UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2020
☐ 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 May 15,
2020.
TABLE OF CONTENTS
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:
|
● |
COVID-19 on our
financial condition and operations, which adversely affects our
ability to obtain acceptable financing in an amount equal to the
resulting reduction in cash from operations, and the current, and
uncertain future, other impacts of the COVID-19 outbreak, including
its effect on operations, outlook, plans, goals, growth,
reputation, cash flows, liquidity, and share price; |
|
● |
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.
Additionally, many of these
risks and uncertainties are currently amplified by and will
continue to be amplified by, or in the future may be amplified by,
the COVID-19 outbreak. It is not possible to predict or identify
all such risks. There may be additional risks that we consider
immaterial or which are unknown.
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)
|
|
March 31,
2020 |
|
|
June 30,
2019 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
Current Assets |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
41,311,137 |
|
|
$ |
72,259,804 |
|
Accounts
receivable, net |
|
|
166,452,189 |
|
|
|
145,190,160 |
|
Inventories |
|
|
62,234,682 |
|
|
|
162,013,889 |
|
Prepaid expenses
and other current assets |
|
|
3,363,721 |
|
|
|
2,776,370 |
|
Advances to suppliers, net |
|
|
62,935,130 |
|
|
|
32,713,817 |
|
Total Current
Assets |
|
|
336,296,859 |
|
|
|
414,954,039 |
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment,
Net |
|
|
23,595,885 |
|
|
|
26,669,938 |
|
Other Assets |
|
|
259,627 |
|
|
|
267,907 |
|
Other Non-current
Assets |
|
|
11,387,890 |
|
|
|
13,352,645 |
|
Intangible Assets,
Net |
|
|
16,103,409 |
|
|
|
17,881,449 |
|
Goodwill |
|
|
7,631,050 |
|
|
|
7,874,421 |
|
Total
Assets |
|
$ |
395,274,720 |
|
|
$ |
481,000,399 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
20,310,699 |
|
|
$ |
19,004,548 |
|
Customer
deposits |
|
|
7,713,614 |
|
|
|
6,514,619 |
|
Accrued expenses
and other payables |
|
|
12,287,124 |
|
|
|
12,029,722 |
|
Amount due to
related parties |
|
|
4,209,526 |
|
|
|
3,641,945 |
|
Taxes payable |
|
|
30,627,985 |
|
|
|
31,357,690 |
|
Short term
loans |
|
|
3,809,700 |
|
|
|
3,640,000 |
|
Interest
payable |
|
|
723,843 |
|
|
|
720,720 |
|
Derivative
liability |
|
|
- |
|
|
|
18,162 |
|
Convertible notes payable |
|
|
- |
|
|
|
7,517,307 |
|
Total Current
Liabilities |
|
|
79,682,492 |
|
|
|
84,444,714 |
|
|
|
|
|
|
|
|
|
|
Long-term
Liabilities |
|
|
- |
|
|
|
- |
|
Total
Liabilities |
|
$ |
79,682,492 |
|
|
$ |
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, 6,350,129 and
3,986,912 shares issued and outstanding as of March 31, 2020 and
June 30, 2019, respectively |
|
|
6,350 |
|
|
|
3,987 |
|
Additional paid-in
capital |
|
|
155,455,332 |
|
|
|
138,012,445 |
|
Statutory
reserve |
|
|
30,240,593 |
|
|
|
31,237,891 |
|
Retained
earnings |
|
|
163,500,883 |
|
|
|
247,122,574 |
|
Accumulated other comprehensive income |
|
|
(33,610,930 |
) |
|
|
(19,821,211 |
) |
Total Stockholders’ Equity |
|
|
315,592,228 |
|
|
|
396,555,686 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
395,274,720 |
|
|
$ |
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
March 31, |
|
|
Nine Months Ended
March 31, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
11,266,437 |
|
|
$ |
22,077,336 |
|
|
|
44,842,738 |
|
|
$ |
61,561,229 |
|
Gufeng |
|
|
57,094,310 |
|
|
|
67,167,427 |
|
|
|
95,684,076 |
|
|
|
106,996,368 |
|
Yuxing |
|
|
2,014,987 |
|
|
|
2,817,942 |
|
|
|
7,016,208 |
|
|
|
7,828,981 |
|
VIEs -
others |
|
|
15,450,955 |
|
|
|
16,057,865 |
|
|
|
38,670,247 |
|
|
|
41,943,261 |
|
Net sales |
|
|
85,826,689 |
|
|
|
108,120,570 |
|
|
|
186,213,269 |
|
|
|
218,329,839 |
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
8,193,579 |
|
|
|
11,091,419 |
|
|
|
28,814,001 |
|
|
|
31,289,473 |
|
Gufeng |
|
|
50,097,056 |
|
|
|
59,475,263 |
|
|
|
84,307,031 |
|
|
|
94,544,943 |
|
Yuxing |
|
|
1,847,112 |
|
|
|
2,445,246 |
|
|
|
6,009,429 |
|
|
|
6,658,975 |
|
VIEs -
others |
|
|
13,071,508 |
|
|
|
13,951,667 |
|
|
|
32,485,642 |
|
|
|
35,965,608 |
|
Cost of goods
sold |
|
|
73,209,255 |
|
|
|
86,963,595 |
|
|
|
151,616,103 |
|
|
|
168,458,999 |
|
Gross profit |
|
|
12,617,434 |
|
|
|
21,156,975 |
|
|
|
34,597,166 |
|
|
|
49,870,840 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
2,273,818 |
|
|
|
6,880,994 |
|
|
|
9,761,145 |
|
|
|
18,370,524 |
|
General and administrative expenses |
|
|
58,807,987 |
|
|
|
6,826,669 |
|
|
|
107,911,310 |
|
|
|
9,036,397 |
|
Total operating
expenses |
|
|
61,081,805 |
|
|
|
13,707,663 |
|
|
|
117,672,455 |
|
|
|
27,406,921 |
|
Income from operations |
|
|
(48,464,371 |
) |
|
|
7,449,312 |
|
|
|
(83,075,289 |
) |
|
|
22,463,919 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
(18,558 |
) |
|
|
(101,350 |
) |
|
|
(122,012 |
) |
|
|
(327,433 |
) |
Interest
income |
|
|
53,943 |
|
|
|
55,168 |
|
|
|
160,829 |
|
|
|
278,509 |
|
Interest expense |
|
|
(76,306 |
) |
|
|
(145,621 |
) |
|
|
(241,004 |
) |
|
|
(457,885 |
) |
Total other
income (expense) |
|
|
(40,921 |
) |
|
|
(191,803 |
) |
|
|
(202,187 |
) |
|
|
(506,809 |
) |
Income before income taxes |
|
|
(48,505,292 |
) |
|
|
7,257,509 |
|
|
|
(83,277,476 |
) |
|
|
21,957,110 |
|
Provision for
income taxes |
|
|
1,717,017 |
|
|
|
2,139,610 |
|
|
|
1,341,513 |
|
|
|
5,321,671 |
|
Net income |
|
|
(50,222,309 |
) |
|
|
5,117,899 |
|
|
|
(84,618,989 |
) |
|
|
16,635,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss) |
|
|
(6,753,216 |
) |
|
|
10,564,053 |
|
|
|
(13,789,719 |
) |
|
|
(5,895,808 |
) |
Comprehensive
income (loss) |
|
$ |
(56,975,525 |
) |
|
$ |
15,681,952 |
|
|
|
(98,408,708 |
) |
|
$ |
10,739,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding |
|
|
6,143,159 |
|
|
|
3,295,579 |
|
|
|
5,371,420 |
|
|
|
3,263,751 |
|
Basic net earnings per share |
|
$ |
(8.18 |
) |
|
$ |
1.55 |
|
|
|
(15.75 |
) |
|
$ |
5.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding |
|
|
6,143,159 |
|
|
|
3,295,579 |
|
|
|
5,371,420 |
|
|
|
3,263,751 |
|
Diluted net earnings per share |
|
|
(8.18 |
) |
|
|
1.55 |
|
|
|
(15.75 |
) |
|
|
5.10 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
CHINA GREEN AGRICULTURE,
INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2020 AND 2019
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,618,989 |
) |
|
|
|
|
|
|
(84,618,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for consulting services |
|
|
931,000 |
|
|
|
931 |
|
|
|
10,251,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,252,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for convertible notes |
|
|
1,372,650 |
|
|
|
1,373 |
|
|
|
6,861,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,863,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
59,567 |
|
|
|
60 |
|
|
|
329,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to statutory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(997,299 |
) |
|
|
997,299 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,789,719 |
) |
|
|
(13,789,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2020 |
|
|
6,350,129 |
|
|
$ |
6,350 |
|
|
$ |
155,455,332 |
|
|
$ |
30,240,593 |
|
|
$ |
163,500,883 |
|
|
$ |
(33,610,930 |
) |
|
$ |
315,592,228 |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,635,439 |
|
|
|
|
|
|
|
16,635,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,672 |
|
|
|
(248,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,895,808 |
) |
|
|
(5,895,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2019 |
|
|
3,295,580 |
|
|
$ |
3,296 |
|
|
$ |
129,403,511 |
|
|
$ |
31,196,016 |
|
|
$ |
252,209,492 |
|
|
$ |
(9,494,023 |
) |
|
$ |
403,318,292 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
CHINA GREEN AGRICULTURE,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine Months Ended
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net income |
|
$ |
(84,618,989 |
) |
|
$ |
16,635,439 |
|
Adjustments to reconcile net income to
net cash provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
3,543,104 |
|
|
|
3,671,827 |
|
Gain (Loss) on
disposal of property, plant and equipment |
|
|
33,923 |
|
|
|
4,524 |
|
Provision for
losses on accounts receivable |
|
|
76,346,104 |
|
|
|
488,806 |
|
Amortization of
debt discount |
|
|
41,814 |
|
|
|
308,815 |
|
Issuance of common
stock for consulting services fee |
|
|
0 |
|
|
|
370,500 |
|
Change in fair
value of derivative liability |
|
|
(17,782 |
) |
|
|
(62,539 |
) |
Changes in operating assets |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(103,436,382 |
) |
|
|
16,893,932 |
|
Amount due from
related parties |
|
|
- |
|
|
|
228,635 |
|
Other current
assets |
|
|
(681,319 |
) |
|
|
(408,198 |
) |
Inventories |
|
|
95,744,236 |
|
|
|
(78,208,217 |
) |
Advances to
suppliers |
|
|
(30,473,093 |
) |
|
|
(26,287,635 |
) |
Other assets |
|
|
1,414,043 |
|
|
|
(481,965 |
) |
Changes in operating liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
1,906,246 |
|
|
|
(17,053,253 |
) |
Customer
deposits |
|
|
1,414,707 |
|
|
|
627,242 |
|
Tax payables |
|
|
(663,905 |
) |
|
|
3,183,956 |
|
Accrued expenses
and other payables |
|
|
744,750 |
|
|
|
1,045,892 |
|
Interest payable |
|
|
25,659 |
|
|
|
207,758 |
|
Net cash
provided by (used in) operating activities |
|
|
(38,676,884 |
) |
|
|
(77,964,267 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
|
|
Purchase of plant,
property, and equipment |
|
|
(66,210 |
) |
|
|
(59,096 |
) |
Change
in construction in process |
|
|
- |
|
|
|
16,216 |
|
Net cash
provided by (used in) investing activities |
|
|
(66,210 |
) |
|
|
(42,880 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
|
|
|
|
Proceeds from the
sale of common stock |
|
|
10,252,000 |
|
|
|
- |
|
Proceeds from
loans |
|
|
282,200 |
|
|
|
- |
|
Advance from
related party |
|
|
600,000 |
|
|
|
409,230 |
|
Repayment of
loans |
|
|
- |
|
|
|
(190,536 |
) |
Net cash
provided by (used in) financing activities |
|
|
11,134,200 |
|
|
|
218,694 |
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate change on cash and cash equivalents |
|
|
(3,339,772 |
) |
|
|
(3,775,148 |
) |
Net increase (decrease) in cash and
cash equivalents |
|
|
(30,948,665 |
) |
|
|
(81,563,601 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning balance |
|
|
72,259,804 |
|
|
|
150,805,639 |
|
Cash and cash
equivalents, ending balance |
|
$ |
41,311,138 |
|
|
$ |
69,242,037 |
|
|
|
|
|
|
|
|
|
|
Supplement disclosure of cash flow
information |
|
|
|
|
|
|
|
|
Interest
expense paid |
|
$ |
215,195 |
|
|
$ |
106,307 |
|
Income taxes
paid |
|
$ |
2,802,117 |
|
|
$ |
2,137,715 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
NOTE 1 – ORGANIZATION AND
DESCRIPTION OF BUSINESS
China Green Agriculture, Inc. (the “Company”, “Parent Company” or
“Green Nevada”), through its subsidiaries, is engaged in the
research, development, production, distribution and sale of humic
acid-based compound fertilizer, compound fertilizer, blended
fertilizer, organic compound fertilizer, slow-release fertilizers,
highly-concentrated water-soluble fertilizers and mixed
organic-inorganic compound fertilizer and the development,
production and distribution of agricultural products.
