<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 December 31, 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
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(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)
CLI Building, 313 Hennessy Road, Suite 1003, Hong Kong
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(Address of principal executive offices)
852-2723-0983
--------------------------
(Issuer's telephone number)
Not applicable
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(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 December 31, 1999, the Company had 2,172,460 shares of common stock issued
and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
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AGROCAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statements of Income and Comprehensive
Income (Unaudited) - Three Months Ended December 31,
1999 and 1998....................................... 3
Consolidated Balance Sheet (Unaudited) - December
31, 1999............................................ 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended December 31, 1999 and 1998....... 5
Notes to Consolidated Financial Statements
(Unaudited) - Three Months Ended December 31, 1999
and 1998............................................ 6
Item 2. Management's Discussion and Analysis or Plan of
Operation........................................... 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........... 17
Item 6. Exhibits and Reports on Form 8-K.................... 17
SIGNATURES........................................................ 18
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AgroCan Corporation
Consolidated Statements of Income and
Comprehensive Income (Unaudited)
Three Months ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1999 1998
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USD RMB RMB
<S> <C> <C> <C>
NET SALES 1,276,241 10,592,800 20,163,522
COST OF SALES 1,060,911 8,805,562 17,930,506
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GROSS PROFIT 215,330 1,787,238 2,233,016
ADMINISTRATIVE AND GENERAL EXPENSES (125,967) (1,045,523) (519,139)
SELLING EXPENSES (7,289) (60,500) (300,721)
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INCOME FROM OPERATIONS 82,074 681,215 1,413,156
OTHER INCOME (EXPENSE)
Interest income 2,237 18,561 -
Amortization of loan fees (18,563) (154,071) (153,711)
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INCOME BEFORE INCOME TAXES 65,748 545,705 1,259,445
INCOME TAXES 147 1,221 -
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INCOME BEFORE MINORITY INTEREST 65,601 544,484 1,259,445
MINORITY INTEREST 9,562 79,368 (49,456)
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NET INCOME 75,163 623,852 1,209,989
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (239) (1,983) -
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COMPREHENSIVE INCOME 74,924 621,869 1,209,989
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 2,170,646 2,170,646 2,067,648
DILUTED 2,512,361 2,512,361 2,391,998
EARNINGS PER SHARE
BASIC 0.03 0.29 0.59
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DILUTED 0.03 0.25 0.51
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</TABLE>
See accompanying notes to
consolidated financial statements.
3
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AgroCan Corporation
Consolidated Balance Sheet (Unaudited)
December 31, 1999
<TABLE>
<CAPTION>
USD RMB
-----------------------------------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents 186,830 1,550,685
Accounts receivable - net 2,814,324 23,358,889
Inventories 495,777 4,114,952
Deposits and other current assets 196,878 1,634,089
Amount due from related parties 174,175 1,445,656
------------------------------------
TOTAL CURRENT ASSETS 3,867,984 32,104,271
PROPERTY, PLANT AND EQUIPMENT - NET 765,198 6,351,140
CONSTRUCTION IN PROGRESS 2,530 21,000
DEFERRED COSTS 132,856 1,102,707
------------------------------------
TOTAL ASSETS 4,768,568 39,579,118
------------------------------------
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Short-term bank loan 45,904 381,000
Accounts payable 1,085,845 9,012,512
Other payables and accruals 741,651 6,155,706
Amounts due to related parties 300,074 2,490,614
Income tax payable 79,043 656,060
------------------------------------
TOTAL CURRENT LIABILITIES 2,252,517 18,695,892
MINORITY INTEREST 123,378 1,024,043
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 - 2,172,460 shares 217 1,800
Capital in excess of par value 1,053,921 8,747,544
Stock options and warrants 288,030 2,390,648
Retained earnings - Unappropriated 1,013,237 8,409,866
- Appropriated 35,222 292,344
Accumulated other comprehensive income 2,046 16,981
------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,392,673 19,859,183
------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,768,568 39,579,118
------------------------------------
------------------------------------
</TABLE>
See accompanying notes to
consolidated financial statements.
