CHINA GREEN AGRICULTURE, INC.
10-Ks and 10-Qs
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UNITED STATES
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
December 31, 2013
| ¨ | 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)
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Nevada
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36-3526027
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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300 Walnut Street Suite 245
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Des Moines, IA 50309
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(Address of principal executive offices) (Zip Code)
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(515) 897-2421
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(Issuer's telephone number, including area code)
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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
¨
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
x
No
¨
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.
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Large accelerated filer
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Accelerated filer
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x
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Non-accelerated filer
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¨
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Smaller reporting company
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¨
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( Do not check if a smaller reporting company )
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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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: 31,826,449 shares of common stock, $.001 par value, as of February 6, 2014.
TABLE OF CONTENTS
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PART I
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FINANCIAL INFORMATION
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Page
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Item 1.
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Financial Statements
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Consolidated Condensed Balance Sheets
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As of December 31, 2013 and June 30, 2013 (Unaudited)
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3
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Consolidated Condensed Statements of Income and Comprehensive Income
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For the Three and Six Months Ended December 31, 2013 and 2012 (Unaudited)
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4
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Consolidated Condensed Statements of Cash Flows
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For the Six Months Ended December 31, 2013 and 2012 (Unaudited)
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5
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Notes to Consolidated Condensed Financial Statements
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As of December 31, 2013 (Unaudited)
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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22
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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35
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Item 4.
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Controls and Procedures
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36
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PART II
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OTHER INFORMATION
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37
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Item 1.
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Legal Proceedings
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37
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Item 6.
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Exhibits
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37
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Signatures
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38
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Exhibits/Certifications
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| 2 | ||
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CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
(UNAUDITED)
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December 31, 2013
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June 30, 2013
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ASSETS
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Current Assets
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Cash and cash equivalents
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$
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13,912,272
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$
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75,031,489
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Accounts receivable, net
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76,362,588
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85,323,442
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Inventories
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71,920,922
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34,511,167
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Prepaid expenses and other current assets
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369,796
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397,897
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Advances to suppliers
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27,391,238
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20,224,206
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Assets held for sale
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11,813,855
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11,676,736
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Total Current Assets
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201,770,671
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227,164,937
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Plant, Property and Equipment, Net
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80,447,122
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89,604,787
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Construction In Progress
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49,274
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68,414
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Deferred asset, Net
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61,354,716
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-
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Other Assets
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95,761
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97,432
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Intangible Assets, Net
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26,237,731
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26,608,013
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Goodwill
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5,245,643
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5,184,759
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Total Assets
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$
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375,200,918
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$
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348,728,342
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
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Accounts payable
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$
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3,406,023
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$
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3,375,333
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Unearned revenue
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11,032,022
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1,433,661
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Accrued expenses and other payables
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4,206,899
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3,934,184
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Amount due to related parties
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1,512,337
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1,304,013
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Taxes payable
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15,243,156
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25,728,759
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Short term loans
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19,889,550
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16,099,100
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Total Current Liabilities
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55,289,987
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51,875,050
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Commitment and Contingencies
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Stockholders' Equity
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Preferred Stock, $.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding
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-
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-
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Common stock, $.001 par value, 115,197,165 shares authorized, 31,820,177 and 29,943,236 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively
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31,820
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29,943
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Additional paid-in capital
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111,322,681
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105,962,909
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Statutory reserve
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21,747,175
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20,121,905
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Retained earnings
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161,354,049
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148,925,125
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Accumulated other comprehensive income
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25,455,206
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21,813,410
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Total Stockholders' Equity
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319,910,931
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296,853,292
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Total Liabilities and Stockholders' Equity
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$
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375,200,918
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$
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348,728,342
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The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 3 | ||
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CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
(UNAUDITED)
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Three Months ended December 31,
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Six Months ended December 31,
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2013
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2012
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2013
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2012
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Sales
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Jinong
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$
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26,288,622
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$
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22,954,851
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$
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58,050,624
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$
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50,805,827
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Gufeng
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13,482,016
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17,984,853
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31,238,098
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28,921,824
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Yuxing
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863,963
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791,288
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1,649,226
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1,516,081
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Net sales
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40,634,601
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41,730,992
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90,937,948
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81,243,732
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Cost of goods sold
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Jinong
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10,869,262
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10,652,410
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24,839,093
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23,491,908
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Gufeng
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10,291,112
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14,304,747
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23,500,744
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23,494,509
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Yuxing
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622,712
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580,302
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1,276,908
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1,130,409
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Cost of goods sold
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21,783,086
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25,537,459
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49,616,745
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48,116,826
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Gross profit
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18,851,515
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#
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16,193,533
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41,321,203
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33,126,906
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Operating expenses
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Selling expenses
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8,807,095
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3,138,284
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14,603,285
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6,172,371
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General and administrative expenses
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4,565,932
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3,156,271
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7,905,708
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6,032,213
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Total operating expenses
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13,373,027
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6,294,555
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22,508,993
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12,204,584
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Income from operations
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5,478,488
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9,898,978
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18,812,210
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20,922,322
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Other income (expense)
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Other income (expense)
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(70,057)
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397,980
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(186,440)
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397,380
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Interest income
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21,434
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86,717
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77,088
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161,149
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Interest expense
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(304,238)
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(366,447)
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(537,424)
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(752,239)
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Total other income (expense)
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(352,861)
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#
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118,250
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(646,776)
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(193,710)
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Income before income taxes
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5,125,627
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#
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10,017,228
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18,165,434
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20,728,612
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Provision for income taxes
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1,449,890
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#
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1,775,900
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4,111,240
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3,625,884
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Net income
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3,675,737
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#
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8,241,328
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14,054,194
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17,102,728
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Other comprehensive income
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Foreign currency translation gain (loss)
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2,947,080
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619,139
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3,641,796
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154,786
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Comprehensive income
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$
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6,622,817
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$
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8,860,467
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$
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17,695,990
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$
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17,257,514
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Basic weighted average shares outstanding
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31,817,515
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27,651,919
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30,895,621
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27,561,556
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Basic net earnings per share
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$
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0.12
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$
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0.30
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$
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0.45
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$
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0.62
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Diluted weighted average shares outstanding
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31,817,515
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27,651,919
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30,895,621
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27,561,556
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Diluted net earnings per share
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0.12
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0.30
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0.45
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0.62
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The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 4 | ||
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CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
(UNAUDITED)
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Six Months Ended December 31,
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2013
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2012
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Cash flows from operating activities
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Net income
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$
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14,054,194
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$
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17,102,728
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Adjustments to reconcile net income to net cash provided by (used in) operating activities
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Issuance of common stock and stock options for compensation
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4,836,649
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2,230,530
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Depreciation
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11,189,255
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5,228,391
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Amortization
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4,543,931
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785,838
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Changes in operating assets
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Accounts receivable
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9,880,787
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308,537
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Other current assets
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53,736
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(23,996)
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Inventories
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(36,778,444)
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(22,502,012)
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Advances to suppliers
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(6,887,211)
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1,334,094
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Other assets
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2,797
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36,635
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Changes in operating liabilities
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Accounts payable
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(5,387)
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(2,059,637)
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Unearned revenue
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9,522,994
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4,165,059
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Tax payables
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(10,721,833)
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3,415,597
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Accrued expenses and other payables
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582,066
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(124,499)
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Amount due to related parties
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143,752
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1,109,500
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Net cash provided by (used in) operating activities
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417,286
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11,006,765
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Cash flows from investing activities
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Purchase of plant, property, and equipment
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(1,021,920)
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(8,479,974)
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Increase in construction in progress
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-
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(175,581)
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Deferred assets
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(64,845,281)
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-
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Net cash used in investing activities
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(65,867,201)
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(8,655,555)
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Cash flows from financing activities
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Proceeds from loans
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11,078,885
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562,675
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Repayment of loans
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(7,499,485)
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-
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Advance from related party
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250,000
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-
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Net cash provided by (used in) financing activities
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3,829,400
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562,675
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Effect of exchange rate change on cash and cash equivalents
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501,298
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45,266
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Net increase (decrease) in cash and cash equivalents
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|
|
(61,119,217)
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|
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2,959,151
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Cash and cash equivalents, beginning balance
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75,031,489
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|
|
71,978,630
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Cash and cash equivalents, ending balance
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$
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13,912,272
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$
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74,937,781
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|
|
|
Supplement disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
537,424
|
|
$
|
752,239
|
|
|
Income taxes paid
|
|
$
|
14,833,073
|
|
$
|
209,275
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance of 118,778 shares of common stock for repayment
of amount due to related party |
|
$
|
525,000
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
| 5 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
China Green Agriculture, Inc. (the “Company”, “Parent Company” or “Green Nevada”), through its subsidiaries, is engaged in the research, development, production, distribution and sale of humic acid-based compound fertilizer, compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizers, highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer and the development, production and distribution of agricultural products.
Unless the context indicates otherwise, as used in the notes to the financial statements of the Company, the following are the references herein of all the subsidiaries of the Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the State of New Jersey; (ii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iii) Xi’an Jintai Agriculture Technology Development Company (“Jintai”), wholly-owned subsidiary of Jinong in the PRC, (iv) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”) in the PRC controlled by Jinong through contractual agreements; (v) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (vi) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).
The Company’s corporate structure as of December 31, 2013 is set forth in the diagram below:
| 6 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements were prepared by Company pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K.
The results for the six months ended December 31, 2013, are not necessarily indicative of the results to be expected for the year ending June 30, 2014.
Principle of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Gufeng, Tianjuyuan and VIE Yuxing. All significant inter-company accounts and transactions have been eliminated in consolidation.
Effective June 16, 2013, Yuxing was converted from being a wholly-owned foreign enterprise
100
% owned by Jinong to a domestic enterprise
100
% owned one natural person, who is not affiliated to the Company (“Yuxing’s Owner”). Effective the same day, Yuxing’s Owner entered into a series of contractual agreements with Jinong pursuant to which Yuxing became the VIE of Jinong.
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.
Deferred asset
Deferred asset represents amounts that the distributors owed to the Company in their marketing efforts and developing standard stores to expand the Company’s products’ competitiveness and market shares.
The amount owed to the Company to assist its distributors will be expensed over three years as long as the distributors are actively selling the Company’s products. For the six months ended December 31, 2013, the Company amortized $
3,865,364
of the deferred asset.
If a distributor breach, defaults, or terminates the agreement with the Company earlier than the three year period, the outstanding unamortized portion of the amount owed is payable to the Company immediately.
The Company’s Chairman, Mr. Li, guaranteed to the Company of amounts remaining unpaid due from distributors.
This deferred asset is subject to annual impairment testing.
The estimated amortization expense of the deferred asset for the twelve months ending December 31, 2014, 2015 and 2016 is $
21,747,946
, $
21,747,946
and $
17,858,824
, respectively
.
Assets held for sale
Assets held for sale represent certain equipment from the Company’s Jintai facility that has been relocated. The Company’s board of directors has authorized a special team be formed to sell these assets. The Company currently has a letter of intent to sell these assets to an outside third party with an expected closing of the sales transaction in the spring of 2014. The carrying value of the assets held for sale at December 31, 2013 was $
11,813,855
which is fair value less disposal costs.
