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, 2003
[ ] 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 98-0352588
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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 March 31, 2003, the Company had 12,473,451 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
- March 31, 2003 (Unaudited) and September 30, 2002 (Audited)
Consolidated Statements of Operations (Unaudited)
- Three Months and Six Months Ended March 31, 2003 and 2002
Consolidated Statements of Cash Flows (Unaudited)
- Six Months Ended March 31, 2003 and 2002
Notes to Consolidated Financial Statements (Unaudited)
- Six Months Ended March 31, 2003 and 2002
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND SEPTEMBER 30, 2002
(UNITED STATES DOLLARS)
(Unaudited) (Audited)
MAR 31, 2003 SEP 30, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 78,932 $ 128,615
Accounts receivable, less allowance for
doubtful accounts of $178,617 797,240 934,600
Other receivables and prepayments 98,970 132,399
Interest receivable 10,389 -
Inventories 585,614 284,886
Amount due from related parties, net 422,415 422,415
Deferred consulting fees 38,100 -
------------- -------------
TOTAL CURRENT ASSETS 2,031,660 1,902,915
ADVANCES RECEIVABLE, NET 117,952 168,145
PROPERTY, PLANT AND EQUIPMENT - NET 629,648 673,209
------------- -------------
TOTAL ASSETS $ 2,779,260 $ 2,744,269
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans-unsecured $ 296,411 $ 296,411
Short-term bank loan 120,482 120,482
Account payable 56,123 82,624
Other payables and accruals 57,799 139,903
Deposits received 499,192 296,375
Amount due to related parties 31,782 341,196
Income tax payable 73,243 72,263
------------- -------------
TOTAL LIABILITIES, ALL CURRENT 1,135,032 1,349,254
MINORITY INTEREST 67,860 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 12,473,451 at March 31, 2003
and 3,673,304 at September 30, 2002 1,247 367
Capital in excess of par value 2,200,112 1,885,251
Retained earnings
Unappropriated (746,549) (686,805)
Appropriated 120,457 120,457
Other comprehensive income 1,101 1,101
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TOTAL SHAREHOLDERS' EQUITY 1,576,368 1,320,371
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,779,260 $ 2,744,269
============= =============
See notes to consolidated financial statements
3
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNITED STATES DOLLARS)
2003 2002
NET SALES $ 216,940 $ 447,129
COST OF SALES 184,724 380,724
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GROSS PROFIT 32,216 66,405
ADMINISTRATIVE AND GENERAL EXPENSES 80,392 80,430
SELLING EXPENSES 2,492 8,664
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LOSS FROM OPERATIONS (50,668) (22,689)
OTHER INCOME (EXPENSE)
Interest income 5,176 11,474
Interest expense (1,799) (391)
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LOSS BEFORE INCOME TAXES (47,291) (11,606)
INCOME TAXES 785 5,117
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LOSS BEFORE MINORITY INTEREST (48,076) (16,723)
MINORITY INTEREST 2,533 355
----------- -----------
NET LOSS $ (45,543) $ (16,368)
=========== ===========
WEIGHT AVERAGE SHARES OUTSTANDING
Basic and diluted 5,360,407 3,059,970
BASIC AND DILUTED LOSS PER SHARES $ (0.01) $ (0.01)
=========== ===========
See notes to consolidated financial statements
4
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2003 AND 2002
(UNITED STATES DOLLARS)
2003 2002
NET SALES $ 486,135 $ 575,036
COST OF SALES 369,299 474,286
----------- -----------
GROSS PROFIT 116,836 100,750
ADMINISTRATIVE AND GENERAL EXPENSES 145,030 125,091
SELLING EXPENSES 34,631 16,554
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LOSS FROM OPERATIONS (62,825) (40,895)
OTHER INCOME (EXPENSE)
Interest income 10,594 11,968
Interest expense (3,613) (3,583)
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LOSS BEFORE INCOME TAXES (55,844) (32,510)
INCOME TAXES 10,684 4,533
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LOSS BEFORE MINORITY INTEREST (66,528) (37,043)
MINORITY INTEREST 6,784 1,191
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NET LOSS $ (59,744) $ (35,852)
=========== ===========
WEIGHT AVERAGE SHARES OUTSTANDING
Basic and diluted 4,754,128 3,059,970
BASIC AND DILUTED LOSS PER SHARES $ (0.01) $ (0.01)
=========== ===========
See notes to consolidated financial statements
5
AGROCAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2003 AND 2002
(UNITED STATES DOLLARS)
2003 2002
OPERATING ACTIVITIES
Net loss $ (59,744) $ (35,852)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Common shares issued for directors' remuneration 60,000 180,038
Depreciation 51,811 36 387
Minority interest in net loss (6,784) (1,191)
Decrease in account receivable 137,360 225,822
