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 September 30, 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 December 30,
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:
|
● |
our
expectations regarding the market for our products and
services; |
|
● |
our
expectations regarding the continued growth of our
industry; |
|
● |
our
beliefs regarding the competitiveness of our products; |
|
● |
our
expectations regarding the expansion of our manufacturing
capacity; |
|
● |
our
expectations with respect to increased revenue growth and our
ability to maintain profitability resulting from increases in our
production volumes; |
|
● |
our
future business development, results of operations and financial
condition; |
|
● |
competition
from other fertilizer and plant producers; |
|
● |
the
loss of any member of our management team; |
|
● |
our
ability to integrate acquired subsidiaries and operations into
existing operations; |
|
● |
market
conditions affecting our equity capital; |
|
● |
our
ability to successfully implement our selective acquisition
strategy; |
|
● |
changes
in general economic conditions; |
|
● |
changes
in accounting rules or the application of such rules; |
|
● |
any
failure to comply with the periodic filing and other requirements
of The New York Stock Exchange, or NYSE, for continued
listing, |
|
● |
any
failure to identify and remediate the material weaknesses or other
deficiencies in our internal control and disclosure control over
financial reporting; |
Also,
forward-looking statements represent our estimates and assumptions
only as of the date of this report. You should read this report and
the documents that we reference in this report, or that we filed as
exhibits to this report, in their entirety and with the
understanding that our actual future results may be materially
different from what we expect.
Except
as required by law, we assume no obligation to update any
forward-looking statements publicly, or to update the reasons
actual results could differ materially from those anticipated in
any forward-looking statements, even if new information becomes
available in the future.
PART I – FINANCIAL
INFORMATION
Item 1. Financial
Statements
CHINA GREEN AGRICULTURE,
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2020 |
|
|
June 30,
2020 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
12,831,922 |
|
|
$ |
11,934,778 |
|
Accounts
receivable, net |
|
|
109,201,762 |
|
|
|
105,693,326 |
|
Inventories |
|
|
107,895,317 |
|
|
|
98,921,081 |
|
Prepaid expenses
and other current assets |
|
|
4,039,103 |
|
|
|
3,567,912 |
|
Amount due from
related parties |
|
|
160,895 |
|
|
|
66 |
|
Advances to suppliers, net |
|
|
38,142,857 |
|
|
|
65,081,818 |
|
Total Current
Assets |
|
|
272,271,855 |
|
|
|
285,198,981 |
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment,
Net |
|
|
23,124,076 |
|
|
|
22,928,334 |
|
Other Assets |
|
|
279,871 |
|
|
|
260,362 |
|
Other Non-current
Assets |
|
|
10,889,269 |
|
|
|
10,943,875 |
|
Intangible Assets,
Net |
|
|
16,196,501 |
|
|
|
15,751,625 |
|
Goodwill |
|
|
7,328,798 |
|
|
|
7,045,006 |
|
Total
Assets |
|
$ |
330,090,371 |
|
|
$ |
342,128,183 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
19,534,919 |
|
|
$ |
17,719,093 |
|
Customer
deposits |
|
|
9,223,513 |
|
|
|
7,342,590 |
|
Accrued expenses
and other payables |
|
|
14,840,558 |
|
|
|
14,139,324 |
|
Amount due to
related parties |
|
|
4,253,472 |
|
|
|
4,212,407 |
|
Taxes payable |
|
|
32,187,519 |
|
|
|
31,645,452 |
|
Short term
loans |
|
|
3,974,400 |
|
|
|
3,537,500 |
|
Interest payable |
|
|
755,136 |
|
|
|
725,895 |
|
Total
Current Liabilities |
|
|
84,769,518 |
|
|
|
79,322,261 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
$ |
84,769,518 |
|
|
|
79,322,261 |
|
|
|
|
|
|
|
|
|
|
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
6,350,129 shares issued and outstanding as of September 30, 2020
and June 30, 2020, respectively |
|
|
6,350 |
|
|
|
6,350 |
|
Additional paid-in
capital |
|
|
155,455,332 |
|
|
|
155,455,332 |
|
Statutory
reserve |
|
|
29,909,486 |
|
|
|
29,743,991 |
|
Retained
earnings |
|
|
80,745,930 |
|
|
|
111,864,338 |
|
Accumulated other comprehensive income |
|
|
(20,796,245 |
) |
|
|
(34,264,089 |
) |
Total
Stockholders’ Equity |
|
|
245,320,853 |
|
|
|
262,805,922 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
330,090,371 |
|
|
$ |
342,128,183 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CHINA GREEN AGRICULTURE,
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(LOSS)
|
|
Three Months Ended September 30, |
|
|
|
2020 |
|
|
2019 |
|
Sales |
|
|
|
|
|
|
Jinong |
|
$ |
14,529,312 |
|
|
$ |
19,054,816 |
|
Gufeng |
|
|
15,828,203 |
|
|
|
16,323,217 |
|
Yuxing |
|
|
2,423,488 |
|
|
|
2,539,711 |
|
VIEs
- others |
|
|
11,377,229 |
|
|
|
12,903,827 |
|
Net sales |
|
|
44,158,232 |
|
|
|
50,821,571 |
|
Cost of goods sold |
|
|
|
|
|
|
|
|
Jinong |
|
|
10,685,464 |
|
|
|
10,492,530 |
|
Gufeng |
|
|
13,977,817 |
|
|
|
14,454,008 |
|
Yuxing |
|
|
2,042,072 |
|
|
|
2,051,996 |
|
VIEs
- others |
|
|
9,141,210 |
|
|
|
10,663,790 |
|
Cost of goods
sold |
|
|
35,846,563 |
|
|
|
37,662,324 |
|
Gross profit |
|
|
8,311,669 |
|
|
|
13,159,247 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
4,711,956 |
|
|
|
3,630,355 |
|
General and administrative expenses |
|
|
32,944,096 |
|
|
|
16,341,792 |
|
Total
operating expenses |
|
|
37,656,052 |
|
|
|
19,972,147 |
|
Income (loss) from operations |
|
|
(29,344,383 |
) |
|
|
(6,812,900 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
(5,165 |
) |
|
|
(30,191 |
) |
Interest
income |
|
|
22,405 |
|
|
|
53,624 |
|
Interest expense |
|
|
(56,768 |
) |
|
|
(77,202 |
) |
Total
other income (expense) |
|
|
(39,528 |
) |
|
|
(53,769 |
) |
Income (loss) before income taxes |
|
|
(29,383,911 |
) |
|
|
(6,866,668 |
) |
Provision for
income taxes |
|
|
1,506,003 |
|
|
|
449,131 |
|
Net income
(loss) |
|
$ |
(30,952,914 |
) |
|
$ |
(7,315,799 |
) |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss) |
|
|
13,467,844 |
|
|
|
(17,367,485 |
) |
Comprehensive income (loss) |
|
$ |
(17,485,070 |
) |
|
$ |
(24,683,284 |
) |
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding |
|
|
6,350,129 |
|
|
|
4,504,510 |
|
Basic net earnings per share |
|
$ |
(4.87 |
) |
|
$ |
(1.62 |
) |
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding |
|
|
6,350,129 |
|
|
|
4,504,510 |
|
Diluted net earnings per
share |
|
$ |
(4.87 |
) |
|
$ |
(1.62 |
) |
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CHINA GREEN AGRICULTURE,
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Accumulated
Other |
|
|
Total |
|
|
|
Number |
|
|
Common |
|
|
Paid
In |
|
|
Statutory |
|
|
Retained |
|
|
Comprehensive |
|
|
Stockholders’ |
|
|
|
Of
Shares |
|
|
Stock |
|
|
Capital |
|
|
Reserve |
|
|
Earnings |
|
|
Income
(loss) |
|
|
Equity |
|
BALANCE,
JUNE 30, 2020 |
|
|
6,350,129 |
|
|
$ |
6,350 |
|
|
$ |
155,455,332 |
|
|
|
29,743,991 |
|
|
|
111,864,338 |
|
|
|
(34,264,089 |
) |
|
|
262,805,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,952,914 |
) |
|
|
|
|
|
|
(30,952,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to statutory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,495 |
|
|
|
(165,495 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,467,844 |
|
|
|
13,467,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
SEPTEMBER 30, 2020 |
|
|
6,350,129 |
|
|
$ |
6,350 |
|
|
$ |
155,455,332 |
|
|
$ |
29,909,486 |
|
|
$ |
80,745,930 |
|
|
$ |
(20,796,245 |
) |
|
$ |
245,320,853 |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Accumulated
Other |
|
|
Total |
|
|
|
Number |
|
|
Common |
|
|
Paid
In |
|
|
Statutory |
|
|
Retained |
|
|
Comprehensive |
|
|
Stockholders’ |
|
|
|
Of
Shares |
|
|
Stock |
|
|
Capital |
|
|
Reserve |
|
|
Earnings |
|
|
Income
(loss) |
|
|
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 (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,315,799 |
) |
|
|
|
|
|
|
(7,315,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock |
|
|
931,000 |
|
|
|
931 |
|
|
|
10,251,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,252,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for accrued expenses |
|
|
59,567 |
|
|
|
60 |
|
|
|
329,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to statutory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,903 |
|
|
|
(68,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,367,484 |
) |
|
|
(17,367,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
SEPTEMBER 30, 2019 |
|
|
4,977,479 |
|
|
$ |
4,978 |
|
|
$ |
148,593,454 |
|
|
$ |
31,306,794 |
|
|
$ |
239,737,872 |
|
|
$ |
(37,188,696 |
) |
|
$ |
382,454,402 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CHINA GREEN AGRICULTURE,
INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Three Months Ended
September 30, |
|
|
|
2020 |
|
|
2019 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net income (loss) |
|
$ |
(30,952,914 |
) |
|
$ |
(7,315,799 |
) |
Adjustments to
reconcile Net income (loss) to net cash provided by (used in)
operating activities |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
920,432 |
|
|
|
1,188,190 |
|
Provision for
losses on accounts receivable |
|
|
17,562,141 |
|
|
|
13,943,912 |
|
Gain (Loss) on
disposal of property, plant and equipment |
|
|
1,528 |
|
|
|
33,435 |
|
Amortization of
debt discount |
|
|
- |
|
|
|
20,899 |
) |
Inventories
impairment |
|
|
12,910,479 |
|
|
|
- |
|
Change in fair
value of derivative liability |
|
|
- |
|
|
|
(15,104 |
) |
Changes in operating assets |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(16,826,575 |
) |
|
|
(13,514,247 |
) |
Amount due from
related parties |
|
|
(157,905 |
) |
|
|
(80,911 |
) |
Other current
assets |
|
|
(328,204 |
) |
|
|
(652,477 |
) |
Inventories |
|
|
(17,809,274 |
) |
|
|
8,879,490 |
|
Advances to
suppliers |
|
|
29,023,657 |
|
|
|
2,317,991 |
|
Other assets |
|
|
486,453 |
|
|
|
454,095 |
|
Changes in
operating liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
1,090,518 |
|
|
|
(924,134 |
) |
Customer
deposits |
|
|
1,556,349 |
|
|
|
(92,725 |
) |
Tax payables |
|
|
428,007 |
|
|
|
(1,674,708 |
) |
Accrued expenses
and other payables |
|
|
441,796 |
|
|
|
505,315 |
|
Interest payable |
|
|
- |
|
|
|
6,412 |
|
Net cash
provided by (used in) operating activities |
|
|
(1,653,512 |
) |
|
|
3,079,634 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
|
|
Purchase of plant,
property, and equipment |
|
|
(21,112 |
) |
|
|
(11,401 |
) |
Change
in construction in process |
|
|
(8,855 |
) |
|
|
(7,195 |
) |
Net
cash provided by (used in) investing activities |
|
|
(29,967 |
) |
|
|
(18,596 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
|
|
|
|
Proceeds from the
sale of common stock |
|
|
- |
|
|
|
10,252,000 |
|
Proceeds from
loans |
|
|
294,400 |
|
|
|
279,600 |
|
Advance from related party |
|
|
- |
|
|
|
200,000 |
|
Net
cash provided by (used in) financing activities |
|
|
294,400 |
|
|
|
10,731,600 |
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate change on cash and cash equivalents |
|
|
2,286,224 |
|
|
|
(3,098,502 |
) |
Net increase in
cash and cash equivalents |
|
|
897,144 |
|
|
|
10,694,136 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning balance |
|
|
11,934,778 |
|
|
|
72,259,804 |
|
Cash
and cash equivalents, ending balance |
|
$ |
12,831,922 |
|
|
$ |
82,953,940 |
|
|
|
|
|
|
|
|
|
|
Supplement disclosure of cash flow
information |
|
|
|
|
|
|
|
|
Interest expense paid |
|
$ |
56,768 |
|
|
$ |
70,789 |
|
Income
taxes paid |
|
$ |
78,562 |
|
|
$ |
2,661,878 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CHINA GREEN AGRICULTURE, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED 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 PRC
controlled by Jinong through a series of contractual agreements;
(iv) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned
subsidiary of Jinong in the PRC (“Gufeng”), and (v) Beijing
Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary
in the PRC (“Tianjuyuan”).
