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, 2014

 

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 9, 2015: 15,918,940

 

 

TABLE OF CONTENTS

 

	Page
PART I – FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4. CONTROLS AND PROCEDURES	20
PART II – OTHER INFORMATION	20
ITEM 1. LEGAL PROCEEDINGS	20
ITEM 1A. RISK FACTORS	20
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	20
ITEM 4. MINE SAFETY DISCLOSURES	20
ITEM 5. OTHER INFORMATION	20
ITEM 6. EXHIBITS	20

 

  

PART I– FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

 

GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2014 and 2013

 

(UNAUDITED)

 

Table of Contents

 

Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Operations and Comprehensive Income	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7

 

 

GENERAL AGRICULTURE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) 

 

		December 31, 2014				September 30, 2014
Assets
Current Assets:
Cash and cash equivalents		$	255,433			$	3,352,045
Accounts receivable			5,376,267				-
Inventory			4,036,283				4,951,273
Advance payments			2,320,648				2,189,956
Prepaid lease			4,179,214				3,773,379
Other current assets			17,862				11,572
Total Current Assets			16,185,707				14,278,225
Property and equipment, net			13,758,603				13,985,305
Other Assets
Intangibles, net			153,250				153,712
Prepaid leases, net of current portion			28,459,437				23,367,927
Total Other Assets			28,612,687				23,521,639
TOTAL ASSETS		$	58,556,997			$	51,785,169
Liabilities
Current Liabilities:
Short-term bank loans		$	4,561,200			$	4,547,200
Accounts payable and accrued expenses			416,003				276,443
Due to related parties			1,752,058				1,508,566
Customer deposits			1,775,610				-
Other current liabilities			122,493				61,849
Total Current Liabilities			8,627,364				6,394,058
Commitments and Contingencies
Stockholders' Equity
Common stock
$0.0001 par value, 200,000,000 shares authorized
15,918,940 shares issued and outstanding at
December 31, 2014 and September 30, 2014			1,592				1,592
Additional paid-in capital			4,909,572				4,909,572
Statutory reserves			2,563,625				2,539,170
Retained earnings			39,917,022				35,545,085
Accumulated other comprehensive income			2,537,822				2,395,692
Total Stockholders’ Equity			49,929,633				45,391,111
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	58,556,997			$	51,785,169

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

           

GENERAL AGRICULTURE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

		For the Three Months Ended December 31,
		2014				2013
Sales		$	8,865,159			$	7,126,875
Cost of sales			4,058,381				3,273,264
Gross profit			4,806,778				3,853,611
Operating expenses
Selling expenses			62,038				59,134
General and administrative expenses			294,553				461,179
Total operating expenses			356,591				520,313
Income from operations			4,450,187				3,333,298
Other income (expenses):
Interest income			3,085				709
Interest expense			(72,244	)			(61,681	)
Other income (expense), net			15,364				10,218
Total other expenses			(53,795	)			(50,755	)
Income before provision for income taxes			4,396,392				3,282,543
Provision for income taxes			-				-
Net income			4,396,392				3,282,543
Other comprehensive income
Foreign currency translation adjustment			142,130				142,443
Total comprehensive income		$	4,538,522			$	3,424,986
Earnings per share:
Basic and diluted		$	0.28			$	0.21
Weighted average number of common stock outstanding
Basic and diluted			15,918,940				15,918,940

 

See accompanying notes to the unaudited condensed consolidated financial statements        

 

       

