CGA(CGA) - 2022 Q1 - Quarterly Report

Cover Page Information Form 10-Q Filing Details This section details the filing type, registrant information, and compliance status for the quarterly period ended September 30, 2021, identifying China Green Agriculture, Inc. as a smaller reporting company and a non-accelerated filer - The filing is a Quarterly Report (Form 10-Q) for the period ended September 30, 2021[1] - The registrant, China Green Agriculture, Inc., is a Nevada corporation with its principal executive offices in Xi'an, Shaanxi province, PRC[1][2] - The company is classified as a 'Smaller reporting company' and a 'Non-accelerated filer'[3] Form 10-Q Filing Status | Indicator | Status | | :------------------------------------------------------------------------------------------------------------------------------------- | :----- | | Filed all required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months | Yes | | Subject to such filing requirements for the past 90 days | Yes | | Submitted electronically and posted on corporate Web site every Interactive Data File required by Rule 405 of Regulation S-T | Yes | | Is a shell company (as defined in Rule 12b-2 of the Exchange Act) | No | Securities Information The company's common stock is listed on the NYSE under the trading symbol CGA, with 8,487,629 shares outstanding as of November 15, 2021 Common Stock Listing Details | Title of each class | Trading Symbol(s) registered | | :------------------ | :--------------------------- | | Common Stock | CGA NYSE | - As of November 15, 2021, there were 8,487,629 shares of common stock, $0.001 par value, outstanding[4] Information Relating to Forward-Looking Statements Forward-Looking Statements Disclaimer This section provides a cautionary statement regarding forward-looking statements, indicating that they reflect current views and are subject to risks and uncertainties, advising investors not to place undue reliance on these statements as actual future results may differ materially from expectations, and noting the company assumes no obligation to update these statements unless required by law - Forward-looking statements are identified by terms such as 'anticipates,' 'believes,' 'could,' 'estimates,' 'expects,' 'intends,' 'may,' 'plans,' 'potential,' 'predicts,' 'projects,' 'should,' 'would' and similar expressions[6] - Expectations regarding market for products and services, industry growth, and product competitiveness[6] - Expectations regarding expansion of manufacturing capacity, revenue growth, and profitability[6] - Future business development, results of operations, and financial condition[6] - Competition, loss of management, ability to integrate acquired subsidiaries, market conditions, and acquisition strategy[6] - Changes in general economic conditions, accounting rules, and compliance with NYSE listing requirements[6] - Failure to identify and remediate material weaknesses in internal control and disclosure control over financial reporting[6] - The company assumes no obligation to publicly update any forward-looking statements or the reasons actual results could differ materially, even if new information becomes available, except as required by law[7] PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for China Green Agriculture, Inc. and its subsidiaries, including the balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of September 30, 2021 vs. June 30, 2021) | ASSETS | September 30, 2021 | June 30, 2021 | | :------------------------------------ | :----------------- | :------------ | | Cash and cash equivalents | $22,022,563 | $18,593,944 | | Accounts receivable, net | $99,143,737 | $102,783,004 | | Inventories, net | $52,463,033 | $64,315,903 | | Total Current Assets | $203,104,092 | $217,714,188 | | Plant, property and equipment, net | $21,654,369 | $22,221,016 | | Intangible assets, net | $16,303,367 | $16,407,651 | | Total Assets | $250,913,464 | $266,728,738 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $13,580,483 | $16,868,942 | | Customer deposits | $7,841,368 | $6,257,215 | | Taxes payable | $32,556,587 | $32,542,494 | | Short term loans | $4,187,700 | $4,179,600 | | Total Current Liabilities | $78,023,244 | $79,217,885 | | Total Liabilities | $78,023,244 | $79,217,885 | | Total Stockholders' Equity | $172,890,220 | $187,510,853 | | Total Liabilities and Stockholders' Equity | $250,913,464 | $266,728,738 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Three Months Ended September 30, 2021 vs. 2020) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | | :----------------------------------------- | :------------------------------------ | :------------------------------------ | | Net sales | $37,381,030 | $42,140,710 | | Cost of goods sold | $30,127,985 | $34,266,517 | | Gross profit | $7,253,045 | $7,874,193 | | Total operating expenses | $22,188,612 | $35,961,940 | | (Loss) from operations | $(14,935,567) | $(28,087,747) | | Total other (expense) | $(29,618) | $(39,542) | | (Loss) from continuing operations before income taxes | $(14,965,185) | $(28,127,289) | | Provision for income taxes | $112,023 | $1,569,003 | | (Loss) from continuing operations | $(15,077,208) | $(29,696,292) | | Net (loss) from discontinued operations, net of taxes | - | $(1,256,622) | | Net (loss) | $(15,077,208) | $(30,952,914) | | Foreign currency translation gain | $456,574 | $13,467,844 | | Comprehensive (loss) | $(14,620,634) | $(17,485,070) | | Basic net (loss) per share | $(1.78) | $(4.87) | | Diluted net (loss) per share | $(1.78) | $(4.87) | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended September 30, 2021 vs. 2020) | Item | September 30, 2021 | June 30, 2021 | | :------------------------------------ | :----------------- | :------------ | | Common Stock | $8,488 | $8,488 | | Additional Paid In Capital | $170,223,195 | $170,223,195 | | Statutory Reserve | $27,307,547 | $27,673,245 | | Retained Earnings | $(20,524,043) | $(5,812,533) | | Accumulated Other Comprehensive Income (Loss) | $(4,124,967) | $(4,581,541) | | Total Stockholders' Equity | $172,890,220 | $187,510,853 | | Item | September 30, 2020 | June 30, 2020 | | :------------------------------------ | :----------------- | :------------ | | Common Stock | $6,350 | $6,350 | | Additional Paid In Capital | $155,455,332 | $155,455,332 | | Statutory Reserve | $29,909,486 | $29,743,991 | | Retained Earnings | $80,745,930 | $111,864,338 | | Accumulated Other Comprehensive Income (Loss) | $(20,796,245) | $(34,264,089) | | Total Stockholders' Equity | $245,320,853 | $262,805,922 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended September 30, 2021 vs. 2020) | Cash Flow Category | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | | :---------------------------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash provided by (used in) operating activities | $1,514,956 | $(1,653,512) | | Net cash provided by (used in) investing activities | $1,793,168 | $(29,967) | | Net cash provided by financing activities | - | $294,400 | | Effect of exchange rate change on cash and cash equivalents | $120,495 | $2,286,224 | | Net increase in cash and cash equivalents | $3,428,619 | $897,144 | | Cash and cash equivalents, beginning balance | $18,593,944 | $11,934,778 | | Cash and cash equivalents, ending balance | $22,022,563 | $12,831,922 | - Net cash provided by operating activities increased significantly from a usage of $1,653,512 in 2020 to a provision of $1,514,956 in 2021[17] - Net cash provided by investing activities saw a substantial increase from a usage of $29,967 in 2020 to a provision of $1,793,168 in 2021, primarily due to sales of discontinued operations[17] - Net cash provided by financing activities decreased from $294,400 in 2020 to $0 in 2021[17] Notes to Condensed Consolidated Financial Statements NOTE 1 – Organization and Description of Business - China Green Agriculture, Inc. (Green Nevada) is engaged in the research, development, production, distribution, and sale of various humic acid-based compound fertilizers and agricultural products through its subsidiaries[20] - Key subsidiaries include Green Agriculture Holding Corporation (Green New Jersey), Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (Jinong), Xi'an Hu County Yuxing Agriculture Technology Development Co., Ltd. (Yuxing, a VIE), Beijing Gufeng Chemical Products Co., Ltd. (Gufeng), and Beijing Tianjuyuan Fertilizer Co., Ltd. (Tianjuyuan)[21][22] - The company also controls several Variable Interest Entities (VIEs) for sales, including Lishijie, Jinyangguang, Wangtian, and Fengnong[21][22] - Strategic acquisition agreements and contractual agreements with Zhenbai were discontinued on November 30, 2017[23] - Strategic acquisition agreements and contractual agreements with Xindeguo, Xinyulei, and Xiangrong were discontinued on June 2, 2021[23] NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies - The consolidated financial statements include the Company and its wholly-owned subsidiaries (Green New Jersey, Jinong, Gufeng, Tianjuyuan) and its VIE Companies, with all significant inter-company accounts and transactions eliminated[29] - Former VIEs Xindeguo, Xinyulei, and Xiangrong are presented as discontinued operations[29] - The Company uses qualitative and, if necessary, quantitative analysis to determine if an entity is a Variable Interest Entity (VIE) and identifies the primary beneficiary for consolidation[31] - Management makes estimates and assumptions in preparing financial statements, which are subject to risks and uncertainties, including the impact of COVID-19[32] - Cash and cash equivalents: Includes cash on hand, in banks, and highly-liquid investments with maturities of three months or less. Large sums are held in Chinese banks without insurance[35] - Accounts receivable: Net of allowance for doubtful accounts, which was $28,893,232 as of September 30, 2021 (up from $23,738,987 on June 30, 2021). Bad debt expense was $6 million for the three months ended September 30, 2021, due to COVID-19 impact on distributors[36] - Inventories: Valued at the lower of cost (weighted average) or market. Inventories impairment loss was $11 million for the three months ended September 30, 