Recent Accounting Pronouncements
FASB Accounting Standards Update No. 2012-02
On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.
| 7 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FASB Accounting Standards Update No. 2013-02
In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 “Comprehensive Income.”
The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.
However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.
In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period.
For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts.
The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013.
Early adoption is permitted.
Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.
FASB Accounting Standards Update No. 2013-04
The FASB has issued ASU No. 2013-04, Liabilities (Topic 405), “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.
FASB Accounting Standards Update No. 2013-01
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforward in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The Company does not expect the adoption of this standard to have a material impact on the Company’s 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 consist of the following:
|
|
|
For the Three Months Ended December 31,
|
|
For the Six Months Ended December 31,
|
|
||||||||
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
||||
|
Net Income for Basic Earnings Per Share
|
|
$
|
3,675,737
|
|
$
|
8,241,328
|
|
$
|
14,054,194
|
|
$
|
17,102,728
|
|
|
Basic Weighted Average Number of Shares
|
|
|
31,817,515
|
|
|
27,651,919
|
|
|
30,895,621
|
|
|
27,561,556
|
|
|
Net Income per Share – Basic
|
|
$
|
0.12
|
|
$
|
0.30
|
|
$
|
0.45
|
|
$
|
0.62
|
|
|
Net Income for Diluted Earnings Per Share
|
|
|
3,675,737
|
|
|
8,241,328
|
|
|
14,054,194
|
|
|
17,102,728
|
|
|
Diluted Weighted Average Number of Shares
|
|
|
31,817,515
|
|
|
27,651,919
|
|
|
30,895,621
|
|
|
27,561,556
|
|
|
Net Income per Share – Diluted
|
|
$
|
0.12
|
|
$
|
0.30
|
|
$
|
0.45
|
|
$
|
0.62
|
|
| 8 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories consist of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Raw materials
|
|
$
|
17,082,432
|
|
$
|
2,784,760
|
|
|
Supplies and packing materials
|
|
|
525,350
|
|
|
473,477
|
|
|
Work in progress
|
|
|
395,555
|
|
|
171,550
|
|
|
Finished goods
|
|
|
53,917,585
|
|
|
31,081,380
|
|
|
Total
|
|
$
|
71,920,922
|
|
$
|
34,511,167
|
|
Property, plant and equipment consist of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Building and improvements
|
|
$
|
30,177,834
|
|
$
|
29,836,072
|
|
|
Auto
|
|
|
738,550
|
|
|
729,978
|
|
|
Machinery and equipment
|
|
|
88,611,548
|
|
|
88,901,647
|
|
|
Agriculture assets
|
|
|
833,165
|
|
|
-
|
|
|
Total property, plant and equipment
|
|
|
120,361,097
|
|
|
119,467,697
|
|
|
Less: accumulated depreciation
|
|
|
(39,913,975)
|
|
|
(29,862,910)
|
|
|
Total
|
|
$
|
80,447,122
|
|
$
|
89,604,787
|
|
As of December 31, 2013,
construction in progress representing construction for Yuxing’s supporting facilities amounted to $
49,274
, and the total cost should not exceed RMB
2
million (approximately $
315,000
).
| 9 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets consist of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Land use rights, net
|
|
$
|
11,949,351
|
|
$
|
11,940,658
|
|
|
Technology patent, net
|
|
|
627,517
|
|
|
744,280
|
|
|
Customer relationships, net
|
|
|
6,933,447
|
|
|
7,378,823
|
|
|
Non-compete agreement
|
|
|
64,825
|
|
|
85,430
|
|
|
Trademarks
|
|
|
6,662,591
|
|
|
6,458,822
|
|
|
Total
|
|
$
|
26,237,731
|
|
$
|
26,608,013
|
|
LAND USE RIGHT
On September 25, 2009, Yuxing was granted a land use right for approximately
88 acres
(
353,000 square meters or 3.8 million square feet
) by the People’s Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi Province. The fair value of the related intangible asset was determined to be the respective cost of RMB73,184,895 (or $
11,980,367
). The intangible asset is being amortized over the grant period of
50 years
using the straight line method.
On August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately
11 acres
(
42,726 square meters or 459,898 square feet
) at Ping Gu District, Beijing. The purchase cost was recorded at RMB
1,045,950
(or $
171,222
). 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 RMB
7,285,099
(or $
1,192,571
). The intangible asset is being amortized over the grant period of
50 years
.
The Land Use Rights consist of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Land use rights
|
|
$
|
13,344,160
|
|
$
|
13,189,280
|
|
|
Less: accumulated amortization
|
|
|
(1,394,809)
|
|
|
(1,248,622)
|
|
|
Total land use rights, net
|
|
$
|
11,949,351
|
|
$
|
11,940,658
|
|
TECHNOLOGY PATENT
On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible asset was determined to be the respective cost of RMB
5,875,068
(or $
961,749
) and is being amortized over the patent period of
10 years
using the straight line method.
This technology patent has been fully amortized.
On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired technology patent was estimated to be RMB
9,200,000
(or $
1,506,040
) and is amortized over the remaining useful life of six years using the straight line method.
| 10 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The technology know-how consisted of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Technology know-how
|
|
$
|
2,467,789
|
|
$
|
2,439,146
|
|
|
Less: accumulated amortization
|
|
|
(1,840,272)
|
|
|
(1,694,866)
|
|
|
Total technology know-how, net
|
|
$
|
627,517
|
|
$
|
744,280
|
|
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 RMB
65,000,000
(or $
10,640,500
) and is amortized over the remaining useful life of ten years.
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Customer relationships
|
|
$
|
10,640,500
|
|
$
|
10,517,000
|
|
|
Less: accumulated amortization
|
|
|
(3,707,053)
|
|
|
(3,138,177)
|
|
|
Total customer relationships, net
|
|
$
|
6,933,447
|
|
$
|
7,378,823
|
|
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 $
216,084
) and is amortized over the remaining useful life of five years using the straight line method.
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Non-compete agreement
|
|
$
|
216,084
|
|
$
|
213,576
|
|
|
Less: accumulated amortization
|
|
|
(151,259)
|
|
|
(128,146)
|
|
|
Total non-compete agreement, net
|
|
$
|
64,825
|
|
$
|
85,430
|
|
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 RMB
40,700,000
(or $
6,662,591
) and is subject to an annual impairment test.
AMORTIZATION EXPENSE
Estimated amortization expenses of intangible assets for the next five (5) years after December 31, 2013, are as follows:
|
Year Ends
|
|
Expense ($)
|
|
|
December 31, 2014
|
|
1,625,157
|
|
|
December 31, 2015
|
|
1,614,056
|
|
|
December 31, 2016
|
|
1,581,940
|
|
|
December 31, 2017
|
|
1,392,037
|
|
|
December 31, 2018
|
|
1,330,933
|
|
| 11 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued expenses and other payables consist of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Payroll payable
|
|
$
|
33,777
|
|
$
|
20,191
|
|
|
Welfare payable
|
|
|
168,061
|
|
|
166,111
|
|
|
Accrued expenses
|
|
|
2,915,025
|
|
|
2,700,468
|
|
|
Other payables
|
|
|
963,012
|
|
|
921,864
|
|
|
Other levy payable
|
|
|
127,024
|
|
|
125,550
|
|
|
Total
|
|
$
|
4,206,899
|
|
$
|
3,934,184
|
|
As of December 31, 2013 and June 30, 2013, the amount due to related parties was $
1,512,337
and $
1,304,013
, respectively. At December 31, 2013 and June 30, 2013, $
1,367,702
and $
1,304,013
, respectively were amounts that Gufeng borrowed from a related party, Xi’an Techteam Science & Technology Industry (Group) Co. Ltd., a company controlled by Mr. Tao Li, Chairman and CEO of the Company, represent unsecured, non-interest bearing loans that are due on demand. These loans are not subject to written agreements.
On November 1, 2013, Yuxing entered into an agreement with Xi'an Techteam Investment Holding Group (“Techteam Investment”), a holding company owned and controlled by Mr. Tao Li, Chairman and CEO of the Company, to delegate Teachteam Investment to procure certain inventories from the market from November 1, 2013 to June 30, 2014 (“the Agreement Period”). During the Agreement Period, Techteam Investment advances procurement payment to vendors, and Yuxing repays the outstanding procurement amount to Techteam Investment periodically. Teachteam Investment receives no commission or compensation in this process.
On August 10, 2010, Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd (“Yuxing”), a
VIE of
the Company, entered into an agreement with Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”), the contractually-controlled operating subsidiary of Kingtone Wirelessinfo Solution Holding Ltd (“Kingtone”), whose Chairman is Mr. Tao Li, who is also the Company’s Chairman and CEO.
Pursuant to the agreement, was responsible for developing certain electronic control systems for Yuxing. The total contracted value of this agreement, including value-added taxes and other taxes, is RMB
3,030,000
, or approximately US$
458,000
. The project is
currently ongoing, and RMB
1,212,000
or $
183,200
had been paid
by Yuxing to Kingtone as of December 31, 2013.
On June 29, 2012, Jinong signed a new office lease with Kingtone Information. Pursuant to the new lease, Jinong rented
612 square meters
(approximately
6,588 square feet
) of office space from Kingtone Information.
The lease provided for a
two
-year term effective as of
July 1, 2012
with monthly rent of RMB
24,480
(approximately $
4,007
).
As of December 31, 2013,
the short-term loan payables consist of ten loans which mature on dates ranging from December 12, 2012 through December 11, 2014
with interest rates ranging from
5.60
% to
7.80
%. The loans No.1, 2 and 3 below are collateralized by Tianjuyan’s land use right and building ownership right. The loans No. 4 and 9 below are guaranteed by Jinong’s credit. The loans No. 6, 7 and 8 are guaranteed by a bonding company in Zhongguancun Beijing, and counter guaranteed by Jinong’s credit. The loan No. 5 is guaranteed by Jinong’s credit and Tianjuyuan’s credit.
