CHINA GREEN AGRICULTURE, INC.
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|
For the quarterly period ended
September 30, 2011
|
o
|
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.)
|
3
rd
Floor, Borough A, Block A, No. 181,
South Taibai Road, Xi’an, Shaanxi Province,
People’s Republic of China 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
x
No
o
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
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
o
|
Accelerated filer
x
|
|
Non-accelerated filer
o
( Do not check if a smaller reporting company )
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
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: 26,941,859 shares of common stock, $.001 par value, as of November 4, 2011.
TABLE OF CONTENTS
| Page | ||||
| PART I | FINANCIAL INFORMATION | |||
|
Item 1.
|
Financial Statements.
|
3 | ||
|
Consolidated Condensed Balance Sheets
|
||||
|
As of September 30, 2011 and June 30, 2011 (Unaudited)
|
3 | |||
|
Consolidated Condensed Statements of Income and Comprehensive Income
|
||||
|
For the Three Months Ended September 30, 2011 and 2010 (Unaudited)
|
4 | |||
|
Consolidated Condensed Statements of Cash Flows
|
||||
|
For the Three Months Ended September 30, 2011 and 2010 (Unaudited)
|
5 | |||
|
Notes to Consolidated Condensed Financial Statements
|
||||
|
As of September 30, 2011 (Unaudited)
|
6 | |||
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
20 | ||
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
28 | ||
|
Item 4.
|
Controls and Procedures
|
29 | ||
|
PART II
|
OTHER INFORMATION
|
|||
|
Item 1.
|
Legal Proceedings
|
30 | ||
|
Item 1A.
|
Risk Factors
|
31 | ||
|
Item 6.
|
Exhibits
|
31 | ||
|
Signatures
|
32 | |||
|
Exhibits/Certifications
|
||||
2
AS OF SEPTEMBER 30, 2011 AND JUNE 30, 2011
(UNAUDITED)
|
September 30, 2011
|
June 30, 2011
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 71,333,911 | $ | 65,606,413 | ||||
|
Accounts receivable, net
|
24,095,094 | 17,517,625 | ||||||
|
Inventories
|
36,197,625 | 23,732,404 | ||||||
|
Other current assets
|
774,688 | 537,126 | ||||||
|
Advances to suppliers
|
12,816,782 | 11,487,896 | ||||||
|
Total Current Assets
|
145,218,100 | 118,881,464 | ||||||
|
Plant, Property and Equipment, Net
|
66,548,098 | 66,211,441 | ||||||
|
Construction In Progress
|
4,799,168 | 4,662,039 | ||||||
|
Other Assets - Non Current
|
250,658 | 150,169 | ||||||
|
Intangible Assets, Net
|
28,452,487 | 28,508,629 | ||||||
|
Goodwill
|
5,005,311 | 4,957,245 | ||||||
|
Total Assets
|
$ | 250,273,822 | $ | 223,370,987 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable
|
$ | 7,359,982 | $ | 5,981,703 | ||||
|
Unearned revenue
|
11,264,364 | 11,059,313 | ||||||
|
Accrued expenses and other payables
|
4,794,688 | 3,282,353 | ||||||
|
Amount due to related parties
|
70,269 | 69,962 | ||||||
|
Taxes payable
|
9,542,514 | 7,004,865 | ||||||
|
Short term loans
|
12,175,790 | 4,099,550 | ||||||
|
Total Current Liabilities
|
45,207,607 | 31,497,746 | ||||||
|
Commitment and Contingencies
|
||||||||
|
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, 26,941,859 and 26,845,860 shares issued and outstanding as of September 30, 2011 and June 30, 2011, respectively
|
26,942 | 26,846 | ||||||
|
Additional paid-in capital
|
99,184,578 | 98,627,482 | ||||||
|
Statutory reserve
|
11,285,145 | 10,027,721 | ||||||
|
Retained earnings
|
81,761,648 | 72,287,436 | ||||||
|
Accumulated other comprehensive income
|
12,807,902 | 10,903,756 | ||||||
|
Total Stockholders' Equity
|
205,066,215 | 191,873,241 | ||||||
|
Total Liabilities and Stockholders' Equity
|
$ | 250,273,822 | $ | 223,370,987 | ||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
3
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(UNAUDITED)
|
For the Three Months Ended September 30,
|
||||||||
|
2011
|
2010
|
|||||||
|
Sales
|
||||||||
|
Jinong
|
$ | 22,242,251 | $ | 16,571,293 | ||||
|
Gufeng
|
29,613,091 | 21,801,034 | ||||||
|
Jintai
|
1,198,887 | 1,110,594 | ||||||
|
Yuxing
|
48,365 | - | ||||||
|
Net sales
|
53,102,594 | 39,482,921 | ||||||
|
Cost of goods sold
|
||||||||
|
Jinong
|
8,110,130 | 6,853,787 | ||||||
|
Gufeng
|
25,269,670 | 18,900,513 | ||||||
|
Jintai
|
748,830 | 589,294 | ||||||
|
Yuxing
|
65,232 | - | ||||||
|
Cost of goods sold
|
34,193,862 | 26,343,594 | ||||||
|
Gross profit
|
18,908,732 | 13,139,327 | ||||||
|
Operating expenses
|
||||||||
|
Selling expenses
|
2,490,474 | 1,415,985 | ||||||
|
General and administrative expenses
|
3,138,695 | 2,098,187 | ||||||
|
Total operating expenses
|
5,629,169 | 3,514,172 | ||||||
|
Income from operations
|
13,279,563 | 9,625,155 | ||||||
|
Other income (expense)
|
||||||||
|
Other income (expense)
|
(25,424 | ) | (11,943 | ) | ||||
|
Interest income
|
97,487 | 64,991 | ||||||
|
Interest expense
|
(156,479 | ) | (176,675 | ) | ||||
|
Total other income (expense)
|
(84,416 | ) | (123,627 | ) | ||||
|
Income before income taxes
|
13,195,147 | 9,501,528 | ||||||
|
Provision for income taxes
|
2,463,511 | 1,713,743 | ||||||
|
Net income
|
10,731,636 | 7,787,785 | ||||||
|
Other comprehensive income
|
||||||||
|
Foreign currency translation gain
|
1,904,146 | 1,294,047 | ||||||
|
Comprehensive income
|
$ | 12,635,782 | $ | 9,081,832 | ||||
|
Basic weighted average shares outstanding
|
26,857,338 | 25,922,880 | ||||||
|
Basic net earnings per share
|
$ | 0.40 | $ | 0.30 | ||||
|
Diluted weighted average shares outstanding
|
26,857,338 | 26,035,426 | ||||||
|
Diluted net earnings per share
|
0.40 | 0.30 | ||||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
4
CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(UNAUDITED)
|
2011
|
2010
|
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net income
|
$ | 10,731,636 | $ | 7,787,785 | ||||
|
Adjustments to reconcile net income to net cash
|
||||||||
|
used in operating activities
|
||||||||
|
Issuance of equity for compensation
|
557,192 | 644,075 | ||||||
|
Depreciation
|
1,132,399 | 852,693 | ||||||
|
Amortization
|
331,502 | 81,143 | ||||||
|
Decrease / (Increase) in current assets, net of effects from acquisitions:
|
||||||||
|
Accounts receivable
|
(6,387,104 | ) | (383,146 | ) | ||||
|
Other receivables
|
(235,450 | ) | 16,653 | |||||
|
Inventories
|
(12,195,943 | ) | 2,345,622 | |||||
|
Advances to suppliers
|
(1,213,600 | ) | (15,847,463 | ) | ||||
|
Other assets
|
(98,716 | ) | (296,554 | ) | ||||
|
(Decrease) / Increase in current liabilities, net of effects from acquisitions:
|
||||||||
|
Accounts payable
|
1,316,676 | (3,972,787 | ) | |||||
|
Unearned revenue
|
97,505 | 3,347,743 | ||||||
|
Tax payables
|
2,461,823 | 1,750,338 | ||||||
|
Other payables and accrued expenses
|
1,493,111 | (23,333 | ) | |||||
|
Net cash used in operating activities
|
(2,008,969 | ) | (3,697,231 | ) | ||||
|
Cash flows from investing activities
|
||||||||
|
Purchase of plant, property, and equipment
|
(828,035 | ) | (776,669 | ) | ||||
|
Acquisition of Gufeng, net of cash acquired
|
- | (6,720,539 | ) | |||||
|
Construction in progress
|
(91,631 | ) | (141,985 | ) | ||||
|
Net cash used in investing activities
|
(919,666 | ) | (7,639,193 | ) | ||||
|
Cash flows from financing activities
|
||||||||
|
Proceeds from loans
|
8,010,765 | 2,240,468 | ||||||
|
Net cash provided by financing activities
|
8,010,765 | 2,240,468 | ||||||
|
Effect of exchange rate change on cash and cash equivalents
|
645,368 | 707,613 | ||||||
|
Net increase (decrease) in cash and cash equivalents
|
5,727,498 | (8,388,343 | ) | |||||
|
Cash and cash equivalents, beginning balance
|
65,606,413 | 62,335,437 | ||||||
|
Cash and cash equivalents, ending balance
|
$ | 71,333,911 | $ | 53,947,094 | ||||
|
Supplement disclosure of cash flow information
|
||||||||
|
Interest expense paid
|
$ | 148,101 | $ | 179,941 | ||||
|
Income taxes paid
|
$ | 7,664 | $ | 11,738 | ||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
5
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
China Green Agriculture, Inc. (the “Company”, “we”, “us”), 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. The Company was incorporated in 1987, but entered its current lines of business in December 2007.
