Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____________ to ____________

Commission File Number 001-34260

CHINA GREEN AGRICULTURE, INC.

(Exact name of registrant as specified in its charter)

Nevada		36-3526027
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

3rd floor, Borough A, Block A. No. 181, South Taibai

Road, Xi’an, Shaanxi province, PRC 710065

(Address of principal executive offices) (Zip Code)

+86-29-88266368

(Issuer’s telephone number, including area code)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		CGA		NYSE

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,350,129 shares of common stock, $0.001 par value, as of February 14, 2020.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Consolidated Condensed Balance Sheets As of December 31, 2019 (Unaudited) and June 30, 2019	1

	Consolidated Condensed Statements of Income and Comprehensive Income For the Three and Six Months Ended December 31, 2019 and 2018 (Unaudited)	2

	Consolidated Condensed Statements of Stockholders’ Equity For the Six Months Ended December 31, 2019 and 2018 (Unaudited)	3

	Consolidated Condensed Statements of Cash Flows For the Six Months Ended December 31, 2019 and 2018 (Unaudited)	4

	Notes to Consolidated Condensed Financial Statements As of December 31, 2019 (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	38

PART II	OTHER INFORMATION	39

Item 6.	Exhibits	39

Signatures		40

Exhibits/Certifications		41

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

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:

●

our expectations regarding the market for our products and services;

●

our expectations regarding the continued growth of our industry;

●

our beliefs regarding the competitiveness of our products;

●

our expectations regarding the expansion of our manufacturing capacity;

●

our expectations with respect to increased revenue growth and our ability to maintain profitability resulting from increases in our production volumes;

●

our future business development, results of operations and financial condition;

●

competition from other fertilizer and plant producers;

●

the loss of any member of our management team;

●

our ability to integrate acquired subsidiaries and operations into existing operations;

●

market conditions affecting our equity capital;

●

our ability to successfully implement our selective acquisition strategy;

●

changes in general economic conditions;

●

changes in accounting rules or the application of such rules;

●

any failure to comply with the periodic filing and other requirements of The New York Stock Exchange, or NYSE, for continued listing,

●

any failure to identify and remediate the material weaknesses or other deficiencies in our internal control and disclosure control over financial reporting;

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

(UNAUDITED)

	December 31, 2019			June 30, 2019

ASSETS
Current Assets
Cash and cash equivalents	$	78,706,500		$	72,259,804
Accounts receivable, net		156,080,809			145,190,160
Inventories		114,448,765			162,013,889
Prepaid expenses and other current assets		2,961,071			2,776,370
Amount due from related parties		148,919			0
Advances to suppliers, net		30,944,718			32,713,817
Total Current Assets		383,290,781			414,954,039

Plant, Property and Equipment, Net		24,771,055			26,669,938
Other Assets		264,227			267,907
Other Non-current Assets		12,228,155			13,352,645
Intangible Assets, Net		16,792,061			17,881,449
Goodwill		7,766,256			7,874,421
Total Assets	$	445,112,535		$	481,000,399

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	15,217,368		$	19,004,548
Customer deposits		7,525,826			6,514,619
Accrued expenses and other payables		12,337,339			12,029,722
Amount due to related parties		4,027,537			3,641,945
Taxes payable		28,855,322			31,357,690
Short term loans		3,877,200			3,640,000
Interest payable		736,668			720,720
Derivative liability		0			18,162
Convertible notes payable		1,855,770			7,517,307
Total Current Liabilities		74,433,031			84,444,714

Long-term Liabilities		0			0
Total Liabilities	$	74,433,031		$	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, 5,972,479 and 3,986,912 shares issued and outstanding as of December 31, 2019 and June 30, 2019, respectively		5,972			3,987
Additional paid-in capital		153,567,460			138,012,445
Statutory reserve		30,691,515			31,237,891
Retained earnings		213,272,271			247,122,574
Accumulated other comprehensive income		(26,857,714	)		(19,821,211	)
Total Stockholders’ Equity		370,679,505			396,555,686

Total Liabilities and Stockholders’ Equity	$	445,112,535		$	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 December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Sales
Jinong	$	14,521,485		$	16,987,360			33,576,301		$	39,483,893
Gufeng		22,266,549			22,355,690			38,589,766			39,828,941
Yuxing		2,461,510			2,623,493			5,001,221			5,011,039
VIEs - others		10,315,465			10,287,920			23,219,292			25,885,396
Net sales		49,565,009			52,254,463			100,386,580			110,209,269
Cost of goods sold
Jinong		10,127,892			8,994,882			20,620,422			20,198,054
Gufeng		19,755,967			19,764,817			34,209,975			35,069,680
Yuxing		2,110,321			2,166,566			4,162,317			4,213,729
VIEs - others		8,750,344			9,083,973			19,414,134			22,013,941
Cost of goods sold		40,744,524			40,010,238			78,406,848			81,495,404
Gross profit		8,820,485			12,244,225			21,979,732			28,713,865
Operating expenses
Selling expenses		3,856,972			8,069,103			7,487,327			11,489,530
General and administrative expenses		32,761,531			(99,632	)		49,103,323			2,209,728
Total operating expenses		36,618,503			7,969,471			56,590,650			13,699,258
Income from operations		(27,798,018	)		4,274,754			(34,610,918	)		15,014,607
Other income (expense)
Other income (expense)		(73,263	)		(187,753	)		(103,454	)		(226,083	)
Interest income		53,262			95,957			106,886			223,341
Interest expense		(87,496	)		(149,578	)		(164,698	)		(312,264	)
Total other income (expense)		(107,497	)		(241,374	)		(161,266	)		(315,006	)
Income before income taxes		(27,905,515	)		4,033,380			(34,772,183	)		14,699,601
Provision for income taxes		(824,635	)		1,527,645			(375,504	)		3,182,061
Net income		(27,080,880	)		2,505,735			(34,396,679	)		11,517,540

Other comprehensive income (loss)
Foreign currency translation gain (loss)		10,330,982			(472,069	)		(7,036,503	)		(16,459,861	)
Comprehensive income (loss)	$	(16,749,898	)	$	2,033,666			(41,433,182	)	$	(4,942,321	)

Basic weighted average shares outstanding		5,474,979			3,295,579			4,989,745			3,295,579
Basic net earnings per share	$	(4.95	)	$	0.76			(6.89	)	$	3.49

Diluted weighted average shares outstanding		5,474,979			3,295,579			4,989,745			3,295,579
Diluted net earnings per share		(4.95	)		0.76			(6.89	)		3.49

The accompanying notes are an integral part of these consolidated financial statements.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

	Number				Additional								Accumulated Other			Total
	Of		Common		Paid In		Statutory			Retained			Comprehensive			Stockholders’
	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											(34,396,679	)					(34,396,679	)

Issuance of stock for consulting services		931,000		931		10,251,069											10,252,000

Issuance of stock for convertible notes		995,000		995		4,974,005											4,975,000

Stock based compensation		59,567		60		329,940											330,000

Transfer to statutory reserve								(546,377	)		546,377						0

Other comprehensive income														(7,036,503	)		(7,036,503	)

BALANCE, DECEMBER 31, 2019		5,972,479	$	5,972	$	153,567,460	$	30,691,515		$	213,272,272		$	(26,857,714	)	$	370,679,505

	Number				Additional							Accumulated Other			Total
	Of		Common		Paid In		Statutory		Retained			Comprehensive			Stockholders’
	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										11,517,540						11,517,540

Issuance of stock for consulting services		54,167		54		30,821										30,875

Stock based compensation

1 for 12 reverse stock split

Transfer to statutory reserve								452,483		(452,483	)

Other comprehensive income													(16,459,861	)		(16,459,861	)

BALANCE, DECEMBER 31, 2018		3,295,580	$	3,296	$	129,403,511	$	31,399,827	$	246,887,783		$	(20,058,076	)	$	387,636,340

The accompanying notes are an integral part of these consolidated financial statements.

