Item
1. Financial Statements
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
2018
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
117,546,683
|
|
|
$
|
150,805,639
|
|
Accounts receivable, net
|
|
|
120,505,844
|
|
|
|
174,460,937
|
|
Inventories
|
|
|
115,013,591
|
|
|
|
53,784,814
|
|
Prepaid expenses and other current assets
|
|
|
3,173,718
|
|
|
|
2,945,247
|
|
Amount due from related parties
|
|
|
0
|
|
|
|
235,551
|
|
Advances to suppliers, net
|
|
|
40,777,894
|
|
|
|
25,194,463
|
|
Total Current Assets
|
|
|
397,017,730
|
|
|
|
407,426,651
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
28,227,394
|
|
|
|
30,894,683
|
|
Other Assets
|
|
|
267,539
|
|
|
|
294,550
|
|
Other Non-current Assets
|
|
|
14,311,626
|
|
|
|
15,885,696
|
|
Intangible Assets, Net
|
|
|
18,710,644
|
|
|
|
20,317,914
|
|
Goodwill
|
|
|
7,863,605
|
|
|
|
8,166,467
|
|
Total Assets
|
|
$
|
466,398,538
|
|
|
$
|
482,985,960
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,312,634
|
|
|
$
|
27,128,921
|
|
Customer deposits
|
|
|
6,862,214
|
|
|
|
7,251,967
|
|
Accrued expenses and other payables
|
|
|
11,286,369
|
|
|
|
10,207,058
|
|
Amount due to related parties
|
|
|
3,640,504
|
|
|
|
3,271,619
|
|
Taxes payable
|
|
|
31,071,532
|
|
|
|
29,952,206
|
|
Short term loans
|
|
|
4,362,000
|
|
|
|
4,726,300
|
|
Interest payable
|
|
|
582,327
|
|
|
|
462,060
|
|
Derivative liability
|
|
|
2,248
|
|
|
|
66,143
|
|
Total Current Liabilities
|
|
|
71,119,828
|
|
|
|
83,066,274
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
|
7,302,743
|
|
|
|
7,371,899
|
|
Total Liabilities
|
|
$
|
78,422,571
|
|
|
$
|
90,438,173
|
|
|
|
|
|
|
|
|
|
|
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, 39,546,945 and 38,896,945, shares issued and outstanding as of December 31, 2018 and June 30, 2018, respectively
|
|
|
39,547
|
|
|
|
38,897
|
|
Additional paid-in capital
|
|
|
129,706,886
|
|
|
|
129,337,035
|
|
Statutory reserve
|
|
|
31,399,827
|
|
|
|
30,947,344
|
|
Retained earnings
|
|
|
246,887,783
|
|
|
|
235,822,726
|
|
Accumulated other comprehensive income
|
|
|
(20,058,076
|
)
|
|
|
(3,598,215
|
)
|
Total Stockholders’ Equity
|
|
|
387,975,967
|
|
|
|
392,547,787
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
466,398,538
|
|
|
$
|
482,985,960
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
16,987,360
|
|
|
$
|
26,211,280
|
|
|
$
|
39,483,893
|
|
|
$
|
52,985,040
|
|
Gufeng
|
|
|
22,355,690
|
|
|
|
24,447,721
|
|
|
|
39,828,941
|
|
|
|
42,669,787
|
|
Yuxing
|
|
|
2,623,493
|
|
|
|
1,953,748
|
|
|
|
5,011,039
|
|
|
|
3,746,391
|
|
VIEs - others
|
|
|
10,287,920
|
|
|
|
10,986,576
|
|
|
|
25,885,396
|
|
|
|
26,326,758
|
|
Net sales
|
|
|
52,254,463
|
|
|
|
63,599,325
|
|
|
|
110,209,269
|
|
|
|
125,727,976
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
8,994,882
|
|
|
|
13,265,827
|
|
|
|
20,198,054
|
|
|
|
26,378,583
|
|
Gufeng
|
|
|
19,764,817
|
|
|
|
21,160,024
|
|
|
|
35,069,680
|
|
|
|
37,146,453
|
|
Yuxing
|
|
|
2,166,566
|
|
|
|
1,536,238
|
|
|
|
4,213,729
|
|
|
|
2,928,791
|
|
VIEs - others
|
|
|
9,083,973
|
|
|
|
9,135,024
|
|
|
|
22,013,941
|
|
|
|
21,828,653
|
|
Cost of goods sold
|
|
|
40,010,238
|
|
|
|
45,097,113
|
|
|
|
81,495,404
|
|
|
|
88,282,480
|
|
Gross profit
|
|
|
12,244,225
|
|
|
|
18,502,212
|
|
|
|
28,713,865
|
|
|
|
37,445,496
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
8,069,103
|
|
|
|
7,668,468
|
|
|
|
11,489,530
|
|
|
|
12,822,665
|
|
General and administrative expenses
|
|
|
(99,632
|
)
|
|
|
902,883
|
|
|
|
2,209,728
|
|
|
|
7,817,685
|
|
Total operating expenses
|
|
|
7,969,471
|
|
|
|
8,571,351
|
|
|
|
13,699,258
|
|
|
|
20,640,350
|
|
Income from operations
|
|
|
4,274,754
|
|
|
|
9,930,861
|
|
|
|
15,014,607
|
|
|
|
16,805,146
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(187,753
|
)
|
|
|
(276,836
|
)
|
|
|
(226,083
|
)
|
|
|
(284,047
|
)
|
Discontinued VIE operation - Zhenbai
|
|
|
|
|
|
|
(330,966
|
)
|
|
|
|
|
|
|
(330,966
|
)
|
Interest income
|
|
|
95,957
|
|
|
|
130,248
|
|
|
|
223,341
|
|
|
|
218,162
|
|
Interest expense
|
|
|
(149,578
|
)
|
|
|
(94,587
|
)
|
|
|
(312,264
|
)
|
|
|
(274,162
|
)
|
Total other income (expense)
|
|
|
(241,374
|
)
|
|
|
(572,141
|
)
|
|
|
(315,006
|
)
|
|
|
(671,013
|
)
|
Income before income taxes
|
|
|
4,033,380
|
|
|
|
9,358,720
|
|
|
|
14,699,601
|
|
|
|
16,134,133
|
|
Provision for income taxes
|
|
|
1,527,645
|
|
|
|
1,530,938
|
|
|
|
3,182,061
|
|
|
|
3,253,593
|
|
Net income from continuing operations, net of tax
|
|
|
2,505,735
|
|
|
|
7,827,782
|
|
|
|
11,517,540
|
|
|
|
12,880,540
|
|
Net income from discontinued operation, net of tax
|
|
|
-
|
|
|
|
(1,676
|
)
|
|
|
-
|
|
|
|
40,394
|
|
Net income, net of tax
|
|
|
2,505,735
|
|
|
|
7,826,107
|
|
|
|
11,517,540
|
|
|
|
12,920,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(472,069
|
)
|
|
|
8,256,738
|
|
|
|
(16,459,861
|
)
|
|
|
8,496,956
|
|
Comprehensive income (loss)
|
|
$
|
2,033,666
|
|
|
$
|
16,082,845
|
|
|
$
|
(4,942,321
|
)
|
|
$
|
21,417,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
Basic net earnings per share from continuing operations
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
|
0.29
|
|
|
$
|
0.33
|
|
Basic net earnings per share from discontinued operations
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
|
|
39,546,945
|
|
|
|
38,185,277
|
|
Diluted net earnings per share from continuing operations
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
$
|
0.29
|
|
|
$
|
0.34
|
|
Diluted net earnings per share from discontinued operations
|
|
|
-
|
|
|
$
|
0.00
|
|
|
$
|
-
|
|
|
$
|
0.00
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CHINA
GREEN AGRICULTURE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED
|
|
Six Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
11,517,540
|
|
|
$
|
12,880,541
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of income taxes
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,434,189
|
|
|
|
3,406,443
|
|
Gain (Loss) on disposal of plant, property and equipment
|
|
|
4,415
|
|
|
|
15,318
|
|
Amortization of debt discount
|
|
|
204,765
|
|
|
|
377,450
|
|
Issuance of common stock for consulting services
|
|
|
370,500
|
|
|
|
-
|
|
Change in fair value of derivative liability
|
|
|
(61,601
|
)
|
|
|
(114,233
|
)
|
Changes in operating assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
47,607,489
|
|
|
|
19,963,077
|
|
Amount due from related parties
|
|
|
227,400
|
|
|
|
1,436,875
|
|
Other current assets
|
|
|
1,618,463
|
|
|
|
1,019,062
|
|
Inventories
|
|
|
(63,386,505
|
)
|
|
|
(25,549,564
|
)
|
Advances to suppliers
|
|
|
(16,560,396
|
)
|
|
|
4,106,058
|
|
Other assets
|
|
|
(969,558
|
)
|
|
|
974,189
|
|
Changes in operating liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(12,851,196
|
)
|
|
|
2,694,536
|
|
Customer deposits
|
|
|
(121,118
|
)
|
|
|
(226,314
|
)
|
Tax payables
|
|
|
1,157,226
|
|
|
|
(554,210
|
)
|
Accrued expenses and other payables
|
|
|
1,227,568
|
|
|
|
988,125
|
|
Interest payable
|
|
|
137,757
|
|
|
|
142,283
|
|
Net cash provided by (used in) continuing operating activities
|
|
|
(27,443,062
|
)
|
|
|
21,559,636
|
|
Net cash provided by (used in) discontinued operating activities
|
|
|
0
|
|
|
|
(1,024,276
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(27,443,062
|
)
|
|
|
20,535,360
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of plant, property, and equipment
|
|
|
(57,195
|
)
|
|
|
(11,758
|
)
|
Change in construction in process
|
|
|
16,128
|
|
|
|
(11,328
|
)
|
Net cash used in investing activities
|
|
|
(41,067
|
)
|
|
|
(23,086
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from loans
|
|
|
0
|
|
|
|
153,300
|
|
Repayment of loans
|
|
|
(189,508
|
)
|
|
|
(1,678,603
|
)
|
Advance from related parties
|
|
|
409,230
|
|
|
|
195,013
|
|
Net cash provided by (used in) financing activities
|
|
|
219,722
|
|
|
|
(1,330,290
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
(5,994,548
|
)
|
|
|
3,184,627
|
|
Net increase in cash and cash equivalents
|
|
|
(33,258,955
|
)
|
|
|
22,366,611
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
150,805,639
|
|
|
|
123,050,548
|
|
Cash and cash equivalents, ending balance
|
|
$
|
117,546,683
|
|
|
$
|
145,417,159
|
|
|
|
|
|
|
|
|
|
|
Supplement disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
105,733
|
|
|
$
|
206,368
|
|
Income taxes paid
|
|
$
|
2,024,835
|
|
|
$
|
3,807,803
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
China
Green Agriculture, Inc. (the “Company”, “Parent Company” or “Green Nevada”), through its subsidiaries,
is engaged in the research, development, production, distribution and sale of humic acid-based compound fertilizer, compound fertilizer,
blended fertilizer, organic compound fertilizer, slow-release fertilizers, highly-concentrated water-soluble fertilizers and mixed
organic-inorganic compound fertilizer and the development, production and distribution of agricultural products.
Unless
the context indicates otherwise, as used in this Report, the following are the references herein of all the subsidiaries of the
Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada,
incorporated in the State of New Jersey; (ii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly-owned
subsidiary of Green New Jersey organized under the laws of the PRC; (iii) Xi’an Hu County Yuxing Agriculture Technology
Development Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”) in the in the People’s Republic
of China (the “PRC”) controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng Chemical
Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (v) Beijing Tianjuyuan Fertilizer
Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
On
June 30, 2016 the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series
of contractual agreements with the shareholders of the following six companies that are organized under the laws of the PRC and
would be deemed VIEs: Shaanxi Lishijie Agrochemical Co., Ltd. (“Lishijie”), Songyuan Jinyangguang Sannong Service
Co., Ltd. (“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei
District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), Aksu Xindeguo Agricultural Materials Co., Ltd. (“Xindeguo”),
and Xinjiang Xinyulei Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”). On January 1, 2017, the Company,
through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements
with the shareholders of the following two companies that are organized under the laws of the PRC and would be deemed VIEs, Sunwu
County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”).
