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, 2002
[ ] 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 N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 706, Dominion Centre, 43-59 Queen's Road East, Hong Kong
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(Address of principal executive offices)
011-852-2519-3933
--------------------------
(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, 2002, the Company had 3,393,304 shares of common stock issued and
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
AGROCAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - June 30, 2002 and September
31, 2001
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited) - Three Months and Nine Months Ended June 30, 2002 and
2001
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended
June 30, 2002 and 2001
Notes to Consolidated Financial Statements (Unaudited) - Nine Months
Ended June 30, 2002 and 2001
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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGROCAN CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 2002 September 30,
2001
USD RMB RMB
---------- ---------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,530 336,401 591,864
Accounts receivable, net 1,295,451 10,752,242 12,748,777
Other receivables and prepayments 78,215 649,188 625,772
Inventories 499,807 4,148,396 1,453,528
Deposits 13,979 116,027 155,801
Amount due from related parties, net 483,244 4,010,928 3,618,173
---------- ---------- -------------
TOTAL CURRENT ASSETS 2,411,226 20,013,182 19,193,915
ADVANCES RECEIVABLE, NET 984,200 8,168,860 8,168,860
PROPERTY, PLANT AND EQUIPMENT, NET 724,455 6,012,976 6,143,437
---------- ---------- -------------
TOTAL ASSETS $4,119,881 34,195,018 33,506,212
========== ========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank loan $ 120,482 1,000,000 1,993,000
Short-term loans-unsecured 447,013 3,710,212 3,410,212
Accounts payable 160,854 1,335,091 2,266,412
Other payables and accruals 127,419 1,057,571 1,171,615
Income tax payable 81,530 676,695 777,015
Deposits received 384,180 3,188,695 780,404
Amount due to related parties 357,208 2,964,825 4,349,334
---------- ---------- -------------
TOTAL LIABILITIES, ALL CURRENT 1,678,686 13,933,089 14,747,992
MINORITY INTEREST 130,479 1,082,974 1,119,624
SHAREHOLDERS' EQUITY
Preferred stock, par value US$0.0001 per share,
authorized 10,000,000 shares; none issued
Common stock, par value US$0.0001 per share,
authorized 25,000,000 shares; issued and
outstanding 3,393,304 shares at June 30, 2002 339 2,816 2,224
Capital in excess of par value 1,746,750 14,498,029 12,257,029
Retained earnings
Unappropriated 415,635 3,449,771 4,151,004
Appropriated 145,818 1,210,289 1,210,289
Other comprehensive income 2,175 18,050 18,050
---------- ---------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,310,717 19,178,955 17,638,596
---------- ---------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,119,881 34,195,018 33,506,212
========== ========== =============
See notes to consolidated financial statements
3
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2002 2001
----------- ----------- ----------
USD RMB RMB
NET SALES $ 622,109 5,163,505 9,027,035
COST OF SALES 503,874 4,182,156 6,677,600
----------- ----------- ----------
GROSS PROFIT 118,235 981,349 2,349,435
ADMINISTRATIVE AND GENERAL EXPENSES (137,136) (1,138,229) (740,547)
SELLING EXPENSES (29,610) (245,767) (399,793)
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (48,511) (402,647) 1,209,095
OTHER INCOME (EXPENSE)
Interest income 5,920 49,132 4,111
Interest expense (2,857) (23,710) (32,630)
Amortization of loan fees - - (57,200)
----------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (45,448) (377,225) 1,123,376
INCOME TAXES (6,410) (53,199) (59,981)
----------- ----------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST (51,858) (430,424) 1,063,395
MINORITY INTEREST 3,224 26,763 (27,952)
----------- ----------- ----------
NET INCOME (LOSS) $ (48,634) (403,661) 1,035,443
=========== =========== ==========
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments - - 26,287
----------- ----------- ----------
COMPREHENSIVE INCOME (LOSS) (48,634) (403,661) 1,061,730
=========== =========== ==========
WEIGHTED AVERAGE SHARES OUTSANDING
Basic and diluted 3,061,630 3,061,630 2,318,318
BASIC AND DILUTED INCOME (LOSS) PER SHARE $ (0.02) (0.13) 0.46
=========== =========== ==========
