276
|
|
Customer deposits
|
|
|
62,548
|
|
|
|
256,489
|
|
Accrued expenses and other payables
|
|
|
6,779,449
|
|
|
|
6,243,753
|
|
Amount due to related parties
|
|
|
41,178,737
|
|
|
|
42,680,723
|
|
Total Current Liabilities
|
|
$
|
63,784,950
|
|
|
$
|
66,431,241
|
|
Long-term Loan
|
|
|
0
|
|
|
|
0
|
|
Total Liabilities
|
|
$
|
63,784,950
|
|
|
$
|
66,431,241
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
15,218,639
|
|
|
|
11,738,308
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
|
79,003,589
|
|
|
$
|
78,169,549
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
15,443,538
|
|
|
$
|
17,985,020
|
|
Expenses
|
|
|
11,420,496
|
|
|
|
15,371,814
|
|
Net income
|
|
$
|
4,023,042
|
|
|
$
|
2,613,206
|
|
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 a written notice is provided. The Exclusive Option
Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.
Equity
Pledge Agreements
Pursuant
to the terms of certain Equity Pledge Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of
the sales VIE companies (the “Pledge Agreements”), the shareholders of the sales VIE companies pledged all of their
equity interests in the sales VIE companies to Jinong, including the proceeds thereof, to guarantee all of Jinong’s rights
and benefits under the Entrusted Management Agreements, the Exclusive Technology Supply Agreements, the Shareholder’ Voting
Proxy Agreements and the Exclusive Option Agreements. Prior to termination of the Pledge Agreements, the pledged equity interests
cannot be transferred without Jinong’s prior written consent. The Pledge Agreements may be terminated only upon the written
agreement of the parties.
Non-Compete
Agreements
Pursuant
to the terms of certain Non-Compete Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the
sales VIE companies (the “Non-Compete Agreements”), the shareholders of the sales VIE companies agreed that during
the period beginning on the initial date of their services with Jinong, and ending five (5) years after termination of their services
with Jinong, without Jinong’s prior written consent, they will not provide services or accept positions including but not
limited to partners, directors, shareholders, managers, proxies or consultants, provided by any profit making organizations with
businesses that may compete with Jinong. They will not solicit or interfere with any of the Jinong’s customers, or solicit,
induce, recruit or encourage any person engaged or employed by Jinong to terminate his or her service or engagement. If the shareholders
of the sales VIE companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; if
the damages are difficult to determine, remedies bore the shareholders of the sales VIE companies shall be no less than 50% of
the salaries and other expenses Jinong provided in the past.
The
Company entered into these VIE Agreements as a way for the Company to have more control over the distribution of its products.
The transactions are accounted for as business combinations in accordance with ASC 805. A summary of the purchase price allocations
at fair value is below:
For
acquisitions made on June 30, 2016:
Cash
|
|
$
|
708,737
|
|
Accounts receivable
|
|
|
6,422,850
|
|
Advances to suppliers
|
|
|
1,803,180
|
|
Prepaid expenses and other current assets
|
|
|
807,645
|
|
Inventories
|
|
|
7,787,043
|
|
Machinery and equipment
|
|
|
140,868
|
|
Intangible assets
|
|
|
270,900
|
|
Other assets
|
|
|
3,404,741
|
|
Goodwill
|
|
|
3,158,179
|
|
Accounts payable
|
|
|
(3,962,670
|
)
|
Customer deposits
|
|
|
(3,486,150
|
)
|
Accrued expenses and other payables
|
|
|
(4,653,324
|
)
|
Taxes payable
|
|
|
(16,912
|
)
|
Purchase price
|
|
$
|
12,385,087
|
|
A
summary of the purchase consideration paid is below:
Cash
|
|
$
|
5,568,500
|
|
Convertible notes
|
|
|
6,671,769
|
|
Derivative liability
|
|
|
144,818
|
|
|
|
$
|
12,385,087
|
|
The
cash component of the purchase price for these acquisitions made on June 30, 2016 was paid in July and August 2016.
For
acquisitions made on January 1, 2017:
Working Capital
|
|
$
|
941,192
|
|
Machinery and equipment
|
|
|
222,875
|
|
Intangible assets
|
|
|
1440
|
|
Goodwill
|
|
|
684,400
|
|
Customer Relationship
|
|
|
522,028
|
|
Non-compete Agreement
|
|
|
392,852
|
|
Purchase price
|
|
$
|
2,764,787
|
|
A
summary of the purchase consideration paid is below:
Cash
|
|
$
|
1,201,888
|
|
Convertible notes
|
|
|
1,559,350
|
|
Derivative liability
|
|
|
3,549
|
|
|
|
$
|
2,764,787
|
|
The
cash component of the purchase price for these acquisitions made on January 1, 2017 was paid during March 2017.
