CHINA GREEN AGRICULTURE, INC. 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 inChina 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 byU.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 ("GreenNew Jersey "), a wholly-owned subsidiary of Green Nevada incorporated in theState 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'anHu County Yuxing Agriculture Technology Development Co., Ltd. ("Yuxing"), a Variable Interest Entity in the PRC ("VIE") controlled by Jinong through contractual agreements; (iv)Songyuan Jinyangguang Sannong Service Co., Ltd. ("Jinyangguang"), a VIE in the PRC controlled by Jinong through contractual agreements; (v)Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. ("Wangtian"), a VIE controlled by Jinong through contractual agreements; (vi)Beijing Gufeng Chemical Products Co., Ltd. , a wholly-owned subsidiary of Jinong in the PRC ("Gufeng"); and (vii)Beijing Tianjuyuan Fertilizer Co., Ltd. , Gufeng's wholly-owned subsidiary in the PRC ("Tianjuyuan"). Yuxing, Jinyangguang and Wangtian may also collectively be referred to as the "the VIE Companies"; Jinyangguang and Wangtian, may also collectively be referred to as "the sales VIEs" or "the sales VIE companies". Unless the context otherwise requires, all references to (i) "PRC" and "China" are tothe People's Republic of China ; (ii) "U.S. dollar," "$" and "US$" are toUnited States dollars; and (iii) "RMB", "Yuan" and Renminbi are to the currency of the PRC orChina . 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 85.3% and 85.4% of our total revenues for the six months EndedDecember 31, 2021 and 2020, respectively. The sales VIEs generated 8.1% and 8.5% of our revenues for the six months EndedDecember 31, 2021 and 2020, respectively. Yuxing serves as a research and development base for our fertilizer products. Fertilizer Products As ofDecember 31, 2021 , we had developed and produced a total of 659 different fertilizer products in use, of which 72 were developed and produced by Jinong, 336 by Gufeng, and 251 by the VIE Companies. 26
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
December 31, Change 2020 to 2021
2021 2020 Amount %
(metric tons)
Jinong 15,271 21,228 (5,957 ) -28.1 %
Gufeng 59,007 66,865 (7,858 ) -11.8 %
74,278 88,093 (13,815 ) -15.7 %
Three Months Ended
December 31,
2021 2020
(revenue per tons)
Jinong $ 997 $ 690
Gufeng 378 330
Six Months Ended
December 31, Change 2020 to 2021
2021 2020 Amount %
(metric tons)
Jinong 30,498 37,099 (6,601 ) -17.8 %
Gufeng 97,778 111,689 (13,911 ) -12.5 %
128,276 148,788 (20,512 ) -13.8 %
Six Months Ended
December 31,
2021 2020
(revenue per tons)
Jinong $ 989 $ 830
Gufeng 367 352
For the three months endedDecember 31, 2021 , we sold approximately 74,278 tons of fertilizer products, as compared to 88,093 metric tons for the three months endedDecember 31, 2020 . For the three months endedDecember 31, 2021 , Jinong sold approximately 15,271 metric tons of fertilizer products, as compared to 21,228 metric tons for the three months endedDecember 31, 2020 . For the three months endedDecember 31, 2021 , Gufeng sold approximately 59,007 metric tons of fertilizer products, as compared to 66,865 metric tons for the three months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , we sold approximately 128,276 metric tons of fertilizer products, as compared to 148,788 metric tons for the six months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , Jinong sold approximately 30,498 metric tons of fertilizer products, a decrease of 6,601 metric tons, or 17.8%, as compared to 37,099 metric tons for the six months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , Gufeng sold approximately 97,778 metric tons of fertilizer products, a decrease of 13,911 metric tons, or 12.5% as compared to 111,689 metric tons for the six months endedDecember 31, 2020 . Our sales of fertilizer products to customers in five provinces withinChina accounted for approximately 69.3% of our fertilizer revenue for the three months endedDecember 31, 2021 . Specifically, the provinces and their respective percentage contributing to our fertilizer revenues wereHebei (44.1%),Heilongjiang (13.9%),Inner Mongolia (12.5%),Shaanxi (7.9%) andYunnan (4.9%). As ofDecember 31, 2021 , we had a total of 1,918 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled municipalities inChina . Jinong had 1,076 distributors inChina . Jinong's sales are not dependent on any single distributor or any group of distributors. Jinong's top five distributors accounted for 8.0% of its fertilizer revenues for the three months endedDecember 31, 2021 . Gufeng had 334 distributors, including some large state-owned enterprises. Gufeng's top five distributors accounted for 79.9% of its revenues for the three months endedDecember 31, 2021 . 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 93.5% of our agricultural products revenue for the three months endedDecember 31, 2021 wereShaanxi (83.5%),Shanghai (6.3%), andBeijing (3.7%). Recent Developments New Products
During the three months ended
27
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 of
Payment for Notes for
Acquisition Acquisition
Company Name Business Scope (RMB[1]) (RMB)
Shaanxi Lishijie Sales of pesticides, agricultural
Agrochemical Co., chemicals, chemical fertilizers,
Ltd. agricultural 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
(2) On
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.
