UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended March 31, 2022

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from ____________ to ____________

 

Commission File Number 001-34260

 

CHINA GREEN AGRICULTURE, INC. 

(Exact name of registrant as specified in its charter)

 

Nevada   36-3526027
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

3rd floor, Borough A, Block A. No. 181, South Taibai 

Road, Xi’an, Shaanxi province, PRC 710065 

(Address of principal executive offices) (Zip Code)

 

+86-29-88266368

(Issuer’s telephone number, including area code)

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   CGA    NYSE 

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,141,467 shares of common stock, $0.001 par value, as of July 1, 2022.

 

 

 

 

 

 

TABLE OF CONTENTS

 

   

Page

Number

PART I FINANCIAL INFORMATION 1
     
Item 1. Financial Statements (unaudited) 1
     
  Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2022 and 2021 2
     
  Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2022 and 2021 3
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022 and 2021 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
     
Item 4. Controls and Procedures 44
     
PART II OTHER INFORMATION 45
     
Item 6. Exhibits 45
     
Signatures 46
   
Exhibits/Certifications 47

 

i

 

 

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

 

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. You can identify such forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements may include, among other things, statements relating to:

 

  our expectations regarding the market for our products and services;

 

  our expectations regarding the continued growth of our industry;

 

  our beliefs regarding the competitiveness of our products;

 

  our expectations regarding the expansion of our manufacturing capacity;

 

  our expectations with respect to increased revenue growth and our ability to maintain profitability resulting from increases in our production volumes;

 

  our future business development, results of operations and financial condition;

 

  competition from other fertilizer and plant producers;

 

  the loss of any member of our management team;

 

  our ability to integrate acquired subsidiaries and operations into existing operations;

 

  market conditions affecting our equity capital;

 

  our ability to successfully implement our selective acquisition strategy;

 

  changes in general economic conditions;

 

  changes in accounting rules or the application of such rules;

 

  any failure to comply with the periodic filing and other requirements of The New York Stock Exchange, or NYSE, for continued listing,

 

  any failure to identify and remediate the material weaknesses or other deficiencies in our internal control and disclosure control over financial reporting;

 

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report, in their entirety and with the understanding that our actual future results may be materially different from what we expect.

 

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 

ii

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31,
2022
    June 30,
2021
 
             
ASSETS            
Current Assets            
Cash and cash equivalents   $ 51,436,395     $ 18,593,944  
Accounts receivable, net     40,158,928       102,783,004  
Inventories, net     51,565,520       64,315,903  
Prepaid expenses and other current assets     19,184,756       8,093,808  
Amount due from related parties     3,126       42,757  
Advances to suppliers, net     37,877,927       23,884,772  
Total Current Assets     200,226,652       217,714,188  
                 
Plant, property and equipment, net     20,488,830       22,221,016  
Other assets     472,533       497,365  
Other non-current assets     8,460,119       9,888,518  
Intangible assets, net     15,798,974       16,407,651  
Total Assets   $ 245,447,108     $ 266,728,738  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable   $ 1,858,302     $ 16,868,942  
Customer deposits     5,803,179       6,257,215  
Accrued expenses and other payables     94,715,138       13,598,821  
Amount due to related parties     5,238,700       4,976,689  
Taxes payable     26,875,545       32,542,494  
Short term loans     4,247,100       4,179,600  
Interest payable     806,949       794,124  
Total Current Liabilities     139,544,914       79,217,885  
                 
Total Liabilities   $ 139,544,914       79,217,885  
                 
Stockholders’ Equity                
Preferred Stock, $.001 par value, 20,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively    
-
     
-
 
Common stock, $.001 par value, 115,197,165 shares authorized, 8,487,629 and 8,487,629 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively     8,488       8,488  
Additional paid-in capital     170,223,195       170,223,195  
Statutory reserve     26,010,243       27,673,245  
Retained earnings     (89,288,503 )     (5,812,533 )
Accumulated other comprehensive income (loss)     (1,051,228     (4,581,541 )
Total Stockholders’ Equity     105,902,195       187,510,853  
                 
Total Liabilities and Stockholders’ Equity   $ 245,447,108     $ 266,728,738  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

 

    Three Months Ended
March 31,
    Nine Months Ended
March 31,
 
    2022     2021     2022     2021  
Sales                        
Jinong   $ 13,385,022     $ 15,818,610       43,513,283     $ 45,249,797  
Gufeng     45,205,467       48,438,434       81,567,133       86,703,031  
Yuxing     2,548,383       3,055,588       8,256,480       8,161,271  
Net sales     61,138,872       67,312,632       133,336,896       140,114,099  
Cost of goods sold                                
Jinong     9,729,576       11,543,109       31,812,503       33,149,990  
Gufeng     39,522,883       41,979,484       71,525,033       75,803,724  
Yuxing     2,148,522       2,441,868       6,912,210       6,624,796  
Cost of goods sold     51,400,981       55,964,461       110,249,746       115,578,510  
Gross profit     9,737,891       11,348,171       23,087,150       24,535,589  
Operating expenses                                
Selling expenses     2,348,169       2,728,022       8,744,473       9,924,316  
General and administrative expenses     39,363,132       24,509,953       82,685,580       97,067,252  
Total operating expenses     41,711,301       27,237,975       91,430,053       106,991,568  
(Loss) from operations     (31,973,410 )     (15,889,804 )     (68,342,903 )     (82,455,979 )
Other income (expense)                                
Other (expense)     1,389,374       342       1,848,889       (56,984 )
Interest income     53,634       18,671       129,512       61,144  
Interest expense     (65,278 )     (57,316 )     (203,707 )     (181,269 )
Total other (expense)     1,377,730       (38,303 )     1,774,694       (177,109 )
(Loss) from continuing operations before income taxes     (30,595,680 )     (15,928,107 )     (66,568,209 )     (82,633,088 )
Provision for income taxes    
-
      (90,064 )     587,195       2,460,523  
(Loss) from continuing operations     (30,595,680 )     (15,838,043 )     (67,155,404 )     (85,093,611 )
Net income (loss) from discontinued operations, net of taxes     (7,483,147 )     1,023,254       (17,983,567 )     (710,755 )
Net (loss)     (38,078,827 )     (14,814,789 )     (85,138,971 )     (85,804,366 )
                                 
Other comprehensive income (loss)                                
Foreign currency translation gain (loss)     (188,874     (59,215 )     3,530,313       25,336,321  
comprehensive income (loss)   $ (38,267,701 )   $ (14,874,004 )     (81,608,658 )   $ (60,468,044 )
                                 
Basic weighted average shares outstanding     8,487,629       6,350,129       8,487,629       6,350,129  
Basic net earnings per share – from continuing operations   $ (3.60 )   $ (2.49 )     (7.91 )   $ (13.40 )
Basic net earnings per share – from discontinued operations     (0.88 )     0.16       (2.12 )     (0.11 )
Basic net earnings per share   $ (4.49 )   $ (2.33 )     (10.03 )   $ (13.51 )
                                 
Diluted weighted average shares outstanding     8,487,629       6,350,129       8,487,629       6,350,129  
Diluted net earnings per share – from continuing operations   $ (3.60 )   $ (2.49 )     (7.91 )   $ (13.40 )
Diluted net earnings per share – from discontinued operations     (0.88 )     0.16       (2.12 )     (0.11 )
Diluted net earnings per share   $ (4.49 )   $ (2.33 )     (10.03 )   $ (13.51 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

 

    Number           Additional                 Accumulated
Other
    Total  
    Of     Common     Paid In     Statutory     Retained     Comprehensive     Stockholders’  
    Shares     Stock     Capital     Reserve     Earnings     Income (loss)     Equity  
BALANCE, DECEMBER 31, 2021     8,487,629     $ 8,488     $ 170,223,195     $ 26,925,274     $ (52,124,706 )   $ (862,354 )   $ 144,169,896  
                                                         
Net income (loss)                                     (38,078,827 )             (38,078,827 )
                                                         
Transfer to statutory reserve                             (915,031 )     915,031              
-
 
                                                         
Other comprehensive income (loss)                                             (188,874 )     (188,874 )
                                                         
BALANCE, MARCH 31, 2022     8,487,629     $ 8,488     $ 170,223,195     $ 26,010,243     $ (89,288,503 )   $ (1,051,228 )   $ 105,902,195  

 

    Number           Additional                 Accumulated
Other
    Total  
    Of     Common     Paid In     Statutory     Retained     Comprehensive     Stockholders’  
    Shares     Stock     Capital     Reserve     Earnings     Income (loss)     Equity  
BALANCE, DECEMBER 31, 2020     6,350,129     $ 6,350     $ 155,455,332       29,245,366       41,373,386       (8,868,553 )     217,211,881  
                                                         
Net income (loss)                                     (14,814,789 )             (14,814,789 )
                                                         
Transfer to statutory reserve                             (437,122 )     437,122              
-
 
                                                         
Other comprehensive income (loss)                                             (59,125 )     (59,125 )
                                                         
BALANCE, MARCH 31, 2021     6,350,129     $ 6,350     $ 155,455,332     $ 28,808,244     $ 26,995,719     $ (8,927,768 )   $ 202,337,877  

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED MARCH 31, 2022 AND 2021  

 

    Number           Additional                 Accumulated
Other
    Total  
    Of     Common     Paid In     Statutory     Retained     Comprehensive     Stockholders’  
    Shares     Stock     Capital     Reserve     Earnings     Income (loss)     Equity  
BALANCE, JUNE 30, 2021     8,487,629     $ 8,488     $ 170,223,195     $ 27,673,245     $ (5,812,533 )   $ (4,581,541 )   $ 187,510,853  
                                                         
Net income (loss)                                     (85,138,971 )             (85,138,971 )
                                                         
Transfer to statutory reserve                             (1,663,002 )     1,663,002               -  
                                                         
Other comprehensive income (loss)                                             3,530,313       3,530,313  
                                                         
BALANCE, MARCH 31, 2022     8,487,629     $ 8,488     $ 170,223,195     $ 26,010,243     $ (89,288,503 )   $ (1,051,228 )   $ 105,902,195  

  

    Number           Additional                 Accumulated
Other
    Total  
    Of     Common     Paid In     Statutory     Retained     Comprehensive     Stockholders’  
    Shares     Stock     Capital     Reserve     Earnings     Income (loss)     Equity  
BALANCE, JUNE 30, 2020     6,350,129     $ 6,350     $ 155,455,332       29,743,991       111,864,338       (34,264,089 )     262,805,922  
                                                         
Net income (loss)                                     (85,804,365 )             (85,804,365 )
                                                         
Transfer to statutory reserve                             (936,746 )     935,746               -  
                                                         
Other comprehensive income (loss)                                             25,336,321       25,336,321  
                                                         
BALANCE, MARCH 31, 2021     6,350,129     $ 6,350     $ 155,455,332     $ 28,808,244     $ 26,995,719     $ (8,927,768 )   $ 202,337,877  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Nine Months Ended
March 31,
 
    2022     2021  
Cash flows from operating activities            
Net (loss)   $ (85,138,971 )   $ (85,804,365 )
Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities                
Depreciation and amortization     2,424,425       2,850,502  
Provision for losses on accounts receivable     40,069,195       61,056,089  
Gain (Loss) on disposal of property, plant and equipment     34       1,584  
Inventories impairment     10,999,380       30,711,331  
Gain (Loss) on sales of discontinued operations     (1,762,864 )        
Changes in operating assets                
Accounts receivable     14,059,798       (72,590,519 )
Amount due from related parties     40,003       (162,868 )
Other current assets     (12,496,618 )     (714,599 )
Inventories     (4,101,489 )     11,171,731  
Advances to suppliers     (13,895,949 )     36,166,189  
Other assets     1,575,544       1,512,648  
Changes in operating liabilities                
Accounts payable     (8,515,619 )     3,084,590  
Customer deposits     (80,238 )     (539,919 )
Amount due to related parties     94,000      
-
 
Tax payables     (41,894 )     952,179  
Accrued expenses and other payables     11,001,661       1,720,890  
Net cash used in operating activities     (45,769,602 )     (10,584,537 )
                 
Cash flows from investing activities                
Purchase of plant, property, and equipment     (92,931 )     (263,711 )
Change in construction in process     32,605       (205,679 )
Sales of discontinued operations     5,115,534      
-
 
Net cash provided by (used in) investing activities     5,055,208       (469,390 )
                 
Cash flows from financing activities                
Proceeds from loans    
-
      305,200  
Other payables-investors     70,774,275      
 
 
Advance from related party     150,000       50,000  
Net cash provided by financing activities     70,924,275       355,200  
                 
Effect of exchange rate change on cash and cash equivalents     2,632,571       3,839,537  
Net increase in cash and cash equivalents     32,842,451       (6,859,191 )
                 
Cash and cash equivalents, beginning balance     18,593,944       11,934,778  
Cash and cash equivalents, ending balance   $ 51,436,395     $ 5,075,587  
                 
Supplement disclosure of cash flow information                
Interest expense paid   $ 203,796     $ 181,269  
Income taxes paid   $ 308,157     $ 283,618  

 

The consolidated statements of cash flows are presented with the combined cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

China Green Agriculture, Inc. (the “Company”, “Parent Company” or “Green Nevada”), through its subsidiaries, is engaged in the research, development, production, distribution and sale of humic acid-based compound fertilizer, compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizers, highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer and the development, production and distribution of agricultural products.