On
November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements
and the series of contractual agreements with the shareholders of Zhenbai.
Yuxing,
Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred to as the “the
VIE Companies”; Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively
be referred to as “the sales VIEs” or “the sales VIE companies”.
The
Company’s corporate structure as of December 31, 2018, is set forth in the diagram below:
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle
of consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New
Jersey, Jinong, Gufeng, Tianjuyuan, and the VIE Companies. All significant inter-company accounts and transactions have been eliminated
in consolidation.
Effective
June 16, 2013, Yuxing was converted from being a wholly-owned foreign enterprise 100% owned by Jinong to a domestic enterprise
100% owned one natural person, who is not affiliated to the Company (“Yuxing’s Owner”). Effective the same day,
Yuxing’s Owner entered into a series of contractual agreements with Jinong pursuant to which Yuxing became the VIE of Jinong.
VIE
assessment
A
VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated
financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities
of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s
expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights
of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive
the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or
are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered
a VIE, the Company first performs a qualitative analysis, which requires certain subjective decisions regarding its assessments,
including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along
to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a
qualitative analysis of 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
qualitative analysis, we used internal cash flow models to compute and allocate expected losses or expected residual returns to
each variable interest holder based upon the relative contractual rights and preferences of each interest holder in the VIE’s
capital structure.
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues
and expenses during the reporting periods. Management makes these estimates using the best information available at the time the
estimates are made. However, actual results could differ materially from those results.
Cash
and cash equivalents and concentration of cash
For
statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit with state-owned
banks in the Peoples Republic of China (“PRC”) and banks in the United States, and other highly-liquid investments
with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of
cash in three major banks in China. The aggregate cash in such accounts and on hand as of December 31 and June 30, 2018, were
$117,546,683 and $150,805,639, respectively. The Company had $117,296,696 and $150,785,737 in cash in banks in China and had
$249,987 and $19,902 in cash in two banks in the United States as of December 31 and June 30, 2018, respectively. Cash overdrafts
as of a 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 creditworthiness, current economic trends and changes in customer
payment patterns to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are written off
through a charge to the valuation allowance. As of December 31, 2018, and June 30, 2018, the Company had accounts receivable of
$120,505,844 and $174,460,937, net of allowance for doubtful accounts of $17,699,871 and $24,551,796, respectively.
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. On December 31, 2018 and 2017, 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 an impairment of intangible assets as of December 31, 2018 and 2017 respectively.
Customer
deposits
Payments
received before all the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. When all revenue
recognition criteria are met, the customer deposits are recognized as revenue. As of December 31, 2018, and June 30, 2018, the
Company had customer deposits of $6,862,214 and $7,251,967, respectively.
Earnings
per share
Basic
earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share are computed based on the weighted average number of shares of common stock plus the effect of dilutive
potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include
outstanding stock options and stock awards.
The
components of basic and diluted earnings per share consist of the following:
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net Income from continuing operations for Basic Earnings Per Share
|
|
|
2,505,735
|
|
|
|
7,827,782
|
|
Net Income from discontinued operations for Basic Earnings Per Share
|
|
$
|
0
|
|
|
$
|
(1,676
|
)
|
Basic Weighted Average Number of Shares
|
|
|
39,546,945
|
|
|
|
38,511,264
|
|
Basic net earnings per share from continuing operations
|
|
|
0.06
|
|
|
|
0.20
|
|
Basic net earnings per share from discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Net Income from continuing operations for Diluted Earnings Per Share
|
|
|
2,505,735
|
|
|
|
7,827,782
|
|
Net Income from discontinued operations for Diluted Earnings Per Share
|
|
$
|
0
|
|
|
$
|
(1,676
|
)
|
Diluted Weighted Average Number of Shares
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
Diluted net earnings per share from continuing operations
|
|
|
0.06
|
|
|
|
0.20
|
|
Diluted net earnings per share from discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net Income from continuing operations for Basic Earnings Per Share
|
|
|
11,517,540
|
|
|
|
12,880,540
|
|
Net Income from discontinued operation for Basic Earnings Per Share
|
|
$
|
0
|
|
|
$
|
40,394
|
|
Basic Weighted Average Number of Shares
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
Basic net earnings per share from continuing operations
|
|
|
0.29
|
|
|
|
0.33
|
|
Basic net earnings per share from discontinued operations
|
|
$
|
0
|
|
|
$
|
0.00
|
|
Net Income from continuing operations for Diluted Earnings Per Share
|
|
|
11,517,540
|
|
|
|
12,880,540
|
|
Net Income from discontinued operations for Diluted Earnings Per Share
|
|
$
|
0
|
|
|
$
|
40,394
|
|
Diluted Weighted Average Number of Shares
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
Diluted net earnings per share from continuing operations
|
|
|
0.29
|
|
|
|
0.34
|
|
Diluted net earnings per share from discontinued operations
|
|
$
|
0
|
|
|
$
|
0
|
|
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 that is 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 on our consolidated financial statements and have not yet
selected a transition approach.
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 on 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 an 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 July 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.
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:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Raw materials
|
|
$
|
39,755,211
|
|
|
$
|
13,154,465
|
|
Supplies and packing materials
|
|
$
|
486,032
|
|
|
$
|
566,254
|
|
Work in progress
|
|
$
|
385,082
|
|
|
$
|
417,130
|
|
Finished goods
|
|
$
|
74,387,266
|
|
|
$
|
39,646,965
|
|
Total
|
|
$
|
115,013,591
|
|
|
$
|
53,784,814
|
|
NOTE
4 – PROPERTY, PLANT, AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Building and improvements
|
|
$
|
38,824,105
|
|
|
$
|
40,319,393
|
|
Auto
|
|
|
3,383,116
|
|
|
|
3,504,028
|
|
Machinery and equipment
|
|
|
18,098,079
|
|
|
|
18,765,192
|
|
Agriculture assets
|
|
|
740,026
|
|
|
|
768,528
|
|
Total property, plant, and equipment
|
|
|
61,045,325
|
|
|
|
63,357,141
|
|
Less: accumulated depreciation
|
|
|
(32,817,931
|
)
|
|
|
(32,462,458
|
)
|
Total
|
|
$
|
28,227,394
|
|
|
$
|
30,894,683
|
|
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Land use rights, net
|
|
$
|
9,445,315
|
|
|
$
|
9,930,420
|
|
Technology patent, net
|
|
|
3,219
|
|
|
|
3,570
|
|
Customer relationships, net
|
|
|
2,808,791
|
|
|
|
3,578,724
|
|
Non-compete agreement
|
|
|
535,539
|
|
|
|
659,500
|
|
Trademarks
|
|
|
5,917,780
|
|
|
|
6,145,700
|
|
Total
|
|
$
|
18,710,644
|
|
|
$
|
20,317,914
|
|
LAND
USE RIGHT
On
September 25, 2009, Yuxing was granted 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 $10,641,084). 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 $152,081).
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 $1,059,253). The intangible asset is being amortized over
the grant period of 50 years.
The
Land Use Rights consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Land use rights
|
|
$
|
11,852,416
|
|
|
|
12,308,907
|
|
Less: accumulated amortization
|
|
|
(2,407,101
|
)
|
|
|
(2,378,488
|
)
|
Total land use rights, net
|
|
$
|
9,445,315
|
|
|
|
9,930,419
|
|
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 $854,235) 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 $1,337,680) and is amortized over the remaining useful life of six years using the
straight-line method. As of December 31, 2018, this technology patent is fully amortized.
The
technology know-how consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Technology know-how
|
|
$
|
2,196,693
|
|
|
$
|
2,276,335
|
|
Less: accumulated amortization
|
|
|
(2,196,693
|
)
|
|
|
(2,276,335
|
)
|
Total technology know-how, net
|
|
$
|
-
|
|
|
$
|
-
|
|
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 $9,451,000) 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 $2,395,055) and is amortized over the remaining useful life of seven to ten years.
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Customer relationships
|
|
$
|
11,592,684
|
|
|
$
|
12,039,169
|
|
Less: accumulated amortization
|
|
|
(8,783,893
|
)
|
|
|
(8,460,445
|
)
|
Total customer relationships, net
|
|
$
|
2,808,791
|
|
|
$
|
3,578,724
|
|
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 $191,928) 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 $894,309) and is amortized over the remaining useful
life of five years using the straight-line method.
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Non-compete agreement
|
|
$
|
1,186,964
|
|
|
$
|
1,232,680
|
|
Less: accumulated amortization
|
|
|
(651,425
|
)
|
|
|
(573,180
|
)
|
Total non-compete agreement, net
|
|
$
|
535,539
|
|
|
$
|
659,500
|
|
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 $5,917,780) and is subject to an annual impairment test.
AMORTIZATION
EXPENSE
Estimated
amortization expenses of intangible assets for the next five twelve months periods ended December 31 are as follows:
Twelve Months
Ended on September 30,
|
|
Expense
($)
|
|
2019
|
|
|
1,838,839
|
|
2020
|
|
|
1,306,324
|
|
2021
|
|
|
729,135
|
|
2022
|
|
|
563,663
|
|
2023
|
|
|
496,482
|
|
NOTE
6 – OTHER NON-CURRENT ASSETS
Other
non-current assets mainly include advance payments related to leasing land for use by the Company. As of December 31, 2018, the
balance of other non-current assets was $16,263,621, 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 a lease agreement for approximately 3,400 mu, and 2600-hectare agriculture lands in Shiquan County,
Shaanxi Province. The lease was from April 2017 and was renewable for every ten-year period up to 2066. The aggregate leasing
fee was approximately RMB 13 million per annum, The Company had made 10-year advances of leasing fee per lease terms. The Company
has amortized $1 million as expenses for the six months ended December 31, 2018.
Estimated
amortization expenses of the lease advance payments for the next four twelve-month periods ended December 31 and thereafter are
as follows:
Twelve
months ending December 31,
|
|
|
|
2019
|
|
$
|
1,951,995
|
|
2020
|
|
$
|
1,951,995
|
|
2021
|
|
$
|
1,951,995
|
|
2022
|
|
$
|
1,951,995
|
|
2023
and thereafter
|
|
$
|
8,455,641
|
|
NOTE
7 - ACCRUED EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables consisted of the following:
|
|
December
31,
|
|
|
June
30,
|
|
|
|
2018
|
|
|
2018
|
|
Payroll
payable
|
|
$
|
25,925
|
|
|
$
|
13,788
|
|
Welfare
payable
|
|
|
149,274
|
|
|
|
155,023
|
|
Accrued
expenses
|
|
|
6,172,604
|
|
|
|
5,368,348
|
|
Other
payables
|
|
|
4,816,624
|
|
|
|
4,543,261
|
|
Other
levy payable
|
|
|
121,942
|
|
|
|
126,638
|
|
Total
|
|
$
|
11,286,369
|
|
|
$
|
10,207,058
|
|
NOTE
8 - 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 $3,707,700). For the six months ended December 31, 2018 and 2017, Yuxing
has sold approximately $198,115 and $181,201 products to 900LH.com.
The
amount due from 900LH.com to Yuxing was $0 and $235,551 as of December 31 and June 30, 2018, respectively.
As
of December 31, 2018, and June 30, 2018, the amount due to related parties was $3,640,504 and $3,271,619, respectively. As of
December 31, 2018, and June 30, 2018, $1,017,800 and $1,057,000, respectively were amounts that Gufeng borrowed from a related
party, Xi’an Techteam Science & Technology Industry (Group) Co. Ltd., a company controlled by Mr. Zhuoyu Li, Chairman
and CEO of the Company, representing unsecured, non-interest-bearing loans that are due on demand. These loans are not subject
to written agreements.
As
of December 31, 2018, and June 30, 2018, the Company’s subsidiary, Jinong, owed 900LH.com $402,234 and $393,565, respectively.
On June
29, 2018, Jinong renewed the office lease with Kingtone Information Technology Co., Ltd. (“Kingtone
Information”), of which Mr. Tao Li, former Chairman and CEO of the Company, serves as Chairman of its board of directors.
