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EXCEL - IDEA: XBRL DOCUMENT - AMAYA Global Holdings Corp.Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - AMAYA Global Holdings Corp.v367030_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - AMAYA Global Holdings Corp.v367030_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - AMAYA Global Holdings Corp.v367030_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - AMAYA Global Holdings Corp.v367030_ex32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: December 31, 2013
 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to____________
 
Commission File Number: 333-174874
 
GENERAL AGRICULTURE CORPORATION
(Exact name of the registrant as specified in its charter)
 
Delaware
 
35-2379917
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
 
 
 
Room 801, Plaza B, Yonghe Building,
No.28 AnDingMen East Street,
Dongcheng District, Beijing, China.
 
Postal Code : 100007
(Address of principal executive offices)
 
(Zip Code)
 
Phone: +86-10-64097316
Fax: +86-10-64097026
 (Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
 
Accelerated filer
 
¨
Non-accelerated filer
¨
(Do not check if a smaller
reporting company)
Smaller Reporting Company
 
x
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
 
Number of shares of common stock outstanding as of February 14, 2014: 15,918,940
 
 
 
TABLE OF CONTENTS
 
 
Page
 
 
PART I – FINANCIAL INFORMATION
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
23 
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
30 
 
 
ITEM 4. CONTROLS AND PROCEDURES
30 
 
 
PART II – OTHER INFORMATION
31 
 
 
ITEM 1. LEGAL PROCEEDINGS
31 
 
 
ITEM 1A. RISK FACTORS
31 
 
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
31 
 
 
ITEM 3. DEFAULT UPON SENIOR SECURITIES
31 
 
 
ITEM 4. MINE SAFETY DISCLOSURES
31 
 
 
ITEM 5. OTHER INFORMATION
31 
 
 
ITEM 6. EXHIBITS
31 
 
 
2

 
PART I– FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
 
CONSOLIDATED FINANCIAL STATEMENTS
 
December 31, 2013 AND 2012
 
(UNAUDITED)
 

Table of Contents

 
 
 
Page
 
 
 
Consolidated Balance Sheets
 
4
Consolidated Statements of Operations and Comprehensive Income
 
5
Consolidated Statements of Cash Flows
 
6
Notes to Consolidated Financial Statements (Unaudited)
 
7
 
 
3

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Consolidated Balance Sheets
 
 
 
December 31, 2013
 
September 30, 2013
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
642,356
 
$
2,408,520
 
Accounts receivable
 
 
3,928,348
 
 
-
 
Inventory
 
 
3,389,128
 
 
4,074,166
 
Advance payments
 
 
1,930,479
 
 
24,438
 
Prepaid lease- current, net
 
 
2,965,101
 
 
2,372,480
 
Other current assets
 
 
408,296
 
 
15,625
 
Total Current Assets
 
 
13,263,708
 
 
8,895,229
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
14,858,816
 
 
15,108,031
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
Intangibles, net
 
 
157,663
 
 
158,020
 
Prepaid leases – non current, net
 
 
20,906,584
 
 
18,000,267
 
Total Other Assets
 
 
21,064,247
 
 
18,158,287
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
 
$
49,186,771
 
$
42,161,547
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
 
405,572
 
 
208,325
 
Short-term bank loans
 
 
5,562,400
 
 
5,542,000
 
Due to related parties
 
 
963,639
 
 
718,261
 
Customer deposits
 
 
3,049,405
 
 
-
 
Other current liabilities
 
 
133,673
 
 
45,865
 
Total Current Liabilities
 
 
10,114,689
 
 
6,514,451
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
10,114,689
 
 
6,514,451
 
 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
 
 
 
 
 
 
 
$0.0001 par value, 200,000,000 shares authorized 15,918,940 shares issued and outstanding at December 31, 2013 and September 30, 2013, respectively
 
 
1,592
 
 
1,592
 
Additional paid-in capital
 
 
4,909,572
 
 
4,909,572
 
Statutory reserves
 
 
2,885,384
 
 
2,508,735
 
Retained earnings
 
 
28,583,900
 
 
25,678,005
 
Accumulated other comprehensive income
 
 
2,691,635
 
 
2,549,192
 
Total stockholders’ equity
 
 
39,072,082
 
 
35,647,096
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
49,186,771
 
$
42,161,547
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.) 

Consolidated Statements of Operations and Comprehensive Income(Loss)

(Unaudited)

 
 
 
For the Three Months Ended December 31
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Sales
 
$
7,126,875
 
$
7,440,677
 
 
 
 
 
 
 
 
 
Cost of sales
 
 
3,273,264
 
 
3,400,608
 
 
 
 
 
 
 
 
 
Gross profit
 
 
3,853,611
 
 
4,040,069
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Selling expenses
 
 
59,134
 
 
396,403
 
General and administrative expenses
 
 
461,179
 
 
212,003
 
Total operating expenses
 
 
520,313
 
 
608,406
 
 
 
 
 
 
 
 
 
Income from operations
 
 
3,333,298
 
 
3,431,663
 
 
 
 
 
 
 
 
 
Other income (expenses):
 
 
 
 
 
 
 
Government subsidy
 
 
-
 
 
111,321
 
Interest income
 
 
709
 
 
1,092
 
Interest expense
 
 
(61,681)
 
 
(52,777)
 
Other income(expense), net
 
 
10,218
 
 
11,981
 
Total other income(expenses)
 
 
(50,755)
 
 
71,617
 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
 
3,282,543
 
 
3,503,280
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
 
-
 
 
-
 
Net income
 
 
3,282,543
 
 
3,503,280
 
 
 
 
 
 
 
 
 
Other comprehensive income
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
 
142,443
 
 
60,491
 
Total comprehensive income
 
$
3,424,986
 
$
3,563,771
 
 
 
 
 
 
 
 
 
Basic earning per share
 
$
0.21
 
$
0.22
 
Diluted earning per share
 
$
0.21
 
$
0.22
 
 
 
 
 
 
 
 
 
Weighted average number of common stock outstanding
 
 
 
 
 
 
 
Basic
 
 
15,918,940
 
 
15,918,940
 
Diluted
 
 
15,918,940
 
 
15,918,940
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
5

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)

Consolidated Statements of Cash Flows

(Unaudited)

 
 
 
For the Three Months Ended December 31,
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net Income
 
 
3,282,543
 
 
3,503,280
 
 
 
 
 
 
 
 
 
Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
 
 
 
Long-term advance payments amortized in current period
 
 
638,116
 
 
391,824
 
Depreciation and amortization
 
 
285,209
 
 
274,967
 
Changes in current assets and current liabilities:
 
 
 
 
 
 
 
Accounts receivable
 
 
(3,918,743)
 
 
(3,572,389)
 
Inventory
 
 
718,132
 
 
1,453,562
 
Advance payments
 
 
(1,901,291)
 
 
(3,356,031)
 
Prepaid leases
 
 
(4,053,692)
 
 
-
 
Other current assets
 
 
(391,654)
 
 
(2,357)
 
Accounts payable and accrued expenses
 
 
196,407
 
 
150,572
 
Customer deposits
 
 
3,041,949
 
 
286,254
 
Other current liabilities
 
 
87,427
 
 
59,043
 
Total adjustments
 
 
(5,298,140)
 
 
(4,314,555)
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
 
 
(2,015,597)
 
 
(811,275)
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Acquisition of property and equipment
 
 
-
 
 
(18,988)
 
Addition to construction in progress
 
 
-
 
 
(44,121)
 
Net cash used in investing activities
 
 
-
 
 
(63,109)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Restricted cash
 
 
-
 
 
278,303
 
Proceeds from short-term bank loans
 
 
5,548,800
 
 
1,224,531
 
Repayment of short-term bank loans
 
 
(5,548,800)
 
