Pursuant to Rule 12b-15 under the Securities Exchange Act of
1934, as amended, this Form 10-K/A contains the complete text of Item
8,
Item 9, Item 9a, Item 9b, the financial statements, and the currently dated certifications of our Chief Executive Officer and
Chief Financial Officer. Capitalized terms not otherwise defined have the meanings ascribed to them in the Form 10-K.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
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 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 (“VIE”) in the in the People’s
Republic of China (the “PRC”) controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng
Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (v) Beijing Tianjuyuan
Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
On June 30, 2016 the Company, through
its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with
the shareholders of the following six companies that are organized under the laws of the PRC and would be deemed VIEs: Shaanxi
Lishijie Agrochemical Co., Ltd. (“Lishijie”), Songyuan Jinyangguang Sannong Service Co., Ltd. (“Jinyangguang”),
Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei District Wangtian Agricultural Materials
Co., Ltd. (“Wangtian”), Aksu Xindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), and Xinjiang Xinyulei
Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”). On January 1, 2017, the Company, through its wholly-owned
subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders
of the following six companies that are organized under the laws of the PRC and would be deemed VIEs Sunwu County Xiangrong Agricultural
Materials Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”).
Yuxing, Lishijie, Jinyangguang, Zhenbai,
Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred to as the “the VIE Companies”;
Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred to as
“the sales VIEs”.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
The Company’s current corporate structure as of is set
forth in the diagram below:
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principle of consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Gufeng, Tianjuyuan,
and the VIE Companies. All significant inter-company accounts and transactions have been eliminated in consolidation.
Effective June 16, 2013, Yuxing was converted
from being a wholly-owned foreign enterprise 100% owned by Jinong to a domestic enterprise 100% owned one natural person, who
is not affiliated to the Company (“Yuxing’s Owner”). Effective the same day, Yuxing’s Owner entered into
a series of contractual agreements with Jinong pursuant to which Yuxing became the VIE of Jinong.
VIE assessment
A VIE is an entity (1) that has total
equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities,
(2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact
the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive
the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to
their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity,
or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that
has disproportionately few voting rights. To determine if an entity is considered a VIE, the Company first perform a qualitative
analysis, which requires certain subjective decisions regarding its assessments, including, but not limited to, the design of
the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties,
and the purpose of the arrangement. If the Company cannot conclude after a qualitative analysis whether an entity is a VIE, it
performs a quantitative analysis. The qualitative analysis considered the design of the entity, the risks that cause variability,
the purpose for which the entity was created, and the variability that the entity was designed to pass along to its variable interest
holders. When the primary beneficiary could not be identified through a qualitative analysis, we used internal cash flow models
to compute and allocate expected losses or expected residual returns to each variable interest holder based upon the relative
contractual rights and preferences of each interest holder in the VIE’s capital structure.
Use of estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting
periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual
results could differ materially from those results.
Cash and cash equivalents and concentration of cash
For statement of cash flows purposes,
the Company considers all cash on hand and in banks, certificates of deposit with state owned banks in the Peoples Republic of
China (“PRC”) and banks in the United States, and other highly-liquid investments with maturities of three months
or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of cash in three major banks in China.
The aggregate cash in such accounts and on hand as of June 30, 2017 and 2016 was $122,907,629 and $102,728,991, respectively.
There is no insurance securing these deposits in China. In addition, the Company also had $142,919 and $167,495 in cash in two
banks in the United States as of June 30, 2017 and 2016, respectively. Cash overdraft as of balance sheet date will be reflected
as liabilities in the balance sheet. The Company has not experienced any losses in such accounts and believes it is not exposed
to any significant risks on its cash in bank accounts.
Accounts receivable
The Company’s policy is to maintain
reserves for potential credit losses on accounts receivable. Management regularly reviews the composition of accounts receivable
and analyzes customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy
of these reserves at each year-end. Accounts considered uncollectible are written off through a charge to the valuation allowance.
As of June 30, 2017, and 2016, the Company had accounts receivable of $149,709,758 and $117,936,342, net of allowance for doubtful
accounts of $9,457,423 and $1,362,852, respectively. The Company adopts no policy to accept product returns post to the sales
delivery.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Other receivable
Other receivable relates to the amount
due from party other than the counterparties of the business contracts and trades that the Company and the subsidiaries entered.
The Company had none other receivable during the year ended Jun 30, 2017 and the year ended June 30, 2016.
Inventories
Inventory is valued at the lower of cost
(determined on a weighted average basis) or market. Inventories consist of raw materials, work in process, finished goods and
packaging materials. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined
necessary. At June 30, 2017 and 2016, the Company had no reserve for obsolete goods.
Property, plant and equipment
Property, plant and equipment are recorded
at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend
the life of plant, property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment,
and fixtures. All ordinary repair and maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes
is provided using the straight-line method over the estimated useful lives of the assets:
|
|
Estimated
Useful
Life
|
Building
|
|
10-25
years
|
Agricultural assets
|
|
8 years
|
Machinery and equipment
|
|
5-15 years
|
Vehicles
|
|
3-5 years
|
Construction in Progress
Construction in progress represents the
costs incurred relating to the construction of buildings or new additions to the Company’s plant facilities. Costs classified
to construction in progress include all costs of obtaining the asset and bringing it to the location and condition necessary for
its intended use. No depreciation is provided for construction in progress until the assets are completed and are placed into
service. Interest incurred during construction is capitalized into construction in progress.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Long-Lived Assets
The Company tests long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through
the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. At
June 30, 2017 and 2016, the Company determined that there were no impairments of its long-lived assets.
Deferred asset
Deferred assets represent amounts that
the distributors owed to the Company in their marketing efforts and developing standard stores to expand the Company’s products’
competitiveness and market shares. The amount owed to the Company to assist its distributors will be expensed over three years
which is the term as stated in the cooperation agreement, if the distributors are actively selling the Company’s products.
For the years ended June 30, 2017 and 2016, the Company amortized $12,567,551 and $35,068,272, respectively, of the deferred assets.
If a distributor breaches, defaults, or terminates the agreement with the Company within the three-year period, the outstanding
unamortized portion of the amount owed will become payable to the Company immediately. The Company’s Chairman, Mr. Li, guaranteed
to the Company of amounts remaining unpaid due from distributors. These deferred assets are subject to annual impairment testing.
The estimated amortization expense of the deferred assets for the twelve months ending June 30, 2018 is $864,070.
The deferred assets consist of items inside
the distributors’ stores such as furniture, racks, cabinets, and display units, and items outside or attached to the distributors’
stores such as signage and billboards. These types of assets would be capitalized as fixed assets if the Company owned the stores
or utilized the assets for its own operations. These assets would also be capitalized as leasehold improvements if the Company
leased these stores from the distributors. Therefore, the Company believes that under the U.S. generally accepted accounting principles,
these types of assets purchases are properly capitalized. In addition, the Company believes that these assets are properly classified
as deferred assets because if a distributor breaches, defaults, or terminates the agreement with the Company within a three-year
period, a proportionate amount expended by the Company is to be repaid by the distributor. The Chairman of the Board of directors
of the Company guaranteed to the Company of amounts remaining unpaid due from distributors.
