10-Q 1 f10q1216_chinagreenagri.htm QUARTERLY REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended December 31, 2016

☐ 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 001-34260

CHINA GREEN AGRICULTURE, INC.

(Exact name of registrant as specified in its charter)

Nevada |  | 36-3526027
(State or other jurisdiction of |  | (IRS Employer
incorporation or organization) |  | Identification No.)

| 3rd floor, Borough A, Block A. No. 181, South TaibaiRoad,Xi’an, Shaanxi province, PRC 710065 |
| (Address of principal executive offices) (Zip Code) |

| +86-29-88266368 |
| (Issuer's telephone number, including area code) |

Indicate by check mark whether the issuer (1) 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 ☒ 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 (§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 ☒ 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 ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 38,535,161 shares of common stock, $0.001 par value, as of February 7, 2017.

TABLE OF CONTENTS

|  | Page
PART I | FINANCIAL INFORMATION | 1
Item 1. | Financial Statements | 1
| Consolidated Condensed Balance Sheets As of December 31, 2016 and June 30, 2016 (Unaudited) | 1
| Consolidated Condensed Statements of Income and Comprehensive Income (Loss) For the Three and Six Months Ended December 31, 2016 and 2015 (Unaudited) | 2
| Consolidated Condensed Statements of Cash Flows For the Six Months Ended December 31, 2016 and 2015 (Unaudited) | 3
| Notes to Consolidated Condensed Financial Statements As of December 31, 2016 (Unaudited) | 4
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36
Item 4. | Controls and Procedures | 37
PART II | OTHER INFORMATION | 37
Item 6. | Exhibits | 37
Signatures | 38
Exhibits/Certifications | 39

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|  | December 31, 2016 |  |  | June 30, 2016 |
ASSETS
Current Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 116,574,852 |  |  | $ | 102,896,486 |
Accounts receivable, net |  |  | 125,035,022 |  |  |  | 117,055,376 |
Inventories |  |  | 64,255,981 |  |  |  | 87,436,315 |
Prepaid expenses and other current assets |  |  | 1,725,644 |  |  |  | 1,329,098 |
Advances to suppliers, net |  |  | 28,707,243 |  |  |  | 26,863,959 |
Total Current Assets |  |  | 336,298,742 |  |  |  | 335,581,234 |
Plant, Property and Equipment, Net |  |  | 34,201,866 |  |  |  | 37,569,739 |
Deferred Asset, Net |  |  | 3,536,984 |  |  |  | 13,431,621 |
Other Assets |  |  | 309,495 |  |  |  | 379,047 |
Intangible Assets, Net |  |  | 21,993,441 |  |  |  | 23,840,048 |
Goodwill |  |  | 7,635,779 |  |  |  | 7,980,838 |
Total Assets |  | $ | 403,976,307 |  |  | $ | 418,782,527 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 5,577,064 |  |  | $ | 5,246,153 |
Customer deposits |  |  | 5,413,319 |  |  |  | 8,578,341 |
Accrued expenses and other payables |  |  | 9,067,827 |  |  |  | 16,414,392 |
Amount due to related parties |  |  | 2,726,125 |  |  |  | 2,473,004 |
Taxes payable |  |  | 1,841,182 |  |  |  | 4,104,218 |
Short term loans |  |  | 4,463,783 |  |  |  | 4,665,500 |
Interest payable |  |  | 110,155 |  |  |  | - |
Derivative liability |  |  | 64,780 |  |  |  | 144,818 |
Total Current Liabilities |  |  | 29,264,235 |  |  |  | 41,626,426 |
Long-term Liabilities |  |  |  |  |  |  |  |
Convertible notes payable |  |  | 6,534,263 |  |  |  | 6,671,769 |
Total Liabilities |  |  | 35,798,498 |  |  |  | 48,298,195 |
Stockholders' Equity |  |  |  |  |  |  |  |
Preferred Stock, $.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding |  |  | - |  |  |  | - |
Common stock, $.001 par value, 115,197,165 shares authorized, 38,518,605 and 36,978,605 shares issued and outstanding as of December 31, 2016 and June 30, 2016, respectively |  |  | 38,518 |  |  |  | 37,648 |
Additional paid-in capital |  |  | 128,876,011 |  |  |  | 127,593,932 |
Statutory reserve |  |  | 28,317,770 |  |  |  | 27,203,861 |
Retained earnings |  |  | 233,088,961 |  |  |  | 221,345,279 |
Accumulated other comprehensive loss |  |  | (22,143,451 | ) |  |  | (5,696,388 | )
Total Stockholders' Equity |  |  | 368,177,809 |  |  |  | 370,484,332 |
Total Liabilities and Stockholders' Equity |  | $ | 403,976,307 |  |  | $ | 418,782,527 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