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended December 31,
	2019			2018
Cash flows from operating activities
Net income	$	(34,396,679	)	$	11,517,540
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		2,370,218			2,434,189
Gain (Loss) on disposal of property, plant and equipment		33,837			4,415
Provision for losses on accounts receivable		27,670,550			(6,056,115	)
Amortization of debt discount		41,719			204,765
Issuance of common stock for consulting services fee		0			370,500
Change in fair value of derivative liability		(17,741	)		(61,601	)
Changes in operating assets
Accounts receivable		(40,783,391	)		53,548,883
Amount due from related parties		(147,492	)		227,400
Other current assets		(224,409	)		2,222,851
Inventories		44,905,007			(63,386,505	)
Advances to suppliers		1,662,134			(17,050,063	)
Other assets		932,053			(969,558	)
Changes in operating liabilities
Accounts payable		(3,495,243	)		(12,851,196	)
Customer deposits		1,090,142			(121,118	)
Tax payables		(2,446,447	)		1,157,226
Accrued expenses and other payables		705,810			1,227,568
Interest payable		25,600			137,757
Net cash provided by (used in) operating activities		(2,074,331	)		(27,443,062	)

Cash flows from investing activities
Purchase of plant, property, and equipment		(50,533	)		(57,195	)
Change in construction in process		0			16,128
Net cash provided by (used in) investing activities		(50,533	)		(41,067	)

Cash flows from financing activities
Proceeds from the sale of common stock		10,252,000			-
Proceeds from loans		287,200			-
Advance from related party		400,000			409,230.00
Repayment of loans		-			(189,508	)
Net cash provided by (used in) financing activities		10,939,200			219,722

Effect of exchange rate change on cash and cash equivalents		(2,367,640	)		(5,994,548	)
Net increase in cash and cash equivalents		6,446,696			(33,258,955	)

Cash and cash equivalents, beginning balance		72,259,804			150,805,639
Cash and cash equivalents, ending balance	$	78,706,500		$	117,546,683

Supplement disclosure of cash flow information
Interest expense paid	$	68,293		$	105,733
Income taxes paid	$	108,974		$	2,024,835

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”).

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 December 31, 2019 is set forth in the diagram below:

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principle of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Gufeng, Tianjuyuan, and the VIE Companies. All significant inter-company accounts and transactions have been eliminated in consolidation.

Effective June 16, 2013, Yuxing was converted from being a wholly-owned foreign enterprise 100% owned by Jinong to a domestic enterprise 100% owned 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 December 31, 2019 and June 30, 2019 were $78,603,561 and $72,178,448, respectively. There is no insurance securing these deposits in China. In addition, the Company also had $102,939 and $81,356 in cash in two banks in the United States as of December 31, 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 December 31, 2019, and June 30, 2019, the Company had accounts receivable of $156,080,809 and $145,190,160, net of allowance for doubtful accounts of $27,999,039 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 December 31, 2019 and 2018, the Company had no reserve for obsolete goods.

Intangible Assets

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with 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 December 31, 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 December 31, 2019, and June 30, 2019, the Company had customer deposits of $7,525,826 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
	December 31,
	2019			2018
Net Income for Basic Earnings Per Share	$	(27,080,880	)	$	2,505,735
Basic Weighted Average Number of Shares		5,474,979			3,295,579
Net Income Per Share – Basic	$	(4.95	)	$	0.76
Net Income for Diluted Earnings Per Share	$	(27,080,880	)	$	2,505,735
Diluted Weighted Average Number of Shares		5,474,979			3,295,579
Net Income Per Share – Diluted	$	(4.95	)	$	0.76

	Six Months Ended
	December 31,
	2019			2018
Net Income for Basic Earnings Per Share	$	(7,036,503	)	$	11,517,540
Basic Weighted Average Number of Shares		4,989,745			3,295,579
Net Income Per Share – Basic	$	(6.89	)	$	3.49
Net Income for Diluted Earnings Per Share	$	(7,036,503	)	$	11,517,540
Diluted Weighted Average Number of Shares		4,989,745			3,295,579
Net Income Per Share – Diluted	$	(6.89	)	$	3.49

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:

	December 31,		June 30,
	2019		2019
Raw materials	$	33,900,380	$	102,268,620
Supplies and packing materials	$	449,370	$	496,138
Work in progress	$	382,890	$	390,708
Finished goods	$	79,716,125	$	58,858,423
Total	$	114,448,765	$	162,013,889

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	December 31,			June 30,
	2019			2019
Building and improvements	$	38,360,635		$	38,877,508
Auto		3,236,804			3,391,040
Machinery and equipment		17,855,129			18,125,539
Agriculture assets		0			741,044
Total property, plant and equipment		59,452,568			61,135,130
Less: accumulated depreciation		(34,681,513	)		(34,465,192	)
Total	$	24,771,055		$	26,669,938

NOTE 5 – INTANGIBLE ASSETS

Intangible assets consisted of the following:

	December 31,		June 30,
	2019		2019
Land use rights, net	$	9,097,637	$	9,341,327
Technology patent, net		2,316		3,004
Customer relationships, net		1,515,226		2,174,564
Non-compete agreement		332,363		436,634
Trademarks		5,844,520		5,925,920
Total	$	16,792,061	$	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 $10,509,351). The intangible asset is being amortized over the grant period of 50 years using the straight-line method.

On August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately 11 acres (42,726 square meters or 459,898 square feet) at Ping Gu District, Beijing. The purchase cost was recorded at RMB1, 045,950 (or $150,198). 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 $1,046,140). The intangible asset is being amortized over the grant period of 50 years.

The Land Use Rights consisted of the following:

	December 31,			June 30,
	2019			2019
Land use rights	$	11,705,690			11,868,721
Less: accumulated amortization		(2,608,053	)		(2,527,394	)
Total land use rights, net	$	9,097,637			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 $843,660) 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 $1,321,120) 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:

	December 31,			June 30,
	2019			2019
Technology know-how	$	2,169,037		$	2,199,247
Less: accumulated amortization		(2,166,721	)		(2,196,243	)
Total technology know-how, net	$	2,316		$	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 $9,334,000) 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 $2,365,405) and is amortized over the remaining useful life of seven to ten years.

	December 31,			June 30,
	2019			2019
Customer relationships	$	11,449,171		$	11,608,629
Less: accumulated amortization		(9,933,945	)		(9,434,065	)
Total customer relationships, net	$	1,515,226		$	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 $189,552) 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 $883,238) and is amortized over the remaining useful life of five years using the straight line method.

	December 31,			June 30,
	2018			2018
Non-compete agreement	$	1,172,270		$	1,188,597
Less: accumulated amortization		(839,907	)		(751,963	)
Total non-compete agreement, net	$	332,363		$	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 $5,844,520) and is subject to an annual impairment test.

AMORTIZATION EXPENSE

Estimated amortization expenses of intangible assets for the next five twelve months periods ended December 31, are as follows:

Twelve Months Ended on December 31,	Expense ($)
2020		1,290,728
2021		720,684
2022		557,260
2023		489,894
2024		357,810

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 December 31, 2019, the balance of other non-current assets was $14,155,985, 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 $1 million as expenses for the six months ended December 31, 2019.

Estimated amortization expenses of the lease advance payments for the next four twelve-month periods ended December 31 and thereafter are as follows:

Twelve months ending December 31,
2020	$	1,927,830
2021	$	1,927,830
2022	$	1,927,830
2023	$	1,927,830
2024 and thereafter	$	6,444,665

NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consisted of the following:

	December 31,		June 30,
	2019		2019
Payroll payable	$	23,783	$	24,891
Welfare payable		147,426		149,479
Accrued expenses		7,002,225		6,847,041
Other payables		5,043,473		4,886,202
Other levy payable		120,432		122,109
Total	$	12,337,339	$	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 $3,661,800). For the six months Ended December 31, 2019 and 2018, Yuxing has sold approximately $300,210 and $199,469 products to 900LH.com.