Unless the context indicates otherwise, as used in this Report, the
following are the references herein of all the subsidiaries of the
Company (i) Green Agriculture Holding Corporation (“Green New
Jersey”), a wholly-owned subsidiary of Green Nevada, incorporated
in the State of New Jersey; (ii) Shaanxi TechTeam Jinong Humic Acid
Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green
New Jersey organized under the laws of the PRC; (iii) Xi’an Hu
County Yuxing Agriculture Technology Development Co., Ltd.
(“Yuxing”), a Variable Interest Entity (“VIE”) in the in the
People’s Republic of China (the “PRC”) controlled by Jinong through
a series of contractual agreements; (iv) Beijing Gufeng Chemical
Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC
(“Gufeng”), and (v) Beijing Tianjuyuan Fertilizer Co., Ltd.,
Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
On June 30, 2016 the Company, through its wholly-owned subsidiary
Jinong, entered into strategic acquisition agreements and a series
of contractual agreements with the shareholders of the following
six companies that are organized under the laws of the PRC and
would be deemed VIEs: Shaanxi Lishijie Agrochemical Co., Ltd.
(“Lishijie”), Songyuan Jinyangguang Sannong Service Co., Ltd.
(“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd.
(“Zhenbai”), Weinan City Linwei District Wangtian Agricultural
Materials Co., Ltd. (“Wangtian”), Aksu Xindeguo Agricultural
Materials Co., Ltd. (“Xindeguo”), and Xinjiang Xinyulei
Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”). On
January 1, 2017, the Company, through its wholly-owned subsidiary
Jinong, entered into strategic acquisition agreements and a series
of contractual agreements with the shareholders of the following
two companies that are organized under the laws of the PRC and
would be deemed VIEs, Sunwu County Xiangrong Agricultural Materials
Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd.
(“Fengnong”).
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, discontinued the strategic acquisition
agreements and the series of contractual agreements with the
shareholders of Zhenbai.
Yuxing, Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei,
Xiangrong and Fengnong may also collectively be referred to as the
“the VIE Companies”; Lishijie, Jinyangguang, Wangtian, Xindeguo,
Xinyulei, Xiangrong and Fengnong may also collectively be referred
to as “the sales VIEs” or “the sales VIE companies”.
The Company’s corporate structure as of March 31, 2020 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 March 31, 2020 and June 30, 2019 were $41,220,912 and
$72,178,448, respectively. There is no insurance securing these
deposits in China. In addition, the Company also had $90,225 and
$81,356 in cash in two banks in the United States as of March 31,
2020 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 March 31, 2020, and June
30, 2019, the Company had accounts receivable of $166,452,189 and
$145,190,160, net of allowance for doubtful accounts of $34,494,969
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 March
31, 2020 and 2019, 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
March 31, 2020 and 2019 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 March 31, 2020, and June 30, 2019, the
Company had customer deposits of $7,713,614 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 |
|
|
|
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Net Income for Basic
Earnings Per Share |
|
$ |
(50,222,309 |
) |
|
$ |
5,117,899 |
|
Basic Weighted Average Number of Shares |
|
|
6,143,159 |
|
|
|
3,295,579 |
|
Net Income Per Share – Basic |
|
$ |
(8.18 |
) |
|
$ |
1.55 |
|
Net Income for Diluted Earnings Per
Share |
|
$ |
(50,222,309 |
) |
|
$ |
5,117,899 |
|
Diluted Weighted Average Number of Shares |
|
|
6,143,159 |
|
|
|
3,295,579 |
|
Net Income Per Share – Diluted |
|
$ |
(8.18 |
) |
|
$ |
1.55 |
|
|
|
Nine
Months Ended |
|
|
|
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Net Income for Basic
Earnings Per Share |
|
$ |
(83,277,476 |
) |
|
$ |
16,635,439 |
|
Basic Weighted Average Number of Shares |
|
|
5,371,420 |
|
|
|
3,263,751 |
|
Net Income Per Share – Basic |
|
$ |
(15.75 |
) |
|
$ |
5.10 |
|
Net Income for Diluted Earnings Per
Share |
|
$ |
(83,277,476 |
) |
|
$ |
16,635,439 |
|
Diluted Weighted Average Number of Shares |
|
|
5,371,420 |
|
|
|
3,263,751 |
|
Net Income Per Share – Diluted |
|
$ |
(15.75 |
) |
|
$ |
5.10 |
|
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:
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Raw materials |
|
$ |
12,933,158 |
|
|
$ |
102,268,620 |
|
Supplies and packing materials |
|
$ |
440,790 |
|
|
$ |
496,138 |
|
Work in progress |
|
$ |
373,931 |
|
|
$ |
390,708 |
|
Finished
goods |
|
$ |
48,486,803 |
|
|
$ |
58,858,423 |
|
Total |
|
$ |
62,234,682 |
|
|
$ |
162,013,889 |
|
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Building and
improvements |
|
$ |
37,692,796 |
|
|
$ |
38,877,508 |
|
Auto |
|
|
3,194,958 |
|
|
|
3,391,040 |
|
Machinery and equipment |
|
|
17,544,531 |
|
|
|
18,125,539 |
|
Agriculture
assets |
|
|
0 |
|
|
|
741,044 |
|
Total property,
plant and equipment |
|
|
58,432,286 |
|
|
|
61,135,130 |
|
Less:
accumulated depreciation |
|
|
(34,836,401 |
) |
|
|
(34,465,192 |
) |
Total |
|
$ |
23,595,885 |
|
|
$ |
26,669,938 |
|
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Land use rights, net |
|
$ |
8,882,568 |
|
|
$ |
9,341,327 |
|
Technology patent, net |
|
|
2,169 |
|
|
|
3,004 |
|
Customer relationships, net |
|
|
1,197,605 |
|
|
|
2,174,564 |
|
Non-compete agreement |
|
|
278,296 |
|
|
|
436,634 |
|
Trademarks |
|
|
5,742,771 |
|
|
|
5,925,920 |
|
Total |
|
$ |
16,103,409 |
|
|
$ |
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 $10,326,389). 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 $147,584). 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
$1,027,927). The intangible asset is being amortized over the grant
period of 50 years.
The Land Use Rights consisted of the following:
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Land use rights |
|
$ |
11,501,900 |
|
|
|
11,868,721 |
|
Less:
accumulated amortization |
|
|
(2,619,331 |
) |
|
|
(2,527,394 |
) |
Total land use
rights, net |
|
$ |
8,882,568 |
|
|
|
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 $828,972) 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 $1,298,120) 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:
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Technology know-how |
|
$ |
2,131,275 |
|
|
$ |
2,199,247 |
|
Less:
accumulated amortization |
|
|
(2,129,106 |
) |
|
|
(2,196,243 |
) |
Total technology
know-how, net |
|
$ |
2,169 |
|
|
$ |
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 $9,171,500) and
is amortized over the remaining useful life of ten years. On June
30, 2016 and January 1, 2017, the Company acquired the sales VIE
Companies. The fair value of the acquired customer relationships
was estimated to be RMB16,472,179 (or $2,324,224) and is amortized
over the remaining useful life of seven to ten years.
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Customer
relationships |
|
$ |
11,249,847 |
|
|
$ |
11,608,629 |
|
Less:
accumulated amortization |
|
|
(10,052,242 |
) |
|
|
(9,434,065 |
) |
Total customer
relationships, net |
|
$ |
1,197,605 |
|
|
$ |
2,174,564 |
|
NON-COMPETE AGREEMENT
On July 2, 2010, the Company acquired Gufeng and its wholly-owned
subsidiary Tianjuyuan. The fair value of the acquired non-compete
agreement was estimated to be RMB1,320,000 (or $186,252) 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 $867,861) and is amortized over the remaining useful life of
five years using the straight line method.
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Non-compete
agreement |
|
$ |
1,151,861 |
|
|
$ |
1,188,597 |
|
Less:
accumulated amortization |
|
|
(873,565) |
|
|
|
(751,963 |
) |
Total
non-compete agreement, net |
|
$ |
278,296 |
|
|
$ |
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 $5,742,770) and is
subject to an annual impairment test.
AMORTIZATION EXPENSE
Estimated amortization expenses of intangible assets for the next
five twelve months periods ended March 31, are as follows:
Twelve Months Ended on March 31, |
|
Expense
($) |
|
2021 |
|
|
1,039,582 |
|
2022 |
|
|
646,908 |
|
2023 |
|
|
547,709 |
|
2024 |
|
|
436,703 |
|
2025 |
|
|
339,859 |
|
NOTE 6 – OTHER NON-CURRENT ASSETS
Other non-current assets mainly include advance payments related to
leasing land for use by the Company. As of March 31, 2020, the
balance of other non-current assets was $13,282,157, which was the
lease fee advances for agriculture lands that the Company engaged
in Shiquan County from 2020 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 $1.4 million as expenses for the Nine Months
ended March 31, 2020.
Estimated amortization expenses of the lease advance payments for
the next four twelve-month periods ended March 31 and thereafter
are as follows:
Twelve months ending March 31, |
|
|
|
2021 |
|
$ |
1,894,268 |
|
2022 |
|
$ |
1,894,268 |
|
2023 |
|
$ |
1,894,268 |
|
2024 |
|
$ |
1,894,268 |
|
2025 and thereafter |
|
$ |
5,705,087 |
|
NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Payroll payable |
|
$ |
23,369 |
|
|
$ |
24,891 |
|
Welfare payable |
|
|
144,859 |
|
|
|
149,479 |
|
Accrued expenses |
|
|
7,346,774 |
|
|
|
6,847,041 |
|
Other payables |
|
|
4,653,786 |
|
|
|
4,886,202 |
|
Other levy
payable |
|
|
118,336 |
|
|
|
122,109 |
|
Total |
|
$ |
12,287,124 |
|
|
$ |
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 $3,598,050).
For the Nine Months Ended March 31, 2020 and 2019, Yuxing has sold
approximately $294,983 and $300,210 products to 900LH.com.