See notes to consolidated financial statements
4
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2002 2001
----------- ----------- -----------
USD RMB RMB
NET SALES $1,197,145 9,936,302 15,633,080
COST OF SALES 978,160 8,118,724 11,731,418
----------- ----------- -----------
GROSS PROFIT 218,985 1,817,578 3,901,662
ADMINISTRATIVE AND GENERAL EXPENSES (262,227) (2,176,486) (2,336,922)
SELLING EXPENSES (46,165) (383,168) (645,274)
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (89,407) (742,076) 919,466
OTHER INCOME (EXPENSE)
Interest income 17,888 148,472 39,169
Interest expense (6,440) (53,453) (64,370)
Amortization of loan fees - - (359,506)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (77,959) (647,057) 534,759
INCOME TAXES (10,943) (90,826) (144,810)
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST (88,902) (737,883) 389,949
MINORITY INTEREST 4,416 36,650 1,670
----------- ----------- -----------
NET INCOME (LOSS) $ (84,486) (701,233) 391,619
=========== =========== ===========
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments - - 26,287
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) (84,486) (701,233) 417,906
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSANDING
Basic and diluted 2,906,883 2,906,883 2,318,318
BASIC AND DILUTED INCOME (LOSS) PER SHARE $ (0.03) (0.25) 0.18
=========== =========== ===========
See notes to consolidated financial statements
5
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2002 2001
---------- ----------- ------------
USD RMB RMB
OPERATING ACTIVITIES
Net (loss) income $ (84,486) (701,233) 391,619
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization of deferred costs - - 359,507
Common shares issued for directors remuneration 90,000 747,000 -
Depreciation 56,176 466,262 547,736
Minority interest in net loss (4,416) (36,650) (1,670)
Decrease in accounts receivable 240,546 1,996,535 23,898,633
Decrease (increase) in other receivables, deposits
and prepayments 1,971 16,358 (11,553,160)
Increase in inventories (324,683) (2,694,868) (818,540)
Increase in amounts due from related parties (47,320) (392,755) (8,843,237)
Decrease in accounts payable (112,207) (931,321) (20,147,876)
Decrease in income tax payable (12,087) (100,320) (178,621)
(Increase) decrease in other payables and accurals (13,740) (114,044) 3,711,650
Increase (decrease) in deposits received 290,156 2,408,291 (826,147)
Increase (decrease) in amounts due to related parties 13,263 110,083 479,971
---------- ----------- ------------
Net cash (used in) provided by operating activities 93,173 773,338 (12,980,135)
---------- ----------- ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (40,458) (335,801) (707,836)
---------- ----------- ------------
Net cash used in investing activities (40,458) (335,801) (707,836)
---------- ----------- ------------
FINANCING ACTIVITIES
Repayment of short term bank loan (119,639) (993,000) -
Repayment of short term loans - unsecured - (570,000)
Proceeds from short term loans - unsecured 36,145 300,000 -
Short term bank loan - - 10,000,000
---------- ----------- ------------
Net cash (used in) provided by financing activities (83,494) (693,000) 9,430,000
---------- ----------- ------------
Net decrease in cash and cash equivalents (30,779) (255,463) (4,257,971)
Cash and cash equivalents beginning 71,309 591,864 4,616,686
Effect of exchange rate changes on cash - - 26,287
---------- ----------- ------------
Cash and cash equivalents end $ 40,530 336,401 385,002
========== =========== ============
Supplemental schedule of non-cash investing
and financing activities:
Common shares issued for
amounts due to related parties 180,071 1,494,592
========== ===========
See notes to consolidated financial statements
6
AGROCAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(EXPRESSED IN RENMINBI)
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 our Form 10-KSB for the year ended September 30, 2001, have
been condensed or omitted for the interim statements. It is our opinion
that, when the interim statements are read in conjunction with the
September 30, 2001 financial statements, the disclosures are adequate to
make the information presented not misleading. The results of operations
for the nine months ended June 30, 2002 and 2001 are not necessarily
indicative of the operating results for the full fiscal year, as the
Company's business fluctuates in accordance with planting seasons resulting
in increased revenues in the second and third quarters.
