CHINA GREEN AGRICULTURE, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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)Shaanxi Lishijie Agrochemical Co., Ltd. ("Lishijie"), a VIE controlled by Jinong through contractual agreements; (v)Songyuan Jinyangguang Sannong Service Co., Ltd. ("Jinyangguang"), a VIE in the PRC controlled by Jinong through contractual agreements; (vi)Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. ("Wangtian"), a VIE controlled by Jinong through contractual agreements; (vii)Aksu Xindeguo Agricultural Materials Co., Ltd. ("Xindeguo"), a VIE controlled by Jinong through contractual agreements; (vii)Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd ("Xinyulei"), a VIE controlled by Jinong through contractual agreements; (ix)Sunwu County Xiangrong Agricultural Materials Co., Ltd. ("Xiangrong"), a VIE controlled by Jinong through contractual agreements; (x)Anhui Fengnong Seed Co., Ltd. ("Fengnong"), a VIE controlled by Jinong through contractual agreements; (xi)Beijing Gufeng Chemical Products Co., Ltd. , a wholly-owned subsidiary of Jinong in the PRC ("Gufeng"); and (xii)Beijing Tianjuyuan Fertilizer Co., Ltd. , Gufeng's wholly-owned subsidiary in the PRC ("Tianjuyuan"). Yuxing, Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei,Xiangrong and Fengnong may also collectively be referred to as the "the VIE Companies"; Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei,Xiangrong and Fengnong 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 70.9% and 72.3% of our total revenues for the years endedJune 30, 2020 and 2019, respectively. The sales VIEs generated 25.4% and 24.3% of our revenues for the years endedJune 30, 2020 and 2019, respectively. Yuxing serves as a research and development base for our fertilizer products. 38 Fertilizer Products
As of
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:
Year Ended June 30, Change 2019 to 2020
2020 2019 Amount %
(metric tons)
Jinong 71,655 65,219 6,436 9.9 %
Gufeng 356,973 389,544 (32,571 ) -8.4 %
428,629 454,763 (26,135 ) -5.7 %
Year Ended June 30,
2020 2019
(revenue per tons)
Jinong $ 814 1,214
Gufeng 338 356
For the fiscal year ended June 30, 2020 , we sold approximately 428,629 metric
tons of fertilizer products, as compared to 454,763 metric tons for the fiscal
year ended June 30, 2019 . For the fiscal year ended June 30, 2020 , Jinong sold
approximately 71,655 metric tons of fertilizer products, as compared to 65,219
metric tons for the fiscal year ended June 30, 2019 . For the fiscal year ended
June 30, 2020 , Gufeng sold approximately 356,973 metric tons of fertilizer
products, as compared to 389,544 metric tons for the fiscal year ended June30, 2019. Our sales of fertilizer products to five provinces accounted for approximately 71.9% of our manufactured fertilizer revenue for year endedJune 30, 2020 . Specifically, the provinces and their respective percentage contributed to our fertilizer revenues wereHebei (35.7%),Heilongjiang (12.9%),Liaoning (10.7%),Inner Mongolia (9.8%) andShaanxi (2.8%). As ofJune 30, 2020 , we had a total of 1,823 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled municipalities inChina . Jinong had 995 distributors inChina . Jinong's sales are not dependent on any single distributor or any group of distributors. Jinong's top five distributors accounted for 3.4% of its fertilizer revenues for the fiscal year endedJune 30, 2020 . Gufeng had 330 distributors, including some large state-owned enterprises. Gufeng's top five distributors accounted for 82.1% of its revenues for the fiscal year endedJune 30, 2020 . 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 that accounted for 90.4% of our agricultural products revenue for the fiscal year endedJune 30, 2020 wereShaanxi (84.2%),Shanghai (3.6%) andBeijing (2.6%). Recent Developments
New products and distributors
During the three months endedJune 30, 2020 , Jinong launched no new fertilizer product. Jinong also added 61 new distributors and eliminated 223 unqualified distributors for the three months endedJune 30, 2020 . During the three months endedJune 30, 2020 , Gufeng launched no new fertilizer product and added two new distributors. 39 Strategic Acquisitions
On
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 chemicals, Agrochemical chemical fertilizers, agricultural materials; Co., Ltd. Manufacture and sales of mulches. 10,000,000 3,000,000 Songyuan Promotion and consulting services regarding Jinyangguang agricultural technologies; Retail sales of Sannong Service chemical fertilizers (including compound Co., Ltd. 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 preliminary processing and logistics
Agriculture Co., distribution of agricultural by-products;
Ltd. Promotion and application of agricultural
technologies; Purchase and sales of
agricultural materials; Electronic commerce. 3,000,000 12,000,000
Weinan City Promotion and application of new agricultural
Linwei District technologies; Professional prevention of
Wangtian plant diseases and insect pests; Sales of
Agricultural plant protection products, plastic mulches,
Materials Co., material, chemical fertilizers, pesticides,
Ltd. 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., seeds, agricultural mulches, micronutrient
Ltd. 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 Sales of chemical fertilizers, packaged
Xinyulei seeds, agricultural mulches, micronutrient
Eco-agriculture fertilizers, organic fertilizers, plant
Science and growth regulators, agricultural machineries,
Technology Co., and water economizers; Purchase and sales of
Ltd 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.
