The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes to those financial statements
appearing elsewhere in this report. This discussion and analysis contain
forward-looking statements that involve significant risks and uncertainties. As
a result of many factors, such as the slow-down of the macro-economic
environment in China and its impact on economic growth in general, the
competition in the fertilizer industry and the impact of such competition on
pricing, revenues and margins, the weather conditions in the areas where our
customers are based, the cost of attracting and retaining highly skilled
personnel, the prospects for future acquisitions, and the factors set forth
elsewhere in this report, our actual results may differ materially from those
anticipated in these forward-looking statements. With these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this report will in fact occur. You should not place undue reliance
on the forward-looking statements contained in this report.
The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by U.S. federal securities laws, we undertake
no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. Further, the information about our
intentions contained in this report is a statement of our intention as of the
date of this report and is based upon, among other things, the existing
regulatory environment, industry conditions, market conditions and prices, and
our assumptions as of such date. We may change our intentions, at any time and
without notice, based upon any changes in such factors, in our assumptions
or
otherwise.
Unless the context indicates otherwise, as used in the notes to the financial
statements of the Company, the following are the references herein of all the
subsidiaries of the Company (i) Green Agriculture Holding Corporation (“Green
New Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the
State of New Jersey; (ii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd.
(“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the
laws of the PRC; (iii) Xi’an Hu County Yuxing Agriculture Technology Development
Co., Ltd. (“Yuxing”), a Variable Interest Entity in the PRC (“VIE”) controlled
by Jinong through contractual agreements; (iv) Beijing Gufeng Chemical Products
Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”); and (v)
Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the
PRC (“Tianjuyuan”). Yuxing may also collectively be referred to as the “the
VIE
Company”.
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
(Yuxing).
The fertilizer business conducted by Jinong and Gufeng generated approximately
95.8% and 95.5% of our total revenues for the nine months ended March 31, 2022
and 2021, respectively. Yuxing serves as a research and development base for our
fertilizer products.
Fertilizer Products
As of March 31, 2022, we had developed and produced a total of 410 different
fertilizer products in use, of which 74 were developed and produced by Jinong
and 336 by Gufeng.
28
Below is a table that shows the metric tons of fertilizer sold by Jinong and
Gufeng and the revenue per ton for the periods indicated:
Three Months Ended
March 31, Change 2021 to 2022
2022 2021 Amount %
(metric tons)
Jinong 18,989 23,066 (4,077 ) -17.7 %
Gufeng 90,228 131,807 (41,579 ) -31.5 %
109,218 154,874 (45,656 ) -29.5 %
Three Months Ended
March 31,
2022 2021
(revenue per tons)
Jinong $ 701 $ 670
Gufeng 499 363
Nine Months Ended
March 31, Change 2021 to 2022
2022 2021 Amount %
(metric tons)
Jinong 49,487 60,165 (10,678 ) -17.7 %
Gufeng 188,006 243,496 (55,490 ) -22.8 %
237,493 303,662 (66,168 ) -21.8 %
Nine Months Ended
March 31,
2022 2021
(revenue per tons)
Jinong $ 877 $ 774
Gufeng 430 362
For the three months ended March 31, 2022, we sold approximately 109,218 tons of
fertilizer products, as compared to 154,874 metric tons for the three months
ended March 31, 2021. For the three months ended March 31, 2022, Jinong sold
approximately 18,989 metric tons of fertilizer products, as compared to 23,066
metric tons for the three months ended March 31, 2021. For the three months
ended March 31, 2022, Gufeng sold approximately 90,228 metric tons of fertilizer
products, as compared to 131,807 metric tons for the three months ended March
31, 2021.
For the nine months ended March 31, 2022, we sold approximately 237,493 metric
tons of fertilizer products, as compared to 303,662 metric tons for the nine
months ended March 31, 2021. For the nine months ended March 31, 2022, Jinong
sold approximately 49,487 metric tons of fertilizer products, a decrease of
10,678 metric tons, or 17.7%, as compared to 60,165 metric tons for the nine
months ended March 31, 2021. For the nine months ended March 31, 2022, Gufeng
sold approximately 188,006 metric tons of fertilizer products, a decrease of
55,490 metric tons, or 22.8% as compared to 243,496 metric tons for the nine
months ended March 31, 2021.
Our sales of fertilizer products to customers in five provinces within China
accounted for approximately 81.8% of our fertilizer revenue for the three months
ended March 31, 2022. Specifically, the provinces and their respective
percentage contributing to our fertilizer revenues were Hebei (38.6%),
Heilongjiang (14.4%), Inner Mongolia (13.4%), Liaoning (13.0%), and Shaanxi
(2.4%).
As of March 31, 2022, we had a total of 1,432 distributors covering 22
provinces, 4 autonomous regions and 4 central government-controlled
municipalities in China. Jinong had 1,098 distributors in China. Jinong’s sales
are not dependent on any single distributor or any group of distributors.
Jinong’s top five distributors accounted for 6.8% of its fertilizer revenues for
the three months ended March 31, 2022. Gufeng had 334 distributors, including
some large state-owned enterprises. Gufeng’s top five distributors accounted for
77.6% of its revenues for the three months ended March 31, 2022.
29
Agricultural Products
Through Yuxing, we develop, produce and sell high-quality flowers, green
vegetables and fruits to local marketplaces and various horticulture and
planting companies. We also use certain of Yuxing’s greenhouse facilities to
conduct research and development activities for our fertilizer products. The
three PRC provinces and municipalities that accounted for 97.4% of our
agricultural products revenue for the three months ended March 31, 2022 were
Shaanxi (91.3%), Shanghai (3.6%), and Beijing (2.5%).