GENERAL AGRICULTURE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Three Months Ended December 31,
		2014				2013
Cash flows from operating activities:
Net Income		$	4,396,392			$	3,282,543
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of prepaid leases			849,944				638,116
Depreciation and amortization			288,744				285,209
Changes in current assets and current liabilities:
Accounts receivable			(5,378,907	)			(3,918,743	)
Inventory			930,691				718,132
Advance payments			(124,010	)			(1,901,291	)
Prepaid leases			(6,266,385	)			(4,053,692	)
Other current assets			(16,373	)			(391,654	)
Accounts payable and accrued expenses			160,174				196,407
Customer deposits			1,824,506				3,041,949
Other current liabilities			(8,566	)			87,427
Net cash used in operating activities			(3,343,790	)			(2,015,597	)
Cash flows from investing activities:
Acquisition of property and equipment			(18,852	)			-
Net cash used in investing activities			(18,852	)			-
Cash flows from financing activities:
Proceeds from short-term bank loans			-				5,548,800
Repayment of short-term bank loans			-				(5,548,800	)
Proceeds from related parties, net			243,114				244,913
Net cash provided by financing activities			243,114				244,913
Effect of exchange rate changes on cash and cash equivalents			22,916				4,520
Net decrease in cash and cash equivalents			(3,096,612	)			(1,766,164	)
Cash and cash equivalents – beginning of period			3,352,045				2,408,520
Cash and cash equivalents – ending of period		$	255,433			$	642,356
Supplemental disclosure of cash flow information:
Cash paid for interest		$	72,244			$	61,681

 

See accompany notes to the unaudited condensed consolidated financial statements              

 

 

GENERAL AGRICULTURE CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

General Agriculture Corporation (“Gelt” or the “Company”), formerly Geltology Inc., 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 of Delaware a Certificate of Amendment to change its name to General Agriculture Corporation. The Company, through its wholly owned operating subsidiary, Xingguo General Fruit Industry Development Co., Ltd. (“General Fruit”) and General Fruit’s wholly-owned subsidiary, Xingguo General Red Navel Orange Preservation Company, Ltd. (“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”).

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Consolidation

 

The accompanying unaudited financial statements have been prepared in accordance with US GAAP applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

 

These interim unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended September 30, 2014, included in the Company’s annual report on Form 10-K filed with the U.S. Securities Exchange Commission on December 11, 2014, as not all disclosures required by US GAAP for annual financial statements are presented. The interim consolidated financial statements follow the same accounting policies and methods of computations as the audited consolidated financial statements for the year ended September 30, 2014. Operating results for the three months ended December 31, 2014 may not be necessarily indicative of the results that may be expected for the full year.

 

The 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.

 

In preparing the accompanying unaudited consolidated financial statements, we evaluated the period from December 31, 2014 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.

 

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 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”). 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.

 

 

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,
		2014				2014
Period end RMB:USD exchange rate			0.1629				0.1624
Average RMB:USD exchange rate			0.1630				0.1627
Period end HKD:USD exchange rate			0.1289				0.1288
Average HKD:USD exchange rate			0.1289				0.1290

 

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.

 

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. As of December 31, 2014 and September 30, 2014, no allowance was deemed necessary.

 

Inventory

 

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, 2014 and September 30, 2014, no provisions were deemed necessary.

 

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.

 

Advertising Expense

 

The Company expenses all advertising expenses as incurred. Advertising expenses included in selling expenses were $28,243 and $1,860 for the three months ended December 31, 2014 and 2013 respectively.

 

Shipping and Handling

 

All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $18,937 and $20,846 for the three months ended December 31, 2014 and 2013 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.

 

 

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.

 

As of December 31, 2014 and September 30, 2014, 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, 2014, two customers accounted for 23% of the Company’s sales. 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, 2014, the outsourced navel oranges accounted for 26% of the Company’s total purchase, in which a vendor accounted for 100% of the Company’s total outsourced purchases of navel oranges. For the three months ended December 31, 2013, the outsourced navel oranges accounted for 43% of the Company’s total purchase, in which a vendor account for 100% of the Company’s total outsourced purchases of navel oranges.

 

Earnings Per share

 

The Company reports earnings per share in accordance with the provisions of ASC 260.10, "Earnings Per Share”. 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, 2014 and September 30, 2014, there are no potentially dilutive securities outstanding.