The assets inside the distributors’
stores are custom made to fit the layout of each individual store and the signage and billboards are also custom designed to fit
the specific location. The assets were purchased by the Company directly from the manufacturers and installed in the distributors’
stores. The Company wants to maintain control over the quality of the items being purchased as well as making them uniform among
all the distributor locations.
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Total Deferred Assets
|
|
$
|
11,580,304
|
|
|
$
|
130,086,315
|
|
Less: accumulated amortization
|
|
$
|
(10,716,234
|
)
|
|
$
|
(116,654,694
|
)
|
Total
|
|
$
|
864,070
|
|
|
$
|
13,431,621
|
|
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 June 30, 2017 and 2016 respectively.
Goodwill
Goodwill represents the excess of purchase
price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis, or more frequently
if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test
is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value including goodwill.
If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the fair value
of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and
the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of
the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value
of goodwill is determined by allocating the fair value of the reporting unit in a manner comparable to a purchase price allocation.
The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. As of June 30, 2017, and
2016, the Company performed the required impairment review which resulted in no impairment adjustment.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Summary of changes in goodwill by reporting segments is as
follows:
|
|
Balance at
|
|
|
|
|
|
Foreign
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
Currency
|
|
|
June 30,
|
|
Segment
|
|
2016
|
|
|
Additions
|
|
|
Adjustment
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gufeng
|
|
$
|
4,822,659
|
|
|
|
|
|
|
$
|
(8,460
|
)
|
|
|
4,814,199
|
|
Acquisition of VIE Companies
|
|
|
3,158,179
|
|
|
|
684,399
|
|
|
|
(5,540
|
)
|
|
|
3,837,038
|
|
|
|
$
|
7,980,838
|
|
|
$
|
684,399
|
|
|
$
|
(14,000
|
)
|
|
$
|
8,651,237
|
|
Fair Value Measurement and Disclosures
Our accounting for Fair Value Measurement
and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on
observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based
on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three
levels:
Level one — Quoted market prices
in active markets for identical assets or liabilities;
Level two — Inputs other than level
one inputs that are either directly or indirectly observable; and
Level three — Unobservable inputs
developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market
participant would use.
Determining which category an asset or
liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
The following table presents the Company’s
assets and liabilities required to be reflected within the fair value hierarchy as of June 30, 2017.
|
|
Fair Value
|
|
|
Fair Value Measurements at
|
|
|
|
As of
June 30,
|
|
|
June 30,
2017
|
|
Description
|
|
2017
|
|
|
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liability
|
|
$
|
195,812
|
|
|
$
|
|
|
|
$
|
195,812
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying values of cash and cash equivalents,
trade and other receivables, trade and other payables approximate their fair values due to the short maturities of these instruments.
Derivative financial instruments
The Company evaluates its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and
is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company
uses a binomial option pricing model to value the derivative instruments. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
At June 30, 2017, the only derivative
financial instrument is the variable conversion feature embedded in the convertible notes payable (See Note 9). The fair value
of the embedded conversion of $195,812 is recorded as a derivative liability at June 30, 2017. The fair value was determined using
a binomial option pricing model with the following assumptions:
Risk-free rate
|
|
|
2.5
|
%
|
Volatility
|
|
|
51.2
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
Country risk premium
|
|
|
90.0
|
%
|
Liquidity risk premium
|
|
|
3.0
|
%
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Revenue recognition
Sales revenue is recognized on the date
of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability is reasonably assured.
The Company’s revenue consists of
invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance are made as products delivered
and accepted by customers are not returnable and sales discounts are not granted after products are delivered.
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 June 30, 2017, and 2016, the Company had customer deposits of $7,046,570
and $8,578,341, respectively.
Stock-Based Compensation
The costs of all employee stock options,
as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated
fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide
service in exchange for the award—the requisite service period (usually the vesting period). Stock compensation for stock
granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments
issued, whichever is more reliably measured.
Income taxes
The Company accounts for income taxes
using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood
of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than
not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Under ASC 740, a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine
whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related
appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets
the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position
is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first
subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not
criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties
and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. No significant
penalties or interest relating to income taxes have been incurred during the years ended June 30, 2017, and 2016. GAAP also provides
guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
Foreign currency translation
The reporting currency of the Company
is the US dollar. The functional currency of the Company and Green New Jersey is the US dollar. The functional currency of the
Chinese subsidiaries is the Chinese Yuan or Renminbi (“RMB”). For the subsidiaries whose functional currencies are
other than the US dollar, all asset and liability accounts were translated at the exchange rate on the balance sheet date; stockholders’
equity is translated at the historical rates and items in the income statement and cash flow statements are translated at the
average rate in each applicable period. Translation adjustments resulting from this process are included in accumulated other
comprehensive income in the statement of shareholders’ equity. The resulting translation gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than the functional currency is included in the results
of operations as incurred.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Segment reporting
The Company utilizes 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 June 30, 2017, the Company, through
its subsidiaries is engaged into four main business segments based on location and product: Jinong (fertilizer production), Gufeng
(fertilizer production) and Yuxing (agricultural products production) and the eight sales VIEs that the Company acquired on June
30, 2016 and January 1, 2017. As of June 30, 2017, the Company maintained four main business segments.
Fair values of financial instruments
Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and
the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy
is based upon the lowest level of input that is significant to the fair value measurement.
The Company’s financial instruments
primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, accounts payable,
other payables, tax payable, and related party advances and borrowings.
As of the balance sheet dates, the estimated
fair values of the financial instruments were not materially different from their carrying values as presented on the balance
sheets. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those
that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.
Statement of cash flows
The Company’s cash flows from operations
are calculated based on the local currencies. As a result, amounts related to assets and liabilities reported on the statement
of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheets.
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:
|
|
Years Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net Income for Basic Earnings Per Share
|
|
$
|
25,152,154
|
|
|
$
|
24,704,193
|
|
Basic Weighted Average Number of Shares
|
|
|
38,093,028
|
|
|
|
36,703,576
|
|
Net Income Per Share – Basic
|
|
$
|
0.66
|
|
|
$
|
0.67
|
|
Net Income for Diluted Earnings Per Share
|
|
$
|
25,152,154
|
|
|
$
|
24,704,193
|
|
Diluted Weighted Average Number of Shares
|
|
|
38,093,028
|
|
|
|
36,703,576
|
|
Net Income Per Share – Diluted
|
|
$
|
0.66
|
|
|
$
|
0.67
|
|
Reclassification
Certain reclassifications have been made
to the prior year consolidated financial statements to conform to the 2017 consolidated financial statement presentation. Such
reclassifications did not affect total revenues, operating income or net income or cash flows as previously reported.
Recent accounting pronouncements
Revenue Recognition:
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers: Topic
606
(ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09
is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration
that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle
and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required
under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration
to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09
is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting
period presented with the option to elect certain practical expedients as defined within ASU 2014-09 (full retrospective method);
or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application
and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method). We are currently assessing
the impact to our consolidated financial statements, and have not yet selected a transition approach.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Disclosure of
Going Concern Uncertainties
: In August 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as
a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial
doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15
is effective for us in our fourth quarter of fiscal 2017 with early adoption permitted. We do not believe the impact of our pending
adoption of ASU 2014-15 on the Company’s financial statements will be material.