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Rate
|
|
|
December 31, 2013
|
|
|
|
1
|
|
Agriculture Bank of China-Beijing Branch
|
|
January 14, 2013 - January 13, 2014
|
|
6.60
|
%
|
|
$
|
1,375,080
|
|
|
2
|
|
China Merchants Bank-Beijing Branch
|
|
August 20, 2013 - Feb 18, 2014
|
|
6.72
|
%
|
|
|
4,092,500
|
|
|
3
|
|
Agriculture Bank of China-Beijing Branch
|
|
March 22, 2013 - March 21, 2014
|
|
6.60
|
%
|
|
|
1,309,600
|
|
|
4
|
|
Agriculture Bank of China-Beijing Branch
|
|
April 25,2013-April 24, 2014
|
|
6.60
|
%
|
|
|
1,653,370
|
|
|
5
|
|
Bank of Beijing
|
|
August 16,2013-August 15, 2014
|
|
7.20
|
%
|
|
|
1,637,000
|
|
|
6
|
|
Industrial and Commercial Bank of China
|
|
September 25, 2013-September 24, 2014
|
|
7.80
|
%
|
|
|
1,637,000
|
|
|
7
|
|
Industrial and Commercial Bank of China
|
|
October 30, 2013-October 29, 2014
|
|
7.80
|
%
|
|
|
1,637,000
|
|
|
8
|
|
Industrial and Commercial Bank of China
|
|
December 12, 2012 - December 11,2014
|
|
7.80
|
%
|
|
|
1,637,000
|
|
|
9
|
|
Industrial and Commercial Bank of China
|
|
December 20, 2013-June 19, 2014
|
|
5.60
|
%
|
|
|
4,911,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
19,889,550
|
|
| 12 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2013,
the short-term loan payables consist of nine loans which mature on dates ranging from August 29, 2013 through April 22, 2014
with interest rates ranging from
6.30
% to
8.20
%. The loans No.1, 2 and 3 below are collateralized by Tianjuyan’s land use right and building ownership right. The loans No. 4 and 5 below are collateralized by the inventory of Gufeng. The loans No. 6, 7 and 8 are guaranteed by Jinong’s credit. The loan No. 9 is collateralized by the land use rights of Jinong’s and the share ownership owned by Jinong.
|
No.
|
|
Payee
|
|
Loan period per agreement
|
|
Interest
Rate |
|
|
June 30, 2013
|
|
|
|
1
|
|
Agriculture Bank of China-Beijing Branch
|
|
January 24, 2013 - January 13, 2014
|
|
6.60
|
%
|
|
$
|
1,359,120
|
|
|
2
|
|
Agriculture Bank of China-Beijing Branch
|
|
March 23, 2013 - March 22, 2014
|
|
6.60
|
%
|
|
|
1,294,400
|
|
|
3
|
|
Agriculture Bank of China-Beijing Branch
|
|
April 25, 2013 - April 24, 2014
|
|
6.60
|
%
|
|
|
1,634,180
|
|
|
4
|
|
Bank of Tianjin
|
|
June 28, 2013 - August 2, 2013
|
|
6.72
|
%
|
|
|
1,132,600
|
|
|
5
|
|
Bank of Tianjin
|
|
June 20, 2013 - August 2, 2013
|
|
6.72
|
%
|
|
|
970,800
|
|
|
6
|
|
China Merchant Bank
|
|
August 30, 2012 - August 29, 2013
|
|
6.30
|
%
|
|
|
4,045,000
|
|
|
7
|
|
Industrial and Commercial Bank of China
|
|
October 25, 2012 - October 24,2013
|
|
8.00
|
%
|
|
|
1,618,000
|
|
|
8
|
|
Industrial and Commercial Bank of China
|
|
September 25, 2012-September 24, 2013
|
|
8.00
|
%
|
|
|
1,618,000
|
|
|
9
|
|
China Minsheng Bank
|
|
January 5, 2013 - January 4, 2014
|
|
7.20
|
%
|
|
|
2,427,000
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
16,099,100
|
|
The interest expense from short-term loans was $
304,238
and $
366,447
for the three months ended December 31, 2013 and 2012, respectively, and $
537,424
and $
752,239
for the six months ended December 31, 2013 and 2012, respectively.
Enterprise
Income Tax
Effective January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The EIT rate of
25
% replaced the
33
% rate that was applicable to both DEs and FIEs. The two year tax exemption and three year
50
% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of
15
% as a high-tech company, as a result of the expiration of its tax exemption on December 31, 2007.
Accordingly, it made provision for income taxes for the six months ended December 31, 2013, and 2012 of $
2,849,293
and $
3,024,887
, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to
25
% EIT rate and thus it made provision for income taxes of $
1,261,947
and $
600,997
for the six months ended December 31, 2013 and 2012.
| 13 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Jintai, and all but a nominal amount of agricultural products sold by Jinong.
Income Taxes and Related Payables
Taxes payable consist of the following:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
VAT provision
|
|
$
|
13,032
|
|
$
|
36,573
|
|
|
Income tax payable
|
|
|
14,886,271
|
|
|
25,348,794
|
|
|
Other levies
|
|
|
343,853
|
|
|
343,392
|
|
|
Total
|
|
$
|
15,243,156
|
|
$
|
25,728,759
|
|
Tax Rate Reconciliation
Our
effective tax rates were approximately
22.5
% and
17.5
% for the six months ended December 31, 2013 and 2012, respectively.
Substantially all of the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of
34
% to income before income taxes for the six months ended December 31, 2013 and 2012 for the following reasons:
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
|
||||||
|
|
|
15% - 25%
|
|
|
34%
|
|
|
Total
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
23,600,724
|
|
|
|
|
$
|
(5,435,290)
|
|
|
|
|
$
|
18,165,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
5,900,181
|
|
25.0
|
%
|
|
|
(1,847,999)
|
|
34.0
|
%
|
|
|
4,052,182
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(1,777,876)
|
|
(7.5)
|
%
|
|
|
-
|
|
-
|
|
|
|
(1,777,876)
|
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
(11,065)
|
|
(0.0)
|
%
|
|
|
-
|
|
-
|
|
|
|
(11,065)
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
1,847,999
|
|
(34.0)
|
%
|
|
|
1,847,999
|
|
|
|
|
|
Actual tax expense
|
|
$
|
4,111,240
|
|
17.4
|
%
|
|
$
|
-
|
|
-
|
%
|
|
$
|
4,111,240
|
|
|
22.6
|
%
|
| 14 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
|
||||||
|
|
|
15% - 25%
|
|
|
34%
|
|
|
Total
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
23,085,245
|
|
|
|
|
$
|
(2,356,633)
|
|
|
|
|
$
|
20,728,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (benefit)
|
|
|
5,771,311
|
|
25.0
|
%
|
|
|
(801,255)
|
|
34.0
|
%
|
|
|
4,970,056
|
|
|
|
|
|
High-tech income benefits on Jinong
|
|
|
(2,015,741)
|
|
(8.7)
|
%
|
|
|
-
|
|
-
|
|
|
|
(2,015,741)
|
|
|
|
|
|
Losses from subsidiaries in which no benefit is recognized
|
|
|
(129,686)
|
|
(0.6)
|
%
|
|
|
-
|
|
-
|
|
|
|
(129,686)
|
|
|
|
|
|
Change in valuation allowance on deferred tax asset from US tax benefit
|
|
|
-
|
|
|
|
|
|
801,255
|
|
(34.0)
|
%
|
|
|
801,255.22
|
|
|
|
|
|
Actual tax expense
|
|
$
|
3,625,884
|
|
16
|
%
|
|
$
|
-
|
|
-
|
%
|
|
$
|
3,625,884
|
|
|
17.5
|
%
|
Common Stock
On March 8, 2012, the Company issued
63,158
shares of common stock in a private placement to Mr. Tao Li, the Company’s Chairman and Chief Executive Officer, at a purchase price of $
4.75
per share, for an aggregate purchase price of $
300,001
pursuant to and in accordance with the terms and provisions of a Securities Purchase Agreement in a form previously presented to the Board of Directors of the Company.
On March 31, 2012, the Company issued
5,704
shares of Common Stock valued at $
24,000
of consulting services to a consultant of the Company.
On June 14, 2012, the Company granted a total of
1,000,000
shares of restricted common stock of the Company to certain directors, executive officers and key employees under its 2009 Equity Incentive Plan. Pursuant to the terms of the grant, the stock grants vest in three installments on June 30, 2012, September 30, 2012 and December 31, 2012. The Company has issued
445,000
shares of common stock related to these grants with
555,000
issued on June 1, 2013 to a group of employees.
On September 12, 2012, the Company issued
35,041
shares of Common Stock valued at $
130,000
of consulting services to a consultant of the Company.
On September 26, 2012, the Company agreed to issue
151,515
shares of Common Stock at the market price of $
3.30
per share to Mr. Tao Li, the Company’s Chairman and Chief Executive Officer in the first offering of the Company’s Employee Stock Purchase Plan (“ESPP”) adopted by the Company’s Board of Directors (the “Board”) on August 9, 2012. Mr. Li had previously advanced the Company $
300,000
and has unpaid compensation accrued in the accompanying balance sheet. The
151,515
shares were not issued until after September 30, 2012 and accordingly the due to officer of $300,000 and accrued compensation of $
200,000
were deducted during the quarter ended December 31, 2012.
On September 28, 2012, the Company approved the grant of (i)
200,000
shares of restricted stock to Mr. Ken Ren, the Company’s Chief Financial Officer (the “CFO”), and (ii)
40,000
shares of restricted stock to Mr. Yizhao Zhang,
30,000
shares of restricted stock to Ms. Yiru Shi, and
20,000
shares of restricted stock to Mr. Lianfu Liu, each an independent director of the Company (the “Stock Grants”). The Stock Grants all vest in three installments on December 31, 2012, March 31, 2013, and June 30, 2013, with
100,000
shares vesting first and
50,000
shares vesting on each of the other two vesting dates to the CFO; and
10,000
shares vesting first and half of the their respective remaining shares vesting on each of the other two vesting dates to the three independent directors. The vest of the restricted shares is conditioned on the individuals being employed by the Company at the time of the vest. These shares were issued during the quarter ended December 31, 2012 and the expenses associated with the issuance of these shares were recorded over the vesting period of the shares.
On June 1, 2013, the Company granted an aggregate of
1,025,000
shares of restricted stock under the 2009 Plan to certain employees. On July 24, 2013, the Company granted an aggregate of
970,000
shares of restricted stock under the 2009 Plan to certain employees. The shares vest on the following dates: on June 30, 2013, September 30, 2013, December 31, 2013, March 31, 2014, June 30, 2014, September 30, 2014, and December 31, 2014.
| 15 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 26, 2013, the Company issued
118,778
shares of Common Stock at the market price of $
4.42
per share to Mr. Tao Li as repayment for $
200,000
previously advanced the Company by Mr. Li and $
325,000
for unpaid compensation.
On September 28, 2013, the Company granted an aggregate of
1,750,000
shares of restricted stock under the 2009 Plan to certain executive officers, directors and employees. among which (i)
480,000
shares of restricted stock to Mr. Tao Li, the CEO; (ii)
200,000
shares of restricted stock to Mr. Ken Ren, the CFO, (iii)
40,000
shares of restricted stock to Mr. Yizhao Zhang,
30,000
shares of restricted stock to Ms. Yiru Shi, and
20,000
shares of restricted stock to Mr. Lianfu Liu, each an independent director of the Company; and (iv)
980,000
shares of restricted stock to 220 employees.
The stock grants are subject to time-based vesting schedules, vesting in various installments until March 31, 2014 for the CFO and the three independent directors, until March 31, 2015 for the CEO and until December 31, 2015 for the employees.
Preferred Stock
Under the Company’s Articles of Incorporation, the Board has the authority, without further action by stockholders, to designate up to
20,000,000
shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. If the Company sells preferred stock under its registration statement on Form S-3, it will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series in the certificate of designation relating to that series and will file the certificate of designation that describes the terms of the series of preferred stock the Company offers before the issuance of the related series of preferred stock.
As of December 31, 2013, the Company had
20,000,000
shares of preferred stock authorized, with a par value of $.
001
per share, of which no shares are issued or outstanding.