Recent Developments
New Products
During the three months ended March 31, 2022, Jinong launched 2 new fertilizer
products and added 22 new distributors. During the three months ended March 31,
2022, Gufeng did not launch any new fertilizer products and did not add any
new
distributors.
Strategic Acquisitions
On June 30, 2016 and January 1, 2017, through Jinong, we entered (i) Strategic
Acquisition Agreements (the “SAA”), and (ii) Agreements for Convertible Notes
(the “ACN”), with the shareholders of the companies as identified below (the
“Targets”).
June 30, 2016:
Cash Principal
Payment of
for Notes for
Acquisition Acquisition
Company Name Business Scope
(RMB(1)) (RMB)
Shaanxi Lishijie Sales of pesticides, agricultural chemicals,
Agrochemical Co., chemical fertilizers, agricultural
Ltd.
materials; Manufacture and sales of mulches.
10,000,000 3,000,000
Songyuan Promotion and consulting services regarding
Jinyangguang Sannong agricultural technologies; Retail sales of
Service Co., Ltd. chemical fertilizers (including compound
fertilizers and organic fertilizers);
Wholesale and retail sales of pesticides,
agricultural machinery and accessories;
Collection of agricultural information;
Development of saline-alkali soil; Promotion
and development of high-efficiency
agriculture and related information
technology solutions for agriculture,
agricultural and biological engineering high
technologies; E-commerce; Cultivation of
freshwater fish, poultry, fruits, flowers,
vegetables, and seeds; Recycling and complex
utilization of straw and stalk; Technology
transfer and training; Recycling of
agricultural materials ; Ecological industry
planning. 8,000,000 12,000,000
Shenqiu County Cultivation of crops; Storage, sales,
Zhenbai Agriculture preliminary processing and logistics
Co., Ltd. distribution of agricultural by-products;
Promotion and application of agricultural
technologies; Purchase and sales of
agricultural materials; Electronic commerce. 3,000,000 12,000,000
Weinan City Linwei Promotion and application of new
District Wangtian agricultural technologies; Professional
Agricultural prevention of plant diseases and insect
Materials Co., Ltd. pests; Sales of plant protection products,
plastic mulches, material, chemical
fertilizers, pesticides, agricultural
medicines, micronutrient fertilizers,
hormones, agricultural machinery and
medicines, and gardening tools. 6,000,000 12,000,000
Aksu Xindeguo Wholesale and retail sales of pesticides;
Agricultural Sales of chemical fertilizers, packaged
Materials Co., Ltd. seeds, agricultural mulches, micronutrient
fertilizers, compound fertilizers, plant
growth regulators, agricultural machineries,
and water economizers; Consulting services
for agricultural technologies; Purchase and
sales of agricultural by- products. 10,000,000 12,000,000
Xinjiang Xinyulei Sales of chemical fertilizers, packaged
Eco-agriculture seeds, agricultural mulches, micronutrient
Science and fertilizers, organic fertilizers, plant
Technology Co., Ltd growth regulators, agricultural machineries,
and water economizers; Purchase and sales of
agricultural by-products; Cultivation of
fruits and vegetables; Consulting services
and training for agricultural technologies;
Storage services; Sales of articles of daily
use, food and oil; On-line sales of the
above-mentioned products.
Total 37,000,000 51,000,000
(1) The exchange rate between RMB and U.S. dollars on June 30, 2016 is
RMB1=US$0.1508, according to the exchange rate published by Bank of China.
30
(2) On November 30, 2017, the Company, through its wholly-owned subsidiary
Jinong, discontinued the strategic acquisition agreements and the series of
contractual agreements with the shareholders of Zhenbai. In return, the
shareholders of Zhenbai agreed to tender the whole payment consideration in
the SAA back to the Company with early termination penalties. The convertible
notes paid to Zhenbai’s shareholders and the accrued interest has been
forfeited.
January 1, 2017:
Cash Principal
of
Payment for Notes for
Acquisition Acquisition
Company Name Business Scope (RMB(1)) (RMB)
Sunwu County
Xiangrong Sales of pesticides, agricultural chemicals,
Agricultural chemical fertilizers, agricultural
Materials Co., Ltd. materials; Manufacture and sales of mulches. 4,000,000 6,000,000
Anhui Fengnong Seed Wholesale and retail sales of pesticides;
Co., Ltd. Sales of chemical fertilizers, packaged
seeds, agricultural mulches, micronutrient
fertilizers, compound fertilizers and plant
growth regulators 4,000,000 6,000,000
Total 8,000,000 12,000,000
(1) The exchange rate between RMB and U.S. dollars on January 1, 2017 is
RMB1=US$0.144, according to the exchange rate published by Bank of China.
Pursuant to the SAA and the ACN, the shareholders of the Targets, while
retaining possession of the equity interests and continuing to be the legal
owners of such interests, agreed to pledge and entrust all their equity
interests, including the proceeds thereof but excluding any claims or
encumbrances, and the operations and management of its business to Jinong, in
exchange of an aggregate amount of RMB45,000,000 (approximately $7,078,500) to
be paid by Jinong within three days following the execution of the SAA, ACN and
the VIE Agreements, and convertible notes with an aggregate face value of RMB
63,000,000 (approximately $9,909,900) with an annual fixed compound interest
rate of 3% and term of three years.
31
Jinong acquired the Targets using the VIE arrangement based on our need to
further develop our business and comply with the regulatory requirements under
the PRC laws.
As our business focuses on the production of fertilizer, all our business
activities intertwine with those in the agriculture industry in China.
