UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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)
CLI Building, 313 Hennessy Road, Suite 1003, Hong Kong
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(Address of principal executive offices)
011-852-2519-3933
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(Issuer's telephone number)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of March 31, 2001, the Company had 2,334,970 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) - March 31, 2001 and September
30, 2000
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited) - Three Months and Six Months Ended March 31, 2001
and 2000
Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended
March 31, 2001 and 2000
Notes to Consolidated Financial Statements (Unaudited) - Six Months
Ended March 31, 2001 and 2000
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
AGROCAN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, SEPTEMBER 30,
2001 2001 2000
USD RMB RMB
-----------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 477,115 3,960,054 4,616,686
Accounts receivable 4,743,537 39,371,357 38,030,840
Other receivables and prepayments 594,529 4,934,592 480,688
Inventories 459,686 3,815,389 2,787,401
Deposit 57,591 478,009 434,521
Amount due from related parties 359,248 2,981,759 3,748,850
-----------------------------------------
TOTAL CURRENT ASSETS 6,691,707 55,541,160 50,098,986
PROPERTY, PLANT AND EQUIPMENT - NET 802,199 6,658,253 6,297,254
DEFERRED COSTS 6,892 57,200 359,507
-----------------------------------------
TOTAL ASSETS $7,500,797 62,256,613 56,755,747
=========================================
AGROCAN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank loans $ 240,964 2,000,000 -
Short-term loans-unsecured 418,098 3,470,212 3,980,212
Accounts payable 2,700,160 22,411,328 21,159,642
Other payables and accruals 591,893 4,912,708 1,409,816
Notes payable 49,880 414,000 -
Income tax payable 80,499 668,139 847,324
Deposit received 81,051 672,732 1,481,629
Amount due to related parties 502,038 4,166,917 3,663,101
---------- ---------- ----------
TOTAL CURENT LIABILITIES 4,664,582 38,716,036 32,541,724
MINORITY INTEREST 132,519 1,099,909 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 2,334,970 shares at
March 31, 2001 233 1,934 1,934
Capital in excess of par value 1,358,385 11,274,599 11,274,599
Retained earnings
Unappropriated 1,286,853 10,680,881 11,324,705
Appropriated 56,049 465,204 465,204
Other comprehensive income 2,175 18,050 18,050
TOTAL SHAREHOLDERS' EQUITY 2,703,695 22,440,668 23,084,492
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,500,796 62,256,614 56,755,747
========== ========== ==========
See notes to consolidated financial statements.
AGROCAN CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
2001 2001 2000
--------------------------------------
USD RMB RMB
OPERATING ACTIVITIES
Net Income $ (77,569) (643,824) 702,717
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred costs 36,423 302,307 357,229
Depreciation 35,962 298,490 221,135
Minority interest (3,569) (29,622) (128,808)
(Increase) decrease in account receivable (161,508) (1,340,517) (9,135,490)
(Increase) decrease in other receivables and deposits (541,854) (4,497,392) (956,366)
(Increase) decrease in inventories (123,854) (1,027,988) (4,867,977)
(Increase) decrease in amounts due from related parties 92,421 767,091 641,206
Increase (decrease) in accounts payable 150,806 1,251,686 678,162
Increase (decrease) in income tax payable (21,589) (179,185) -
Increase (decrease) in other payables and accruals 422,035 3,502,892 699,480
Increase (decrease) in deposits received (97,458) (808,897) -
Increase (decrease) in advances from customers - - 9,399,040
Increase (decrease) in amounts due to related parties 60,701 503,816 1,371,594
--------------------------------------
Net cash (used in) provided by operating activities (229,055) (1,901,143) (1,018,078)
--------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (79,457) (659,489) (181,172)
--------------------------------------
Net cash used in investing activities (79,457) (659,489) (181,172)
--------------------------------------
FINANCING ACTIVITIES
Repayment of short term bank loan - - (700,000)
Repayment of short term loans - unsecured (61,446) (510,000) -
Increase in note payable 49,880 414,000 -
Proceeds from issurance of common stock - - 20,750
Proceeds from short term bank loan 240,964 2,000,000 780,000
--------------------------------------
Net cash provided by financing activities 229,398 1,904,000 100,750
--------------------------------------
Net (decrease) increase in cash and cash equivalents (79,113) (656,632) (1,098,500)
Cash and cash equivalents, beginning 556,227 4,616,686 5,027,798
Effect of exchange rate changes on cash - - 178
--------------------------------------
Cash and cash equivalents, ending $ 477,114 3,960,054 3,929,476
======================================
See notes to consolidated financial statements.
