10-Q 1 v343219_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2013

 

o 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 (I.R.S. Employer
incorporation or organization) Identification No.)

 

 

  3rd Floor, Borough A, Block A, No. 181
South Taibai Road, Xi’an, Shaanxi Province
People’s Republic of China  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 x   No o

 

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 x   No o

 

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

 

Large accelerated filer    o Accelerated filer             x

Non-accelerated filer o

( Do not check if a smaller reporting company )

 Smaller reporting company     o

 

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

 

 

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: 27,948,235 shares of common stock, $.001 par value, as of May 6, 2013.

 

 

 
 

 

 

TABLE OF CONTENTS

 

PART I         FINANCIAL INFORMATION   Page
         
Item 1.   Financial Statements.   3
         
    Consolidated Condensed Balance Sheets   3
    As of March 31, 2013 and June 30, 2012 (Unaudited)  
         
    Consolidated Condensed Statements of Income and Comprehensive Income   4
    For the Three and Nine Months Ended March 31, 2013 and 2012 (Unaudited)    
         
    Consolidated Condensed Statements of Cash Flows   6
    For the Nine Months Ended March 31, 2013 and 2012 (Unaudited)    
         
    Notes to Consolidated Condensed Financial Statements   7
    As of March 31, 2013 (Unaudited)    
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.   21
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.   32
         
Item 4.   Controls and Procedures.   33
         
PART II        OTHER INFORMATION    
         
Item 1.   Legal Proceedings.   33
         
Item 6.   Exhibits.   33
         
Signatures       34
         
Exhibits/Certifications   35
         

 

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

 

   March 31, 2013   June 30, 2012 
         
ASSETS          
Current Assets          
Cash and cash equivalents  $77,652,645   $71,978,630 
Accounts receivable, net   73,960,377    62,001,158 
Inventories   48,055,210    28,602,684 
Other current assets   502,886    299,526 
Advances to suppliers   9,918,649    12,207,325 
Total Current Assets   210,089,767    175,089,323 
           
Plant, Property and Equipment, Net   86,573,943    80,065,161 
           
Construction In Progress   186,142    - 
           
Other Assets – Non Current   119,226    182,119 
           
Intangible Assets, Net   26,608,017    27,618,641 
           
Goodwill   5,107,853    5,075,809 
           
Total Assets  $328,684,948   $288,031,053 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $5,270,455   $6,881,748 
Unearned revenue   1,719,031    2,625,014 
Accrued expenses and other payables   4,097,921    4,290,249 
Amount due to related parties   1,186,723    370,719 
Taxes payable   21,964,129    17,675,389 
Short term loans   16,976,100    13,931,280 
Total Current Liabilities   51,214,359    45,774,399 
           
Commitment and Contingencies          
           
Stockholders’ Equity          
Preferred Stock, $.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding   -    - 
Common stock, $.001 par value, 115,197,165 shares authorized, 27,948,235 and 27,455,722 shares issued and outstanding as of March 31, 2013 and June 30, 2012, respectively   27,948    27,456 
Additional paid-in capital   105,179,545    102,175,709 
Statutory reserve   18,586,734    15,130,158 
Retained earnings   136,199,635    109,142,824 
Accumulated other comprehensive income   17,476,727    15,780,507 
Total Stockholders’ Equity   277,470,589    242,256,654 
           
Total Liabilities and Stockholders’ Equity  $328,684,948   $288,031,053 

 

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

 

3
 

 

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

 

   Three Months Ended March 31,   Nine Months Ended March 31, 
   2013   2012   2013   2012 
Sales                    
Jinong  $27,051,929   $22,311,668   $77,857,756   $63,543,075 
Gufeng   37,690,762    34,095,432    66,612,586    89,666,961 
Jintai   -    2,466,393    -    5,780,969 
Yuxing   1,129,842    1,142,851    2,645,923    1,221,930 
Net sales   65,872,533    60,016,344    147,116,265    160,212,935 
Cost of goods sold                    
Jinong   12,502,786    8,621,378    35,994,694    24,290,985 
Gufeng   30,844,656    25,669,014    54,339,165    71,631,077 
Jintai   -    2,270,002    -    5,276,896 
Yuxing   779,386    980,611    1,909,795    1,240,421 
Cost of goods sold   44,126,828    37,541,005    92,243,654    102,439,379 
Gross profit   21,745,705    22,475,339    54,872,611    57,773,556 
Operating expenses                    
Selling expenses   3,872,492    3,633,223    10,044,863    8,538,445 
General and administrative expenses   1,348,802    2,980,108    7,381,015    9,897,785 
Total operating expenses   5,221,294    6,613,331    17,425,878    18,436,230 
Income from operations   16,524,411    15,862,008    37,446,733    39,337,326 
Other income (expense)                    
Other income (expense)   212,344    (56,082)   609,724    7,584 
Interest income   73,879    89,314    235,028    276,917 
Interest expense, net   (268,455)   (554,325)   (1,020,694)   (1,110,672)
Total other income (expense)   17,768    (521,093)   (175,942)   (826,171)
Income before income taxes   16,542,179    15,340,915    37,270,791    38,511,155 
Provision for income taxes   3,131,520    2,966,554    6,757,404    7,661,280 
Net income   13,410,659    12,374,361    30,513,387    30,849,875 
Other comprehensive income                    
Foreign currency translation gain (loss)   1,541,434    1,375,927    1,696,220    4,719,169 
Comprehensive income  $14,952,093   $13,750,288   $32,209,607   $35,569,044 
                     
Basic weighted average shares outstanding   27,939,780    26,960,277    27,682,345    26,919,678 
Basic net earnings per share  $0.48   $0.46   $1.10   $1.15 
Diluted weighted average shares outstanding   27,939,780    26,960,277    27,682,345    26,919,678 
Diluted net earnings per share   0.48    0.46    1.10    1.15 

 

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

 

4
 

 

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Nine Months Ended March 31, 
   2013   2012 
Cash flows from operating activities          
Net income  $30,513,387   $30,849,875 
Adjustments to reconcile net income to net cash provided by (used in) operating activities          
Issuance of common stock and stock options for compensation   2,704,328    1,163,938 
Depreciation   8,850,655    3,524,788 
Amortization   1,179,780    1,170,692 
Changes in operating assets, net of effects from acquisitions          
Accounts receivable   (11,516,998)   (42,177,371)
Other current assets   (200,578)   63,691 
Inventories   (19,187,321)   (11,810,508)
Advances to suppliers   2,355,354    4,922,664 
Other assets   63,762    (42,802)
Changes in operating liabilities, net of effects from acquisitions          
Accounts payable   (1,644,727)   248,222 
Unearned revenue   (918,503)   473,341 
Tax payables   4,158,809    7,290,632 
Accrued expenses and other payables   (202,264)   3,799,716 
Amount due to related parties   1,110,900    - 
Net cash provided by (used in) operating activities   17,266,584    (523,122)
           
Cash flows from investing activities          
Purchase of plant, property, and equipment   (14,827,612)   (5,710,530)
Increase in construction in progress   (185,325)   (3,071,623)
Net cash used in investing activities   (15,012,937)   (8,782,153)
           
Cash flows from financing activities          
Proceeds from loans   2,943,885    9,659,940 
         300,001 
Net cash provided by financing activities   2,943,885    9,959,941 
           
Effect of exchange rate change on cash and cash equivalents   476,483    1,515,397 
Net increase in cash and cash equivalents   5,674,015    2,170,063 
           
Cash and cash equivalents, beginning balance   71,978,630    65,606,413 
Cash and cash equivalents, ending balance  $77,652,645   $67,776,476 
           
Supplement disclosure of cash flow information          
Interest expense paid  $267,506   $1,110,672 
Income taxes paid  $2,598,595   $337,228 
           
Supplemental Disclosure of Non-Cash Financing Activities:          
Issuance of 151,515 shares of common stock for repayment of          
       amount due to related party  $300,000   $- 

 

 

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

 

5
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO 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 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 Jintai Agriculture Technology Development Company (“Jintai”), wholly-owned subsidiary of Jinong in the PRC, (iv) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a wholly-owned subsidiary of Jinong in the PRC; (v) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (vi) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).

 

The Company’s corporate structure as of March 31, 2013 is set forth in the diagram below:

 

 

6
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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, Jintai, Yuxing, Gufeng and Tianjuyuan. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) 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 could differ materially from those results.

 

Recent accounting pronouncements

 

On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company’s financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 “Comprehensive Income.” The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.

 

In March 2013, the FASB issued guidance on a parent company’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent company releases any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. The adoption of this pronouncement is not expected to have a material impact on the Company’s financial statements.

 

7
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - 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.