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 four-year term effective as of July 1, 2018, with a monthly rent of RMB24,480 (approximately $3,559)
NOTE
9- LOAN PAYABLES
As
of December 31, 2018, the short-term loan payables consisted of two loans which mature on dates ranging from May 21 through June
18, 2019, with interest rates ranging from 5.22% to 6.31%. Both loans are collateralized by Tianjuyuan’s land use right
and building ownership right.
No.
|
|
Payee
|
|
Loan
period per agreement
|
|
Interest
Rate
|
|
|
December 31,
2018
|
|
1
|
|
Bank
of Beijing - Pinggu Branch
|
|
May
22, 2018-May 21, 2019
|
|
|
5.22
|
%
|
|
|
1,454,000
|
|
2
|
|
Postal
Saving Bank of China - Pinggu Branch
|
|
June
19, 2018-June 18, 2019
|
|
|
6.31
|
%
|
|
|
2,908,000
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
4,362,000
|
|
The
interest expense from short-term loans was $312,264 and $274,162 for the six months ended December 31, 2018 and 2017, respectively.
NOTE
10 – CONVERTIBLE NOTES PAYABLE
Relating
to the acquisition of the VIE Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders convertible
notes payable twice, in the aggregate notional amount of RMB 51,000,000 ($7,415,400) with a term of three years and an annual
interest rate of 3%.
No.
|
|
Related
Acquisitions of Sales VIEs
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Notional
Interest Rate
|
|
|
Conversion
Price
|
|
|
Notional
Amount
(in RMB)
|
|
1
|
|
Wangtian,
Lishijie, Xindeguo, Xinyulei, Jinyangguang
|
|
June
30, 2016
|
|
June
30, 2019
|
|
3
|
%
|
|
$
|
5.00
|
|
|
|
39,000,000
|
|
2
|
|
Fengnong,
Xiangrong
|
|
January 1, 2017
|
|
December 31, 2019
|
|
3
|
%
|
|
$
|
5.00
|
|
|
|
12,000,000
|
|
The
convertible notes take priority over the preferred stock and common stock of Jinong, and any other class or series of capital
stocks Jinong issues in the future in terms of interests and payments in the event of any liquidation, dissolution or winding
up of Jinong. On or after the third anniversary of the issuance date of the note, noteholders may request Jinong to process the
note conversion to convert the note into shares of the Company’s common stock. The notes cannot be converted prior to the
maturity 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 ($1,744,800) were tendered back to the Company. All outstanding balance of unpaid principal and accrued interest
in the tendered convertible notes were forfeited.
The
Company determined that the fair value of the convertible note payable was RMB 50,225,192 ($7,302,743) and RMB 48,820,525 ($7,371,899)
as of December 31, 2018 and June 30, 2018, respectively. Aside from the forfeiture of the convertible notes previously issued
to Zhenbai’s shareholders, the difference between the fair value of the notes and the face amount of the notes is being
amortized to accretion implied interest expense over the three-year life of the notes. As of December 31, 2018, the accumulated
amortization of this discount into accretion expenses was $1,126,814.
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 were eliminated.
Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, because of the expiration
of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the six-month period ended December
31, 2018 and 2017 of $ 1,356,998 and $1,845,926, respectively, which is mainly due to the operating income from Jinong. Gufeng
is subject to a 25% EIT rate and thus it made provision for income taxes of $1,071,227 and $1,106,590 for the six months ended
December 31, 2018 and 2017, 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.
Income
Taxes and Related Payables
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
VAT provision
|
|
$
|
(343,283
|
)
|
|
$
|
(449,140
|
)
|
Income tax payable
|
|
|
1,598,671
|
|
|
|
554,065
|
|
Other levies
|
|
|
805,609
|
|
|
|
836,747
|
|
Total
|
|
$
|
2,060,997
|
|
|
$
|
941,672
|
|
The
provision for income taxes consists of the following
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Current tax - foreign
|
|
$
|
3,182,061
|
|
|
$
|
6,841,592
|
|
Repatriation Tax
|
|
|
-
|
|
|
|
29,010,535
|
|
Total
|
|
$
|
3,182,061
|
|
|
$
|
35,852,127
|
|
Our
effective tax rates were approximately 21.6% and 20.1% for the six months ended December 31, 2018 and 2017, 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 21% to income before income taxes for the three months ended December 31, 2018 and 2017 for the following reasons:
December
31, 2018
Tax
Rate Reconciliation
|
|
China
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
15%
- 25%
|
|
|
|
|
|
21%
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
15,663,575
|
|
|
|
|
|
|
|
(963,974
|
)
|
|
|
|
|
|
$
|
14,699,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
3,915,894
|
|
|
|
25.0
|
%
|
|
|
(202,435
|
)
|
|
|
21.0
|
%
|
|
|
3,713,459
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(904,666
|
)
|
|
|
(5.8
|
)%
|
|
|
-
|
|
|
|
-
|
|
|
|
(904,666
|
)
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
170,833
|
|
|
|
1.1
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
170,833
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
202,435
|
|
|
|
(21.0
|
)%
|
|
|
202,435
|
|
|
|
|
|
Actual tax expense
|
|
$
|
3,182,061
|
|
|
|
20.3
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
3,182,061
|
|
|
|
21.6
|
%
|
|
|
China
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
15%
- 25%
|
|
|
|
|
|
34%
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
16,805,296
|
|
|
|
|
|
|
$
|
(630,768
|
)
|
|
|
|
|
|
$
|
16,174,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
4,201,324
|
|
|
|
25
|
%
|
|
|
(214,461
|
)
|
|
|
34
|
%
|
|
|
3,986,863
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(1,230,618
|
)
|
|
|
-7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
(1,230,618
|
))
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
282,887
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
282,887
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
0
|
|
|
|
|
|
|
|
214,461
|
|
|
|
-34
|
%
|
|
|
214,461
|
|
|
|
|
|
Actual tax expense
|
|
$
|
3,253,593
|
|
|
|
19.4
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
3,253,593
|
|
|
|
20.1
|
%
|
NOTE
12 – STOCKHOLDERS’ EQUITY
Common
Stock
In
December 2018, the Company issued an aggregate of 650,000 shares of common stock to pay off consulting services under the 2009
Plan. The value of the stock was $370,500 and is based on the fair value of the Company’s common stock on the grant date.
There
was no share issuance of common stock during the three and six months ended December 31, 2017.
As
of December 31, and June 30, 2018, there were 39,546,945 and 38,896,945 shares of common stock issued and outstanding.
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 December 31, 2018, the Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of
which no shares are issued or outstanding.
NOTE
13 –CONCENTRATIONS
Market
Concentration
All
the Company’s revenue-generating operations are conducted in the PRC. Accordingly, the Company’s business, financial
condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the
general state of the PRC’s economy.
The
Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks associated with, among other things, the political, economic
and legal environment and foreign currency exchange. The Company’s results may be adversely affected by, among other things,
changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation.
Vendor
and Customer Concentration
There
were three vendors from each of which the Company purchased more than 10% of its raw materials, with the total of 34.3% of its
raw materials for the six months ended December 31, 2018. Total purchases from these three vendors amounted to $33,149,745 for
the six-month period ended December 31, 2018.
None
of the vendors accounted for over 10% of the Company’s purchase of raw materials and supplies for the six months ended December
31, 2017.
No
customer accounted for over 10% of the Company’s sales for the six months ended December 31, 2018 and 2017.
NOTE
14 – SEGMENT REPORTING
As
of December 31, 2018, 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.
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
Revenues from unaffiliated customers:
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Jinong
|
|
$
|
16,987,360
|
|
|
$
|
26,211,280
|
|
|
$
|
39,483,893
|
|
|
$
|
52,985,040
|
|
Gufeng
|
|
|
22,355,690
|
|
|
|
24,447,721
|
|
|
|
39,828,941
|
|
|
|
42,669,787
|
|
Yuxing
|
|
|
2,623,493
|
|
|
|
1,953,748
|
|
|
|
5,011,039
|
|
|
|
3,746,391
|
|
Sales VIEs
|
|
|
10,287,922
|
|
|
|
10,986,576
|
|
|
|
25,885,396
|
|
|
|
26,326,758
|
|
Consolidated
|
|
$
|
52,254,465
|
|
|
$
|
63,599,325
|
|
|
$
|
110,209,269
|
|
|
$
|
125,727,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
2,171,448
|
|
|
$
|
5,577,154
|
|
|
$
|
9,099,538
|
|
|
$
|
12,343,229
|
|
Gufeng
|
|
|
2,493,457
|
|
|
|
2,549,525
|
|
|
|
4,102,509
|
|
|
|
4,655,738
|
|
Yuxing
|
|
|
(3,796,684
|
)
|
|
|
222,275
|
|
|
|
(3,603,507
|
)
|
|
|
397,748
|
|
Sales VIEs
|
|
|
3,748,752
|
|
|
|
2,014,662
|
|
|
|
6,380,051
|
|
|
|
39,203
|
|
Reconciling item (1)
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
0
|
|
Reconciling item (2)
|
|
|
(342,219
|
)
|
|
|
(432,753
|
)
|
|
|
(963,984
|
)
|
|
|
(630,772
|
)
|
Consolidated
|
|
$
|
4,274,754
|
|
|
$
|
9,930,861
|
|
|
$
|
15,014,607
|
|
|
$
|
16,805,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
1,789,640
|
|
|
$
|
4,719,159
|
|
|
$
|
7,689,656
|
|
|
$
|
10,460,249
|
|
Gufeng
|
|
|
1,731,121
|
|
|
|
1,727,764
|
|
|
|
2,851,465
|
|
|
|
3,216,831
|
|
Yuxing
|
|
|
(3,796,526
|
)
|
|
|
222,869
|
|
|
|
(3,603,348
|
)
|
|
|
398,491
|
|
Sales VIEs
|
|
|
3,136,310
|
|
|
|
1,915,799
|
|
|
|
5,556,339
|
|
|
|
(239,204
|
)
|
Reconciling item (1)
|
|
|
8
|
|
|
|
2
|
|
|
|
10
|
|
|
|
3
|
|
Reconciling item (2)
|
|
|
(342,218
|
)
|
|
|
(432,753
|
)
|
|
|
(963,984
|
)
|
|
|
(630,772
|
)
|
Reconciling item (3)
|
|
|
(12,598
|
)
|
|
|
(325,058
|
)
|
|
|
(12,598
|
)
|
|
|
(325,058
|
)
|
Consolidated
|
|
$
|
2,505,735
|
|
|
$
|
7,827,782
|
|
|
$
|
11,517,540
|
|
|
$
|
12,880,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
194,706
|
|
|
$
|
422,383
|
|
|
$
|
392,964
|
|
|
$
|
1,276,126
|
|
Gufeng
|
|
|
529,305
|
|
|
|
552,299
|
|
|
|
1,065,924
|
|
|
|
1,100,057
|
|
Yuxing
|
|
|
299,900
|
|
|
|
315,282
|
|
|
|
604,719
|
|
|
|
627,801
|
|
Sales VIEs
|
|
|
183,777
|
|
|
|
210,482
|
|
|
|
370,583
|
|
|
|
430,405
|
|
Consolidated
|
|
$
|
1,207,689
|
|
|
$
|
1,500,446
|
|
|
$
|
2,434,189
|
|
|
$
|
3,434,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
68,317
|
|
|
|
71,447
|
|
|
|
137,758
|
|
|
|
142,283
|
|
Gufeng
|
|
|
81,384
|
|
|
|
101,645
|
|
|
|
174,506
|
|
|
|
206,368
|
|
Yuxing
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Sales VIEs
|
|
|
(123
|
)
|
|
|
(78,505
|
)
|
|
|
0
|
|
|
|
(74,489
|
)
|
Consolidated
|
|
$
|
149,578
|
|
|
$
|
94,587
|
|
|
$
|
312,264
|
|
|
$
|
274,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
456
|
|
|
$
|
808
|
|
|
$
|
3,492
|
|
|
$
|
4,149
|
|
Gufeng
|
|
|
18,616
|
|
|
|
297
|
|
|
|
45,604
|
|
|
|
14,165
|
|
Yuxing
|
|
|
6,850
|
|
|
|
4,773
|
|
|
|
8,099
|
|
|
|
4,773
|
|
Sales VIEs
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Consolidated
|
|
$
|
25,922
|
|
|
$
|
5,878
|
|
|
$
|
57,195
|
|
|
$
|
23,086
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Identifiable assets:
|
|
|
|
|
|
|
Jinong
|
|
$
|
191,790,465
|
|
|
$
|
226,335,489
|
|
Gufeng
|
|
|
198,089,974
|
|
|
|
168,572,947
|
|
Yuxing
|
|
|
0
|
|
|
|
0
|
|
Sales VIEs
|
|
|
75,698,359
|
|
|
|
87,567,782
|
|
Reconciling item (1)
|
|
|
822,619
|
|
|
|
512,622
|
|
Reconciling item (2)
|
|
|
(2,879
|
)
|
|
|
(2,879
|
)
|
Consolidated
|
|
$
|
466,398,538
|
|
|
$
|
482,985,960
|
|
(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.
|
(3)
|
Reconciling amounts refer to the adjustment for net gain on derivative liability on convertible bonds.
|
NOTE
15 – COMMITMENTS AND CONTINGENCIES
On June
29, 2018, Jinong renewed 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 four-year term effective as of July 1,
2018, with a monthly rent of $3,559 (approximately RMB 24,480).