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AgroCan Corporation
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1999 1998
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USD RMB RMB
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income 75,163 623,852 1,209,989
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred costs 22,083 183,276 173,557
Depreciation 18,070 149,983 124,200
Minority interest in net income (9,562) (79,368) 49,456
(Increase) decrease in-
Accounts receivable (1,139,957) (9,461,640) 16,685,460
Other receivables, deposits and prepayments 40,931 339,731 (2,420,120)
Inventories (364,696) (3,026,974) (10,007,531)
Amounts due from related parties 42,956 356,537 740,679
Increase (decrease) in-
Accounts payable 483,442 4,012,568 (9,085,197)
Other payables and accruals 473,142 3,927,077 4,048,564
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (358,428) (2,974,958) 1,519,057
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INVESTING ACTIVITIES
Additions to property, plant and equipment (21,828) (181,172) (1,476,829)
Additions to construction in progress - - (487,460)
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NET CASH USED IN INVESTING ACTIVITIES (21,828) (181,172) (1,964,289)
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FINANCING ACTIVITIES
Short-term bank loan 45,904 381,000
Repayment of bank loan (85,338) (700,000) -
Proceeds from issuance of shares - - 1,822
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (38,434) (319,000) 1,822
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NET DECREASE IN CASH AND CASH EQUIVALENTS (418,690) (3,475,130) (443,410)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 605,759 5,027,798 2,193,264
EFFECT OF EXCHANGE RATE CHANGES ON CASH (239) (1,983) -
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CASH AND CASH EQUIVALENTS, END OF PERIOD 186,830 1,550,685 1,749,854
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</TABLE>
See accompanying notes to
consolidated financial statements.
5
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AgroCan Corporation
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended December 31, 1999 and 1998
1. Organization and Basis of Presentation
Basis of Presentation - The accompanying consolidated financial statements
include the operations of AgroCan Corporation and its wholly-owned and
majority-owned subsidiaries (the "Company"). All material intercompany balances
and transactions are eliminated at consolidation. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States and have been presented in Chinese Renminbi
("RMB").
Business - The Company's operations are located in the People's Republic of
China ("China" or the "PRC"), where the Company develops, produces and sells
fertilizers and other products and technologies to enhance the agricultural
output of China. The Company relies on a small number of customers located in
the PRC for most of its sales. The Company also relies on a small number of
suppliers located in the PRC for its raw material purchases.
Foreign Currency Translation - The functional currency of the Company's
operations in the People's Republic of China ("PRC") is the RMB. The accounts of
foreign operations are prepared in their local currency and translated into RMB
using the applicable rate of exchange. The resulting translation adjustments are
included in comprehensive income (loss). Transactions denominated in currencies
other than the RMB are translated into RMB at the applicable exchange rates.
Monetary assets and liabilities denominated in other currencies are translated
into RMB at the applicable rate of exchange at the balance sheet date. The
resulting exchange gains or losses are credited or changed to the consolidated
statement of operations.
The Company's share capital is denominated in USD and the reporting currency is
the RMB.
Translation of amounts from RMB into the USD for the convenience of the reader
has been made at the exchange rate as quoted by the People's Bank of China at
December 31, 1999 of US$1.00 = RMB8.30. No representation is made that the RMB
amounts could have been, or could be, converted into USD at that rate or any
other certain rate.
Comments - The accompanying consolidated financial statements are unaudited, but
in the opinion of management of the Company, contain all adjustments, which
include normal recurring adjustments, necessary to present fairly the financial
position at
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December 31, 1999, the results of operations for the three months ended
December 31, 1999 and 1998, and the cash flows for the three months ended
December 31, 1999 and 1998. Certain information and footnote disclosures
normally included in financial statements that have been prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the United States
Securities and Exchange Commission, although management of the Company
believes that the disclosures contained in these financial statements are
adequate to make the information presented therein not misleading. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1999, as filed with the Securities and Exchange
Commission.