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.
The Company reported a 36.4% decrease in sales during the nine months ended
June 30, 2002 compared to the nine months ended June 30, 2001. The Company
believes that it has adequate funds to support operations for the current
fiscal year ending September 30, 2002.
To address its on-going and long-term cash needs, the Company plans to
initiate discussions with investment banks and financial institutions and
attempt to raise funds to support current and future operations. This
includes attempting to raise additional working capital through the sale of
additional capital stock or through additional bank or third party
borrowings. The Company cannot provide any assurance that it will be able
to raise any such funds.
7
2. INVENTORIES
Inventories at June 30, 2002 and September 30, 2001 are comprised of the
following:
JUNE 30, 2002 SEPTEMBER 30, 2001
USD RMB RMB
RAW MATERIALS $190,842 1,583,985 1,020,669
FINISHED GOODS 308,965 2,564,411 432,859
-------- --------- ---------
$499,807 4,148,396 1,453,528
======== ========= =========
3. SHORT-TERM BANK LOANS
As of June 30, 2002, the Company has a bank loan of RMB1,000,000
(US$120,482) which is due on April 19, 2003 and bears interest at 5.325%
per annum.
4. INCOME TAXES
During the nine months ended June 30, 2002, our subsidiaries recorded an
income tax of RMB 90,826. We are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which each
entity is domiciled. Our British Virgin Islands subsidiary is not liable
for income taxes. Our PRC subsidiaries comprise two wholly owned foreign
enterprises and a 70% held Sino-Foreign Equity Joint Venture. PRC Companies
are generally subject to income taxes at an effective rate of 33% (30%
Chinese national income tax plus 3% Chinese state income tax). Two of our
PRC subsidiaries, Fenglin and Linmao, are manufacturing companies operating
in special zones, and they are entitled to a reduced national income taxes
rate of 24%. All the subsidiaries are exempt from state income tax.
Further, pursuant to the approval of the relevant PRC tax authorities, all
the subsidiaries have been granted a "tax holidays", whereby the
subsidiaries are fully exempted from PRC income taxes for two years
starting from the year profits are first made, followed by a 50% exemption
for the next three years. In 1999, the two-year, 100% exemption expired for
Fenglin and Linmao, subjecting them to income tax at a rate of 12%.
Effective January 1, 2001, the two-year, 100% exemption expired for Jiali
and it became subject to income tax at a rate of 15%. Losses incurred by
PRC companies may be carried forward for five years. Deferred tax assets
and liabilities are not considered material at June 30, 2002 and 2001.
5. 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.
8
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,
2002 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning our expectations regarding sales trends, gross and net
operating margin trends, political and economic matters, the availability of
equity capital to fund our 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, 2002 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 was incorporated on December 8, 1997 in the State of
Delaware. Effective December 31, 1997, we 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.
Prior to the above transaction, we had no material operations. The AgroCan China
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. were recorded at historical cost, and the shares of common
stock issued by the company were reflected in the consolidated financial
statements giving retroactive effect as if we had been the parent company from
inception.
We, through AgroCan (China) Inc., currently own 100% interest in two
wholly-owned subsidiaries, Guangxi Linmao Fertilizer Company Limited ("Guangxi
Linmao") and Jiangxi Jiali Chemical Industry Company Limited ("Jiangxi Jiali").
We, through AgroCan (China) Inc., also own a 70% interest in Jiangxi Fenglin
Chemical Industry Company Limited, a Sino-Foreign Equity Joint Venture ("Jiangxi
Fenglin"). All of the aforementioned entities are located in the People's
Republic of China ("China" or the "PRC").
