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, 2000
[ ] 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
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(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)
011-852-2519-3933
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(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 June 30, 2000, the Company had 2,197,460 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
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - June 30, 2000
Consolidated Statements of Operations and Comprehensive Income
(Unaudited) - Three Months and Six Months Ended June
30, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) - Six Months
Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements (Unaudited) - Six
Months Ended June 30, 2000 and 1999
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
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<TABLE>
<CAPTION>
AgroCan Corporation
Consolidated Balance Sheets (Unaudited)
June 30, 2000
USD RMB
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 126,676 1,051,412
Accounts receivable - net 4,264,473 35,395,128
Inventories 619,251 5,139,784
Deposits and other current assets 391,883 3,252,621
Amount due from related parties 80,118 664,983
---------- ----------
TOTAL CURRENT ASSETS 5,482,401 45,503,928
PROPERTY, PLANT AND EQUIPMENT - NET 748,604 6,213,413
CONSTRUCTION IN PROGRESS 3,523 29,242
DEFERRED COSTS 91,000 755,298
---------- ----------
TOTAL ASSETS $ 6,325,528 52,501,881
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term bank loan $ 120,482 1,000,000
Accounts payable 2,224,557 18,463,823
Other payables and accruals 405,621 3,366,666
Deposits received 372,479 3,091,574
Amounts due to related parties 477,849 3,966,146
Tax payable 46,565 386,485
---------- ----------
TOTAL CURRENT LIABILITIES 3,647,553 30,274,694
MINORITY INTEREST 130,836 1,085,937
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 2,197,460 shares at June 30, 2000 219 1,821
Capital in excess of par value 1,056,420 8,768,275
Stock options and warrants 285,532 2,369,919
Retained earnings - Unappropriated 1,158,321 9,614,066
- Appropriated 43,800 363,542
Accumulated other comprehensive income 2,847 23,627
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 2,547,139 21,141,250
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,325,528 52,501,881
========== ==========
See notes to consolidated financial statements
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</TABLE>
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<TABLE>
<CAPTION>
AgroCan Corporation
Consolidated Statements of Operations and
Comprehensive Income (Unaudited)
Nine months ended June 30
2000 2000 1999
USD RMB RMB
<S> <C> <C> <C> <C>
NET SALES $ 4,763,361 39,535,894 34,397,695
COST OF SALES 3,832,946 31,813,448 29,737,496
----------- ----------- -----------
GROSS PROFIT 930,415 7,722,446 4,660,199
ADMINISTRATIVE AND GENERAL EXPENSES (491,051) (4,075,725) (2,072,969)
SELLING EXPENSES (141,243) (1,172,317) (477,238)
----------- ----------- -----------
INCOME FROM OPERATIONS 298,121 2,474,404 2,109,992
OTHER INCOME (EXPENSE)
Commission income 30,253 251,100 264,480
Interest income 3,920 32,537 35,198
Amortization of loan fees (55,688) (462,210) (461,105)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 276,606 2,295,831 1,948,565
INCOME TAXES (60,926) (505,692) -
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 215,680 1,790,139 1,948,565
MINORITY INTEREST 2,105 17,474 16,485
----------- ----------- -----------
NET INCOME 217,785 1,807,613 1,965,050
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS 562 4,663 133,457
----------- ----------- -----------
COMPREHENSIVE INCOME $ 218,346 1,812,276 2,098,507
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING
BASIC 2,185,814 2,185,814 1,930,143
DILUTED 2,502,529 2,502,529 3,007,560
EARNINGS PER SHARE
BASIC $ 0.10 0.83 1.02
=========== =========== ===========
DILUTED $ 0.09 0.72 0.65
=========== =========== ===========
See notes to consolidated financial
statements
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AgroCan Corporation
Consolidated Statements of Operations and
Comprehensive Income (Unaudited)
Three months ended June 30
2000 2000 1999
USD RMB RMB
<S> <C> <C> <C> <C>
NET SALES $ 1,799,396 14,934,984 9,294,913
COST OF SALES 1,427,076 11,844,731 7,851,642
----------- ----------- ----------
GROSS PROFIT 372,320 3,090,253 1,443,270
ADMINISTRATIVE AND GENERAL EXPENSES (92,929) (771,314) (403,211)
SELLING EXPENSES (68,834) (571,321) (209,856)
----------- ----------- ----------
INCOME FROM OPERATIONS 210,557 1,747,618 830,203
OTHER INCOME (EXPENSE)
Commission income - - -
Interest income 423 3,514 35,198
Amortization of loan fees (18,562) (154,067) (153,710)
----------- ----------- ----------
INCOME BEFORE INCOME TAXES 192,418 1,597,065 711,691
INCOME TAXES (45,884) (380,835) -
INCOME BEFORE MINORITY INTEREST 146,534 1,216,230 711,691
MINORITY INTEREST (13,414) (111,334) (17,396)
----------- ----------- ----------
NET INCOME 133,120 1,104,896 694,295
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS 540 4,485 133,457
----------- ----------- ----------
COMPREHENSIVE INCOME $ 133,660 1,109,381 827,752
=========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING
BASIC 2,197,460 2,197,460 1,911,669
DILUTED 2,514,175 2,514,175 3,069,086
EARNINGS PER SHARE
BASIC $ 0.06 0.50 0.36
=========== =========== ==========
DILUTED $ 0.05 0.44 0.23
=========== =========== ==========
See notes to consolidated financial
statements
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</TABLE>
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<TABLE>
<CAPTION>
AgroCan Corporation
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended June 30
2000 2000 1999
USD RMB RMB
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 217,785 1,807,613 1,965,050
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred costs 63,938 530,686 449,703
Depreciation 35,026 290,719 233,430
Capital reserve transfer 8,343 69,248 -
Minority interest in net income (2,105) (17,474) (16,485)
(Increase) decrease in accounts receivable (2,590,106) (21,497,879) 35,105,519
(Increase) decrease in other receivables, deposits and prepayments (154,072) (1,278,801) 441,986
Increase in inventories (488,169) (4,051,806) (2,642,396)
(Increase) decrease in amounts due from related parties 137,013 1,137,210 (245,924)
Increase (decrease) in accounts payable 1,622,154 13,463,879 (36,078,171)
Increase in other payables and accruals 509,566 4,229,401 2,181,838
Increase (decrease) in amounts due to related parties 177,775 1,475,532 (119,265)
Decrease in amounts tax payable (32,454) (269,365) -
------------ ------------ ------------
NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIEs (495,306) (4,111,037) 1,275,285
------------ ------------ ------------
Investing activities
Additions to property, plant and equipment (22,191) (184,182) (907,894)
Additions to construction in progress (993) (8,242) -
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (23,184) (192,424) (907,894)
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from short-term bank loan 214,458 1,780,000 -
Repayment of bank loan (178,313) (1,480,000) -
Proceeds from issuance of shares 2,700 22,412 3,229
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,845 322,412 3,229
------------ ------------ ------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (479,645) (3,981,049) 370,620
CASH AND CASH EQUIVALENTS, BEGINNING 605,759 5,027,798 2,193,264
EFFECT OF EXCHANGE RATE CHANGES ON CASH 562 4,663 133,457
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 126,676 1,051,412 2,697,341
------------ ------------ ------------
See notes to consolidated financial statements
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</TABLE>
<PAGE>
AgroCan Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2000
1. THE 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 Form 10-KSB for
the year ended September 30, 1999, have been omitted for the interim
statements. It is the Company's opinion that, when the interim
statements are read in conjunction with the September 30, 1999
financial statements, the disclosures are adequate to make the
information presented not misleading. The results of operations for
the nine months ended June 30, 2000 and 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.
2. INVENTORIES
Inventories at June 30, 2000 are comprised of the following:
Raw materials 3,056,263
Finished goods 2,083,521
----------
5,139,784
==========
3. Short-Term Bank Loans
During the six months ended March 31, 2000, the Company arranged a
short-term bank loan of RMB 780,000 to fund operations, which was
repaid during the nine months ended June 30, 2000. During the nine
months ended June 30, 2000, the Company arranged a new short-term loan
of RMB 1,000,000, which was outstanding at June 30, 2000.
4. SHAREHOLDERS' EQUITY
During the nine months ended June 30, 2000, 27,000 shares of common
stock were issued pursuant to exercise of outstanding warrants at
$0.10 per share.
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5. INCOME TAXES:
During the nine months ended June 30, 2000, the Company's subsidiaries
incurred income taxes of RMB 505,692. The Company did not recognize
any income taxes for the nine months ended June 30, 2000. 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 effective 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.
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.
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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,
2000 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, 2000 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.
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.
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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., 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 June 30,
2000, two customers accounted for 60% of total sales, and during the three
months ended June 30, 1999, three customers accounted for 67% of total sales;
during the nine months ended June 30, 2000, two customers accounted for 47% of
total sales, and during the nine months ended June 30, 1999, three customers
accounted for 67% of total sales. As of June 30, 2000, 53% of accounts
receivable were generated by trade transactions with two significant customers.
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. 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.