As of December 31, 2019, and June 30, 2019, the amount due to related parties was $4,027,537 and $3,641,945, respectively. As of December 31, 2019, and June 30, 2019, $1,005,200 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 December 31, 2019, and June 30, 2019, the Company’s subsidiary, Jinong, owed 900LH.com $394,727 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 $3,515).

NOTE 9 – LOAN PAYABLES

As of December 31, 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			December 31, 2018
1	Postal Saving Bank of China - Pinggu Branch	June 3, 2019-June 2, 2020		6.31	%		2,872,000
2	Beijing Bank - Pinggu Branch	June 28, 2019-June 27, 2020		5.22	%		718,000
3	Beijing Bank - Pinggu Branch	August 14, 2019-June 27, 2020		5.22	%		287,200
	Total					$	3,877,200

The interest expense from short-term loans was $164,698 and $312,264 for the six months ended December 31, 2019 and 2018 respectively.

NOTE 10 – CONVERTIBLE NOTES PAYABLE

Relating to the acquisition of the VIE Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders convertible notes payable twice, in the aggregate notional amount of RMB 51,000,000 ($7,323,600) with a term of three years and an annual interest rate of 3%.

No.	Related Acquisitions of Sales VIEs	Issuance Date	Maturity Date	Notional Interest Rate		Conversion Price		Notional Amount (in RMB)
1	Wangtian, Lishijie, 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 ($1,723,200) were tendered back to the Company. All outstanding balance of unpaid principal and accrued interest in the tendered convertible notes were forfeited.

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.

The Company determined that the fair value of the convertible notes payable was RMB 12,923,191 ($1,855,770) and RMB 51,629,859 ($7,414,048) as of December 31, 2019 and June 30, 2019, respectively. Aside from the forfeiture of the convertible notes previously issued to Zhenbai’s shareholders and the matured convertible notes on June, 2019, 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 December 31, 2019, the accumulated amortization of this discount into accretion expenses was $1,375,511.

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 six-month period ended December 31, 2019 and 2018 of $-857,195 and $1,359,998, respectively. Gufeng is subject to a 25% EIT rate and thus it made provision for income taxes of $-136,291 and $1,071,227 for the six months ended December 31, 2019 and 2018, respectively.

Value-Added Tax

All of the Company’s fertilizer products that are produced and sold in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On April 29, 2008, the PRC State of Administration of Taxation (SAT) released Notice #56, “Exemption of VAT for Organic Fertilizer Products”, which allows certain fertilizer products to be exempt from VAT beginning June 1, 2008. The Company submitted the application for exemption in May 2009, which was granted effective September 1, 2009, continuing through December 31, 2015. On August 10, 2015 and August 28, 2015, the SAT released Notice #90. “Reinstatement of VAT for Fertilizer Products”, and Notice #97, “Supplementary Reinstatement of VAT for Fertilizer Products”, which restore the VAT of 13% of the gross sales price on certain fertilizer products includes non-organic fertilizer products starting from September 1, 2015, but granted taxpayers a reduced rate of 3% from September 1, 2015 through June 30, 2016.

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

	December 31,			June 30,
	2019			2019
VAT provision	$	(343,052	)	$	(424,535	)
Income tax payable		(1,016,262	)		1,550,830
Other levies		1,204,101			1,220,859
Total	$	(155,213	)	$	2,347,154

The provision for income taxes consists of the following

	December 31,			June 30,
	2019			2019
Current tax - foreign	$	(375,504	)	$	1,654,416
Deferred tax		-			-
Total	$	(375,504	)	$	1,654,416

Tax Rate Reconciliation

Our effective tax rates were approximately -1.1% and 21.6% for the six months ended December 31, 2019 and 2018, respectively. Substantially all of the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 21% to income before income taxes for the three months Ended December 31, 2019 and 2018 for the following reasons:

December 31, 2019

	China 15% - 25%					United States 21%					Total
Pretax income (loss)	$	(33,920,976	)				(851,206	)			$	(34,772,182	)

Expected income tax expense (benefit)		(8,480,244	)	25.0	%		(178,753	)	21.0	%		(8,658,997	)
High-tech income benefits on Jinong		571,464		(1.7	)%		-		-			571,464
Losses from subsidiaries in which no benefit is recognized		7,533,276		(22.2	)%		-		-			7,533,276
Change in valuation allowance on deferred tax asset from US tax benefit		-					178,753		(21.0	)%		178,753
Actual tax expense	$	(375,504	)	(1.1	)%	$	0-		-	%	$	(375,504	)	(1.1	)%

December 31, 2018

	China					United States
	15% - 25%					21%					Total
Pretax income (loss)	$	15,663,575					(963,974	)			$	14,699,601

Expected income tax expense (benefit)		3,915,894		25.0	%		(202,435	)	21.0	%		3,713,459
High-tech income benefits on Jinong		(904,666	)	(5.8	)%		-		-			(904,666	)
Losses from subsidiaries in which no benefit is recognized		170,833		1.1	%		-		-			170,833
Change in valuation allowance on deferred tax asset from US tax benefit		-					202,435		(21.0	)%		202,435
Actual tax expense	$	3,182,061		20.3	%	$	-		-	%	$	3,182,061		21.6	%

NOTE 12 – STOCKHOLDERS’ EQUITY

Common Stock

On February 14, 2020, the Company issued 377,650 shares of common stock at the price of $5.00 per share 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 January 1, 2017 and matured on January 1, 2020.

There were no shares of common stock issued during the quarter ended December 31, 2019.

As of December 31, 2019, and June 30, 2019, there were 6,350,129 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 December 31, 2019, the Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are issued or outstanding.

NOTE 13 – CONCENTRATIONS AND LITIGATION

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 was only one vendor which the Company purchased more than 10% of its raw materials, with the total of 10.4% of its raw materials for the six months ended December 31, 2019. Total purchases from this vendor are $3,534,955 for the six-month period ended December 31, 2019.

There were three vendors from each of which the Company purchased more than 10% of its raw materials, with the total of 34.3% of its raw materials for the six months ended December 31, 2018. Total purchases from these three vendors amounted to $33,149,745 for the six-month period ended December 31, 2018.

No customer accounted for over 10% of the Company’s sales for the six months Ended December 31, 2019 and 2018.

Litigation

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 vigorously opposed it.

On December 31, 2019, the lawsuit was dismissed.

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			Three Months Ended			Six Months Ended			Six Months Ended
	2019			2018			2019			2018
Revenues from unaffiliated customers:
Jinong	$	14,521,485		$	16,987,360		$	33,576,301		$	39,483,893
Gufeng		22,266,549			22,355,690			38,589,766			39,828,941
Yuxing		2,461,510			2,623,493			5,001,221			5,011,039
Sales VIEs		10,315,465			10,287,922			23,219,292			25,885,396
Consolidated	$	49,565,009		$	52,254,465		$	100,386,580		$	110,209,269

Operating income:
Jinong	$	(6,345,818	)	$	2,171,448		$	(5,767,775	)	$	9,099,538
Gufeng		(21,628,851	)		2,493,457			(33,129,109	)		4,102,509
Yuxing		141,271			(3,796,684	)		295,949			(3,603,507	)
Sales VIEs		547,915			3,748,752			4,841,232			6,380,051
Reconciling item (1)		0			0			0			0
Reconciling item (2)		(512,534	)		(342,219	)		(851,214	)		(963,984	)
Consolidated	$	(27,798,017	)	$	4,274,754		$	(34,610,917	)	$	15,014,607

Net income:
Jinong	$	(5,381,542	)	$	1,789,640		$	(4,857,441	)	$	7,689,656
Gufeng		(21,682,935	)		1,731,121			(33,194,889	)		2,851,465
Yuxing		140,943			(3,796,526	)		295,498			(3,603,348	)
Sales VIEs		355,224			3,136,310			4,223,710			5,556,339
Reconciling item (1)		1			8			7			10
Reconciling item (2)		(512,534	)		(342,218	)		(851,214	)		(963,984	)
Reconciling item (3)		(36	)		(12,598	)		(12,350	)		(12,598	)
Consolidated	$	(27,080,879	)	$	2,505,735		$	(34,396,679	)	$	11,517,540