The Company’s corporate structure as of September 30, 2011 is set forth in the diagram below:
Accounting principles
In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2011 filed with the U.S. Securities and Exchange Commission (the “Commission”) on September 12, 2011.
6
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Jintai, Yuxing, Gufeng and Tianjuyuan. All significant inter-company accounts and transactions have been eliminated in consolidation.
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.
Recent accounting pronouncements
In May 2011, the FASB issued guidance to amend certain measurement and disclosure requirements related to fair value measurements to improve consistency with international reporting standards. This guidance is effective prospectively for public entities for interim and annual reporting periods beginning after December 15, 2011, with early adoption by public entities prohibited. The Company is currently evaluating this guidance, but does not expect its adoption will have a material effect on its consolidated financial statements.
In June 2011, the FASB issued new guidance on the presentation of comprehensive income that will require a company to present components of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized in net income or other comprehensive income under current GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating this guidance, but does not expect its adoption will have a material effect on its consolidated financial statements.
In September 2011, the FASB issued amendments to the goodwill impairment guidance which provides an option for companies to use a qualitative approach to test goodwill for impairment if certain conditions are met. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption is permitted). The implementation of amended accounting guidance is not expected to have a material impact on our consolidated financial position and results of operations.
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 as of September 30, 2011 and 2010 were as follows:
|
For the Three Months Ended September 30,
|
||||||||
|
2011
|
2010
|
|||||||
|
Net Income for Basic Earnings Per Share
|
$ | 10,731,636 | $ | 7,787,785 | ||||
|
Basic Weighted Average Number of Shares
|
26,857,338 | 25,922,880 | ||||||
|
Net Income per Share – Basic
|
$ | 0.40 | $ | 0.30 | ||||
|
Net Income for Diluted Earnings Per Share
|
10,731,636 | 7,787,785 | ||||||
|
Diluted Weighted Average Number of Shares
|
26,857,338 | 26,035,426 | ||||||
|
Net Income per Share – Diluted
|
$ | 0.40 | $ | 0.30 | ||||
7
Inventories consisted of the following:
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Raw materials
|
$ | 10,056,587 | $ | 5,990,640 | ||||
|
Supplies and packing materials
|
2,388,458 | 530,644 | ||||||
|
Work in progress
|
140,979 | 105,702 | ||||||
|
Finished goods
|
23,611,601 | 17,105,418 | ||||||
|
Total
|
$ | 36,197,625 | $ | 23,732,404 | ||||
Other current assets are comprised of the following:
|
September 30,
2011
|
June 30,
2011
|
|||||||
|
Advancement
|
$
|
499,688
|
$
|
530,459
|
||||
|
Prepaid insurance
|
275,000
|
6,667
|
||||||
|
Total
|
$
|
774,688
|
$
|
537,126
|
||||
Advancement represents advances made to non-related parties and prepaid insurance to employees. The amounts were unsecured, interest free, and due on demand. Prepaid insurance is related to the underwriting of the Company’s directors and officers insurance policy.
Property, plant and equipment consisted of the following:
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Building and improvements
|
$ | 43,530,291 | $ | 44,032,549 | ||||
|
Auto
|
1,542,865 | 1,491,849 | ||||||
|
Machinery and equipment
|
33,082,580 | 32,862,361 | ||||||
|
Agriculture assets
|
3,444,687 | 1,607,333 | ||||||
|
Total property, plant and equipment
|
81,600,423 | 79,994,092 | ||||||
|
Less: accumulated depreciation
|
(15,052,325 | ) | (13,782,651 | ) | ||||
|
Total
|
$ | 66,548,098 | $ | 66,211,441 | ||||
Depreciation expense for the three months ended September 30, 2011 and 2010 were $1,132,399 and $852,963, respectively.
8
Agriculture assets consist of reproductive trees that are expected to be commercially productive for a period of eight years.
As of September 30, 2011 and June 30, 2011, construction in progress, representing construction for other buildings amounted to $4,799,168 and $4,662,039, respectively. The construction in progress mainly reflects the ongoing development project in Yuxing.
The intangible assets comprised of the following:
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Land use rights, net
|
$ | 12,041,040 | $ | 11,814,149 | ||||
|
Technology patent, net
|
1,137,657 | 1,188,969 | ||||||
|
Customer relationships, net
|
8,883,875 | 9,045,858 | ||||||
|
Non-compete agreement
|
154,638 | 163,363 | ||||||
|
Trademarks
|
6,235,277 | 6,296,290 | ||||||
|
Total
|
$ | 28,452,487 | $ | 28,508,629 | ||||
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 $10,938,628 (or RMB 73,184,895). The intangible asset is being amortized over the grant period of 50 years.
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 $163,377 (or RMB 1,045,950). 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 Yanling District, Shaanxi Province. The fair value of the related intangible asset at the time of the contribution was determined to be $1,137,932 (or RMB 7,285,099). The intangible asset is being amortized over the grant period of 50 years.
The Land Use Rights consist of the following as of September 30, 2011 and June 30, 2011:
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Land use rights
|
$ | 12,732,791 | $ | 12,452,801 | ||||
|
Less: accumulated amortization
|
(691,751 | ) | (638,652 | ) | ||||
|
Total land use rights, net
|
$ | 12,041,040 | $ | 11,814,149 | ||||
TECHNOLOGY PATENT
On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible asset was determined to be the respective cost of $917,686 (or RMB 5,875,068). The intangible asset is being amortized over the patent period of 10 years.
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired technology patent was determined to be $1,437,040 (or RMB 9,200,000) and is being amortized over the remaining useful life of six years.
9
The technology know-how consisted of the following as of September 30, 2011 and June 30, 2011:
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Technology know-how
|
$ | 2,354,726 | $ | 2,332,113 | ||||
|
Less: accumulated amortization
|
(1,217,069 | ) | (1,143,144 | ) | ||||
|
Total technology know-how, net
|
$ | 1,137,657 | $ | 1,188,969 | ||||
CUSTOMER RELATIONSHIP
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired customer relationships was estimated to be $10,153,000 (or RMB 65,000,000) and is amortized over the remaining useful life of ten years.
|
September 30,
2011
|
June 30,
2011
|
|||||||
|
Customer relationships
|
$ | 10,153,000 | $ | 10,096,418 | ||||
|
Less: accumulated amortization
|
(1,269,125 | ) | (1,050,560 | ) | ||||
|
Total Customer relationships, net
|
$ | 8,883,875 | $ | 9,045,858 | ||||
NON-COMPETE AGREEMENT
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired non-compete agreement was estimated to be RMB 1,320,000 (or $197,295) and is amortized over the remaining useful life of five years using the straight line method.
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Non-compete agreement
|
$ | 206,184 | $ | 204,204 | ||||
|
Less: accumulated amortization
|
(51,546 | ) | (40,841 | ) | ||||
|
Total non-compete agreement, net
|
$ | 154,638 | $ | 163,363 | ||||
TRADEMARKS
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired trademarks was estimated to be $6,235,277 and is subject to an annual impairment test.
Total amortization expenses of intangible assets for the periods ended September 30, 2011 and 2010 were $331,502 and $81,143, respectively.
AMORTIZATION EXPENSE
Estimated amortization expenses of intangible assets for the next five twelve-month periods ended September 30, are as follows:
|
September 30, 2012
|
$ | 1,642,468 | ||
|
September 30, 2013
|
1,642,468 | |||
|
September 30, 2014
|
1,642,468 | |||
|
September 30, 2015
|
1,642,468 | |||
|
September 30, 2016
|
1,642,468 |
10
Accrued expenses and other payables consisted of the following:
|
September 30,
|
June 30,
|
|||||||
|
2011
|
2011
|
|||||||
|
Payroll payable
|
$ | 240,519 | $ | 248,686 | ||||
|
Welfare payable
|
165,815 | 164,223 | ||||||
|
Accrued expenses
|
2,160,952 | 1,666,753 | ||||||
|
Other payable
|
2,106,197 | 1,202,691 | ||||||
|
Other Tax
|
121,205 | - | ||||||
|
Total
|
$ | 4,794,688 | $ | 3,282,353 | ||||
As of September 30, 2011 and June 30, 2011, the amount due to related parties was $70,269 and $69,962 respectively. These amounts represent unsecured, non-interest bearing loans that are due on demand. These loans are not subject to written agreements.
