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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-Q)

12/30/2020 | 05:18pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes to those financial statements
appearing elsewhere in this report. This discussion and analysis contain
forward-looking statements that involve significant risks and uncertainties. As
a result of many factors, such as the slow-down of the macro-economic
environment 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 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
production (Yuxing).



The fertilizer business conducted by Jinong and Gufeng generated approximately
68.7% and 69.6% of our total revenues for the three months Ended September 30,
2020 and 2019, respectively. The sales VIEs generated 25.8% and 25.4% of our
revenues for the three months Ended September 30, 2020 and 2019, respectively.
Yuxing serves as a research and development base for our fertilizer products.



                                       25





Fertilizer Products



As of September 30, 2020, we had developed and produced 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:



           Three Months Ended
              September 30,            Change 2019 to 2020
            2020          2019          Amount           %
              (metric tons)
Jinong       15,871       18,623           (2,752 )     -14.8 %
Gufeng       44,824       52,451           (7,627 )     -14.5 %
             60,695       71,074          (10,379 )     -14.6 %




           Three Months Ended
              September 30,
           2020           2019
           (revenue per tons)
Jinong    $   930        $ 1,035
Gufeng        345            311



For the three months ended September 30, 2020, we sold approximately 60,695 tons
of fertilizer products, as compared to 71,704 metric tons for the three months
ended September 30, 2019. For the three months ended September 30, 2020, Jinong
sold approximately 15,871 metric tons of fertilizer products, as compared to
18,623 metric tons for the three months ended September 30, 2019. For the three
months ended September 30, 2020, Gufeng sold approximately 44,824 metric tons of
fertilizer products, as compared to52, 451 metric tons for the three months
ended September 30, 2019.



Our sales of fertilizer products to customers in five provinces within China
accounted for approximately 59.7% of our fertilizer revenue for the three months
ended September 30, 2020. Specifically, the provinces and their respective
percentage contributing to our fertilizer revenues were Hebei (26.2%),
Heilongjiang (10.9%), Inner Mongolia (9.1%), Liaoning (8.5%) and Shaanxi (4.9%).



As of September 30, 2020, we had a total of 1,924 distributors covering 22
provinces, 4 autonomous regions and 4 central government-controlled
municipalities in China. Jinong had 1,096 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 5.2% of its fertilizer revenues for
the three months ended September 30, 2020. Gufeng had 330 distributors,
including some large state-owned enterprises. Gufeng's top five distributors
accounted for 81.0% of its revenues for the three months ended September 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 and municipalities that accounted for 95.2% of our
agricultural products revenue for the three months ended September 30, 2020 were
Shaanxi (87.8%), Shanghai (5.7%), and Beijing (1.7%).



Recent Developments



New Products


During the three months ended September 30, 2020, Jinong did not launch any new
fertilizer product and added 101 new distributors. During the three months ended
September 30, 2020, Gufeng did not launch any new fertilizer products and did
not add any new distributor.



Strategic Acquisitions



On June 30, 2016 and January 1, 2017, through Jinong, we entered (i) Strategic
Acquisition Agreements (the "SAA"), and (ii) Agreements for Convertible Notes
(the "ACN"), with the shareholders of the companies as identified below (the
"Targets").



                                       26





June 30, 2016:



                                                                     Cash         Principal of
                                                                 Payment for        Notes for
                                                                 Acquisition       Acquisition
Company Name       Business Scope                                  (RMB[1])

(RMB)

                   Sales of pesticides, agricultural
Shaanxi Lishijie   chemicals, chemical fertilizers,
Agrochemical       agricultural materials; Manufacture and
Co., Ltd.          sales of mulches.                               10,000,000         3,000,000

                   Promotion and consulting services regarding
                   agricultural technologies; Retail sales of
                   chemical fertilizers (including compound
                   fertilizers and organic fertilizers);
                   Wholesale and retail sales of pesticides,
                   agricultural machinery and accessories;
                   Collection of agricultural information;
                   Development of saline-alkali soil;
                   Promotion and development of
                   high-efficiency agriculture and related
                   information technology solutions for
                   agriculture, agricultural and biological
                   engineering high technologies; E-commerce;
                   Cultivation of freshwater fish, poultry,
                   fruits, flowers, vegetables, and seeds;
Songyuan           Recycling and complex utilization of straw
Jinyangguang       and stalk; Technology transfer and
Sannong Service    training; Recycling of agricultural
Co., Ltd.          materials ; Ecological industry planning.        8,000,000        12,000,000