 

Note 3 – Inventory

 

Inventory by major categories are summarized as follows:

		December 31, 2014				September 30, 2014
Raw material		$	507,790			$	68,780
Finished goods			1,495,774				-
Work in process			2,032,719				4,882,493
		$	4,036,283			$	4,951,273

 

Work in process consists of depreciation, amortization of prepaid leases of navel orange orchards, rental, salary, fertilizer, utility, and labor spent in cultivating and producing navel oranges. Work in process is reclassified to finished goods after the navel oranges are harvested. The harvest season of navel oranges usually starts in October.

 

Note 4 – ADVANCE PAYMENTS

 

Advance payments represent payments made to suppliers for goods and materials that have not been received. Advance payments are also reviewed periodically by the Company to determine whether their carrying value has become impaired. Historically, the Company has not experienced any losses as a result of these advances. As of December 31, 2014 and September 30, 2014, the Company had $2,320,648 and $2,189,956 of advance payments that related to payments for purchasing navel oranges from other parties as well as packaging materials and utilities.

 

 

Note 5 – Property and Equipment

 

Property and equipment consist of the following:

		December 31, 2014				September 30, 2014
Electronic equipment		$	144,095			$	142,956
Vehicles			298,398				303,345
Machinery and equipment			2,140,879				2,134,306
Buildings and improvements			7,811,173				7,787,198
Navel orange orchards			10,833,682				10,800,430
Subtotal			21,228,227				21,168,235
Less: Accumulated depreciation			7,469,624				7,182,930
Total		$	13,758,603			$	13,985,305

 

Depreciation expense was $287,809 and $284,273 for the three months ended December 31, 2014 and 2013, respectively.

 

Note 6 – Intangible Assets

 

Intangible assets consist of the following:

 

		December 31, 2014				September 30, 2014
Land use rights		$	186,891			$	186,317
Less: Accumulated amortization			33,641				32,605
Total		$	153,250			$	153,712

 

Amortization expense was $935 and $936 for the three months ended December 31, 2014 and 2013, respectively.

 

Note 7 – Prepaid Leases

 

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.

 

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.

 

On March 26, 2014, General Fruit entered into a lease contract with Jinglin Agriculture Development Ltd. in Xingguo County. Pursuant to the contract, 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 RMB27,360,000 ($4,440,528). As of March 31, 2014, the Company paid off the entire lease amount using cash generated from operations.

 

 

On September 3, 2014, General Fruit entered into another lease contract with Jinglin Agriculture Development Ltd. in Xingguo County. Pursuant to the contract, General Fruit was authorized to operate the orchard for 10 years starting January 1, 2015. The lease terms are effective from January 1, 2015 through December 31, 2024. The aggregate lease amount is approximately RMB23,750,000 ($3,857,000). As of December 31, 2014, the Company paid off the entire lease amount using cash generated from operations.

 

On December 18, 2014, General Fruit entered into a lease contract with an individual orchard owner, pursuant to which General Fruit was authorized to operate the orchards for 10 years starting January 1, 2015. The lease terms are effective from January 1, 2015 through December 31, 2024. The aggregate lease amount is approximately RMB 24,200,000 ($3,942,180) and pursuant to the contract terms, as of December 31, 2014, the Company paid off the entire lease amount using cash generated from operations.

 

These leases are accounted for as operating leases in accordance with 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 $849,944 and $638,116 for the three months ended December 31, 2014 and 2013 respectively.

 

 Lease expense attributable to future periods is as follows:

 

Twelve months ending December 31:
2015		$	4,181,267
2016			4,181,267
2017			4,181,267
2018			4,181,267
2019			4,181,267
Thereafter			11,732,316
		$	32,638,651

Note 8 – CUSTOMER DEPOSITS

 

Based on the sales contract, certain sales distributors of the Company are required to make security deposits. As of December 31, 2014 and September 30, 2014, the Company had customer deposits of $1,775,610 and $0, respectively.