2021[37] - Intangible Assets: Recorded at fair value and amortized over useful life for definitive-life assets. No impairment recorded as of September 30, 2021[38] - Customer deposits: Payments received before revenue recognition criteria are met, recognized as revenue when criteria are satisfied. Deposits were $7,841,368 as of September 30, 2021[39] - Earnings per share: Basic EPS based on weighted average common shares outstanding; diluted EPS includes dilutive potential common shares[40] Basic and Diluted Net (Loss) Per Share (Three Months Ended September 30, 2021 vs. 2020) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | | :------------------------------------------------------------------ | :------------------------------------ | :------------------------------------ | | (Loss) from continuing operations for Basic Earnings Per Share | $(15,077,208) | $(29,696,292) | | (Loss) from discontinued operations for Basic Earnings Per Share | - | $(1,256,622) | | (Loss) for Basic Earnings Per Share | $(15,077,208) | $(30,952,914) | | Basic Weighted Average Number of Shares | 8,487,629 | 6,350,129 | | Net (Loss) Per Share – Basic | $(1.78) | $(4.87) | | (Loss) from continuing operations for Diluted Earnings Per Share | $(15,077,208) | $(29,696,292) | | (Loss) Income from discontinued operations for Diluted Earnings Per Share | - | $(1,256,622) | | (Loss) for Diluted Earnings Per Share | $(15,077,208) | $(30,952,914) | | Diluted Weighted Average Number of Shares | 8,487,629 | 6,350,129 | | Net (Loss) Per Share – Diluted | $(1.78) | $(4.87) | NOTE 3 – Going Concern - The Company's financial statements are prepared assuming it will continue as a going concern, despite incurring operating losses and negative operating cash flows for the three months ended September 30, 2021, which raise substantial doubt about its ability to continue[46] - To address working capital needs and fund growth, the Company may seek additional funds through equity issuance or bank loans, with its ability to continue dependent on successfully executing its new business strategy and achieving profitability[46] NOTE 4 – Inventories Inventories Composition (as of September 30, 2021 vs. June 30, 2021) | Inventory Type | September 30, 2021 | June 30, 2021 | | :--------------------------- | :----------------- | :------------ | | Raw materials | $11,341,591 | $18,023,063 | | Supplies and packing materials | $514,957 | $431,076 | | Work in progress | $238,377 | $252,873 | | Finished goods | $40,368,108 | $45,608,891 | | Total | $52,463,033 | $64,315,903 | - The company confirmed inventory losses of $11 million for the three months ended September 30, 2021, and $13 million for the same period in 2020[49] NOTE 5 – Property, Plant and Equipment Property, Plant and Equipment (as of September 30, 2021 vs. June 30, 2021) | Asset Category | September 30, 2021 | June 30, 2021 | | :------------------------------ | :----------------- | :------------ | | Building and improvements | $41,542,347 | $41,429,653 | | Auto | $3,465,900 | $3,472,838 | | Machinery and equipment | $19,432,054 | $19,369,913 | | Total property, plant and equipment | $64,440,302 | $64,272,403 | | Less: accumulated depreciation | $(42,785,933) | $(42,051,387) | | Total | $21,654,369 | $22,221,016 | NOTE 6 – Intangible Assets Intangible Assets (as of September 30, 2021 vs. June 30, 2021) | Intangible Asset | September 30, 2021 | June 30, 2021 | | :---------------------- | :----------------- | :------------ | | Land use rights, net | $9,285,886 | $9,330,109 | | Technology patent, net | - | - | | Customer relationships, net | $592,432 | $656,625 | | Non-compete agreement | $8,310 | $16,589 | | Trademarks | $6,416,740 | $6,404,328 | | Total | $16,303,367 | $16,407,651 | - Land use rights are amortized over 50-year grant periods, with a net value of $9,285,886 as of September 30, 2021[53][54] - Technology patents acquired by Jinong and Gufeng are fully amortized as of September 30, 2021[55] - Customer relationships acquired from Gufeng and sales VIE Companies are amortized over 7-10 years, with a net value of $592,432[56][57] - Non-compete agreements are amortized over five years, with a net value of $8,310[58][59] - Trademarks acquired from Gufeng are valued at $6,416,740 and are subject to annual impairment tests[60][61] - Estimated amortization expenses for intangible assets are projected to be $519,399 for the twelve months ending September 30, 2022[62][65] NOTE 7 – Other Non-Current Assets - Other non-current assets primarily consist of advance payments for leasing agricultural land in Shiquan County, totaling $9,385,712 as of September 30, 2021[66] - The Company amortized $0.5 million as expenses for the three months ended September 30, 2021 and 2020, respectively, related to these lease advances[66] Estimated Amortization Expenses of Lease Advance Payments | Twelve months ending September 30, | Expense ($) | | :--------------------------------- | :---------- | | 2023 | 2,082,218 | | 2024 | 2,082,218 | | 2025 | 2,082,218 | | 2026 and thereafter | 3,139,059 | NOTE 8 – Accrued Expenses and Other Payables Accrued