On March 31, 2011, pursuant to the Compensation Committee’s resolutions, the Company forfeited all those outstanding unvested options granted to its officers and directors and former officers on March, 1 2010 and February 7, 2010 according to the 2009 Plan.
There were no issuances of stock options during the three months ended December 31, 2013.
Options outstanding and related weighted average price and intrinsic value are as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
Exercise
|
|
Aggregate
|
|
|
|
|
of Shares
|
|
Price
|
|
Intrinsic Value
|
|
|
Outstanding, June 30, 2013
|
|
115,099
|
|
14.66
|
|
-
|
|
|
Granted
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
-
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
115,099
|
|
14.66
|
|
-
|
|
| 16 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Market Concentration
All of the Company's revenue-generating operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.
The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other things, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.
Vendor and Customer Concentration
There were three vendors from which the Company purchased
13.6
%,
11.2
% and
10.2
% of its raw materials for the three months ended December 31, 2013. Total purchase from these three venders amount
ed to
$
6,778,938
as of December 31, 2013.
There was no customer that accounted over
10
% of the total sales of fertilizer products as of three months ended December 31, 2013 and 2012.
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 (the "Nevada Federal Court") on behalf of purchasers of the Company’s common stock between November 12, 2009 and September 1, 2010. The current version of the 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. On October 7, 2011, the defendants moved to dismiss the amended complaint and to strike portions of it. On November 2, 2012, the Nevada Federal Court issued an order dismissing the claims for violation of sections 11, 12(a)(2) and 15 of the Securities Act of 1933 as to all defendants and dismissing certain individual defendants from the complaint and allowing the claims for violations of section 10(b) and 20(a) of the Securities Exchange Act of 1934 to continue with respect to the Company and certain of the individual defendants. The Nevada Federal Court also denied the defendants’ motion to strike.
The parties to the securities class action held mediation on March 7, 2013, which led to an agreement in principle to settle the case for a payment of $
2.5
million by the Company’s insurers in exchange for a release of all claims against all defendants. The parties are currently in the process of documenting the settlement.
As of December 31, 2013, the Company was organized into three main business segments based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production), and Yuxing (agricultural products production). Each of the three operating segments referenced above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) receives financial information, including revenue, gross margin, operating income and net income produced from the various general ledger systems to make decisions about allocating resources and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income by segment. Jintai’s business is in the migrating process into Yuxing’s.
| 17 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Three months ended December 31
|
|
Six months ended December 31,
|
|
||||||||
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
||||
|
Revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
26,288,622
|
|
$
|
22,954,851
|
|
$
|
58,050,624
|
|
$
|
50,805,827
|
|
|
Gufeng
|
|
|
13,482,016
|
|
|
17,984,853
|
|
|
31,238,098
|
|
|
28,921,824
|
|
|
Yuxing
|
|
|
863,963
|
|
|
791,288
|
|
|
1,649,226
|
|
|
1,516,081
|
|
|
Consolidated
|
|
$
|
40,634,601
|
|
$
|
41,730,992
|
|
$
|
90,937,948
|
|
$
|
81,243,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
6,575,251
|
|
$
|
8,400,320
|
|
$
|
18,436,979
|
|
$
|
20,011,931
|
|
|
Gufeng
|
|
|
2,026,378
|
|
|
2,489,858
|
|
|
5,703,984
|
|
|
3,178,497
|
|
|
Yuxing
|
|
|
2,896
|
|
|
26,526
|
|
|
106,542
|
|
|
88,655
|
|
|
Reconciling item (1)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Reconciling item (2)
|
|
|
(306,282)
|
|
|
119,905
|
|
|
(631,046)
|
|
|
(482,233)
|
|
|
Reconciling item (2)—stock compensation
|
|
|
(2,819,755)
|
|
|
(1,137,631)
|
|
|
(4,804,249)
|
|
|
(1,874,528)
|
|
|
Consolidated
|
|
$
|
5,478,488
|
|
$
|
9,898,978
|
|
$
|
18,812,210
|
|
$
|
20,922,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
5,570,575
|
|
$
|
7,200,086
|
|
$
|
15,659,383
|
|
$
|
17,137,683
|
|
|
Gufeng
|
|
|
1,228,301
|
|
|
1,462,374
|
|
|
3,723,396
|
|
|
1,670,044
|
|
|
Yuxing
|
|
|
2,896
|
|
|
596,544
|
|
|
106,706
|
|
|
651,636
|
|
|
Reconciling item (1)
|
|
|
4
|
|
|
51
|
|
|
4
|
|
|
126
|
|
|
Reconciling item (2)
|
|
|
(3,126,039)
|
|
|
(1,017,727)
|
|
|
(5,435,295)
|
|
|
(2,356,761)
|
|
|
Consolidated
|
|
$
|
3,675,737
|
|
$
|
8,241,328
|
|
$
|
14,054,194
|
|
$
|
17,102,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
8,866,644
|
|
$
|
2,423,732
|
|
$
|
13,475,325
|
|
$
|
4,459,585
|
|
|
Gufeng
|
|
|
865,335
|
|
|
79,718
|
|
|
1,596,536
|
|
|
925,081
|
|
|
Yuxing
|
|
|
334,365
|
|
|
316,098
|
|
|
661,325
|
|
|
629,563
|
|
|
Consolidated
|
|
$
|
10,066,344
|
|
$
|
2,819,548
|
|
$
|
15,733,186
|
|
$
|
6,014,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gufeng
|
|
|
304,238
|
|
|
366,447
|
|
|
537,424
|
|
|
752,239
|
|
|
Consolidated
|
|
$
|
304,238
|
|
$
|
366,447
|
|
$
|
537,424
|
|
$
|
752,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
39,524
|
|
$
|
4,982,678
|
|
$
|
39,524
|
|
$
|
9,326,617
|
|
|
Gufeng
|
|
|
5,879
|
|
|
(954,106)
|
|
|
10,779
|
|
|
(907,953)
|
|
|
Yuxing
|
|
|
330,347
|
|
|
34,173
|
|
|
971,617
|
|
|
236,891
|
|
|
Consolidated
|
|
$
|
375,750
|
|
$
|
4,062,745
|
|
$
|
1,021,920
|
|
$
|
8,655,555
|
|
| 18 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
As of
|
|
As of
|
|
||
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
219,613,275
|
|
$
|
197,232,555
|
|
|
Gufeng
|
|
|
127,338,241
|
|
|
108,409,694
|
|
|
Yuxing
|
|
|
28,132,726
|
|
|
43,021,886
|
|
|
Reconciling item (1)
|
|
|
120,582
|
|
|
68,113
|
|
|
Reconciling item (2)
|
|
|
(3,906)
|
|
|
(3,906)
|
|
|
Consolidated
|
|
$
|
375,200,918
|
|
$
|
348,728,342
|
|
(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.
On
June 29, 2012, Jinong signed a new office lease with Kingtone Information. Pursuant to the new lease, Jinong rented 612 square meters
(approximately 6,588 square feet) of office space from
Kingtone Information
. The lease provided for a two-year term effective as of July 1, 2012 with monthly rent of $
3,856
(RMB
24,480
).
In January 2008, Jintai signed a ten-year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $
768
(RMB
5,200
).
In February 2004, Tianjuyuan signed a fifty-year lease with the village committee of Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District, at a monthly rent of $
437
(RMB
2,958
).
Accordingly, the Company recorded an
aggregate of $
16,029
and $
15,519
as
rent expenses for the six months ended December 31, 2013 and 2012, respectively. Rent expenses for the next five years months ended December 31, are as follows:
|
Years ending December 31,
|
|
|
|
|
|
2014
|
|
$
|
52,092
|
|
|
2015
|
|
|
16,026
|
|
|
2016
|
|
|
16,026
|
|
|
2017
|
|
|
16,026
|
|
|
2018
|
|
|
8,364
|
|
Green Nevada through one of its subsidiaries, Jinong, entered into a series of agreements (the “VIE Agreements”) with Yuxing for it to qualify as a VIE, effective June 16, 2013. The VIE Agreements are as follows:
Entrusted Management Agreement
Pursuant to the terms of a certain Entrusted Management Agreement dated June 16, 2013 among Yuxing, Jinong and the shareholder of Yuxing (the “Entrusted Management Agreement”), Yuxing and its shareholder agreed to entrust the operations and management of its business to Jinong. According to the Entrusted Management Agreement, Jinong possesses the full and exclusive right to manage Yuxing’s operations, assets and personnel, has the right to control all of Yuxing's cash flows through an entrusted bank account, is entitled to Yuxing's net profits as a management fee, is obligated to pay all of Yuxing’s payables and loan payments, and bears all losses of Yuxing. The Entrusted Management Agreement will remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of Yuxing or (iii) Jinong acquires all of the assets or equity of Yuxing (as more fully described below under “Exclusive Option Agreement”).
| 19 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Exclusive Product Supply Agreement
Pursuant to the terms of a certain Exclusive Product Supply Agreement dated June 16, 2013 between Yuxing and Jinong (“the Exclusive Product Supply Agreement”), Jinong is the exclusive product provider to Yuxing. Yuxing agreed to pay Jinong all fees payable for products supply prior to making any payments under the Entrusted Management Agreement. Any payment from Yuxing to Jinong must comply with applicable Chinese laws. The Exclusive Product Supply Agreement shall remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of Yuxing or (iii) Jinong acquires Yuxing (as more fully described below under “Exclusive Option Agreement”).
Shareholder’s Voting Proxy Agreement
Pursuant to the terms of a certain Shareholder’s Voting Proxy Agreement dated June 16, 2013 among Jinong and the shareholder of Yuxing (the “Shareholder’s Voting Proxy Agreement”), the shareholder of Yuxing irrevocably appointed Jinong as their proxy to exercise on such shareholder’s behalf all of her voting rights as shareholder pursuant to PRC law and the Articles of Association of Yuxing, including the appointment and election of directors of Yuxing. Jinong agreed that it shall maintain a board of directors the composition of which will be the members of the board of directors of Green Nevada, except those directors that are employed solely for the purpose of satisfying listing or financing requirements of Green Nevada, if any.
The Shareholder’s Voting Proxy Agreement will remain in effect until Jinong acquires all of the assets or equity of Yuxing.
Exclusive Option Agreement
Pursuant to the terms of a certain Exclusive Option Agreement dated June 16, 2013 among Jinong, Yuxing and the shareholder of Yuxing (the “Exclusive Option Agreement”), the shareholder of Yuxing granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire Yuxing’s equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions.
The Option is exercisable at any time at Jinong’s discretion so long as such exercise and subsequent acquisition of Yuxing does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of such consideration. To the extent Yuxing shareholder receive any of such consideration, the Option requires them to transfer (and not retain) the same to Yuxing or Jinong. The Exclusive Option Agreement may be terminated by mutual agreement or by 30 days written notice by Jinong.
Equity Pledge Agreement
Pursuant to the terms of a certain Equity Pledge Agreement dated June 16, 2013 among Jinong and the shareholder of Yuxing (the “Pledge Agreement”), the shareholder of Yuxing pledged all of her equity interests in Yuxing, including the proceeds thereof, to guarantee all of Jinong's rights and benefits under the Entrusted Management Agreement, the Exclusive Product Supply Agreement, the Shareholder’ Voting Proxy Agreement and the Exclusive Option Agreement. Prior to termination of the Pledge Agreement, the pledged equity interests cannot be transferred without Jinong's prior written consent. The Pledge Agreement may be terminated only upon the written agreement of the parties.