 
-
 
Due to shareholder
 
 
244,913
 
 
88,779
 
Net cash provided by financing activities
 
 
244,913
 
 
1,591,613
 
 
 
 
 
 
 
 
 
Effect of foreign currency translation
 
 
4,520
 
 
(607)
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
 
(1,766,164)
 
 
716,622
 
 
 
 
 
 
 
 
 
Cash and cash equivalents – beginning of period
 
 
2,408,520
 
 
351,045
 
Cash and cash equivalents – ending of period
 
 
642,356
 
 
1,067,667
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid for interest
 
$
61,681
 
$
52,777
 
 
 
 
 
 
 
 
 
Supplemental schedule of non-cash activities
 
 
 
 
 
 
 
Transfer from construction in progress to fixed assets
 
$
217,580
 
$
59,294
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
6

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 1 – Organization and Nature of Business
 
Geltology Inc. (“Gelt”) was established under the laws of the State of Delaware on March 24, 2010. On July 12, 2013, Gelt filed with the Secretary of State, Delaware a Certificate of Amendment to change its name to General Agriculture Corporation. The accompanying unaudited consolidated financial statements include the financial statements of General Agriculture Corporation and its subsidiaries (collectively, the “Company”). The Company is primarily engaged in planting, preserving, packaging and marketing premium navel oranges for distribution and sale throughout the People’s Republic of China (“PRC”).
 
On July 11, 2012, Gelt completed a reverse acquisition of General Red Holding, Inc. (“GRH”), which was established under the laws of the State of Delaware on January 18, 2011. To accomplish the Share Exchange Agreement, Gelt issued to GRH an aggregate of 125,112,803 shares of the common stock of Gelt, at par value of $0.0001 per share. Gelt was delivered with zero assets and zero liabilities at time of closing. Immediately prior to the Share Exchange, Gelt had 6,750,000 shares of Common Stock issued and outstanding. Simultaneously with the transaction, the two principal shareholders of Gelt surrendered for cancellation an aggregate of 4,513,252 shares of Common Stock beneficially owned by them. The transaction was regarded as a reverse merger whereby GRH was considered to be the accounting acquirer. Although the Company is a legal parent company, the share exchange was treated as a recapitalization of GRH. Thus, GRH is the continuing entity for financial reporting purposes. The financial statements have been prepared as if GRH had always been the reporting company and then on the share exchange date, had reorganized its capital stock.
 
On September 30, 2011, GRH entered into a Share Transfer and Issuance Agreement (the “Agreement”) with Han Glory International Investment Limited (“Han Glory International”), a company incorporated on April 28, 2011 under the laws of British Virgin Islands and Hua Mei Investments Limited (“Hua Mei”), a company incorporated on April 26, 2011 under the laws of the British Virgin Islands. Under the Agreement, GRH issued 74,814,862 shares to Hua Mei, the sole stockholder of Han Glory International, in exchange for all shares and beneficial interest of Han Glory International. This transaction is treated as a reverse merger, and therefore, after the share exchange, Han Glory International became the wholly owned subsidiary of GRH.
 
On May 18, 2011, Han Glory International purchased all shares of Greater China International Investment Limited (“Greater China International”), a company incorporated on December 4, 2009 under the laws of Hong Kong, from Zhihao Zhang, the sole stockholder of Greater China International, for $1,290 (HK$10,000). As a result, Greater China International became the wholly owned subsidiary of Han Glory International.
 
On January 13, 2010, Greater China International formed Nanchang Hanxin Agriculture Technology Co., Ltd, a wholly foreign-owned enterprise (“WFOE”) in the city of Nanchang, Jiangxi Province, the People’s Republic of China (“PRC”).
 
On February 5, 2010, WFOE purchased all shares of Xingguo General Fruit Industry Development Co., Ltd (“General Fruit”) from Jiangjun Hong Group Co., Ltd., Xingping Hou and Jiefeng Ren for $293,400. As a result, WFOE acquired 100% interest in General Fruit. This transaction was a capital transaction in substance. That is, the transaction was a reverse recapitalization, equivalent to the issuance of stock by General Fruit for the net monetary assets of WFOE accompanied by a recapitalization.
 
General Fruit was formed in Xingguo County, Jiangxi Province, under the corporate laws of PRC on March 5, 2003. The primary business of General Fruits is to grow and sell navel oranges. On July 14, 2008, after a series of equity transfer agreements, General Fruits acquired 90% interest in Xingguo General Red Navel Orange Preservation Company, Ltd. (“General Preservation”). On July 25, 2010, General Fruits purchased the remaining 10% interest in General Preservation from Xingping Hou, the minority stockholder, for $295,000 (RMB 2,000,000) and owns 100% of General Preservation thereafter.
 
 
7

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 1 – Organization and Nature of Business
 
General Preservation, a citrus fruits company primarily engaged in preserving, packaging and marketing premium navel oranges, was formed as a limited liability company in Xingguo County, Jiangxi Province under PRC laws on November 22, 2005. General Preservation provides wholesale, retail, and institutional customers in China and several other countries with premium navel orange fruits under the trademark of “General Red”.
 
On September 26, 2011, GRH purchased all shares of Sheng Da Holding Limited (“Sheng Da BVI”), a company incorporated on May 18, 2011 under the laws of the British Virgin Islands, from General Red Company, Ltd (“General Red BVI”), a limited liability company incorporated on August 28, 2008 under the laws of British Virgin Islands, for $23,000. As a result, Sheng Da BVI became the wholly owned subsidiary of GRH. On September 29, 2011, Sheng Da BVI entered into a series of new agreements to terminate the old agreements with General Preservation, which were originally signed between General Red BVI and General Preservation on November 17, 2008, amended on June 10, 2011, and transferred to Sheng Da BVI by General Red BVI on June 30, 2011. The old agreements included a Consultation Agreement, an Operating Agreement, a Share Pledge Agreement, a Proxy Agreement and an Option Agreement. Upon the entry of these new agreements, General Preservation is no longer the Variable Interest Entity of Sheng Da BVI.
 
On June 28, 2013, at the Annual Meeting of stockholders, the stockholders of the Company approved  an amendment  to the Company’s Certificate of Incorporation. On June 28, 2013, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Charter (the “Charter Amendment”).  Pursuant to the Charter Amendment, the Company’s Charter was amended, effective as of July 12, 2013, to affect a reverse stock  split of the Company’s  shares of common stock. On July 12, 2013, the Company affected the 1 for 8 reverse split of the Company’s issued and outstanding common stock, decreasing the number of outstanding shares from 127,349,551 to 15,918,940. These statements have been retroactively adjusted to reflect this reverse split.

Note 2 – Summary of Significant Accounting Policies
 

Basis of Presentation and Consolidation

 
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“US GAAP”). The unaudited consolidated financial statements include the accounts of General Agriculture Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
 
The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2013 and the results of operations and cash flows for the three month periods ended December 31, 2013 and 2012. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended December 31, 2013 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending September 30, 2014. The balance sheet at September 30, 2013 has been derived from the audited financial statements at that date. Due to the interim disclosures generally do not repeat those in the annual statements, such financial information should be read in conjunction with the audited consolidated financial statements in the Companys Annual Report for the year ended September 30, 2013.
 
 
8

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 

Change in Fiscal Year

 

On September 28, 2012, the Company’s board of directors approved a change in fiscal year-end from December 31 to September 30. The fiscal year-end change became effective September 30, 2012.
 

Seasonal Nature of Operations

 
The Company’s operations are seasonal based on the maturity stage of its products. Sales are concentrated during the months from October through December and from January through March, corresponding to the Company’s product maturity cycle which begins in the month of October when the products mature and are ready for sale.
 