Specifically, we deal with compliance, regulation, safety, inspection, and
licenses in fertilizer production, farmland use and transfer, growing and
distribution of agriculture goods, agriculture basic supplies, seeds,
pesticides, and trades of grains. It is an industry in which heavy regulations
get implemented and strictly enforced. In addition, E-commerce, which is also
under strict government regulation in the PRC, has lately become a sales and
distribution channel for agricultural products. Currently, we are developing an
online platform to connect the physical distribution network we either own
or
lease.
Compared with the regulatory environment in other jurisdictions, the regulatory
environment in the PRC is unique. For example, the “M&A Rules” purports to
require that an offshore special purpose vehicle controlled directly or
indirectly by PRC companies or individuals and formed for purposes of overseas
listing through acquisition of PRC domestic interests held by such PRC companies
or individuals obtain the approval of the China Securities Regulatory Commission
(the “CSRC”) prior to the listing and trading of such special purpose vehicle’s
securities on an overseas stock exchange. On September 21, 2006, the CSRC
published procedures regarding its approval of overseas listings by special
purpose vehicles.
For both e-commerce and agriculture industries, PRC regulators limit the
investment from foreign entities and set particularly rules for foreign-owned
entities to conduct business. We expect these limitations on foreign-owned
entities will continue to exist in e-commerce and agriculture industries. The
VIE arrangement, however, provides feasibility for obtaining administrative
approval process and avoiding industry restrictions that can be imposed on an
entity that is a wholly-owned subsidiary of a foreign entity. The VIE agreements
reduce uncertainty and the current limitation risk. It is our understanding that
the VIE agreements, as well as the control we obtained through VIE arrangement,
are valid and enforceable. Such legal structure does not violate the known,
published, and current PRC laws. While there are substantial uncertainties
regarding the interpretation and application of PRC Laws and future PRC laws and
regulations, and there can be no assurance that the PRC authorities will take a
view that is not contrary to or otherwise different from our belief and
understanding stated above, we believe the substantial difficulty that we
experienced previously to conduct business in agriculture as a foreign ownership
can be greatly reduced by the VIE arrangement. Further, as an integral part of
the VIE arrangement, the underlying equity pledge agreements provide legal
protection for the control we obtained. Pursuant to the equity pledge
agreements, we have completed the equity pledge processes with the Targets to
ensure the complete control of the interests in the Targets. The shareholders of
the Targets are not entitled to transfer any shares to a third party under the
exclusive option agreements. If necessary, they may transfer shares to our
company without consideration.
While the VIE arrangement provides us with the feasibility to conduct our
business in the E-Commerce and agriculture industries, validity and
enforceability of VIE arrangement is subject to (i) any applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws
affecting creditors’ rights generally, (ii) possible judicial or administrative
actions or any PRC Laws affecting creditors’ rights, (iii) certain equitable,
legal or statutory principles affecting the validity and enforceability of
contractual rights generally under concepts of public interest, interests of the
State, national security, reasonableness, good faith and fair dealing, and
applicable statutes of limitation; (iv) any circumstance in connection with
formulation, execution or implementation of any legal documents that would be
deemed materially mistaken, clearly unconscionable, fraudulent, coercive at the
conclusions thereof; and (v) judicial discretion with respect to the
availability of indemnifications, remedies or defenses, the calculation of
damages, the entitlement to attorney’s fees and other costs, and the waiver of
immunity from jurisdiction of any court or from legal process. Validity and
enforceability of VIE arrangement is also subject to risk derived from the
discretion of any competent PRC legislative, administrative or judicial bodies
in exercising their authority in the PRC. As a result, there can no assurance
that any of such PRC Laws will not be changed, amended or replaced in the
immediate future or in the longer term with or without retrospective effect.
32
Results of Operations
Three Months ended March 31, 2022 Compared to the three months ended March 31,
2021.
Change Change
2022 2021 $ %
Sales
Jinong $ 13,385,022 $ 15,818,610 (2,433,588 ) -15.4 %
Gufeng 45,205,467 48,438,434 (3,232,967 ) -6.7 %
Yuxing 2,548,383 3,055,588 (507,205 ) -16.6 %
Sales VIEs – – – %
Net sales 61,138,872 67,312,632 (6,173,760 ) -9.2 %
Cost of goods sold
Jinong 9,729,576 11,543,109 (1,813,533 ) -15.7 %
Gufeng 39,522,883 41,979,484 (2,456,601 ) -5.9 %
Yuxing 2,148,522 2,441,868 (293,346 ) -12.0 %
Sales VIEs – – – %
Cost of goods sold 51,400,981 55,964,461 (4,563,480 ) -8.2 %
Gross profit 9,737,891 11,348,171 (1,610,280 ) -14.2 %
Operating expenses
Selling expenses 2,348,169 2,728,022 (379,853 ) -13.9 %
General and administrative expenses 39,363,132 24,509,953 14,853,179 60.6 %
Total operating expenses 41,711,301 27,237,975 14,473,326 53.1 %
Income (loss) from operations (31,973,410 ) (15,889,804 ) (16,083,606 ) 101.2 %
Other income (expense)
Other income (expense) 1,389,374 342
1,389,032 406149.7 %
Interest income 53,634 18,671 34,963 187.3 %
Interest expense (65,278 ) (57,316 ) (7,962 ) 13.9 %
Total other income (expense) 1,377,730 (38,303 ) 1,416,033 -3696.9 %
(Loss) before income taxes (30,595,680 ) (15,928,107 ) (14,667,573 ) 92.1 %
Provision for income taxes – (90,064 ) 90,064 -100.0 %
Net (loss) from continuing operations $ (30,595,680 ) $ (15,838,043 ) (14,757,637 ) 93.2 %
Net (loss) from discontinued operations (7,483,147 ) 1,023,254 (8,506,401 ) -831.3 %
Net (Loss) (38,078,827 ) (14,814,789
) (23,264,038 ) 157.0 %
Other comprehensive income (loss)
Foreign currency translation gain (loss) (188,874 ) (59,215
) (129,659 ) 219.0 %
Comprehensive (loss) $ (38,267,701 ) $ (14,874,004 ) (23,393,697 ) 157.3 %
Net Sales
Total net sales for the three months ended March 31, 2022 were $61,138,872 a
decrease of $6,173,760 or 9.2%, from $67,312,632 for the three months ended
March 31, 2021. This decrease was principally a result of the negative impact on
sales volumes due to the COVID-19 pandemic, especially for Gufeng’ net sales.
