<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended June 30, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-25963
AGROCAN CORPORATION
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware
- ------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1709 Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong
--------------------------------------------------------
(Address of principal executive offices)
852-2519-3933
--------------------------
(Issuer's telephone number)
Not applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
As of June 30, 1999, the Company had 2,000,460 shares of common stock issued and
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
<PAGE>
AGROCAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income and Comprehensive Income
(Unaudited) - Three months and nine months ended June 30,
1999 and 1998
Consolidated Balance Sheet (Unaudited) - June 30, 1999
Consolidated Statements of Cash Flows (Unaudited) - Nine months
ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited) - Nine
Months Ended June 30, 1999 and 1998
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
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<TABLE>
<CAPTION>
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Expressed in United States Dollars)
Nine months ended Three months ended
June 30, June 30,
------------------------------- ---------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 4,154,311 $ 6,375,085 $ 1,122,574 $ 1,780,353
COST OF SALES 3,591,485 5,669,214 948,266 1,560,068
-------------------------------------------------------------------------------------
GROSS PROFIT 562,826 705,871 174,308 220,285
ADMINISTRATIVE AND GENERAL EXPENSES (276,054) (249,115) (74,042) (67,705)
-------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 286,772 456,756 100,266 152,580
OTHER INCOME (EXPENSE)
Interest income 4,251 1,532 4,251 -
Amortization of loan fees (55,689) (30,937) (18,564) (18,564)
-------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 235,334 427,351 85,953 134,016
INCOME TAXES - - - -
-------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST 235,334 427,351 85,953 134,016
MINORITY INTEREST 1,991 (14,208) (2,101) (7,775)
-------------------------------------------------------------------------------------
NET INCOME 237,325 413,143 83,852 126,241
OTHER COMPREHENSIVE INCOME
Foreign currency translation
adjustments 16,118 - 16,118 -
-------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 253,443 $ 413,143 $ 99,970 $ 126,241
=====================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 1,930,143 1,621,437 1,991,669 1,646,560
DILUTED 3,007,560 2,700,554 3,069,086 2,400,677
EARNINGS PER SHARE
BASIC $ 0.12 $ 0.25 $ 0.04 $ 0.08
=====================================================================================
DILUTED $ 0.08 $ 0.15 $ 0.03 $ 0.05
=====================================================================================
</TABLE>
See notes to consolidated financial statements
3
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AGROCAN CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
JUNE 30, 1999
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 325,766
Accounts receivable - net 2,401,866
Inventories 453,391
Deposits and other current assets 160,074
Amount due from related parties 119,155
--------------------
TOTAL CURRENT ASSETS 3,460,252
PROPERTY, PLANT AND EQUIPMENT - NET 806,638
CONSTRUCTION IN PROGRESS 2,533
DEFERRED COSTS 184,378
--------------------
TOTAL ASSETS $ 4,453,801
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,457,566
Other payables and accruals 425,301
Amounts due to related parties 300,074
--------------------
TOTAL CURRENT LIABILITIES 2,182,941
MINORITY INTEREST 105,098
SHAREHOLDERS' EQUITY
Preferred stock, par value $ 0.0001
per share, authorized 10,000,000 shares;
none issued
Common stock, par value
$0.0001 per share, authorized 25,000,000
shares; issued and outstanding 2,000,460
shares at June 30, 1999 200
Capital in excess of par value 921,843
Stock options and warrants 289,317
Retained earnings - Unappropriated 905,888
- Appropriated 30,939
Accumulated other comprehensive income 17,575
--------------------
TOTAL SHAREHOLDERS' EQUITY 2,165,762
--------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,453,801
====================
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Expressed in United States Dollars)
Nine Months Ended
June 30,
--------------------------
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 237,325 $ 413,143
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred costs 54,312 -
Depreciation 28,192 15,230
Reserve written off - (1,922)
Minority interest in net income (loss) (1,991) 14,208
(Increase) decrease in accounts receivable 4,239,797 (2,007,208)
(Increase) decrease in other receivables, deposits and prepayments 53,380 (362,071)
Increase in inventories (319,130) (343,894)
(Increase) decrease in amounts due from related parties (29,701) 140,673
Increase (decrease) in accounts payable (4,357,267) 1,618,952
Increase in other payables and accruals 263,507 811,006
Decrease in amounts due to related parties (14,404) (29,107)
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 154,020 269,010
-----------------------------------
INVESTING ACTIVITIES
