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EX-32.1 - EXHIBIT 32.1 - AMAYA Global Holdings Corp.v430360_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - AMAYA Global Holdings Corp.v430360_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - AMAYA Global Holdings Corp.v430360_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - AMAYA Global Holdings Corp.v430360_ex32-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: December 31, 2015

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 5, 2016: 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.   14
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   20
     
ITEM 4. CONTROLS AND PROCEDURES   21
     
PART II – OTHER INFORMATION   22
     
ITEM 1. LEGAL PROCEEDINGS   22
     
 ITEM 1A. RISK FACTORS   22
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   22
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   22
     
ITEM 4. MINE SAFETY DISCLOSURES   22
     
ITEM 5. OTHER INFORMATION   22
     
ITEM 6. EXHIBITS   22

 

 2 
 

 

PART I– FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

GENERAL AGRICULTURE CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2015 and 2014

 

(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

 

 3 
 

 

GENERAL AGRICULTURE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   December 31, 2015   September 30, 2015 
         
ASSETS          
Current Assets:          
Cash and cash equivalents  $5,858,518   $464,046 
Accounts receivable, net   5,771,978    - 
Inventory   4,574,446    5,469,102 
Advance payments   4,129,267    4,778,733 
Prepaid leases   4,274,902    4,360,899 
Other current assets   6,497    162,326 
Total Current Assets   24,615,608    15,235,106 
           
Property and equipment, net   11,913,231    12,427,415 
Other Assets          
Intangibles, net   141,436    145,183 
Prepaid leases, net of current portion   25,539,464    27,143,650 
Total Other Assets   25,680,900    27,288,833 
           
TOTAL ASSETS  $62,209,739   $54,951,354 
           
LIABILITIES          
Current Liabilities:          
Short-term bank loans  $1,541,000   $- 
Accounts payable and accrued expenses   715,595    215,422 
Due to related parties   333,800    154,571 
Other current liabilities   241,197    61,759 
Total Current Liabilities   2,831,592    431,752 
           
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, 2015 and September 30, 2015, respectively   1,592    1,592 
Additional paid-in capital   4,909,572    4,909,572 
Statutory reserves   2,572,619    2,572,619 
Retained earnings   52,545,071    46,512,259 
Accumulated other comprehensive income (loss)   (650,707)   523,560 
Total stockholders’ equity   59,378,147    54,519,602 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $62,209,739   $54,951,354 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 4 
 

 

GENERAL AGRICULTURE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

   For the Three Months Ended December 31, 
   2015   2014 
         
Sales  $10,750,118   $8,865,159 
           
Cost of sales   4,340,636    4,058,381 
           
Gross profit   6,409,482    4,806,778 
           
Operating expenses          
Selling expenses   22,548    62,038 
General and administrative expenses   302,651    294,553 
Total operating expenses   325,199    356,591 
           
Income from operations   6,084,283    4,450,187 
           
Other income (expenses):          
Interest income   1,388    3,085 
Interest expense   (15,822)   (72,244)
Other income (expense), net   (37,037)   15,364 
Total other expenses   (51,471)   (53,795)
           
Income before provision for income taxes   6,032,812    4,396,392 
           
Provision for income taxes   -    - 
Net income   6,032,812    4,396,392 
           
Other comprehensive income          
Foreign currency translation gains (losses)   (1,174,267)   142,130 
Total comprehensive income  $4,858,545   $4,538,522 
           
Earnings per share:          
 Basic and dulited  $0.38   $0.28 
           
Weighted average number of common stock outstanding          
 Basic and dulited   15,918,940    15,918,940 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 5 
 

 

GENERAL AGRICULTURE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Three Months Ended December 31, 
   2015   2014 
         
Cash flows from operating activities:          
Net Income  $6,032,812   $4,396,392 
Adjustments to reconcile net income to net cash provided by operating activities:          
Amortization of prepaid leases   1,085,370    849,944 
Depreciation and amortization   274,814    288,744 
Changes in current assets and current liabilities:          
Accounts receivable   (5,861,873)   (5,378,907)
Inventory   799,058    930,691 
Advance payments   563,876    (124,010)
Prepaid leases   -    (6,266,385)
Other current assets   155,004    (16,373)
Accounts payable and accrued expenses   510,440    160,174 
Customer deposits   -    1,824,506 
Other current liabilities   183,470    (8,566)
Net cash provided by (used in) operating activities   3,742,971    (3,343,790)
           
Cash flows from investing activities:          
Acquisition of property and equipment   (423)   (18,852)
           
Net cash used in investing activities   (423)   (18,852)
           