For the three months ended March 31, 2022, Jinong’s net sales decreased
$2,433,588, or 15.4%, to $13,385,022 from $15,818,610 for the three months ended
March 31, 2021. This decrease was mainly due to Jinong’s lower sales volume in
the last three months. For the three months ended March 31, 2022, Jinong sold
approximately 18,989 metric tons of fertilizer products, decreased 4,077 or
17.7% as compared to 23,066 metric tons for the three months ended March 31,
2021.
For the three months ended March 31, 2022, Gufeng’s net sales were $45,205,467,
a decrease of $3,232,967 or 6.7%, from $48,438,434 for the three months ended
March 31, 2021. This decrease was mainly due to Gufeng’s lower sales volume in
the last three months. Gufeng sold approximately 90,228 metric tons of
fertilizer products for the three months ended March 31, 2022, decreased 41,579
tons or 31.5%, as compared to 131,807 metric tons for the three months ended
March 31, 2021.
33
For the three months ended March 31, 2022, Yuxing’s net sales were $2,548,383, a
decrease of $507,205 or 16.6%, from $3,055,588 for the three months ended March
31, 2021. The decrease was mainly due to the decrease in market demand during
the three months ended March 31, 2022.
Cost of Goods Sold
Total cost of goods sold for the three months ended March 31, 2022 was
$51,400,981, a decrease of $4,563,480, or 8.2%, from $55,964,461 for the three
months ended March 31, 2021. The decrease was mainly due to 5.9% decrease in
Gufeng’ cost of goods sold.
Cost of goods sold by Jinong for the three months ended March 31, 2022 was
$9,729,576, a decrease of $1,813,533, or 15.7%, from $11,543,109 for the three
months ended March 31, 2021. The decrease in cost of goods was primarily due to
lower net sales in the fiscal year 2022.
Cost of goods sold by Gufeng for the three months ended March 31, 2022 was
$39,522,883, a decrease of $2,456,601, or 5.9%, from $41,979,484 for the three
months ended March 31, 2021. This decrease was primarily due to the 6.7%
decrease in net sale in the fiscal year 2022.
For three months ended March 31, 2022, cost of goods sold by Yuxing was
$2,148,522, a decrease of $293,346, or 12.0%, from $2,441,868 for the three
months ended March 31, 2021. This decrease was mainly due to Yuxing’s lower net
sales in the fiscal year 2022.
Gross Profit
Total gross profit for the three months ended March 31, 2022 decreased by
$1,610,280, or 14.2%, to $9,737,891, as compared to $11,348,171 for the three
months ended March 31, 2021. Gross profit margin was 15.9% and 16.9% for the
three Months Ended March 31, 2022 and 2021, respectively.
Gross profit generated by Jinong decreased by $620,055, or 14.5%, to $3,655,446
for the three months ended March 31, 2022 from $4,275,501 for the three months
ended March 31, 2021. Gross profit margin from Jinong’s sales was approximately
27.3% and 27.0% for the three Months Ended March 31, 2022 and 2021,
respectively. The increase in gross profit margin was mainly due to the higher
unit sale price for Jinong in the fiscal year 2022.
For the three months ended March 31, 2022, gross profit generated by Gufeng was
$5,682,584, a decrease of $776,366, or 12.0%, from $6,458,950 for the three
months ended March 31, 2021. Gross profit margin from Gufeng’s sales was
approximately 12.6% and 13.3% for the three Months Ended March 31, 2022 and
2021, respectively.
For the three months ended March 31, 2022, gross profit generated by Yuxing was
$399,861, a decrease of $213,859, or 34.8% from $613,720 for the three months
ended March 31, 2021. The gross profit margin was approximately 15.7% and 20.1%
for the three months ended March 31, 2022 and 2021, respectively. The decrease
in gross profit percentage was mainly due to the increase in product costs.
Selling Expenses
Our selling expenses consisted primarily of salaries of sales personnel,
advertising and promotion expenses, freight-out costs and related compensation.
Selling expenses were $2,348,169, or 3.8%, of net sales for the three months
ended March 31, 2022, as compared to $2,728,022, or 4.1%, of net sales for the
three months ended March 31, 2021, a decrease of $379,853, or 13.9%. The
decrease in selling expense was caused by the decrease in marketing activities.
The selling expenses of Jinong for the three months ended March 31, 2022 were
$2,246,491 or 16.8% of Jinong’s net sales, as compared to selling expenses of
$2,625,425 or 16.6% of Jinong’s net sales for the three months ended March 31,
2021.The selling expenses of Yuxing were $21,171 or 0.8% of Yuxing’s net sales
for the three months ended March 31, 2022, as compared to $18,953 or 0.6% of
Yuxing’s net sales for the three months ended March 31, 2021. The selling
expenses of Gufeng were $80,507 or 0.2% of Gufeng’s net sales for the three
months ended March 31, 2022, as compared to $83,644 or 0.2% of Gufeng’s net
sales for the three months ended March 31, 2021.