                   Cultivation of crops; Storage, sales,
                   preliminary processing and logistics
                   distribution of agricultural by-products;
Shenqiu County     Promotion and application of agricultural
Zhenbai            technologies; Purchase and sales of
Agriculture Co.,   agricultural materials; Electronic
Ltd.               commerce.                                        3,000,000        12,000,000

                   Promotion and application of new
                   agricultural technologies; Professional
                   prevention of plant diseases and insect
Weinan City        pests; Sales of plant protection products,
Linwei District    plastic mulches, material, chemical
Wangtian           fertilizers, pesticides, agricultural
Agricultural       medicines, micronutrient fertilizers,
Materials Co.,     hormones, agricultural machinery and
Ltd.               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
Technology Co.,    machineries, and water economizers;
Ltd                Purchase and sales of agricultural
                   by-products; Cultivation of fruits and
                   vegetables; Consulting services and
                   training for agricultural technologies;
                   Storage services; Sales of articles of
                   daily use, food and oil; On-line sales of
                   the above-mentioned products.

Total                                                              37,000,000        51,000,000



(1) The exchange rate between RMB and 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.




                                       27





January 1, 2017:



                                                                     Cash         Principal of
                                                                 Payment for        Notes for
                                                                 Acquisition       Acquisition
Company Name       Business Scope                                  (RMB[1])

(RMB)

Sunwu County Xiangrong Sales of pesticides, agricultural Agricultural chemicals, chemical fertilizers, Materials Co., agricultural materials; Manufacture and Ltd.

               sales of mulches.                                

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 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 $6,291,000) 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 $8,807,400) 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.



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.



                                       28





Results of Operations



Three Months ended September 30, 2020 Compared to the Three Months ended
September 30, 2019.



                                               2020              2019            Change $         Change %
Sales
Jinong                                     $  14,529,312     $  19,054,816        (4,525,504 )        -23.7 %
Gufeng                                        15,828,203        16,323,217          (495,014 )         -3.0 %
Yuxing                                         2,423,488         2,539,711          (116,223 )         -4.6 %
Sales VIEs                                    11,377,229        12,903,827        (1,526,598 )        -11.8 %
Net sales                                     44,158,232        50,821,571        (6,663,339 )        -13.1 %
Cost of goods sold
Jinong                                        10,685,464        10,492,530           192,934            1.8 %
Gufeng                                        13,977,817        14,454,008          (476,191 )         -3.3 %
Yuxing                                         2,042,072         2,051,996            (9,924 )         -0.5 %
Sales VIEs                                     9,141,210        10,663,790        (1,522,580 )        -14.3 %
Cost of goods sold                            35,846,563        37,662,324        (1,815,761 )         -4.8 %
Gross profit                                   8,311,669        13,159,247        (4,847,578 )        -36.8 %
Operating expenses
Selling expenses                               4,711,956         3,630,355         1,081,601           29.8 %
General and administrative expenses           32,944,096        16,341,792        16,602,304          101.6 %
Total operating expenses                      37,656,052        19,972,147        17,683,905           88.5 %
Income (loss) from operations                (29,344,383 )      (6,812,900
)     (22,531,483 )        330.7 %
Other income (expense)
Other income (expense)                            (5,165 )         (30,191 )          25,026          -82.9 %
Interest income                                   22,405            53,624           (31,219 )        -58.2 %
Interest expense                                 (56,768 )         (77,202 )          20,434          -26.5 %
Total other income (expense)                     (39,528 )         (53,769 )          14,241          -26.5 %
Income (loss) before income taxes            (29,383,911 )      (6,866,668 )     (22,517,242 )        327.9 %
Provision for income taxes                     1,569,003           449,131         1,119,872          249.3 %
Net income (loss)                          $ (30,952,914 )   $  (7,315,799 )     (23,637,114 )        323.1 %
Other comprehensive income (loss)
Foreign currency translation gain (loss)      13,467,844       (17,367,485 )      30,835,329         -177.5 %
Comprehensive income (loss)                $ (17,485,070 )   $ (24,683,284
)       7,198,125          -29.2 %




                                       29





Net Sales



Total net sales for the three months ended September 30, 2020 were $44,158,232 a
decrease of $6,663,339 or 13.1%, from $50,821,571 for the three months ended
September 30, 2019. This decrease was principally a result of the negative
impact on sales volumes due to the COVID-19 pandemic, especially for Jinong's
and VIEs' net sales.