As of March 31, 2020, and June 30, 2019, the amount due to related
parties was $4,209,526 and $3,641,945, respectively. As
of March 31, 2020, and June 30, 2019, $987,700 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 March 31, 2020, and June 30, 2019, the Company’s subsidiary,
Jinong, owed 900LH.com $11,785 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
$3,454).
NOTE 9 – LOAN PAYABLES
As of March 31, 2020, 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 |
|
|
March 31,
2018 |
|
1 |
|
Postal Saving Bank of
China - Pinggu Branch |
|
June 3, 2019-June 2,
2020 |
|
|
6.31 |
% |
|
|
2,822,000 |
|
2 |
|
Beijing Bank - Pinggu Branch |
|
June 28, 2019-June 27, 2020 |
|
|
5.22 |
% |
|
|
705,500 |
|
3 |
|
Beijing Bank -
Pinggu Branch |
|
August 14,
2019-June 27, 2020 |
|
|
5.22 |
% |
|
|
282,200 |
|
|
|
Total |
|
|
|
|
|
|
|
$ |
3,809,700 |
|
The interest expense from short-term loans was $215,241 and
$250,127 for the Nine Months ended March 31, 2020 and 2019
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 ($7,196,100) 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 ($1,693,200)
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.
On February 14, 2020, the Company issued 377,650 shares of common
stock at the price of $5.00 per share for the total amount of
$1,888,250 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.
The Company determined that the fair value of the convertible notes
payable was RMB 0 ($0) and RMB 51,629,859 ($7,284,973) as of March
31, 2020 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 March 31,
2020, the accumulated amortization of this discount into accretion
expenses was $1,375,606.
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 March 31, 2007. Accordingly, it made provision for income taxes
for the six-month period ended March 31, 2020 and 2019 of $0 and
$1,007,503, respectively. Gufeng is subject to a 25% EIT rate
and thus it made provision for income taxes of $0 and $2,768,465
for the Nine Months ended March 31, 2020 and 2019,
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
March 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
|
|
March
31, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
VAT
provision |
|
$ |
(279,835 |
) |
|
$ |
(424,535 |
) |
Income tax payable |
|
|
700,574 |
|
|
|
1,550,830 |
|
Other
levies |
|
|
1,196,711 |
|
|
|
1,220,859 |
|
Total |
|
$ |
1,617,450 |
|
|
$ |
2,347,154 |
|
The provision for income taxes consists of the following
|
|
March
31, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
Current tax - foreign |
|
$ |
1,341,513 |
|
|
$ |
1,654,416 |
|
Deferred
tax |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
1,341,513 |
|
|
$ |
1,654,416 |
|
Tax Rate Reconciliation
Our effective tax rates were approximately -1.6% and 24.2% for the
Nine Months ended March 31, 2020 and 2019, 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 March 31, 2020 and 2019 for the following
reasons:
March 31, 2020
|
|
China
15% - 25% |
|
|
|
|
|
United States
21% |
|
|
|
|
|
Total |
|
|
|
|
Pretax income (loss) |
|
$ |
(82,037,196 |
) |
|
|
|
|
|
|
(1,240,280 |
) |
|
|
|
|
|
$ |
(83,277,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense
(benefit) |
|
|
(20,509,299 |
) |
|
|
25.0 |
% |
|
|
(260,459 |
) |
|
|
21.0 |
% |
|
|
(20,769,758 |
) |
|
|
|
|
High-tech income benefits on
Jinong |
|
|
2,561,450 |
|
|
|
(3.1 |
)% |
|
|
- |
|
|
|
- |
|
|
|
2,561,450 |
|
|
|
|
|
Losses
from subsidiaries in which no benefit is recognized |
|
|
19,289,362 |
|
|
|
(23.5 |
)% |
|
|
- |
|
|
|
- |
|
|
|
19,289,362 |
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax
benefit |
|
|
- |
|
|
|
|
|
|
|
260,459 |
|
|
|
(21.0 |
)% |
|
|
260,459 |
|
|
|
|
|
Actual tax expense |
|
$ |
1,341,513 |
|
|
|
(1.6 |
)% |
|
$ |
- |
|
|
|
- |
% |
|
$ |
1,341,513 |
|
|
|
(1.6 |
)% |
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
United States |
|
|
|
|
|
|
|
|
|
15% - 25% |
|
|
34% |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) |
|
$ |
23,320,275 |
|
|
|
- |
|
|
|
(1,363,166 |
) |
|
|
- |
|
|
$ |
21,957,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit) |
|
|
5,830,069 |
|
|
|
25.0 |
% |
|
|
(286,265 |
) |
|
|
21.0 |
% |
|
|
5,543,804 |
|
|
|
|
|
High-tech income benefits on Jinong |
|
|
(671,669 |
) |
|
|
(2.9 |
)% |
|
|
|
|
|
|
- |
|
|
|
(671,669 |
) |
|
|
|
|
Losses
from subsidiaries in which no benefit is recognized |
|
|
163,271 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
- |
|
|
|
163,271 |
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax
benefit |
|
|
- |
|
|
|
- |
|
|
|
286,265 |
|
|
|
(21.0 |
)% |
|
|
286,265 |
|
|
|
|
|
Actual tax expense |
|
$ |
5,321,671 |
|
|
|
22.8 |
% |
|
$ |
- |
|
|
|
- |
% |
|
$ |
5,321,671 |
|
|
|
24.2 |
% |
NOTE 12 – STOCKHOLDERS’ EQUITY
Common Stock
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.
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.
As of March 31, 2020, 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 March 31, 2020, 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
None of the vendors accounted over 10% of the Company’s purchase of
raw materials and supplies for the nine months ended March 31,
2020.
There were three vendors, from which the Company purchased 14.2%,
13.7% and 11.8% of its raw materials for fertilizer manufacturing
during the year ended March 31, 2019. Total purchase from these
three vendors was amounted to $58,658,521 as March 31,
2019.
There were two customers, from which the Company sold 10.6% and
10.4% of its products during the year ended March 31, 2020. Total
sales from these two customers was amounted to $33,957,707 as March
31, 2020.
No customer accounted for over 10% of the Company’s sales for the
Nine Months Ended March 31, 2019.
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 |
|
|
Nine
Months
Ended |
|
|
Nine
Months
Ended |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Revenues from unaffiliated customers: |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
11,266,437 |
|
|
$ |
22,077,336 |
|
|
$ |
44,842,738 |
|
|
$ |
61,561,229 |
|
Gufeng |
|
|
57,094,310 |
|
|
|
67,167,427 |
|
|
|
95,684,076 |
|
|
|
106,996,368 |
|
Yuxing |
|
|
2,014,987 |
|
|
|
2,817,942 |
|
|
|
7,016,208 |
|
|
|
7,828,981 |
|
Sales VIEs |
|
|
15,450,955 |
|
|
|
16,057,865 |
|
|
|
38,670,247 |
|
|
|
41,943,261 |
|
Consolidated |
|
$ |
85,826,689 |
|
|
$ |
108,120,570 |
|
|
$ |
186,213,269 |
|
|
$ |
218,329,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
(4,567,306 |
) |
|
$ |
(2,210,904 |
) |
|
$ |
(10,335,081 |
) |
|
$ |
6,888,634 |
|
Gufeng |
|
|
(44,325,347 |
) |
|
|
7,111,832 |
|
|
|
(77,454,456 |
) |
|
|
11,214,341 |
|
Yuxing |
|
|
5,003 |
|
|
|
125,839 |
|
|
|
300,952 |
|
|
|
(3,477,668 |
) |
Sales VIEs |
|
|
812,350 |
|
|
|
2,821,741 |
|
|
|
5,653,582 |
|
|
|
9,201,792 |
|
Reconciling item
(1) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Reconciling item (2) |
|
|
(389,072 |
) |
|
|
(399,196 |
) |
|
|
(1,240,286 |
) |
|
|
(1,363,180 |
) |
Consolidated |
|
$ |
(48,464,372 |
) |
|
$ |
7,449,312 |
|
|
$ |
(83,075,289 |
) |
|
$ |
22,463,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
(5,388,358 |
) |
|
$ |
(1,980,471 |
) |
|
$ |
(10,245,799 |
) |
|
$ |
5,709,185 |
|
Gufeng |
|
|
(44,538,320 |
) |
|
|
5,260,432 |
|
|
|
(77,733,209 |
) |
|
|
8,111,897 |
|
Yuxing |
|
|
4,204 |
|
|
|
125,259 |
|
|
|
299,702 |
|
|
|
(3,478,089 |
) |
Sales VIEs |
|
|
89,265 |
|
|
|
2,111,941 |
|
|
|
4,312,975 |
|
|
|
7,668,280 |
|
Reconciling item
(1) |
|
|
(1 |
) |
|
|
4 |
|
|
|
6 |
|
|
|
14 |
|
Reconciling item
(2) |
|
|
(389,072 |
) |
|
|
(399,196 |
) |
|
|
(1,240,286 |
) |
|
|
(1,363,180 |
) |
Reconciling item (3) |
|
|
(28 |
) |
|
|
(68 |
) |
|
|
(12,379 |
) |
|
|
(12,667 |
) |
Consolidated |
|
$ |
(50,222,309 |
) |
|
$ |
5,117,901 |
|
|
$ |
(84,618,989 |
) |
|
$ |
16,635,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
190,739 |
|
|
$ |
199,460 |
|
|
$ |
572,587 |
|
|
$ |
592,424 |
|
Gufeng |
|
|
521,051 |
|
|
|
542,033 |
|
|
|
1,557,909 |
|
|
|
1,607,957 |
|
Yuxing |
|
|
296,863 |
|
|
|
307,835 |
|
|
|
886,512 |
|
|
|
912,554 |
|
Sales VIEs |
|
|
182,658 |
|
|
|
188,309 |
|
|
|
526,096 |
|
|
|
558,892 |
|
Consolidated |
|
$ |
1,172,886 |
|
|
$ |
1,237,638 |
|
|
$ |
3,543,104 |
|
|
$ |
3,671,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
59 |
|
|
|
70,000 |
|
|
|
25,659 |
|
|
|
207,758 |
|
Gufeng |
|
|
76,248 |
|
|
|
75,621 |
|
|
|
215,241 |
|
|
|
250,127 |
|
Yuxing |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sales VIEs |
|
|
(87,497 |
) |
|
|
- |
|
|
|
(164,594 |
) |
|
|
- |
|
Consolidated |
|
$ |
(11,190 |
) |
|
$ |
145,621 |
|
|
$ |
76,306 |
|
|
$ |
457,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
57 |
|
|
$ |
781 |
|
|
$ |
25,005 |
|
|
$ |
4,273 |
|
Gufeng |
|
|
698 |
|
|
|
394 |
|
|
|
698 |
|
|
|
45,998 |
|
Yuxing |
|
|
268 |
|
|
|
726 |
|
|
|
25,852 |
|
|
|
8,825 |
|
Sales VIEs |
|
|
14,654 |
|
|
|
- |
|
|
|
14,654 |
|
|
|
- |
|
Consolidated |
|
$ |
15,677 |
|
|
$ |
1,901 |
|
|
$ |
66,210 |
|
|
$ |
59,096 |
|
|
|
As of |
|
|
|
March
31, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Identifiable assets: |
|
|
|
|
|
|
Jinong |
|
$ |
113,770,025 |
|
|
$ |
149,166,251 |
|
Gufeng |
|
|
195,938,075 |
|
|
|
253,149,321 |
|
Yuxing |
|
|
35,184,546 |
|
|
|
35,900,242 |
|
Sales VIEs |
|
|
49,854,815 |
|
|
|
42,269,307 |
|
Reconciling item
(1) |
|
|
361,138 |
|
|
|
518,158 |
|
Reconciling item (2) |
|
|
166,121 |
|
|
|
(2,879 |
) |
Consolidated |
|
$ |
395,274,720 |
|
|
$ |
481,000,399 |
|
|
(1) |
Reconciling
amounts refer to the unallocated assets or expenses of Green New
Jersey. |
|
(2) |
Reconciling
amounts refer to the unallocated assets or expenses of the Parent
Company. |
NOTE 15 – COMMITMENTS AND CONTINGENCIES
On July 1, 2018, Jinong signed an office lease with Kingtone
Information Technology Co., Ltd. (“Kingtone Information”), of which
Mr. Zhuoyu Li, Chairman and CEO of the Company, served as Chairman.
