UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-25963
AGROCAN CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 706, Dominion Centre, 43-59 Queen's Road East, Hong Kong
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(Address of principal executive offices)
011-852-2519-3933
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(Issuer's telephone number)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2001, the Company had 2,464,970 shares of common stock issued and
outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
AGROCAN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - June 30, 2001 and September
30, 2000
Consolidated Statements of Operations and Comprehensive Income
(Unaudited) - Three Months and Nine Months Ended June 30, 2001 and
2000
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended
June 30, 2001 and 2000
Notes to Consolidated Financial Statements (Unaudited) - Nine Months
Ended June 30, 2001 and 2000
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
AGROCAN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, SEPTEMBER 30,
2001 2001 2000
USD RMB RMB
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 46,386 385,002 4,616,686
Accounts receivable 1,702,675 14,132,207 38,030,840
Other receivables and prepayments 482,053 4,001,045 480,688
Inventories 434,451 3,605,941 2,787,401
Deposits 1,020,160 8,467,324 434,521
Amounts due from related parties 1,517,119 12,592,087 3,748,850
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TOTAL CURRENT ASSETS 5,202,844 43,183,606 50,098,986
PROPERTY, PLANT AND EQUIPMENT - NET 777,995 6,457,355 6,297,254
DEFERRED COSTS - - 359,507
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TOTAL ASSETS $ 5,980,839 49,640,961 56,755,747
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank loans $ 1,204,819 10,000,000 -
Short-term loans-unsecured 410,869 3,410,212 3,980,212
Accounts payable 121,900 1,011,766 21,159,642
Other payables and accruals 617,044 5,121,466 1,409,816
Income tax payable 80,567 668,703 847,324
Deposits received 78,974 655,482 1,481,629
Amounts due to related parties 499,165 4,143,072 3,663,101
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TOTAL CURRENT LIABILITIES 3,013,338 25,010,701 32,541,724
MINORITY INTEREST 135,887 1,127,861 1,129,531
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 2,464,970 shares at June 30, 2001 246 2,042 1,934
Capital in excess of par value 1,358,372 11,274,491 11,274,599
Retained earnings
Unappropriated 1,411,605 11,716,325 11,324,705
Appropriated 56,049 465,204 465,204
Other comprehensive income 5,342 44,337 18,050
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TOTAL SHAREHOLDERS' EQUITY 2,831,614 23,502,399 23,084,492
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,980,839 49,640,961 56,755,747
==========================================
See notes to consolidated financial statements.
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
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2001 2001 2000
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USD RMB RMB
NET SALES $ 1,087,595 9,027,035 14,934,984
COST OF SALES 804,530 6,677,600 11,844,731
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GROSS PROFIT 283,065 2,349,435 3,090,253
ADMINSTRATIVE AND GENERAL EXPENSES 89,223 740,547 771,314
SELLING EXPENSES 48,168 399,793 571,321
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INCOME FROM OPERATIONS 145,674 1,209,095 1,747,618
OTHER INCOME (EXPENSE)
Interest income 495 4,111 3,514
Interest expense (2,543) (32,630) -
Amortization of loan fees (6,892) (57,200) (154,067)
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INCOME BEFORE INCOME TAXES 136,734 1,123,376 1,597,065
INCOME TAXES 7,227 59,981 380,835
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INCOME BEFORE MINORITY INTEREST 129,507 1,063,395 1,216,230
MINORITY INTEREST (3,367) (27,952) (111,334)
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NET INCOME $ 126,140 1,035,443 1,104,896
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OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 3,167 26,287 4,485
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COMPREHENSIVE INCOME 129,307 1,061,730 1,109,381
==========================================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,318,318 2,318,318 2,197,460
Diluted 2,318,318 2,318,318 2,514,175
BASIC EARNINGS PER SHARE $ 0.06 0.46 0.50
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DILUTED EARNINGS PER SHARE $ 0.06 0.46 0.44
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See notes to consolidated financial statements.
