CGA(CGA) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, 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 (March 31, 2024 vs. June 30, 2023) | Item | March 31, 2024 | June 30, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Current Assets | $137,069,016 | $151,227,159 | $(14,158,143) | -9.4% | | Total Non-Current Assets | $36,540,106 | $35,454,205 | $1,085,901 | 3.1% | | Total Assets | $173,609,122 | $186,681,364 | $(13,072,242) | -7.0% | | Total Current Liabilities | $61,854,526 | $60,376,467 | $1,478,059 | 2.4% | | Total Non-Current Liabilities | $- | $937,040 | $(937,040) | -100.0% | | Total Liabilities | $61,854,526 | $61,313,507 | $541,019 | 0.9% | | Total Shareholders' Equity | $111,754,596 | $125,367,857 | $(13,613,261) | -10.9% | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $32,938,317 | $45,261,960 | $(12,323,643) | -27.2% | | Cost of Goods Sold | $26,597,407 | $37,886,004 | $(11,288,597) | -29.8% | | Gross Profit | $6,340,910 | $7,375,956 | $(1,035,046) | -14.0% | | Operating Expenses | $17,312,196 | $7,192,578 | $10,119,618 | 140.7% | | Loss (income) from operations | $(10,971,286) | $183,378 | $(11,154,664) | -6082.9% | | Net Loss (income) | $(10,901,284) | $189,605 | $(11,090,889) | -5849.5% | | Basic Net Loss (income) per share | $(0.79) | $0.02 | $(0.81) | -4050.0% | | Item | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $73,136,293 | $97,398,492 | $(24,262,199) | -24.9% | | Cost of Goods Sold | $58,817,042 | $80,323,310 | $(21,506,268) | -26.8% | | Gross Profit | $14,319,251 | $17,075,182 | $(2,755,931) | -16.1% | | Operating Expenses | $32,466,627 | $21,109,103 | $11,357,524 | 53.8% | | Loss from operations | $(18,147,376) | $(4,033,921) | $(14,113,455) | 349.9% | | Net Loss | $(18,055,480) | $(3,935,055) | $(14,120,425) | 358.8% | | Basic Net Loss per share | $(1.32) | $(0.30) | $(1.02) | 340.0% | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Nine Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(7,316,276) | $(5,471,529) | $(1,844,747) | 33.7% | | Net cash (used in) provided by investing activities | $(4,101,010) | $591,595 | $(4,692,605) | -793.2% | | Net cash provided by financing activities | $1,330,251 | $19,903,006 | $(18,572,755) | -93.3% | | Net (decrease) increase in cash and cash equivalents | $(9,546,431) | $13,990,301 | $(23,536,732) | -168.2% | | Cash and cash equivalents, ending balance | $61,595,756 | $71,760,603 | $(10,164,847) | -14.2% | Notes to Condensed Consolidated Financial Statements - The Company operates through subsidiaries in the PRC (Jinong, Gufeng, Tianjuyuan, Yuxing) focusing on fertilizer and agricultural products, and a U.S. subsidiary (Antaeus) for Bitcoin mining, with Yuxing being a Variable Interest Entity (VIE) controlled by Jinong[18][19][20][24] - The Company's financial statements are prepared assuming it will continue as a going concern, despite incurring operating losses and negative operating cash flows, with management planning to raise additional funds through equity issuance or bank loans to meet working capital needs and fund growth[39] Inventories (March 31, 2024 vs. June 30, 2023) | Category | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Raw materials | $5,939,882 | $11,617,989 | | Supplies and packing materials | $863,791 | $410,904 | | Work in progress | $173,796 | $172,248 | | Finished goods | $29,727,073 | $34,253,990 | | Total Inventories | $36,704,542 | $46,455,131 | * Inventory impairment loss for the nine months ended March 31, 2024, was $4.0 million, compared to $1.7 million in 2023[33][41] Property, Plant and Equipment, Net (March 31, 2024 vs. June 30, 2023) | Category | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Building and improvements | $37,538,033 | $37,065,465 | | Auto | $2,750,682 | $2,716,931 | | Machinery and equipment | $18,958,963 | $18,608,254 | | Others | $1,502,600 | $- | | Total PP&E | $60,750,278 | $58,390,650 | | Less: accumulated depreciation | $(44,087,143) | $(41,700,404) | | Total PP&E, net | $16,663,135 | $16,690,246 | * Total depreciation expense for the nine months ended March 31, 2024, was $1,872,498, a 14.2% increase