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 $430 (RMB 2,958).
Accordingly,
the Company recorded an aggregate of $23,937 and $30,020 as rent expenses from these committed property leases for the six-month
periods ended December 31, 2018 and 2017, respectively. The contingent rent expenses herein for the next five twelve-month periods
ended December 31 are as follows:
Years ending
December 31,
|
|
|
|
2019
|
|
$
|
47,874
|
|
2020
|
|
|
47,874
|
|
2021
|
|
|
47,874
|
|
2022
|
|
|
47,874
|
|
2023
|
|
|
47,874
|
|
NOTE
16 – VARIABLE INTEREST ENTITIES
In
accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack
enough 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 most 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 consolidated financial statements as of December 31 and June 30, 2018:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,216,592
|
|
|
$
|
982,312
|
|
Accounts receivable, net
|
|
|
19,385,523
|
|
|
|
38,295,505
|
|
Inventories
|
|
|
25,072,690
|
|
|
|
21,133,970
|
|
Other current assets
|
|
|
703,112
|
|
|
|
988,051
|
|
Related party receivable
|
|
|
0
|
|
|
|
(359,005
|
|
Advances to suppliers
|
|
|
4,182,891
|
|
|
|
848,458
|
|
Total Current Assets
|
|
|
51,560,808
|
|
|
|
61,889,291
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
10,281,928
|
|
|
|
11,206,667
|
|
Other assets
|
|
|
218,249
|
|
|
|
226,654
|
|
Intangible Assets, Net
|
|
|
10,569,436
|
|
|
|
11,348,180
|
|
Goodwill
|
|
|
3,204,371
|
|
|
|
3,319,732
|
|
Total Assets
|
|
$
|
75,834,792
|
|
|
$
|
87,990,524
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term loan
|
|
$
|
0
|
|
|
$
|
0
|
|
Accounts payable
|
|
|
11,903,980
|
|
|
|
25,584,614
|
|
Customer deposits
|
|
|
618,762
|
|
|
|
841,694
|
|
Accrued expenses and other payables
|
|
|
5,151,624
|
|
|
|
3,896,340
|
|
Amount due to related parties
|
|
|
41,805,103
|
|
|
|
43,339,286
|
|
Total Current Liabilities
|
|
$
|
59,479,469
|
|
|
$
|
73,661,934
|
|
Long-term Loan
|
|
|
0
|
|
|
|
0
|
|
Total Liabilities
|
|
$
|
59,479,469
|
|
|
$
|
73,661,934
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
16,355,323
|
|
|
|
14,328,590
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
|
75,834,792
|
|
|
$
|
87,990,524
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
12,911,414
|
|
|
$
|
13,304,643
|
|
Expenses
|
|
|
13,571,628
|
|
|
|
10,989,225
|
|
Net income
|
|
$
|
(660,214
|
)
|
|
$
|
2,136,994
|
|
|
|
Six Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
30,896,434
|
|
|
$
|
31,077,318
|
|
Expenses
|
|
|
28,943,442
|
|
|
|
25,590,542
|
|
Net income
|
|
$
|
1,952,992
|
|
|
$
|
199,680
|
|
NOTE
17 – BUSINESS COMBINATIONS
On
June 30, 2016, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also
into a series of contractual agreements to qualify as VIEs with the shareholders of Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan
Jinyangguang Sannong Service Co., Ltd., Shenqiu County Zhenbai Agriculture Co., Ltd., Weinan City Linwei District Wangtian Agricultural
Materials Co., Ltd., Aksu Xindeguo Agricultural Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science and Technology
Co., Ltd.
Subsequently,
on January 1, 2017, Jinong entered into similar strategic acquisition agreements and a series of contractual agreements to qualify
as VIEs with the shareholders of Sunwu County Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed Co., Ltd.
On
November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements
and the series of contractual agreements with the shareholders of Zhenbai.
The
VIE Agreements are as follows:
Entrusted
Management Agreements
Pursuant
to the terms of certain Entrusted Management Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the shareholders
of the sales VIE Companies (the “Entrusted Management Agreements”), the sales VIE Companies and their shareholders
agreed to entrust the operations and management of its business to Jinong. According to the Entrusted Management Agreement, Jinong
possesses the full and exclusive right to manage the sales VIE Companies’ operations, assets and personnel, has the right
to control all the sales VIE Companies’ cash flows through an entrusted bank account, is entitled to the sales VIE Companies’
net profits as a management fee, is obligated to pay all the sales VIE Companies’ payables and loan payments, and bears
all losses of the sales VIE Companies. The Entrusted Management Agreements will remain in effect until (i) the parties mutually
agree to terminate the agreement; (ii) the dissolution of the sales VIE Companies; or (iii) Jinong acquires all the assets or
equity of the sales VIE Companies (as more fully described below under “Exclusive Option Agreements”).
Exclusive
Technology Supply Agreements
Pursuant
to the terms of certain Exclusive Technology Supply Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the
sales VIE companies (the “Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to
the sales VIE companies. The sales VIE companies agreed to pay Jinong all fees payable for technology supply prior to making any
payments under the Entrusted Management Agreement. The Exclusive Technology Supply Agreements shall remain in effect until (i)
the parties mutually agree to terminate the agreement; (ii) the dissolution of the sales VIE companies; or (iii) Jinong acquires
the sales VIE companies (as more fully described below under “Exclusive Option Agreements”).
Shareholder’s
Voting Proxy Agreements
Pursuant
to the terms of certain Shareholder’s Voting Proxy Agreements dated June 30, 2016 and January 1, 2017, among Jinong and
the shareholders of the sales VIE companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders
of the sales VIE companies irrevocably appointed Jinong as their proxy to exercise on such shareholders’ behalf all of their
voting rights as shareholders pursuant to PRC law and the Articles of Association of the sales VIE companies, including the appointment
and election of directors of the sales VIE companies. Jinong agreed that it shall maintain a board of directors, the composition
and appointment of which shall be approved by the Board of the Company. The Shareholder’s Voting Proxy Agreements will remain
in effect until Jinong acquires all the assets or equity of the sales VIE companies.
Exclusive
Option Agreements
Pursuant
to the terms of certain Exclusive Option Agreements dated June 30, 2016 and January 1, 2017, among Jinong, the sales VIE companies,
and the shareholders of the sales VIE companies (the “Exclusive Option Agreements”), the shareholders of the sales
VIE companies granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire the sales VIE
companies’ equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations
imposed by PRC law on such transactions. The Option is exercisable at any time at Jinong’s discretion so long as such exercise
and subsequent acquisition of the sales VIE companies does not violate PRC law. The consideration for the exercise of the Option
is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of
such consideration. Jinong may transfer all rights and obligations under the Exclusive Option Agreements to any third parties
without the approval of the shareholders of the sales VIE companies so long as written notice is provided. The Exclusive Option
Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.
Equity
Pledge Agreements
Pursuant
to the terms of certain Equity Pledge Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of
the sales VIE companies (the “Pledge Agreements”), the shareholders of the sales VIE companies pledged all of their
equity interests in the sales VIE companies to Jinong, including the proceeds thereof, to guarantee all of Jinong’s rights
and benefits under the Entrusted Management Agreements, the Exclusive Technology Supply Agreements, the Shareholder’ Voting
Proxy Agreements and the Exclusive Option Agreements. Prior to termination of the Pledge Agreements, the pledged equity interests
cannot be transferred without Jinong’s prior written consent. The Pledge Agreements may be terminated only upon the written
agreement of the parties.
Non-Compete
Agreements
Pursuant
to the terms of certain Non-Compete Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the
sales VIE companies (the “Non-Compete Agreements”), the shareholders of the sales VIE companies agreed that during
the period beginning on the initial date of their services with Jinong, and ending five (5) years after termination of their services
with Jinong, without Jinong’s prior written consent, they will not provide services or accept positions including but not
limited to partners, directors, shareholders, managers, proxies or consultants, provided by any profit-making organizations with
businesses that may compete with Jinong. They will not solicit or interfere with any of the Jinong’s customers or solicit,
induce, recruit or encourage any person engaged or employed by Jinong to terminate his or her service or engagement. If the shareholders
of the sales VIE companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; if
the damages are difficult to determine, remedies bore the shareholders of the sales VIE companies shall be no less than 50% of
the salaries and other expenses Jinong provided in the past.
The
Company entered into these VIE Agreements as a way for the Company to have more control over the distribution of its products.
The transactions are accounted for as business combinations in accordance with ASC 805. A summary of the purchase price allocations
at fair value is below:
For
acquisitions made on June 30, 2016:
Cash
|
|
$
|
708,737
|
|
Accounts receivable
|
|
|
6,422,850
|
|
Advances to suppliers
|
|
|
1,803,180
|
|
Prepaid expenses and other current assets
|
|
|
807,645
|
|
Inventories
|
|
|
7,787,043
|
|
Machinery and equipment
|
|
|
140,868
|
|
Intangible assets
|
|
|
270,900
|
|
Other assets
|
|
|
3,404,741
|
|
Goodwill
|
|
|
3,158,179
|
|
Accounts payable
|
|
|
(3,962,670
|
)
|
Customer deposits
|
|
|
(3,486,150
|
)
|
Accrued expenses and other payables
|
|
|
(4,653,324
|
)
|
Taxes payable
|
|
|
(16,912
|
)
|
Purchase price
|
|
$
|
12,385,087
|
|
A
summary of the purchase consideration paid is below:
Cash
|
|
$
|
5,568,500
|
|
Convertible notes
|
|
|
6,671,769
|
|
Derivative liability
|
|
|
144,818
|
|
|
|
$
|
12,385,087
|
|
The
cash component of the purchase price for these acquisitions made on June 30, 2016 was paid in July and August 2016.
For
acquisitions made on January 1, 2017:
Working Capital
|
|
$
|
941,192
|
|
Machinery and equipment
|
|
|
222,875
|
|
Intangible assets
|
|
|
1440
|
|
Goodwill
|
|
|
684,400
|
|
Customer Relationship
|
|
|
522,028
|
|
Non-compete Agreement
|
|
|
392,852
|
|
Purchase price
|
|
$
|
2,764,787
|
|
A
summary of the purchase consideration paid is below:
Cash
|
|
$
|
1,201,888
|
|
Convertible notes
|
|
|
1,559,350
|
|
Derivative liability
|
|
|
3,549
|
|
|
|
$
|
2,764,787
|
|
The
cash component of the purchase price for these acquisitions made on January 1, 2017 was paid during March 2017.
On
November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements
and the series of contractual agreements with the shareholders of Zhenbai. In return, the shareholders of Zhenbai agreed to tender
the whole payment consideration in the SAA back to the Company with early termination penalties. The convertible notes paid to
Zhenbai’s shareholders and the accrued interest has been forfeited.