 

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

 

   For the Three Months Ended March 31,   For the Nine Months Ended March 31, 
   2013   2012   2013   2012 
Net Income for Basic Earnings Per Share  $13,410,659   $12,374,361   $30,513,387   $30,849,875 
Basic Weighted Average Number of Shares   27,939,780    26,960,277    27,682,345    26,919,678 
Net Income per Share – Basic  $0.48   $0.46   $1.10   $1.15 
Net Income for Diluted Earnings Per Share  $13,410,659   $12,374,361   $30,513,387   $30,849,875 
Diluted Weighted Average Number of Shares   27,939,780    26,960,277    27,682,345    26,919,678 
Net Income Per Share – Diluted  $0.48   $0.46   $1.10   $1.15 

  

NOTE 4 – INVENTORIES

 

Inventories consist of the following:

 

   March 31,   June 30, 
   2013   2012 
Raw materials  $10,295,374   $6,009,686 
Supplies and packing materials   577,949    565,559 
Work in progress   318,774    127,140 
Finished goods   36,863,113    21,900,299 
Total  $48,055,210   $28,602,684 

 

NOTE 5 – OTHER CURRENT ASSETS

 

Other current assets consisted of the following:

 

   March 31,   June 30, 
   2013   2012 
Advancement  $502,886   $299,526 
Total  $502,886   $299,526 

 

Advancement represents advances made to non-related parties and employees. The amounts were unsecured, interest free, and due on demand.

 

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consist of the following:

 

   March 31,   June 30, 
   2013   2012 
Building and improvements  $35,432,738   $36,174,009 
Auto   719,151    835,412 
Machinery and equipment   79,664,618    63,280,923 
Agriculture assets   3,183,253    3,163,286 
Total property, plant and equipment   118,999,760    103,453,630 
Less: accumulated depreciation   (32,425,817)   (23,388,469)
Total  $86,573,943   $80,065,161 

 

8
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Depreciation expenses for the three months ended March 31, 2013 and 2012 were $3,622,264 and $1,176,912, respectively. Depreciation expenses for the nine months ended March 31, 2013 and 2012 were $8,850,655 and $3,524,788, respectively.

 

Agriculture assets consist of reproductive trees that are expected to be commercially productive for a period of eight years.

 

NOTE 7 - CONSTRUCTION IN PROGRESS

 

As of March 31, 2013 and June 30, 2012, construction in progress representing construction for Yuxing’s supporting facilities amounted to $186,142 and $0, respectively. The Company estimates that such construction will be completed by the fiscal year ended June 30, 2013 and the total cost should not exceed RMB 2 million (approximately $315,000).

 

NOTE 8 - INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

   March 31,   June 30, 
   2013   2012 
Land use rights, net  $11,827,575   $11,014,591 
Technology patent, net   794,344    1,902,131 
Customer relationships, net   7,528,397    8,253,368 
Non-compete agreement   94,684    125,453 
Trademarks   6,363,017    6,323,098 
Total  $26,608,017   $27,618,641 

 

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 RMB 73,184,895 (or $11,599,806). 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 $165,783). 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 RMB 7,285,099 (or $1,154,688). The intangible asset is being amortized over the grant period of 50 years.

 

The Land Use Rights consist of the following:

 

   March 31,   June 30, 
   2013   2012 
Land use rights  $12,993,641   $12,912,125 
Less: accumulated amortization   (1,166,066)   (1,897,534)
Total land use rights, net  $11,827,575   $11,014,591 

 

9
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

TECHNOLOGY PATENT

 

On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $931,198) and is being amortized over the patent period of 10 years using the straight line method.

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired technology patent was estimated to be RMB 9,200,000 (or $1,458,200) and is amortized over the remaining useful life of six years using the straight line method.

 

The technology know-how consisted of the following:

 

   March 31,   June 30, 
   2013   2012 
Technology know-how  $2,402,966   $2,387,891 
Less: accumulated amortization   (1,608,622)   (485,760)
Total technology know-how, net  $794,344   $1,902,131 

 

CUSTOMER RELATIONSHIP

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired customer relationships was estimated to be RMB 65,000,000 (or $10,302,500) and is amortized over the remaining useful life of 10 years.

 

   March 31,   June 30, 
   2013   2012 
Customer relationships  $10,361,000   $10,296,000 
Less: accumulated amortization   (2,832,603)   (2,042,632)
Total customer relationships, net  $7,528,397   $8,253,368 

 

NON-COMPETE AGREEMENT

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired non-compete agreement was estimated to be RMB1,320,000 (or $209,220) and is amortized over the remaining useful life of five years using the straight line method.

 

   March 31,   June 30, 
   2013   2012 
Non-compete agreement  $210,408   $209,088 
Less: accumulated amortization   (115,724)   (83,635)
Total non-compete agreement, net  $94,684   $125,453 

 

TRADEMARKS

 

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired trademarks was estimated to be RMB 40,700,000 (or $6,327,090), and is subject to an annual impairment test.

 

10
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

AMORTIZATION EXPENSE

 

Total amortization expenses of intangible assets for the three months ended March 31, 2013 and 2012 amounted to $393,942 and $507,250, respectively. Total amortization expenses of intangible assets for the nine months ended March 31, 2013 and 2012 amounted to $1,179,780 and $1,170,692, respectively.

 

Estimated amortization expenses of intangible assets for the next five (5) twelve-month periods ended March 31, are as follows:

 

March 31, 2014   1,582,468 
March 31, 2015   1,582,468 
March 31, 2016   1,550,906 
March 31, 2017   1,357,077 
March 31, 2018   1,295,973 

 

NOTE 9 - ACCRUED EXPENSES AND OTHER PAYABLES

 

Accrued expenses and other payables consist of the following:

 

   March 31,   June 30, 
   2013   2012 
Payroll payable  $206,940   $127,149 
Welfare payable   169,212    168,150 
Accrued expenses   2,719,085    2,827,028 
Other payables   878,996    1,045,010 
Other levy payable   123,688    122,912 
Total  $4,097,921   $4,290,249 

 

NOTE 10 - AMOUNT DUE TO RELATED PARTIES

 

As of March 31, 2013 and June 30, 2012, the amount due to related parties was $1,186,723 and $370,719, respectively.  These amounts represent unsecured, non-interest bearing loans that are due on demand.  These loans are not subject to written agreements.

 

During the quarter ended September 30, 2012, the Company entered into a related party transaction to borrow $1,115,800 (RMB 7,000,000) from Xi’an Techteam Science and Technology (Group) Co., Ltd, a company controlled by Mr. Tao Li, Green Nevada’s Chairman, President and CEO. The amount borrowed is non interest bearing and does not contain a specific maturity date.

 

On August 10, 2010, Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd (“Yuxing”) which is a subsidiary of the Company, entered into an agreement with Xi’an Kingtone Information Co., Ltd. (“Kingtone Information”) which was responsible for developing certain electronic control systems for Yuxing. Kingtone Information is a Variable Interest Entity controlled by Kingtone Wirelessinfo Solution Holding Ltd. (Nasdaq: KONE), whose Chairman and majority shareholder is Mr. Tao Li, Green Nevada’s Chairman, President and CEO. The total contracted value of this agreement, including value-added taxes and other taxes, is RMB 3,030,000, or approximately $480,255. The performance of the agreement has not been completed due to force majeure arising from the relocation of Jintai and the concurrent construction in Yuxing.

 

On June 29, 2012, Jinong signed an office lease with Kingtone Information. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provided for a two-year term effective as of July 1, 2012 with monthly rent of RMB 24,480 (approximately $3,880).

 

11
 

  

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 - LOAN PAYABLES

 

As of March 31, 2013, the short-term loans payable consist of ten loans which mature on dates ranging from April 22, 2013 through March 22, 2014 with interest rates ranging from 6.30% to 8.20%. The loans No.1, 2 and 3 are collateralized by Tianjuyan’s land use right and building ownership right. The loans No. 4, 5, and 6 are collateralized by the inventory of Gufeng. In addition, the loans No. 7, 8 and 9 are guaranteed by Jinong’s credit. The loan No. 10 is collateralized by the land use right of Jinong and Jinong’s ownship of its subsidiaries’ equity.

 

No.  Payee  Loan period per agreement  Interest
Rate		   As of
March 31, 2013		 
1  Agriculture Bank of China-Beijing Branch  January 24, 2013 - January 13, 2014   6.60%  $1,338,960 
2  Agriculture Bank of China-Beijing Branch  March 23, 2013 - March 22, 2014   6.60%   1,275,200 
3  Agriculture Bank of China-Beijing Branch  April 23, 2012 - April 22, 2013   8.20%   1,609,940 
4  Bank of Tianjin  August 7,2012-May 15, 2013   7.20%   1,115,800 
5  Bank of Tianjin  August 7,2012 - June 19, 2013   7.20%   1,115,800 
6  Bank of Tianjin  August 7, 2012 - June 3, 2013   7.20%   956,400 
7  China Merchant Bank  August 30, 2012 - August 29, 2013   6.30%   3,985,000 
8  Industrial and Commercial Bank of China  October 25, 2012 - October 25,2013   8.00%   1,594,000 
9  Industrial and Commercial Bank of China  September 25, 2012-September 24, 2013   8.00%   1,594,000 
10  China Minsheng Bank  January 5, 2013 - January 4, 2014   7.20%   2,391,000 
      Total       $16,976,100 

 

As of June 30, 2012, the short-term loans payable consist of eight loans which mature on dates ranging from July 25, 2012 through April 22, 2013 interest rates ranging from 6.89% to 8.87%. The loans No.1, 2 and 3 are collateralized by Tianjuyan’s land use right and building ownership right. The loan No. 4 is collateralized by the inventory of Gufeng. In addition, the loans No.5, 6, 7 and 8 are guaranteed by Jinong’s credit.