For the three months ended September 30, 2020, Jinong's net sales decreased
$4,525,504, or 23.7%, to $14,529,312 from $19,054,816 for the three months ended
September 30, 2019. This decrease was mainly due to Jinong's lower sales volume
in the last three months. Jinong sold approximately 15,871 metric tons of
fertilizer products for the three months ended September 30, 2020, decreased
2,752 tons or 14.8%, as compared to 18,623 metric tons for the three months
ended September 30, 2019.



For the three months ended September 30, 2020, Gufeng's net sales were
$15,828,203, a decrease of $495,014, or 3.0%, from $16,323,217 for the three
months ended September 30, 2019. This decrease was mainly due to Gufeng's lower
sales volume in the last three months. Gufeng sold approximately 44,824 metric
tons of fertilizer products for the three months ended September 30, 2020,
decreased 7,627 tons or 14.5%, as compared to 52,451 metric tons for the three
months ended September 30, 2019.



For the three months ended September 30, 2020, Yuxing's net sales were
$2,423,488, a decrease of $116,223 or 4.6%, from $2,539,711 for the three months
ended September 30, 2019. The decrease was mainly due to the decrease in market
demand during the three months ended September 30, 2020.



Cost of Goods Sold


Total cost of goods sold for the three months ended September 30, 2020 was
$35,846,563, a decrease of $1,815,761, or 4.8%, from $37,662,324 for the three
months ended September 30, 2019. The decrease was mainly due to 14.3% decrease
in VIEs' cost of goods sold.


Cost of goods sold by Jinong for the three months ended September 30, 2020 was
$10,685,464, an increase of $192,934, or 1.8%, from $10,492,530 for the three
months ended September 30, 2019. The increase in cost of goods was primarily due
to higher product cost in the fiscal year 2021.



Cost of goods sold by Gufeng for the three months ended September 30, 2020 was
$13,977,817, a decrease of $476,191, or 3.3%, from $14,454,008 for the three
months ended September 30, 2019. This decrease was primarily due to the 3.0%
decrease in net sale in the fiscal year 2021.



For three months ended September 30, 2020, cost of goods sold by Yuxing was
$2,042,072, a decrease of $9,924, or 0.5%, from $2,051,996 for the three months
ended September 30, 2019. This decrease was mainly due to Yuxing's lower net
sales in the fiscal year 2021.



Gross Profit


Total gross profit for the three months ended September 30, 2020 decreased by
$4,847,578, or 36.8%, to $8,311,669, as compared to $13,159,247 for the three
months ended September 30, 2019. Gross profit margin was 18.8% and 25.9% for the
three Months Ended September 30, 2020 and 2019, respectively.



Gross profit generated by Jinong decreased by $4,718,438, or 55.1%, to
$3,843,848 for the three months ended September 30, 2020 from $8,562,286 for the
three months ended September 30, 2019. Gross profit margin from Jinong's sales
was approximately 26.5% and 44.9% for the three Months Ended September 30, 2020
and 2019, respectively. The decrease in gross profit margin was mainly due to
the lower sales prices and higher product cost for Jinong in the fiscal year
2021. Jinong's revenue per ton was $930 for three months ended September 30,
2020, decreased $106 or 10.2%, compared to $1,035 for three months ended
September 30, 2019.



For the three months ended September 30, 2020, gross profit generated by Gufeng
was $1,850,386, a decrease of $18,823, or 1.0%, from $1,869,209 for the three
months ended September 30, 2019. Gross profit margin from Gufeng's sales was
approximately 11.7% and 11.5% for the three Months Ended September 30, 2020 and
2019, respectively. The increase in gross profit percentage was mainly due to
the increase in unit sales price. Gufeng's revenue per ton was $345 for three
months ended September 30, 2020, increased $34 or 11.0%, compared to $311 for
three months ended September 30, 2019.