Decrease (increase) in other receivables, deposit
and prepayments 33,429 (8,116)
(Increase) in interest receivable (10,389) -
(Increase) in inventories (300,728) (324,144)
Decrease in amounts due from related parties - (74,329)
(Decrease) increase in accounts payable (26,501) (145,705)
(Decrease) increase in tax payable 980 (18,496)
(Decrease) in other payables and accruals (82,104) 84,940
Increase in deposits received 202,817 341,703
(Decrease) increase in amounts due to related parties (91,773) (152,475)
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Net cash provided by (used in) operating activities (91,626) 108,582
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INVESTING ACTIVITIES
Decrease in advances receivable 50,193 -
Additions to property, plant and equipment (8,250) (35,825)
---------- ----------
Net cash used in investing activities 41,943 (35,825)
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FINANCING ACTIVITIES
Repayment of short term bank loan - (119,639)
Proceeds from short term loans - unsecured - 58,434
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Net cash used in financing activities - (61,205)
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Net decrease in cash and cash equivalents (49,683) 11,552
Cash and cash equivalents at beginning of year 128,615 71,309
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Cash and cash equivalents at end of year $ 78,932 $ 82,861
========== ==========
Supplement schedule of non-cash investing
and financing activities
Common shares issued for amount due to related parties $ 277,641 -
Common shares issued for deferred consulting fees $ 38,100 -
Cash paid during the six months for income taxes $ 9,704 $ 23,030
Cash paid during the six months for interest $ 3,613 $ 3,583
See notes to consolidated financial statements
6
AGROCAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
1. THE INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by AgroCan Corporation and
in the opinion of management, reflect all material adjustments which are
necessary to a fair statement of results for the interim periods presented,
including normal recurring adjustments. Certain information and footnote
disclosures made in the most recent annual financial statements included in our
Form 10-KSB for the year ended September 30, 2002, have been condensed or
omitted for the interim statements. It is our opinion that, when the interim
statements are read in conjunction with the September 30, 2002 financial
statements, the disclosures are adequate to make the information presented not
misleading. The results of operations for the six months ended March 31, 2003
and 2002 are not necessarily indicative of the operating results for the full
fiscal year, as the Company's business fluctuates in accordance with planting
seasons resulting in increased revenues in the second and third quarters.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the amount of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the
estimates are made; however, actual results could differ materially from those
results.
The Company reported a 15% decrease in sales during the six months ended March
31, 2003 compared to the six months ended March 31, 2002. The Company believes
that it has adequate funds to support operations for the current fiscal year
ending September 30, 2003.
To address its on-going and long-term cash needs, the Company plans to initiate
discussions with investment banks and financial institutions and attempt to
raise funds to support current and future operations. This includes attempting
to raise additional working capital through the sale of additional capital stock
or through additional bank or third party borrowings. The Company cannot provide
any assurance that it will be able to raise any such funds.
2. INVENTORIES
Inventories at March 31, 2003 and September 30, 2002 are comprised of the
following:
MARCH 31, 2002 SEPTEMBER 30, 2002
USD USD
RAW MATERIALS $ 193,439 $ 110,030
7
FINISHED GOODS 392,175 $ 174,856
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$ 585,614 $ 284,886
============ ============
3. 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.
As of March 31, 2003, the Company has a bank loan of $120,482. The bank loan
bears interest at 6.04% per annum and is originally due April 4, 2003. The bank
loan has been extended and is due on April 2004 and interest at 6.04% per
annum. The loan is guaranteed by a customer of the Company.
4. INCOME TAXES
During the six months ended March 31, 2003, our subsidiaries recorded an income
tax of $10,684. We are subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which each entity is
domiciled. Our British Virgin Islands subsidiary is not liable for income taxes.