from $1,639,134 in 2023[43] Intangible Assets, Net (March 31, 2024 vs. June 30, 2023) | Category | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Land use rights, net | $7,791,501 | $7,862,624 | | Trademarks | $5,771,342 | $5,701,011 | | Total Intangible Assets, net | $13,562,843 | $13,563,635 | * The Company held $34,757 in Bitcoin as digital assets as of March 31, 2024, with no impairments recorded[31][45][53] Amount Due to Related Parties (March 31, 2024 vs. June 30, 2023) | Related Party | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Xi'an Techteam Science& Technology Industry (Group) Co. Ltd. (controlled by CEO) | $976,500 | $964,600 | | Mr. Zhuoyu Li (Chairman and CEO) | $2,336,693 | $2,261,693 | | Mr. Zhibiao Pan (Co-CEO) | $116,000 | $0 | | Total Amount Due to Related Parties | $5,641,462 | $5,439,209 | * These loans and advances are unsecured and non-interest-bearing[61] Loan Payables (March 31, 2024) | Payee | Interest Rate | March 31, 2024 | | :--- | :--- | :--- | | Beijing Bank - Pinggu Branch | 4.15% | $1,395,000 | | Huaxia Bank - HuaiRou Branch | 3.65% | $1,395,000 | | Pinggu New Village Bank | 5.00% | $976,500 | | Industrial Bank Co. Ltd (Loan 1) | 3.98% | $948,600 | | Industrial Bank Co. Ltd (Loan 2) | 3.70% | $2,790,000 | | Total Short-term Loans | | $7,505,100 | * Long-term loans decreased from $937,040 as of June 30, 2023, to $0 as of March 31, 2024[11][64] * Interest expense from loans for the nine months ended March 31, 2024, was $216,828, similar to $216,391 in 2023[64] Taxes Payable (March 31, 2024 vs. June 30, 2023) | Category | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | VAT provision | $(571,042) | $(398,499) | | Income tax payable | $(2,158,708) | $(2,132,400) | | Other levies | $611,741 | $591,325 | | Repatriation tax | $29,010,535 | $29,010,535 | | Total Taxes Payable | $26,892,526 | $27,070,961 | * The effective tax rate was approximately 0.1% for the nine months ended March 31, 2024, and 0% for 2023[70][74] - The Company's operations are organized into four segments: Jinong (fertilizer), Gufeng (fertilizer), Yuxing (agricultural products), and Antaeus (Bitcoin), with net income by segment being the primary measure of profitability[84][147][148] Segment Net (Loss) Income (Nine Months Ended March 31, 2024 vs. 2023) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | $(3,509,256) | $(2,209,588) | $(1,299,668) | 58.8% | | Gufeng | $(10,586,404) | $113,257 | $(10,699,661) | -9447.2% | | Yuxing | $(913,113) | $621,448 | $(1,534,561) | -246.9% | | Antaeus | $(40,732) | $- | $(40,732) | - | | Consolidated Net Loss | $(18,055,480) | $(3,935,055) | $(14,120,425) | 358.8% | 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 performance, including detailed analysis of net sales, cost of goods sold, gross profit, operating expenses, and net loss for both the three and nine months ended March 31, 2024, compared to the prior year, also discussing liquidity, capital resources, and critical accounting policies Overview - The company operates in fertilizer production (Jinong, Gufeng), agricultural products (Yuxing), and Bitcoin mining (Antaeus), with fertilizer businesses generating 88.6% of total revenues for the nine months ended March 31, 2024, down from 91.9% in 2023, and Antaeus's Bitcoin mining contributing 1.5% of revenues in 2024[100][101] Fertilizer Products - The company offers 414 fertilizer products (78 by Jinong, 336 by Gufeng), with sales volume decreasing by 27.1% for the three months and 23.0% for the nine months ended March 31, 2024, compared to the prior year[102][107][108][109] Fertilizer Sales Volume (Metric Tons) | Segment | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (Tons) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | 6,339 | 6,899 | (560) | -8.1% | | Gufeng | 45,506 | 64,218 | (18,713) | -29.1% | | Total | 51,845 | 71,117 | (19,273) | -27.1% | | Segment | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | Change (Tons) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | 21,087 | 23,684 | (2,597) | -11.0% | | Gufeng | 83,184 | 111,783 | (28,600) | -25.6% | | Total | 104,271 | 135,467 | (31,196) | -23.0% | - Sales of fertilizer products are concentrated in five Chinese provinces, accounting for 80.5% of fertilizer revenue for the three months ended March 31, 2024: Hebei (37.2%), Heilongjiang (13.9%), Inner Mongolia (13.1%), Liaoning (12.8%), and Shaanxi (3.5%), with the company having 1,085 distributors across 22 provinces[111] Agricultural Products - Yuxing develops, produces, and sells high-quality flowers, green vegetables, and fruits, also using its greenhouse facilities for fertilizer product R&D, with 90.0% of agricultural product revenue for the three months ended March 31, 2024, coming from Shaanxi (78.2%), Beijing (8.2%), and Shanghai (3.6%)[112] Digital Assets Bitcoin - Antaeus Tech Inc., established in March 2023, began purchasing mining machines and mining Bitcoin in West Texas in April 2023[113] Recent Developments - During the three months ended March 31, 2024, Jinong launched four new fertilizer products and eliminated 66 unqualified distributors, while Gufeng did not launch new products or add new distributors[114] Results of Operations (Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023) Net Sales (Three Months Ended March 31, 2024 vs. 2023) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | $7,534,076 | $9,606,177 | $(2,072,101) | -21.6% | | Gufeng | $22,544,062 | $33,457,644 | $(10,913,582) | -32.6% | | Yuxing | $2,467,916 | $2,198,139 | $269,777 | 12.3% | | Antaeus | $392,263 | $- | $392,263 | - | | Total Net Sales | $32,938,317 | $45,261,960 | $(12,323,643) | -27.2% | * Jinong's decrease was due to lower sales volume and product structure adjustment (discontinuing powdered products)[117] * Gufeng's decrease was due to lower sales volume[118] * Yuxing's increase was due to increased market demand[119] Gross Profit (Three Months Ended March 31, 2024 vs. 2023) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | $3,023,276 | $2,754,689 | $268,587 | 9.8% | | Gufeng | $2,784,396 | $4,188,982 | $(1,404,586) | -33.5% | | Yuxing | $371,891 | $432,285 | $(60,394) | -14.0% | | Antaeus | $161,347 | $- | $161,347 | - | | Total Gross Profit | $6,340,910 | $7,375,956 | $(1,035,046) | -14.0% | * Consolidated gross profit margin increased from 16.3% to 19.3%[121] * Jinong's gross profit margin increased from 28.7% to 40.1% due to promoting higher-margin liquid fertilizer[122] * Yuxing's gross profit margin decreased from 19.7% to 15.1% due to increased product costs[123] Operating Expenses (Three Months Ended March 31, 2024 vs. 2023) | Expense Type | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Selling Expenses | $1,855,189 | $1,958,455 | $(103,266) | -5.3% | | General and Administrative Expenses | $15,457,007 | $5,234,123 | $10,222,884 | 195.3% | | Total Operating Expenses | $17,312,196 | $7,192,578 | $10,119,618 | 140.7% | * Selling expenses decreased due to reduced marketing activities[117] * General and administrative expenses increased significantly, mainly due to higher expenses for Gufeng (517.3% increase) and Jinong (69.5% increase), with Gufeng's rise attributed to bad debt expenses from product quality issues[125][126][127] - Net loss for the three months ended March 31, 2024, was $(10,901,284), a significant increase in loss compared to a net income of $189,605 in the prior year, primarily driven by lower net sales and substantially higher general and administrative expenses[130] Results of Operations (Nine Months Ended March 31, 2024 Compared to the Nine Months Ended March 31, 2023) Net Sales (Nine Months Ended March 31, 2024 vs. 2023) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | $23,634,474 | $31,596,928 | $(7,962,454) | -25.2% | | Gufeng | $41,174,493 | $57,886,185 | $(16,711,692) | -28.9% | | Yuxing | $7,262,819 | $7,915,379 | $(652,560) | -8.2% | | Antaeus | $1,064,507 | $- | $1,064,507 | - | | Total Net Sales | $73,136,293 | $97,398,492 | $(24,262,199) | -24.9% | * Decreases in Jinong and Gufeng's net sales were primarily due to lower sales volumes and Jinong's product structure adjustment[132][134][135] Gross Profit (Nine Months Ended March 31, 2024 vs. 2023) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Jinong | $7,534,777 | $8,833,148 | $(1,298,371) | -14.7% | | Gufeng | $5,221,216 | $6,885,034 | $(1,663,818) | -24.2% | | Yuxing | $1,247,026 | $1,357,000 | $(109,974) | -8.1% | | Antaeus | $316,232 | $- | $316,232 | - | | Total Gross Profit | $14,319,251 | $17,075,182 | $(2,755,931) | -16.1% | * Consolidated gross profit margin increased from 17.5% to 19.6%[138] * Jinong's gross profit margin increased from 28.0% to 31.9% due to promoting higher-margin liquid fertilizer[139] * Gufeng's gross profit margin increased from 11.9% to 12.7% due to lower product costs[140] Operating Expenses (Nine Months Ended March 31, 2024 vs. 2023) | Expense Type | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Selling Expenses | $5,505,203 | $6,054,463 | $(549,260) | -9.1% | | General and Administrative Expenses | $26,961,424 | $15,054,640 | $11,906,784 | 79.1% | | Total Operating Expenses | $32,466,627 | $21,109,103 | $11,357,524 | 53.8% | * General and administrative expenses increased significantly, particularly for Gufeng (141.4% increase due to bad debts from product quality issues) and Yuxing (175.6% increase due to inventory impairment from bad weather)[132][141][143] - Net loss for the nine months ended March 31, 2024, was $(18,055,480), an increase in loss of $14,120,425 or 358.8%, compared to $(3,935,055) in the prior year, mainly due to lower net sales and higher general and administrative expenses[145] Discussion of Segment Profitability Measures - Jinong's net loss increased by 58.8% to $(3,509,256) due to lower net sales and higher general and administrative expenses[148] - Gufeng's net income decreased by 9447.2% to a loss of $(10,586,404) due to lower net sales and increased general and administrative expenses[149] - Yuxing's net income decreased by 246.9% to a loss of $(913,113) due to lower net sales and higher general and administrative expenses[149] - Antaeus reported a net loss of $(40,732)[149] Liquidity and Capital Resources - Cash and cash equivalents decreased by 13.4% to $61,595,756 as of March 31, 2024, from $71,142,188 as of June 30, 2023, with the company's principal sources of liquidity being cash from operations, bank borrowings, and securities offerings[150] Cash Flow Summary (Nine Months Ended March 31, 2024 vs. 2023) | Activity | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(7,316,276) | $(5,471,529) | $(1,844,747) | 33.7% | | Net cash used in investing activities | $(4,101,010) | $591,595 | $(4,692,605) | -793.2% | | Net cash provided by financing activities | $1,330,251 | $19,903,006 | $(18,572,755) | -93.3% | * Increase in cash used in operating activities was mainly due to an increase in advances to suppliers[154] * Shift to cash used in investing activities was primarily due to a $2,450,000 long-term investment in 2024[155] * Decrease in cash from financing activities was mainly due to loan repayments and no proceeds from common stock sales in 2024[156][157] Key Balance Sheet Items (March 31, 2024 vs. June 30, 2023) | Item | March 31, 2024 | June 30, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Accounts Receivable, net | $14,940,226 | $16,455,734 | $(1,515,508) | -9.2% | | Inventories | $36,704,542 | $46,455,131 | $(9,750,589) | -21.0% | | Advances to Suppliers | $21,360,797 | $14,332,715 | $7,028,082 | 49.0% | | Accounts Payable | $1,916,245 | $2,100,449 | $(184,204) | -8.8% | | Customer Deposits | $5,220,526 | $5,489,781 | $(269,255) | -4.9% | * Allowance for doubtful accounts was 78.3% of accounts receivable as of March 31, 2024[159] * Inventory decrease was primarily due to Gufeng's inventory reduction of $11.4 million[161][162][163] Critical Accounting Policies and Estimates - Key accounting policies include the use of estimates, revenue recognition (at shipment, net of VAT, no product returns), cash and cash equivalents (highly-liquid investments with maturities of three months or less), accounts receivable (reserves based on creditworthiness and historical bad debts), and segment reporting (management approach based on business units)[166][168][169][170][171] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to