The short-term loans payable consist of three loans which mature on dates ranging from January 13, 2012 through September 19, 2012 with different interest rates. The loans are collateralized by the Company’s land use rights.
11
|
September 30,
|
June 30,
|
|||||||||||||||
|
No.
|
Customer
|
Loan period per agreement
|
Interest Rate
|
2011
|
2011
|
|||||||||||
| 1 |
Agricuture
Bank of China-Beijing
Branch
|
January 20, 2011 - January 13, 2012
|
7.2565 | % | $ | 1,312,080 | $ | 1,299,480 | ||||||||
| 2 |
Agricuture
Bank of China-Beijing
Branch
|
April 12, 2011 - April 11, 2012
|
7.2565 | % | 1,249,600 | 1,237,600 | ||||||||||
| 3 |
Agricuture
Bank of China-
Beijing
Branch
|
May 23, 2011 - April 19, 2012
|
7.2565 | % | 1,577,620 | 1,562,470 | ||||||||||
| 4 |
Bank of Tianjin
|
September 9, 2011 - July 23, 2012
|
7.5440 | % | 1,788,490 | - | ||||||||||
| 5 |
Minsheng Bank
|
September 8, 2011 - September 8, 2012
|
8.2 | % | 1,789,172 | - | ||||||||||
| 6 |
Minsheng Bank
|
September 19, 2011 - September 19, 2012
|
8.2 | % | 553,828 | - | ||||||||||
| 7 |
China Merchant
Bank
|
July 25, 2011 - July 26, 2012
|
8.528 | % | 3,905,000 | - | ||||||||||
|
Total
|
$ | 12,175,790 | $ | 4,099,550 | ||||||||||||
The weighted average interest rate is 8.00%. The interest expenses from short-term loans were $156,479 and $176,675 for the quarter ended September 30, 2011, and 2010 respectively.
Enterprise Income Tax
Effective January 1, 2008, the new Enterprise Income Tax (“EIT”) law of the PRC replaced the existing tax laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new 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, and accordingly, it made provision for income taxes for the three months ended September 30, 2011 and 2010 of $2,463,511 and $1,713,743, respectively. Gufeng is subject to 25% EIT rate and thus it made provision for income taxes of $622,653 for the three months ended September 30, 2011. The 25% EIT rate that Gufeng is subject to remains unchanged from the three months ended September 30, 2010. Jintai and Yuxing have been exempt from paying income tax since its formation as it produces products which fall into the tax exemption list set out in the EIT. This exemption is expected to last as long as the applicable provisions of the EIT do not change.
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. The VAT exemption applies to all agricultural products sold by Jingtai and Yuxing, and all but a nominal amount of agricultural products sold by Jinong.
12
Income Taxes and Related Payables
Taxes payable consisted of the following:
|
September 30,
2011
|
June 30,
2011
|
|||||||
|
VAT provision (credit)
|
$
|
49,576
|
$ |
40,495
|
||||
|
Income tax payable
|
9,123,760
|
6,593,876
|
||||||
|
Other levies
|
369,178
|
370,494
|
||||||
|
Total
|
$
|
9,542,514
|
$ |
7,004,865
|
||||
Income Taxes in the Consolidated Statements of Income and Comprehensive Income
Income taxes consisted of the following:
|
September 30,
2011
|
June 30,
2010
|
|||||||
|
Current Tax
|
$ | 2,463,511 | $ | 1,713,743 | ||||
|
Deferred Tax
|
- | - | ||||||
|
Total
|
$ | 2,463,511 | $ | 1,713,743 | ||||
Tax Rate Reconciliation
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 34% to income before income taxes for the three months ended September 30, 2011 and 2010 for the following reasons:
|
September 30, 2011
|
China
|
United States
|
|
|||||||||||||||||||||
|
15% - 25%
|
34%
|
Total
|
|
|||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
|
Pretax income (loss)
|
$ | 14,681,072 | $ | (1,485,925 | ) | $ | 13,195,147 | |||||||||||||||||
|
Expected income tax expense (benefit)
|
3,670,268 | 25.0 | % | (505,215 | ) | 34.0 | % | 3,165,054 | ||||||||||||||||
|
High-tech income benefits on Jinong
|
(766,515 | ) | (5.2 | ) % | - | - | (766,515 | ) | ||||||||||||||||
|
Losses from subsidiaries in which no benefit is recognized
|
(440,242 | ) | (3.0 | ) % | - | - | (440,242 | ) | ||||||||||||||||
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
- | 505,215 | (34.0 | ) % | 505,215 | |||||||||||||||||||
|
Actual tax expense
|
$ | 2,463,511 | 16.8 | % | $ | - | - | % | $ | 2,463,511 | 18.7 | % | ||||||||||||
|
September 30, 2010
|
China
|
United States
|
||||||||||||||||||||||
| 15% - 25% | 34% |
Total
|
||||||||||||||||||||||
|
Pretax income (loss)
|
$ | 10,702,296 | $ | (1,200,768 | ) | $ | 9,501,528 | |||||||||||||||||
|
Expected income tax expense (benefit)
|
2,636,058 | 9.5 | % | (408,261 | ) | 34.0 | % | 2,227,797 | ||||||||||||||||
|
High-tech income benefits on Jinong
|
(858,273 | ) | (3.1 | ) % | (858,273 | ) | ||||||||||||||||||
|
Income tax benefit of nontaxable income on Jintai
|
(109,368 | ) | (0.4 | ) % | - | - | (109,368 | ) | ||||||||||||||||
|
Income tax benefit of nontaxable income on Yuxing
|
45,326 | 0.2 | % | - | - | 45,326 | ||||||||||||||||||
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
- | 408,261 | (34.0 | ) % | 408,261 | |||||||||||||||||||
|
Actual tax expense
|
$ | 1,713,743 | 6.2 | % | $ | - | - | % | 1,713,743 | 18.0 | % | |||||||||||||
13
Common Stock
The Company issued 4,025,000 shares of common stock at a public offering price of $7.15 per share in an underwritten offering and received total gross proceeds of approximately $28.8 million on July 24, 2009. The shares were sold under the Company's previously filed shelf registration statement, which was declared effective by the SEC on June 12, 2009. The Company uses the net proceeds to expand its production facilities through the construction of new greenhouse at Yuxing.
The Company completed the sale of 1,282,052 shares of common stock at a public offering price of $15.60 per share on November 25, 2009 in a registered direct offering for gross proceeds of $20,000,011. On December 16, 2009, the placement agent exercised rights to place up to 320,512 additional shares of common stock at a price of $15.60 per share, for additional gross proceeds of $4,999,987. The shares were sold under the Company's previously filed shelf registration statement, which was declared effective by the SEC on June 12, 2009.
On January 3, 2010, the Company made a one-time grant of an aggregate of 120,000 shares of restricted common stock of the Company to certain members of management and officers under the 2009 Equity Incentive Plan of the Company. Pursuant to the terms of the grant, one-third of the shares vested on February 2, 2010, one-third of the shares vested on December 31, 2010 as certain financial targets were achieved and the remaining one-third of the shares will vest on December 31, 2011 if certain financial targets are achieved. Additionally, the Company made a one-time grant of an aggregate of 22,961 shares of performance-based restricted common stock to certain officers, which vests in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved both net sales and income from operations targets for the fiscal year ended June 30, 2010.
On February 10, 2010, the Company made a one-time grant of an aggregate of 50,700 shares of restricted common stock to certain independent directors and key employees under the 2009 Equity Incentive Plan. Pursuant to the terms of the grant, one-third of the shares vested on March 10, 2010, one-third of the shares vested on December 31, 2010 as certain financial targets were achieved and the remaining one-third of the shares will vest on December 31, 2011 if certain financial targets are achieved. Additionally, the Company also granted to certain independent directors and key employees an aggregate of 70,500 shares of performance-based restricted common stock, which automatically vests in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved both net sales and income from operations targets for the fiscal year ended June 30, 2010.
On February 10, 2010, the Company issued a total of 8,000 shares of restricted common stock under its 2009 Equity Incentive Plan to a consultant pursuant to the terms of a service agreement, half of which was vested on August 9, 2010 and half of which was forfeited due to the disengagement of the service on September 15, 2010.
14
On July 2, 2010, the Company issued a total of 2,275,931 shares of common stock to Gufeng’s previous shareholders and their designees. Of the shares being issued in the acquisition, 40% will be held in escrow pending satisfaction of certain conditions such as make good targets set for Gufeng for the fiscal year ended June 30, 2011.
On March 31, 2011, the Company issued a total of 96,000 shares of restricted common stock of the Company to certain directors and executive officers under its 2009 Equity Incentive Plan. Pursuant to the terms of the grant, 8,000 shares of restricted common stock will be vested on April 30, 2011, 44,000 shares vest on June 2, 2011, and 44,000 shares vest on December 31,2011.