On
June 30, 2016 the Company, through its wholly-owned subsidiary
Jinong, entered into strategic acquisition agreements and a series
of contractual agreements with the shareholders of the following
six companies that are organized under the laws of the PRC and
would be deemed VIEs: Shaanxi Lishijie Agrochemical Co., Ltd.
(“Lishijie”), Songyuan Jinyangguang Sannong Service Co., Ltd.
(“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd.
(“Zhenbai”), Weinan City Linwei District Wangtian Agricultural
Materials Co., Ltd. (“Wangtian”), Aksu Xindeguo Agricultural
Materials Co., Ltd. (“Xindeguo”), and Xinjiang Xinyulei
Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”). On
January 1, 2017, the Company, through its wholly-owned subsidiary
Jinong, entered into strategic acquisition agreements and a series
of contractual agreements with the shareholders of the following
two companies that are organized under the laws of the PRC and
would be deemed VIEs, Sunwu County Xiangrong Agricultural Materials
Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd.
(“Fengnong”).
On
November 30, 2017, the Company, through its wholly-owned subsidiary
Jinong, discontinued the strategic acquisition agreements and the
series of contractual agreements with the shareholders of
Zhenbai.
Yuxing,
Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong and
Fengnong may also collectively be referred to as the “the VIE
Companies”; Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei,
Xiangrong and Fengnong may also collectively be referred to as “the
sales VIEs” or “the sales VIE companies”.
The
Company’s corporate structure as of September 30, 2020 is set forth
in the diagram below:
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principle
of consolidation
The
accompanying unaudited condensed 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. 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 unaudited condensed 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 unaudited condensed 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 and outcomes may differ from management’s
estimates and assumptions due to risks and uncertainties, including
uncertainty in the current economic environment due to the recent
pandemic outbreak of the novel coronavirus (“COVID-19”).
Leases
The
Company determines if an arrangement is a lease or contains a lease
at inception. Operating lease right-of-use assets and lease
liabilities are recognized at commencement based on the present
value of lease payments over the lease term. As the implicit rate
is typically not readily determinable in the Company’s lease
agreements, the Company uses its incremental borrowing rate as of
the lease commencement date to determine the present value of the
lease payments. The incremental borrowing rate is based on the
Company’s specific rate of interest to borrow on a collateralized
basis, over a similar term and in a similar economic environment as
the lease. Lease expense is recognized on a straight-line basis
over the lease term. Leases with an initial term of 12 months or
less are not recognized on the balance sheet; the Company
recognizes lease expense for these leases on a straight-line basis
over the lease term. Additionally, the Company accounts for lease
and non-lease components as a single lease component for its
identified asset classes. As of September 30, 2020, the Company
does not have any material leases for the implementation of ASC
842.
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 PRC and banks in the United States, and other highly-liquid
investments with maturities of three months or less, when
purchased, to be cash and cash equivalents. The Company maintains
large sums of cash in three major banks in China. The aggregate
cash in such accounts and on hand as of September 30, 2020 and June
30, 2020 were $12,790,017 and $11,866,308, respectively. There is
no insurance securing these deposits in China. In addition, the
Company also had $41,905 and $68,470 in cash in two banks in the
United States as of September 30, 2020 and June 30, 2020,
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
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 provisioned for /written off based upon management’s
assessment. As of September 30, 2020, and June 30, 2020, the
Company had accounts receivable of $109,201,762 and $105,693,326,
net of allowance for doubtful accounts of $24,860,835 and
$38,466,200, respectively. The company recorded bad debt expense in
the amount of $ 18 million and $ 14 million for three months ended
September 30, 2020 and 2019, 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. As of September 30,
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
September 30, 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 September 30, 2020, and June 30, 2020, the
Company had customer deposits of $9,223,513 and $7,342,590,
respectively.
Earnings
per share
Basic
earnings per share is computed based on the weighted average number
of shares of common stock outstanding during the period. Diluted
earnings per share is computed based on the weighted average number
of shares of common stock plus the effect of dilutive potential
common shares outstanding during the period using the treasury
stock method. Dilutive potential common shares include outstanding
stock options and stock awards.
The
components of basic and diluted earnings per share consist of the
following:
|
|
Three
Months Ended |
|
|
|
September 30, |
|
|
|
2020 |
|
|
2019 |
|
Net income (loss) for
Basic Earnings Per Share |
|
$ |
(30,952,914 |
) |
|
$ |
(7,315,799 |
) |
Basic Weighted Average Number of Shares |
|
|
6,350,129 |
|
|
|
4,504,510 |
|
Net income (loss) Per Share –
Basic |
|
$ |
(4.87 |
) |
|
$ |
(1.62 |
) |
Net income (loss) for Diluted Earnings
Per Share |
|
$ |
(30,952,914 |
) |
|
$ |
(7,315,799 |
) |
Diluted Weighted Average Number of Shares |
|
|
6,350,129 |
|
|
|
4,504,510 |
|
Net income (loss) Per Share –
Diluted |
|
$ |
(4.87 |
) |
|
$ |
(1.62 |
) |
Recent
accounting pronouncements
In
August 2018, the FASB issued ASU 2018-13, “Changes to the
Disclosure Requirements for Fair Value Measurement.” ASU 2018-13
modifies the disclosure requirements on fair value measurements
from Accounting Standards Codification (“ASC”) 820, “Fair Value
Measurement.” ASU 2018-13 is effective for interim and annual
reporting periods beginning after December 15, 2019, with
early adoption permitted. The effect of the adoption of
ASU 2018-13 will be a change to the disclosure requirements
for certain fair value measurements.
In
August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement
that is a Service Contract.” ASU 2018-15 requires customers in a
cloud computing arrangement that is a service contract to follow
the internal-use software guidance in ASC 350-40,
“Intangibles—Goodwill and Other—Internal-Use Software,” to
determine which implementation costs may be capitalized. ASU
2018-15 is effective for interim and annual reporting periods
beginning after December 15, 2019, with early adoption permitted.
The amendments in ASU 2018-15 can be applied either retrospectively
or prospectively to all implementation costs incurred after the
date of adoption. The Company does not expect the adoption of ASU
2018-15 to have a material impact on its unaudited condensed
consolidated financial statements.
In
December 2019, the FASB issued ASU 2019-12, “Simplifying the
Accounting for Income Taxes.” ASU 2019-12 eliminates certain
exceptions within ASC 740, “Income Taxes,” and clarifies certain
aspects of ASC 740 to promote consistency among reporting entities.
ASU 2019-12 is effective for interim and annual reporting periods
beginning after December 15, 2020, with early adoption permitted.
Most amendments within the standard are required to be applied on a
prospective basis, while certain amendments must be applied on a
retrospective or modified retrospective basis. The Company is
evaluating the impact that adoption of ASU 2019-12 will have on its
unaudited condensed consolidated financial statements.
NOTE
3 – GOING CERCERN
The
Company’s financial statements are prepared assuming that the
Company will continue as a going concern. The Company has incurred
operating losses and had negative operating cash flows during the
reporting period from July 1, 2020 through September 30, 2020.
These factors raise doubt about the Company’s ability to continue
as a going concern.
To
meet its working capital needs through the next twelve months and
to fund the growth of the Company, the Company may consider plans
to raise additional funds through the issuance of equity or borrow
loan from local bank. The ability of the Company to continue as a
going concern is dependent upon its ability to successfully execute
its new business strategy and eventually attain profitable
operations.
The
accompanying financial statements do not include any adjustments to
reflect the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary
should the Company be unable to continue as going
concern.