 

         Interest   June 30, 
No.  Payee  Loan period per agreement  Rate   2012 
1  Agriculture Bank of China-Beijing Branch  January 11, 2012 - January 10, 2013   6.89%  $1,330,560 
2  Agriculture Bank of China-Beijing Branch  March 23, 2012 -  March 22, 2013   8.20%   1,267,200 
3  Agriculture Bank of China-Beijing Branch  April 23, 2012 - April 22, 2013   8.20%   1,599,840 
4  Bank of Tianjin  September 9, 2011 - July 23, 2012   7.54%   1,813,680 
5  Minsheng Bank  September 8, 2011 - September 8, 2012   8.20%   1,814,372 
6  Minsheng Bank  September 19, 2011 - September 19, 2012   8.20%   561,628 
7  China Merchant Bank  July 25, 2011 - July 26, 2012   8.53%   3,960,000 
8  Industrial and Commercial Bank of China  October 17, 2011 - October 17,2012   8.87%   1,584,000 
      Total       $13,931,280 

  

The interest expenses from short-term loans were $268,455 and $554,325 for the three months ended March 31, 2013 and 2012, respectively. The interest expenses from short-term loans were $1,020,694 and $1,110,672 for the nine months ended March 31, 2013 and 2012, respectively.   

 

12
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 - TAXES PAYABLE

 

Enterprise Income Tax

 

Effective January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the prior tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new EIT rate of 25% replaced the 33% DEs rate was and became applicable to both DEs and FIEs. The two-year exemption and three-year 50% reduction tax holiday for production-oriented FIEs were eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, as a result of the expiration of its tax exemption on December 31, 2007. Jinong’s provision for income taxes for the nine months ended March 31, 2013 and 2012 was $4,746,988 and $4,901,045, respectively. Gufeng is subject to 25% EIT rate and thus it made provision for income taxes of $2,010,416 and $2,760,235 for the nine months ended March 31, 2013 and 2012, respectively. Jintai and Yuxing have been exempt from paying income tax since its formation as it produces products which fall into the tax exemption list set out in the EIT. This exemption is expected to last as long as the applicable provisions of the EIT do not change.

 

Value-Added Tax

 

All of 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. The VAT exemption applies to all agricultural products sold by Jintai and Yuxing, and all but a nominal amount of agricultural products sold by Jinong.

 

Income Taxes and Related Payables

 

Taxes payable consist of the following:

 

   March 31,   June 30, 
   2013   2012 
VAT provision (credit)  $41,984   $68,180 
Income tax payable   21,569,621    17,274,817 
Other levies   352,524    332,392 
Total  $21,964,129   $17,675,389 

 

Tax Rate Reconciliation

 

Our effective tax rates were approximately 18.1% and 19.9% for the nine months ended March 31, 2013 and 2012, respectively. Substantially all of 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 income and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 34% to income before income taxes for the nine months ended March 31, 2013 and 2012 for the following reasons:

 

Nine Months Ended March 31,  China   United States         
2013  15% - 25%   34%   Total     
                         
Pretax income (loss)  $40,324,031        $(3,053,240)       $37,270,791      
                               
Expected income tax expense (benefit)   10,081,008    25.0%   (1,038,102)   34.0%   9,042,906      
High-tech income benefits on Jinong   (1,976,456)   (4.9)%   -    -    (1,976,456)     
Losses from subsidiaries in which no benefit is recognized   (1,347,148)   (3.3)%   -    -    (1,347,148)     
Change in valuation allowance on deferred tax asset from US tax benefit   -         1,038,102    (34.0)%   1,038,102      
Actual tax expense  $6,757,404    16.8%  $-    -%  $6,757,404    18.1%

 

13
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Nine Months Ended March 31,  China   United States         
2012  15% - 25%   34%   Total     
                         
Pretax income (loss)  $41,861,062        $(3,349,907)       $38,511,155      
                               
Expected income tax expense (benefit)   10,465,266    25.0%   (1,138,968)   34.0%   9,326,298      
High-tech income benefits on Jinong   (2,038,594)   (4.9)%   -    -    (2,038,594)     
Losses from subsidiaries in which no benefit is recognized   (765,392)   (1.8)%   -    -    (765,392)     
Change in valuation allowance on deferred tax asset from US tax benefit   -         1,138,968    (34.0)%   1,138,968      
Actual tax expense  $7,661,280    18.3%  $-    -%  $7,661,280    19.9%

 

NOTE 13 - STOCKHOLDERS’ EQUITY

 

Common Stock

 

On March 8, 2012, the Company issued 63,158 shares of common stock in a private placement to Mr. Tao Li, the Company’s Chairman and Chief Executive Officer, at a purchase price of $4.75 per share, for an aggregate purchase price of $300,001 pursuant to the terms and provisions of a Securities Purchase Agreement in a form previously presented to the Board of Directors of the Company.

 

On March 31, 2012, the Company issued 5,704 shares of Common Stock valued at $24,000 of consulting services to a consultant of the Company.

 

On June 14, 2012, the Company granted a total of 1,000,000 shares of restricted common stock to certain directors, executive officers and key employees under its 2009 Equity Incentive Plan. Pursuant to the terms of the grant, the stock grants vest in three installments on June 30, 2012, September 30, 2012 and December 31, 2012. The Company has issued 445,000 shares of common stock related to these grants with 555,000 yet to be issued.

 

On September 12, 2012, the Company issued 35,041 shares of Common Stock valued at $130,000 of consulting services to a consultant of the Company.

 

On September 26, 2012, the Company agreed to issue 151,515 shares of Common Stock at the market price of $3.30 per share to Mr. Tao Li, the Company’s Chairman and Chief Executive Officer in the first offering of the Company’s Employee Stock Purchase Plan (“ESPP”) adopted by the Company’s Board of Directors (the “Board”) on August 9, 2012. Mr. Li had previously advanced the Company $300,000 and has unpaid compensation accrued in the accompanying balance sheet. The 151,515 shares were not issued until after September 30, 2012 and accordingly the due to officer of $300,000 and accrued compensation of $200,000 were deducted during the quarter ended December 31, 2012.

 

14
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

On September 28, 2012, the Company approved the granting of (i) 200,000 shares of restricted stock to Mr. Ken Ren, the Company’s Chief Financial Officer (the “CFO”), (ii) 40,000 shares of restricted stock to Mr. Yizhao Zhang, 30,000 shares of restricted stock to Ms. Yiru Shi, and 20,000 shares of restricted stock to Mr. Lianfu Liu, each is an independent director of the Company (the “Stock Grants”), and (iii) 210,000 shares of restricted stock to other employees. The Stock Grants of (i) and (ii) above, vest in three installments on December 31, 2012, March 31, 2013, and June 30, 2013, with 100,000 shares vesting first and 50,000 shares vesting on each of the other two vesting dates to the CFO; and 10,000 shares vesting first and half of the their respective remaining shares vesting on each of the other two vesting dates to the three independent directors. The vest of the restricted shares is conditioned on the individuals being employed by the Company at the time of the vest. These shares were issued during the quarter ended December 31, 2012 and the expenses associated with the issuance of these shares will be recorded over the vesting period of the shares. The Stock Grant of (iii) will vest in one single installment on June 30th, 2014.

 

On March 20, 2013, the Company issued 9,396 shares of Common Stock valued at $9,000 of consulting services to a consultant of the Company.

 

Preferred Stock

 

Under the Company’s articles of incorporation, the board of directors 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, 2013, 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 - STOCK OPTIONS

 

There were no issuances of stock options during the three months ended March 31, 2013 and 2012.

 

Options outstanding as of March 31, 2013 and related weighted average price and intrinsic value are as follows:

 

       Weighted     
       Average     
   Number   Exercise   Aggregate 
   of Shares   Price   Intrinsic Value 
Outstanding, June 30, 2012   115,099   $14.66   $- 
Granted   -           
Forfeited/Cancelled   -           
Exercised   -           
Outstanding, March 31, 2013   115,099   $14.66   $- 

 

NOTE 15 -CONCENTRATIONS AND LITIGIATION

 

Market Concentration

 

All of 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.