Deferred costs - 42,069
Additions to property, plant and equipment (109,649) (425,426)
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (109,649) (383,357)
-----------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of shares 390 -
Minority interest capital contributions - (1,020)
-----------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 390 (1,020)
-----------------------------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 44,761 (115,367)
CASH AND CASH EQUIVALENTS, BEGINNING 264,887 287,592
EFFECT OF EXCHANGE RATE CHANGES ON CASH 16,118 -
-----------------------------------
CASH AND CASH EQUIVALENTS, ENDING $ 325,766 $ 172,225
===================================
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
AgroCan Corporation
Notes to Consolidated Financial Statements (Unaudited)
Nine Months Ended June 30, 1999 and 1998
(Expressed in United States Dollars)
1. INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by AgroCan
Corporation and in the opinion of management, reflect all material
adjustments which are necessary to a fair statement of results for
the interim periods presented, including normal recurring
adjustments. Certain information and footnote disclosures made in
the most recent annual financial statements included in the
Company's Registration Statement on Form 10-SB filed with the
Securities and Exchange Commission on May 4, 1999, have been
condensed or omitted for the interim statements. It is the Company's
opinion that, when the interim statements are read in conjunction
with the September 30, 1998 financial statements included in
Registration Statement on Form 10-SB, the disclosures are adequate
to make the information presented not misleading. The results of
operations for the three and nine months ended June 30, 1999 are not
necessarily indicative of the operating results for the full fiscal
year.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 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.
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME.
The Company's only element of comprehensive income is foreign currency
translation adjustments. The accompanying financial statements have
been prepared in conformity with the requirements of SFAS No. 130.
2. INVENTORIES
Inventories at June 30, 1999 are comprised of the following:
Raw materials $ 224,552
Finished goods 228,839
----------
$ 453,391
----------
----------
3. SHAREHOLDERS' EQUITY
In April 1999, the Company issued 100,000 shares of its common stock as
additional offering costs to the investment banking firm that arranged
the private placement of the Company's common stock during the fiscal
year ended September 30, 1998. In addition, during the nine months
ended June 30, 1999, 3,900 shares of common stock were issued pursuant
to exercise of outstanding warrants at $0.10 per share.
6
<PAGE>
4. INCOME TAXES
The Company is subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which each entity is
domiciled. During the nine months ended June 30, 1998 and 1999, the
Company's subsidiaries continued to be fully exempted from income
taxes.
The pro forma effect of the tax holiday on net income and earnings per
share for the nine months ended June 30, 1999 and 1998 is as follows:
1999 1998
------------- --------------
Net income $ 159,000 $ 277,000
Earnings per share
Basic $ 0.08 $ 0.17
Diluted $ 0.05 $ 0.10
7
<PAGE>
5. EARNINGS PER SHARE
Earnings per share (EPS) has been computed in accordance with SFAS No.
128. The basic and diluted weighted average common shares outstanding
are as follows:
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, 1999 June 30, 1998
-------------------------------- ------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income from
continuing operations
available to common
shareholders $ 237,325 1,930,143 $ 0.12 $ 413,143 1,621,437 $ 0.25
------ ------
Effect of dilutive
securities - stock
options and warrants - 1,077,417 - 1,079,117
--------- --------- --------- ---------
Diluted EPS
Income from
continuing operations
available to common
shareholders $ 237,325 3,007,560 $ 0.08 $ 413,143 2,700,554 $ 0.15
========= ========= ====== ========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1999 June 30, 1998
-------------------------------- ------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income from
continuing operations
available to common
shareholders $ 83,852 1,991,669 $ 0.04 $ 126,241 1,646,560 $ 0.08
------ ------
Effect of dilutive
securities - stock
options and warrants - 1,077,417 - 754,117
-------- --------- --------- ----------
Diluted EPS
Income from
continuing operations
available to common
shareholders $ 83,852 3,069,086 $ 0.03 $ 126,241 2,400,677 $ 0.05
======== ========= ====== ========= ========= ======
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
1999 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning the Company's expectations regarding sales trends, gross
and net operating margin trends, political and economic matters, the
availability of equity capital to fund the Company's capital requirements, and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 1999 are subject
to risks and uncertainties that could cause actual results to differ materially
from those results expressed in or implied by the statements contained herein.