Financial instrument
:
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective
for us on September 1, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial
statements.
Leases
:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease
amendments to the FASB Accounting Standard Codification. This ASU will be effective for us beginning in May 1, 2019. We are currently
in the process of evaluating the impact of the adoption of ASU 2016-2 on our consolidated financial statements.
Stock-based
Compensation
: In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes how companies account for
certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory tax
withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for us in the first
quarter of 2018, and earlier adoption is permitted. We are still evaluating the effect that this guidance will have on our
consolidated financial statements and related disclosures.
Financial Instruments
- Credit Losses:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The
amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented
at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing
its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates
more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial
statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is still evaluating the effect that this guidance will have on the Company’s
consolidated financial statements and related disclosures.
Statement of
Cash Flows:
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this
Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement
of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues.
The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current
and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption
in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated
financial statements and related disclosures.
Statement of
Cash Flows:
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted
Cash”(“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period
in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This
update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted.
The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and
removal of the changes in restricted cash activity, which are currently recognized in Other financing activities, on the Statements
of Consolidated Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents
and restricted cash reported within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated
Cash Flows. The Company anticipates adopting this new guidance effective January 1, 2018. The Company is currently evaluating
this guidance and the impact it will have on the Consolidated Financial Statements and disclosures.
Business Combination
:
In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic 805): Clarifying
the Definition of a Business
(ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating
when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of
2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated
financial statements.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Stock-based
Compensation
:
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation—Stock compensation (Topic 718): Scope of modification accounting” (“ASU 2017-09”).
The purpose of the amendment is to clarify which changes to the terms or condition of a share-based payment award require an entity
to apply modification accounting. For all entities that offer share based payment awards, ASU 2017-09 are effective for interim
and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU 2017-09
on its condensed consolidated financial statements.
Other recent accounting pronouncements
issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the
Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future financial statements.
NOTE 3 – INVENTORIES
Inventories consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials
|
|
$
|
39,397,711
|
|
|
$
|
29,926,762
|
|
Supplies and packing materials
|
|
$
|
540,151
|
|
|
$
|
444,373
|
|
Work in progress
|
|
$
|
421,496
|
|
|
$
|
408,820
|
|
Finished goods
|
|
$
|
37,655,533
|
|
|
$
|
56,656,360
|
|
Total
|
|
$
|
78,013,891
|
|
|
$
|
87,436,315
|
|
During the year ended June 30, 2017, the
Company sold compound fertilizers (finished goods) to certain parties at market price, and purchased equivalent amount of simple
fertilizers (raw material) from the same parties also at market price. The simple fertilizers purchased, along with other materials
were used in the Company’s production facility to manufacture compound fertilizers. While nonmonetary, the sales and purchase
transactions were consummated independently under separate agreements at different times, and measured at the prevailing market
value. The total amount of nonmonetary sales and purchases amounted to $58,205,442 during the year ended June 30, 2017. No gain
or loss incurred as the result of the nonmonetary transactions.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Building and improvements
|
|
$
|
40,113,868
|
|
|
$
|
42,489,975
|
|
Auto
|
|
|
3,473,352
|
|
|
|
937,642
|
|
Machinery and equipment
|
|
|
18,760,880
|
|
|
|
19,015,420
|
|
Agriculture assets
|
|
|
764,660
|
|
|
|
765,983
|
|
Total property, plant and equipment
|
|
|
63,111,079
|
|
|
|
63,209,020
|
|
Less: accumulated depreciation
|
|
|
(28,919,747
|
)
|
|
|
(25,639,281
|
)
|
Total
|
|
$
|
34,191,332
|
|
|
$
|
37,569,739
|
|
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Land use rights, net
|
|
$
|
10,121,591
|
|
|
$
|
10,381,215
|
|
Technology patent, net
|
|
|
-
|
|
|
|
-
|
|
Customer relationships, net
|
|
|
5,578,641
|
|
|
|
6,403,343
|
|
Non-compete agreement
|
|
|
1,092,584
|
|
|
|
925,678
|
|
Trademarks
|
|
|
6,119,875
|
|
|
|
6,129,812
|
|
Total
|
|
$
|
22,911,876
|
|
|
$
|
23,840,048
|
|
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 $10,995,299). The intangible asset is being amortized over the grant
period of 50 years using the straight-line method.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
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 $157,144). 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 $1,094,513). The intangible asset is being amortized over the grant period of 50 years.
The Land Use Rights consisted of the following:
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
Additions
|
|
|
Amortization
|
|
|
2017
|
|
Land use rights
|
|
$
|
12,268,150
|
|
|
|
-
|
|
|
|
|
|
|
$
|
12,246,630
|
|
Less: accumulated amortization
|
|
|
(1,886,935
|
)
|
|
|
|
|
|
|
(238,104
|
)
|
|
|
(2,125,039
|
)
|
Total land use rights, net
|
|
$
|
10,381,215
|
|
|
|
|
|
|
|
|
|
|
$
|
10,121,591
|
|
TECHNOLOGY PATENT
On August 16, 2001, Jinong was issued
a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible
asset was determined to be the respective cost of RMB 5,875,068 (or $884,198) and is being amortized over the patent period of
10 years using the straight-line method. This technology patent has been fully amortized.
On July 2, 2010, the Company acquired
Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired technology patent was estimated to be RMB9,200,000
(or $1,384,600) and is amortized over the remaining useful life of six years using the straight-line method. As of June 30, 2016,
this technology patent is fully amortized.
The technology know-how consisted of the
following:
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
Additions
|
|
|
Amortization
|
|
|
2017
|
|
Technology know-how
|
|
$
|
2,268,798
|
|
|
|
-
|
|
|
|
|
|
|
$
|
2,264,818
|
|
Less: accumulated amortization
|
|
|
(2,268,798
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,264,818
|
)
|
Total technology know-how, net
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
CUSTOMER RELATIONSHIP
On July 2, 2010, the Company acquired
Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired customer relationships was estimated to be RMB65,000,000
(or $9,765,600) and is amortized over the remaining useful life of ten years. On June 30, 2016, and January 1, 2017 the Company
acquired the eight sales VIEs. The fair value of the acquired customer relationships was estimated to be RMB19,917,253 (or $2,992,368)
and is amortized over the remaining useful life of from three years up to ten years.
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
Additions
|
|
|
Amortization
|
|
|
2017
|
|
Customer relationships
|
|
$
|
12,257,101
|
|
|
|
522,028
|
|
|
|
|
|
|
$
|
12,757,628
|
|
Less: accumulated amortization
|
|
|
(5,853,758
|
)
|
|
|
|
|
|
|
(1,325,229
|
)
|
|
|
(7,178,987
|
)
|
Total customer relationships, net
|
|
$
|
6,403,343
|
|
|
|
|
|
|
|
|
|
|
$
|
5,578,641
|
|
NON-COMPETE AGREEMENT
On July 2, 2010, the Company acquired
Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired non-compete agreement was estimated to be RMB1,320,000
(or $198,264) and is amortized over the remaining useful life of five years using the straight-line method. On June
30, 2016, the Company acquired the sales VIEs. The fair value on the acquired non-compete agreements were estimated to be RMB8,765,582
(or $1,316,906) and is amortized over the remaining useful life of five years using the straight-line method.