Our PRC subsidiaries comprise two wholly owned foreign enterprises and a 70%
held Sino-Foreign Equity Joint Venture. PRC Companies are generally subject to
income taxes at an effective rate of 33% (30% Chinese national income tax plus
3% Chinese state income tax). Two of our PRC subsidiaries, Fenglin and Linmao,
are manufacturing companies operating in special zones, and they are entitled to
a reduced national income taxes rate of 24%. All the subsidiaries are exempt
from state income tax. Further, pursuant to the approval of the relevant PRC tax
authorities, all the subsidiaries have been granted a "tax holidays", whereby
the subsidiaries are fully exempted from PRC income taxes for two years starting
from the year profits are first made, followed by a 50% exemption for the next
three years. In 1999, the two-year, 100% exemption expired for Fenglin and
Linmao, subjecting them to income tax at a rate of 12%. Effective January 1,
2001, the two-year, 100% exemption expired for Jiali and it became subject to
income tax at a rate of 15%. Losses incurred by PRC companies may be carried
forward for five years. Deferred tax assets and liabilities are not considered
material at March 31, 2003 and 2002.
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. CHANGES IN SECURITIES
During the six months ended March 31, 2003, the Company issued 8,800,147 shares
of common stock. Among those shares, 545,454 shares, with an aggregate value of
$60,000, were issued to two of the Company's directors/officers in lieu of cash
as remuneration for their services to the
8
Company, 7,254,693 shares were issued to the shareholders in lieu of cash as
repayment of the shareholders' loan of $217,641 and 1,000,000 shares (see Note
7.) with an aggregate value of $38,100 were issued to two dividuals in lieu of
cash for their consulting services to the Company.
7. CONSULTING AGREEMENTS
As disclosed on April 7, 2003 in a Form S-8 filing with the Securities and
Exchange Commission, on March 28, 2003, the Company entered into one year
consulting agreements with Winnex Enterprises Ltd. and Mr. Wong Wai Hung (the
"Consultants"). The services to be rendered include assisting the Company
through its relationships with potential sources on a best efforts basis in
order to identity sources for the acquisition of the Company's equity securities
in connection with up to $5,000,000. The agreement calls for 500,000 shares of
freely tradable shares of common stock to be issued to each consultant upon the
signing of the agreement and in the event the consultants introduce the Company
to any party that leads to merger and / or acquisition transaction with the
Company that the Consultants will be compensated at the time of closing of the
transaction a fee up to six percent on the transaction based on the number of
shares issued by the Company for the transaction. In accordance with SFAS 123
and EITF 96-18, the Company has accounted for the consulting agreements based on
the fair market value of the Company's stock at the commencement date of the
agreement. The Company recorded $38,100 for deferred consulting fees associated
with this agreement as of March 31, 2003.
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,
2003 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning our expectations regarding sales trends, gross and net
operating margin trends, political and economic matters, the availability of
equity capital to fund our capital requirements, and other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. The forward-looking statements in this Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 2003 are subject to risks and
uncertainties that could cause actual results to differ materially from those
results expressed in or implied by the statements contained herein.
Overview:
AgroCan Corporation was incorporated on December 8, 1997 in the State of
Delaware. Effective December 31, 1997, we issued 1,598,646 shares of common
stock, which represented all of the capital stock outstanding at the completion
of this transaction, to the shareholders of AgroCan (China) Inc., a corporation
incorporated in the British Virgin Islands, in exchange for all of the capital
stock of AgroCan (China) Inc.
Prior to the above transaction, we had no material operations. The AgroCan China
transaction was accounted for as a recapitalization of AgroCan (China) Inc., as
the shareholders of AgroCan (China) Inc. acquired all of the capital stock of
the company in a reverse acquisition. Accordingly, the assets and liabilities of
AgroCan (China) Inc. were recorded at historical cost, and the shares of common
stock issued by the company were reflected in the consolidated financial
statements giving retroactive effect as if we had been the parent company from
inception.
We, through AgroCan (China) Inc., currently own 100% interest in two
wholly-owned subsidiaries, Guangxi Linmao Fertilizer Company Limited ("Guangxi
Linmao") and Jiangxi Jiali Chemical Industry Company Limited ("Jiangxi Jiali").
We, through AgroCan (China) Inc., also own a 70% interest in Jiangxi Fenglin
Chemical Industry Company Limited, a Sino-Foreign Equity Joint Venture ("Jiangxi
Fenglin"). All of the aforementioned entities are located in the People's
Republic of China ("China" or the "PRC").