 

15
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 environments 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 was one vendor from which the Company purchased more than 10% of its raw materials for the fertilizer products for the nine months ended March 31, 2013 and 2012, respectively.

 

There was one customer that accounted over 10% of the total sales of fertilizer products as of nine months ended March 31, 2013 and 2012, respectively.

 

Litigation

 

On October 15, 2010, a class action lawsuit was filed against the Company and certain of its current and former officers in the United States District Court for the District of Nevada (the "Nevada Federal Court") on behalf of purchasers of the Company’s common stock between November 12, 2009 and September 1, 2010.  The current version of the complaint alleges that the Company and certain of its current and former officers and directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, by making material misstatements and omissions in the Company’s financial statements, securities offering documents, and related disclosures during the class period.  On October 7, 2011, the defendants moved to dismiss the amended complaint and to strike portions of it. On November 2, 2012, the Nevada Federal Court issued an order dismissing the claims for violation of sections 11, 12(a)(2) and 15 of the Securities Act of 1933 as to all defendants and dismissing certain individual defendants from the complaint and allowing the claims for violations of section 10(b) and 20(a) of the Securities Exchange Act of 1934 to continue with respect to the Company and certain of the individual defendants.  The Nevada Federal Court also denied the defendants’ motion to strike. The parties to the securities class action held a mediation on March 7, 2013, which led to an agreement in principle to settle the case for a payment of $2.5 million by the Company’s insurers in exchange for a release of all claims against all defendants. The parties are currently in the process of documenting the settlement.

 

NOTE 16 - SEGMENT REPORTING

 

The Company was organized into four main business segments based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production), Jintai (agricultural products production) and Yuxing (agricultural products production). 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 and net income 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 by segment. Jintai is in the process of combining with Yuxing.

 

16
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following tables present a summary of our businesses and operating segments results. 

 

   Three months ended March 31, 
   2013   2012 
Revenues from unaffiliated customers:          
Jinong  $27,051,929   $22,311,668 
Gufeng   37,690,762    34,095,432 
Jintai   -    2,466,393 
Yuxing   1,129,842    1,142,851 
Consolidated  $65,872,533   $60,016,344 
           
Operating income :          
Jinong  $11,406,985   $10,975,095 
Gufeng   5,642,544    5,780,062 
Jintai   -    (212,967)
Yuxing   171,500    (97,907)
Reconciling item (1)   -    - 
Reconciling item (2)   (256,110)   (452,580)
Reconciling item (2)—stock compensation   (440,508)   (129,695)
Consolidated  $16,524,411   $15,862,008 
           
Net income:          
Jinong  $9,756,153   $9,400,856 
Gufeng   4,178,836    3,865,515 
Jintai   -    (212,905)
Yuxing   172,275    (96,848)
Reconciling item (1)   13    18 
Reconciling item (2)   (696,618)   (582,275)
Consolidated  $13,410,659   $12,374,361 
           
Depreciation and Amortization:          
Jinong  $1,990,178   $592,031 
Gufeng   1,709,328    816,584 
Jintai   -    (1,008)
Yuxing   316,700    276,555 
Consolidated  $4,016,206   $1,684,162 
           
Interest expense:          
Jinong  $-   $- 
Gufeng   298,455    554,325 
Reconciling item (2)   -    - 
Consolidated  $298,455   $554,325 
           
Capital Expenditure:          
Jinong  $6,275,253   $1,880,430 
Gufeng   31,271    (14,946)
Jintai   -    (3,423)
Yuxing   (134,467)   8,012 
Consolidated  $6,172,057   $1,870,073 

 

(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.

 

17
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

   Nine months ended March 31, 
   2013   2012 
Revenues from unaffiliated customers:          
Jinong  $77,857,756   $63,543,075 
Gufeng   66,612,586    89,666,961 
Jintai   -    5,780,969 
Yuxing   2,645,923    1,221,930 
Consolidated  $147,116,265   $160,212,935 
           
Operating income :          
Jinong  $31,418,916   $32,421,375 
Gufeng   8,821,041    12,062,444 
Jintai   -    (1,457,900)
Yuxing   260,155    (338,365)
Reconciling item (1)   -    - 
Reconciling item (2)   (738,343)   (2,210,290)
Reconciling item (2)—stock compensation   (2,315,036)   (1,139,938)
Consolidated  $37,446,733   $39,337,326 
           
Net income:          
Jinong  $26,893,779   $27,758,554 
Gufeng   5,848,880    8,055,846 
Jintai   57    (1,457,704)
Yuxing   823,911    (156,914)
Reconciling item (1)   139    321 
Reconciling item (2)   (3,053,379)   (3,350,228)
Consolidated  $30,513,387   $30,849,875 
           
Depreciation and Amortization:          
Jinong  $6,449,763   $1,756,742 
Gufeng   2,634,409    2,462,687 
Jintai   -    (440)
Yuxing   946,263    476,491 
Consolidated  $10,030,435   $4,695,480 
           
Interest expense:          
Jinong  $-   $- 
Gufeng   1,050,694    1,110,672 
Reconciling item (2)   -    - 
Consolidated  $1,050,694   $1,110,672 
           
Capital Expenditure:          
Jinong  $15,601,870   $5,589,432 
Gufeng   (876,682)   (14,946)
Jintai   -    (3,423)
Yuxing   102,424    139,467 
Consolidated  $14,827,612   $5,710,530 

 

18
 

 

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

   As of   As of 
   March 31, 2013   June 30, 2012 
Identifiable assets:          
Jinong  $181,535,571   $221,575,406 
Gufeng   104,482,467    57,657,305 
Jintai   4,573,427    6,670,058 
Yuxing   38,028,176    1,851,745 
Reconciling item (1)   79,213    280,445 
Reconciling item (2)   (3,906)   (3,906)
Consolidated  $328,694,948   $288,031,053 

 

(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.

 

NOTE 17 - COMMITMENTS AND CONTINGENCIES

 

On June 29, 2012, Jinong signed an office lease with Kingtone Information upon the expiration of its existing lease with Kingtone Information. Pursuant to the new lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provided for a two-year term effective as of July 1, 2012 with monthly rent of $3,902 (RMB 24,480).

 

In January 2008, Jintai signed a ten year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $829 (RMB 5,200).

 

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 $472 (RMB 2,958) for approximately 47,333 square meters (509,488 square feet) of land in the Ping Gu District of Beijing.

 

Accordingly, the Company recorded an aggregate of $46,822 and $81,566 as rent expenses for the nine months ended March 31, 2013 and 2012, respectively. Rent expenses for the next five twelve-month periods ended March 31, are as follows:

 

Years ending:     
March 31, 2013  $62,430 
March 31, 2014   15,605 
March 31, 2015   15,605 
March 31, 2016   15,605 
March 31, 2017   15,605 

 

19
 

 

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 consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as the slow-down of the global financial markets 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. In light of 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 following discussion, “Company”, “we,” “us,” and “our,” refer to (i) China Green Agriculture, Inc. (“Green Nevada”), a corporation incorporated in the State of Nevada; (ii) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada incorporated in the State of New Jersey; (iii) Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iv) Xi’an Jintai Agriculture Technology Development Company (“Jintai”), wholly-owned subsidiary of Jinong in the PRC, (v) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a wholly-owned subsidiary of Jinong in the PRC; (vi) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (vii) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).

 

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, Yuxing, Gufeng (including Gufeng’s subsidiary Tianjuyuan). 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 fertilizers, highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer produced by Gufeng. In addition, through Yuxing, we develop and produce agricultural products, such as top-grade fruits, vegetables, flowers and colored seedlings. For financial reporting purposes, our operations are organized into four business segments: fertilizer products (Jinong), fertilizer products (Gufeng), agricultural products production (Yuxing) and agricultural products production (Jintai).

 

The fertilizer business conducted by Jinong and Gufeng generated approximately 98.3%, and 94.0% of our total revenues for the three months ended March 31, 2013 and 2012, respectively. Yuxing serves as a research and development base for our fertilizer products. Jintai had served for that function too. However, as reported in our previous annual and quarterly reports, we started to relocate Jintai to the facilities of Yuxin due to the deteriorated surrounding environment that caused the death and obsolescence of large amount of Jintai’s flowers and seedlings. As a result, Jintai has not been in operation since March 1, 2012, when the relocation commenced.

 

20
 

 

Fertilizer Products

 

As of March 31, 2013, we had developed and produced a total of 449 different fertilizer products in use, of which 132 were developed and produced by Jinong and 317 by Gufeng.