28
January 1, 2017:
Cash Principal of
Payment for Notes for
Acquisition Acquisition
Company Name Business Scope (RMB[1]) (RMB)
Sunwu County Sales of pesticides, agricultural
Xiangrong chemicals, chemical fertilizers,
Agricultural agricultural materials; Manufacture and
Materials Co., Ltd. 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
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 ofRMB45,000,000 (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 ofRMB 63,000,000 (approximately$9,909,900 ) with an annual fixed compound interest rate of 3% and term of three years.
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 inChina . 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 theChina Securities Regulatory Commission (the "CSRC") prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange. OnSeptember 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. 29 Results of Operations Three Months endedDecember 31, 2021 Compared to the Three Months endedDecember 31, 2020 . Change Change 2021 2020 $ % Sales Jinong$ 14,966,519 $ 14,901,875 64,644 0.4 % Gufeng 21,573,414 22,436,394 (862,980 ) -3.8 % Yuxing 2,819,203 2,682,195 137,008 5.1 % Sales VIEs 3,467,453 3,718,507 (251,054 ) -6.8 % Net sales 42,826,589 43,738,971 (912,382 ) -2.1 % Cost of goods sold Jinong 10,990,616 10,921,417 69,199 0.6 % Gufeng 19,144,888 19,846,423 (701,535 ) -3.5 % Yuxing 2,374,221 2,140,856 233,365 10.9 % Sales VIEs 3,040,779 3,277,876 (237,097 ) -7.2 % Cost of goods sold 35,550,504 36,186,572 (636,068 ) -1.8 % Gross profit 7,276,085 7,552,399 (276,314 ) -3.7 % Operating expenses Selling expenses 3,185,204 2,944,641 240,563 8.2 %
General and administrative expenses 32,418,068 43,149,969 (10,731,901 ) -24.9 % Total operating expenses 35,603,272 46,094,610 (10,491,338 ) -22.8 % Income (loss) from operations (28,327,187 ) (38,542,211
) 10,215,024 -26.5 % Other income (expense) Other income (expense) 462,076 (48,987 ) 511,063 -1043.3 % Interest income 31,219 20,836 10,384 49.8 % Interest expense (66,419 ) (67,185 ) 766 -1.1 %
Total other income (expense) 426,876 (95,336 ) 522,213 -547.8 % (Loss) before income taxes (27,900,310 ) (38,637,547 ) 10,737,237 -27.8 % Provision for income taxes 516,981 1,435,825 (918,844 ) -64.0 % Net (loss) from continuing operations$ (28,417,291 ) $ (40,073,372 ) 11,656,081 -29.1 % Net (loss) from discontinued operations (3,565,645 ) 36,708 (3,602,353 ) -9813.5 % Net (Loss) (31,982,936 ) (40,036,664
) 8,053,728 -20.1 %
Other comprehensive income (loss) Foreign currency translation gain (loss) 3,262,613 11,927,692
(8,665,079 ) -72.6 %
Comprehensive (loss) $ (28,720,323 ) $ (28,108,972 ) (611,351 ) 2.2 %
30
Net Sales
Total net sales for the three months ended December 31, 2021 were $42,826,589 a
decrease of $912,382 or 2.1%, from $43,738,971 for the three months ended
December 31, 2020 . 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 December 31, 2021 , Jinong's net sales increased
$64,644 , or 0.4%, to $14,966,519 from $14,901,875 for the three months ended
December 31, 2020 . This increase was mainly due to Jinong's higher sales price
in the last three months. Jinong's revenue per ton is $997 for the three months
ended December 31, 2021 , increased $307 or 44.6%, as compared to $690 for the
three months ended December 31, 2020 .