| 1 |

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|  | Three Months Ended December 31, |  |  | Six Months Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Sales |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 26,825,674 |  |  | $ | 31,302,561 |  |  | $ | 58,253,394 |  |  | $ | 66,010,365 |
Gufeng |  |  | 21,066,559 |  |  |  | 23,579,674 |  |  |  | 36,876,073 |  |  |  | 41,814,506 |
Yuxing |  |  | 2,454,314 |  |  |  | 2,083,765 |  |  |  | 3,809,725 |  |  |  | 3,325,400 |
VIEs |  |  | 8,398,466 |  |  |  | - |  |  |  | 21,690,443 |  |  |  | - |
Net sales |  |  | 58,745,013 |  |  |  | 56,966,000 |  |  |  | 120,629,635 |  |  |  | 111,150,271 |
Cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 12,332,360 |  |  |  | 13,434,686 |  |  |  | 25,601,590 |  |  |  | 27,975,071 |
Gufeng |  |  | 18,138,659 |  |  |  | 19,712,848 |  |  |  | 31,523,736 |  |  |  | 34,458,522 |
Yuxing |  |  | 1,934,046 |  |  |  | 1,182,898 |  |  |  | 2,979,654 |  |  |  | 1,892,948 |
VIEs |  |  | 7,159,707 |  |  |  | - |  |  |  | 17,913,386 |  |  |  | - |
Cost of goods sold |  |  | 39,564,772 |  |  |  | 34,330,432 |  |  |  | 78,018,366 |  |  |  | 64,326,541 |
Gross profit |  |  | 19,180,241 |  |  |  | 22,635,568 |  |  |  | 42,611,269 |  |  |  | 46,823,730 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 3,965,382 |  |  |  | 5,285,103 |  |  |  | 8,977,450 |  |  |  | 7,628,858 |
Selling expenses - amortization of deferred asset |  |  | 3,475,438 |  |  |  | 8,664,752 |  |  |  | 9,584,220 |  |  |  | 18,377,467 |
General and administrative expenses |  |  | 4,633,905 |  |  |  | 2,905,982 |  |  |  | 7,865,392 |  |  |  | 5,659,624 |
Total operating expenses |  |  | 12,074,725 |  |  |  | 16,855,837 |  |  |  | 26,427,062 |  |  |  | 31,665,949 |
Income from operations |  |  | 7,105,516 |  |  |  | 5,779,731 |  |  |  | 16,184,207 |  |  |  | 15,157,781 |
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (114,115 | ) |  |  | 729 |  |  |  | (155,172 | ) |  |  | (3,834 | )
Interest income |  |  | 76,494 |  |  |  | 74,270 |  |  |  | 153,116 |  |  |  | 152,932 |
Interest expense |  |  | (93,246 | ) |  |  | (302,644 | ) |  |  | (231,791 | ) |  |  | (731,679 | )
Total other income (expense) |  |  | (130,867 | ) |  |  | (227,645 | ) |  |  | (233,847 | ) |  |  | (582,581 | )
Income before income taxes |  |  | 6,974,649 |  |  |  | 5,552,086 |  |  |  | 15,950,360 |  |  |  | 14,575,200 |
Provision for income taxes |  |  | 1,468,638 |  |  |  | 1,284,551 |  |  |  | 3,092,769 |  |  |  | 3,061,993 |
Net income |  |  | 5,506,011 |  |  |  | 4,267,535 |  |  |  | 12,857,591 |  |  |  | 11,513,207 |
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (1,205,884 | ) |  |  | (7,616,129 | ) |  |  | (16,447,063 | ) |  |  | (22,728,368 | )
Comprehensive income (loss) |  | $ | 4,300,127 |  |  | $ | (3,348,594 | ) |  | $ | (3,589,472 | ) |  | $ | (11,215,161 | )
Basic weighted average shares outstanding |  |  | 37,658,062 |  |  |  | 36,933,002 |  |  |  | 37,653,333 |  |  |  | 36,436,026 |
Basic net earnings per share |  | $ | 0.15 |  |  | $ | 0.12 |  |  | $ | 0.34 |  |  | $ | 0.32 |
Diluted weighted average shares outstanding |  |  | 37,658,062 |  |  |  | 36,933,002 |  |  |  | 37,653,333 |  |  |  | 36,436,026 |
Diluted net earnings per share |  |  | 0.15 |  |  |  | 0.12 |  |  |  | 0.34 |  |  |  | 0.32 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