Overview:
AgroCan Corporation (the "Company") was incorporated on December 8, 1997 in the
State of Delaware. Effective December 31, 1997, the Company issued 1,598,646
shares of common stock, which represented all of the capital stock outstanding
at the completion of this transaction, to the shareholders of AgroCan (China)
Inc., a corporation incorporated in the British Virgin Islands, in exchange for
all of the capital stock of AgroCan (China) Inc. As of December 31, 1997,
AgroCan (China) Inc. owned interests in three subsidiaries or joint ventures as
follows: Jiangxi Jiali Chemical Industry Company Limited (100%), Jiangxi Fenglin
Chemical Industry Company Limited (70%), and Guangxi Linmao Fertilizer Company
Limited (100%), all of which were located in the People's Republic of China
("China" or the "PRC"). Prior to this transaction, the Company had no
significant operations. This transaction was accounted for as a recapitalization
of AgroCan (China) Inc., as the shareholders of AgroCan (China) Inc. acquired
all of the capital stock of the Company in a reverse acquisition. Accordingly,
the assets and liabilities of AgroCan (China) Inc. have been recorded at
historical cost, and the shares of common stock issued by the Company have been
reflected in the consolidated financial statements giving retroactive effect as
if the Company had been the parent company from inception. The historical
consolidated financial statements consist of the combined financial statements
of AgroCan (China) Inc. and its subsidiaries from the dates of their respective
formation or acquisition for all periods presented. All and per share amounts
presented herein have been adjusted to reflect the two for one stock split
effective February 6, 1998.
9
<PAGE>
AgroCan (China) Inc. was established in 1996 to develop, produce and sell
fertilizers and other products and technologies to enhance the agricultural
output of China. The Company produces various compound fertilizers, which are
the end product made from the combination of three primary nutrients, nitrogen,
phosphate and potassium, mixed together with other elements such as iron, zinc,
copper and manganese. These ingredients are blended in different proportions and
packed into 50 kilogram bags. The Company designs its compound fertilizers for
specific climate, soil and crop requirements of each individual geographic
market. As of February 1, 1999, the Company had established an annual production
capacity of 125,000 metric tons for compound fertilizers in Guangxi and Jiangxi,
two of the largest agricultural provinces in China, and the Company intends to
enter markets in other provinces in China.
Effective September 19, 1996, Guangxi Linmao Compound Fertilizer Company Limited
became a wholly-owned subsidiary of AgroCan (China) Inc., and changed its name
to Guangxi Linmao Fertilizer Company Limited ("Guangxi Linmao") on December 25,
1997. Guangxi Linmao commenced operations on September 19, 1996, and became
fully operational during the fiscal year ended September 30, 1997.
Effective October 8, 1996, AgroCan (China) Inc. entered into a joint venture
agreement with Nanchang Organic Fertilizer Factory, a state-owned enterprise in
the PRC, for the establishment of a Sino-Foreign Equity Joint Venture, Jiangxi
Fenglin Chemical Industry Company Limited ("Jiangxi Fenglin"). In exchange for
capital contributions to Jiangxi Fenglin aggregating $252,493 through September
30, 1998, AgroCan (China) Inc. received a 70% equity interest in the joint
venture. Jiangxi Fenglin commenced operations on November 28, 1996, and became
fully operational during the fiscal year ended September 30, 1998.
Effective November 3, 1996, AgroCan (China) Inc. entered into a joint venture
agreement with Fuzhou Grain and Oil Industry Corp., a state-owned enterprise in
the PRC, for the establishment of a Sino-Foreign Equity Joint Venture, Jiangxi
Jiali Compound Fertilizer Company Limited. The Company had a 55% equity interest
in the joint venture as of September 30, 1997. Effective April 5, 1998, the
Company acquired the remaining 45% interest in the joint venture for $87,545 and
changed its name to Jiangxi Jiali Chemical Industry Company Limited ("Jiangxi
Jiali"). Jiangxi Jiali commenced operations on May 1, 1998, and became fully
operational during the fiscal year ended September 30, 1998.