As a result of these contractual arrangements, Green Nevada is able to exercise control over Yuxing and was entitled to substantially all of the economic benefits of Yuxing through its subsidiary, Jinong. Therefore, Green Nevada consolidates Yuxing in accordance with ASC 810-10 (“Consolidation of Variable Interest Entities”) since the date of the VIE Agreements.
| 20 | ||
|
|
CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statement amounts and balances of the VIE were included in the accompanying consolidated financial statements as of December 31, 2013 and June 30, 2013 and for the three and six months respectively ended December 31, 2013 and 2012:
|
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
2013
|
|
2013
|
|
||
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,238
|
|
$
|
42,975
|
|
|
Accounts receivable, net
|
|
|
171,502
|
|
|
209,194
|
|
|
Inventories
|
|
|
15,900,308
|
|
|
15,478,654
|
|
|
Other current assets
|
|
|
5,699
|
|
|
7,061
|
|
|
Advances to suppliers
|
|
|
102,219
|
|
|
101,555
|
|
|
Total Current Assets
|
|
|
16,209,966
|
|
|
15,839,439
|
|
|
|
|
|
|
|
|
|
|
|
Plant, Property and Equipment, Net
|
|
|
16,831,726
|
|
|
16,180,551
|
|
|
Construction In Progress
|
|
|
49,274
|
|
|
68,414
|
|
|
Intangible Assets, Net
|
|
|
10,942,068
|
|
|
10,933,482
|
|
|
Total Assets
|
|
$
|
44,033,034
|
|
$
|
43,021,886
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
718,335
|
|
$
|
533,773
|
|
|
Accrued expenses and other payables
|
|
|
2,581
|
|
|
8,673
|
|
|
Amount due to related parties
|
|
|
43,191,371
|
|
|
42,466,210
|
|
|
Total Current Liabilities
|
|
|
43,912,287
|
|
|
43,008,656
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
120,747
|
|
|
13,230
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
44,033,034
|
|
$
|
43,021,886
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
||||||||
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
||||
|
Revenue
|
|
$
|
863,963
|
|
$
|
791,288
|
|
$
|
1,649,226
|
|
$
|
1,516,081
|
|
|
Expenses
|
|
|
861,067
|
|
|
194,744
|
|
|
1,542,520
|
|
|
864,445
|
|
|
Net income
|
|
$
|
2,896
|
|
$
|
596,544
|
|
$
|
106,706
|
|
$
|
651,636
|
|
| 21 | ||
|
|
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”), a wholly-owned subsidiary of Jinong in the PRC, (v) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”) controlled by Jinong in the PRC; (vi) Beijing Gufeng Chemical Products Co., Ltd. (“Gufeng”), a wholly-owned subsidiary of Jinong in the PRC, and (vii) Beijing Tianjuyuan Fertilizer Co., Ltd. (“Tianjuyuan”), a wholly-owned subsidiary of Gufeng in the PRC.
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 and Gufeng (including Gufeng’s subsidiary Tianjuyuan), and our VIE, Yuxing. Our primary business is fertilizer products, specifically humic-acid based compound fertilizer produced by Jinong and compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizer, highly-concentrated water-soluble fertilizer and mixed organic-inorganic compound fertilizer produced by Gufeng. In addition, through Yuxing, we develop and produce various agricultural products, such as top-grade fruits, vegetables, flowers and colored seedlings. For financial reporting purposes, our operations are organized into three business segments: fertilizer products (Jinong), fertilizer products (Gufeng) and agricultural products production (Yuxing).
The fertilizer business conducted by Jinong and Gufeng generated approximately 97.9% and 98.1% of our total revenue for the three months ended December 31, 2013 and 2012, respectively. Yuxing serves as a research and development base for our fertilizer products.
Previously, Jintai had served in that capacity as well. However, as reported in our previous annual and quarterly reports, as a result of environmental degradation that harmed Jintai’s flora, we started to relocate Jintai’s facilities to Yuxing. As a result, Jintai has not been in operation since the ongoing relocation commenced in March 1, 2012.
| 22 | ||
|
|
Fertilizer Products
As of December 31, 2013, we had developed and produced a total of 446 different fertilizer products that are currently in use, of which 123 were developed and produced by Jinong and 323 by Gufeng.
Below is a table that shows the metric tons of fertilizer sold by Jinong and Gufeng and the revenue per ton for the periods indicated:
|
|
|
Three Months Ended December 31,
|
|
Changes 2012 to 2013
|
|
|
||||
|
|
|
2013
|
|
2012
|
|
Amount
|
|
%
|
|
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
15,510
|
|
15,207
|
|
303
|
|
2
|
%
|
|
|
Gufeng
|
|
29,868
|
|
41,297
|
|
(11,429)
|
|
-28
|
%
|
|
|
|
|
45,378
|
|
56,504
|
|
(11,126)
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
||||
|
|
|
2013
|
|
2012
|
|
||
|
|
|
(revenue per tons)
|
|
|
|
|
|
|
Jinong
|
|
$
|
1,695
|
|
$
|
1,509
|
|
|
Gufeng
|
|
|
451
|
|
|
436
|
|
|
|
|
Six Months Ended December 31,
|
|
Change 2012 to 2013
|
|
|
||||
|
|
|
2013
|
|
2012
|
|
Amount
|
|
%
|
|
|
|
|
|
(metric tons)
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
33,382
|
|
32,656
|
|
726
|
|
2
|
%
|
|
|
Gufeng
|
|
67,943
|
|
63,447
|
|
4,496
|
|
7
|
%
|
|
|
|
|
101,325
|
|
96,103
|
|
5,222
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
||||
|
|
|
2013
|
|
2012
|
|
||
|
|
|
(revenue per tons)
|
|
|
|
|
|
|
Jinong
|
|
$
|
1,739
|
|
$
|
1,556
|
|
|
Gufeng
|
|
|
460
|
|
|
456
|
|
For the three months ended December 31, 2013, we sold approximately
45,378
metric tons of fertilizer products, as
compared to 56,504 metric tons for the three months ended December 31, 2012. For the three months ended December 31, 2013, Jinong sold approximately 15,510 metric tons of fertilizer products, as compared to 15,207 metric tons for the three months ended December 31, 2012. For the three months ended December 31, 2013, Gufeng sold approximately 29,868 metric tons of fertilizer products, as compared to 41,297 metric tons for the three months ended December 31, 2012.
For the six months ended December 31, 2013, we sold approximately 101,325 metric tons of fertilizer products, as compared to 96,103 metric tons for the six months ended December 31, 2012. For the six months ended December 31, 2013, Jinong sold approximately 33,382 metric tons of fertilizer products, as compared to 32,656 metric tons for the six months ended December 31, 2012. For the six
months ended December 31, 2013, Gufeng sold approximately 67,943 metric tons of fertilizer products, as compared to 63,447 metric tons for the six months ended December 31, 2012.
| 23 | ||
|
|
Our sales of fertilizer products to the top five provinces accounted for approximately 23.5% of our fertilizer revenue for the six months ended December 31, 2013. Specifically, the provinces and their respective sale contributions to our fertilizer revenue were: Shaanxi (12.2 %), Shandong (3.4%), Hebei (3.2%), Heilongjiang (2.9%), and Jiling (1.8%).
As of December 31, 2013, we had a total of 1,100 distributors covering 27 provinces, four autonomous regions and three central government-controlled municipalities in China. Jinong had 872 distributors in China. Unlike Gufeng, Jinong’s sales are not dependent on any single distributor or any group of distributors. Jinong’s top five distributors accounted for 1.9% of its fertilizer revenue for the three months ended December 31, 2013. Gufeng had 228 distributors,
including some large state-owned enterprises.
Gufeng’s top five distributors accounted for 76.4% of its revenue for the three months ended December 31, 2013.
Agricultural Products
Through Yuxing, we develop, produce and sell high-quality flowers, green vegetables and fruits to local marketplaces and various horticulture and planting companies. We also use some of Yuxing’s greenhouse facilities to conduct research and development activities for our fertilizer products. The three PRC provinces that accounted for 87.6% of our agricultural products revenue for the three months ended December 31, 2013 were Shaanxi (78.3%), Ningxia (5.5%), and Gansu (3.8%).
Recent Developments
New Products
During the three months ended December 31, 2013, Jinong launched one new fertilizer product. Jinong’s new product generated approximately $4,881, or 0.02% of Jinong’s fertilizer revenue for the three months ended December 31, 2013. Jinong also added 15 new distributors for the three months ended December 31, 2013. Jinong’s new distributors accounted for approximately $675,579, or 2.6% of Jinong’s fertilizer revenue for the three months ended December 31, 2013. During the quarter ended December 31, 2013, $11,714, or 0.04% was attributable to Jinong’s new products distributed by its new distributors.
During the three months ended December 31, 2013, Gufeng launched one new fertilizer product. Gufeng’s new product generated approximately $8,890, or 0.07% of Gufeng’s fertilizer revenue for the three months ended December 31, 2013. Gufeng also added 14 new distributors during the three months ended December 31, 2013, which accounted for approximately $567,079, or 1.8%, of Gufeng’s fertilizer revenue. During the quarter ended December 31, 2013, $592 was attributable to Jinong’s new products by its new distributors.