| 2 |

CHINA GREEN AGRICULTURE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|  | Six Months Ended December 31, |
|  | 2016 |  |  | 2015 |
Cash flows from operating activities |  |  |  |  |  |
Net income |  | $ | 12,857,591 |  |  | $ | 11,513,207 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Issuance of common stock and stock options for compensation |  |  | 1,282,949 |  |  |  | 2,378,736 |
Depreciation and amortization |  |  | 12,115,909 |  |  |  | 21,445,891 |
Loss on disposal of property, plant and equipment |  |  | 109,304 |  |  |  | 345 |
Amortization of debt discount |  |  | 155,335 |  |  |  | - |
Change in fair value of derivative liability |  |  | (75,918 | ) |  |  | - |
Changes in operating assets |  |  |  |  |  |  |  |
Accounts receivable |  |  | (13,419,107 | ) |  |  | (1,295,393 | )
Amount due from related parties |  |  | - |  |  |  | (154,303 | )
Other current assets |  |  | (467,184 | ) |  |  | 88,817 |
Inventories |  |  | 19,962,979 |  |  |  | (23,618,284 | )
Advances to suppliers |  |  | (3,091,976 | ) |  |  | (9,078,019 | )
Other assets |  |  | 121,719 |  |  |  | 40,385 |
Changes in operating liabilities |  |  |  |  |  |  |  |
Accounts payable |  |  | 564,376 |  |  |  | 130,081 |
Customer deposits |  |  | (2,875,222 | ) |  |  | 16,653,368 |
Tax payables |  |  | (2,146,115 | ) |  |  | (2,646,182 | )
Accrued expenses and other payables |  |  | (7,029,002 | ) |  |  | 228,171 |
Interest payable |  |  | 113,352 |  |  |  | - |
Net cash provided by operating activities |  |  | 18,178,990 |  |  |  | 15,686,820 |
Cash flows from investing activities |  |  |  |  |  |  |  |
Purchase of plant, property, and equipment |  |  | (74,353 | ) |  |  | (15,665 | )
Net cash used in investing activities |  |  | (74,353 | ) |  |  | (15,665 | )
Cash flows from financing activities |  |  |  |  |  |  |  |
Proceeds from the sale of common stock |  |  | - |  |  |  | - |
Proceeds from loans |  |  | - |  |  |  | 4,424,000 |
Repayment of loans |  |  | - |  |  |  | (7,900,000 | )
Advance from related party |  |  | 300,000 |  |  |  | 200,000 |
Net cash provided by financing activities |  |  | 300,000 |  |  |  | (3,276,000 | )
Effect of exchange rate change on cash and cash equivalents |  |  | (4,726,271 | ) |  |  | (5,810,344 | )
Net increase in cash and cash equivalents |  |  | 13,678,366 |  |  |  | 6,584,811 |
Cash and cash equivalents, beginning balance |  |  | 102,896,486 |  |  |  | 92,982,564 |
Cash and cash equivalents, ending balance |  | $ | 116,574,852 |  |  | $ | 99,567,375 |
Supplement disclosure of cash flow information |  |  |  |  |  |  |  |
Interest expense paid |  | $ | 231,791 |  |  | $ | 731,679 |
Income taxes paid |  | $ | 7,047,713 |  |  | $ | 2,763,253 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

| 3 |

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

China Green Agriculture, Inc. (the “Company”, “Parent Company” or “Green Nevada”), through its subsidiaries, is engaged in the research, development, production, distribution and sale of humic acid-based compound fertilizer, compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizers, highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer and the development, production and distribution of agricultural products.

Unless the context indicates otherwise, as used in the notes to the financial statements of the Company, the following are the references herein of all the subsidiaries of the Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada, incorporated in the State of New Jersey; (ii) Shaanxi TechTeamJinongHumic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the PRC; (iii) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”) in the in the People’s Republic of China (the “PRC”) controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), and (v) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”).

On June 30, 2016 the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders of the following six companies that are organized under the laws of the PRC and would be deemed VIEs: Shaanxi Lishijie Agrochemical Co., Ltd. (“Lishijie”), SongyuanJinyangguangSannong Service Co., Ltd. (“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), AksuXindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), and Xinjiang Xinyulei Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”). On January 1, 2017, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders of the following two companies that are organized under the laws of the PRC and would be deemed VIEs Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”). Please refer to Subsequent event in Note 17.

Yuxing, Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred to as the “the VIE Companies”

| 4 |

The Company’s current corporate structure as of is set forth in the diagram below:

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principle of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Green New Jersey, Jinong, Gufeng, Tianjuyuan, Yuxing and the VIE Companies. All significant inter-company accounts and transactions have been eliminated in consolidation.

| 5 |

VIE assessment

A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered a VIE, the Company first perform a qualitative analysis, which requires certain subjective decisions regarding its assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that the entity was designed to pass along to its variable interest holders. When the primary beneficiary could not be identified through a qualitative analysis, we used internal cash flow models to compute and allocate expected losses or expected residual returns to each variable interest holder based upon the relative contractual rights and preferences of each interest holder in the VIE’s capital structure.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Cash and cash equivalents and concentration of cash

For statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit with state owned banks in the Peoples Republic of China (“PRC”) and banks in the United States, and other highly-liquid investments with maturities of six months or less, when purchased, to be cash and cash equivalents. The Company maintains large sums of cash in three major banks in China. The aggregate cash in such accounts and on hand as of December 31, 2016 and June 30, 2016 were $116,574,852 and $102,896,486, respectively. In addition, the Company also had $20,538 and $167,495 in cash in two banks in the United States as of December 31, 2016 and June 30, 2016, respectively. Cash overdraft as of balance sheet date will be reflected as liabilities in the balance sheet. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

Accounts receivable

The Company's policy is to maintain reserves for potential credit losses on accounts receivable. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves at each year-end. Accounts considered uncollectible are written off through a charge to the valuation allowance. As of December 31, 2016 and June 30, 2016, the Company had accounts receivable of $125,035,022 and $117,055,376, net of allowance for doubtful accounts of $4,343,762 and $397,123, respectively. The Company adopts no policy to accept product returns post to the sales delivery.