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2001 2000
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USD RMB RMB
NET SALES $ 1,883,504 15,633,080 39,535,894
COST OF SALES 1,413,424 11,731,418 31,813,448
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GROSS PROFIT 470,080 3,901,662 7,722,446
ADMINSTRATIVE AND GENERAL EXPENSES 281,557 2,336,922 4,075,725
SELLING EXPENSES 77,744 645,274 1,172,317
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INCOME FROM OPERATIONS 110,779 919,466 2,474,404
OTHER INCOME (EXPENSE)
Interest income 4,719 39,169 32,537
Interest expense (7,755) (64,370) -
Commission income - - 251,100
Amortization of loan fees (43,314) (359,506) (462,210)
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INCOME BEFORE INCOME TAXES 64,429 534,759 2,295,831
INCOME TAXES 17,447 144,810 505,692
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INCOME BEFORE MINORITY INTEREST 46,982 389,949 1,790,139
MINORITY INTEREST 201 1,670 17,474
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NET INCOME $ 47,183 391,619 1,807,613
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OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 3,167 26,287 4,663
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COMPREHENSIVE INCOME 50,350 417,906 1,812,276
==========================================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,318,318 2,318,318 2,185,814
Diluted 2,318,318 2,318,318 2,502,529
BASIC EARNINGS PER SHARE $ 0.02 0.18 0.83
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DILUTED EARNINGS PER SHARE $ 0.02 0.18 0.72
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See notes to consolidated financial statements.
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2001 2000
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USD RMB RMB
OPERATING ACTIVITIES
Net Income $ 47,183 391,619 1,807,613
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred costs 43,314 359,507 530,686
Depreciation 65,992 547,736 290,719
Capital reserve transfer - - 69,248
Minority interest (201) (1,670) (17,474)
(Increase) decrease in account receivable 2,879,353 23,898,633 (21,497,879)
Increase in other receivables, prepayments and deposits (1,391,947) (11,553,160) (1,278,801)
Increase in inventories (98,619) (818,540) (4,051,806)
(Increase) decrease in amounts due from related parties (1,065,450) (8,843,237) 1,137,210
Increase (decrease) in accounts payable (2,427,455) (20,147,876) 13,463,879
Decrease in income tax payable (21,521) (178,621) (269,365)
Increase in other payables and accruals 447,187 3,711,650 4,229,401
Decrease in deposits received (99,536) (826,147) -
Increase in amounts due to related parties 57,828 479,971 1,475,532
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Net cash used in operating activities (1,563,872) (12,980,135) (4,111,037)
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INVESTING ACTIVITIES
Additions to property, plant and equipment (85,281) (707,836) (184,182)
Additions to construction in progress - - (8,242)
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Net cash used in investing activities (85,281) (707,836) (192,424)
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FINANCING ACTIVITIES
Repayment of short term bank loan - - (1,480,000)
Repayment of short term loans - unsecured (68,674) (570,000) -
Proceeds from issuance of common stock - - 22,412
Proceeds from short term bank loans 1,204,819 10,000,000 1,780,000
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Net cash provided by financing activities 1,136,145 9,430,000 322,412
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Net decrease in cash and cash equivalents (513,008) (4,257,971) (3,981,049)
Cash and cash equivalents, beginning 556,227 4,616,686 5,027,798
Effect of exchange rate changes on cash 3,167 26,287 4,663
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Cash and cash equivalents, ending $ 46,386 385,002 1,051,412
==========================================
See notes to consolidated financial statements.
AGROCAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(EXPRESSED IN RENMINBI)
1. THE INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by AgroCan Corporation
and in the opinion of management, reflect all material adjustments which
are necessary to a fair statement of results for the interim periods
presented, including normal recurring adjustments. Certain information and
footnote disclosures made in the most recent annual financial statements
included in the Company's Form 10-KSB for the year ended September 30,
2000, have been condensed or omitted for the interim statements. It is the
Company's opinion that, when the interim statements are read in conjunction
with the September 30, 2000 financial statements, the disclosures are
adequate to make the information presented not misleading. The results of
operations for the nine months ended June 30, 2001 and 2000 are not
necessarily indicative of the operating results for the full fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the amount of revenues and expenses during the
reporting periods. Management makes these estimates using the best
information available at the time the estimates are made; however, actual
results could differ materially from those results.