Foreign Currency Translation and Transactions

 
The accompanying unaudited consolidated financial statements are presented in U.S. dollars (“USD”). Great China International’s functional currency is Hong Kong Dollar (“HKD”) and Nanchang Hanxin Agriculture Technology Co., Ltd, General Fruit and General Preservation’s functional currency is Chinese Yuan Renminbi (“RMB”). The unaudited consolidated financial statements are translated into USD in accordance with the Codification ASC 830, Foreign Currency Matters.  All assets and liabilities were translated at the current exchange rate, at respective balance sheets dates, stockholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in stockholders’ equity in Accordance with the Codification ASC 220, Comprehensive Income.
 
Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.  There were no material transaction gains or losses in the periods presented.
 
Cash flow from the Company’s operations included in the statement of cash flows is calculated based upon the functional currency using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with arithmetical changes in the corresponding balances on the consolidated balance sheets. No presentation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
 
The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company since it has not engaged in any significant transactions that are subject to the restrictions.
 
 
9

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were as follows:
 
 
 
December 31,
 
September 30,
 
 
 
2013
 
2013
 
Period end RMB:USD exchange rate
 
0.1636
 
0.1630
 
Average RMB:USD exchange rate
 
0.1632
 
0.1605
 
Period end HKD:USD exchange rate
 
0.1290
 
0.1290
 
Average HKD:USD exchange rate
 
0.1290
 
0.1289
 
 
Use of Estimates
 
The preparation of unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from these estimates.  Significant items subject to such estimates and assumptions include the recoverability of the carrying amounts of recorded assets and liabilities, estimated useful life of property and equipment, inventory obsolesce and the allowance for doubtful accounts.
 
Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s financial statements.
 
If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three months or less.
 
 
10

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
Accounts Receivable
 
Accounts receivable are recorded net of allowance for doubtful accounts. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. Periodically, management assesses customer credit history and relationships as well as performs accounts receivable aging analysis. Based on the results, management determines whether certain balances are deemed uncollectible at the end of each period. Using its past collection experience, the Company reserves 0.3% of accounts receivable balances outstanding between six months and twelve months, 3% of accounts receivable outstanding for more than one year but less than two years, and 100% of accounts receivable balances outstanding for more than two years. As of December 31, 2013 and September 30, 2013, no allowance was deemed necessary as all receivables were aged less than six months.
 
Inventories
 
Inventory is stated at the lower of cost or market. Cost is determined using the weighted-average cost method. Provisions are made for excess, slow moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable values, if any. Management continually evaluates the recoverability based on assumptions about customer demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves or write-downs may be required that could negatively impact our gross margin and operating results. As of December 31, 2013 and September 30, 2013, no provisions were deemed necessary as no obsolete and slow-moving inventories were observed.
 
Property and Equipment
 
Property and equipment are stated at cost. Depreciation is calculated based on the straight-line method over the estimated useful lives of the assets as follows:
 
 
 
Estimated Useful Life
 
Electronic equipment
 
5 years
 
Vehicles
 
10 years
 
Machinery and equipment
 
5 to 15 years
 
Buildings and improvements
 
5 to 20 years
 
Navel orange orchards
 
11 to 30 years
 
 
Construction in progress primarily represents the construction costs of buildings, machinery, equipment and agricultural improvements made to orchards. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences.
 
Navel orange orchards consist of orchards the Company planted and acquired from local farmers. The planting cost includes cost related to land leveling, saplings, fertilizer, labor and facility on orchard lands. The planting cost was recorded as the property cost. In 2008 and 2011, the Company directly acquired certain navel orange trees from local farmers and recorded the purchase cost as property cost.
 
 
11

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
Cost of repairs and maintenance is expensed as incurred. Gain or loss on disposal of property and equipment, if any, is recognized in the statements of operations and comprehensive income.
 
Impairment of Long-Lived Assets
 
Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
 
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. As of December 31 2013 and September 30, 2013, there was no impairment of long-lived assets.
 
Intangible Assets
 
Intangible assets are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented. Land use rights with a finite useful life are amortized on a straight-line basis over its estimated useful life of 50 years.
 
Revenue Recognition
 
The Company derives its revenue primarily from sale of navel oranges. Revenue is recognized in accordance with the provisions of ASC Topic 605, which provides that revenue is recognized when products are shipped, title and risk of loss is passed to the customers and collection is reasonably assured. Payments received before the above criteria are satisfied are recorded as advances from customers.
 
Income Tax
 
The Company has adopted the provisions of ASC subtopic 740-10 (“ASC 740-10”), Income taxes: Overall (Pre-Codification: FIN 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109). ASC 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognizing, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
The Company applies the provisions of ASC 740-10, Accounting For Uncertainty In Income Taxes, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in its combined financial statements. ASC 740-10 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740-10 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements.
 
 
12

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
All of the Company’s income is generated in the PRC, accordingly, its income tax provision is calculated based on the applicable tax rates and existing legislation, interpretation and practices in respect thereof.
 
Comprehensive Income
 
Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income and foreign currency translation adjustments.
 
The accumulated other comprehensive income balances at December 31, 2013 and September 30, 2013 were approximately $2,691,635 and $2,549,192, respectively, and are comprised entirely of foreign currency translation adjustments. Comprehensive income for the three months ended December 31, 2013 and 2012 was as follows.
  
 
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
Comprehensive income
 
 
 
 
 
 
 
Net income
 
$
3,282,543
 
$
3,503,280
 
Foreign currency translation adjustement
 
 
142,443
 
 
60,491
 
Comprehensive income
 
$
3,424,986
 
$
3,563,771
 
 
Advertising Expense
 
The Company expenses all advertising expenses as incurred. Advertising expenses included in selling expenses were $1,860 and $17,194 for the three months ended December 31, 2013 and 2012, respectively.
 
Shipping and Handling
 
All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $20,846 and $364,728 for the three months ended December 31, 2013 and 2012, respectively.
 
 
13

  
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
Statutory Reserves
 
Pursuant to the applicable laws in the PRC, the Company makes appropriations to two non-distributable reserve funds, the statutory surplus reserve and the statutory public welfare reserve.  The appropriations are based on after-tax net earnings as determined in accordance with the PRC generally accepted accounting principles, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve is based on an amount at least equal to 10% of after-tax net earnings until the reserve is equal to 50% of the entity's registered capital.  Appropriation to the statutory public welfare fund is based on 5% to 10% of after-tax net earnings and is not mandatory. The statutory public welfare reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable, other than in liquidation.
 
The Company does not make appropriations to the discretionary surplus reserve fund.  As of December 31, 2013 and September 30, 2013, the Company had appropriated $2,885,384 and $2,508,735 of statutory surplus reserve funds, respectively.
 
Value-added-tax
 
The Company is subject to a value added tax (“VAT”) of 13% for selling navel oranges that were bought from other farmers and 17% for processing navel oranges from General Fruits. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under the commercial practice of the PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty based on the amount of the taxes which are determined to be late or deficient, and will be expensed in the period if and when a determination is made by the tax authorities that a penalty is due. The Company reports revenues net of PRC’s value added tax for all the periods presented in the consolidated statements of operations.
 
Operating leases
 
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the shorter of the lease term or estimated useful life.
 
Concentration of Credit Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and accounts receivable arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.  The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
 
 
14

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
As of December 31, 2013 and September 30, 2013, the Company’s cash was with banks in the PRC and Hong Kong, where there is currently no rule or regulation mandated on obligatory insurance of bank accounts.
 
For the three months ended December 31, 2013, no customer accounted for more than 10% of the Company’s sales. For the three months ended December 31, 2012, two customers accounted for approximately 21% of the Company’s total sales.
 