40
January 1, 2017 :
Cash Principal of
Payment for Notes for
Acquisition AcquisitionCompany Name Business Scope (RMB[1])
(RMB)
Sunwu County Sales of pesticides, agricultural
4,000,000 6,000,000
Anhui Fengnong Wholesale and retail sales of pesticides; Seed 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 of 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$6,367,500 ) 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$8,914,500 ) 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. 41 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. Results of Operations
Fiscal Year ended
FOR THE YEARS ENDED JUNE 30
Change Change
2020 2019 $ %
Sales
Jinong 57,001,659 76,494,490 (19,492,831 ) -25.5 %
Gufeng 119,623,964 136,285,236 (16,661,272 ) -12.2 %
Yuxing 9,227,113 10,101,051 (873,938 ) -8.7 %
Sales VIEs 63,390,760 71,440,026 (8,049,266 ) -11.3 %
Net sales 249,243,496 294,320,803 (45,077,307 ) -15.3 %
Cost of goods sold
Jinong 37,730,361 38,962,752 (1,232,391 ) -3.2 %
Gufeng 105,203,118 120,369,401 (15,166,283 ) -12.6 %
Yuxing 7,935,849 8,631,544 (695,695 ) -8.1 %
Sales VIEs 53,623,590 61,714,426 (8,090,836 ) -13.1 %
Cost of goods sold 204,492,918 229,678,123 (25,185,205 ) -11.0 %
Gross profit 44,750,578 64,642,680 (19,892,102 ) -30.8 %
Operating expenses
Selling expenses 13,900,315 23,266,121 (9,365,806 ) -40.3 %
General and administrative expenses 165,022,621 22,571,811 142,450,809 631.1 %
Total operating expenses 178,922,936 45,837,932 133,085,003 290.3 %
Income from operations (134,172,358 ) 18,804,748 (152,977,105 ) -813.5 %
Other income (expense)
Other income (expense) (107,579 ) (443,533 ) 335,954 -75.7 %
Interest income 176,799 321,645 (144,845 ) -45.0 %
Interest expense (304,071 ) (595,125 ) 291,054 -48.9 %
Total other income (expense) (234,851 ) (717,013 ) 482,163 -67.2 %
Income before income taxes (134,407,208 ) 18,087,735 (152,494,943 ) -843.1 %
Provision for income taxes 2,344,928 6,497,340 (4,152,412 ) -63.9 %
Net income (136,752,136 ) 11,590,395 (148,342,531 ) -1279.9 %
Other comprehensive income (loss)
Foreign currency translation gain (loss) (14,442,878 ) (16,222,996 ) 1,780,118 -11.0 %
Comprehensive income (loss) (151,195,014 ) (4,632,601 ) (146,562,413 ) 3163.7 %
Basic weighted average shares outstanding 5,619,788 3,388,529 2,231,259 65.8 %
Basic net earnings per share (24.33 ) 3.42 (27.75 ) -811.4 %
Diluted weighted average shares outstanding 5,619,788 3,388,529 2,231,259 65.8 % Diluted net earnings per share
(24.33 ) 3.42 (27.75 ) -811.4 %
42
Net Sales
Total net sales for the fiscal year endedJune 30, 2020 were$249,243,496 , a decrease of$45,077,307 or 15.3%, from$294,320,803 for the fiscal year endedJune 30, 2019 . This decrease was principally a result of the negative impact on sales volumes due to the COVID-19 pandemic in the second half of fiscal year 2020, especially for Jinong's and Gufeng's net sales. For the fiscal year endedJune 30, 2020 , Jinong's net sales decreased$19,492,831 , or 25.5%, to$57,001,659 from$76,494,490 for the fiscal year endedJune 30, 2019 . This decrease was mainly attributable to the decrease in Jinong's unit sales price during the last fiscal year. Jinong's revenue per ton was$814 for the fiscal year endedJune 30, 2020 , a decrease of$400 or 32.9% from$1,214 for the fiscal year endedJune 30, 2019 . For the fiscal year endedJune 30, 2020 , Gufeng's net sales were$119,623,964 , a decrease of$16,661,272 , or 12.2% from$136,285,236 , for the fiscal year endedJune 30, 2019 . The decrease was mainly