We account for our interest in Jiangxi Fenglin similar to a majority-owned
subsidiary because of our 70% interest, our contractual ability to appoint four
out of six directors to the Board of Directors, which is the highest authority
for the joint venture, and our right to appoint the Chairman of the Board. Due
to the rights asserted by the PRC partner under customary joint
9
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 our consolidated financial statements.
We produce various compound fertilizers. These ingredients used are blended in
different proportions and packed into 50 kilogram bags. As of March 31, 2003, we
have established an annual production capacity of 125,000 metric tons for
compound fertilizers in Guangxi and Jiangxi, two of the largest agricultural
provinces in China, and we intend to enter markets in other provinces in China.
The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All material
intercompany balances and transactions are eliminated at consolidation. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and have been
presented in 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 RMB 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 USD using 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.
Consolidated Results of Operations:
Three Months Ended March 31, 2003 and 2002:
Sales. The sales for the three months ended March 31, 2003 were $216,940 as
compared to sales of $447,129 for the three months ended March 31, 2002, a
decrease of $230,189 or 51%. The decrease was due to lower demands from our
major customers. The lower demand is due to the bad economic condition.
Subsequent to March 31, 2003, we have increased production levels and sales
order from customers. Management believes that sales for the year ended
September 30, 2003 will approximate as same as the prior year levels.
Gross Profit. Gross profit for the three months ended March 31, 2003 was
$32,216 or 14.9% of revenues, as compared to $66,405 or 14.9% of revenues for
the three months ended March 31, 2002. The gross profit margin unchanged in 2003
as compared to 2002.
Administrative and General Expenses. Administrative and general expenses for
the three months ended March 31, 2003 were $80,392 or 37% of revenues, as
compared to $80,430 or
10
18% of revenues for the three months ended March 31, 2002, a decrease of
$38.
Selling Expenses. Selling expenses for the three months ended March 31, 2003
were $2,492 or 1.1% of revenues, as compared to $8,664 or 1.9% of revenues for
the three months ended March 31, 2002. Selling expenses decreased in 2003
compared to 2002 as a result of decreasing sales due to the lower demand from
major customers.
Loss from Operations. Loss from operations was $50,668 for the three months
ended March 31, 2003, as compared to a loss from operations of $22,689 for the
three months ended March 31, 2002.
Other Income (Expense). We recorded interest income of 5,176 and $11,474 for
the three months ended March 31, 2003 and 2002, respectively.
We recorded interest expense of $1,799 and $391 for the three months ended March
31, 2003 and 2002, respectively. As of March 31, 2003, we had a bank loan of
$120,482, which bears interest at 6.04% per annum and is due on April 2004.
Income Taxes. During the three months ended March 31, 2003, we recorded
income tax of $785. We recognized income tax of $5,117 for the three months
ended March 31, 2002.
Minority Interest. For the three months ended March 31, 2003 and 2002, we
recorded a minority interest of $2,533 and $355 respectively, to reflect the
interest of the Company's 30% joint venture partner in the net income of Jiangxi
Fenglin.
Net Loss. Net loss was $45,543 for the three months ended March 31, 2003, as
compared to a net loss of $16,368 for the three months ended March 31, 2002. The
reason for recording higher net loss for the three months ended March 31, 2003
than the three months ended March 31, 2002 was primarily the result of the
decrease in sales.
Six Months Ended March 31, 2003 and 2002:
Sales. The sales for the six months ended March 31, 2003 were $486,135 as
compared to sales of $575,036 for the six months ended March 31, 2002, a
decrease of $88,901 or 15%. The decrease was due to lower demands from our major
customers. The lower demand is due to the bad economic condition. Subsequent to
March 31, 2003, we have increased production levels and sales order from
customers. Management believes that sales for the year ended September 30, 2003
will approximate as same as the prior year levels.
Gross Profit. Gross profit for the six months ended March 31, 2003 was
$116,836 or 24% of revenues, as compared to $100,750 or 17.5% of revenues for
the six months ended March 31,
11
2002. The gross profit margin increased in 2003 as compared to 2002 as a result
of the company is targeting on the higher profit margin customers.
Administrative and General Expenses. Administrative and general expenses for
the six months ended March 31, 2003 were $145,030 or 30% of revenues, as
compared to $125,091 or 18% of revenues for the six months ended March 31, 2002,
an increase of $19,939. The increase of administrative and general expenses is
higher wages and travel expenses.