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Consolidated Results of Operations:
Three Months Ended June 30, 2000 and 1999:
Sales. The sales for the three months ended June 30, 2000 were RMB 14,934,984,
as compared to sales of RMB 9,294,913 for the three months ended June 30, 1999,
an increase of RMB 5,640,071 or 60.7%. The increase in sales in 2000 as compared
to 1999 was a result of higher demand resulting in part from the addition of new
customers.
Gross Profit. Gross profit for the three months ended June 30, 2000 was RMB
3,090,253 or 20.7% of sales. The Company had a gross profit margin for the three
months ended June 30, 1999 of RMB 1,443,270 or 15.5% of sales during such
period. The gross profit margin increased as a result of the Company raising
prices on selective products to obtain higher margins.
Administrative and General Expenses. Administrative and general expenses for the
three months ended June 30, 2000 were RMB 771,314, as compared to RMB 403,211
for the three months ended June 30, 1999, an increase of RMB 368,103.
Administrative and general expenses increased in 2000 as compared to 1999
primarily as a result of increase in transportation and office expenses.
Selling Expenses: Selling expenses for the three months ended June 30, 2000 were
RMB 571,321, as compared to RMB 209,856 for the three months ended June 30,
1999, an increase of RMB 361,465.
Selling expenses increased in 2000 as compared to 1999 as a result of the
Company's efforts to broaden its customer base and thereby reduce its reliance
on sales to a small number of customers. In that regard, the Company incurred
increased selling costs to support expanded marketing and selling efforts,
including salaries, travel, as well as product advertising costs.
Income from Operations. Income from operations was RMB 1,747,618 for the three
months ended June 30, 2000, as compared to income from operations of RMB 830,203
for the three months ended June 30, 1999.
Other Income (Expense). The Company recorded amortization of loan fees of RMB
154,067 and RMB 153,710 for the three months ended June 30, 2000 and 1999,
respectively.
The Company had interest income of RMB 3,514 and RMB 35,198 for the three months
ended June 30, 2000 and 1999, respectively.
Income Taxes. The Company recognized income taxes of RMB 380,835 for the three
months ended June 30, 2000. The Company did not recognize any income taxes for
the three months ended June 30, 1999. 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
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<PAGE>
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 June 30, 2000 and 1999, the
Company recorded a minority interest of RMB 111,334 and RMB 17,396,
respectively, to reflect the interest of the Company's 30% joint venture partner
in the net income of Jiangxi Fenglin.
Net Income. Net income was RMB 1,104,896 for the three months ended June 30,
2000, as compared to a net income of RMB 694,295 for the three months ended June
30, 1999.
Nine Months Ended June 30, 2000 and 1999:
Sales. Sales for the nine months ended June 30, 2000 were RMB 39,535,894, as
compared to sales of RMB 34,397,695 for the nine months ended June 30, 1999, an
increase of RMB 5,138,199 or 14.9%. The increase in sales in 2000 as compared to
1999 was a result of several factors, including an increase in demand from
existing and new customers.
Gross Profit. Gross profit for the nine months ended June 30, 2000 was RMB
7,722,446 or 19.5% of sales. Gross profit for the nine months ended June 30,
1999 was RMB 4,660,199 or 13.5% of sales. The gross profit margin increased as
a result of the Company raising its prices to focus on higher margin customers.
Administrative and General Expenses. Administrative and general expenses for the
nine months ended June 30, 2000 were RMB 4,075,725, as compared to RMB 2,072,969
for the nine months ended June 30, 1999, an increase of RMB 2,002,756.
Administrative and general expenses, in particular salaries and related costs,
increased in 2000 as compared to 1999 primarily as a result of increase in costs
incurred to support and expand business operations, including salaries, travel
and the legal and professional fees associated with the operation of a public
company.
Selling Expenses: Selling expenses for the nine months ended June 30, 2000 were
RMB 1,172,317, as compared to RMB 477,238 for the nine months ended June 30,
1999, an increase of RMB 695,079.
Selling expenses increased in 2000 as compared to 1999 as a result of the
Company's efforts to broaden its customer base and thereby reduce its reliance
on sales to a small number of customers. In that regard, the Company incurred
increased selling costs to support expanded marketing and selling efforts,
including salaries, travel and product advertising costs.
Income from Operations. Income from operations was RMB 2,474,404 for the nine
months ended June 30, 2000, as compared to income from operations of RMB
2,109,992 for the nine months ended June 30, 1999.
Other Income (Expense). The Company recorded amortization of loan fees of RMB
462,210 and RMB 461,105 for the nine months ended June 30, 2000 and 1999,
respectively.
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The Company had commission income of RMB251,000 for the nine months ended June
30, 2000, as compared to RMB264,480 for the nine months ended June 30, 1999.