Pursuant to the lease, Jinong rented 612 square meters
(approximately 6,588 square feet) of office space from Kingtone
Information. The lease provides for a two-year term effective as of
July 1, 2018 with monthly rent of RMB24,480 (approximately
$3,490).
In February 2004, Tianjuyuan signed a fifty-year lease with the
village committee of Dong Gao Village and Zhen Nan Zhang Dai
Village in the Beijing Ping Gu District, at a monthly rent of RMB
2,958(approximately $422).
Accordingly, the Company recorded an aggregate of $35,201 and
$36,794 as rent expenses from these committed property leases for
the nine-month periods ended March 31, 2020 and 2019, respectively.
The contingent rent expenses herein for the next five twelve-month
periods ended March 31, are as follows:
Years ending March 31, |
|
|
|
2021 |
|
$ |
46,935 |
|
2022 |
|
|
46,935 |
|
2023 |
|
|
46,935 |
|
2024 |
|
|
46,935 |
|
2025 |
|
|
46,935 |
|
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 March 31, 2020 and June 30, 2019:
|
|
March
31, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
1,122,822 |
|
|
$ |
818,312 |
|
Accounts receivable, net |
|
|
35,209,724 |
|
|
|
29,933,837 |
|
Inventories |
|
|
26,070,040 |
|
|
|
19,944,011 |
|
Other current assets |
|
|
625,112 |
|
|
|
475,001 |
|
Related party receivable |
|
|
0 |
|
|
|
(1,031 |
) |
Advances to
suppliers |
|
|
576,795 |
|
|
|
3,606,384 |
|
Total Current
Assets |
|
|
63,604,493 |
|
|
|
54,776,514 |
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment,
Net |
|
|
8,738,807 |
|
|
|
9,753,039 |
|
Other assets |
|
|
59,406 |
|
|
|
218,549 |
|
Intangible Assets, Net |
|
|
9,527,049 |
|
|
|
10,212,668 |
|
Goodwill |
|
|
3,109,606 |
|
|
|
3,208,779 |
|
Total
Assets |
|
$ |
85,039,361 |
|
|
$ |
78,169,549 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
18,770,058 |
|
|
|
17,250,276 |
|
Customer deposits |
|
|
588,733 |
|
|
|
256,489 |
|
Accrued expenses and other
payables |
|
|
7,692,853 |
|
|
|
6,243,753 |
|
Amount due to
related parties |
|
|
42,045,369 |
|
|
|
42,680,723 |
|
Total Current
Liabilities |
|
$ |
69,097,013 |
|
|
$ |
66,431,241 |
|
Long-term
Loan |
|
|
- |
|
|
|
- |
|
Total
Liabilities |
|
$ |
69,097,013 |
|
|
$ |
66,431,241 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
15,942,348 |
|
|
|
11,738,308 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity |
|
|
85,039,361 |
|
|
$ |
78,169,549 |
|
|
|
Three Months Ended
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Revenue |
|
$ |
17,465,942 |
|
|
$ |
18,875,808 |
|
Expenses |
|
|
17,372,472 |
|
|
|
16,638,610 |
|
Net income |
|
$ |
93,470 |
|
|
$ |
2,237,198 |
|
|
|
Nine
Months Ended
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Revenue |
|
$ |
45,686,455 |
|
|
$ |
49,772,242 |
|
Expenses |
|
|
41,073,778 |
|
|
|
45,582,052 |
|
Net
income |
|
$ |
4,612,677 |
|
|
$ |
4,190,190 |
|
NOTE 17 – BUSINESS COMBINATIONS
On June 30, 2016, the Company, through its wholly-owned subsidiary
Jinong, entered into strategic acquisition agreements and also into
a series of contractual agreements to qualify as VIEs with the
shareholders of Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan
Jinyangguang Sannong Service Co., Ltd., Shenqiu County Zhenbai
Agriculture Co., Ltd., Weinan City Linwei District Wangtian
Agricultural Materials Co., Ltd., Aksu Xindeguo Agricultural
Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science
and Technology Co., Ltd.
Subsequently, on January 1, 2017, Jinong entered into similar
strategic acquisition agreements and a series of contractual
agreements to qualify as VIEs with the shareholders of Sunwu County
Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed
Co., Ltd.
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, discontinued the strategic acquisition
agreements and the series of contractual agreements with the
shareholders of Zhenbai.
The VIE Agreements are as follows:
Entrusted Management Agreements
Pursuant to the terms of certain Entrusted Management Agreements
dated June 30, 2016 and January 1, 2017, between Jinong and the
shareholders of the sales VIE Companies (the “Entrusted Management
Agreements”), the sales VIE Companies and their shareholders agreed
to entrust the operations and management of its business to Jinong.
According to the Entrusted Management Agreement, Jinong possesses
the full and exclusive right to manage the sales VIE Companies’
operations, assets and personnel, has the right to control all the
sales VIE Companies’ cash flows through an entrusted bank account,
is entitled to the sales VIE Companies’ net profits as a management
fee, is obligated to pay all the sales VIE Companies’ payables and
loan payments, and bears all losses of the sales VIE Companies. The
Entrusted Management Agreements will remain in effect until (i) the
parties mutually agree to terminate the agreement; (ii) the
dissolution of the sales VIE Companies; or (iii) Jinong acquires
all the assets or equity of the sales VIE Companies (as more fully
described below under “Exclusive Option Agreements”).
Exclusive Technology Supply Agreements
Pursuant to the terms of certain Exclusive Technology Supply
Agreements dated June 30, 2016 and January 1, 2017, between Jinong
and the sales VIE companies (the “Exclusive Technology Supply
Agreements”), Jinong is the exclusive technology provider to the
sales VIE companies. The sales VIE companies agreed to pay Jinong
all fees payable for technology supply prior to making any payments
under the Entrusted Management Agreement. The Exclusive Technology
Supply Agreements shall remain in effect until (i) the parties
mutually agree to terminate the agreement; (ii) the dissolution of
the sales VIE companies; or (iii) Jinong acquires the sales VIE
companies (as more fully described below under “Exclusive Option
Agreements”).
Shareholder’s Voting Proxy Agreements
Pursuant to the terms of certain Shareholder’s Voting Proxy
Agreements dated June 30, 2016 and January 1, 2017, among Jinong
and the shareholders of the sales VIE companies (the “Shareholder’s
Voting Proxy Agreements”), the shareholders of the sales VIE
companies irrevocably appointed Jinong as their proxy to exercise
on such shareholders’ behalf all of their voting rights as
shareholders pursuant to PRC law and the Articles of Association of
the sales VIE companies, including the appointment and election of
directors of the sales VIE companies. Jinong agreed that it shall
maintain a board of directors, the composition and appointment of
which shall be approved by the Board of the Company. The
Shareholder’s Voting Proxy Agreements will remain in effect until
Jinong acquires all the assets or equity of the sales VIE
companies.
Exclusive Option Agreements
Pursuant to the terms of certain Exclusive Option Agreements dated
June 30, 2016 and January 1, 2017, among Jinong, the sales VIE
companies, and the shareholders of the sales VIE companies (the
“Exclusive Option Agreements”), the shareholders of the sales VIE
companies granted Jinong an irrevocable and exclusive purchase
option (the “Option”) to acquire the sales VIE companies’ equity
interests and/or remaining assets, but only to the extent that the
acquisition does not violate limitations imposed by PRC law on such
transactions. The Option is exercisable at any time at Jinong’s
discretion so long as such exercise and subsequent acquisition of
the sales VIE companies does not violate PRC law. The consideration
for the exercise of the Option is to be determined by the parties
and memorialized in the future by definitive agreements setting
forth the kind and value of such consideration. Jinong may transfer
all rights and obligations under the Exclusive Option Agreements to
any third parties without the approval of the shareholders of the
sales VIE companies so long as a written notice is provided. The
Exclusive Option Agreements may be terminated by mutual agreements
or by 30 days written notice by Jinong.
Equity Pledge Agreements
Pursuant to the terms of certain Equity Pledge Agreements dated
June 30, 2016 and January 1, 2017, among Jinong and the
shareholders of the sales VIE companies (the “Pledge Agreements”),
the shareholders of the sales VIE companies pledged all of their
equity interests in the sales VIE companies to Jinong, including
the proceeds thereof, to guarantee all of Jinong’s rights and
benefits under the Entrusted Management Agreements, the Exclusive
Technology Supply Agreements, the Shareholder’ Voting Proxy
Agreements and the Exclusive Option Agreements. Prior to
termination of the Pledge Agreements, the pledged equity interests
cannot be transferred without Jinong’s prior written consent. The
Pledge Agreements may be terminated only upon the written agreement
of the parties.
Non-Compete Agreements
Pursuant to the terms of certain Non-Compete Agreements dated June
30, 2016 and January 1, 2017, among Jinong and the shareholders of
the sales VIE companies (the “Non-Compete Agreements”), the
shareholders of the sales VIE companies agreed that during the
period beginning on the initial date of their services with Jinong,
and ending five (5) years after termination of their services with
Jinong, without Jinong’s prior written consent, they will not
provide services or accept positions including but not limited to
partners, directors, shareholders, managers, proxies or
consultants, provided by any profit making organizations with
businesses that may compete with Jinong. They will not solicit or
interfere with any of the Jinong’s customers, or solicit, induce,
recruit or encourage any person engaged or employed by Jinong to
terminate his or her service or engagement. If the shareholders of
the sales VIE companies breach the non-compete obligations
contained therein, Jinong is entitled to all loss and damages; if
the damages are difficult to determine, remedies bore the
shareholders of the sales VIE companies shall be no less than 50%
of the salaries and other expenses Jinong provided in the past.
The Company entered into these VIE Agreements as a way for the
Company to have more control over the distribution of its products.
The transactions are accounted for as business combinations in
accordance with ASC 805. A summary of the purchase price
allocations at fair value is below:
For acquisitions made on June 30, 2016:
Cash |
|
$ |
708,737 |
|
Accounts receivable |
|
|
6,422,850 |
|
Advances to suppliers |
|
|
1,803,180 |
|
Prepaid expenses and other current
assets |
|
|
807,645 |
|
Inventories |
|
|
7,787,043 |
|
Machinery and equipment |
|
|
140,868 |
|
Intangible assets |
|
|
270,900 |
|
Other assets |
|
|
3,404,741 |
|
Goodwill |
|
|
3,158,179 |
|
Accounts payable |
|
|
(3,962,670 |
) |
Customer deposits |
|
|
(3,486,150 |
) |
Accrued expenses and other
payables |
|
|
(4,653,324 |
) |
Taxes
payable |
|
|
(16,912 |
) |
Purchase price |
|
$ |
12,385,087 |
|
A summary of the purchase consideration paid is below:
Cash |
|
$ |
5,568,500 |
|
Convertible notes |
|
|
6,671,769 |
|
Derivative
liability |
|
|
144,818 |
|
|
|
$ |
12,385,087 |
|
The cash component of the purchase price for these acquisitions
made on June 30, 2016 was paid in July and August 2016.