The Company's customers are all located in the PRC, and sales to such
customers are generally on an open account basis. The Company relies on a
small number of customers for most of its sales. As of June 30, 1999, four
customers accounted for approximately one-half of total accounts receivable.
During the three months and nine months ended June 30, 1999, three customers
and five customers, respectively, accounted for approximately two-thirds of
net sales.
The financial statements have been prepared in United States
10
<PAGE>
dollars. Foreign currency transactions are translated into United States
dollars at the exchange rate at the transaction dates. Monetary assets and
liabilities in foreign currencies are translated into United States dollars
at the rate of exchange at the balance sheet date. Exchange gains or losses
on foreign currency transactions are included in the consolidated statements
of income. The financial statements of the subsidiaries are translated into
United States dollars at the rate of exchange at the balance sheet date.
Currency translation adjustments arising from the use of different exchange
rates from period to period are included as a separate component of
shareholders' equity.
Results of Operations:
Three Months Ended June 30, 1999 and 1998 -
Revenues. Revenues for the three months ended June 30, 1999 were $1,122,574, as
compared to revenues of $1,780,353 for the three months ended June 30, 1998, a
decrease of $657,779 or 36.9%. The decrease in revenues in 1999 as compared to
1998 was a result of the Company raising its prices in an effort to increase its
gross margin.
Gross Profit. Gross profit for the three months ended June 30, 1999 was $174,308
or 15.5% of revenues, as compared to $220,285 or 12.4% of revenues for the three
months ended June 30, 1998, a decrease of $45,977 or 20.9%. The gross profit
margin increased in 1999 as compared to 1998 as a result of the Company raising
its prices, although gross profit decreased as a result of the decline in
revenues.
Administrative and General Expenses. Administrative and general expenses for the
three months ended June 30, 1999 were $74,042 or 6.6% of revenues, as compared
to $67,705 or 3.8% of revenues for the three months ended June 30, 1998, an
increase of $6,337 or 9.4%. Administrative and general expenses increased in
1999 as compared to 1998 primarily as a result of increased selling and
marketing activities.
Other Income (Expense). The Company recorded amortization of loan fees of
$18,564 for the three months ended June 30, 1999 and 1998. The Company
recognized interest income of $4,251 for the three months ended June 30, 1999.
The Company did not have any interest income during the three months ended June
30, 1998.
Income Taxes. The Company did not recognize any income taxes for the three
months ended June 30, 1999 and 1998. The Company is subject to income taxes
on an entity basis on income arising in or derived from the tax jurisdiction
in which each entity is domiciled. The Company's British Virgin Islands
subsidiary is not liable for income taxes. The Company's PRC subsidiaries are
11
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subject to income taxes at an effect rate of 33%. Pursuant to the approval of
the relevant PRC tax authorities, the subsidiaries are fully exempted from
PRC income taxes for two years starting from the date profits are first
recognized, followed by a 50% exemption for the next three years. The first
full year of profits was the fiscal year ended September 30, 1998.
Minority Interest. For the three months ended June 30, 1999 and 1998, the
Company recorded a minority interest of $2,101 and $7,775, respectively, to
reflect the interest of the Company's 30% joint venture partner in Jiangxi
Fenglin.
Net Income. Net income was $83,852 for the three months ended June 30, 1999, as
compared to net income of $126,241 for the three months ended June 30, 1998.
Nine Months Ended June 30, 1999 and 1998 -
Revenues. Revenues for the nine months ended June 30, 1999 were $4,154,311, as
compared to revenues of $6,375,085 for the nine months ended June 30, 1998, a
decrease of $2,220,774 or 34.8%. The decrease in revenues in 1999 as compared to
1998 was a result of the Company raising its prices in an effort to increase its
gross margin.
Gross Profit. Gross profit for the nine months ended June 30, 1999 was $562,826
or 13.5% of revenues, as compared to $705,871 or 11.1% of revenues for the nine
months ended June 30, 1998, a decrease of $143,045 or 20.3%. The gross profit
margin increased in 1999 as compared to 1998 as a result of the Company raising
its prices, although gross profit decreased as a result of the decline in
revenues.