For the three months ended December 31, 2013, two vendors account for 79% the Company’s total purchases, respectively.  For the three months ended December 31, 2012, three vendors accounted for approximately 73% of the Company’s raw materials,
 
Economic and Political Risks  
The Company’s operations are conducted primarily in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
 
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
  
Fair Value
 
The Company has categorized its assets and liabilities at fair value based upon the fair value hierarchy specified by FASB ASC 820.
 
The levels of fair value hierarchy are as follows:
 
i.
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.
 
ii.
Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
 
iii.
Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.
 
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.  As of December 31, 2013 and September 30, 2013, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest available to the Company.
 
 
15

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 2 – Summary of Significant Accounting Policies(Continued)
 
Earnings Per share
 
The Company reports earnings per share in accordance with the provisions of FASB ASC 260.10, "Earnings Per Share”. FASB ASC 260.10 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method. As of December 31, 2013 and September 30, 2013, there are no potentially dilutive securities outstanding.
 
Recent accounting pronouncements
 
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
 
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarified that the scope of ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, would apply to derivatives including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or are subject to a master netting arrangement or similar agreement. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. The adoption of ASU 2013-01 is not expected to have material impact on the Company’s consolidated financial statements.
   
In February 2013, the Financial Accounting Standards Board issued ASU 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, it requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. Early adoption is permitted. The Company does not expect that the adoption of ASU 2013-02 will have a material impact on its consolidated financial statements.

Note 3 – Inventory
 
Inventories as of December 31, 2013 and September 30, 2013 by major categories are summarized as follows:
 
 
 
December 31, 2013
 
September 30, 2013
 
 
 
 
 
 
 
 
 
Raw material
 
$
200,574
 
$
84,171
 
 
 
 
 
 
 
 
 
Work in process
 
 
1,616,503
 
 
3,989,995
 
 
 
 
 
 
 
 
 
Finished goods
 
 
1,572,051
 
 
-
 
 
 
 
 
 
 
 
 
 
 
$
3,389,128
 
$
4,074,166
 
 
Work in process consists of the capitalization of depreciation, amortization of prepaid lease of navel orange orchards, rental, salary, fertilizer, utility, and labor spent in cultivating and producing navel oranges. Work in process is posted to finished goods after the navel oranges are harvested. The harvest season of navel oranges usually starts in October.

Note 4 – ADVANCE PAYMENTS
 
The Company usually makes an advance payment to the vendors where the Company bought certain navel oranges from. Advance payments as of December 31, 2013 and September 30, 2013 consist of the following:
 
 
 
December 31, 2013
 
September 30, 2013
 
Advances to suppliers
 
$
1,907,672
 
$
-
 
Others
 
 
22,807
 
 
24,438
 
 
 
 
1,930,479
 
$
24,438
 
 
 
16

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 5 – Property and Equipment
 
Property and equipment as of December 31, 2013 and September 30, 2013 consist of the following:
 
 
 
December 31, 2013
 
September 30, 2013
 
Electronic equipment
 
$
118,103
 
$
117,670
 
Vehiciles
 
 
326,764
 
 
325,566
 
Machinery and equipment
 
 
2,072,124
 
 
2,064,525
 
Buildings and improvements
 
 
7,784,165
 
 
7,755,617
 
Navel organce orchards
 
 
10,880,236
 
 
10,623,019
 
Subtotal
 
 
21,181,393
 
 
20,886,397
 
Less: Accumulated Depreciation
 
 
6,391,411
 
 
6,084,046
 
 
 
 
14,789,981
 
 
14,802,351
 
Add:Construction progress
 
 
68,835
 
 
305,680
 
Total
 
$
14,858,816
 
$
15,108,031
 

Note 6 – Intangible Assets
 
Intangible assets as of December 31, 2013 and September 30, 2013 consist of the following:
 
 
 
December 31, 2013
 
September 30, 2013
 
Land use rights
 
$
187,694
 
$
185,614
 
Less: Acculmulated amortization
 
 
30,031
 
 
27,594
 
Total
 
$
157,663
 
$
158,020
 
 
Amortization expense was $936 and $912 for the three months ended December 31, 2013 and 2012, respectively.

Note 7 – Prepaid Leases
 
Prepaid leases as of December 31, 2013 and September 30, 2013 consist of the following:
 
 
 
December 31, 2013
 
September 30, 2013
 
Current
 
$
2,965,101
 
$
2,372,480
 
Non current
 
 
20,906,584
 
 
18,000,267
 
Total
 
$
23,871,686
 
$
20,372,747
 
 
On April 1, 2011, General Fruit entered into lease contracts with a group of individual orchard owners, pursuant to which General Fruit was authorized to operate the orchards for 10 years starting January 1, 2011. The lease terms are effective from January 1, 2011 through December 31, 2020. The aggregate lease amount is approximately RMB 98,553,600 ($16,123,369) and pursuant to the contract terms, as of September 30, 2012, the Company paid off the entire lease amount using cash generated from operations.
 
 
17

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 7 – PREPAID LEASES(Continued)
 
On December 30, 2012, January 1, 2013 and June 1, 2013, General Fruit entered into lease contracts with another group of individual orchard owners, pursuant to which General Fruit was authorized to operate the orchards for 10 years starting January 1, 2013. The lease terms are effective from January 1, 2013 through December 31, 2022. The aggregate lease amount is approximately RMB 57,847,300 ($9,463,818) and pursuant to the contract terms, as of June 30, 2013, the Company paid off the entire lease amount using cash generated from operations.
 
On December 31, 2013, General Fruit entered into a lease contract with an orchard company, pursuant to which General Fruit was authorized to operate the orchard for 10 years starting January 1, 2014. The lease terms are effective from January 1, 2014 through December 31, 2023. The aggregate lease amount is approximately RMB 24,840,000 ($4,063,824) and pursuant to the contract terms, as of December 31, 2013, the Company paid off the entire lease amount using cash generated from operations.
  
These leases are accounted for as operating leases in accordance with FASB ASC 840-20 and the aggregate lease amounts will be expensed each year on a straight-line basis over the lease terms. Lease expenses were approximately $638,116 and $391,824 for the three months ended December 31, 2013 and 2012, respectively.
 
Lease expense attributable to future periods is as follows: 
 
Twelve months ended December 31:
 
 
 
 
 
 
 
 
 
2014
 
$
2,957,851
 
 
 
 
 
 
2015
 
 
2,957,851
 
 
 
 
 
 
2016
 
 
2,957,851
 
 
 
 
 
 
2017
 
 
2,957,851
 
 
 
 
 
 
2018
 
 
2,957,851
 
 
 
 
 
 
Thereafter
 
 
9,082,428
 
 
 
 
 
 
 
 
$
23,871,686
 
 
 
18

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 8 – Accounts Payable and Accrued Expenses 
 
Accounts payable and accrued expenses as of December 31, 2013 and September 30, 2013 consist of the following:
 
 
 
December 31, 2013
 
September 30, 2013
 
Accounts payable
 
$
288,805
 
$
109,608
 
Accrued expenses
 
 
116,767
 
 
98,717
 
 
 
$
405,572
 
$
208,325
 
 
The carrying value of accounts payable and accrued expenses approximates their fair value due to the short-term nature of these obligations.

Note 9 – CUSTOMER DEPOSITS
 
Based on the sales contract, the Company’s sales distributors are required to make security deposits. As of December 31, 2013 and September 30, 2013, the Company had customer deposits of $3,409,405 and $0, respectively.