various market risks, including currency fluctuations (RMB vs. USD), interest rate risk on short-term loans, credit risk from accounts receivable, inflation risk, and the ongoing impact of epidemics like COVID-19 on operations and financial performance - The company is exposed to foreign currency risk due to substantially all revenues and expenses being denominated in RMB, while reporting in USD, where RMB depreciation against the USD would adversely affect reported net assets and income, with accumulated other comprehensive loss being $25 million as of March 31, 2024, and no hedging transactions in place[174][175] - The company is exposed to interest rate risk primarily from short-term bank loans, which carry fixed rates but are subject to change upon renewal (terms typically three to twelve months), with no hedging transactions used[176][177] - Credit risk has increased significantly since 2020 due to the COVID-19 pandemic, impacting customers (individuals and SMEs) and leading to higher bad debt expenses, with accounts receivables typically unsecured[178] - Inflationary factors in China may adversely affect operating results if selling prices do not keep pace with increased costs, and the COVID-19 pandemic has adversely affected operations, supply chains, demand, and credit losses, continuing to pose significant economic and demand uncertainty[180][181][182] Item 4. Controls and Procedures Management's evaluation of the effectiveness of disclosure controls and procedures concluded they were effective as of March 31, 2023, with no material changes in internal control over financial reporting identified during the quarter ended March 31, 2024 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[183] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended March 31, 2024[184] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section details an ongoing pro se lawsuit alleging Securities Exchange Act violations, which has been dismissed by lower courts but is currently under appeal to the Supreme Court, with the company believing the action is without merit - An individual's pro se lawsuit alleging Securities Exchange Act violations, filed in June 2020, was dismissed by the Southern District of New York federal court and affirmed by the U.S. Court of Appeals, Second Circuit, with the plaintiff filing an appeal to the Supreme Court of the United States on or about April 19, 2024, and the Company believing the action is without merit[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the three months ended March 31, 2024, that were not previously disclosed in a Current Report on Form 8-K - There were no unregistered sales of the Company's equity securities during the three months ended March 31, 2024, that were not otherwise disclosed in a Current Report on Form 8-K[188] Item 3. Defaults Upon Senior Securities 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 - No default in the payment of principal, interest, or any other material default has occurred with respect to any indebtedness of the Company[189] Item 4. Mine Safety Disclosures This item is not applicable to the Company Item 5. Other Information There is no other information required to be disclosed under this item which was not previously disclosed Item 6. Exhibits This section lists all exhibits required by the item, including certifications from executive officers and XBRL documents, which are filed or furnished with the report - The exhibits include certifications from the Chief Executive Officer, Co-Chief Executive Officer, and Chief Financial Officer (pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002), a list of subsidiaries, and Inline XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[190][194] Signatures The report is duly signed on May 16, 2024, by the company's Chief Executive Officer, Co-Chief Executive Officer, and Chief Financial Officer, affirming compliance with Securities Exchange Act requirements - The report was signed on May 16, 2024, by Zhuoyu Li (Chief Executive Officer), Zhibiao Pan (Co-Chief Executive Officer), and Yongcheng Yang (Chief Financial Officer)[192][193]