Administrative and General Expenses. Administrative and general expenses for the
nine months ended June 30, 1999 were $276,054 or 6.6% of revenues, as compared
to $249,115 or 3.9% of revenues for the nine months ended June 30, 1998, an
increase of $26,939 or 10.8%. Administrative and general expenses increased in
1999 as compared to 1998 primarily as a result of increased selling and
marketing activities.
Other Income (Expense). The Company recorded amortization of loan fees of
$55,689 and $30,937 for the nine months ended June 30, 1999 and 1998,
respectively. The Company recognized interest income of $4,251 and $1,532 for
the nine months ended June 30, 1999 and 1998, respectively.
Income Taxes. The Company did not recognize any income taxes for the nine months
ended June 30, 1999 and 1998. The Company is subject to income taxes on an
entity basis on income arising in or derived from the tax jurisdiction in which
each entity is
12
<PAGE>
domiciled. The Company's British Virgin Islands subsidiary is not liable for
income taxes. The Company's PRC subsidiaries are subject to income taxes at
an effect rate of 33%. Pursuant to the approval of the relevant PRC tax
authorities, the subsidiaries are fully exempted from PRC income taxes for
two years starting from the date profits are first recognized, followed by a
50% exemption for the next three years. The first full year of profits was
the fiscal year ended September 30, 1998.
Minority Interest. For the nine months ended June 30, 1999 and 1998, the Company
recorded a minority interest of ($1,991) and $14,208, respectively, to reflect
the interest of the Company's 30% joint venture partner in Jiangxi Fenglin.
Net Income. Net income was $237,325 for the nine months ended June 30, 1999, as
compared to net income of $413,143 for the nine months ended June 30, 1998.
Liquidity and Capital Resources - June 30, 1999:
Operating. For the nine months ended June 30, 1999, the Company's operations
generated cash resources of $154,020, as compared to generating cash resources
of $269,010 for the nine months ended months ended June 30, 1998. The reduction
in cash generated by operating activities in 1999 as compared to 1998 of
$114,990 was primarily a result of cash utilized to pay accounts payable, which
was offset only in part by cash generated from accounts receivable collections.
At June 30, 1999, cash and cash equivalents had increased by $60,879, to
$325,766, as compared to $264,887 at September 30, 1998. As a result, the
Company had working capital of $1,277,311 at June 30, 1999, as compared to
$1,052,614 at September 30, 1998, resulting in current ratios of 1.59:1 and
1.17:1 at June 30, 1999 and September 30, 1998, respectively.
Accounts receivable decreased by $4,239,797, to $2,401,866 at June 30, 1999,
from $6,641,663 at September 30, 1998. Accounts receivable decreased during the
nine months ended June 30, 1999 as a result of decreased sales growth and the
collection of accounts receivable.
Accounts payable decreased by $4,357,267, to $1,457,566 at June 30, 1999, from
$5,814,833 at September 30, 1998. Accounts payable decreased during the nine
months ended June 30, 1999 as a result cash generated from operations being
utilized to pay accounts payable.
Investing. During the nine months ended June 30, 1999, additions to property,
plant and equipment aggregated $109,649, including additions to construction in
progress of $67,800. During the nine months ended June 30, 1998, additions to
property, plant and equipment aggregated $425,426, including additions to
construction
13
<PAGE>
in progress of $313,918.
The Company had no significant capital expenditure commitments outstanding at
June 30, 1999.
Financing. During the nine months ended June 30, 1999, the Company received $390
upon the exercise of 3,900 two-year common stock purchase warrants with an
exercise price of $.10 per warrant, which resulted in the issuance of 3,900
shares of common stock. The Company also issued 100,000 shares of common stock
to an investment banking firm in connection with the Company's private placement
during the fiscal year ended September 30, 1998.
The Company anticipates, based on currently proposed plans and assumptions
relating to its existing operations, that its projected cash flows from
operations, combined with borrowings as may be necessary, will be sufficient to
support its planned operations. To the extent that the Company expands its
operations or acquires additional operations in the future, the Company may
elect to raise additional equity capital.