attributable to the decrease in Gufeng's sales volume during the last fiscal year due to the negative impacts of COVID-19. Gufeng sold 356,973 tons product during the fiscal year 2020, a decrease of 32,571 tons or 8.4% comparing with 389,544 tons for fiscal year 2019. For the fiscal year endedJune 30, 2020 , Yuxing's net sales were$9,227,113 , a decrease of$873,938 , or 8.7%, from$10,101,051 for the fiscal year endedJune 30, 2019 . The decrease was mainly attributable to the decrease in market demand and the effects of COVID-19 pandemic during the fiscal year 2020. For the fiscal year endedJune 30, 2020 , VIEs' net sales were$63,390,760 , a decrease of$8,049,266 or 11.3%, from$71,440,026 for the fiscal year endedJune 30, 2019 . The decrease was due primarily to lower Xinyulei's net sales, partially offset by higherXiangrong and Fengnong's net sales. Cost of Goods Sold Total cost of goods sold for the fiscal year endedJune 30, 2020 was$204,492,918 , a decrease of$25,185,205 , or 11.0%, from$229,678,123 for the fiscal year endedJune 30, 2019 . This decrease was due primarily to lower cost of goods sold for Gufeng and VIEs. Cost of goods sold by Jinong for the fiscal year endedJune 30, 2020 was$37,730,361 , a decrease of$1,232,391 , or 3.2%, from$38,962,752 , for the fiscal year endedJune 30, 2019 . The decrease in cost of goods was mainly due to the decrease in Jinong's net sales during the fiscal year 2020. Cost of goods sold by Gufeng for the fiscal year endedJune 30, 2020 was$105,203,118 , a decrease of$15,166,283 , or 12.6%, from$120,369,401 , for the fiscal year endedJune 30, 2019 . This decrease was primarily due to a decrease in its sales volume during the fiscal year 2020. For year endedJune 30, 2020 , cost of goods sold by Yuxing was$7,935,849 , a decrease of$695,695 , or 8.1%, from$8,631,544 for the fiscal year endedJune 30, 2019 . This decrease was mainly due to the decrease in Yuxing's net sales during the fiscal year 2020. Cost of goods sold by the sales VIEs for the fiscal year endedJune 30, 2020 was$53,623,590 , a decrease of$8,090,836 , or 13.1%, from$61,714,426 , for the fiscal year endedJune 30, 2019 . This decrease was primarily due to Xinyulei, partially offset byXiangrong and Fengnong. Gross Profit
Total gross profit for the fiscal year ended
Gross profit generated by Jinong decreased by$18,260,440 , or 48.7%, to$19,271,298 for the fiscal year endedJune 30, 2020 from$37,531,738 for the fiscal year endedJune 30, 2019 . Gross profit margin from Jinong's sales was approximately 33.8% and 49.1% for the fiscal years endedJune 30, 2020 and 2019, respectively. The decrease in gross profit margin was mainly due to higher product costs and lower unit sales. For the fiscal year endedJune 30, 2020 , gross profit generated by Gufeng was$14,420,846 , a decrease of$1,494,989 , or 9.4%, from$15,915,835 for the fiscal year endedJune 30, 2019 . Gross profit margin from Gufeng's sales was approximately 12.1% and 11.7% for the fiscal years endedJune 30, 2020 and 2019, respectively. The decrease in gross profit margin was mainly due to lower net sales. For the fiscal year endedJune 30, 2020 , gross profit generated by Yuxing was$1,291,264 , a decrease of$178,243 , or 12.1% from$1,469,507 for the fiscal year endedJune 30, 2019 . The gross profit margin was approximately 14.0% and 14.5% for the fiscal years endedJune 30, 2020 and 2019, respectively. The decrease in gross profit percentage was mainly due to higher product costs and lower unit sales.
