CGA(CGA) - 2022 Q4 - Annual Report

PART I Business Overview CGA specializes in PRC fertilizer and agricultural product sales, with fertilizers comprising 88.4% of FY2022 revenue Company Overview and Operations CGA operates in the PRC, focusing on fertilizer and agricultural product development, production, and sales through its subsidiaries and VIEs - CGA primarily researches, develops, produces, and sells fertilizers and agricultural products in the PRC through subsidiaries Jinong and Gufeng, and VIE Yuxing[8] - The primary business is fertilizer products, including humic acid-based, compound, blended, organic, slow-release, and water-soluble fertilizers, with Yuxing also producing agricultural products like fruits, vegetables, and flowers[8] Fertilizer Revenue Contribution | Fiscal Year Ended June 30 | Revenue from Fertilizer Products | % of Total Revenues | | :------------------------ | :------------------------------- | :------------------ | | 2022 | $160,657,513 | 88.4% | | 2021 | $200,245,680 | 83.5% | | 2020 | $200,185,739 | 80.3% | Recent Developments The company has discontinued strategic acquisition agreements with several VIEs, reducing their number to zero as of June 30, 2022 - As of June 30, 2022, the Company, through Jinong, discontinued strategic acquisition agreements with eight VIE companies, reducing the number of VIEs to zero[9] - On November 30, 2017, the Company discontinued agreements with Zhenbai, resulting in the forfeiture of convertible notes and accrued interest[14] - On March 31, 2022, the Company discontinued agreements with Jinyangguang and Wangtian, receiving RMB11,700,000 (approximately $1,746,810) in cash[16] Company History and Structure The company was incorporated in 1987, reincorporated in Nevada in 2007, and listed on the NYSE in 2009 - The Company was incorporated in Kansas in 1987, reincorporated in Nevada in October 2007, and changed its name to China Green Agriculture, Inc. in February 2008[38][39] - The Company's common stock was listed on the NYSE MKT in March 2009, then transferred to the New York Stock Exchange in December 2009 under the ticker "CGA"[39] - On July 2, 2010, the Company, through Jinong, acquired Gufeng and its subsidiary Tianjuyuan, making them indirect wholly-owned subsidiaries[40] Industry Analysis China's fertilizer market is in a downturn due to sluggish demand, volatile raw material prices, and compressed profits, but organic fertilizers are an emerging segment - China's fertilizer market is in a downturn due to limited output growth, large inventories, volatile raw material prices, and depressed international markets, leading to compressed profits and increased enterprise losses[47] - Government support for agriculture and initiatives promoting organic produce are expected to boost the organic fertilizer segment in the coming years[50] - The "Green Food" industry in the PRC, with a market reaching $5 billion in 2015 and growing 20% year-over-year, drives demand for organic fertilizers[56] Growth Strategy The company's growth strategy focuses on expanding production capacity, diversifying product offerings, and leveraging R&D efforts - The company plans to expand its current annual fertilizer production capacity of 555,000 metric tons, diversify its 416 products, and acquire complementary PRC fertilizer manufacturers[60] - R&D efforts, including 98 sunlight greenhouses and six "intelligent" greenhouses at Yuxing, aim to shorten the fertilizer market cycle by providing advanced testing for new products[61] - The company is developing new advanced highly efficient fertilizers, such as slow controlled-release and microbial fertilizers, with Gufeng developing the "Tianjuyuan" controlled-release fertilizer[62] Products and Manufacturing The company's core business is fertilizer manufacturing, producing 416 types of liquid, granular, and powdered fertilizers to increase crop yields - The principal products are 416 types of liquid, granular, and powdered fertilizers, including various compound fertilizers designed to increase crop yields[63] - Fertilizer manufacturing is the core business, accounting for approximately 88.4% of total revenues, with self-manufactured fertilizers produced and sold through Jinong and Gufeng[64] Fertilizer Revenue Contribution | Fiscal Year Ended June 30 | Revenue from Fertilizer Products | % of Total Revenues | | :------------------------ | :------------------------------- | :------------------ | | 2022 | $160,657,513 | 88.4% | | 2021 | $200,245,680 | 83.5% | | 2020 | $200,185,739 | 80.3% | Raw Materials and Inventory The company sources weathered coal for humic acid and over 50 raw materials for other fertilizers, maintaining efficient inventory levels - Weathered coal is a key raw material for humic acid, sourced from Shaanxi, Shanxi, and Inner Mongolia due to its abundance and cost-effectiveness[74] - Gufeng and Tianjuyuan use over 50 raw materials, including coal, sulfuric acid, and NPK compounds, primarily sourced from neighboring provinces for economical transportation[75] - Efficient production methods allow for appropriate inventory levels, keeping costs reasonable, with raw materials and packaging purchased based on demand and forecasts[77] Seasonality Fertilizer sales peak from January to June, while agricultural product sales peak from October to March due to holiday demand - The peak season for fertilizer sales is from January through June, though Jinong experienced no significant seasonal variation in FY2022, with 44.8% of annual sales in Q3 and Q4[78] - Gufeng's compound fertilizer sales show significant seasonal variation, with 65.0% of annual sales occurring in the third and fourth fiscal quarters of FY2022[78] - Agricultural product sales peak from October to March (Q2 and Q3) due to strong demand for high-end fruits and decorative flowers during holiday seasons[79] Marketing, Distribution and Customers The company markets its fertilizer products through a nationwide network of 1,398 distributors across 22 provinces, with top five distributors accounting for 49.9% of revenues - The company markets its fertilizer products to private wholesalers and retailers in 22 provinces, 4 autonomous regions, and 4 central government-controlled municipalities in China[80] - In FY2022, five PRC provinces (Hebei, Heilongjiang, Inner Mongolia, Liaoning, and Shaanxi) collectively accounted for 70.2% of fertilizer manufacturing revenue[80] - As of June 30, 2022, the company sold products through a network of approximately 1,398 distributors across 22 provinces, 4 autonomous regions, and 4 central government-controlled municipalities[89] - Sales to the top five distributors of self-manufactured products accounted for approximately 49.9% of total revenues for the fiscal year ended June 30, 2022[90] Research and Development The company conducts most R&D through Yuxing, utilizing advanced greenhouse facilities to test new fertilizers and accelerate product development - The bulk of R&D activities are conducted through Yuxing, which cultivates and sells high-quality flowers, green vegetables, and fruits to end-users like airlines, hotels, and restaurants[93] - Yuxing's advanced R&D facilities provide a testing and data collection base for new Jinong fertilizers, shortening product development cycles and increasing market share[93] Yuxing R&D Capital Expenditure | Category | FY 2022 (USD) | FY 2021 (USD) | FY 2020 (USD) | | :------------------------ | :------------ | :------------ | :------------ | | Machines, Buildings and Equipment | $6,926,023 | $8,198,256 | $8,355,336 | | Construction in Progress | $10,600 | $97,516 | $59,575 | | Total | $6,988,882| $8,295,772| $8,414,911| Intellectual Property The