NOTE
4 – INVENTORIES
Inventories
consisted of the following:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Raw materials |
|
$ |
39,637,241 |
|
|
$ |
43,177,071 |
|
Supplies and packing materials |
|
$ |
466,880 |
|
|
$ |
465,746 |
|
Work in progress |
|
$ |
383,552 |
|
|
$ |
374,756 |
|
Finished
goods |
|
$ |
67,407,644 |
|
|
$ |
54,903,508 |
|
Total |
|
$ |
107,895,317 |
|
|
$ |
98,921,081 |
|
NOTE
5 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Building and
improvements |
|
$ |
39,322,322 |
|
|
$ |
37,799,650 |
|
Auto |
|
|
3,325,579 |
|
|
|
3,207,619 |
|
Machinery and equipment |
|
|
18,312,530 |
|
|
|
17,601,852 |
|
Total property,
plant and equipment |
|
|
60,960,431 |
|
|
|
58,609,121 |
|
Less:
accumulated depreciation |
|
|
(37,836,354 |
) |
|
|
(35,680,787 |
) |
Total |
|
$ |
23,124,076 |
|
|
$ |
22,928,334 |
|
NOTE
6 – INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Land use rights, net |
|
$ |
9,148,309 |
|
|
$ |
8,850,905 |
|
Technology patent, net |
|
|
2,042 |
|
|
|
2,069 |
|
Customer relationships, net |
|
|
865,518 |
|
|
|
908,933 |
|
Non-compete agreement |
|
|
189,592 |
|
|
|
230,669 |
|
Trademarks |
|
|
5,991,040 |
|
|
|
5,759,049 |
|
Total |
|
$ |
16,196,501 |
|
|
$ |
15,751,625 |
|
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 $10,772,817). 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 $153,964). 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
$1,072,367). The intangible asset is being amortized over the grant
period of 50 years.
The
Land Use Rights consisted of the following:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Land use rights |
|
$ |
11,999,147 |
|
|
|
11,534,506 |
|
Less:
accumulated amortization |
|
|
(2,850,838 |
) |
|
|
(2,683,601 |
) |
Total land use
rights, net |
|
$ |
9,148,309 |
|
|
|
8,850,905 |
|
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 $864,810) 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 $1,354,240) and is
amortized over the remaining useful life of six years using the
straight-line method. As of June 30, 2020, this technology patent
is fully amortized.
The
technology know-how consisted of the following:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Technology know-how |
|
$ |
2,223,414 |
|
|
$ |
2,137,317 |
|
Less:
accumulated amortization |
|
|
(2,221,373 |
) |
|
|
(2,135,248 |
) |
Total technology
know-how, net |
|
$ |
2,042 |
|
|
$ |
2,069 |
|
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 $9,568,000) and
is amortized over the remaining useful life of ten years. On June
30, 2016 and January 1, 2017, the Company acquired the sales VIE
Companies. The fair value of the acquired customer relationships
was estimated to be RMB16,472,179 (or $2,424,705) and is amortized
over the remaining useful life of seven to ten years.
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Customer
relationships |
|
$ |
11,736,197 |
|
|
$ |
11,281,739 |
|
Less:
accumulated amortization |
|
|
(10,870,679 |
) |
|
|
(10,372,806 |
) |
Total customer
relationships, net |
|
$ |
865,518 |
|
|
$ |
908,933 |
|
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 $194,304) 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 $905,381) and is amortized over the remaining useful life of
five years using the straight-line method.
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Non-compete agreement |
|
$ |
1,201,657 |
|
|
$ |
1,155,127 |
|
Less:
accumulated amortization |
|
|
(1,012,065 |
) |
|
|
(924,458 |
) |
Total non-compete
agreement, net |
|
$ |
189,592 |
|
|
$ |
230,669 |
|
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 $5,991,040) and is
subject to an annual impairment test.
AMORTIZATION
EXPENSE
Estimated
amortization expenses of intangible assets for the next five twelve
months periods ended September 30, are as follows:
Twelve
Months Ended on September 30, |
|
Expense
($) |
|
2021 |
|
|
784,659 |
|
2022 |
|
|
591,115 |
|
2023 |
|
|
535,304 |
|
2024 |
|
|
389,121 |
|
2025 |
|
|
342,150 |
|
NOTE
7 – OTHER NON-CURRENT ASSETS
Other non-current assets mainly include advance payments related to
leasing land for use by the Company. As of September 30, 2020, the
balance of other non-current assets was $10,889,269, which was the
lease fee advances for agriculture lands that the Company engaged
in Shiquan County from 2021 to 2027.
In March 2017, Jinong entered into a lease agreement for
approximately 3,400 mu, and 2600-hectare agriculture lands in
Shiquan County, Shaanxi Province. The lease was from April 2017 and
was renewable for every ten-year period up to 2066. The aggregate
leasing fee was approximately RMB 13 million per annum, The Company
had made 10-year advances of leasing fee per lease terms. The
Company has amortized $0.5 million and $0.5 million as expenses for
the three months ended September 30, 2020 and 2019,
respectively.
Estimated
amortization expenses of the lease advance payments for the next
four twelve-month periods ended September 30 and thereafter are as
follows:
Twelve
months ending September 30, |
|
|
|
2022 |
|
$ |
1,976,160 |
|
2023 |
|
$ |
1,976,160 |
|
2024 |
|
$ |
1,976,160 |
|
2025
and thereafter |
|
$ |
4,960,789 |
|
NOTE
8 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables consisted of the following:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Payroll and welfare
payable |
|
$ |
122,784 |
|
|
$ |
168,705 |
|
Accrued expenses |
|
|
8,071,274 |
|
|
|
7,640,130 |
|
Other payables |
|
|
6,523,049 |
|
|
|
6,211,818 |
|
Other levy
payable |
|
|
123,451 |
|
|
|
118,671 |
|
Total |
|
$ |
14,840,558 |
|
|
$ |
14,139,324 |
|
NOTE
9 – 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 $3,753,600).
For the three months Ended September 30, 2020 and 2019, Yuxing has
sold approximately $169,722 and $199,469 products to
900LH.com.
As of
September 30, 2020, and June 30, 2020, the amount due to related
parties was $4,253,472 and $4,212,407, respectively. As
of September 30, 2020, and June 30, 2020, $1,030,400 and $990,500,
respectively were amounts that Gufeng borrowed from a related
party, Xi’an Techteam Science & Technology Industry (Group) Co.
Ltd., a company controlled by Mr. Zhuoyu Li, Chairman and CEO of
the Company, representing unsecured, non-interest-bearing loans
that are due on demand. These loans are not subject to
written agreements.
As of
September 30, 2020, and June 30, 2020, the Company’s subsidiary,
Jinong, owed 900LH.com $404,623 and $11,819,
respectively.
On
July 1, 2020, 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, 2020 with monthly rent of RMB24,480 (approximately
$3,603).
NOTE
10 – LOAN PAYABLES
As of
September 30, 2020, the short-term loan payables consisted of three
loans which mature on dates ranging from June 17, 2020 through
August 5, 2021 with interest rates ranging from 5.22% to 5.66%. All
loans are collateralized by Tianjuyuan’s land use right and
building ownership right.
No. |
|
Payee |
|
Loan
period per agreement |
|
Interest
Rate |
|
|
September 30,
2020 |
|
1 |
|
Postal
Saving Bank of China - Pinggu Branch |
|
June
17, 2020-June 16, 2021 |
|
|
5.66 |
% |
|
|
2,208,000 |
|
2 |
|
Beijing
Bank - Pinggu Branch |
|
June
22, 2020-June 22, 2021 |
|
|
5.22 |
% |
|
|
1,472,000 |
|
3 |
|
Postal
Saving Bank of China - Pinggu Branch |
|
August
6, 2020-August 5, 2021 |
|
|
5.66 |
% |
|
|
294,400 |
|
|
|
Total |
|
|
|
|
|
|
|
$ |
3,974,400 |
|
The
interest expense from short-term loans was $56,768 and $70,789 for
the period ended September 30, 2020 and 2019,
respectively.
NOTE
11 – 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
($7,507,200) 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, 2020 |
|
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 ($1,766,400) 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 0 as of September 30, 2020 and June 30, 2020. Aside
from the forfeiture of the convertible notes previously issued to
Zhenbai’s shareholders, the difference between the fair value of
the notes and the face amount of the notes is being amortized to
accretion implied interest expense over the three-year life of the
notes. As of September 30, 2020, the accumulated amortization of
this discount into accretion expenses was $1,375,499. As of
September 30, 2019, the accumulated amortization of this discount
into accretion expenses was $1,354,691.
NOTE
12 – TAXES PAYABLE
Enterprise
Income Tax
Effective
January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC
replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign
Invested Enterprises (“FIEs”). The EIT rate of 25% replaced the 33%
rate that was applicable to both DEs and FIEs. The two-year tax
exemption and three-year 50% tax reduction tax holiday for
production-oriented FIEs was eliminated. Since January 1, 2008,
Jinong became subject to income tax in China at a rate of 15% as a
high-tech company, because of the expiration of its tax exemption
on December 31, 2007. Accordingly, it made provision for income
taxes for the three-month period ended September 30, 2020 and 2019
of $1,569,003 and $449,131, respectively, which is mainly due to
the operating income from Jinong and VIEs.
Value-Added
Tax
All
the Company’s fertilizer products that are produced and sold in the
PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the
gross sales price. On April 29, 2008, the PRC State of
Administration of Taxation (SAT) released Notice #56, “Exemption
of VAT for Organic Fertilizer Products”, which allows certain
fertilizer products to be exempt from VAT beginning June 1, 2008.
The Company submitted the application for exemption in May 2009,
which was granted effective September 1, 2009, continuing through
December 31, 2015. On August 10, 2015 and August 28, 2015, the SAT
released Notice #90. “Reinstatement of VAT for Fertilizer
Products”, and Notice #97, “Supplementary Reinstatement of
VAT for Fertilizer Products”, which restore the VAT of 13% of
the gross sales price on certain fertilizer products includes
non-organic fertilizer products starting from September 1, 2015,
but granted taxpayers a reduced rate of 3% from September 1, 2015
through June 30, 2016.
On
April 28, 2017, the PRC State of Administration of Taxation (SAT)
released Notice 2017 #37, “Notice on Policy of Reduced Value
Added Tax Rate,” under which, effective July 1, 2017, all 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 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 the Company’s fertilizer products that
are produced and sold in the PRC are subject to a Chinese
Value-Added Tax (VAT) of 9% of the gross sales price. The tax rate
was reduced 1% from 10%.