Inventories

Inventory is valued at the lower of cost (determined on a weighted average basis) or market. Inventories consist of raw materials, work in process, finished goods and packaging materials. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.

| 6 |

Deferred asset

Deferred assets represent amounts that the distributors owed to the Company in their marketing efforts and developing standard stores to expand the Company’s products’ competitiveness and market shares. The amount owed to the Company to assist its distributors will be expensed over three years which is the term as stated in the cooperation agreement, as long as the distributors are actively selling the Company’s products. For the six months ended December 31, 2016 and 2015, the Company amortized $9,584,220 and $21,430,699, respectively, of the deferred assets. If a distributor breaches, defaults, or terminates the agreement with the Company within the three-year period, the outstanding unamortized portion of the amount owed will become payable to the Company immediately. The Company’s Chairman, Mr. Li, guaranteed to the Company of amounts remaining unpaid due from distributors.

The deferred assets consist of items inside the distributors’ stores such as furniture, racks, cabinets, and display units, and items outside or attached to the distributors’ stores such as signage and billboards. These types of assets would be capitalized as fixed assets if the Company actually owned the stores or utilized the assets for its own operations. These assets would also be capitalized as leasehold improvements if the Company leased these stores from the distributors. Therefore, the Company believes that under the U.S. generally accepted accounting principles, these types of assets purchases are properly capitalized. In addition, the Company believes that these assets are properly classified as deferred assets because if a distributor breaches, defaults, or terminates the agreement with the Company within a three-year period, a proportionate amount expended by the Company is to be repaid by the distributor. The Chairman of the Board of directors of the Company guaranteed to the Company of amounts remaining unpaid due from distributors.

The assets inside the distributors’ stores are custom made to fit the layout of each individual store and the signage and billboards are also custom designed to fit the specific location. The assets were purchased by the Company directly from the manufacturers and installed in the distributors’ stores. The Company wants to maintain control over the quality of the items being purchased as well as making them uniform among all the distributor locations.

Intangible Assets

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with definitive lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute directly or indirectly to the entity’s future cash flows. The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

Customer deposits

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. When all revenue recognition criteria are met, the customer deposits are recognized as revenue. As of December 31, 2016 and June 30, 2016, the Company had customer deposits of $5,413,319 and $8,578,341, respectively.

Earnings per share

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

| 7 |

The components of basic and diluted earnings per share consist of the following:

|  | Three Months Ended December 31, |
|  | 2016 |  |  | 2015 |
Net Income for Basic Earnings Per Share |  | $ | 5,506,011 |  |  | $ | 4,267,535 |
Basic Weighted Average Number of Shares |  |  | 37,658,062 |  |  |  | 36,933,002 |
Net Income Per Share – Basic |  | $ | 0.15 |  |  | $ | 0.12 |
Net Income for Diluted Earnings Per Share |  | $ | 5,506,011 |  |  | $ | 4,267,535 |
Diluted Weighted Average Number of Shares |  |  | 37,658,062 |  |  |  | 36,933,002 |
Net Income Per Share – Diluted |  | $ | 0.15 |  |  | $ | 0.12 |

|  | Six Months Ended December 31, |
|  | 2016 |  |  | 2015 |
Net Income for Basic Earnings Per Share |  | $ | 12,857,591 |  |  | $ | 11,513,207 |
Basic Weighted Average Number of Shares |  |  | 37,653,333 |  |  |  | 36,436,026 |
Net Income Per Share – Basic |  | $ | 0.34 |  |  | $ | 0.32 |
Net Income for Diluted Earnings Per Share |  | $ | 12,857,591 |  |  | $ | 11,513,207 |
Diluted Weighted Average Number of Shares |  |  | 37,653,333 |  |  |  | 36,436,026 |
Net Income Per Share – Diluted |  | $ | 0.34 |  |  | $ | 0.32 |

Recent accounting pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, and is to be applied using one of two retrospective application methods, with early application not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.

| 8 |

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share Based Payment Accounting, to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this newly issued guidance to its consolidated financial statements.

On November 17, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. It is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 including interim periods within those fiscal years. Earlier adoption is permitted. The Company maintains restricted cash balances and upon adoption of this standard, the Company will show restricted cash as part of cash and restricted cash equivalents.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. The Company does not expect the adoption to have any significant impact on its Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company will apply this guidance to applicable impairment tests after the adoption date.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.