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended March 31,
----------------------------------
2001 2001 2000
----------------------------------
USD RMB RMB
NET SALES $530,953 4,406,913 14,008,110
COST OF SALES 409,977 3,402,809 11,163,154
----------------------------------
GROSS PROFIT 120,976 1,004,104 2,844,956
ADMINSTRATIVE AND GENERAL EXPENSES 97,555 809,707 2,258,888
SELLING EXPENSES 27,176 225,560 540,496
----------------------------------
INCOME (LOSS) FROM OPERATIONS (3,755) (31,163) 45,572
OTHER INCOME (EXPENSE)
Interest income 4,224 35,058 10,463
Interest expense (2,544) (31,740) -
Commission income - - 251,100
Amortization of loan fees (18,211) (151,153) (154,072)
----------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (20,286) (168,372) 153,063
INCOME TAXES 6,856 56,903 123,636
----------------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST (27,142) (225,275) 29,427
MINORITY INTEREST 849 7,040 49,439
----------------------------------
NET INCOME (LOSS) $(26,293) (218,235) 78,866
==================================
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments - - 2,162
COMPREHENSIVE INCOME (LOSS) (26,293) (218,235) 81,028
==================================
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (CONTINUED)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,334,970 2,334,970 2,188,944
Diluted 2,334,970 2,334,970 2,505,659
BASIC EARNINGS (LOSS) PER SHARE $ (0.01) (0.09) 0.04
----------- ---------- ---------
DILUTED EARNINGS (LOSS) PER SHARE $ (0.01) (0.09) 0.03
----------- ---------- ---------
See notes to consolidated financial statements.
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2001 2000
----------------------------------
USD RMB RMB
NET SALES $795,909 6,606,045 24,600,910
COST OF SALES 608,894 5,053,818 19,968,717
----------------------------------
GROSS PROFIT 187,015 1,552,227 4,632,193
ADMINSTRATIVE AND GENERAL EXPENSES 192,334 1,596,375 3,304,411
SELLING EXPENSES 29,576 245,481 600,996
----------------------------------
INCOME (LOSS) FROM OPERATIONS (34,895) (289,629) 726,786
OTHER INCOME (EXPENSE)
Interest income 2,944 35,058 29,023
Interest expense (2,544) (31,740) -
Commission income - - 251,100
Amortization of loan fees (36,423) (302,306) (308,143)
----------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (70,918) (588,617) 698,766
INCOME TAXES 10,220 84,829 124,857
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INCOME (LOSS) BEFORE MINORITY INTEREST (81,139) (673,446) 573,909
MINORITY INTEREST 3,569 29,622 128,808
----------------------------------
NET INCOME (LOSS) $(77,570) (643,824) 702,717
==================================
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments - - 178
COMPREHENSIVE INCOME (LOSS) (77,570) (643,824) 702,895
==================================
AGROCAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED MARCH 31, 2001 AND 2000
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,334,970 2,334,970 2,180,023
Diluted 2,334,970 2,334,970 2,496,738
BASIC EARNINGS (LOSS) PER SHARE $ (0.03) (0.28) 0.32
----------- ---------- ---------
DILUTED EARNINGS (LOSS) PER SHARE $ (0.03) (0.28) 0.28
----------- ---------- ---------
See notes to consolidated financial statements.
AGROCAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 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 six months ended March 31, 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 March 31, 2001 and September 30, 2000 are comprised of the
following:
MARCH 31, 2001 SEPTEMBER 30, 2000
USD RMB RMB
RAW MATERIALS $319,203 2,649,390 2,238,353
FINISHED GOODS 140,483 1,165,999 549,048
-------- --------- ---------
$459,686 3,815,389 2,787,401
======== ========== =========
3. SHORT-TERM BANK LOANS
During the six months ended March 31, 2001, two of the Company's subsidiaries
arranged a short-term bank loan of RMB 1,000,000 each to fund operations. One of
the loans bears interest at 7.254% and is due on June 12, 2001. The other loan
bears interest at 5.58% and is due on September 15, 2001.
4. INCOME TAXES:
During the six months ended March 31, 2001, the Company's subsidiaries
incurred income taxes of RMB 84,829. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended March 31,
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 March 31, 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
March 31, 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 March 31, 2001 and 2000:
Sales. The sales for the three months ended March 31, 2001 were RMB
4,406,913 as compared to sales of RMB 14,008,110 for the three months ended
March 31, 2000, a decrease of RMB 9,601,197 or 68.5%. The decrease in sales in
2001 as compared to 2000 was due to the delay in the planting schedule as a
result of the unstable weather and as a result of the Chinese New Year holidays
occurring earlier than usual. The planting season did not start until February.
compared to previous years, which had relatively stable and good weather, the
2001 planting season was delayed by one to two months. However, the sales and
production levels have been increased since mid-February and management believes
that sales for the year ended September 30, 2001 will meet prior year levels.