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
Additions
|
|
|
Amortization
|
|
|
2017
|
|
Non-compete agreement
|
|
$
|
1,124,338
|
|
|
|
390,080
|
|
|
|
|
|
|
$
|
1,124,338
|
|
Less: accumulated amortization
|
|
|
(198,660
|
)
|
|
|
|
|
|
|
|
|
|
|
(422,634
|
)
|
Total non-compete agreement, net
|
|
$
|
925,678
|
|
|
|
|
|
|
|
|
|
|
$
|
1,092,584
|
|
TRADEMARKS
On July 2, 2010, the Company acquired
Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired trademarks was estimated to be RMB40,700,000
(or $6,119,059) and is subject to an annual impairment test.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
AMORTIZATION EXPENSE
Estimated amortization expenses of intangible
assets for the next five twelve months periods ended June 30, are as follows:
Years Ending June 30,
|
|
Expense
($)
|
|
2018
|
|
|
1,894,275
|
|
2019
|
|
|
1,894,275
|
|
2020
|
|
|
1,855,439
|
|
2021
|
|
|
747,663
|
|
2022
|
|
|
576,687
|
|
NOTE 6 – OTHER NON-CURRENT ASSETS
Other non-current assets mainly include
advance payments related to lease the land use for the Company. As of June 30, 2017, the balance of other non-current assets was
$17,829,621, which was the lease fee advances for agriculture lands that the Company engaged in Shiquan County from 2018 to 2027.
In March 2017, Jinong entered into the
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
as expenses for the three months ended June 30, 2017.
Estimated amortization expenses
of the lease advance payments herein for the next four twelve-month periods ended June 30 and thereafter are as follows:
Years ending June 30,
|
|
|
|
2018
|
|
$
|
2,016,918
|
|
2019
|
|
$
|
2,016,918
|
|
2020
|
|
$
|
2,016,918
|
|
2021
|
|
$
|
2,016,918
|
|
2022 and thereafter
|
|
$
|
11,778,867
|
|
NOTE 7 – RELATED PARTIES TRANSACTIONS
At the end of December 2015, Yuxing
entered into a sales agreement with the Company’s affiliate, 900LH.com Food Co., Ltd. (“900LH.com”, previously
announced as Xi’an Gem Grain Co., Ltd) pursuant to which Yuxing is to supply various vegetables to 900LH.com for its incoming
seasonal sales at the holidays and year ends (the “Sales Agreement”). The contingent contracted value of the Sales
Agreement is RMB 25,500,000 (approximately $3,965,250). During the year ended June 30, 2017 and 2016, Yuxing has sold approximately
$2,472,165 and $1,383,787 products to 900LH.com.
The amount due from 900LH.com to Yuxing
was $1,412,844 and $481,886 as of June 30, 2017 and 2016, respectively.
As of June 30, 2017, and 2016, the amount
due to related parties was $3,071,102 and $2,473,004, respectively. As of June 30, 2017, and 2016, $1,051,652 and $1,092,243,
respectively were amounts that Gufeng borrowed from a related party, Xi’an Techteam Science & Technology Industry (Group)
Co. Ltd., a company controlled by Mr. Tao 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 June 30, 2017, the Company owed Mr.
Tao Li, Chairman and CEO of the Company unsecured, non-interest-bearing advances of $1,950,000. These advances are not subject
to written agreements.
As of June 30, 2017, the Company’s
subsidiary, Jinong, owed 900LH.com. $30,707.
On June 29, 2016, Jinong signed an office lease with Kingtone
Information Technology Co., Ltd. (“Kingtone Information”), where Mr. Tao Li, Chairman and CEO of the Company, serves
as its Chairman. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from
Kingtone Information. The lease provided for a two-year term effective as of July 1, 2016 with monthly rent of RMB24,480 (approximately
$3,678).
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 8 – ACCRUED EXPENSES AND
OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Payroll payable
|
|
$
|
103,412
|
|
|
$
|
58,704
|
|
Welfare payable
|
|
|
154,239
|
|
|
|
154,510
|
|
Accrued expenses
|
|
|
4,863,988
|
|
|
|
4,450,306
|
|
Acquisitions payable
|
|
|
-
|
|
|
|
5,568,500
|
|
Other payables
|
|
|
3,887,676
|
|
|
|
6,037,764
|
|
Other levy payable
|
|
|
125,998
|
|
|
|
126,219
|
|
Total
|
|
$
|
9,135,312
|
|
|
$
|
16,396,003
|
|
NOTE 9 – LOAN PAYABLES
As of June 30, 2017, the short-term loan
payables consisted of three loans which mature on dates ranging from July 28, 2017 through June 8, 2018 with interest rates ranging
from 5.22% to 6.31%. The loans No. 1 to 3 are guaranteed with parent company’s credit from Jinong; the loans No. 2 and 3
4 below are collateralized by Tianjuyan’s land use right and building ownership right.
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest Rate
|
|
|
June 30,
2017
|
|
1
|
|
Bank of Beijing-Pinggu Branch
|
|
June 28, 2016 -July 28, 2017
|
|
|
5.22
|
%
|
|
$
|
1,502,360
|
|
2
|
|
Postal Saving Bank of China - Pinggu Branch
|
|
March 24, 2017 – March 5, 2018
|
|
|
6.31
|
%
|
|
|
4,507,080
|
|
3
|
|
Bank of Beijing - Pinggu Branch
|
|
June 9, 2017-June 8, 2018
|
|
|
5.22
|
%
|
|
|
1,502,360
|
|
4
|
|
Bank of China-Anhui
|
|
November 25, 2016-October25, 2017
|
|
|
LPR
|
*
|
|
$
|
166,311
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
7,678,111
|
|
*LPR stands for Loan Prime Rate. The LPR
rate is a 1-year lending rate used by commercial banks to their top grade borrowers whose credit are comparable to the interbank
borrowing credit worthiness in China. The LPR rate is a variable rate and was published along with Shanghai Interbank Offer Rates
daily.
As of June 30, 2016, the short-term loan
payables consisted of three loans which mature on dates ranging from May 18, 2016 through March 17, 2017 with interest rates ranging
from 4.87% to 5.82%. The loans No. 1 and 3 below are collateralized by Tianjuyan’s land use right and building ownership
right. The loans No. 2 is guaranteed by Jinong’s credit.