34
General and Administrative Expenses
General and administrative expenses consisted primarily of related salaries,
rental expenses, business development, depreciation and travel expenses incurred
by our general and administrative departments and legal and professional
expenses including expenses incurred and accrued for certain litigation. General
and administrative expenses were $39,363,132, or 64.4% of net sales for the
three months ended March 31, 2022, as compared to $24,509,953, or 36.4% of net
sales for the three months ended March 31, 2021, a decrease of $14,853,179, or
60.6%. The increase in general and administrative expenses was mainly due to
higher bad debts expense.
Total Other Income (Expenses)
Total other income (expenses) consisted of income from subsidies received from
the PRC government, interest income, interest expenses and bank charges. Total
other income for the three months ended March 31, 2022 was $1,377,730, as
compared to $38,303 total other expenses for the three months ended March 31,
2021, an increase in income of $1,416,033 or 3696.9%. The increase in total
other income was mainly resulted from investment gain due to sales of
discontinued operations for three months ended March 31, 2022.
Income Taxes
Jinong is subject to a preferred tax rate of 15% because of its business being
classified as a High-Tech project under the PRC Enterprise Income Tax Law
(“EIT”) that became effective on January 1, 2008. Jinong incurred income tax
expenses of 0 for the three Months Ended March 31, 2022 and 2021 due to net
loss.
Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the
three Months Ended March 31, 2022 and 2021 due to net loss.
Yuxing has no income tax for the three Months Ended March 31, 2022 and 2021
because of being exempted from paying income tax due to its products fall into
the tax exemption list set out in the EIT.
Net income (loss)
Net (loss) for the three months ended March 31, 2022 was $(38,078,827), an
increase in loss of $23,264,038, or 157.0%, compared to net (loss) of
$(14,814,789) for the three months ended March 31, 2021. Net loss as a
percentage of total net sales was approximately -62.3% and -22.0% for the three
months ended March 31, 2022 and 2021, respectively.
Net (loss) from continuing operations for the three months ended March 31, 2022
was $(30,595,680), an increase in loss of $14,757,637, or 93.2%, compared to net
(loss) of $(15,838,043) for the three months ended March 31, 2021. Net loss as a
percentage of total net sales was approximately -50.0% and -23.5% for the three
months ended March 31, 2022 and 2021, respectively. The increase in net loss was
mainly due to higher general and administrative expenses.
Net income (loss) from discontinued operations for the three months ended March
31, 2022 was $(7,483,147), a decrease of with amount of $8,506,401, or 831.3%,
compared to net income with amount of $1,023,254 for the three months ended
March 31, 2021. The decrease in net income was mainly due to lower sales.
35
Nine months ended March 31, 2022 Compared to the nine months ended March 31,
2021.
Change Change
2022 2021 $ %
Sales
Jinong $ 43,513,283 $ 45,249,797 (1,736,514 ) -3.8 %
Gufeng 81,567,133 86,703,031 (5,135,898 ) -5.9 %
Yuxing 8,256,480 8,161,271 95,209 1.2 %
Sales VIEs – – – %
Net sales 133,336,896 140,114,099 (6,777,203 ) -4.8 %
Cost of goods sold
Jinong 31,812,503 33,149,990 (1,337,487 ) -4.0 %
Gufeng 71,525,033 75,803,724 (4,278,691 ) -5.6 %
Yuxing 6,912,210 6,624,796 287,414 4.3 %
Sales VIEs – – – %
Cost of goods sold 110,249,746 115,578,510 (5,328,764 ) -4.6 %
Gross profit 23,087,150 24,535,589 (1,448,439 ) -5.9 %
Operating expenses
Selling expenses 8,744,473 9,924,316 (1,179,843 ) -11.9 %
General and administrative expenses 82,685,580 97,067,252 (14,381,671 ) -14.8 %
Total operating expenses 91,430,053 106,991,568 (15,561,514 ) -14.5 %
Income (loss) from operations (68,342,903 ) (82,455,979
) 14,113,075 -17.1 %
Other income (expense)
Other income (expense) 1,848,889 (56,984 ) 1,905,873 -3344.6 %
Interest income 129,512 61,144 68,369 111.8 %
Interest expense (203,707 ) (181,269 ) (22,438 ) 12.4 %
Total other income (expense) 1,774,694 (177,109 ) 1,951,804 -1102.0 %
(Loss) before income taxes (66,568,209 ) (82,633,088 ) 16,064,879 -19.4 %
Provision for income taxes 587,195 2,460,523 (1,873,328 ) -76.1 %
Net (loss) from continuing operations $ (67,155,404 ) $ (85,093,611 ) 17,938,207 -21.1 %
Net (loss) from discontinued operations (17,983,567 ) (710,755 ) (17,272,812 ) 2430.2 %
Net (Loss) (85,138,971 ) (85,804,366
) 665,395 -0.8 %
Other comprehensive income (loss)
Foreign currency translation gain (loss) 3,530,313 25,336,321
(21,806,008 ) -86.1 %
Comprehensive (loss) $ (81,608,658 ) $ (60,468,045 ) (21,140,613 ) 35.0 %
Net Sales
Total net sales for the nine months ended March 31, 2022 were $133,336,896 a
decrease of $6,777,203 or 4.8%, from $140,114,099 for the nine months ended
March 31, 2021. This decrease was primarily due to a decrease in Gufeng’ net
sales.