Cash flows from financing activities:          
Proceeds from short-term bank loans   1,565,000    - 
Proceeds from related parties, net   180,011    243,114 
Net cash provided by financing activities   1,745,011    243,114 
           
Effect of exchange rate changes on cash and cash equivalents   (93,087)   22,916 
           
Net increase (decrease) in cash and cash equivalents   5,394,472    (3,096,612)
           
Cash and cash equivalents – beginning of period   464,046    3,352,045 
           
Cash and cash equivalents – ending of period  $5,858,518   $255,433 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $15,822   $72,244 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 6 
 

 

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. 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, 2015, included in the Company’s annual report on Form 10-K filed with the U.S. Securities Exchange Commission on December 29, 2015. 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, 2015. Operating results for the three months ended December 31, 2015 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.

 

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. The significant foreign translation losses reported in this quarter is a result of the recent sharp depreciation of the RMB to USD.

 

All 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.

 

 7 
 

 

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, 
   2015   2015 
Period end RMB:USD exchange rate   0.1541    0.1572 
Average RMB:USD exchange rate   0.1565    0.1622 
Period end HKD:USD exchange rate   0.1290    0.1290 
Average HKD:USD exchange rate   0.1290    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. The balance of allowance for doubtful accounts amounted to $21,277 and $21,705 as of December 31, 2015 and September 30, 2015, respectively.

 

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, 2015 and September 30, 2015, no provisions were deemed necessary.

 

Revenue Recognition

 

The Company derives its revenue primarily from the 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 $332 and $28,243 for the three months ended December 31, 2015 and 2014, respectively.

 

Shipping and Handling

 

All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $0 and $18,937 for the three months ended December 31, 2015 and 2014, respectively.

 

 8 
 

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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, 2015 and September 30, 2015, 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, 2015 and 2014, two customers accounted for 21% and 23% of the Company’s sales, respectively.

 

For the three months ended December 31, 2015 and 2014, the outsourced navel oranges accounted for 24% and 26% of the Company’s total purchase, respectively. The Company purchased 100% outsourced navel oranges from one vendor.

 

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, 2015 and September 30, 2015, there are no potentially dilutive securities outstanding.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The amendments in ASU 2014-09 require a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 (fiscal year 2018 for the Company) and early adoption is not permitted. Subsequently, in August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date," that moves the effective date out one year (fiscal 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 and ASU 2015-14 on its Consolidated Financial Statements.

 

 9 
 

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2015 (fiscal year 2017 for the Company). The Company adopted this guidance, prospectively, as of November 30, 2015.

 

Note 3 – Inventory

 

Inventory by major categories are summarized as follows:

 

   December 31, 2015   September 30, 2015 
Raw material  $542,701   $49,405 
Finished goods   1,756,464    - 
Work in process   2,275,281    5,419,697 
   $4,574,446   $5,469,102 

 

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, 2015 and September 30, 2015, the Company had $4,129,267 and $4,778,733 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, 2015   September 30, 2015 
Electronic equipment  $139,138   $141,513 
Vehicles   234,653    239,374 
Machinery and equipment   2,025,227    2,065,967 
Buildings and improvements   7,389,207    7,537,854 
Navel orange orchards   10,248,437    10,454,603 
Subtotal   20,036,662    20,439,311 
Less: Accumulated depreciation   8,123,431    8,011,896 
Total  $11,913,231   $12,427,415 

 

Depreciation expense was $273,916 and $287,809 for the three months ended December, 2015 and 2014, respectively.

 

Note 6 – Intangible Assets

 

Intangible assets consist of the following:

 

   December 31, 2015   September 30, 2015 
Land use rights  $176,795   $180,351 
Less: Accumulated amortization   35,359    35,168 
Total  $141,436   $145,183 

 

Amortization expense was $898 and $935 for the three months ended June 30, 2015 and 2014, respectively.

 

 10 
 

 

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.

 

In February 2015, General Fruit entered into lease contracts with three individual orchard owners. 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 RMB20,860,000 ($3,408,524). As of March 31, 2015, 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 $1,085,370 and $849,944 for the three months ended December 31, 2015 and 2014.

 

Lease expense attributable to future periods is as follows:

 

Twelve months ending December 31:    
2016  $4,341,481 
2017   4,341,481 
2018   4,341,481 
2019   4,341,481 
2020   4,341,481 
Thereafter   8,106,961 
   $29,814,366 

 

 11 
 

 

Note 8 – Short-Term Bank Loans

 

On September 29, 2014, the Company entered into a 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 bears interest rate of 6.6% per annum. 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 June 30, 2015, the Company has drawn down $4,583,600 (RMB 28,000,000) of the loan to use for working capital purposes. The loan was fully repaid on July 28, 2015.