Depreciation and Amortization:
Jinong	$	190,770		$	194,706		$	381,848		$	392,964
Gufeng		516,523			529,305			1,036,858			1,065,924
Yuxing		293,996			299,900			589,649			604,719
Sales VIEs		180,739			183,777			361,862			370,583
Consolidated	$	1,182,028		$	1,207,689		$	2,370,218		$	2,434,189

Interest expense:
Jinong		19,188			68,317			25,600			137,758
Gufeng		68,204			81,384			138,993			174,506
Yuxing		0			0			0			0
Sales VIEs		(77,098	)		(123	)		(77,097	)		0
Consolidated	$	10,294		$	149,578		$	87,496		$	312,264

Capital Expenditure:
Jinong	$	20,371		$	456		$	24,949		$	3,492
Gufeng		0			18,616			0			45,604
Yuxing		18,762			6,850			25,585			8,099
Sales VIEs		0			0			0			0
Consolidated	$	39,132		$	25,922		$	50,533		$	57,195

	As of
	December 31,			June 30,
	2019			2019
Identifiable assets:
Jinong	$	151,943,538		$	149,166,251
Gufeng		212,588,812			253,149,321
Yuxing		35,391,166			35,900,242
Sales VIEs		44,658,161			42,269,307
Reconciling item (1)		533,738			518,158
Reconciling item (2)		(2,879	)		(2,879	)
Consolidated	$	445,112,535		$	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

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 $421).

Accordingly, the Company recorded an aggregate of $23,414 and $23,937 as rent expenses from these committed property leases for the six-month periods ended December 31, 2019 and 2018, respectively. The contingent rent expenses herein for the next five twelve-month periods ended December 31, are as follows:

Years ending December 31,
2020	$	46,828
2021		46,828
2022		46,828
2023		46,828
2024		46,828

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 December 31, 2019 and June 30, 2019:

	December 31,		June 30,
	2019		2019

ASSETS
Current Assets
Cash and cash equivalents	$	1,976,908	$	818,312
Accounts receivable, net		32,439,136		29,933,837
Inventories		21,662,460		19,944,011
Other current assets		488,256		475,001
Related party receivable		148,919		(1,031	)
Advances to suppliers		1,113,526		3,606,384
Total Current Assets		57,829,205		54,776,514

Plant, Property and Equipment, Net		9,134,270		9,753,039
Other assets		215,547		218,549
Intangible Assets, Net		9,705,603		10,212,668
Goodwill		3,164,702		3,208,779
Total Assets	$	80,049,327	$	78,169,549

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		13,563,387		17,250,276
Customer deposits		460,944		256,489
Accrued expenses and other payables		7,287,949		6,243,753
Amount due to related parties		42,596,012		42,680,723
Total Current Liabilities	$	63,908,292	$	66,431,241
Long-term Loan		0		0
Total Liabilities	$	63,908,292	$	66,431,241

Stockholders’ equity		16,141,035		11,738,308

Total Liabilities and Stockholders’ Equity		80,049,327	$	78,169,549

	Three Months Ended December 31,
	2019		2018
Revenue	$	12,776,975	$	12,911,414
Expenses		12,280,810		13,571,628
Net income	$	496,165	$	(660,214	)

	Six Months Ended December 31,
	2019		2018
Revenue	$	28,220,513	$	30,896,434
Expenses		23,701,306		28,943,442
Net income	$	4,519,207	$	1,952,992

NOTE 17 – BUSINESS COMBINATIONS

On June 30, 2016, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements to qualify as VIEs with the shareholders of Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan Jinyangguang Sannong Service Co., Ltd., Shenqiu County Zhenbai Agriculture Co., Ltd., Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd., Aksu Xindeguo Agricultural Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd.

Subsequently, on January 1, 2017, Jinong entered into similar strategic acquisition agreements and a series of contractual agreements to qualify as VIEs with the shareholders of Sunwu County Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed Co., Ltd.

The VIE Agreements are as follows:

Entrusted Management Agreements

Pursuant to the terms of certain Entrusted Management Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the shareholders of the sales VIE Companies (the “Entrusted Management Agreements”), the sales VIE Companies and their shareholders agreed to entrust the operations and management of its business to Jinong. According to the Entrusted Management Agreement, Jinong possesses the full and exclusive right to manage the sales VIE Companies’ operations, assets and personnel, has the right to control all the sales VIE Companies’ cash flows through an entrusted bank account, is entitled to the sales VIE Companies’ net profits as a management fee, is obligated to pay all the sales VIE Companies’ payables and loan payments, and bears all losses of the sales VIE Companies. The Entrusted Management Agreements will remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the sales VIE Companies; or (iii) Jinong acquires all the assets or equity of the sales VIE Companies (as more fully described below under “Exclusive Option Agreements”).

Exclusive Technology Supply Agreements

Pursuant to the terms of certain Exclusive Technology Supply Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the sales VIE companies (the “Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to the sales VIE companies. The sales VIE companies agreed to pay Jinong all fees payable for technology supply prior to making any payments under the Entrusted Management Agreement. The Exclusive Technology Supply Agreements shall remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the sales VIE companies; or (iii) Jinong acquires the sales VIE companies (as more fully described below under “Exclusive Option Agreements”).

Shareholder’s Voting Proxy Agreements

Pursuant to the terms of certain Shareholder’s Voting Proxy Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders of the sales VIE companies irrevocably appointed Jinong as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of the sales VIE companies, including the appointment and election of directors of the sales VIE companies. Jinong agreed that it shall maintain a board of directors, the composition and appointment of which shall be approved by the Board of the Company. The Shareholder’s Voting Proxy Agreements will remain in effect until Jinong acquires all the assets or equity of the sales VIE companies.

Exclusive Option Agreements

Pursuant to the terms of certain Exclusive Option Agreements dated June 30, 2016 and January 1, 2017, among Jinong, the sales VIE companies, and the shareholders of the sales VIE companies (the “Exclusive Option Agreements”), the shareholders of the sales VIE companies granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire the sales VIE companies’ equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The Option is exercisable at any time at Jinong’s discretion so long as such exercise and subsequent acquisition of the sales VIE companies does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of such consideration. Jinong may transfer all rights and obligations under the Exclusive Option Agreements to any third parties without the approval of the shareholders of the sales VIE companies so long as a written notice is provided. The Exclusive Option Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.

Equity Pledge Agreements

Pursuant to the terms of certain Equity Pledge Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Pledge Agreements”), the shareholders of the sales VIE companies pledged all of their equity interests in the sales VIE companies to Jinong, including the proceeds thereof, to guarantee all of Jinong’s rights and benefits under the Entrusted Management Agreements, the Exclusive Technology Supply Agreements, the Shareholder’ Voting Proxy Agreements and the Exclusive Option Agreements. Prior to termination of the Pledge Agreements, the pledged equity interests cannot be transferred without Jinong’s prior written consent. The Pledge Agreements may be terminated only upon the written agreement of the parties.

Non-Compete Agreements

Pursuant to the terms of certain Non-Compete Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Non-Compete Agreements”), the shareholders of the sales VIE companies agreed that during the period beginning on the initial date of their services with Jinong, and ending five (5) years after termination of their services with Jinong, without Jinong’s prior written consent, they will not provide services or accept positions including but not limited to partners, directors, shareholders, managers, proxies or consultants, provided by any profit making organizations with businesses that may compete with Jinong. They will not solicit or interfere with any of the Jinong’s customers, or solicit, induce, recruit or encourage any person engaged or employed by Jinong to terminate his or her service or engagement. If the shareholders of the sales VIE companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; if the damages are difficult to determine, remedies bore the shareholders of the sales VIE companies shall be no less than 50% of the salaries and other expenses Jinong provided in the past.