For
the discontinuation of Zhenbai made on November 30, 2017, the Company gave up the control of the following assets in Zhenbai:
Working Capital
|
|
$
|
1,179,352
|
|
Intangible assets
|
|
|
896,559
|
|
Customer Relationship
|
|
|
684,727
|
|
Non-compete Agreement
|
|
|
211,833
|
|
Goodwill
|
|
|
538,488
|
|
Total Asset
|
|
$
|
2,614,401
|
|
In
return, the purchase consideration returned to the Company from Zhenbai’s shareholders is summarized below:
Cash
|
|
$
|
461,330
|
|
Interest Payable
|
|
|
83,039
|
|
Convertible notes
|
|
|
1,724,683
|
|
Derivative liability
|
|
|
13,353
|
|
Total Payback
|
|
$
|
2,282,406
|
|
Net Loss
|
|
|
(331,995
|
)
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion
and analysis contain forward-looking statements that involve significant risks and uncertainties. As a result of many factors,
such as the slow-down of the macro-economic environment in China and its impact on economic growth in general, the competition
in the fertilizer industry and the impact of such competition on pricing, revenues and margins, the weather conditions in the
areas where our customers are based, the cost of attracting and retaining highly skilled personnel, the prospects for future acquisitions,
and the factors set forth elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking
statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained
in this report will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report.
The
forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal
securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the
date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about
our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among
other things, the existing regulatory environment, industry conditions, market conditions and prices, and our assumptions as of
such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions
or otherwise.
Unless
the context indicates otherwise, as used in the notes to the financial statements of the Company, the following are the references
herein of all the subsidiaries of the Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned
subsidiary of Green Nevada incorporated in the State of New Jersey; (ii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd.
(“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iii) Xi’an Hu
County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a Variable Interest Entity in the PRC (“VIE”)
controlled by Jinong through contractual agreements; (iv) Shaanxi Lishijie Agrochemical Co., Ltd. (“Lishijie”), a
VIE controlled by Jinong through contractual agreements; (v) Songyuan Jinyangguang Sannong Service Co., Ltd. (“Jinyangguang”),
a VIE in the PRC controlled by Jinong through contractual agreements; (vi) Weinan City Linwei District Wangtian Agricultural Materials
Co., Ltd. (“Wangtian”), a VIE controlled by Jinong through contractual agreements; (vii) Aksu Xindeguo Agricultural
Materials Co., Ltd. (“Xindeguo”), a VIE controlled by Jinong through contractual agreements; (vii) Xinjiang Xinyulei
Eco-agriculture Science and Technology Co., Ltd (“Xinyulei”), a VIE controlled by Jinong through contractual agreements;
(ix) Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), a VIE controlled by Jinong through contractual
agreements; (x) Anhui Fengnong Seed Co., Ltd. (“Fengnong”), a VIE controlled by Jinong through contractual agreements;
(xi) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”); and (xii)
Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”). Yuxing,
Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred to as the “the
VIE Companies”; Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred
to as “the sales VIEs” or “the sales VIE companies”.
Unless
the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic
of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (iii) “RMB”,
“Yuan” and Renminbi are to the currency of the PRC or China.
Overview
We
are engaged in research, development, production, and sale of various types of fertilizers and agricultural products in the PRC
through our wholly-owned Chinese subsidiaries, Jinong and Gufeng (including Gufeng’s subsidiary Tianjuyuan), and our VIE,
Yuxing. Our primary business is fertilizer products, specifically humic-acid based compound fertilizer produced by Jinong and
compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizer, highly-concentrated water-soluble
fertilizer and mixed organic-inorganic compound fertilizer produced by Gufeng. In addition, through Yuxing, we develop and produce
various agricultural products, such as top-grade fruits, vegetables, flowers, and colored seedlings. For financial reporting purposes,
our operations are organized into three business segments: fertilizer products (Jinong), fertilizer products (Gufeng) and agricultural
products production (Yuxing).
The
fertilizer business conducted by Jinong and Gufeng generated approximately 72.0% and 75.5% of our total revenues for the six months
ended December 31, 2018 and 2017, respectively. The sales VIEs generated 23.5% and 21.6% of our revenues for the six months ended
December 31, 2018 and 2017, respectively. Yuxing serves as a research and development base for our fertilizer products.
Fertilizer
Products
As
of December 31, 2018, we had developed and produced a total of 726 different fertilizer products in use, of which 142 were developed
and produced by Jinong, 333 by Gufeng, and 251 by the VIE Companies.
Below
is a table that shows the metric tons of fertilizer sold by Jinong and Gufeng and the revenue per ton for the periods indicated:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
2017 to 2018
|
|
|
|
2018
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
Jinong
|
|
|
17,389
|
|
|
|
13,165
|
|
|
|
4,224
|
|
|
|
32.1
|
%
|
Gufeng
|
|
|
65,351
|
|
|
|
66,237
|
|
|
|
(886
|
)
|
|
|
-1.3
|
%
|
|
|
|
82,740
|
|
|
|
79,402
|
|
|
|
3,338
|
|
|
|
4.2
|
%
|
|
|
Three
Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(revenue per tons)
|
|
Jinong
|
|
$
|
1,033
|
|
|
$
|
2,107
|
|
Gufeng
|
|
|
348
|
|
|
|
364
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Change
2017 to 2018
|
|
|
|
2018
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
Jinong
|
|
|
35,994
|
|
|
|
27,690
|
|
|
|
8,304
|
|
|
|
30.0
|
%
|
Gufeng
|
|
|
114,597
|
|
|
|
129,404
|
|
|
|
(14,807
|
)
|
|
|
-11.4
|
%
|
|
|
|
150,591
|
|
|
|
157,094
|
|
|
|
(6,503
|
)
|
|
|
-4.1
|
%
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(revenue per tons)
|
|
Jinong
|
|
$
|
1,169
|
|
|
$
|
2,045
|
|
Gufeng
|
|
|
349
|
|
|
|
352
|
|
For
the three months ended December 31, 2018, we sold approximately 82,740 metric tons of fertilizer products, as compared to 79,402
metric tons for the three months ended December 31, 2017. For the three months ended December 31, 2018, Jinong sold approximately
17,839 metric tons of fertilizer products, as compared to 13,165 metric tons for the three months ended December 31, 2017. For
the three months ended December 31, 2018, Gufeng sold approximately 65,351 metric tons of fertilizer products, as compared to
66,237 metric tons for the three months ended December 31, 2017.
For
the six months ended December 31, 2018, we sold approximately 150,591 metric tons of fertilizer products, as compared to 157,094
metric tons for the six months ended December 31, 2017. For the six months ended December 31, 2018, Jinong sold approximately
35,994 metric tons of fertilizer products, an increase of 8,304 metric tons, or 30.0%, as compared to 27,690 metric tons for the
six months ended December 31, 2017. For the six months ended December 31, 2018, Gufeng sold approximately 114,597 metric tons
of fertilizer products, a decrease of 14,807 metric tons, or 11.4% as compared to 129,404 metric tons for the six months ended
December 31, 2017
Our
sales of fertilizer products to customers in five provinces within China accounted for approximately 65.0% of our fertilizer revenue
for the three months ended December 31, 2018. Specifically, the provinces and their respective percentage contributing to our
fertilizer revenues were Hebei (27.8%), Heilongjiang (11.5%), Liaoning (9.3%), Inner Mongolia (8.4%) and Shaanxi (8.0%).
As
of December 31, 2018, we had a total of 1,984 distributors covering 22 provinces, 4 autonomous regions and 4 central-government-controlled
municipalities in China. Jinong had 1,167 distributors in China. Jinong’s sales are not dependent on any single distributor
or any group of distributors. Jinong’s top five distributors accounted for 3.7% of its fertilizer revenues for the three
months ended December 31, 2018. Gufeng had 319 distributors, including some large state-owned enterprises. Gufeng’s top
five distributors accounted for 77.4% of its revenues for the three months ended December 31, 2018.
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 82.0% of our agricultural products
revenue for the three months ended December 31, 2018 were Shaanxi (73.2%), Hebei (4.7%) and Sichuan (4.2%).
Recent
Developments
New
Products
During
the three months ended December 31, 2018, Jinong did not launch any new fertilizer products but added 5 new distributors. During
the three months ended December 31, 2018, Gufeng did not launch any new fertilizer products but added 1 new distributor.
Strategic
Acquisitions
On
June 30, 2016 and January 1, 2017, through Jinong, we entered into (i) Strategic Acquisition Agreements (the “SAA”),
and (ii) Agreements for Convertible Notes (the “ACN”), with the shareholders of the companies as identified below
(the “Targets”).
June
30, 2016:
|
|
|
|
Cash
|
|
|
Principal
of
|
|
|
|
|
|
Payment
for
|
|
|
Notes
for
|
|
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
Company
Name
|
|
Business
Scope
|
|
(RMB
[1]
)
|
|
|
(RMB)
|
|
Shaanxi
Lishijie Agrochemical Co., Ltd.
|
|
Sales
of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
|
10,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Songyuan
Jinyangguang Sannong Service Co., Ltd.
|
|
Promotion
and consulting services regarding agricultural technologies; Retail sales of chemical fertilizers (including compound fertilizers
and organic fertilizers); Wholesale and retail sales of pesticides, agricultural machinery and accessories; Collection of
agricultural information; Development of saline-alkali soil; Promotion and development of high-efficiency agriculture and
related information technology solutions for agriculture, agricultural and biological engineering high technologies; E-commerce;
Cultivation of freshwater fish, poultry, fruits, flowers, vegetables, and seeds; Recycling and complex utilization of straw
and stalk; Technology transfer and training; Recycling of agricultural materials ; Ecological industry planning.
|
|
|
8,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Shenqiu
County Zhenbai Agriculture Co., Ltd.
|
|
Cultivation
of crops; Storage, sales, preliminary processing and logistics distribution of agricultural by-products; Promotion and application
of agricultural technologies; Purchase and sales of agricultural materials; Electronic commerce.
|
|
|
3,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Weinan
City Linwei District Wangtian Agricultural Materials Co., Ltd.
|
|
Promotion
and application of new agricultural technologies; Professional prevention of plant diseases and insect pests; Sales of plant
protection products, plastic mulches, material, chemical fertilizers, pesticides, agricultural medicines, micronutrient fertilizers,
hormones, agricultural machinery and medicines, and gardening tools.
|
|
|
6,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Aksu
Xindeguo Agricultural Materials Co., Ltd.
|
|
Wholesale
and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers,
compound fertilizers, plant growth regulators, agricultural machinery, and water economizers; Consulting services for agricultural
technologies; Purchase and sales of agricultural by-products.
|
|
|
10,000,000
|
|
|
|
12,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinjiang
Xinyulei Eco-agriculture Science and Technology Co., Ltd
|
|
Sales
of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, organic fertilizers, plant growth
regulators, agricultural machineries, and water economizers; Purchase and sales of agricultural by-products; Cultivation of
fruits and vegetables; Consulting services and training for agricultural technologies; Storage services; Sales of articles
of daily use, food and oil; On-line sales of the above-mentioned products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
37,000,000
|
|
|
|
51,000,000
|
|
(1)
|
The
exchange rate between RMB and U.S. dollars on June 30, 2016 is RMB1=US$0.1508, according to the exchange rate published by
Bank of China.
|
|
|
(2)
|
On
November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements
and the series of contractual agreements with the shareholders of Zhenbai. In return, the shareholders of Zhenbai agreed to
tender the whole payment consideration in the SAA back to the Company with early termination penalties. The convertible notes
paid to Zhenbai’s shareholders and the accrued interest has been forfeited.
|
January
1, 2017:
|
|
|
|
Cash
|
|
|
Principal
of
|
|
|
|
|
|
Payment
for
|
|
|
Notes
for
|
|
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
Company
Name
|
|
Business
Scope
|
|
(RMB
[1]
)
|
|
|
(RMB)
|
|
Sunwu
County Xiangrong Agricultural Materials Co., Ltd.
|
|
Sales
of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Anhui
Fengnong Seed Co., Ltd.
|
|
Wholesale
and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers,
compound fertilizers, and plant growth regulators
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
8,000,000
|
|
|
|
12,000,000
|
|
(1)
|
The
exchange rate between RMB and U.S. dollars on January 1, 2017 is RMB1=US$0.144, according to the exchange rate published by
Bank of China.
|
Pursuant
to the SAA and the ACN, the shareholders of the Targets, while retaining possession of the equity interests and continuing to
be the legal owners of such interests, agreed to pledge and entrust all of their equity interests, including the proceeds thereof
but excluding any claims or encumbrances, and the operations and management of its business to Jinong, in exchange of an aggregate
amount of RMB45,000,000 (approximately $6,731,600) to be paid by Jinong within three days following the execution of the SAA,
ACN and the VIE Agreements, and convertible notes with an aggregate face value of RMB 63,000,000 (approximately $9,418,800) with
an annual fixed compound interest rate of 3% and term of three years.