 

 

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:

 

 

    For the Three Months Ended March 31,         
    2013 (Metric Tons)   2012 (Metric Tons)   Change   Change % 
                       
 JN    17,437    14,925    2,512    17%
 GF    84,073    68,843    15,230    22%
 Total    101,510    83,768    17,742    21%

 

 

    For the Three Months Ended March 31, 
    2013   2012 
    (Revenue per ton $)   (Revenue per ton $) 
 JN   $1,551   $1,495 
 GF   $367   $495 

 

 

    For the Nine Months Ended March 31,         
    2013   2012         
    (Metric Tons)   (Metric Tons)   Change   Change % 
 JN    51,498    46,569    4,929    11%
 GF    147,520    192,906    -45,386    -24%
 Total    199,018    239,475    -40,457    -17%

 

 

    For the Nine Months Ended March 31, 
    2013   2012 
    (Revenue per ton)   (Revenue per ton) 
 JN   $1,512   $1,364 
 GF   $452   $465 

  

For the three months ended March 31, 2013, we sold approximately 101,510 metric tons of fertilizer products, as compared to 83,768 metric tons for the three months ended March 31, 2012. For the nine months ended March 31, 2013, we sold approximately 199,018 metric tons of fertilizer products, as compared to 239,475 metric tons for the nine months ended March 31, 2012. For the three months ended March 31, 2013, Jinong sold approximately 17,437 metric tons of fertilizer products, as compared to 14,925 metric tons for the three months ended March 31, 2012. For the three months ended March 31, 2013, Gufeng sold approximately 84,073 metric tons of fertilizer products, as compared to 68,843 metric tons for the three months ended March 31, 2012.

 

For the nine months ended March 31, 2013, Jinong sold approximately 51,498 metric tons of fertilizer products, as compared to 46,569 metric tons for the nine months ended March 31, 2012. For the nine months ended March 31, 2013, Gufeng sold approximately 147,520 metric tons of fertilizer products, as compared to 192,906 metric tons for the nine months ended March 31, 2012.

 

Our sales of fertilizer products to the top five provinces accounted for approximately 67.97% of our fertilizer revenue for the three months ended March 31, 2013. Specifically, the provinces and their respective percentage contributed to our fertilizer revenues were Hebei (12.75 %), Shaanxi (7.02%), Heilongjiang (23.93%), Shandong (6.38%) and Jilin (7.95%).

 

As of March 31, 2013, we had a total of 995 distributors covering 27 provinces, four autonomous regions and three central government-controlled municipalities in China. Jinong had 797 distributors in China. Jinong’s sales are not dependent on any single distributor or any group of distributors. Its top five distributors accounted for 2.1% of Jinong’s fertilizer revenues for the three months ended March 31, 2013. Gufeng had 198 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for 64.5% of its revenues with no single distributor accounting for more than 10% of our total revenues for the three months ended March 31, 2013.

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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 that accounted for 100% of our agricultural products revenue for the three months ended March 31, 2013 were Shaanxi (96.8%), Qinghai (2.04%) and Xinjiang (1.15%).

 

Recent Developments

 

New Products

 

During the three months ended March 31, 2013, Jinong launched three new fertilizer products, which are broad-spectrum fertilizer products. Jinong’s new products generated approximately $86,650, or 0.3% of Jinong’s fertilizer revenues for the three months ended March 31, 2013. Jinong also added eight new distributors for the three months ended March 31, 2013. Jinong’s new distributors accounted for approximately $167,226, or 0.6% of Jinong’s fertilizer revenues for the three months ended March 31, 2013. During the quarter ended March 31, 2013, no revenue of Jinong was attributable to the new products distributed by its new distributors. During the three months ended March 31, 2013, Gufeng launched no new fertilizer product. Gufeng added nine new distributors during the three months ended March 31, 2013, which accounted for approximately $257,759, or 0.8%, of Gufeng’s fertilizer revenues.

 

Results of Operations

 

Three months ended March 31, 2013 compared to three months ended March 31, 2012.

 

The following table shows the operating results of the Company on a consolidated basis for the three months ended March 31, 2013 and 2012.

 

   Three Months Ended March 31,     
   2013   2012   change   % change 
 Sales                    
 Jinong  $27,051,929   $22,311,668   $4,740,261    21.2%
 Gufeng   37,690,762    34,095,432    3,595,330    10.5%
 Jintai   -    2,466,393    (2,466,393)   (100%)
 Yuxing   1,129,842    1,142,851    (13,009)   (1.1%)
 Net sales   65,872,533    60,016,344    5,856,189    9.8%
 Cost of goods sold                    
 Jinong   12,502,786    8,621,378    3,881,408    45%
 Gufeng   30,844,656    25,669,014    5,175,642    20.2%
 Jintai   -    2,270,002    (2,270,002)   (100%)
 Yuxing   779,386    980,611    (201,225)   (20.5%)
 Cost of goods sold   44,126,828    37,541,005    6,585,823    17.5%
 Gross profit   21,745,705    22,475,339    (729,634)   (3.2%)
 Operating expenses                   
 Selling expenses   3,872,492    3,633,223    239,269    6.6%
 General and administrative expenses   1,348,802    2,980,108    (1,631,306)   (54.7%)
 Total operating expenses   5,221,294    6,613,331    (1,392,037)   (21%)
 Income from operations   16,524,411    15,862,008    662,403    4.2%
 Other income (expense)                   
 Other income (expense)   212,344    (56,082)   268,426    479%
 Interest income   73,879    89,314    (15,435)   (17.3%)
 Interest expense, net   (268,455)   (554,325)   285,870    (51.6%)
 Total other income (expense)   17,768    (521,093)   538,861    (103%)
 Income before income taxes   16,542,179    15,340,915    1,201,264    7.8%
 Provision for income taxes   3,131,520    2,966,554    164,966    5.6%
 Net income   13,410,659    12,374,361    1,036,298    8.4%
 Other comprehensive income                   
 Foreign currency translation gain (loss)   1,541,434    1,375,927    165,507    12%
 Comprehensive income  $14,952,093   $13,750,288   $1,201,805    8.7%
                    
Basic weighted average shares outstanding   27,939,780    26,960,277    979,503    3.6%
Basic net earnings per share  $0.48   $0.46   $0.02    4.6%
Diluted weighted average shares outstanding   27,939,780    26,960,277    979,503    3.6%
Diluted net earnings per share   0.48    0.46    0.02    4.6%
                     

 

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Net Sales

 

Total net sales for the three months ended March 31, 2013 were $65,872,533 , an increase of $5,856,189, or 9.8%, from $60,016,344 for the three months ended March 31, 2012. This increase was largely due to the increase in Jinong’s net sales.

 

For the three months ended March 31, 2013, Jinong’s net sales increased $4,740,261, or 21.2%, to $27,051,929 from $22,311,668 for the three months ended March 31, 2012. This increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing strategy.

 

For the three months ended March 31, 2013, net sales at Gufeng were $37,690,762, an increase of $3,595,330, or 10.5%, from $34,095,432 for the three months ended March 31, 2012. The fiscal quarter ended March 31, 2013 fell in the “export window” in which no special tariff tax applied, however, due to the lower demand on Nitrogen-Phosphorous elemented compound fertilizer by importing countries which is arising from the backlog of their imported compound fertilizers in previous quarters, which also led to lower-than-before profit margin over the export contracts, Gufeng had no export contract in the quarter ended March 31, 2013. Despite of that, Gufeng has been expanding and penetrating the domestic market particularly since the fiscal quarter ended March 31, 2012, during which period no revenue was generated from fertilizer exportation either due to sustained special tariff tax levied by China authority or due to continuously weak demand by importing countries. Net sales at Gufeng for the three months ended March 31, 2013 was $37,690,762, an increase of $3,595,330, or 10.5%, from $34,095,432 for the same period in 2012.

 

Jintai’s net sales was zero for the three months ended March 31, 2013 as compared to $2,466,393 for the same period in 2012. This was attributable to Jintai’s relocation, which commenced on March 1, 2012 and is still on going. Therefore, Jintai did not generate any sales revenue since March 1, 2012.

 

For the three months ended March 31, 2013, Yuxing’s net sales were $1,129,842, a decrease of $13,009, from $1,142,851 during the three months ended March 31, 2012.

 

Cost of Goods Sold

 

Total cost of goods sold for the three months ended March 31, 2013 was $44,126,828, an increase of $6,585,823, or 17.5%, from $37,541,005 for the three months ended March 31, 2012. This increase was proportional to the increase in sales, which was mainly due to Gufeng’s increased numbers of distributors in the three months ended March 31, 2013.

 

Cost of goods sold by Jinong for the three months ended March 31, 2013 was $12,502,786, an increase of $3,881,408, or 45.0%, from $8,621,378 for the same period in 2012. The increase was primarily attributable to the increase in the cost of raw materials and the increases in sales of fertilizer products.

 

Cost of goods sold by Gufeng for the three months ended March 31, 2013 was $30,844,656, an increase of $5,175,642, or 20.2%, from $25,669,014 for the same period in 2012. The increase was proportional to Gufeng’s sales for the three months ended March 31, 2013.

 

Cost of goods sold by Jintai for the three months ended March 31, 2013 was zero, comparing to $2,270,002 for the same period during fiscal year 2012, because Jintai’s had no operation as a result of ongoing relocation.