36
For the nine months ended March 31, 2022, Jinong’s net sales decreased
$1,736,514, or 3.8%, to $43,513,283 from $45,249,797 for the nine months ended
March 31, 2021. This decrease was mainly due to Jinong’s lower sales volume in
the last nine months. For the nine months ended March 31, 2022, Jinong sold
approximately 49,487 metric tons of fertilizer products, a decrease of 10,678
metric tons, or 17.7%, as compared to 60,165 metric tons for the nine months
ended March 31, 2021.
For the nine months ended March 31, 2022, Gufeng’s net sales were $81,567,133, a
decrease of $5,135,898, or 5.9%, from $86,703,031 for the nine months ended
March 31, 2021. This decrease was mainly attributable to the decrease in
Gufeng’s sales volume in the last nine months. For the nine months ended March
31, 2022, Gufeng sold approximately 188,006 metric tons of fertilizer products,
a decrease of 55,490 metric tons, or 22.8% as compared to 243,496 metric tons
for the nine months ended March 31, 2021.
For the nine months ended March 31, 2022, Yuxing’s net sales were $8,256,480, an
increase of $95,209 or 1.2%, from $8,161,271 for the nine months ended March 31,
2021.
Cost of Goods Sold
Total cost of goods sold for the nine months ended March 31, 2022 was
$110,249,746, a decrease of $5,328,764, or 4.6%, from $115,578,510 for the nine
months ended March 31, 2021. The decrease was mainly due to the decrease in
Gufeng’s cost of goods sold which decreased 5.6%.
Cost of goods sold by Jinong for the nine months ended March 31, 2022 was
$31,812,503, a decrease of $1,337,487, or 4.0%, from $33,149,990 for the nine
months ended March 31, 2021. The decrease in cost of goods was primarily due to
the decrease in net sales during the last nine months.
Cost of goods sold by Gufeng for the nine months ended March 31, 2022 was
$71,525,033, a decrease of $ 4,278,691, or 5.6%, from $75,803,724 for the nine
months ended March 31, 2021. This decrease was primarily due to the 5.9%
decrease in net sale during the last nine months.
For nine months ended March 31, 2022, cost of goods sold by Yuxing was
$6,912,210, an increase of $ 287,414, or 4.3%, from $6,624,796 for the nine
months ended March 31, 2021. This increase was mainly due to the 1.2% increase
in Yuxing’s net sales during the last nine months.
Gross Profit
Total gross profit for the nine months ended March 31, 2022 decreased by
$1,448,439, or 5.9%, to $23,087,150, as compared to $24,535,589 for the nine
months ended March 31, 2021. Gross profit margin was 17.3% and 17.5% for the
nine months ended March 31, 2022 and 2021, respectively.
Gross profit generated by Jinong decreased by $399,027 or 3.3%, to $11,700,780
for the nine months ended March 31, 2022 from $12,099,807 for the nine months
ended March 31, 2021. Gross profit margin from Jinong’s sales was approximately
26.9% and 26.7% for the nine months ended March 31, 2022 and 2021, respectively.
For the nine months ended March 31, 2022, gross profit generated by Gufeng was
$10,042,100, a decrease of $857,207, or 7.9%, from $10,899,307 for the nine
months ended March 31, 2021. Gross profit margin from Gufeng’s sales was
approximately 12.3% and 12.6% for the nine months ended March 31, 2022 and
2021,
respectively.
37
For the nine months ended March 31, 2022, gross profit generated by Yuxing was
$1,344,270, a decrease of $192,205, or 12.5% from $1,536,475 for the nine months
ended March 31, 2021. The gross profit margin was approximately 16.3% and 18.8%
for the nine months ended March 31, 2022 and 2021, respectively. The decrease in
gross profit percentage was mainly due to the increase in product costs.
Selling Expenses
Our selling expenses consisted primarily of salaries of sales personnel,
advertising and promotion expenses, freight-out costs and related compensation.
Selling expenses were $8,744,473, or 6.6%, of net sales for the nine months
ended March 31, 2022, as compared to $9,924,316, or 7.1% of net sales for the
nine months ended March 31, 2021, a decrease of $1,179,843 or 11.9%.
The selling expenses of Jinong for the nine months ended March 31, 2022 were
$8,449,858 or 19.4% of Jinong’s net sales, as compared to selling expenses of
$9,659,301 or 21.3% of Jinong’s net sales for the nine months ended March 31,
2021. The selling expenses of Yuxing were $50,547 or 0.6% of Yuxing’s net sales
for the nine months ended March 31, 2022, as compared to $40,641 or 0.5% of
Yuxing’s net sales for the nine months ended March 31, 2021. The selling
expenses of Gufeng were $244,068 or 0.3% of Gufeng’s net sales for the nine
months ended March 31, 2022, as compared to $224,374 or 0.3% of Gufeng’s net
sales for the nine months ended March 31, 2021.
General and Administrative Expenses
General and administrative expenses consisted primarily of related salaries,
rental expenses, business development, depreciation and travel expenses incurred
by our general and administrative departments and legal and professional
expenses including expenses incurred and accrued for certain litigation. General
and administrative expenses were $82,685,580, or 62.0% of net sales for the nine
months ended March 31, 2022, as compared to $97,067,252, or 69.3% of net sales
for the nine months ended March 31, 2021, a decrease of $14,381,671, or 14.8%.
Total Other Income (Expenses)
Total other income (expenses) consisted of income from subsidies received from
the PRC government, interest income, interest expenses and bank charges. Total
other income for the nine months ended March 31, 2022 was $1,774,694, as
compared to $177,109 total other expenses for the nine months ended March 31,
2021, an increase in income of $1,951,804 or 1102.0%. The increase in total
other income resulted from investment gain due to sales of discontinued
operations for nine months ended March 31, 2022.