For the three months ended December 31, 2021 , Gufeng's net sales were
$21,573,414 , a decrease of $862,980 or 3.8%, from $22,436,394 for the three
months ended December 31, 2020 . This decrease was mainly due to Gufeng's lower
sales volume in the last three months. Gufeng sold approximately 59,007 metric
tons of fertilizer products for the three months ended December 31, 2021 ,
decreased 7,858 tons or 11.8%, as compared to 66,865 metric tons for the three
months ended December 31, 2020 .
For the three months ended
For the three months endedDecember 31, 2021 , VIEs' net sales were$3,467,453 , a decrease of$251,054 or 6.8%, from$3,718,507 for the three months endedDecember 31, 2020 . The decrease was mainly due to the decrease in market demand during the three months endedDecember 31, 2021 . Cost of Goods Sold Total cost of goods sold for the three months endedDecember 31, 2021 was$35,550,504 , a decrease of$636,068 , or 1.8%, from$36,186,572 for the three months endedDecember 31, 2020 . The decrease was mainly due to 10.9% decrease in Yuxing' cost of goods sold. Cost of goods sold by Jinong for the three months endedDecember 31, 2021 was$10,990,616 , an increase of$69,199 , or 0.6%, from$10,921,417 for the three months endedDecember 31, 2020 . The increase in cost of goods was primarily due to higher net sales in the fiscal year 2021. Cost of goods sold by Gufeng for the three months endedDecember 31, 2021 was$19,144,888 , a decrease of$701,535 , or 3.5%, from$19,846,423 for the three months endedDecember 31, 2020 . This decrease was primarily due to the 3.8% decrease in net sale in the fiscal year 2021. For three months endedDecember 31, 2021 , cost of goods sold by Yuxing was$2,374,221 , an increase of$233,365 , or 10.9%, from$2,140,856 for the three months endedDecember 31, 2020 . This increase was mainly due to Yuxing's higher net sales in the fiscal year 2021.
For three months ended
31
Gross Profit
Total gross profit for the three months ended December 31, 2021 decreased by
$276,314 , or 3.7%, to $7,276,085 , as compared to $7,552,399 for the three months
ended December 31, 2020 . Gross profit margin was 17.0% and 17.3% for the three
months Ended December 31, 2021 and 2020, respectively.
Gross profit generated by Jinong slightly decreased by $4,555 , or 0.1%, to
$3,975,903 for the three months ended December 31, 2021 from $3,980,458 for the
three months ended December 31, 2020 . Gross profit margin from Jinong's sales
was approximately 26.6% and 26.7% for the three months Ended December 31, 2021
and 2020, respectively. The decrease in gross profit margin was mainly due to
the higher product cost for Jinong in the fiscal year 2021.