 

For three months ended March 31, 2013, cost of goods sold by Yuxing was $779,386, a decrease of $201,225, or 20.5%, from $980,611 for the three months ended March 31, 2012. The decrease was due to the corresponding lower cost in the raw material for the three months ended March 31, 2013.

 

Gross Profit

 

Total gross profit for the three months ended March 31, 2013 decreased by $729,634, or 3.2%, to $21,745,705, as compared to $22,475,339 for the three months ended March 31, 2012. Gross profit margin was approximately 33.0% and 37.4% for the three months ended March 31, 2013 and 2012, respectively.

 

Gross profit generated by Jinong increased by $858,853, or 6.3%, to $14,549,143 for the three months ended March 31, 2013 from $13,690,290 for the three months ended March 31, 2012. Gross profit margin from Jinong’s sales was approximately 53.8% and 61.4% for the three months ended March 31, 2013 and 2012, respectively. The decrease in Jinong’s gross margin was mainly due to the higher weight of lower-margin product sales in Jinong’s total sales.

23
 

 

For the three months ended March 31, 2013, gross profit generated by Gufeng was $6,846,106, a decrease of $1,580,312, or 18.8%, from $8,426,418 for the three months ended March 31, 2012. Gross profit margin from Gufeng’s sales was approximately 18.2% and 24.7% for the three months ended March 31, 2013 and 2012, respectively. The decrease in Gufeng’s gross margin was mainly due to the higher weight of lower-margin product sales in Gufeng’s total sales.

 

Gross profit from Jintai was zero for the three months ended March 31, 2013 due to its relocation since March 1, 2012, as compared to $196,391 for the three months ended March 31, 2012. Gross profit margin from Jintai’s sales was approximately 8.0% for the three months ended March 31, 2012.  

 

For the three months ended March 31, 2013, gross profit generated by Yuxing was $350,456, an increase of $188,216, from $162,240 with a gross profit margin of approximately 31.0% for the three months ended March 31, 2013, compared to a gross profit margin of approximately 14.0% for the three months ended March 31, 2012.

 

Selling Expenses

 

Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $3,872,492, or 5.9%, of net sales for the three months ended March 31, 2013, as compared to $3,633,223, or 6.1% of net sales for the three months ended March 31, 2012, an increase of $239,2693, or 6.6%. The selling expenses of Gufeng were $503.932, or 1.3% of Gufeng’s net sales for the three months ended March 31, 2013, as compared to $1,448,908, or 4.2% of Gufeng’s net sales for the three months ended March 31, 2012. Most of this decrease was due to Gufeng’s adjustments in marketing efforts. The selling expenses of Jinong for the three months ended March 31, 2013 were $3,353,575, or 12.4% of Jinong’s net sales, as compared to selling expenses of $2,166,679, or 9.7% of Jinong’s net sales in fiscal year 2012. Most of this increase was due to Jinong’s expanded marketing efforts and the increase in shipping costs.

 

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 litigations. General and administrative expenses were $1,348,802, or 2.0% of net sales, for the three months ended March 31, 2013, as compared to $2,980,108, or 4.97%, of net sales for the three months ended March 31 2012, a decrease of $1,631,306, or 54.7%. This decrease was primarily a result of the decrease of legal fees incurred in connection with certain litigations.

 

Total Other Income (Expenses)

 

Total other income (expense) 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, 2013 was $17,768, as compared to total other expense of $521,093 for the three months ended March 31, 2012, a decrease in expense of $538,861. The decrease was mainly attributable to the $268,455 interest expense from Gufeng’s outstanding short-term loans, which was $285,870 less than that of the corresponding period in 2012.

 

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 $1,722,101 for the three months ended March 31, 2013, as compared to $1,661,059 for the three months ended March 31, 2012, an increase of $61,042, or 3.7%, which was primarily due to Jinong’s decreased operating income.

 

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $1,409,419 for the three months ended March 31, 2013, as compared to $1,305,495 for the three months ended March 31, 2012, an increase of $103,924, or 7.96%, which was primarily due to Gufeng’s increased net sales.

 

Jintai has been exempt from paying income tax as its products fall into the tax exemption list set out in the EIT. In addition, Jintai did not have any taxable income during the three months ended March 31, 2013.

 

Yuxing has no income tax for the three months ended March 31, 2013 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, the same treatment as Jintai receives.

 

Net Income

 

Net income for the three months ended March 31, 2013 was $13,410,659, an increase of $1,036,298, or 8.4%, compared to $12,374,361 for the three months ended March 31, 2012. The increase was attributable to the decrease in General and Administrative Expenses, along with the increased net sales. Net income as a percentage of total net sales was approximately 20.4% and 20.6 % for the three months ended March 31, 2013 and 2012, respectively.

 

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Nine Months Ended March 31, 2013 Compared to the Nine Months Ended March 31, 2012.

 

   Nine Months Ended March 31,     
   2013   2012   change   % change 
 Sales                    
 Jinong  $77,857,756   $63,543,075   $14,314,681    22.5%
 Gufeng   66,612,586    89,666,961    (23,054,375)   (25.7%)
 Jintai   -    5,780,969    (5,780,969)   (100%)
 Yuxing   2,645,923    1,221,930    1,423,993    116.5%
 Net sales   147,116,265    160,212,935    (13,096,670)   (8.2%)
 Cost of goods sold                   
 Jinong   35,994,694    24,290,985    11,703,709    48.2%
 Gufeng   54,339,165    71,631,077    (17,291,912)   (24.1%)
 Jintai   -    5,276,896    (5,276,896)   (100%)
 Yuxing   1,909,795    1,240,421    669,374    54%
 Cost of goods sold   92,243,654    102,439,379    (10,195,725)   (10%)
 Gross profit   54,872,611    57,773,556    (2,900,945)   (5.0%)
 Operating expenses                    
 Selling expenses   10,044,863    8,538,445    1,506,418    17.6%
 General and administrative expenses   7,381,015    9,897,785    (2,516,770)   (25.4%)
 Total operating expenses   17,425,878    18,436,230    (1,010,352)   (5.5%)
 Income from operations   37,446,733    39,337,326    (1,890,593)   (4.8%)
 Other income (expense)                   
 Other income (expense)   609,724    7,584    602,140    7939.6%
 Interest income   235,028    276,917    (41,889)   (15.1%)
 Interest expense, net   (1,020,694)   (1,110,672)   89,978    (8.1%)
 Total other (expense)   (175,942)   (826,171)   650,229    (78.7%)
 Income before income taxes   37,270,791    38,511,155    (1,240,364)   (3.2%)
 Provision for income taxes   6,757,404    7,661,280    (903,876)   (11.8%)
 Net income   30,513,387    30,849,875    (336,488)   (1.1%)
 Other comprehensive income                    
 Foreign currency translation gain (loss)   1,696,220    4,719,169    (3,022,949)   (64.1%)
 Comprehensive income  $32,209,607   $35,569,044   $(3,359,437)   (9.4%)
                     
Basic weighted average shares outstanding   27,682,345    26,919,678    762,667    2.8%
Basic net earnings per share  $1.10   $1.15   $(0.04)   (3.8%)
Diluted weighted average shares outstanding   27,682,345    26,919,678    762,667    2.8%
Diluted net earnings per share   1.10    1.15    (0.04)   (3.8%)
                     

 

Net Sales

 

Total net sales for the nine months ended March 31, 2013 were $147,116,265, a decrease of $13,096,670, or 8.2%, from $160,212,935 for the nine months ended March 31, 2012. This decrease was largely due to the decrease in Gufeng’s net sales.

 

For the nine months ended March 31, 2013, Jinong’s net sales increased $14,314,681, or 22.5%, to $77,857,756 from $63,543,075 for the nine months ended March 31, 2012. This increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing strategy.

 

For the nine months ended March 31, 2013, net sales at Gufeng were $66,612,586, a decrease of $23,054,375, or 25.7%, from $89,666,961 for the nine months ended March 31, 2012. The fiscal quarter ended March 31, 2013 fell in the “export window” in which no special tariff tax applied, however, due to the lower demand on Nitrogen-Phosphorous elemented compound fertilizer by importing countries which is arising from the backlog of their imported compound fertilizers in previous quarters, which also led to lower-than-before profit margin over the export contracts, Gufeng had no export contract in the quarter ended March 31, 2013. Despite of that, Gufeng has been expanding and penetrating the domestic market particularly since the fiscal quarter ended March 31, 2012, during which period no revenue was generated from fertilizer exportation either due to sustained special tariff tax levied by China authority or due to continuously weak demand by importing countries. Net sales at Gufeng for the nine months ended March 31, 2013 was $66,612,586, a decrease of $23,054,375, or 25.7%, from $89,666,961 for the same period in 2012.