Note 10 – Short-Term Bank Loans
 
On November 30, 2012 and December 21, 2012, the Company obtained a loan of $5,542,000(RMB34,000,000) from Agricultural Development Bank of China, the principal of which would be repaid on November 19, 2013. The interest was calculated using an annual fixed interest rate of 6.00% and paid monthly. The loan was secured by the Company’s real property, inventory and equipment and guaranteed by Xingping Hou, CEO of the Company and Youhua Yu, wift of Xingping Hou. The principal was paid off in October and November 2013.
 
On November 28 and December 4, 2013, the Company entered into two short-term bank loan agreements with Agricultural Development Bank of China for $2,617,600(RMB16,000,000) and $2,944,800 (RMB18,000,000). Pursuant to the Loan Agreements, the principle will be repaid on September 27, 2014 and October 3, 2014. The interest was calculated using an annual fixed interest rate of 6.00% and will be paid monthly. The loan was secured by the Company’s real property, navel orange orchards and equipments, and guaranteed by Xingping Hou, CEO of the Company.  The loan was also guaranteed by Ganzhou Guoruitai Guarantee Co., Ltd., an unrelated party, with maximum exposure limit of $1,963,200 (RMB12,000,000). On November 20 and December 4, 2013, Xingping Hou, CEO of the Company and Jiangjunhong Industrial Group Co., Ltd., a Chinese Corporation owned by Xingping Hou, jointly entered into cross-guarantee agreements with Ganzhou Guoruitai Guarantee Co, Ltd. Pursuant to the cross-guarantee agreements, the Company paid $49,080 (RMB300,000) to the guarantor as guarantee fee for the above bank loans.  The term of these guarantees are for two years. On the date of loan expiration, should the Company failed to make their debt payment, Jiangjunhong Industrial Group Co., Ltd. and Xingping Hou will be obligated to perform under the cross guarantees by primarily making the required payments, including late fees and penalties. In addition, on December 3, 2013, the Company paid Ganzhou Guoruitai Guarantee Co, Ltd $392,640 (RMB2,400,000) as security deposit for the guarantee.  The purpose of such bank loans are for the working capital.
 
 
19

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 11 – Due to Related Party
 
As of December 31, 2013 and September 30, 2013, the Company had outstanding debts from a related party, Hua Mei Investments Limited (“Hua Mei”), of $963,639 and $718,261, respectively. These debts are non-interest bearing and payable on demand. The proceeds of these debts were utilized as working capital. 

Note 12 – Income Taxes
 
General Agriculture Corporation and General Red Holding Inc. (collectively referred to as the “US entities”) are each subject to US tax and files US federal income tax returns. The US entities are Delaware corporations and conduct all of their businesses through their Chinese subsidiaries. No provision for US federal income tax were made for the three months ended December 31, 2013 and 2012 as the US entities incurred losses.
 
Han Glory International is not subject to tax on income or capital gains under the laws of British Virgin Islands.  Greater China International did not earn any income that was derived in Hong Kong for the three months ended December 31, 2013 and 2012, and therefore was not subject to Hong Kong Profit tax.
 
Under the Corporate Income Tax Law of the PRC, the corporate income tax rate is 25%. However, as an agricultural company engaged in cultivation, General Fruit has been approved for tax exemption since its formation. General Preservation was also approved for such exemption from income tax for the years 2013 and 2012. As a result, for the three months  ended December 31, 2013 and 2012, there was no income tax provision for the Company.
 
The US shell company has net operating loss amounted to $257,995 and $36,154 during the three months ended December 31, 2013 and 2012, respectively. Net operating loss carried forward, If not utilized, will expire in 20 years after its generation. Management believes that it is more likely than not that the benefit from the NOL carryforwards will not be realized. In recognition of this risk, we have provided an offsetting valuation allowance of the deferred tax assets, relating to these NOL carryforwards. Management will review this valuation allowance periodically and make adjustments as warranted.
 
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate as:
 
 
 
Three Months Ended December 31,
 
 
 
2013
 
 
2012
 
 
 
 
 
 
 
 
U.S. Statutory rate
 
34
%
 
34
%
Foreign income not recognized in the U.S.
 
(34)
 
 
(34)
 
PRC statutory income tax rate
 
25
 
 
25
 
Tax exemption
 
(25)
 
 
(25)
 
Effective income tax rate
 
-
 
 
-
 
 
 
20

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
Note 13 – StockHOLDERs’ EQUITY
On July 11, 2012, the Company entered into a Share Exchange Agreement with General Red Holding, Inc., another Delaware company (“GRH”) and acquired all of the outstanding capital stock of GRH. In connection with the Share Exchange Agreement, the Company issued to GRH an aggregate of 125,112,803 shares of the common stock of the Company, at par value of $0.0001 per share. Immediately prior to the Share Exchange, the Company had 6,750,000 shares of Common Stock issued and outstanding. In connection with the transaction, the two principal shareholders of the Company surrendered for cancellation an aggregate of 4,513,252 shares of Common Stock beneficially owned by them.
 
During the years ended September 30, 2012, Hua Mei and the Company entered into an agreement to convert a debt in the amount of $307,720, owed to Greater China International to equity. Pursuant to the agreement, the additional paid in capital of the Company increased to $4,909,572 after the conversion.
 
On July 12, 2013, the Company affected the 1 for 8 reverse split of the Company’s issued and outstanding common stock, decreasing the number of outstanding shares from 127,349,551 to 15,918,940. These statements have been retroactively adjusted to reflect this reverse split.

Note 14 – Statutory Reserve
 
For the three months ended December 31, 2013, statutory reserve activity was as follows:
 
Balance – September 30, 2012
 
$
1,653,723
 
 
 
 
 
 
Addition to statutory reserve
 
 
855,012
 
 
 
 
 
 
Balance – September 30, 2013
 
 
2,508,735
 
 
 
 
 
 
Addition to statutory reserve
 
 
376,649
 
 
 
 
 
 
Balance – December 31, 2013
 
$
2,885,384
 

Note 15 – Earnings Per Share
 
The Company reports earnings per share in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.
 
 
21

 
GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES
(FORMERLY GELTOLOGY INC.)
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 15 – EARNINGS PER SHARE(Continued)
 
The following is a reconciliation of the basic and diluted earnings per share computation:
 
 
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Net income
 
$
3,282,543
 
$
3,503,280
 
 
 
 
 
 
 
 
 
Weighted average common shares
 
 
15,918,940
 
 
15,918,940
 
(denominator for basic earnings per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
Weighted average common shares
 
 
15,918,940
 
 
15,918,940
 
(denominator for diluted earnings per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.21
 
$
0.22
 
Diluted earnings per share
 
$
0.21
 
$
0.22
 

Note 16 – Subsequent Event
 
The Company has evaluated subsequent events for purposes of recognition or disclosure through the date these financial statements were issued. There has been no reportable subsequent event.
 
 
22

 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion of the financial condition and results of operation of General Agriculture Corp.(formerly Geltology Inc.) for the three months ended December 31, 2013 and 2012 should be read in conjunction with the selected consolidated financial data, the unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report on Form 10-Q (the “ Report”). In addition to historical information, the following discussion contains certain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “may”, “will”, “could”, “expect”, “anticipate”, “intend”, “believe”, “estimate”, “plan”, “predict”, and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.
 
Our financial statements are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See “Critical Accounting Policies and Estimates - Foreign Currency Translation and Transactions” below for information concerning the exchange rates at which Renminbi and Hong Kong Dollar were translated into U.S. Dollars at various pertinent dates and for pertinent periods.
 
COMPANY OVERVIEW
 
Geltology Inc. (“GELT”) was incorporated under the laws of the State of Delaware on March 24, 2010. On July 12, 2013, GELT filed with the Secretary of State Delaware a Certificate of Amendment to change its name to General Agriculture Corporation. GELT, through its direct operating subsidiaries General Fruit and General Preservation, is primarily engaged in planting, preserving, packaging and marketing premium navel oranges for distribution and sale throughout the People’s Republic of China (“PRC”).
 