We account for our interest in Jiangxi Fenglin similar to a majority-owned
subsidiary because of our 70% interest, our contractual ability to appoint four
out of six directors to the Board of Directors, which is the highest authority
for the joint venture, and our right to appoint the Chairman of the Board. Due
to the rights asserted by the PRC partner under customary joint venture
9
agreements, 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. However,
as a result of the aforementioned factors specific to Jiangxi Fenglin,
management believes that it is appropriate to consolidate the joint venture's
operations into our consolidated financial statements.
We produce various compound fertilizers. These ingredients used are blended in
different proportions and packed into 50 kilogram bags. As of September 30,
2001, we have 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 we intend to enter markets in other provinces in China.
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 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 charged to the consolidated statements of
operations. For all purposes in this report, unless otherwise specifically
stated, the U.S. dollar equivalent for the PRC Renminbi is the official exchange
rate of 8.277 RMB=$1.00 (U.S.).
10
Consolidated Results of Operations:
Three Months Ended June 30, 2002 and 2001:
Sales. The sales for the three months ended June 30, 2002 were RMB 5,163,505
as compared to sales of RMB 9,027,035 for the three months ended June 30, 2001,
a decrease of RMB 3,863,530 or 42.8%. The decrease was due to lower demands from
our major customers. Since it is close to the end of the planting season,
management believes that sales for the year ended September 30, 2002 will
approximate 75% of prior year levels.
Gross Profit. Gross profit for the three months ended June 30, 2002 was RMB
981,349 or 19% of revenues, as compared to RMB 2,349,435 or 26% of revenues for
the three months ended June 30, 2001. The gross profit margin decreased in 2002
as compared to 2001 as a result of lower sales prices to attract new customers.
Administrative and General Expenses. Administrative and general expenses for
the three months ended June 30, 2002 were RMB 1,138,229 or 22% of revenues, as
compared to RMB 740,547 or 8.2% of revenues for the three months ended June 30,
2001, an increase of RMB 397,682. The increase of administrative and general
expenses is mainly due to director's remuneration of RMB 747,000 for the three
quarters of the current fiscal year.
Selling Expenses. Selling expenses for the three months ended June 30, 2002
were RMB 245,767 or 4.8% of revenues, as compared to RMB 399,793 or 4.4% of
revenues for the three months ended June 30, 2001, a decrease of RMB 154,026.
Selling expenses decreased in 2002 compared to 2001 as a result of reduced sales
due to the lower demand from major customers.
Income / Loss from Operations. Loss from operations was RMB 402,647 for the
three months ended June 30, 2002, as compared to an income from operations of
RMB 1,209,095 for the three months ended June 30, 2001.
Other Income (Expense). We recorded interest income of RMB 49,132 and RMB
4,111 for the three months ended June 30, 2002 and 2001, respectively.
We recorded interest expense of RMB 23,710 and RMB 32,630 for the three months
ended June 30, 2002 and 2001, respectively. As of June 30, 2002, we had extended
a bank loan of RMB 1,000,000 (US$120,482) which was originally due at June 19,
2002. The bank loan bears interest at 5.325% per annum and is due at April 19,
2003.
We recorded amortization of loan fees of RMB 0 and RMB 57,200 for the three
months ended June 30, 2002 and 2001, respectively.
Income Taxes. During the three months ended June 30, 2002, we recorded
income tax of RMB 53,199. We recognized income tax expense of RMB 59,981 for the
three months ended June 30, 2001.
11
Minority Interest. For the three months ended March 31, 2002 and 2001, we
recorded a minority interest of RMB 26,763 and RMB (27,952) respectively, to
reflect the interest of the Company's 30% joint venture partner in the net
income of Jiangxi Fenglin.
Net Income / Loss. Net loss was RMB 403,661 for the three months ended June
30, 2002, as compared to a net income of RMB 1,035,443 for the three months
ended June 30, 2001. The reason for recording net loss for the three months
ended June 30, 2002 while recording net income for the three months ended June
30, 2001 was primarily the result of the increasing administrative and general
expenses due to director's remuneration.