 

Unless the context indicates otherwise, as used in this Report, 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 (“VIE”) in the in the PRC controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (v) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).

 

On June 30, 2016 the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders of the following six companies that are organized under the laws of the PRC and would be deemed VIEs: Shaanxi Lishijie Agrochemical Co., Ltd. (“Lishijie”), Songyuan Jinyangguang Sannong Service Co., Ltd. (“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), Aksu Xindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), and Xinjiang Xinyulei Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”). On January 1, 2017, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders of the following two companies that are organized under the laws of the PRC and would be deemed VIEs, Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”).

 

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.

 

On June 2, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Xindeguo, Xinyulei and Xiangrong.

 

On December 1, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Lishijie.

 

On December 31, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Fengnong.

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Jinyangguang.

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Wangtian.

 

Yuxing may also collectively be referred to as the “the VIE Company”.

 

5

 

 

The Company’s corporate structure as of March 31, 2022 is set forth in the diagram below:

 

 

 

6

 

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principle of consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Gufeng, Tianjuyuan, and the VIE Companies. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s consolidated financial statements have been presented with its former VIEs Xindeguo, Xinyulei, Xiangrong, Lishijie, Fengnong, Jinyangguang and Wangtian as a discontinued operation. See Note 21, “Discontinued Operations,” for more information.

 

Effective June 16, 2013, Yuxing was converted from being a wholly-owned foreign enterprise 100% owned by Jinong to a domestic enterprise 100% owned one natural person, who is not affiliated to the Company (“Yuxing’s Owner”). Effective the same day, Yuxing’s Owner entered into a series of contractual agreements with Jinong pursuant to which Yuxing became the VIE of Jinong.

 

VIE assessment

 

A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered a VIE, the Company first performs a qualitative analysis, which requires certain subjective decisions regarding its assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that the entity was designed to pass along to its variable interest holders. When the primary beneficiary could not be identified through a qualitative analysis, we used internal cash flow models to compute and allocate expected losses or expected residual returns to each variable interest holder based upon the relative contractual rights and preferences of each interest holder in the VIE’s capital structure.

 

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 a novel strain of the COVID-19.

 

Leases

 

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease right-of-use assets and lease liabilities are recognized at commencement based on the present value of lease payments over the lease term. As the implicit rate is typically not readily determinable in the Company’s lease agreements, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of the lease payments. The incremental borrowing rate is based on the Company’s specific rate of interest to borrow on a collateralized basis, over a similar term and in a similar economic environment as the lease. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Additionally, the Company accounts for lease and non-lease components as a single lease component for its identified asset classes. As of March 31, 2022, the Company does not have any material leases for the implementation of ASC 842.

 

7

 

 

Cash and cash equivalents and concentration of cash

 

For statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit with state owned banks in the PRC and banks in the United States, and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of cash in three major banks in China. The aggregate cash in such accounts and on hand as of March 31, 2022 and June 30, 2021 were $44,645,026 and $18,515,829, respectively. There is no insurance securing these deposits in China. In addition, the Company also had $6,791,369 and $78,115 in cash in two banks in the United States as of March 31, 2022 and June 30, 2021, respectively. Cash overdraft as of balance sheet date will be reflected as liabilities in the balance sheet. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

 

Accounts receivable

 

Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are provisioned for /written off based upon management’s assessment. As of March 31, 2022, and June 30, 2021, the Company had accounts receivable of $40,158,928 and $102,783,004, net of allowance for doubtful accounts of $32,797,394 and $23,738,987, respectively. The company recorded bad debt expense in the amount of $ 40 million and $ 61 million for nine months ended March 31, 2022 and 2021, respectively. The Company adopts no policy to accept product returns after the sales delivery.

 

Inventories

 

Inventory is valued at the lower of cost (determined on a weighted average basis) or market. Inventories consist of raw materials, work in process, finished goods and packaging materials. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary. As of March 31, 2022, and 2021, the Company had no reserve for obsolete goods. The company confirmed the loss of $4 million and $11 million of inventories for nine months ended March 31, 2022 and 2021, respectively.

 

Intangible Assets

 

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with definitive lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute directly or indirectly to the entity’s future cash flows. The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company has not recorded impairment of intangible assets as of March 31, 2022 and 2021, respectively.

 

Customer deposits

 

Payments received before all the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. When all revenue recognition criteria are met, the customer deposits are recognized as revenue. As of March 31, 2022, and June 30, 2021, the Company had customer deposits of $5,803,179 and $6,257,215, respectively.

 

Earnings per share

 

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

 

8

 

 

The components of basic and diluted earnings per share consist of the following:

 

    Three Months Ended  
    March 31,  
    2022     2021  
(Loss) from continuing operations for Basic Earnings Per Share   $ (30,595,680 )   $ (15,838,043 )
(Loss) from discontinued operations for Basic Earnings Per Share     (7,483,147 )     1,023,254  
(Loss) for Basic Earnings Per Share     (38,078,827 )     (14,814,789 )
Basic Weighted Average Number of Shares     8,487,629       6,350,129  
(Loss) from continuing operations Per Share – Basic   $ (3.60 )   $ (2.49 )
(Loss) Income from discontinued operations Per Share – Basic   $ (0.88 )   $ 0.16  
Net (Loss) Per Share – Basic   $ (4.49 )   $ (2.33 )
(Loss) from continuing operations for Diluted Earnings Per Share   $ (30,595,680 )   $ (15,838,043 )
(Loss) Income from discontinued operations for Diluted Earnings Per Share   $ (7,483,147 )     1,023,254  
(Loss) for Diluted Earnings Per Share   $ (38,078,827 )     (14,814,789 )
Diluted Weighted Average Number of Shares     8,487,629       6,350,129  
(Loss) from continuing operations Per Share – Diluted   $ (3.60 )   $ (2.49 )
(Loss) Income from discontinued operations Per Share – Diluted   $ (0.88 )   $ 0.16  
Net (Loss) Per Share – Diluted   $ (4.49 )   $ (2.33 )

 

    Nine Months Ended  
    March 31,  
    2022     2021  
(Loss) from continuing operations for Basic Earnings Per Share   $ (67,155,404 )     (85,093,611 )
(Loss) from discontinued operations for Basic Earnings Per Share     (17,983,567 )     (710,755 )
(Loss) for Basic Earnings Per Share     (85,138,971 )     (85,804,366 )
Basic Weighted Average Number of Shares     8,487,629       6,350,129  
(Loss) from continuing operations Per Share – Basic   $ (7.91 )   $ (13.40 )
(Loss) Income from discontinued operations Per Share – Basic   $ (2.12 )   $ (0.11 )
Net (Loss) Per Share – Basic   $ (10.03 )   $ (13.51 )
(Loss) from continuing operations for Diluted Earnings Per Share   $ (67,155,404 )   $ (85,093,611 )
(Loss) Income from discontinued operations for Diluted Earnings Per Share   $ (17,983,567 )     (710,755 )
(Loss) for Diluted Earnings Per Share   $ (85,138,971 )     (85,804,366 )
Diluted Weighted Average Number of Shares     8,487,629       6,350,129  
(Loss) from continuing operations Per Share – Diluted   $ (7.91 )   $ (13.40 )
(Loss) Income from discontinued operations Per Share – Diluted   $ (2.12 )   $ (0.11 )
Net (Loss) Per Share – Diluted   $ (10.03 )   $ (13.51 )

 

Recent accounting pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminates certain exceptions within ASC 740, “Income Taxes,” and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company evaluated the impact that with the adoption of ASU 2019-12, and it did not have any impact on its consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements.

 

NOTE 3 – GOING CERCERN

 

The Company’s financial statements are prepared assuming that the Company will continue as a going concern. The Company has incurred operating losses and had negative operating cash flows during the reporting period from July 1, 2021 through March 31, 2022. These factors raise doubt about the Company’s ability to continue as a going concern.

 

9

 

 

To meet its working capital needs through the next twelve months and to fund the growth of the Company, the Company may consider plans to raise additional funds through the issuance of equity or borrow loan from local bank. The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute its new business strategy and eventually attain profitable operations.

 

The accompanying financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as going concern.

 

NOTE 4 – INVENTORIES

 

Inventories consisted of the following:

 

    March 31,     June 30,  
    2022     2021  
Raw materials   $ 18,092,714     $ 18,023,063  
Supplies and packing materials   $ 535,420     $ 431,076  
Work in progress   $ 224,145     $ 252,873  
Finished goods   $ 32,713,241     $ 45,608,891  
Total   $ 51,565,520     $ 64,315,903  

 

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

 

    March 31,     June 30,  
    2022     2021  
Building and improvements   $ 42,131,601     $ 41,429,653  
Auto     3,069,686       3,472,838  
Machinery and equipment     19,853,802       19,369,913  
Total property, plant and equipment     65,055,089       64,272,403  
Less: accumulated depreciation     (44,566,259 )     (42,051,387 )
Total   $ 20,488,830     $ 22,221,016  

  

NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

    March 31,     June 30,  
    2022     2021  
Land use rights, net   $ 9,291,217     $ 9,330,109  
Technology patent, net    
-
     
-
 
Customer relationships, net    
-
      656,625  
Non-compete agreement    
-
      16,589  
Trademarks     6,507,757       6,404,328  
Total   $ 15,798,974     $ 16,407,651  

 

10

 

 

LAND USE RIGHT

 

On September 25, 2009, Yuxing was granted a land use right for approximately 88 acres (353,000 square meters or 3.8 million square feet) by the People’s Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi Province. The fair value of the related intangible asset was determined to be the respective cost of RMB73,184,895 (or $11,511,984). The intangible asset is being amortized over the grant period of 50 years using the straight-line method.

 

On August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately 11 acres (42,726 square meters or 459,898 square feet) at Ping Gu District, Beijing. The purchase cost was recorded at RMB1,045,950 (or $164,528). The intangible asset is being amortized over the grant period of 50 years.

 

On August 16, 2001, Jinong received a land use right as a contribution from a shareholder, which was granted by the People’s Government and Land & Resources Bureau of Yangling District, Shaanxi Province. The fair value of the related intangible asset at the time of the contribution was determined to be RMB7,285,099 (or $1,145,946). The intangible asset is being amortized over the grant period of 50 years.

 

The Land Use Rights consisted of the following:

 

    March 31,     June 30,  
    2022     2021  
Land use rights   $ 12,657,930       12,456,753  
Less: accumulated amortization     (3,366,713 )     (3,126,644 )
Total land use rights, net   $ 9,291,217       9,330,109  

 

TECHNOLOGY PATENT

 

On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humic acid. The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $924,148) and is being amortized over the patent period of 10 years using the straight-line method. This technology patent has been fully amortized.

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired technology patent was estimated to be RMB9,200,000 (or $1,447,160) and is amortized over the remaining useful life of six years using the straight-line method. As of March 31, 2022, this technology patent is fully amortized.

 

The technology know-how consisted of the following:

 

    March 31,     June 30,  
    2022     2021  
Technology know-how   $ 2,371,308     $ 2,333,621  
Less: accumulated amortization     (2,371,308 )     (2,333,621 )
Total technology know-how, net   $
-
    $
-
 

 

11

 

 

CUSTOMER RELATIONSHIPS

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired customer relationships was estimated to be RMB65,000,000 (or $10,224,500) and is amortized over the remaining useful life of ten years. On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired customer relationships was estimated to be RMB8,808,783 (or $1,385,622) and is amortized over the remaining useful life of seven to ten years.