Income Taxes
Jinong is subject to a preferred tax rate of 15% as a result of its business
being classified as a High-Tech project under the PRC Enterprise Income Tax Law
(“EIT”) that became effective on January 1, 2008. Jinong incurred income tax
expenses of 0 for the nine months ended March 31, 2022, as compared to $$277,685
for the nine months ended March 31, 2021, a decrease of $277,685, or 100.0%.
Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the
nine months ended March 31, 2022 and 2021.
Yuxing has no income tax for the nine months ended March 31, 2022 and 2021 as a
result of being exempted from paying income tax due to its products fall into
the tax exemption list set out in the EIT.
38
Net Income (loss)
Net (loss) for the nine months ended March 31, 2022 was $(85,138,971), a
slightly decrease of loss with amount of $665,395, or 0.8%, compared to
$(85,138,971) for the nine months ended March 31, 2021. Net loss as a percentage
of total net sales was approximately -63.9% and -61.2% for the nine months ended
March 31, 2022 and 2021, respectively.
Net (loss) from continuing operations for the nine months ended March 31, 2022
was $(67,155,404), a decrease of loss with amount of $17,938,207, or 21.1%,
compared to $(85,093,611) for the nine months ended March 31, 2021. The decrease
was mainly due to lower General and administrative expenses.
Net (loss) from discontinued operations for the nine months ended March 31, 2022
was $(17,983,567), an increase of loss with amount of $17,272,812, or 2430.2%,
compared to net (loss) with amount of $(710,755) for the nine months ended March
31, 2021. The increase of loss was mainly due to lower sales.
Discussion of Segment Profitability Measures
As of March 31, 2022, we were engaged in the following businesses: the
production and sale of fertilizers through Jinong and Gufeng, the production and
sale of high-quality agricultural products by Yuxing, and the sales of
agriculture materials by the sales VIEs. For financial reporting purpose, our
operations were organized into four main business segments based on locations
and products: Jinong (fertilizer production), Gufeng (fertilizer production) and
Yuxing (agricultural products production) and the sales VIEs. Each of the
segments has its own annual budget about development, production and sales.
Each of the four operating segments referenced above has separate and distinct
general ledgers. The chief operating decision maker (“CODM”) makes decisions
with respect to resources allocation and performance assessment upon receiving
financial information, including revenue, gross margin, operating income and net
income (loss) produced from the various general ledger systems; however, net
income (loss) by segment is the principal benchmark to measure profit or loss
adopted by the CODM.
For Jinong, the net (loss) increased by $1,612,782, or 16.4%, to $(11,449,612)
for nine months ended March 31, 2022, from $(9,836,830) for the nine months
ended March 31, 2021. The increase in net loss was principally due to higher
general and administrative expense.
For Gufeng, the net (loss) decreased by $15,284,153 or 21.2%, to $(56,904,522)
for nine months ended March 31, 2022 from $(72,188,675) for nine months ended
March 31, 2021. The decrease of net loss was principally due to the decrease in
general and administrative expense.
For Yuxing, the net income increased $122,129 or 25.5%, to $601,492 for nine
months ended March 31, 2022 from $479,363 for nine months ended March 31, 2021.
The increase was mainly due to higher sales.
39
Liquidity and Capital Resources
Our principal sources of liquidity include cash from operations, borrowings from
local commercial banks and net proceeds of offerings of our securities.
As of March 31, 2022, cash and cash equivalents were $51,436,395, an increase of
$32,842,451, or 176.6%, from $18,593,944 as of June 30, 2021.
We intend to use some of the remaining net proceeds from our securities
offerings, as well as other working capital if required, to acquire new
businesses, upgrade production lines and complete Yuxing’s new greenhouse
facilities for agriculture products located on 88 acres of land in Hu County, 18
kilometers southeast of Xi’an city. Yuxing purchased a set of agricultural
products testing equipment for the year of 2016. We believe that we have
sufficient cash on hand and positive projected cash flow from operations to
support our business growth for the next twelve months to the extent we do not
have further significant acquisitions or expansions. However, if events or
circumstances occur and we do not meet our operating plan as expected, we may be
required to seek additional capital and/or to reduce certain discretionary
spending, which could have a material adverse effect on our ability to achieve
our business objectives. Notwithstanding the foregoing, we may seek additional
financing as necessary for expansion purposes and when we believe market
conditions are most advantageous, which may include additional debt and/or
equity financings. There can be no assurance that any additional financing will
be available on acceptable terms, if at all. Any equity financing may result in
dilution to existing stockholders and any debt financing may include restrictive
covenants.
The following table sets forth a summary of our cash flows for the periods
indicated:
Nine Months Ended
March 31,
2022 2021
Net cash provided by (used in) operating activities $ (45,769,602 ) $ (10,584,537 )
Net cash provided by (used in) investing activities 5,055,208 (469,390 )
Net cash provided by (used in) financing activities 70,924,275 355,200
Effect of exchange rate change on cash and cash equivalents 2,632,571 3,839,537
Net increase in cash and cash equivalents
32,842,451 (6,859,191 )
Cash and cash equivalents, beginning balance 18,593,944 11,934,778
Cash and cash equivalents, ending balance $ 51,436,395 $ 5,075,587
Operating Activities
Net cash used in operating activities was $45,769,602 for the nine months ended
March 31, 2022, an increase of $35,185,065, or 332.4%, from cash used in
operating activities of $10,584,537 for the nine months ended March 31, 2021.
The increase was mainly due to the increase in advance to suppliers and decrease
for account payables during the nine months ended March 31, 2022 as compared to
the same period in 2021.