                                       30





For the three months ended September 30, 2020, gross profit generated by Yuxing
was $381,416, a decrease of $106,299, or 21.8% from $487,715 for the three
months ended September 30, 2019. The gross profit margin was approximately 15.7%
and 19.2% for the three months Ended September 30, 2020 and 2019, respectively.
The decrease in gross profit percentage was mainly due to the increase in
product costs.



Gross profit generated by VIEs decreased by $4,017, or 0.2%, to $2,236,020 for
the three months ended September 30, 2020 from $2,240,037 for the three months
ended September 30, 2019. Gross profit margin from VIE's sales was approximately
19.7% and 17.4% for the three months Ended September 30, 2020 and 2019,
respectively, which was slightly increased.



Selling Expenses



Our selling expenses consisted primarily of salaries of sales personnel,
advertising and promotion expenses, freight-out costs and related compensation.
Selling expenses were $4,711,956, or 10.7%, of net sales for the three months
ended September 30, 2020, as compared to $3,630,355, or 7.1%, of net sales for
the three months ended September 30, 2019, an increase of $1,081,601, or 29.8%.
The increase was mainly due to $907,840 increase in advertising and promotion
expense for Jinong to respond lower market demand in the fiscal year 2021.



The selling expenses of Jinong for the three months ended September 30, 2020
were $4,256,637 or 29.3% of Jinong's net sales, as compared to selling expenses
of $3,300,195 or 17.3% of Jinong's net sales for the three months ended
September 30, 2019. The selling expenses of Yuxing were $11,817 or 0.5% of
Yuxing's net sales for the three months ended September 30, 2020, as compared to
$9,352 or 0.4% of Yuxing's net sales for the three months ended September 30,
2019. The selling expenses of Gufeng were $67,481 or 0.4% of Gufeng's net sales
for the three months ended September 30, 2020, as compared to $69,291 or 0.4% of
Gufeng's net sales for the three months ended September 30, 2019.



General and Administrative Expenses




General and administrative expenses consisted primarily of related salaries,
rental expenses, business development, depreciation and travel expenses incurred
by our general and administrative departments and legal and professional
expenses including expenses incurred and accrued for certain litigation. General
and administrative expenses were $32,944,096, or 74.6% of net sales for the
three months ended September 30, 2020, as compared to $16,341,792, or 32.2% of
net sales for the three months ended September 30, 2019, an increase of
$16,602,304, or 101.6%. The increase in general and administrative expenses was
mainly due to higher bad debts expense for Gufeng. Gufeng's bad debts expense
increased $19,648,882 for the three months ended September 30, 2020 comparing
with same period last year. 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 business amid the pandemic. The company accrued bad
debts expense based on the principle of conservatism, which increased the
General and Administrative Expenses.



                                       31




Total Other Income (Expenses)




Total other income (expenses) consisted of income from subsidies received from
the PRC government, interest income, interest expenses and bank charges. Total
other expense for the three months ended September 30, 2020 was $39,528, as
compared to $53,769 for the three months ended September 30, 2019, a decrease in
expense of $14,241 or 26.5%. The decrease in total other expense resulted from
lower accretion expense. Accretion expense decreased due primarily to the
expiration of convertible notes on December 2019 and no accretion expense for
fiscal year 2021.



Income Taxes



Jinong is subject to a preferred tax rate of 15% because of its business being
classified as a High-Tech project under the PRC Enterprise Income Tax Law
("EIT") that became effective on January 1, 2008. Jinong incurred income tax
expenses of $267,890 for the three months ended September 30, 2020, as compared
to $92,488 for the three months ended September 30, 2019, an increase of
$175,402, or 189.6%.



Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the
three months ended September 30, 2020, as compared to $(68,276) for the three
months ended September 30, 2019, an increase of $68,276, or 100.0%.



Yuxing has no income tax for the three months Ended September 30, 2020 and 2019
because of being exempted from paying income tax due to its products fall into
the tax exemption list set out in the EIT.



Net income (loss)


Net loss for the three months ended September 30, 2020 was $30,952,914, an
increase in loss of $23,637,114, or 323.1%, compared to net loss of $7,315,799
for the three months ended September 30, 2019. Net loss as a percentage of total
net sales was approximately -70.1% and -14.4% for the three months Ended
September 30, 2020 and 2019, respectively.



Discussion of Segment Profitability Measures

As of September 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.