For the three months ended December 31, 2021 , gross profit generated by Gufeng
was $2,428,526 , a decrease of $161,445 , or 6.2%, from $2,589,971 for the three
months ended December 31, 2020 . Gross profit margin from Gufeng's sales was
approximately 11.3% and 11.5% for the three months ended December 31, 2021 and 2020, respectively. For the three months endedDecember 31, 2021 , gross profit generated by Yuxing was$444,982 , a decrease of$96,357 , or 17.8% from$541,339 for the three months endedDecember 31, 2020 . The gross profit margin was approximately 15.8% and 20.2% for the three months endedDecember 31, 2021 and 2020, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs. Gross profit generated by VIEs decreased by$13,957 , or 3.2%, to$426,674 for the three months endedDecember 31, 2021 from$440,631 for the three months endedDecember 31, 2020 . Gross profit margin from VIE's sales was approximately 12.3% and 11.8% for the three months endedDecember 31, 2021 and 2020, respectively, which was slightly increased. 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$3,185,204 , or 7.4%, of net sales for the three months endedDecember 31, 2021 , as compared to$2,944,641 , or 6.7%, of net sales for the three months endedDecember 31, 2020 , an increase of$240,563 , or 8.2%. The increase in selling expense was caused by the increase in marketing activities. The selling expenses of Jinong for the three months endedDecember 31, 2021 were$2,873,376 or 19.2% of Jinong's net sales, as compared to selling expenses of$2,777,239 or 18.6% of Jinong's net sales for the three months endedDecember 31 , 2020.The selling expenses of Yuxing were$15,596 or 0.6% of Yuxing's net sales for the three months endedDecember 31, 2021 , as compared to$9,871 or 0.4% of Yuxing's net sales for the three months endedDecember 31, 2020 . The selling expenses of Gufeng were$77,980 or 0.4% of Gufeng's net sales for the three months endedDecember 31, 2021 , as compared to$73,249 or 0.3% of Gufeng's net sales for the three months endedDecember 31, 2020 .
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$32,418,068 , or 75.7% of net sales for the three months endedDecember 31, 2021 , as compared to$43,149,969 , or 98.7% of net sales for the three months endedDecember 31, 2020 , a decrease of$10,731,901 , or 24.9%. The decrease in general and administrative expenses was mainly due to lower bad debts expense. 32
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 endedDecember 31, 2021 was$426,876 , as compared to$95,336 total other expenses for the three months endedDecember 31, 2020 , an increase in income of$522,213 or 547.8%. The increase in total other income resulted from higher subsidy income and investment gain for three months endedDecember 31, 2021 . Income Taxes Jinong is subject to a preferred tax rate of 15% because of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law ("EIT") that became effective onJanuary 1, 2008 . Jinong incurred income tax expenses of 0 for the three months endedDecember 31, 2021 and 2020 due to
net loss.
Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the
three months ended
Yuxing has no income tax for the three months endedDecember 31, 2021 and 2020 because of being exempted from paying income tax due to its products fall into the tax exemption list set out in the EIT. Net income (loss)