Gross Profit. Gross profit for the three months ended March 31, 2001 was RMB
1,004,104 or 22.78% of sales, as compared to RMB 2,844,956 or 20.31% of revenues
for the three months ended March 31, 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 revenue.
Administrative and General Expenses. Administrative and general expenses for
the three months ended March 31, 2001 were RMB 809,707 or 18.4%, as compared to
RMB 2,258,888 or 16.13% of revenue for the three months ended March 31, 2000, a
decrease of RMB 1,449,181. In view of the reduced level of sales and production
during the quarter ended March 31, 2000, management was able to reduce
administrative and general expenses, primarily in discretionary wages, travel
and office expenses.
Selling Expenses. Selling expenses for the three months ended March 31, 2001
were RMB 225,560 or 5% of revenues, as compared to RMB 540,496 or 3.9% of
revenues for the three months ended March 31, 2000, a decrease of RMB 314,936.
Selling expenses decreased in 2001 as compared to 2000 as a result of a
reduction in sales arising because of the Chinese New Year holidays occurring
earlier than usual, and also as a result of the bad weather and the ensuing
delay in the planting season.
Income from Operations. Loss from operations was RMB 31,163 for the three
months ended March 31, 2001, as compared to an income from operations of RMB
45,572 for the three months ended March 31, 2000.
Other Income (Expense). The Company recorded amortization of loan fees of
RMB 151,153 and RMB 154,072 for the three months ended March 31, 2001 and 2000,
respectively.
Interest Expense. Interest expense for the three months ended March 31, 2001 was
RMB 21,114 or 0.5% of revenues. The company, through one of its subsidiaries,
borrowed RMB 1,000,000 under short-term loans bearing interest at 7.254% in
November 2000 and through another subsidiary borrowed RMB 1,000,000 under
short-term loans bearing interest at 5.58% in March 2001. There were no similar
loans during the quarter ended March 31, 2000.
The Company had interest income of RMB 35,058 for the three months ended March
31, 2001 and RMB 10,463 for the three months ended March 31, 2000.
The Company did not have any commission income for the three months ended March
31, 2001. The Company had commission income of RMB 251,100 for the three months
ended March 31, 2000.
Income Taxes. The Company recognized income taxes of RMB 56,903 and RMB
123,636 for the three months ended March 31, 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%.
Pursuant to the approval of the relevant PRC tax authorities, the subsidiaries
are fully exempted from PRC income taxes for two years starting from the date
profits are first recognized, followed by a 50% exemption for the next three
years.
Minority Interest. For the three months ended March 31, 2001 and 2000, the
Company recorded a minority interest of RMB 7,040 and RMB 49,439 respectively,
to reflect the interest of the Company's 30% joint venture partner in the net
loss of Jiangxi Fenglin.
Net Income / Loss. Net loss was RMB 218,235 for the three months ended March
31, 2001, as compared to a net income of RMB 78,866 for the three months ended
March 31, 2000. Primarily as a result of the decrease in sales.
Six Months Ended March 31, 2001 and 2000:
Sales. Sales for the six months ended March 31, 2001 were RMB 6,606,045, as
compared to sales of RMB 24,600,910 for the six months ended March 31, 2000, a
decrease of RMB 17,994,865 or 73.2%. The decrease in sales in 2001 as compared
to 2000 was due to the delay in the planting schedule as a result of the
unstable weather and as a result of the Chinese New Year holidays occurring
earlier than usual. The planting season did not start until February. Compared
to previous years, which had relatively stable and good weather, the 2001
planting season was delayed by one to two months. However, the sales and
production levels have been increased since mid-February and management believes
that sales for the year ended September 30, 2001 will meet prior year levels.
Gross Profit. Gross profit for the six months ended March 31, 2001 was RMB
1,552,227 or 23.5% of sales. Gross profit for the six months ended March 31,
2000 was RMB 4,632,193 or 18.83% 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 six months ended March 31, 2001 were RMB 1,596,375 or 24.2% of sales, as
compared to RMB 3,304,411 or 13.4% of sales, a decrease of RMB 1,708,036 or
51.7%. 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 six months ended March 31, 2001
were RMB 245,481 or 3.7% of sales, as compared to RMB 600,996 or 2.4% of sales
for the six months ended March 31, 2000, a decrease RMB 355,515 or 59.2%.
