CGA(CGA) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited financial statements and management's discussion and analysis for the quarter ended September 30, 2020, along with market risk disclosures and controls Item 1. Financial Statements (unaudited) The unaudited Q3 2020 financial statements indicate significant financial deterioration with declining assets and equity, rising liabilities, a substantial net loss, and negative operating cash flow, raising going concern doubts Condensed Consolidated Balance Sheets As of September 30, 2020, the balance sheet reflects a decline in total assets and stockholders' equity, alongside an increase in total liabilities Condensed Consolidated Balance Sheet Data (as of Sep 30, 2020 vs. Jun 30, 2020) | Account | Sep 30, 2020 ($) | Jun 30, 2020 ($) | | :--- | :--- | :--- | | Total Assets | $330.1 million | $342.1 million | | Total Current Assets | $272.3 million | $285.2 million | | Total Liabilities | $84.8 million | $79.3 million | | Total Current Liabilities | $84.8 million | $79.3 million | | Total Stockholders' Equity | $245.3 million | $262.8 million | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended September 30, 2020, the company reported a significantly increased net loss, driven by decreased net sales and a sharp rise in operating expenses Statement of Operations Summary (Three months ended Sep 30) | Metric | 2020 ($) | 2019 ($) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $44.2 million | $50.8 million | -13.1% | | Gross Profit | $8.3 million | $13.2 million | -36.8% | | Income (Loss) from Operations | ($29.3 million) | ($6.8 million) | +330.7% (Loss) | | Net Income (Loss) | ($31.0 million) | ($7.3 million) | +323.1% (Loss) | | Basic Net Earnings Per Share | ($4.9) | ($1.6) | +200.6% (Loss) | Condensed Consolidated Statements of Cash Flows Operating cash flow turned negative for the quarter, resulting in a significantly lower ending cash balance compared to the prior year, primarily due to reduced financing activities Cash Flow Summary (Three months ended Sep 30) | Cash Flow Activity | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($1.7 million) | $3.1 million | | Net cash provided by (used in) investing activities | ($29.9 thousand) | ($18.6 thousand) | | Net cash provided by (used in) financing activities | $294.4 thousand | $10.7 million | | Cash and cash equivalents, ending balance | $12.8 million | $83.0 million | Notes to Condensed Consolidated Financial Statements The notes reveal substantial doubt about the company's going concern ability, significant operating losses in the Gufeng segment, high vendor concentration, and material adverse effects from the COVID-19 pandemic - The company has incurred operating losses and negative operating cash flows, which raise doubt about its ability to continue as a going concern. Management may seek to raise additional funds through equity or debt[41][42] - The company's operations are organized into four segments: Jinong (fertilizer), Gufeng (fertilizer), Yuxing (agricultural products), and sales VIEs. For the quarter, the Gufeng segment reported a significant operating loss of $(31.1) million[99][101] - The COVID-19 pandemic has materially and adversely affected the company's operations and financial results, leading to quarantines, travel restrictions, and temporary facility closures. The full financial impact cannot be reasonably estimated but has impacted FY2020 and Q1 FY2021 results[129][131][133] - For the three months ended September 30, 2020, five vendors accounted for 65.8% of the company's raw material purchases, indicating significant vendor concentration[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the poor quarterly performance to the COVID-19 pandemic, resulting in declining sales, a dramatically widened net loss due to increased G&A expenses, and weakened liquidity, while acknowledging going concern risks Results of Operations Net sales decreased due to lower volumes, gross profit margin contracted, and a significant increase in G&A expenses, primarily from bad debt provisions, led to a substantial net loss Quarterly Performance vs. Prior Year | Metric | Q1 FY2021 (ended Sep 30, 2020) ($) | Q1 FY2020 (ended Sep 30, 2019) ($) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $44.2 million | $50.8 million | -13.1% | | Gross Profit | $8.3 million | $13.2 million | -36.8% | | G&A Expenses | $32.9 million | $16.3 million | +101.6% | | Net Loss | ($31.0 million) | ($7.3 million) | +323.1% (Loss) | - The increase in G&A expenses was mainly due to higher bad debts expense for the Gufeng segment, which increased by $19.6 million year-over-year due to the impact of the COVID-19 pandemic on distributors[178] - Fertilizer sales volume decreased by 14.6% to 60,695 metric tons from 71,074 metric tons in the prior-year quarter[144][145] Liquidity and Capital Resources The company's liquidity has weakened with negative operating cash flow and a lower cash balance, though management believes current cash is sufficient for the next twelve months while acknowledging potential capital needs - Net cash used in operating activities was $1.7 million for the quarter, a decrease of $4.7 million from cash provided by operating activities of $3.1 million in the prior-year period[190] - As of September 30, 2020, cash and cash equivalents were $12.8 million[188] - Accounts receivable increased by 3.3% to $109.2 million from June 30, 2020, while advances to suppliers decreased by 41.4% to $38.1 million[194][198] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risks including foreign currency fluctuations, substantial credit risk, and the ongoing adverse impacts and uncertainties posed by the COVID-19 pandemic - Substantially all revenues and expenses are denominated in RMB, creating foreign currency exchange risk. Between July 1 and September 30, 2020, the RMB increased 4.1% against the USD[213][214] - The company is exposed to interest rate risk on its short-term bank loans, which totaled $4.0 million as of September 30, 2020[215] - The COVID-19 outbreak has significantly increased economic and demand uncertainty and may cause a global recession, which would have a further adverse impact on the company's financial condition and operations[221][222] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[225] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[226] PART II - OTHER INFORMATION This section covers legal proceedings and lists all exhibits filed with the report Item 1. Legal Proceedings The company reports no material pending or threatened legal proceedings that could have a material adverse effect, apart from a previously disclosed lawsuit deemed without merit - There are no other actions, suits, or proceedings pending that could have a material adverse effect on the company[227] Item 6. Exhibits This section references the Exhibit Index, detailing all documents filed as exhibits with the report, including officer certifications and XBRL data - The exhibits required for the filing are set forth in the Exhibit Index[229]