Preferred Stock
Under the Company’s articles of incorporation, the board of directors has the authority, without further action by stockholders, to designate up to 20,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. If the Company sells preferred stock under its registration statement on Form S-3, it will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series in the certificate of designation relating to that series and will file the certificate of designation that describes the terms of the series of preferred stock the Company offers before the issuance of the related series of preferred stock.
As of September 30, 2011, the Company had 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are outstanding.
On August 17, 2009, some directors, officers and employees exercised 84,500 options to purchase an aggregate of 84,500 shares of common stock in a cashless manner and received 61,239 shares of common stock as a result of the cashless exercise.
On January 3, 2010, the Company made a one-time grant of options to purchase an aggregate of 150,000 shares of common stock to certain officers and directors under the 2009 Equity Incentive Plan at an exercise price of $14.70 per share, the closing price of common stock on the previous trading day. Pursuant to the terms of the grant, one-third of the options vested on February 2, 2010, one-third of the options vested on December 31, 2010 as certain financial targets are achieved and the remaining one-third of the options will vest on December 31, 2011 if certain financial targets are achieved.
On January 3, 2010, the Company also made a grant of performance-based options to purchase an aggregate of 45,291 shares of common stock to certain officers and directors under the 2009 Equity Incentive Plan at an exercise price of $14.70 per share, the closing price of the common stock on the previous trading day. Pursuant to the terms of the grant, the options automatically vest in three equal installments on September 30, 2010, 2011 and 2012 because the Company achieved both net sales and income from operations targets for the fiscal year ended June 30, 2010.
On February 3, 2010, one independent director resigned and all his vested and unvested options were forfeited pursuant to his grant agreement with the Company.
On February 7, 2010, the Company appointed a new independent director and issued to him performance-based options to purchase 10,000 shares of common stock under the 2009 Equity Incentive Plan at an exercise price of $14.02 per share, the closing price of the common stock on the previous trading day. Pursuant to the terms of the grant, one-third of the options vested on March 8, 2010, one-third of the options vested on December 31, 2010 as certain financial targets are achieved and the remaining one-third of the options will vest on December 31, 2011 if certain financial targets are achieved.
On March 31, 2011, per compensation board resolution, the Company forfeited all those outstanding unvested options granted to current officers and directors and one former officer on March, 1 2010 and February 7, 2010 according to the 2009 Equity Incentive Plan.
15
The Company’s calculations are made using the Black-Scholes option-pricing model with the following weighted average assumptions: expected life of 2 years; 75.2%-75.6% stock price volatility; risk-free interest rate of 1.63% and no dividends during the expected term. The weighted-average fair value of options granted was $0, $4.37, and $3.29 for the years ended June 30, 2011, 2010, and 2009, respectively. Stock compensation expense is recognized based on awards expected to vest. During the years ended June 30, 2011, 2010 and 2009, the Company recognized stock-based compensation expense of $3,605,235, $1,695,449 and $155,804, respectively.
The following table summarizes the options outstanding as of September 30, 2011:
|
Weighted
|
||||||||||||
|
Average
|
||||||||||||
|
Number
|
Exercise
|
Aggregate
|
||||||||||
|
of Shares
|
Price
|
Intrinsic Value
|
||||||||||
|
Outstanding, June 30, 2009
|
121,500 | $ | 4.49 | |||||||||
|
Granted
|
205,291 | $ | 14.67 | |||||||||
|
Forfeited/Canceled
|
(22,000 | ) | $ | 9.95 | ||||||||
|
Exercised
|
(109,500 | ) | $ | 4.32 | ||||||||
|
Outstanding, June 30, 2010
|
195,291 | $ | 14.67 | |||||||||
|
Granted
|
- | - | ||||||||||
|
Forfeited/Canceled
|
(80,192 | ) | $ | 14.67 | ||||||||
|
Exercised
|
- | |||||||||||
|
Outstanding, June 30, 2011
|
115,099 | $ | 14.66 | $ | - | |||||||
|
Granted
|
- | |||||||||||
|
Forfeited/Canceled
|
- | |||||||||||
|
Exercised
|
- | |||||||||||
|
Outstanding, September 30, 2011
|
115,099 | $ | 14.66 | $ | - | |||||||
|
Exercisable, September 30, 2011
|
115,099 | $ | 14.66 | $ | - | |||||||
Market Concentration
All of the Company's revenue-generated operations are all 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 others, the political, economic and legal environments 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.
16
Vendor and Customer Concentration
There was no vendor from which the Company purchased more than 10% of its raw materials for the fertilizer products for the three months ended September 30, 2011. There is no accounts payable to such vendor as of September 30, 2011.
There was no customer that accounted over 10% of the total sales of fertilizer products as of three months ended September 30, 2011 and September 30, 2010.
Concentration of Cash
The Company maintains large sums of cash in three major banks in China. The aggregate balance in such accounts as of September 30, 2011 was $71,074,519. There is no insurance securing these deposits in China. In addition, the Company also had $262,299 in cash in two banks in the United States as of September 30, 2011, with $500,000 secured by the U.S. Federal Deposit Insurance Corporation.
Litigation
On October 15, 2010, a class action lawsuit was filed against the Company and certain of its current and former officers in the United States District Court for the District of Nevada on behalf of purchasers of the Company
’
s common stock between November 12, 2009 and September 1, 2010. On April 27, 2011, the court appointed the lead plaintiff and lead plaintiff
’
s counsel. On June 13, 2011, lead plaintiff filed an amended complaint, which adds several additional defendants and expands the class period to include purchasers who purchased our common stock between May 12, 2009 and January 4, 2011. The amended complaint alleges that the Company and certain of its current and former officers and directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, by making material misstatements and omissions in the Company’s financial statements, securities offering documents, and related disclosures during the class period. The plaintiffs claim that such allegedly misleading statements inflated the price of the Company’s common stock and seek monetary damages in an amount to be determined at trial. By stipulation of the parties, defendants’ response to the amended complaint is due October 7, 2011. Lead plaintiff filed an amended complaint on June 13, 2011. Defendants moved to dismiss the amended complaint on September 19, 2011. No hearing has been set for defendants’ motions.
On December 10, 2010, a derivative complaint was filed by a shareholder, purportedly on the Company’s behalf, against certain of the Company’s current and former officers and directors in the First Judicial District Court of the State of Nevada in and for Carson City. The complaint alleges, among other things, various violations of state law by such officers and directors, including breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The plaintiff requests, among other remedies, restitution from such officers and directors and reform to the Company’s corporate governance and internal procedures.
On January 5, 2011, a second derivative complaint was filed by two shareholders, purportedly on the Company
’
s behalf, against, among others, certain of the Company’s current and former officers and directors, in the United States District Court, District of Columbia. By stipulation of the parties, this case has been transferred to the District Court for the District of Nevada. This complaint alleges, among other things, that such officers and directors breached their fiduciary duties by knowingly filing inaccurate and inconsistent financial statements and other filings with the Commission and by failing to correct such allegedly inaccurate financial disclosure. The plaintiffs request, among other remedies, damages in the amount sustained by the defendants
’
alleged breach of fiduciary duties and other violations of law, and other equitable relief.
On January 12, 2011, two additional derivative complaints were filed by different shareholders, purportedly on the Company’s behalf, against certain of the Company’s current and former officers and directors, in the Eighth Judicial District Court, Clark County, Nevada. Each of the complaints alleges, among other things, that defendants breached their fiduciary duties by disseminating false and misleading information to shareholders via public filings and other communications, failing to maintain internal controls and procedures and failing to properly oversee and manage the Company. Each of the complaints also alleges unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets by the defendants. The plaintiffs request, among other remedies, damages caused by the breach of defendants’ fiduciary duties, restitution from such officers and directors and reform to the Company’s corporate governance and internal procedures. By stipulation, these two derivative actions have been transferred to the First Judicial District Court of the State of Nevada in and for Carson City and consolidated with the derivative action already pending in that court. By stipulation of the parties, all of the derivative actions are currently stayed.
17
The individual defendants and the Company, as a nominal defendant, have reached an agreement in principle with the plaintiffs to settle all the derivative actions. Pursuant to the terms of the settlement and subject to court approval, certain corporate governance changes will be adopted and attorneys’ fees for the plaintiffs’ counsel will be paid by the insurers. The preliminary approval hearing for the settlement is currently set for December 14, 2011.
In addition, the Commission is conducting an investigation of the Company’s prior reported financial statements, as well as the allegations in the complaints described above. The Company is cooperating with the Commission.
The Company is currently unable to reasonably estimate the amount or range of possible losses that will result from the ultimate resolution of these matters. As such, as of September 30, 2011, the Company has not accrued any liability in connection with potential losses from legal proceedings.