The Company entered into these VIE Agreements as a way for the Company to have more control over the distribution of its products. The transactions are accounted for as business combinations in accordance with ASC 805. A summary of the purchase price allocations at fair value is below:

For acquisitions made on June 30, 2016:

Cash	$	708,737
Accounts receivable		6,422,850
Advances to suppliers		1,803,180
Prepaid expenses and other current assets		807,645
Inventories		7,787,043
Machinery and equipment		140,868
Intangible assets		270,900
Other assets		3,404,741
Goodwill		3,158,179
Accounts payable		(3,962,670	)
Customer deposits		(3,486,150	)
Accrued expenses and other payables		(4,653,324	)
Taxes payable		(16,912	)
Purchase price	$	12,385,087

A summary of the purchase consideration paid is below:

Cash	$	5,568,500
Convertible notes		6,671,769
Derivative liability		144,818
	$	12,385,087

The cash component of the purchase price for these acquisitions made on June 30, 2016 was paid in July and August 2016.

For acquisitions made on January 1, 2017:

Working Capital	$	941,192
Machinery and equipment		222,875
Intangible assets		1440
Goodwill		684,400
Customer Relationship		522,028
Non-compete Agreement		392,852
Purchase price	$	2,764,787

A summary of the purchase consideration paid is below:

Cash	$	1,201,888
Convertible notes		1,559,350
Derivative liability		3,549
	$	2,764,787

The cash component of the purchase price for these acquisitions made on January 1, 2017 was paid during March 2017.

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 – LITIGATION

On December 31, 2019, the .

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 84.1% and 72.0% of our total revenues for the six months Ended December 31, 2019 and 2018, respectively. The sales VIEs generated 23.1% and 23.5% of our revenues for the six months Ended December 31, 2019 and 2018, respectively. Yuxing serves as a research and development base for our fertilizer products.

Fertilizer Products

As of December 31, 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
	December 31,				Change 2018 to 2019
	2019		2018		Amount		%
	(metric tons)
Jinong		22,086		17,389		4,697		27.0	%
Gufeng		65,483		65,351		132		0.2	%
		87,569		82,740		4,829		5.8	%

	Three Months Ended December 31,
	2019		2018
	(revenue per tons)
Jinong	$	667	$	1,033
Gufeng		341		348

	Six Months Ended
	December 31,				Change 2018 to 2019
	2019		2018		Amount		%
	(metric tons)
Jinong		40,709		35,994		4,715		13.1	%
Gufeng		117,935		114,597		3,338		2.9	%
		158,643		150,591		8,052		5.3	%

	Six Months Ended December 31,
	2019		2018
	(revenue per tons)
Jinong	$	843	$	1,169
Gufeng		330		349

For the three months ended December 31, 2019, we sold approximately 87,569 tons of fertilizer products, as compared to 82,740 metric tons for the three months ended December 31, 2018. For the three months ended December 31, 2019, Jinong sold approximately 22,086 metric tons of fertilizer products, an increase of 4,697 metric tons, or 27.0%, as compared to 17,389 metric tons for the three months ended December 31, 2018. For the three months ended December 31, 2019, Gufeng sold approximately 65,483 metric tons of fertilizer products, an increase of 132 metric tons, or 0.2% as compared to 65,351 metric tons for the three months ended December 31, 2018.

For the six months ended December 31, 2019, we sold approximately 158,643 metric tons of fertilizer products, as compared to 150,591 metric tons for the six months ended December 31, 2018. For the six months ended December 31, 2019, Jinong sold approximately 40,709 metric tons of fertilizer products, an increase of 4,715 metric tons, or 13.1%, as compared to 35,994 metric tons for the six months ended December 31, 2018. For the six months ended December 31, 2019, Gufeng sold approximately 117,935 metric tons of fertilizer products, an increase of 3,338 metric tons, or 2.9% as compared to 114,597 metric tons for the six months ended December 31, 2018.

Our sales of fertilizer products to customers in five provinces within China accounted for approximately 61.2% of our fertilizer revenue for the three months ended December 31, 2019. Specifically, the provinces and their respective percentage contributing to our fertilizer revenues were: Hebei (34.6%), Heilongjiang (12.4%), Liaoning (9.0%), Shaanxi (4.2%) and Inner Mongolia (1.1%).

As of December 31, 2019, we had a total of 2,091 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled municipalities in China. Jinong had 1,266 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 3.37% of its fertilizer revenues for the three months ended December 31, 2019. Gufeng had 327 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for 86.2% of its revenues for the three months ended December 31, 2019.

Agricultural Products

Through Yuxing, we develop, produce and sell high-quality flowers, green vegetables and fruits to local marketplaces and various horticulture and planting companies. We also use certain of Yuxing’s greenhouse facilities to conduct research and development activities for our fertilizer products. The three PRC provinces and municipalities that accounted for 92.0% of our agricultural products revenue for the three months ended December 31, 2019 were Shaanxi (86.4%), Beijing (3.0%), and Shanghai (2.5%).

Recent Developments

New Products

During the three months ended December 31, 2019, Jinong did not launch any new fertilizer product but added 27 new distributors. During the three months ended December 31, 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 Payment for		Principal of 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 $6,462,000) to be paid by Jinong within three days following the execution of the SAA, ACN and the VIE Agreements, and convertible notes with an aggregate face value of RMB 63,000,000 (approximately $9,046,800) with an annual fixed compound interest rate of 3% and term of three years.

Jinong acquired the Targets using the VIE arrangement based on our need to further develop our business and comply with the regulatory requirements under the PRC laws.

As our business focuses on the production of fertilizer, all our business activities intertwine with those in the agriculture industry in China. Specifically, we deal with compliance, regulation, safety, inspection, and licenses in fertilizer production, farm land use and transfer, growing and distribution of agriculture goods, agriculture basic supplies, seeds, pesticides, and trades of grains. It is an industry in which heavy regulations get implemented and strictly enforced. In addition, E-commerce, which is also under strict government regulation in the PRC, has lately become a sales and distribution channel for agricultural products. Currently, we are developing an online platform to connect the physical distribution network we either own or lease.

Compared with the regulatory environment in other jurisdictions, the regulatory environment in the PRC is unique. For example, the “M&A Rules” purports to require that an offshore special purpose vehicle controlled directly or indirectly by PRC companies or individuals and formed for purposes of overseas listing through acquisition of PRC domestic interests held by such PRC companies or individuals obtain the approval of the China Securities Regulatory Commission (the “CSRC”) prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures regarding its approval of overseas listings by special purpose vehicles.

For both e-commerce and agriculture industries, PRC regulators limit the investment from foreign entities and set particularly rules for foreign-owned entities to conduct business. We expect these limitations on foreign-owned entities will continue to exist in e-commerce and agriculture industries. The VIE arrangement, however, provides feasibility for obtaining administrative approval process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity. The VIE agreements reduce uncertainty and the current limitation risk. It is our understanding that the VIE agreements, as well as the control we obtained through VIE arrangement, are valid and enforceable. Such legal structure does not violate the known, published, and current PRC laws. While there are substantial uncertainties regarding the interpretation and application of PRC Laws and future PRC laws and regulations, and there can be no assurance that the PRC authorities will take a view that is not contrary to or otherwise different from our belief and understanding stated above, we believe the substantial difficulty that we experienced previously to conduct business in agriculture as a foreign ownership 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 December 31, 2019 Compared to the Three Months ended December 31, 2018.