Net (loss) for the three months endedDecember 31, 2021 was$(31,982,936) , a decrease in loss of$8,053,728 , or 20.1%, compared to net (loss) of$(40,036,664) for the three months endedDecember 31, 2020 . Net loss as a percentage of total net sales was approximately -74.7% and -91.5% for the three months endedDecember 31, 2021 and 2020, respectively. Net (loss) from continuing operations for the three months endedDecember 31, 2021 was$(28,417,291) , a decrease of loss with amount of$11,656,081 , or 29.1%, compared to net (loss) of$(40,073,372) for the three months endedDecember 31, 2020 . The decrease in net loss was mainly due to lower general and administrative expenses. Net income (loss) from discontinued operations for the three months endedDecember 31, 2021 was$(3,565,645) , a decrease of with amount of$3,602,353 , or 9,813.5%, compared to net income with amount of$36,708 for the three months endedDecember 31, 2020 . The decrease in net income was mainly due to lower sales. Six months endedDecember 31, 2021 Compared to the Six months endedDecember 31, 2020 . 2021 2020 Change $ Change % Sales Jinong$ 30,128,261 $ 29,431,187 697,074 2.4 % Gufeng 36,361,666 38,264,597 (1,902,931 ) -5.0 % Yuxing 5,708,097 5,105,683 602,414 11.8 % Sales VIEs 5,068,013 8,202,581 (3,134,568 ) -38.2 % Net sales 77,266,037 81,004,048 (3,738,011 ) -4.6 % Cost of goods sold Jinong 22,082,927 21,606,881 476,046 2.2 % Gufeng 32,002,150 33,824,240 (1,822,090 ) -5.4 % Yuxing 4,763,688 4,182,928 580,760 13.9 % Sales VIEs 4,349,477 6,800,222 (2,450,745 ) -36.0 % Cost of goods sold 63,198,242 66,414,271 (3,216,029 ) -4.8 % Gross profit 14,067,795 14,589,777 (521,982 ) -3.6 % Operating expenses Selling expenses 6,681,075 7,361,235 (680,160 ) -9.2 %
General and administrative expenses 48,813,393 74,098,894 (25,285,501 ) -34.1 % Total operating expenses 55,494,468 81,460,129 (25,965,661 ) -31.9 % Income (loss) from operations (41,426,673 ) (66,870,352
) 25,443,679 -38.0 % Other income (expense) Other income (expense) 459,231 (57,467 ) 516,698 -899.1 % Interest income 76,600 43,219 33,381 77.2 % Interest expense (138,518 ) (123,953 ) (14,565 ) 11.8 %
Total other income (expense) 397,313 (138,201 ) 535,514 -387.5 % (Loss) before income taxes (41,029,361 ) (67,008,554 ) 25,979,193 -38.8 % Provision for income taxes 629,004 2,951,140 (2,322,136 ) -78.7 % Net (loss) from continuing operations$ (41,658,365 ) $ (69,959,694 ) 28,301,329 -40.5 % Net (loss) from discontinued operations (5,401,779 ) (1,029,883 ) (4,371,896 ) 424.5 % Net (Loss) (47,060,144 ) (70,989,577
) 23,929,433 -33.7 %
Other comprehensive income (loss) Foreign currency translation gain (loss) 3,719,187 25,395,536
(21,676,349 ) -85.4 %
Comprehensive (loss) $ (43,340,957 ) $ (45,594,041 ) 2,253,084 -4.9 %
33
Net Sales
Total net sales for the six months endedDecember 31, 2021 were$77,266,037 a decrease of$3,738,011 or 4.6%, from$81,004,048 for the six months endedDecember 31, 2020 . This decrease was primarily due to a decrease in VIEs' net sales. For the six months endedDecember 31, 2021 , Jinong's net sales decreased$697,074 , or 2.4%, to$30,128,261 from$29,431,187 for the six months endedDecember 31, 2020 . This increase was mainly due to Jinong's higher sales price in the last six months. Jinong's revenue per ton is$989 for the six months endedDecember 31, 2021 , increased$159 or 19.2%, as compared to$830 for the three months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , Gufeng's net sales were$36,361,666 , a decrease of$1,902,931 , or 5.0%, from$38,264,597 for the six months endedDecember 31, 2020 . This decrease was mainly attributable to the decrease in Gufeng's sales volume in the last six months.
For the six months ended
For the six months ended
Cost of Goods Sold Total cost of goods sold for the six months endedDecember 31, 2021 was$63,198,242 , a decrease of$3,216,029 , or 4.8%, from$66,414,271 for the six months endedDecember 31, 2020 . The decrease was mainly due to the decrease in Gufeng's and VIEs' cost of goods sold which decreased 5.4% and 36.0% respectively.