                                       32





Each of the four operating segments referenced above has separate and distinct
general ledgers. The chief operating decision maker ("CODM") makes decisions
with respect to resources allocation and performance assessment upon receiving
financial information, including revenue, gross margin, operating income and net
income (loss) produced from the various general ledger systems; however, net
income (loss) by segment is the principal benchmark to measure profit or loss
adopted by the CODM.


For Jinong, the net income increased by $993,942, or 189.6%, to $1,518,043 for
three months ended September 30, 2020, from $524,101 for the three months ended
September 30, 2019. The increase was principally due to lower general and
administrative expense.



For Gufeng, the net loss increased by $19,681,716, or 171.0%, to $(31,193,670)
for three months ended September 30, 2020 from $(11,511,954) for three months
ended September 30, 2019. The increase was principally due to the increase in
general and administrative expense.



For Yuxing, the net income decreased $17,646, or 11.4%, to $136,909 for three
months ended September 30, 2020 from $154,555 for three months ended September
30, 2019. The decrease was mainly due to lower sales.



For the sales VIEs, the net income (loss) was $(31,272) for period ended September 30, 2020, decreased by $3,899,762, or 100.8%, from $3,868,490 for three months ended September 30, 2019. The decrease was mainly due to the increase in general and administrative expenses for the sales VIEs.

Liquidity and Capital Resources

Our principal sources of liquidity include cash from operations, borrowings from local commercial banks and net proceeds of offerings of our securities.

As of September 30, 2020, cash and cash equivalents were $12,831,922, an increase of $897,144, or 7.5%, from $11,934,778 as of June 30, 2020.




We intend to use some of the remaining net proceeds from our securities
offerings, as well as other working capital if required, to acquire new
businesses, upgrade production lines and complete Yuxing's new greenhouse
facilities for agriculture products located on 88 acres of land in Hu County, 18
kilometers southeast 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:



                                                                    Three Months Ended
                                                                       September 30,
                                                                   2020             2019
Net cash provided by (used in) operating activities            $ (1,653,512 )   $  3,079,634
Net cash provided by (used in) investing activities                 (29,967 )        (18,596 )
Net cash provided by (used in) financing activities                 294,400

10,731,600

Effect of exchange rate change on cash and cash equivalents 2,286,224

       (3,098,502 )
Net increase in cash and cash equivalents                           897,145

10,694,136

Cash and cash equivalents, beginning balance                     11,934,778

72,259,804

Cash and cash equivalents, ending balance                      $ 12,831,923
    $ 82,953,940




Operating Activities



Net cash used in operating activities was $1,653,512 for the three months ended
September 30, 2020, a decrease of $4,733,146, or 153.7%, from cash provided by
operating activities of $3,079,634 for the three months ended September 30,
2019. The decrease was mainly due to a decrease in net income (loss) and
increase in inventory during the three months ended September 30, 2020 as
compared to the same period in 2019.



                                       33





Investing Activities


Net cash used in investing activities for the three months ended September 30,
2020 was $29,967, compared to cash used in investing activities of $18,596 for
the three months ended September 30, 2019. The different was due to Company
purchased more plant, property and equipment during the last three months
compared to the same period last year.



Financing Activities



Net cash provided by financing activities for the three months ended September
30, 2020 was $294,400, compared to $10,731,600 net cash provided in financing
activities for the three months ended September 30, 2019, which was largely
attribute to $10,252,000 proceeds from the sale of common stock for the three
months ended September 30, 2019, compared to 0 in the same period this year.



As of September 30, 2020 and June 30, 2020, our loans payable was as follows:



                             September 30,       June 30,
                                 2020              2020
Short term loans payable:   $     3,974,400     $ 3,537,500
Total                       $     3,974,400     $ 3,537,500




Accounts Receivable



We had accounts receivable of $109,201,762 as of September 30, 2020, as compared
to $105,693,326 as of June 30, 2020, an increase of $3,508,436, or 3.3%. The
increase was primarily attributable to Jinong's accounts receivable. As of
September 30, 2020, Jinong's accounts receivable was $26,032,559, an increase of
$3,635,110, or16.2%, compared to $22,397,449 as of June 30, 2020.



Allowance for doubtful accounts in accounts receivable for the three months
ended September 30, 2020 was $24,860,835, a decrease of $13,605,365, or 35.4%,
from $38,466,220 as of June 30, 2020. And the allowance for doubtful accounts as
a percentage of accounts receivable was 18.5% as of September 30, 2020 and
26.7%
as of June 30, 2020.



