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 March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
------------------------------- ---------------------
(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 March 31, 2002, the Company had 3,059,970 shares of common stock issued
and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
1
AGROCAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) - March 31, 2002 and September
31, 2001
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
- Three Months and Six Months Ended March 31, 2002 and 2001
Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended
March 31, 2002 and 2001
Notes to Consolidated Financial Statements (Unaudited) - Six Months
Ended March 31, 2001 and 2000
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
AGROCAN CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, 2002 September 30,
2001
USD RMB RMB
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 82,861 687,749 591,864
Accounts receivable, net 1,310,175 10,874,453 12,748,777
Other receivables and prepayments 81,399 675,610 625,772
Inventories 499,267 4,143,920 1,453,528
Deposits 20,883 173,327 155,801
Amount due from related parties, net 510,254 4,235,107 3,618,173
--------------------------------------
TOTAL CURRENT ASSETS 2,504,839 20,790,166 19,193,915
ADVANCES RECEIVABLE, NET 984,200 8,168,860 8,168,860
PROPERTY, PLANT AND EQUIPMENT, NET 739,611 6,138,772 6,143,437
--------------------------------------
TOTAL ASSETS $ 4,228,650 35,097,798 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 469,303 3,895,212 3,410,212
Accounts payable 127,356 1,057,060 2,266,412
Other payables and accruals 226,099 1,876,620 1,171,615
Income tax payable 75,120 623,496 777,015
Deposits received 435,728 3,616,544 780,404
Amount due to related parties 371,541 3,083,789 4,349,334
--------------------------------------
TOTAL LIABILITIES, ALL CURRENT 1,825,629 15,152,721 14,747,992
MINORITY INTEREST 133,703 1,109,737 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 3,059,970 shares at March 31, 2002 306 2,540 2,224
Capital in excess of par value 1,656,750 13,751,029 12,257,029
Retained earnings
Unappropriated 464,269 3,853,432 4,151,004
Appropriated 145,818 1,210,289 1,210,289
Other comprehensive income 2,175 18,050 18,050
--------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,269,318 18,835,340 17,638,596
--------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,228,650 35,097,798 33,506,212
======================================
See notes to consolidated financial statements
3
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2002 2001
----------------------------------
USD RMB RMB
NET SALES $ 447,129 3,711,171 4,406,913
COST OF SALES 380,724 3,160,006 3,402,809
----------------------------------
GROSS PROFIT 66,405 551,165 1,004,104
ADMINISTRATIVE AND GENERAL EXPENSES (80,430) (667,571) (809,707)
SELLING EXPENSES (8,664) (71,911) (225,560)
----------------------------------
LOSS FROM OPERATIONS (22,689) (188,317) (31,163)
OTHER INCOME (EXPENSE)
Interest income 11,474 95,235 35,058
Interest expense (391) (3,246) (21,114)
Amortization of loan fees - - (151,153)
----------------------------------
LOSS BEFORE INCOME TAXES (11,606) (96,328) (168,372)
INCOME TAXES (5,117) (42,472) (56,903)
----------------------------------
LOSS BEFORE MINORITY INTEREST (16,723) (138,800) (225,275)
MINORITY INTEREST 355 2,945 7,040
----------------------------------
NET LOSS $ (16,368) (135,855) (218,235)
==================================
WEIGHTED AVERAGE SHARES OUTSANDING
Basic and diluted 3,059,970 3,059,970 2,334,970
BASIC AND DILUTED LOSS PER SHARE $ (0.01) (0.04) (0.09)
==================================
See notes to consolidated financial statements
4
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2002 2001
------------------------------------
USD RMB RMB
NET SALES $ 575,036 4,772,797 6,606,045
COST OF SALES 474,286 3,936,568 5,053,818
------------------------------------
GROSS PROFIT 100,750 836,229 1,552,227
ADMINISTRATIVE AND GENERAL EXPENSES (125,091) (1,038,257) (1,596,375)
SELLING EXPENSES (16,554) (137,401) (245,481)
------------------------------------
LOSS FROM OPERATIONS (40,895) (339,429) (289,629)
OTHER INCOME (EXPENSE)
Interest income 11,968 99,340 35,058
Interest expense (3,583) (29,743) (31,740)
Amortization of loan fees - - (302,306)
------------------------------------
LOSS BEFORE INCOME TAXES (32,510) (269,832) (588,617)
INCOME TAXES (4,533) (37,627) (84,829)
------------------------------------