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
|
|
$
|
1,179,352
|
|
Intangible assets
|
|
|
896,559
|
|
Customer Relationship
|
|
|
684,727
|
|
Non-compete Agreement
|
|
|
211,833
|
|
Goodwill
|
|
|
538,488
|
|
Total Asset
|
|
$
|
2,614,401
|
|
In
return, the purchase consideration returned to the Company from Zhenbai’s shareholders is summarized below:
Cash
|
|
$
|
461,330
|
|
Interest Payable
|
|
|
83,039
|
|
Convertible notes
|
|
|
1,724,683
|
|
Derivative liability
|
|
|
13,353
|
|
Total Payback
|
|
$
|
2,282,406
|
|
Net Loss
|
|
|
(331,995
|
)
|
NOTE
18 – SUBSEQUENT EVENTS
On October 9, 2019, a lawsuit was filed
against the Company and certain of our officers in the United States District Court for the District of Nevada (the “Nevada
Federal Court”) by Plaintiff Glenn Little. The complaint alleges breach of fiduciary duty and shareholder oppression.
The Company believes the action is without merit and intends to vigorously oppose it.
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 69.6% and 69.0% of our total revenues for the three months Ended September 30, 2019 and 2018,
respectively. The sales VIEs generated 25.4% and 26.9% of our revenues for the three months Ended September 30, 2019 and 2018,
respectively. Yuxing serves as a research and development base for our fertilizer products.
Fertilizer
Products
As
of September 30, 2019, we had developed and produced a total of 730 different fertilizer products in use, of which 145 were developed
and produced by Jinong, 334 by Gufeng, and 251 by the VIE Companies.
Below
is a table that shows the metric tons of fertilizer sold by Jinong and Gufeng and the revenue per ton for the periods indicated:
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Change
2018 to 2019
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
(metric
tons)
|
|
|
|
|
|
|
|
Jinong
|
|
|
18,623
|
|
|
|
18,605
|
|
|
|
18
|
|
|
|
0.1
|
%
|
Gufeng
|
|
|
52,451
|
|
|
|
49,247
|
|
|
|
3,204
|
|
|
|
6.5
|
%
|
|
|
|
71,074
|
|
|
|
67,851
|
|
|
|
3,222
|
|
|
|
4.7
|
%
|
|
|
Three
Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(revenue
per tons)
|
|
Jinong
|
|
$
|
1,035
|
|
|
$
|
1,294
|
|
Gufeng
|
|
|
311
|
|
|
|
348
|
|
For
the three months ended September 30, 2019, we sold approximately 71,704 tons of fertilizer products, as compared to 67,851 metric
tons for the three months ended September 30, 2018. For the three months ended September 30, 2019, Jinong sold approximately 18,623
metric tons of fertilizer products, as compared to 18,605 metric tons for the three months ended September 30, 2018. For the three
months ended September 30, 2019, Gufeng sold approximately 52,451 metric tons of fertilizer products, as compared to 49,247 metric
tons for the three months ended September 30, 2018.
Our
sales of fertilizer products to customers in five provinces within China accounted for approximately 56.7% of our fertilizer revenue
for the three months ended September 30, 2019. Specifically, the provinces and their respective percentage contributing to our
fertilizer revenues were: Hebei (25.9%), Heilongjiang (10.9%), Inner Mongolia (9.0%), Liaoning (6.8%) and Shaanxi (4.1%).
As of September 30, 2019, we had a total
of 2,063 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled municipalities in China.
Jinong had 1,239 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 3.39% of its fertilizer revenues for the three months ended September 30, 2019.
Gufeng had 326 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for
83.8% of its revenues for the three months ended September 30, 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 and municipalities that accounted for 80.8% of our agricultural products
revenue for the three months ended September 30, 2019 were Shaanxi (71.3%), Sichuan (4.9%), and Gansu (4.6%).
Recent
Developments
New
Products
During the three months ended September
30, 2019, Jinong launched one new fertilizer product and added 19 new distributors. During the three months ended September 30,
2019, Gufeng did not launch any new fertilizer products but added one new distributor.