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest Rate
|
|
|
June 30,
2016
|
|
1
|
|
Agriculture Bank of China-Pinggu Branch
|
|
May. 18, 2016 - Mar. 17, 2017
|
|
|
4.87
|
%
|
|
$
|
1,953,068
|
|
2
|
|
Beijing Bank - Pinggu Branch
|
|
Aug. 11, 2015- Aug. 2, 2016
|
|
|
5.82
|
%
|
|
|
1,502,360
|
|
3
|
|
Agriculture Bank of China-Pinggu Branch
|
|
Jan. 19, 2016 – Jan. 17, 2017
|
|
|
5.00
|
%
|
|
|
1,201,888
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
4,657,316
|
|
The interest expense from short-term loans
was $549,650 and $995,959 for the years ended June 30, 2017 and 2016, respectively.
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Relating to the acquisition of the VIE
Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders convertible notes payable twice, in the aggregate
notional amount of RMB 63,000,000 ($9,462,600) with a term of three years and an annual interest rate of 3%.
No.
|
|
Related
Acquisitions of
Sales VIEs
|
|
Issuance Date
|
|
Maturity Date
|
|
Notional Interest Rate
|
|
|
Conversion Price
|
|
|
Notional Amount (in RMB)
|
|
1
|
|
Wangtian, Lishijie, Shenqiu, Xindeguo, Xinyulei, Jinyangguang
|
|
June 30, 2016
|
|
June 30, 2019
|
|
|
3
|
%
|
|
$
|
5.00
|
|
|
|
51,000,000
|
|
2
|
|
Fengnong, Xiangrong
|
|
January 1, 2017
|
|
December 31, 2019
|
|
|
3
|
%
|
|
$
|
5.00
|
|
|
|
12,000,000
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
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.
The Company determined that the fair value
of the convertible notes payable was RMB 56,124,446 ($8,431,912) and RMB 44,330,692 ($6,671,769) as of June 30, 2017 and June
30, 2016, respectively, which was mainly due to the additional issuance of RMB 12,000,000 in the Xiangrong and Fengnong acquisition
on Jan 1, 2017. The difference between the fair value of the notes and the face amount of the notes will be amortized to accretion
interest expense over the three-year life of the notes. As of June 30, 2017, the amortization of this discount into accretion
interest expenses was $369,401. As these notes were issued on and after June 30, 2016, there was no amortization of this discount
into interest expense in fiscal year 2016.
NOTE 11 – TAXES PAYABLE
Enterprise Income Tax
Effective January 1, 2008, the Enterprise
Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign Invested
Enterprises (“FIEs”). The EIT rate of 25% replaced the 33% rate that was applicable to both DEs and FIEs. The two-year
tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008,
Jinong became subject to income tax in China at a rate of 15% as a high-tech company, because of the expiration of its tax exemption
on December 31, 2007. Accordingly, it made provision for income taxes for the years ended June 30, 2017 and 2016 of $3,521,978
and $3,592,823, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to 25% EIT rate and thus
it made provision for income taxes of $2,148,326 and $3,584,006 for the year ended June 30, 2017 and 2016, respectively.
Value-Added Tax
Certain 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.
Income Taxes and Related Payables
Taxes payable consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
VAT provision
|
|
$
|
(575,872
|
)
|
|
$
|
2,218
|
|
Income tax payable
|
|
|
2,229,735
|
|
|
|
3,445,480
|
|
Other levies
|
|
|
1,036,544
|
|
|
|
656,520
|
|
Total
|
|
$
|
2,690,407
|
|
|
$
|
4,104,218
|
|
The provision for income taxes consists of the following:
|
|
Years Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Current tax - foreign
|
|
$
|
6,511,880
|
|
|
$
|
7,371,967
|
|
Deferred tax
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
6,511,880
|
|
|
$
|
7,371,967
|
|
The components of deferred income tax assets and liabilities
are as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
14,607,802
|
|
|
$
|
13,803,943
|
|
Total deferred tax assets
|
|
|
14,607,802
|
|
|
|
13,803,943
|
|
Less valuation allowance
|
|
|
(14,607,802
|
)
|
|
|
(13,803,943
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
The Company periodically evaluates the
likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by the valuation
allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company
considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative
earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available
to the Company for tax reporting purposes, and other relevant factors.
At June 30, 2017, based on the weight
of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined
that it was more likely than not that its deferred tax assets would not be realized and have a $14.6 million valuation allowance
associated with its deferred tax assets.
Tax Rate Reconciliation
Our effective tax rates were approximately
20.6% and 21.6% for years ended June 30, 2017 and 2016, 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 income
and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 34% to income before
income taxes for the years ended June 30, 2017 and 2016 for the following reasons:
June 30, 2017
Tax Rate Reconciliation
|
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
15% - 25%
|
|
|
34%
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
34,028,617
|
|
|
|
|
|
|
$
|
(2,364,584
|
)
|
|
|
|
|
|
$
|
31,664,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
8,507,154
|
|
|
|
25
|
%
|
|
|
(803,958
|
)
|
|
|
34
|
%
|
|
|
7,703,196
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(2,033,489
|
)
|
|
|
-6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
(2,033,489
|
)
|
|
|
|
|
Gains from subsidiaries in which additional benefit is
recognized
|
|
|
38,215
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
38,215
|
|
|
|
|
|
Change in valuation allowance
on deferred tax asset from US tax benefit
|
|
|
0
|
|
|
|
|
|
|
|
803,958
|
|
|
|
(34
|
)%
|
|
|
803,958
|
|
|
|
|
|
Actual tax expense
|
|
$
|
6,511,880
|
|
|
|
19.1
|
%
|
|
$
|
0
|
|
|
|
0
|
%
|
|
$
|
6,511,880
|
|
|
|
20.6
|
%
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
15% - 25%
|
|
|
34%
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
32,076,160
|
|
|
|
|
|
|
|
(5,768,770
|
)
|
|
|
|
|
|
$
|
26,307,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
8,019,040
|
|
|
|
25.0
|
%
|
|
|
(1,961,382
|
)
|
|
|
34.0
|
%
|
|
|
6,062,571
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(2,214,672
|
)
|
|
|
(5.7
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,214,672
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
1,567,599
|
)
|
|
|
(0.8
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
1,567,599
|
)
|
|
|
|
|
Change in valuation allowance
on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
1,961,382
|
|
|
|
(34.0
|
)%
|
|
|
1,961,382
|
|
|
|
|
|
Actual tax expense
|
|
$
|
7,371,967
|
|
|
|
23
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
7,371,967
|
|
|
|
21.6
|
%
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 12 – STOCKHOLDERS’ EQUITY
Common Stock
On September 30, 2014, the Company granted
an aggregate of 1,750,000 shares of restricted stock under the 2009 Plan to certain executive officers, directors and employees,
among which were (i) 240,000 shares of restricted stock to Mr. Tao Li, the CEO; (ii) 100,000 shares of restricted stock to Mr.
Ken Ren, the CFO, (iii) 40,000 shares of restricted stock to Mr. Yizhao Zhang, (iv) 30,000 shares of restricted stock to Ms. Yiru
Shi, and (v) 20,000 shares of restricted stock to Mr. Lianfu Liu, each an independent director of the Company; and (vi) 1,320,000
shares of restricted stock to key employees. The stock grants are subject to time-based vesting schedules, vesting
in various installments until March 31, 2015 for the CFO and the three independent directors, until June 30, 2015 for the CEO
and until March 31, 2017 for the employees. The value of the restricted stock awards was $3,675,000 and is based on the fair value
of the Company’s common stock on the grant date. This amount has been amortized to compensation expense over the vesting
periods for the various awards.