On July 11, 2012, GELT completed a reverse acquisition of General Red Holding, Inc. (“GRH”), which was established under the laws of the State of Delaware on January 18, 2011, entered into a share exchange agreement (the “Exchange Agreement”) with GRH and acquired all of the outstanding capital stock of GRH. Pursuant to the Exchange Agreement, GELT issued to GRH an aggregate of 125,112,803 shares of the common stock of GELT, at par value of $0.0001 per share (“Common Stock”) (such transaction is hereinafter referred to as the “Share Exchange”). GELT was delivered with zero assets and zero liabilities at time of closing.
 
Immediately prior to the Share Exchange, GELT had 6,750,000 shares of Common Stock issued and outstanding. Simultaneously with the transaction, the two principal shareholders of GELT surrendered for cancellation an aggregate of 4,513,252 shares of Common Stock beneficially owned by them. The transaction was regarded as a reverse merger whereby GRH was considered to be the accounting acquirer. Although the Company is the legal parent company, the share exchange was treated as a recapitalization of GRH. Thus, GRH is the continuing entity for financial reporting purposes. The financial statements have been prepared as if GRH had always been the reporting company and then on the share exchange date, had reorganized its capital stock.
 
Upon completion of the Share Exchange, the shareholders of GELT owned approximately 98.24% of the fully diluted outstanding shares of the Company prior to the issuance of the shares to the investors. Accordingly, GRH became the wholly owned subsidiary of GELT.
 
On September 30, 2011, GRH entered into an Agreement and Plan of Reorganization with Han Glory International Investment Limited (“Han Glory International”), a company incorporated on April 28, 2011 under the laws of British Virgin Islands and Hua Mei Investments Limited (“Hua Mei”), a company incorporated on April 26, 2011 under the laws of the British Virgin Islands. Under the agreement, GRH issued 74,814,862 shares to Hua Mei, the sole stockholder of Han Glory International, in exchange for all shares and beneficial interest of Han Glory International. This transaction is treated as a reverse merger, and therefore, after the share exchange, Han Glory International became the wholly owned subsidiary of GRH.
 
On May 18, 2011, Han Glory International purchased all shares of Greater China International Investment Limited (“Greater China International”), a company incorporated on December 4, 2009 under the laws of Hong Kong, from Zhihao Zhang, the sole stockholder of Greater China International, for $1,290 (HK$10,000). As a result, Greater China International became the wholly owned subsidiary of Han Glory International.
 
 
23

 
On January 13, 2010, Greater China International formed Nanchang Hanxin Agriculture Technology Co., Ltd (“WFOE”) in the city of Nanchang, Jiangxi Province, the PRC.
 
On February 5, 2010, WFOE purchased all shares of Xingguo General Fruit Industry Development Co., Ltd (“General Fruit”) from Jiangjun Hong Group Co., Ltd., Xingping Hou and Jiefeng Ren for $293,400. As a result, WFOE acquired 100% interest in General Fruit. This transaction was a capital transaction in substance. That is, the transaction was a reverse recapitalization, equivalent to the issuance of stock by General Fruit for the net monetary assets of WFOE accompanied by a recapitalization.
 
General Fruit was formed in Xingguo County, Jiangxi Province, under the corporate laws of the PRC. On March 5, 2003. The primary business of General Fruit is to grow and sell navel oranges. On July 14, 2008, after a series of equity transfer agreements, General Fruit acquired 90% interest in Xingguo General Red Navel Orange Preservation Company, Ltd. (“General Preservation”). On July 25, 2010, General Fruit purchased the remaining 10% interest in General Preservation from Xingping Hou, the minority stockholder, for $295,000 (RMB 2,000,000) and owns 100% of General Preservation thereafter.
 
General Preservation, a citrus fruits company primarily engaged in preserving, packaging and marketing premium navel oranges, was formed as a limited liability company in Xingguo County, Jiangxi Province under PRC laws on November 22, 2005. General Preservation provides wholesale, retail, and institutional customers in China and several other countries with premium navel orange fruits under the trademark of “General Red”.
 
On September 26, 2011, GRH purchased all shares of Sheng Da Holding Limited (“Sheng Da BVI”), a company incorporated on May 18, 2011 under the laws of the British Virgin Islands, from General Red Company, Ltd (“General Red BVI”), a limited liability company incorporated on August 28, 2008 under the laws of British Virgin Islands, for $23,000. As a result, Sheng Da BVI became the wholly owned subsidiary of GRH. On September 29, 2011, Sheng Da BVI entered into a series of new agreements to terminate the old agreements with General Preservation, which were originally signed between General Red BVI and General Preservation on November 17, 2008, amended on June 10, 2011, and transferred to Sheng Da BVI by General Red BVI on June 30, 2011. The old agreements included a Consultation Agreement, an Operating Agreement, a Share Pledge Agreement, a Proxy Agreement and an Option Agreement. Upon the entry of these new agreements, General Preservation is no longer the Variable Interest Entity of Sheng Da BVI.
 
On June 28, 2013, at the Annual Meeting of stockholders the stockholders of the Company approved an amendment to the Company’s Certificate of Incorporation. On June 28, 2013, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Charter (the “Charter Amendment”). Pursuant to the Charter Amendment, the Company’s Charter was amended, effective as of July 12, 2013, to affect a reverse stock split of the Company’s shares of common stock. On July 12, 2013, the Company affected the 1 for 8 reverse split of the Company’s issued and outstanding common stock, decreasing the number of outstanding shares from 127,349,551 to 15,918,940. These statements in this 10-Q have been retroactively adjusted to reflect this reverse split.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.
 
 
24

 
While our significant accounting policies are fully described in Note 2 to our unaudited consolidated financial statements for the three months ended December 31, 2013, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management’s discussion and analysis.
 
Seasonal nature of operations
 
The Company’s operations are seasonal based on the maturity stage of its products. Sales are concentrated during the months from October through December and from January through March, corresponding to the Company’s product maturity cycle which begins in the month of October when the products mature and are ready for sale.
 
Accounts receivable
 
Accounts receivable are recorded net of allowance for doubtful accounts. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. Periodically, management assesses customer credit history and relationships as well as performs accounts receivable aging analysis. Based on the results, management determines whether certain balances are deemed uncollectible at the end of each period. Using its past collection experience, the Company reserves 0.3% of accounts receivable balances outstanding between six months and twelve months, 3% of accounts receivable outstanding for more than one year but less than two years, and 100% of accounts receivable balances outstanding for more than two years.
 
Inventories
 
Inventory is stated at the lower of cost or market. Cost is determined using the weighted-average cost method. Provisions are made for excess, slow moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable values, if any. Management continually evaluates the recoverability based on assumptions about customer demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves or write-downs may be required that could negatively impact our gross margin and operating results.
 
Property and equipment
 
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
 
 
Estimated Useful Life
 
Electronic equipment
5 years
 
Vehicles
10 years
 
Machinery and equipment
5-15 years
 
Buildings and improvements
5-20 years
 
Navel orange orchards
11-30 years
 
 
Revenue recognition
 
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of navel oranges upon shipment and transfer of title.
 
Impairment of Long-Lived Assets
 
 Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
 
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
 
 
25

 
Intangible Assets
 
Intangible assets are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented. Land use rights with a finite useful life are amortized on a straight-line basis over its estimated useful life of 50 years.
 