Gross profit generated by VIEs increased by$41,570 , or 0.4%, to$9,767,170 for the fiscal year endedJune 30, 2020 from$9,725,600 for the fiscal year endedJune 30, 2019 . Gross profit margin from VIE's sales was approximately 15.4% and 13.6% for the fiscal year endedJune 30, 2020 and 2019, respectively. 43 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$13,900,315 , or 5.6%, of net sales for the fiscal year endedJune 30, 2020 , as compared to$23,266,121 , or 7.9% of net sales, for the fiscal year endedJune 30, 2019 , a decrease of$9,365,806 , or 40.3%. The selling expenses of Jinong for the fiscal year endedJune 30, 2020 were$12,405,107 , or 21.8% of Jinong's net sales, as compared to selling expenses of$20,869,761 , or 27.3% of Jinong's net sales for the fiscal year endedJune 30, 2019 . The decrease in Jinong's selling expenses was due to Jinong's further shrunken marketing efforts, which led to the decrease in shipping costs and packaging cost. The selling expenses of Yuxing were$48,147 , or 0.5% of Yuxing's net sales for the fiscal year endedJune 30, 2020 , as compared to$59,541 , or 0.6%, of Yuxing's net sales for the fiscal year endedJune 30, 2019 . The selling expenses of Gufeng were$293,841 , or 0.2% of Gufeng's net sales for the fiscal year endedJune 30, 2020 , as compared to$412,377 , or 0.3% of Gufeng's net sales for the fiscal year endedJune 30, 2019 . The selling expenses of VIEs were$1,153,220 , or 1.8%, of VIEs' net sales for the fiscal year endedJune 30, 2020 , as compared to$1,924,441 , or 2.7%, of VIEs' net sales for the fiscal year endedJune 30, 2019 .
Selling Expenses - amortization of deferred assets
Our selling expenses - amortization of our deferred assets were 0 for the fiscal year endedJune 30, 2020 and 2019. All the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets for the fiscal year endedJune 30, 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$165,022,621 , or 66.2% of net sales for the fiscal year endedJune 30, 2020 , as compared to$22,571,811 , or 7.7%, of net sales for the fiscal year endedJune 30, 2019 , an increase of$142,450,809 , or 631.1%. The increase in general and administrative expenses was mainly due to higher bad debts expense. The fierce competition in the fertilizer market caused the decline of domestic agricultural product unit sales price. With the impact of COVID-19 pandemic, the overdue outstanding accounts receivable increased significantly comparing with the previous years. Numerous distributors encountered significant difficulties and/or hardships in their businesses amid the pandemic. The company accrued bad debts expense based on the principle of conservatism, which increased the General and Administrative Expenses. Besides, Gufeng suffered from product damage and quality problems for the fiscal year endedJune 30, 2020 . After internal discussion, we had agreement with dealers to confirm some accounts receivable as bad debts, therefore the General and Administrative Expenses increased accordingly. Gufeng had$131,953,344 of general and administrative expenses for the fiscal year endedJune 30, 2020 , an increase of$130,526,541 , or 9148.2%, as compared to$1,426,803 of general and administrative expenses for the fiscal year endedJune 30, 2019 . Total Other Expenses Total other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other expense for the fiscal year endedJune 30, 2020 was$234,851 , as compared to$717,013 for the fiscal year endedJune 30, 2019 , a decrease in expense of$482,163 , or 67.2%. The decrease in total other expense mainly resulted from a decrease in accretion expense by$370,036 or 89.9%, to$41,707 during the year endedJune 30, 2020 , as compared to$411,743 during the year endedJune 30, 2019 . Accretion expense decreased due primarily to the expiration of convertible notes onDecember 2019 and no accretion expense for the second half of fiscal year 2020. Income Taxes Jinong is subject to a preferred tax rate of 15% because of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law ("EIT") that became effective onJanuary 1, 2008 . Jinong has income tax expense of$(2,721,559) for the fiscal year endedJune 30, 2020 due to net loss, as compared to$1,045,593 for the fiscal year endedJune 30, 2019 , a decrease
of$3,767,152 or 360.3%.
Gufeng is subject to a tax rate of 25%, and has income tax expense of
Yuxing has no income tax for the years ended
Net Income (Loss) Net income (loss) for the fiscal year endedJune 30, 2020 was$(136,752,136) , a decrease of$148,342,531 , or 1279.9%, compared to$11,590,395 for the fiscal year endedJune 30, 2019 . The decrease was mainly due to the significantly increase in General and administrative expense with amount of$142,450,809 . Net income (loss) as a percentage of total net sales was approximately -54.9% and 3.9 % for the fiscal years endedJune 30, 2020 and 2019, respectively.