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 reported amounts 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.
The results of operations for the three months ended December 31, 1999 are
not necessarily indicative of the results of operations to be expected for
the full fiscal year ending September 30, 2000.
2. Inventories
Inventories consisted of the following at December 31, 1999:
Raw materials 3,218,369
Finished goods 896,583
---------
4,114,952
=========
3. Bank Loans
During the fiscal year ended September 30, 1999, the Company arranged a
short-term bank loan of RMB 700,000 to fund operations, which was repaid during
the three months ended December 31, 1999. During the three months ended December
31, 1999, the Company arranged a new bank loan of RMB 381,000, which was
outstanding at December 31, 1999.
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4. Shareholders' Equity
During the three months ended December 31, 1999, 2,000 shares of common stock
were issued upon the exercise of 2,000 two-year common stock purchase warrants
exercisable at $.10 per warrant.
5. Income Taxes
The Company recognized income taxes of RMB 1,221 for the three months ended
December 31, 1999. The Company did not recognize any income taxes for the three
months ended December 31, 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 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.
8
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6. Earnings Per Share
Basic earnings per share is based on the weighted average shares of common
stock outstanding. Diluted earnings per share assumes the conversion,
exercise or issuance of all potential common stock instruments such as
options, warrants and convertible securities, unless the effect is to reduce
loss per share or increase earnings per share. The basic and diluted weighted
average common shares outstanding at December 31, 1999 and 1998 are presented
below. At December 31, 1999, potentially dilutive securities representing
1,227,117 shares of common stock were outstanding, consisting of stock
options and warrants exercisable at prices ranging from $0.10 per share
(198,000 shares) to $1.50 per share (1,029,117 shares).
<TABLE><CAPTION>
Three Months Ended December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Weighted average
outstanding
common shares
for basic EPS 2,170,646 2,067,648
Add incremental
common shares
from assumed
issuance of
stock options
and warrants 341,715 324,350
--------- ---------
Weighted average
outstanding
common shares
used for
diluted EPS 2,512,361 2,391,998
========= =========
</TABLE>
9
<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 December 31,
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 December 31, 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 share and per share
amounts presented herein have been adjusted to reflect the two for one stock
split effective February 6, 1998.
10
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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 December 31, 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 RMB 2,090,642 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. The
Company accounts for its interest in the joint venture similar to a
majority-owned subsidiary because of its 70% interest, its contractual ability
to appoint four out of six directors to the Board of Directors, which is the
highest authority for the joint venture, and the Company's right to appoint the
Chairman of the Board. The Company recognizes that joint venture interests in
the PRC are generally not consolidated in the financial statements of companies
that report under the periodic reporting requirements of the United States
Securities and Exchange Commission due to the rights asserted by the PRC partner
under customary joint venture agreements. However, in view of the above factors
specific to the Company, management believes that it is appropriate to
consolidate the joint venture's operations into the Company's consolidated
financial statements.
Effective November 3, 1996, AgroCan (China) Inc. entered into a joint venture
agreement with Fuzhou Grain and Oil Industry Corp.,
11
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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 RMB 724,873 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. With respect to sales to
customers that accounted for 10% or more of total sales, during the three
months ended December 31, 1999, two customers accounted for 89% of total
sales, and during the three months ended December 31, 1998, three customers
accounted for 62% of total sales. As of December 31, 1999, 40% of accounts
receivable were generated by trade transactions with two significant
customers, of which five customers accounted for 45% of the accounts
receivable balance.
The Company has also relied on a small number of suppliers located in the PRC
for its raw material purchases. With respect to purchases from suppliers that
accounted for 10% or more of total purchases, during the three months ended
December 31, 1999, two suppliers accounted for 93% of total purchases, and
during the three months ended December 31, 1998, two suppliers accounted for
58% of total purchases. As of December 31, 1999, 91% of accounts payable were
generated by trade transactions with such significant suppliers.