Expenses and Other Payables (as of September 30, 2021 vs. June 30, 2021) | Category | September 30, 2021 | June 30, 2021 | | :------------------------ | :----------------- | :------------ | | Payroll and welfare payable | $185,269 | $184,910 | | Accrued expenses | $8,273,360 | $7,957,290 | | Other payables | $5,249,887 | $5,326,796 | | Other levy payable | $130,077 | $129,825 | | Total | $13,838,593 | $13,598,821 | NOTE 9 – Amount Due to Related Parties - As of September 30, 2021, the total amount due to related parties was $5,222,850, an increase from $4,976,689 as of June 30, 2021[72] - This includes $1,085,700 borrowed by Gufeng from Xi'an Techteam Science& Technology Industry (Group) Co. Ltd., controlled by the CEO, Mr. Zhuoyu Li. These are unsecured, non-interest-bearing, and due on demand[71][72] - Advances from Mr. Zhuoyu Li, Chairman and CEO, totaled $4,105,449, which are unsecured and non-interest-bearing[71][72] - Jinong owed 900LH.com (an affiliate) $12,895 as of September 30, 2021[71][72] - Yuxing sold $55,092 in products to 900LH.com for the three months ended September 30, 2021, with no amount due from 900LH.com as of that date[71][72] - Jinong leases office space from Kingtone Information Technology Co., Ltd., also chaired by Mr. Zhuoyu Li, for approximately $3,797 per month[73] NOTE 10 – Loan Payables Short-Term Loan Payables (as of September 30, 2021) | Payee | Loan period per agreement | Interest Rate | September 30, 2021 | | :-------------------------------------- | :-------------------------- | :------------ | :----------------- | | Postal Saving Bank of China - Pinggu Branch | May 27, 2021-May 26, 2022 | 5.66% | $2,326,500 | | Beijing Bank - Pinggu Branch | May 27, 2021-May 26, 2022 | 5.66% | $310,200 | | Postal Saving Bank of China - Pinggu Branch | May 25, 2021-May 21, 2022 | 5.22% | $1,551,000 | | Total | | | $4,187,700 | - All short-term loans are collateralized by Tianjuyuan's land use right and building ownership right[75] - Interest expense from short-term loans was $72,011 for the three months ended September 30, 2021, up from $56,768 in the prior year period[76] NOTE 11 – Convertible Notes Payable - Jinong issued convertible notes payable totaling RMB 51,000,000 ($7,910,100) to VIE Companies shareholders, with a three-year term and 3% annual interest[77] - Notes take priority over preferred and common stock in liquidation[78] - Noteholders can request conversion into common stock after the third anniversary of issuance, at the higher of $5.00 per share or 75% of the closing price on conversion notice date[79] - 995,000 shares were issued on November 15, 2019, and 377,650 shares on February 14, 2020, to settle convertible notes and accrued interest[80] - The fair value of convertible notes payable was determined to be $0 as of September 30, 2021 and June 30, 2021[80] - Accumulated amortization of the discount into accretion expenses was $1,375,499 as of September 30, 2021[80] NOTE 12 – Taxes Payable - Jinong is subject to a 15% Enterprise Income Tax (EIT) rate as a high-tech company in the PRC, while Gufeng is subject to 25%, and Yuxing is exempt[82][178] - PRC Value-Added Tax (VAT) on fertilizer products has seen several reductions: from 13% to 11% (July 1, 2017), to 10% (May 1, 2018), and to 9% (April 1, 2019)[84] - Jinong's income tax expenses decreased from $1,569,003 in Q3 2020 to $112,023 in Q3 2021[85] - The effective tax rate was approximately -0.7% for the three months ended September 30, 2021, compared to -5.6% for the same period in 2020[82][89] Income Taxes and Related Payables (as of September 30, 2021 vs. June 30, 2021) | Category | September 30, 2021 | June 30, 2021 | | :------------------- | :----------------- | :------------ | | VAT provision | $(330,509) | $(284,940) | | Income tax payable | $1,179,680 | $1,136,929 | | Other levies | $2,696,881 | $2,679,970 | | Repatriation tax | $29,010,535 | $29,010,535 | | Total | $32,556,587 | $32,542,494 | Provision for Income Taxes (Three Months Ended September 30, 2021 vs. 2020) | Category | September 30, 2021 | September 30, 2020 | | :---------------- | :----------------- | :----------------- | | Current tax - foreign | $112,023 | $1,569,003 | | Deferred tax | - | - | | Total | $112,023 | $1,569,003 | NOTE 13 – Stockholders' Equity - No shares of common stock were issued during the three months ended September 30, 2021 and 2020[91] - As of September 30, 2021, and June 30, 2021, there were 8,487,629 shares of common stock issued and outstanding[91] - The Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, but no shares are issued or outstanding as of September 30, 2021[93] NOTE 14 – Concentrations and Litigation - All revenue-generating operations are conducted in the PRC, exposing the Company to political, economic, and legal risks specific to China[94] - No single vendor accounted for over 10% of raw material purchases for the three months ended September 30, 2021[95] - In contrast, five vendors accounted for 65.8% of raw material purchases for the three months ended September 30, 2020[95] - No customer accounted for over 10% of the Company's