Strategic
Acquisitions
On
June 30, 2016 and January 1, 2017, through Jinong, we entered into (i) Strategic Acquisition Agreements (the “SAA”),
and (ii) Agreements for Convertible Notes (the “ACN”), with the shareholders of the companies as identified below
(the “Targets”).
June
30, 2016:
|
|
|
|
Cash
|
|
|
Principal
of
|
|
|
|
|
|
Payment
for
|
|
|
Notes
for
|
|
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
Company
Name
|
|
Business
Scope
|
|
(RMB[1])
|
|
|
(RMB)
|
|
Shaanxi
Lishijie Agrochemical Co., Ltd.
|
|
Sales of pesticides,
agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
|
10,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Songyuan Jinyangguang
Sannong Service Co., Ltd.
|
|
Promotion and
consulting services regarding agricultural technologies; Retail sales of chemical fertilizers (including compound fertilizers
and organic fertilizers); Wholesale and retail sales of pesticides, agricultural machinery and accessories; Collection of
agricultural information; Development of saline-alkali soil; Promotion and development of high-efficiency agriculture and
related information technology solutions for agriculture, agricultural and biological engineering high technologies; E-commerce;
Cultivation of freshwater fish, poultry, fruits, flowers, vegetables, and seeds; Recycling and complex utilization of straw
and stalk; Technology transfer and training; Recycling of agricultural materials ; Ecological industry planning.
|
|
|
8,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Shenqiu County Zhenbai
Agriculture Co., Ltd.
|
|
Cultivation of
crops; Storage, sales, preliminary processing and logistics distribution of agricultural by-products; Promotion and application
of agricultural technologies; Purchase and sales of agricultural materials; Electronic commerce.
|
|
|
3,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Weinan City Linwei
District Wangtian Agricultural Materials Co., Ltd.
|
|
Promotion and
application of new agricultural technologies; Professional prevention of plant diseases and insect pests; Sales of plant protection
products, plastic mulches, material, chemical fertilizers, pesticides, agricultural medicines, micronutrient fertilizers,
hormones, agricultural machinery and medicines, and gardening tools.
|
|
|
6,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Aksu Xindeguo Agricultural
Materials Co., Ltd.
|
|
Wholesale and
retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers,
compound fertilizers, plant growth regulators, agricultural machineries, and water economizers; Consulting services for agricultural
technologies; Purchase and sales of agricultural by- products.
|
|
|
10,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinjiang Xinyulei
Eco-agriculture Science and Technology Co., Ltd
|
|
Sales of chemical
fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, organic fertilizers, plant growth regulators,
agricultural machineries, and water economizers; Purchase and sales of agricultural by-products; Cultivation of fruits and
vegetables; Consulting services and training for agricultural technologies; Storage services; Sales of articles of daily use,
food and oil; On-line sales of the above-mentioned products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
37,000,000
|
|
|
|
51,000,000
|
|
(1)
|
The
exchange rate between RMB and U.S. dollars on June 30, 2016 is RMB1=US$0.1508, according to the exchange rate published by
Bank of China.
|
|
|
(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
|
|
|
(1)
|
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 $6,291,000) 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 $8,807,400) with
an annual fixed compound interest rate of 3% and term of three years.
Jinong
acquired the Targets using the VIE arrangement based on our need to further develop our business and comply with the regulatory
requirements under the PRC laws.
As
our business focuses on the production of fertilizer, all our business activities intertwine with those in the agriculture industry
in China. Specifically, we deal with compliance, regulation, safety, inspection, and licenses in fertilizer production, farm land
use and transfer, growing and distribution of agriculture goods, agriculture basic supplies, seeds, pesticides, and trades of
grains. It is an industry in which heavy regulations get implemented and strictly enforced. In addition, E-commerce, which is
also under strict government regulation in the PRC, has lately become a sales and distribution channel for agricultural products.
Currently, we are developing an online platform to connect the physical distribution network we either own or lease.
Compared
with the regulatory environment in other jurisdictions, the regulatory environment in the PRC is unique. For example, the “M&A
Rules” purports to require that an offshore special purpose vehicle controlled directly or indirectly by PRC companies or
individuals and formed for purposes of overseas listing through acquisition of PRC domestic interests held by such PRC companies
or individuals obtain the approval of the China Securities Regulatory Commission (the “CSRC”) prior to the listing
and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC
published procedures regarding its approval of overseas listings by special purpose vehicles.
For
both e-commerce and agriculture industries, PRC regulators limit the investment from foreign entities and set particularly rules
for foreign-owned entities to conduct business. We expect these limitations on foreign-owned entities will continue to exist in
e-commerce and agriculture industries. The VIE arrangement, however, provides feasibility for obtaining administrative approval
process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity.