25
 

 

Jintai’s net sales was zero for the nine months ended March 31, 2013 as compared to $5,780,969 for the same period in 2012 due to Jintai’s relocation, which commenced on March 1, 2012 and is still on going. Therefore, Jintai did not generate any sales revenue since March 1, 2012.

 

For the nine months ended March 31, 2013, Yuxing’s net sales were $2,645,923, an increase of $1,423,993, from $1,221,930 during the nine months ended March 31, 2012. The increase was mainly attributable both to the development in sales of Yuxing’s top-grade flowers and the proxy sales of certain inventory from Jintai.

 

Cost of Goods Sold

 

Total cost of goods sold for the nine months ended March 31, 2013 was $92,243,654, a decrease of $10,195,725, or 10%, from $102,439,379 for the nine months ended March 31, 2012. This decrease was proportional to the decrease in sales. 

 

Cost of goods sold by Jinong for the nine months ended March 31, 2013 was $35,994,694, an increase of $11,703,709, or 48.2%, from $24,290,985 for the same period in 2012. The increase was primarily attributable to the increase in the cost of raw materials and the increase in sales of fertilizer products.

 

Cost of goods sold by Gufeng for the nine months ended March 31, 2013 was $54,339,165, a decrease of $17,291,912, or 24.1%, from $71,631,077 for the same period in 2012. The decrease was proportional to Gufeng’s sales for the nine months ended March 31, 2013.

 

Cost of goods sold by Jintai for the nine months ended March 31, 2013 was zero, comparing to $5,276,896 for fiscal year 2012, because Jintai’s had no operation as a result of ongoing relocation.

 

For nine months ended March 31, 2013, cost of goods sold by Yuxing was $1,909,795, an increase of $669,374, or 54%, from $1,240,421 for the nine months ended March 31, 2012. The increase was proportional to the increase in Yuxing’s sales for the nine months ended March 31, 2013.

 

Gross Profit

 

Total gross profit for the nine months ended March 31, 2013 decreased by $2,900,945, or 5%, to $54,872,611, as compared to $57,773,556 for the nine months ended March 31, 2012. Gross profit margin was approximately 37.3% and 36.1% for the nine months ended March 31, 2013 and 2012, respectively.

 

Gross profit generated by Jinong increased by $2,610,972, or 6.7%, to $41,863,062 for the nine months ended March 31, 2013 from $39,252,090 for the nine months ended March 31, 2012. Gross profit margin from Jinong’s sales was approximately 53.8% and 61.8% for the nine months ended March 31, 2013 and 2012, respectively. The increase in gross profit was mainly due to the increase in sales volume and the decrease in gross profit margin was mainly due to the increase of weight for lower-margin products in Jinong’s product sales.

 

For the nine months ended March 31, 2013, gross profit generated by Gufeng was $12,273,421, a decrease of $5,762,463, or 32.0%, from $18,035,884 for the nine months ended March 31, 2012. Gross profit margin from Gufeng’s sales was approximately 18.4% and 20.1% for the nine months ended March 31, 2013 and 2012, respectively. The decrease in gross profit was mainly due to the decrease in sales volume and the decrease in gross profit margin was mainly due to the increase of weight for lower-margin products in Gufeng’s product sales.

Gross profit from Jintai was zero for the nine months ended March 31, 2013 due to its relocation since March 1, 2012, as compared to $504,073 for the nine months ended March 31, 2012. Gross profit margin from Jintai’s sales was approximately 8.8% for the nine months ended March 31, 2012.  

 

For the nine months ended March 31, 2013, gross profit generated by Yuxing was $736,128, an increase of $754,619, from gross loss of $18,491 with a gross profit margin of approximately 28% for the nine months ended March 31, 2013.

 

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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 $10,044,863, or 6.8%, of net sales for the nine months ended March 31, 2013, as compared to $8,538,445, or 5.3% of net sales for the nine months ended March 31, 2012, an increase of $1,506,418, or 17.6%. The selling expenses of Gufeng were $874,621, or 1.3% of Gufeng’s net sales for the nine months ended March 31, 2013, as compared to $2,982,181, or 8.7% of Gufeng’s net sales for the nine months ended March 31, 2012. The selling expenses of Jinong for the nine months ended March 31, 2013 were $9,123,052, or 11.7% of Jinong’s net sales, as compared to selling expenses of $5,513,072, or 24.7% of Jinong’s net sales in fiscal year 2012. Most of this increase was due to Jinong’s expanded marketing efforts and the increase in shipping costs.

 

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 litigations. General and administrative expenses were $7,381,015, or 5.02% of net sales, for the nine months ended March 31, 2013, as compared to $9,897,785, or 6.18%, of net sales for the nine months ended March 31 2012, a decrease of $2,516,770, or 25.4%. This decrease was primarily a result of the decrease of legal fees incurred in connection with certain litigations.

 

Total Other Expenses

 

Total other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. Total other expense for the nine months ended March 31, 2013 was $175,942, as compared to total other expense of $826,171 for the nine months ended March 31, 2012, a decrease in expense of $650,229. The decrease in total other expense mainly resulted from an increase of $602,140 other income, to $609,724 during the nine months ended March 31, 2013, as compared to $7,584 incurred for the corresponding period in 2012. Such increase was mainly attributable to the governmental subsidies Yuxing received with regard to its greenhouse development during the nine months ended March 31, 2013.

 

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 $4,746,988 for the nine months ended March 31, 2013, as compared to $4,901,045 for the nine months ended March 31, 2012, a decrease of $154,057, or 3.1%, which was primarily due to Jinong’s decreased operating income.

 

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $2,010,416.for the nine months ended March 31, 2013, as compared to $2,760,235 for the nine months ended March 31, 2012, a decrease of $749,819, or 27.2%, which was primarily due to Gufeng’s decreased net sales.

 

 Jintai has been exempt from paying income tax as its products fall into the tax exemption list set out in the EIT. In addition, Jinong did not have any taxable income for the nine months ended March 31, 2013.

 

Yuxing has no income tax for the nine months ended March 31, 2013 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, the same treatment as Jintai receives.

 

Net Income

 

Net income for the nine months ended March 31, 2013 was $ 30,513,387, a decrease of $336,488, or 1.1%, compared to $ 30,849,875 for the nine months ended March 31, 2012. The decrease was attributable to the decrease in gross profit, primarily Gufeng’s gross profit. Net income as a percentage of total net sales was approximately 20.7% and 19.3 % for the nine months ended March 31, 2013 and 2012, respectively.

 

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Discussion of Segment Profitability Measures

 

As of March 31, 2013, we were engaged in the following businesses: the production and sale of fertilizers through Jinong and Gufeng and the production and sale of high-quality agricultural products by Yuxing. For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production), Jintai (agricultural products production) and Yuxing (agricultural products production). Each of the segments has its own annual budget with regard to development, production and sales. Jintai is in process of combining with Yuxing.

 

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

 

For Jinong, the net income decreased 3.2% by $864,775 to $26,893,779 for the nine month ended March 31, 2013 from $27,758,554 for the same period in 2012.

 

For Gufeng, the net income decreased 27.4% by $1,670,044 to $5,848,880 for the nine months ended March 31, 2013 from $8,055,846 for the same period in 2012.

 

Jintai is located at the Economic and Technical Development Zone (the "Zone") in the metro area of the city of Xi'an. The Zone has been inhabited by a large and dense population and the periphery of Jintai has bristled with various industrial factories and utility plants in the latest years. The Zone’s concentrated industrial activities and dense population changed the micro bio environment for the growth of Jintai's agricultural products and disturbed Jintai’s normal fertilizer research and development. As of March 31, 2013, Jintai was still under the relocation process and there was no revenue from Jintai.

 

For Yuxing, the net income increased by $980,825 to $ 823,911 for the nine months ended March 31, 2013 from a net loss of $156,914 for the same period in 2012.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity include cash from operations, borrowings from local commercial banks and net proceeds of offerings of our securities consummated in July 2009 and November/December 2009 (collectively the “Public Offerings”).

 

As of March 31, 2013, cash and cash equivalents were $77,652,645, an increase of $9,876,169, or 14.6%, from $67,776,476 as of June 30, 2012.

 

We intend to use some of the remaining net proceeds from the Public Offerings, as well as other working capital if required, to acquire new businesses, upgrade production lines and complete Yuxing’s new greenhouse facilities for agriculture products located on 88 acres of land in Hu County, 18 kilometers southeast of Xi’an city. 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, 
   2013   2012 
Net cash provided by (used in) operating activities  $17,266,584   $(523,122)
Net cash used in investing activities   (15,012,937)   (8,782,153)
Net cash provided by financing activities   2,943,885    9,959,941 
Effect of exchange rate change on cash and cash equivalents   476,483    1,515,397 
Net increase in cash and cash equivalents   5,674,015    2,170,063 
Cash and cash equivalents, beginning balance   71,978,630    65,606,413 
Cash and cash equivalents, ending balance  $77,652,645   $67,776,476 

 

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Operating Activities

 

Net cash provided by operating activities was $17,266,584 for the nine months ended March 31, 2013, an increase of $17,789,706, or 3400.0% from $523,122 which was used in operating activities for the same period in 2012. The increase was mainly attributable to the increase in accounts receivable comparing to the same period in 2012.