Results of Operations
|
|
|
For the Three Months Ended December 31,
|
|
|
|||||||||
|
|
|
2013
|
|
2012
|
|
change $
|
|
change %
|
|
|
|||
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
26,288,622
|
|
$
|
22,954,851
|
|
$
|
3,333,771
|
|
14.5
|
%
|
|
|
Gufeng
|
|
|
13,482,016
|
|
|
17,984,853
|
|
|
(4,502,837)
|
|
-25.0
|
%
|
|
|
Yuxing
|
|
|
863,963
|
|
|
791,288
|
|
|
72,675
|
|
9.2
|
%
|
|
|
Net sales
|
|
|
40,634,601
|
|
|
41,730,992
|
|
|
(1,096,391)
|
|
-2.6
|
%
|
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
10,869,262
|
|
|
10,652,410
|
|
|
216,852
|
|
2.0
|
%
|
|
|
Gufeng
|
|
|
10,291,112
|
|
|
14,304,747
|
|
|
(4,013,635)
|
|
-28.1
|
%
|
|
|
Yuxing
|
|
|
622,712
|
|
|
580,302
|
|
|
42,410
|
|
7.3
|
%
|
|
|
Cost of goods sold
|
|
|
21,783,086
|
|
|
25,537,459
|
|
|
(3,754,373)
|
|
-14.7
|
%
|
|
|
Gross profit
|
|
|
18,851,515
|
|
|
16,193,533
|
|
|
2,657,982
|
|
16.4
|
%
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
8,807,095
|
|
|
3,138,284
|
|
|
5,668,811
|
|
180.6
|
%
|
|
|
General and administrative expenses
|
|
|
4,565,932
|
|
|
3,156,271
|
|
|
1,409,661
|
|
44.7
|
%
|
|
|
Total operating expenses
|
|
|
13,373,027
|
|
|
6,294,555
|
|
|
7,078,472
|
|
112.5
|
%
|
|
|
Income from operations
|
|
|
5,478,488
|
|
|
9,898,978
|
|
|
(4,420,490)
|
|
-44.7
|
%
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
(70,057)
|
|
|
397,980
|
|
|
(468,037)
|
|
-117.6
|
%
|
|
|
Interest income
|
|
|
21,434
|
|
|
86,717
|
|
|
(65,283)
|
|
-75.3
|
%
|
|
|
Interest expenses
|
|
|
(304,238)
|
|
|
(366,447)
|
|
|
62,209
|
|
-17.0
|
%
|
|
|
Total other income (expenses)
|
|
|
(352,861)
|
|
|
118,250
|
|
|
(471,111)
|
|
-398.4
|
%
|
|
|
Income before income taxes
|
|
|
5,125,627
|
|
|
10,017,228
|
|
|
(4,891,601)
|
|
-48.8
|
%
|
|
|
Provision for income taxes
|
|
|
1,449,890
|
|
|
1,775,900
|
|
|
(326,010)
|
|
-18.4
|
%
|
|
|
Net income
|
|
|
3,675,737
|
|
|
8,241,328
|
|
|
(4,565,591)
|
|
-55.4
|
%
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
2,947,080
|
|
|
619,139
|
|
|
2,327,941
|
|
376.0
|
%
|
|
|
Comprehensive income
|
|
$
|
6,622,817
|
|
$
|
8,860,467
|
|
$
|
(2,237,650)
|
|
-25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
31,817,515
|
|
|
27,651,919
|
|
|
4,165,596
|
|
15.1
|
%
|
|
|
Basic net earnings per share
|
|
$
|
0.12
|
|
$
|
0.30
|
|
$
|
(0.18)
|
|
-60.4
|
%
|
|
|
Diluted weighted average shares outstanding
|
|
|
31,817,515
|
|
|
27,651,919
|
|
|
4,165,596
|
|
15.1
|
%
|
|
|
Diluted net earnings per share
|
|
$
|
0.12
|
|
$
|
0.30
|
|
$
|
(0.18)
|
|
-60.4
|
%
|
|
| 24 | ||
|
|
Three Months Ended December 31, 2013 Compared to the Three Months Ended December 31, 2012.
Net Sales
Total net sales for the three months ended December 31, 2013 were $40,634,601, a decrease of $1,096,391, or 2.6%, from $41,730,992 for the three months ended December 31, 2012. This decrease was largely due to the decrease in Gufeng’s net sales.
For the three months ended December 31, 2013, Jinong’s net sales increased $3,333,771, or 14.5%, to $26,288,622 from $22,954,851 for the three months ended December 31, 2012.
This increase was mainly attributable to the greater sales of humic acid fertilizer products, including our liquid and powder fertilizers, during this period as a result of our increased distributors and the aggressive marketing strategy.
For the three months ended December 31, 2013, net sales at Gufeng were $13,482,016, a decrease of $4,502,837, or 25.0%, from $17,984,853 for the three months ended December 31, 2012.
This decrease was mainly due to the peak sales season was delayed compare the same period last year; Gufeng’s decreased inventory lead to decrease in net sales.
For the three months ended December 31, 2013, Yuxing’s net sales were $863,963, an increase of $72,675, or 9.2%, from $791,288 for the three months ended December 31, 2012. This increase was mainly attributable to the growth in sales of Yuxing’s top-grade flowers.
Cost of Goods Sold
Total cost of goods sold for the three months ended December 31, 2013 was $21,783,086, a decrease of $
3,754,373, or 14.7%, from $25,537,459 for the three months ended December 31, 2012.
This decrease was proportional to the decrease in sales, which was mainly due to Gufeng’s decreased net sales for the three months ended December 31, 2013.
| 25 | ||
|
|
Cost of goods sold by Jinong for the three months ended December 31, 2013 was $10,869,262, an increase of $216,852, or 2.0%, from $10,652,410 for the three months ended December 31, 2012.
This increase was primarily attributable to an increase in the cost of raw materials and an increase in the sales of fertilizer products.
Cost of goods sold by Gufeng for the three months ended December 31, 2013 was $10,291,112, a decrease of $4,013,635, or 28.1%, from $14,304,747 for the three months ended December 31, 2012.
The decrease was proportional to Gufeng’s sales decrease for the three months ended December 31, 2013.
For three months ended December 31, 2013, cost of goods sold by Yuxing was $622,712, an increase of $42,410, or 7.3%, from $580,302 for the three months ended December 31, 2012.
The increase was proportional to Yuxing’s increased sales for the three months ended December 31, 2013.
Gross Profit
Total gross profit for the three months ended December 31, 2013 increased by $2,657,982 to $18,851,515, as compared to $16,193,533 for the three months ended December 31, 2012. Gross profit margin was approximately 46.4% and 38.8% for the three months ended December 31, 2013 and 2012, respectively.
Gross profit generated by Jinong increased by $3,116,919, or 25.3%, to $15,419,360 for the three months ended December 31, 2013 from $12,302,441 for the three months ended December 31, 2012. Gross profit margin from Jinong’s sales was approximately 58.7% and 53.6% for the three months ended December 31, 2013 and 2012, respectively. This increase in gross profit margin was mainly due to an increase in the proportion of higher-margin products sales as part of Jinong’s total sales. The average gross profit margin of Jinong’s humic acid fertilizer products was 56.0%.
For the three months ended December 31, 2013, gross profit generated by Gufeng was $3,190,904, a decrease of $489,202, or 13.3%, from $3,680,106 for the three months ended December 31, 2012. Gross profit margin from Gufeng’s sales was approximately 23.7% and 20.5% for the three months ended December 31, 2013 and 2012, respectively. This increase in gross profit margin was mainly due to a decrease in the cost of raw materials and an increase in the proportion of higher-margin products sales as part of Gufeng’s total sales.
For the three months ended December 31, 2013, gross profit generated by Yuxing was $241,251, an increase of $30,265, or 25.0%, from $210,986 for the three months ended December 31, 2012. Gross profit margin from Yuxing’s sales was approximately 27.9% and 26.7% for the three months ended December 31, 2013 and 2012, respectively. This increase in gross profit was mainly due to a decrease in the cost of raw materials for the three months ended December 31, 2013, compared to the same period in 2012.
Selling Expenses
Our selling expenses consisted primarily of salaries for sales personnel, advertising and promotion expenses, freight-out costs, and related compensation. Selling expenses were $8,807,095, or 21.7% of net sales for the three months ended December 31, 2013, as compared to $3,138,284, or 7.5% of net sales for the three months ended December 31, 2012, an increase of $5,668,811, or 180.6%. Gufeng’s selling expenses were $314,137, or 2.3% of Gufeng’s net sales for the three months ended December 31, 2013, as compared to $146,180, or 0.8% of Gufeng’s net sales for the three months ended December 31, 2012. Jinong’s selling expenses for the three months ended December 31, 2013 were $8,479,839, or 32.3% of Jinong’s net sales, as compared to $2,977,043, or 13.0% of Jinong’s net sales for the three months ended December 31, 2012. Most of this increase in Jinong’s selling expenses was due to the amortization of $3,865,364 of the deferred tax assets in connection with our efforts to assist our distributors with adopting certain marketing strategies and developing standard stores in order to expand our competitive advantage and market share.
| 26 | ||
|
|
General and Administrative Expenses
General and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation, and travel expenses incurred by our general and administrative departments and legal and professional expenses, including expenses incurred and accrued for certain litigations. General and administrative expenses were $4,565,932, or 11.2% of net sales for the three months ended December 31, 2013, as compared to $3,156,271, or 7.6% of net sales for the three months ended September 30 2012, an increase of $1,409,661, or 44.7%. This increase in general and administrative expenses was mainly due to an increase in the stock compensation awarded to our employees for fiscal year 2013.
Total Other Expenses
Total other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other expenses for the three months ended December 31, 2013 were $352,861, as compared to total other income of $118,250 for the three months ended December 31, 2012, an increase in total other expenses of $471,111, or 398.4%. This increase in total other expenses was mainly a result of a decrease of $468,037 in other income to $(70,057) for the three months ended December 31, 2013, as compared to $397,980 for the three months ended December 31, 2012.
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 $1,023,643for the three months ended December 31, 2013, as compared to $ 1,270,687 for the three months ended December 31, 2012, a decrease of $247,044, or 19.44%.
Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $426,247 for the three months ended December 31, 2013, as compared to $505,213 for the three months ended December 31, 2012, a decrease of $78,966, or 15.6%. This decrease was primarily due to the decrease in Gufeng’s net income.
Yuxing’s products are part of the tax exemption list set out in the EIT, and it is thus exempt from paying income tax. As a result, Yuxing had no income tax for the three months ended December 31, 2013.
Net Income
Net income for the three months ended December 31, 2013 was $3,675,737, a decrease of $4,565,591, or 55.4%, compared to $8,241,328 for the three months ended December 31, 2012. This decrease was directly attributable to the decrease in net sales and the increase in total operating expenses described above. Net income as a percentage of total net sales was approximately 9.2% and 19.7 % for the three months ended December 31, 2013 and 2012, respectively.