The VIE agreements reduce uncertainty and the current limitation risk. It is our understanding that the VIE agreements, as well
as the control we obtained through VIE arrangement, are valid and enforceable. Such legal structure does not violate the known,
published, and current PRC laws. While there are substantial uncertainties regarding the interpretation and application of PRC
Laws and future PRC laws and regulations, and there can be no assurance that the PRC authorities will take a view that is not
contrary to or otherwise different from our belief and understanding stated above, we believe the substantial difficulty that
we experienced previously to conduct business in agriculture as a foreign ownership 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 is also subject to risk derived from the discretion
of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC. As a result, there
can no assurance that any of such PRC Laws will not be changed, amended or replaced in the immediate future or in the longer term
with or without retrospective effect.
Results
of Operations
Three
Months ended September 30, 2019 Compared to the Three Months ended September 30, 2018.
|
|
2019
|
|
|
2018
|
|
|
Change $
|
|
|
Change %
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
19,054,816
|
|
|
|
22,496,533
|
|
|
|
(3,441,717
|
)
|
|
|
-15.3
|
%
|
Gufeng
|
|
|
16,323,217
|
|
|
|
17,473,251
|
|
|
|
(1,150,034
|
)
|
|
|
-6.6
|
%
|
Yuxing
|
|
|
2,539,711
|
|
|
|
2,387,546
|
|
|
|
152,165
|
|
|
|
6.4
|
%
|
Sales VIEs
|
|
|
12,903,827
|
|
|
|
15,597,476
|
|
|
|
(2,693,649
|
)
|
|
|
-17.3
|
%
|
Net sales
|
|
|
50,821,571
|
|
|
|
57,954,806
|
|
|
|
(7,133,235
|
)
|
|
|
-12.3
|
%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
10,492,530
|
|
|
|
11,203,172
|
|
|
|
(710,642
|
)
|
|
|
-6.3
|
%
|
Gufeng
|
|
|
14,454,008
|
|
|
|
15,304,863
|
|
|
|
(850,855
|
)
|
|
|
-5.6
|
%
|
Yuxing
|
|
|
2,051,996
|
|
|
|
2,047,163
|
|
|
|
4,833
|
|
|
|
0.2
|
%
|
Sales VIEs
|
|
|
10,663,790
|
|
|
|
12,929,968
|
|
|
|
(2,266,178
|
)
|
|
|
-17.5
|
%
|
Cost of goods sold
|
|
|
37,662,324
|
|
|
|
41,485,166
|
|
|
|
(3,822,842
|
)
|
|
|
-9.2
|
%
|
Gross profit
|
|
|
13,159,247
|
|
|
|
16,469,640
|
|
|
|
(3,310,393
|
)
|
|
|
-20.1
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
3,630,355
|
|
|
|
3,420,427
|
|
|
|
209,928
|
|
|
|
6.1
|
%
|
General and administrative expenses
|
|
|
16,341,792
|
|
|
|
2,309,359
|
|
|
|
14,032,432
|
|
|
|
607.6
|
%
|
Total operating expenses
|
|
|
19,972,147
|
|
|
|
5,729,786
|
|
|
|
14,242,360
|
|
|
|
248.6
|
%
|
Income from operations
|
|
|
(6,812,900
|
)
|
|
|
10,739,854
|
|
|
|
(17,552,753
|
)
|
|
|
-163.4
|
%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(30,191
|
)
|
|
|
(38,330
|
)
|
|
|
8,139
|
|
|
|
-21.2
|
%
|
Interest income
|
|
|
53,624
|
|
|
|
127,383
|
|
|
|
(73,759
|
)
|
|
|
-57.9
|
%
|
Interest expense
|
|
|
(77,202
|
)
|
|
|
(162,686
|
)
|
|
|
85,484
|
|
|
|
-52.5
|
%
|
Total other income (expense)
|
|
|
(53,769
|
)
|
|
|
(73,633
|
)
|
|
|
19,864
|
|
|
|
-27.0
|
%
|
Income before income taxes
|
|
|
(6,866,668
|
)
|
|
|
10,666,221
|
|
|
|
(17,532,889
|
)
|
|
|
-164.4
|
%
|
Provision for income taxes
|
|
|
449,131
|
|
|
|
1,654,416
|
|
|
|
(1,205,285
|
)
|
|
|
-72.9
|
%
|
Net income
|
|
|
(7,315,799
|
)
|
|
|
9,011,805
|
|
|
|
(16,327,604
|
)
|
|
|
-181.2
|
%
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(17,367,485
|
)
|
|
|
(15,987,792
|
)
|
|
|
(1,379,693
|
)
|
|
|
8.6
|
%
|
Comprehensive income (loss)
|
|
|
(24,683,284
|
)
|
|
|
(6,975,987
|
)
|
|
|
(17,707,297
|
)
|
|
|
253.8
|
%
|
Net
Sales
Total
net sales for the three months ended September 30, 2019 were $50,821,571 a decrease of $7,133,235 or 12.3%, from $57,954,806 for
the three months ended September 30, 2018. This decrease was primarily due to a decrease in Jinong’s and VIEs’ net
sales.