Income
Taxes and Related Payables
|
|
Sept 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2020 |
|
VAT
provision |
|
$ |
(249,770 |
) |
|
$ |
(257,068 |
) |
Income tax payable |
|
|
2,045,268 |
|
|
|
1,704,543 |
|
Other levies |
|
|
1,381,486 |
|
|
|
1,187,442 |
|
Repatriation
tax |
|
|
29,010,535 |
|
|
|
29,010,535 |
|
Total |
|
$ |
32,187,519 |
|
|
$ |
31,645,452 |
|
The
provision for income taxes consists of the following
|
|
September 30, |
|
|
September 30, |
|
|
|
2020 |
|
|
2019 |
|
Current tax - foreign |
|
$ |
1,569,003 |
|
|
$ |
449,131 |
|
Deferred
tax |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
1,569,003 |
|
|
$ |
449,131 |
|
Significant components of deferred tax assets were as follows:
|
|
September 30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2020 |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Deferred Tax Benefit |
|
|
8,065,107 |
|
|
|
33,743,546 |
|
Valuation allowance |
|
|
(8,065,107 |
) |
|
|
(33,743,546 |
) |
Total deferred
tax assets |
|
$ |
- |
|
|
|
- |
|
Tax
Rate Reconciliation
Our
effective tax rates were approximately -5.3% and -6.5% for the
three Months Ended September 30, 2020 and 2019, respectively.
Substantially all 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 operations and
comprehensive income (loss) differ from the amounts computed by
applying the US statutory income tax rate of 21.0% to income before
income taxes for the three months Ended September 30, 2020 and 2019
for the following reasons:
September
30, 2020
|
|
China |
|
|
|
|
|
United
States |
|
|
|
|
|
|
|
|
|
|
|
|
15%
- 25% |
|
|
|
|
|
21% |
|
|
|
|
|
Total |
|
|
|
|
Pretax
income (loss) |
|
$ |
(28,928,034 |
) |
|
|
|
|
|
|
(455,876 |
) |
|
|
|
|
|
$ |
(29,383,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax expense (benefit) |
|
|
(7,232,009 |
) |
|
|
25.0 |
% |
|
|
(95,734 |
) |
|
|
21.0 |
% |
|
|
(7,327,742 |
) |
|
|
|
|
High-tech
income benefits on Jinong |
|
|
(178,593 |
) |
|
|
0.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
(178,593 |
) |
|
|
|
|
Losses
from subsidiaries in which no benefit is recognized |
|
|
8,065,107 |
|
|
|
(27.9 |
)% |
|
|
- |
|
|
|
- |
|
|
|
8,065,107 |
|
|
|
|
|
Change
in valuation allowance on deferred tax asset from US tax
benefit |
|
|
914,498 |
|
|
|
(3.2) |
% |
|
|
95,734 |
|
|
|
(21.0 |
)% |
|
|
1,010,232 |
|
|
|
|
|
Actual
tax expense |
|
$ |
1,596,003 |
|
|
|
(5.4 |
)% |
|
$ |
- |
|
|
|
- |
% |
|
$ |
1,569,003 |
|
|
|
(5.3 |
)% |
September
30, 2019
|
|
China |
|
|
|
|
|
United
States |
|
|
|
|
|
|
|
|
|
|
|
|
15%
- 25% |
|
|
|
|
|
21% |
|
|
|
|
|
Total |
|
|
|
|
Pretax
income (loss) |
|
$ |
(6,527,995 |
) |
|
|
|
|
|
|
(338,673 |
) |
|
|
|
|
|
$ |
(6,866,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax expense (benefit) |
|
|
(1,631,999 |
) |
|
|
25.0 |
% |
|
|
(71,121 |
) |
|
|
21.0 |
% |
|
|
(1,703,120 |
) |
|
|
|
|
High-tech
income benefits on Jinong |
|
|
(61,659 |
) |
|
|
0.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
(61,659 |
) |
|
|
|
|
Losses
from subsidiaries in which no benefit is recognized |
|
|
2,142,789 |
|
|
|
(32.8 |
)% |
|
|
- |
|
|
|
- |
|
|
|
2,142,789 |
|
|
|
|
|
Change
in valuation allowance on deferred tax asset from US tax
benefit |
|
|
- |
|
|
|
|
|
|
|
71,121 |
|
|
|
(21.0 |
)% |
|
|
71,121 |
|
|
|
|
|
Actual
tax expense |
|
$ |
449,131 |
|
|
|
(6.9 |
)% |
|
$ |
- |
|
|
|
- |
% |
|
$ |
449,131 |
|
|
|
(6.5 |
)% |
NOTE
13 – STOCKHOLDERS’ EQUITY
Common
Stock
There
were no shares of common stock issued during the quarter ended
September 30, 2020.
On
July 2, 2019, the Company issued 59,567 shares of common stock to
pay off consulting services under the 2009 Plan. The value of the
stock was $330,000 and was based on the fair value of the Company’s
common stock on the grant date.
On
August 13, 2019, the Company sold 212,000 shares of common stock at
the price of $10.00 per share for total proceeds of $2,120,000 to
certain third-party individuals. The issuances were completed
pursuant to the exemption from registration provided by Regulation
S promulgated under the Securities Act of 1933, as
amended.
On
August 15, 2019, Shaanxi Baoyu Science and Technology Investment
Company, a limited liability investment company incorporated in the
People’s Republic of China (“Shaanxi Baoyu”), entered into a
certain Stock Purchase Agreement (the “SPA”) pursuant to Regulation
S promulgated under the Securities Act of 1933 with the Company in
connection with a private placement offering of 471,000 shares of
Common Stock, par value $0.001 per share, of the Company. The
purchase price per share of the offering was $12.00 for total
proceeds of $5,652,000. On August 16, 2019, the Company issued
471,000 Shares of the Company’s Common Stock, par value $0.001 per
share, to Shaanxi Baoyu, pursuant to the SPA.
On
August 19, 2019, the Company sold 248,000 shares of common stock at
the price of $10.00 per share for total proceeds of $2,480,000 to
certain unrelated individuals. The issuances were completed
pursuant to the exemption from registration provided by Regulation
S promulgated under the Securities Act of 1933, as
amended.
As of
September 30, 2020, and June 30, 2020, there were 6,350,129 and
6,350,129 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. If the Company sells preferred stock under its
registration statement on Form S-3, it will fix the rights,
preferences, privileges, qualifications and restrictions of the
preferred stock of each series in the certificate of designation
relating to that series and will file the certificate of
designation that describes the terms of the series of preferred
stock the Company offers before the issuance of the related series
of preferred stock.
As of September 30, 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 14 – CONCENTRATIONS AND LITIGATION
Market Concentration
All the Company’s revenue-generating operations are conducted in
the PRC. Accordingly, the Company’s business, financial condition
and results of operations may be influenced by the political,
economic and legal environments in the PRC, and by the general
state of the PRC’s economy.
The Company’s operations in the PRC are subject to specific
considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among other things, the political, economic and
legal environment and foreign currency exchange. The Company’s
results may be adversely affected by, among other things, changes
in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation.
Vendor and Customer Concentration
There were five vendors from which the Company purchased more than
10% of its raw materials, with the total of 65.8% of its raw
materials for the three months ended September 30, 2020. Total
purchases from these vendors are $38,276,289 for the three-month
period ended September 30, 2020.
There was only one vendor from which the Company purchased more
than 10% of its raw materials, with the total of 10.6% of its raw
materials for the three months ended September 30, 2019. Total
purchases from this vendor are $1,859,830 for the three-month
period ended September 30, 2019.
No customer accounted for over 10% of the Company’s sales for the
three months Ended September 30, 2020 and 2019.
Litigation
On June 5, 2020, an individual filed suit pro se (as in,
representing oneself without an attorney) in the Southern District
of Florida federal court alleging violations of the Securities
Exchange Act. The Company believes the action is without merit and
vigorously opposed it. The company has moved to dismiss the
litigation and for attorney’s fees from the plaintiff. The motions
are pending.
NOTE 15 – 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 (expense) and net
income (loss) 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 (loss) by
segment.
|
|
Three Months Ended September 30, |
|
Revenues from unaffiliated
customers: |
|
2020 |
|
|
2019 |
|
Jinong |
|
$ |
14,529,312 |
|
|
$ |
19,054,816 |
|
Gufeng |
|
|
15,828,203 |
|
|
|
16,323,217 |
|
Yuxing |
|
|
2,423,488 |
|
|
|
2,539,711 |
|
Sales
VIEs |
|
|
11,377,229 |
|
|
|
12,903,827 |
|
Consolidated |
|
$ |
44,158,232 |
|
|
$ |
50,821,571 |
|
|
|
|
|
|
|
|
|
|
Operating income (expense): |
|
|
|
|
|
|
|
|
Jinong |
|
$ |
1,758,677 |
|
|
$ |
578,043 |
|
Gufeng |
|
|
(31,136,234 |
) |
|
|
(11,500,258 |
|
Yuxing |
|
|
137,213 |
|
|
|
154,678 |
|
Sales VIEs |
|
|
351,837 |
|
|
|
4,293,317 |
|
Reconciling item (1) |
|
|
- |
|
|
|
- |
|
Reconciling
item (2) |
|
|
(455,876 |
) |
|
|
(338,680 |
) |
Consolidated |
|
$ |
(29,344,383 |
) |
|
$ |
(6,812,900 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss): |
|
|
|
|
|
|
|
|
Jinong |
|
$ |
1,518,043 |
|
|
$ |
524,101 |
|
Gufeng |
|
|
(31,193,670 |
) |
|
|
(11,511,954 |
) |
Yuxing |
|
|
136,909 |
|
|
|
154,555 |
|
Sales VIEs |
|
|
(31,272 |
) |
|
|
3,868,486 |
|
Reconciling item (1) |
|
|
- |
|
|
|
6 |
|
Reconciling item (2) |
|
|
(1,370,374 |
) |
|
|
(338,680 |
) |
Reconciling
item (3) |
|
|
(12,550 |
) |
|
|
(12,315 |
) |
Consolidated |
|
$ |
(30,095,914 |
) |
|
$ |
(7,315,800 |
) |
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
Jinong |
|
$ |
192,578 |
|
|
$ |
191,078 |
|
Gufeng |
|
|
305,111 |
|
|
|
520,335 |
|
Yuxing |
|
|
298,796 |
|
|
|
295,654 |
|
Sales VIEs |
|
|
123,949 |
|
|
|
181,123 |
|
Consolidated |
|
$ |
920,432 |
|
|
$ |
1,188,190 |
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Jinong |
|
|
- |
|
|
|
6,412 |
|
Gufeng |
|
|
56,768 |
|
|
|
70,789 |
|
Sales VIEs |
|
|
- |
|
|
|
1 |
|
Consolidated |
|
$ |
56,768 |
|
|
$ |
77,202 |
|
|
|
|
|
|
|
|
|
|
Capital Expenditure: |
|
|
|
|
|
|
|
|
Jinong |
|
$ |
3,667 |
|
|
$ |
4,578 |
|
Gufeng |
|
|
17,445 |
|
|
|
- |
|
Yuxing |
|
|
- |
|
|
|
6,823 |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
21,112 |
|
|
$ |
11,401 |
|
|
|
As of |
|
|
|
September 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2020 |
|
Identifiable assets: |
|
|
|
|
|
|
Jinong |
|
$ |
89,802,390 |
|
|
$ |
83,055,679 |
|
Gufeng |
|
|
189,881,663 |
|
|
|
213,038,203 |
|
Yuxing |
|
|
35,894,886 |
|
|
|
34,310,053 |
|
Sales VIEs |
|
|
48,594,814 |
|
|
|
44,715,491 |
|
Reconciling item (1) |
|
|
(34,249,503 |
) |
|
|
(33,157,364 |
) |
Reconciling
item (2) |
|
|
166,121 |
|
|
|
166,121 |
|
Consolidated |
|
$ |
330,090,371 |
|
|
$ |
342,128,183 |
|
(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 16 – COMMITMENTS AND CONTINGENCIES
On July 1, 2020, 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, 2020 with monthly rent of RMB24,480 (approximately
$3,603).