The Company was organized into four main business segments based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production), Jintai (agricultural products production) and Yuxing (research and development center that is currently under construction). The following tables present a summary of our businesses’ and operating segments’ results.
|
For the three months ended
September 30,
|
||||||||
|
2011
|
2010
|
|||||||
|
Revenues from unaffiliated customers:
|
||||||||
|
Jinong
|
$
|
22,242,251
|
$
|
16,571,293
|
||||
|
Gufeng
|
29,613,091
|
21,801,034
|
||||||
|
Jintai
|
1,198,887
|
1,110,594
|
||||||
|
Yuxing
|
48,365
|
-
|
||||||
|
Consolidated
|
$
|
53,102,594
|
$
|
39,482,921
|
||||
|
Operating income :
|
||||||||
|
Jinong
|
$
|
12,187,448
|
$
|
8,519,558
|
||||
|
Gufeng
|
2,608,589
|
1,922,981
|
||||||
|
Jintai
|
10,459
|
437,446
|
||||||
|
Yuxing
|
(40,730)
|
(54,062
|
)
|
|||||
|
Reconciling item (1)
|
(705,036)
|
-
|
||||||
|
Reconciling item (2)
|
(781,167)
|
(556,693
|
)
|
|||||
|
Reconciling item (2)—stock compensation
|
-
|
(644,075
|
||||||
|
Consolidated
|
$
|
13,279,563
|
$
|
9,625,155
|
||||
|
Net income:
|
||||||||
|
Jinong
|
$
|
10,429,494
|
$
|
7,295,318
|
||||
|
Gufeng
|
1,817,896
|
1,307,706
|
||||||
|
Jintai
|
10,501
|
437,473
|
||||||
|
Yuxing
|
(40,331)
|
(53,731
|
)
|
|||||
|
Reconciling item (1)
|
278
|
1,787
|
||||||
|
Reconciling item (2)
|
(1,486,202)
|
(1,200,768
|
)
|
|||||
|
Consolidated
|
$
|
10,731,636
|
$
|
7,787,785
|
||||
|
Depreciation and Amortization:
|
||||||||
|
Jinong
|
$
|
575,479
|
$
|
578,765
|
||||
|
Gufeng
|
789,592
|
268,613
|
||||||
|
Jintai
|
283
|
31,374
|
||||||
|
Yuxing
|
98,548
|
55,084
|
||||||
|
Consolidated
|
$
|
1,463,901
|
$
|
933,836
|
||||
|
Interest expense:
|
||||||||
|
Jinong
|
$
|
-
|
$
|
-
|
||||
|
Gufeng
|
156,479
|
176,675
|
||||||
|
Consolidated
|
$
|
156,479
|
$
|
176,675
|
||||
|
Capital Expenditure:
|
||||||||
|
Jinong
|
$
|
765,309
|
$
|
553,899
|
||||
|
Gufeng
|
24,341
|
209,432
|
||||||
|
Jintai
|
-
|
-
|
||||||
|
Yuxing
|
130,016
|
13,338
|
||||||
|
Consolidated
|
$
|
919,666
|
$
|
776,669
|
||||
|
Identifiable assets:
|
As of 09/30/11
|
As of 06/30/11
|
||||||
|
Jinong
|
$
|
148,228,969
|
$
|
111,956,641
|
||||
|
Gufeng
|
62,126,720
|
67,260,447
|
||||||
|
Jintai
|
14,025,203
|
14,001,793
|
||||||
|
Yuxing
|
25,359,538
|
24,354,406
|
||||||
|
Reconciling item (1)
|
802,605
|
969,963
|
||||||
|
Reconciling item (2)
|
(269,213
|
)
|
4,827,737
|
|||||
|
Consolidated
|
$
|
250,273,822
|
$
|
223,370,987
|
||||
(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.
18
In July 2007, Jinong signed an office lease with the Group Company and started to pay the rent for $954 (RMB 6,460) per month. On September 30, 2010, Jinong cancelled the lease agreement with the Group Company without penalty and signed a two year lease starting from July 1, 2010 directly with Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”), who owns the property. Kingtone Information is a Variable Interest Entity (“VIE”) with Kingtone Wirelessinfo Solution Holoding Ltd. (“Kingtone Wirelessinfo”), whose Chairman and majority shareholder is Mr. Tao Li, the Chairman, President and Chief Executive Officer of the Company. According to the new lease agreement, the monthly rent is $1,682 (RMB 10,800).
In January 2008, Jintai signed a ten year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $810 (RMB 5,200).
In February 2004, Tianjuyuan signed a fifty year lease with village committee of Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District, with a monthly rent of $461 (RMB 2,958).
Accordingly, the Company recorded an aggregate of $63,724 and $8,403 as rent expenses for the three months ended September 30, 2011 and 2010, respectively. Rent expenses for the next five twelve month periods ended September 30 are as follows:
|
September 30, 2012
|
$ | 15,243 | ||
|
September 30, 2013
|
15,243 | |||
|
September 30, 2014
|
15,243 | |||
|
September 30, 2015
|
15,243 | |||
|
September 30, 2016
|
15,243 |
19
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 contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as the slow-down of the global financial markets 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 following discussion, “Company”, “we,” “us,” and “our,” refer to (i) China Green Agriculture, Inc. (“Green Nevada”), a corporation incorporated in the State of Nevada; (ii) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the State of New Jersey; (iii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iv) Xi’an Jintai Agriculture Technology Development Company (“Jintai”), wholly-owned subsidiary of Jinong in the PRC, (v) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a wholly-owned subsidiary of Jinong in the PRC; (vi) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (vii) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
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 the research, development, production and sale of various types of fertilizers and agricultural products in the PRC through our wholly-owned Chinese subsidiaries, Jinong, Jintai, Yuxing, Gufeng and Tianjuyuan. 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 fertilizers, highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer produced by Gufeng and Tianjuyuan. In addition, through Jintai and Yuxing, we develop and produce agricultural products, such as top-grade fruits, vegetables, flowers and colored seedlings. For financial reporting purposes, our operations are organized into four business segments: fertilizer products (Jinong), fertilizer products (Gufeng), agricultural products (Jintai) and research and development (Yuxing).
Jintai and Yuxing also serve as a research and development base for our fertilizer products. The fertilizer business conducted by Jinong and Gufeng generated approximately 97.7% and 97.2% of our total revenues for the three months ended September 30, 2011 and 2010, respectively.
Fertilizer Products
As of September 30, 2011, we had a total of 460 different fertilizer products, of which 147 were developed and produced by Jinong and 313 by Gufeng.
20
For the three months ended September 30, 2011, we sold approximately 81,720 metric tons of fertilizer products, as compared to 86,463 metric tons for the three months ended September 30, 2010. For the three months ended September 30, 2011, Jinong sold approximately 16,846 metric tons of fertilizer products, as compared to 10,641 metric tons for the same period of last year. Gufeng sold approximately 64,874 metric tons of fertilizer products for the three months ended September 30, 2011 as compared to 75,822 metric tons of fertilizer products during the 2010 period. While the sales volume of fertilizer products sold by Gufeng decreased by 10,949 metric tons for the three months ended September 30, 2011 from the three months ended September 30, 2010, the average selling price per metric ton fertilizer products sold by Gufeng increased substantially. For the three months ended September 30, 2011, the humic acid based fertilizer, the fertilizer products with higher selling price, accounted more weight in Gufeng’s sales mix of fertilizer products than for the three months ended September 30, 2010. In addition, the selling price for certain fertilizer products of the same nutrient formula sold by both Gufeng and Jinong, has increased for the three months ended September 30, 2011 as compared to the price for the three months ended September 30, 2010 due to the price increase in the raw material market. For the three months ended September 30, 2011, the top five provinces of our total fertilizer sales accounted for 30.4% of total fertilizer revenues. The five provinces and their respective percentage contribution to total revenues were Hebei (11.7%), Shaanxi (5.4%), Beijing (5.1%), Shandong (4.7%) and Anhui (2.9%).
A significant portion of our revenues are derived from sales in other countries. Gufeng exports blended fertilizer through contracted distributors to other countries including India. The export revenues accounted for 69.5% of Gufeng’s fertilizer revenues for the three months ended September 30, 2011. In addition, we export humic-acid based compound fertilizer products via contracted distributors. Jinong exports its humic-acid based compound fertilizers to other countries, including India. However, the revenues from Jinong’s export products account for less than 1% of our fertilizer revenues for the three months ended September 30, 2011.
As of September 30, 2011, we had a total of 850 distributors covering 22 provinces, four autonomous regions and three central government-controlled municipalities in China. Jinong had 677 distributors in China. Jinong’s sales are not dependent on any one or group of distributors. Its top five distributors accounted for approximately 3.0% of Jinong’s fertilizer revenues for the three months ended September 30, 2011. Gufeng had 173 distributors, including some large state-owned enterprises. Its top five distributors accounted for 17.1% of Gufeng’s revenues for the three months ended September 30, 2011.