For
the three months ended September 30, 2019, Jinong’s net sales decreased $3,441,717, or 15.3%, to $19,054,816 from $22,496,533
for the three months ended September 30, 2018. This decrease was mainly attributable to the decrease in Jinong’s sales price
in the last three months.
For the three months ended September 30,
2019, Gufeng’s net sales were $16,323,217, a decrease of $1,150,034, or 6.6%, from $17,473,251 for the three months ended
September 30, 2018. This decrease was mainly attributable to the decrease in Gufeng’s sales price in the last three months.
For
the three months ended September 30, 2019, Yuxing’s net sales were $2,539,711, an increase of $152,165 or 6.4%, from $2,387,546
for the three months ended September 30, 2018. The increase was mainly attributable to the increase in market demand and the higher
prices on Yuxing’s top grade flowers during the three months ended September 30, 2019.
Cost
of Goods Sold
Total
cost of goods sold for the three months ended September 30, 2019 was $37,662,324, a decrease of $3,822,842, or 9.2%, from $41,485,166
for the three months ended September 30, 2018. The decrease was mainly due to the decrease in Jinong’s and VIEs’ cost
of goods sold which increased 6.3% and 17.5% respectively.
Cost
of goods sold by Jinong for the three months ended September 30, 2019 was $10,492,530, a decrease of $710,642, or 6.3%, from $11,203,172
for the three months ended September 30, 2018. The decrease in cost of goods was primarily due to the 15.3% decrease in net sale
during the last three months.
Cost
of goods sold by Gufeng for the three months ended September 30, 2019 was $14,454,008, a decrease of $850,755, or 5.6%, from $15,304,863
for the three months ended September 30, 2018. This decrease was primarily due to the 6.6% decrease in net sale during the last
three months.
For
three months ended September 30, 2019, cost of goods sold by Yuxing was $2,051,996, an increase of $4,833, or 0.2%, from $2,047,163
for the three months ended September 30, 2018. This increase was mainly due to the increase in Yuxing’s net sales during
the last three months.
Gross
Profit
Total
gross profit for the three months ended September 30, 2019 decreased by $3,310,393, or 20.1%, to $13,159,247, as compared to $16,469,640
for the three months ended September 30, 2018. Gross profit margin was 25.9% and 28.4% for the three Months Ended September 30,
2019 and 2018, respectively.
Gross
profit generated by Jinong decreased by $2,731,075, or 24.2%, to $8,562,286 for the three months ended September 30, 2019 from
$11,293,361 for the three months ended September 30, 2018. Gross profit margin from Jinong’s sales was approximately 44.9%
and 50.2% for the three Months Ended September 30, 2019 and 2018, respectively. The decrease in gross profit margin was mainly
due to the lower sales prices.
For
the three months ended September 30, 2019, gross profit generated by Gufeng was $1,869,209, a decrease of $299,179, or 13.8%,
from $2,168,388 for the three months ended September 30, 2018. Gross profit margin from Gufeng’s sales was approximately
11.5% and 12.4% for the three Months Ended September 30, 2019 and 2018, respectively. The decrease in gross profit was mainly
due to the increase in product costs and the decrease in sales prices.
For the three months ended September 30,
2019, gross profit generated by Yuxing was $487,715, an increase of $147,332, or 43.3% from $340,383 for the three months ended
September 30, 2018. The gross profit margin was approximately 19.2% and 14.3% for the three months Ended September 30, 2019 and
2018, respectively. The increase in gross profit percentage was mainly due to the decrease in product costs.
Gross profit generated by VIEs decreased
by $427,471, or 16.0%, to $2,240,037 for the three months ended September 30, 2019 from $2,667,508 for the three months ended
September 30, 2018. Gross profit margin from VIE’s sales was approximately 17.4% and 17.1% for the three months Ended September
30, 2019 and 2018, respectively, which was slightly increased.