 

Note 9 – Short-Term Bank Loans

 

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 is being calculated using an annual fixed interest rate of 6.00% and is being paid monthly. The loan is secured by the Company’s real property, navel orange orchards and equipment, and guaranteed by Xingping Hou, CEO of the Company.  The loan is also guaranteed by Ganzhou Guoruitai Guarantee Co., Ltd., an unrelated party, with a 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 a cross-guarantee agreement with Ganzhou Guoruitai Guarantee Co, Ltd. Pursuant to the cross-guarantee agreements, the Company paid $49,080 (RMB300,000) to the guarantor as a guarantee fee for the above bank loans.  On the date of the loan expiration, should the Company fail 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 a security deposit for the guarantee.  Both bank loans are repaid in September 2014.

 

On September 29, 2014, the Company entered into a new short-term bank loan agreement with Agricultural Development Bank of China, which allows the Company to borrow up to $5,521,600 (RMB34,000,000). Pursuant to the loan agreement, the principal will be repaid on July 28, 2015 and interest of 6.6%. The loan is secured by the Company’s real property, navel orange orchards and equipment, and guaranteed by Xingping Hou, CEO of the Company.  The loan is also guaranteed by Ganzhou Jinshengyuan Guarantee Co., Ltd., an unrelated party, with a maximum exposure limit of $4,547,200 (RMB28,000,000). On September 30, 2014, Xingping Hou, CEO of the Company and General Fruit and General Preservation, jointly entered into a cross-guarantee agreement with Ganzhou Guoruitai Guarantee Co, Ltd. Pursuant to the cross-guarantee agreements, the Company paid $90,945 (RMB560,000) to the guarantor as a guarantee fee for the above bank loan.  On the maturity date of the loan, should the Company fail to make their debt payment, General Fruit, General Preservation and Xingping Hou will be obligated to perform under the cross guarantees by making the required payments, including late fees and penalties. As of December 31, 2014, the Company has drawn on $4,561,200 (RMB 28,000,000) of the loan to use for working capital purposes.

 

 

Note 10 – Due to Related Party

 

As of December 31, 2014 and September 30, 2014, the Company owed Hua Mei Investments Limited (“Hua Mei”), a related party (controlled by Mr. Hou Xingping, CEO of the Company), $1,752,058 and $1,508,566, respectively. These debts are non-interest bearing and payable on demand. The proceeds of these debts were utilized as working capital.

 

Note 11 – Income Taxes

 

General Agriculture Corporation and its U.S. subsidiary, General Red Holding Inc., (collectively referred to as the “US entities”) are each subject to US tax and file 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 taxes were made for the three months ended December 31, 2014 and 2013 as the US entities incurred losses.

 

General Agriculture Corporation’s offshore subsidiary, Han Glory International, is not subject to tax on income or capital gains under the laws of the British Virgin Islands. Another offshore subsidiary, Greater China International, did not earn any income that was derived in Hong Kong for the three months ended December 31, 2014 and 2013, 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 a tax exemption since its formation. General Preservation was also approved for such exemption from income tax for the years 2014 and 2013 As a result, for the three months ended December 31, 2014 and 2013, there was no income tax provision for the Company.

 

The US shell company has net operating losses amounting to approximately $1,053,000 and $890,000 as of December 31, 2014 and September 30, 2014. These carryforwards will expire, if not utilized by December 2034 and December 2033, respectively. 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 asset, relating to these NOL carryforwards. Management will review this valuation allowance annually and make adjustments as needed.