Agricultural Products
Through Jintai and 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 Jintai’s and Yuxing’s greenhouse facilities to conduct research and development activities for our fertilizer products. The five PRC provinces, which accounted for 100% of our agricultural products revenue for the three months ended September 30, 2011, were Shaanxi (93.2%), Ningxia(4.6%), Sichuan (1.4%), Zhejiang (0.5%) and Shanxi (0.3%).
Recent Developments
During the three months ended September 30, 2011, Jinong launched the sale of four new humic-acid based liquid and powder fertilizer products, including two liquid fertilizers and two powder fertilizers. These new products generated approximately $414,436, or 1.9%, of Jinong’s fertilizer revenues for the three months ended September 30, 2011. Jinong also added 50 new distributors during the three months ended September 30, 2011. Jinong’s new distributors accounted for approximately $1,398,985, or 6.3%, of Jinong fertilizer revenues for the three months ended September 30, 2011.
During the three months ended September 30, 2011, Gufeng launched the sale of two new compound fertilizers. These new products generated no revenues for the three months ended September 30, 2011. Gufeng also added three new distributors during the three months ended September 30, 2011, which accounted for approximately $4,191,838, or 14.2%, of Gufeng’s fertilizer revenues.
21
Results of Operations
The following table shows the operating results of the Company on a consolidated basis for the three months ended September 30, 2011 and 2010.
|
Three months ended September 30,
|
||||||||||||||||
|
2011
|
2010
|
Change
|
% change
|
|||||||||||||
|
Net Sales
|
$ | 53,102,594 | $ | 39,482,921 | 13,619,673 | 34.5 | % | |||||||||
|
Jinong
|
22,242,251 | 16,571,293 | 5,670,958 | 34.2 | % | |||||||||||
|
Gufeng
|
29,613,091 | 21,801,034 | 7,812,057 | 35.8 | % | |||||||||||
|
Jintai
|
1,198,887 | 1,110,594 | 88,293 | 8.0 | % | |||||||||||
|
Yuxing
|
48,365 | - | 48,365 | 100.0 | % | |||||||||||
|
Cost of Goods Sold
|
34,193,862 | 26,343,594 | 7,850,268 | 29.8 | % | |||||||||||
|
Jinong
|
8,110,130 | 6,853,787 | 1,256,343 | 18.3 | % | |||||||||||
|
Gufeng
|
25,269,670 | 18,900,513 | 6,369,157 | 33.7 | % | |||||||||||
|
Jintai
|
748,830 | 589,294 | 159,536 | 27.1 | % | |||||||||||
|
Yuxing
|
65,232 | - | 65,232 | 100.0 | % | |||||||||||
|
Gross Profit
|
18,908,732 | 13,139,327 | 5,769,405 | 43.9 | % | |||||||||||
|
Selling Expenses
|
2,490,474 | 1,415,985 | 1,074,489 | 75.9 | % | |||||||||||
|
General and Administrative
Expenses
|
3,138,695 | 2,098,187 | 1,040,508 | 49.6 | % | |||||||||||
|
Income from Operations
|
13,279,563 | 9,625,155 | 3,654,408 | 38.0 | % | |||||||||||
|
Total Other Income (expense)
|
(84,416 | ) | (123,627 | ) | 39,211 | -31.7 | % | |||||||||
|
Income Before Income Taxes
|
13,195,147 | 9,501,528 | 3,693,619 | 38.9 | % | |||||||||||
|
Provision for Income Taxes
|
2,463,511 | 1,713,743 | 749,768 | 43.8 | % | |||||||||||
|
Net Income
|
10,731,636 | 7,787,785 | 2,943,851 | 37.8 | % | |||||||||||
|
Jinong
|
10,429,495 | 7,295,318 | 3,134,177 | 43.0 | % | |||||||||||
|
Gufeng
|
1,817,896 | 1,307,706 | 510,190 | 39.0 | % | |||||||||||
|
Jintai
|
10,501 | 437,473 | (426,972 | ) | -97.6 | % | ||||||||||
|
Yuxing
|
(40,331 | ) | (53,731 | ) | 13,400 | -24.9 | % | |||||||||
|
Parent
|
(1,485,925 | ) | (1,198,981 | ) | (286,944 | ) | 23.9 | % | ||||||||
|
Basic net earnings per share
|
0.40 | 0.30 | 0.1 | 33.0 | % | |||||||||||
|
Basic Weighted Average Shares Outstanding
|
26,857,338 | 25,922,880 | 934,458 | 3.6 | % | |||||||||||
|
Diluted Weighted Average Shares Outstanding
|
26,857,338 | 26,035,426 | 821,912 | 3.2 | % | |||||||||||
Net Sales
Our net sales for the quarter ended September 30, 2011 were $53,102,594, an increase of $13,619,673, or 34.5%, from $39,482,921 for the three months ended September 30, 2010. The increase was largely due to the strong sales of fertilizer products for each subsidiary during this period.
For the three months ended September 30, 2011, Jinong’s net sales increased $5,670,958, or 34.2%, to $22,242,251 from $16,571,293 from the three months ended September 30, 2010. This increase was mainly attributable to the sales of more humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing.
22
For the three months ended September 30, 2011, Gufeng’s net sales increased $7,812,057, or 35.8%, to $29,613,091 from $21,801,034 for the three months ended September 30, 2010. For the three months ended September 30, 2011, Gufeng’s sales volume of fertilizer products decreased by 10,949 metric tons to 64,873 metric tons from 75,822 metric tons for the three months ended September 30 2010. The increase in Gufeng’s net sales was mainly due to higher selling price for the same product for the three months ended September 30, 2011 than the price for the three months ended September 30, 2010, and higher percentage of more expensive humic acid-based fertilizers in Gufeng’s product sales mix in the three months ended September 30 2011 comparing to the corresponding period a year ago.
Jintai’s net sales, which include sales of agricultural products, increased by $88,293, or 8.0%, to $1,198,887 for the three months ended September 30, 2011 from $1,110,594 for the same period in 2010.
Yuxing achieved net sales of $48,365 for the three months ended September 30, 2011. For the three months ended September 30, 2010, Yuxing segment had no revenues.
Cost of Goods Sold
Total cost of goods sold for the three months ended September 30, 2011 were $34,193,862, an increase of $7,850,268, or 29.8% from $26,343,594 for the three months ended September 30, 2010. This increase was mainly due to the production and sale of Gufeng’s products, which accounted for 73.9% of total cost of goods sold. The total cost of goods sold without including Gufeng’s cost of goods sold for the three months ended September 30, 2011 was $8,924,192, an increase of $1,481,111, or 19.9%, from the same period a year ago.
Cost of goods sold by Jinong for the three months ended September 30, 2011 were $8,110,130, an increase of $1,256,343, or 18.3%, from $6,853,787 for the same period in 2010. As a percentage of total net sales, cost of goods sold by Jinong accounted for approximately 15.3% and 17.4% for the three months ended September 30, 2011 and 2010, respectively. The increase in cost of goods sold was primarily attributable to the increase in raw materials and packaging materials as a result of our strong sales of fertilizer products.
Cost of goods sold by Gufeng for the three months ended September 30, 2011 were $25,269,670, an increase of $6,369,157, or 33.7%, from $18,900,513 for the same period in 2010. As a percentage of total net sales, cost of goods sold by Gufeng accounted for approximately 47.6% and 47.9% for the three months ended September 30, 2011 and 2010.
Cost of goods sold by Jintai for the three months ended September 30, 2011 were $748,830, an increase of $159,536, or 27.1%, from $589,294 for the same period in 2010. As a percentage of total net sales, cost of goods sold by Jintai accounted for approximately 1.4% and 1.5% for the three months ended September 30, 2011 and 2010, respectively.
Cost of goods sold by Yuxing was $65,232 for the three months ended September 30, 2011 as compared to $0 for the same period last year.
Gross Profit
Gross profit for the three months ended September 30, 2011 increased by $5,769,405, or 43.9%, to $18,908,732 as compared to $13,139,327 for the three months ended September 30, 2010. Gross profit margin was approximately 35.6% and 33.3% for the three months ended September 30, 2011 and 2010, respectively.
Gross profit generated by Jinong increased by $4,414,615, or 45.4%, to $14,132,121 for the three months ended September 30, 2011 from $9,717,506 for the three months ended September 30, 2010. Gross profit margin from Jinong’s sales was approximately 63.5% and 58.6% for the three months ended September 30, 2011 and 2010, respectively. The increase was attributed to the increase in the net sales and the higher weight of higher margin fertilizer products in product sales mix, the increase in the selling price of certain liquid fertilizers, and the decrease in the average manufacturing and labor costs per metric tons.