sales for the three months ended September 30, 2021 and 2020[95] - A pro se lawsuit alleging Securities Exchange Act violations was dismissed by the Southern District of New York federal court on September 30, 2021, but the plaintiff amended the complaint on October 29, 2021, which the Company intends to move to dismiss[96][97] NOTE 15 – Segment Reporting - The Company is organized into four main business segments: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production), and the sales VIEs[97] - The chief operating decision maker (CODM) uses net income (loss) by segment as the principal measure of segment profitability or loss[97] Segment Revenues and Operating Income (Expense) (Three Months Ended September 30, 2021 vs. 2020) | Segment | Revenues (2021) | Revenues (2020) | Operating Income (Expense) (2021) | Operating Income (Expense) (2020) | | :------------------ | :-------------- | :-------------- | :-------------------------------- | :-------------------------------- | | Jinong | $15,161,742 | $14,529,312 | $(3,862,612) | $1,758,677 | | Gufeng | $14,788,252 | $15,828,203 | $(9,090,997) | $(31,136,234) | | Yuxing | $2,888,894 | $2,423,488 | $162,601 | $137,213 | | Sales VIEs | $4,542,143 | $9,359,707 | $(1,690,124) | $1,608,473 | | Consolidated Total | $37,381,031 | $42,140,710 | $(14,935,568) | $(28,087,747) | Segment Net Income (Loss) (Three Months Ended September 30, 2021 vs. 2020) | Segment | Net Income (Loss) (2021) | Net Income (Loss) (2020) | | :------------------ | :----------------------- | :----------------------- | | Jinong | $(3,818,917) | $1,518,043 | | Gufeng | $(9,163,571) | $(31,193,670) | | Yuxing | $161,939 | $136,909 | | Sales VIEs | $(1,731,762) | $1,225,349 | | Consolidated Total | $(15,077,208) | $(29,696,292) | NOTE 16 – Commitments and Contingencies - Jinong leases office space from Kingtone Information Technology Co., Ltd. (related party) for approximately $3,797 monthly[100] - Tianjuyuan has a fifty-year lease with village committees for approximately $459 monthly[100] - Jinyangguang signed a one-year commercial space lease for approximately $1,939 monthly, effective August 1, 2021[101] - Fengnong signed a two-year warehouse lease for approximately $5,429 monthly, effective January 1, 2020[101] - Aggregate rent expenses from these leases were $34,869 for the three months ended September 30, 2021, compared to $11,897 for the same period in 2020[101] Contingent Rent Expenses for Next Five Years | Years ending September 30, | Expense ($) | | :------------------------- | :---------- | | 2022 | 139,475 | | 2023 | 139,475 | | 2024 | 139,475 | | 2025 | 139,475 | | 2026 | 139,475 | NOTE 17 – Variable Interest Entities - The Company, through its subsidiary Jinong, controls Yuxing and the sales VIE Companies (Lishijie, Jinyangguang, Wangtian, Fengnong) through a series of contractual agreements, enabling consolidation for financial reporting[103][104][105] - VIE agreements with Zhenbai were exited on November 30, 2017[105] - VIE agreements with Xindeguo, Xinyulei, and Xiangrong were exited on June 2, 2021[105] VIEs' Financial Statement Amounts (as of September 30, 2021 vs. June 30, 2021) | Item | September 30, 2021 | June 30, 2021 | | :---------------------------------- | :----------------- | :------------ | | Total Current Assets | $38,525,022 | $43,050,718 | | Total Assets | $39,257,865 | $43,862,593 | | Total Current Liabilities | $21,160,565 | $24,066,213 | | Total Liabilities | $21,160,565 | $24,066,213 | | Stockholders' equity | $18,097,300 | $19,796,380 | | Total Liabilities and Stockholders' Equity | $39,257,865 | $43,862,593 | | Item | Three Months September 2021 | Ended 30, 2020 | | :---------------------------------- | :-------------------------- | :------------- | | Revenue | $4,542,143 | $9,359,707 | | Expenses | $6,273,905 | $8,134,358 | | Net income (loss) | $(1,731,762) | $1,225,349 | NOTE 18 – Business Combinations - Jinong entered into strategic acquisition agreements and VIE contractual agreements with shareholders of several sales VIE Companies on June 30, 2016, and January 1, 2017, to gain control over product distribution and comply with PRC regulatory requirements[107][156] - Key agreements include Entrusted Management Agreements, Exclusive Technology Supply Agreements, Shareholder's Voting Proxy Agreements, Exclusive Option Agreements, and Equity Pledge Agreements[108][109][110][112][113][114][157][159] - These agreements grant Jinong full control over operations, assets, personnel, cash flows, and the right to acquire equity interests and/or assets of the VIEs[108][109][110][112][113][114][157][159] - Non-Compete Agreements prevent VIE shareholders from competing with Jinong for five years post-termination of services[108][109][110][112][113][114][157][159] - The VIE arrangement is crucial for operating in heavily regulated e-commerce and agriculture industries in China, where foreign investment is limited[108][109][110][112][113][114][157][159] - The Company discontinued agreements with Zhenbai on November 30, 2017, resulting in a net loss of $331,995, and with Xindeguo, Xinyulei, and