Deferred assets



We had no deferred assets as of September 30, 2020 and June 30, 2020. During the
three months, we assisted the distributors in certain marketing efforts and
developing standard stores to expand our competitive advantage and market
shares. Based on the distributor agreements, the amount owed by the distributors
in certain marketing efforts and store development will be expensed over three
years if the distributors are actively selling our products. If a distributor
defaults, breaches, or terminates the agreement with us earlier than the
contractual terms, the unamortized portion of the amount owed by the distributor
is payable to us immediately. The deferred assets had been fully amortized
as of
September 30, 2020.



Inventories


We had inventories of $107,895,317 as of September 30, 2020, as compared to
$98,921,081 as of June 30, 2020, an increase of $8,974,236, or 9.1%. The
increase was primarily attributable to Gufeng's inventory. As of September 30,
2020, Gufeng's inventory was $84,400,261, compared to $75,129,594 as of June 30,
2020, an increase of $9,270,667, or 12.3%.



Advances to Suppliers



We had advances to suppliers of $38,142,857 as of September 30, 2020 as compared
to $65,081,818 as of June 30, 2020, representing a decrease of $26,938,961, or
41.4%. Our inventory level may fluctuate from time to time, depending how
quickly the raw material is consumed and replenished during the production
process, and how soon the finished goods are sold. The replenishment of raw
material relies on management's estimate of numerous factors, including but not
limited to, the raw materials future price, and spot price along with
its volatility, as well as the seasonal demand and future price of finished
fertilizer products. Such estimate may not be accurate, and the purchase
decision of raw materials based on the estimate can cause excessive inventories
in times of slow sales and insufficient inventories in peak times.



                                       34





Accounts Payable


We had accounts payable of $19,534,919 as of September 30, 2020 as compared to
$17,719,093 as of June 30, 2020, representing an increase of $1,815,826, or
10.2%. The increase was primarily due to the increase of accounts payable for
VIEs. They have accounts payable of $17,643,645 as of September 30, 2020 as
compared to $16,315,837 as of June 30, 2020, representing an increase of
$1,327,808, or 8.1%.



Unearned Revenue (Customer Deposits)

We had customer deposits of $9,223,513 as of September 30, 2020 as compared to
$7,342,590 as of June 30, 2020, representing an increase of $1,880,923, or
25.6%. The increase was mainly attributable to Jinong's $2,337,177 unearned
revenue as of September 30, 2020, compared to $1,645,143 unearned revenue as of
June 30, 2020, increased $692,034, or 42.1%, caused by the advance deposits made
by clients. This increase was due to seasonal fluctuation and we expect to
deliver products to our customers during the next three months at which time we
will recognize the revenue.


Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial condition and results of
operations are based upon our unaudited condensed consolidated financial
statements, which have been prepared in accordance 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 unaudited condensed
consolidated financial statements, "Basis of Presentation and Summary of
Significant Accounting Policies." We believe that the following paragraphs
reflect the most critical accounting policies that currently affect our
financial condition and results of operations:



Use of estimates


The preparation of unaudited condensed consolidated financial statements in
conformity with accounting principles generally accepted 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 unaudited condensed consolidated financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those estimates.



Revenue recognition


Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, we have no other significant obligations and collectability is reasonably assured. Payments received before all the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.




Our revenue consists of invoiced value of goods, net of a value-added tax (VAT).
No product return or sales discount allowance is made as products delivered and
accepted by customers are normally not returnable and sales discounts are
normally not granted after products are delivered.



Cash and cash equivalents



For statement of cash flows purposes, we consider all cash on hand and in banks,
certificates of deposit and other highly-liquid investments with maturities of
three months or less, when purchased, to be cash and cash equivalents.



Accounts receivable


Our policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Any accounts receivable of Jinong and
Gufeng that are outstanding for more than 180 days will be accounted as
allowance for bad debts, and any accounts receivable of Yuxing that are
outstanding for more than 90 days will be accounted as allowance for bad debts.



                                       35





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 September 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 September 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 130 M 130 M -
EV / Sales 2019 -0,13x
EV / Sales 2020 0,04x
Nbr of Employees -
Free-Float -
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