2. INVENTORIES
Inventories at June 30, 2001 and September 30, 2000 are comprised of the
following:
JUNE 30, 2001 SEPTEMBER 30, 2000
USD RMB RMB
RAW MATERIALS $230,470 1,912,902 2,238,353
FINISHED GOODS 203,981 1,693,039 549,048
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$434,451 3,605,941 2,787,401
======== ========= ==================
3. SHORT-TERM BANK LOANS
During the nine months ended June 30, 2001, three of the Company's
subsidiaries arranged short-term bank loans in the total amount of RMB
10,000,000 to fund operations. One of the loans in the amount of RMB
1,000,000, is due on August 19, 2001 and bears interest at 6.3375%. A
second loan for RMB 1,000,000 is due on June 19, 2002 and bears interest at
5.3625%. A third loan for RMB 5,000,000, bears interest at 6.138% and was
due on July 15, 2001. A fourth loan for RMB 3,000,000, bears interest at
6.138% and is due on September 29, 2001. Subsequent to the three months
ended June 30, 2001, the first and third loans were repaid.
4. INCOME TAXES
During the nine months ended June 30, 2001, the Company's subsidiaries
incurred income taxes of RMB 144,810. 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. As manufacturing
companies, the Company's PRC subsidiaries operate in special zones, which
entitles them to a reduced national income taxes rate of 24%, and the
subsidiaries are exempt from local income tax. Further, pursuant to the
approval of the relevant PRC tax authorities, the subsidiaries are fully
exempted from PRC income taxes for two years starting from the date profits
are first recognized, followed by a 50% exemption for the next three years.
5. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares of common
stock outstanding. Diluted earnings per share assumes the conversion,
exercise or issuance of all potential common stock instruments such as
options, warrants and convertible securities, unless the effect is to
reduce loss per share or increase earnings per share.
6. RELATED PARTY TRANSACTIONS
The Company had made a loan of RMB 9,085,790 to an affiliated entity owned
by two of the Company's directors. The loan is non-interest bearing, and is
due on demand.
7. DEPOSITS
One of the Company's subsidiaries had made refundable deposits of RMB
8,000,000 to its major supplier for purchasing raw material in anticipation
of the next planting season. The raw material is expected to be delivered
to the subsidiary by the end of September 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
2001 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning the Company's expectations regarding sales trends, gross
and net operating margin trends, political and economic matters, the
availability of equity capital to fund the Company's capital requirements, and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 2001 are subject
to risks and uncertainties that could cause actual results to differ materially
from those results expressed in or implied by the statements contained herein.
Overview:
AgroCan Corporation (the "Company") was incorporated on December 8, 1997 in the
State of Delaware. Effective December 31, 1997, the Company issued 1,598,646
shares of common stock, which represented all of the capital stock outstanding
at the completion of this transaction, to the shareholders of AgroCan (China)
Inc., a corporation incorporated in the British Virgin Islands, in exchange for
all of the capital stock of AgroCan (China) Inc. As of December 31, 1997,
AgroCan (China) Inc. owned interests in three subsidiaries or joint ventures as
follows: Jiangxi Jiali Chemical Industry Company Limited (100%), Jiangxi Fenglin
Chemical Industry Company Limited (70%), and Guangxi Linmao Fertilizer Company
Limited (100%), all of which were located in the People's Republic of China
("China" or the "PRC"). Prior to this transaction, the Company had no
significant operations. This transaction was accounted for as a recapitalization
of AgroCan (China) Inc., as the shareholders of AgroCan (China) Inc. acquired
all of the capital stock of the Company in a reverse acquisition. Accordingly,
the assets and liabilities of AgroCan (China) Inc. have been recorded at
historical cost, and the shares of common stock issued by the Company have been
reflected in the consolidated financial statements giving retroactive effect as
if the Company had been the parent company from inception. The historical
consolidated financial statements consist of the combined financial statements
of AgroCan (China) Inc. and its subsidiaries from the dates of their respective
formation or acquisition for all periods presented. All share and per share
amounts presented herein have been adjusted to reflect the two for one stock
split effective February 6, 1998.