NOTE 3 - INVENTORIES

Inventories consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Raw materials |  | $ | 23,724,037 |  |  | $ | 29,926,762 |
Supplies and packing materials |  | $ | 599,843 |  |  | $ | 444,373 |
Work in progress |  | $ | 422,539 |  |  | $ | 408,820 |
Finished goods |  | $ | 39,509,562 |  |  | $ | 56,656,360 |
Total |  | $ | 64,255,981 |  |  | $ | 87,436,315 |

| 9 |

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Building and improvements |  | $ | 40,614,431 |  |  | $ | 42,489,975 |
Auto |  |  | 899,674 |  |  |  | 937,642 |
Machinery and equipment |  |  | 17,993,602 |  |  |  | 19,015,420 |
Agriculture assets |  |  | 732,865 |  |  |  | 765,983 |
Total property, plant and equipment |  |  | 60,240,572 |  |  |  | 63,209,020 |
Less: accumulated depreciation |  |  | (26,038,706 | ) |  |  | (25,639,281 | )
Total |  | $ | 34,201,866 |  |  | $ | 37,569,739 |

NOTE 5 - INTANGIBLE ASSETS

Intangible assets consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Land use rights, net |  | $ | 9,816,682 |  |  | $ | 10,381,215 |
Technology patent, net |  |  | 4,053 |  |  |  | 4,462 |
Customer relationships, net |  |  | 5,515,101 |  |  |  | 6,403,343 |
Non-compete agreement |  |  | 797,090 |  |  |  | 925,678 |
Trademarks |  |  | 5,860,515 |  |  |  | 6,125,350 |
Total |  | $ | 21,993,441 |  |  | $ | 23,840,048 |

LAND USE RIGHT

On September 25, 2009, Yuxing was granted a land use right for approximately 88 acres (353,000 square meters or 3.8 million square feet) by the People’s Government and Land & Resources Bureau of Hu County, Xi’an, Shaanxi Province. The fair value of the related intangible asset was determined to be the respective cost of RMB73,184,895 (or $10,538,113). The intangible asset is being amortized over the grant period of 50 years using the straight line method.

On August 13, 2003, Tianjuyuan was granted a certificate of Land Use Right for a parcel of land of approximately 11 acres (42,726 square meters or 459,898 square feet) at Ping Gu District, Beijing. The purchase cost was recorded at RMB1,045,950 (or $150,609). The intangible asset is being amortized over the grant period of 50 years.

On August 16, 2001, Jinong received a land use right as a contribution from a shareholder, which was granted by the People’s Government and Land & Resources Bureau of Yangling District, Shaanxi Province. The fair value of the related intangible asset at the time of the contribution was determined to be RMB7,285,099 (or $1,049,003). The intangible asset is being amortized over the grant period of 50 years.

| 10 |

The Land Use Rights consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Land use rights |  | $ | 11,737,725 |  |  | $ | 12,268,150 |
Less: accumulated amortization |  |  | (1,921,043 | ) |  |  | (1,886,935 | )
Total land use rights, net |  | $ | 9,816,682 |  |  | $ | 10,381,215 |

TECHNOLOGY PATENT

On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humid acid. The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $845,969) and is being amortized over the patent period of 10 years using the straight line method. This technology patent has been fully amortized.

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired technology patent was estimated to be RMB9,200,000 (or $1,324,736) and is amortized over the remaining useful life of six years using the straight line method.

The technology know-how consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Technology know-how |  | $ | 2,174,973 |  |  | $ | 2,273,260 |
Less: accumulated amortization |  |  | (2,170,920 | ) |  |  | (2,268,798 | )
Total technology know-how, net |  | $ | 4,053 |  |  | $ | 4,462 |

CUSTOMER RELATIONSHIP

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired customer relationships was estimated to be RMB65,000,000 (or $9,360,000) and is amortized over the remaining useful life of ten years. On June 30, 2016, the Company acquired the VIE Companies. The fair value on the acquired customer relationships was estimated to be RMB16,442,531 (or $2,367,609) and is amortized over the remaining useful life of seven to ten years.

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Customer relationships |  | $ | 11,727,154 |  |  | $ | 12,257,100 |
Less: accumulated amortization |  |  | (6,212,053 | ) |  |  | (5,853,757 | )
Total customer relationships, net |  | $ | 5,515,101 |  |  | $ | 6,403,343 |

NON-COMPETE AGREEMENT

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value on the acquired non-compete agreement was estimated to be RMB1,320,000 (or $190,080) and is amortized over the remaining useful life of five years using the straight line method. On June 30, 2016, the Company acquired the VIE Companies. The fair value on the acquired non-compete agreements were estimated to be RMB6,150,683 (or $885,698) and is amortized over the remaining useful life of five years using the straight line method.