For acquisitions made on January 1, 2017:
Working Capital |
|
$ |
941,192 |
|
Machinery and equipment |
|
|
222,875 |
|
Intangible assets |
|
|
1440 |
|
Goodwill |
|
|
684,400 |
|
Customer Relationship |
|
|
522,028 |
|
Non-compete
Agreement |
|
|
392,852 |
|
Purchase price |
|
$ |
2,764,787 |
|
A summary of the purchase consideration paid is below:
Cash |
|
$ |
1,201,888 |
|
Convertible notes |
|
|
1,559,350 |
|
Derivative
liability |
|
|
3,549 |
|
|
|
$ |
2,764,787 |
|
The cash component of the purchase price for these acquisitions
made on January 1, 2017 was paid during March 2017.
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, discontinued the strategic acquisition
agreements and the series of contractual agreements with the
shareholders of Zhenbai. In return, the shareholders of Zhenbai
agreed to tender the whole payment consideration in the SAA back to
the Company with early termination penalties. The convertible notes
paid to Zhenbai’s shareholders and the accrued interest has been
forfeited.
For the discontinuation of Zhenbai made on November 30, 2017, the
Company gave up the control of the following assets in Zhenbai:
Working Capital |
|
$ |
1,179,352 |
|
Intangible assets |
|
|
896,559 |
|
Customer Relationship |
|
|
684,727 |
|
Non-compete Agreement |
|
|
211,833 |
|
Goodwill |
|
|
538,488 |
|
Total Asset |
|
$ |
2,614,401 |
|
In return, the purchase consideration returned to the Company from
Zhenbai’s shareholders is summarized below:
Cash |
|
$ |
461,330 |
|
Interest Payable |
|
|
83,039 |
|
Convertible notes |
|
|
1,724,683 |
|
Derivative
liability |
|
|
13,353 |
|
Total
Payback |
|
$ |
2,282,406 |
|
Net Loss |
|
|
(331,995 |
) |
NOTE 18 – OTHER EVENTS
In December 2019, a novel strain of coronavirus was reported to
have surfaced in Wuhan, China, which was continuing to spread
throughout China and other parts of the world, including the United
States. On January 30, 2020, the World Health Organization declared
the outbreak of the coronavirus disease (COVID-19) a “Public Health
Emergency of International Concern,” and on March 11, 2020, the
World Health Organization characterized the outbreak as a
“pandemic”. The epidemic has resulted in quarantines, travel
restrictions, and the temporary closure of office buildings and
facilities in China and in the U.S.
Xi’an City, where our headquarters are located, is one of the most
affected areas in China. The Company has been following the orders
of local government and health authorities to minimize exposure
risk for its employees, including the closures of its offices and
having employees work remotely from January of 2020 until March of
2020. An occurrence of an uncontrollable event such as the COVID-19
pandemic may negatively affect our operations and financial
results.
Substantially all of our revenues are generated in China.
Consequently, our results of operations were adversely and
materially affected by COVID-19. Any potential impact to our
results will depend on, to a large extent, future developments and
new information that may emerge regarding the duration and severity
of COVID-19 and the actions taken by government authorities and
other entities to contain COVID-19 or treat its impact, almost all
of which are beyond our control. Potential impacts include, but are
not limited to, the following:
|
● |
temporary closure of
offices, travel restrictions or suspension of transportation of our
products to our customers and our suppliers have been negatively
affected, and could continue to be negatively affected, on their
ability to supply our demands; |
|
● |
our customers that are
negatively impacted by the outbreak of COVID-19 may reduce their
budgets to purchase our products and services, which may materially
adversely impact our revenue; |
|
● |
we may have to provide
significant sales incentives to our customers in response to the
outbreak, which may in turn materially adversely affect our
financial condition and operating results; |
|
● |
the business
operations of our customers and suppliers have been and could
continue to be negatively impacted by the outbreak, result in loss
of customers or disruption of our services, which may in turn
materially adversely affect our financial condition and operating
results; |
|
● |
any disruption of our
supply chain, logistics providers or customers could adversely
impact our business and results of operations, including causing
our suppliers to cease manufacturing products for a period of time
or materially delay delivery to customers, which may also lead to
loss of customers, as well as reputational, competitive and
business harm to us; |
|
● |
many of our customers,
distributors, suppliers and other partners are individuals and
small and medium-sized enterprises (SMEs), which may not have
strong cash flows or be well capitalized, and may be vulnerable to
an epidemic outbreak and slowing macroeconomic conditions. If the
SMEs that we work with cannot weather COVID-19 and the resulting
economic impact, or cannot resume business as usual after a
prolonged outbreak, our revenues and business operations may be
materially and adversely impacted; |
|
● |
the global stock
markets have experienced, and may continue to experience,
significant decline from the COVID-19 outbreak, which could
materially adversely affect our stock price; |
Because of the uncertainty surrounding the COVID-19 outbreak, the
financial impact related to the outbreak of and response to the
coronavirus cannot be reasonably estimated at this time, but our
results for the third quarter and full fiscal year of 2020 may be
adversely affected.
In general, our business could be adversely affected by the effects
of epidemics, including, but not limited to, COVID-19, avian
influenza, severe acute respiratory syndrome (SARS), the influenza
A virus, the Ebola virus, or other outbreaks. In response to an
epidemic or other outbreaks, government and other organizations may
adopt regulations and policies that could lead to severe disruption
to our daily operations, including temporary closure of our offices
and other facilities. These severe conditions may cause us and/or
our partners to make internal adjustments, including but not
limited to, temporarily closing down business, limiting business
hours, and setting restrictions on travel and/or visits with
clients and partners for a prolonged period of time. Various
impacts arising from severe conditions may cause business
disruption, resulting in material, adverse effects to our financial
condition and results of operations.
We are taking significant
measures to mitigate the financial and operational impacts of
COVID-19 as well as additional actions to improve our liquidity
through cost reduction and conservation measures.
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 79.6% and 82.5% of our total revenues for the Nine
Months Ended March 31, 2020 and 2019, respectively. The sales VIEs
generated 18.0% and 14.9% of our revenues for the Nine Months Ended
March 31, 2020 and 2019, respectively. Yuxing serves as a research
and development base for our fertilizer products.
COVID-19 Update
The novel coronavirus
(“COVID-19”) spread rapidly across the world in the first quarter
of 2020 and was declared a pandemic by the World Health
Organization. The government and private sector responses to
contain its spread began to significantly affect our operating
businesses in February and March and will likely adversely affect
nearly all of our operations in the second quarter, although such
effects may vary significantly. The duration and extent of the
effects over longer terms cannot be reasonably estimated at this
time. The risks and uncertainties resulting from the pandemic that
may affect our future earnings, cash flows and financial condition
include the closure of our various office buildings and
facilities and the long-term
effect on the demand for our products and services. Accordingly,
significant estimates used in the preparation of our financial
statements including the evaluations of bad debts expense. More
information concerning effects of COVID-19 is included in Note
18.
Fertilizer Products
As of March 31, 2020, 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 |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Change 2019 to 2020 |
|
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% |
|
|
|
(metric tons) |
|
|
|
|
|
|
|
Jinong |
|
|
14,350 |
|
|
|
17,014 |
|
|
|
(2,664 |
) |
|
|
(15.7 |
)% |
Gufeng |
|
|
167,125 |
|
|
|
190,691 |
|
|
|
(23,566 |
) |
|
|
(12.4 |
)% |
|
|
|
181,475 |
|
|
|
207,705 |
|
|
|
(26,230 |
) |
|
|
(12.6 |
)% |
|
|
Three Months Ended
March 31, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(revenue per tons) |
|
Jinong |
|
$ |
793 |
|
|
$ |
1,324 |
|
Gufeng |
|
|
341 |
|
|
|
357 |
|
|
|
Nine
Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Change 2019 to 2020 |
|
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% |
|
|
|
(metric tons) |
|
|
|
|
|
|
|
Jinong |
|
|
55,059 |
|
|
|
53,008 |
|
|
|
2,051 |
|
|
|
3.9 |
% |
Gufeng |
|
|
285,060 |
|
|
|
305,288 |
|
|
|
(20,228 |
) |
|
|
(6.6 |
)% |
|
|
|
340,118 |
|
|
|
358,296 |
|
|
|
(18,178 |
) |
|
|
(5.1 |
)% |
|
|
Nine Months Ended
March 31, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(revenue per tons) |
|
Jinong |
|
$ |
817 |
|
|
$ |
1,209 |
|
Gufeng |
|
|
332 |
|
|
|
349 |
|
For the three months ended March 31, 2020, we sold approximately
181,475 tons of fertilizer products, as compared to 207,705 metric
tons for the three months ended March 31, 2019. For the three
months ended March 31, 2020, Jinong sold approximately 14,350
metric tons of fertilizer products, a decrease of 2,664 metric
tons, or 15.7%, as compared to 17,014 metric tons for the three
months ended March 31, 2019. For the three months ended March 31,
2020, Gufeng sold approximately 167,125 metric tons of fertilizer
products, a decrease of 23,566 metric tons, or 12.4% as compared to
190,691 metric tons for the three months ended March 31, 2019.
For the Nine Months ended March 31, 2020, we sold approximately
340,118 metric tons of fertilizer products, as compared to 358,296
metric tons for the Nine Months ended March 31, 2019. For the Nine
Months ended March 31, 2020, Jinong sold approximately 55,059
metric tons of fertilizer products, an increase of 2,051 metric
tons, or 3.9%, as compared to 53,008 metric tons for the Nine
Months ended March 31, 2019. For the Nine Months ended March 31,
2020, Gufeng sold approximately 285,060 metric tons of fertilizer
products, a decrease of 20,228 metric tons, or 6.6% as compared to
305,288 metric tons for the Nine Months ended March 31, 2019.
Our sales of fertilizer products to customers in five provinces
within China accounted for approximately 56.7% of our fertilizer
revenue for the three months ended March 31, 2020. Specifically,
the provinces and their respective percentage contributing to our
fertilizer revenues were: Hebei (25.9%), Heilongjiang (10.9%),
Inner Mongolia (9.0%), Liaoning (6.8%) and Shaanxi (4.1%).
As of March 31, 2020, we had a total of 1,983 distributors covering
22 provinces, 4 autonomous regions and 4 central
government-controlled municipalities in China. Jinong had 1,157
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 4.9% of its fertilizer revenues for the
three months ended March 31, 2020. Gufeng had 328 distributors,
including some large state-owned enterprises. Gufeng’s top five
distributors accounted for 81.7% of its revenues for the three
months ended March 31, 2020.
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 94.1% of our agricultural
products revenue for the three months ended March 31, 2020 were
Shaanxi (88.3%), Shanghai (4.3%), and Shenzhen (1.4%).