	2019			2018			Change $			Change %
Sales
Jinong		14,521,485			16,987,360			(2,465,875	)		-14.5	%
Gufeng		22,266,549			22,355,690			(89,141	)		-0.4	%
Yuxing		2,461,510			2,623,493			(161,983	)		-6.2	%
Sales VIEs		10,315,465			10,287,920			27,545			0.3	%
Net sales		49,565,009			52,254,463			(2,689,454	)		-5.1	%
Cost of goods sold
Jinong		10,127,892			8,994,882			1,133,010			12.6	%
Gufeng		19,755,967			19,764,817			(8,850	)		0.0	%
Yuxing		2,110,321			2,166,566			(56,245	)		-2.6	%
Sales VIEs		8,750,344			9,083,973			(333,629	)		-3.7	%
Cost of goods sold		40,744,524			40,010,238			734,286			1.8	%
Gross profit		8,820,485			12,244,225			(3,423,740	)		-28.0	%
Operating expenses
Selling expenses		3,856,972			8,069,103			(4,212,131	)		-52.2	%
General and administrative expenses		32,761,531			(99,632	)		32,861,163			-32982.7	%
Total operating expenses		36,618,503			7,969,471			28,649,032			359.5	%
Income from operations		(27,798,018	)		4,274,754			(32,072,772	)		-750.3	%
Other income (expense)
Other income (expense)		(73,263	)		(187,753	)		114,490			-61.0	%
Interest income		53,262			95,957			(42,695	)		-44.5	%
Interest expense		(87,496	)		(149,578	)		62,082			-41.5	%
Total other income (expense)		(107,497	)		(241,374	)		133,877			-55.5	%
Income before income taxes		(27,905,515	)		4,033,380			(31,938,895	)		-791.9	%
Provision for income taxes		(824,635	)		1,527,645			(2,352,280	)		-154.0	%
Net income		(27,080,880	)		2,505,735			(29,586,615	)		-1180.8	%
Other comprehensive income (loss)
Foreign currency translation gain (loss)		10,330,982			(472,069	)		10,803,051			-2288.4	%
Comprehensive income (loss)		(16,749,898	)		2,033,666			(18,783,564	)		-923.6	%

Net Sales

Total net sales for the three months ended December 31, 2019 were $49,565,009, a decrease of $2,689,454 or 5.1%, from $52,254,463 for the three months ended December 31, 2018. This decrease was primarily due to a decrease in Jinong’s and Yuxing’ net sales.

For the three months ended December 31, 2019, Jinong’s net sales decreased $2,465,875, or 14.5%, to $14,521,485 from $16,987,360 for the three months ended December 31, 2018. This decrease was mainly attributable to the decrease in Jinong’s sales price in the last three months.

For the three months ended December 31, 2019, Gufeng’s net sales were $22,266,549, a decrease of $89,141, or 0.4%, from $22,355,690 for the three months ended December 31, 2018. This decrease was mainly attributable to the decrease in Gufeng’s sales price in the last three months.

For the three months ended December 31, 2019, Yuxing’s net sales were $2,461,510, a decrease of $161,983 or 6.2%, from $2,623,493 for the three months ended December 31, 2018. The decrease was mainly attributable to the decrease in market demand during the three months ended December 31, 2019.

For the three months ended December 31, 2019, VIEs’ net sales were $10,351,465, a slightly increase of $27,545 or 0.3%, from $10,287,920 for the three months ended December 31, 2018.

Cost of Goods Sold

Total cost of goods sold for the three months ended December 31, 2019 was $40,744,524, an increase of $734,286, or 1.8%, from $40,010,238 for the three months ended December 31, 2018. The increase was mainly due to the increase in Jinong’s cost of goods sold which increased 12.6%.

Cost of goods sold by Jinong for the three months ended December 31, 2019 was $10,127,892, an increase of $1,133,010, or 12.6%, from $8,994,882 for the three months ended December 31, 2018. The increase in cost of goods was primarily due to the increase in sale volume during the last three months.

Cost of goods sold by Gufeng for the three months ended December 31, 2019 was $19,755,967, a decrease of $8,850, or 0.0%, from $19,764,817 for the three months ended December 31, 2018.

For three months ended December 31, 2019, cost of goods sold by Yuxing was $2,110,321, a decrease of $56,245, or 2.6%, from $2,166,566 for the three months ended December 31, 2018. This decrease was mainly due to the decrease in Yuxing’s net sales during the last three months.

Gross Profit

Total gross profit for the three months ended December 31, 2019 decreased by $3,423,740, or 28.0%, to $8,820,485, as compared to $12,244,225 for the three months ended December 31, 2018. Gross profit margin was 17.8% and 23.4% for the three Months Ended December 31, 2019 and 2018, respectively.

Gross profit generated by Jinong decreased by $3,598,885, or 45.0%, to $4,393,593 for the three months ended December 31, 2019 from $7,992,478 for the three months ended December 31, 2018. Gross profit margin from Jinong’s sales was approximately 30.3% and 47.0% for the three Months Ended December 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the lower sales prices.

For the three months ended December 31, 2019, gross profit generated by Gufeng was $2,510,582, a decrease of $80,291, or 3.1%, from $2,590,873 for the three months ended December 31, 2018. Gross profit margin from Gufeng’s sales was approximately 11.3% and 11.6% for the three Months Ended December 31, 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 December 31, 2019, gross profit generated by Yuxing was $351,189, a decrease of $105,738, or 23.1% from $456,927 for the three months ended December 31, 2018. The gross profit margin was approximately 15.2% and 17.4% for the three months Ended December 31, 2019 and 2018, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs.

Gross profit generated by VIEs increased by $361,174, or 30.0%, to $1,565,121 for the three months ended December 31, 2019 from $1,203,947 for the three months ended December 31, 2018. Gross profit margin from VIE’s sales was approximately 15.2% and 11.7% for the three months Ended December 31, 2019 and 2018, respectively. The increase in gross profit percentage was mainly due to the decrease in product costs.

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 $3,856,972, or 7.8%, of net sales for the three months ended December 31, 2019, as compared to $8,069,103, or 15.4%, of net sales for the three months ended December 31, 2018, a decrease of $4,212,131, or 52.2%.

The selling expenses of Jinong for the three months ended December 31, 2019 were $3,527,188 or 24.3% of Jinong’s net sales, as compared to selling expenses of $6,986,819 or 41.1% of Jinong’s net sales for the three months ended December 31, 2018.The selling expenses of Yuxing were $8,872 or 0.4% of Yuxing’s net sales for the three months ended December 31, 2019, as compared to $10,444 or 0.4% of Yuxing’s net sales for the three months ended December 31, 2018. The selling expenses of Gufeng were $80,593 or 0.4% of Gufeng’s net sales for the three months ended December 31, 2019, as compared to $160,863 or 0.7% of Gufeng’s net sales for the three months ended December 31, 2018.

Selling Expenses – amortization of deferred assets

Our selling expenses - amortization of our deferred assets were 0 for the three months ended December 31, 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 December 31, 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 $32,761,531, or 66.1% of net sales for the three months ended December 31, 2019, as compared to $(99,632), or -0.2% of net sales for the three months ended December 31, 2018, an increase of $32,861,163, or 32982.5%.

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 December 31, 2019 was $87,633, as compared to $241,374 for the three months ended December 31, 2018, a decrease in expense of $153,741, or 63.7%. The decrease in total other expense mainly resulted from the decrease in accretion 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 $ (949,683) for the three months ended December 31, 2019, as compared to $315,818 for the three months ended December 31, 2018, a decrease of $1,265,501, or 400.7%.

Gufeng is subject to a tax rate of 25%, incurred income tax expenses of $(68,015) for the three months ended December 31, 2019, as compared to $598,173 for the three months ended December 31, 2018, a decrease of $666,188, or 111.4%, which was primarily due to Gufeng’s decreased net income.

Yuxing has no income tax for the three months Ended December 31, 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 December 31, 2019 was $(27,080,880), a decrease of $29,586,615, or 1180.8%, compared to $2,505,735 for the three months ended December 31, 2018. Net income as a percentage of total net sales was approximately -54.6% and 4.8% for the three months Ended December 31, 2019 and 2018, respectively.

Six months ended December 31, 2019 Compared to the Six months ended December 31, 2018.