LOSS BEFORE MINORITY INTEREST (37,043) (307,459) (673,446)
MINORITY INTEREST 1,191 9,887 29,622
------------------------------------
NET LOSS $ (35,852) (297,572) (643,824)
====================================
WEIGHTED AVERAGE SHARES OUTSANDING
Basic and diluted 3,059,970 3,059,970 2,334,970
BASIC AND DILUTED LOSS PER SHARE $ (0.01) (0.10) (0.28)
====================================
See notes to consolidated financial statements
5
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2002 2001
-----------------------------------
USD RMB RMB
OPERATING ACTIVITIES
Net loss $ (35,852) (297,572) (643,824)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization of deferred costs - - 302,307
Common shares issued for directors' remuneration 180,038 1,494,316 -
Depreciation 36,387 302,010 298,490
Minority interest in net loss (1,191) (9,887) (29,622)
(Increase) decrease in accounts receivable 225,822 1,874,324 (1,340,517)
Decrease (increase) in other receivables, deposits
and prepayments (8,116) (67,364) (4,497,392)
(Increase) in inventories (324,144) (2,690,392) (1,027,988)
(Increase) decrease in amounts due from related parties (74,329) (616,934) 767,091
Increase (decrease) in accounts payable (145,705) (1,209,352) 1,251,686
Increase (decrease) in income tax payable (18,496) (153,519) (179,185)
Increase in other payables and accruals 84,940 705,005 3,502,892
Increase (decrease) in deposits received 341,703 2,836,140 (808,897)
Increase (decrease) in amounts due to related parties (152,475) (1,265,545) 503,816
-----------------------------------
Net cash provided by (used in) operating activities 108,582 901,230 (1,901,143)
-----------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (35,825) (297,345) (659,489)
-----------------------------------
Net cash used in investing activities (35,825) (297,345) (659,489)
-----------------------------------
FINANCING ACTIVITIES
Repayment of short term bank loan (119,639) (993,000) -
Repayment of short term loans - unsecured - - (510,000)
Increase in note payable - - 414,000
Proceeds from short term loans - unsecured 58,434 485,000 -
Short term bank loan - - 2,000,000
-----------------------------------
Net cash (used in) provided by financing activities (61,205) (508,000) 1,904,000
-----------------------------------
Net increase (decrease) in cash and cash equivalents 11,552 95,885 (656,632)
Cash and cash equivalents beginning 71,309 591,864 4,616,686
-----------------------------------
Cash and cash equivalents ending $ 82,861 687,749 3,960,054
===================================
See notes to consolidated financial statements
6
AGROCAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 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 six months ended March 31, 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 27.8% decrease in sales during the six months ended
March 31, 2002 compared to the six months ended March 31, 2001. At March
31, 2002 the Company is in default on short-term loans with third parties
of approximately RMB 1.5 million. 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 March 31, 2002 and September 30, 2001 are comprised of the
following:
MARCH 31, 2002 SEPTEMBER 30, 2001
USD RMB RMB
RAW MATERIALS $228,898 1,899,859 1,020,669
FINISHED GOODS 270,369 2,244,061 432,859
-------- --------- ---------
$499,267 4,143,920 1,453,528
======== ========= =========
3. SHORT-TERM BANK LOANS
As of March 31, 2002, the Company had a bank loan of RMB1,000,000
(US$120,482). The bank loan bears interest at 6.435% per annum and is due
during the year ending September 30, 2002.
4. INCOME TAXES
During the six months ended March 31, 2002, our subsidiaries recorded
income tax expense of RMB 37,627. 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 to be
material at March 31, 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 March 31,
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 March 31, 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% interests 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 March 31, 2002 and 2001:
Sales. The sales for the three months ended March 31, 2002 were RMB
3,711,171 as compared to sales of RMB 4,406,913 for the three months ended March
31, 2001, a decrease of RMB 695,742 or 15.8%. The decrease was due to lower
demands from our major customers. Subsequent to March 31, 2002, we have
increased production levels and management believes that sales for the year
ended September 30, 2002 will approximate 80% of prior year levels.
