UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2019

 

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

  

For the transition period from ____________ to ____________

 

Commission File Number 001-34260

 

CHINA GREEN AGRICULTURE, INC.

(Exact name of registrant as specified in its charter)

 

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

 

 

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

Road, Xi’an, Shaanxi province, PRC 710065

 
  (Address of principal executive offices) (Zip Code)  

 

  +86-29-88266368  
  (Issuer's telephone number, including area code)  

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

  

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 47,816,945 shares of common stock, $.001 par value, as of May 10, 2019.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION 1
     
Item 1. Financial Statements 1
     
  Consolidated Condensed Balance Sheets As of March 31, 2019 and June 30, 2018 (Unaudited) 1
     
  Consolidated Condensed Statements of Income and Comprehensive Income For the Three and Nine months Ended March 31, 2019 and 2018 (Unaudited) 2
     
  Consolidated Condensed Statements of Cash Flows For the Nine months Ended March 31, 2019 and 2018 (Unaudited) 3
     
  Notes to Consolidated Condensed Financial Statements As of March 31, 2019 (Unaudited) 4
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
     
Item 4. Controls and Procedures 42
     
PART II OTHER INFORMATION 43
     
Item 1 Legal Proceedings. 43 
     
Item 1A Risk Factors. 43
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds. 43
     
Item 3 Defaults Upon Senior Securities. 43
     
Item 4 Mine Safety Disclosures. 43
     
Item 5. Other Information. 43
     
Item 6. Exhibits 43
     
Signatures 44
   
Exhibits/Certifications 45

 

i

 

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

  

March 31,

2019

  

June 30,

2018

 
         
ASSETS        
Current Assets        
Cash and cash equivalents  $69,242,037   $150,805,639 
Accounts receivable, net   154,557,359    174,460,937 
Inventories   132,579,212    53,784,814 
Prepaid expenses and other current assets   4,887,732    2,945,247 
Amount due from related parties   0    235,551 
Advances to suppliers, net   51,055,495    25,194,463 
Total Current Assets   412,321,835    407,426,651 
           
Plant, Property and Equipment, Net   28,120,511    30,894,683 
Other Assets   274,163    294,550 
Other Non-current Assets   14,164,932    15,885,696 
Intangible Assets, Net   18,736,458    20,317,914 
Goodwill   8,058,302    8,166,467 
Total Assets  $481,676,201   $482,985,960 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $9,436,035   $27,128,921 
Customer deposits   7,793,572    7,251,967 
Accrued expenses and other payables   11,218,642    10,207,058 
Amount due to related parties   3,666,440    3,271,619 
Taxes payable   33,176,555    29,952,206 
Short term loans   4,470,000    4,726,300 
Interest payable   667,148    462,060 
Derivative liability   1,690    66,143 
Total Current Liabilities   70,430,082    83,066,274 
           
Long-term Liabilities          
Convertible notes payable   7,588,201    7,371,899 
Total Liabilities  $78,018,283   $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 March 31, 2019 and June 30, 2018, respectively   39,547    38,897 
Additional paid-in capital   129,706,886    129,337,035 
Statutory reserve   31,196,016    30,947,344 
Retained earnings   252,209,492    235,822,726 
Accumulated other comprehensive income   (9,494,023)   (3,598,215)
Total Stockholders’ Equity   403,657,917    392,547,787 
           
Total Liabilities and Stockholders’ Equity  $481,676,201   $482,985,960 

 

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

 

1

 

 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

   

Three Months Ended

March 31,

   

Nine Months Ended

March 31,

 
    2019     2018     2019     2018  
Sales                        
Jinong   $ 22,077,336     $ 27,490,333     $ 61,561,229     $ 80,475,373  
Gufeng     67,167,427       38,932,597       106,996,368       81,602,384  
Yuxing     2,817,942       3,041,891       7,828,981       6,788,282  
VIEs - others     16,057,865       13,086,062       41,943,261       39,412,820  
Net sales     108,120,570       82,550,883       218,329,839       208,278,859  
Cost of goods sold                                
Jinong     11,091,419       13,526,095       31,289,473       39,904,678  
Gufeng     59,475,263       34,114,896       94,544,943       71,261,349  
Yuxing     2,445,246       2,517,989       6,658,975       5,446,780  
VIEs - others     13,951,667       11,231,992       35,965,608       33,060,645  
Cost of goods sold     86,963,595       61,390,972       168,458,999       149,673,452  
Gross profit     21,156,975       21,159,911       49,870,840       58,605,407  
Operating expenses                                
Selling expenses     6,880,994       3,553,306       18,370,524       16,375,971  
General and administrative expenses     6,826,669       7,980,606       9,036,397       15,798,290  
Total operating expenses     13,707,663       11,533,912       27,406,921       32,174,261  
Income from operations     7,449,312       9,625,999       22,463,919       26,431,146  
Other income (expense)                                
Other income (expense)     (101,350 )     (145,311 )     (327,433 )     (760,324 )
                                 
Interest income     55,168       138,009       278,509       356,172  
Interest expense     (145,621 )     (178,478 )     (457,885 )     (452,640 ))
Total other income (expense)     (191,803 )     (185,780 )     (506,809 )     (856,792 ))
Income before income taxes     7,257,509       9,440,220       21,957,110       25,574,353  
Provision for income taxes     2,139,610       1,813,187       5,321,671       5,066,780  
Net income  from continuing operations, net of tax     5,117,899       7,627,033       16,635,439       20,507,573  
Net income from discontinued operation, net of tax     0       0       0       40,394  
Net income, net of tax     5,117,899       7,627,033       16,635,439       20,547,967  
Other comprehensive income (loss)                                
Foreign currency translation gain (loss)     10,564,053       16,213,419       (5,895,808 )     24,710,375  
Comprehensive income (loss)   $ 15,681,952     $ 23,840,452     $ 10,739,631     $ 45,258,342  
                                 
Basic weighted average shares outstanding     39,546,944       38,551,264       39,165,010       38,551,264  
Basic net earnings per share   $ 0.13     $ 0.20     $ 0.42     $ 0.53  
Diluted weighted average shares outstanding     39,546,944       38,551,264       39,165,010       38,551,264  
Diluted net earnings per share     0.13       0.20       0.42       0.53  

  

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

 

2

 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

  

Nine Months Ended

March 31,

 
   2019   2018 
Cash flows from operating activities        
Net income  $16,635,439   $20,507,573 
           
           
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation and amortization   3,671,827    4,730,892 
Gain (Loss) on disposal of plant, property and equipment   4,524    24,756 
Amortization of debt discount   308,815    490,280 
Issuance of common stock for consulting services   370,500    - 
Change in fair value of derivative liability   (62,539)   (67,798)
Changes in operating assets          
Accounts receivable   17,305,498    (10,988,222)
Amount due from related parties   228,635    902,528 
Other current assets   18,524    1,149,289 
Inventories   (78,208,217)   1,818,951 
Advances to suppliers   (25,766,902)   6,607,926 
Other assets   (481,965)   1,527,225 
Changes in operating liabilities          
Accounts payable   (17,053,253)   1,256,821 
Customer deposits   627,242    (2,549,836)
Tax payables   3,183,956    1,325,136 
Accrued expenses and other payables   1,045,892    2,184,753 
Interest payable   207,758    216,553 
Net cash provided by (used in) continuing operating activities   (77,964,267)   29,136,827 
Net cash provided by (used in) discontinued operating activities   0    (702,062)
Net cash provided by (used in) operating activities   (77,964,267)   28,434,765 
           
Cash flows from investing activities          
Purchase of plant, property, and equipment   (59,096)   (33,207)
Cash paid for acquisition, net   -    (8,219)
Change in construction in process   16,216    (14,265)
Net cash used in investing activities   (42,880)   (55,691)
           
Cash flows from financing activities          
           
Repayment of loans   (190,536)   (6,130,802)
Advance from related parties   409,230    195,013 
Net cash provided by (used in) financing activities   218,694    (5,935,789)
           
Effect of exchange rate change on cash and cash equivalents   (3,775,148)   8,145,894 
Net increase in cash and cash equivalents   (81,563,601)   30,589,179 
           
Cash and cash equivalents, beginning balance   150,805,639    123,050,548 
Cash and cash equivalents, ending balance  $69,242,037   $153,639,728 
           
Supplement disclosure of cash flow information          
Interest expense paid  $106,307   $311,667 
Income taxes paid  $2,137,715   $3,741,644 

 

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

 

3

 

 

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”.

 

4

 

 

The Company’s corporate structure as of March 31, 2019 is set forth in the diagram below:

 

 

 

5

 

 

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 by one natural person, who is not affiliated with 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 People’s Republic of China (“PRC”) and banks in the United States, and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of cash in three major banks in China. The aggregate cash in such accounts and on hand as of March 31, 2019 and June 30, 2018 were $69,242,037 and $150,805,639, respectively. The Company had $69,089,192 and $150,785,737 in cash in banks in China, and also had $152,845 and $19,902 in cash in two banks in the United States as of March 31, 2019 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 credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are written off through a charge to the valuation allowance. As of March 31, 2019, and June 30, 2018, the Company had accounts receivable of $154,557,359 and $174,460,937, net of allowance for doubtful accounts of $23,158,524 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 March 31, 2019 and 2018, the Company had no reserve for obsolete goods.

 

6

 

 

Intangible Assets

 

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with definite 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 March 31, 2019 and 2018 respectively.

 

 

Customer deposits

 

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. When all revenue recognition criteria are met, the customer deposits are recognized as revenue. As of March 31, 2019, and June 30, 2018, the Company had customer deposits of $7,793,572 and $7,251,967, respectively. 

 

7

 

 

Earnings per share

 

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

 

The components of basic and diluted earnings per share consist of the following:

 

   Three Months Ended 
   March 31, 
   2019   2018 
Net Income from continuing operations for Basic Earnings Per Share   5,117,899    7,627,033 
Net Income from discontinued operations for Basic Earnings Per Share  $0   $0 
Basic Weighted Average Number of Shares   39,546,944    38,511,264 
Basic net earnings per share from continuing operations   0.13    0.20 
Basic net earnings per share from discontinued operations  $0   $0 
Net Income from continuing operations for Diluted Earnings Per Share   5,117,899    7,627,033 
Net Income from discontinued operations for Diluted Earnings Per Share  $0   $0 
Diluted Weighted Average Number of Shares   39,546,944    38,511,264 
Diluted net earnings per share from continuing operations   0.13    0.20 
Diluted net earnings per share from discontinued operations  $0   $0 

 

   Nine Months Ended 
   March 31, 
   2019   2018 
Net Income from continuing operations for Basic Earnings Per Share   16,635,439    20,507,573 
Net Income from discontinued operation for Basic Earnings Per Share  $0   $40,394 
Basic Weighted Average Number of Shares   39,165,010    38,551,264 
Basic net earnings per share from continuing operations   0.42    0.53 
Basic net earnings per share from discontinued operations  $0   $0 
Net Income from continuing operations for Diluted Earnings Per Share   16,635,439    20,507,573 
Net Income from discontinued operations for Diluted Earnings Per Share  $0   $40,394 
Diluted Weighted Average Number of Shares   39,165,010    38,551,264 
Diluted net earnings per share from continuing operations   0.42    0.53 
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.

 

8

 

 

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. 

 

9

 

 

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 CompensationIn 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:

 

   March 31,   June 30, 
   2019   2018 
Raw materials  $88,221,690   $13,154,465 
Supplies and packing materials  $511,574   $566,254 
Work in progress  $403,463   $417,130 
Finished goods  $43,442,485   $39,646,965 
Total  $132,579,212   $53,784,814 

  

10

 

 

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

 

   March 31,   June 30, 
   2019   2018 
Building and improvements  $39,785,362   $40,319,393 
Auto   3,467,594    3,504,028 
Machinery and equipment   18,546,840    18,765,192 
Agriculture assets   758,349    768,528 
Total property, plant and equipment   62,558,145    63,357,141 
Less: accumulated depreciation   (34,437,635))   (32,462,458)
Total  $28,120,511   $30,894,683 

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

   March 31,   June 30, 
   2019   2018 
Land use rights, net  $9,619,316   $9,930,420 
Technology patent, net   3,187    3,570 
Customer relationships, net   2,551,841    3,578,724 
Non-compete agreement   497,814    659,500 
Trademarks   6,064,300    6,145,700 
Total  $18,736,458   $20,317,914 

 

LAND USE RIGHT

 

On September 25, 2009, Yuxing was granted a land use right for approximately 88 acres (353,000 square meters or 3.8 million square feet) by the People’s Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi Province. The fair value of the related intangible asset was determined to be the respective cost of RMB73,184,895 (or $10,904,549). 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 RMB 1,045,950 (or $155,847). 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 $1,085,480). The intangible asset is being amortized over the grant period of 50 years.

 

11

 

 

The Land Use Rights consisted of the following:

 

   March 31,   June 30, 
   2019   2018 
Land use rights  $12,145,874   $12,308,907 
Less: accumulated amortization   (2,526,557))   (2,378,488)
Total land use rights, net  $9,619,317   $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 RMB5, 875,068 (or $875,385) and is being amortized over the patent period of 10 years using the straight line method. This technology patent has been fully amortized.

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired technology patent was estimated to be RMB9, 200,000 (or $1,370,800) and is amortized over the remaining useful life of six years using the straight line method.

 

The technology know-how consisted of the following:

 

   March 31,   June 30, 
   2019   2018 
Technology know-how  $2,251,081   $2,276,335 
Less: accumulated amortization   (2,251,081)   (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 $9,685,000) and is amortized over the remaining useful life of ten years. On June 30, 2016, and January 1, 2017 the Company acquired the VIE Companies. The fair value of the acquired customer relationships was estimated to be RMB14,729,602 (or $2,194,711) and is amortized over the remaining useful life of seven to ten years.

 

   March 31,   June 30, 
   2019   2018 
Customer relationships  $11,879,712   $12,039,169 
Less: accumulated amortization   (9,327,871)   (8,460,445)
Total customer relationships, net  $2,551,841   $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 $196,680) 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 VIE Companies. The fair value of the acquired non-compete agreements was estimated to be RMB6,843,439 (or $1,019,672) and is amortized over the remaining useful life of five years using the straight line method.

 

    March 31,     June 30,  
    2019     2018  
Non-compete agreement   $ 1,216,352     $ 1,232,680  
Less: accumulated amortization     (718,538) )     (573,180 )
Total non-compete agreement, net   $ 497,814     $ 659,500  

 

12

 

 

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 $6,064,300) and is subject to an annual impairment test.

 

AMORTIZATION EXPENSE

 

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

 

Twelve Months Ending March 31,  Expense
($)
 
2020   1,865,109 
2021   1,096,543 
2022   681,884 
2023   577,619 
2024   464,116 

 

NOTE 6 – OTHER NON-CURRENT ASSETS

 

Other non-current assets mainly include advance payments related to leasing land for use by the Company. As of March 31, 2019, the balance of other non-current assets was $16,165,257, consisting of the lease fee advances for agriculture lands that the Company engaged in Shiquan County from 2019 to 2027.

 

In March 2017, Jinong entered into a lease agreement for approximately 3,400 mu, and 2600 hectare agriculture lands in Shiquan County, Shaanxi Province. The lease was from April 2017 and was renewable for every ten-year period up to 2066. The aggregate leasing fee was approximately RMB 13 million per annum, The Company had made 10-year advances of leasing fee per lease terms. The Company has amortized $1.5 million as expenses for the nine months ended March 31, 2019.

 

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

 

Twelve months ending March 31,    
2020  $2,000,325 
2021  $2,000,325 
2022  $2,000,325 
2023  $2,000,325 
2024 and thereafter  $8,163,957 

 

NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES

 

Accrued expenses and other payables consisted of the following:

 

   March 31,   June 30, 
   2019   2018 
Payroll payable  $27,020   $13,788 
Welfare payable   152,970    155,023 
Accrued expenses   6,475,802    5,368,348 
Other payables   4,437,889    4,543,261 
Other levy payable   124,961    126,638 
Total  $11,218,642   $10,207,058 

 

13

 

 

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 $3,799,500). For the nine months ended March 31, 2019 and 2018, Yuxing has sold approximately $185,311 and $206,902 products to 900LH.com.

 

The amount due from 900LH.com to Yuxing was $0 and $235,551 as of March 31, 2019 and June 30, 2018, respectively.

 

As of March 31, 2019, and June 30, 2018, the amount due to related parties was $3,666,440 and $3,271,619, respectively.  As of March 31, 2019, and June 30, 2018, $1,043,000 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 March 31, 2019, and June 30, 2018, the Company’s subsidiary, Jinong, owed 900LH.com $412,193 and $388,353, respectively.

 

On June 29, 2018, Jinong renewed the office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”), of which Mr. Zhuoyu Li, 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 $3,648)

 

NOTE 9 – LOAN PAYABLES

 

As of March 31, 2019, 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   March 31,
2019
 
1  Bank of Beijing - Pinggu Branch  May 22, 2018-May 21, 2019   5.22%   1,490,000 
2  Postal Saving Bank of China - Pinggu Branch  June 19, 2018-June 18, 2019   6.31%   2,980,000 
   Total          $4,470,000 

 

The interest expense from short-term loans was $457,885 and $452,640 for the nine months ended March 31, 2019 and 2018, respectively.

 

14

 

 

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 ($7,599,000) with a term of three years and an annual interest rate of 3%.

 

No.  Related Acquisitions of Sales VIEs  Issuance Date  Maturity Date  Notional Interest
Rate
   Conversion Price   Notional Amount
(in RMB)
 
1  Wangtian, Lishijie, Shenqiu, Xindeguo, Xinyulei, Jinyangguang  June 30, 2016  June 30, 2019   3%  $5.00    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 ($1,788,000) 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 notes payable outstanding was RMB 50,927,525 (or $7,588,201) and RMB48, 820,525 ($7,274,258) as of March 31, 2019 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 March 31, 2019, the accumulated amortization of this discount into accretion expenses was $1,230,864.

 

NOTE 11 – TAXES PAYABLE

 

Enterprise Income Tax

 

Effective January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The EIT rate of 25% replaced the 33% rate that was applicable to both DEs and FIEs. The two year tax exemption and three year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, as a result of the expiration of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the nine months ended March 31, 2019 and 2018 of $1,007,503 and $2,689,188, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to 25% EIT rate and thus it made provision for income taxes of $ 2,916,912 and $1,899,873 for the nine months ended March 31, 2019 and 2018, respectively.

 

Value-Added Tax

 

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

 

Income Taxes and Related Payables

 

Taxes payable consisted of the following:

 

   March 31,   June 30, 
   2019   2018 
VAT provision  $(469,900)  $(449,140)
Income tax payable   3,636,081    554,065 
Other levies   999,839    836,747 
Total  $4,166,020   $941,672 

 

15

 

 

The provision for income taxes consists of the following:

 

   March 31,
2019
   June 30,
2018
 
Current tax - foreign  $5,321,671   $6,841,592 
Repatriation Tax   -    29,010,535 
 Total  $5,321,671   $35,852,127 

 

Tax Rate Reconciliation

 

Our effective tax rates were approximately 24.2% and 19.8% for the nine months ended March 31, 2019 and 2018, respectively. Substantially all of the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 21% to income before income taxes for the nine months ended March 31, 2019 and 2018 for the following reasons:

 

March 31, 2019            
   China   United States         
   15% - 25%   34%   Total     
                             
Pretax income (loss)  $23,320,275    -    (1,363,166)           -   $21,957,109              
                                    
Expected income tax expense (benefit)   5,830,069    25.0%   (286,265)        21.0%   5,543,804      
High-tech income benefits on Jinong   (671,669)   (2.9)%             -    (671,669)     
Losses from subsidiaries in which no benefit is recognized   163,271    0.7%             -    163,271      
Change in valuation allowance on deferred tax asset from US tax benefit   0    -    286,265         (21.0)%   286,265      
Actual tax expense  $5,321,671    22.8%  $-         -%  $5,321,671    24.2%

 

March 31, 2018            
   China   United States         
   15% - 25%   34%   Total     
                             
Pretax income (loss)  $26,650,476    -    (1,035,728)      -   $25,614,748     
                                    
Expected income tax expense (benefit)   6,662,619    25.0%   (352,147)        34.0%   6,310,472      
High-tech income benefits on Jinong   (2,689,188)   (10)%             -    (2,689,188)     
Losses from subsidiaries in which no benefit is recognized   (1,093,349)   4%               -    (1,093,349)     
Change in valuation allowance on deferred tax asset from US tax benefit   0    -    352,147    352,147    (34.0)%   352,147      
Actual tax expense  $5,066,780    19%  $-         -%  $5,066,780    19.8%

 

16

 

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

There was no issuance share of common stock during the three and nine months ended March 31, 2019.

 

As of March 31, 2019, and June 30, 2018, there were 39,546,945 and 38,896,945 shares of common stock issued and outstanding.

 

On April 25, 2019, the Company entered into a Stock Purchase Agreement (the “SPA”) with certain non-US persons, as defined in Regulation S promulgated under the Securities Act of 1933, in connection with a private placement offering of 6,000,000 shares of common stock, par value $0.001 per share, of the Company. The purchase price per share of the offering is $1.00. On April 26, 2019, the Company issued 6,000,000 Shares of the Company’s Common Stock, par value $0.001 per share, pursuant to the SPA. The Shares issued in the offering are exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) of the Securities Act and/or Regulation S promulgated thereunder. 

 

On May 10, 2019, the Company sold 2,270,000 shares of common stock at the price of $1.00 per share for total proceeds of $2,270,000 to certain third-party individuals. The issuances were completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.

 

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 March 31, 2019, the Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are issued or outstanding.

 

NOTE 13 – CONCENTRATIONS

  

Market Concentration

 

All of 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 which the Company purchased 14.2%, 13.7% and 11.8% of its raw materials for fertilizer manufacturing during the year ended March 31, 2019. Total purchase from these three vendors was amounted to $58,658,521 as March 31, 2019. 

 

None of the vendors accounted over 10% of the Company’s purchase of raw materials and supplies for the nine months ended March 31, 2018.

 

None of the customers accounted over 10% of the Company’s sales for the nine months ended March 31, 2019 and 2018.

 

17

 

 

NOTE 14 – SEGMENT REPORTING

 

As of March 31, 2019, 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
March 31,
   Nine Months Ended
March 31,
 
   2019   2018   2019   2018 
Revenues from unaffiliated customers:                
Jinong  $22,077,336   $27,490,333   $61,561,229   $80,475,373 
Gufeng   67,167,427    38,932,597    106,996,368    81,602,384 
Yuxing   2,817,942    3,041,891    7,828,981    6,788,282 
VIES   16,057,865    13,086,062    41,943,261    39,412,820 
Consolidated  $108,120,570   $82,550,883   $218,329,839   $208,278,859 
                     
Operating income:                    
Jinong  $(2,210,904)  $5,704,281   $6,888,634   $18,047,510 
Gufeng   7,111,832    3,210,959    11,214,341    7,866,697 
Yuxing   125,839)   (951,474)   (3,477,668)   (553,726)
VIES   2,821,741    2,067,194    9,201,792    2,106,396 
Reconciling item (1)   0    0    0    0 
Reconciling item (2)   (399,196)   (404,960)   (1,363,180)   (1,035,731)
Consolidated  $7,449,312   $9,625,999   $22,463,919   $26,431,146 
                     
Net income:                    
Jinong  $(1,980,471)  $4,778,486   $5,709,185   $15,238,735 
Gufeng   5,260,432    2,310,042    8,111,897    5,526,873 
Yuxing   125,259    (951,805)   (3,478,089)   (553,314)
VIES   2,111,941    1,892,425    7,668,280    1,653,220 
Reconciling item (1)   4    0    14    4 
Reconciling item (2)   (399,196)   (404,960)   (1,363,180)   (1,035,731)
Reconciling item (3)   (68)   2,844    (12,667)   (322,214)
Consolidated  $5,117,901   $7,627,033   $16,635,441   $20,507,573 
                     
Depreciation and Amortization:                    
Jinong  $199,460   $226,678   $592,424   $1,502,805 
Gufeng   542,033    574,120    1,607,957    1,674,176 
Yuxing   307,835    327,729    912,554    955,530 
VIES   188,309    195,922    558,892    568,835 
Consolidated  $1,237,638   $1,324,449   $3,671,827   $4,701,346 
                     
Interest expense:                    
Jinong   70,000    74,270    207,758    216,553 
Gufeng   75,621    105,299    250,127    311,667 
Yuxing   0    0    0    0 
Sales VIEs   0    (1,091)   0    (75,580)
Consolidated  $145,621   $178,478   $457,885   $452,640 
                     
Capital Expenditure:                    
Jinong  $781   $537   $4,273   $4,686 
Gufeng   394    (11,286)   45,998    2,878 
Yuxing   726    350    8,825    5,122 
VIES   0    20,520    0    20,520 
Consolidated  $1,901   $10,120   $59,096   $33,207 

 

18

 

  

   As of 
   March 31,   June 30, 
   2019   2018 
Identifiable assets:        
Jinong  $148,860,709   $226,335,489 
Gufeng   255,784,087    168,572,947 
           
Sales VIES   76,434,439    87,567,782 
Reconciling item (1)   599,845    512,622 
Reconciling item (2)   (2,879))   (2,879)
Consolidated  $481,676,200   $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 $3,648 (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 $441 (RMB 2,958).

 

Accordingly, the Company recorded an aggregate of $36,794 and $44,252 as rent expenses from these committed property leases for the nine-month periods ended March 31, 2019 and 2018, respectively. The contingent rent expenses herein for the next five twelve-month periods ended March 31 are as follows:

  

Twelve Months ending March 31,    
2020  $49,059 
2021   49,059 
2022   49,059 
2023   49,059 
2024   49,059 

 

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.

 

19

 

 

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 of the economic benefits of Yuxing and the VIE Companies. The following financial statement amounts and balances of the VIEs were included in the accompanying consolidated financial statements as of March 31, 2019 and June 30, 2018:

 

   March 31,   June 30, 
   2019   2018 
         
ASSETS        
Current Assets        
Cash and cash equivalents  $970,474   $982,312 
Accounts receivable, net   22,545,084    38,295,505 
Inventories   23,002,341    21,133,970 
Other current assets   648,132    988,051 
Related party receivable   0    (359,005 
Advances to suppliers   4,848,280    848,458 
Total Current Assets   52,014,311    61,889,291 
           
Plant, Property and Equipment, Net   10,271,628    11,206,667 
Other assets   223,652    226,654 
Intangible Assets, Net   10,641,139    11,348,180 
Goodwill   3,283,709    3,319,732 
Total Assets  $76,434,439   $87,990,524 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Short-term loan  $-   $- 
Accounts payable   7,833,312    25,584,614 
Customer deposits   1,021,889    841,694 
Accrued expenses and other payables   5,297,819    3,896,340 
Amount due to related parties   43,257,584    43,339,286 
Total Current Liabilities  $57,410,604   $73,661,934 
           
Total Liabilities  $57,410,604   $73,661,934 
           
Stockholders’ equity   19,023,835    14,328,590 
           
Total Liabilities and Stockholders’ Equity   76,434,439   $87,990,524 

  

   Three months ended
Three Months Ended
March 31,
   Nine months ended
Nine Months Ended
March 31,
 
   2019   2018   2019   2018 
Revenue  $18,875,808   $16,127,953   $49,772,242   $47,205,271 
Expenses   16,638,610    13,749,981    45,582,052    39,340,523 
Net income (loss)  $2,237,198   $940,622   $4,190,190   $1,140,302 

 

20

 

 

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.

 

21

 

 

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 

 

22

 

 

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 

 

23

 

 

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  $1,175,696 
Intangible assets   893,780 
Customer  Relationship   682,604 
Non-compete Agreement   211,176 
Goodwill   536,819 
Total Asset  $2,606,296 

 

In return, the purchase consideration returned to the Company from Zhenbai’s shareholders is summarized below:

 

Cash  $459,900 
Interest Payable   82,782 
Convertible notes   1,719,336 
Derivative liability   13,312 
Total Payback  $2,275,330 
Net Loss   (330,966)

 

24

 

 

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).

 

25

 

 

The fertilizer business conducted by Jinong and Gufeng generated approximately 91.4% and 90.3% of our total revenues for the nine months ended March 31, 2019 and 2018, respectively. Yuxing serves as a research and development base for our fertilizer products.  

 

Fertilizer Products

 

As of March 31, 2019, we had developed and produced a total of 727 different fertilizer products in use, of which 143 were developed and produced by Jinong and 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
March 31,
   Change from
2018 to 2019
 
   2019   2018   Amount   % 
   (metric tons)         
Jinong   17,014    12,606    4,408    35.0%
Gufeng   190,691    104,207    86,484    83.0%
    207,704    116,813    90,891    77.8%

 

   Three Months Ended
March 31,
 
   2019   2018 
   (revenue per ton) 
Jinong  $1,324   $2,302 
Gufeng   357    382 

 

   Nine months Ended
March 31,
   Change from
2018 to 2019
 
   2019   2018   Amount   % 
   (metric tons)         
Jinong   53,008    40,297    12,711    31.5%
Gufeng   305,288    225,053    80,235    35.7%
    358,295    265,350    92,945    35.0%

 

   Nine months Ended
March 31,
 
   2019   2018 
   (revenue per ton) 
Jinong  $1,209   $2,205 
Gufeng   349    375 

 

For the three months ended March 31, 2019, we sold approximately 207,704 metric tons of fertilizer products, as compared to 116,813 metric tons for the three months ended March 31, 2018. For the three months ended March 31, 2019, Jinong sold approximately 17,014 metric tons of fertilizer products, an increase of 4.408 metric tons, or 35.0%, as compared to 12,606 metric tons for the three months ended March 31, 2018. For the three months ended March 31, 2019, Gufeng sold approximately 190,691 metric tons of fertilizer products, as compared to 104,207 metric tons for the three months ended March 31, 2018, an increase of 86,484 metric tons, or 83.0%.

 

26

 

 

For the nine months ended March 31, 2019, we sold approximately 358,295 metric tons of fertilizer products, as compared to 265,350 metric tons for the nine months ended March 31, 2018. For the nine months ended March 31, 2019, Jinong sold approximately 53,008 metric tons of fertilizer products, an increase of 12,711 metric tons, or 31.5%, as compared to 40,297 metric tons for the nine months ended March 31, 2018. For the nine months ended March 31, 2019, Gufeng sold approximately 305,288 metric tons of fertilizer products, an increase of 80,235 metric tons, or 35.7%, as compared to 225,053 metric tons for the nine months ended March 31, 2018. 

 

Our sales of fertilizer products to customers in five provinces accounted for approximately 55.9% of our fertilizer revenue for the three months ended March 31, 2019. Specifically, the provinces and their respective percentage contributed to our fertilizer revenues were: Hebei (24.1%), Shaanxi (9.2%), Heilongjiang (8.3%), Liaoning (7.3%), and Shandong (7.0%)

 

As of March 31, 2019, we had a total of 2,033 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled municipalities in China. Jinong had 1,211 distributors in China. Jinong’s sales are not dependent on any single distributor or any group of distributors. Jinong’s top five distributors accounted for 5.1% of its fertilizer revenues for the three months ended March 31, 2019. Gufeng had 324 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for 84.9% of its revenues for the three months ended March 31, 2019.

 

Agricultural Products

 

Through Yuxing, we develop, produce and sell high-quality flowers, green vegetables and fruits to local marketplaces and various horticulture and planting companies. We also use certain of Yuxing’s greenhouse facilities to conduct research and development activities for our fertilizer products. The three PRC provinces that accounted for 83.4% of our agricultural products revenue for the three months ended March 31, 2019 were Shaanxi (71.6%), Sichuan (7.1%), and Gansu (4.6%).

 

Recent Developments

 

New products and distributors

 

During the three months ended March 31, 2019, Jinong launched 1 new fertilizer products and added 44 new distributors during this period. Gufeng did not launch any new fertilizer products but added 5 new distributors.

  

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”).

 

27

 

 

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. [2]  Cultivation of crops; Storage, sales, preliminary processing and logistics distribution of agricultural by-products; Promotion and application of agricultural technologies; Purchase and sales of agricultural materials; Electronic commerce.   3,000,000    12,000,000 
              
Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd.  Promotion and application of new agricultural technologies; Professional prevention of plant diseases and insect pests; Sales of plant protection products, plastic mulches, material, chemical fertilizers, pesticides, agricultural medicines, micronutrient fertilizers, hormones, agricultural machinery and medicines, and gardening tools.   6,000,000    12,000,000 
              
Aksu Xindeguo Agricultural Materials Co., Ltd.  Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers, plant growth regulators, agricultural machineries, and water economizers; Consulting services for agricultural technologies; Purchase and sales of agricultural by- products.   10,000,000    12,000,000 
              
Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd  Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, organic fertilizers, plant growth regulators, agricultural machineries, and water economizers; Purchase and sales of agricultural by-products; Cultivation of fruits and vegetables; Consulting services and training for agricultural technologies; Storage services; Sales of articles of daily use, food and oil; On-line sales of the above-mentioned products.          
              
Total      37,000,000    51,000,000 

 

(1) The exchange rate between RMB and U.S. dollars on June 30, 2016 is RMB1=US$0.1508, according to the exchange rate published by Bank of China.
(2) On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Zhenbai. In return, the shareholders of Zhenbai agreed to tender the whole payment consideration in the SAA back to the Company with early termination penalties. The convertible notes paid to Zhenbai’s shareholders and the accrued interest has been forfeited.

 

28

 

 

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 

 

(2) 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 $6,705,000) to be paid by Jinong within three days following the execution of the SAA, ACN and the VIE Agreements, and convertible notes with an aggregate face value of RMB 63,000,000 (approximately $9,387,000) 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.

 

29

 

 

Business development

 

Results of Operations

 

Three Months ended March 31, 2019 Compared to the Three Months ended March 31, 2018.

 

   Three Months Ended
March 31,
         
   2019   2018   Change$   Change% 
Sales                
Jinong   22,077,336    27,490,333    (5,412,997)   -19.7%
Gufeng   67,167,427    38,932,597    28,234,830    72.5%
Yuxing   2,817,942    3,041,891    (223,949)   -7.4%
VIEs-others   16,057,865    13,086,062    2,971,803    22.7%
Net sales   108,120,570    82,550,883    25,569,687    31.0%
Cost of goods sold                    
Jinong   11,091,419    13,526,095    (2,434,676)   -18.0%
Gufeng   59,475,263    34,114,896    25,360,367    74.3%
Yuxing   2,445,246    2,517,989    (72,743)   -2.9%
VIEs   13,951,667    11,231,992    2,719,675    24.2%
Cost of goods sold   86,963,595    61,390,972    25,572,623    41.7%
Gross profit   21,156,975    21,159,911    (2,936)   0.0%
Operating expenses                    
Selling expenses   6,880,994    3,553,306    3,327,688    93.7%
General and administrative expenses   6,826,669    7,980,606    (1,153,937)   -14.5%
Total operating expenses   13,707,663    11,533,912    2,173,751    18.8%
Income from operations   7,449,312    9,625,999    (2,176,687)   -22.6%
Other income (expense)                    
Other income (expense)   (101,350)   (145,311)   43,961    -30.3%
Interest income   55,168    138,009    (82,841)   -60.0%
Interest expense   (145,621)   (178,478)   32,857    -18.4%
Total other income (expense)   (191,803)   (185,780    (6,023)   3.2%
Income before income taxes   7,257,509    9,440,220    (2,182,711)   -23.1%
Provision for income taxes   2,139,610    1,813,187    326,423    18.0%
Net income   5,117,899    7,627,033    (2,509,134)   -32.9%
Other comprehensive income (loss)                    
Foreign currency translation gain (loss)   10,564,053    16,213,419    (5,649,366)   -34.8%
Comprehensive income (loss)   15,681,952    23,840,452    (8,158,500)   -34.2%
                     
Basic weighted average shares outstanding   39,546,944    38,551,264    995,680    2.6%
Basic net earnings per share   0.13    0.20    (0.06)   -32.5%
Diluted weighted average shares outstanding   39,546,944    38,551,264    995,680    2.6%
Diluted net earnings per share   0.13    0.20    (0.06)   -32.5%

 

Net Sales

 

Total net sales for the three months ended March 31, 2019 were $108,120,570, an increase of $25,569,687, or 31.0%, from $82,550,883 for the three months ended March 31, 2018.This increase was largely due to the increase in Gufeng’s sales volume.

 

30

 

 

For the three months ended March 31, 2019, Jinong’s net sales decreased by $5,412,997, or 19.7%, to $22,077,336 from $27,490,333 for the three months ended March 31, 2018. The decrease was due to the change of market strategy. Jinong sold more low-selling price products answering to market demand.

  

For the three months ended March 31, 2019, Gufeng’s net sales were $67,167,427, an increase of $28,234,830 or 72.5% from $38,932,597 for the three months ended March 31, 2018. This increase was mainly attributable to Gufeng’s increase in sales volume during the three months ended March 31, 2019.

 

For the three months ended March 31, 2019, Yuxing’s net sales were $2,817,942, a decrease of $223,949 or 7.4%, from $3,041,891 during the three months ended March 31, 2018. The decrease was mainly due to the decrease in market demand.

 

For the three months ended March 31, 2019, VIEs’ net sales were $16,057,865, an increase of $2,971,803 or 22.7%, from $13,086,062 for the three months ended March 31, 2018. The increase was mainly attributable to the increase in market demand during the last three months.

 

Cost of Goods Sold

 

Total cost of goods sold for the three months ended March 31, 2019 was $86,963,595, an increase of $25,572,623, or 41.7%, from $61,390,972 for the three months ended March 31, 2018. The increase was mainly due to the increase in sales volumes for Gufeng and Jinong.

 

Cost of goods sold by Jinong for the three months ended March 31, 2019 was $11,091,419, a decrease of $2,434,676, or 18.0%, from $13,526,095 for the three months ended March 31, 2018. The decrease for cost of goods sold was primarily due to the decrease in Jinong’s net sales during the last three months.

 

Cost of goods sold by Gufeng for the three months ended March 31, 2019 was $59,475,263, an increase of $25,360,367, or 74.3%, from $34,114,896 for the three months ended March 31, 2018. This increase was primarily attributable to the more products sold during the last three months. 

 

For the three months ended March 31, 2019, cost of goods sold by Yuxing was $2,445,246, a decrease of $72,743, or 2.9%, from $2,517,989 for the three months ended March 31, 2018. This decrease was mainly due to the decrease in Yuxing’s net sales during the last three months.

 

Cost of goods sold by VIEs for the three months ended March 31, 2019 was $13,951,667, an increase of $2,719,675, or 24.2%, from $11,231,992 for the three months ended March 31, 2018. This increase was primarily attributable to the greater number of products sold during the last three months. 

 

Gross Profit

 

Total gross profit for the three months ended March 31, 2019 decreased by $2,936 to $21,156,975, as compared to $21,159,911 for the three months ended March 31, 2018. Gross profit margin was 19.6% and 25.6% for the three months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the decrease in Jinong’s net sales since Jinong is the most profitable business segment, with 49.8% of gross profit margin.

 

Gross profit generated by Jinong decreased by $2,978,321, or 21.3%, to $10,985,917 for the three months ended March 31, 2019 from $13,964,238 for the three months ended March 31, 2018. Gross profit margin from Jinong’s sales was approximately 49.8% and 50.8% for the three months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the lower selling price during the last three months.

  

For the three months ended March 31, 2019, gross profit generated by Gufeng was $7,692,164, an increase of $2,874,463, or 59.7%, from $4,817,701, for the three months ended March 31, 2018. Gross profit margin from Gufeng’s sales was approximately 11.5% and 12.4% for the three months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the higher labor cost and raw materials cost during the three months ended March 31, 2019.

 

For the three months ended March 31, 2019, gross profit generated by Yuxing was $372,696, a decrease of $151,206 or 28.9% from $523,902 for the three months ended March 31, 2018.  The gross profit margin was approximately 13.2% and 17.2% for the three months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the higher cost of raw materials during the three months ended March 31, 2019. 

 

Gross profit generated by VIEs increased by $ 252,128, or 13.6%, to $2,106,198 for the three months ended March 31, 2019 from $1,854,070 for the three months ended March 31, 2018. Gross profit margin from VIE’s sales was approximately 13.1% and 14.2% for the three months ended March 31, 2019 and 2018, respectively.

 

31

 

 

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 $6,880,994, or 6.4%, of net sales for the three months ended March 31, 2019, as compared to $3,553,306, or 4.3%, of net sales for the three months ended March 31, 2018, an increase of $3,327,688, or 93.7%. The selling expenses of Jinong for the three months ended March 31, 2019 were $6,480,278, or 29.4%, of Jinong’s net sales, as compared to selling expenses of $3,162,789, or 11.5%of Jinong’s net sales for the three months ended March 31, 2018. The selling expenses of Yuxing were $14,779, or 0.5%, of Yuxing’s net sales for the three months ended March 31, 2019, as compared to $12,691, or 0.4%, of Yuxing’s net sales for the three months ended March 31, 2018. The selling expenses of Gufeng were $46,228, or 0.1%, of Gufeng’s net sales for the three months ended March 31, 2019, as compared to $94,665, or 0.2%, of Gufeng’s net sales for the three months ended March 31, 2018. The selling expenses of VIEs were $291,617, or 1.8%, of VIEs’ net sales for the three months ended March 31, 2019, as compared to $283,161, or 2.2%, of VIEs’ net sales for the three months ended March 31, 2018.

 

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 $6,826,669, or 6.3%, of net sales for the three months ended March 31, 2019, as compared to $7,980,606, or 9.7%, of net sales for the three months ended March 31, 2018, a decrease of $1,153,937, or 14.5%. The decrease in general and administrative expenses was mainly due to Gufeng, which had $486,010 of general and administrative expenses during the last three months, a decrease of $1,026,061 or 67.9% as compared to $1,512,071 of general and administrative expenses for the three months ended March 31, 2018.

 

Total Other Income and Expense

 

Total other income and expense consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. The total other expense for the three months ended March 31, 2019 was $191,803 as compared to total other expense of $185,780 for the three months ended March 31, 2018, a decrease of $6,023, or 3.2%. The decrease in total other expense mainly resulted from the decrease for bank charges.

 

Income Taxes

 

Jinong is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of 0 for the three months ended March 31, 2019, as compared to $860,801 for the three months ended March 31, 2018, a decrease of $860,801 or 100%.

 

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $1,775,037 for the three months ended March 31, 2019, as compared to $764,051 for the three months ended March 31, 2018, an increase of $1,010,986, or 132.3%.

 

Yuxing has no income tax for the three months ended March 31, 2019 as a result of being exempted from paying income tax due to the fact its products fall into the tax exemption list set out in the EIT.

 

32

 

 

Net Income

 

Net income for the three months ended March 31, 2019 was $5,117,899, a decrease of $2,509,134, or 32.9%, compared to $7,627,033 for the three months ended March 31, 2018. Net income as a percentage of total net sales was approximately 4.7% and 9.2% for the three months ended March 31, 2019 and 2018, respectively. The decrease in net income was mainly due to higher selling expense during the last three months.

 

Nine months ended March 31, 2019 Compared to the Nine months ended March 31, 2018.

 

   Nine Months Ended
March 31,
         
   2019   2018   Change$   Change% 
Sales                
Jinong  $61,561,229    80,475,373    (18,914,144)   -23.5%
Gufeng   106,996,368    81,602,384    25,393,984    31.1%
Yuxing   7,828,981    6,788,282    1,040,699    15.3%
VIEs   41,943,261    39,412,820    2,530,441    6.4%
Net sales   218,329,839    208,278,859    10,050,980    4.8%
Cost of goods sold                    
Jinong   31,289,473    39,904,678    (8,615,205)   -21.6%
Gufeng   94,544,943    71,261,349    23,283,594    32.7%
Yuxing   6,658,975    5,446,780    1,212,195    22.3%
VIEs   35,965,608    33,060,645    2,904,963    8.8%
Cost of goods sold   168,458,999    149,673,452    18,785,547    12.6%
Gross profit   49,870,840    58,605,407    (8,734,567)   -14.9%
Operating expenses                    
Selling expenses   18,370,524    16,375,971    1,994,553    12.2%
General and administrative expenses   9,036,397    15,798,290    (6,761,894)   -42.8%
Total operating expenses   27,406,921    32,174,261    (4,767,341)   -14.8%
Income from operations   22,463,919    26,431,146    (3,967,226)   -15.0%
Other income (expense)                    
Other income (expense)   (327,433)   (760,324)   432,891    -56.9%
Interest income   278,509    356,172    (77,663)   -21.8%
Interest expense   (457,885)   (452,640)   (5,245)   1.2%
Total other income (expense)   (506,809)   (856,792)   349,983    -40.8%
Income before income taxes   21,957,110    25,574,353    (3,617,243)   -14.1%
Provision for income taxes   5,321,671    5,066,780    254,891    5.0%
Net income  from continuing operations, net of tax   16,635,439    20,507,573    (3,872,134)   -18.9%
Net income from discontinued operation, net of tax   0    40,394    (40,394)   -100%
Net income, net of tax   16,635,439    20,547,967    (3,912,528)   -19.0%
Other comprehensive income (loss)                    
Foreign currency translation gain (loss)   (5,895,808)   24,710,375    (30,606,183)   -123.9%
Comprehensive income (loss)  $10,739,631    45,258,342    (34,518,711)   -76.3%
                     
Basic weighted average shares outstanding   39,165,010    38,551,264    613,746    1.6%
Basic net earnings per share  $0.42    0.53    (0.11)   -20.3%
Diluted weighted average shares outstanding   39,165,010    38,551,264    613,746    1.6%
Diluted net earnings per share   0.42    0.53    (0.11)   -20.3%

  

Net Sales

 

Total net sales for the nine months ended March 31, 2019 were $218,329,839, an increase of $9,046,811, or 4.3%, from $209,283,028 for the nine months ended March 31, 2018.This increase was largely due to the increase of Gufeng’s net sales offset by decrease in Jinong’s net sales for the nine months ended March 31, 2019.

 

33

 

 

For the nine months ended March 31, 2019, Jinong’s net sales decreased of $18,914,144, or 23.5%, to $61,561,229 from $80,475,373 for the nine months ended March 31, 2018. This decrease was mainly due to Jinong’s increased weight for lower-selling price products sales in Jinong’s total sales, which was result of Jinong’s implementation of its sales strategy that rebalances the production of fertilizer types during the last nine months.

 

For the nine months ended March 31, 2019, Gufeng’s net sales were $106,996,368, an increase of $25,393,984, or 31.1%, from $81,602,384 for the nine months ended March 31, 2018. This increase was mainly attributable to Gufeng’s higher sales volumes to answer market demand during the nine months ended March 31, 2019.

 

For the nine months ended March 31, 2019, Yuxing’s net sales were $7,828,981, an increase of $1,040,699, or 15.3%, from $6,788,282 during the nine months ended March 31, 2018.

 

For the nine months ended March 31, 2019, VIEs’ net sales were $ 41,943,261, an increase of $2,530,441 or 6.4% from $39,412,820 for the nine months ended March 31, 2018. This increase was mainly attributable to the increase in VIEs’ sales volume, which was result of the increase in market demand during the nine months ended March 31, 2019.

 

Cost of Goods Sold

 

Total cost of goods sold for the nine months ended March 31, 2019 was $168,458,999, an increase of $18,785,547, or 12.6%, from $149,673,452 for the nine months ended March 31, 2018. This increase was mainly due to the increase in Gufeng’s net sales.

 

Cost of goods sold by Jinong for the nine months ended March 31, 2019 was $31,289,473, a decrease of $8,615,205, or 21.6%, from $39,904,678 for the nine months ended March 31, 2018. The decrease was primarily due to the decrease in Jinong’s net sales during the nine months ended March 31, 2019.

 

Cost of goods sold by Gufeng for the nine months ended March 31, 2019 was $94,544,943, an increase of $23,283,594, or 32.7%, from $71,261,349 for the nine months ended March 31, 2018. This increase was primarily attributable to the more products sold during the last nine months.

 

For the nine months ended March 31, 2019, cost of goods sold by Yuxing was $6,658,975, an increase of $1,212,195, or 22.3%, from $5,446,780 for the nine months ended March 31, 2018. This increase was mainly attributable to the increase in Yuxing’s net sales. 

 

Cost of goods sold by VIEs for the nine months ended March 31, 2019 was $35,965,608, an increase of $2,904,963, or 8.8%, from $33,060,645 for the nine months ended March 31, 2018. This increase was primarily attributable to the increase in net sales during the last nine months.

 

Gross Profit

 

Total gross profit for the nine months ended March 31, 2019 decreased by $8,734,567, or 14.9%, to $49,870,840, as compared to $58,605,407 for the nine months ended March 31, 2018. Gross profit margin was 22.8% and 28.1% for the nine months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the decrease in Jinong’s net sales since Jinong is the most profitable business segment with 49.2% of gross profit margin.

 

Gross profit generated by Jinong decreased by $10,298,939, or 25.4%, to $30,271,756 for the nine months ended March 31, 2019 from $40,570,695 for the nine months ended March 31, 2018. Gross profit margin from Jinong’s sales was approximately 49.2% and 50.4% for the nine months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to lower selling prices.  

 

For the nine months ended March 31, 2019, gross profit generated by Gufeng was $12,451,425, an increase of $2,110,390, or 20.4%, from $10,341,502 for the nine months ended March 31, 2018. Gross profit margin from Gufeng’s sales was approximately 11.6% and 12.7% for the nine months ended March 31, 2019 and 2018, respectively. The decrease in gross profit percentage was mainly due to the decreased weight for higher-margin products sales in Gufeng’s total sales.

 

For the nine months ended March 31, 2019, gross profit generated by Yuxing was $1,170,006, a decrease of $171,496, or 12.8% from $1,341,502 for the nine months ended March 31, 2018.  The gross profit margin was approximately 14.9% and 19.8% for the nine months ended March 31, 2019 and 2018, respectively. The decrease in gross profit margin was mainly due to the higher labor cost during the nine months ended March 31, 2019.

 

For the nine months ended March 31, 2019, gross profits generated by VIEs were $5,977,653, a decrease of $374,522, or 5.9%, from $6,352,175 for the nine months ended March 31, 2018. Gross profit margin from VIEs’ sales was approximately 14.3% and 16.1% for the nine months ended March 31, 2019 and 2018, respectively. The decrease in gross profit percentage was mainly due to lower selling prices.

 

34

 

 

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 $18,370,524, or 8.4%, of net sales for the nine months ended March 31, 2019, as compared to $16,375,971, or 7.9% of net sales for the nine months ended March 31, 2018, an increase of $1,994,553, or 12.2%. The selling expenses of Jinong for the nine months ended March 31, 2019 were $16,538,328, or 26.9% of Jinong’s net sales, as compared to selling expenses of $15,178,740, or 18.9% of Jinong’s net sales for the nine months ended March 31, 2018. The selling expenses of Yuxing were $42,952 or 0.5% of Yuxing’s net sales for the nine months ended March 31, 2019, as compared to $32,835 or 1.1% of Yuxing’s net sales for the nine months ended March 31, 2018.The selling expenses of Gufeng were $331,949 or 0.3% of Gufeng’s net sales for the nine months ended March 31, 2019, as compared to $380,386 or 1.0% of Gufeng’s net sales for the nine months ended March 31, 2018. The selling expenses of VIEs were $1,457,296, or 3.5%, of VIEs’ net sales for the nine months ended March 31, 2019, as compared to $784,010, or 2.0% of VIEs’ net sales for the nine months ended March 31, 2018.

 

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 $9,036,397, or 4.1% of net sales for the nine months ended March 31, 2019, as compared to $15,798,290, or 7.6%, of net sales for the nine months ended March 31, 2018, a decrease of $6,761,894, or 42.8%. The decrease in general and administrative expenses was mainly due to the adjustment for bad debt expense during the last nine months.

 

Total Other Income and Expenses

 

Total other income and expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. The total other expense for the nine months ended March 31, 2019 was $506,809, as compared to $856,792 for the nine months ended March 31, 2018, a decrease of $349,983, or 40.8%. The decrease was mainly due to the decrease for bank charges.

 

35

 

 

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 $1,007,503 for the nine months ended March 31, 2019, as compared to $2,689,188 for the nine months ended March 31, 2018, a decrease of $1,681,685, or 62.5%.

 

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $ 2,768,465 for the nine months ended March 31, 2019, as compared to $1,899,873 for the nine months ended March 31, 2018, an increase of $ 868,592, or 45.7%.

 

Yuxing has no income tax for the nine months ended March 31, 2019 as a result of being exempted from paying income tax, due to the fact that its products fall into the tax exemption list set out in the EIT.

 

Net Income

 

Net income for the nine months ended March 31, 2019 was $16,635,439, a decrease of $3,912,528, or 19.0%, compared to $20,547,967 for the nine months ended March 31, 2018. Net income as a percentage of total net sales was approximately 7.6% and 9.8 % for the nine months ended March 31, 2019 and 2018, respectively.

 

Discussion of Segment Profitability Measures

 

As of March 31, 2019, we were engaged in the following businesses: the production and sale of fertilizers through Jinong and Gufeng, the production and sale of high-quality agricultural products by Yuxing, and the sales of agriculture materials by the sales VIEs. For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual budget for 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, net income decreased by $9,619,550 or 62.8% to $5,709,185 for the nine months ended March 31, 2019 from $15,238,735 for the nine months ended March 31, 2018. The decrease was principally due to a decrease in net sales.

 

For Gufeng, net income increased by $2,585,024 or 46.8% to $8,111,897 for the nine months ended March 31, 2019 from $5,526,873 for the nine months ended March 31, 2018. The increase was principally due to a significant increase in net sales.

 

For Yuxing, net losses increased by $2,924,775 or 528.6% to net losses of $3,478,089 for the nine months ended March 31, 2019 from $553,314 for the nine months ended March 31, 2018. The increase of net losses was mainly due to a virus infection. Yuxing's major products are flowers, green vegetables and fruits. The virus killed many of the plants. 

 

For the VIEs, the net income was $7,668,280 for year ended March 31, 2019, increased by $7,332,607 or 2,184.4%, from $335,673 for nine months ended March 31, 2018. The increase was mainly due to the decrease in general and administrative expenses for the sales VIEs caused by the adjustment for bad debt expense.

 

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 March 31, 2019, cash and cash equivalents were $69,242,037, a decrease of $81,563,602, or 54.1%, from $150,805,639 as of June 30, 2018.

 

36

 

 

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: 

 

   Nine Months Ended
March 31,
 
   2019   2018 
Net cash provided by (used in) operating activities  $(77,964,267)  $28,434,766 
Net cash provided by (used in) investing activities   (42,880)   (55,691)
Net cash provided by (used in) financing activities   218,694    (5,935,789 
Effect of exchange rate change on cash and cash equivalents   (3,775,148)   8,145,894)
Net increase (decrease) in cash and cash equivalents   (81,563,601)   30,589,179 
Cash and cash equivalents, beginning balance   150,805,639    123,050,548 
Cash and cash equivalents, ending balance  $69,242,037   $153,639,728 

 

Operating Activities

 

Net cash used in operating activities was $77,964,267 for the nine months ended March 31, 2019, an increase of $106,399,032, or 374.2%, compared to net cash provided of $ 28,434,766 for the nine months ended March 31, 2018. The increase of net cash used in was mainly attributable to the increase in inventory, advances to suppliers and other assets, offset by a decrease in account receivable during the nine months ended March 31, 2019 as compared to the same period in 2018.

 

Investing Activities

 

Net cash used in investing activities for the nine months ended March 31, 2019 was $42,880, a decrease of $12,811, or 23.0%, from $55,691 for the nine months ended March 31, 2018. The decrease was mainly attributable to the decrease in purchase of plant, property, and equipment.

 

Financing Activities

 

Net cash provided by in financing activities for the nine months ended March 31, 2019 was $218,694, an increase of $6,154,483 or 103.7%, compared to cash provided by financing activities of $ 5,935,789 for the nine months ended March 31, 2018, which was largely due to we had repayment of loans for the nine months ended March 31, 2018.

 

As of March 31, 2019, and June 30, 2018, our loans payables were as follows:

 

   March 31, 2019   June 30,
2018
 
Short term loans payable:  $4,470,000   $4,726,300 
Total  $4,470,000   $4,726,300 

 

Accounts Receivable

 

We had accounts receivable of $177,715,883 as of March 31, 2019, as compared to $178,750,045 as of June 30, 2018, a decrease of $1,034,162 or 0.6%, which is mainly attributable to Jinong. As of March 31, 2019, Jinong had accounts receivable of $56,507,852, a decrease of $5,020,922 or 8.2%, compared to $ 61,528,774 as of June 30, 2018.

 

Allowance for doubtful accounts in accounts receivable for the nine months ended March 31, 2019 was $23,158,524, an increase of $ 3,700,005 from $19,458,519 as of June 30, 2018, and the allowance for doubtful accounts as a percentage of accounts receivable was 13.0% as of March 31, 2019 and 10.9% as of June 30, 2018.

 

37

 

 

Deferred assets

 

We had no deferred assets as of March 31, 2019 or June 30, 2018. During the nine months, we assisted the distributors in certain marketing efforts and developing standard stores to expand our competitive advantage and market shares. Based on the distributor agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed over three years if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the contractual terms, the unamortized portion of the amount owed by the distributor is payable to us immediately. The deferred assets had been fully amortized as of March 31, 2019.

 

Inventories

 

We had inventory of $132,579,212 as of March 31, 2019, as compared to $ 53,784,814 as of June 30, 2018, an increase of $78,794,398, or 146.5%. The increase was primarily attributable to Gufeng’s inventory. Gufeng’s inventory was $108,304,666 as of March 31, 2019, an increase of $ 52,287,318 or 93.3% compared to $ 56,017,348 as of June 30, 2018. 

 

Advances to Suppliers

 

We had advances to suppliers of $51,055,495 as of March 31, 2019 as compared to $25,194,463 as of June 30, 2018, representing an increase of $25,861,032 or 102.6%. Our inventory level may fluctuate from time to time, depending how quickly the raw material is consumed and replenished during the production process, and how soon the finished goods are sold. The replenishment of raw material relies on management’s estimate of numerous factors, including but not limited to, the raw materials future price, and spot price along with its volatility, as well as the seasonal demand and future price of finished fertilizer products. Such estimate may not be accurate, and the purchase decision of raw materials based on the estimate can cause excessive inventories in times of slow sales and insufficient inventories in peak times.

 

Accounts Payable 

 

We had accounts payable of $9,436,035 as of March 31, 2019 as compared to $27,128,921 as of June 30, 2018, representing a decrease of $17,692,886, or 65.2%. The decrease was primarily due to the decrease of accounts payable for Gufeng. Gufeng’s accounts payable were $548,395 as of March 31, 2019 as compared to $1,782,064 as of June 30, 2018, representing a decrease of $1,233,669, or 69.2%.

 

Unearned Revenue (Customer Deposits)

 

We had unearned revenue of $7,793,572 as of March 31, 2019 as compared to $7,251,967 as of June 30, 2018, representing an increase of $541,605, or 7.5%.  The increase was mainly attributable to the increase of unearned revenue for Gufeng. Gufeng’s unearned revenue was $ 5,415,715 as of March 31, 2019, compared to $ 3,178,157 unearned revenue as of June 30, 2018, representing an increase of $ 2,237,558, or 70.4%. This increase was a 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.

 

38

 

 

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.

 

39

 

 

Deferred assets

 

Deferred assets represent amounts the Company advanced to the distributors in their marketing and stores development to expand our competitive advantage and market shares. Based on the distributor agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed over three years if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the realization of the contractual terms, the unamortized portion of the amount owed by the distributor is to be refunded to us immediately. The deferred assets had been fully amortized as of March 31, 2019.

 

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

 

40

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Disclosures about Market Risk

 

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

 

Currency Fluctuations and Foreign Currency Risk

 

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

 

Our reporting currency is the U.S. dollar. Except for U.S. holding companies, all of our consolidated revenues, consolidated costs and expenses, and our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. If RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. Assets and liabilities are translated at the exchange rates as of the balance sheet dates, revenues and expenses are translated at the average exchange rates, and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of shareholders’ equity. As of March 31, 2019, our accumulated other comprehensive income was $9.5 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of RMB against the U.S. dollar and other currencies is affected by, among other things, changes in the PRC’s political and economic conditions. Between July 1, 2018   and March 31, 2019, China’s currency dropped by a cumulative 1.3% against the U.S. dollar, making Chinese exports cheaper and imports into China more expensive by that percentage. The effect on trade can be substantial. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

 

Interest Rate Risk

 

We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. All of our outstanding debt instruments carry fixed rates of interests. The amount of short-term debt outstanding as of March 31, 2019 and June 30, 2018 was $4.5 million and $4.7 million, respectively. We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our short-term loans, are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans and interest rates are subject to change upon renewal. There were no material changes in interest rates for short-term bank loans renewed during the three months ended March 31, 2019. The original loan term on average is one year, and the remaining average life of the short term-loans is approximately three months.

 

Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

 

Credit Risk

 

We have not experienced significant credit risk, as most of our customers are long-term customers with superior payment records. Our receivables are monitored regularly by our credit managers.

 

Inflation Risk

 

Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

 

41

 

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

  

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), at the conclusion of the period ended March 31, 2019 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

 

(b) Changes in internal controls

 

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

 

42

 

 

PART II – OTHER INFORMATION 

 

Item 1. Legal Proceedings

 

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

 

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

 

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

 

Item 3. Defaults Upon Senior Securities

 

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

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

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

 

Item 6. Exhibits

 

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

 

43

 

 

SIGNATURES

 

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

 

  CHINA GREEN AGRICULTURE, INC.
     
Date: May 15, 2019 By: /s/ Zhuoyu “Richard” Li
  Name: Zhuoyu “Richard” Li
  Title: Chief Executive Officer
    (principal executive officer)
     
Date: May 15, 2019 By: /s/ Yongcheng Yang
  Name: Yongcheng Yang
  Title: Chief Financial Officer
    (principal financial officer and
principal accounting officer)

 

44

 

 

EXHIBIT INDEX

 

No.   Description
     
21.1*   List of Subsidiaries of the Company
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith

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

 

 

45

 

 

Exhibit 21.1

 

SUBSIDIAIRES OF CHINA GREEN AGRICULTURE, INC.

 

Name   Place of Incorporation
Green Agriculture Holding Corporation New Jersey
Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. People's Republic of China
Beijing Gufeng Chemical Products Co., Ltd. People's Republic of China
Beijing Tianjuyuan Fertilizer Co., Ltd. People's Republic of China

 

VARIABLE INTEREST ENTITIES OF CHINA GREEN AGRICULTURE, INC.

 

Name   Place of Incorporation
Xi’an Hu County Yuxing Agriculture Technology Development Co, Ltd. People's Republic of China
Shaanxi Lishijie Agrochemical Co., Ltd. People's Republic of China
Songyuan Jinyangguang Sannong Service Co., Ltd People's Republic of China
Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. People's Republic of China
Aksu Xindeguo Agricultural Materials Co., Ltd. People's Republic of China
Xinjiang Xinyulei Eco-agriculture Science and Technology co., LTD People's Republic of China
Sunwu County Xiangrong Agricultural Materials Co., Ltd. People's Republic of China
Anhui Fengnong Seed Co., Ltd. People's Republic of China

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

 

I, Zhuoyu Li certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q (this “Report”) of China Green Agriculture, Inc.;

 

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Report based on such evaluation; and

 

(d) Disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 15, 2019

 

/s/ Zhuoyu Li  
Name: Zhuoyu Li  
Title: Chief Executive Officer  
(principal executive officer)  

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yongcheng Yang, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q (this “Report”) of China Green Agriculture, Inc.;

 

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Report based on such evaluation; and

 

(d) Disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 15, 2019

 

/s/ Yongcheng Yang  
Name: Yongcheng Yang  
Title: Chief Financial Officer  
(principal financial officer and principal accounting officer)  

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned hereby certifies, each in his capacity as an executive officer of China Green Agriculture, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 

1. The Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 15, 2019

 

/s/ Zhuoyu Li  
Name: Zhuoyu Li  
Title: Chief Executive Officer  
(principal executive officer)  

 

This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Exchange Act, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned hereby certifies, each in his capacity as an executive officer of China Green Agriculture, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 

1. The Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 15, 2019

 

/s/ Yongcheng Yang  
Name: Yongcheng Yang  
Title: Chief Financial Officer  
(principal financial officer and principal accounting officer)  

 

This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Exchange Act, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

v3.19.1
Document and Entity Information - shares
9 Months Ended
Mar. 31, 2019
May 10, 2019
Document and Entity Information [Abstract]    
Entity Registrant Name China Green Agriculture, Inc.  
Entity Central Index Key 0000857949  
Amendment Flag false  
Trading Symbol CGA  
Current Fiscal Year End Date --06-30  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2019  
Entity Filer Category Non-accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Ex Transition Period false  
Entity Common Stock, Shares Outstanding   47,816,945
v3.19.1
Consolidated Balance Sheets - USD ($)
Mar. 31, 2019
Jun. 30, 2018
Current Assets    
Cash and cash equivalents $ 69,242,037 $ 150,805,639
Accounts receivable, net 154,557,359 174,460,937
Inventories 132,579,212 53,784,814
Prepaid expenses and other current assets 4,887,732 2,945,247
Amount due from related parties 0 235,551
Advances to suppliers, net 51,055,495 25,194,463
Total Current Assets 412,321,835 407,426,651
Plant, Property and Equipment, Net 28,120,511 30,894,683
Other Assets 274,163 294,550
Other Non-current Assets 14,164,932 15,885,696
Intangible Assets, Net 18,736,458 20,317,914
Goodwill 8,058,302 8,166,467
Total Assets 481,676,201 482,985,960
Current Liabilities    
Accounts payable 9,436,035 27,128,921
Customer deposits 7,793,572 7,251,967
Accrued expenses and other payables 11,218,642 10,207,058
Amount due to related parties 3,666,440 3,271,619
Taxes payable 33,176,555 29,952,206
Short term loans 4,470,000 4,726,300
Interest payable 667,148 462,060
Derivative liability 1,690 66,143
Total Current Liabilities 70,430,082 83,066,274
Long-term Liabilities    
Convertible notes payable 7,588,201 7,371,899
Total Liabilities 78,018,283 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 March 31, 2019 and June 30, 2018, respectively 39,547 38,897
Additional paid-in capital 129,706,886 129,337,035
Statutory reserve 31,196,016 30,947,344
Retained earnings 252,209,492 235,822,726
Accumulated other comprehensive income (9,494,023) (3,598,215)
Total Stockholders' Equity 403,657,917 392,547,787
Total Liabilities and Stockholders' Equity $ 481,676,201 $ 482,985,960
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2019
Jun. 30, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 115,197,165 115,197,165
Common stock, shares issued 39,546,945 38,896,945
Common stock, shares outstanding 39,546,945 38,896,945
v3.19.1
Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Mar. 31, 2019
Mar. 31, 2018
Sales        
Net sales $ 108,120,570 $ 82,550,883 $ 218,329,839 $ 208,278,859
Cost of goods sold        
Cost of goods sold 86,963,595 61,390,972 168,458,999 149,673,452
Gross profit 21,156,975 21,159,911 49,870,840 58,605,407
Operating expenses        
Selling expenses 6,880,994 3,553,306 18,370,524 16,375,971
General and administrative expenses 6,826,669 7,980,606 9,036,397 15,798,290
Total operating expenses 13,707,663 11,533,912 27,406,921 32,174,261
Income from operations 7,449,312 9,625,999 22,463,919 26,431,146
Other income (expense)        
Other income (expense) (101,350) (145,311) (327,433) (760,324)
Interest income 55,168 138,009 278,509 356,172
Interest expense (145,621) (178,478) (457,885) (452,640)
Total other income (expense) (191,803) (185,780) (506,809) (856,792)
Income before income taxes 7,257,509 9,440,220 21,957,110 25,574,353
Provision for income taxes 2,139,610 1,813,187 5,321,671 5,066,780
Net income from continuing operations, net of tax 5,117,899 7,627,033 16,635,439 20,507,573
Net income from discontinued operation, net of tax 0 0 0 40,394
Net income, net of tax 5,117,899 7,627,033 16,635,439 20,547,967
Other comprehensive income (loss)        
Foreign currency translation gain (loss) 10,564,053 16,213,419 (5,895,808) 24,710,375
Comprehensive income (loss) $ 15,681,952 $ 23,840,452 $ 10,739,631 $ 45,258,342
Basic weighted average shares outstanding 39,546,944 38,551,264 39,165,010 38,551,264
Basic net earnings per share $ 0.13 $ 0.2 $ 0.42 $ 0.53
Diluted weighted average shares outstanding 39,546,944 38,551,264 39,165,010 38,551,264
Diluted net earnings per share $ 0.13 $ 0.2 $ 0.42 $ 0.53
Jinong        
Sales        
Net sales $ 22,077,336 $ 27,490,333 $ 61,561,229 $ 80,475,373
Cost of goods sold        
Cost of goods sold 11,091,419 13,526,095 31,289,473 39,904,678
Gufeng        
Sales        
Net sales 67,167,427 38,932,597 106,996,368 81,602,384
Cost of goods sold        
Cost of goods sold 59,475,263 34,114,896 94,544,943 71,261,349
Yuxing        
Sales        
Net sales 2,817,942 3,041,891 7,828,981 6,788,282
Cost of goods sold        
Cost of goods sold 2,445,246 2,517,989 6,658,975 5,446,780
VIEs - others        
Sales        
Net sales 16,057,865 13,086,062 41,943,261 39,412,820
Cost of goods sold        
Cost of goods sold $ 13,951,667 $ 11,231,992 $ 35,965,608 $ 33,060,645
v3.19.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net income $ 16,635,439 $ 20,507,573
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization 3,671,827 4,730,892
Gain (Loss) on disposal of plant, property and equipment 4,524 24,756
Amortization of debt discount 308,815 490,280
Issuance of common stock for consulting services 370,500
Change in fair value of derivative liability (62,539) (67,798)
Changes in operating assets    
Accounts receivable 17,305,498 (10,988,222)
Amount due from related parties 228,635 902,528
Other current assets 18,524 1,149,289
Inventories (78,208,217) 1,818,951
Advances to suppliers (25,766,902) 6,607,926
Other assets (481,965) 1,527,225
Changes in operating liabilities    
Accounts payable (17,053,253) 1,256,821
Customer deposits 627,242 (2,549,836)
Tax payables 3,183,956 1,325,136
Accrued expenses and other payables 1,045,892 2,184,753
Interest payable 207,758 216,553
Net cash provided by (used in) continuing operating activities (77,964,267) 29,136,827
Net cash provided by (used in) discontinued operating activities 0 (702,062)
Net cash provided by (used in) operating activities (77,964,267) 28,434,765
Cash flows from investing activities    
Purchase of plant, property, and equipment (59,096) (33,207)
Cash paid for acquisition, net (8,219)
Change in construction in process 16,216 (14,265)
Net cash used in investing activities (42,880) (55,691)
Cash flows from financing activities    
Repayment of loans (190,536) (6,130,802)
Advance from related parties 409,230 195,013
Net cash provided by (used in) financing activities 218,694 (5,935,789)
Effect of exchange rate change on cash and cash equivalents (3,775,148) 8,145,894
Net increase in cash and cash equivalents (81,563,601) 30,589,179
Cash and cash equivalents, beginning balance 150,805,639 123,050,548
Cash and cash equivalents, ending balance 69,242,037 153,639,728
Supplement disclosure of cash flow information    
Interest expense paid 106,307 311,667
Income taxes paid $ 2,137,715 $ 3,741,644