AgroCan (China) Inc. was established in 1996 to develop, produce and sell
fertilizers and other products and technologies to enhance the agricultural
output of China. The Company produces various compound fertilizers, which are
the end product made from the combination of three primary nutrients, nitrogen,
phosphate and potassium, mixed together with other elements such as iron, zinc,
copper and manganese. These ingredients are blended in different proportions and
packed into 50-kilogram bags. The Company designs its compound fertilizers for
specific climate, soil and crop requirements of each individual geographic
market. As of June 30, 2001, the Company had established an annual production
capacity of 125,000 metric tons for compound fertilizers in Guangxi and Jiangxi,
two of the largest agricultural provinces in China, and the Company intends to
enter markets in other provinces in China.
Effective October 8, 1996, AgroCan (China) Inc. entered into a joint venture
agreement with Nanchang Organic Fertilizer Factory, a state-owned enterprise in
the PRC, for the establishment of a Sino-Foreign Equity Joint Venture, Jiangxi
Fenglin Chemical Industry Company Limited ("Jiangxi Fenglin"). In exchange for
capital contributions to Jiangxi Fenglin aggregating RMB 2,090,642 through
September 30, 1998, AgroCan (China) Inc. received a 70% equity interest in the
joint venture. Jiangxi Fenglin commenced operations on November 28, 1996, and
became fully operational during the fiscal year ended September 30, 1998. The
Company accounts for its interest in the joint venture similar to a
majority-owned subsidiary because of its 70% interest, its contractual ability
to appoint four out of six directors to the Board of Directors, which is the
highest authority for the joint venture, and the Company's right to appoint the
Chairman of the Board. The Company recognizes that joint venture interests in
the PRC are generally not consolidated in the financial statements of companies
that report under the periodic reporting requirements of the United States
Securities and Exchange Commission due to the rights asserted by the PRC partner
under customary joint venture agreements. However, in view of the above factors
specific to the Company, management believes that it is appropriate to
consolidate the joint venture's operations into the Company's consolidated
financial statements.
AgroCan (China) Inc. also owns 100% of Jiangxi Jiali Chemical Industry Company
Limited ("Jiangxi Jiali").
The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All material
intercompany balances and transactions are eliminated at consolidation. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and have been
presented in Chinese Renminbi ("RMB"). The functional currency of the Company's
PRC operations is the RMB. The accounts of foreign operations are prepared in
their local currency and are translated into RMB using the applicable rate of
exchange. The resulting transaction adjustments are included in comprehensive
income (loss). Transactions denominated in currencies other than the RMB are
translated into RMB at the applicable exchange rates. Monetary assets and
liabilities denominated in other currencies are translated into RMB at the
applicable rate of exchange at the balance sheet date. The resulting exchange
gains or losses are credited or charged to the consolidated statements of
operations.
Consolidated Results of Operations:
Three Months Ended June 30, 2001 and 2000:
Sales. The sales for the three months ended June 30, 2001 were RMB 9,027,035
as compared to sales of RMB 14,934,984 for the three months ended June 30, 2000,
a decrease of RMB 5,907,949 or 39.6%. The decrease in sales in 2001 as compared
to 2000 was due to the bad weather and serious flooding that occurred in the
Guangxi Province resulting in the cessation of almost all planting activities
during June. Since it is close to the end of the planting season, management
believes that it is unlikely that prior year sales level will be achieved.
Gross Profit. Gross profit for the three months ended June 30, 2001 was RMB
2,349,435 or 26% of revenues, as compared to RMB 3,090,253 or 20.7% of revenues
for the three months ended June 30, 2000. The gross profit margin increased in
2001 as compared to 2000 as a result of the Company raising its prices to focus
on higher-margin customers, although total gross profit decreased as a result of
the decline in revenues.