The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All material
intercompany balances and transactions are eliminated at consolidation. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and have been
presented in Chinese Renminbi ("RMB"). The functional currency of the Company's
PRC operations is the RMB. The accounts of foreign operations are prepared in
their local currency and are translated into RMB using the applicable rate of
exchange. The resulting transaction adjustments are included in comprehensive
income (loss). Transactions denominated in currencies other than the RMB are
translated into RMB at the applicable exchange rates. Monetary assets and
liabilities denominated in other currencies are translated into RMB at the
applicable rate of exchange at the balance sheet date. The resulting exchange
gains or losses are credited or charged to the consolidated statements of
operations.
12
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Results of Operations:
Three Months Ended December 31, 1999 and 1998 -
Revenues. Revenues for the three months ended December 31, 1999 were RMB
10,592,800, as compared to revenues of RMB 20,163,522 for the three months
ended December 31, 1998, a decrease of RMB 9,570,722 or 47.5%. The decrease
in revenues in 1999 as compared to 1998 was a result of several factors,
including an increase in selling prices and a reduction in sales to
customers with low profit margins and/or weak credit ratings.
Gross Profit. Gross profit for the three months ended December 31, 1999 was
RMB 1,787,238 or 16.9% of revenues, as compared to RMB 2,233,016 or 11.1% of
revenues for the three months ended December 31, 1998, a decrease of RMB
445,778 or 20.0%. The gross profit margin increased in 1999 as compared to
1998 as a result of the Company raising its prices to focus on higher-margin
customers, although total gross profit decreased as a result of the decline
in revenues.
Administrative and General Expenses. Administrative and general expenses for
the three months ended December 31, 1999 were RMB 1,045,523 or 9.9% of
revenues, as compared to RMB 519,139 or 2.6% of revenues for the three months
ended December 31, 1998, an increase of RMB 526,384 or 101.4%. Administrative
and general expenses, in particular salaries and related costs, increased in
1999 as compared to 1998 primarily as a result of increase in costs incurred
to support and expand business operations, including costs related to office
operations, salaries and travel, as well as the legal and professional fees
associated with the operation of a public company.
Selling Expenses: Selling expenses for the three months ended December 31,
1999 were RMB 60,500 or .6% of revenues, as compared to RMB 300,721 or 1.5%
of revenues for the three months ended December 3, 1998, a decrease of RMB
240,221 or 79.9%. Selling expenses decreased in 1999 as compared to 1998 as a
result of a reduction in sales.
Other Income (Expense). The Company recorded amortization of loan fees of RMB
154,071 and RMB 153,711 for the three months ended December 31, 1999 and
1998, respectively.
The Company recognized interest income of RMB 18,561 for the three months
ended December 31, 1999. The Company did not have any interest income during
the three months ended December 31, 1998.
Income Taxes. The Company recognized income taxes of RMB 1,221 for the three
months ended December 31, 1999. The Company did not
13
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recognize any income taxes for the three months ended December 31, 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 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.
Minority Interest. For the three months ended December 31, 1999 and 1998, the
Company recorded a minority interest of RMB 79,368 and RMB (49,456),
respectively, to reflect the interest of the Company's 30% joint venture partner
in Jiangxi Fenglin.
Net Income. Net income was RMB 623,852 for the three months ended December 31,
1999, as compared to net income of RMB 1,209,989 for the three months ended
December 31, 1998.
Liquidity and Capital Resources - December 31, 1999:
Operating. For the three months ended December 31, 1999, the Company's
operations utilized cash resources of RMB 2,974,958, as compared to
generating cash resources of RMB 1,519,057 for the three months ended
December 31, 1998. The Company's operations utilized cash resources in 1999
as compared to generating cash resources in 1998 primarily as a result of
increases in accounts receivable and inventories. The increase in accounts
receivable and inventories was supported in substantial part by increases to
accounts payable and accrued liabilities. At December 31, 1999, cash and cash
equivalents had decreased by RMB 3,475,130, to RMB 1,550,685, as compared to
RMB 5,027,798 at September 30, 1998. As a result, the Company had working
capital of RMB 13,408,379 at December 31, 1999, as compared to RMB 12,713,791
at September 30, 1998, resulting in current ratios of 1.72:1 and 2.15:1 at
December 31, 1999 and September 30, 1999, respectively.