Xiangrong on June 2, 2021, receiving cash payments of $286,935 and $3,789,093 respectively, and realizing a net gain of $511,123 from Xiangrong's discontinuation[119][122][123][125][126] NOTE 19 – Other Events (COVID-19) - The COVID-19 pandemic has adversely affected the Company's operations and financial results, particularly in Xi'an City, where its headquarters are located[127][128][130] - Impacts include temporary office closures, travel restrictions, supply chain disruptions, reduced demand, and potential credit losses from customers[130] - The financial impact for fiscal years 2020 and 2021 has been adverse, and future impacts remain uncertain, depending on the pandemic's duration and severity[131] - The Company is implementing cost reduction and conservation measures to improve liquidity and mitigate impacts[132] NOTE 20 – Subsequent Events - The Company has analyzed its operations after September 30, 2021, up to the issuance date of the financial statements and found no significant subsequent events requiring recognition or disclosure[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended September 30, 2021, compared to the same period in 2020, covering net sales, cost of goods sold, gross profit, operating expenses, other income/expenses, net income/loss, segment profitability, liquidity, capital resources, and critical accounting policies, highlighting key changes and their drivers Overview - The Company is primarily engaged in the research, development, production, and sale of fertilizers (Jinong and Gufeng) and agricultural products (Yuxing) in the PRC[139] - Fertilizer products (Jinong and Gufeng) generated approximately 80.1% of total revenues for the three months ended September 30, 2021 (72.0% in 2020)[140] - Sales VIEs contributed 12.2% of revenues in 2021 (22.2% in 2020)[140] - Yuxing serves as an R&D base for fertilizer products and produces high-quality agricultural products[141] - As of September 30, 2021, the Company had 656 different fertilizer products, with 69 from Jinong, 336 from Gufeng, and 251 from VIE Companies[141] Fertilizer Sales Volume (Metric Tons) and Revenue Per Ton (Three Months Ended September 30, 2021 vs. 2020) | Segment | 2021 (metric tons) | 2020 (metric tons) | Change (metric tons) | Change % | | :------ | :----------------- | :----------------- | :------------------- | :------- | | Jinong | 15,224 | 15,871 | (647) | -4.1% | | Gufeng | 38,771 | 44,824 | (6,053) | -13.5% | | Total | 53,995 | 60,695 | (6,700) | -11.0% | | Segment | 2021 (revenue per ton) | 2020 (revenue per ton) | | :------ | :--------------------- | :--------------------- | | Jinong | $997 | $930 | | Gufeng | $378 | $345 | - Sales of fertilizer products to five provinces (Hebei, Heilongjiang, Inner Mongolia, Liaoning, Shaanxi) accounted for 57.7% of fertilizer revenue in Q3 2021[145] - The Company had 1,803 distributors across 22 provinces, 4 autonomous regions, and 4 municipalities in China as of September 30, 2021[146] - Gufeng's top five distributors accounted for 82.3% of its revenues in Q3 2021, indicating high customer concentration for this segment[146] - Shaanxi (82.2%), Shanghai (5.7%), and Sichuan (3.7%) accounted for 91.5% of agricultural product revenue in Q3 2021[146] Recent Developments - During Q3 2021, Jinong launched no new fertilizer products but added 44 new distributors[148] - Gufeng did not launch new fertilizer products but added 3 new distributors in Q3 2021[149] - The Company entered Strategic Acquisition Agreements (SAA) and Agreements for Convertible Notes (ACN) with shareholders of sales VIE Companies on June 30, 2016, and January 1, 2017, to expand distribution and comply with PRC regulations[150][152] - Discontinuation of agreements with Zhenbai (Nov 30, 2017) and Xindeguo, Xinyulei, and Xiangrong (June 2, 2021) involved tendering back payment considerations and cash payments to the Company[154] - The VIE arrangement is critical for the Company to operate in the heavily regulated e-commerce and agriculture industries in China, which limit foreign investment, providing a feasible structure for business development and regulatory compliance[157][159] - The validity and enforceability of VIE arrangements are subject to uncertainties in the interpretation and application of PRC laws, as well as judicial discretion[161] Three Months ended September 30, 2021 Compared to the Three Months ended September 30, 2020. Consolidated Results of Operations (Three Months Ended September 30, 2021 vs. 2020) | Metric | 2021 | 2020 | Change $ | Change % | | :----------------------------------------- | :------------- | :------------- | :------------- | :------- | | Net sales | $37,381,030 | $42,140,710 | $(4,759,680) | -11.3% | | Cost of goods sold | $30,127,985 | $34,266,517 | $(4,138,532) | -12.1% | | Gross profit | $7,253,045 | $7,874,193 | $(621,148) | -7.9% | | Selling expenses | $3,714,213 | $4,687,423 | $(973,210) | -20.8% | | General and administrative expenses | $18,474,399 | $31,274,517 | $(12,800,118) | -40.9% | | Total operating expenses | $22,188,612 | $35,961,940 | $(13,773,328) | -38.3% | | Income (loss) from operations | $(14,935,567) | $(28,087,747) | $13,152,180 | -46.8% | | Total other income (expense) | $(29,618) | $(39,542) | $9,924 | -25.1% | | (Loss) before income taxes | $(14,965,185) | $(28,127,289) | $13,162,104 | -46.8% | | Provision for income taxes | $112,023 | $1,569,003 | $(1,456,980) | -92.9% | | Net (loss) from continuing operations | $(15,077,208) | $(29,696,292) | $14,619,084 | -49.2% | | Net (loss) from discontinued operations | - | $(1,256,622) | $1,256,622 | -100.0% | | Net (Loss) | $(15,077,208) | $(30,952,914) | $15,875,706 | -51.3% | | Foreign currency translation gain (loss) | $456,574 | $13,467,844 | $(13,011,270) | -96.6% | | Comprehensive (loss) | $(14,620,634) | $(17,485,070) | $2,864,436 | -16.4% | - Net sales decreased by 11.3% to $37.38 million, primarily due to a 51.5% decrease in VIEs' net sales[165] - Jinong's net sales increased by 4.4% due to higher unit sales price ($997/ton in 2021 vs. $930/ton in 2020)[166] - Gufeng's net sales decreased by 6.6% due to lower sales volume (38,771 metric tons in 2021 vs. 44,824 metric tons in 2020)[167] - Yuxing's net sales increased by 19.2% due to increased market demand[168] - Cost of goods sold decreased by 12.1%, mainly driven by a 49.9% decrease in VIEs' cost of goods sold[169] - Gross profit decreased by 7.9% to $7.25 million, with the gross profit margin increasing from 18.7% to 19.4%[170] - Selling expenses decreased by 20.8% due to reduced marketing activities[171] - General and administrative expenses decreased significantly by 40.9% to $18.47 million, primarily due to a 66.8% decrease in Gufeng's G&A expenses[172][173] - Net loss improved by 51.3% to $(15.08) million, mainly due to lower general and administrative expenses[174][175] - Net loss from discontinued operations was $0 in 2021, compared to $(1.26) million in 2020[177][178][179] Discussion of Segment Profitability Measures - Net income (loss) by segment is the primary metric used by the Chief Operating Decision Maker (CODM) to assess performance and allocate resources[181] - Jinong's net income decreased by 351.6% to a net loss of $(3,818,917), primarily due to higher general and administrative expenses[181] - Gufeng's net loss decreased by 70.6% to $(9,163,571), mainly due to a decrease in general and administrative expenses[182] - Yuxing's net income increased by 18.3% to $161,939, driven by higher sales[182] - Sales VIEs' net loss was $(1,731,762), a decrease of 243.1% from a net income of $1,225,349, mainly due to increased general and administrative expenses[183] - Net loss from discontinued operations was $0 in 2021, compared to $(1,256,622) in 2020[183] Liquidity and Capital Resources - Principal sources of liquidity include cash from operations, borrowings from local commercial banks, and net proceeds from securities offerings[183] - Cash and cash equivalents increased by 18.4% to $22,022,563 as of September 30, 2021, from $18,593,944 as of June 30, 2021[183][187] - Net cash provided by operating activities was $1,514,956 for Q3 2021, a significant increase from cash used in operating activities of $1,653,512 in Q3 2020, mainly due to a decrease in accounts receivable[188][189] - Net cash provided by investing activities was $1,793,168 for Q3 2021, up from cash used of $29,967 in Q3 2020, primarily due to sales of discontinued operations[190] - Net cash provided by financing activities was $0 for Q3 2021, compared to $294,400 in Q3 2020[191] - Short-term loans payable remained stable at $4,187,700 as of September 30, 2021[192] - Accounts receivable decreased by 3.5% to $99,143,737, with the allowance for doubtful accounts increasing by 21.7% to $28,893,232[194][195] - Inventories decreased by 18.4% to $52,463,033, mainly due to a 35.5% decrease in Gufeng's inventory[196] - Customer deposits increased by 25.3% to $7,841,368, primarily due to advance deposits from Jinong's clients for seasonal product delivery[197] - The Company believes it has sufficient cash and projected cash flow for the next twelve months, but may seek additional financing for expansion or if operating plans are not met[184] Critical Accounting Policies and Estimates - Use of estimates: Management makes significant estimates and assumptions, particularly affected by uncertainties like COVID-19[199] - Revenue recognition: Sales revenue is recognized upon shipment, fixed price, completed delivery, no significant obligations, and assured collectability. Payments received early are recorded as unearned revenue[200] - Cash and cash equivalents: Includes cash on hand, in banks, and highly-liquid investments with maturities of three months or less[201] - Accounts receivable: Reserves are maintained for potential credit losses, based on historical bad debts, customer creditworthiness, and economic trends. Specific policies for Jinong/Gufeng (180 days) and Yuxing (90 days) for bad debt allowance[202][203] - Deferred assets: Represent amounts advanced to distributors for marketing and store development, expensed over three years. Fully amortized as of September 30, 2021[204] - Segment reporting: Uses the 