Nine Months Ended June 30, 2002 and 2001:
Sales. The sales for the nine months ended June 30, 2002 were RMB 9,936,302
as compared to sales of RMB 15,633,080 for the nine months ended June 30, 2001,
a decrease of RMB 5,696,778 or 36.4%. The decrease was due to lower demands from
our major customers. Since it is close to the end of the planting season,
management believes that sales for the year ended September 30, 2002 will
approximate 75% of prior year levels.
Gross Profit. Gross profit for the nine months ended June 30, 2002 was RMB
1,817,578 or 18.3% of revenues, as compared to RMB 3,901,662 or 25% of revenues
for the nine months ended June 30, 2001. The gross profit margin decreased in
2002 as compared to 2001 as a result of lower sales prices to attract new
customers.
Administrative and General Expenses. Administrative and general expenses for
the nine months ended June 30, 2002 were RMB 2,176,486 or 21.9% of revenues, as
compared to RMB 2,336,922 or 14.9% of revenues for the nine months ended June
30, 2001, a decrease of RMB 160,436.
Selling Expenses. Selling expenses for the nine months ended June 30, 2002
were RMB 383,168 or 3.9% of revenues, as compared to RMB 645,274 or 4.1% of
revenues for the nine months ended June 30, 2002, a decrease of RMB 262,106.
Selling expenses decreased in 2002 compared to 2001 as a result of reduction in
sales due to the lower demand from major customers.
Income / loss from Operations. Loss from operations was RMB 742,076 for the
nine months ended June 30, 2002, as compared to an income from operations of RMB
919,466 for the nine months ended June 30, 2001.
Other Income (Expense). We recorded interest income of RMB 148,472 and RMB
39,169 for the nine months ended June 30, 2002 and 2001, respectively.
12
We recorded interest expense of RMB 53,453 and RMB 64,370 for the nine months
ended June 30, 2002 and 2001, respectively. As of June 30, 2002, we had extended
a bank loan of RMB 1,000,000 (US$120,482) which was originally due at June 19,
2002. The bank loan bears interest at 5.325% per annum and is due at April 19,
2003.
We recorded amortization of loan fees of RMB 0 and RMB 359,506 for the nine
months ended June 30, 2002 and 2001, respectively.
Income Taxes. During the nine months ended June 30, 2002, we recorded income
tax of RMB 90,826. We recognized income tax expense of RMB 144,810 for the nine
months ended June 30, 2001.
Minority Interest. For the nine months ended June 30, 2002 and 2001, we
recorded a minority interest of RMB 36,650 and RMB 1,670 respectively, to
reflect the interest of the Company's 30% joint venture partner in the net
income of Jiangxi Fenglin.
Net Income / Loss. Net loss was RMB 701,233 for the nine months ended June
30, 2002, as compared to a net income of RMB 391,619 for the nine months ended
June 30, 2001. The reason for recording net loss for the nine months ended June
30, 2002 while recording net income for the three months ended June 30, 2001 was
primarily the result of the increasing administrative and general expenses due
to director's remuneration.
Consolidated Financial Condition:
Liquidity and Capital Resources - June 30, 2002
We reported a 36.4% decrease in sales during the nine months ended June 30, 2002
compared to the nine months ended June 30, 2001. The Company believes that it
has adequate funds to support operations for the current fiscal year ending
September 30, 2002.
To address its on-going and long-term cash needs, we plan to initiate
discussions with investment banks and financial institutions and attempt to
raise funds to support current and future operations. This includes attempting
to raise additional working capital through the sale of additional capital stock
or through additional bank or third party borrowings. We cannot provide any
assurance that it will be able to raise any such funds.