Administrative and General Expenses. Administrative and general expenses for
the three months ended June 30, 2001 were RMB 740,547 or 8.2% of revenues, as
compared to RMB 771,314 or 5.2% of revenues for the three months ended June 30,
2000, a decrease of RMB 30,767. In view of the reduced level of sales and
production during the quarter ended June 30, 2001, management was able to reduce
administrative and general expenses, primarily in discretionary wages, travel
and office expenses.
Selling Expenses. Selling expenses for the three months ended June 30, 2001
were RMB 399,793 or 4.4% of revenues, as compared to RMB 571,321 or 3.8% of
revenues for the three months ended June 30, 2000, a decrease of RMB 171,528.
Selling expenses decreased in 2001 as compared to 2000 as a result of a
reduction in sales arising as a result of the bad weather and the serious
flooding in Guangxi Province.
Income from Operations. Income from operations was RMB 1,209,095 for the
three months ended June 30, 2001, as compared to an income from operations of
RMB 1,747,618 for the three months ended June 30, 2000.
Other Income (Expense). The Company recorded amortization of loan fees of
RMB 57,200 and RMB 154,067 for the three months ended June 30, 2001 and 2000,
respectively.
Interest Expense. Interest expense for the three months ended June 30, 2001
was RMB 32,630 or 0.4% of revenues. The company, through one of its
subsidiaries, borrowed RMB 1,000,000 under short-term loans bearing interest at
6.3375% in November 2000, and through other subsidiary borrowed RMB 1,000,000
under short-term loans bearing interest at 5.3625% in March 2001. The Company
also through another subsidiary borrowed RMB 8,000,000 under short-term loans
bearing interest at 6.138%.
The Company had interest income of RMB 4,111 for the three months ended June 30,
2001 and RMB 3,514 for the three months ended June 30, 2000.
Income Taxes. The Company recognized income taxes of RMB 59,981 and RMB
380,835 for the three months ended June 30, 2001 and 2000, respectively. The
Company is subject to income taxes on an entity basis on income arising in or
derived from the tax jurisdiction in which each entity is domiciled. The
Company's British Virgin Islands subsidiary is not liable for income taxes. The
Company's PRC subsidiaries are subject to income taxes at an effect rate of 33%.
Minority Interest. For the three months ended June 30, 2001 and 2000, the
Company recorded a minority interest of RMB 27,952 and RMB 111,334 respectively,
to reflect the interest of the Company's 30% joint venture partner in the net
income of Jiangxi Fenglin.
Net Income / Loss. Net income was RMB 1,035,443 for the three months ended
June 30, 2001, as compared to a net income of RMB 1,104,896 for the three months
ended June 30, 2000.
Nine Months Ended June 30, 2001 and 2000:
Sales. Sales for the nine months ended June 30, 2001 were RMB 15,633,080, as
compared to sales of RMB 39,535,894 for the nine months ended June 30, 2000, a
decrease of RMB 23,902,814 or 60.5%. The decrease in sales in 2001 as compared
to 2000 was due to the bad weather and as a result of the serious flooding that
occurred in Guangxi Province resulting in the cessation of almost all the
planting activities during June. Since it is close to the end of the planting
season, management believes it is unlikely that prior year sales level will be
achieved.
Gross Profit. Gross profit for the nine months ended June 30, 2001 was RMB
3,901,662 or 25% of sales. Gross profit for the nine months ended June 30, 2000
was RMB 7,722,446 or 19.5% of sales. The gross profit margin increased in 2001
as compared to 2000 as a result of the Company raising its prices to focus on
higher-margin customers, although total gross profit decreased as a result of
the decline in revenue.
Administrative and General Expenses. Administrative and general expenses for
the nine months ended June 30, 2001 were RMB 2,336,922 or 15% of sales, as
compared to RMB 4,075,725 or 10.3% of sales, a decrease of RMB 1,738,695 or
42.7%. Administrative and general expenses, in particular salaries and related
costs, decreased in 2001 as compared to 2000 primarily as a result of decreases
in costs incurred to support and expand business operation, including costs
related to travel and office expenses, as well as legal and professional fees.