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Non-compete agreement |  | $ | 1,075,726 |  |  | $ | 1,124,338 |
Less: accumulated amortization |  |  | (278,636 | ) |  |  | (198,660 | )
Total non-compete agreement, net |  | $ | 797,090 |  |  | $ | 925,678 |

| 11 |

TRADEMARKS

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value on the acquired trademarks was estimated to be RMB40,700,000 (or $5,860,515) and is subject to an annual impairment test.

AMORTIZATION EXPENSE

Estimated amortization expenses of intangible assets for the next five twelve months periods ended December 31, 2016, are as follows:

Years Ending December 31, |  | Expense ($) |
2017 |  |  | 1,635,094 |
2018 |  |  | 1,635,094 |
2019 |  |  | 1,635,094 |
2020 |  |  | 1,635,094 |
2021 |  |  | 1,078,551 |

NOTE 6 - ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Payroll payable |  | $ | 77,039 |  |  | $ | 58,704 |
Welfare payable |  |  | 147,829 |  |  |  | 154,510 |
Accrued expenses |  |  | 4,574,577 |  |  |  | 4,450,306 |
Other payables |  |  | 4,147,620 |  |  |  | 11,624,653 |
Other levy payable |  |  | 120,762 |  |  |  | 126,219 |
Total |  | $ | 9,067,827 |  |  | $ | 16,414,392 |

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NOTE 7 - AMOUNT DUE TO RELATED PARTIES

As of December 31, 2016 and June 30, 2016, the amount due to related parties was $2,726,125 and $2,473,004, respectively. As of December 31, 2016 and June 30, 2016, $1,007,951 and $1,092,243, respectively were amounts that Gufeng borrowed from a related party, Xi’an Techteam Science & Technology Industry (Group) Co. Ltd., a company controlled by Mr. Tao Li, Chairman and CEO of the Company, representing unsecured, non-interest bearing loans that are due on demand. These loans are not subject to written agreements.

At the end of December 2015, Yuxing entered into a sales agreement with the Company’s affiliate, 900LH.com Food Co., Ltd. ("900LH.com", previously announced as Xi'an Gem Grain Co., Ltd) pursuant to which Yuxing is to supply various vegetables to 900LH.com for its incoming seasonal sales at the holidays and year ends (the “Sales Agreement”). The contingent contracted value of the Sales Agreement is RMB 25,500,000 (approximately $3,671,822). For the six months ended December 31, 2016, Yuxing has sold approximately $839,562 products to 900LH.com.

On June 29, 2016, Jinong signed an office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”), where Mr. Tao Li, Chairman and CEO of the Company, serves as its Chairman. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provided for a two-year term effective as of July 1, 2016 with monthly rent of RMB26,684 (approximately $3,842).

NOTE 8 - LOAN PAYABLES

As of December 31, 2016, the short-term loan payables consisted of three loans which mature on dates ranging from January 19, 2016 through July 28, 2017 with interest rates ranging from 4.87% to 5.22%. The loans No. 1 and 2 below are collateralized by Tianjuyan’s land use right and building ownership right. The loans No. 3 is guaranteed by Jinong’s credit.

No. |  | Payee |  | Loan period per agreement |  | Interest Rate |  |  | December 31, 2016 |
1 |  | Agriculture Bank of China-Pinggu Branch |  | May 18, 2016 – Mar. 17, 2017 |  |  | 4.87 | % |  | $ | 1,871,909 |
2 |  | Agriculture Bank of China-Pinggu Branch |  | Jan. 19, 2016 – Jan. 17, 2017 |  |  | 5.00 | % |  |  | 1,151,944 |
3 |  | Beijing Bank-Pinggu Branch |  | July 28, 2016 – July 28, 2017 |  |  | 5.22 | % |  |  | 1,439,930 |
|  | Total |  |  |  |  |  |  |  | $ | 4,463,783 |

As of June 30, 2016, the short-term loan payables consisted of three loans which mature on dates ranging from May 18, 2016 through March 17, 2017 with interest rates ranging from 4.87% to 5.82%. The loans No. 1 and 3 below are collateralized by Tianjuyan’s land use right and building ownership right. The loans No. 2 is guaranteed by Jinong’s credit.

No. |  | Payee |  | Loan period per agreement |  | Interest Rate |  |  | June 30, 2016 |
1 |  | Agriculture Bank of China-Pinggu Branch |  | May. 18, 2016 – Mar. 17, 2017 |  |  | 4.87 | % |  | $ | 1,956,500 |
2 |  | Beijing Bank-Pinggu Branch |  | Aug. 11, 2015 – Aug. 2, 2016 |  |  | 5.82 | % |  |  | 1,505,000 |
3 |  | Agriculture Bank of China-Pinggu Branch |  | Jan. 19, 2016 – Jan. 17, 2017 |  |  | 5.00 | % |  |  | 1,204,000 |
|  | Total |  |  |  |  |  |  |  | $ | 4,665,500 |