Cost of goods sold by Jinong for the six months ended
Cost of goods sold by Gufeng for the six months ended
For six months ended
For six months ended
Gross Profit
Total gross profit for the six months endedDecember 31, 2021 decreased by$521,982 , or 3.6%, to$14,067,795 , as compared to$14,589,777 for the six months endedDecember 31, 2020 . Gross profit margin was 18.2% and 18.0% for the six months endedDecember 31, 2021 and 2020, respectively. Gross profit generated by Jinong increased by$221,028 or 2.8%, to$8,045,334 for the six months endedDecember 31, 2021 from$7,824,306 for the six months endedDecember 31, 2020 . Gross profit margin from Jinong's sales was approximately 26.7% and 26.6% for the six months endedDecember 31, 2021 and 2020, respectively. For the six months endedDecember 31, 2021 , gross profit generated by Gufeng was$4,359,516 , a decrease of$80,841 , or 1.8%, from$4,440,357 for the six months endedDecember 31, 2020 . Gross profit margin from Gufeng's sales was approximately 12.0% and 11.6% for the six months endedDecember 31, 2021 and 2020, respectively. The slightly increase in gross profit margin was mainly due to the increase in unit sales price. 34 For the six months endedDecember 31, 2021 , gross profit generated by Yuxing was$944,409 , an increase of$21,654 , or 2.3% from$922,755 for the six months endedDecember 31, 2020 . The gross profit margin was approximately 16.5% and 18.1% for the six months endedDecember 31, 2021 and 2020, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs. Gross profit generated by VIEs decreased by$683,823 , or 48.8%, to$718,536 for the six months endedDecember 31, 2021 from$1,402,359 for the six months endedDecember 31, 2020 . Gross profit margin from VIE's sales was approximately 14.2% and 17.1% for the six months endedDecember 31, 2021 and 2020, 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$6,681,075 , or 8.6%, of net sales for the six months endedDecember 31, 2021 , as compared to$7,361,235 , or 9.1% of net sales for the six months endedDecember 31, 2020 , a decrease of$680,160 or 9.2%. The selling expenses of Jinong for the six months endedDecember 31, 2021 were$6,203,367 or 20.6% of Jinong's net sales, as compared to selling expenses of$7,033,876 or 23.9% of Jinong's net sales for the six months endedDecember 31, 2020 . The selling expenses of Yuxing were$29,376 or 0.5% of Yuxing's net sales for the six months endedDecember 31, 2021 , as compared to$21,688 or 0.4% of Yuxing's net sales for the six months endedDecember 31, 2020 . The selling expenses of Gufeng were$163,561 or 0.4% of Gufeng's net sales for the six months endedDecember 31, 2021 , as compared to$140,730 or 0.4% of Gufeng's net sales for the six months endedDecember 31, 2020 .
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$48,813,393 , or 63.2% of net sales for the six months endedDecember 31, 2021 , as compared to$74,098,894 , or 91.5% of net sales for the six months endedDecember 31, 2020 , a decrease of$25,285,501 , or 34.1%.
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 six months endedDecember 31, 2021 was$397,313 , as compared to$138,201 total other expenses for the six months endedDecember 31, 2020 , an increase in income of$535,514 or 387.5%. The increase in total other income resulted from higher subsidy income and investment gain for six months endedDecember 31, 2021 . 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 onJanuary 1, 2008 . Jinong incurred income tax expenses of 0 for the six months endedDecember 31, 2021 , as compared to $$273,796 for the six months endedDecember 31, 2020 , a decrease of $$273,796, or 100.0%.
Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the
six months ended
Yuxing has no income tax for the six months endedDecember 31, 2021 and 2020 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. Net Income (loss)
Net (loss) for the six months endedDecember 31, 2021 was$(47,060,144) , a decrease of loss with amount of$23,929,433 , or 33.7%, compared to$(70,989,577) for the six months endedDecember 31, 2020 . The decrease was mainly due to lower general and administrative expenses. Net loss as a percentage of total net sales was approximately -60.9% and -87.6% for the six months endedDecember 31, 2021 and 2020, respectively.
Net (loss) from continuing operations for the six months ended
Net (loss) from discontinued operations for the six months endedDecember 31, 2021 was$(5,401,779) , a increase of loss with amount of$4,371,896 , or 424.5%, compared to net (loss) with amount of$(1,029,883) for the six months endedDecember 31, 2020 . The increase of net loss was mainly due to lower sales.
Discussion of Segment Profitability Measures
As ofDecember 31, 2021 , 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.
35
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$915,188 , or 17.3%, to$(6,205,995) for six months endedDecember 31, 2021 , from$(5,290,807) for the six months endedDecember 31, 2020 . The increase in net loss was principally due to higher general and administrative expense. For Gufeng, the net (loss) decreased by$30,895,460 or 50.6%, to$(30,114,176) for six months endedDecember 31, 2021 from$(61,009,636) for six months endedDecember 31, 2020 . The decrease of net loss was principally due to the decrease in general and administrative expense.
For Yuxing, the net income increased
For the sales VIEs, the net (loss) was$(5,098,641) for period endedDecember 31, 2021 , increased by$4,394,515 , or 624.1%, from$(704,126) for six months endedDecember 31, 2020 . The increase was mainly due to the increase in general and administrative expenses for the sales VIEs.