Selling Expenses. Selling expenses for the nine months ended June 30, 2001
were RMB 645,274 or 4.1% of sales, as compared to RMB 1,172,317 or 3% of sales
for the nine months ended June 30, 2000, a decrease RMB 527,043 or 45%. Selling
expenses decreased in 2001 as compared to 2000 as a result of a reduction in
sales.
Income (Loss) from Operations. Income from operations was RMB 919,466 for
the nine months ended June 30, 2001, as compared to an income from operations of
RMB 2,474,404 for the nine months ended June 30, 2000.
Other Income (Expense). The Company recorded amortization of loan fees of
RMB 359,506 and RMB 462,210 for the nine months ended June 30, 2001 and 2000,
respectively.
Interest Expense. Interest expense for the nine months ended June 30, 2001
was RMB 64,370 or 0.4% of sales. The company, through one of its subsidiaries,
borrowed RMB 1,000,000 under short-term loans bearing interest at 6.3375% in
November 2000, and through other subsidiary borrowed RMB 1,000,000 under
short-term loans bearing interest at 5.3625% in March 2001. The Company also
through another subsidiary borrowed RMB 8,000,000 under short-term loans bearing
interest at 6.138%.
The Company had interest income of RMB 39,169 and RMB 32,537 for the nine months
ended June 30, 2001 and 2000, respectively.
The Company did not earn any commission income for the nine months ended June
30, 2001, as compared to RMB 251,100 for the nine months ended June 30, 2000.
Income Taxes. The Company recognized income taxes of RMB 144,810 and
RMB 505,692 for the nine months ended June 30, 2001 and 2000, respectively. The
Company is subject to income taxes on an entity basis on income arising in or
derived from the tax jurisdiction in which each entity is domiciled. The
Company's British Virgin Islands subsidiary is not liable for income taxes. The
Company's PRC subsidiaries are subject to income taxes at an effect rate of 33%.
Minority Interest. For the nine months ended June 30, 2001 and 2000, the
Company recorded a minority interest of RMB 1,670 and RMB 17,474 respectively,
to reflect the interest of the Company's 30% joint venture partner in the net
loss of Jiangxi Fenglin.
Net Income. Net income was RMB 391,511 for the nine months ended June 30,
2001, as compared to net income of RMB 1,807,613 for the nine months ended June
30, 2000.
Consolidated Financial Condition:
Liquidity and Capital Resources - June 30, 2001
Operating. For the nine months ended June 30, 2001, the Company's operations
utilized cash resources of RMB 12,980,133 as compared to utilizing cash
resources of RMB 4,111,037 for the nine months ended June 30, 2000. The
Company's operations utilized more cash resources in 2001 as compared to 2000
primarily as a result of making a total of RMB 8,000,000 in trading deposits
with one of the major suppliers. Increases in other receivables and deposits
were financed by a short-term loan of RMB 8,000,000 from a local bank. At June
30, 2001, cash and cash equivalents had decreased by RMB 4,257,969 to RMB
385,002, as compared to RMB 4,616,686 at September 30, 2000. The Company had
working capital of RMB 18,172,905, at June 30, 2001, as compared to RMB
17,557,262 at September 30, 2000, resulting in current ratios of 1.73:1 and
1.54:1 at June 30, 2001 and September 30, 2000, respectively.
Accounts receivable. Accounts receivable decreased by RMB 23,898,633,
to RMB 14,132,207 at June 30, 2001, from RMB 38,030,840 at September 30, 2000.
Accounts receivable decreased during the nine months ended June 30, 2001 as a
result of settlement of part of the accounts receivable.
Inventories. Inventories increased by RMB 818,540, to RMB 3,605,941 at
June 30, 2001, from RMB 2,787,401 at September 30, 2000. Since the production
stopped in July, inventories increased during the nine months ended June 30,
2001 in anticipation of the rest of the year.