Investing Activities
Net cash provided by investing activities for the nine months ended March 31,
2022 was $5,055,208, compared to cash used in investing activities of $469,390
for the nine months ended March 31, 2021. The increase was mainly due to the
sales of discontinued operations and the Company received partial fund during
the nine months ended March 31, 2022.
Financing Activities
Net cash provided by financing activities for the nine months ended March 31,
2022 was $70,924,275, compared to $355,200 net cash provided by financing
activities for the nine months ended March 31, 2021 from short-loan. The
increase was mainly due to the Company received fund from investors for purchase
of stock.
40
As of March 31, 2022 and June 30, 2021, our loans payable was as follows:
March 31, June 30,
2022 2021
Short term loans payable: $ 4,247,100 $ 4,179,600
Total $ 4,247,100 $ 4,179,600
Accounts Receivable
We had accounts receivable of $40,158,928 as of March 31, 2022, as compared to
$102,783,004 as of June 30, 2021, a decrease of $62,624,076, or 60.9%. The
decrease was primarily attributable to Gufeng’s accounts receivable and the
discontinued of Lishijie, Fengnong, Jinyangguang and Wangtian. As of March 31,
2022, Gufeng’s accounts receivable was $13,645,859, a decrease of $24,409,152,
or 64.1%, compared to $38,055,011 as of June 30, 2021.
Allowance for doubtful accounts in accounts receivable for the nine months ended
March 31, 2022 was $32,797,394, an increase of $9,058,407 or 38.2%, from
$23,738,987 as of June 30, 2021. And the allowance for doubtful accounts as a
percentage of accounts receivable was 45.0% as of March 31, 2022 and 18.8%
as of
June 30, 2021.
Deferred assets
We had no deferred assets as of March 31, 2022 and June 30, 2021. During the
three months, we assisted the distributors in certain marketing efforts and
developing standard stores to expand our competitive advantage and market
shares. Based on the distributor agreements, the amount owed by the distributors
in certain marketing efforts and store development will be expensed over three
years if the distributors are actively selling our products. If a distributor
defaults, breaches, or terminates the agreement with us earlier than the
contractual terms, the unamortized portion of the amount owed by the distributor
is payable to us immediately. The deferred assets had been fully amortized
as of
March 31, 2022.
Inventories
We had inventories of $51,565,520 as of March 31, 2022, as compared to
$64,315,903 as of June 30, 2021, a decrease of $12,750,383, or 19.8%. The
decrease was primarily attributable to Gufeng’s inventory. As of March 31, 2022,
Gufeng’s inventory was $28,305,184, compared to $36,617,573 as of June 30, 2021,
a decrease of $8,312,389, or 22.7%.
Advances to Suppliers
We had advances to suppliers of $37,877,927 as of March 31, 2022 as compared to
$23,884,772 as of June 30, 2021, representing an increase of $13,993,155, or
58.6%. Our inventory level may fluctuate from time to time, depending how
quickly the raw material is consumed and replenished during the production
process, and how soon the finished goods are sold. The replenishment of raw
material relies on management’s estimate of numerous factors, including but not
limited to, the raw materials future price, and spot price along with
its volatility, as well as the seasonal demand and future price of finished
fertilizer products. Such estimate may not be accurate, and the purchase
decision of raw materials based on the estimate can cause excessive inventories
in times of slow sales and insufficient inventories in peak times.
Accounts Payable
We had accounts payable of $1,858,302 as of March 31, 2022 as compared to
$16,868,942 as of June 30, 2021, representing a decrease of $ 15,010,640, or
89.0%. The decrease was primarily due to the decrease of accounts payable for
VIEs due to the discontinued of Lishijie, Fengnong, Jinyangguang and Wangtian.
Unearned Revenue (Customer Deposits)
We had customer deposits of $5,803,179 as of March 31, 2022 as compared to
$6,257,215 as of June 30, 2021, representing an decrease of $454,036, or 7.3%.
This decrease was due to seasonal fluctuation and we expect to deliver products
to our customers during the next three months at which time we will recognize
the revenue.
41
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 unaudited condensed 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 unaudited condensed
consolidated financial statements, “Basis of Presentation and Summary of
Significant Accounting Policies.” We believe that the following paragraphs
reflect the most critical accounting policies that currently affect our
financial condition and results of operations:
Use of estimates
The preparation of unaudited condensed 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 unaudited condensed consolidated financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those estimates.
Revenue recognition
Sales revenue is recognized at the date of shipment to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed, we have no other significant obligations and collectability is
reasonably assured. Payments received before all the relevant criteria for
revenue recognition are satisfied are recorded as unearned revenue.
Our revenue consists of 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 as
allowance for bad debts, and any accounts receivable of Yuxing that are
outstanding for more than 90 days will be accounted as allowance for bad debts.
Deferred assets
Deferred assets represent amounts the Company advanced to the distributors in
their marketing and stores development to expand our competitive advantage and
market shares. Based on the distributor agreements, the amount owed by the
distributors in certain marketing efforts and store development will be expensed
over three years if the distributors are actively selling our products. If a
distributor defaults, breaches, or terminates the agreement with us earlier than
the realization of the contractual terms, the unamortized portion of the amount
owed by the distributor is to be refunded to us immediately. The deferred assets
had been fully amortized as of March 31, 2022.
42
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 way
management disaggregates a company.
As of March 31, 2022, we were organized into five main business units:
Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing
(agricultural products production), Jinyangguang (agriculture sales) and
Wangtian (agriculture sales). For financial reporting purpose, our operations
were organized into four main business segments based on locations and products:
Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing
(agricultural products production) and the sales VIEs. Each of the segments has
its own annual budget regarding development, production and sales.
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