The Company had interest income of RMB 32,537 and RMB 35,198 for the nine months
ended June 30, 2000 and 1999, respectively.
Income Taxes. The Company recognized income taxes of RMB 505,692 for the nine
months ended June 30, 2000. The Company did not recognize any income taxes for
the nine months ended June 30, 1999. 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 nine months ended June 30, 2000 and 1999, the Company
recorded a minority interest of RMB 17,474 and RMB 16,485, respectively, to
reflect the interest of the Company's 30% joint venture partner in the net loss
incurredly Jiangxi Fenglin.
Net Income. Net income was RMB 1,807,613 for the nine months ended June 30,
2000, as compared to a net income of RMB 1,965,050 for the nine months ended
June 30, 1999.
Consolidated Financial Condition - June 30, 2000:
Liquidity and Capital Resources:
Operating. For the nine months ended June 30, 2000, the Company's operations
utilized cash resources of RMB 4,111,037, as compared to generating cash
resources of RMB 1,275,285 for the nine months ended June 30, 1999. The
Company's operations utilized cash resources in 2000 as compared to generating
cash resources in 1999 primarily as a result of increases in accounts receivable
and inventories. The increase in accounts receivable and inventories was
financed in
substantial part by advances from customers. At June 30, 2000, cash and cash
equivalents had decreased by RMB 3,976,386, to RMB 1,051,412, as compared to RMB
5,027,798 at September 30, 1999. The Company had working capital of RMB
15,229,234 at June 30, 2000, as compared to RMB 12,713,791 at September 30,
1999, resulting in current ratios of 1.5:1 and 2.15:1 at June 30, 2000 and
September 30, 1999, respectively.
Accounts receivable increased by RMB 21,497,879, to RMB 35,395,128 at June 30,
2000, from RMB 13,897,249 at September 30, 1999. Accounts receivable increased
during the nine months ended June 30, 2000 as a result of sales increase and
extended credit terms offered to certain credit-worthy customers.
Inventories increased by RMB 4,051,806, to RMB 5,139,784 at June 30, 2000, from
RMB 1,087,978 at September 30, 1999. Inventories increased during the nine
months ended June 30, 2000 in anticipation of the forthcoming selling season
during the summer.
Amount due to related parties increased by RMB 1,475,532, to RMB 3,966,146 at
June 30, 2000, from RMB 2,490,614 at September 30, 1999. The increased amount
represent loans from related companies which are non-interest bearing and with
no repayment terms.
Investing. During the nine months ended June 30, 2000 and 1999, additions to
property, plant and equipment aggregated RMB 184,182 and RMB 907,894,
respectively.
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Construction in progess increased by RMB 8,242, to RMB 29,242 at June 30, 2000,
from RMB 21,000 at September 30, 1999.
The Company had no significant capital expenditure commitments outstanding at
June 30, 2000.
Financing. During the fiscal year ended September 30, 1999, the Company arranged
short-term bank loans of RMB 700,000 to fund operations, which were repaid
during the nine months ended June 30, 2000. During the nine months ended June
30, 2000, the Company arranged a new short-term bank loan of RMB 1,000,000,
which was outstanding at June 30, 2000.
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.
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.
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Year 2000 Issue:
As of December 31, 1999, the Company had completed any required modifications to
its software to ensure that its software systems were Year 2000 compliant. The
cost of such modifications was not significant.
Since the date rollover on January 1, 2000, the Company has not experienced any
material adverse effect from the Year 2000 Issue. While the primary risk to the
Company with respect to the Year 2000 Issue continued to be the ability of third
parties to provide goods and services in a timely and accurate manner, the
Company has not experienced any such disruption to date. The Company does not
expect any remaining risks with respect to the Year 2000 Issue to have a
material adverse effect on the Company.
New Accounting Pronouncement:
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
which is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those item
as
assets or liabilities in the statement of financial position and measure them at
fair value. SFAS No. 133 also addresses the accounting for hedging activities.
The Company will adopt SFAS No. 133 for its fiscal year beginning January 1,
2001. The Company does not expect that adoption of SFAS No. 133 will have a
material impact on its financial statement presentation or disclosures.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Equity Securities
During the six months ended June 30, 2000, the Company issued 27,000
shares of common stock, as a result of an equivalent number of two-year common
stock purchase warrants being exercised 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 June 30, 2000 - None
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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: August [ ], 2000 By: /s/ LAWRENCE HON
----------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: August [ ], 2000 By: /s/ DAVID CHEUNG
----------------------
David Cheung
Chief Financial Officer
(Principal Financial
and Accounting Officer)
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