The interest expense from short-term loans was $231,791 and $731,679 for the six months ended December 31, 2016 and 2015, respectively.

| 13 |

NOTE 9 - CONVERTIBLE NOTES PAYABLE

In connection with the acquisition of the VIE Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders convertible notes payable in the aggregate amount of RMB 51,000,000 ($7,344,000) with a term of three years and an annual interest rate of 3%. The convertible notes take priority over the preferred stock and common stock of Jinong, and any other class or series of capital stocks Jinong issues in the future in terms of interests and payments in the event of any liquidation, dissolution or winding up of Jinong. On or after the third anniversary of the issuance date of the note, noteholders may request Jinong to process the note conversion to convert the note into shares of the Company’s common stock. The notes cannot be converted prior to the mature date. The per share conversion price of the notes is the higher of the following: (i) $5.00 per share or (ii) 75% of the closing price of the Company’s common stock on the date the noteholder delivers the conversion notice.

The Company determined that the fair value of the convertible notes payable was RMB 45,379,032 ($6,534,263) and RMB 44,330,692 ($6,383,620) as of December 31, 2016 and June 30, 2016, respectively, which was due to the lower than market interest rate and the conversion feature. The difference between the fair value of the notes and the face amount of the notes will be amortized to interest expense over the three year life of the notes. As of December 31, 2016, the amortization of this discount into interest expenses was $1,048,340.

NOTE 10 - TAXES PAYABLE

Enterprise Income Tax

Effective January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The EIT rate of 25% replaced the 33% rate that was applicable to both DEs and FIEs. The two year tax exemption and three year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, as a result of the expiration of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the six months ended December 31, 2016 and 2015 of $1,879,465 and $1,805,667, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to 25% EIT rate and thus it made provision for income taxes of $792,503 and $1,256,325 for the six months ended December 31, 2016 and 2015, respectively.

Value-Added Tax

All of the Company’s fertilizer products that are produced and sold in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On April 29, 2008, the PRC State of Administration of Taxation (SAT) released Notice #56, “Exemption of VAT for Organic Fertilizer Products”, which allows certain fertilizer products to be exempt from VAT beginning June 1, 2008. The Company submitted the application for exemption in May 2009, which was granted effective September 1, 2009, continuing through December 31, 2015. On August 10, 2015 and August 28, 2015, the SAT released Notice #90. “Reinstatement of VAT for Fertilizer Products”, and Notice #97, “Supplementary Reinstatement of VAT for Fertilizer Products”, which restore the VAT of 13% of the gross sales price on certain fertilizer products includes non organic fertilizer products starting from September 1, 2015, but granted tax payers a reduced rate of 3% from September 1, 2015 through June 30, 2016.

Income Taxes and Related Payables

Taxes payable consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
VAT provision |  | $ | (255,765 | ) |  | $ | 2,218 |
Income tax payable |  |  | 1,482,816 |  |  |  | 3,445,480 |
Other levies |  |  | 614,131 |  |  |  | 656,520 |
Total |  | $ | 1,841,182 |  |  | $ | 4,104,218 |

| 14 |

The provision for income taxes consists of the following:

|  | December 31, 2016 |  |  | June 30, 2016 |
Current tax - foreign |  | $ | 3,092,769 |  |  | $ | 7,371,967 |
Deferred tax |  |  | - |  |  |  | - |
|  | $ | 3,092,769 |  |  | $ | 7,371,967 |

Tax Rate Reconciliation

Our effective tax rates were approximately 19.4% and 26.7% for six months ended December 31, 2016 and 2015, respectively. Substantially all of the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 34% to income before income taxes for the six months ended December 31, 2016 and 2015 for the following reasons:

December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | China |  |  | United States |  |  |  |  |  |  |
|  | 15% - 25% |  |  | 34% |  |  | Total |  |  |  |
Pretax income (loss) |  | $ | 17,806,630 |  |  |  |  |  |  |  | (1,856,270 | ) |  |  |  |  |  | $ | 15,950,360 |  |  |  |  |
Expected income tax expense (benefit) |  |  | 4,451,658 |  |  |  | 25.0 | % |  |  | (631,132 | ) |  |  | 34.0 | % |  |  | 3,820,526 |  |  |  |  |
High-tech income benefits on Jinong |  |  | (1,139,344 | ) |  |  | (6 | )% |  |  | - |  |  |  | - |  |  |  | (1,139,344 | ) |  |  |  |
Losses from subsidiaries in which no benefit is recognized |  |  | (219,544 | ) |  |  | (1 | )% |  |  | - |  |  |  | - |  |  |  | (219,544 | ) |  |  |  |
Change in valuation allowance on deferred tax asset from US tax benefit |  |  | - |  |  |  |  |  |  |  | 631,132 |  |  |  | (34.0 | )% |  |  | 631,132 |  |  |  |  |
Actual tax expense |  | $ | 3,092,769 |  |  |  | 17 | % |  | $ | - |  |  |  | - | % |  | $ | 3,092,769 |  |  |  | 19.4 | %