 

    March 31,     June 30,  
    2022     2021  
Customer relationships   $ 10,224,500     $ 12,028,177  
Less: accumulated amortization     (10,224,500 )     (11,371,552 )
Total customer relationships, net   $
-
    $ 656,625  

 

NON-COMPETE AGREEMENT

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired non-compete agreement was estimated to be RMB1,320,000 (or $207,636) and is amortized over the remaining useful life of five years using the straight-line method. On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired non-compete agreements was estimated to be RMB3,099,908 (or $487,616) and is amortized over the remaining useful life of five years using the straight-line method.

 

    March 31,     June 30,  
    2022     2021  
Non-compete agreement   $ 207,636     $ 959,345  
Less: accumulated amortization     (207,636 )     (942,756 )
Total non-compete agreement, net   $
-
    $ 16,589  

 

TRADEMARKS

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value of the acquired trademarks was estimated to be RMB40,700,000 (or $6,402,110) and is subject to an annual impairment test.

 

AMORTIZATION EXPENSE

 

Estimated amortization expenses of intangible assets for the next five twelve months periods ended March 31, are as follows:

 

Twelve Months Ended on March 31,   Expense
($)
 
2023     518,338  
2024     387,328  
2025     295,240  
2026     278,206  
2027     63,191  

  

12

 

 

NOTE 7 – OTHER NON-CURRENT ASSETS

 

Other non-current assets mainly include advance payments related to leasing land for use by the Company. As of March 31, 2022, the balance of other non-current assets was $8,460,119, which was the lease fee advances for agriculture lands that the Company engaged in Shiquan County from 2023 to 2027.

 

In March 2017, Jinong entered into a lease agreement for approximately 3,400 mu, and 2600-hectare agriculture lands in Shiquan County, Shaanxi Province. The lease was from April 2017 and was renewable for every ten-year period up to 2066. The aggregate leasing fee was approximately RMB 13 million per annum, The Company had made 10-year advances of leasing fee per lease terms. The Company has amortized $1.6 million and $1.5 million as expenses for the nine months ended March 31, 2022 and 2021, respectively.

 

Estimated amortization expenses of the lease advance payments for the next four twelve-month periods ended March 31 and thereafter are as follows:

 

Twelve months ending March 31,      
2024   $ 2,111,753  
2025   $ 2,111,753  
2026   $ 2,111,753  
2027   $ 2,124,861  

 

NOTE 8 – ACCRUED EXPENSES AND OTHER PAYABLES

 

Accrued expenses and other payables consisted of the following:

 

    March 31,     June 30,  
    2022     2021  
Payroll and welfare payable   $ 187,897     $ 184,910  
Accrued expenses     8,248,651       7,957,290  
Other payables     86,146,668       5,326,796  
Other levy payable     131,922       129,825  
Total   $ 94,715,138     $ 13,598,821  

 

NOTE 9 – AMOUNT DUE TO RELATED PARTIES

 

At the end of December 2015, Yuxing entered into a sales agreement with the Company’s affiliate, 900LH.com Food Co., Ltd. (“900LH.com”, previously announced as Xi’an Gem Grain Co., Ltd) pursuant to which Yuxing is to supply various vegetables to 900LH.com for its incoming seasonal sales at the holidays and year ends (the “Sales Agreement”). The contingent contracted value of the Sales Agreement is RMB 25,500,000 (approximately $4,011,150). For the nine months ended March 31, 2022 and 2021, Yuxing has sold approximately $56,615 and $175,948 products to 900LH.com.

 

As of March 31, 2022, and June 30, 2021, the amount due to related parties was $5,238,700 and $4,976,689, respectively.  As of March 31, 2022, and June 30, 2021, $1,101,100 and $1,083,600, respectively, were amounts that Gufeng borrowed from a related party, Xi’an Techteam Science& Technology Industry (Group) Co. Ltd., a company controlled by Mr. Zhuoyu Li, Chairman and CEO of the Company, representing unsecured, non-interest-bearing loans that are due on demand.  These loans are not subject to written agreements. For the nine months ended March 31, 2022, Mr. Zhuoyu Li made unsecured non-interest-bearing advances with an amount of $150,000 to the Company which is due on demand without maturity and paid professional expenses incurred by the Company on the Company’s behalf with amount of $94,000.

 

As of March 31, 2022, and June 30, 2021, the Company’s subsidiary, Jinong, owed 900LH.com $7,951 and $12,688, respectively.

 

On July 1, 2020, Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”), of which Mr. Zhuoyu Li, Chairman and CEO of the Company, served as Chairman. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provides for a two-year term effective as of July 1, 2020 with monthly rent of RMB24,480 (approximately $3,851).

  

13

 

 

NOTE 10 – LOAN PAYABLES

 

As of March 31, 2022, the short-term loan payables consisted of three loans which mature on dates ranging from May 27, 2021 through May 26, 2022 with interest rates ranging from 5.22% to 5.66%. All loans are collateralized by Tianjuyuan’s land use right and building ownership right.

 

No.   Payee   Loan period per agreement   Interest
Rate
    March 31,
2022
 
1   Postal Saving Bank of China - Pinggu Branch   May 27, 2021-May 26, 2022     5.66 %     2,359,500  
2   Beijing Bank - Pinggu Branch   May 27, 2021-May 26, 2022     5.66 %     314,600  
3   Postal Saving Bank of China - Pinggu Branch   May 25, 2021-May 21, 2022     5.22 %     1,573,000  
    Total               $ 4,247,100  

 

The interest expense from short-term loans was $203,796 and $181,269 for the period ended March 31, 2022 and 2021, respectively.

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE

 

Relating to the acquisition of the VIE Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders convertible notes payable twice, in the aggregate notional amount of RMB 51,000,000 ($7,803,000) with a term of three years and an annual interest rate of 3%.

 

No.   Related Acquisitions of Sales VIEs   Issuance Date   Maturity
Date
  Notional
Interest
Rate
    Conversion
Price
    Notional
Amount
(in RMB)
 
1   Wangtian, Lishijie, Xindeguo, Xinyulei, Jinyangguang   June 30, 2016   June 30, 2019     3 %   $ 5.00       39,000,000  
2   Fengnong, Xiangrong   January 1, 2017   December 31, 2019     3 %   $ 5.00       12,000,000  

 

The convertible notes take priority over the preferred stock and common stock of Jinong, and any other class or series of capital stocks Jinong issues in the future in terms of interests and payments in the event of any liquidation, dissolution or winding up of Jinong. On or after the third anniversary of the issuance date of the note, noteholders may request Jinong to process the note conversion to convert the note into shares of the Company’s common stock. The notes cannot be converted prior to the mature date. The per share conversion price of the notes is the higher of the following: (i) $5.00 per share or (ii) 75% of the closing price of the Company’s common stock on the date the noteholder delivers the conversion notice. Due to the discontinuation of VIE agreements with Zhenbai’s shareholders, certain convertible notes issued on June 30, 2016 with a face amount of RMB 12,000,000 ($1,836,000) were tendered back to the Company. All outstanding balance of unpaid principal and accrued interest in the tendered convertible notes were forfeited.

 

On November 15, 2019, the Company issued 995,000 shares of common stock at the price of $5.00 per share for the total amount of $4,975,000 to the holders of the Company’s convertible notes payable in connection with the payment of the convertible notes’ principal and interests. The convertible notes were issued on June 30, 2016 and matured on June 30, 2019.

 

On February 14, 2020, the Company issued 377,650 shares of common stock at the price of $5.00 per share for the total amount of $1,888,250 to the holders of the Company’s convertible notes payable in connection with the payment of the convertible notes’ principal and interests. The convertible notes were issued on January 1, 2017 and matured on December 31, 2019.

 

The Company determined that the fair value of the convertible notes payable was 0 as of March 31, 2022 and June 30, 2021. Aside from the forfeiture of the convertible notes previously issued to Zhenbai’s shareholders, the difference between the fair value of the notes and the face amount of the notes is being amortized to accretion implied interest expense over the three-year life of the notes. The accumulated amortization of this discount into accretion expenses was $1,375,499 and $1,375,499 as of March 31, 2022 and 2021.

 

NOTE 12 – TAXES PAYABLE

 

Enterprise Income Tax

 

Effective January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The EIT rate of 25% replaced the 33% rate that was applicable to both DEs and FIEs. The two-year tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, because of the expiration of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the nine-month period ended March 31, 2022 and 2021 of 0 and $277,685, respectively.

 

14

 

 

Value-Added Tax

 

All the Company’s fertilizer products that are produced and sold in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On April 29, 2008, the PRC State of Administration of Taxation (SAT) released Notice #56, “Exemption of VAT for Organic Fertilizer Products”, which allows certain fertilizer products to be exempt from VAT beginning June 1, 2008. The Company submitted the application for exemption in May 2009, which was granted effective September 1, 2009, continuing through December 31, 2015. On August 10, 2015 and August 28, 2015, the SAT released Notice #90. “Reinstatement of VAT for Fertilizer Products”, and Notice #97, “Supplementary Reinstatement of VAT for Fertilizer Products”, which restore the VAT of 13% of the gross sales price on certain fertilizer products includes non-organic fertilizer products starting from September 1, 2015, but granted taxpayers a reduced rate of 3% from September 1, 2015 through June 30, 2016.

 

On April 28, 2017, the PRC State of Administration of Taxation (SAT) released Notice 2017 #37, “Notice on Policy of Reduced Value Added Tax Rate,” under which, effective July 1, 2017, all the Company’s fertilizer products that are produced and sold in the PRC are subject to a Chinese Value-Added Tax (VAT) of 11% of the gross sales price. The tax rate was reduced 2% from 13%.

 

On April 4, 2018, the PRC State of Administration of Taxation (SAT) released Notice 2018 #32, “Notice on Adjustment of VAT Tax Rate,” under which, effective May 1, 2018, all the Company’s fertilizer products that are produced and sold in the PRC are subject to a Chinese Value-Added Tax (VAT) of 10% of the gross sales price. The tax rate was reduced 1% from 11%.

 

On March 20, 2019, the PRC State of Administration of Taxation (SAT) released Notice 2019 #39, “Announcement on Policies Concerning Deepening the Reform of Value Added Tax,” under which, effective April 1, 2019, all the Company’s fertilizer products that are produced and sold in the PRC are subject to a Chinese Value-Added Tax (VAT) of 9% of the gross sales price. The tax rate was reduced 1% from 10%.

 

Income Taxes and Related Payables

 

    March 31,     June 30,  
    2022     2021  
VAT provision   $ (392,037 )   $ (284,940 )
Income tax payable     (2,434,156 )     1,136,929  
Other levies     691,203       2,679,970  
Repatriation tax     29,010,535       29,010,535  
Total   $ 26,875,545     $ 32,542,494  

 

The provision for income taxes consists of the following

 

    March 31,     March 31,  
    2022     2021  
Current tax - foreign   $ 629,176     $ 3,283,395  
Deferred tax    
-
     
-
 
Total   $ 629,176     $ 3,283,395  

 

Significant components of deferred tax assets were as follows:

 

    March 31,     June 30,  
    2022     2021  
Deferred tax assets            
Deferred Tax Benefit     36,946,301       36,359,106  
Valuation allowance     (36,946,301 )     (36,359,106 )
Total deferred tax assets   $
-
     
-
 

  

15

 

 

Tax Rate Reconciliation

 

Our effective tax rates were approximately -0.7% and-4.0% for the nine months ended March 31, 2022 and 2021, respectively. Substantially all the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of operations and comprehensive income (loss) differ from the amounts computed by applying the US statutory income tax rate of 21.0% to income before income taxes for the nine months ended March 31, 2022 and 2021 for the following reasons:

  

March 31, 2022

 

    China           United States                    
    15% - 25%           21%         Total        
Pretax income (loss)   $ (83,931,363 )             (578,432 )           $ (84,509,795 )        
                                                 
Expected income tax expense (benefit)     (20,982,841 )     25.0 %     (121,471 )     21.0 %     (21,104,312 )        
High-tech income benefits on Jinong     2,862,403       (3.4 )%    
-
     
-
      2,862,403          
Losses from subsidiaries in which no benefit is recognized     18,162,419       (21.6 )%    
-
     
-
      18,162,419          
Change in valuation allowance on deferred tax asset from US tax benefit     587,195       (0.7 )%     121,471       (21.0 )%     708,066          
Actual tax expense   $ 629,176       (0.7 )%   $
-
     
-
%   $ 629,176       (0.7 )%

 

March 31, 2021

 

    China           United States                    
    15% - 25%           21%           Total        
Pretax income (loss)   $ (81,169,349 )             (1,351,622 )           $ (82,520,971 )        
                                                 
Expected income tax expense (benefit)     (20,292,337 )     25.0 %     (283,841 )     21.0 %     (20,576,178 )        
High-tech income benefits on Jinong     2,667,471       (3.3 )%    
-
     
-
      2,667,471          
Losses from subsidiaries in which no benefit is recognized     18,725,422       (23.1 )%    
-
     
-
      18,725,422          
Change in valuation allowance on deferred tax asset from US tax benefit     2,182,839       (2.7 )%     283,841       (21.0 )%     2,466,680          
Actual tax expense   $ 3,283,395       (4.0 )%   $
-
     
-
%   $ 3,283,395       (4.0 )%

 

NOTE 13 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

On November 23, 2021, the Company entered into a Share Purchase Agreement with certain non-US investors, giving them the right to purchase up to 13,142,857 shares of the Company’s common stock, par value $0.001 per share, at the price of $15 per share in a transaction exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Rule 903 of Regulation S and/or Section 4(a)(2) of the Securities Act. The aggregate purchase price for the issuable shares is up to $197,142,855.