Gross profit generated by Gufeng increased by $1,442,900 or 49.7%, to $4,343,421 for the three months ended September 30, 2011 from $2,900,521 for the three months ended September 30, 2010. Gross profit margin from Gufeng’s sales was approximately 14.7% and 13.3% for the three months ended September 30, 2011 and 2010, respectively. The increase was primarily due to Gufeng’s change of product mix as a result of the increased production of the high-margin fertilizer products.
23
Gross profit from Jintai decreased by $71,243, or 13.7%, for the three months ended September 30, 2011, to $450,057, as compared to $521,300 for the three months ended September 30, 2010. Gross profit margin from Jintai sales was approximately 37.5% and 46.9% for the three months ended September 30, 2011 and 2010, respectively. The decrease in Jintai’s gross profit margin was primary due to the increase in the price of agricultural raw materials, labors’ salaries and utility fees.
Gross profit from Yuxing was a loss of $16,867 with a gross profit margin of approximately minus 34.9% for the three months ended September 30, 2011. Yuxing was in its trial production stage and its cost of goods sold exceeded its net sales for the three months ended September 30, 2011.
Selling Expenses
Our selling expenses consist primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $2,490,474, or 4.7%, of net sales for the three months ended September 30, 2011 as compared to $1,415,985, or 3.6%, of net sales for the three months ended September 30, 2010, an increase of $1,074,489, or 75.9%. The selling expenses of Gufeng were $843,339 for the three months ended September 30, 2011 as compared to $516,585 for the 2010 period. The increase in Gufeng’s selling expense was mainly due to its increase in the shipping costs. The selling expenses of Jinong were $1,634,926 for the three months ended September 30, 2011 as compared to $892,930 for the 2010 period. The main reason for the increase in Jinong’s selling expenses was its expanded marketing efforts and the increase in shipping costs.
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. General and administrative expenses were $3,138,695, or 5.9%, of net sales, for the three months ended September 30, 2011, as compared to $2,098,187, or 5.3%, of net sales, for the three months ended September 30, 2010, an increase of $1,040,508. The increase of general and administrative expenses was mainly attributed to the increased Gufeng’s intangible assets, which resulted in the increase in the amortization expense for the three months ended September 30, 2011. The general and administrative expenses of Gufeng were $891,493 for the three months ended September 30, 2011 as compared to $552,285 for the three months ended September 30, 2010.
Total Other Income (Expenses)
Total other income (expenses) consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other expenses for the three months ended September 30, 2011 was $84,416, as compared to total other expenses of $123,627 for the three months ended September 30, 2010, a decrease of $39,211, or 31.7%. The decrease was mainly attributable to the increased interest income of $88,155 from Jinong on its saving with the bank.
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
$1,840,859 for the three months ended September 30, 2011, as compared to $1,287,409 for the same period in 2010, an increase of $553,450, which was primarily attributable to our increased operating income.
Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $622,653 for the three months ended September 30, 2011, as compared to $426,334 for the three months ended September 30, 2010. The increase was primarily attributable to our increased operating income.
Jintai has been exempt from paying income tax since its formation as it produces products which fall into the tax exemption list set out in the EIT. This exemption is expected to last as long as the applicable provisions of the EIT do not change.
24
Yuxing has no income tax for the three months ended September 30, 2011as a result of being exempted from paying income tax due to its the products fall into the tax exemption list set out in the EIT, the same treatment as Jintai receives.
Net Income
Net income for the three months ended September 30, 2011 was $10,731,636, an increase of $2,943,851, or 37.8%, compared $7,787,785 for the three months ended September 30, 2010. The increase was attributable to the increase in gross profit. Net income as a percentage of total net sales was approximately 20.2% and 19.7% for the three months ended September 30, 2011 and 2010, respectively.
Discussion of Segment Profitability Measures
As of September 30, 2011, we were engaged in the following businesses: the production and sale of fertilizers through Jinong, Gufeng and Tianjuyuan, and the production and sale of high-quality agricultural products and research and development on new fertilizer products by Jintai and Yuxing. For financial reporting purposes, our operations were organized into four business segments: fertilizer products (Jinong), fertilizer products (Gufeng), agricultural products (Jintai) and research and development (Yuxing). Each of the segments has its own annual budget with regard to development, production and sales.
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 (the “Public Offerings”).
As of September 30, 2011, cash and cash equivalents were $71,333,911, an increase of $5,727,498 from $65,606,413 as of June 30, 2011.
We intend to use some remaining net proceeds from the Public Offerings (approximately $15.0 million) to acquire new businesses, upgrade production lines and complete the greenhouse facilities for agriculture products of Yuxing located on 88-acres of land in Hu County, 18 kilometers southeast of Xi’an city. 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. Notwithstanding the foregoing, we may seek additional financing for expansion purposes, which may include additional equity financings. There can be no assurance that any additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants.
The following table sets forth a summary of our cash flows for the periods indicated:
|
Three months ended September 30,
|
||||||||
|
2011
|
2010
|
|||||||
|
Net cash used in operating activities
|
$ | (2,008,969 | ) | $ | (3,697,231 | ) | ||
|
Net cash used in investing activities
|
(919,666 | ) | (7,639,193 | ) | ||||
|
Net cash provided by financing activities
|
8,010,765 | 2,240,468 | ||||||
|
Effect of exchange rate change on cash and cash equivalents
|
645,368 | 707,613 | ||||||
|
Net increase (decrease) in cash and cash equivalents
|
5,727,498 | (8,388,343 | ) | |||||
|
Cash and cash equivalents, beginning balance
|
65,606,413 | 62,335,437 | ||||||
|
Cash and cash equivalents, ending balance
|
$ | 71,333,911 | $ | 53,947,094 | ||||
25
Net cash used in operating activities was $2,008,969 for the three months ended September 30, 2011, a decrease of $1,688,262 from the $3,697,231 net cash used in operating activities for the three months ended September 30, 2010. The decrease was mainly due to an increase in the advancement to suppliers from Gufeng.
Investing Activities
Net cash used in investing activities in the three months ended September 30, 2011 was $919,666, which was mainly used to Yuxing’s ongoing construction and also to Gufeng’s old production lines improvement. The net cash used in investing activities for the same period in 2010 was $7,639,193, most of which was used to the acquisition of Gufeng in 2010.
Financing Activities
Net cash provided by financing activities in the three months ended September 30, 2011 totaled $8,010,765, mainly due to the short-term loans borrowed by Gufeng with its local banks. The net cash provided by financing activities for the same period in 2010 was $2,240,468.
Accounts Receivable
We had accounts receivable of $24,095,094 as of September 30, 2011, as compared to $17,517,625 as of June 30, 2011, an increase of $6,577,469, or 37.5%. The increase was primarily due to the increase in sales during the period ended September 30, 2011, including Gufeng’s sales.
Our allowance for doubtful accounts was $375,745 of September 30, 2011, as compared to $337,801 as of June 30, 2011, an increase of $37,944, or 11.2%.
Inventories
We had an inventory of $36,197,625 as of September 30, 2011, as compared to $23,732,404 as of June 30, 2011, an increase of $12,465,221, or 52.5%. The main reason for this increase was that we increased our raw material reserves in the non-peak season and our finished fertilizer products for export to meet the large quantity export delivery requirement.
Accounts Payable
We had accounts payable of $7,359,982 as of September 30, 2011 as compared to $5,981,703 as of June 30, 2011, representing an increase of $1,378,279, or 23.0%. The delays in the raw material payment were the main cause of this increase.
Off-Balance Sheet Arrangements
As of September 30, 2011, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). 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 more critical accounting policies that currently affect our financial condition and results of operations:
26
Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP 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, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
The Company's revenue consists of invoiced value of goods, net of 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 purposes of the statement of cash flows, the Company considers 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
The Company's policy is to maintain reserves for potential credit losses on accounts receivable. The Company reviews its accounts receivable outstanding balance and its assessment of the collectability of specific customer accounts, the aging of accounts receivable, its history of bad debts, and the general condition of the industry at each fiscal year-end to determine if the bad debt allowance is adequate.
Segment reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
As of September 30, 2011, the Company, through its subsidiaries is engaged in the following businesses: fertilizer products (Jinong), fertilizer products (Gufeng), agricultural products (Jintai) and future research and development (Yuxing).
27
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 use financial instruments in the normal course of business 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 the 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 the 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 the 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 exchange rates at the balance sheet dates and revenue 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 September 30, 2011, our accumulated other comprehensive income was $12.8 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the Renminbi has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the Renminbi 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 September 30, 2011 and June 30, 2011 was $12.2 million and $4.1 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 September 30, 2011. The original loan term on average is one year, and the remaining average life of the short term-loans is nine months.
28
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 product 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.
(a)
Evaluation of disclosure controls and procedures
.
At the conclusion of the period ended September 30, 2011 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
.