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 $435).
Accordingly, the Company recorded an aggregate of $11,897 and
$11,729 as rent expenses from these committed property leases for
the three-month periods ended September 30, 2020 and 2019,
respectively. The contingent rent expenses herein for the next five
twelve-month periods ended September 30, are as follows:
Years ending September 30, |
|
|
|
2021 |
|
$ |
47,586 |
|
2022 |
|
|
47,586 |
|
2023 |
|
|
47,586 |
|
2024 |
|
|
47,586 |
|
2025 |
|
|
47,586 |
|
NOTE 17 – 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 much of the risk of loss from the
activities of Yuxing, thereby enabling the Company, through Jinong,
to receive a majority of Yuxing expected residual returns.
On June 30, 2016 and January 1, 2017, the Company, through its
wholly-owned subsidiary Jinong, entered into strategic acquisition
agreements and into a series of contractual agreements to qualify
as VIEs with the shareholders of the sales VIE Companies.
Jinong, the sales VIE Companies, and the shareholders of the sales
VIE Companies also entered into a series of contractual agreements
for the sales VIE Companies to qualify as VIEs (the “VIE
Agreements”).
On November 30, 2017, the Company, through its wholly-owned
subsidiary Jinong, exited the VIE agreements with the shareholders
of Zhenbai.
As a result of these contractual arrangements, with Yuxing and the
sales VIE Companies the Company is entitled to substantially all
the economic benefits of Yuxing and the VIE Companies. The
following financial statement amounts and balances of the VIEs were
included in the accompanying unaudited condensed consolidated
financial statements as of September 30, 2020 and June 30,
2020:
|
|
September 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2020 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
667,378 |
|
|
$ |
712,301 |
|
Accounts receivable, net |
|
|
36,848,525 |
|
|
|
33,727,918 |
|
Inventories |
|
|
22,740,149 |
|
|
|
22,995,075 |
|
Other current assets |
|
|
822,549 |
|
|
|
593,942 |
|
Related party receivable |
|
|
160,895 |
|
|
|
66 |
|
Advances to
suppliers |
|
|
2,371,607 |
|
|
|
520,901 |
|
Total Current
Assets |
|
|
63,611,103 |
|
|
|
58,550,203 |
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment,
Net |
|
|
8,594,747 |
|
|
|
8,513,395 |
|
Other assets |
|
|
70,994 |
|
|
|
59,575 |
|
Intangible Assets, Net |
|
|
9,600,971 |
|
|
|
9,391,626 |
|
Goodwill |
|
|
2,611,885 |
|
|
|
2,510,745 |
|
Total
Assets |
|
$ |
84,489,700 |
|
|
$ |
79,025,544 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
17,748,704 |
|
|
|
16,416,828 |
|
Customer deposits |
|
|
610,086 |
|
|
|
86,430 |
|
Accrued expenses and other
payables |
|
|
7,584,304 |
|
|
|
6,996,544 |
|
Amount due to
related parties |
|
|
43,268,066 |
|
|
|
41,549,931 |
|
Total Current
Liabilities |
|
$ |
69,211,160 |
|
|
$ |
65,049,733 |
|
Total
Liabilities |
|
$ |
69,211,160 |
|
|
$ |
65,049,733 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
15,278,540 |
|
|
|
13,975,811 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
84,489,700 |
|
|
$ |
79,025,544 |
|
|
|
Three Months Ended
September 30, |
|
|
|
2020 |
|
|
2019 |
|
Revenue |
|
$ |
13,800,717 |
|
|
$ |
15,443,538 |
|
Expenses |
|
|
13,695,080 |
|
|
|
11,420,496 |
|
Net income
(loss) |
|
$ |
105,637 |
|
|
$ |
4,023,042 |
|
NOTE 18 – 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 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 19 – 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 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 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 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
COVID-19 cannot be reasonably estimated at this time, but our
results for the full fiscal year of 2020 and first quarter of
fiscal year of 2021 had been adversely affected.
In general, our business could be adversely affected by the effects
of epidemics, including, but not limited to, the 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 business, limiting business hours,
and setting restrictions on travel and/or visits with clients and
partners for a prolonged period. 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.
NOTE 20 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its
operations after September 30, 2020 to the date these unaudited
condensed consolidated financial statements were available to be
issued and has determined that there were no significant subsequent
events or transactions that would require recognition or disclosure
in the unaudited condensed consolidated financial statements.
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
unaudited condensed 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. With 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 68.7% and 69.6% of our total revenues for the three
months Ended September 30, 2020 and 2019, respectively. The sales
VIEs generated 25.8% and 25.4% of our revenues for the three months
Ended September 30, 2020 and 2019, respectively. Yuxing serves as a
research and development base for our fertilizer products.
Fertilizer Products
As of September 30, 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 |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Change 2019 to 2020 |
|
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% |
|
|
|
(metric tons) |
|
|
|
|
|
|
|
Jinong |
|
|
15,871 |
|
|
|
18,623 |
|
|
|
(2,752 |
) |
|
|
-14.8 |
% |
Gufeng |
|
|
44,824 |
|
|
|
52,451 |
|
|
|
(7,627 |
) |
|
|
-14.5 |
% |
|
|
|
60,695 |
|
|
|
71,074 |
|
|
|
(10,379 |
) |
|
|
-14.6 |
% |
|
|
Three Months Ended
September 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(revenue per tons) |
|
Jinong |
|
$ |
930 |
|
|
$ |
1,035 |
|
Gufeng |
|
|
345 |
|
|
|
311 |
|
For the three months ended September 30, 2020, we sold
approximately 60,695 tons of fertilizer products, as compared to
71,704 metric tons for the three months ended September 30, 2019.
For the three months ended September 30, 2020, Jinong sold
approximately 15,871 metric tons of fertilizer products, as
compared to 18,623 metric tons for the three months ended September
30, 2019. For the three months ended September 30, 2020, Gufeng
sold approximately 44,824 metric tons of fertilizer products, as
compared to52, 451 metric tons for the three months ended September
30, 2019.
Our sales of fertilizer products to customers in five provinces
within China accounted for approximately 59.7% of our fertilizer
revenue for the three months ended September 30, 2020.
Specifically, the provinces and their respective percentage
contributing to our fertilizer revenues were Hebei (26.2%),
Heilongjiang (10.9%), Inner Mongolia (9.1%), Liaoning (8.5%) and
Shaanxi (4.9%).
As of September 30, 2020, we had a total of 1,924 distributors
covering 22 provinces, 4 autonomous regions and 4 central
government-controlled municipalities in China. Jinong had 1,096
distributors in China. Jinong’s sales are not dependent on any
single distributor or any group of distributors. Jinong’s top five
distributors accounted for 5.2% of its fertilizer revenues for the
three months ended September 30, 2020. Gufeng had 330 distributors,
including some large state-owned enterprises. Gufeng’s top five
distributors accounted for 81.0% of its revenues for the three
months ended September 30, 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 95.2% of our agricultural
products revenue for the three months ended September 30, 2020 were
Shaanxi (87.8%), Shanghai (5.7%), and Beijing (1.7%).
Recent Developments
New Products
During the three months ended September 30, 2020, Jinong did not
launch any new fertilizer product and added 101 new distributors.
During the three months ended September 30, 2020, Gufeng did not
launch any new fertilizer products and did not add any new
distributor.
Strategic Acquisitions
On June 30, 2016 and January 1, 2017, through Jinong, we entered
(i) Strategic Acquisition Agreements (the “SAA”), and (ii)
Agreements for Convertible Notes (the “ACN”), with the shareholders
of the companies as identified below (the “Targets”).