 

On April 4, 2022, the Company completed the issuance of 1,314,286 shares of its Common Stock to Ran Caihua for $19,714,290 and 2,286,857 shares of its Common Stock to Xu Xiuzhen for $34,302,855.  Both sales were made pursuant to a Share Purchase Agreement dated November 23, 2021 in transactions exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Rule 903 of Regulation S and/or Section 4(a)(2) of the Securities Act.

 

On April 8, 2022, the Company issued 52,695 shares of common stock to settle the payable of consulting services under the 2009 Plan. The value of the stock was $440,000 and was based on the fair value of the Company’s common stock on the grant date of March 15, 2022 when the Company authorized the grant.

 

There were no shares of common stock issued during the nine months ended March 31, 2022 and 2021.

 

As of March 31, 2022, the Company received $70,774,275   stock purchase fund and booked it as other payables.

 

As of March 31, 2022, and June 30, 2021, there were 8,487,629 and 8,487,629 shares of common stock issued and outstanding, respectively.

 

16

 

 

Preferred Stock

 

Under the Company’s Articles of Incorporation, the Board has the authority, without further action by stockholders, to designate up to 20,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. If the Company sells preferred stock under its registration statement on Form S-3, it will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series in the certificate of designation relating to that series and will file the certificate of designation that describes the terms of the series of preferred stock the Company offers before the issuance of the related series of preferred stock.

 

As of March 31, 2022, the Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are issued or outstanding.

 

NOTE 14 – CONCENTRATIONS AND LITIGATION

 

Market Concentration

 

All the Company’s revenue-generating operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy.

 

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other things, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.

  

Vendor and Customer Concentration

 

There were six vendors from which the Company purchased more than 10% of its raw materials, with the total of 66.4% of its raw materials for the nine months ended March 31, 2022. Total purchase from these vendors were $75,165,338 for the nine-month period ended March 31, 2021.

 

There was only one vendor from which the Company purchased more than 10% of its raw materials, with the total of 11.2% of its raw materials for the nine months ended March 31, 2021. Total purchase from this vendor was $13,506,092 for the nine-month period ended March 31, 2021.

  

There was only one customer counted over 10% of the Company’s sales, with the total of 10.1% of the Company’s sales for the nine months ended March 31, 2022. Total sale to this customer was $13,345,924 for the nine-month period ended March 31, 2021.

 

No customer accounted for over 10% of the Company’s sales for the nine months ended March 31, 2021.

 

Litigation

 

On June 5, 2020, an individual filed suit pro se (as in, representing oneself without an attorney) in the Southern District of Florida federal court alleging violations of the Securities Exchange Act. The Company believes the action is without merit and vigorously opposed it. The company moved to dismiss the litigation and for attorney’s fees from the plaintiff. On November 2, 2020, the case was transferred to the United States District Court for The Southern District Of New York. On September 30, 2021, the Southern District of New York federal court presiding over the case dismissed all claims against the company, its executives, and its independent directors. The dismissal was without prejudice and the plaintiff can appeal or amend within 30 days. The plaintiff amended the complaint on Oct 30, 2021. The Company intends to move to dismiss it.

 

17

 

 

NOTE 15 – SEGMENT REPORTING

 

The Company is organized into four main business segments, based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production) and the sales VIEs. Each of the four operating segments referenced above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) receives financial information, including revenue, gross margin, operating income (expense) and net income (loss) produced from the various general ledger systems to make decisions about allocating resources and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income (loss) by segment.

 

    Three Months
Ended
    Three Months
Ended
    Nine Months
Ended
    Nine Months
Ended
 
    March 31,
2022
    March 31,
2021
    March 31,
2022
    March 31,
2021
 
Revenues from unaffiliated customers:                        
Jinong   $ 13,385,022     $ 15,818,610     $ 43,513,283     $ 45,249,797  
Gufeng     45,205,467       48,438,434       81,567,133       86,703,031  
Yuxing     2,548,383       3,055,588       8,256,480       8,161,271  
Sales VIEs    
-
     
-
     
-
     
-
 
Consolidated   $ 61,138,872     $ 67,312,632     $ 133,336,896     $ 140,114,099  
                                 
Operating income (loss):                                
Jinong   $ (5,300,141 )   $ (4,562,066 )   $ (11,587,451 )   $ (9,626,306 )
Gufeng     (26,737,974 )     (11,120,630 )     (56,636,587 )     (71,940,923 )
Yuxing     143,158       174,453       460,517       462,879  
Reconciling item (1)    
-
     
-
     
-
     
-
 
Reconciling item (2)     (78,453 )     (381,561 )     (579,382 )     (1,351,629 )
Consolidated   $ (31,973,410 )   $ (15,889,804 )   $ (68,342,903 )   $ (82,455,979 )
                                 
Net income (loss):                                
Jinong   $ (5,243,617 )   $ (4,546,023 )   $ (11,449,612 )   $ (9,836,830 )
Gufeng     (26,790,346 )     (11,179,039 )     (56,904,522 )     (72,188,675 )
Yuxing     204,488       174,804       601,492       479,363  
Reconciling item (1)     946       5       951       7  
Reconciling item (2)     (78,454 )     (287,609 )     (1,166,578 )     (3,534,468 )
Reconciling item (3)     1,311,304       (181 )     1,762,866       (13,008 )
Consolidated   $ (30,595,680 )   $ (15,838,043 )   $ (67,155,404 )   $ (85,093,611 )
                                 
Depreciation and Amortization:                                
Jinong   $ 211,645     $ 206,810     $ 629,332     $ 601,680  
Gufeng     207,187       326,677       617,578       935,344  
Yuxing     324,846       318,190       968,799       928,761  
Consolidated   $ 743,677     $ 851,677     $ 2,215,708     $ 2,465,785  
                                 
Interest expense:                                
Jinong    
-
     
-
     
-
     
-
 
Gufeng     65,278       57,316       203,707       181,269  
Yuxing    
-
     
-
     
-
     
-
 
Consolidated   $ 65,278     $ 57,316     $ 203,707     $ 181,269  
                                 
Capital Expenditure:                                
Jinong   $ 8,139     $ 2,020     $ 29,411     $ 59,068  
Gufeng     121       38,380       29,542       74,133  
Yuxing     854       106,540       33,978       106,540  
Consolidated   $ 9,115     $ 146,941     $ 92,931     $ 239,742  

 

18

 

 

    As of  
    March 31,     June 30,  
    2022     2021  
Identifiable assets:            
Jinong   $ 107,536,195     $ 85,585,344  
Gufeng     107,380,389       130,346,782  
Yuxing     42,146,255       38,516,348  
Sales VIEs     -       43,862,592  
Reconciling item (1)     (11,781,851 )     (31,748,448 )
Reconciling item (2)     166,121       166,121  
Consolidated   $ 245,447,108     $ 266,728,738  

 

(1) Reconciling amounts refer to the unallocated assets or expenses of Green New Jersey.

 

(2) Reconciling amounts refer to the unallocated assets or expenses of the Parent Company.

 

(3) The comparative numbers are excluding discontinued entities

 

NOTE 16 – COMMITMENTS AND CONTINGENCIES

 

On July 1, 2020, Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”), of which Mr. Zhuoyu Li, Chairman and CEO of the Company, served as Chairman. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provides for a two-year term effective as of July 1, 2020 with monthly rent of RMB24,480 (approximately $3,851).

 

In February 2004, Tianjuyuan signed a fifty-year lease with the village committee of Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District, at a monthly rent of RMB 2,958(approximately $465).

 

On August 1, 2021, Jinyangguang signed a one-year lease for 1,236.88 square meters (approximately 13,315 square feet) commercial space with monthly rent of RMB12,500 (approximately $1,966) effective August 1, 2021.

 

Accordingly, the Company recorded an aggregate of $89,573 and $36,994 as rent expenses from these committed property leases for the nine-month periods ended March 31, 2022 and 2021, respectively. The contingent rent expenses herein for the next five twelve-month periods ended March 31, are as follows:

 

Years ending March 31,        
2023     $ 51,792  
2024       51,792  
2025       51,792  
2026       51,792  
2027       51,792  

 

NOTE 17 – VARIABLE INTEREST ENTITIES

 

In accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs with which a company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

 

Green Nevada through one of its subsidiaries, Jinong, entered into a series of agreements (the “VIE Agreements”) with Yuxing for it to qualify as a VIE, effective June 16, 2013.

 

The Company has concluded, based on the contractual arrangements, that Yuxing is a VIE and that the Company’s wholly-owned subsidiary, Jinong, absorbs a majority of the risk of loss from the activities of Yuxing, thereby enabling the Company, through Jinong, to receive a majority of Yuxing expected residual returns.

 

On June 30, 2016 and January 1, 2017, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and into a series of contractual agreements to qualify as VIEs with the shareholders of the sales VIE Companies.

 

Jinong, the sales VIE Companies, and the shareholders of the sales VIE Companies also entered into a series of contractual agreements for the sales VIE Companies to qualify as VIEs (the “VIE Agreements”).

 

On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, exited the VIE agreements with the shareholders of Zhenbai.

 

On June 2, 2021, the Company, through its wholly-owned subsidiary Jinong, exited the VIE agreements with the shareholders of Xinjiang and Xiangrong.

 

19

 

 

On December 1, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Lishijie.

 

On December 31, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Fengnong.

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Jinyangguang.

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Wangtian.

 

As a result of these contractual arrangements, with Yuxing and the sales VIE Companies the Company is entitled to substantially all the economic benefits of Yuxing and the VIE Companies. The following financial statement amounts and balances of the VIEs were included in the accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and June 30, 2021:

 

    March 31,     June 30,  
    2022     2021  
             
ASSETS            
Current Assets            
Cash and cash equivalents   $
-
    $ 253,566  
Accounts receivable, net    
 
      35,360,138  
Inventories    
 
      6,681,758  
Other current assets    
 
      477,693  
Advances to suppliers    
 
      277,563  
Total Current Assets    
 
      43,050,718  
                 
Plant, Property and Equipment, Net    
 
      138,662  
Other assets    
 
         
Intangible Assets, Net    
 
      673,213  
Total Assets   $
 
    $ 43,862,593  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable    
 
      14,736,412  
Customer deposits    
 
      167,059  
Accrued expenses and other payables    
 
      9,162,742  
Total Current Liabilities   $
 
    $ 24,066,213  
Total Liabilities   $
 
    $ 24,066,213  
                 
Stockholders’ equity    
 
      19,796,380  
                 
Total Liabilities and Stockholders’ Equity   $
           
    $ 43,862,593  

 

    Three Months Ended
March 31,
 
    2022       2021  
Revenue   $
-
    $ 21,811,360  
Expenses    
 
      20,613,304  
Net income (loss)   $
    
    $ 1,198,056  

 

    Nine Months Ended
March 31,
 
    2022       2021  
Revenue   $
-
    $ 46,615,150  
Expenses    
 
      46,846,543  
Net income   $
    
    $ (231,393 )

 

20

 

 

NOTE 18 – BUSINESS COMBINATIONS

 

On June 30, 2016, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements to qualify as VIEs with the shareholders of Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan Jinyangguang Sannong Service Co., Ltd., Shenqiu County Zhenbai Agriculture Co., Ltd., Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd., Aksu Xindeguo Agricultural Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd.