Recent Developments
New Products
During the three months ended March 31, 2020, Jinong did not launch
any new fertilizer product. During the three months ended March 31,
2020, 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 $6349,500) to
be paid by Jinong within three days following the execution of the
SAA, ACN and the VIE Agreements, and convertible notes with an
aggregate face value of RMB 63,000,000 (approximately $8,889,300)
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 March 31, 2020 Compared to the Three Months
ended March 31, 2019.
|
|
2020 |
|
|
2019 |
|
|
Change $ |
|
|
Change % |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
11,266,437 |
|
|
|
22,077,336 |
|
|
|
(10,810,899 |
) |
|
|
-49.0 |
% |
Gufeng |
|
|
57,094,310 |
|
|
|
67,167,427 |
|
|
|
(10,073,117 |
) |
|
|
-15.0 |
% |
Yuxing |
|
|
2,014,987 |
|
|
|
2,817,942 |
|
|
|
(802,955 |
) |
|
|
-28.5 |
% |
Sales
VIEs |
|
|
15,450,955 |
|
|
|
16,057,865 |
|
|
|
(606,910 |
) |
|
|
-3.8 |
% |
Net sales |
|
|
85,826,689 |
|
|
|
108,120,570 |
|
|
|
(22,293,881 |
) |
|
|
-20.6 |
% |
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
8,193,579 |
|
|
|
11,091,419 |
|
|
|
(2,897,840 |
) |
|
|
-26.1 |
% |
Gufeng |
|
|
50,097,056 |
|
|
|
59,475,263 |
|
|
|
(9,378,207 |
) |
|
|
-15.8 |
% |
Yuxing |
|
|
1,847,112 |
|
|
|
2,445,246 |
|
|
|
(598,134 |
) |
|
|
-24.5 |
% |
Sales
VIEs |
|
|
13,071,508 |
|
|
|
13,951,667 |
|
|
|
(880,159 |
) |
|
|
-6.3 |
% |
Cost
of goods sold |
|
|
73,209,255 |
|
|
|
86,963,595 |
|
|
|
(13,754,340 |
) |
|
|
-15.8 |
% |
Gross profit |
|
|
12,617,434 |
|
|
|
21,156,975 |
|
|
|
(8,539,541 |
) |
|
|
-40.4 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
2,273,818 |
|
|
|
6,880,994 |
|
|
|
(4,607,176 |
) |
|
|
-67.0 |
% |
General and administrative expenses |
|
|
58,807,987 |
|
|
|
6,826,669 |
|
|
|
51,981,318 |
|
|
|
761.4 |
% |
Total
operating expenses |
|
|
61,081,805 |
|
|
|
13,707,663 |
|
|
|
47,374,142 |
|
|
|
345.6 |
% |
Income from operations |
|
|
(48,464,371 |
) |
|
|
7,449,312 |
|
|
|
(55,913,683 |
) |
|
|
-750.6 |
% |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
(18,558 |
) |
|
|
(101,350 |
) |
|
|
82,792 |
|
|
|
-81.7 |
% |
Interest
income |
|
|
53,943 |
|
|
|
55,168 |
|
|
|
(1,225 |
) |
|
|
-2.2 |
% |
Interest
expense |
|
|
(76,306 |
) |
|
|
(145,621 |
) |
|
|
69,315 |
|
|
|
-47.6 |
% |
Total
other income (expense) |
|
|
(40,921 |
) |
|
|
(191,803 |
) |
|
|
150,882 |
|
|
|
-78.7 |
% |
Income before
income taxes |
|
|
(48,505,292 |
) |
|
|
7,257,509 |
|
|
|
(55,762,801 |
) |
|
|
-768.3 |
% |
Provision for
income taxes |
|
|
1,717,017 |
|
|
|
2,139,610 |
|
|
|
(422,593 |
) |
|
|
-19.8 |
% |
Net income |
|
|
(50,222,309 |
) |
|
|
5,117,899 |
|
|
|
(55,340,208 |
) |
|
|
-1081.3 |
% |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
(6,753,216 |
) |
|
|
10,564,053 |
|
|
|
(17,317,269 |
) |
|
|
-163.9 |
% |
Comprehensive income (loss) |
|
|
(56,975,525 |
) |
|
|
15,681,952 |
|
|
|
(72,657,477 |
) |
|
|
-463.3 |
% |
Net Sales
Total net sales for the three months ended March 31, 2020 were
$85,826,689, a decrease of $22,293,881 or 20.6%, from $108,120,570
for the three months ended March 31, 2019. This decrease was
principally a result of the negative impact on sales volumes of the
COVID-19 pandemic in the first quarter of 2020, especially for
Jinong’s and Gufeng’s net sales.
For the three months ended March 31, 2020, Jinong’s net sales
decreased $10,810,899, or 49%, to $11,266,437 from $22,077,336 for
the three months ended March 31, 2019. This decrease was mainly due
to the effects of COVID-19 pandemic in the last three months.
For the three months ended March 31, 2020, Gufeng’s net sales were
$57,094,310, a decrease of $10,073,117, or 15.0%, from $67,167,427
for the three months ended March 31, 2019. This decrease was mainly
due to the effects of COVID-19 pandemic in the last three
months.
For the three months ended March 31, 2020, Yuxing’s net sales were
$2,014,987, a decrease of $802,955 or 28.5%, from $2,817,942 for
the three months ended March 31, 2019. The decrease was mainly due
to the effects of COVID-19 pandemic in the last three months.
For the three months ended March 31, 2020, VIEs’ net sales were
$15,450,955, a decrease of $606,910 or 3.8%, from $16,057,865 for
the three months ended March 31, 2019. The decrease was mainly due
to the effects of COVID-19 pandemic in the last three months.
Cost of Goods Sold
Total cost of goods sold for the three months ended March 31, 2020
was $73,209,255, a decrease of $13,754,340, or 15.8%, from
$86,963,595 for the three months ended March 31, 2019. The decrease
was mainly due to the decrease in Gufeng’s cost of goods sold which
decreased 15.8%, or $9,378,207.
Cost of goods sold by Jinong for the three months ended March 31,
2020 was $8,193,579, a decrease of $2,897,840, or 26.1%, from
$11,091,419 for the three months ended March 31, 2019. The decrease
in cost of goods was primarily due to the decrease in sale volume
during the last three months primarily attributable to
COVID-19.
Cost of goods sold by Gufeng for the three months ended March 31,
2020 was $50,097,056, a decrease of $9,378,207, or 15.8%, from
$59,475,263 for the three months ended March 31, 2019. This
decrease was mainly due to the decrease in Gufeng’s net sales
during the last three months primarily attributable to
COVID-19.
For three months ended March 31, 2020, cost of goods sold by Yuxing
was $1,847,112, a decrease of $598,134, or 24.5%, from $2,445,246
for the three months ended March 31, 2019. This decrease was mainly
due to the decrease in Yuxing’s net sales during the last three
months primarily attributable to COVID-19.
Gross Profit
Total gross profit for the three months ended March 31, 2020
decreased by $8,539,541, or 40.4%, to $12,617,434, as compared to
$21,156,975 for the three months ended March 31, 2019. Gross profit
margin was 14.7% and 19.6% for the three Months Ended March 31,
2020 and 2019, respectively.
Gross profit generated by Jinong decreased by $7,913,059, or 72.0%,
to $3,072,858 for the three months ended March 31, 2020 from
$10,985,917 for the three months ended March 31, 2019. Gross profit
margin from Jinong’s sales was approximately 27.3% and 49.8% for
the three Months Ended March 31, 2020 and 2019, respectively. The
decrease in gross profit margin was mainly due to the lower sales
prices.
For the three months ended March 31, 2020, gross profit generated
by Gufeng was $6,997,254, a decrease of $694,910, or 9.0%, from
$7,692,164 for the three months ended March 31, 2019. Gross profit
margin from Gufeng’s sales was approximately 12.3% and 11.5% for
the three Months Ended March 31, 2020 and 2019, respectively. The
decrease in gross profit was mainly due to the decrease in Gufeng’s
net sales during the last three months.
For the three months ended March 31, 2020, gross profit generated
by Yuxing was $167,875, a decrease of $204,821, or 55% from
$372,696 for the three months ended March 31, 2019. The gross
profit margin was approximately 8.3% and 13.2% for the three months
Ended March 31, 2020 and 2019, respectively. The decrease in gross
profit percentage was mainly due to the increase in product costs.
The increased production costs were due to manufacturing
inefficiencies primarily attributable to COVID-19.
Gross profit generated by VIEs increased by $273,249, or 13.0%, to
$2,379,447 for the three months ended March 31, 2020 from
$2,106,198 for the three months ended March 31, 2019. Gross profit
margin from VIE’s sales was approximately 15.4% and 13.1% for the
three months Ended March 31, 2020 and 2019, 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 $2,273,818, or
2.6%, of net sales for the three months ended March 31, 2020, as
compared to $6,880,994, or 6.4%, of net sales for the three months
ended March 31, 2019, a decrease of $4,607,176, or 67.0%.
The selling expenses of Jinong for the three months ended March 31,
2020 were $1,899,000 or 16.9% of Jinong’s net sales, as compared to
selling expenses of $6,480,278, or 29.4% of Jinong’s net sales for
the three months ended March 31, 2019.The selling expenses of
Yuxing were $11,235 or 0.6% of Yuxing’s net sales for the three
months ended March 31, 2020, as compared to $14,779, or 0.5% of
Yuxing’s net sales for the three months ended March 31, 2019. The
selling expenses of Gufeng were $67,190 or 0.1% of Gufeng’s net
sales for the three months ended March 31, 2020, as compared to
$46,228, or 0.1% of Gufeng’s net sales for the three months ended
March 31, 2019.
Selling Expenses – amortization of deferred assets
Our selling expenses - amortization of our deferred assets were 0
for the three months ended March 31, 2020 and 2019. All of the
deferred assets were fully amortized and therefore no amortization
was recorded on the fully amortized assets for the three months
ended March 31, 2020.
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 $58,807,987, or 68.5% of net sales for
the three months ended March 31, 2020, as compared to $6,826,669,
or 6.3% of net sales for the three months ended March 31, 2019, an
increase of $51,981,318, or 761.4%.
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 March
31, 2020 was $18,558, as compared to $101,350 for the three months
ended March 31, 2019, a decrease in expense of $82,792, or 81.7%.
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 $0 for the three
months ended March 31, 2020, as compared to $0 for the three months
ended March 31, 2019.
Gufeng is subject to a tax rate of 25%, incurred income tax
expenses of $0 for the three months ended March 31, 2020, as
compared to $1,775,037 for the three months ended March 31, 2019, a
decrease of $1,775,037, or 100.0%, which was primarily due to
Gufeng’s decreased net income.
Yuxing has no income tax for the three months Ended March 31, 2020
and 2019 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 March 31, 2020 was
$(50,222,309), a decrease of $55,340,208, or 1081.3%, compared to
$5,117,899 for the three months ended March 31, 2019. Net income as
a percentage of total net sales was approximately -58.5% and 4.7%
for the three months Ended March 31, 2020 and 2019,
respectively.