Gross Profit. Gross profit for the three months ended March 31, 2002 was RMB
551,165 or 14.9% of revenues, as compared to RMB 1,004,104 or 22.8% of revenues
for the three months ended March 31, 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 March 31, 2002 were RMB 667,571 or 18% of revenues, as
compared to RMB 809,707 or 18.4% of revenues for the three months ended March
31, 2001, a decrease of RMB 142,136. In view of the reduced level of sales and
production during the quarter ended March 31, 2002, management was able to
reduce administrative and general expenses, primarily in discretionary wages,
travel and office expenses.
Selling Expenses. Selling expenses for the three months ended March 31, 2002
were RMB 71,911 or 1.9% of revenues, as compared to RMB 225,560 or 5.1% of
revenues for the three months ended March 31, 2001, a decrease of RMB 153,649.
Selling expenses decreased in 2002 compared to 2001 as a result of reduction in
sales due to the lower demand from major customers.
Loss from Operations. Loss from operations was RMB 188,317 for the three
months ended March 31, 2002, as compared to a loss from operations of RMB 31,163
for the three months ended March 31, 2001.
Other Income (Expense). We recorded interest income of RMB 95,235 and RMB
35,058 for the three months ended March 31, 2002 and 2001, respectively.
We recorded interest expense of RMB 3,246 and RMB 21,114 for the three months
ended March 31, 2002 and 2001, respectively. As of March 31, 2002, we had a bank
loan of RMB 1,000,000 (US$120,482). The bank loan bears interest at 6.435% per
annum and is due during the year ending September 30, 2002.
We recorded amortization of loan fees of RMB 0 and RMB 151,153 for the three
months ended March 31, 2002 and 2001, respectively.
11
Income Taxes. During the three months ended March 31, 2002, we recorded
income tax of RMB 42,472. We recognized income tax expense of RMB 56,903 for the
three months ended March 31, 2001.
Minority Interest. For the three months ended March 31, 2002 and 2001, we
recorded a minority interest of RMB 2,945 and RMB 7,040 respectively, to reflect
the interest of the Company's 30% joint venture partner in the net income of
Jiangxi Fenglin.
Net Loss. Net loss was RMB 135,855 for the three months ended March 31,
2002, as compared to a net loss of RMB 218,235 for the three months ended March
31, 2001. The reason for less amount of net loss for the three months ended
March 31, 2002 than March 31, 2001 was primarily the result of the reduced
administrative and general expenses and selling expenses, even though the gross
profit was less than the same period of last year.
Six Months Ended March 31, 2002 and 2001:
Sales. The sales for the six months ended March 31, 2002 were RMB 4,772,797
as compared to sales of RMB 6,606,045 for the six months ended March 31, 2001, a
decrease of RMB 1,833,248 or 27.8%. The decrease was due to lower demands from
our major customers. Subsequent to March 31, 2002, we have increased production
levels and management believes that sales for the year ended September 30, 2002
will approximate 80% of prior year levels.
Gross Profit. Gross profit for the six months ended March 31, 2002 was RMB
836,229 or 17.5% of revenues, as compared to RMB 1,552,227 or 23.5% of revenues
for the six months ended March 31, 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 six months ended March 31, 2002 were RMB 1,038,257 or 21.8% of revenues, as
compared to RMB 1,596,375 or 24.2% of revenues for the six months ended March
31, 2001, a decrease of RMB 558,118. In view of the reduced level of sales and
production during the quarter ended March 31, 2002, management was able to
reduce administrative and general expenses, primarily in discretionary wages,
travel and office expenses.
Selling Expenses. Selling expenses for the six months ended March 31, 2002
were RMB 137,401 or 2.9% of revenues, as compared to RMB 245,481 or 3.7% of
revenues for the six months ended March 31, 2002, a decrease of RMB 108,080.
Selling expenses decreased in 2002 compared to 2001 as a result of reduction in
sales due to the lower demand from major customers.
Loss from Operations. Loss from operations was RMB 339,429 for the six
months ended March 31, 2002, as compared to a loss from operations of RMB
289,629 for the six months ended March 31, 2001.
12
Other Income (Expense). We recorded interest income of RMB 99,340 and RMB
35,058 for the six months ended March 31, 2002 and 2001, respectively.
We recorded interest expense of RMB 29,743 and RMB 31,740 for the six months
ended March 31, 2002 and 2001, respectively. As of March 31, 2002, we had a bank
loan of RMB 1,000,000 (US$120,482). The bank loan bear interest at 6.435% per
annum and is due during the year ending September 30, 2002.
We recorded amortization of loan fees of RMB 0 and RMB 302,306 for the six
months ended March 31, 2002 and 2001, respectively.
Income Taxes. During the six months ended March 31, 2002, we recorded
income tax expense of RMB 37,627. We recognized income tax expense of RMB 84,829
for the six months ended March 31, 2001.
Minority Interest. For the six months ended March 31, 2002 and 2001, we
recorded a minority interest of RMB 9,887 and RMB 29,622 respectively, to
reflect the interest of the Company's 30% joint venture partner in the net
income of Jiangxi Fenglin.
Net Loss. Net loss was RMB 297,572 for the six months ended March 31, 2002,
as compared to a net loss of RMB 643,824 for the six months ended March 31,
2001. The reason for less net loss for the six months ended March 31, 2002 than
March 31, 2001 was primarily as a result of the reduction in administrative and
general expenses and selling expenses, even though the gross profit was less
than the same period of last year.
Consolidated Financial Condition:
Liquidity and Capital Resources - March 31, 2002
We reported a 27.8% decrease in sales during the six months ended March 31, 2002
compared to the six months ended March 31, 2001. At March 31, 2002 we are in
default on short-term loans with third parties of approximately RMB 1.5 million.
We believe that it has adequate funds to support operations for the current
fiscal year ending September 30, 2002.
To address our 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.
13
Operating. For the six months ended March 31, 2002, our operations generated
cash resources of RMB 901,230 as compared to utilizing RMB 1,901,143 for the six
months ended March 31, 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 we
issued common shares for directors' remuneration totaling RMB 1,494,316 during
the six months ended March 31, 2002. At March 31, 2002, cash and cash
equivalents had increased by RMB 95,885 to RMB 687,749, as compared to
RMB591,864 at September 30, 2001. We had working capital of RMB 5,637,445, at
March 31, 2002, as compared to RMB 4,445,923 at September 30, 2001, resulting in
current ratios of 1.37:1 and 1.30:1 at March 31, 2002 and September 30, 2001,
respectively.
Accounts receivable. Accounts receivable decreased by RMB 1,874,324, to RMB
10,874,453 at March 31, 2002, from RMB 12,748,777 at September 30, 2001.
Accounts receivable decreased during the six months ended March 31, 2002 as a
result of settlement of part of the accounts receivable. Subsequent to March 31,
2002, we have received an additional RMB800,000 in settlement of accounts
receivable.
Inventories. Inventories increased by RMB 2,690,392, to RMB 4,143,920 at March
31, 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 RMB616,934, to RMB 4,235,107 at March 31, 2002, from RMB 3,618,173 at
September 30, 2001 as a result of making loans to related companies.
Investing. During the six months ended March 31, 2002 and 2001, additions to
property, plant and equipment aggregated RMB 297,345 and RMB 659,489,
respectively.
Financing. During the six months ended March 31, 2002, one of our
subsidiaries repaid RMB993,000 of short-term bank loans. Also, one of our
subsidiaries obtained loan proceeds of RMB485,000 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.
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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, 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 six months ended March 31, 2002, we issued 375,000 shares of common
stock. The shares were issued to two of our directors/officers, Mr. Danny Wu and
Mr. Lawrence Hon, in lieu of cash as remuneration for their services to the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
Six Months Ended March 31, 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: May 8, 2002 By: /s/ LAWRENCE HON
-----------------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: May 8, 2002 By: /s/ CARL YUEN
-------------------------------
Carl Yuen
Chief Financial Officer
(Principal Financial
and Accounting Officer)
17