 

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate as of the:

 

		Three Months Ended December 31,
		2014				2013
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			-				-

 

Note 12 – Statutory Reserve

 

For the three months ended December 31, 2014, statutory reserve activity was as follows:

 

Balance – September 30, 2013		$	2,508,735
Addition to statutory reserve			30,435
Balance – September 30, 2014			2,539,170
Addition to statutory reserve			24,455
Balance – December 31, 2014		$	2,563,625

 

 

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. for the three months ended December 31, 2014 and 2013 should be read in conjunction with 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: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. 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 exchanges rates at which Renminbi and Hong Kong Dollar were translated into U.S. Dollars at various pertinent dates and for pertinent periods.

 

COMPANY OVERVIEW

 

General Agriculture Corporation (“GELT”), formerly Geltology Inc., 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 of the State of 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”).

 

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. GELT was delivered with zero assets and zero liabilities at time of closing. 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. Accordingly, GRH became the wholly owned subsidiary of GELT.

 

On September 30, 2011, GRH entered into a Share Transfer and Issuance 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 (“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 Certificate of Incorporation (the “Charter Amendment”). Pursuant to the Charter Amendment, the Company’s Certificate of Incorporation was amended, effective as of July 12, 2013, to effect a reverse stock split of the Company’s shares of common stock. On July 12, 2013, the Company effected 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 Report have been retroactively adjusted to reflect this reverse split.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our 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 believe 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.

 

While our significant accounting policies are fully described in Note 2 to our unaudited consolidated financial statements for the three months ended December 31, 2014 and 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 November 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.

 

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.

 

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.

 

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 (“$”). 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”). 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.

 

Cash flows 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 $at the rates used in translation.

 

 

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.

 

The exchange rates used to translate amounts in RMB into $ for the purposes of preparing the consolidated financial statements were as follows:

		December 31, 2014				September 30, 2014
Year end RMB:USD exchange rate			0.1629				0.1624
Average Yearly RMB:USD exchange rate			0.1630				0.1627
Year end HKD:USD exchange rate			0.1289				0.1288
Average Yearly HKD:USD exchange rate			0.1289				0.1290

 

Results of Operations for the Three Months Ended December 31, 2014 Compared to the Three Months Ended December 31, 2013

 

Revenues

 

For the three months ended December 31, 2014, we had net revenues of $8,865,159, as compared to those of $7,126,875 for the three months ended December 31, 2013, an increase of approximately $1,738,285 or 24.4%. The increase in net revenue is mainly because the quantity of navel oranges sold in the three Months ended December 31, 2014 increased approximately 2,194,940, or 22.5% compared to that in the same period ended December 31, 2013, and the unit price increased 0.01 or 1.5% to $0.74 per KG during the three months ended December 31, 2014 from $0.73 per KG during the same period ended December 31, 2013.

 

Years ended		Sales Volume (in KG)				Sale Price Per KG (in US$)				Total Sales Revenue
December 31, 2014			11,963,545				0.74				8,865,159
December 31, 2013			9,768,605				0.73				7,126,875
Variance			2,194,940				0.01				1,739,374
% Variance			22.5	%			1.5	%			24.4	%

 

Cost of sale

 

Cost of sales increased by $785,117, or 24.0%, from $3,273,264 for the three months ended December 31, 2013 to $4,058,381 for the same period ended December 31, 2014. The increase is attributable to the increase in sales during the three months ended December 31, 2014.

 

Gross profit and gross margin

 

Our gross profit was $4,806,778 for the three months ended December 31, 2014 as compared to $3,853,611 for the same period ended December 31, 2013, representing gross margins of 54.2% and 54.1%, respectively.

 

Selling expenses

 

Selling expenses were $62,038 and $59,134 for the three months ended December 31, 2014 and 2013, respectively, an increase of $2,904 or 4.9%, mainly due to new promotion on the television starting in this current quarter.