June 30, 2016:
|
|
|
|
Cash |
|
|
Principal of |
|
|
|
|
|
Payment for |
|
|
Notes
for |
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
Company Name |
|
Business Scope |
|
(RMB[1]) |
|
|
(RMB) |
|
Shaanxi Lishijie Agrochemical Co., Ltd. |
|
Sales of pesticides,
agricultural chemicals, chemical fertilizers, agricultural
materials; Manufacture and sales of mulches. |
|
|
10,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Songyuan
Jinyangguang Sannong Service Co., Ltd. |
|
Promotion and consulting services
regarding agricultural technologies; Retail sales of chemical
fertilizers (including compound fertilizers and organic
fertilizers); Wholesale and retail sales of pesticides,
agricultural machinery and accessories; Collection of agricultural
information; Development of saline-alkali soil; Promotion and
development of high-efficiency agriculture and related information
technology solutions for agriculture, agricultural and biological
engineering high technologies; E-commerce; Cultivation of
freshwater fish, poultry, fruits, flowers, vegetables, and seeds;
Recycling and complex utilization of straw and stalk; Technology
transfer and training; Recycling of agricultural materials ;
Ecological industry planning. |
|
|
8,000,000 |
|
|
|
12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Shenqiu
County Zhenbai Agriculture Co., Ltd. |
|
Cultivation of crops; Storage, sales,
preliminary processing and logistics distribution of agricultural
by-products; Promotion and application of agricultural
technologies; Purchase and sales of agricultural materials;
Electronic commerce. |
|
|
3,000,000 |
|
|
|
12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Weinan
City Linwei District Wangtian Agricultural Materials Co., Ltd. |
|
Promotion and application of new
agricultural technologies; Professional prevention of plant
diseases and insect pests; Sales of plant protection products,
plastic mulches, material, chemical fertilizers, pesticides,
agricultural medicines, micronutrient fertilizers, hormones,
agricultural machinery and medicines, and gardening tools. |
|
|
6,000,000 |
|
|
|
12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Aksu Xindeguo Agricultural Materials Co., Ltd. |
|
Wholesale and retail sales of
pesticides; Sales of chemical fertilizers, packaged seeds,
agricultural mulches, micronutrient fertilizers, compound
fertilizers, plant growth regulators, agricultural machineries, and
water economizers; Consulting services for agricultural
technologies; Purchase and sales of agricultural by- products. |
|
|
10,000,000 |
|
|
|
12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Xinjiang Xinyulei Eco-agriculture Science and Technology Co.,
Ltd |
|
Sales of
chemical fertilizers, packaged seeds, agricultural mulches,
micronutrient fertilizers, organic fertilizers, plant growth
regulators, agricultural machineries, and water economizers;
Purchase and sales of agricultural by-products; Cultivation of
fruits and vegetables; Consulting services and training for
agricultural technologies; Storage services; Sales of articles of
daily use, food and oil; On-line sales of the above-mentioned
products. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
37,000,000 |
|
|
|
51,000,000 |
|
(1) |
The
exchange rate between RMB and U.S. dollars on June 30, 2016 is
RMB1=US$0.1508, according to the exchange rate published by Bank of
China. |
|
|
(2) |
On
November 30, 2017, the Company, through its wholly-owned subsidiary
Jinong, discontinued the strategic acquisition agreements and the
series of contractual agreements with the shareholders of Zhenbai.
In return, the shareholders of Zhenbai agreed to tender the whole
payment consideration in the SAA back to the Company with early
termination penalties. The convertible notes paid to Zhenbai’s
shareholders and the accrued interest has been
forfeited. |
January 1, 2017:
|
|
|
|
Cash |
|
|
Principal of |
|
|
|
|
|
Payment for |
|
|
Notes
for |
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
Company Name |
|
Business Scope |
|
(RMB[1]) |
|
|
(RMB) |
|
Sunwu County Xiangrong
Agricultural Materials Co., Ltd. |
|
Sales of pesticides,
agricultural chemicals, chemical fertilizers, agricultural
materials; Manufacture and sales of mulches. |
|
|
4,000,000 |
|
|
|
6,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Anhui Fengnong Seed Co., Ltd. |
|
Wholesale and
retail sales of pesticides; Sales of chemical fertilizers, packaged
seeds, agricultural mulches, micronutrient fertilizers, compound
fertilizers and plant growth regulators |
|
|
4,000,000 |
|
|
|
6,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
8,000,000 |
|
|
|
12,000,000 |
|
(1) |
The
exchange rate between RMB and U.S. dollars on January 1, 2017 is
RMB1=US$0.144, according to the exchange rate published by Bank of
China. |
Pursuant to the SAA and the ACN, the shareholders of the Targets,
while retaining possession of the equity interests and continuing
to be the legal owners of such interests, agreed to pledge and
entrust all their equity interests, including the proceeds thereof
but excluding any claims or encumbrances, and the operations and
management of its business to Jinong, in exchange of an aggregate
amount of RMB45,000,000 (approximately $6,291,000) to be paid by
Jinong within three days following the execution of the SAA, ACN
and the VIE Agreements, and convertible notes with an aggregate
face value of RMB 63,000,000 (approximately $8,807,400) with an
annual fixed compound interest rate of 3% and term of three
years.
Jinong acquired the Targets using the VIE arrangement based on our
need to further develop our business and comply with the regulatory
requirements under the PRC laws.
As our business focuses on the production of fertilizer, all our
business activities intertwine with those in the agriculture
industry in China. Specifically, we deal with compliance,
regulation, safety, inspection, and licenses in fertilizer
production, farmland use and transfer, growing and distribution of
agriculture goods, agriculture basic supplies, seeds, pesticides,
and trades of grains. It is an industry in which heavy regulations
get implemented and strictly enforced. In addition, E-commerce,
which is also under strict government regulation in the PRC, has
lately become a sales and distribution channel for agricultural
products. Currently, we are developing an online platform to
connect the physical distribution network we either own or
lease.
Compared with the regulatory environment in other jurisdictions,
the regulatory environment in the PRC is unique. For example, the
“M&A Rules” purports to require that an offshore special
purpose vehicle controlled directly or indirectly by PRC companies
or individuals and formed for purposes of overseas listing through
acquisition of PRC domestic interests held by such PRC companies or
individuals obtain the approval of the China Securities Regulatory
Commission (the “CSRC”) prior to the listing and trading of such
special purpose vehicle’s securities on an overseas stock exchange.
On September 21, 2006, the CSRC published procedures regarding its
approval of overseas listings by special purpose vehicles.
For both e-commerce and agriculture industries, PRC regulators
limit the investment from foreign entities and set particularly
rules for foreign-owned entities to conduct business. We expect
these limitations on foreign-owned entities will continue to exist
in e-commerce and agriculture industries. The VIE arrangement,
however, provides feasibility for obtaining administrative approval
process and avoiding industry restrictions that can be imposed on
an entity that is a wholly-owned subsidiary of a foreign entity.
The VIE agreements reduce uncertainty and the current limitation
risk. It is our understanding that the VIE agreements, as well as
the control we obtained through VIE arrangement, are valid and
enforceable. Such legal structure does not violate the known,
published, and current PRC laws. While there are substantial
uncertainties regarding the interpretation and application of PRC
Laws and future PRC laws and regulations, and there can be no
assurance that the PRC authorities will take a view that is not
contrary to or otherwise different from our belief and
understanding stated above, we believe the substantial difficulty
that we experienced previously to conduct business in agriculture
as a foreign ownership can be greatly reduced by the VIE
arrangement. Further, as an integral part of the VIE arrangement,
the underlying equity pledge agreements provide legal protection
for the control we obtained. Pursuant to the equity pledge
agreements, we have completed the equity pledge processes with the
Targets to ensure the complete control of the interests in the
Targets. The shareholders of the Targets are not entitled to
transfer any shares to a third party under the exclusive option
agreements. If necessary, they may transfer shares to our company
without consideration.
While the VIE arrangement provides us with the feasibility to
conduct our business in the E-Commerce and agriculture industries,
validity and enforceability of VIE arrangement is subject to (i)
any applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws affecting creditors’
rights generally, (ii) possible judicial or administrative actions
or any PRC Laws affecting creditors’ rights, (iii) certain
equitable, legal or statutory principles affecting the validity and
enforceability of contractual rights generally under concepts of
public interest, interests of the State, national security,
reasonableness, good faith and fair dealing, and applicable
statutes of limitation; (iv) any circumstance in connection with
formulation, execution or implementation of any legal documents
that would be deemed materially mistaken, clearly unconscionable,
fraudulent, coercive at the conclusions thereof; and (v) judicial
discretion with respect to the availability of indemnifications,
remedies or defenses, the calculation of damages, the entitlement
to attorney’s fees and other costs, and the waiver of immunity from
jurisdiction of any court or from legal process. Validity and
enforceability of VIE arrangement is also subject to risk derived
from the discretion of any competent PRC legislative,
administrative or judicial bodies in exercising their authority in
the PRC. As a result, there can no assurance that any of such PRC
Laws will not be changed, amended or replaced in the immediate
future or in the longer term with or without retrospective
effect.
Results of Operations
Three Months ended September 30, 2020 Compared to the Three
Months ended September 30, 2019.
|
|
2020 |
|
|
2019 |
|
|
Change $ |
|
|
Change % |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
$ |
14,529,312 |
|
|
$ |
19,054,816 |
|
|
|
(4,525,504 |
) |
|
|
-23.7 |
% |
Gufeng |
|
|
15,828,203 |
|
|
|
16,323,217 |
|
|
|
(495,014 |
) |
|
|
-3.0 |
% |
Yuxing |
|
|
2,423,488 |
|
|
|
2,539,711 |
|
|
|
(116,223 |
) |
|
|
-4.6 |
% |
Sales
VIEs |
|
|
11,377,229 |
|
|
|
12,903,827 |
|
|
|
(1,526,598 |
) |
|
|
-11.8 |
% |
Net sales |
|
|
44,158,232 |
|
|
|
50,821,571 |
|
|
|
(6,663,339 |
) |
|
|
-13.1 |
% |
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong |
|
|
10,685,464 |
|
|
|
10,492,530 |
|
|
|
192,934 |
|
|
|
1.8 |
% |
Gufeng |
|
|
13,977,817 |
|
|
|
14,454,008 |
|
|
|
(476,191 |
) |
|
|
-3.3 |
% |
Yuxing |
|
|
2,042,072 |
|
|
|
2,051,996 |
|
|
|
(9,924 |
) |
|
|
-0.5 |
% |
Sales
VIEs |
|
|
9,141,210 |
|
|
|
10,663,790 |
|
|
|
(1,522,580 |
) |
|
|
-14.3 |
% |
Cost
of goods sold |
|
|
35,846,563 |
|
|
|
37,662,324 |
|
|
|
(1,815,761 |
) |
|
|
-4.8 |
% |
Gross profit |
|
|
8,311,669 |
|
|
|
13,159,247 |
|
|
|
(4,847,578 |
) |
|
|
-36.8 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses |
|
|
4,711,956 |
|
|
|
3,630,355 |
|
|
|
1,081,601 |
|
|
|
29.8 |
% |
General and administrative expenses |
|
|
32,944,096 |
|
|
|
16,341,792 |
|
|
|
16,602,304 |
|
|
|
101.6 |
% |
Total
operating expenses |
|
|
37,656,052 |
|
|
|
19,972,147 |
|
|
|
17,683,905 |
|
|
|
88.5 |
% |
Income (loss) from operations |
|
|
(29,344,383 |
) |
|
|
(6,812,900 |
) |
|
|
(22,531,483 |
) |
|
|
330.7 |
% |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
(5,165 |
) |
|
|
(30,191 |
) |
|
|
25,026 |
|
|
|
-82.9 |
% |
Interest
income |
|
|
22,405 |
|
|
|
53,624 |
|
|
|
(31,219 |
) |
|
|
-58.2 |
% |
Interest
expense |
|
|
(56,768 |
) |
|
|
(77,202 |
) |
|
|
20,434 |
|
|
|
-26.5 |
% |
Total
other income (expense) |
|
|
(39,528 |
) |
|
|
(53,769 |
) |
|
|
14,241 |
|
|
|
-26.5 |
% |
Income (loss)
before income taxes |
|
|
(29,383,911 |
) |
|
|
(6,866,668 |
) |
|
|
(22,517,242 |
) |
|
|
327.9 |
% |
Provision for
income taxes |
|
|
1,569,003 |
|
|
|
449,131 |
|
|
|
1,119,872 |
|
|
|
249.3 |
% |
Net income
(loss) |
|
$ |
(30,952,914 |
) |
|
$ |
(7,315,799 |
) |
|
|
(23,637,114 |
) |
|
|
323.1 |
% |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
13,467,844 |
|
|
|
(17,367,485 |
) |
|
|
30,835,329 |
|
|
|
-177.5 |
% |
Comprehensive income (loss) |
|
$ |
(17,485,070 |
) |
|
$ |
(24,683,284 |
) |
|
|
7,198,125 |
|
|
|
-29.2 |
% |
Net Sales
Total net sales for the three months ended September 30, 2020 were
$44,158,232 a decrease of $6,663,339 or 13.1%, from $50,821,571 for
the three months ended September 30, 2019. This decrease was
principally a result of the negative impact on sales volumes due to
the COVID-19 pandemic, especially for Jinong’s and VIEs’ net
sales.