 

Subsequently, on January 1, 2017, Jinong entered into similar strategic acquisition agreements and a series of contractual agreements to qualify as VIEs with the shareholders of Sunwu County Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed Co., Ltd.

 

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.

 

On June 2, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Xindeguo, Xinyulei and Xiangrong.

 

On December 1, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Lishijie.

 

On December 31, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Fengnong.

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Jinyangguang.

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Wangtian.

 

The VIE Agreements are as follows:

 

Entrusted Management Agreements

 

 Pursuant to the terms of certain Entrusted Management Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the shareholders of the sales VIE Companies (the “Entrusted Management Agreements”), the sales VIE Companies and their shareholders agreed to entrust the operations and management of its business to Jinong. According to the Entrusted Management Agreement, Jinong possesses the full and exclusive right to manage the sales VIE Companies’ operations, assets and personnel, has the right to control all the sales VIE Companies’ cash flows through an entrusted bank account, is entitled to the sales VIE Companies’ net profits as a management fee, is obligated to pay all the sales VIE Companies’ payables and loan payments, and bears all losses of the sales VIE Companies. The Entrusted Management Agreements will remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the sales VIE Companies; or (iii) Jinong acquires all the assets or equity of the sales VIE Companies (as more fully described below under “Exclusive Option Agreements”).

 

21

 

 

Exclusive Technology Supply Agreements

 

Pursuant to the terms of certain Exclusive Technology Supply Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the sales VIE companies (the “Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to the sales VIE companies. The sales VIE companies agreed to pay Jinong all fees payable for technology supply prior to making any payments under the Entrusted Management Agreement. The Exclusive Technology Supply Agreements shall remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the sales VIE companies; or (iii) Jinong acquires the sales VIE companies (as more fully described below under “Exclusive Option Agreements”).

 

Shareholder’s Voting Proxy Agreements

 

Pursuant to the terms of certain Shareholder’s Voting Proxy Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders of the sales VIE companies irrevocably appointed Jinong as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of the sales VIE companies, including the appointment and election of directors of the sales VIE companies. Jinong agreed that it shall maintain a board of directors, the composition and appointment of which shall be approved by the Board of the Company. The Shareholder’s Voting Proxy Agreements will remain in effect until Jinong acquires all the assets or equity of the sales VIE companies.

 

Exclusive Option Agreements

 

Pursuant to the terms of certain Exclusive Option Agreements dated June 30, 2016 and January 1, 2017, among Jinong, the sales VIE companies, and the shareholders of the sales VIE companies (the “Exclusive Option Agreements”), the shareholders of the sales VIE companies granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire the sales VIE companies’ equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The Option is exercisable at any time at Jinong’s discretion so long as such exercise and subsequent acquisition of the sales VIE companies does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of such consideration. Jinong may transfer all rights and obligations under the Exclusive Option Agreements to any third parties without the approval of the shareholders of the sales VIE companies so long as a written notice is provided. The Exclusive Option Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.

 

Equity Pledge Agreements

 

Pursuant to the terms of certain Equity Pledge Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Pledge Agreements”), the shareholders of the sales VIE companies pledged all of their equity interests in the sales VIE companies to Jinong, including the proceeds thereof, to guarantee all of Jinong’s rights and benefits under the Entrusted Management Agreements, the Exclusive Technology Supply Agreements, the Shareholder’ Voting Proxy Agreements and the Exclusive Option Agreements. Prior to termination of the Pledge Agreements, the pledged equity interests cannot be transferred without Jinong’s prior written consent. The Pledge Agreements may be terminated only upon the written agreement of the parties.

 

Non-Compete Agreements

 

Pursuant to the terms of certain Non-Compete Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Non-Compete Agreements”), the shareholders of the sales VIE companies agreed that during the period beginning on the initial date of their services with Jinong, and ending five (5) years after termination of their services with Jinong, without Jinong’s prior written consent, they will not provide services or accept positions including but not limited to partners, directors, shareholders, managers, proxies or consultants, provided by any profit making organizations with businesses that may compete with Jinong. They will not solicit or interfere with any of the Jinong’s customers, or solicit, induce, recruit or encourage any person engaged or employed by Jinong to terminate his or her service or engagement. If the shareholders of the sales VIE companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; if the damages are difficult to determine, remedies bore the shareholders of the sales VIE companies shall be no less than 50% of the salaries and other expenses Jinong provided in the past.

 

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The Company entered these VIE Agreements as a way for the Company to have more control over the distribution of its products. The transactions are accounted for as business combinations in accordance with ASC 805. A summary of the purchase price allocations at fair value is below:

 

For acquisitions made on June 30, 2016:

 

Cash   $ 708,737  
Accounts receivable     6,422,850  
Advances to suppliers     1,803,180  
Prepaid expenses and other current assets     807,645  
Inventories     7,787,043  
Machinery and equipment     140,868  
Intangible assets     270,900  
Other assets     3,404,741  
Goodwill     3,158,179  
Accounts payable     (3,962,670 )
Customer deposits     (3,486,150 )
Accrued expenses and other payables     (4,653,324 )
Taxes payable     (16,912 )
Purchase price   $ 12,385,087  

 

A summary of the purchase consideration paid is below:

 

Cash   $ 5,568,500  
Convertible notes     6,671,769  
Derivative liability     144,818  
    $ 12,385,087  

 

The cash component of the purchase price for these acquisitions made on June 30, 2016 was paid in July and August 2016.

 

For acquisitions made on January 1, 2017:

 

Working Capital   $ 941,192  
Machinery and equipment     222,875  
Intangible assets     1440  
Goodwill     684,400  
Customer Relationship     522,028  
Non-compete Agreement     392,852  
Purchase price   $ 2,764,787  

  

A summary of the purchase consideration paid is below:

 

Cash   $ 1,201,888  
Convertible notes     1,559,350  
Derivative liability     3,549  
    $ 2,764,787  

 

The cash component of the purchase price for these acquisitions made on January 1, 2017 was paid during March 2017.

 

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.

 

For the discontinuation of Zhenbai made on November 30, 2017, the Company gave up the control of the following assets in Zhenbai:

 

Working Capital   $ 1,179,352  
Intangible assets     896,559  
Customer Relationship     684,727  
Non-compete Agreement     211,833  
Goodwill     538,488  
Total Asset   $ 2,614,401  

 

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In return, the purchase consideration returned to the Company from Zhenbai’s shareholders is summarized below:

 

Cash   $ 461,330  
Interest Payable     83,039  
Convertible notes     1,724,683  
Derivative liability     13,353  
Total Payback   $ 2,282,406  
Net Loss   $ (331,995 )

 

On June 10, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Xindeguo and Xinyulei. In return, the shareholders of Xindeguo and Xinyulei agreed to pay cash with amount of RMB1,850,000 (approximately $286,935) to the Company.

 

For the discontinuation of Xindeguo and Xinyulei made on June 10, 2021, the Company gave up the control of the following assets in Xindeguo and Xinyulei:

 

Working Capital   $ (1,135,366 )
Intangible Assets     28,050  
Long-term equity investment     139,320  
Goodwill     1,257,784  
Total Asset     288,898  

 

In return, the purchase consideration returned to the Company from Xindeguo and Xinyulei’s shareholders is summarized below:

 

Cash   $ 286,380  
Total Payback   $ 288,898  
Net Gain (Loss)     (2,518 )

 

On June 10, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Xiangrong. In return, the shareholders of Xiangrong agreed to pay cash with amount of RMB24,430,000 (approximately $3,789,093) to the Company.

 

For the discontinuation of Xiangrong made on June 10, 2021, the Company gave up the control of the following assets in Xiangrong:

 

Working Capital   $ 2,930,551  
Intangible assets     23,890  
Goodwill     316,200  
Total Asset   $ 3,270,641  

 

In return, the purchase consideration returned to the Company from Xiangrong’s shareholders is summarized below:

 

Cash   $ 3,781,764  
Total Payback   $ 3,270,641  
Net Gain (Loss)     511,123  

 

On December 1, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Lishijie. In return, the shareholders of Lishijie agreed to pay cash with amount of RMB3,500,000 (approximately $550,550) to the Company before December 31, 2021.

 

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For the discontinuation of Lishijie made on November 1, 2021, the Company gave up the control of the following assets in Lishijie:

 

Working Capital   $ 358,715  
Intangible assets     128,677  
         
Total Asset   $ 487,392  

  

In return, the purchase consideration returned to the Company from Lishijie’s shareholders is summarized below:

 

Cash   $ 550,550  
Total Payback   $ 487,392  
Net Gain (Loss)     63,158  

 

On December 31, 2021, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Fengnong. In return, the shareholders of Fengnong agreed to pay cash with amount of RMB8,750,000 (approximately $1,376,375) to the Company.

 

For the discontinuation of Fengnong made on December 31, 2021, the Company gave up the control of the following assets in Fengnong:

 

Working Capital   $ 805,005  
Fixed Assets     91,033  
Intangible Assets     86,456  
         
Total Asset     982,494  

 

In return, the purchase consideration returned to the Company from Fengnong’s shareholders is summarized below:

 

Cash   $ 1,376,375  
Total Payback   $ 982,494  
Net Gain (Loss)     393,881  

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Jinyangguang. In return, the shareholders of Jinyangguang agreed to pay cash with amount of RMB3,200,000 (approximately $503,360) to the Company before April 30, 2022.

 

For the discontinuation of Jinyangguang made on March 31, 2022, the Company gave up the control of the following assets in Jinyangguang:

 

Working Capital   $ (621,154 )
Intangible assets   $ 103,532  
         
Total Asset   $ (517,622 )

  

In return, the purchase consideration returned to the Company from Jinyangguang’s shareholders is summarized below:

 

Cash   $ 503,360  
Total Payback   $ (517,622 )
Net Gain (Loss)   $ 1,020,982  

 

On March 31, 2022, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Wangtian. In return, the shareholders of Wangtian agreed to pay cash with amount of RMB8,500,000 (approximately $1,337,050) to the Company.

 

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For the discontinuation of Wangtian made on March 31, 2022, the Company gave up the control of the following assets in Wangtian:

 

Working Capital   $ 833,252  
Fixed Assets     34,394  
Intangible Assets     170,514  
         
Total Asset     1,038,160  

 

In return, the purchase consideration returned to the Company from Wangtian’s shareholders is summarized below:

 

Cash   $ 1,337,050  
Total Payback   $ 1,038,160  
Net Gain (Loss)     298,890  

 

NOTE 19 – OTHER EVENTS

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which was continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the COVID-19 a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China and in the U.S.

 

Xi’an City, where our headquarters are located, is one of the most affected areas in China. The Company has been following the orders of local government and health authorities to minimize exposure risk for its employees, including the closures of its offices and having employees work remotely from January of 2020 until March of 2020. An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations and financial results.

 

After the initial outbreak of the COVID-19, some instances of COVID-19 infections have emerged in various regions of China from time to time, including the infections caused by the Omicron variants since early 2022. Our headquarters office in Xian was closed again from December 2021 to January 2022 and our employees worked remotely for two months. In connection with the intensifying efforts to contain the spread of COVID-19, the local government took a number of actions, which included quarantining individuals infected with or suspected of having COVID-19, prohibiting residents from free travel, encouraging employees of enterprises to work remotely from home and cancelling public activities, among others.

 

In the year of 2022, more pandemic restrictions had been tightened throughout China to control the spread of COVID-19 in the community, and varying levels of temporary restrictions and other measures are reinstated to contain the infections, such as those in Shanghai since March 2022 and those in Beijing since May 2022.

 

Substantially all our revenues are generated in China. Consequently, our results of operations were adversely and materially affected by COVID-19. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by government authorities and other entities to contain COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to, the following:

 

  temporary closure of offices, travel restrictions or suspension of transportation of our products to our customers and our suppliers have been negatively affected, and could continue to be negatively affected, on their ability to supply our demands;

 

  our customers that are negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue;

 

  we may have to provide significant sales incentives to our customers in response to the outbreak, which may in turn materially adversely affect our financial condition and operating results;

 

  the business operations of our customers and suppliers have been and could continue to be negatively impacted by the outbreak, result in loss of customers or disruption of our services, which may in turn materially adversely affect our financial condition and operating results;

 

  any disruption of our supply chain, logistics providers or customers could adversely impact our business and results of operations, including causing our suppliers to cease manufacturing products for a period or materially delay delivery to customers, which may also lead to loss of customers, as well as reputational, competitive and business harm to us;

 

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  many of our customers, distributors, suppliers and other partners are individuals and small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted;

 

  the global stock markets have experienced, and may continue to experience, significant decline from the COVID-19 outbreak, which could materially adversely affect our stock price;

 

Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact related to the outbreak of and response to the COVID-19 cannot be reasonably estimated at this time, but our results for the full fiscal year of 2020, 2021 and first three quarters of fiscal year of 2022 had been adversely affected.