 

 

Selling expenses for the three months ended December 31, 2014 and 2013 consisted of the following:

 

		Three Months Ended December 31,								Increase/decrease
		2014				2013				$				%
Shipping and handling			18,937				20,846				(1,909	)			-9.2	%
Compensation and related benefits			6,157				10,991				(4,834	)			-44.0	%
Advertising and promotion			28,243				1,860				26,383				1418.4	%
Others			8,701				25,437				(16,736	)			-65.8	%
Total			62,038				59,134				2,904				4.9	%
Selling expenses as % of revenue			0.70	%			0.83	%			-0.13	%			-15.7	%

 

General and administrative expenses

 

General and administrative expenses amounted to $294,553 for the three months ended December 31, 2014, as compared to $461,179 for the same period in 2013, a decrease of $166,626 or 36.1%. General and administrative expenses consisted of the following:

		Three Months Ended December 31,								Increase/decrease
		2014				2013				$				%
Compensation and related benefits			79,699				91,035				(11,336	)			-12.5	%
Depreciation			24,955				24,274				681				2.8	%
Professional service			126,082				239,139				(113,057	)			-47.3	%
Office expenses			6,400				5,884				516				8.8	%
Meal and entertainment			11,995				11,909				86				0.7	%
Other			45,421				88,939				(43,518	)			-48.9	%
Total			294,553				461,179				(166,627	)			-36.1	%
G&A expense as a percentage of revenue			3.32	%			6.47	%			-3.15	%			-48.7	%

 

Professional service fees was $126,082 during three months ended December 31, 2014, as compared to $239,139 for the same period in 2013, a decreased of $113,057 or 47.3%, mainly due to re-audit fee for fiscal year 2012 incurred in three months ended December 31, 2013.

 

Income from operations

 

For the three months ended December 31, 2014, income from operations was $4.450.187, as compared to $3,333,298 for the same period in 2013, an increase of $1,116,889 or 33.5%, mainly due to the reasons presented above.

 

Other income (expenses)

 

For the three months ended December 31, 2014 and 2013, other expense amounted to $53,795 as compared to $50,755 for the same period in 2013. For the three months ended December 31, 2014 and 2013, other expenses mainly included interest expense, which increased by $10,563 or 17.1%.

 

Income tax expense

 

For the three months ended December 31, 2014 and 2013, income tax was $0. General Agriculture Corporation and General Red Holding Inc. (collectively referred to as the “US entities”) are each subject to US tax and file US federal income tax returns. No provision for US federal income taxes were made for the three months ended December 31, 2014 and 2013 as the US entities incurred losses. Han Glory International is not subject to tax on income or capital gains under the laws of the British Virgin Islands. Greater China International did not earn any income that was derived in Hong Kong for the three months ended December 31, 2014 and 2013, 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 a tax exemption since its inception. General Preservation was also approved for such exemption from income tax for the years 2015 and 2014. As a result, for the three months ended December 31, 2014 and 2013, there was no income tax provision for the Company.

 

 

Net income

 

As a result of the factors described above, our net income for the three months ended December 31, 2014 and 2013 was $4,396,392 and $3,282,543, respectively.

 

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 foreign currency translation gain of $142,130 for the three months ended December 31, 2014 as compared to a gain of $142,443 for the same period in 2013. This non-cash gain had the effect of increasing our reported comprehensive income.

 

Comprehensive income

 

For the three months ended December 31, 2014 and 2013, comprehensive income of $4,538,522 and $3,424,986 were derived from the sum of our net income of $4,396,392 and $3,282,543 plus foreign currency translation gain of $142,130 and $142,443, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We have historically funded our operations primarily through paid-in capital, sales of goods, loans from our 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, 2014 and September 30, 2014, our balance of cash and cash equivalents was $255,433 and $3,352,045, respectively, a decrease of $3,096,612 or 92.4%, mainly due to net cash used by operating activities.