Discussion of Segment Profitability Measures
As ofJune 30, 2020 , 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. 44 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 produced from the various general ledger systems; however, net income by segment is the principal benchmark to measure profit or loss adopted by the CODM. For Jinong, net income decreased 360.3%, by$21,347,191 to$(15,422,166) for the year endedJune 30, 2020 , from$5,925,025 for the fiscal year endedJune 30, 2019 . The difference was due to the decrease in net sales and increase in general and administrative expenses. For Gufeng, net income decreased by$95,855,135 or 1336.4% to$(88,682,298) for the year endedJune 30, 2020 from$7,172,837 for year endedJune 30, 2019 . The difference was primarily due to higher general and administrative expenses. For Yuxing, net income increased 112.4%, by$3,861,616 , to$425,957 for the year endedJune 30, 2020 from$(3,435,659) for year endedJune 30, 2019 . The increase of net income was mainly due to lower general and administrative expense. For the sales VIEs, the net income was$2,153,503 for year endedJune 30, 2020 , increased by$1,424,480 or 195.4%, from$729,023 for year endedJune 30, 2019 . The increase was mainly due to higher selling expenses of VIEs.
Liquidity and Capital Resources
Our principal sources of liquidity include cash from operations, borrowings from local commercial banks and net proceeds of offerings of our securities consummated inJuly 2009 and November/December 2009 (collectively the "Public Offerings").
As of
We intend to use some of the remaining net proceeds from the Public Offerings, as well as other working capital if required, to acquire new businesses, upgrade production lines and complete Yuxing's new greenhouse facilities for agriculture products located on 88 acres of land in Hu County, 18 kilometers southeast ofXi'an city. Yuxing purchased a set of agricultural products testing equipment for the year of 2016. We believe that we have sufficient cash on hand and positive projected cash flow from operations to support our business growth for the next twelve months to the extent we do not have further significant acquisitions or expansions. However, if events or circumstances occur and we do not meet our operating plan as expected, we may be required to seek additional capital and/or to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market conditions are most advantageous, which may include additional debt and/or equity financings. There can be no assurance that any additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants. The following table sets forth a summary of our cash flows for the periods indicated: Year Ended June 30, 2020 2019 Net cash provided by (used in) operating activities$ (66,196,484 ) $ (71,410,847 ) Net cash provided by (used in) investing activities (97,483 ) (47,395 ) Net cash provided by (used in) financing activities 9,751,265 7,761,950 Effect of exchange rate change on cash and cash equivalents (3,782,324 ) (14,849,542 ) Net increase (decrease) in cash and cash equivalents (60,325,026 ) (78,545,834 ) Cash and cash equivalents, beginning balance 72,259,804 150,805,639 Cash and cash equivalents, ending balance$ 11,934,778 $ 72,259,804 Operating Activities Net cash used in operating activities was$66,196,484 for the fiscal year endedJune 30, 2020 , a decrease of$5,214,363 , or 7.3% from cash provided by operating activities of$71,410,847 for the fiscal year endedJune 30, 2019 . The decrease was mainly attributable to lower inventories as ofJune 30, 2020 , comparing
toJune 30, 2019 . Investing Activities Net cash used in investing activities for the fiscal year endedJune 30, 2020 was$97,483 , an increase of$50,088 , or 105.7%, from cash used in investing activities of$47,395 for the fiscal year endedJune 30, 2019 . This increase was mainly attribute to more fixed assets purchase in 2020. 45 Financing Activities
Net cash provided by financing activities for the fiscal year ended
The
increase was mainly due to the proceeds from the sale of common stock with total amount of$10,252,000 . During the year endedJune 30, 2020 , we received$3,537,500 from the proceeds from loans compared to$3,640,000 of proceeds from loans for the fiscal year endedJune 30, 2019 . During the year endedJune 30, 2020 , we repaid$3,575,500 loans compared to$4,557,280 of loans repayment for the fiscal year endedJune 30, 2019 . During the year endedJune 30, 2020 , we repaid$1,110,735 convertible notes by cash compared to 0 payment for the fiscal year endedJune 30, 2019 .