Selling
Expenses
Our selling expenses consisted primarily
of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses
were $3,630,355, or 7.1%, of net sales for the three months ended September 30, 2019, as compared to $3,420,427, or 5.9%, of net
sales for the three months ended September 30, 2018, an increase of $209,928, or 6.1%.
The
selling expenses of Yuxing were $9,352 or 0.4% of Yuxing’s net sales for the three months ended September 30, 2019, as compared
to $17,729 or 0.7% of Yuxing’s net sales for the three months ended September 30, 2018. The selling expenses of Gufeng were
$69,291 or 0.4% of Gufeng’s net sales for the three months ended September 30, 2019, as compared to $76,764 or 0.4% of Gufeng’s
net sales for the three months ended September 30, 2018. The selling expenses of Jinong for the three months ended September 30,
2019 were $3,300,195 or 17.3% of Jinong’s net sales, as compared to selling expenses of $3,071,231 or 13.7% of Jinong’s
net sales for the three months ended September 30, 2018.
Selling
Expenses – amortization of deferred assets
Our
selling expenses - amortization of our deferred assets were 0 for the three months ended September 30, 2019 and 2018. All of the
deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets for the three months
ended September 30, 2019.
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 $16,341,792, or 32.2% of net sales for the three
months ended September 30, 2019, as compared to $2,309,359, or 4.0% of net sales for the three months ended September 30, 2018,
an increase of $14,032,432, or 607.6%.
Total
Other Expenses
Total other expenses consisted of income
from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other expense for
the three months ended September 30, 2019 was $73,633, as compared to $53,769 for the three months ended September 30, 2018, a
decrease in expense of $19,864, or 27.0%. The decrease in total other expense resulted from the decrease in net interest expenses.
Income
Taxes
Jinong
is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise
Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of $ 92,488 for
the three months ended September 30, 2019, as compared to $1,041,180 for the three months ended September 30, 2018, a decrease
of $948,692, or 91.1%.
Gufeng
is subject to a tax rate of 25%, incurred income tax expenses of $(68,276) for the three months ended September 30, 2019, as compared
to $395,255 for the three months ended September 30, 2018, a decrease of $463,531, or 117.3%, which was primarily due to Gufeng’s
decreased net income.
Yuxing has no income tax for the three months Ended September 30, 2019 and 2018 as a result of being exempted
from paying income tax due to its products fall into the tax exemption list set out in the EIT.
Net
Income (loss)
Net income (loss) for the three months
ended September 30, 2019 was $(7,315,799), a decrease of $16,327,604, or 181.2%, compared to $9,011,805 for the three months ended
September 30, 2018. Net income as a percentage of total net sales was approximately -14.4% and 15.5% for the three months Ended
September 30, 2019 and 2018, respectively.
Discussion
of Segment Profitability Measures
As
of September 30, 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 about development, production and sales.
Each
of the four operating segments referenced above has separate and distinct general ledgers. The chief operating decision maker
(“CODM”) makes decisions with respect to resources allocation and performance assessment upon receiving financial
information, including revenue, gross margin, operating income and net income produced from the various general ledger systems;
however, net income by segment is the principal benchmark to measure profit or loss adopted by the CODM.
For Jinong, the net income decreased by
$5,375,915, or 91.1%, to $524,101 for three months ended September 30, 2019, from $5,900,016 for the three months ended September
30, 2018. The decrease was principally due to the increase in general and administrative expense.
For Gufeng, the net income decreased by
$12,632,298, or 1,127.5%, to $(11,511,954) for three months ended September 30, 2019 from $1,120,344 for three months ended September
30, 2018. The decrease was principally due to the increase in general and administrative expense.
For Yuxing, the net income decreased $38,623,
or 20.1%, to $154,555 for three months ended September 30, 2019 from $193,178 for three months ended September 30, 2018. The decrease
was mainly due to the increase in general and administrative expense.
For the sales VIEs, the net income was
$3,868,490 for period ended September 30, 2019, increased by $ 1,488,855, or 62.6%, from $ 2,379,635 for three months ended September
30, 2018. The increase was mainly due to the decrease in general and administrative expenses for the sales VIEs.
Liquidity
and Capital Resources
Our principal sources of liquidity include
cash from operations, borrowings from local commercial banks and net proceeds of offerings of our securities.
As
of September 30, 2019, cash and cash equivalents were $82,953,941, an increase of $10,694,137, or 14.8%, from $72,259,804 as of
June 30, 2019.