 

On October 13, 2015, the Company entered into a new short-term bank loan agreement with Agricultural Development Bank of China for RMB 26 million (approximately $4,000,000). Pursuant to the Loan Agreement, the principal will be repaid on August 8, 2016. The interest is being calculated using an annual fixed interest rate of 5.28%. The loan is guaranteed by Xingping Hou, CEO of the Company, and also guaranteed by Ganzhou Jinshengyuan Guarantee Co., Ltd., an unrelated party. The Company paid 4% of total loan to the guarantor as a guarantee fee for the above bank loan. As of December 31, 2015, the Company has drawn down $1,541,000 (RMB10,000,000) of the loan to use for working capital purposes.

 

Note 9 – Due to Related Party

 

As of December 31, 2015 and September 30, 2015, the Company owed Hua Mei Investments Limited (“Hua Mei”), a related party (controlled by Mr. Hou Xingping, CEO of the Company), $333,800 and $154,571, respectively. These debts are non-interest bearing and payable on demand. The proceeds of these debts were utilized as working capital to primarily pay for the offshore service expenses.

 

Note 10 – 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, 2015 and 2014 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, 2015 and 2014, 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 2015 and 2014. As a result, for the three months ended December 31, 2015 and 2014, there was no income tax provision for the Company.

 

The US Entities have net operating losses amounting to approximately $197,029 and $163,285 during three months ended December 31, 2015 and 2014. These carryforwards will expire, if not utilized by December 2035 and September 2034, 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, the Company has provided a 100% valuation allowance at December 31, 2015 and 2014, and no deferred tax asset benefit has been recorded. Management will review this valuation allowance periodically and make adjustments as needed.

 

 12 
 

 

Note 10 – Income Taxes(Continued)

 

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

 

   Three Months Ended December 31, 
   2015   2014 
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   -    - 

 

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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, 2015 and 2014 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. They do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. 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.

 

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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 condensed 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 audited consolidated financial statements for the three months ended December 31, 2015 and 2014, 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.

 

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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 their estimated useful life of 50 years.

 

Foreign Currency Translation and Transactions

 

The accompanying consolidated financial statements are presented in U.S. Dollars (“$”). Greater China International’s functional currency is the Hong Kong Dollar (“HKD”) and Nanchang Hanxin Agriculture Technology Co., Ltd, General Fruit and General Preservation’s functional currency is the 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.

 

 16 
 

 

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

 

   December 31, 2015   September 30, 2015 
Period end RMB:USD exchange rate   0.1541    0.1572 
Average Period RMB:USD exchange rate   0.1565    0.1622 
Period end HKD:USD exchange rate   0.1290    0.1290 
Average Period HKD:USD exchange rate   0.1290    0.1290 

 

Results of Operations for the Three Months Ended December 31, 2015 Compared to the Three Months Ended December 31, 2014

 

Revenues

 

For the three months ended December 31, 2015, we had net revenues of $10,750,118, as compared to those of $8,865,159 for the three months ended December 31, 2014, an increase of approximately $1,884,959 or 21.3%. The increase in net revenue is mainly because the quantity of navel oranges sold in the three months ended December 31, 2015 increased approximately 1,371,360 kilos (KG) or 11.5% compared to the quantity of navel oranges sold in the three months ended December 31, 2014, and the unit price increased 0.07 or 9.5% to $0.81 per KG during the three months ended December 31, 2015 from $0.74 per KG during the three months ended December 31, 2014. We have added four new leased orchards since January 2015 and these new orchards have yielded significant more oranges for sales for this harvest season, as compared to the previous harvest season.

 

Years ended  Sales
Volume
(in KG)
   Sale Price Per
KG
(in US$)
   Total Sales
Revenue
 
December 31, 2015    13,334,905    0.81    10,750,118 
December 31, 2014    11,963,545    0.74    8,865,159 
Variance    1,371,360    0.07    1,884,959 
% Variance    11.5%   9.5%   21.3%

 

Cost of sales

 

Cost of sales increased by $282,255, or 7.0%, from $4,058,381 for the three months ended December 31, 2014 to $4,340,636 for the three months ended December 31, 2015. The increase is attributable to the combination of the following factors: 1) the increase in the volume of oranges sold; 2) the increase in the unit price of navel oranges outsourced as the market demand increases; 3) offset by a decrease in the average cost of navel oranges we produce resulting from additional navel orange orchards we leased during fiscal year 2015.