Foreign Currency Translation and Transactions
 
The accompanying unaudited consolidated financial statements are presented in U.S. dollars (“USD”). Great China International’s functional currency is Hong Kong Dollar (“HKD”) and Nanchang Hanxin Agriculture Technology Co., Ltd, General Fruit and General Preservation’s functional currency is Chinese Yuan Renminbi (“RMB”). The unaudited consolidated financial statements are translated into USD in accordance with the Codification ASC 830, Foreign Currency Matters.  All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, stockholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in stockholders’ equity in Accordance with the Codification ASC 220, Comprehensive Income.
 
Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. There were no material transaction gains or losses in the periods presented.
 
Cash flow from the Company’s operations included in the statement of cash flows is calculated based upon the functional currency using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with arithmetical changes in the corresponding balances on the consolidated balance sheets. No presentation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
 
The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company since it has not engaged in any significant transactions that are subject to the restrictions. 
 
The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were as follows:
 
 
 
December 31,
 
September 30,
 
 
 
2013
 
2013
 
Period end RMB:USD exchange rate
 
0.1636
 
0.1630
 
Average RMB:USD exchange rate
 
0.1632
 
0.1605
 
Period end HKD:USD exchange rate
 
0.1290
 
0.1290
 
Average HKD:USD exchange rate
 
0.1290
 
0.1289
 
 
Results of Operations for the three months Ended December 31, 2013 Compared to the three months Ended December 31, 2012
 
Revenues
 
For the three months ended December 31, 2013, we had net revenues of $7,126,875, as compared to those of $7,440,677 for the three months ended December 31, 2012, a decrease of approximately $313,802 or 4.2%. The decrease in net revenues was primarily attributable to an decrease in the unit price of our products since the Company does not bear the shipping in domestic sale during this fiscal year 2014.
 
Our sales volume decreased by approximately 0.7% for the three months ended December 31, 2013, while the average unit sales price decreased by approximately 5.2%, as shown below:
 
 
26

 
Three months  ended
 
Sales
Volume
(in KG)
 
 
Sale Price Per KG
(in US$)
 
 
Total Sales
Revenue
 
December 31, 2013
 
9,712,155
*
 
0.73
*
 
7,092,049
*
December 31, 2012
 
9,698,941
 
 
0.77
 
 
7,440,677
 
Variance
 
13,214
 
 
0.04
 
 
348,628
 
% Variance
 
0.1
%
 
5.2
%
 
4.7
%
 
   *Tangerine, a new product this fiscal year,  was not included in the calculation due to comparison.
During the three months ended December 31, 2013,  the Company sold 56,450 KG Tangerine, $0.617 per KG.
 
Cost of sale.
 
Cost of sales decreased by $127,344, or 3.74%, from $3,400,608 for the three months ended December 31, 2012 to $3,273,264 for the three months ended December 31, 2013. The decrease was primarily attributable to (1)an increase in the product output of 2.5 kg orange per tree due to better maintenance and cultivation in the past two years; (2) an extra tax levied on navel oranges sold overseas, which increased the cost of sale in fiscal 2012. The cost of navel oranges cultivated from our orchard is lower than that outsourced. (3) a decrease in process fee(waxing and ripening fruit) since the Company postponed the pickup season during the fiscal year 2014.
 
Gross profit and gross margin
 
Our gross profit was $3.853,611 for the three months ended December 31, 2013 as compared to $4.040.069 for the three months ended December 31, 2012, representing a gross margin of 54.1% and 54.3%, respectively. The decrease in our gross profit margin for the three months ended December 31, 2013 was mainly attributable to the reasons discussed above.  The higher gross margin was primarily due to (1) the synergy between the complete chain of the production process from planting, preserving to packaging; (2) lower amortization of the land use right due to low acquisition cost. 
 
Selling expenses
 
Selling expenses were $59,134 and $396,403 for the three months ended December 31, 2013 and 2012, respectively, decreased by $337,269 or 85.08%, mainly due to reduction in advertising and other expenses. 
 
Selling expenses consisted of the following:
 
 
 
Three Months Ended December  31,
 
 
Increase/decrease
 
 
 
 
2013
 
 
2012
 
 
$
 
 
%
 
 
Shipping and handling
 
20,846
 
 
364,728
 
 
(343,882)
 
 
-94.3
%
 
Compensations and related benefits
 
10,991
 
 
13,545
 
 
(2,554)
 
 
-18.9
%
 
Advertising and promotion
 
1,860
 
 
17,194
 
 
(15,334)
 
 
-89.2
%
 
Others
 
25,437
 
 
936
 
 
24,501
 
 
2617.6
%
 
Total
 
59,134
 
 
396,403
 
 
(337,269)
 
 
-85.1
%
 
Selling expenses as % of revenue
 
0.8
%
 
5.3
%
 
-4.5
%
 
-84.9
%
 
 
Shipping and handling expenses decreased by $343,882 or 94.3%, since the Company does not bear the shipping in domestic sale during the fiscal year 2014.
 
Compensation and related benefits decreased by $2,554, or 18.9%, in the three months ended December 31, 2013 compared to the three months ended December 31, 2012, due to the implementation of automated planting starting in October 2012. 
 
Advertising and promotion expense decreased by $15,334 or 89.2%, as a result of the down-sizing of our marketing campaign in the three months ended December 31, 2013.
 
 
27

 
Other expense mainly includes customer entertainment, vehicle maintenance, travelling expense and miscellaneous office expenses. During the three months ended December 31, 2013, vehicle maintenance and travelling expense increase significantly to $3,857 and $19,047 from $63 and $3,857 during the three months ended December 31, 2012.
 
 General and administrative expenses
 
General and administrative expenses amounted to $461,179 for the three months ended December 31, 2013, as compared to $212,003 for the same period in 2012, an increase of $249,176 or 117.5%. General and administrative expenses consisted of the following:
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 
December 31,
 
 
Increase/decrease
 
 
 
2013
 
 
2012
 
 
$
 
 
%
 
Compensation and related benefits
 
91,035
 
 
64,794
 
 
26,241
 
 
40.5
%
Depreciation
 
24,274
 
 
24,543
 
 
(269)
 
 
-1.1
%
Professional service
 
239,139
 
 
51,241
 
 
187,898
 
 
366.7
%
Office expenses
 
5,884
 
 
6,205
 
 
(321)
 
 
-5.2
%
Tax
 
11,909
 
 
21,267
 
 
(9,358)
 
 
-44
%
Other
 
88,939
 
 
43,953
 
 
44,986
 
 
-102.3
%
Total
 
461,179
 
 
212,003
 
 
249,176
 
 
-4.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
G&A expense as of revenues
 
6.5
%
 
2.9
%
 
3.6
%
 
124.1
%
 
Compensation and related benefits increased by $26,241 or 40.5%, mainly because we hired directors and chief finance officer during 2013.
 
Professional service fees increased by 187,898 due to more audit and legal fees incurred during 2013.
 
Other general and administrative expenses mainly include utilities, repairs, telecommunication, insurance and certain low-value miscellaneous items and $48,960(RMB300,000) of guarantee fee that the Company paid to the guarantor as guarantee fee for the loans borrowed from Agricultural Development Bank of China during November and December 2013. Their amounts varied period over period due to different circumstances.
 
Income from operations
 
For the three months ended December 31, 2013, income from operations was $3,333,298, as compared to $3,431,663 for the three months ended December 31, 2012, an decrease of $98,365 or 2.87%, mainly due to decrease in the unit price of our products and decrease in our cost of sales during three months ended December 2013 compared the same period in 2012.
 
Other income (expenses)
 
For the three months ended December 31, 2013, other expense amounted to 50,755 as compared to other income of $71,671 for the same period in 2012. For the three months ended December 31, 2013 and 2012, other income (expense) mainly included: (i) interest expense, which decreased by $8,904 or 16.87% period over period due to a decrease in the average balance and the interest rate of our bank loans, the interest rate decreased to 6% from 6.56%, and (ii) certain government subsidies,  In the three months ended December 31, 2012, we received government subsidies of approximately $111,321; In the three months ended December 31, 2013, we did not receive any government subsidies.
 