For the three months ended September 30, 2020, Jinong’s net sales
decreased $4,525,504, or 23.7%, to $14,529,312 from $19,054,816 for
the three months ended September 30, 2019. This decrease was mainly
due to Jinong’s lower sales volume in the last three months. Jinong
sold approximately 15,871 metric tons of fertilizer products for
the three months ended September 30, 2020, decreased 2,752 tons or
14.8%, as compared to 18,623 metric tons for the three months ended
September 30, 2019.
For the three months ended September 30, 2020, Gufeng’s net sales
were $15,828,203, a decrease of $495,014, or 3.0%, from $16,323,217
for the three months ended September 30, 2019. This decrease was
mainly due to Gufeng’s lower sales volume in the last three months.
Gufeng sold approximately 44,824 metric tons of fertilizer products
for the three months ended September 30, 2020, decreased 7,627 tons
or 14.5%, as compared to 52,451 metric tons for the three months
ended September 30, 2019.
For the three months ended September 30, 2020, Yuxing’s net sales
were $2,423,488, a decrease of $116,223 or 4.6%, from $2,539,711
for the three months ended September 30, 2019. The decrease was
mainly due to the decrease in market demand during the three months
ended September 30, 2020.
Cost of Goods Sold
Total cost of goods sold for the three months ended September 30,
2020 was $35,846,563, a decrease of $1,815,761, or 4.8%, from
$37,662,324 for the three months ended September 30, 2019. The
decrease was mainly due to 14.3% decrease in VIEs’ cost of goods
sold.
Cost of goods sold by Jinong for the three months ended September
30, 2020 was $10,685,464, an increase of $192,934, or 1.8%, from
$10,492,530 for the three months ended September 30, 2019. The
increase in cost of goods was primarily due to higher product cost
in the fiscal year 2021.
Cost of goods sold by Gufeng for the three months ended September
30, 2020 was $13,977,817, a decrease of $476,191, or 3.3%, from
$14,454,008 for the three months ended September 30, 2019. This
decrease was primarily due to the 3.0% decrease in net sale in the
fiscal year 2021.
For three months ended September 30, 2020, cost of goods sold by
Yuxing was $2,042,072, a decrease of $9,924, or 0.5%, from
$2,051,996 for the three months ended September 30, 2019. This
decrease was mainly due to Yuxing’s lower net sales in the fiscal
year 2021.
Gross Profit
Total gross profit for the three months ended September 30, 2020
decreased by $4,847,578, or 36.8%, to $8,311,669, as compared to
$13,159,247 for the three months ended September 30, 2019. Gross
profit margin was 18.8% and 25.9% for the three Months Ended
September 30, 2020 and 2019, respectively.
Gross profit generated by Jinong decreased by $4,718,438, or 55.1%,
to $3,843,848 for the three months ended September 30, 2020 from
$8,562,286 for the three months ended September 30, 2019. Gross
profit margin from Jinong’s sales was approximately 26.5% and 44.9%
for the three Months Ended September 30, 2020 and 2019,
respectively. The decrease in gross profit margin was mainly due to
the lower sales prices and higher product cost for Jinong in the
fiscal year 2021. Jinong’s revenue per ton was $930 for three
months ended September 30, 2020, decreased $106 or 10.2%, compared
to $1,035 for three months ended September 30, 2019.
For the three months ended September 30, 2020, gross profit
generated by Gufeng was $1,850,386, a decrease of $18,823, or 1.0%,
from $1,869,209 for the three months ended September 30, 2019.
Gross profit margin from Gufeng’s sales was approximately 11.7% and
11.5% for the three Months Ended September 30, 2020 and 2019,
respectively. The increase in gross profit percentage was mainly
due to the increase in unit sales price. Gufeng’s revenue per ton
was $345 for three months ended September 30, 2020, increased $34
or 11.0%, compared to $311 for three months ended September 30,
2019.
For the three months ended September 30, 2020, gross profit
generated by Yuxing was $381,416, a decrease of $106,299, or 21.8%
from $487,715 for the three months ended September 30, 2019. The
gross profit margin was approximately 15.7% and 19.2% for the three
months Ended September 30, 2020 and 2019, respectively. The
decrease in gross profit percentage was mainly due to the increase
in product costs.
Gross profit generated by VIEs decreased by $4,017, or 0.2%, to
$2,236,020 for the three months ended September 30, 2020 from
$2,240,037 for the three months ended September 30, 2019. Gross
profit margin from VIE’s sales was approximately 19.7% and 17.4%
for the three months Ended September 30, 2020 and 2019,
respectively, which was slightly increased.
Selling Expenses
Our selling expenses consisted primarily of salaries of sales
personnel, advertising and promotion expenses, freight-out costs
and related compensation. Selling expenses were $4,711,956, or
10.7%, of net sales for the three months ended September 30, 2020,
as compared to $3,630,355, or 7.1%, of net sales for the three
months ended September 30, 2019, an increase of $1,081,601, or
29.8%. The increase was mainly due to $907,840 increase in
advertising and promotion expense for Jinong to respond lower
market demand in the fiscal year 2021.
The selling expenses of Jinong for the three months ended September
30, 2020 were $4,256,637 or 29.3% of Jinong’s net sales, as
compared to selling expenses of $3,300,195 or 17.3% of Jinong’s net
sales for the three months ended September 30, 2019. The selling
expenses of Yuxing were $11,817 or 0.5% of Yuxing’s net sales for
the three months ended September 30, 2020, as compared to $9,352 or
0.4% of Yuxing’s net sales for the three months ended September 30,
2019. The selling expenses of Gufeng were $67,481 or 0.4% of
Gufeng’s net sales for the three months ended September 30, 2020,
as compared to $69,291 or 0.4% of Gufeng’s net sales for the three
months ended September 30, 2019.
General and Administrative Expenses
General and administrative expenses consisted primarily of related
salaries, rental expenses, business development, depreciation and
travel expenses incurred by our general and administrative
departments and legal and professional expenses including expenses
incurred and accrued for certain litigation. General and
administrative expenses were $32,944,096, or 74.6% of net sales for
the three months ended September 30, 2020, as compared to
$16,341,792, or 32.2% of net sales for the three months ended
September 30, 2019, an increase of $16,602,304, or 101.6%. The
increase in general and administrative expenses was mainly due to
higher bad debts expense for Gufeng. Gufeng’s bad debts expense
increased $19,648,882 for the three months ended September 30, 2020
comparing with same period last year. With the impact of COVID-19
pandemic, the overdue outstanding accounts receivable increased
significantly comparing with the previous years. Numerous
distributors encountered significant difficulties and/or hardships
in their business amid the pandemic. The company accrued bad debts
expense based on the principle of conservatism, which increased the
General and Administrative Expenses.
Total Other Income (Expenses)
Total other income (expenses) consisted of income from subsidies
received from the PRC government, interest income, interest
expenses and bank charges. Total other expense for the three months
ended September 30, 2020 was $39,528, as compared to $53,769 for
the three months ended September 30, 2019, a decrease in expense of
$14,241 or 26.5%. The decrease in total other expense resulted from
lower accretion expense. Accretion expense decreased due primarily
to the expiration of convertible notes on December 2019 and no
accretion expense for fiscal year 2021.
Income Taxes
Jinong is subject to a preferred tax rate of 15% because 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 $267,890 for the
three months ended September 30, 2020, as compared to $92,488 for
the three months ended September 30, 2019, an increase of $175,402,
or 189.6%.
Gufeng is subject to a tax rate of 25%, incurred 0 income tax
expenses for the three months ended September 30, 2020, as compared
to $(68,276) for the three months ended September 30, 2019, an
increase of $68,276, or 100.0%.
Yuxing has no income tax for the three months Ended September 30,
2020 and 2019 because 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 loss for the three months ended September 30, 2020 was
$30,952,914, an increase in loss of $23,637,114, or 323.1%,
compared to net loss of $7,315,799 for the three months ended
September 30, 2019. Net loss as a percentage of total net sales was
approximately -70.1% and -14.4% for the three months Ended
September 30, 2020 and 2019, respectively.
Discussion of Segment Profitability Measures
As of September 30, 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
(loss) produced from the various general ledger systems; however,
net income (loss) by segment is the principal benchmark to measure
profit or loss adopted by the CODM.
For Jinong, the net income increased by $993,942, or 189.6%, to
$1,518,043 for three months ended September 30, 2020, from $524,101
for the three months ended September 30, 2019. The increase was
principally due to lower general and administrative expense.
For Gufeng, the net loss increased by $19,681,716, or 171.0%, to
$(31,193,670) for three months ended September 30, 2020 from
$(11,511,954) for three months ended September 30, 2019. The
increase was principally due to the increase in general and
administrative expense.
For Yuxing, the net income decreased $17,646, or 11.4%, to $136,909
for three months ended September 30, 2020 from $154,555 for three
months ended September 30, 2019. The decrease was mainly due to
lower sales.
For the sales VIEs, the net income (loss) was $(31,272) for period
ended September 30, 2020, decreased by $3,899,762, or 100.8%, from
$3,868,490 for three months ended September 30, 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 September 30, 2020, cash and cash equivalents were
$12,831,922, an increase of $897,144, or 7.5%, from $11,934,778 as
of June 30, 2020.
We intend to use some of the remaining net proceeds from our
securities offerings, as well as other working capital if required,
to acquire new businesses, upgrade production lines and complete
Yuxing’s new greenhouse facilities for agriculture products located
on 88 acres of land in Hu County, 18 kilometers southeast of Xi’an
city. Yuxing purchased a set of agricultural products testing
equipment for the year of 2016. We believe that we have sufficient
cash on hand and positive projected cash flow from operations to
support our business growth for the next twelve months to the
extent we do not have further significant acquisitions or
expansions. However, if events or circumstances occur and we do not
meet our operating plan as expected, we may be required to seek
additional capital and/or to reduce certain discretionary spending,
which could have a material adverse effect on our ability to
achieve our business objectives. Notwithstanding the foregoing, we
may seek additional financing as necessary for expansion purposes
and when we believe market conditions are most advantageous, which
may include additional debt and/or equity financings. There can be
no assurance that any additional financing will be available on
acceptable terms, if at all. Any equity financing may result in
dilution to existing stockholders and any debt financing may
include restrictive covenants.
The following table sets forth a summary of our cash flows for the
periods indicated:
|
|
Three
Months Ended |
|
|
|
September 30, |
|
|
|
2020 |
|
|
2019 |
|
Net cash provided by (used
in) operating activities |
|
$ |
(1,653,512 |
) |
|
$ |
3,079,634 |
|
Net cash provided by (used in)
investing activities |
|
|
(29,967 |
) |
|
|
(18,596 |
) |
Net cash provided by (used in)
financing activities |
|
|
294,400 |
|
|
|
10,731,600 |
|
Effect of
exchange rate change on cash and cash equivalents |
|
|
2,286,224 |
|
|
|
(3,098,502 |
) |
Net increase in cash and cash
equivalents |
|
|
897,145 |
|
|
|
10,694,136 |
|
Cash and cash
equivalents, beginning balance |
|
|
11,934,778 |
|
|
|
72,259,804 |
|
Cash and cash
equivalents, ending balance |
|
$ |
12,831,923 |
|
|
$ |
82,953,940 |
|
Operating Activities
Net cash used in operating activities was $1,653,512 for the three
months ended September 30, 2020, a decrease of $4,733,146, or
153.7%, from cash provided by operating activities of $3,079,634
for the three months ended September 30, 2019. The decrease was
mainly due to a decrease in net income (loss) and increase in
inventory during the three months ended September 30, 2020 as
compared to the same period in 2019.
Investing Activities
Net cash used in investing activities for the three months ended
September 30, 2020 was $29,967, compared to cash used in investing
activities of $18,596 for the three months ended September 30,
2019. The different was due to Company purchased more plant,
property and equipment during the last three months compared to the
same period last year.
Financing Activities
Net cash provided by financing activities for the three months
ended September 30, 2020 was $294,400, compared to $10,731,600 net
cash provided in financing activities for the three months ended
September 30, 2019, which was largely attribute to $10,252,000
proceeds from the sale of common stock for the three months ended
September 30, 2019, compared to 0 in the same period this year.
As of September 30, 2020 and June 30, 2020, our loans payable was
as follows:
|
|
September 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2020 |
|
Short term loans
payable: |
|
$ |
3,974,400 |
|
|
$ |
3,537,500 |
|
Total |
|
$ |
3,974,400 |
|
|
$ |
3,537,500 |
|
Accounts Receivable
We had accounts receivable of $109,201,762 as of September 30,
2020, as compared to $105,693,326 as of June 30, 2020, an increase
of $3,508,436, or 3.3%. The increase was primarily attributable to
Jinong’s accounts receivable. As of September 30, 2020, Jinong’s
accounts receivable was $26,032,559, an increase of $3,635,110,
or16.2%, compared to $22,397,449 as of June 30, 2020.
Allowance for doubtful accounts in accounts receivable for the
three months ended September 30, 2020 was $24,860,835, a decrease
of $13,605,365, or 35.4%, from $38,466,220 as of June 30, 2020. And
the allowance for doubtful accounts as a percentage of accounts
receivable was 18.5% as of September 30, 2020 and 26.7% as of June
30, 2020.
Deferred assets
We had no deferred assets as of September 30, 2020 and June 30,
2020. During the three months, we assisted the distributors in
certain marketing efforts and developing standard stores to expand
our competitive advantage and market shares. Based on the
distributor agreements, the amount owed by the distributors in
certain marketing efforts and store development will be expensed
over three years if the distributors are actively selling our
products. If a distributor defaults, breaches, or terminates the
agreement with us earlier than the contractual terms, the
unamortized portion of the amount owed by the distributor is
payable to us immediately. The deferred assets had been fully
amortized as of September 30, 2020.
Inventories
We had inventories of $107,895,317 as of September 30, 2020, as
compared to $98,921,081 as of June 30, 2020, an increase of
$8,974,236, or 9.1%. The increase was primarily attributable to
Gufeng’s inventory. As of September 30, 2020, Gufeng’s inventory
was $84,400,261, compared to $75,129,594 as of June 30, 2020, an
increase of $9,270,667, or 12.3%.
Advances to Suppliers
We had advances to suppliers of $38,142,857 as of September 30,
2020 as compared to $65,081,818 as of June 30, 2020, representing a
decrease of $26,938,961, or 41.4%. 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 $19,534,919 as of September 30, 2020 as
compared to $17,719,093 as of June 30, 2020, representing an
increase of $1,815,826, or 10.2%. The increase was primarily due to
the increase of accounts payable for VIEs. They have accounts
payable of $17,643,645 as of September 30, 2020 as compared to
$16,315,837 as of June 30, 2020, representing an increase of
$1,327,808, or 8.1%.
Unearned Revenue (Customer Deposits)
We had customer deposits of $9,223,513 as of September 30, 2020 as
compared to $7,342,590 as of June 30, 2020, representing an
increase of $1,880,923, or 25.6%. The increase was mainly
attributable to Jinong’s $2,337,177 unearned revenue as of
September 30, 2020, compared to $1,645,143 unearned revenue as of
June 30, 2020, increased $692,034, or 42.1%, 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 unaudited condensed
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 unaudited
condensed 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 unaudited condensed 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 unaudited condensed consolidated
financial statements and the amount of revenues and expenses during
the reporting periods. Management makes these estimates using the
best information available at the time the estimates are made.
However, actual results could differ materially from those
estimates.
Revenue recognition
Sales revenue is recognized at the date of shipment to customers
when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, we have no other
significant obligations and collectability is reasonably assured.
Payments received before all the relevant criteria for revenue
recognition are satisfied are recorded as unearned revenue.
Our revenue consists of invoiced value of goods, net of a
value-added tax (VAT). No product return or sales discount
allowance is made as products delivered and accepted by customers
are normally not returnable and sales discounts are normally not
granted after products are delivered.
Cash and cash equivalents
For statement of cash flows purposes, we consider all cash on hand
and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when
purchased, to be cash and cash equivalents.
Accounts receivable
Our policy is to maintain reserves for potential credit losses on
accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves. Any accounts receivable of Jinong and Gufeng
that are outstanding for more than 180 days will be accounted as
allowance for bad debts, and any accounts receivable of Yuxing that
are outstanding for more than 90 days will be accounted as
allowance for bad debts.
Deferred assets
Deferred assets represent amounts the Company advanced to the
distributors in their marketing and stores development to expand
our competitive advantage and market shares. Based on the
distributor agreements, the amount owed by the distributors in
certain marketing efforts and store development will be expensed
over three years if the distributors are actively selling our
products. If a distributor defaults, breaches, or terminates the
agreement with us earlier than the realization of the contractual
terms, the unamortized portion of the amount owed by the
distributor is to be refunded to us immediately. The deferred
assets had been fully amortized as of September 30, 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 September 30, 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 because 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 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 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 (loss) but are included
in determining other comprehensive income, a component of
shareholders’ equity. As of September 30, 2020, our accumulated
other comprehensive loss was $21 million. We have not entered any
hedging transactions 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, 2020 and
September 30, 2020, China’s currency increased by a cumulative 4.1%
against the U.S. dollar, making Chinese exports more expensive and
imports into China cheaper 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 our
outstanding debt instruments carry fixed rates of interest. The
amount of short-term debt outstanding as of September 30, 2020 and
June 30, 2020 was $4.0 million and $3.5 million, respectively. We
are exposed to interest rate risk primarily with respect to our
short-term bank loans. Although the interest rates, which are based
on the banks’ prime rates with respect to our short-term loans, are
fixed for the terms of the loans, the terms are typically three to
twelve months for short-term bank loans and interest rates are
subject to change upon renewal. There was no material change in
interest rates for short-term bank loans renewed during the three
months ended September 30, 2020. The original loan term on average
is one year, and the remaining average life of the short term-loans
is approximately nine months.
Management monitors the banks’ prime rates in conjunction with our
cash requirements to determine the appropriate level of debt
balances relative to other sources of funds. We have not entered
any hedging transactions 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.
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
September 30, 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 September 30, 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 three months ended September 30, 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:
December 30, 2020 |
By: |
/s/
Zhuoyu Li |
|
Name: |
Zhuoyu
Li |
|
Title: |
Chief
Executive Officer |
|
|
(principal
executive officer) |
|
|
|
Date:
December 30, 2020 |
By: |
/s/
Yongcheng Yang |
|
Name: |
Yongcheng
Yang |
|
Title: |
Chief
Financial Officer |
|
|
(principal
financial officer and
principal accounting officer) |
EXHIBIT INDEX
* Filed herewith
+ In accordance with the SEC Release 33-8238, deemed being
furnished and not filed.
40