As of
2020 2019
Short term loans payable: $ 3,537,500 $ 3,640,000
Total $ 3,537,500 $ 3,640,000
Accounts Receivable
We had accounts receivable of$144,159,526 as ofJune 30, 2020 , as compared to$178,705,570 as ofJune 30, 2019 , a decrease of$34,546,044 or 19.3%. As ofJune 30, 2020 , Gufeng had accounts receivable of$49,567,960 , a decrease of$35,864,203 , or 42.0%, compared to$85,432,163 as ofJune 30, 2019 . As ofJune 30, 2020 , VIEs had accounts receivable of$45,997,247 , an increase of$6,369,977 , or 16.1%, compared to$39,627,270 as ofJune 30, 2019 . Allowance for doubtful accounts in accounts receivable for the fiscal year endedJune 30, 2020 was$38,466,200 , an increase of$4,950,790 or 14.8% from$33,515,410 as ofJune 30, 2019 . And the allowance for doubtful accounts as a percentage of accounts receivable was 26.7% as ofJune 30, 2020 and 18.8% as ofJune 30, 2019 . The impact of COVID-19 caused the difficulty of accounts receivable collection, resulting in higher allowance for doubtful accounts
of the company, Deferred Assets We had no deferred assets as ofJune 30, 2020 and 2019. During the twelve 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 of June
30, 2020. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires the Company to use the assets and liability method of accounting for income taxes. Under the assets and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forward. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, a deferred tax asset will not be realized. ASC 740-10, Accounting for Uncertainty in Income Taxes defines uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Inventories We had inventories of$98,921,081 as ofJune 30, 2020 , compared to$162,013,889 as ofJune 30, 2019 , a decrease of$63,092,808 , or 38.9%. The principal reason for the decrease is due to the decrease of Gufeng's inventory. As ofJune 30, 2020 , Gufeng's inventory was$75,129,594 , compared to$141,210,160 as ofJune 30, 2019 , a decrease of$66,080,566 , or 46.8%. In the second and third quarters of fiscal year 2020, the bad weather lasted a long time in Pinggu, which is a mountainous area where Gufeng locates. The frequent rainfall and snowfall caused damage to Gufeng's warehouse. As a result, the inventories were seriously damaged. After comprehensive consideration and evaluation, the company confirmed the loss of$11 million of raw materials in the second and third quarters of fiscal year 2020. Advances to Suppliers
We had advances to suppliers of$65,081,818 as ofJune 30, 2020 , comparing to$32,713,817 as ofJune 30, 2019 , representing an increase of$32,368,001 , or 98.9%. Our inventory level may fluctuate from time to time, depending how fast the raw material is consumed and replenished during the production process, and how fast the finished goods are sold. The replenishment of raw material relies on the management's estimate of numerous factors, including but not limited to, the raw materials future price, and spot price along with their 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 slow sales and insufficient inventories in peak times. 46 Accounts Payable We had accounts payable of$17,719,093 as ofJune 30, 2020 as compared to$19,004,548 as ofJune 30, 2019 , representing a decrease of$1,285,455 , or 6.8%. The decrease was primarily due to lower accounts payable for VIEs. It has account payable of$16,315,837 as ofJune 30, 2020 , comparing to$17,073,229 as ofJune 30, 2019 , representing a decrease of$757,392 , or 4.4%.
Unearned Revenue (Customer Deposit)
We had unearned revenue of$7,342,590 as ofJune 30, 2020 , comparing to$6,514,619 as ofJune 30, 2019 , representing an increase of$827,971 , or 12.7%. The increase was mainly attributable to Gufeng's$5,611,017 unearned revenue as ofJune 30, 2020 , comparing to$4,668,972 unearned revenue as ofJune 30, 2019 , representing an increase of$942,045 , or 20.2%, caused by the advancement of deposits made by client. 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 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 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 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 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 and outcomes may differ from management's estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the recent outbreak of COVID-19.
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. Assets held for sale Assets held for sale represent certain equipment from our Jintai facility that has been relocated. The carrying amount of the assets held for sale equals the fair value of the assets less disposal costs. These assets were sold prior
toJune 30, 2020 . 47 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 ofJune 30, 2020 . 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 ofJune 30, 2020 , we were organized into ten main business units: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production), Lishijie (agriculture sales), Jinyangguang (agriculture sales), Wangtian (agriculture sales), Xindeguo (agriculture sales), Xinyulei (agriculture sales), Fengnong (agriculture sales) andXiangrong (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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