 

Gross profit

 

Our gross profit was $6,409,482 for the three months ended December 31, 2015 as compared to $4,806,778 for the three months ended December 31, 2014, representing a gross margin of 59.6% and 54.2%, respectively. The increase in our gross profit margin for the three months ended December 31, 2015 was mainly attributable to: (1) the increase in unit sales price; 2) the decrease in the average cost of navel oranges we produce resulting from production of more oranges this harvest with the same overhead costs.

 

Selling expenses

 

Selling expenses were $22,548 and $62,038 for the three months ended December 31, 2015 and 2014, respectively, a decrease of $39,490 or 63.7%, mainly due to a significant decrease in advertising and marketing activities since our sales network have been well established and our product has a good reputation on the market.

 

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Selling expenses for the three months ended December 31, 2015 and 2014 consisted of the following:

 

   Three Months Ended
December 31,
   Increase/decrease 
   2015   2014   $   % 
Shipping and handling   -    18,937    (18,937)   -100%
Compensations and related benefits   9,406    6,157    3,248    52.8%
Advertising and promotion   332    28,243    (27,911)   -98.8%
Others   12,810    8,701    4,109    47 .2%
Total   22,548    62,038    (39,490)   -63.7%
Selling expenses as % of revenue   0.21%   0.70%   -0.49%   -70.0%

 

General and administrative expenses

 

General and administrative expenses amounted to $302,651 for the three months ended December 31, 2015, as compared to $294,553 for the same period in 2014, a increase of $8,098 or 2.7%. General and administrative expenses consisted of the following:

 

   Three Months Ended
December 31,
   Increase/decrease 
   2015   2014   $   % 
Compensation and related benefits   74,461    79,699    (5,238)   -6.6%
Depreciation   20,341    24,955    (4,614)   -18.5%
Professional services   164,941    126,082    38,859    30.8%
Office expenses   5,789    6,400    (611)   -9.5%
Meals and entertainment   14,340    11,995    2,345    19.5%
Other   22,779    45,422    (22,642)   -49.9%
Total   302,651    294,553    8,098    2.7%
G&A expense as a percentage of revenues   2.82%   3.32%   -0.51%   -15.3%

 

Professional service fees increased by $38,859, which mainly consisted of the legal and other expenses in connection with the Company’s proposed public offering incurred during the three months ended December 31, 2015.

 

Income from operations

 

For the three months ended December 31, 2015, income from operations was $6,032,812, as compared to $4,396,392 for the three months ended December 31, 2014, an increase of $1,636,420 or 37.2%, mainly due to the reasons we discussed above.

 

Other income (expenses)

 

For the three months ended December 31, 2015 and 2014, other expense amounted to $51,471 as compared to $53,795 for the same period in 2014. For the three months ended December 31, 2015 and 2014, other expense mainly included: (i) interest expense, which decreased by $56,422 or 78.1% and (ii) $47,471 of guarantee fee paid during the three months ended December 31, 2015. The decrease in interest expense was mainly because the Company only borrowed $1,541,000 of short-term bank loan as of December 31, 2015 as compared to $4,561,200 of short-term bank loan as of December 31, 2014.

 

Income tax expense

 

For the three months ended December 31, 2015 and 2014, the Company did not incur any income tax expense. 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, 2015 and 2014 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, 2015 and 2014, 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 2016 and 2015. As a result, for the three months ended December 31, 2015 and 2014, there was no income tax provision for the Company.

 

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Net income

 

Our net income for the three months ended December 31, 2015 was $6,032,612, as compared to $4,396,392 for the three months ended December 31, 2014, an increase of $1,636,220 or approximately 37%. The increase in net income was a result of the factors described above.

 

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 translation 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 loss of $1,174,267 and foreign currency translation gain of $142,130 for the three months ended December 31, 2015 and 2014, respectively. The significant foreign translation losses for the three months ended December 31, 2015 was due to the sharp depreciation of Chinese RMB to USD during the last two months of 2015.

 

Comprehensive income

 

For the three months ended December 31, 2015 and 2014, comprehensive income of $4,858,545 and $4,538,522 were derived from the sum of our net income of $6,032,812 and $4,396,392 plus foreign currency translation loss of $1,174,267 and foreign currency translation gain of $142,130, 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, 2015 and 2014, our balance of cash and cash equivalents was $5,858,518 and $464,046, respectively, an increase of $5,394,472, mainly due to net cash provided by operating activities and financing activities.