|
|
|
For the Six Months Ended December 31,
|
|
|
|||||||||
|
|
|
2013
|
|
2012
|
|
change $
|
|
change %
|
|
|
|||
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
$
|
58,050,624
|
|
$
|
50,805,827
|
|
$
|
7,244,797
|
|
14.3
|
%
|
|
|
Gufeng
|
|
|
31,238,098
|
|
|
28,921,824
|
|
|
2,316,274
|
|
8.0
|
%
|
|
|
Yuxing
|
|
|
1,649,226
|
|
|
1,516,081
|
|
|
133,145
|
|
8.8
|
%
|
|
|
Net sales
|
|
|
90,937,948
|
|
|
81,243,732
|
|
|
9,694,216
|
|
11.9
|
%
|
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinong
|
|
|
24,839,093
|
|
|
23,491,908
|
|
|
1,347,185
|
|
5.7
|
%
|
|
|
Gufeng
|
|
|
23,500,744
|
|
|
23,494,509
|
|
|
6,235
|
|
0.0
|
%
|
|
|
Yuxing
|
|
|
1,276,908
|
|
|
1,130,409
|
|
|
146,499
|
|
13.0
|
%
|
|
|
Cost of goods sold
|
|
|
49,616,745
|
|
|
48,116,826
|
|
|
1,499,919
|
|
3.1
|
%
|
|
|
Gross profit
|
|
|
41,321,203
|
|
|
33,126,906
|
|
|
8,194,297
|
|
24.7
|
%
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
14,603,285
|
|
|
6,172,371
|
|
|
8,430,914
|
|
136.6
|
%
|
|
|
General and administrative expenses
|
|
|
7,905,708
|
|
|
6,032,213
|
|
|
1,873,495
|
|
31.1
|
%
|
|
|
Total operating expenses
|
|
|
22,508,993
|
|
|
12,204,584
|
|
|
10,304,409
|
|
84.4
|
%
|
|
|
Income from operations
|
|
|
18,812,210
|
|
|
20,922,322
|
|
|
(2,110,112)
|
|
-10.1
|
%
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
(186,440)
|
|
|
397,380
|
|
|
(583,820)
|
|
-146.9
|
%
|
|
|
Interest income
|
|
|
77,088
|
|
|
161,149
|
|
|
(84,061)
|
|
-52.2
|
%
|
|
|
Interest expenses
|
|
|
(537,424)
|
|
|
(752,239)
|
|
|
214,815
|
|
-28.6
|
%
|
|
|
Total other income (expenses)
|
|
|
(646,776)
|
|
|
(193,710)
|
|
|
(453,066)
|
|
233.9
|
%
|
|
|
Income before income taxes
|
|
|
18,165,434
|
|
|
20,728,612
|
|
|
(2,563,178)
|
|
-12.4
|
%
|
|
|
Provision for income taxes
|
|
|
4,111,240
|
|
|
3,625,884
|
|
|
485,356
|
|
13.4
|
%
|
|
|
Net income
|
|
|
14,054,194
|
|
|
17,102,728
|
|
|
(3,048,534)
|
|
-17.8
|
%
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
3,641,796
|
|
|
154,786
|
|
|
3,487,010
|
|
2,252.8
|
%
|
|
|
Comprehensive income
|
|
$
|
17,695,990
|
|
$
|
17,257,514
|
|
$
|
438,476
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
30,895,621
|
|
|
27,561,556
|
|
|
3,334,065
|
|
12.1
|
%
|
|
|
Basic net earnings per share
|
|
$
|
0.45
|
|
$
|
0.62
|
|
$
|
(0.17)
|
|
-26.7
|
%
|
|
|
Diluted weighted average shares outstanding
|
|
|
30,895,621
|
|
|
27,561,556
|
|
|
3,334,065
|
|
12.1
|
%
|
|
|
Diluted net earnings per share
|
|
$
|
0.45
|
|
$
|
0.62
|
|
$
|
(0.17)
|
|
-26.7
|
%
|
|
| 27 | ||
|
|
Six Months Ended December 31, 2013 Compared to the Six Months Ended December 31, 2012.
Net Sales
Total net sales for the six months ended December 31, 2013 were $90,937,948, an increase of $9,694,216 or 11.9%, from $81,243,732 for the six months ended December 31, 2012.
This increase was mainly due to the increase in Jinong’s net sales.
For the six months ended December 31, 2013, Jinong’s net sales increased $7,244,797, or 14.3%, to $58,050,624 from $50,805,827 for the six months ended December 31, 2012. This increase was mainly attributable to an increase in sales of humic acid fertilizer products, including our liquid and powder fertilizers, during this period as a result of an increase in our distributors and our adoption of certain marketing efforts.
For the six months ended December 31, 2013, Gufeng’s net sales were $31,238,098, an increase of $2,316,274, or 8.0%, from $28,921,824 for the six months ended December 31, 2012.
For the six months ended December 31, 2013, Yuxing’s net sales were $1,649,226, an increase of $133,145, or 8.8%, from $1,516,081 for the six months ended December 31, 2012. This increase was mainly attributable to the growth in sales of Yuxing’s top-grade flowers.
Cost of Goods Sold
Total cost of goods sold for the six months ended December 31, 2013 was $49,616,745, an increase of $1,499,919, or 3.1%, from $48,116,826 for the six months ended December 31, 2012. This increase was proportional to the 11.9% increase in net sales during the same period.
Cost of goods sold by Jinong for the six months ended December 31, 2013 was $24,839,093, an increase of $1,347,185, or 5.7%, from $23,491,908 for the six months ended December 31, 2012. The increase was primarily attributable to an increase in the cost of raw materials and an increase in the sales of fertilizer products.
| 28 | ||
|
|
Cost of goods sold by Gufeng for the six months ended December 31, 2013 was $23,500,744, an increase of $6,235, or 0.03%, from $23,494,509 for the six months ended December 31, 2012. The increase was primarily due an increase in fertilizer sales in Gufeng, and increases in the cost of raw materials and manufacturing costs.
For the six months ended December 31, 2013, cost of goods sold by Yuxing was $1,276,908, an increase of $146,499, or 13.0%, from $1,130,409 for the six months ended December 31, 2012. This increase was mainly due to an increase in manufacturing costs during the six months ended December 31, 2013.
Gross Profit
Total gross profit for the six months ended December 31, 2013 increased by $8,194,297 to $41,321,203, as compared to $33,126,906 for the six months ended December 31, 2012. Gross profit margin was approximately 45.4% and 40.8% for the six months ended December 31, 2013 and 2012, respectively.
Gross profit generated by Jinong increased by $5,897,612, or 21.6%, to $33,211,531 for the six months ended December 31, 2013 from $27,313,919 for the six months ended December 31, 2012. Gross profit margin from Jinong’s sales was approximately 57.2% and 53.8% for the six months ended December 31, 2013 and 2012, respectively. This increase in gross profit margin was mainly due to an increase in the proportion of higher-margin products sales as part of Jinong’s total sales. The average gross profit margin of Jinong’s humic acid fertilizer products was 56.0%.
For the six months ended December 31, 2013, gross profit generated by Gufeng was $7,737,354, an increase of $2,310,039, or 42.6%, from $5,427,315 for the six months ended December 31, 2012. Gross profit margin from Gufeng’s sales was approximately 24.8% and 18.8% for the six months ended December 31, 2013 and 2012, respectively. This increase in gross profit margin was mainly due to a decrease in the cost of raw materials and an increase in the proportion of higher-margin products sales as part of Gufeng’s total sales.
For the six months ended December 31, 2013, gross profit generated by Yuxing was $372,318, a decrease of $13,354, or 3.5%, from $385,672 for the six months ended December 31, 2012. Gross profit margin from Yuxing’s sales was approximately 22.6% and 25.4% for the six months ended December 31, 2013 and 2012, respectively. This decrease in gross profit was mainly due to the decrease in price of the flowers Yuxing sold during the six months ended December 31, 2013, compared to the same period in 2012.
Selling Expenses
Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs, and related compensation. Selling expenses were $14,603,285, or 16.1% of net sales for the six months ended December 31, 2013, as compared to $6,172,371, or 7.6% of net sales for the six months ended December 31, 2012, an increase of $8,430,914, or 136.6%. Gufeng’s selling expenses were $468,147, or 1.5% of Gufeng’s net sales for the six months ended December 31, 2013, as compared to $370,689, or 1.3% of Gufeng’s net sales for the six months ended December 31, 2012. Jinong’s selling expenses for the six months ended December 31, 2013 were $14,109,370, or 24.3% of Jinong’s net sales, as compared to $5,769,477, or 11.4% of Jinong’s net sales for the six months ended December 31, 2012. Most of this increase in Jinong’s selling expenses was due to the amortization of $3,865,364 of the deferred tax assets in connection with our efforts to assist our distributors with adopting certain marketing strategies and developing standard stores in order to expand our competitive advantage and market share.
General and Administrative Expenses
General and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation, and travel expenses incurred by our general and administrative departments and legal and professional expenses, including expenses incurred and accrued for certain litigations. General and administrative expenses were $7,905,708, or 8.7% of net sales for the six months ended December 31, 2013, as compared to $6,032,213, or 7.4%, of net sales for the six months ended December 31, 2012, an increase of $1,873,495, or 31.1%. This increase in general and administrative expenses was mainly due to an increase in the stock compensation awarded to our employees for fiscal year 2013.
| 29 | ||
|
|
Total Other Expenses
Total other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other expenses for the six months ended December 31, 2013 were $646,776, as compared to total other expenses of $193,710 for the six months ended December 31, 2012, an increase in total other expenses of $453,066, or 233.9%. This increase in total other expenses was mainly a result of a decrease of $583,820 in other income to $(186,440) for the six months ended December 31, 2013, as compared to $397,380 for the six months ended December 31, 2012.
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 $2,849,293 for the six months ended December 31, 2013, as compared to $3,024,887 for the six months ended December 31, 2012, a decrease of $175,594, or 5.8%.
Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $1,261,947 for the six months ended December 31, 2013, as compared to $600,997 for the six months ended December 31, 2012, an increase of $660,950, or 110%. This increase was primarily due to the increase in Gufeng’s net income.
Yuxing’s products are part of the tax exemption list set out in the EIT, and it is thus exempt from paying income tax. As a result, Yuxing had no income tax for the six months ended December 31, 2013.
Net Income
Net income for the six months ended December 31, 2013 was $14,054,194, a decrease of $3,048,534 or 17.8%, compared to $17,102,728 for the six months ended December 31, 2012. This decrease was directly attributable to a small increase in net sales offset by a larger increase in the cost of goods sold and selling expenses. Net income as a percentage of total net sales was approximately 15.5% and 21.1 % for the six months ended December 31, 2013 and 2012, respectively.
Discussion of Segment Profitability Measures
As of December 31, 2013, we were engaged in the following businesses: the production and sale of fertilizers through Jinong and Gufeng, and the production and sale of high-quality agricultural products by Yuxing. For financial reporting purposes, our operations were organized into three main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production). Each of the segments has its own annual budget with regard to development, production and sales. Jintai is in the process of migrating its facilities and operations to Yuxing.
Each of the three operating segments referenced above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) makes decisions with respect to resource allocation and performance assessments based upon the financial information he receives, including revenue, gross margin, operating income and net income produced from the various general ledger systems; the CODM has, however, adopted net income by segment as the principal benchmark for measuring profit or loss.
For Jinong, net income decreased by $1,448,343, or 8.5%, to $15,689,383 for the six months ended December 31, 2013 from $17,137,726 for the six months ended December 31, 2012.
For Gufeng, net income increased by $2,053,352, or 123.0%, to $3,723,396 for the six months ended December 31, 2013 from $1,670,044 for the six months ended December 31, 2012.
For Yuxing, net income decreased by $544,930, or 83.6%, to $106,706 for the six months ended December 31, 2013 from $651,636 for the six months ended December 31, 2012.
| 30 | ||
|
|
Liquidity and Capital Resources
Our principal sources of liquidity include cash from operations, borrowings from local commercial banks, and net proceeds from
offerings of our securities consummated in July 2009 and November/December 2009 (collectively the “Public Offerings”).
As of December 31, 2013, cash and cash equivalents were $13,912,272, a decrease of $61,119,217, or 81.5%, from cash and cash equivalents of $75,031,489 as of June 30, 2013. This decrease in cash and cash equivalents was due to the payment of advances by Jinong to our distributors for assistance in marketing the Company’s products, with a credit guarantee by Mr. Tao Li, Chairman and CEO of the Company.
This resulted in the incurrence of deferred assets of $61,354,716 as of December 31, 2013.
We intend to use some of the remaining net proceeds from the Public Offerings, as well as other working capital as required, to acquire new businesses, upgrade production lines, and complete Yuxing’s new greenhouse facilities for agricultural products 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, provided that we do not have further significant acquisitions or expansions. However, if events or circumstances occur such that we are unable to meet our operating plan as expected, we may be required to seek additional capital and/or to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market conditions are most advantageous, which may include additional debt and/or equity financings. There can be no assurance that any additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing stockholders, and any debt financing may include restrictive covenants.