We intend to use some of the remaining
net proceeds from our securities offerings, as well as other working capital if required, to acquire new businesses, upgrade production
lines and complete Yuxing’s new greenhouse facilities for agriculture products located on 88 acres of land in Hu County,
18 kilometers southeast of Xi’an city. Yuxing purchased a set of agricultural products testing equipment for the year of
2016. We believe that we have sufficient cash on hand and positive projected cash flow from operations to support our business
growth for the next twelve months to the extent we do not have further significant acquisitions or expansions. However, if events
or circumstances occur and we do not meet our operating plan as expected, we may be required to seek additional capital and/or
to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives.
Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market
conditions are most advantageous, which may include additional debt and/or equity financings. There can be no assurance that any
additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing
stockholders and any debt financing may include restrictive covenants.
The
following table sets forth a summary of our cash flows for the periods indicated:
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net cash provided by (used in) operating activities
|
|
|
3,079,634
|
|
|
|
8,518,839
|
|
Net cash provided by (used in) investing activities
|
|
|
(18,596
|
)
|
|
|
(31,273
|
)
|
Net cash provided by (used in) financing activities
|
|
|
10,731,600
|
|
|
|
(191,056
|
)
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
(3,098,502
|
)
|
|
|
(5,947,491
|
)
|
Net increase in cash and cash equivalents
|
|
|
10,694,136
|
|
|
|
2,349,019
|
|
Cash and cash equivalents, beginning balance
|
|
|
72,259,804
|
|
|
|
150,805,639
|
|
Cash and cash equivalents, ending balance
|
|
$
|
82,953,940
|
|
|
$
|
153,154,657
|
|
Operating
Activities
Net cash provided in operating activities
was $3,079,634 for the three months ended September 30, 2019, a decrease of $5,439,205, or 63.8%, from cash provided by operating
activities of $8,518,839 for the three months ended September 30, 2018. The decrease was mainly due to a decrease in accounts
receivable, decrease in advances to suppliers and decrease in net income during the three months ended September 30, 2019 as compared
to the same period in 2018.
Investing
Activities
Net
cash used in investing activities for the three months ended September 30, 2019 was $18,596, compared to cash used in investing
activities of $31,273 for the three months ended September 30, 2018. The different was due to Company purchased less plant, property
and equipment during the last three months compared to the same period last year.
Financing
Activities
Net
cash provided by financing activities for the three months ended September 30, 2019 was $10,731,600, compared to $191,056 net
cash used in financing activities for the three months ended September 30, 2018, which was largely attribute to $10,252,000 proceeds
from the sale of common stock for the three months ended September 30, 2019, compared to 0 in the same period last year.
As
of September 30, 2019 and June 30, 2019, our loans payable were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Short term loans payable:
|
|
$
|
3,774,600
|
|
|
$
|
3,640,000
|
|
Total
|
|
$
|
3,774,600
|
|
|
$
|
3,640,000
|
|
Accounts
Receivable
We had accounts receivable of $138,984,949
as of September 30, 2019, as compared to $145,190,160 as of June 30, 2019, a decrease of $6,205,211, or 4.3%. The decrease was
primarily attributable to Gufeng’s accounts receivable. As of September 30, 2019, Gufeng’s accounts receivable was
$72,717,257, a decrease of $12,714,906, or 14.9%, compared to $85,432,163 as of June 30, 2019.
Allowance for doubtful accounts in accounts
receivable for the three months ended September 30, 2019 was $27,993,503, a decrease of $5,521,907, or 16.5%, from $33,515,410
as of June 30, 2019. And the allowance for doubtful accounts as a percentage of accounts receivable was 16.8% as of September
30, 2019 and 18.8% as of June 30, 2019.
Deferred
assets
We
had no deferred assets as of September 30, 2019 and June 30, 2019. During the three months, we assisted the distributors in certain
marketing efforts and developing standard stores to expand our competitive advantage and market shares. Based on the distributor
agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed over three
years if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement
with us earlier than the contractual terms, the unamortized portion of the amount owed by the distributor is payable to us immediately. The
deferred assets had been fully amortized as of September 30, 2019.
Inventories
We
had inventories of $146,848,526 as of September 30, 2019, as compared to $162,013,889 as of June 30, 2019, a decrease of $15,165,363,
or 9.4%. The decrease was primarily attributable to Gufeng’s inventory. As of September 30, 2019, Gufeng’s inventory
was $125,956,806, compared to $141,210,160 as of June 30, 2019, a decrease of $15,253,354, or 10.8%.