Jinong
acquired the Targets using the VIE arrangement based on our need to further develop our business and comply with the regulatory
requirements under the PRC laws.
As
our business focuses on the production of fertilizer, all our business activities intertwine with those in the agriculture industry
in China. Specifically, we deal with compliance, regulation, safety, inspection, and licenses in fertilizer production, 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 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 a 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 are also subject to risk derived from the discretion
of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC. As a result, there
can no assurance that any of such PRC Laws will not be changed, amended or replaced in the immediate future or in the longer term
with or without retrospective effect.
Results of Operations
Three Months ended December 31, 2018 Compared to the Three
Months ended December 31, 2017.
|
|
2018
|
|
|
2017
|
|
|
Change $
|
|
|
Change %
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
16,987,360
|
|
|
$
|
26,211,280
|
|
|
|
(9,223,920
|
)
|
|
|
-35.2
|
%
|
Gufeng
|
|
|
22,355,690
|
|
|
|
24,447,721
|
|
|
|
(2,092,031
|
)
|
|
|
-8.6
|
%
|
Yuxing
|
|
|
2,623,493
|
|
|
|
1,953,748
|
|
|
|
669,745
|
|
|
|
34.3
|
%
|
VIEs - others
|
|
|
10,287,920
|
|
|
|
10,986,576
|
|
|
|
(698,656
|
)
|
|
|
-6.4
|
%
|
Net sales
|
|
|
52,254,463
|
|
|
|
63,599,325
|
|
|
|
(11,344,862
|
)
|
|
|
-17.8
|
%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
8,994,882
|
|
|
|
13,265,827
|
|
|
|
(4,270,945
|
)
|
|
|
-32.2
|
%
|
Gufeng
|
|
|
19,764,817
|
|
|
|
21,160,024
|
|
|
|
(1,395,207
|
)
|
|
|
-6.6
|
%
|
Yuxing
|
|
|
2,166,566
|
|
|
|
1,536,238
|
|
|
|
630,328
|
|
|
|
41.0
|
%
|
VIEs - others
|
|
|
9,083,973
|
|
|
|
9,135,024
|
|
|
|
(51,051
|
)
|
|
|
-0.6
|
%
|
Cost of goods sold
|
|
|
40,010,238
|
|
|
|
45,097,113
|
|
|
|
(5,086,875
|
)
|
|
|
-11.3
|
%
|
Gross profit
|
|
|
12,244,225
|
|
|
|
18,502,212
|
|
|
|
(6,257,987
|
)
|
|
|
-33.8
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
8,069,103
|
|
|
|
7,668,468
|
|
|
|
400,635
|
|
|
|
5.2
|
%
|
General and administrative expenses
|
|
|
(99,632
|
)
|
|
|
902,883
|
|
|
|
(1,002,515
|
)
|
|
|
-111.0
|
%
|
Total operating expenses
|
|
|
7,969,471
|
|
|
|
8,571,351
|
|
|
|
(601,880
|
)
|
|
|
-7.0
|
%
|
Income from operations
|
|
|
4,274,754
|
|
|
|
9,930,861
|
|
|
|
(5,656,107
|
)
|
|
|
-57.0
|
%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(187,753
|
)
|
|
|
(276,836
|
)
|
|
|
89,083
|
|
|
|
-32.2
|
%
|
Discontinued VIE operation - Zhenbai
|
|
|
0
|
|
|
|
(330,966
|
)
|
|
|
330,966
|
|
|
|
-100.0
|
%
|
Interest income
|
|
|
95,957
|
|
|
|
130,248
|
|
|
|
(34,291
|
)
|
|
|
-26.3
|
%
|
Interest expense
|
|
|
(149,578
|
)
|
|
|
(94,587
|
)
|
|
|
(54,991
|
)
|
|
|
58.1
|
%
|
Total other income (expense)
|
|
|
(241,374
|
)
|
|
|
(572,141
|
)
|
|
|
330,767
|
|
|
|
-57.8
|
%
|
Income before income taxes
|
|
|
4,033,380
|
|
|
|
9,358,720
|
|
|
|
(5,325,340
|
)
|
|
|
-56.9
|
%
|
Provision for income taxes
|
|
|
1,527,645
|
|
|
|
1,530,938
|
|
|
|
(3,293
|
)
|
|
|
-0.2
|
%
|
Net income from continuing operations
|
|
|
2,505,735
|
|
|
|
7,827,782
|
|
|
|
(5,322,047
|
)
|
|
|
-68.0
|
%
|
Net income from discontinued operation, net of tax
|
|
|
0
|
|
|
|
(1,676
|
)
|
|
|
1,676
|
|
|
|
-100.0
|
%
|
Net income
|
|
|
2,505,735
|
|
|
|
7,826,106
|
|
|
|
(5,320,372
|
)
|
|
|
-68.0
|
%
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(472,069
|
)
|
|
|
8,256,738
|
|
|
|
(8,728,807
|
)
|
|
|
-105.7
|
%
|
Comprehensive income (loss)
|
|
$
|
2,0033,666
|
|
|
$
|
16,082,844
|
|
|
$
|
(14,049,179
|
)
|
|
|
-87.4
|
%
|
Basic weighted average shares outstanding
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
|
|
995,681
|
|
|
|
2.6
|
%
|
Basic net earnings per share from continuing operations
|
|
|
0.06
|
|
|
|
0.20
|
|
|
|
-0.14
|
|
|
|
-68.6
|
%
|
Basic net earnings per share from discontinued operations
|
|
|
-
|
|
|
|
-0.00
|
|
|
|
0.00
|
|
|
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
|
|
995,681
|
|
|
|
2.6
|
%
|
Diluted net earnings per share from continuing operations
|
|
|
0.06
|
|
|
|
0.20
|
|
|
|
-0.14
|
|
|
|
-68.6
|
%
|
Diluted net earnings per share from discontinued operations
|
|
|
-
|
|
|
|
-0.00
|
|
|
|
0.00
|
|
|
|
-100.0
|
%
|
Net Sales
Total net sales for the three months ended
December 31, 2018 were $52,254,463, a decrease of $11,344,862 or 17.8%, from $63,599,325 for the three months ended December 31,
2017. This decrease was primarily due to a decrease in Jinong’s and Gufeng’s net sales.
For the three months ended December 31,
2018, Jinong’s net sales decreased $9,223,920, or 35.2%, to $16,987,360 from $ 26,211,280 for the three months ended December
31, 2017. This decrease was mainly attributable to the decrease in Jinong’s sales price in the last three months.
For the three months ended December 31,
2018, Gufeng’s net sales were $22,355,690, a decrease of $2,092,031, or 8.6% from $ 24,447,721 for the three months ended
December 31, 2017. This decrease was mainly attributable to the decrease in Gufeng’s sales price in the last three months.
For the three months ended December 31,
2018, Yuxing’s net sales were $2,623,493, an increase of $669,745 or 34.3%, from $1,953,748 for the three months ended December
31, 2017. The increase was mainly attributable to the increase in market demand and the higher prices on Yuxing’s top-grade
flowers during the three months ended December 31, 2018.
Cost of Goods Sold
Total cost of goods sold for the three
months ended December 31, 2018 was $ 40,010,238, a decrease of $5,086,875, or 11.3%, from $45,097,113 for the three months ended
December 31, 2017. The decrease was mainly due to the decrease in Jinong’s and Gufeng’s cost of goods sold which decreased
32.2% and 6.6% respectively.
Cost of goods sold by Jinong for the three
months ended December 31, 2018 was $ 8,994,882, a decrease of $4,270,945, or 32.2%, from $13,112,756 for the three months ended
December 31, 2017. The decrease in cost of goods was primarily attributable to the 35.2% decrease in net sale during the last three
months.
Cost of goods sold by Gufeng for the three
months ended December 31, 2018 was $ 19,764,817, a decrease of $1,395,207, or 6.6%, from $21,160,024 for the three months ended
December 31, 2017. This decrease was primarily attributable to the 8.6% decrease in net sale during the last three months.
For three months ended December 31, 2018,
cost of goods sold by Yuxing was $2,166,566, an increase of $630,328, or 41.0%, from $1,536,238 for the three months ended December
31, 2017. This increase was mainly due to the increase in Yuxing’s net sales during the last three months.
Gross Profit
Total gross profit for the three months
ended December 31, 2018 decreased by $6,257,987, or 33.8%, to $12,244,225 as compared to $18,502,212 for the three months ended
December 31, 2017. Gross profit margin was 23.4% and 29.1% for the three months ended December 31, 2018 and 2017, respectively.
Gross profit generated by Jinong decreased
by $4,952,975, or 38.3%, to $7,992,478 for the three months ended December 31, 2018 from $12,945,453 for the three months ended
December 31, 2017. Gross profit margin from Jinong’s sales was approximately 47.0% and 49.4% for the three months ended December
31, 2018 and 2017, respectively. The decrease in gross profit margin was mainly due to the lower sales prices.
For the three months ended December 31,
2018, gross profit generated by Gufeng was $2,590,873, a decrease of $696,824, or 21.2%, from $3,287,697 for the three months ended
December 31, 2017. Gross profit margin from Gufeng’s sales was approximately 11.6% and 13.4% for the three months ended December
31, 2018 and 2017, respectively. The decrease in gross profit was mainly due to the increase in product costs and the decrease
in sales prices.
For the three months ended December 31,
2018, gross profit generated by Yuxing was $456,927, an increase of $39,417, or 9.4% from $417,510 for the three months ended December
31, 2017. The gross profit margin was approximately 17.4% and 21.4% for the three months ended December 31, 2018 and 2017, respectively.
The decrease in gross profit percentage was mainly due to the increase in product costs and the decrease in sales prices.
Gross profit generated by VIEs decreased
by $647,605, or 35.0%, to $1,203,947 for the three months ended December 31, 2018 from $1,851,552 for the three months ended December
31, 2017. Gross profit margin from VIE’s sales was approximately 11.7% and 16.9% for the three months ended December 31,
2018 and 2017, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs.
Selling Expenses
Our selling expenses consisted primarily
of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses
were $8,069,103, or 15.4%, of net sales for the three months ended December 31, 2018, as compared to $7,668,468, or 12.1% of net
sales for the three months ended December 31, 2017, an increase of $400,635, or 5.2%.
The selling expenses of Jinong for the
three months ended December 31, 2018 were $6,986,819 or 41.1% of Jinong’s net sales, as compared to selling expenses of $7,172,773
or 27.4% of Jinong’s net sales for the three months ended December 31, 2017. The selling expenses of Yuxing were $10,444
or 0.4% of Yuxing’s net sales for the three months ended December 31, 2018, as compared to $10,498 or 0.5% of Yuxing’s
net sales for the three months ended December 31, 2017. The selling expenses of Gufeng were $160,863 or 0.7% of Gufeng’s
net sales for the three months ended December 31, 2018, as compared to $ 189,945 or 0.1% of Gufeng’s net sales for the three
months ended December 31, 2017.
Selling Expenses – amortization of deferred assets
Our selling expenses
- amortization of our deferred assets were 0 for the three months ended December 31, 2018 and 2017. All the deferred assets were
fully amortized and therefore no amortization was recorded on the fully amortized assets for the fiscal year ended December 31,
2018 and 2017.