 

The following summarizes the key components of the Company’s cash flows for the three ended December 31, 2014 and 2013:

 

		Three Months Ended December 31,								Increase/decrease
		2014				2013				$				%
Net cash used in operating activities			(3,343,790	)			(2,015,597	)			(1,328,192	)			65.9	%
Net cash used in investing activities			(18,852	)			-				(18,852	)			-
Net cash provided by financing activities			243,114				244,913				(1,799	)			-0.73	%
Effect of foreign currency translation			22,916				4,520				18,396				407	%
Net decrease in cash and cash equivalents			(3,096,612	)			(1,766,164	)			(1,330,448	)			75.3	%

 

 

In summary, our cash flows were:

 

Net cash used in operating activities increased by $1,328,192 to $3,343,790 in the three months ended December 31, 2014, from that of $2,015,598 for the same period in 2013. These changes were mainly caused by the following factors: a change in net income of $1,113,849, a change in cash used in accounts receivable of $5,378,907, a change in cash used in prepaid leases of $6,266,385 and a change in cash provided by customer deposits of $ 1,824,506.

 

Net cash used in investing activity increased by $18,852, which is mainly due to cash expenditures on property and equipment. Net cash provided by financing activities decreased by $1,799 to $244,913 in the three months ended September 30, 2014 compared to $244,913 of the same period in 2013. This was due to $5,548,800 of the proceeds from short-term bank loan and $5,548,800 of repayment of short-term bank loans.

 

Working capital decreased by $325,825 to $7,558,343 as of December 31, 2014 from $7,884,167 as of December 31, 2013. In order to stay competitive in the long-run, we leased 60,500 orange trees in the three months ended December 31, 2014. Based on the lease rate of approximately $65.2 (RMB400) per tree in 2014, the total lease amounts were $3.94 million (RMB 24.2 million) that were paid during three months ended December 31, 2014.

 

As we are a good credit customer listed by the lending bank, we do not foresee any difficulty to renew our short-term bank loans at their maturity dates.

 

On September 29, 2014, the Company entered into a new short-term bank loan agreement with Agricultural Development Bank of China, which allows the Company to borrow up to $5,521,600 (RMB34,000,000). Pursuant to the Loan Agreements, the principle will be repaid on July 28, 2015. The interest is being calculated using an annual fixed interest rate of 6.6%. The loan is secured by the funds deposited by Ganzhou Jinshengyuan Guarantee Co., Ltd., an unrelated party, and guaranteed by Xingping Hou, CEO of the Company and Ganzhou Jinshengyuan Guarantee Co., Ltd., with a maximum exposure limit of $4,547,200 (RMB28,000,000). On September 29, 2014, Xingping Hou, CEO of the Company and General Fruit and General Preservation, jointly entered into a cross-guarantee agreement with Ganzhou Jinshengyuan Guarantee Co, Ltd. Pursuant to the cross-guarantee agreements, the Company paid $90,945 (RMB560,000) to the guarantor as a guarantee fee for the above bank loan; and on the same day, General Preservation and Ganzhou Jinshengyuan Guarantee Co., Ltd. entered into another cross-guarantee agreement, pursuant to which, General Preservation shall mortgage its real properties and equipment to such third party guarantee. The term of these guarantees are for two years. On the date of the loan expiration, should the Company fail to make their debt payment, General Fruit, General Preservation and Xingping Hou will be obligated to perform under the cross guarantees by primarily making the required payments, including late fees and penalties. As of September 30, 2014, the Company has drawn on $4,547,200 (RMB 28,000,000) of the loan to use for working capital purposes.

 

As of December 31, 2014 and September 30, 2014, the Company had outstanding debts from a related party, Hua Mei Investments Limited (“Hua Mei”), of $1,752,058 and $1,508,566, 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.

 

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.

 

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		Interactive data files   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

 

 

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 13, 2015	By:	/s/ Xingping Hou
	Name:	Xingping Hou
	Title:	Chief Executive Officer
		(Principal Executive Officer)
Date: February 13, 2015	By:	/s/ Amy Xue
	Name:	Amy Xue
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

EXHIBIT INDEX

 

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		Interactive data files   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