 

In general, our business could be adversely affected by the effects of epidemics, including, but not limited to, the COVID-19, avian influenza, severe acute respiratory syndrome (SARS), the influenza A virus, the Ebola virus, or other outbreaks. In response to an epidemic or other outbreaks, government and other organizations may adopt regulations and policies that could lead to severe disruption to our daily operations, including temporary closure of our offices and other facilities. These severe conditions may cause us and/or our partners to make internal adjustments, including but not limited to, temporarily closing business, limiting business hours, and setting restrictions on travel and/or visits with clients and partners for a prolonged period. Various impacts arising from severe conditions may cause business disruption, resulting in material, adverse effects to our financial condition and results of operations.

 

We are taking significant measures to mitigate the financial and operational impacts of COVID-19 as well as additional actions to improve our liquidity through cost reduction and conservation measures.

 

NOTE 20 – SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company has analyzed its operations after March 31, 2022 to the date these unaudited condensed consolidated financial statements were available to be issued and has determined that there were below significant subsequent events or transactions that would require recognition or disclosure in the unaudited condensed consolidated financial statements.

 

On April 4, 2022, the Company completed the issuance of 1,314,286 shares of its Common Stock to Ran Caihua for $19,714,290 and 2,286,857 shares of its Common Stock to Xu Xiuzhen for $34,302,855. Both sales were made pursuant to a Share Purchase Agreement dated November 23, 2021 in transactions exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Rule 903 of Regulation S and/or Section 4(a)(2) of the Securities Act.

 

On April 8, 2022, the Company issued 52,695 shares of common stock to settle the payable of consulting services under the 2009 Plan. The value of the stock was $440,000 and was based on the fair value of the Company’s common stock on the grant date of March 15, 2022 when the Company authorized the grant.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”); and (v) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”). Yuxing may also collectively be referred to as the “the VIE Company”.

 

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 95.8% and 95.5% of our total revenues for the nine months ended March 31, 2022 and 2021, respectively. Yuxing serves as a research and development base for our fertilizer products.  

 

Fertilizer Products

 

As of March 31, 2022, we had developed and produced a total of 410 different fertilizer products in use, of which 74 were developed and produced by Jinong and 336 by Gufeng.

 

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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              
    March 31,     Change 2021 to 2022  
    2022     2021     Amount     %  
    (metric tons)              
Jinong     18,989       23,066       (4,077 )     -17.7 %
Gufeng     90,228       131,807       (41,579 )     -31.5 %
      109,218       154,874       (45,656 )     -29.5 %

 

    Three Months Ended
March 31,
 
    2022     2021  
    (revenue per tons)  
Jinong   $ 701     $ 670  
Gufeng     499       363  

 

    Nine Months Ended              
    March 31,     Change 2021 to 2022  
    2022     2021     Amount     %  
    (metric tons)              
Jinong     49,487       60,165       (10,678 )     -17.7 %
Gufeng     188,006       243,496       (55,490 )     -22.8 %
      237,493       303,662       (66,168 )     -21.8 %

 

    Nine Months Ended
March 31,
 
    2022     2021  
    (revenue per tons)  
Jinong   $ 877     $ 774  
Gufeng     430       362  

 

For the three months ended March 31, 2022, we sold approximately 109,218 tons of fertilizer products, as compared to 154,874 metric tons for the three months ended March 31, 2021. For the three months ended March 31, 2022, Jinong sold approximately 18,989 metric tons of fertilizer products, as compared to 23,066 metric tons for the three months ended March 31, 2021. For the three months ended March 31, 2022, Gufeng sold approximately 90,228 metric tons of fertilizer products, as compared to 131,807 metric tons for the three months ended March 31, 2021.

 

For the nine months ended March 31, 2022, we sold approximately 237,493 metric tons of fertilizer products, as compared to 303,662 metric tons for the nine months ended March 31, 2021. For the nine months ended March 31, 2022, Jinong sold approximately 49,487 metric tons of fertilizer products, a decrease of 10,678 metric tons, or 17.7%, as compared to 60,165 metric tons for the nine months ended March 31, 2021. For the nine months ended March 31, 2022, Gufeng sold approximately 188,006 metric tons of fertilizer products, a decrease of 55,490 metric tons, or 22.8% as compared to 243,496 metric tons for the nine months ended March 31, 2021.

 

Our sales of fertilizer products to customers in five provinces within China accounted for approximately 81.8% of our fertilizer revenue for the three months ended March 31, 2022. Specifically, the provinces and their respective percentage contributing to our fertilizer revenues were Hebei (38.6%), Heilongjiang (14.4%), Inner Mongolia (13.4%), Liaoning (13.0%), and Shaanxi (2.4%).

 

As of March 31, 2022, we had a total of 1,432 distributors covering 22 provinces, 4 autonomous regions and 4 central government-controlled municipalities in China. Jinong had 1,098 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 6.8% of its fertilizer revenues for the three months ended March 31, 2022. Gufeng had 334 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for 77.6% of its revenues for the three months ended March 31, 2022.

 

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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 97.4% of our agricultural products revenue for the three months ended March 31, 2022 were Shaanxi (91.3%), Shanghai (3.6%), and Beijing (2.5%).

 

Recent Developments

 

New Products

 

During the three months ended March 31, 2022, Jinong launched 2 new fertilizer products and added 22 new distributors. During the three months ended March 31, 2022, Gufeng did not launch any new fertilizer products and did not add any new distributors.

 

Strategic Acquisitions

 

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

 

June 30, 2016:

 

        Cash     Principal  
       

Payment

for

    of
Notes for
 
        Acquisition     Acquisition  
Company Name   Business Scope   (RMB[1])     (RMB)  
Shaanxi Lishijie Agrochemical Co., Ltd.   Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.     10,000,000       3,000,000  
                     
Songyuan Jinyangguang Sannong Service Co., Ltd.   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; 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 Zhenbai Agriculture Co., Ltd.   Cultivation of crops; Storage, sales, preliminary processing and logistics distribution of agricultural by-products; Promotion and application of agricultural technologies; Purchase and sales of agricultural materials; Electronic commerce.     3,000,000       12,000,000  
                     
Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd.   Promotion and application of new agricultural technologies; Professional prevention of plant diseases and insect pests; Sales of plant protection products, plastic mulches, material, chemical fertilizers, pesticides, agricultural medicines, micronutrient fertilizers, hormones, agricultural machinery and medicines, and gardening tools.     6,000,000       12,000,000  
                     
Aksu Xindeguo Agricultural Materials Co., Ltd.   Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers, plant growth regulators, agricultural machineries, and water economizers; Consulting services for agricultural technologies; Purchase and sales of agricultural by- products.     10,000,000       12,000,000  
                     
Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd   Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, organic fertilizers, plant growth regulators, agricultural machineries, and water economizers; Purchase and sales of agricultural by-products; Cultivation of fruits and vegetables; Consulting services and training for agricultural technologies; Storage services; Sales of articles of daily use, food and oil; On-line sales of the above-mentioned products.                
                     
Total         37,000,000       51,000,000  

 

(1) The exchange rate between RMB and U.S. dollars on June 30, 2016 is RMB1=US$0.1508, according to the exchange rate published by Bank of China.

 

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(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.

  

January 1, 2017:

 

        Cash     Principal  
        Payment for     of
Notes for
 
        Acquisition     Acquisition  
Company Name   Business Scope    (RMB[1])     (RMB)  
Sunwu County Xiangrong Agricultural Materials Co., Ltd.   Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.     4,000,000       6,000,000  
                     
Anhui Fengnong Seed Co., Ltd.   Wholesale and retail sales of pesticides; 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 $7,078,500) to be paid by Jinong within three days following the execution of the SAA, ACN and the VIE Agreements, and convertible notes with an aggregate face value of RMB 63,000,000 (approximately $9,909,900) with an annual fixed compound interest rate of 3% and term of three years.

 

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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.

 

32

 

 

Results of Operations

 

Three Months ended March 31, 2022 Compared to the three months ended March 31, 2021.

 

    2022   2021   Change
$
  Change
%
Sales                
Jinong   $ 13,385,022     $ 15,818,610       (2,433,588 )     -15.4 %
Gufeng     45,205,467       48,438,434       (3,232,967 )     -6.7 %
Yuxing     2,548,383       3,055,588       (507,205 )     -16.6 %
Sales VIEs     -       -       -         %  
Net sales     61,138,872       67,312,632       (6,173,760 )     -9.2 %
Cost of goods sold                                
Jinong     9,729,576       11,543,109       (1,813,533 )     -15.7 %
Gufeng     39,522,883       41,979,484       (2,456,601 )     -5.9 %
Yuxing     2,148,522       2,441,868       (293,346 )     -12.0 %
Sales VIEs     -       -       -         %  
Cost of goods sold     51,400,981       55,964,461       (4,563,480 )     -8.2 %
Gross profit     9,737,891       11,348,171       (1,610,280 )     -14.2 %
Operating expenses                                
Selling expenses     2,348,169       2,728,022       (379,853 )     -13.9 %
General and administrative expenses     39,363,132       24,509,953       14,853,179       60.6 %
Total operating expenses     41,711,301       27,237,975       14,473,326       53.1 %
Income (loss) from operations     (31,973,410 )     (15,889,804 )     (16,083,606 )     101.2 %
Other income (expense)                                
Other income (expense)     1,389,374       342       1,389,032       406149.7 %
Interest income     53,634       18,671       34,963       187.3 %
Interest expense     (65,278 )     (57,316 )     (7,962 )     13.9 %
Total other income (expense)     1,377,730       (38,303 )     1,416,033       -3696.9 %
(Loss) before income taxes     (30,595,680 )     (15,928,107 )     (14,667,573 )     92.1 %
Provision for income taxes     -       (90,064 )     90,064       -100.0 %
Net (loss) from continuing operations   $ (30,595,680 )   $ (15,838,043 )     (14,757,637 )     93.2 %
Net (loss) from discontinued operations     (7,483,147 )     1,023,254       (8,506,401 )     -831.3 %
Net (Loss)     (38,078,827 )     (14,814,789 )     (23,264,038 )     157.0 %
                                 
Other comprehensive income (loss)                                
Foreign currency translation gain (loss)     (188,874 )     (59,215 )     (129,659 )     219.0 %
Comprehensive (loss)   $ (38,267,701 )   $ (14,874,004 )     (23,393,697 )     157.3 %

 

Net Sales

 

Total net sales for the three months ended March 31, 2022 were $61,138,872 a decrease of $6,173,760 or 9.2%, from $67,312,632 for the three months ended March 31, 2021. This decrease was principally a result of the negative impact on sales volumes due to the COVID-19 pandemic, especially for Gufeng’ net sales.

 

For the three months ended March 31, 2022, Jinong’s net sales decreased $2,433,588, or 15.4%, to $13,385,022 from $15,818,610 for the three months ended March 31, 2021. This decrease was mainly due to Jinong’s lower sales volume in the last three months. For the three months ended March 31, 2022, Jinong sold approximately 18,989 metric tons of fertilizer products, decreased 4,077 or 17.7% as compared to 23,066 metric tons for the three months ended March 31, 2021.

 

For the three months ended March 31, 2022, Gufeng’s net sales were $45,205,467, a decrease of $3,232,967 or 6.7%, from $48,438,434 for the three months ended March 31, 2021. This decrease was mainly due to Gufeng’s lower sales volume in the last three months. Gufeng sold approximately 90,228 metric tons of fertilizer products for the three months ended March 31, 2022, decreased 41,579 tons or 31.5%, as compared to 131,807 metric tons for the three months ended March 31, 2021.

 

33

 

 

For the three months ended March 31, 2022, Yuxing’s net sales were $2,548,383, a decrease of $507,205 or 16.6%, from $3,055,588 for the three months ended March 31, 2021. The decrease was mainly due to the decrease in market demand during the three months ended March 31, 2022.

  

Cost of Goods Sold

 

Total cost of goods sold for the three months ended March 31, 2022 was $51,400,981, a decrease of $4,563,480, or 8.2%, from $55,964,461 for the three months ended March 31, 2021. The decrease was mainly due to 5.9% decrease in Gufeng’ cost of goods sold.