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 $(99,632), or -0.2% of net sales for the three months ended December 31, 2018, as compared
to $902,883, or 1.4% of net sales for the three months ended December 31, 2017, a decrease of $1,002,515, or 111.0%. The decrease
was mainly due to the adjustment for bad debt expense during the last three months.
Total Other Expenses
Total other expenses consisted of
income from subsidies received from the PRC government, interest income, interest expenses, and bank charges. Total other
expense for the three months ended December 31, 2018 was $241,374, as compared to $572,155 for the three months ended
December 31, 2017, a decrease in expense of $330,767, or 57.8%. The decrease in total other expense mainly resulted from a
decrease in bank charges and accretion expenses.
Income Taxes
Jinong is subject to a preferred tax rate
of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law (“EIT”)
that became effective on January 1, 2008. Jinong incurred income tax expenses of $315,818 for the three months ended December 31,
2018, as compared to $828,989 for the three months ended December 31, 2017, a decrease of $513,171, or 61.9%.
Gufeng is subject to a tax rate of 25%,
incurred income tax expenses of $598,173 for the three months ended December 31, 2018, as compared to $594,794 for the three months
ended December 31, 2017, a slight increase of $3,379.
Yuxing has no income tax for the three
months ended December 31, 2018 and 2017 as a result of being exempted from paying income tax due to its products fall into the
tax exemption list set out in the EIT.
Net Income
Net income for the three months ended December
31, 2018 was $2,505,735, a decrease of $5,322,047, or 68.0%, compared to $7,827,782 for the three months ended December 31, 2017.
Net income as a percentage of total net sales was approximately 4.8% and 12.3% for the three months ended December 31, 2018 and
2017, respectively.
Six Months ended December 31, 2018 Compared to the Six Months
ended December 31, 2017.
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
$
|
|
|
Change
%
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
39,483,893
|
|
|
$
|
52,985,040
|
|
|
|
(13,501,147
|
)
|
|
|
-25.5
|
%
|
Gufeng
|
|
|
39,828,941
|
|
|
|
42,669,787
|
|
|
|
(2,840,846
|
)
|
|
|
-6.7
|
%
|
Yuxing
|
|
|
5,011,039
|
|
|
|
3,746,391
|
|
|
|
1,264,648
|
|
|
|
33.8
|
%
|
VIEs - others
|
|
|
25,885,396
|
|
|
|
26,326,758
|
|
|
|
(441,362
|
)
|
|
|
-1.7
|
%
|
Net sales
|
|
|
110,209,269
|
|
|
|
125,727,976
|
|
|
|
(15,518,707
|
)
|
|
|
-12.3
|
%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
20,198,054
|
|
|
|
26,378,583
|
|
|
|
(6,180,529
|
)
|
|
|
-23.4
|
%
|
Gufeng
|
|
|
35,069,680
|
|
|
|
37,146,453
|
|
|
|
(2,076,773
|
)
|
|
|
-5.6
|
%
|
Yuxing
|
|
|
4,213,729
|
|
|
|
2,928,791
|
|
|
|
1,284,938
|
|
|
|
43.9
|
%
|
VIEs - others
|
|
|
22,013,941
|
|
|
|
21,828,653
|
|
|
|
185,288
|
|
|
|
0.8
|
%
|
Cost of goods sold
|
|
|
81,495,404
|
|
|
|
88,282,480
|
|
|
|
(6,787,076
|
)
|
|
|
-7.7
|
%
|
Gross profit
|
|
|
28,713,865
|
|
|
|
37,445,496
|
|
|
|
(8,731,631
|
)
|
|
|
-23.3
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
11,489,530
|
|
|
|
12,822,665
|
|
|
|
(1,333,135
|
)
|
|
|
-10.4
|
%
|
General and administrative expenses
|
|
|
2,209,728
|
|
|
|
7,817,685
|
|
|
|
(5,607,957
|
)
|
|
|
-71.7
|
%
|
Total operating expenses
|
|
|
13,699,258
|
|
|
|
20,640,350
|
|
|
|
(6,941,092
|
)
|
|
|
-33.6
|
%
|
Income from operations
|
|
|
15,014,607
|
|
|
|
16,805,146
|
|
|
|
(1,790,539
|
)
|
|
|
-10.7
|
%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(226,083
|
)
|
|
|
(284,047
|
)
|
|
|
57,964
|
|
|
|
-20.4
|
%
|
Discontinued VIE operation - Zhenbai
|
|
|
0
|
|
|
|
(330,966
|
)
|
|
|
330,966
|
|
|
|
-100.0
|
%
|
Interest income
|
|
|
223,341
|
|
|
|
218,162
|
|
|
|
5,178
|
|
|
|
2.4
|
%
|
Interest expense
|
|
|
(312,264
|
)
|
|
|
(274,162
|
)
|
|
|
(38,102
|
)
|
|
|
13.9
|
%
|
Total other income (expense)
|
|
|
(315,006
|
)
|
|
|
(671,013
|
)
|
|
|
356,006
|
|
|
|
-53.1
|
%
|
Income before income taxes
|
|
|
14,699,061
|
|
|
|
16,134,133
|
|
|
|
(1,434,532
|
)
|
|
|
-8.9
|
%
|
Provision for income taxes
|
|
|
3,182,061
|
|
|
|
3,253,593
|
|
|
|
(71,532
|
)
|
|
|
-2.2
|
%
|
Net income from continuing operations
|
|
|
11,517,540
|
|
|
|
12,880,540
|
|
|
|
(1,363,000
|
)
|
|
|
-10.6
|
%
|
Net income from discontinued operation, net of tax
|
|
|
0
|
|
|
|
40,394
|
|
|
|
(40,394
|
)
|
|
|
-100.0
|
%
|
Net income
|
|
|
11,517,540
|
|
|
|
12,920,934
|
|
|
|
(1,403,394
|
)
|
|
|
-10.9
|
%
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(16,459,861
|
)
|
|
|
8,496,956
|
|
|
|
(24,956,817
|
)
|
|
|
-293.7
|
%
|
Comprehensive income (loss)
|
|
$
|
(4,942,321
|
)
|
|
$
|
21,417,890
|
|
|
|
(26,360,211
|
)
|
|
|
-123.1
|
%
|
Basic weighted average shares outstanding
|
|
|
39,546,945
|
|
|
|
38,551,264
|
|
|
|
995,681
|
|
|
|
2.6
|
%
|
Basic net earnings per share from continuing operations
|
|
|
0.29
|
|
|
|
0.33
|
|
|
|
-0.04
|
|
|
|
-12.7
|
%
|
Basic net earnings per share from discontinued operations
|
|
|
-
|
|
|
|
0.00
|
|
|
|
-0.00
|
|
|
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
39,546,945
|
|
|
|
38,185,277
|
|
|
|
1,361,668
|
|
|
|
3.6
|
%
|
Diluted net earnings per share from continuing operations
|
|
|
0.29
|
|
|
|
0.34
|
|
|
|
-0.05
|
|
|
|
-14.2
|
%
|
Diluted net earnings per share from discontinued operations
|
|
|
-
|
|
|
|
0.00
|
|
|
|
-0.00
|
|
|
|
-100.0
|
%
|
Net Sales
Total net sales for the six months
ended December 31, 2018 were $110,209,269, a decrease of $15,518,707, or 12.3%, from $125,727,976 for the six months ended December
31, 2017.This decrease was largely due to the decrease of Jinong’s net sales during the six months ended December 31, 2018.
The Jinong’s net sales for the six months ended December 31, 2018 were $39,483,893, a decrease of $13,501,147, or 25.5% from
the same period a year ago.
For the six months ended December 31, 2018,
Jinong’s net sales decreased of $13,501,147, or 25.5%, to $39,483,893 from $52,985,040 for the six months ended December
31, 2017. This decrease was mainly due to the decrease in Jinong’s sales price.
For the six months ended December 31, 2018,
Gufeng’s net sales were $39,828,941, a decrease of $2,840,846 or 6.7% from $42,669,787 for the six months ended December
31, 2017. This decrease was mainly due to the decrease in Gufeng’s sales volume, which was the result of the decrease in
market demand during the six months ended December 31, 2017.
For the six months ended December 31, 2018,
Yuxing’s net sales were $5,011,039, an increase of $1,264,648 or 33.8%, from $3,746,391 during the six months ended
December 31, 2017. The increase was mainly attributable to the increase in market demand.
For the six months ended December 31,
2018, VIEs’ net sales were $ 25,885,396, a decrease of $441,362 or 1.7% from $ 26,326,758 for the six months ended December
31, 2017. This decrease was mainly due to the discontinue of Zhenbai on November 30, 2017.
Cost of Goods Sold
Total cost of goods sold for the six months
ended December 31, 2018 was $81,495,404, a decrease of $6,787,076 or 7.7%, from $88,282,480 for the six months ended December 31,
2017. This decrease was mainly due to the decrease of Jinong and Gufeng’s cost of goods sold.
Cost of goods sold by Jinong for the six
months ended December 31, 2018 was $20,198,504, a decrease of $6,180,529, or 23.4%, from $26,378,583 for the six months ended December
31, 2017. The decrease was primarily due to the decrease in net sales during the last six months.
Cost of goods sold by Gufeng for the six
months ended December 31, 2018 was $35,069,680 a decrease of $2,076,773, or 5.6%, from $37,146,453 for the six months ended December
31, 2017. This decrease was primarily due to the decrease in net sales during the last six months.
For the six months ended December 31, 2018,
cost of goods sold by Yuxing was $4,213,729, an increase of $1,284,938, or 43.9%, from $2,928,791 for the six months ended December
31, 2017. This increase was mainly attributable to the increase in Yuxing’s net sales.
Cost of goods sold by VIEs for the six
months ended December 31, 2018 was $21,828,653, a decrease of $185,288, or 0.8%, from $ 22,661,751 for the six months ended December
31, 2017. This decrease was primarily due to the decrease in net sales during the last six months.
Gross Profit
Total gross profit for the six months ended
December 31, 2018 decreased by $8,731,631 to $28,713,865, as compared to $37,445,496 for the six months ended December 31, 2017.
Gross profit margin was 26.1% and 29.8% for the six months ended December 31, 2018 and 2017, respectively.
Gross profit generated by Jinong decreased
by $ 7,320,618, or 27.5%, to $19,285,839 for the six months ended December 31, 2018 from $26,606,457 for the six months ended December
31, 2017. Gross profit margin from Jinong’s sales was approximately 48.8% and 50.2% for the six months ended December 31,
2018 and 2017, respectively. The decrease in gross profit margin was mainly due to the lower sales price.
For the six months ended December 31, 2018,
gross profit generated by Gufeng was $4,759,261, a decrease of $764,073, or 13.8%, from $5,523,334 for the six months ended December
31, 2017. Gross profit margin from Gufeng’s sales was approximately 11.9% and 12.9% for the six months ended December 31,
2018 and 2017, respectively. The decrease in gross profit percentage was mainly due to the increased weight for lower-margin products
sales in Gufeng’s total sales answering to market demand.
For the six months ended December 31, 2018,
gross profit generated by Yuxing was $797,310, a slight decrease of $20,290, or 2.5% from $817,600 for the six months ended December
31, 2017. The gross profit margin was approximately 15.9% and 21.8% for the six months ended December 31, 2018 and 2017,
respectively. The decrease in gross profit margin was mainly due to the higher material cost.
For the six months ended December 31, 2018,
gross profits generated by VIEs were $3,871,455, a decrease of $626,650, or 13.9%, from $4,498,105 for the six months ended December
31, 2017. Gross profit margin from VIEs’ sales was approximately 15.0% and 17.1% for the six months ended December 31, 2018
and 2017, respectively. The decrease in gross profit percentage was mainly due to higher raw material cost.
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 $11,489,530, or 10.4%, of net sales for the six months ended December 31, 2018, as compared to $12,822,665 or 10.2% of net
sales for the six months ended December 31, 2017, a decrease of $ 1,333,135, or 10.4%. This decrease was primarily due to Jinong.