Inflation and Currency Matters:
In recent years, the Chinese economy has experienced periods of rapid economic
growth as well as relatively high rates of inflation, which in turn has resulted
in the periodic adoption by the Chinese government of various corrective
measures designed to regulate growth and contain inflation. Since 1993, the
Chinese government has implemented an economic program designed to control
inflation, which has resulted in the tightening of working capital available to
Chinese business enterprises. The recent Asian financial crisis has resulted in
a general reduction in domestic production and sales, and a general tightening
of credit, throughout China. The success of the Company depends in substantial
part on the continued growth and development of the Chinese economy.
Foreign operations are subject to certain risks inherent in conducting business
abroad, including price and currency exchange controls, and fluctuations in the
relative value of currencies. Changes in the relative value of currencies occur
periodically and may, in certain instances, materially affect the Company's
results of operations. In addition, the Renminbi is not freely convertible into
foreign currencies, and the ability to convert the Renminbi is subject to the
availability of foreign currencies. As a result of the Asian financial crisis,
China has tightened foreign exchange controls. Effective December 1, 1998, all
foreign exchange transactions involving the Renminbi must take place through
authorized banks in China at the prevailing exchange rates quoted by the
People's Bank of China. The Company expects that a portion of its revenues will
need to be converted into
14
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other currencies to meet foreign exchange currency obligations, including the
payment of any dividends declared.
The continuing Asian financial crisis has had a negative impact on the Company's
operations by reducing the Chinese economy's growth and general level of
activity. Although the central government of China has repeatedly indicated that
it does not intend to devalue its currency in the near future, recent
announcements by the central government of China indicate that devaluation is an
increasing possibility. Should the central government of China decide to devalue
the Renminbi, the Company does not believe that such an action would have a
detrimental effect on the Company's operations, since the Company conducts
virtually all of its business in China, and the sale of its products is settled
in Renminbi. However, devaluation of the Renminbi against the United States
dollar would adversely effect the Company's financial performance when measured
in United States dollars.
Year 2000 Issue:
The Year 2000 issue results from the fact that certain computer programs have
been written using two digits rather than four digits to define the applicable
year. Computer programs that have date sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, sell tickets
or engage in similar normal business activities.
Based on a recent internal assessment, the Company has determined that its
software programs are already Year 2000 compliant, or that the cost of any
needed modifications will not have a material effect on the Company's
consolidated financial position, results of operations and cash flows.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Equity Securities
During the three months ended June 30, 1999, the Company issued 100,000
shares of common stock as additional offering costs to the investment banking
firm that arranged the private placement of the Company's common stock during
the fiscal year ended September 30, 1998. The shares of common stock were issued
without registration in reliance upon the exemption afforded by Section 4(2) of
the Securities Act of 1933, as amended, based on certain representations made to
the Company by the shareholders.
During the three months ended June 30, 1999, the Company issued 3,900
shares of common stock upon exercise of two-year common stock purchase warrants
with an exercise price of $.10 per warrant. The shares of common stock were
issued without registration in reliance upon the exemption afforded by Section
4(2) of the Securities Act of 1933, as amended, based on certain representations
made to the Company by exercising warrant holder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K:
Three Months Ended June 30, 1999 - None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AGROCAN CORPORATION
-------------------
(Registrant)
/s/ LAWRENCE HON
Date: August 18, 1999 By:
-------------------
Lawrence Hon
President and
Chief Executive
Officer
(Duly Authorized
Officer)
/s/ DAVID CHEUNG
Date: August 18, 1999 By:
-------------------
David Cheung
Chief Financial
Officer
(Chief Financial
Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 325,766
<SECURITIES> 0
<RECEIVABLES> 2,541,866
<ALLOWANCES> 140,000
<INVENTORY> 453,391
<CURRENT-ASSETS> 3,460,252
<PP&E> 886,757
<DEPRECIATION> 80,119
<TOTAL-ASSETS> 4,453,801
<CURRENT-LIABILITIES> 2,182,941
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 2,165,562
<TOTAL-LIABILITY-AND-EQUITY> 4,453,801
<SALES> 4,154,311
<TOTAL-REVENUES> 4,154,311
<CGS> 3,591,485
<TOTAL-COSTS> 3,591,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 235,334
<INCOME-TAX> 0
<INCOME-CONTINUING> 237,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237,325
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.08
</TABLE>