 

Cost of goods sold by Jinong for the three months ended March 31, 2022 was $9,729,576, a decrease of $1,813,533, or 15.7%, from $11,543,109 for the three months ended March 31, 2021. The decrease in cost of goods was primarily due to lower net sales in the fiscal year 2022.

 

Cost of goods sold by Gufeng for the three months ended March 31, 2022 was $39,522,883, a decrease of $2,456,601, or 5.9%, from $41,979,484 for the three months ended March 31, 2021. This decrease was primarily due to the 6.7% decrease in net sale in the fiscal year 2022.

 

For three months ended March 31, 2022, cost of goods sold by Yuxing was $2,148,522, a decrease of $293,346, or 12.0%, from $2,441,868 for the three months ended March 31, 2021. This decrease was mainly due to Yuxing’s lower net sales in the fiscal year 2022.

 

Gross Profit

 

Total gross profit for the three months ended March 31, 2022 decreased by $1,610,280, or 14.2%, to $9,737,891, as compared to $11,348,171 for the three months ended March 31, 2021. Gross profit margin was 15.9% and 16.9% for the three Months Ended March 31, 2022 and 2021, respectively.

 

Gross profit generated by Jinong decreased by $620,055, or 14.5%, to $3,655,446 for the three months ended March 31, 2022 from $4,275,501 for the three months ended March 31, 2021. Gross profit margin from Jinong’s sales was approximately 27.3% and 27.0% for the three Months Ended March 31, 2022 and 2021, respectively. The increase in gross profit margin was mainly due to the higher unit sale price for Jinong in the fiscal year 2022.

 

For the three months ended March 31, 2022, gross profit generated by Gufeng was $5,682,584, a decrease of $776,366, or 12.0%, from $6,458,950 for the three months ended March 31, 2021. Gross profit margin from Gufeng’s sales was approximately 12.6% and 13.3% for the three Months Ended March 31, 2022 and 2021, respectively.

 

For the three months ended March 31, 2022, gross profit generated by Yuxing was $399,861, a decrease of $213,859, or 34.8% from $613,720 for the three months ended March 31, 2021. The gross profit margin was approximately 15.7% and 20.1% for the three months ended March 31, 2022 and 2021, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs.

 

Selling Expenses

 

Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $2,348,169, or 3.8%, of net sales for the three months ended March 31, 2022, as compared to $2,728,022, or 4.1%, of net sales for the three months ended March 31, 2021, a decrease of $379,853, or 13.9%. The decrease in selling expense was caused by the decrease in marketing activities.

 

The selling expenses of Jinong for the three months ended March 31, 2022 were $2,246,491 or 16.8% of Jinong’s net sales, as compared to selling expenses of $2,625,425 or 16.6% of Jinong’s net sales for the three months ended March 31, 2021.The selling expenses of Yuxing were $21,171 or 0.8% of Yuxing’s net sales for the three months ended March 31, 2022, as compared to $18,953 or 0.6% of Yuxing’s net sales for the three months ended March 31, 2021. The selling expenses of Gufeng were $80,507 or 0.2% of Gufeng’s net sales for the three months ended March 31, 2022, as compared to $83,644 or 0.2% of Gufeng’s net sales for the three months ended March 31, 2021.

 

34

 

 

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 $39,363,132, or 64.4% of net sales for the three months ended March 31, 2022, as compared to $24,509,953, or 36.4% of net sales for the three months ended March 31, 2021, a decrease of $14,853,179, or 60.6%. The increase in general and administrative expenses was mainly due to higher bad debts expense.

 

Total Other Income (Expenses)

 

Total other income (expenses) consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other income for the three months ended March 31, 2022 was $1,377,730, as compared to $38,303 total other expenses for the three months ended March 31, 2021, an increase in income of $1,416,033 or 3696.9%. The increase in total other income was mainly resulted from investment gain due to sales of discontinued operations for three months ended March 31, 2022.

 

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 0 for the three Months Ended March 31, 2022 and 2021 due to net loss.

 

Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the three Months Ended March 31, 2022 and 2021 due to net loss.

 

Yuxing has no income tax for the three Months Ended March 31, 2022 and 2021 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 March 31, 2022 was $(38,078,827), an increase in loss of $23,264,038, or 157.0%, compared to net (loss) of $(14,814,789) for the three months ended March 31, 2021. Net loss as a percentage of total net sales was approximately -62.3% and -22.0% for the three months ended March 31, 2022 and 2021, respectively.

 

Net (loss) from continuing operations for the three months ended March 31, 2022 was $(30,595,680), an increase in loss of $14,757,637, or 93.2%, compared to net (loss) of $(15,838,043) for the three months ended March 31, 2021. Net loss as a percentage of total net sales was approximately -50.0% and -23.5% for the three months ended March 31, 2022 and 2021, respectively. The increase in net loss was mainly due to higher general and administrative expenses.

 

Net income (loss) from discontinued operations for the three months ended March 31, 2022 was $(7,483,147), a decrease of with amount of $8,506,401, or 831.3%, compared to net income with amount of $1,023,254 for the three months ended March 31, 2021. The decrease in net income was mainly due to lower sales.

 

35

 

 

Nine months ended March 31, 2022 Compared to the nine months ended March 31, 2021.

 

    2022     2021     Change
$
    Change
%
 
Sales                        
Jinong   $ 43,513,283     $ 45,249,797       (1,736,514 )     -3.8 %
Gufeng     81,567,133       86,703,031       (5,135,898 )     -5.9 %
Yuxing     8,256,480       8,161,271       95,209       1.2 %
Sales VIEs     -       -       -         %
Net sales     133,336,896       140,114,099       (6,777,203 )     -4.8 %
Cost of goods sold                                
Jinong     31,812,503       33,149,990       (1,337,487 )     -4.0 %
Gufeng     71,525,033       75,803,724       (4,278,691 )     -5.6 %
Yuxing     6,912,210       6,624,796       287,414       4.3 %
Sales VIEs     -       -       -         %
Cost of goods sold     110,249,746       115,578,510       (5,328,764 )     -4.6 %
Gross profit     23,087,150       24,535,589       (1,448,439 )     -5.9 %
Operating expenses                                
Selling expenses     8,744,473       9,924,316       (1,179,843 )     -11.9 %
General and administrative expenses     82,685,580       97,067,252       (14,381,671 )     -14.8 %
Total operating expenses     91,430,053       106,991,568       (15,561,514 )     -14.5 %
Income (loss) from operations     (68,342,903 )     (82,455,979 )     14,113,075       -17.1 %
Other income (expense)                                
Other income (expense)     1,848,889       (56,984 )     1,905,873       -3344.6 %
Interest income     129,512       61,144       68,369       111.8 %
Interest expense     (203,707 )     (181,269 )     (22,438 )     12.4 %
Total other income (expense)     1,774,694       (177,109 )     1,951,804       -1102.0 %
(Loss) before income taxes     (66,568,209 )     (82,633,088 )     16,064,879       -19.4 %
Provision for income taxes     587,195       2,460,523       (1,873,328 )     -76.1 %
Net (loss) from continuing operations   $ (67,155,404 )   $ (85,093,611 )     17,938,207       -21.1 %
Net (loss) from discontinued operations     (17,983,567 )     (710,755 )     (17,272,812 )     2430.2 %
Net (Loss)     (85,138,971 )     (85,804,366 )     665,395       -0.8 %
                                 
Other comprehensive income (loss)                                
Foreign currency translation gain (loss)     3,530,313       25,336,321      

(21,806,008

)     -86.1 %
Comprehensive (loss)   $ (81,608,658 )   $ (60,468,045 )     (21,140,613 )     35.0 %

 

Net Sales

 

Total net sales for the nine months ended March 31, 2022 were $133,336,896 a decrease of $6,777,203 or 4.8%, from $140,114,099 for the nine months ended March 31, 2021. This decrease was primarily due to a decrease in Gufeng’ net sales.

 

36

 

 

For the nine months ended March 31, 2022, Jinong’s net sales decreased $1,736,514, or 3.8%, to $43,513,283 from $45,249,797 for the nine months ended March 31, 2021. This decrease was mainly due to Jinong’s lower sales volume in the last nine months. For the nine months ended March 31, 2022, Jinong sold approximately 49,487 metric tons of fertilizer products, a decrease of 10,678 metric tons, or 17.7%, as compared to 60,165 metric tons for the nine months ended March 31, 2021.

 

For the nine months ended March 31, 2022, Gufeng’s net sales were $81,567,133, a decrease of $5,135,898, or 5.9%, from $86,703,031 for the nine months ended March 31, 2021. This decrease was mainly attributable to the decrease in Gufeng’s sales volume in the last nine months. For the nine months ended March 31, 2022, Gufeng sold approximately 188,006 metric tons of fertilizer products, a decrease of 55,490 metric tons, or 22.8% as compared to 243,496 metric tons for the nine months ended March 31, 2021.

 

For the nine months ended March 31, 2022, Yuxing’s net sales were $8,256,480, an increase of $95,209 or 1.2%, from $8,161,271 for the nine months ended March 31, 2021.

  

Cost of Goods Sold

 

Total cost of goods sold for the nine months ended March 31, 2022 was $110,249,746, a decrease of $5,328,764, or 4.6%, from $115,578,510 for the nine months ended March 31, 2021. The decrease was mainly due to the decrease in Gufeng’s cost of goods sold which decreased 5.6%.

 

Cost of goods sold by Jinong for the nine months ended March 31, 2022 was $31,812,503, a decrease of $1,337,487, or 4.0%, from $33,149,990 for the nine months ended March 31, 2021. The decrease in cost of goods was primarily due to the decrease in net sales during the last nine months.

 

Cost of goods sold by Gufeng for the nine months ended March 31, 2022 was $71,525,033, a decrease of $ 4,278,691, or 5.6%, from $75,803,724 for the nine months ended March 31, 2021. This decrease was primarily due to the 5.9% decrease in net sale during the last nine months. 

 

For nine months ended March 31, 2022, cost of goods sold by Yuxing was $6,912,210, an increase of $ 287,414, or 4.3%, from $6,624,796 for the nine months ended March 31, 2021. This increase was mainly due to the 1.2% increase in Yuxing’s net sales during the last nine months. 

 

Gross Profit

 

Total gross profit for the nine months ended March 31, 2022 decreased by $1,448,439, or 5.9%, to $23,087,150, as compared to $24,535,589 for the nine months ended March 31, 2021. Gross profit margin was 17.3% and 17.5% for the nine months ended March 31, 2022 and 2021, respectively.

 

Gross profit generated by Jinong decreased by $399,027 or 3.3%, to $11,700,780 for the nine months ended March 31, 2022 from $12,099,807 for the nine months ended March 31, 2021. Gross profit margin from Jinong’s sales was approximately 26.9% and 26.7% for the nine months ended March 31, 2022 and 2021, respectively.

 

For the nine months ended March 31, 2022, gross profit generated by Gufeng was $10,042,100, a decrease of $857,207, or 7.9%, from $10,899,307 for the nine months ended March 31, 2021. Gross profit margin from Gufeng’s sales was approximately 12.3% and 12.6% for the nine months ended March 31, 2022 and 2021, respectively.

 

37

 

 

For the nine months ended March 31, 2022, gross profit generated by Yuxing was $1,344,270, a decrease of $192,205, or 12.5% from $1,536,475 for the nine months ended March 31, 2021. The gross profit margin was approximately 16.3% and 18.8% for the nine months ended March 31, 2022 and 2021, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs.

 

Selling Expenses

 

Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $8,744,473, or 6.6%, of net sales for the nine months ended March 31, 2022, as compared to $9,924,316, or 7.1% of net sales for the nine months ended March 31, 2021, a decrease of $1,179,843 or 11.9%.

 

The selling expenses of Jinong for the nine months ended March 31, 2022 were $8,449,858 or 19.4% of Jinong’s net sales, as compared to selling expenses of $9,659,301 or 21.3% of Jinong’s net sales for the nine months ended March 31, 2021. The selling expenses of Yuxing were $50,547 or 0.6% of Yuxing’s net sales for the nine months ended March 31, 2022, as compared to $40,641 or 0.5% of Yuxing’s net sales for the nine months ended March 31, 2021. The selling expenses of Gufeng were $244,068 or 0.3% of Gufeng’s net sales for the nine months ended March 31, 2022, as compared to $224,374 or 0.3% of Gufeng’s net sales for the nine months ended March 31, 2021.