Nine Months ended March 31, 2020 Compared to the Nine
Months ended March 31, 2019.
|
|
2020 |
|
|
2019 |
|
|
Change $ |
|
|
Change % |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
44,842,738 |
|
|
|
61,561,229 |
|
|
|
(16,718,491 |
) |
|
|
-27.2 |
% |
Gufeng |
|
|
95,684,076 |
|
|
|
106,996,368 |
|
|
|
(11,312,292 |
) |
|
|
-10.6 |
% |
Yuxing |
|
|
7,016,208 |
|
|
|
7,828,981 |
|
|
|
(812,773 |
) |
|
|
-10.4 |
% |
Sales
VIEs |
|
|
38,670,247 |
|
|
|
41,943,261 |
|
|
|
(3,273,014 |
) |
|
|
-7.8 |
% |
Net sales |
|
|
186,213,269 |
|
|
|
218,329,839 |
|
|
|
(32,116,570 |
) |
|
|
-14.7 |
% |
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
28,814,001 |
|
|
|
31,289,473 |
|
|
|
(2,475,472 |
) |
|
|
-7.9 |
% |
Gufeng |
|
|
84,307,031 |
|
|
|
94,544,943 |
|
|
|
(10,237,912 |
) |
|
|
-10.8 |
% |
Yuxing |
|
|
6,009,429 |
|
|
|
6,658,975 |
|
|
|
(649,546 |
) |
|
|
-9.8 |
% |
Sales
VIEs |
|
|
32,485,642 |
|
|
|
35,965,608 |
|
|
|
(3,479,966 |
) |
|
|
-9.7 |
% |
Cost
of goods sold |
|
|
151,616,103 |
|
|
|
168,458,999 |
|
|
|
(16,842,896 |
) |
|
|
-10.0 |
% |
Gross profit |
|
|
34,597,166 |
|
|
|
49,870,840 |
|
|
|
(15,273,674 |
) |
|
|
-30.6 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
9,761,145 |
|
|
|
18,370,524 |
|
|
|
(8,609,379 |
) |
|
|
-46.9 |
% |
General and administrative expenses |
|
|
107,911,310 |
|
|
|
9,036,397 |
|
|
|
98,874,913 |
|
|
|
1094.2 |
% |
Total
operating expenses |
|
|
117,672,455 |
|
|
|
27,406,921 |
|
|
|
90,265,534 |
|
|
|
329.4 |
% |
Income from operations |
|
|
(83,075,289 |
) |
|
|
22,463,919 |
|
|
|
(105,539,208 |
) |
|
|
-469.8 |
% |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
(122,012 |
) |
|
|
(327,433 |
) |
|
|
205,421 |
|
|
|
-62.7 |
% |
Interest
income |
|
|
160,829 |
|
|
|
278,509 |
|
|
|
(117,680 |
) |
|
|
-42.3 |
% |
Interest
expense |
|
|
(241,004 |
) |
|
|
(457,885 |
) |
|
|
216,881 |
|
|
|
-47.4 |
% |
Total
other income (expense) |
|
|
(202,187 |
) |
|
|
(506,809 |
) |
|
|
304,622 |
|
|
|
-60.1 |
% |
Income before
income taxes |
|
|
(83,277,476 |
) |
|
|
21,957,110 |
|
|
|
(105,234,586 |
) |
|
|
-479.3 |
% |
Provision for
income taxes |
|
|
1,341,513 |
|
|
|
5,321,671 |
|
|
|
(3,980,158 |
) |
|
|
-74.8 |
% |
Net income |
|
|
(84,618,989 |
) |
|
|
16,635,439 |
|
|
|
(101,254,428 |
) |
|
|
-608.7 |
% |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
(13,789,719 |
) |
|
|
(5,895,808 |
) |
|
|
(7,893,911 |
) |
|
|
133.9 |
% |
Comprehensive income (loss) |
|
|
(98,408,708 |
) |
|
|
10,739,631 |
|
|
|
(109,148,339 |
) |
|
|
-1016.3 |
% |
Net Sales
Total net sales for the Nine Months ended March 31, 2020 were
$186,213,269 a decrease of $32,116,570 or 14.7%, from $218,329,839
for the Nine Months ended March 31, 2019. This decrease was
principally a result of the negative impact on sales volumes of the
COVID-19 pandemic in the first quarter of 2020, especially for
Jinong’s and Gufeng’s net sales.
For the Nine Months ended March 31, 2020, Jinong’s net sales
decreased $16,718,491, or 27.2%, to $44,842,738 from $61,561,229
for the Nine Months ended March 31, 2019. This decrease was mainly
due to the effects of COVID-19 pandemic in the last three
months.
For the Nine Months ended March 31, 2020, Gufeng’s net sales were
$95,684,076, a decrease of $11,312,292, or 10.6%, from $106,996,368
for the Nine Months ended March 31, 2019. This decrease was mainly
due to the effects of COVID-19 pandemic in the last three
months.
For the Nine Months ended March 31, 2020, Yuxing’s net sales were
$7,016,208, a decrease of $812,773 or 10.4%, from $7,828,981 for
the Nine Months ended March 31, 2019. This decrease was mainly due
to the effects of COVID-19 pandemic in the last three months.
For the Nine Months ended March 31, 2020, VIEs’ net sales were
$38,670,247, a decrease of $3,273,014, or 7.8%, from $41,943,261
for the Nine Months ended March 31, 2019. This decrease was mainly
due to the effects of COVID-19 pandemic in the last three
months.
Cost of Goods Sold
Total cost of goods sold for the Nine Months ended March 31, 2020
was $151,616,103, a decrease of $16,842,896, or 10.0%, from
$168,458,999 for the Nine Months ended March 31, 2019. The decrease
was mainly due to the decrease in Gufeng’s and VIEs’ cost of goods
sold which decreased 10.8% and 9.7% respectively.
Cost of goods sold by Jinong for the Nine Months ended March 31,
2020 was $28,814,001, a decrease of $2,475,472, or 7.9%, from
$31,289,473 for the Nine Months ended March 31, 2019. The decrease
in cost of goods was primarily due to the decrease in sales volume
during the last Nine Months primarily attributable to COVID-19.
Cost of goods sold by Gufeng for the Nine Months ended March 31,
2020 was $84,307,031, a decrease of $10,237,912, or 10.8%, from
$94,544,943 for the Nine Months ended March 31, 2019. This decrease
was primarily due to the 10.6% decrease in net sale during the last
Nine Months primarily attributable to COVID-19.
For Nine Months ended March 31, 2020, cost of goods sold by Yuxing
was $6,009,429, a decrease of $649,546, or 9.8%, from $6,658,975
for the Nine Months ended March 31, 2019. This decrease was mainly
due to the decrease in Yuxing’s net sales during the last Nine
Months primarily attributable to COVID-19.
For Nine Months ended March 31, 2020, cost of goods sold by VIEs
was $32,485,642, a decrease of $3,479,966, or 9.7%, from
$35,965,608 for the Nine Months ended March 31, 2019. This decrease
was mainly due to the decrease in VIEs’ net sales during the last
Nine Months primarily attributable to COVID-19.
Gross Profit
Total gross profit for the Nine Months ended March 31, 2020
decreased by $15,273,674, or 30.6%, to $34,597,166, as compared to
$49,870,840 for the Nine Months ended March 31, 2019. Gross profit
margin was 18.6% and 22.8% for the Nine Months Ended March 31, 2020
and 2019, respectively.
Gross profit generated by Jinong decreased by $14,243,019, or
47.1%, to $16,028,737 for the Nine Months ended March 31, 2020 from
$30,271,756 for the Nine Months ended March 31, 2019. Gross profit
margin from Jinong’s sales was approximately 35.7% and 49.2% for
the Nine Months Ended March 31, 2020 and 2019, respectively. The
decrease in gross profit margin was mainly due to the lower sales
prices.
For the Nine Months ended March 31, 2020, gross profit generated by
Gufeng was $11,377,045, a decrease of $1,074,380, or 8.6%, from
$12,451,425 for the Nine Months ended March 31, 2019. Gross profit
margin from Gufeng’s sales was approximately 11.9% and 11.6% for
the Nine Months Ended March 31, 2020 and 2019, respectively. The
decrease in gross profit was mainly due to the decrease in net
sales.
For the Nine Months ended March 31, 2020, gross profit generated by
Yuxing was $1,006,779, a decrease of $163,227, or 14.0% from
$1,170,006 for the Nine Months ended March 31, 2019. The gross
profit margin was approximately 14.3% and 14.9% for the Nine Months
Ended March 31, 2020 and 2019, respectively. The decrease in gross
profit percentage was mainly due to the increase in product
costs.
Gross profit generated by VIEs increased by $206,952, or 3.5%, to
$6,184,605 for the Nine Months ended March 31, 2020 from $5,977,653
for the Nine Months ended March 31, 2019. Gross profit margin from
VIE’s sales was approximately 16.0% and 14.3% for the Nine Months
Ended March 31, 2020 and 2019, 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 $9,761,145, or
5.2%, of net sales for the Nine Months ended March 31, 2020, as
compared to $18,370,524, or 8.4%, of net sales for the Nine Months
ended March 31, 2019, a decrease of $8,609,379 or 46.9%.
The selling expenses of Jinong for the Nine Months ended March 31,
2020 were $8,726,383 or 19.5% of Jinong’s net sales, as compared to
selling expenses of $16,538,328, or 26.9% of Jinong’s net sales for
the Nine Months ended March 31, 2019. The selling expenses of
Yuxing were $29,459 or 0.4% of Yuxing’s net sales for the Nine
Months ended March 31, 2020, as compared to $42,952 or 0.5% of
Yuxing’s net sales for the Nine Months ended March 31, 2019. The
selling expenses of Gufeng were $217,074 or 0.2% of Gufeng’s net
sales for the Nine Months ended March 31, 2020, as compared to
$331,949 or 0.3% of Gufeng’s net sales for the Nine Months ended
March 31, 2019.
Selling Expenses – amortization of deferred assets
Our selling expenses - amortization of our deferred assets were 0
for the Nine Months ended March 31, 2020 and 2019. All of the
deferred assets were fully amortized and therefore no amortization
was recorded on the fully amortized assets for the Nine Months
ended March 31, 2020.
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 $107,911,310, or 58.0% of net sales
for the Nine Months ended March 31, 2020, as compared to
$9,036,397, or 4.1% of net sales for the Nine Months ended March
31, 2019, an increase of $98,874,913, or 1094.2%.
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 Nine Months ended March
31, 2020 was $122,012, as compared to $327,433 for the Nine Months
ended March 31, 2019, a decrease in expense of $205,421, or 62.7%.
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 $0 for the Nine
Months ended March 31, 2020, as compared to $ 1,007,503 for the
Nine Months ended March 31, 2019, a decrease of 1,007,503, or
100.0%.
Gufeng is subject to a tax rate of 25%, incurred income tax
expenses of $0 for the Nine Months ended March 31, 2020, as
compared to $2,768,465 for the Nine Months ended March 31, 2019, a
decrease of $2,768,465, or 100.0%, which was primarily due to
Gufeng’s decreased net income.
Yuxing has no income tax for the Nine Months Ended March 31, 2020
and 2019 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 Nine Months ended March 31, 2020 was
$(84,618,989), a decrease of $101,254,428, or 608.7%, compared to
$16,635,439 for the Nine Months ended March 31, 2019. Net income as
a percentage of total net sales was approximately -45.4% and 7.6%
for the Nine Months Ended March 31, 2020 and 2019,
respectively.
Discussion of Segment Profitability Measures
As of March 31, 2020, 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 $15,954,984, or 279.5%, to
$(10,245,799) for Nine Months ended March 31, 2020, from $5,709,185
for the Nine Months ended March 31, 2019. The decrease was
principally due to the increase in general and administrative
expense.
For Gufeng, the net income decreased by $85,845,106, or 1058.3%, to
$(77,733,209) for Nine Months ended March 31, 2020 from $8,111,897
for Nine Months ended March 31, 2019. The decrease was principally
due to the increase in general and administrative expense.
For Yuxing, the net income decreased $3,178,387, or 91.4%, to
$299,702 for Nine Months ended March 31, 2020 from $3,478,089 for
Nine Months ended March 31, 2019. The decrease was mainly due to
the increase in general and administrative expense.