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
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 ofXi'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: Six Months EndedDecember 31, 2021 2020
Net cash provided by (used in) operating activities$ 1,640,536 $ (6,237,210 ) Net cash provided by (used in) investing activities 1,790,332 (212,290 ) Net cash provided by (used in) financing activities -
306,000
Effect of exchange rate change on cash and cash equivalents 1,582,358
4,035,108
Net increase in cash and cash equivalents 5,013,226 (2,108,392 ) Cash and cash equivalents, beginning balance 18,593,944
11,934,778
Cash and cash equivalents, ending balance$ 23,607,170
$ 9,826,386 Operating Activities
Net cash provided by operating activities was$1,640,536 for the six months endedDecember 31, 2021 , an increase of$7,877,746 , or 126.3%, from cash used in operating activities of$6,237,210 for the six months endedDecember 31, 2020 . The increase was mainly due to the decrease in net loss and the decrease in account receivable during the six months endedDecember 31, 2021 as compared to the same period in 2020. 36 Investing Activities
Net cash provided by investing activities for the six months endedDecember 31, 2021 was$1,790,332 , compared to cash used in investing activities of$212,290 for the six months endedDecember 31, 2020 . The increase was mainly due to the sales of discontinued operations and the Company received the fund during the six months endedDecember 31, 2021 . Financing Activities
Net cash provided by financing activities for the six months endedDecember 31, 2021 was 0, compared to$306,000 net cash provided by financing activities for the six months endedDecember 31, 2020 from short-loan. As ofDecember 31, 2021 andJune 30, 2021 , our loans payable was as follows: December 31, June 30, 2021 2021 Short term loans payable:$ 4,247,100 $ 4,179,600 Total$ 4,247,100 $ 4,179,600 Accounts Receivable We had accounts receivable of$74,786,136 as ofDecember 31, 2021 , as compared to$102,783,004 as ofJune 30, 2021 , a decrease of$27,996,868 , or 27.2%. The decrease was primarily attributable to Gufeng's accounts receivable and the discontinued of Lishijie and Fengnong. As ofDecember 31, 2021 , Gufeng's accounts receivable was$35,645,623 , a decrease of$2,409,388 , or 6.3%, compared to$38,055,011 as ofJune 30, 2021 . Allowance for doubtful accounts in accounts receivable for the six months endedDecember 31, 2021 was$35,171,602 , an increase of$11,432,615 or 48.2%, from$23,738,987 as ofJune 30, 2021 . And the allowance for doubtful accounts as a percentage of accounts receivable was 32.0% as ofDecember 31, 2021 and 18.8% as ofJune 30, 2021 . Deferred assets
We had no deferred assets as ofDecember 31, 2021 andJune 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 ofDecember 31, 2021 . Inventories We had inventories of$38,766,953 as ofDecember 31, 2021 , as compared to$64,315,903 as ofJune 30, 2021 , a decrease of$25,548,950 , or 39.7%. The decrease was primarily attributable to Gufeng's inventory. As ofDecember 31, 2021 , Gufeng's inventory was$11,364,711 , compared to$36,617,573 as ofJune 30, 2021 , a decrease of$25,252,862 , or 69.0%. Advances to Suppliers We had advances to suppliers of$26,999,738 as ofDecember 31, 2021 as compared to$23,884,772 as ofJune 30, 2021 , representing an increase of$3,114,966 , or 13.0%. 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. 37 Accounts Payable We had accounts payable of$6,402,013 as ofDecember 31, 2021 as compared to$16,868,942 as ofJune 30, 2021 , representing a decrease of$10,466,929 , or 62.0%. The decrease was primarily due to the decrease of accounts payable for VIEs due to the discontinued of Lishijie and Fengnong.
Unearned Revenue (Customer Deposits)
We had customer deposits of$6,434,068 as ofDecember 31, 2021 as compared to$6,257,215 as ofJune 30, 2021 , representing an increase of$176,853 , or 2.8%. This increase 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.
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 withUnited 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 inthe 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.
38
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 ofDecember 31, 2021 . 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 ofDecember 31, 2021 , 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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