The following table sets forth a summary of our cash flows for the periods indicated:
|
|
|
Six Months Ended December 31,
|
|
||||
|
|
|
2013
|
|
2012
|
|
||
|
Net cash provided by operating activities
|
|
$
|
417,286
|
|
$
|
11,006,765
|
|
|
Net cash used in investing activities
|
|
|
(65,867,201)
|
|
|
(8,655,555)
|
|
|
Net cash provided by financing activities
|
|
|
3,829,400
|
|
|
562,675
|
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
501,298
|
|
|
45,266
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(61,119,217)
|
|
|
2,959,151
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
75,031,489
|
|
|
71,978,630
|
|
|
Cash and cash equivalents, ending balance
|
|
$
|
13,912,272
|
|
$
|
74,937,781
|
|
Operating Activities
Net cash provided by operating activities was $417,286 for the six months ended December 31, 2013, a decrease of $10,589,479, or 96.20%, from cash provided by operating activities of $11,006,765 for the six months ended December 31, 2012. This decrease was mainly attributable to increases in accounts receivable and inventory during the three months ended December 31, 2013, as compared to the same period in 2012. Jinong assisted its distributors in marketing to expand its competitive product advantage and market share during the three months ended December 31, 2013.
| 31 | ||
|
|
Investing Activities
Net cash used in investing activities for the six months ended December 31, 2013 was $65,867,201, an increase of $57,211,646, or 475.2%, from net cash used in investing activities of $8,655,555 for the six months ended December 31, 2012. In order to expand its competitive product advantage and market share, during the six months ended December 31, 2013, Jinong assisted its distributors in adopting aggressive marketing strategies by advancing them $61,354,716.
Financing Activities
Net cash provided by financing activities for the six months ended December 31, 2013 was $3,829,400, an increase of $3,266,725 or 580.6%, from net cash provided by financing activities of $562,675 for the six months ended December 31, 2012.
As of December 31, 2013 and June 30, 2013, our loans payable were as follows:
|
|
|
December 31, 2013
|
|
June 30, 2013
|
|
||
|
Short term loans payable:
|
|
$
|
19,889,550
|
|
$
|
16,099,100
|
|
|
Total
|
|
$
|
19,889,550
|
|
$
|
16,099,100
|
|
Accounts Receivable
We had accounts receivable of $76,362,588 as of December 31, 2013, as compared to $85,323,442 as of June 30, 2013, a decrease of $8,960,854 or 10.5%, which is mainly attributable to the implementation of a new credit policy for Jinong’s and Gufeng’s distributors.
In order to respond to the cash flow shortage caused by tightened restrictions surrounding financing and overall sluggish economic growth encountered by some of our distributors, the Company launched such a policy in the third quarter of fiscal year 2012 enabling such distributors take full advantage of the 180-day credit terms.
Allowance for doubtful accounts in account receivable for the six months ended December 31, 2013 was $210,540, an increase of $88,265, or 72.18%, from $122,275 as of June 30, 2013. The allowance for doubtful accounts as a percentage of accounts receivable was 0.28% as of December 31, 2013 and 0.1% as of June 30, 2013.
Deferred Assets
We had deferred assets of $61,354,716 as of December 31, 2013, as compared to $0 as of June 30, 2013. During the six months ended December 31, 2013, we assisted our distributors with adopting certain marketing strategies and developing standard stores in order to expand our competitive advantage and market share. Based on the distributor agreements, the amount owed by the distributors in such marketing efforts and store development will be expensed over three years as long as the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us prior to the expiry of the contractual term, the unamortized portion of the amount owed by the distributor is payable to us immediately. The Company’s Chairman and CEO, Mr. Li, provided credit backup guarantee for potential losses to the Company of any amounts due by our distributors in this matter.
Inventory
We had inventory of $71,920,922 as of December 31, 2013, as compared to $34,511,167 as of June 30, 2013, an increase of $37,409,755, or 108.4%. This increase was mainly due to an increase in Gufeng’s inventory. Gufeng’s inventory of $55,020,940 as of December 31, 2013 was caused by two main factors: (i) the acquisition of raw materials at low prices for the expected production of fertilizers for the incoming winter, and (ii) the accumulation of finished fertilizer products.
| 32 | ||
|
|
Advances to Suppliers
We had advances to suppliers of $27,674,413 as of December 31, 2013, as compared to $20,224,206 as of June 30, 2013, an increase of $7,167,032 or 35.4%. To ensure our ability to timely deliver compound fertilizer to the distributors prior to the planting season, we need to have sufficient raw materials in stock for production. To build up the inventory, we typically make advance payments to suppliers to secure the supply of the raw materials of basic fertilizer. Our inventory levels may fluctuate from time to time, depending on how quickly the raw material gets consumed and replenished during the production process, and how quickly the finished goods get sold. The replenishment of raw material relies on the management’s estimate of numerous factors, including, but not limited to, the raw material’s future price and spot price along with such prices’ volatility, as well as the seasonal demand and future price of finished fertilizer products. Such estimates may not be accurate, and can lead to an excess in inventory during a slow sales period and insufficient inventory during a peak sales period.
Accounts Payable
We had accounts payable of $3,406,023 as of December 31, 2013, as compared to $3,375,333 as of June 30, 2013, an increase of $30,690, or 0.9%. This increase was primarily due to the build up of inventory.
Unearned Revenue
We had unearned revenue of $11,032,022 as of December 31, 2013, as compared to $1,433,661 as of June 30, 2013, an increase of $9,598,361, or 669.5%. This increase was principally due to the increase in cash sales and decrease in credit sales to select distributors since Jinong and Gufeng launched the warehouse sales program. The warehouse sales program is a customized strategy that requires smaller advanced deposit payments from participating distributors that are selected based upon their overall business strength, credit worthiness and proven ability to develop local markets.
Taxes Payable
We had taxes payable of $15,243,156 as of December 31, 2013, as compared to $25,728,759 as of June 30, 2013, a decrease of $10,485,603, or 40.8%. This decrease was mainly a result of estimated tax payments exceeding the tax liability incurred during the six months ended December 31, 2013.
Non-Cash Financing Activities
During the six months ended December 31, 2013, we issued 118,778 shares of common stock to Mr. Tao Li, Chairman and CEO of the Company, as repayment for $200,000 previously advanced to us by him and $325,000 in unpaid compensation.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements, “Basis of Presentation and Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the more critical accounting policies that currently affect our financial condition and results of operations:
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.
| 33 | ||
|
|
Revenue Recognition
Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, we have no other significant obligations, and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Our revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discounts are normally not granted after products are delivered.
Cash and Cash Equivalents
For statement of cash flows purposes, we consider all cash on hand and in banks, certificates of deposit, and other highly-liquid investments with maturities of three months or less when purchased to be cash and cash equivalents.
Accounts Receivable
Our policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Any accounts receivable of Jinong and Gufeng that are outstanding for more than 180 days will be accounted for under allowance for bad debts, and any accounts receivable of Yuxing that are outstanding for more than 90 days will be accounted for under allowance for bad debts.
Deferred Assets
Deferred assets represent the amounts the Company advanced to the distributors to assist them with adopting certain marketing strategies and developing standard stores in order to expand our competitive advantage and market share. Based on the distributor agreements, the amount owed by the distributors in such marketing efforts and store development will be expensed over three years as long as the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us prior to the expiry of the contractual term, the unamortized portion of the amount owed by the distributor is payable to us immediately. The Company’s Chairman and CEO, Mr. Li, provided credit backup guarantee for potential losses to the Company of any amounts due by our distributors in this matter.
Segment Reporting
FASB ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
As of December 31, 2013, we were organized into three main business segments: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production).
| 34 | ||
|
|
Disclosures About Market Risk
We may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the risk that losses may occur as a result of movements in interest rates and equity prices. We currently do not, in the normal course of business, use financial instruments that are subject to changes in financial market conditions.
Currency Fluctuations and Foreign Currency Risk
Substantially all of our revenues and expenses are denominated in the RMB. However, we use the U.S. dollar for financial reporting purposes. Conversion of the 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 the RMB, there can be no assurance that such exchange rate will not again become volatile or that the 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 the 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 the exchange rates as of the balance sheet dates, revenues and expenses are translated at the average exchange rates, and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of shareholders’ equity. As of December 31, 2013, our accumulated other comprehensive income was $25,455,206 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in the PRC’s political and economic conditions. Since July 2005, the RMB 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 RMB 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 RMB exchange rate and lessen intervention in the foreign exchange market.
Interest Rate Risk
We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. All of our outstanding debt instruments carry fixed rates of interests. The amount of short-term debt outstanding as of December 31, 2013 and June 30, 2013 was $19,889,550 million and $16,099,100 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 December 31, 2013. The original loan term on average is one year, and the remaining average life of the short term-loans is approximately five months.
| 35 | ||
|
|
Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.
Credit Risk
We have not experienced significant credit risk, as most of our customers are long-term customers with superior payment records. Our receivables are monitored regularly by our credit managers.
Inflation Risk
Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.
(a)
Evaluation of disclosure controls and procedures
At the conclusion of the period ended December 31, 2013 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), 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 CEO and CFO concluded that as of the end of the period covered by this Quarterly 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 file or 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 management, including our CEO and CFO, in a manner that allowed for timely decisions regarding required disclosure.
(b)
Changes in internal controls
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 36 | ||
|
|
There has been no further update on the lawsuit previously disclosed under this item on the Company’s quarterly report on Form 10-Q filed with the SEC on November 12, 2013.
The exhibits required by this item are set forth in the Exhibit Index attached hereto.
| 37 | ||
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
CHINA GREEN AGRICULTURE, INC.
|
|
|
|
|
|
|
Date: February 10, 2014
|
By:
|
/s/ Tao Li
|
|
|
Name:
|
Tao Li
|
|
|
Title:
|
President and Chief Executive Officer
|
|
|
(principal executive officer)
|
|
|
Date: February 10, 2014
|
By:
|
/s/ Ken Ren
|
|
|
Name:
|
Ken Ren
|
|
|
Title:
|
Chief Financial Officer
|
|
|
(principal financial officer and principal accounting officer)
|
|
| 38 | ||
|
|
EXHIBIT INDEX
|
No.
|
|
Description
|
|
|
|
|
|
10.1
|
|
English Translation of Procurement Delegation Agreement by and between Xi'an Hu County Yuxing Agriculture Technology Development Co., Ltd. and Xi’an Techteam Investment Holding Group dated November 1, 2013
|
|
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
101.INS*
|
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
* Furnished and not deemed filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise not subject to liability under these sections.
| 39 | ||
|
|
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 - Property, Plant and EquipmentNote 6 Construction in ProgressNote 7 - Intangible AssetsNote 8 - Accrued Expenses and Other PayablesNote 9 - Amount Due To Related PartiesNote 10 - Loan PayablesNote 11 Taxes PayableNote 12 Stockholders EquityNote 13 Stock OptionsNote 14 Concentrations and LitigiationNote 15 Segment ReportingNote 16 - Commitments and ContingenciesNote 17 Variable Interest EntitiesItem 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 6. Exhibits