During the period covered by this report, in order to remediate the material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for our fiscal year ended June 30, 2011, we continue to work with our third party accounting consultants and Ernst & Young to implement new measures to address the internal control deficiencies and continue to evaluate and have implemented additional measures, including the following:
|
|
·
|
We have improved our internal control environment by establishing policies and procedures of transaction level and entity.
|
|
|
·
|
We have implemented a financial closing process check list including major book closure steps to perform consolidation and reviews.
|
|
|
·
|
We will continue to strengthening our financial team by employing more qualified accountants to enhance the quality of our financial reporting preparation.
|
There were no other 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 our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
On October 15, 2010, a class action lawsuit was filed against us and certain of our current and former officers in the United States District Court for the District of Nevada on behalf of purchasers of our common stock between November 12, 2009 and September 1, 2010. On April 27, 2011, the court appointed the lead plaintiff and lead plaintiff’s counsel. On June 13, 2011, lead plaintiff filed an amended complaint, which adds several additional defendants and expands the class period to include purchasers who purchased our common stock between May 12, 2009 and January 4, 2011. The amended complaint alleges that we and certain of our current and former officers and directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, by making material misstatements and omissions in our financial statements, securities offering documents, and related disclosures during the class period. The plaintiffs claim that such allegedly misleading statements inflated the price of our common stock and seek monetary damages in an amount to be determined at trial. By stipulation of the parties, defendants’ response to the amended complaint is due October 7, 2011. Lead plaintiff filed an amended complaint on June 13, 2011. Defendants moved to dismiss the amended complaint on September 19, 2011. No hearing has been set for defendants’ motions.
On December 10, 2010, a derivative complaint was filed by a shareholder, purportedly on our behalf, against certain of our current and former officers and directors in the First Judicial District Court of the State of Nevada in and for Carson City. The complaint alleges, among other things, various violations of state law by such officers and directors, including breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The plaintiff requests, among other remedies, restitution from such officers and directors and reform to our corporate governance and internal procedures.
On January 5, 2011, a second derivative complaint was filed by two shareholders, purportedly on our behalf, against, among others, certain of our current and former officers and directors, in the United States District Court, District of Columbia. By stipulation of the parties, this case has been transferred to the District Court for the District of Nevada. This complaint alleges, among other things, that such officers and directors breached their fiduciary duties by knowingly filing inaccurate and inconsistent financial statements and other filings with the Commission and by failing to correct such allegedly inaccurate financial disclosure. The plaintiffs request, among other remedies, damages in the amount sustained by the defendants’ alleged breach of fiduciary duties and other violations of law, and other equitable relief.
On January 12, 2011, two additional derivative complaints were filed by different shareholders, purportedly on our behalf, against certain of our current and former officers and directors, in the Eighth Judicial District Court, Clark County, Nevada. Each of the complaints alleges, among other things, that defendants breached their fiduciary duties by disseminating false and misleading information to shareholders via public filings and other communications, failing to maintain internal controls and procedures and failing to properly oversee and manage the company. Each of the complaints also alleges unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets by the defendants. The plaintiffs request, among other remedies, damages caused by the breach of defendants’ fiduciary duties, restitution from such officers and directors and reform to our corporate governance and internal procedures. By stipulation, these two derivative actions have been transferred to the First Judicial District Court of the State of Nevada in and for Carson City and consolidated with the derivative action already pending in that court. By stipulation of the parties, all of the derivative actions are currently stayed.
The individual defendants and the Company, as a nominal defendant, have reached an agreement in principle with the plaintiffs to settle all the derivative actions. Pursuant to the terms of the settlement and subject to court approval, certain corporate governance changes will be adopted and attorneys’ fees for the plaintiffs’ counsel will be paid by the insurers. The preliminary approval hearing for the settlement is currently set for December 14, 2011.
In addition, the Commission is conducting an investigation of our prior reported financial statements, as well as the allegations in the complaints described above. We are cooperating with the Commission.
30
A class action lawsuit and shareholder derivative lawsuits have been filed against us alleging violations of the federal securities laws and breach of fiduciary duties by certain of our current and former officers and directors, respectively, and the Commission is conducting an investigation. Any unfavorable outcomes of such proceedings could have a material adverse effect on our business
.
A class action lawsuit was filed in the United States District Court for the District of Nevada on behalf of purchasers of our common stock between November 12, 2009 and September 1, 2010, alleging that we and certain of our current and former officers violated the federal securities laws. Several shareholder derivative suits have also been filed against certain of our current and former officers and directors alleging, among other things, breach of fiduciary duties by such officers and directors. In addition, the Commission is conducting an investigation of our prior reported financial statements, as well as the allegations in the complaints described above. See “Item 1. – Legal Proceedings” of this Part II. It is possible that additional similar complaints and related derivative actions may be filed in the future. Although the existing derivative suits are at the stage of settlement with no substantial expenses to be paid to the plaintiffs and plaintiffs’ counsel by the Company, the expense of defending these litigations, and possible additional similar litigations or other proceedings, may be substantial and the time required to defend the actions could divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. In addition, an unfavorable outcome in any of such proceedings could have a material adverse effect on our business, results of operations and cash flows.
Due to nearby environmental degradation and government land use planning change, we may be forced to relocate Jintai’s operations, which could cause a significant disruption to our business.
As a result of the recent rapid development of residential areas, high-rise buildings and manufacturing factories in the surrounding areas of Jintai’s planting base, the level of air pollution and wastewater discharge has increased substantially causing the nearby environment unfavorable for the agricultural products to grow. Some of Jintai's agricultural plants have seen premature falling leaves and blackening roots. In addition, the land use for Jintai’s planting base has been changed to commercial use from agricultural use recently.
To mitigate the environmental impact on Jintai’s revenue and comply with relevant land use rules, we may be forced to relocate Jintai’s operations which have been affected to another site. Jintai’s business may be interrupted and additional relocation costs may be incurred. However, we are unable to estimate the incurred cost related to relocation and we can not assure you that the relocation will be completed in a timely manner. Consequently, there may be material adverse impact on Jintai’s revenue.
We currently generate a significant amount of our revenues from Gufeng’s export contracts which are regulated by the PRC’s fertilizer export tariff policy. To the extent we are unable to export our fertilizers due to such tariff restriction, our business and financial condition may be materially adversely affected.
For the three months ended September 30, 2011, Gufeng contributed approximately 55.8% of our total net sales, of which export revenues accounted for 69.5% of Gufeng’s net sales for that period. Current export policy in the PRC does not impose tariff restrictions on Two-element Compound (NP) Fertilizer, the type of fertilizer Gufeng manufactures. Therefore Gufeng is able to export such fertilizer at any time throughout a year. However, the relevant PRC fertilizer export tariff policy is expected to be updated on an annual basis and it is anticipated that the Ministry of Finance under the supervision of the State Council of the Central Government of the PRC, or the PRC authority, will continue to monitor and regulate the fertilizer export market in connection with overseeing the PRC domestic fertilizer market.
While we believe that, even if over the next few years the PRC introduces additional tariff restrictions to protect the domestic fertilizer market, the PRC authority will likely still provide certain export window periods for the type of fertilizer products Gufeng currently exports , and while we strive to keep a balanced mix of domestic and overseas customers, we cannot assure you that increased restrictions in the PRC export tariff policies by the PRC authority will not negatively impact our business. Furthermore, our export ability largely depends on the export tariff the PRC authority imposes on different types of fertilizers. In the event any of our export products are subject to an unreasonably high export tariff resulting in the export of such products being unprofitable, we will have to rely more heavily on the domestic market to sell such fertilizer products. In such event, we cannot assure you that there will be sufficient demand in the domestic market for such fertilizer products to compensate for the loss of export revenues, and our failure to do so may have a material adverse impact on our business and financial condition.
The exhibits required by this item are set forth in the Exhibit Index attached hereto.
31
SIGNATURES
Pursuant to the requirements of the Securities 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: November 9, 2011
|
By:
|
/s/ Tao Li
|
|
Name: Tao Li
|
||
|
Title: President and Chief Executive Officer
|
||
|
(principal executive officer)
|
||
|
Date: November 9, 2011
|
By:
|
/s/ Ken Ren
|
|
Name: Ken Ren
|
||
|
Title: Chief Financial Officer
|
||
|
(principal financial officer and principal accounting officer)
|
||
32
EXHIBIT INDEX
|
No.
|
Description
|
|
|
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.
|
33
TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1 Organization and Description Of BusinessNote 2 Basis Of Presentation and Summary Of Significant Accounting PoliciesNote 3 Earnings Per ShareNote 4 InventoriesNote 5 Other Current AssetsNote 6 - Property, Plant and EquipmentNote 7 Construction in ProgressNote 8 - Intangible Assets and GoodwillNote 9 - Accrued Expenses and Other PayablesNote 10 - Amount Due To Related PartiesNote 11 - Loan PayablesNote 12 - Taxes PayableNote 13 Stockholders EquityNote 14 Stock OptionsNote 15 Significant Risks and Uncertainties Including Business and Credit Concentrations and LitigiationNote 16 Segment ReportingNote 17 - Commitments and LeasesItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits