UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO 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 in its charter)
DELAWARE
------------------------------- ----------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 706 Dominion Centre, 43-59 Queen's Road East, HONG KONG
-------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: 852-2723-0983
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.0001 per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended September 30, 2002 were
$1,480,680.
The aggregate market value of the issuer's common stock held by non-affiliates
of the issuer as of September 30, 2002 was $298,769.
The issuer had 3,673,304 shares of common stock issued and outstanding as of
September 30, 2002.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
2
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
AgroCan Corporation, a Delaware corporation (the "Company"), owns all of the
capital stock of AgroCan (China) Inc., a British Virgin Islands corporation
("AgroCan China"). AgroCan China owns three subsidiary companies (the
"Subsidiaries") located in the People's Republic of China ("China" or the
"PRC"), one of which is a Sino-Foreign Equity Joint Venture (the "Joint
Venture"). Unless the context indicates otherwise, reference to the Company
shall include the Subsidiaries.
AgroCan China was established-in 1996 to take advantage of the growing demand
for fertilizers and other products and technologies that enhance the
agricultural output of China. As of September 30, 2002, we had established an
annual production capacity of 125,000 metric tons ("MT") for compound
fertilizers in two of the largest agricultural provinces of China, Guangxi and
Jiangxi, and planned to enter markets in other provinces. We are expanding its
distribution channels, product lines and services in order to provide
comprehensive solutions to niche markets of the agricultural sectors of China.
The following is a summary description of the Subsidiaries and the Joint
Venture:
NAME OF YEAR OF OWNERSHIP CAPACITY PER PRODUCT
SUBSIDIARY ESTABLISHMENT PERCENTAGE LOCATION YEAR (MT) DESCRIPTION
-------------- ------------- ----------- --------- ------------- ----------------
Subsidiaries:
Guangxi 1996 100% Nanning, 50,000 Compound
Linmao Guangxi, fertilizers for
Fertilizer PRC eucalyptus,
Company citrus, paddy
Limited rice, sugar cane
and flowers
Jiangxi 1997 100% Fuzhou, 50,000 Compound
Jiali Jiangxi, fertilizers for
Chemical PRC citrus, fruit
Industry trees, paddy
Company rice, tobacco
Limited and flowers
Joint Venture:
Jiangxi 1996 70% Nanchang, 25,000 Compound
Fenglin Jiangxi, fertilizers for
Chemical PRC aspen, citrus,
Industry fruit trees,
Company paddy rice, oil
Limited vegetable and
flowers
3
PRODUCTS
We produce various compound fertilizers. Compound fertilizers are the end
product made from the combination of the three primary nutrients: nitrogen (N),
phosphate (P) and potassium (K), together with other elements, such as iron,
zinc, copper and manganese. These elements are blended in different proportions
and are made into pellets and packed into bags of 50 kilograms ("kg") each.
Compound fertilizers are also commonly called NPK fertilizers. Our compound
fertilizers are designed and formulated for the specific climate, soil and crop
requirements of each individual market.
According to irrigated area consumption of fertilizer figures compiled by the
State Statistical Bureau, People's Republic of China, and published in the China
Statistical Yearbook (2001), compound fertilizers have become increasingly
popular in China over the last 20 years. The Company believes this trend is
because compound fertilizers can provide crops and plants with balanced
nutrients and maintain the Ph values of the soil. The following is a list of the
main compound fertilizers developed by us:
N-P-K RATIO APPLICATIONS
------------ ------------
15-6-9 Paddy rice
8-18-10 Wheat
14-6-10 Cotton
12-9-9 Corn
5-10-10 Tobacco
12-8-10 Sugar cane
16-16-16 General application
12-10-8 Eucalyptus plantation
12-12-8 Aspen plantation
10-7-8 Fruit tree
4
Our compound fertilizers are sold under the brand name "AgroCan Three Leaves"
(see "Marketing and Distribution").
PRODUCTION
In order to maintain the consistency of quality and corporate image, the
fertilizer plants are designed and built with standard production facilities.
Our management and employees are trained to operate the plants in the same
manner. Standard operation procedures have been devised. These procedures are
based on the requirement of ISO 9000 standards. The ISO 9000 standards were
developed by the International Organization for Standardization, a
non-governmental organization with membership from 120 countries. The ISO is
not part of the United Nations Organization, although it has strong links with
nearly all bodies and specialized agencies of the United Nations family. The ISO
9000 standards represent an international consensus on good management practice.
These standards give organizations guidelines on what constitutes an effective
quality management system, which in turn can serve as a framework for continuous
improvement. The standard procedures include:
- raw material storage practices
- material feeding steps and speed of the production line
- fertilizer blending control
- production capability analysis (Cpk)
- packing and weighting of finished products
- storage and procurement
All of the our products are made from urea, phosphate, potash and other
non-hazardous chemicals. The production process does not cause any chemical
reaction. We do not incur any additional costs for compliance with environmental
laws in China.
QUALITY CONTROL
The quality and level of nutrient output can be obtained by blending different
proportions of NPK input. Water and other necessary ingredients have a
significant impact on output cost and quality. All plants operated by the
Company are equipped with computer systems to assist in cost and quality
control. Quality assurance (QA) and quality control (QC) are priorities for us.
Continuous improvement in product quality is vital to enhancing competitiveness.
We plan to establish and implement a comprehensive quality-upgrading program
that will lead to ISO 9000 certification. We emphasize the training of quality
control personnel.
5
The laboratories of each plant are continually conducting research for better
formulae to meet plant/crop requirements and at the same time to optimize
material combinations. The laboratories are also responsible for testing output
to ensure the appropriate level of quantity and quality.
SEASONS AND INVENTORY CONTROL
There are two planting seasons (spring and fall) in China. Prices of fertilizers
fluctuate between the two planting seasons. The prices of fertilizer increase
during planting seasons and decrease during other periods. Companies generally
obtain raw materials by signing purchase contracts at the end of the off-seasons
when prices generally drop to the lowest level.
Our product mix allows sales of compound fertilizers with crop rotations in
different months. However, our sales revenues are lower in the off-season as a
result of decreased sales volume and lower prices.
PRODUCT DEVELOPMENT
We place considerable emphasis on the research and development of new products
and technology. We have been very careful to cultivate good working
relationships with major national and local agricultural and soil research
institutes in China, as well as the Ministry of Agriculture, State Petroleum and
Chemical Bureau, and State Forestry Bureau. We regularly engage the various
institutes to conduct discrete research projects and testing on our behalf. Our
management regularly meets with the government ministry and bureaus to obtain
information on national policies and statistics with regard to the fertilizer
and agricultural industries and advises these governmental agencies of industry
developments. We currently retain a group of leading engineers and scientists as
consultants to support the research teams at each subsidiary. We have not
applied for any patents, since we believe that patent protection is not
available to protect the formulations of our products since the ratios and
proportion of the different materials change in accordance with soil, plant,
season and weather conditions.
MARKETING AND DISTRIBUTION
The State Internal Trade Bureau of the PRC maintains distribution systems and
channels from provincial to local levels. Our main customers are the farming
supply bureaus and cooperatives under the State Internal Trade Bureau. These
entities act as wholesalers to individual farmers. State-owned farms and
plantations are also major accounts of ours, and are serviced by our sales
representatives at each Subsidiary. These direct sales units are responsible for
maintaining good working relationships with our customers. We have also
established our own provincial distribution channels in the target market. As of
September 30, 2002, we had established a total of 250 retail points of sales in
Guangxi and Jiangxi provinces. During the fiscal year ended September 30, 2002,
we had three customers that accounted for more than 10% of total sales: Jia Hua
Co. Ltd., Gua Jia Co. Ltd. and Xin Jian Zhen Xin Agricultural Information Co.
Ltd
6
As part of our marketing effort, we conduct soil and vegetation surveys on a
regular basis and provide technical support to customers. Prior to the launching
of any new compound fertilizers, testing fields are established and data is
collected for further studies. The tests are conducted in collaboration with
customers and the test results are certified by customers. Management believes
that such close collaboration with customers enhances customer satisfaction and
promotes customer loyalty.
PRICING
Market prices of fertilizers and constituent ingredients generally follow a
seasonal fluctuation worldwide as well as in China. We have adopted a
purchasing policy to order raw materials during the low price seasons so that
product cost can be minimized. We have recently started to source raw material
like urea directly from the producers rather than through intermediaries. This
approach is expected to reduce our reliance on intermediates and thus reduce raw
material costs. We purchase our raw materials from over thirty different
suppliers. During the fiscal year ended September 30, 2002, we had three
suppliers that provided more than 10% of our raw materials: Xin Jian Zhen Xin
Agricultural Materials Co. Ltd., Xiao Gan Hui Nong Production Agricultural
Materials Co. Ltd. and Nanning Agriculture Technique Promotional Service Co.
Ltd. We are not reliant on any single supplier for its raw material supply.
Selling prices of our fertilizers are basically in line with the market prices
in the respective markets where our plants are located. However, we are
generally able to charge a slight premium (2% to 4%) over its competitors
because of the stability and high quality of its products. The Joint Venture
Agreement for Jiangxi Fenglin Chemical Industry Company Limited provides that
the product price shall be calculated, in general, as the cost of raw materials
plus 12% gross profit. However, as the controlling party of the Joint Venture,
we have the right to increase or decrease prices without the approval of any
governmental unit or other party.
THE MARKET
According to the population and its composition statistics published in the 2001
China Statistics Yearbook, in 2000, 64% of the population (about 807 million
people) lived in rural areas of China. The irrigated land per capita of China
is 0.04 hectare, which is only approximately 50% of that of the United States.
Total arable land area was reduced between 1961 and 1978 when China initiated
the open-door economic policy. Arable area has been further reduced since 1978.
However, during this period, grain output has increased two- to three-fold. The
output per hectare also increased in a similar way. The following comparative
table shows the trend:
7
CULTIVATED AREA GRAIN OUTPUT OUTPUT PER
(MILLION (MILLION METRIC HECTARE
YEAR HECTARES) -/+ TONS) -/+ (METRIC TONS) -/+
---- ---------------- ---------------- ----------- ------------- -------
1961 103.4 109.9 1.06
1978 97.3 - 5.9% 272.9 + 167% 2.80 + 164%
2000 93.0* - 2.4% 462.2 + 69% 4.97 + 78%
*Estimate cultivated area in the year 2000
Source: FAO & China Statistical Yearbook (2001)
With the reduction of usable land, there is a significant need in China to
increase the output of crops per hectare. China is the world's largest importer
of fertilizers, importing over 25% of its fertilizer requirements. In 2000,
China imported 5,680,000 metric tons of Compound Fertilizers. The Chinese
government imposes an import quota system to control the import of various types
of fertilizers.
THE WORLDWIDE MARKET
Average annual worldwide consumption of fertilizers was about 130 million metric
tons between 1991 and 1997. In that period, developing countries in the
aggregate consumed an average of 59 million metric tons annually, accounting for
45.7% of the total consumption. China was the most significant fertilizer user
in the world, consuming an average of 40 million metric tons between 1996 and
2000. During 2000, China's consumption increased to a record high of 41.5
million metric tons, representing 27% of total worldwide consumption. These
statistics were obtained from two worldwide Organizations, the Food and
Agriculture Organization (FAO) and Fertilizer Advisory Development and
Information Network for Asia and the Pacific (FADINAP), under a United Nations
commission.
MARKET TREND OF CHINA
China is the world's largest producer of fertilizer, with total output in 1997
of 27.6 million metric tons, which accounted for 18.6% of world production.
Despite being the world's largest fertilizer producing country, China still had
a shortage of 8.9 million metric tons of fertilizer, equivalent to 24% of its
requirement. Therefore, China had to rely on imports to make up the shortage.
8
Between 1980 and 2000, total consumption of fertilizer in China increased from
16.7 metric tons to 41.5 million metric tons, representing an average of 6.7%
per annum. The annual average growth for NPK compound fertilizers was 9.5%,
8.6%, 3.0%, 7.1% and 4.3% from 1996 to 2000, respectively. We believe that
demand for fertilizers in the next decade will continue to grow at the same pace
as in the last decade.
In order to improve efficient utilization of fertilizers, the PRC Ministry of
Agriculture opted for using more NPK compound fertilizers instead of single
nutrients, such as urea. It is expected that demand for NPK compound fertilizers
will gradually increase over the years. This demand can be satisfied either by
increasing imports or local production. In 1996, in order to capitalize on the
market growth in NPK compound fertilizers, we established our first NPK compound
fertilizer production plant in Guangxi and further expanded into Jiangxi in
1997. As of September 30, 2002, our total annual production capacity is
approximately 125,000 metric tons.
We expected that our prospects for additional sales would increase following the
entry of China into the World Trade Organization on November 10, 2001. We also
believe that China's entry into WTO will accelerate the free market policy
within the PRC. Implementation of the policy by China will allow more imports of
high quality products and services from America and the rest of the world. At
the same time China will allow foreign companies to do business freely in China.
We, being an American company operating in China for many years, should have a
significant advantage in China's trade expansion however there can be no
assurance that this will occur. Since China's entry into the WTO, we have been
preparing for the opportunity and have started to identify several acquisitions
that we believe will greatly enlarge our distribution network as well as add new
product lines. Management also believes that should we be successful with our
acquisitions, the additional business will help us to significantly increase our
profitability in the next few years, however, there can be no assurance that we
will be successful in finding and successfully closing acquisitions or the
acquisitions, once closed, will make us profitable.
THE COMPANY'S MARKETS
In 2000, the usage of fertilizer in selected provinces and cities in the PRC was
as follows:
IRRIGATED LAND FERTILIZERS FERTILIZERS NPK
PROVINCE (MILLION CONSUMED CONSUMED CONSUMED
OR CITY HECTARES) (1,000 MT) (TONS PER HECTARE) (1,000 MT)
----------------- -------------- ------------- ------------------ ----------
Guangxi 1.5 1,570 1.05 423
Jiangxi 1.9 1,069 0.56 227
Hebei and Tianjin 4.8 2,872 0.59 667
Henan 4.7 4,195 0.89 799
Hubei 2.1 2,471 1.19 457
9
Hunan 2.7 1,822 0.68 299
Guangdong 1.5 1,762 1.19 261
Shandong 4.8 4,232 0.88 1,301
Jiangsu 3.9 3,355 0.86 787
Anhui 3.2 2,532 0.79 673
Sichuan 2.5 2,126 0.86 375
Beijing 0.3 179 0.55 61
Shanghai 0.3 193 0.68 23
SUB-TOTAL 4.2 28,378 10.77* 6,353
NATIONAL TOTAL 3.8 41,464 0.77* 9,179
------------------------------
*Fertilizer consumed divided by Irrigated Land
Source: China Statistics Yearbook (2001)
For China's 9th Five-Year Plan (1996-2001), these provinces and cities were
allocated more resources for development of the agricultural sectors by the
Central Government. We have established one plant in Guangxi and two plants in
Jiangxi. We plan to establish at least one plant in each of the above listed
provinces and cities (the "Target Markets"). The Target Markets are prime
agricultural developing provinces in China. Total cultivated land of these
provinces constitutes 38.3% of the PRC total and their fertilizer consumption
exceeds 55.6% of the national total. Fertilizer consumption per hectare in
these provinces is above the Chinese national average.
Fertilizer applications in these provinces and cities are mainly paddy rice,
wheat, corn, sugar cane, tobacco, cotton, vegetables, tree plantation and fruit
trees.
10
COMPETITION
LOCAL SUPPLIERS
There are many small fertilizer producers in China, each with annual output of
less than 10,000 metric tons that supply low quality fertilizers and compound
fertilizers. Because of their small size, these producers are generally less
cost effective, have low quality control and minimal product development
capabilities. Generally, the single or dual chemical nutrients supplied by these
producers are less effective at boosting the growth of plants as compared to our
custom-made compound fertilizers.
INTERNATIONAL SUPPLIERS
The second group of competitors consists of international producers and the
traders who import fertilizers into China, including Agrium Inc., Cargill Group,
Norsk Hydro Group, Kemira Agro Group, BASF Group, Marubeni Corporation,
Mitsubishi Corporation, Canpotex Ltd. and Sinochem Group (China National
Chemicals Import & Export Corp.). The products that are imported and traded
range from single chemical elements like urea, phosphate and potash, to standard
NPK compound fertilizers. The NPK ratios of imported products are in the range
of 15-15-15. Qualities of imported products are generally higher and more stable
than existing locally made fertilizers. Due to import duties, import license
fees and shipping and transportation expenses, imported fertilizers are normally
priced 10% to 25% higher than local products. The total quantities imported are
also limited by the import quota system imposed by the Chinese government.
There are presently a small number of joint venture fertilizer plants China.
Most of these plants are Sino-Foreign Equity Joint Venture companies between
Chinese-owned enterprises and foreign companies. They mainly produce basic
fertilizer ingredients such as urea. These fertilizer producers do not
constitute direct competition for us because their plants are isolated and are
unable to supply the whole country as China's infrastructure is still under
development. Moreover, these plants do not maintain their own laboratories to
develop new formulations and therefore do not have the capability to manufacture
custom-made compound fertilizers that suit individual markets. These joint
venture fertilizer plants can provide a stable supply of raw materials to our
plants in different provinces.
COMPETITIVE EDGE
We specialize in producing compound fertilizers, which are custom-made to suit
local conditions, such as plant, soil and climate. There are no more than two
competitors in our selected markets capable of producing custom fertilizer
products. We believe that we have the following competitive advantages:
- our operations are located within a 200 kilometer radius of its market,
resulting in savings in transportation costs, responsive customer services
and market intelligence
- we emphasizes quality, as our compound fertilizer is unmatched as compared
to locally supplied compound fertilizer
- we offer a wide variety of products for different needs by local farmers
- we conduct proactive product and market development
11
- our plants are local, thus avoiding the import quota system, and which
allow us to combine local and foreign expertise, and works closely with
local farming supply bureaus and cooperatives
EXPANSION PLANS
Our strategy in establishing operations in China is to first seek out operating
production facility and management suitable for our product lines. Once a
potential site is targeted, we will endeavor to implement a consistent facility
and management strategy. Typically, the strategy is to form a joint venture with
a local partner and provide initial capital. On-site management and financial,
accounting and sales personnel are also provided, and our management personnel
are expected to actively participate in the management and operations of the
joint venture. Facilities are updated as needed. We will provide technology to
the joint venture with the goal of developing fertilizers suitable for the local
market. Management believes that the capital outlay for this type of operation
is lower than forming a new operation.
Our short-term objective is to build annual production capacities of up to
200,000 metric tons in selected provinces other than Guangxi and Jiangxi, thus
establishing standardized compound fertilizers plants in these growing markets.
At the same time, quality control programs for ISO 9000 certification will be
implemented in our operations. Advertising and marketing programs will continue
to be launched to enhance the "AgroCan Three Leaves" brand name locally and
nationally.
Our long-term objective is to become an influential participant in the
modernization of the agricultural industry in China. We believe that China's
agricultural industry requires high quality fertilizers, pesticides, seedlings
and other necessary inputs for the next century. In order to raise total land
productivity with limited arable land, China must apply modern technology to the
agricultural industry. We are currently evaluating opportunities to bring
biotech and genetic technologies, which are already available and used in
developed countries, to China.
JOINT VENTURE
We own a 70% interest in the Joint Venture pursuant to a Joint Venture Contract
dated October 18, 1996. The validity, interpretation, execution and settlement
of disputes are governed under PRC law and disputes are submitted for
arbitration to the Foreign Economic and Trade Arbitration Commission of China
Council for the Promotion of International Trade. Despite some progress in
developing a legal system, China does not have a comprehensive system of laws.
The interpretation of Chinese laws may be subject to policy changes reflecting
domestic political factors. Enforcement of existing laws, including laws
pertaining to PRC joint ventures, may be uncertain and sporadic, and
implementation may be inconsistent.
EMPLOYEES
As of September 30, 2002, we had 44 full-time employees. There are 3 employees
based in our corporate office in Hong Kong and 41 employees based in China. Of
the 41 employees based in China, 18 employees are involved with sales related
activities and 23 employees are technical personnel in the agricultural field.
12
ITEM 2. DESCRIPTION OF PROPERTIES
HONG KONG. We currently occupy office space in Wanchai, Hong Kong,
consisting of 1,000 square feet. The lease expires April 30, 2003 and does not
require an escalation in rent during the lease term.
NANNING, GUANGXI. Our subsidiary, Guangxi Linmao Fertilizer Company
Limited, owns a fertilizer manufacturing plant in Nanning, Guangxi, consisting
of 25,500 square feet. The plant was constructed in 1997 and is in good
condition. The land lease expires January 28, 2017 and our annual land lease fee
is around $2,900 per year.
NANCHANG, JIANGXI. Our joint venture, Jiangxi Fenglin Chemical Industry
Company Limited, leases a fertilizer manufacturing plant in Nanchang, Jiangxi,
consisting of 21,800 square feet and includes the ground rent and building. The
lease agreement expires at September 15, 2003 and our annual rental is $18,072.
FUZHOU, JIANGXI. Our subsidiary, Jiangxi Jiali Chemical Industry
Company Limited owns a fertilizer manufacturing plant in Fuzhou, Jiangxi,
consisting of 28,010 square feet. The plant was newly constructed in the fourth
quarter of 1997 and completed in the first quarter of 1998 and is in good
condition. The land lease expires June 30, 2057 and our annual land lease fee is
around $2,600 per year.
ITEM 3. LEGAL PROCEEDINGS
During the fiscal year ended September 30, 2002, one of the subsidiaries was
sued by its supplier due to the dispute on raw material purchasing. Subsequent
to the year ended September 30, 2002, the case was closed and settled by the
judge of Nanning Xinlin District Court. There are no further pending or
threatened legal proceedings against us, including our subsidiaries and the
joint venture.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the fiscal
year ended September 30, 2002.
13
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since July 14, 2000, our common stock has been listed for trading on the OTC
Bulletin Board under the symbol "AGRN". The trading market is limited and
sporadic and should not be deemed to constitute an "established trading market".
The following table sets for the range of bid prices of our common stock as
quoted on the OTC Bulletin Board during the periods indicated. Such prices
reflect prices between dealers in securities and do not include any retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. The information set forth the below was obtained from America
Online.
HIGH LOW
----- -----
FISCAL YEAR ENDED SEPTEMBER 30, 2001
------------------------------------
Three months ended December 31, 2000 $1.75 $0.97
Three months ended March 31, 2001 $1.56 $0.75
Three months ended June 30, 2001 $0.95 $0.30
Three months ended September 30, 2001 $0.31 $0.10
FISCAL YEAR ENDED SEPTEMBER 30, 2002
------------------------------------
Three months ended December 31, 2001 $1.04 $0.21
Three months ended March 31, 2002 $1.10 $0.48
Three months ended June 30, 2002 $0.86 $0.21
Three months ended September 30, 2002 $0.23 $0.16
As of September 30, 2002, there were 41 holders of record of our common stock.
DIVIDEND POLICY
We have never paid dividends on our common stock and do not anticipate paying
dividends on its common stock in the foreseeable future. It is the present
policy of the Board of Directors to retain all earnings to provide for the
future growth. Earnings, if any, are expected to be retained to finance the
expansion of our business. The payment of dividends on our common stock in the
future will depend on the results of operations, financial condition, capital
expenditure plans and other cash obligations and will be at the sole discretion
of the Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that we have sold within the
past three years without registering the securities under the Securities Act:
14
1. From November 1999 to December 1999, warrants issued in the private
placement in Transaction 3 were exercised for an aggregate of 2,000 shares
of common stock. The shares were issued pursuant to Rule 504 of Regulation
D.
2. From January 2000 to March 2000, warrants issued in the private placement
in Transaction 3 were exercised for an aggregate of 25,000 shares of common
stock. The shares were issued pursuant to Rule 504 of Regulation D.
3. From July to September 2000, warrants issued in the private placement in
Transaction 3 were exercised for an aggregate of 137,510 shares of common
stock. The shares were issued pursuant to Rule 504 of Regulation D.
4. Pursuant to a board of director's resolution passed on March 23, 2001, the
Company adopted the "Fiscal 2000 Equity Compensation Plan". In connection
with the plan, the Company issued 130,000 shares of common stock to two
individuals for consulting services on the Company's behalf.
5. Subsequent to the "Fiscal 2000 Equity Compensation Plan" adopted by the
Company on March 23, 2001, the Company issued 220,000 shares of common
stock at $0.095 (RMB 0.79) per share to two advisors as they decided to
subscribe the Company's common stock on August 3, 2001.
6. Pursuant to a board of director's resolution passed on January 2, 2002, the
Company proposed to issue common stock to two of the directors in lieu of
cash payment. On January 31,2002, the Company issued 375,000 shares of
common stock at $0.48 per share (RMB 3.98).
7. Pursuant to a board of director's resolution passed on June 6, 2002, the
Company adopted the "Fiscal 2001 Equity Compensation Plan". In connection
with the plan, the Company issued 333,334 shares of common stock at $0.27
(RMB 2.24) per share to two officer/directors in lieu of cash compensation
for services rendered on June 19, 2002.
8. Subsequent to the "Fiscal 2001 Equity Compensation Plan" adopted by the
Company on June 6, 2002, the Company issued 280,000 shares of common stock
at $0.43 and $0.56 per share to two individuals for consulting services on
the Company's behalf on July 16, 2002.
15
ITEM 6. 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 Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002
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 Annual Report
on Form 10-KSB for the fiscal year ended September 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 (the "Company") 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 this transaction, we had no material 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. 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 owns 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 its interest in Jiangxi Fenglin similar to a majority-owned
subsidiary because of our 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 our right to appoint the Chairman of the Board. Due
to the rights asserted by the PRC partner under customary joint venture
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 the our consolidated financial statements.
16
We produce 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. We design the compound fertilizers for specific climate, soil and crop
requirements of each individual geographic market. As of September 30, 2002, 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.
Our customers are all located in the PRC, and sales to such customers are
generally on an open account basis. During the fiscal years ended September 30,
2002 and 2001, we relied on a small number of customers for most of its sales.
During the fiscal year ended September 30, 2002, four customers accounted for
62.1% of total sales (Xin Jian Zhen Xin Agricultural Materials Co. Ltd.: 27.4%,
Gua Jia Co. Ltd.: 19.3%, Jia Hua Co. Ltd.: 9.6% and Jia Yao Co. Ltd.: 5.8%.
During the fiscal year ended September 30, 2001, four customers accounted for
59% of total sales (18%, 15%, 14% and 12% of total sales). As of September 30,
2002 and 2001, one customer accounted for approximately 49% and 38% of the
accounts receivable balance, respectively.
We purchase our raw material from over thirty different suppliers located in the
PRC. During the fiscal years ended September 30, 2002, three suppliers accounted
for 43% of total purchases: Xin Jian Zhen Xin Agricultural Materials Co. Ltd.,
Xiao Gan Wui Nong Production Agricultural Materials Co. Ltd. and Nanning
Agriculture Technique Promotional Service Co. Ltd. On the fiscal years ended
September 30, 2001, three suppliers accounted for 46% of total purchases.
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 are presented
in U.S. Dollars ("$"). The functional currency of the Company's PRC operations
is the Chinese Renminbi ("RMB"). The accounts of foreign operations are prepared
in their local currency and are translated into USD using the applicable rate of
exchange. The resulting translation adjustments are included in comprehensive
income (loss). Transactions denominated in currencies other than the U.S Dollars
are translated into U.S Dollars at the applicable exchange rates. Monetary
assets and liabilities denominated in other currencies are translated into U.S
Dollars 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.
17
Consolidated Results of Operations:
Fiscal Years Ended September 30, 2002 and 2001:
Revenues. Revenues for the fiscal year ended September 30, 2002 were
$1,480,680, as compared to revenues of $2,338,777 for the fiscal year ended
September 30, 2001, a decrease of $858,097 or 37%. The decrease in revenues in
2002 as compared to 2001 was a result of less demand on sales from customers due
to weather difficulties and a decrease in farm spending due to local economic
conditions. During the fiscal year ended September 30, 2002, we had four
customers that accounted for 62.1% of revenue: Xin Jian Zhen Xin Agricultural
Materials Co. Ltd. (27.4%), Gua Jia Co. Ltd. (19.3%), Jia Hua Co. Ltd. (9.6%)
and Jia Yao Co. Ltd. (5.8%).
Gross Profit. Gross profit for the fiscal year ended September 30, 2002 was
$222,045 or 15% of revenues, as compared to $553,666 or 23.6% of revenues for
the fiscal year ended September 30, 2001, a decrease of $331,621 or 59.9% which
reflects our decreased 2002 revenues and increased costs. During the fiscal year
ended September 30, 2002, we had three suppliers that provided 43.1% of our raw
materials: Nanning Agriculture Technique Promotional Service Co. Ltd. (17.3%),
Xin Jian Zhen Xin Agricultural Materials Co. Ltd. (16.1%), and Xiao Gan Wui Nong
Production Agricultural Materials Co. Ltd. (9.7%). Our gross profit margin
decreased in 2002 as compared to 2001, as a percentage of revenues, as a result
of the cost of certain raw materials being raised.
Administrative and General Expenses. Administrative and general expenses for the
fiscal year ended September 30, 2002 increased by $418,995 or 36%, to $1,572,723
or 106% of revenues, as compared to $1,153,728 or 49% of revenues for the fiscal
year ended September 30, 2001. For the fiscal year ended September 30, 2002 and
2001, directors' remuneration of $120,000 and $90,000, respectively, was
included in administrative and general expenses. The large increase in
administrative and general expenses is due to the amount of provision for bad
debt of approximately $1,010,000. However, administrative and general expenses,
particularly compensation and related costs, decreased in 2002 as compared to
2001 in part as a result of a decrease in costs incurred to support and expand
business operations, including costs related to office operations, salaries and
traveling expenses.
Selling Expenses. Selling expenses for the fiscal year ended September 30, 2002
decreased by $34,552 or 32%, to $71,913 or 4.9% of revenues, as compared to
$106,465 or 4.6% of revenues for the fiscal year ended September 30, 2001.
Selling expenses decreased in 2002 as compared to 2001 as a result of decreased
costs in office operations, salaries and travel, as well as product promotion
costs.
Other Income (Expense). We recorded interest income of $26,817 and $4,192 for
the fiscal years ended September 30, 2002 and 2001, respectively. We recorded
sundry income of $10,044 for the fiscal year ended September 30, 2002 and
recorded sundry income of $2,101 for the fiscal year ended September 30, 2001.
We recorded amortization of loan fees of $0 and $43,314 for the fiscal years
ended September 30, 2002 and 2001, respectively.
18
Income Taxes. 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 consist of two wholly-owned foreign enterprises and a
70%-owned Sino-Foreign Equity Joint Venture. PRC companies are generally subject
to income taxes at an effect rate of 33% (30% national income tax plus 3% state
income tax). As manufacturing companies, our subsidiaries operate in special
zones, which entitles them to a reduced national income tax rate of 24%, and the
subsidiaries are exempt from state income tax. Further, pursuant to the approval
of the relevant PRC tax authorities, the subsidiaries have been granted a "tax
holiday", whereby the subsidiaries are fully exempt from PRC income taxes for
two years starting from the year profits are first recognized, followed by a 50%
exemption for the next three years. In 1999, the two-year, 100% exemption
expired for Jiangxi Fenglin and Guangxi Linmao, subjecting them to an income tax
at a rate of 12%. Effective October 1, 2000, the two-year, 100% exemption
expired for Jiangxi Jiali, subjecting it to an income tax at a rate of 12%.
Losses incurred by joint ventures may be carried forward for five years.
We recorded income taxes of $0 and $32,178 for the fiscal years ended September
30, 2002 and 2001, respectively.
Minority Interest. For the fiscal years ended September 30, 2002 and 2001,
we recorded a minority interest of $48,202 and $1,194, respectively, to reflect
the interest of the Company's 30% joint venture partner in Jiangxi Fenglin.
Net Loss. Net loss was $1,186,926 for the fiscal year ended September 30,
2002, as compared to net loss of $774,532 for the fiscal year ended September
30, 2001. The increase in net loss was primarily due to decreased revenues,
increased material costs and the provisions for bad debt expense.
Consolidated Financial Condition:
Liquidity and Capital Resources - September 30, 2002:
Operating. For the fiscal year ended September 30, 2002, our operations
generated cash resources of $188,120, as compared to utilize cash resources of
$221,682 for the fiscal year ended September 30, 2001. Our operations generated
cash resources in 2002, as compared to utilize cash resources in 2001, primarily
as a result of a decrease in accounts receivable. We had net working capital at
September 30, 2002 of $553,661, as compared to net working capital of $535,653
at September 30, 2001, reflecting a current ratio of 1.41:1 at September 30,
2002, as compared to 1.30:1 at September 30, 2001.
Accounts receivable decreased by $601,397, to $934,600 at September 30, 2002,
from $1,535,997 at September 30, 2001. Accounts receivable decreased during the
fiscal year ended September 30, 2002 as a result of the settlement for accounts
receivable which occurred in the previous years, and an increase in the
allowance for doubtful accounts.
19
Accounts payable decreased by $190,438, to $82,624 at September 30, 2002, from
$273,062 at September 30, 2001. Accounts payable decreased during the fiscal
year ended September 30, 2002 as a result of the settlement for accounts payable
which occurred in the previous years.
Investing. During the fiscal years ended September 30, 2002 and 2001,
additions to property, plant and equipment aggregated $4,624 and $48,497,
respectively.
During the fiscal years ended September 30, 2001, we entered into an agreement
with an unrelated third party under which we transferred trade accounts
receivable balances of approximately $998,916 and cash of approximately $407,084
to the third party. These amounts, which are to be repaid quarterly beginning
March 2002 through March 2004, are unsecured and bear interest of 1.5% per
annum. In view of the extended payment terms, management reevaluated the
agreement and provided an allowance against the transferred amounts of
approximately $421,807 for the fiscal year ended September 30, 2001. At
September 30, 2002, management reevaluated the agreement and provided an
additional allowance of $841,459.
We have no significant capital expenditure commitments outstanding at September
30, 2002.
Financing. For the fiscal year ended September 30, 2002, we had an
outstanding bank loan of $120,482 (RMB 1,000,000). The bank loan is interest
bearing at 6.04% per annum and is to be repaid by April 4, 2003. The loan is
guaranteed by one of our customers.
For the fiscal year ended September 30, 2002, we had unsecured loans from third
parties of $296,411. The loans are non-interest bearing and payable on demand.
For the fiscal year ended September 30, 2001, in connection with the 'Fiscal
2000 Equity Compensation Plan', we issued 350,000 shares of common stock and
received net proceeds of $20,900 (RMB 173,470).
We anticipate, based on currently proposed plans and assumptions relating to its
existing operations, that our projected cash flows from operations, combined
with cash that we expect 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 our rate of growth, we 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. Our success depends in substantial part on the
continued growth and development of the Chinese economy. During the fiscal years
ended September 30, 2002 and 2001, 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.
20
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 our 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 believe that such an action would have a detrimental effect on
our operations, since we conduct virtually all of our 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.
Recent 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 amortisation method to an impairment-only approach and acquires
intangible assets with finite lives to be amortised over their useful lives.
Thus, amortisation 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 current
pending business combinations, nor does it have any goodwill or other intangible
assets recorded as of September 30, 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. The Company does
not expect that SFAS No.144 may have any impact on its financial condition and
results of operations.
21
In April 2002, the FASB issued Statement No.145 "Rescission of FASB Statements
No.4, 44 and 64. Amendment of FASB Statement No.13, and Technical Corrections".
The Statement addresses the accounting for extinguishment of debt,
sale-leaseback transactions and certain lease modifications. The statement is
effective for transactions occurring after May 15, 2002. The Company does not
expect the adoption of Statement No.145 to have a material impact on the
Company's future results of operations or financial position.
In July 2002, the FASB issued Statement No.146, "Accounting for Cost Associated
with Exit or Disposal Activities". The statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
supercedes Emerging Issues Task Force Issue No.94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructing)." The provisions of
Statement No.146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect the adoption of
Statement No.146 to have a material impact on the Company's future results of
operations or financial position.
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF AGROCAN CORPORATION
We have audited the accompanying consolidated balance sheet of AgroCan
Corporation (a Delaware Corporation) and subsidiaries as of September 30, 2002
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year ended September 30, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The financial statements of AgroCan
Corporation as of September 30, 2001 were audited by other auditors whose report
dated October 17, 2001, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgroCan Corporation
and subsidiaries as of September 30, 2002 and the results of its operations and
its cash flows for the year ended September 30, 2002 in conformity with
generally accepted accounting principles in the United States of America.
Thomas Leger & Co., L.L.P.
Houston, Texas
January 14, 2003
22
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002
(UNITED STATES DOLLARS)
2002
-----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 128,615
Accounts receivable, less allowance for
doubtful accounts of $178,617 934,600
Inventories 284,886
Other receivables and prepayments 132,399
Amount due from related parties, net 422,415
-----------
Total current assets 1,902,915
Advances receivable, net 168,145
Property, plant and equipment, net 673,209
-----------
Total assets $2,744,269
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term loans-unsecured $ 296,411
Short-term bank loan 120,482
Account payable 82,624
Other payables and accruals 139,903
Deposits received 296,375
Amount due to related parties 341,196
Income tax payable 72,263
-----------
Total liabilities 1,349,254
Minority interest 74,644
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 3,673,304 shares 367
Capital in excess of par value 1,885,251
Retained earnings (deficit)
Unappropriated (686,805)
Appropriated 120,457
Accumulated other comprehensive income 1,101
-----------
Total shareholders' equity 1,320,371
-----------
Total liabilities and shareholders' equity $2,744,269
===========
The accompanying notes are an integral part of these consolidated financial
statements
23
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
(UNITED STATES DOLLARS)
2002 2001
------------ -----------
Sales $ 1,480,680 $2,338,777
Cost of sales 1,258,635 1,785,111
------------ -----------
Gross profit 222,045 553,666
Administrative and general expenses 1,572,723 1,153,728
Selling expenses 71,913 106,465
Minority interest (48,202) (1,194)
------------ -----------
(Loss) from operations (1,374,389) (705,333)
Other income (expense)
Interest income 26,817 4,192
Sundry income 10,044 2,101
Amortization of loan fees - (43,314)
------------ -----------
Loss before income taxes (1,337,528) (742,354)
Income taxes - 32,178
------------ -----------
Net loss before extraordinary gain (1,337,528) (774,532)
Extraordinary gain on forgiveness of debt 150,602 -
------------ -----------
Net loss $(1,186,926) $ (774,532)
============ ===========
Weighted average shares outstanding
Basic and diluted 3,086,822 2,429,137
Basic and diluted loss per share:
Loss before extraordinary item (0.43) (0.32)
Extraordinary item 0.05 -
------------ -----------
Net loss $ (0.38) $ (0.32)
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements
24
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
(UNITED STATES DOLLARS)
Unappro-
priated Appro- Foreign
Common stock Additional retained priated currency Total
--------------------- Paid-In earnings retained translation shareholders'
Shares Amount Capital (deficit) earnings adjustment equity
------------ ------- ----------- ------------ ---------- ------------- ---------------
Balance, October 1, 2000 2,334,970 $ 233 $ 1,358,385 $ 1,364,422 $ 56,049 $ 2,174 $ 2,781,263
Issuance of common stock for 220,000 22 20,878 - - - 20,900
cash
Issuance of common stock for 130,000 13 97,487 - - - 97,500
services
Staff welfare reserve - - - (89,769) 89,769 - -
Net loss for the year ended
September 30, 2001 - - - (774,532) - - (774,532)
--------------------------------------------------------------------------------------------
Balance, September 30, 2001 2,684,970 268 1,476,750 500,121 145,818 2,174 2,125,131
Issuance of common stock for 988,334 99 408,501 - - - 408,600
services
Staff welfare reserve payments - - - - (25,361) - (25,361)
Comprehensive income:
- Net loss for the year ended
September 30, 2002 - - - (1,186,926) - - (1,186,926)
- Other comphrehensive loss - - - - - (1,073) (1,073)
--------------------------------------------------------------------------------------------
Balance, September 30, 2002 3,673,304 $ 367 $ 1,885,251 $ (686,805) $ 120,457 $ 1,101 $ 1,320,371
============================================================================================
The accompanying notes are an integral part of these consolidated financial statements
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
(UNITED STATES DOLLARS)
2002 2001
------------ ------------
Operating activities
Net (loss) income $(1,186,926) $ (774,532)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary gain on forgiveness of debt (150,602) -
Compensation expenses in relation to issues of shares 90,000 97,500
Stock issued for services 66,266 -
Amortization of deferred costs - 43,314
Depreciation expense 69,175 67,029
Loss on disposal of fixed assets 2,413 -
Provision for allowance for doubtful accounts 990,064 584,792
Minority interest (48,202) (1,194)
Decrease in account receivable 431,702 2,047,116
Decrease in other receivables, deposit and prepayments 34,099 16,101
Decrease (increase) in inventories (109,762) 160,708
Decrease (Increase) in amounts due from related parties 13,509 (147,247)
Decrease in accounts payable (190,438) (2,276,293)
Decrease in tax payable (21,353) (8,471)
Decrease in other payables and accruals (1,355) (28,699)
(Decrease) increase in deposits received 202,350 (84,485)
(Decrease) increase in amounts due to related parties (2,820) 82,679
------------ ------------
Net cash provided by (used in ) operating activities 188,120 (221,682)
------------ ------------
Investing activities:
Decrease (increase) in advances receivable (4,314) (407,084)
Additions to property, plant and equipment (4,624) (48,497)
------------ ------------
Net cash used in investing activities (8,938) (455,581)
------------ ------------
Financing activities
Payments on short-term loan-unsecured (84,337) (68,675)
Payments on short-term bank loan (119,638) (844)
Proceeds from short-term loan-unsecured 120,482 -
Proceeds from short-term bank loan - 240,964
Proceeds from issuance of shares - 20,900
Dividends paid to minority interest shareholder (12,048) -
Payments from staff welfare reserve (25,361) -
------------ ------------
Net cash provided by (used in) financing activities (120,902) 192,345
------------ ------------
Net increase (decrease) in cash and cash equivalents 58,280 (484,918)
Cash and cash equivalents at beginning of year 71,309 556,227
Effect of exchange rate changes on cash (974) -
Cash and cash equivalents at end of year $ 128,615 $ 71,309
============ ============
Cash paid during the year for income taxes $ 21,353 $ 40,649
Cash paid during the year for interest $ 11,808 $ -
The accompanying notes are an integral part of these consolidated financial statements
26
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
AgroCan Corporation ("AgroCan" or "the Company") was incorporated on December 8,
1997 in the State of Delaware, and has a wholly owned subsidiary AgroCan (China)
Inc. AgroCan (China) Inc. has three operating subsidiaries, Guangxi Linmao
Fertilizer Company Limited ("Linmao"), Jiangxi Jiali Chemical Industry Company
Limited ("Jiali") and Jiangxi Fenglin Chemical Industry Company Limited
("Fenglin"). The Company's ownership interest in its subsidiaries, together with
the subsidiaries locations and the nature of their operations is as follows:
COUNTRY OF
NAME OF INCORPORATION PERCENTAGE PRINCIPAL
------------------- AND OF EQUITY --------------
COMPANY OPERATION INTEREST ACTIVITIES
------------------- -------------- ---------- --------------
AgroCan (China) British Virgin 100 Investment
Inc. Islands holding
100 Manufacture
Guangxi Linmao The People's and trading of
Fertilizer Company Republic of compound
Limited China fertilizers
100 Manufacture
Jiangxi Jiali The People's and trading of
Chemical Industry Republic of compound
Company Limited China fertilizers
Jiangxi Fenglin The People's 70 Manufacture
Chemical Industry Republic of and trading of
Company Limited China compound
fertilizers
The Company was incorporated with authorized share capital of 25,000,000 shares
of common stock with a par value of US$0.0001 per share and 10,000,000 shares of
preferred stock with a par value of US$0.0001 per share. The shares of preferred
stock may be issued in series having such designations, powers, preferences,
rights and limitations, and on such terms and conditions as the board of
directors may from time to time determine including the rights, if any, of the
holders thereof with respect to voting, dividends, redemption, liquidation and
conversion. As of September 30, 2002, no shares of preferred stock had been
issued.
AgroCan (China) Inc.'s interest in Fenglin resulted from the establishment of a
Sino-Foreign Equity Joint Venture with a PRC state owned enterprise. AgroCan
(China) Inc.'s share in the equity interest of Fenglin is 70%. The joint venture
has a term of 30 years from November 28, 1996, the date of incorporation.
27
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP").
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Material intercompany balances and transactions have been
eliminated on consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
----------------------------
For financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturity of three months or less to be cash
equivalents.
Property, plant and equipment
--------------------------------
Property, plant and equipment are carried at cost less accumulated depreciation.
Depreciation is provided over their estimated useful lives, using the straight
line method, at the following annual rates:
Land use rights 2% - 5%
Buildings 4.5%
Furniture and equipment 18% - 33 1/3%
Machinery plant and machinery 9% - 20%
Motor vehicles 18%
Leasehold improvements 20%
Repairs and maintenance costs are expensed as incurred.
Management assesses the carrying value of its long-lived assets for impairment
when circumstances warrant such a review. Management considers projected future
operation results, cash flows, trends and other circumstances in its assessment.
Based on its review, management does not believe that any impairment has
occurred as of September 30, 2002.
Inventories
-----------
Inventories are valued at the lower of cost or net realization value. Cost
includes the cost of raw materials computed using the first-in, first-out method
and, in the case of work-in-progress and finished goods, direct labor and an
appropriate proportion of production overhead. Net realization value is
determined by reference to the sales proceeds of items sold in the ordinary
course of business after the balance sheet date or management estimates based on
prevailing market conditions.
28
Fair value of financial instruments
-----------------------------------
The fair value of the Company's related parties' receivables and payables are
not practicable to estimate due to the related party nature of the underlying
transactions. Management believes that the carrying amount of the Company's
other financial instruments approximate their fair values primarily because of
the short-term maturities of these instruments.
Foreign currency translation
----------------------------
The Company maintains its books and accounting records in Renminbi: ("RMB") the
PRC's currency. Translation of amounts from RMB in United States dollars
("US$") has been made at the single rate of exchange of US$1.00:RMB8.30. No
representation is made that RMB amounts have been or could be, converted into
US$ at that rate.
On January 1, 1994, the PRC government introduced a single rate of exchange as
quoted daily by the People's Bank of China (the "Unified Exchange Rate").
This quotation of the exchange rates does not imply free convertibility of RMB
to other foreign currencies. All foreign exchange transactions continue to take
place either through the Bank of China or other banks authorized to buy and sell
foreign currencies at the exchange rate quoted by the People's Bank of China.
Approval of foreign currency payments by the Bank of China or other institutions
required submitting a payment application form together with invoices, shipping
documents and signed contracts.
Revenue recognition
-------------------
Revenue from sales of goods by the Company and its subsidiaries is recognized
on the delivery of goods to customers.
Income taxes
------------
The Company accounts for income tax using Statements of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes". SFAS No. 109 requires
an asset and liability approach for financial accounting and reporting for
income taxes and allows recognition and measurement of deferred tax assets based
upon the likelihood of realization of tax benefits in future years. Under the
asset and liability approach, deferred taxes are provided for the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets if it is
more likely than not these items will either expire before the Company is able
to realize their benefits, or that future deductibility is uncertain.
29
Use of estimates in the preparation of financial statements
-----------------------------------------------------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Management makes these estimates using the best information
available at the time the estimates are made; however actual results could
differ materially from these estimates.
Reclassification
----------------
Certain reclassifications have been made to the September 30, 2001 financial
statements in order to conform to the classification used in the current year.
Staff welfare reserve
---------------------
PRC rules and regulations governing joint ventures and enterprises require
allocation of a portion of annual net income, if any, to a welfare reserve fund.
The amounts to be reserved are stipulated by PRC laws and regulations and are
included in appropriated retained earnings at September 30, 2002 and 2001. The
reserve cannot be used for purposes other than those for which it is created and
is not distributable as cash dividends.
Stock-based compensation
------------------------
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), defines a fair-value-based method of accounting
for stock-based employee compensation and transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees, and
encourages but does not require companies to record compensation cost for
stock-based employee compensation at fair value. The Company has chosen to
account for stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations. Accordingly, compensation cost
for stock options is measured for the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
30
Stock compensation expense for stock granted to non-employees has been
determined in accordance with SFAS No. 123 and the Emerging Task Force consensus
in Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other
than Employees for Acquiring, or in Conjunction with Selling Goods or Services
("EITF96-18"), as the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably measured.
Earnings per share
------------------
Statement of Financial Accounting Standard No. 128, Earnings per share, ("SFAS
No. 128") requires dual presentation of basic and diluted earnings per share
("EPS") with a reconciliation of the numerator and denominator of the EPS
computations. Basic EPS amounts are based on the weighted average share of
common stock outstanding. Diluted EPS 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 a loss or increase
earnings per share.
Accordingly, this presentation has been adopted for all periods presented. The
basic and diluted weighted average common shares outstanding are 3,086,822 and
2,429,137 for the years ended September 30, 2002 and 2001 respectively.
Comprehensive income
--------------------
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, ("SFAS No. 130") established standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set of
general purpose financial statements. SFAS No. 130 defines comprehensive income
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. The Company's only current component of comprehensive
income is foreign currency translation adjustment.
Segment reporting
-----------------
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("SFAS No. 131"), established standards
for the way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. SFAS
No. 131 also establishes standards for disclosures by public companies regarding
information about their major customers, operating segments, products and
31
services, and the geographic areas in which they operate. SFAS No. 131 defines
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company's results of operations and financial position were not
affected by implementation of SFAS No. 131 as it operates in only one segment,
fertilizer manufacturing.
Recent Accounting Pronouncements
--------------------------------
In July 2001, the FASB issued Statement No. 142 "Goodwill and Other
Intangible Assets". Statement No. 142 requires the use of a nonamortization
approach to account for purchased goodwill and indefinite lived
intangibles. Under a nonamortization approach, goodwill and indefinite
lived intangibles will not be amortized into results of operations, but
instead would be reviewed for impairment and written down and charged to
results of operations only in the periods in which the recorded value of
goodwill and indefinite lived intangibles is more than its fair value. The
provisions of Statement No. 142 will be effective for the Company in fiscal
2003. Management does not expect this standard, when implemented, to have a
material effect on its future results of operations or financial position.
In June 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations". The statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The statement is
effective for the Company in fiscal 2003. The Company does not expect the
adoption of Statement No. 143 to have a material impact on the Company's
future results of operations or financial position.
In August 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", and the accounting and reporting
provisions of APB Opinion 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business. The statement is effective for the
Company in fiscal 2003. The Company does not expect the adoption of
Statement No. 144 to have a material impact on the Company's future results of
operations or financial position.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". The statement addresses the accounting for
extinguishment of debt, sale-leaseback transactions and certain lease
modifications. The statement is effective for transactions occurring after May
15, 2002. The Company does not expect the adoption of Statement No. 145 to have
a material impact on the Company's future results of operations or financial
position.
32
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and supercedes Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." The provisions of Statement No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company
does not expect the adoption of Statement No. 146 to have a material
impact on the Company's future results of operations or financial position.
3. INVENTORIES
Inventories are summarized as follows at September 30, 2002:
Raw materials $ 110,030
Finished goods 174,856
----------
$ 284,886
==========
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at September 30,
2002:
Land use right $ 129,009
Buildings 531,128
Leasehold improvements 16,570
Plant and machinery 221,935
Furniture and fixtures 41,635
----------
969,282
Less: Accumulated depreciation (296,073)
----------
$ 673,209
==========
5. INCOME TAXES
The Company is subject to income taxes on an entity basis on income arising
in or derived from the tax jurisdiction in which each entity is domiciled.
The Company's British Virgin Islands subsidiary is not liable for income
taxes. The Company's PRC subsidiaries comprise two wholly owned foreign
enterprises and a 70% owned 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
the Company's subsidiaries, Fenglin and Linmao, are manufacturing companies
33
operating in special economic zones, and they are entitled to a reduced
national income tax 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 holiday",
whereby the subsidiaries are fully exempt 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 September 30, 2002. There
were no undistributed earnings of the Company's subsidiaries at September
30, 2002.
The reconciliation between the effective tax rate and the statutory United
States federal income tax rate is as follows:
Year ended Year ended
September September
30, 2002 30, 2001
------------- ------------
Computed expected income tax
(benefit)/expense:
Statutory U.S. federal tax rate (34%) (34%)
Difference in foreign statutory rates (1) (1)
Income tax exemption (5) (5)
Items which give rise to no tax
benefit:
Net loss of the Company and the
BVI subsidiary 40% 44%
------------- ------------
Effective tax rate - % 4%
------------- ------------
The pro forma effect of the tax holiday on net loss and loss per share is
as follows:
At At
September September
30, 2002 30, 2001
------------- ------------
Net loss $( 1,186,926) $ (811,711)
Basic and diluted loss per share $ (0.38) $ (0.33)
34
6. SHORT-TERM LOANS
Short-term loans-unsecured represent amounts borrowed from third parties. Loans
in the amount of $296,411 are unsecured, non-interest bearing and payable on
demand.
At September 30, 2002, the Company had a bank loan of $120,482. The bank loan
bears interest at 6.04% per annum and is due April 4, 2003. The loan is
guaranteed by a customer of the Company.
7. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company's operations are conducted in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy.
The Company's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among other things,
the political, economic and legal environments and foreign currency exchange.
The Company's results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other things.
8. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK AND ADVANCES RECEIVABLE
The Company grants credit, generally on open account to its customers who are
generally not required to provide collateral for current amounts owed to the
Company. The Company performs ongoing credit evaluations of its customers'
financial conditions to ensure collections and minimize losses. The Company's
customers are all located in the PRC. Approximately 56% and 59% of the
Company's sales were generated from three and four customers during the years
ended September 30, 2002 and September 30, 2001, respectively. (2002: 27%, 19%,
and 10% of total sales; 2001: 18%, 15%, 14%, and 12% of total sales.)
At September 30, 2002, approximately 99.5% of accounts receivable were from
trade transactions with 5 customers, of which one customer accounted for
approximately 49% of the accounts receivable balance.
During the year ended September 30, 2001, the Company entered into an agreement
with an unrelated third party under which the Company transferred trade accounts
receivable balances of approximately $998,916 and cash of approximately $407,084
to the third party. These amounts, which are to be repaid quarterly beginning
March 2002 through March 2004, are unsecured and bear interest of 1.5% per
annum. In view of the extended payment terms, during the Company's fourth
quarter, management reevaluated the agreement and provided an allowance against
the transferred amounts of approximately $421,807. At September 30, 2002,
management reevaluated the agreement and provided an additional allowance of
$841,459.
35
9. RELATED PARTY TRANSACTIONS
Transactions with related parties
---------------------------------
(1) During the year ended September 30, 2001, an affiliated entity, which is
controlled by three directors of the Company received $323,542, on behalf
of the Company. In addition, in 2001, the Company advanced $3,198,907 to
the affiliate and $3,308,501 was repaid by the affiliate. During 2002 the
affiliated entity did not receive any amount on behalf of the Company and
the Company did not advance any amount to this affiliate. During 2002, the
affiliate repaid $12,903 to the Company which related to receivables that
existed at September 30, 2001. During the Company's fourth quarter of 2001
as a result of reduced repayments in that quarter, management provided an
allowance for uncollectible amounts of $162,938. The balance due from the
affiliate at September 30, 2002 was $363,488, net of the allowance of
$162,988.
(2) During the year ended September 30, 2001, the Company paid management fees
of $4,605 to another affiliated Company. The Company did not pay any
management fees to this affiliate during the year ended September 30, 2002.
In addition, during the year ended September 30, 2001 the Company advanced
$35,361 and recorded service fee income receivable of $2,101 from this
entity.
The Company did not record any service fee income nor advances from this
entity during the year ended September 30, 2002. At September 30, 2002 and
2001, total amounts due from the affiliate were $35,094 and $37,129,
respectively. These advances are unsecured, non-interest bearing and are
due on demand.
(3) During the year ended September 30, 2002 and 2001, the Company paid
expenses of $2,000 and $337, respectively, on behalf of the PRC shareholder
of Fenglin. Repayments of $506 and $636 were received during the years
ended September 30, 2002 and 2001 respectively and amounts due at September
30, 2002 and 2001 were $19,910 and $18,416, respectively. These advances
are unsecured, non-interest bearing and are due on demand.
(4) The Company paid factory and production facilities rental of $21,687 during
each of the years ended September 30, 2002 and 2001 to the PRC shareholder
of Fenglin.
36
Transactions with directors
-----------------------------
During the year ended September 30, 2001, the Company's Chief Executive
Officer paid expenses of $100,684 on the Company's behalf and $26,077 was
repaid. During the year ended September 30, 2002, the Company's Chief
Executive Officer and Director paid additional expenses of $108,071 on the
Company's behalf and $140,891 was repaid. At September 30, 2002 and 2001,
balances due to the director were $108,050 and $215,870 respectively. These
balances include the repayment on 2001 director's remuneration of $45,000
and accrued director's remuneration of $15,000 for the fourth quarter of
the fiscal year ended September 30, 2002.
Transactions with shareholders
--------------------------------
On February 6, 1998, certain shareholders made a loan of $300,000 to the
company. The loan is repayable at the earlier of three years from May 1,
1998 or sixty days after demand by all and/or individual shareholders. In
consideration of the loan, the Company granted to these shareholders
options to purchase 754,117 shares of common stock at an exercise price of
$1.50 per share exercisable during a two years period beginning February 6,
1998. The options were valued at $241,317 based upon the market value of
the common stock underlying the options resulting in deferred loan costs of
that amount. Of this amount, $74,251 has been recognized as an expense
during each of the years ended September 30, 2000 and 1999, and the
remaining $42,493, which was deferred at September 30, 2001, was amortized
to expense during the year ended September 30, 2001. The amount of the loan
outstanding at September 30, 2002 was $217,641.
10. LEASE COMMITMENTS
The Company leases certain land, buildings and other equipment under operating
leases. Rental expenses under these operating leases aggregated $20,181 and
$48,000 for the years ended September 30, 2002 and 2001 respectively. Future
minimum payments under non-cancelable operating leases are $18,072 for the year
ended September 30, 2003. There are no other future lease commitments.
11. STOCK - BASED COMPENSATION PLANS
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related Interpretations in accounting for its stock option plan for employees.
The Company adopted a stock option plan (the "1998 Plan") as of February 6,
1998. The Plan allows the Board of Directors, or a committee thereof at the
Board's discretion, to grant stock options to officers, directors, key
employees, and consultants of the Company and its affiliates. An aggregate of
250,000 shares of common stock has been reserved for issuance upon exercise of
the options granted under the Plan, Pursuant to the Plan, the exercise price
37
shall in no event be less than the fair market value of the shares of common
stock at the date of grant. During the year ended September 30, 2001, stock
options for 250,000 shares have been granted to employees under the Plan at an
exercise price of $0.30, being the quoted market price of the Company's shares
at the date of grant. These options expire on June 30, 2006. There were no stock
options granted, exercised, forfeited, or expired for the year ended September
30, 2002.
Had compensation expense been determined as provided in SFAS No. 123 using the
Black-Scholes option pricing model, the proforma effect of options issued during
the year ended September 30, 2002 and 2001 on the Company's net loss and per
share amounts would have been as follows:
2002 2001
------------ ----------
Net loss, as reported $(1,186,926) $(774,532)
Net loss, proforma $(1,186,926) $(849,032)
Net loss per share, as reported $ (0.38) $ (0.32)
Net loss per share, proforma $ (0.38) $ (0.34)
The fair value of each option grant is calculated assuming an expected life of
five years, an interest rate of 5.03%, volatility of 245% and a dividend yield
of 0.
On March 23, 2001, the Company adopted the Fiscal 2000 Equity Compensation Plan
("The 2000 Plan"). The purpose of the 2000 Plan is to enable the Company to
offer and issue to certain employees, advisors and consultants of the Company
and its affiliates, common stock of the Company in exchange for services. The
aggregate number of shares of common stock that may be issued pursuant to the
2000 Plan shall not exceed 1,000,000 shares and shares issued pursuant to the
2000 Plan shall be issued at a price per share of not less than 95% of the fair
market value per share on the date of issuance and on other such terms and
conditions as determined by the Company. In connection with the "Fiscal 2000
Equity Compensation Plan", the company issued 130,000 shares of common stock to
two advisors on March 23, 2001 and recorded compensation expense of $97,500. In
August 2001 the Company issued 220,000 shares for cash of $20,900 pursuant to
the Plan. Pursuant to the 2000 Plan, on January 2, 2002 the Board of Directors
approved the issuance of 375,000 shares for payment due to two directors for
director fees for the years ended September 30, 2001 and 2000. The aggregate
value of these shares was $180,000.
On June 6, 2002, the Company adopted the Fiscal 2001 Equity Compensation Plan
("The 2001 Plan"). The purpose of the 2001 Plan is to enable the Company to
offer and issue to certain employees, former employees, advisors and consultants
of the Company and its affiliates common stock of the Company in payment of
amounts owed by the Company to such third parties. For purposes of the 2001
Plan, the Board of Directors is authorized to sell or award up to 1,000,000
shares and/or options of the Company's common stock. Pursuant to the 2001 Plan,
on June 6, 2002, the Board of Directors approved the issuance of 333,334 shares
38
with an aggregate value of $90,000 for the payment of director fees for two
directors for the year ended September 30, 2002. In addition, during the year
ended September 30, 2002, the Company issued 280,000 shares for consulting and
other services provided by non-employees for an aggregate fair value of $138,600
(Note 12). Consulting expense and deferred consulting expense related to this
amount were $66,267 and $72,333, respectively at September 30, 2002.
12. CONSULTING AGREEMENTS
The Company has a consulting agreement with a consultant that commenced June 3,
2002. The services to be rendered are to assist the Company on a non-exclusive
basis for financial advisory services for the specific purpose of identifying
investors to invest up to an aggregate amount of $3,000,000 in equity of the
Company. The term of the agreement shall be for six months for the purpose of
financing and twelve months for the purpose of acquisitions and mergers from the
date signed. The Company issued 140,000 freely tradable shares of Common Stock
of the Company to the consultant as an initial and non-refundable service fee.
In the event the consultant introduces the Company to any sources that provide
either debt or equity financing, the consultant will be compensated at the time
of funding 100,000 warrants at $0.10 per share for the first $1,000,000 during
the term hereof and for any amount over and about the first $1,000,000 the
consultant will be compensated on a pro-rate basis, i.e., one warrant for every
$10 the Company raises. All warrants will be issued at closing to consultant and
to be exercised within two years.
The Company entered into a one-year business consulting agreement with an
individual on May 31, 2002. The services to be rendered include consultation and
advisory services relating to business management and marketing, and other
managerial assistance the individual shall deem necessary or appropriate. In
consideration of the services provided, the individual was issued 140,000 freely
fundable shares of the Company's common stock.
13. EXTRAORDINARY GAIN
On September 25, 2002, Olin Forestery Co. Ltd (Olin) agreed to waive an
unsecured loan of $150,602 to the Company's subsidiary (Linmao), which was
originally signed on January 10, 2002. Olin is operated by a former director of
Linmao. The forgiveness of this unsecured loan results in an extraordinary gain
for $150,602. Management does not believe there is a tax effect in the PRC
related to the extraordinary gain.
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
For the year ended September 30, 2001, there was trade accounts receivable
transferred to advances receivable of $998,915.
For the year ended September 30, 2002, there were issuances of common stock for
deferred consulting fees and payment of accrued director fees of $72,333 and
$180,000 respectively.
39
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all our directors
and executive officers as of September 30, 2002. The Board of Directors
comprises of only one class. All directors will serve until the next annual
meeting of stockholders and until their successors are elected and qualified, or
until their earlier death, retirement, resignation or removal. Executive
officers serve at the discretion of the Board of Directors, and are appointed to
serve until the first Board of Directors meeting following the annual meeting of
stockholders. Also provided is a brief description of the business experience of
each director and executive officer during the past five years and an indication
of directorships held by each director in other companies subject to the
reporting requirements under the federal securities laws.
NAME AGE POSITION(S)
------------ --- -------------------------------------------
Lawrence Hon 54 Chairman of the Board, President and Chief
Executive Officer
Danny Wu 42 Secretary and Director
Donald Lau 54 Director
Ngai Poon 33 Director
Haibo Li 51 Vice President, Operations
Changfa Li 54 Vice President, Business Development
Carl Yuen 28 Chief Financial Officer
40
LAWRENCE HON. Mr. Hon has been Chairman of the Board, President and
Chief Executive Officer of the Company since December 1997. Mr. Hon started his
career as a professional accountant. In 1984, Mr. Hon joined Modern Printing
Equipment Ltd. as the Financial Director. Modern Printing Equipment Ltd. was a
subsidiary of KNP BT, a Dutch-based multinational group. KNP BT was the world's
eight largest forestry group specializing in paper, packaging and printing. He
was promoted to KNP BT's Regional Financial Director in 1986 and Deputy Managing
Director of Asian Options in 1990, responsible for Hong Kong, China, Taiwan and
Korea. In 1994, Mr. Hon participated in the formation of Sino-Forest
Corporation, a company listed on the Toronto Stock Exchange. Sino-Forest
Corporation's main business was supplying wood fiber in the form of wood chips
to the pulp and paper industry in Japan, China and other Asian countries.
Between 1994 and 1996, Mr. Hon served as the Senior Vice President of
Sino-Forest Corporation, and was responsible for tree plantation, which provided
wood fiber for paper, packaging and panel-board production. Since March 1999,
Mr. Hon has been a director of China Gateway Holdings Inc. Mr. Hon is a
professional accountant with fellowship in the respective accountants
associations in Hong Kong and the United Kingdom. Mr. Hon holds an MBA Degree
and a professional qualification in Information Technology.
DANNY WU. Mr. Wu has been Secretary and a director of the Company since
December 1997. Mr. Wu has over ten years of experience in international trade,
manufacturing management and direct investment in China. He started as a loan
officer at Hang Lung Bank, Hong Kong. He joined the Hong Kong Trade Development
Council (HKTDC) in 1985 and was in charge of promoting HKTDC's services to the
local business community. Subsequently, he was assigned to promote Hong Kong's
export trade and investments and assisted a number of foreign companies to
invest in Hong Kong and China during that period. Mr. Wu was then promoted to
project manager, responsible for the organization and overall management of a
number of international conventions and exhibitions. He joined Quanta Industries
Inc., a Taiwanese conglomerate, in 1989 as the general manager of its Hong Kong
office overseeing trading, direct investment activities and setting up joint
venture enterprises in China related to catering, cable manufacturing and metal
processing. He was also involved in the general financial management of these
ventures. Mr. Wu was a founding member of Sino-Forest Corporation, a company
listed on the Toronto Stock Exchange, with investments in forestry in China.
He was responsible for market development of wood chips and procurement in China
and Asia. From 1994 to 1995, Mr. Wu was Senior Manager of Sino-Wood Partners
Limited, an investment company. From 1996 to 1999, Mr. Wu was Executive Director
of Gateway China Limited, an investment company. From March 1999 to present, Mr.
Wu has been Chairman, Chief Executive Officer and Secretary of China Gateway
Holdings Inc. He is a graduate of University of Hong Kong with a degree in
management studies and economics.
DONALD LAU. Mr. Lau has been a director of the Company since December 1997, and
he was the Chief Financial Officer from September 2000 to March 2001. Mr. Lau
started his career in New York. He joined Bank of America in 1974 and
specialized in commercial lending for the agricultural and forest products
industries. He covered Colorado, Oregon, Utah and Washington. In 1978, he was
promoted to vice president and was in charge of correspondent bank lending in
Asia. Based in Hong Kong, he conducted business in Japan, Taiwan, Philippines,
Malaysia, Thailand, Singapore and Indonesia. He joined Sinomay Company, Inc.,
New York, in 1982. He was involved in the building of the first modern bromine
extraction plant in China and a number of technology transfer projects. He also
developed the export business of logs from Oregon and Washington to China. In
1986, he joined Sinomart International Inc., New York. Sinomart is an
investment company owned by the Guangdong Provincial government of China.
41
He established a number of joint venture projects in the United States and
China. Mr. Lau joined Wonton Food Inc., New York, in 1988 and expanded Wonton's
sales and distribution network. Wonton is the world's largest fortune cookie
manufacturer. He is currently a director of Wonton. Mr. Lau received his
Bachelor of Science Degree and MBA Degree from Columbia University, New York, in
1971 and 1974, respectively.
NGAI POON. Ms. Poon has been a director of the Company since December
1997. Ms. Poon joined the New York office of Dupont Inc. in 1991 as a management
accountant. In 1996, she moved to Hong Kong and joined Sino-Forest Corporation
as an investment analyst. She was responsible for financial modeling, due
diligence and review of investment proposals. During her service with
Sino-Forest Corporation, she traveled extensively in China. Ms. Poon is a
graduate of Columbia University, New York, majoring in accounting.
HAIBO LI. Mr. Li has been Vice President, Operations, of the Company
since December 1997. Mr. Li started as a technician in the Fuzhou Chemical
Factory in the 1970's. He was assigned to the Forestry Bureau of Fuzhou,
Jiangxi, in 1982. In 1990, he returned to Fuzhou Chemical Factory and was
promoted to factory manager. He joined the Company in 1996 and was involved in
establishing the two joint ventures in Jiangxi. Mr. Li is responsible for the
operations of the Company's production facilities. Mr. Li is a graduate of
Nanchang Technical College.
CHANGFA LI. Mr. Li has been Vice President, Business Development, of the
Company since December 1997, and is responsible for formulating strategies and
development planning. Mr. Changfa Li has been a manager of the Company since its
inception. He has more than twenty years experience in management within the
chemical industry. He has been involved in the establishment of four medium and
large scale chemical fiber companies. Since the early 1980's, he has served as
factory manager of Shengma Group, a listed company in China, manufacturing
director of Shenzhen Shunchang Company, and President of Zhongshan Kesheng
Chemical Limited. In 1994, he was appointed as researcher for the Economic
Adjustment Department of the China National Textile Council. He received his
chemical engineering degree from Wuhan University and a law degree from Henan
Law School in 1986.
CARL YUEN Mr. Yuen has been the Chief Financial Officer of the Company
since March 2001. He started his career in Houston, Texas. He joined
Russell-Stanley Inc. in 1999 as a financial accountant. Russell-Stanley Inc. is
a leading industrial container supply chain management company. It manufactures
plastic and steel industrial containers, and provides related container services
in the United States and Canada. He moved to Hong Kong and joined AgroCan Corp.
in September 2000 as the accounting and finance manager. Mr. Yuen received BBA
and MBA degrees from University of Houston, Texas, in 1997 and 1998,
respectively.
42
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers and persons who own more than 10% of a
registered class of our equity securities to file various reports with the
Securities and Exchange Commission concerning their holdings of, and
transactions in, the securities of us. Copies of these filings must be furnished
to us. We believe that all individual filing requirements applicable to our
directors and executive officers were complied with under Section 16(a) during
the fiscal year ended September 30, 2002.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during fiscal years ended
September 30, 2001 and 2002 to our Chief Executive Officer and director. No
officer of the Company received annual compensation in excess of $100,000 per
annum during such years.
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR SALARY STOCK OPTIONS
--------------------------- ---- ------- --------------
Lawrence Hon, President and 2002 $60,000 35,000 shares*
Chief Executive Officer 2001 $45,000
Danny Wu, Secretary and Director 2002 $60,000 35,000 shares*
2001 $45,000
The stock options granted to the officers noted above have a strike price of
$0.30 which was the market price for our shares on the date of the grant. The
options may be exercised in whole or in part at anytime prior to their
expiration on June 30, 2006.
COMPENSATION AGREEMENTS
There are currently no long-term employment or consulting agreements between us
and our executive officers or directors.
BOARD OF DIRECTORS
During the year ended September 30, 2002, five meetings of the Board of
Directors were held. Additionally, certain corporate actions were also
conducted by unanimous written consent of the Board of Directors. Directors
receive no compensation for serving on the Board of Directors, but are
reimbursed for any out-of-pocket expenses incurred in attending board meetings.
43
The Board of Directors had no nominating or compensating committees, or
committees performing similar functions, during the fiscal year ended September
30, 2002. The Board of Directors has established an audit committee consisting
of Lawrence Hon and Danny Wu.
STOCK-BASED COMPENSATION PLANS
We adopted a stock option plan ("the 1998 Plan") as of February 6, 1998. The
Plan allows the Board of Directors, or a committee thereof at the Board's
discretion, to grant stock options to officers, directors, key employees, and
consultants of the Company and its affiliates. An aggregate of 250,000 shares of
common stock has been reserved for issuance upon exercise of the options granted
under the Plan. Pursuant to the Plan, the exercise price shall in no event be
less than the fair market value of the shares of common stock at the date of
grant. As of September 30, 2002, stock options for 250,000 shares have been
granted under the Plan at an exercise price of $0.30 (RMB2.49), being the quoted
market price of the Company's shares at the date of grant. These options expire
on June 30, 2006.
On March 23, 2001, we adopted the Fiscal 2000 Equity Compensation Plan ("The
2000 Plan"). The purpose of the 2000 Plan is to enable us to offer and issue to
certain employees, advisors and consultants and its affiliates, our common stock
in exchange for services. The aggregate number of shares of common stock that
may be issued pursuant to the 2000 Plan shall not exceed 1,000,000 shares and
shares issued pursuant to the 2000 Plan shall be issued at a price per share of
not less than 95% of the fair market value per share on the date of issuance and
on other such terms and conditions as determined by the Company. In connection
with the "Fiscal 2000 Equity Compensation Plan", we issued 130,000 shares of
common stock to two advisors on March 23, 2001 and recorded compensation expense
of $97,500. In August 2001 we issued 220,000 shares for cash of $20,900
pursuant to the Plan. Pursuant to the 2000 Plan, on January 2, 2002 the Board
of Directors approved the issuance of 375,000 shares for payment due to two
directors for director fees for the years ended September 30, 2001 and 2000.
The aggregate value of these shares was $180,000.
On June 6, 2002, we adopted the Fiscal 2001 Equity Compensation Plan ("The 2001
Plan"). The purpose of the 2001 Plan is to enable us to offer and issue to
certain employees, former employees, advisors and consultants and its
affiliates, our common stock in payment of amounts owed by us to such third
parties. For purposes of the 2001 Plan, the Board of directors is authorized to
sell or award up to 1,000,000 shares and/or options of the Company's common
stock. On June 19, 2002, in connection with the 2001 Plan, we issued 333,334
shares of common stock at $0.27 (RMB 2.24) per share to two officer/directors in
lieu of cash compensation for services rendered. On July 16, 2002, we issued
280,000 shares of common stock to two consultants and recorded consulting
expense and deferred consulting expense of $66,267 and $72,333 respectively
pursuant to the Plan.
44
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30, 2002 with
respect to the beneficial ownership of our common stock by each beneficial owner
of more than 5% of the outstanding shares of common stock of the Company, each
director, each executive officer and all executive officers and directors of the
Company as a group, the number of shares of common stock owned by each such
person and group and the percent of the Company's common stock so owned.
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act as consisting of sole
or shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose of or direct the
disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws
where applicable. Each person has sole voting and investment power with respect
to the shares of common stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of common stock, except as
otherwise indicated. The address of all people for which an address is not
otherwise indicated is Suite 706 Dominion Centre, 43-59 Queen's Road East, Hong
Kong.
The only class of equity securities that we have outstanding is our common
stock, $0.0001 par value, of which 3,673,304 shares were issued and outstanding
as of September 30, 2002.
PERCENT OF OUTSTANDING
NAME OF SHARES OF COMMON SHARES OF COMMON STOCK
BENEFICIAL OWNER STOCK BENEFICALLY OWNED BENEFICIALLY OWNED
--------------------------------- ----------------------- -----------------------
Lawrence Hon 456,178 12.4%
Danny Wu 456,178 12.4%
Donald Lau (1) 420,444 11.4%
Ngai Poon (2) 473,200 12.9%
All Directors
and Executive
Officers as a
Group (4 persons) 1,806,000 49.1%
Masterpiece Development Ltd. (1) 420,444 11.4%
c/o T. C. Lau & Co.
501, China Insurance Group Bldg.
141, Des Voeux Road Central
Hong Kong
Intermax Ltd. (2) 473,200 12.9%
811, Wing Shan Tower
73 Des Voeux Road Central
Hong Kong
------------------------------
(1) Mr. Lau owns a majority interest in Masterpiece Development Ltd.
(2) Ms. Poon owns all of the outstanding shares of Intermax Ltd.
45
CHANGES IN CONTROL
We are unaware of any contract or other arrangement, the operation of which may
at a subsequent date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH RELATED PARTIES
During the years ended September 30, 2002 and 2001, AgroCan International
Holdings Inc., which is owned by the three original shareholders ie. Texon
Investments Holding Ltd. (44.1%), Masterpiece Development Ltd. (26.3%) and
Intermax Ltd. (29.6%), is a related entity. During the year ended September 30,
2001, it received $323,542 on our behalf. In addition in 2001, we advanced
$3,198,907 to this entity and $3,308,501 was repaid by this entity. During the
year ended September 30, 2002, $12,903 was repaid by this entity. Balances due
from this entity at September 30, 2002 and 2001, were $363,488 and $376,391,
respectively, net of allowances for uncollectible amounts of $162,988.
During the year ended September 30, 2002 and 2001, the Company paid management
fees of $0 and $4,605, respectively, to Orient Packaging Ltd, which is wholly
owned by Orient Investments Ltd. and is another related company. In addition,
during the year ended September 30, 2001, the Company advanced $35,361 and
recorded service fee income receivable of $2,101 from this entity. At September
30, 2002 and 2001, total amounts due from the affiliate were $35,094 and
$37,129, respectively. These advances are unsecured, non-interest bearing and
are due on demand.
During the year ended September 30, 2002 and 2001, we paid expenses on behalf of
$2000 and $337, respectively, on behalf of Nanchang Organic Fertilizer Factory
-- the PRC joint venture partner of Fenglin. Repayment of $506 and $636 were
received during years ended September 30, 2002 and 2001 respectively and amounts
due at September 30, 2002 and 2001 were $19,910 and $18,416, respectively. These
advances are unsecured, non-interest bearing and are due on demand.
The Company paid factory and production facilities rental of $21,687 (RMB
180,000) during the years ended September 30, 2002 and 2001 to Nanchang Organic
fertilizer factory -- the PRC joint venture partner of Jiangxi Fenglin.
46
TRANSACTIONS WITH DIRECTORS
During the year ended September 30, 2001, CEO and Director Lawrence Hon paid
expenses of $100,684 on our behalf and $26,077 was repaid. During the year ended
September 30, 2002, Mr. Hon paid additional expenses of $108,071 on our behalf
and $140,891 was repaid. At September 30, 2002 and 2001, balances due to the
director were $108,050 and $215,870, respectively. These balances include the
repayment on 2001 director's remuneration of $45,000 and accrued director's
remuneration of $15,000 for the fourth quarter of the fiscal year ended
September 30, 2002.
TRANSACTIONS WITH SHAREHOLDERS
On February 6, 1998, three shareholders (Texon Investments Holding Ltd.,
Intermax Ltd. and Masterpiece Development Ltd.) made a loan of $300,000 (RMB
2,490,614) to us (Texon: $132,206, Intermax: $88,847 and Masterpiece: $78,947).
The loan is repayable at the earlier of three years from May 1, 1998 or sixty
days after demand by all and/or individual shareholders. In consideration of the
loan, we granted to these shareholders options to purchase 754,117 shares of our
common stock at an exercise price of $1.50 (RMB12.42) per share exercisable
during a two years period beginning February 6, 1998. The options were valued
at $241,317 (RMB 1,998,105) based upon the market value of the common stock
underlying the options resulting in deferred loan costs of that amount. Of this
amount, $74,251 has been recognized as an expense during each of the years ended
September 30, 2000 and 1999, and the remaining $42,493, which was deferred at
September 30, 2001, was amortized to expense during the year ended September 30,
2001.
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation as filed with the Delaware Secretary
of State, with amendment. (1)
3.2 Bylaws (1)
10.1 Agreement with Nanchang Organic Fertilizer Factory for the
establishment of Jiangxi Fenglin Chemical Industry Company
Limited (1)
47
10.2 Lease Agreement for Hong Kong office (1)
10.3 Land Lease Agreement for Guangxi Linmao (1)
10.4 Lease Agreement for Jiangxi Fenglin (1)
10.5 Lease Agreement for Jiangxi Jiali (1)
21 Subsidiaries of the Registrant (1)
99.1 Certification by Chief Executive Officer
99.2 Certification by Chief Financial Officer
(1) Included as an exhibit to the Company's Registration Statement on Form
10-SB filed with the Securities and Exchange Commission on May 4, 1999, and
incorporated herein by reference.
(b) Reports on Form 8-K: The Company did not file any Current Reports on Form
8-K during the three months ended September 30, 2002.
48
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AGROCAN CORPORATION
---------------------------------
(Registrant)
Date: January 27, 2003 By: /s/ LAWRENCE HON
---------------------------------
Lawrence Hon
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: January 27, 2003 By: /s/ LAWRENCE HON
---------------------------------
President and Chief
Executive Officer
Date: January 27, 2003 By: /s/ CARL YUEN
---------------------------------
Chief Financial Officer
Date: January 27, 2003 By: /s/ DANNY WU
---------------------------------
Secretary and Director
Date: January 27, 2003 By: /s/ DONALD LAU
---------------------------------
Director
Date: January 27, 2003 By: /s/ NGAI POON
---------------------------------
Director
49
CERTIFICATIONS
I, Lawrence Hon, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of Agrocan Corporation
a Delaware Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 27, 2003
/s/ Lawrence Hon, Chief Executive Officer
-----------------------------------------
Principal Executive Officer
I, Carl Yuen, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of Agrocan Corporation
a Delaware Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 27, 2003
/s/ Carl Yuen, Chief Financial Officer
--------------------------------------
Principal Financial Officer