Amount due from related parties. Amount due from related parties increased
by RMB 8,843,237, to RMB 12,592,087 at June 30, 2001, from RMB 3,748,850 at
September 30, 2000 as a result of making loan to an affiliated company of
approximately RMB 9,000,000.
Investing. During the nine months ended June 30, 2001 and 2000, additions to
property, plant and equipment aggregated RMB 707,836 and RMB 192,424,
respectively.
Financing. During the nine months ended June 30, 2001, three of the
Company's subsidiaries arranged short-term bank loans with total amount of RMB
10,000,000 to fund operations. These are to be repaid within one year. In
addition, the Company repaid an amount of RMB 570,000 of unsecured short-term
loans.
The Company anticipates, based on currently proposed plans and assumptions
relating to its existing operations, that its projected cash flows from
operations will be sufficient to support its planned operations for the next
twelve months. Depending on the Company's rate of growth, the Company may seek
additional capital in the future to support expansion of operations and
acquisitions.
Inflation and Currency Matters:
In recent years, the Chinese economy has experienced periods of rapid economic
growth as well as relatively high rates of inflation, which in turn has resulted
in the periodic adoption by the Chinese government of various corrective
measures designed to regulate growth and contain inflation. Since 1993, the
Chinese government has implemented an economic program designed to control
inflation, which has resulted in the tightening of working capital available to
Chinese business enterprises. The success of the Company depends in substantial
part on the continued growth and development of the Chinese economy.
Foreign operations are subject to certain risks inherent in conducting business
abroad, including price and currency exchange controls, and fluctuations in the
relative value of currencies. Changes in the relative value of currencies occur
periodically and may, in certain instances, materially affect the Company's
results of operations. In addition, the Renminbi is not freely convertible into
foreign currencies, and the ability to convert the Renminbi is subject to the
availability of foreign currencies.
Effective December 1, 1998, all foreign exchange transactions involving the
Renminbi must take place through authorized banks in China at the prevailing
exchange rates quoted by the People's Bank of China. The Company expects that a
portion of its revenues will need to be converted into other currencies to meet
foreign exchange currency obligations, including the payment of any dividends
declared.
Although the central government of China has repeatedly indicated that it does
not intend to devalue its currency in the near future, recent announcements by
the central government of China indicate that devaluation is an increasing
possibility. Should the central government of China decide to devalue the
Renminbi, the Company does not believe that such an action would have a
detrimental effect on the Company's operations, since the Company conducts
virtually all of its business in China, and the sale of its products is settled
in Renminbi. However, devaluation of the Renminbi against the United States
dollar would adversely affect the Company's financial performance when measured
in United States dollars.
New Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
which is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those item as
assets or liabilities in the statement of financial position and measure them at
fair value. SFAS No. 133 also addresses the accounting for hedging activities.
The Company will adopt SFAS No. 133 for its fiscal year beginning January 1,
2001. The Company does not expect that adoption of SFAS No. 133 will have a
material impact on its financial statement presentation or disclosures.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101, as amended by SAB No. 101A and SAB No. 101B, is
effective no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. SAB No. 101 provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
Currently, the Company believes that it complies with the accounting and
disclosure described in SAB No. 101; therefore, management believes that SAB No.
101 will not impact the Company's financial statements.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sales of Equity Securities
During the nine months ended June 30, 2001, the Company issued 130,000 shares of
common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
During the nine months ended June 30, 2001, the Company filed the following
report on Form 8-K:
Form Filing Date Event Reported
---- ------------ ---------------
8-K May 25, 2001 A report on Form 8-K (item 5), which announced the
Company's principal executive office was relocated.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AGROCAN CORPORATION
-------------------
(Registrant)
Date: August 20, 2001 By: /s/ LAWRENCE HON
--------------------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: August 20, 2001 By: /s/ CARL YUEN
---------------------------------
Carl Yuen
Chief Financial Officer
(Principal Financial
and Accounting Officer)