On September 28, 2015, the Company granted
an aggregate of 1,000,000 shares of restricted stock under the 2009 Plan to certain key employees. The stock grants are subject
to time-based vesting schedules, vesting in various installments until June 30, 2016. The value of the restricted stock awards
was $1,660,000 and is based on the fair value of the Company’s common stock on the grant date. This amount is being amortized
to compensation expense over the vesting periods for the various awards.
On June 26, 2016, the Company granted
an aggregate of 670,000 shares of restricted stock under the 2009 Plan to certain key employees. The stock grants vest immediately.
The value of the restricted stock awards was $897,800 and is based on the fair value of the Company’s common stock on the
grant date.
On December 30, 2016, the Company granted
an aggregate of 870,000 shares of restricted stock under the 2009 Plan to certain key employees. The stock grants vest immediately.
The value of the restricted stock awards was $1,044,000 and is based on the fair value of the Company’s common stock on
the grant date.
The following table sets forth changes
in compensation-related restricted stock awards during the twelve-month periods ended June 2017 and 2016:
|
|
|
|
|
Fair
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Per share
|
|
Outstanding (unvested) at June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding (unvested) at June 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
As of June 30, 2017, the unamortized expense
related to the grant of restricted shares of common stock was nil. The fair value of the restricted common stock awards was
based on the closing price of the Company’s common stock on the grant date. The fair value of the common stock awarded is
amortized over the various vesting terms of each grant.
The following table sets forth changes
in compensation-related restricted stock awards during years ended June 30, 2017 and 2016:
|
|
|
|
|
Fair
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Per share
|
|
Outstanding (unvested) at June 30, 2015
|
|
|
1,708,000
|
|
|
$
|
1,797,992
|
|
|
|
|
|
Granted
|
|
|
1,000,000
|
|
|
|
1,660,000
|
|
|
$
|
1.66
|
|
Granted
|
|
|
670,000
|
|
|
|
897,800
|
|
|
$
|
1.34
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
(2,790,000
|
)
|
|
|
(4,120,528
|
)
|
|
|
|
|
Outstanding (unvested) at June 30, 2016
|
|
|
588,000
|
|
|
$
|
235,264
|
|
|
|
|
|
Granted
|
|
|
870,000
|
|
|
|
1,044,000
|
|
|
$
|
1.20
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
(1,458,000
|
)
|
|
|
(1,279,264
|
)
|
|
|
|
|
Outstanding (unvested) at June 30, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
During the year ended June 30, 2017, the
Company issued 32,660 shares of common stock for consulting services valued at $41,212. The shares were valued at the market price
on the date of issuance.
During the year ended June 30, 2016, the
Company issued 73,407 shares of common stock for consulting services valued at $114,763. The shares were valued at the market
price on the date of issuance.
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 June 30, 2017, the Company has 20,000,000
shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are issued or outstanding.
NOTE 13 – STOCK OPTIONS
There were no issuances of stock options during the years ended
June 30, 2017 and 2016.
Options outstanding and related weighted average price and
intrinsic value are as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Value
|
|
Outstanding, June 30, 2014
|
|
|
115,099
|
|
|
$
|
14.66
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
|
(115,099
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
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 two vendors, from which the
Company purchased 14.1% and 12.2% of its raw materials for fertilizer manufacturing during the year ended June 30, 2017. Total
purchase from these two vendors was amounted to $21,033,713 as June 30, 2017.
There were two vendors, , from which the
Company purchased 18.8% and 17.4% of its raw materials for fertilizer manufacturing during the year ended June 30, 2016. Total
purchase from these two venders amounted to $52,241,454 as June 30, 2016.
Two customers, accounted for an aggregated
amount of $31,379,821 or 7.1% and 7.0% of the Company’s manufactured fertilizer sales for the year ended June 30, 2017.
One customer, Sino-agri Holding Co., Ltd., accounted for $59,696,999,
or 23.0% of the Company’s manufactured fertilizer sales for the year ended June 30, 2016.
NOTE 15 – SEGMENT REPORTING
As of June 30, 2017, the Company was organized
into four main business segments based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production),
Yuxing (agricultural products production) and the sales VIEs. Each of the four operating segments referenced above has separate
and distinct general ledgers. The chief operating decision maker (“CODM”) receives financial information, including
revenue, gross margin, operating income and net income produced from the various general ledger systems to make decisions about
allocating resources and assessing performance; however, the principal measure of segment profitability or loss used by the CODM
is net income by segment.
|
|
Years Ended June 30,
|
|
Revenues from unaffiliated customers:
|
|
2017
|
|
|
2016
|
|
Jinong
|
|
$
|
106,642,032
|
|
|
$
|
125,716,937
|
|
Gufeng
|
|
|
104,446,239
|
|
|
|
134,661,420
|
|
Yuxing
|
|
|
8,517,231
|
|
|
|
8,406,663
|
|
Sales VIEs
|
|
|
65,607,538
|
|
|
|
0
|
|
Consolidated
|
|
$
|
285,213,040
|
|
|
$
|
268,785,020
|
|
|
|
|
|
|
|
|
|
|
Operating income :
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
22,562,310
|
|
|
$
|
22,942,976
|
|
Gufeng
|
|
|
8,286,761
|
|
|
|
13,952,983
|
|
Yuxing
|
|
|
(2,376,007
|
)
|
|
|
1,464,728
|
|
Sales VIEs
|
|
|
5,869,291
|
|
|
|
0
|
|
Reconciling item (1)
|
|
|
0
|
|
|
|
0
|
|
Reconciling item (2)
|
|
|
(1,082,505
|
)
|
|
|
(1,648,240
|
)
|
Reconciling item (2) --stock compensation
|
|
|
(1,282,079
|
)
|
|
|
(4,120,528
|
)
|
Consolidated
|
|
$
|
31,977,771
|
|
|
$
|
32,591,919
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Net income:
|
|
|
|
|
|
|
Jinong
|
|
$
|
18,699,889
|
|
|
$
|
19,637,155
|
|
Gufeng
|
|
|
6,264,392
|
|
|
|
9,364,364
|
|
Yuxing
|
|
|
(2,375,961
|
)
|
|
|
1,471,412
|
|
Sales VIEs
|
|
|
4,925,927
|
|
|
|
-
|
|
Reconciling item (1)
|
|
|
15
|
|
|
|
30
|
|
Reconciling item (2)
|
|
|
(2,364,598
|
)
|
|
|
(5,768,768
|
)
|
Consolidated
|
|
$
|
25,152,153
|
|
|
$
|
24,704,193
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
13,358,370
|
|
|
$
|
35,924,393
|
|
Gufeng
|
|
|
2,302,047
|
|
|
|
2,920,960
|
|
Yuxing
|
|
|
1,366,840
|
|
|
|
1,465,836
|
|
Sales VIEs
|
|
|
380,863
|
|
|
|
-
|
|
Consolidated
|
|
$
|
17,408,120
|
|
|
$
|
40,311,189
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Gufeng
|
|
|
290,126
|
|
|
|
995,959
|
|
Gufeng
|
|
|
251,064
|
|
|
|
-
|
|
Sales VIEs
|
|
|
8,460
|
|
|
|
|
|
Consolidated
|
|
$
|
549,650
|
|
|
$
|
995,959
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
9,582
|
|
|
$
|
7,894
|
|
Gufeng
|
|
|
12,273
|
|
|
|
3,239
|
|
Yuxing
|
|
|
6,210
|
|
|
|
8,059
|
|
Sales VIEs
|
|
|
14,217
|
|
|
|
-
|
|
Consolidated
|
|
$
|
42,283
|
|
|
$
|
19,192
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Identifiable assets:
|
|
|
|
|
|
|
Jinong
|
|
$
|
213,355,900
|
|
|
$
|
198,599,977
|
|
Gufeng
|
|
|
156,648,924
|
|
|
|
149,891,328
|
|
Yuxing
|
|
|
40,965,345
|
|
|
|
45,448,157
|
|
Sales VIEs
|
|
|
45,063,273
|
|
|
|
24,675,497
|
|
|
|
|
|
|
|
|
|
|
Reconciling item (1)
|
|
|
142,919
|
|
|
|
170,444
|
|
Reconciling item (2)
|
|
|
(2,879
|
)
|
|
|
(2,876
|
)
|
Consolidated
|
|
$
|
456,173,481
|
|
|
$
|
418,782,527
|
|
(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.