Income tax expense
 
For the three months ended December 31, 2013, income tax amounted to $0. We began enjoying an income tax exemption for year 2013 and 2012 for processing agricultural commodities. General Fruit has been approved for tax exemption since its formation.
 
Net income
 
As a result of the factors described above, our net income for the three months ended December 31, 2013 was $3,282,543. For the three months ended December 31, 2012, we had net income of $3.503,280.
 
 
28

 
Foreign currency translation gain
 
The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $142,443 for the three months ended December 31, 2013 as compared to $60,491 for the same period in 2012. This non-cash gain had the effect of increasing our reported comprehensive income.
 
Comprehensive income
 
For the three months ended December 31, 2013 and 2012, comprehensive income of $3.424.986 and $3.563, 771 were derived from the sum of our net income of $3,282,543 and 3.503,280 plus foreign currency translation gain of $142,443 and $60,491, respectively.
 
LIQUIDITY AND CAPITAL RESOURCES
 
We have historically funded our operation primarily through paid-in capital, sales of goods, loan from stockholders and short term loans from financial institutions in China.  The Company currently generates its cash flow through operations, which it believes will be sufficient to sustain current level operations for at least the next twelve months.
 
As of December 31, 2013, our balance of cash and cash equivalents was $642,356. As of September 30, 2013, our balance of cash and cash equivalents was $2,408,520, an decrease of 1,766,164 or 73.3%, mainly due to net cash used in operating activities.
 
The following summarizes the key components of the Company’s cash flows for the three months ended December 31, 2013 and 2012:
 
 
 
Three Months Ended
 
 
 
 
 
 
 
December 31,
 
Increase/decrease
 
 
 
2013
 
2012
 
$
 
%
 
Net cash used in operating activities
 
(2,015,597)
 
(811,275)
 
(1,204,322)
 
148.5
%
Net cash used in investing activities
 
-
 
(63,109)
 
63,109
 
-
 
Net cash provided by financing activities
 
244,913
 
1,591,613
 
(1,346,700)
 
-84.6
%
Effect of foreign currency translation
 
4,520
 
(607)
 
5,127
 
844.6
%
Net increase(decrease) in cash and cash equivalents
 
(1,766,164)
 
716,622
 
(2,482,786)
 
-346.5
%
 
In summary, our cash flows were:
 
Net cash used in operating activities decreased in the three months ended December 31, 2013 by $1,204,322 to $2,015,597, from net cash used in operating activities of $811,275 for the three months ended December 31, 2012. These changes were mainly brought about by the following changes: a change in net income of $220,737, a change in cash used in prepaid leases of $4,053,692, a change in cash provided by customer deposits of $2,755,695, and a change in cash tied in inventory of $735,430.
 
Net cash used in investing activity decreased by $63,109, from $63,109 to $0, in the three months ended December 31, 2013 compared to the same period ended in 2012, which is mainly due to less cash expenditures on property and equipment.
 
Net cash provided by financing activities decreased by $1,346,700 to $244,913 in the three months ended December 31, 2013 compared to $1,591,613 provided by financing activities at the same period ended in 2012. This was due to the repayment of short-term bank loans of $5,548,000.
 
Working capital decreased by $473,705 to $3,149,019 as of December 31, 2013 from working capital of $3,622,724 as of December 31, 2012.  In order to stay cost competitive in the long-run, we leased 69,000 additional orange trees in first quarter of fiscal year 2014. Based on the lease rate of approximately $58.75(RMB360) per tree, the total spending was $4,053,888 (RMB24,840,000).
 
 
29

 
As we are listed by the lending bank as a good credit customer, we believe that our short-term bank loans will be renewed at their maturity dates. On November 30 and December 21, 2012, as a replacement of an existing short-term bank loan that matured in November 16, 2012, the Company obtained a new bank loan of approximately $5,542,000 (RMB34, 0000, 000) from Agricultural Development Bank of China, which was paid off during October and November 2013.
 
On November 28 and December 4, 2013, the Company entered into two short-term bank loan agreements with Agricultural Development Bank of China for $2,617,600(RMB16,000,000) and $2,944,800 (RMB18,000,000). Pursuant to the Loan Agreements, the principle will be repaid on September 27, 2014 and October 3, 2014. The interest was calculated using an annual fixed interest rate of 6.00% and will be paid monthly. The loan was secured by the Company’s real property, navel orange orchards and equipments, and guaranteed by Xingping Hou, CEO of the Company.  The loan was also guaranteed by Ganzhou Guoruitai Guarantee Co., Ltd., an unrelated party, with maximum exposure limit of $1,963,200 (RMB12,000,000). On November 20 and December 4, 2013, Xingping Hou, CEO of the Company and Jiangjunhong Industrial Group Co., Ltd., a Chinese Corporation owned by Xingping Hou, jointly entered into cross-guarantee agreements with Ganzhou Guoruitai Guarantee Co, Ltd. Pursuant to the cross-guarantee agreements, the Company paid $49,080 (RMB300,000) to the guarantor as guarantee fee for the above bank loans.  The term of these guarantees are for two years. On the date of loan expiration, should the Company failed to make their debt payment, Jiangjunhong Industrial Group Co., Ltd. and Xingping Hou will be obligated to perform under the cross guarantees by primarily making the required payments, including late fees and penalties. In addition, on December 3, 2013, the Company paid Ganzhou Guoruitai Guarantee Co, Ltd $392,640 (RMB2,400,000) as security deposit for the guarantee.  The purpose of such bank loans are for the working capital.
 
As of December 31, 2013 and September 30, 2013, the Company had outstanding debts from a related party, Hua Mei Investments Limited (“Hua Mei”), of $963,639 and $718,261, respectively. These debts are non-interest bearing and payable on demand. The proceeds of these debts were utilized as working capital.
   
Although we will continue to invest in our business, with expected positive operating cash flow fueled by our profit, we believe our operating cash is sufficient to sustain current level operations for at least the next twelve months.
 
Off-Balance Sheet Financing Arrangements
 
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial assets.
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a smaller reporting company, we are not required to respond to this Item.
 
ITEM 4.     CONTROLS AND PROCEDURES
 
Disclosure controls and procedures
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness, as of the end of the period covered by this report, of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective.
 
Changes in internal control over financial reporting
 
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
30

 
PART II– OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS
 
None.
 
ITEM 1A.    RISK FACTORS
 
As a smaller reporting company, we are not required to respond to this Item.
 
ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None in the Quarterly Period ended June 30, 2013.
 
ITEM 3.      DEFAULT UPON SENIOR SECURITIES
 
None.
 
 ITEM 4.      MINE SAFETY DISCLOSURES
 
Not Applicable.
 
ITEM 5.     OTHER INFORMATION
 
None.
 
ITEM 6.    EXHIBITS
 
Exhibit
No.
 
Description
Exhibit
 
 
No.
 
Description
31.1
 
Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS-XBRL Instance Document
101.SCH-XBRL Taxonomy Extension Schema Document
101.CAL-XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF-XBRL Taxonomy Extension Definition Linkbase Document
101.LAB-XBRL Taxonomy Extension Label Linkbase Document
101.PRE-XBRL Taxonomy Extension Presentation Linkbase Document
 
 
31

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
GENERAL AGRICULTURE CORPORATION
 
 
Date: February 12, 2014
By:
/s/ Xingping Hou
 
Name:
Xingping Hou
 
Title:
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date: February 12, 2014
By:
/s/ Amy Xue
 
Name:
Amy Xue
 
Title:
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
 
32