 

Investing Activities

 

Net cash used in investing activities for the nine months ended March 31, 2013 was $15,012,937, an increase of $6,230,784, or 70.9% from $8,782,153 for the nine months ended March 31, 2012. The increase was attributable to the purchases of plant, property and equipment.

 

Financing Activities

 

Net cash provided by financing activities in the nine months ended March 31, 2013 and 2012 totaled $2,943,885 and $9,959,941, respectively, which was attributable to the loan proceeds. 

 

As of March 31, 2013 and June 30, 2013, our loans payable were as follows:

 

   March 31, 2013   June 30, 2012 
Short term loans payable:  $16,976,100   $13,931,280 
Total  $16,976,100   $13,931,280 

 

Accounts Receivable

 

We had accounts receivable of $73,960,377 as of March 31, 2013, as compared to $62,001,158 as of June 30, 2012, an increase of $11,959,219 or 19.3%, which is mainly attributable to the implementation of 180 days credit policy. In order to respond to the cash flow shortage caused by the tightening financing and slowing economy growth encountered by some of our distributors, the company launched such a policy since the third quarter of fiscal year 2012 enabling such distributors take full advantage of the 180-day credit terms.

 

Allowance for doubtful accounts in account receivable for the three months ended March 31, 2013 was $443,258, a decrease of $236.010, or 34.7% from $679,268 as of June 30, 2012. And the allowance for doubtful accounts as a percentage of accounts receivable was 0.6% for the three month ended March 31, 2013 and 1.1% as of June 30, 2012 respectively. The decrease in the allowance of doubtful accounts were mainly due to the decrease in the balance of accounts receivables and gradual aging in the balance of historical outstanding receivables.

 

Inventories

 

We had an inventory of $ 48,055,210 as of March 31, 2013, as compared to $28,602,684 as of June 30, 2012, an increase of $19,452,526, or 68%. The increase was mainly seasonal and due to the replenishing of the inventory level during peak season. As of March 31, 2013, more than 90% of the inventory was finished goods. These products are expected to be sold and shipped during the fourth quarter of fiscal year of 2013. The economy, weather and uncertainty in price trends caused the postponement of the orders.

 

Advances to Suppliers

 

We had advances to suppliers of $9,918,649 as of March 31, 2013 as compared to $12,207,325 as of June 30, 2012, representing a decrease of $ 2,288,676 or 18.7%. The decrease in the amount of advances to suppliers is a result of Gufeng’s higher inventory level. Gufeng’s compound fertilizer business is seasonal, which may result in carrying significant amounts of inventory and seasonal variations in working capital. To ensure our ability to deliver compound fertilizer to the distributor timely prior to the planting season, we need to have sufficient raw material in stock to feed the production. To build up the inventory, we typically make advance payment to the supplier to secure the supply of raw material of basic fertilizer. Our inventory level may fluctuate from time to time, depending how fast the raw material gets consumed and replenished during the production process, and how fast the finished goods get sold. The replenishment of raw material relies on the management’s estimate of numerous factors, including but not limited to, the raw material’s future price, and spot price along with their volatility, as well as the seasonal demand and future price of finished fertilizer products. Such estimate may not be accurate, and the purchase decision of raw materials based on the estimate can cause excessive inventories in slow sales and insufficient inventories in peak sales.

 

Accounts Payable

 

We had accounts payable of $5,270,455 as of March 31, 2013 as compared to $6,881,748 as of June 30, 2012, representing a decrease of $1,611,293, or 23.4%. The decrease was primarily due to he payoff of Yuxing’s outstanding payables incurred during its development and construction during the nine months period ended March 31, 2013.

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Unearned Revenue

 

We had unearned revenue of $1,719,031 as of March 31, 2013 as compared to $2,625,014 as of June 30, 2012, representing a decrease of $ 905,983, or 34.5%.  The further decrease in unearned revenue is attributable to (i) the expanded credit sales to selected distributors since Jinong and Gufeng launched warehouse sales program, which is a customized strategy that requires less or few advanced deposit payment from the participating distributors which were selected based upon their overall business strength, credit worthiness and proven ability to develop local markets; (ii) the use of the 180-day credit policy. With offering participating distributors the advantageous sales credit in distributing the fertilizer products, the company concurrently manages more account receivables and less unearned revenue.

 

Tax Payable

 

We had taxes payable of $21,964,129 as of March 31, 2013 as compared to $17,675,389 as of June 30, 2012, representing an increase of $4,288,740, or 24.3 %. This increase was mainly due to the increase in Jinong’s income tax, which resulted from Jinong’s increased revenue.

 

Non-Cash Financing Activities

 

During the nine months ended March 31, 2013, we issued 151,515 shares of common stock to Mr. Tao Li, Chairman and CEO of the Company pursuant to our Employee Stock Purchase Plan adopted by the Board in August 2012. Those shares were valued at $300,000.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements, “Basis of Presentation and Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the more critical accounting policies that currently affect our financial condition and results of operations:

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results 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 of 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 is outstanding for more than 180 days will be accounted as allowance for bad debts, and any accounts receivable of Yuxing that is outstanding for more than 90 days will be accounted as allowance for bad debts.

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Segment reporting

 

FASB ASC 280, (previously SFAS No. 131, Segment Reporting) 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 manner in which management disaggregates a company.

 

As of March 31, 2013, we were organized into four main business segments: Jinong (fertilizer production), Gufeng (fertilizer production), Jintai (agricultural products production) and Yuxing (agricultural products production). Jintai is in process of combining with Yuxing.

 

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 as a result of movements in interest rates and equity prices. We currently do not use financial instruments in the normal course of business that are subject to changes in financial market conditions.

 

Currency Fluctuations and Foreign Currency Risk

 

Substantially all of 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 the 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 the U.S. holding companies, all of 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 U.S. dollars and RMB. If the 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 exchange rates at the balance sheet dates and revenue 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 but are included in determining other comprehensive income, a component of shareholders’ equity. As of March 31, 2013, our accumulated other comprehensive income was $17.5 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the Renminbi has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market.

 

Interest Rate Risk

 

We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. All of our outstanding debt instruments carry fixed rates of interests. The amount of short-term debt outstanding as of March 31, 2013 and June 30, 2012 was $17.0 million and $14.0 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 were no material changes in interest rates for short-term bank loans renewed during the three months ended March 31, 2013. The original loan term on average is one year, and the remaining average life of the short term-loans is nine months.  

 

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 into any hedging transactions in an effort to reduce our exposure to interest rate risk.

 

Credit Risk

 

We have not experienced significant credit risk, as most of our customers are long-term customers with creditworthiness. Our receivables are monitored regularly by our credit managers.

 

Inflation Risk

 

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have 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.

 

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Item 4. Controls and Procedures.

 

(a)  Evaluation of disclosure controls and procedures.

 

At the conclusion of the period ended March 31, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, 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 file or 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 management, including our principal executive and principal financial officers, as appropriate to allow 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 our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On October 15, 2010, a class action lawsuit was filed against us and certain of our current and former officers in the United States District Court for the District of Nevada (the "Nevada Federal Court") on behalf of purchasers of our common stock between November 12, 2009 and September 1, 2010. The current version of the complaint alleges that we and certain of our current and former officers and directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, by making material misstatements and omissions in our financial statements, securities offering documents, and related disclosures during the class period. On October 7, 2011, the defendants moved to dismiss the amended complaint and to strike portions of it. On November 2, 2012, the Nevada Federal Court issued an order dismissing the claims for violation of sections 11, 12(a)(2) and 15 of the Securities Act of 1933 as to all defendants and dismissing certain individual defendants from the complaint and allowing the claims for violations of section 10(b) and 20(a) of the Securities Exchange Act of 1934 to continue with respect to the Company and certain of the individual defendants. The Nevada Federal Court also denied the defendants’ motion to strike. The parties to the securities class action held a mediation on March 7, 2013, which led to an agreement in principle to settle the case for a payment of $2.5 million by our insurers in exchange for a release of all claims against all defendants. The parties are currently in the process of documenting the settlement.

 

Item 6. Exhibits.

 

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

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities 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: May 10, 2013   By:  /s/ Tao Li  
    Name: Tao Li Title: President and Chief Executive Officer (principal executive officer)
     
     
     
Date: May 10, 2013   By:  /s/ Ken Ren  
    Name: Ken Ren
Title: Chief Financial Officer
(principal financial officer and principal accounting officer)
     
     

  

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EXHIBIT INDEX

 

 

 

No.  Description
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

 

* The XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 

 

 

 

 

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