Total revenues from exported products
currently accounted for less than 1% of the Company’s total fertilizer revenues for the years ended June 30, 2017 and 2016,
respectively.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 16 – COMMITMENTS AND CONTINGENCIES
On June 29, 2016, Jinong signed an
office lease with Kingtone Information. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square
feet) of office space from Kingtone Information. The lease provided for a two-year term effective as of July 1, 2016 with monthly
rent of $3,678 (approximately RMB 24,480).
In January 2008, Jintai signed a ten-year
land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $781 (RMB 5,200).
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 $444 (RMB 2,958).
Accordingly, the Company recorded an aggregate
of $641,330 and $176,796 as rent expenses for the years ended June 30, 2017 and 2016, respectively. The contingent rent expenses
herein for the next five years ended June 30, are as follows:
Years ending June 30,
|
|
|
|
2018
|
|
|
148,632
|
|
2019
|
|
|
58,841
|
|
2020
|
|
|
58,841
|
|
2021
|
|
|
58,841
|
|
2022
|
|
|
58,841
|
|
NOTE 17 – BUSINESS COMBINATIONS
On June 30, 2016, the Company, through
its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements
to qualify as VIEs with the shareholders of Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan Jinyangguang Sannong Service Co.,
Ltd., Shenqiu County Zhenbai Agriculture Co., Ltd., Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd., Aksu
Xindeguo Agricultural Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd.
Subsequently, on January 1, 2017, Jinong
entered into similar strategic acquisition agreements and a series of contractual agreements to qualify as VIEs with the shareholders
of Sunwu County Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed Co., Ltd..
The series of contractual agreements for
the VIE Companies to qualify as VIEs (the “VIE Agreements”) that Jinong, the VIE Companies, and the shareholders of
VIE Companies entered into, 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 VIE Companies (the “Entrusted
Management Agreements”), the 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
VIE Companies’ operations, assets and personnel, has the right to control all the VIE Companies’ cash flows through
an entrusted bank account, is entitled to the VIE Companies’ net profits as a management fee, is obligated to pay all the
VIE Companies’ payables and loan payments, and bears all losses of the 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 VIE Companies;
or (iii) Jinong acquires all the assets or equity of the 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 VIE Companies (the “Exclusive
Technology Supply Agreements”), Jinong is the exclusive technology provider to the VIE Companies. The 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 VIE Companies; or (iii) Jinong acquires the VIE Companies (as more fully described below under “Exclusive
Option Agreements”).
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
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 VIE Companies (the “Shareholder’s
Voting Proxy Agreements”), the shareholders of the 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 VIE Companies, including the appointment and election of directors of the 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 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 VIE Companies, and the shareholders of the VIE Companies
(the “Exclusive Option Agreements”), the shareholders of the VIE Companies granted Jinong an irrevocable and exclusive
purchase option (the “Option”) to acquire the 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 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 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 VIE Companies (the “Pledge
Agreements”), the shareholders of the VIE Companies pledged all of their equity interests in the 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 VIE Companies (the “Non-Compete
Agreements”), the shareholders of the 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 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 VIE Companies shall be no less than 50% of the salaries and other expenses Jinong provided in the
past.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
The Company entered into these VIE Agreements
as a way for the Company to have more control over the distribution of its products. The transactions are accounted for as business
combinations in accordance with ASC 805. A summary of the purchase price allocations at fair value is below:
For acquisitions made on June 30, 2016:
Cash
|
|
$
|
708,737
|
|
Accounts receivable
|
|
|
6,422,850
|
|
Advances to suppliers
|
|
|
1,803,180
|
|
Prepaid expenses and other current assets
|
|
|
807,645
|
|
Inventories
|
|
|
7,787,043
|
|
Machinery and equipment
|
|
|
140,868
|
|
Intangible assets
|
|
|
270,900
|
|
Other assets
|
|
|
3,404,741
|
|
Goodwill
|
|
|
3,158,179
|
|
Accounts payable
|
|
|
(3,962,670
|
)
|
Customer deposits
|
|
|
(3,486,150
|
)
|
Accrued expenses and other payables
|
|
|
(4,653,324
|
)
|
Taxes payable
|
|
|
(16,912
|
)
|
Purchase price
|
|
$
|
12,385,087
|
|
A summary of the purchase consideration paid is below:
Cash
|
|
$
|
5,568,500
|
|
Convertible notes
|
|
|
6,671,769
|
|
Derivative liability
|
|
|
144,818
|
|
|
|
$
|
12,385,087
|
|
The cash component of the purchase price
for these acquisitions made on June 30, 2016 was paid in July and August 2016.
For acquisitions made on January 1, 2017:
Working Capital
|
|
$
|
941,192
|
|
Machinery and equipment
|
|
|
222,875
|
|
Intangible assets
|
|
|
1440
|
|
Goodwill
|
|
|
684,400
|
|
Customer Relationship
|
|
|
522,028
|
|
Non-compete Agreement
|
|
|
392,852
|
|
Purchase price
|
|
$
|
2,764,787
|
|
A summary of the purchase consideration paid is below:
Cash
|
|
$
|
1,201,888
|
|
Assumed liability
|
|
|
3,549
|
|
Convertible notes
|
|
|
1,538,244
|
|
Derivative liability
|
|
|
21,106
|
|
|
|
$
|
2,764,787
|
|
The cash component of the purchase price
for these acquisitions made on January 1, 2017 was paid during March 2017.