Advances
to Suppliers
We had advances to suppliers of $29,136,516
as of September 30, 2019 as compared to $32,713,817 as of June 30, 2019, representing a decrease of $3,577,301, or 10.9%. Our
inventory level may fluctuate from time to time, depending how quickly the raw material is consumed and replenished during the
production process, and how soon the finished goods are sold. The replenishment of raw material relies on management’s
estimate of numerous factors, including but not limited to, the raw materials future price, and spot price along with 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 $17,349,392
as of September 30, 2019 as compared to $19,004,548 as of June 30, 2019, representing a decrease of $1,655,156, or 8.7%. The decrease
was primarily due to the decrease of accounts payable for VIEs. They have accounts payable of $15,634,763 as of September 30,
2019 as compared to $17,073,229 as of June 30, 2019, representing a decrease of $1,438,466, or 8.4%.
Unearned
Revenue (Customer Deposits)
We had customer deposits of $6,164,137
as of September 30, 2019 as compared to $6,514,619 as of June 30, 2019, representing a decrease of $350,482, or 5.4%. The decrease
was mainly attributable to Jinong’s $1,432,745 unearned revenue as of September 30, 2019, compared to $1,589,158 unearned
revenue as of June 30, 2019, decreased $156,413, or 9.8%, caused by the advance deposits made by clients. This decrease was due
to seasonal fluctuation and we expect to deliver products to our customers during the next three months at which time we will
recognize the revenue.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect
the selection and application of accounting policies which require management to make significant estimates and judgments. See
Note 2 to our consolidated financial statements, “Basis of Presentation and Summary of Significant Accounting Policies.”
We believe that the following paragraphs reflect the most critical accounting policies that currently affect our financial condition
and results of operations:
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues
and expenses during the reporting periods. Management makes these estimates using the best information available at the time the
estimates are made. However, actual results could differ materially from those estimates.
Revenue
recognition
Sales
revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, we have no other significant obligations and collectability is reasonably assured. Payments received
before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Our
revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is
made as products delivered and accepted by customers are normally not returnable and sales discounts are normally not granted
after products are delivered.
Cash
and cash equivalents
For
statement of cash flows purposes, we consider all cash on hand and in banks, certificates of deposit and other highly-liquid investments
with maturities of three months or less, when purchased, to be cash and cash equivalents.
Accounts
receivable
Our
policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves. Any accounts receivable of Jinong and Gufeng
that are outstanding for more than 180 days will be accounted as allowance for bad debts, and any accounts receivable of Yuxing
that are outstanding for more than 90 days will be accounted as allowance for bad debts.
Deferred
assets
Deferred
assets represent amounts the Company advanced to the distributors in their marketing and stores development to expand our competitive
advantage and market shares. Based on the distributor agreements, the amount owed by the distributors in certain marketing
efforts and store development will be expensed over three years if the distributors are actively selling our products. If a distributor
defaults, breaches, or terminates the agreement with us earlier than the realization of the contractual terms, the unamortized
portion of the amount owed by the distributor is to be refunded to us immediately. The deferred assets had been fully amortized
as of September 30, 2019.
Segment
reporting
FASB
ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based
on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management structure, or any other way management
disaggregates a company.
As
of September 30, 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 the U.S. dollars and RMB. If RMB depreciates
against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements
will decline. Assets and liabilities are translated at the exchange rates as of the balance sheet dates, revenues and expenses
are translated at the average exchange rates, and shareholders’ equity is translated at historical exchange rates. Any resulting
translation adjustments are not included in determining net income but are included in determining other comprehensive income,
a component of shareholders’ equity. As of September 30, 2019, our accumulated other comprehensive loss was $37 million.
We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of the
RMB against the U.S. dollar and other currencies is affected by, among other things, changes in PRC’s political and economic
conditions. Between July 1, 2019 and September 30, 2019, China’s currency dropped by a cumulative 4.2% 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 interest. The amount of short-term debt outstanding as of September 30,
2019 and June 30, 2019 was $3.8 million and $3.6 million, respectively. We are exposed to interest rate risk primarily with respect
to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our
short-term loans, are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans
and interest rates are subject to change upon renewal. There was no material change in interest rates for short-term bank loans
renewed during the three months ended September 30, 2019. The original loan term on average is one year, and the remaining average
life of the short term-loans is approximately nine 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
September 30, 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 September 30, 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.