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Dynamic quotes 
OFFON

CHINA GREEN AGRICULTURE, INC.

(CGA)
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CHINA GREEN AGRICULTURE : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

12/07/2020 | 05:23pm EDT
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 in China 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 by U.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 ("Green
New Jersey"), a wholly-owned subsidiary of Green Nevada incorporated in the
State 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'an Hu 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 to the People's Republic of China; (ii) "U.S. dollar," "$" and "US$" are to
United States dollars; and (iii) "RMB", "Yuan" and Renminbi are to the currency
of the PRC or China.



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 ended June 30, 2020 and
2019, respectively. The sales VIEs generated 25.4% and 24.3% of our revenues for
the years ended June 30, 2020 and 2019, respectively. Yuxing serves as a
research and development base for our fertilizer products.



                                       38






Fertilizer Products


As of June 30, 2020, we had developed, produced, and sold a total of 730 different fertilizer products in use, of which 145 were developed and produced by Jinong, 334 by Gufeng, and 251 by the VIE companies.

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 June
30,
2019.



Our sales of fertilizer products to five provinces accounted for approximately
71.9% of our manufactured fertilizer revenue for year ended June 30,
2020. Specifically, the provinces and their respective percentage contributed to
our fertilizer revenues were Hebei (35.7%), Heilongjiang (12.9%), Liaoning
(10.7%), Inner Mongolia (9.8%) and Shaanxi (2.8%).



As of June 30, 2020, we had a total of 1,823 distributors covering 22 provinces,
4 autonomous regions and 4 central government-controlled municipalities in
China. Jinong had 995 distributors in China. 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
ended June 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 ended June 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 ended June 30, 2020 were Shaanxi (84.2%), Shanghai
(3.6%) and Beijing (2.6%).



Recent Developments


New products and distributors




During the three months ended June 30, 2020, Jinong launched no new fertilizer
product. Jinong also added 61 new distributors and eliminated 223 unqualified
distributors for the three months ended June 30, 2020. During the three months
ended June 30, 2020, Gufeng launched no new fertilizer product and added two new
distributors.



                                       39






Strategic Acquisitions


On June 30, 2016 and January 1, 2017, through Jinong, we entered into (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 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 U.S. dollars on June 30, 2016 is

RMB1=US$0.1508, according to the exchange rate published by Bank of China.

(2) On November 30, 2017, the Company, through its wholly-owned subsidiary

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       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., sales of mulches. Ltd.

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 U.S. dollars on January 1, 2017 is

RMB1=US$0.144, according to the exchange rate published by Bank of China.





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 of RMB45,000,000 (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 of RMB
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 in China.
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 the China Securities Regulatory Commission
(the "CSRC") prior to the listing and trading of such special purpose vehicle's
securities on an overseas stock exchange. On September 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 June 30, 2020 Compared to the Year ended June 30, 2019.




                          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 ended June 30, 2020 were $249,243,496, a
decrease of $45,077,307 or 15.3%, from $294,320,803 for the fiscal year ended
June 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 ended June 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 ended
June 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 ended June 30, 2020, a decrease of $400 or 32.9% from $1,214
for the fiscal year ended June 30, 2019.



For the fiscal year ended June 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 ended
June 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 ended June 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 ended June
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 ended June 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 ended June
30, 2019. The decrease was due primarily to lower Xinyulei's net sales,
partially offset by higher Xiangrong and Fengnong's net sales.



Cost of Goods Sold



Total cost of goods sold for the fiscal year ended June 30, 2020 was
$204,492,918, a decrease of $25,185,205, or 11.0%, from $229,678,123 for the
fiscal year ended June 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 ended June 30, 2020 was
$37,730,361, a decrease of $1,232,391, or 3.2%, from $38,962,752, for the fiscal
year ended June 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 ended June 30, 2020 was
$105,203,118, a decrease of $15,166,283, or 12.6%, from $120,369,401, for the
fiscal year ended June 30, 2019. This decrease was primarily due to a decrease
in its sales volume during the fiscal year 2020.



For year ended June 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 ended June
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 ended June 30, 2020 was
$53,623,590, a decrease of $8,090,836, or 13.1%, from $61,714,426, for the
fiscal year ended June 30, 2019. This decrease was primarily due to Xinyulei,
partially offset by Xiangrong and Fengnong.



Gross Profit


Total gross profit for the fiscal year ended June 30, 2020 decreased by $19,892,102 to $44,750,578, as compared to $64,642,680 for the fiscal year ended June 30, 2019. Gross profit margin was 18.0% and 22.0% for the fiscal years ended June 30, 2020 and 2019, respectively.




Gross profit generated by Jinong decreased by $18,260,440, or 48.7%, to
$19,271,298 for the fiscal year ended June 30, 2020 from $37,531,738 for the
fiscal year ended June 30, 2019. Gross profit margin from Jinong's sales was
approximately 33.8% and 49.1% for the fiscal years ended June 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 ended June 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 ended June 30, 2019. Gross profit margin from Gufeng's sales was
approximately 12.1% and 11.7% for the fiscal years ended June 30, 2020 and 2019,
respectively. The decrease in gross profit margin was mainly due to lower net
sales.