For the sales VIEs, the net income was $4,312,973 for period ended
March 31, 2020, decreased by $3,355,307, or 43.8%, from $7,668,280
for Nine Months ended March 31, 2019. The decrease was mainly due
to the increase in general and administrative expenses for the
sales VIEs.
Liquidity and Capital Resources
Our principal sources of liquidity include cash from operations,
borrowings from local commercial banks and net proceeds of
offerings of our securities.
As of March 31, 2020, cash and cash equivalents were $41,311,137, a
decrease of $30,948,666, or 42.8%, from $72,259,804 as of June 30,
2019.
We intend to use some of the remaining net proceeds from our
securities offerings, as well as other working capital if required,
to acquire new businesses, upgrade production lines and complete
Yuxing’s new greenhouse facilities for agriculture products located
on 88 acres of land in Hu County, 18 kilometers southeast of Xi’an
city. Yuxing purchased a set of agricultural products testing
equipment for the year of 2016. We believe that we have sufficient
cash on hand and positive projected cash flow from operations to
support our business growth for the next twelve months to the
extent we do not have further significant acquisitions or
expansions. However, if events or circumstances occur and we do not
meet our operating plan as expected, we may be required to seek
additional capital and/or to reduce certain discretionary spending,
which could have a material adverse effect on our ability to
achieve our business objectives. Notwithstanding the foregoing, we
may seek additional financing as necessary for expansion purposes
and when we believe market conditions are most advantageous, which
may include additional debt and/or equity financings. There can be
no assurance that any additional financing will be available on
acceptable terms, if at all. Any equity financing may result in
dilution to existing stockholders and any debt financing may
include restrictive covenants.
The following table sets forth a summary of our cash flows for the
periods indicated:
|
|
Nine
Months Ended |
|
|
|
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Net cash provided by (used
in) operating activities |
|
|
(38,676,884 |
) |
|
|
(77,964,267 |
) |
Net cash provided by (used in)
investing activities |
|
|
(66,210 |
) |
|
|
(42,880 |
) |
Net cash provided by (used in)
financing activities |
|
|
11,134,200 |
|
|
|
218,694 |
|
Effect of
exchange rate change on cash and cash equivalents |
|
|
(3,339,772 |
) |
|
|
(3,775,148 |
) |
Net increase (decrease) in cash and
cash equivalents |
|
|
(30,948,665 |
) |
|
|
(81,563,601 |
) |
Cash and cash
equivalents, beginning balance |
|
|
72,259,804 |
|
|
|
150,805,639 |
|
Cash and cash
equivalents, ending balance |
|
$ |
41,311,138 |
|
|
$ |
69,242,037 |
|
Operating Activities
Net cash used in operating activities was $38,676,884 for the Nine
Months ended March 31, 2020, a decrease of $39,287,383, or 50.4%,
from cash provided by operating activities of $77,964,267 for the
Nine Months ended March 31, 2019. The decrease was mainly due to
decrease in inventories during the Nine Months ended March 31, 2020
as compared to the same period in 2019.
Investing Activities
Net cash used in investing activities for the Nine Months ended
March 31, 2020 was $66,210, compared to cash used in investing
activities of $42,880 for the Nine Months ended March 31, 2019. The
difference was due to the company had less change in construction
in process during the last Nine Months compared to the same period
last year.
Financing Activities
Net cash provided by financing activities for the Nine Months ended
March 31, 2020 was $11,134,200, compared to $218,694 net cash used
in financing activities for the Nine Months ended March 31, 2019,
which was largely attribute to $10,252,000 proceeds from the sale
of common stock for the Nine Months ended March 31, 2020, compared
to 0 in the same period last year.
As of March 31, 2020, and June 30, 2019, our loans payable was as
follows:
|
|
March
31, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Short term loans
payable: |
|
$ |
3,809,700 |
|
|
$ |
3,640,000 |
|
Total |
|
$ |
3,809,700 |
|
|
$ |
3,640,000 |
|
Accounts Receivable
We had accounts receivable of $166,452,189 as of March 31, 2020, as
compared to $145,190,160 as of June 30, 2019, an increase of
$21,262,029, or 14.6%. The increase was primarily attributable to
Gufeng’s accounts receivable. As of March 31, 2020, Gufeng’s
accounts receivable was $101,718,824, an increase of $16,286,661,
or 19.1%, compared to $85,432,163 as of June 30, 2019.
Allowance for doubtful accounts in accounts receivable as of March
31, 2020 was $34,494,969, an increase of $979,559, or 2.9%, from
$33,515,410 as of June 30, 2019. The increase in allowance for
doubtful accounts was primarily related to COVID-19. And the
allowance for doubtful accounts as a percentage of accounts
receivable was 17.2% as of March 31, 2020 and 18.8% as of June 30,
2019.
Deferred assets
We had no deferred assets as of March 31, 2020 and June 30, 2019.
During the Nine Months, we assisted the distributors in certain
marketing efforts and developing standard stores to expand our
competitive advantage and market shares. Based on the distributor
agreements, the amount owed by the distributors in certain
marketing efforts and store development will be expensed over three
years if the distributors are actively selling our products. If a
distributor defaults, breaches, or terminates the agreement with us
earlier than the contractual terms, the unamortized portion of the
amount owed by the distributor is payable to us
immediately. The deferred assets had been fully amortized as
of March 31, 2020.
Inventories
We had inventories of $62,234,682 as of March 31, 2020, as compared
to $162,013,889 as of June 30, 2019, a decrease of $99,779,207, or
61.6%. The decrease was primarily attributable to Gufeng’s
inventory. As of March 31, 2020, Gufeng’s inventory was
$35,385,274, compared to $141,210,160 as of June 30, 2019, a
decrease of $105,824,886, or 74.9%.
Advances to Suppliers
We had advances to suppliers of $62,935,130 as of March 31, 2020 as
compared to $32,713,817 as of June 30, 2019, representing an
increase of $30,221,313, or 92.4%. 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 $20,310,699 as of March 31, 2020 as
compared to $19,004,548 as of June 30, 2019, representing an
increase of $1,306,151, or 6.9%. The increase was primarily due to
the increase of accounts payable for VIEs. They have accounts
payable of $18,669,353 as of March 31, 2020 as compared to
$17,073,229 as of June 30, 2019, representing an increase of
$1,596,124, or 9.3%.
Unearned Revenue (Customer Deposits)
We had customer deposits of $7,713,614 as of March 31, 2020 as
compared to $6,514,619 as of June 30, 2019, representing an
increase of $1,198,995, or 18.4%. The increase was mainly
attributable to Gufeng’s $5,668,824 unearned revenue as of March
31, 2020, compared to $4,668,972 unearned revenue as of June 30,
2019, increased $999,852, or 21.4%, 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
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the amount of revenues and
expenses during the reporting periods. Management makes these
estimates using the best information available at the time the
estimates are made. However, actual results could differ materially
from those estimates due to the risks and uncertainties, including
uncertainty in the current economic environment due to the recent
outbreak of novel strain of the coronavirus (“COVID-19”).
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 March 31, 2020.
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 March 31, 2020, 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 March 31, 2020, our accumulated other
comprehensive loss was $33 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
March 31, 2020, China’s currency dropped by a cumulative 3.3%
against the U.S. dollar, making Chinese exports cheaper and imports
into China more expensive by that percentage. The effect on trade
can be substantial. Moreover, it is possible that in the future,
the PRC authorities may lift restrictions on fluctuations in the
RMB exchange rate and lessen intervention in the foreign exchange
market.
Interest Rate Risk
We deposit surplus funds with Chinese banks earning daily interest.
We do not invest in any instruments for trading purposes. All of
our outstanding debt instruments carry fixed rates of interest. The
amount of short-term debt outstanding as of March 31, 2020 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 Nine
Months ended March 31, 2020. The original loan term on average is
one year, and the remaining average life of the short term-loans is
approximately three Months.
Management monitors the banks’ prime rates in conjunction with our
cash requirements to determine the appropriate level of debt
balances relative to other sources of funds. We have not entered
into any hedging transactions in an effort to reduce our exposure
to interest rate risk.
Credit Risk
We have not experienced significant credit risk, as most of our
customers are long-term customers with superior payment records.
Our receivables are monitored regularly by our credit managers.
Inflation Risk
Inflationary factors such as increases in the cost of our products
and overhead costs may adversely affect our operating results.
Although we do not believe that inflation has had a material impact
on our financial position or results of operations to date, a high
rate of inflation in the future may have an adverse effect on our
ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net revenues
if the selling prices of our products do not increase with these
increased costs.
Epidemics, pandemics or other outbreaks Risk
The outbreak of COVID-19 has adversely affected, and in the future
it or other epidemics, pandemics or outbreaks may adversely affect,
our operations. This is or may be due to closures or restrictions
requested or mandated by governmental authorities, disruption to
supply chains and workforce, reduction of demand for our products
and services, and credit losses when customers and other
counterparties fail to satisfy their obligations to us. We share
most of these risks with all businesses.
In addition, the COVID-19
outbreak has significantly increased economic and demand
uncertainty. The current outbreak and continued spread of COVID-19
may cause a global recession, which would have a further adverse
impact on our financial condition and operations, and this impact
could exist for an extensive period of time.
The Company is continuing to monitor the situation and take
appropriate actions in accordance with the recommendations and
requirements of relevant authorities. The full extent of the impact
of the COVID-19 pandemic on the Company’s operational and financial
performance is currently uncertain and will depend on many factors
outside the Company’s control, including, without limitation, the
timing, extent, trajectory and duration of the pandemic, the
development and availability of effective treatments and vaccines,
the imposition of protective public safety measures, and the impact
of the pandemic on the global economy and demand for consumer
products.
Additional future impacts on the Company may include, but are not
limited to, material adverse effects on: demand for the Company’s
products and services; the Company’s supply chain and sales and
distribution channels; the Company’s ability to execute its
strategic plans; and the Company’s profitability and cost
structure. To the extent the COVID-19 pandemic adversely affects
the Company’s business, results of operations, financial condition
and stock price, it may also have the effect of heightening many of
the other risks described above.
Item 4. Controls and
Procedures
(a) Evaluation of disclosure controls and procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934 (“Exchange Act”), at the conclusion of the period ended March
31, 2020 we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of the end of the period
covered by this Report, our disclosure controls and procedures were
effective and adequately designed to ensure that the information
required to be disclosed by us in the reports we submit under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the applicable rules and forms and
that such information was accumulated and communicated to our Chief
Executive Officer and Chief Financial Officer, in a manner that
allowed for timely decisions regarding required disclosure.
(b) Changes in internal controls
There were no changes in our internal control over financial
reporting identified in connection with the evaluation required by
paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred
during the quarter ended March 31, 2020 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 Nine Months ended March 31, 2020, that were not
otherwise disclosed in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest,
sinking or purchase fund installment, or any other material
default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
There is no other information required to be disclosed under this
item which was not previously disclosed.
Item 6. Exhibits
The exhibits required by this item are set forth in the Exhibit
Index attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
CHINA
GREEN AGRICULTURE, INC. |
|
|
Date:
May 15, 2020 |
By: |
/s/
Zhuoyu Li |
|
Name: |
Zhuoyu
Li |
|
Title: |
Chief
Executive Officer |
|
|
(principal
executive officer) |
|
|
|
Date:
May 15, 2020 |
By: |
/s/
Yongcheng Yang |
|
Name: |
Yongcheng
Yang |
|
Title: |
Chief
Financial Officer |
|
|
(principal financial officer and
principal accounting officer)
|
EXHIBIT INDEX
|
+ |
In
accordance with the SEC Release 33-8238, deemed being furnished and
not filed. |
42