Accounts receivable increased by RMB 9,461,640, to RMB 23,358,889 at December
31, 1999, from RMB 13,897,249 at September 30, 1999. Accounts receivable
increased during the three months ended December 31, 1999 as a result of
extended credit terms offered to certain credit-worthy customers.
Inventories increased by RMB 3,026,974, to RMB 4,114,952 at December 31, 1999,
from RMB 1,087,978 at September 30, 1999. Inventories increased during the three
months ended December 31, 1999 in anticipation of the forthcoming selling
season.
Accounts payable increased by RMB 4,012,568, to RMB 9,012,512 at
14
<PAGE>
December 31, 1999, from RMB 4,999,944 at September 30, 1999. Accounts payable
increased during the three months ended December 31, 1999 as a result of the
increase in inventories.
Other payables and accruals increased by RMB 4,080,263, to RMB 6,155,706 at
December 31, 1999, from RMB 2,075,443 at September 30, 1999. Other payables
increased during the three months ended December 31, 1999 as a result of
costs associated with the increase in inventories.
Investing. During the three months ended December 31, 1999, additions to
property, plant and equipment aggregated RMB 181,172. During the three months
ended December 31, 1998, additions to property, plant and equipment
aggregated RMB 1,476,829, including additions to construction in progress of
RMB 487,460.
The Company had no significant capital expenditure commitments outstanding at
December 31, 1999.
Financing. During the fiscal year ended September 30, 1999, the Company
arranged a short-term bank loan of RMB 700,000 to fund operations, which was
repaid during the three months ended December 31, 1999. During the three
months ended December 31, 1999, the Company arranged a new bank loan of RMB
381,000, which was outstanding at December 31, 1999.
The Company anticipates, based on currently proposed plans and assumptions
relating to its existing operations, that its projected cash flows from
operations, combined with cash that the Company expects to generate from the
issuance of its securities and from borrowings, will be sufficient to support
its planned operations for the next twelve months. Depending on the Company's
rate of growth, the Company may seek additional capital in the future to
support expansion of operations and acquisitions.
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 success of the Company depends
in substantial part on the continued growth and development of the Chinese
economy.
15
<PAGE>
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.
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 other currencies to
meet foreign exchange currency obligations, including the payment of any
dividends declared.
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.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Equity Securities
During the three months ended December 31, 1999, the Company issued
2,000 shares of common stock upon exercise of two-year common stock purchase
warrants exercisable at $.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 holders.
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 December 31, 1999 - None
17
<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)
Date: February 16, 1999 By: /s/ LAWRENCE HON
-----------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: February 16, 1999 By: /s/ DAVID CHEUNG
-----------------------
David Cheung
Chief Financial Officer
(Principal Financial
and Accounting Officer)
18
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<PAGE>
<ARTICLE> 5
<CURRENCY> RENMINBI
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> .12048
<CASH> 1,550,685
<SECURITIES> 0
<RECEIVABLES> 23,358,889
<ALLOWANCES> 0
<INVENTORY> 4,114,952
<CURRENT-ASSETS> 32,104,271
<PP&E> 6,351,140
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,579,118
<CURRENT-LIABILITIES> 18,695,892
<BONDS> 0
0
0
<COMMON> 1,800
<OTHER-SE> 19,857,383
<TOTAL-LIABILITY-AND-EQUITY> 39,579,118
<SALES> 10,592,800
<TOTAL-REVENUES> 10,592,800
<CGS> 8,805,562
<TOTAL-COSTS> 8,805,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 545,705
<INCOME-TAX> 1,221
<INCOME-CONTINUING> 621,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 621,869
<EPS-BASIC> .29
<EPS-DILUTED> .25
</TABLE>