	2019			2018			Change $			Change %
Sales
Jinong		33,576,301			39,483,893			(5,907,592	)		-15.0	%
Gufeng		38,589,766			39,828,941			(1,239,175	)		-3.1	%
Yuxing		5,001,221			5,011,039			(9,818	)		-0.2	%
Sales VIEs		23,219,292			25,885,396			(2,666,104	)		-10.3	%
Net sales		100,386,580			110,209,269			(9,822,689	)		-8.9	%
Cost of goods sold
Jinong		20,620,422			20,198,054			422,368			2.1	%
Gufeng		34,209,975			35,069,680			(859,705	)		-2.5	%
Yuxing		4,162,317			4,213,729			(51,412	)		-1.2	%
Sales VIEs		19,414,134			22,013,941			(2,599,807	)		-11.8	%
Cost of goods sold		78,406,848			81,495,404			(3,088,556	)		-3.8	%
Gross profit		21,979,732			28,713,865			(6,734,133	)		-23.5	%
Operating expenses
Selling expenses		7,487,327			11,489,530			(4,002,203	)		-34.8	%
General and administrative expenses		49,103,323			2,209,728			46,893,595			2122.1	%
Total operating expenses		56,590,650			13,699,258			42,891,392			313.1	%
Income from operations		(34,610,918	)		15,014,607			(49,625,525	)		-330.5	%
Other income (expense)
Other income (expense)		(103,454	)		(226,083	)		122,629			-54.2	%
Interest income		106,886			223,341			(116,454	)		-52.1	%
Interest expense		(164,698	)		(312,264	)		147,566			-47.3	%
Total other income (expense)		(161,266	)		(315,006	)		153,741			-48.8	%
Income before income taxes		(34,772,183	)		14,699,601			(49,471,784	)		-336.6	%
Provision for income taxes		(375,504	)		3,182,061			(3,557,565	)		-111.8	%
Net income		(34,396,679	)		11,517,540			(45,914,219	)		-398.6	%
Other comprehensive income (loss)
Foreign currency translation gain (loss)		(7,036,503	)		(16,459,861	)		9,423,358			-57.3	%
Comprehensive income (loss)		(41,433,182	)		(4,942,321	)		(36,490,861	)		738.3	%

Net Sales

Total net sales for the six months ended December 31, 2019 were $100,386,580 a decrease of $9,822,689 or 8.9%, from $110,209,269 for the six months ended December 31, 2018. This decrease was primarily due to a decrease in Jinong’s and VIEs’ net sales.

For the six months ended December 31, 2019, Jinong’s net sales decreased $5,907,592, or 15.0%, to $33,576,301 from $39,483,893 for the six months ended December 31, 2018. This decrease was mainly attributable to the decrease in Jinong’s sales price in the last six months.

For the six months ended December 31, 2019, Gufeng’s net sales were $38,589,766, a decrease of $1,239,175, or 3.1%, from $39,828,941 for the six months ended December 31, 2018. This decrease was mainly attributable to the decrease in Gufeng’s sales price in the last six months.

For the six months ended December 31, 2019, Yuxing’s net sales were $5,001,221, a decrease of $9,818 or 0.2%, from $5,011,039 for the six months ended December 31, 2018.

For the six months ended December 31, 2019, VIEs’ net sales were $23,219,292, a decrease of $2,666,104, or 10.3%, from $25,885,396 for the six months ended December 31, 2018. This decrease was mainly attributable to the decrease in market demands in the last six months.

Cost of Goods Sold

Total cost of goods sold for the six months ended December 31, 2019 was $78,406,848, a decrease of $3,088,556, or 3.8%, from $81,495,404 for the six months ended December 31, 2018. The decrease was mainly due to the decrease in Gufeng’s and VIEs’ cost of goods sold which decreased 2.5% and 11.8% respectively.

Cost of goods sold by Jinong for the six months ended December 31, 2019 was $20,620,422, an increase of $422,368, or 2.1%, from $20,198,054 for the six months ended December 31, 2018. The increase in cost of goods was primarily due to the increase in sales volume during the last six months.

Cost of goods sold by Gufeng for the six months ended December 31, 2019 was $34,209,975, a decrease of $859,705, or 2.5%, from $35,069,680 for the six months ended December 31, 2018. This decrease was primarily due to the 3.1% decrease in net sale during the last six months.

For six months ended December 31, 2019, cost of goods sold by Yuxing was $4,162,317, a decrease of $51,412, or 1.2%, from $4,213,729 for the six months ended December 31, 2018. This decrease was mainly due to the decrease in Yuxing’s net sales during the last six months.

For six months ended December 31, 2019, cost of goods sold by VIEs was $19,414,134, a decrease of $2,599,807, or 11.8%, from $22,013,941 for the six months ended December 31, 2018. This decrease was mainly due to the decrease in VIEs’ net sales during the last six months.

Gross Profit

Total gross profit for the six months ended December 31, 2019 decreased by $6,734,133, or 23.5%, to $21,979,732, as compared to $28,713,865 for the six months ended December 31, 2018. Gross profit margin was 21.9% and 26.1% for the six months Ended December 31, 2019 and 2018, respectively.

Gross profit generated by Jinong decreased by $6,329,960, or 32.8%, to $12,955,879 for the six months ended December 31, 2019 from $19,285,839 for the six months ended December 31, 2018. Gross profit margin from Jinong’s sales was approximately 38.6% and 48.8% for the six months Ended December 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the lower sales prices.

For the six months ended December 31, 2019, gross profit generated by Gufeng was $4,379,791, a decrease of $379,470, or 8.0%, from $4,759,261 for the six months ended December 31, 2018. Gross profit margin from Gufeng’s sales was approximately 11.3% and 11.9% for the six months Ended December 31, 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 six months ended December 31, 2019, gross profit generated by Yuxing was $838,904, an increase of $41,594, or 5.2% from $797,310 for the six months ended December 31, 2018. The gross profit margin was approximately 16.8% and 15.9% for the six months Ended December 31, 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 $66,297, or 1.7%, to $3,805,158 for the six months ended December 31, 2019 from $3,871,455 for the six months ended December 31, 2018. Gross profit margin from VIE’s sales was approximately 16.4% and 15.0% for the six months Ended December 31, 2019 and 2018, respectively. The increase in gross profit percentage was mainly due to the decrease in product costs.

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 $7,487,327, or 7.5%, of net sales for the six months ended December 31, 2019, as compared to 11,489,530, or 10.4%, of net sales for the six months ended December 31, 2018, a decrease of $4,002,203 or 34.8%.

The selling expenses of Jinong for the six months ended December 31, 2019 were $6,827,383 or 20.3% of Jinong’s net sales, as compared to selling expenses of $ 10,058,050 or 25.5% of Jinong’s net sales for the six months ended December 31, 2018.The selling expenses of Yuxing were $18,224 or 0.4% of Yuxing’s net sales for the six months ended December 31, 2019, as compared to $28,173 or 0.6% of Yuxing’s net sales for the six months ended December 31, 2018. The selling expenses of Gufeng were $149,884 or 0.4% of Gufeng’s net sales for the six months ended December 31, 2019, as compared to $237,627 or 0.6% of Gufeng’s net sales for the six months ended December 31, 2018.

Selling Expenses – amortization of deferred assets

Our selling expenses - amortization of our deferred assets were 0 for the six months ended December 31, 2019 and 2018. All of the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets for the six months ended December 31, 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 $49,103,323, or 48.9% of net sales for the six months ended December 31, 2019, as compared to $2,209,728, or 2.0% of net sales for the six months ended December 31, 2018, an increase of $46,893,595, or 2122.1%.

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 six months ended December 31, 2019 was $161,266, as compared to $315,006 for the six months ended December 31, 2018, a decrease in expense of $153,740, or 48.8%. The decrease in total other expense resulted from the decrease in accretion 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 $ (857,195) for the six months ended December 31, 2019, as compared to $1,356,998 for the six months ended December 31, 2018, a decrease of $2,214,193, or 163.2%.

Gufeng is subject to a tax rate of 25%, incurred income tax expenses of $(136,291) for the six months ended December 31, 2019, as compared to $993,428 for the six months ended December 31, 2018, a decrease of $1,129,719, or 113.7%, which was primarily due to Gufeng’s decreased net income.

Yuxing has no income tax for the six months Ended December 31, 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 six months ended December 31, 2019 was $(34,610,918), a decrease of $49,625,525, or 330.5%, compared to $15,014,607 for the six months ended December 31, 2018. Net income as a percentage of total net sales was approximately -34.3% and 10.5% for the six months Ended December 31, 2019 and 2018, respectively.