Operating. For the nine months ended June 30, 2002, our operations generated
cash resources of RMB 773,338 as compared to utilizing RMB 12,980,135 for the
nine months ended June 30, 2001. Our operations generated more cash resources in
2002 as compared to 2001 primarily as a result of the settlement of accounts
receivable and also the receipt of deposits from our major customers, and the
13
issuance of common shares for directors' remuneration. At June 30, 2002, cash
and cash equivalents decreased by RMB 255,463 to RMB 336,401, as compared to RMB
591,864 at September 30, 2001. We had working capital of RMB 6,080,093, at June
30, 2002, as compared to RMB 4,445,923 at September 30, 2001, resulting in
current ratios of 1.44:1 and 1.30:1 at June 30, 2002 and September 30, 2001,
respectively.
Accounts receivable. Accounts receivable decreased by RMB 1,996,535, to
RMB 10,752,242 at June 30, 2002, from RMB 12,748,777 at September 30, 2001.
Accounts receivable decreased during the nine months ended June 30, 2002 as a
result of settlement of part of the accounts receivable.
Inventories. Inventories increased by RMB 2,694,868, to RMB 4,148,396
at June 30, 2002, from RMB 1,453,528 at September 30, 2001 in anticipation of
the current selling season during the spring and summer.
Amount due from related parties. Amount due from related parties increased
by RMB 392,755, to RMB 4,010,928 at June 30, 2002, from RMB 3,618,173 at
September 30, 2001 as a result of making loans to related companies.
Investing. During the nine months ended June 30, 2002 and 2001, additions to
property, plant and equipment aggregated RMB 335,801 and RMB 707,836,
respectively.
Financing. During the nine months ended June 30, 2002, one of our
subsidiaries repaid RMB 993,000 of the short-term bank loans. Also, one of our
subsidiaries obtained loan proceeds of RMB 300,000 under unsecured short-term
loans.
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. Our success depends in substantial part on the
continued growth and development of the Chinese economy. During the fiscal
quarters ended December 31, 2001 and 2000, inflation and changing prices have
had a minor impact on our operations and financial position. The actual rate of
inflation in the agricultural sector has been nominal, and the price level of
fertilizer products has been stable.
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
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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, we do not believe that such an action would have a detrimental effect
on our operations, since we conduct virtually all of its business in China, and
the sale of our products is settled in Renminbi. However, devaluation of the
Renminbi against the United States dollar would adversely affect our financial
performance when measured in United States dollars.
New Accounting Pronouncements:
In July 2001, The Financial Accounting Standards Board (FASB) issued SFAS
No.141, "Business Combinations", and SFAS no.142, "Goodwill and Other Tangible
Assets". SFAS No.141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited after that date. SFAS No.142
changes the accounting for goodwill and intangible assets with indefinite lives
from an amortization method to an impairment-only approach and acquires
intangible assets with finite lives to be amortized over their useful lives.
Thus, amortization of goodwill and intangible assets with indefinite lives will
cease upon adoption of the statement. SFAS No.142 is required to be applied in
fiscal years beginning after December 15, 2001. We do not expect that the
adoption of SFAS No.141 or SFAS No.142 will have a significant immediate impact
on our financial condition or results of operations, as we have no pending
business combinations, nor do we have any goodwill or other intangible assets
recorded as of December 31, 2001.
In August 2001, the FASB issued SFAS No.144, "Accounting for Impairment or
Disposal of Long-Lived Assets", which addresses accounting and financial
reporting for the impairment or disposal of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. We are currently
assessing the impact, if any, that SFAS No.144 may have on our financial
condition and results of operations.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the nine months ended June 30, 2002, we issued 708,334 shares of common
stock. The shares issued were primarily issued to two officer/directors in lieu
of cash compensation for services rendered to us.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification by Chief Executive Officer
99.2 Certification by Chief Financial Officer
(b) Reports on Form 8-K:
Nine Months Ended June 30, 2002 - 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 14, 2002 By: /s/ LAWRENCE HON
----------------------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: August 14, 2002 By: /s/ CARL YUEN
----------------------------------
Carl Yuen
Chief Financial Officer
(Principal Financial
and Accounting Officer)
17