 

The following summarizes the key components of the Company’s cash flows for the three months ended December 31, 2015 and 2014:

 

   Three Months Ended
December 31,
   Increase/decrease 
   2015   2014   $   % 
Net cash provided by(used in) operating activities  $3,742,976   $(3,343,790)   7,086,766    211.9%
Net cash used in investing activities   (423)   (18,852)   18,429    97.8%
Net cash provided by financing activities   1,745,011    243,114    1,501,897    617.8%
Effect of foreign currency translation   (93,087)   22,916    (116,003)   -506.2%
Net increase(decrease) in cash and cash equivalents  $5,394,472   $(3,096,612)   8,491,084    274.2%

 

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In summary, our cash flows were:

 

Net cash provided by operating activities increased in the three months ended December 31, 2015 by $7,086,766 to $3,742,976, from net cash used in operating activities of $3,343,790 for the three months ended December 31, 2014. These changes were mainly due to the following factors: a change in net income of $1,636,420, a change in prepaid lease of $6,266,385 and a change in customer deposits of $1,824,506.

 

Net cash used in investing activity decreased by $18,429, from $423 to $18,852 in the three months ended December 31, 2015 compared to the same period ended in 2014, which is mainly due to less cash expenditures on property and equipment.

 

Net cash provided by financing activities increased by $1,501,897 to $1,745,011 in the three months ended December 31, 2015 compared to $243,114 provided by financing activities at the same period ended in 2014. In October 2015, we received $1,565,000 of proceeds from short-term bank loan.

 

Working capital increased by $6,980,662 to $21,784,016 as of December 31, 2015 from working capital of $14,803,354 as of December 31, 2014. In order to stay cost competitive in the long-run, we leased 112,650 additional orange trees in the fical year ended September 30, 2015. Based on the lease rate of approximately $64.88 (RMB400) per tree in 2015, the total lease amounts paid were $7,350,704 (RMB45,060,000) during the year ended September 30, 2015.

 

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 if needed.

 

On September 29, 2014, the Company entered into 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 maturity date was July 28, 2015 and the annual interest was 6.6%. The loan was secured by the Company’s real property, navel orange orchards and equipment, and guaranteed by Xingping Hou, CEO of the Company.  The loan was also guaranteed by Ganzhou Jinshengyuan Guarantee Co., Ltd., an unrelated party, with a maximum exposure limit of $4,547,200 (RMB28,000,000). As of June 30, 2015, the Company had drawn down $4,583,600 (RMB 28,000,000) of the loan to use for working capital purposes. The loan was fully repaid on July 28, 2015.

 

On October 13, 2015, the Company entered into a short-term bank loan agreement with Agricultural Development Bank of China for RMB 26 million (about $4.1M). Pursuant to the Loan Agreement, the principal will be repaid on August 8, 2016. The interest is being calculated using an annual fixed interest rate of 5.28%. The loan is guaranteed by Xingping Hou, CEO of the Company, also guaranteed by Ganzhou Jinshengyuan Guarantee Co., Ltd., an unrelated party. The Company paid 4% of total loan to the guarantor as a guarantee fee for the above bank loan. As of December 31, 2015, the Company has drawn down $1,541,000 (RMB10,000,000) of the loan to use for working capital purposes.

 

As of December 31, 2015 and 2014, the Company had outstanding debts from a related party, Hua Mei Investments Limited (“Hua Mei”), of $333,800 and $154,571, respectively. These debts are non-interest bearing and payable on demand. The proceeds of these debts were utilized as working capital.

 

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.

 

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ITEM 4.     CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2015 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the Exchange Act rules and forms due to the material weaknesses described below. As a result, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

In this quarter, the Company held regular seminars, briefings and training sessions to help employees stay current on recent developments of internal control procedure and new SEC rules and regulations and accounting pronouncements.

  

Additionally, in the third and fourth quarters of 2015 management established a formal process for closing the Company’s books and preparing and reviewing its financial statements, which includes all the appropriate closing and consolidating entries, as well as the preparation of the appropriate disclosures. In furtherance of this process, on a monthly basis the Company’s controller and manager of the accounting department execute financial statements, review the adjusted entries and the closing entries and add accounting memos, if necessary. Testing of the effectiveness of the new process is planned in the fiscal year ending September 30, 2016.

  

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Changes in Internal Control over Financial Reporting

 

Except as discussed in this Item 4 there were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

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.

 

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

 

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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 16, 2016 By:

/s/ Xingping Hou

  Name: Xingping Hou
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: February 16, 2016 By:

/s/ Amy Xue

  Name: Amy Xue
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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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 

 

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