The selling expenses of Jinong for the six months ended December 31, 2018 were $ 10,058,050 or 25.5% of Jinong’s net sales,
as compared to selling expenses of $12,015,951 or 22.7% of Jinong’s net sales for the six months ended December 31, 2017.
The decrease in Jinong’s selling expenses was due to Jinong’s expanded marketing efforts and the increase in shipping
costs. The selling expenses of Yuxing were $ 28,173 or 0.6% of Yuxing’s net sales for the six months ended December 31, 2018,
as compared to $20,144, or 0.5% of Yuxing’s net sales for the six months ended December 31, 2017. The selling expenses of
Gufeng were $ 237,627 or 0.6% of Gufeng’s net sales for the six months ended December 31, 2018, as compared to $285,721 or
0.7% of Gufeng’s net sales for the six months ended December 31, 2017. The selling expenses of VIEs were $ 1,165,679, or
4.5%, of VIEs’ net sales or the six months ended December 31, 2018, as compared to $500,849, or 19% of VIEs’ net sales
for the six months ended December 31, 2017.
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 $2,209,728, or 2.0% of net sales for the six months ended December 31, 2018, as compared
to $7,817,685, or 6.2%, of net sales for the six months ended December 31, 2016, a decrease of $5,607,957, or 71.7%. The decrease
was mainly due to the adjustment for bad debt expense during the last six months.
Total Other Expenses
Total other expenses consisted of income
from subsidies received from the PRC government, interest income, interest expenses, and bank charges. The total other expense
for the six months ended December 31, 2018 was $315,006, as compared to $671,013 for the six months ended December 31, 2017, a
decrease of $356,006, or 53.1%. The decrease in total other expense mainly resulted from the decrease in bank charges and accretion
expenses.
Income Taxes
Jinong is subject to a preferred tax rate
of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law (“EIT”)
that became effective on January 1, 2008. Jinong incurred income tax expenses of $ 1,356,998 for the six months ended December
31, 2018, as compared to $1,842,123for the six months ended December 31, 2016, a decrease of $485,125, or 26.3%.
Gufeng, subject to a tax rate of 25%, incurred
income tax expenses of $993,428 for the six months ended December 31, 2018, as compared to $1,106,590 for the six months ended
December 31, 2017, a decrease of $113,162, or 10.2%. The decrease is mainly due to the decrease in net sales for Gufeng for the
six months ended December 31, 2018 comparing to the same period of last year.
Yuxing has no income tax for the six months
ended December 31, 2017, as a result of being exempted from paying income tax due to its products fall into the tax exemption list
set out in the EIT.
Net Income
Net income for the six months ended December
31, 2018 was $11,517,5408, a decrease of $1,363,000, or 10.6%, compared to $12,880,540 for the six months ended December 31, 2017.
Net income as a percentage of total net sales was approximately 10.5% and 10.2 % for the six months ended December 31, 2018 and
2017, respectively.
Discussion of Segment Profitability Measures
As of December 31, 2018, we were engaged
in the following businesses: the production and sale of fertilizers through Jinong and Gufeng, the production and sale of high-quality
agricultural products by Yuxing, and the sales of agriculture materials by the sales VIEs. For financial reporting purpose, our
operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng
(fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual
budget about development, production, and sales.
Each of the four operating segments referenced
above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) makes decisions with respect
to resources allocation and performance assessment upon receiving financial information, including revenue, gross margin, operating
income and net income produced from the various general ledger systems; however, net income by segment is the principal benchmark
to measure profit or loss adopted by the CODM.
For
Jinong, the net income decreased by $2,770,593, or 26.5% to $7,689,656 for six months ended December 31, 2018, from
$
10,460,249
for the six months ended December 31, 2017. The decrease was principally due
to decreased in the next sales.
For Gufeng,
the net income decreased by $625,827 or 18.0% to $ 2,851,465 for six months ended December 31, 2018 from $
3,477,292
for
six months ended December 31, 2017. The decrease was principally due to the decrease in net sales.
For Yuxing, the net income decreased $4,001,839
or 1004.2% to $(3,603,348) for six months ended December 31, 2018 from $ 398,491 for six months ended December 31, 2017. The decrease
was mainly due to the increase in general and administrative expenses caused by bacterial infection.
For the sales VIEs, the net income was
$ 1,952,993 for period ended December 31, 2018, increased by $ 1,793,707 or 1126.1%, from $159,286 for six months ended December
31, 2017. The increase was mainly due to the decrease in general and administrative expenses for the sales VIEs.
Liquidity and Capital Resources
Our principal sources of liquidity include
cash from operations, borrowings from local commercial banks and net proceeds of offerings of our securities consummated in July
2009 and November/December 2009 (collectively the “Public Offerings”).
As of December 31, 2018, cash and cash
equivalents were $117,546,683, a decrease of $33,258,955, or 22.1%, from $150,805,639 as of June 30, 2018.
We intend to use some of the remaining
net proceeds from the Public Offerings, as well as other working capital if required, to acquire new businesses, upgrade production
lines and complete Yuxing’s new greenhouse facilities for agriculture products located on 88 acres of land in Hu County,
18 kilometers southeast of Xi’an city. Yuxing purchased a set of agricultural products testing equipment for the year of
2016. We believe that we have sufficient cash on hand and positive projected cash flow from operations to support our business
growth for the next twelve months to the extent we do not have further significant acquisitions or expansions. However, if events
or circumstances occur and we do not meet our operating plan as expected, we may be required to seek additional capital and/or
to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives.
Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market
conditions are most advantageous, which may include additional debt and/or equity financings. There can be no assurance that any
additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing
stockholders and any debt financing may include restrictive covenants.
The following table sets forth a summary of our cash flows for
the periods indicated:
|
|
Six Months Ended
|
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Net cash provided by (used in) continued operating activities
|
|
$
|
(27,443,062
|
)
|
|
$
|
21,559,636
|
|
Net cash provided by (used in) discontinued operation
|
|
|
0
|
|
|
|
(1,024,276
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(27,443,062
|
)
|
|
|
20,535,360
|
|
Net cash provided by used in investing activities
|
|
|
(41,067
|
)
|
|
|
(23,086
|
)
|
Net cash provided by (used in) financing activities
|
|
|
219,722
|
|
|
|
(1,330,290
|
)
|
Effect of the exchange rate
change on cash and cash equivalents
|
|
|
(5,994,548
|
)
|
|
|
3,184,627
|
|
Net increase in cash and cash equivalents
|
|
|
(33,258,955
|
)
|
|
|
22,366,611
|
|
Cash and cash equivalents, beginning balance
|
|
|
150,805,639
|
|
|
|
123,050,548
|
|
Cash and cash equivalents, ending balance
|
|
$
|
117,546,683
|
|
|
$
|
145,417,159
|
|
Operating Activities
Net cash used in operating activities was
$27,443,062 for the six months ended December 31, 2018, a decrease of $49,002,698, or 227.3% from cash provided by operating activities
of $21,559,636 for the six months ended December 31, 2017. The decrease was mainly attributable to a decrease in accounts payable,
an increase in advances to suppliers and an increase in inventories during the six months ended December 31, 2018, as compared
to the same period in 2017.
Investing Activities
Net cash used in investing activities for
the six months ended December 31, 2018 was $41,067, compared to cash used in investing activities of $23,086 for the six months
ended December 31, 2017. The difference was due to Company purchased more plant, property, and equipment during the last six months
compared to the same period last year.
Financing Activities
Net cash
provided by financing activities for the six months ended December 31, 2018 was $219,722, compared to
$
1,330,290
net cash used in financing activities for the six months ended December 31, 2017, which was largely due to $364,300 in repayment
of loans for the six months ended December 31, 2018, compared to $1,678,603 in the same period last year.
As of December 31, and June 30, 2018, our loans payable was
as follows:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Short term loans payable:
|
|
$
|
4,362,000
|
|
|
$
|
4,726,300
|
|
Total
|
|
$
|
4,362,000
|
|
|
$
|
4,726,300
|
|
Accounts Receivable
We had accounts receivable of $120,505,844
as of December 31, 2018, as compared to $174,460,937 as of June 30, 2018, a decrease of $53,955,093 or 30.9%. The decrease was
primarily attributable to Gufeng’s accounts receivable. As of December 31, 2018, Gufeng’s accounts receivable was $67,377,111,
a decrease of $34,736,205 or 34.0% compared to $102,113,316 as of June 30, 2018.
Allowance for doubtful accounts in accounts
receivable for the six months ended December 31, 2018 was $17,699,871, from $24,551,796 as of June 30, 2018. And the allowance
for doubtful accounts as a percentage of accounts receivable was 12.8% as of December 31, 2018 and 12.3% as of June 30, 2018.
Deferred assets
We had no deferred assets as of December
31, 2018, as compared to $213,289 as of June 30, 2018. During the six months, we assisted the distributors in certain marketing
efforts and developing standard stores to expand our competitive advantage and market shares. Based on the distributor agreements,
the amount owed by the distributors in certain marketing efforts and store development will be expensed over three years if the
distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier
than the contractual terms, the unamortized portion of the amount owed by the distributor is payable to us immediately. The
deferred assets had been fully amortized as of December 31, 2018.
Inventories
We had inventories of $115,013,591 as of
December 31, 2018, as compared to $53,784,814 as of June 30, 2018, an increase of $61,228,777, or 113.8%. The increase was primarily
attributable to Gufeng’s inventory. As of December 31, 2018, Gufeng’s inventory was $86,710,252, compared to $31,617,519
as of June 30, 2018, an increase of $55,092,733, or 174.2%.
Advances to Suppliers
We had advanced to suppliers of $40,777,894
as of December 31, 2018, as compared to $25,194,463 as of June 30, 2018, representing an increase of $15,583,431 or 61.9%. Our
inventory level may fluctuate from time to time, depending on 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 an 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
$13,312,634 as of December 31, 2018 as compared to $27,128,921 as of June 30, 2018, representing a decrease of $13,816,287,
or 50.9%. The decrease was primarily due to the decrease in accounts payable for VIEs. They have accounts payable of
$11,708,448 as of December 31, 2018 as compared to $25,398,118 as of June 30, 2018, representing a decrease of $13,689,670,
or 53.9%.
Unearned Revenue (Customer Deposits)
We had customer deposits of $6,862,214
as of December 31, 2018, as compared to $7,251,967 as of June 30, 2018, representing a decrease of $389,753, or 5.4%. The decrease
was mainly attributable to Gufeng’s $4,727,964 unearned revenue as of December 31, 2018, compared to $5,149,905 unearned
revenue as of June 30, 2018, decreased 421,941 or 8.2%, caused by the advance deposits made by clients. This decrease was due to
seasonal fluctuation and we expect to deliver products to our customers during the next three months at which time we will recognize
the revenue.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management’s discussion and analysis
of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared
in accordance with the United States generally accepted accounting principles. Our financial statements reflect the selection and
application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated
financial statements, “Basis of Presentation and Summary of Significant Accounting Policies.” We believe that the following
paragraphs reflect the most critical accounting policies that currently affect our financial condition and results of operations:
Use of estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the estimates are made. However, actual results could differ
materially from those estimates.
Revenue recognition
Sales revenue is recognized at the date
of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, we have
no other significant obligations and collectability is reasonably assured. Payments received before all the relevant criteria for
revenue recognition are satisfied are recorded as unearned revenue.
Our revenue consists of the 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 the 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 creditworthiness, 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 an allowance for bad debts, and any accounts receivable of Yuxing that are outstanding for more than
90 days will be accounted as an allowance for bad debts.
Deferred assets
Deferred assets represent amounts the Company
advanced to the distributors in their marketing and stores development to expand our competitive advantage and market shares. Based
on the distributor agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed
over three years if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the
agreement with us earlier than the realization of the contractual terms, the unamortized portion of the amount owed by the distributor
is to be refunded to us immediately. The deferred assets had been fully amortized as of December 31, 2018.
Segment reporting
FASB ASC 280 requires the use of the “management
approach” model for segment reporting. The management approach model is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other way management disaggregates a company.
As of December 31, 2018, 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.