For the fiscal year ended June 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
ended June 30, 2019. The gross profit margin was approximately 14.0% and 14.5%
for the fiscal years ended June 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 ended June 30, 2020 from $9,725,600 for the fiscal year ended
June 30, 2019. Gross profit margin from VIE's sales was approximately 15.4% and
13.6% for the fiscal year ended June 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
ended June 30, 2020, as compared to $23,266,121, or 7.9% of net sales, for the
fiscal year ended June 30, 2019, a decrease of $9,365,806, or 40.3%. The selling
expenses of Jinong for the fiscal year ended June 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 ended June 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 ended June 30, 2020, as compared to $59,541, or 0.6%, of
Yuxing's net sales for the fiscal year ended June 30, 2019. The selling expenses
of Gufeng were $293,841, or 0.2% of Gufeng's net sales for the fiscal year ended
June 30, 2020, as compared to $412,377, or 0.3% of Gufeng's net sales for the
fiscal year ended June 30, 2019. The selling expenses of VIEs were $1,153,220,
or 1.8%, of VIEs' net sales for the fiscal year ended June 30, 2020, as compared
to $1,924,441, or 2.7%, of VIEs' net sales for the fiscal year ended June 30,
2019.


Selling Expenses - amortization of deferred assets




Our selling expenses - amortization of our deferred assets were 0 for the fiscal
year ended June 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 ended June 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 ended June 30, 2020, as compared to $22,571,811, or 7.7%, of net
sales for the fiscal year ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2020 was $234,851, as compared to
$717,013 for the fiscal year ended June 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
ended June 30, 2020, as compared to $411,743 during the year ended June 30,
2019. Accretion expense decreased due primarily to the expiration of convertible
notes on December 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 on January 1, 2008. Jinong has income tax expense
of $(2,721,559) for the fiscal year ended June 30, 2020 due to net loss, as
compared to $1,045,593 for the fiscal year ended June 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 $(29,485,768) for the fiscal year ended June 30, 2020 due to net loss, as compared to $3,482,862 for the fiscal year ended June 30, 2019, a decrease of $32,968,630, or 946.6%.

Yuxing has no income tax for the years ended June 30, 2020 and 2019 because it is exempted from paying income tax due to its products falling into the tax exemption list set out in the EIT.



Net Income (Loss)



Net income (loss) for the fiscal year ended June 30, 2020 was $(136,752,136), a
decrease of $148,342,531, or 1279.9%, compared to $11,590,395 for the fiscal
year ended June 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 ended June 30, 2020 and 2019, respectively.



Discussion of Segment Profitability Measures




As of June 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 ended June 30, 2020, from $5,925,025 for the fiscal year ended June 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 ended June 30, 2020 from $7,172,837 for year ended June 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
ended June 30, 2020 from $(3,435,659) for year ended June 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 ended June 30, 2020,
increased by $1,424,480 or 195.4%, from $729,023 for year ended June 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 in July 2009 and November/December 2009 (collectively the "Public
Offerings").


As of June 30, 2020, cash and cash equivalents were $11,934,778, a decrease of $60,325,026, or 83.5%, from $72,259,804 as of June 30, 2019.




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 of
Xi'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 ended
June 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 ended June 30, 2019. The decrease
was mainly attributable to lower inventories as of June 30, 2020, comparing
to
June 30, 2019.



Investing Activities



Net cash used in investing activities for the fiscal year ended June 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 ended June 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 June 30, 2020 was $9,751,265, an increase of $1,989,315, or 25.6% from cash used in financing activities of $7,761,950 for the fiscal year ended June 30, 2019.

The

increase was mainly due to the proceeds from the sale of common stock with total
amount of $10,252,000. During the year ended June 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 ended June 30, 2019. During the year ended June 30,
2020, we repaid $3,575,500 loans compared to $4,557,280 of loans repayment for
the fiscal year ended June 30, 2019. During the year ended June 30, 2020, we
repaid $1,110,735 convertible notes by cash compared to 0 payment for the fiscal
year ended June 30, 2019.


As of June 30, our loans payable was as follows:




                               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 of June 30, 2020, as compared to
$178,705,570 as of June 30, 2019, a decrease of $34,546,044 or 19.3%. As of June
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 of June 30, 2019. As of June
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 of June 30, 2019.



Allowance for doubtful accounts in accounts receivable for the fiscal year ended
June 30, 2020 was $38,466,200, an increase of $4,950,790 or 14.8% from
$33,515,410 as of June 30, 2019. And the allowance for doubtful accounts as a
percentage of accounts receivable was 26.7% as of June 30, 2020 and 18.8% as of
June 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 of June 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 of June 30, 2020, compared to $162,013,889
as of June 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 of June 30,
2020, Gufeng's inventory was $75,129,594, compared to $141,210,160 as of June
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 of June 30, 2020, comparing to
$32,713,817 as of June 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 of June 30, 2020 as compared to
$19,004,548 as of June 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 of June 30, 2020, comparing to $17,073,229 as
of June 30, 2019, representing a decrease of $757,392, or 4.4%.



Unearned Revenue (Customer Deposit)




We had unearned revenue of $7,342,590 as of June 30, 2020, comparing to
$6,514,619 as of June 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 of June 30, 2020, comparing to $4,668,972 unearned revenue as of June
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 with United 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 in the 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
to
June 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 of June 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 of June 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) and Xiangrong
(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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Financials (USD)
Sales 2020 249 M - -
Net income 2020 -137 M - -
Net cash 2020 7,41 M - -
P/E ratio 2020 -0,12x
Yield 2020 -
Capitalization 121 M 121 M -
EV / Sales 2019 -0,13x
EV / Sales 2020 0,04x
Nbr of Employees -
Free-Float -
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