 

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 $82,685,580, or 62.0% of net sales for the nine months ended March 31, 2022, as compared to $97,067,252, or 69.3% of net sales for the nine months ended March 31, 2021, a decrease of $14,381,671, or 14.8%.

 

Total Other Income (Expenses)

 

Total other income (expenses) consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other income for the nine months ended March 31, 2022 was $1,774,694, as compared to $177,109 total other expenses for the nine months ended March 31, 2021, an increase in income of $1,951,804 or 1102.0%. The increase in total other income resulted from investment gain due to sales of discontinued operations for nine months ended March 31, 2022.

 

Income Taxes

 

Jinong is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of 0 for the nine months ended March 31, 2022, as compared to $$277,685 for the nine months ended March 31, 2021, a decrease of $277,685, or 100.0%.

 

Gufeng is subject to a tax rate of 25%, incurred 0 income tax expenses for the nine months ended March 31, 2022 and 2021.

 

Yuxing has no income tax for the nine months ended March 31, 2022 and 2021 as a result of being exempted from paying income tax due to its products fall into the tax exemption list set out in the EIT.

 

38

 

 

Net Income (loss)

 

Net (loss) for the nine months ended March 31, 2022 was $(85,138,971), a slightly decrease of loss with amount of $665,395, or 0.8%, compared to $(85,138,971) for the nine months ended March 31, 2021. Net loss as a percentage of total net sales was approximately -63.9% and -61.2% for the nine months ended March 31, 2022 and 2021, respectively.

 

Net (loss) from continuing operations for the nine months ended March 31, 2022 was $(67,155,404), a decrease of loss with amount of $17,938,207, or 21.1%, compared to $(85,093,611) for the nine months ended March 31, 2021. The decrease was mainly due to lower General and administrative expenses.

 

Net (loss) from discontinued operations for the nine months ended March 31, 2022 was $(17,983,567), an increase of loss with amount of $17,272,812, or 2430.2%, compared to net (loss) with amount of $(710,755) for the nine months ended March 31, 2021. The increase of loss was mainly due to lower sales.

 

Discussion of Segment Profitability Measures

 

As of March 31, 2022, 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.

 

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

 

For Jinong, the net (loss) increased by $1,612,782, or 16.4%, to $(11,449,612) for nine months ended March 31, 2022, from $(9,836,830) for the nine months ended March 31, 2021. The increase in net loss was principally due to higher general and administrative expense.

 

For Gufeng, the net (loss) decreased by $15,284,153 or 21.2%, to $(56,904,522) for nine months ended March 31, 2022 from $(72,188,675) for nine months ended March 31, 2021. The decrease of net loss was principally due to the decrease in general and administrative expense.

 

For Yuxing, the net income increased $122,129 or 25.5%, to $601,492 for nine months ended March 31, 2022 from $479,363 for nine months ended March 31, 2021. The increase was mainly due to higher sales.

 

39

 

 

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 March 31, 2022, cash and cash equivalents were $51,436,395, an increase of $32,842,451, or 176.6%, from $18,593,944 as of June 30, 2021.

 

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:

 

    Nine Months Ended  
    March 31,  
    2022     2021  
Net cash provided by (used in) operating activities   $ (45,769,602 )   $ (10,584,537 )
Net cash provided by (used in) investing activities     5,055,208       (469,390 )
Net cash provided by (used in) financing activities     70,924,275       355,200  
Effect of exchange rate change on cash and cash equivalents     2,632,571       3,839,537  
Net increase in cash and cash equivalents     32,842,451       (6,859,191 )
Cash and cash equivalents, beginning balance     18,593,944       11,934,778  
Cash and cash equivalents, ending balance   $ 51,436,395     $ 5,075,587  

 

Operating Activities

 

Net cash used in operating activities was $45,769,602 for the nine months ended March 31, 2022, an increase of $35,185,065, or 332.4%, from cash used in operating activities of $10,584,537 for the nine months ended March 31, 2021. The increase was mainly due to the increase in advance to suppliers and decrease for account payables during the nine months ended March 31, 2022 as compared to the same period in 2021.

 

Investing Activities

 

Net cash provided by investing activities for the nine months ended March 31, 2022 was $5,055,208, compared to cash used in investing activities of $469,390 for the nine months ended March 31, 2021. The increase was mainly due to the sales of discontinued operations and the Company received partial fund during the nine months ended March 31, 2022. 

 

Financing Activities

 

Net cash provided by financing activities for the nine months ended March 31, 2022 was $70,924,275, compared to $355,200 net cash provided by financing activities for the nine months ended March 31, 2021 from short-loan. The increase was mainly due to the Company received fund from investors for purchase of stock.

 

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As of March 31, 2022 and June 30, 2021, our loans payable was as follows:

 

    March 31,   June 30,
    2022   2021
Short term loans payable:   $ 4,247,100     $ 4,179,600  
Total   $ 4,247,100     $ 4,179,600  

 

Accounts Receivable

 

We had accounts receivable of $40,158,928 as of March 31, 2022, as compared to $102,783,004 as of June 30, 2021, a decrease of $62,624,076, or 60.9%. The decrease was primarily attributable to Gufeng’s accounts receivable and the discontinued of Lishijie, Fengnong, Jinyangguang and Wangtian. As of March 31, 2022, Gufeng’s accounts receivable was $13,645,859, a decrease of $24,409,152, or 64.1%, compared to $38,055,011 as of June 30, 2021.

 

Allowance for doubtful accounts in accounts receivable for the nine months ended March 31, 2022 was $32,797,394, an increase of $9,058,407 or 38.2%, from $23,738,987 as of June 30, 2021. And the allowance for doubtful accounts as a percentage of accounts receivable was 45.0% as of March 31, 2022 and 18.8% as of June 30, 2021.

 

Deferred assets

 

We had no deferred assets as of March 31, 2022 and June 30, 2021. During the three months, we assisted the distributors in certain marketing efforts and developing standard stores to expand our competitive advantage and market shares. Based on the distributor agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed over three years if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the contractual terms, the unamortized portion of the amount owed by the distributor is payable to us immediately. The deferred assets had been fully amortized as of March 31, 2022.

 

Inventories

 

We had inventories of $51,565,520 as of March 31, 2022, as compared to $64,315,903 as of June 30, 2021, a decrease of $12,750,383, or 19.8%. The decrease was primarily attributable to Gufeng’s inventory. As of March 31, 2022, Gufeng’s inventory was $28,305,184, compared to $36,617,573 as of June 30, 2021, a decrease of $8,312,389, or 22.7%.

 

Advances to Suppliers

 

We had advances to suppliers of $37,877,927 as of March 31, 2022 as compared to $23,884,772 as of June 30, 2021, representing an increase of $13,993,155, or 58.6%. 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.

 

Accounts Payable

 

We had accounts payable of $1,858,302 as of March 31, 2022 as compared to $16,868,942 as of June 30, 2021, representing a decrease of $ 15,010,640, or 89.0%. The decrease was primarily due to the decrease of accounts payable for VIEs due to the discontinued of Lishijie, Fengnong, Jinyangguang and Wangtian.

 

Unearned Revenue (Customer Deposits)

 

We had customer deposits of $5,803,179 as of March 31, 2022 as compared to $6,257,215 as of June 30, 2021, representing an decrease of $454,036, or 7.3%. This decrease 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.

 

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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.

 

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 March 31, 2022.

 

42

 

 

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 March 31, 2022, we were organized into five main business units: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production), Jinyangguang (agriculture sales) and Wangtian (agriculture sales). For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual budget regarding development, production and sales. 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Disclosures About Market Risk

 

We may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the risk that losses may occur because of movements in interest rates and equity prices. We currently do not, in the normal course of business, use financial instruments that are subject to changes in financial market conditions. If we use such financial instruments in the Company’s management, our financial conditions will be subject to the market risk of price movements in interest risk and equity prices.

 

Currency Fluctuations and Foreign Currency Risk

 

Substantially all our revenues and expenses are denominated in RMB. However, we use the U.S. dollar for financial reporting purposes. Conversion of RMB into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of RMB, there can be no assurance that such exchange rate will not again become volatile or that RMB will not devalue significantly against U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC.

 

Our reporting currency is the U.S. dollar. Except for U.S. holding companies, all our consolidated revenues, consolidated costs and expenses, and our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollars and RMB. If RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. Assets and liabilities are translated at the exchange rates as of the balance sheet dates, revenues and expenses are translated at the average exchange rates, and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income (loss) but are included in determining other comprehensive income, a component of shareholders’ equity. As of March 31, 2022, our accumulated other comprehensive income (loss) was $(1) million. We have not entered any hedging transactions to reduce our exposure to foreign exchange risk. The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in PRC’s political and economic conditions. Between July 1, 2021 and March 31, 2022, China’s currency increased by a cumulative 1.8% against the U.S. dollar, making Chinese exports more expensive and imports into China cheaper by that percentage. The effect on trade can be substantial. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

 

Interest Rate Risk

 

We deposit surplus funds with Chinese and American banks earning daily interest. We do not invest in any instruments for trading purposes. All our outstanding debt instruments carry fixed rates of interest. The amount of short-term debt outstanding as of March 31, 2022 and June 30, 2021 was $4.2 million and $4.2 million, respectively. We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our short-term loans, are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans and interest rates are subject to change upon renewal. There was no material change in interest rates for short-term bank loans renewed during the nine months ended March 31, 2022. The original loan term on average is one year, and the remaining average life of the short term-loans is approximately three months.

 

43

 

 

Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered any hedging transactions to reduce our exposure to interest rate risk.

 

Credit Risk

 

We have experienced higher credit risk than usual since 2020. With the impact of COVID-19 pandemic, the overdue outstanding accounts receivable increased significantly compared with the years prior to the pandemic. Our accounts receivables are typically unsecured and are mainly derived from revenues earned from customers in the PRC. Most of our customers are individuals and small and medium-sized enterprises (“SMEs”), which may not have strong cash flows or be well capitalized. They may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. Many of the SMEs that we work with cannot weather COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak. Numerous distributors encountered significant difficulties and/or hardships in their businesses amid the pandemic. Even through our receivables are monitored regularly by our credit managers, the bad debts expenses are higher in recent 2 years comparing with the years before 2020.

 

Inflation Risk

 

Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. Notwithstanding the measures taken by the PRC government to control inflation, China still experienced an increase in inflation and our operating cost became higher than anticipated.  The high rate of inflation had an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

 

Epidemics, pandemics or other outbreaks Risk

 

The outbreak of COVID-19 has adversely affected, and in the future it or other epidemics, pandemics or outbreaks may adversely affect, our operations. This is or may be due to closures or restrictions requested or mandated by governmental authorities, disruption to supply chains and workforce, reduction of demand for our products and services, and credit losses when customers and other counterparties fail to satisfy their obligations to us. We share most of these risks with all businesses.

 

In addition, the COVID-19 outbreak has significantly increased economic and demand uncertainty. The current outbreak and continued spread of COVID-19 may cause a global recession, which would have a further adverse impact on our financial condition and operations, and this impact could exist for an extensive period.

 

The Company is continuing to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities. The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products.

 

Additional future impacts on the Company may include, but are not limited to, material adverse effects on demand for the Company’s products and services; the Company’s supply chain and sales and distribution channels; the Company’s ability to execute its strategic plans; and the Company’s profitability and cost structure. To the extent the COVID-19 pandemic adversely affects the Company’s business, results of operations, financial condition and stock price, it may also have the effect of heightening many of the other risks described above.

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

  

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), at the conclusion of the period ended March 31, 2022 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

 

(b) Changes in internal controls

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

44

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There are no other actions, suits, proceedings, inquiries or investigations before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no unregistered sales of the Company’s equity securities during the three months ended March 31, 2022, that were not otherwise disclosed in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. Exhibits

 

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

 

45

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  CHINA GREEN AGRICULTURE, INC.
   
Date: July 1, 2022 By: /s/ Zhuoyu Li
  Name: Zhuoyu Li
  Title: Chief Executive Officer
    (principal executive officer)

 

Date: July 1, 2022 By: /s/ Yongcheng Yang
  Name: Yongcheng Yang
  Title: Chief Financial Officer
    (principal financial officer and 
principal accounting officer)

 

46

 

 

EXHIBIT INDEX

 

No.   Description
21.1*   List of Subsidiaries of the Company
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   Inline XBRL Instance Document.
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed herewith

 

+ In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

 

 

47

 

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