Discussion of Segment Profitability Measures

As of December 31, 2019, we were engaged in the following businesses: the production and sale of fertilizers through Jinong and Gufeng, the production and sale of high-quality agricultural products by Yuxing, and the sales of agriculture materials by the sales VIEs. For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual budget 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 $12,547,097, or 163.2%, to $4,857,441 for six months ended December 31, 2019, from $7,689,656 for the six months ended December 31, 2018. The decrease was principally due to the increase in general and administrative expense.

For Gufeng, the net income decreased by $36,046,354, or 1264.1%, to $(33,194,889) for six months ended December 31, 2019 from $2,851,465 for six months ended December 31, 2018. The decrease was principally due to the increase in general and administrative expense.

For Yuxing, the net income increased $3,898,846, or 108.2%, to $295,498 for six months ended December 31, 2019 from $(3,603,348) for six months ended December 31, 2018. The decrease was mainly due to the decrease in general and administrative expense.

For the sales VIEs, the net income was $4,223,709 for period ended December 31, 2019, increased by $ 2,270,716, or 116.3%, from $1,952,993 for six months ended December 31, 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 December 31, 2019, cash and cash equivalents were $78,706,500, an increase of $6,446,696, or 8.9%, 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:

	Six Months Ended
	December 31,
	2019			2018
Net cash provided by (used in) operating activities		(2,074,331	)		(27,443,062	)
Net cash provided by (used in) investing activities		(50,533	)		(41,067	)
Net cash provided by (used in) financing activities		10,939,200			219,722
Effect of exchange rate change on cash and cash equivalents		(2,367,640	)		(5,994,548	)
Net increase in cash and cash equivalents		6,446,696			(33,258,955	)
Cash and cash equivalents, beginning balance		72,259,804			150,805,639
Cash and cash equivalents, ending balance	$	78,706,500		$	117,546,683

Operating Activities

Net cash used in operating activities was $2,074,331 for the six months ended December 31, 2019, a decrease of $25,368,731, or 92.4%, from cash provided by operating activities of $27,443,062 for the six months ended December 31, 2018. The decrease was mainly due to decrease in advances to suppliers and decrease in inventories during the six months ended December 31, 2019 as compared to the same period in 2018.

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2019 was $50,533, compared to cash used in investing activities of $41,067 for the six months ended December 31, 2018. The difference was due to the company had less change in construction in process during the last six months compared to the same period last year.

Financing Activities

Net cash provided by financing activities for the six months ended December 31, 2019 was $10,939,200, compared to $219,722 net cash used in financing activities for the six months ended December 31, 2018, which was largely attribute to $10,252,000 proceeds from the sale of common stock for the six months ended December 31, 2019, compared to 0 in the same period last year.

As of December 31, 2019 and June 30, 2019, our loans payable were as follows:

	December 31,		June 30,
	2019		2019
Short term loans payable:	$	3,877,200	$	3,640,000
Total	$	3,877,200	$	3,640,000

Accounts Receivable

We had accounts receivable of $156,080,809 as of December 31, 2019, as compared to $145,190,160 as of June 30, 2019, an increase of $10,890,649, or 7.5%. The increase was primarily attributable to Gufeng’s accounts receivable. As of December 31, 2019, Gufeng’s accounts receivable was $91,371,408, an increase of $5,939,245, or 7.0%, compared to $85,432,163 as of June 30, 2019.

Allowance for doubtful accounts in accounts receivable as of December 31, 2019 was $27,999,039, a decrease of $5,516,371, 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 15.2% as of December 31, 2019 and 18.8% as of June 30, 2019.

Deferred assets

We had no deferred assets as of December 31, 2019 and June 30, 2019. During the six 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 December 31, 2019.

Inventories

We had inventories of $114,448,765 as of December 31, 2019, as compared to $162,013,889 as of June 30, 2019, a decrease of $47,565,124, or 29.4%. The decrease was primarily attributable to Gufeng’s inventory. As of December 31, 2019, Gufeng’s inventory was $91,994,547, compared to $141,210,160 as of June 30, 2019, a decrease of $49,215,613, or 34.9%.

Advances to Suppliers

We had advances to suppliers of $30,944,718 as of December 31, 2019 as compared to $32,713,817 as of June 30, 2019, representing a decrease of $1,769,099, or 5.4%. 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 $15,217,368 as of December 31, 2019 as compared to $19,004,548 as of June 30, 2019, representing a decrease of $3,787,180, or 19.9%. The decrease was primarily due to the decrease of accounts payable for VIEs. They have accounts payable of $13,460,898 as of December 31, 2019 as compared to $17,073,229 as of June 30, 2019, representing a decrease of $3,612,331, or 21.2%.

Unearned Revenue (Customer Deposits)

We had customer deposits of $7,525,826 as of December 31, 2019 as compared to $6,514,619 as of June 30, 2019, representing an increase of $1,011,207, or 15.5%. The increase was mainly attributable to Gufeng’s $5,617,481 unearned revenue as of December 31, 2019, compared to $4,668,972 unearned revenue as of June 30, 2019, increased $948,509, or 20.3%, caused by the advance deposits made by clients. This increase 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

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 December 31, 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 December 31, 2019, we were organized into ten main business units: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production), Lishijie (agriculture sales), Jinyangguang (agriculture sales), Wangtian (agriculture sales), Xindeguo (agriculture sales), Xinyulei (agriculture sales), Fengnong (agriculture sales) and Xiangrong (agriculture sales). For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual budget regarding development, production and sales.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Disclosures About Market Risk

We may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the risk that losses may occur as a result of movements in interest rates and equity prices. We currently do not, in the normal course of business, use financial instruments that are subject to changes in financial market conditions.

Currency Fluctuations and Foreign Currency Risk

Substantially all of our revenues and expenses are denominated in RMB. However, we use the U.S. dollar for financial reporting purposes. Conversion of RMB into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of RMB, there can be no assurance that such exchange rate will not again become volatile or that RMB will not devalue significantly against U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC.

Our reporting currency is the U.S. dollar. Except for U.S. holding companies, all of our consolidated revenues, consolidated costs and expenses, and our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between 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 December 31, 2019, our accumulated other comprehensive loss was $27 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 December 31, 2019, China’s currency dropped by a cumulative 1.6% against the U.S. dollar, making Chinese exports cheaper and imports into China more expensive by that percentage. The effect on trade can be substantial. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the 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 December 31, 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 six months ended December 31, 2019. The original loan term on average is one year, and the remaining average life of the short term-loans is approximately six 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 December 31, 2019 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

(b) Changes in internal controls

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There are no other actions, suits, proceedings, inquiries or investigations before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of the Company’s equity securities during the six months ended December 31, 2019, that were not otherwise disclosed in a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

There is no other information required to be disclosed under this item which was not previously disclosed.

Item 6. Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CHINA GREEN AGRICULTURE, INC.

Date: February 14, 2020	By:	/s/ Zhuoyu Li
	Name:	Zhuoyu Li
	Title:	Chief Executive Officer
		(principal executive officer)

Date: February 14, 2020	By:	/s/ Yongcheng Yang
	Name:	Yongcheng Yang
	Title:	Chief Financial Officer
		(principal financial officer and principal accounting officer)

EXHIBIT INDEX

No.		Description

21.1*		List of Subsidiaries of the Company
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

China Green Agriculture (NYSE:CGA)
Historical Stock Chart
From Mar 2024 to Apr 2024

Click Here for more China Green Agriculture Charts.

China Green Agriculture (NYSE:CGA)
Historical Stock Chart
From Apr 2023 to Apr 2024

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

CGA China Green Agriculture Inc

Latest CGA Messages

Loading Messages....

China Green Agriculture, Inc. News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App

Trending Now

Toplists

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

CGA China Green Agriculture Inc

Latest CGA Messages

Loading Messages....

China Green Agriculture, Inc. News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App