Selling Expenses. Selling expenses for the six months ended March 31, 2003
were $34,631 or 7.1% of revenues, as compared to $16,554 or 2.9% of revenues for
the six months ended March 31, 2002, an increase of $18,077. Selling expenses
increased in 2003 compared to 2002 as a result of higher freight for delivering
of our products.
Loss from Operations. Loss from operations was $62,825 for the six months
ended March 31, 2003, as compared to a loss from operations of $40,895 for the
six months ended March 31, 2002.
Other Income (Expense). We recorded interest income of $10,594 and $11,968
for the six months ended March 31, 2003 and 2002, respectively.
We recorded interest expense of $3,613 and $3,583 for the six months ended March
31, 2003 and 2002, respectively. As of March 31, 2003, we had a bank loan of
$120,482, which bears interest at 6.04% per annum and is due on April 2004.
Income Taxes. During the six months ended March 31, 2003, we recorded
income tax of $10,684. We recognized income tax of $4,533 for the six months
ended March 31, 2002.
Minority Interest. For the six months ended March 31, 2003 and 2002, we
recorded a minority interest of $6,784 and $1,191 respectively, to reflect the
interest of the Company's 30% joint venture partner in the net income of Jiangxi
Fenglin.
Net Loss. Net loss was $59,744 for the six months ended March 31, 2003, as
compared to a net loss of $35,852 for the six months ended March 31, 2002. The
reason for recording more net loss for the six months ended March 31, 2003 than
the six months ended March 31, 2002 was primarily the result of the decreasing
sales and higher administrative and general expenses.
Consolidated Financial Condition:
Liquidity and Capital Resources - March 31, 2003
We reported a 15% decrease in sales during the six months ended March 31, 2003
compared to the six months ended March 31, 2002. The Company believes that it
has adequate funds to
12
support operations for the current fiscal year ending September 30, 2003.
To address its on-going and long-term cash needs, we plan to initiate
discussions with investment banks and financial institutions and attempt to
raise funds to support current and future operations. This includes attempting
to raise additional working capital through the sale of additional capital stock
or through additional bank or third party borrowings. We cannot provide any
assurance that it will be able to raise any such funds.
Operating. For the six months ended March 31, 2003, our operations utilized
cash resources of $91,626 as compared to generated $108,582 for the six months
ended March 31, 2002. Our operations utilized more cash resources in 2003 as
compared to 2002 primarily as a result of the settlement of other payables,
including the settlement of shareholders' loans. At March 31, 2003, cash and
cash equivalents decreased by $49,683 to $78,932, as compared to $128,615 at
September 30, 2002. We had working capital of $896,628, at March 31, 2003, as
compared to $553,661 at September 30, 2002, resulting in current ratios of
1.79:1 and 1.41:1 at March 31, 2003 and September 30, 2002, respectively.
Accounts receivable. Accounts receivable decreased by $137,360, to
$797,240 at March 31, 2003, from $934,600 at September 30, 2002. Accounts
receivable decreased during the six months ended March 31, 2003 as a result of
settlement of part of the accounts receivable from customers.
Inventories. Inventories increased by $300,728, to $585,614 at March
31, 2003, from $284,886 at September 30, 2002 in anticipation of the current
selling season during the spring and summer.
Amount due from related parties. Amount due from related parties remained
unchanged between March 31, 2003 and September 30, 2002 as a result of no money
movement to related companies.
Investing. During the six months ended March 31, 2003 and 2002, additions to
property, plant and equipment aggregated $8,250 and $35,825, respectively.
During the six months ended March 31, 2003, there was part of settlement of the
advance receivables of $50,193.
Financing. During the six months ended March 31, 2003, we did not record any
financing activities. During the six months ended March 31, 2002, one of our
subsidiaries repaid $119,639 of the short-term bank loans and proceeded $58,434
from the unsecured short-term loan.
Inflation and Currency Matters:
13
In recent years, the Chinese economy has experienced periods of rapid economic
growth as well as relatively high rates of inflation, which in turn has resulted
in the periodic adoption by the Chinese government of various corrective
measures designed to regulate growth and contain inflation. Since 1993, the
Chinese government has implemented an economic program designed to control
inflation, which has resulted in the tightening of working capital available to
Chinese business enterprises. Our success depends in substantial part on the
continued growth and development of the Chinese economy. During the fiscal
quarters ended March 31, 2003 and 2002, inflation and changing prices have had a
minor impact on our operations and financial position. The actual rate of
inflation in the agricultural sector has been nominal, and the price level of
fertilizer products has been stable.