'management approach' based on how management organizes segments for operating decisions and performance assessment. The Company has four main business segments: Jinong, Gufeng, Yuxing, and the sales VIEs[205][206] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the Company's exposure to various market risks, including currency fluctuations, interest rate changes, credit risk, inflation risk, and the ongoing impact of epidemics like COVID-19, detailing how these risks could affect financial performance and the Company's current approach to managing them - The Company is exposed to market risk from changes in interest rates and equity prices but does not use financial instruments for trading purposes[208] - Currency Fluctuations and Foreign Currency Risk: Substantially all revenues and expenses are in RMB, but reporting is in USD. RMB depreciation against USD would adversely affect USD-denominated net assets and income. Accumulated other comprehensive loss was $4 million as of September 30, 2021. The Company has not entered into hedging transactions[209][210] - Interest Rate Risk: Primarily exposed to short-term bank loans with fixed rates subject to change upon renewal. Short-term debt was $4.2 million as of September 30, 2021. No material change in interest rates for renewed loans in Q3 2021. No hedging transactions are used[211][212] - Credit Risk: Not experienced significant credit risk due to long-term customers with superior payment records. Receivables are regularly monitored[213] - Inflation Risk: Inflationary factors could adversely affect operating results if selling prices do not keep pace with increased costs[215] - Epidemics, pandemics or other outbreaks Risk: COVID-19 has adversely affected operations due to closures, supply chain disruptions, reduced demand, and potential credit losses. The full extent of future impact is uncertain, but the Company is monitoring and taking mitigation measures[216][217] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2021, concluding they were effective, with no material changes in internal control over financial reporting identified during the quarter - As of September 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective and adequately designed[218] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter ended September 30, 2021[219] PART II – OTHER INFORMATION Item 1. Legal Proceedings There are no pending or threatened legal actions, suits, proceedings, inquiries, or investigations that could have a material adverse effect on the Company or its subsidiaries - There are no other actions, suits, proceedings, inquiries or investigations before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect[221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of the Company's equity securities during the three months ended September 30, 2021, that were not previously disclosed - There were no unregistered sales of the Company's equity securities during the three months ended September 30, 2021, that were not otherwise disclosed in a Current Report on Form 8-K[222] Item 3. Defaults Upon Senior Securities The Company reported no defaults in the payment of principal, interest, or any other material default with respect to its indebtedness - There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company[223] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[223] Item 5. Other Information No additional information required to be disclosed under this item was not previously disclosed - There is no other information required to be disclosed under this item which was not previously disclosed[224] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including subsidiary lists, certifications from the CEO and CFO, and XBRL-related documents Exhibit Index | No. | Description | | :------ | :------------------------------------------------------------------------------------------------------ | | 21.1* | List of Subsidiaries of the Company | | 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 32.1+ | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | 32.2+ | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | 101.INS*| Inline XBRL Instance Document. | | 101.SCH*| Inline XBRL Taxonomy Extension Schema Document. | | 101.CAL*| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | 101.DEF*| Inline XBRL Taxonomy Extension Definition Linkbase Document. | | 101.LAB*| Inline XBRL Taxonomy Extension Label Linkbase Document. | | 101.PRE*| Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | SIGNATURES Report Signatures The Form 10-Q report was duly signed on November 15, 2021, by Zhuoyu Li, Chief Executive Officer, and Yongcheng Yang, Chief Financial Officer, in their respective capacities Report Signatures | Date | By: | Name: | Title: | | :------------------ | :-------------- | :------------ | :---------------------------------------- | | November 15, 2021 | /s/ Zhuoyu Li | Zhuoyu Li | Chief Executive Officer (principal executive officer) | | November 15, 2021 | /s/ Yongcheng Yang | Yongcheng Yang | Chief Financial Officer (principal financial officer and principal accounting officer) |