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 18 – VARIABLE INTEREST ENTITIES
Because of these contractual arrangements,
with Yuxing and the 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 consolidated financial statements
as of June 30, 2017 and 2016:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
374,587
|
|
|
$
|
1,017,841
|
|
Accounts receivable, net
|
|
|
30,687,859
|
|
|
|
7,050,201
|
|
Inventories
|
|
|
21,314,940
|
|
|
|
26,370,202
|
|
Other current assets
|
|
|
2,195,156
|
|
|
|
1,839,523
|
|
Advances to suppliers
|
|
|
2,380,812
|
|
|
|
4,900,524
|
|
Total Current Assets
|
|
|
56,953,354
|
|
|
|
41,196,291
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
12,418,906
|
|
|
|
13,377,817
|
|
Other assets
|
|
|
225,508
|
|
|
|
334,264
|
|
Intangible Assets, Net
|
|
|
13,002,818
|
|
|
|
12,913,776
|
|
Goodwill
|
|
|
3,837,038
|
|
|
|
3,158,179
|
|
Total Assets
|
|
$
|
86,437,624
|
|
|
$
|
70,980,327
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term loan
|
|
$
|
166,311
|
|
|
|
0
|
|
Accounts payable
|
|
$
|
18,355,921
|
|
|
$
|
3,840,052
|
|
Customer deposits
|
|
|
1,375,785
|
|
|
|
3,486,150
|
|
Accrued expenses and other payables
|
|
|
3,833,868
|
|
|
|
5,562,253
|
|
Amount due to related parties
|
|
|
42,741,043
|
|
|
|
43,478,158
|
|
Total Current Liabilities
|
|
|
66,472,928
|
|
|
|
56,366,613
|
|
Long-term Loan
|
|
|
3,549
|
|
|
|
0
|
|
Total Liabilities
|
|
$
|
66,476,477
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
19,961,147
|
|
|
|
14,613,714
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
86,437,624
|
|
|
$
|
70,980,327
|
|
|
|
Years Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
74,124,754
|
|
|
$
|
8,406,663
|
|
Expenses
|
|
|
71,572,295
|
|
|
|
6,935,251
|
|
Net income
|
|
$
|
2,552,459
|
|
|
$
|
1,471,412
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 19 – RESTRICTED NET ASSETS
The Company’s operations are primarily
conducted through its PRC subsidiaries, which can only pay dividends out of their retained earnings determined in accordance with
the accounting standards and regulations in the PRC and after it has met the PRC requirements for appropriation to statutory reserves.
In addition, the Company’s businesses and assets are primarily denominated in RMB, which is not freely convertible into
foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign
currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application
form together with suppliers’ invoices, shipping documents and signed contracts. These currency exchange control procedures
imposed by the PRC government authorities may restrict the ability of the Company’s PRC subsidiaries to transfer their net
assets to the Parent Company through loans, advances or cash dividends.
The Company’s PRC subsidiaries net
assets as of June 30, 2017 and 2016 exceeded 25% of the Company’s consolidated net assets. Accordingly, condensed Parent
Company financial statements have been prepared in accordance with Rule 5-04 and Rule 12-04 of SEC Regulation S-X, and are as
follows.
Parent Company Financial Statements
PARENT COMPANY FINANCIAL INFORMATION OF CHINA GREEN AGRICULTURE,
INC.
Condensed Balance Sheets
|
|
As of June 30,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
139,969
|
|
|
$
|
167,495
|
|
Other current assets
|
|
|
71
|
|
|
|
70
|
|
Total Current Assets
|
|
|
140,040
|
|
|
|
167,565
|
|
|
|
|
|
|
|
|
|
|
Long-term equity investment
|
|
|
404,406,925
|
|
|
|
376,321,912
|
|
Total long-term assets
|
|
|
404,406,925
|
|
|
|
376,321,912
|
|
Total Assets
|
|
$
|
404,546,965
|
|
|
$
|
376,489,477
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
214,520
|
|
|
$
|
214,520
|
|
Amount due to related parties
|
|
|
1,988,743
|
|
|
|
1,388,743
|
|
Other payables and accrued expenses
|
|
|
4,815,649
|
|
|
|
4,401,882
|
|
Total Current Liabilities
|
|
|
7,018,913
|
|
|
|
6,005,145
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 115,197,165 shares authorized,
37,648,605 and 35,905,198, shares issued and outstanding as of June 30, 2016 and 2015, respectively
|
|
|
38,551
|
|
|
|
37,648
|
|
Additional paid in capital
|
|
|
128,915,651
|
|
|
|
127,593,932
|
|
Accumulated other comprehensive income
|
|
|
(5,127,444
|
)
|
|
|
(5,696,388
|
)
|
Retained earnings
|
|
|
273,701,295
|
|
|
|
248,549,140
|
|
Total Stockholders’ Equity
|
|
|
397,528,052
|
|
|
|
370,484,332
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
404,546,965
|
|
|
$
|
376,489,477
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
Condensed Statements of Operations
|
|
Year ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
General and administrative expenses
|
|
|
2,364,598
|
|
|
|
5,768,770
|
|
Interest income
|
|
|
15
|
|
|
|
30
|
|
Equity investment in subsidiaries
|
|
|
27,516,737
|
|
|
|
30,472,933
|
|
Net income
|
|
$
|
25,152,153
|
|
|
$
|
24,704,193
|
|
Condensed Statements of Cash Flows
|
|
Year Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(627,526
|
)
|
|
$
|
(138,881
|
)
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
600,000
|
|
|
|
-
|
|
Cash and cash equivalents, beginning balance
|
|
|
167,495
|
|
|
|
306,376
|
|
Cash and cash equivalents, ending balance
|
|
$
|
139,969
|
|
|
$
|
167,495
|
|
Notes to Condensed Parent Company Financial Information
As of June 30, 2017, and 2016, there were
no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately
disclosed in the Consolidated Financial Statements, if any. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
NOTE 20 – RESTATEMENT OF FINANCIAL STATEMENTS
On April 13, 2018, the management of China
Green Agriculture, Inc. (the “Company”) concluded, after consultation with our independent registered public accounting
firm, the previous issued financial statements contained in the Company’s annual Report on Form 10K for the year ended June
30, 2017 should not be relied upon due primarily to the computation errors in the connection with the allocation of cash payment
for VIE acquisitions. The company made two rounds of acquisitions in June 2016 and January 2017 respectively. For the acquisitions
made in June 2016, the purchase consideration included RMB 37,000,000 in cash, which was originally recorded as $5.6 million acquisition
payable in “Accrued Expenses and Other Payables” as of June 30, 2016. After paying it off this acquisition payable
in fiscal year 2017, the Company recorded its payment of $5.4 million (using average exchange rate) in the “Cash Flows from
Operating Activities” section in the Consolidated Statements of Cash Flows, which includes “Accrued Expenses and Other
Payables”. As these cash outflows were related to the payment for business combinations, the payment should be included
in the investing activities section of the statement of cash flow in the amended Form 10-K.
For the acquisitions made in January 2017,
the purchase consideration included RMB 8,000,000 million in cash. The Company recorded a net payment in cash of $0.14 million
in the “Cash Flows from Investing Activities” net of the effects from the RMB 7,100,000 cash acquired in the target
companies’ working capital. The net payment $5.4 million for June 2016 acquisitions should be included in the investing
activities section of the statement of cash flow in the amended Form 10-K.