Foreign operations are subject to certain risks inherent in conducting business
abroad, including price and currency exchange controls, and fluctuations in the
relative value of currencies. Changes in the relative value of currencies occur
periodically and may, in certain instances, materially affect the Company's
results of operations. In addition, the Renminbi is not freely convertible into
foreign currencies, and the ability to convert the Renminbi is subject to the
availability of foreign currencies. Effective December 1, 1998, all foreign
exchange transactions involving the Renminbi must take place through authorized
banks in China at the prevailing exchange rates quoted by the People's Bank of
China. The Company expects that a portion of its revenues will need to be
converted into other currencies to meet foreign exchange currency obligations,
including the payment of any dividends declared.
Although the central government of China has repeatedly indicated that it does
not intend to devalue its currency in the near future, recent announcements by
the central government of China indicate that devaluation is an increasing
possibility. Should the central government of China decide to devalue the
Renminbi, we do not believe that such an action would have a detrimental effect
on our operations, since we conduct virtually all of its business in China, and
the sale of our products is settled in Renminbi. However, devaluation of the
Renminbi against the United States dollar would adversely affect our financial
performance when measured in United States dollars.
New Accounting Pronouncements:
In July 2001, the 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 us in fiscal 2003. We do not expect this standard, when
implemented, to have a material effect on its future results of operations or
financial position.
14
In August 2001, the FASB issued SFAS No.144, "Accounting for 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 Disposal of", and the accounting and reporting provisions of APB Opinion 30,
"Reporting the Results of Operation - Reporting the Effects of Disposal of a
Segment of a Business, and the disposal of a segment of a business. This
statement is effective for us in fiscal 2003. We do not expect the adoption of
Statement No.144 to have a material impact on our 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 us in fiscal 2003. We do not expect the adoption of Statement
No.145 to have a material impact on our 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. We do not expect the adoption of Statement
No.146 to have a material impact on our future results of operations or
financial position.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial
acquisitions of financial institutions, except transactions between two or more
mutual enterprises. The Company does not expect that this standard will have any
effect on its financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123
"Accounting and Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used in reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company does not expect the adoption of SFAS No. 148 to have a
material effect on out financial position, results of operations, or cash flows.
15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the six months ended March 31, 2003, we issued 8,800,147 shares of common
stock. Among those shares, 545,454 shares were issued to two of our directors /
officers, Mr. Danny Wu and Mr. Lawrence Hon, in lieu of cash as remuneration for
their services to the Company. 7,254,693 shares were issued to the shareholders,
Texon Investments Holdings Ltd., Intermax Ltd. and Masterpiece Development Ltd.,
in lieu of cash as repayment to the shareholders' loan. 1,000,000 shares were
issued to two individuals, in lieu of cash for their consulting services to the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification by Chief Executive Officer
99.2 Certification by Chief Financial Officer
(b) Reports on Form 8-K:
During the six months ended March 31, 2003, the Company filed the following
report on the Form 8-K:
Form Filing Date Event Reported
---- ----------- --------------
8-K Oct 4, 2002 A report on Form 8-K (item 4), which announced
changing in the Company's certifying accountant.
8-K/A Oct 23, 2002 A report on Form 8-K/A (item 4), which announced
changing in the Company's certifying accountant.
8-K March 21, 2003 A report on Form 8-K (item 5), which announced
issuing 7,254,693 shares of the Company's common
stock to repay the shareholders' loan
16
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: April 25, 2003 By: /s/ LAWRENCE HON
----------------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: April 25, 2003 By: /s/ CARL YUEN
----------------------
Carl Yuen
Chief Financial Officer
(Principal Financial
and Accounting Officer)
17
CERTIFICATIONS
I, Lawrence Hon, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AgroCan Corporation
a Delaware Corporation;
2. Based on my knowledge, this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: April 25, 2003
/s/ Lawrence Hon, Chief Executive Officer
-----------------------------------------
Principal Executive Officer
18
I, Carl Yuen, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AgroCan Corporation
a Delaware Corporation;
2. Based on my knowledge, this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: April 25, 2003
/s/ Carl Yuen, Chief Financial Officer
--------------------------------------
Principal Financial Officer
19