Selling expenses decreased in 2001 as compared to 2000 as a result of a
reduction in sales.
Income (Loss) from Operations. Loss from operations was RMB 289,629 for the
six months ended March 31, 2001, as compared to a income from operations of RMB
726,786 for the six months ended March 31, 2000.
Other Income (Expense). The Company recorded amortization of loan fees of
RMB 302,306 and RMB 308,143 for the six months ended March 31, 2001 and 2000,
respectively.
Interest Expense. Interest expense for the six months ended March 31, 2001 was
RMB 31,740 or 0.5% of sales. The company, through one of its subsidiaries,
borrowed RMB 1,000,000 under short-term loans bearing interest at 7.254% in
November 2000, and through another subsidiary borrowed RMB 1,000,000 under
short-term loans bearing interest at 5.58% in March 2001. There were no similar
loans during the quarter ended March 31, 2001.
The Company had interest income of RMB 35,058 and RMB 29,023 for the six months
ended March 31, 2001 and 2000, respectively.
The Company did not record any commission income for the six months ended March
31, 2001, as compared to record RMB 251,100 for the six months ended March 31,
2000.
Income Taxes. The Company recognized income taxes of RMB 84,829 and RMB
124,857 for the six months ended March 31, 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%.
Pursuant to the approval of the relevant PRC tax authorities, the subsidiaries
are fully exempted from PRC income taxes for two years starting from the date
profits are first recognized, followed by a 50% exemption for the next three
years.
Minority Interest. For the six months ended March 31, 2001 and 2000, the
Company recorded a minority interest of RMB 29,622 and RMB 128,808 respectively,
to reflect the interest of the Company's 30% joint venture partner in the net
loss of Jiangxi Fenglin.
Net Income (Loss). Net loss was RMB 643,824 for the six months ended March
31, 2001, as compared to a net income of RMB 702,717 for the six months ended
March 31, 2000.
Consolidated Financial Condition:
Liquidity and Capital Resources - March 31, 2001
Operating. For the six months ended March 31, 2001, the Company's operations
utilized cash resources of RMB 1,901,143 as compared to utilizing cash resources
of RMB 1,018,078 for the six months ended March 31, 2000. The Company's
operations utilized more cash resources in 2001 as compared to 2000 primarily as
a result of losses incurred during 2001. Increases in other receivables and
deposit were financed in substantial part by accounts payable, and other
payables and accruals. At March 31, 2001, cash and cash equivalents had
decreased by RMB 656,632 to RMB 3,960,054, as compared to RMB 4,616,686 at
September 30, 2000. The Company had working capital of RMB 16,825,124 at March
31, 2001, as compared to RMB 17,557,262 at September 30, 2000, resulting in
current ratios of 1.43:1 and 1.54:1 at March 31, 2001 and September 30, 2000,
respectively.
Accounts receivable. Accounts receivable increased by RMB 1,340,517, to
RMB 39,371,357 at March 31, 2001, from RMB 38,030,840 at September 30, 2000.
Accounts receivable increased during the six months ended March 31, 2001 as a
result of extending credit terms offered to certain credit-worthy customers.
Subsequent to the month ended March 31, 2001, an amount of RMB 9,180,000 was
received from customers to settle part of the accounts receivable.
Inventories. Inventories increased by RMB 1,027,988, to RMB 3,815,389
at March 31, 2001, from RMB 2,787,401 at September 30, 2000. Inventories
increased during the six months ended March 31, 2001 in anticipation for the
current selling season.
Amount due from related parties. Amount due from related parties decreased
by RMB 767,091, to RMB 2,981,759 at March 31, 2001, from RMB 3,748,850 at
September 30, 2000 as a result of the repayment from an affiliated company of
approximately RMB 800,000.
Investing. During the six months ended March 31, 2001 and 2000, additions to
property, plant and equipment aggregated RMB 659,489 and RMB 181,172,
respectively.
Financing. During the six months ended March 31, 2001, two of the Company's
subsidiaries arranged short-term bank loans of RMB 1,000,000 each to fund
operations, which will be repaid during 2001. In addition, the Company repaid an
amount of RMB 510,000 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 six months ended March 31, 2001, the Company did not issue any shares
of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
Six Months Ended March 31, 2001 - None
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: By: /s/ LAWRENCE HON
-----------------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: By: /s/ CARL YUEN
------------------------------
Carl Yuen
Chief Financial Officer
(Principal Financial
and Accounting Officer)