December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | China |  |  | United States |  |  |  |  |  |  |
|  | 15% - 25% |  |  | 34% |  |  | Total |  |  |  |
Pretax income (loss) |  | $ | 14,575,200 |  |  |  |  |  |  |  | (3,107,045 | ) |  |  |  |  |  | $ | 11,468,155 |  |  |  |  |
Expected income tax expense (benefit) |  |  | 3,643,800 |  |  |  | 25.0 | % |  |  | (1,056,395 | ) |  |  | 34.0 | % |  |  | 2,587,405 |  |  |  |  |
High-tech income benefits on Jinong |  |  | (1,145,841 | ) |  |  | (7.9 | )% |  |  | - |  |  |  | - |  |  |  | (1,145,841 | ) |  |  |  |
Losses from subsidiaries in which no benefit is recognized |  |  | 564,034 |  |  |  | 3.9 | % |  |  | - |  |  |  | - |  |  |  | 564,034 |  |  |  |  |
Change in valuation allowance on deferred tax asset from US tax benefit |  |  | - |  |  |  |  |  |  |  | 1,056,395 |  |  |  | (34.0 | )% |  |  | 1,056,395 |  |  |  |  |
Actual tax expense |  | $ | 3,061,993 |  |  |  | 21 | % |  | $ | - |  |  |  | - | % |  | $ | 3,061,993 |  |  |  | 26.7 | %

| 15 |

NOTE 11 - STOCKHOLDERS’ EQUITY

Common Stock

On September 30, 2014, the Company granted an aggregate of 1,750,000 shares of restricted stock under the 2009 Plan to certain executive officers, directors and employees, among which (i) 240,000 shares of restricted stock to Mr. Tao Li, the CEO; (ii) 100,000 shares of restricted stock to Mr. Ken Ren, the CFO, (iii) 40,000 shares of restricted stock to Mr. Yizhao Zhang, 30,000 shares of restricted stock to Ms. Yiru Shi, and 20,000 shares of restricted stock to Mr. Lianfu Liu, each an independent director of the Company; and (iv) 1,320,000 shares of restricted stock to key employees. The stock grants are subject to time-based vesting schedules, vesting in various installments until March 31, 2015 for the CFO and the three independent directors, until June 30, 2015 for the CEO and until December 31, 2016 for the employees. The value of the restricted stock awards was $3,675,000 and is based on the fair value of the Company’s common stock on the grant date. This amount is being amortized to compensation expense over the vesting periods for the various awards. As of June 30, 2016 the unamortized portion of the compensation expense was $235,264 which was fully amortized to expense during the period ended December 31, 2016.

On September 28, 2015, the Company granted an aggregate of 1,000,000 shares of restricted stock under the 2009 Plan to certain key employees. The stock grants are subject to time-based vesting schedules, vesting in various installments until June 30, 2016. The value of the restricted stock awards was $1,660,000 and is based on the fair value of the Company’s common stock on the grant date. This amount is being amortized to compensation expense over the vesting periods for the various awards.

On June 26, 2016, the Company granted an aggregate of 670,000 shares of restricted stock under the 2009 Plan to certain key employees. The stock grants vest immediately. The value of the restricted stock awards was $897,800 and is based on the fair value of the Company’s common stock on the grant date.

On December 30, 2016, the Company granted an aggregate of 870,000 shares of restricted stock under the 2009 Plan to certain key employees. The stock grants vest immediately. The value of the restricted stock awards was $1,044,000 and is based on the fair value of the Company’s common stock on the grant date.

The following table sets forth changes in compensation-related restricted stock awards during years ended December 31, 2016 and 2015:

|  |  |  |  | Fair |  |  | Grant Date |
|  | Number of |  |  | Value of |  |  | Fair Value |
|  | Shares |  |  | Shares |  |  | Per share |
Outstanding (unvested) at June 30, 2016 |  |  | 588,000 |  |  | $ | 235,264 |  |  |  |  |
Granted |  |  | 870,000 |  |  |  | 1,044,000 |  |  | $ | - |
Forfeited |  |  | - |  |  |  |  |  |  |  |  |
Vested |  |  | (1,458,000 | ) |  |  | (1,279,264 | ) |  |  |  |
Outstanding (unvested) at December 31, 2016 |  |  | - |  |  | $ | - |  |  |  |  |

As of December 31, 2016, the unamortized expense related to the grant of restricted shares of common stock was nil. The fair value of the restricted common stock awards was based on the closing price of the Company’s common stock on the grant date. The fair value of the common stock awarded is amortized over the various vesting terms of each grant.

| 16 |

Preferred Stock

Under the Company’s Articles of Incorporation, the Board has the authority, without further action by stockholders, to designate up to 20,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. If the Company sells preferred stock under its registration statement on Form S-3, it will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series in the certificate of designation relating to that series and will file the certificate of designation that describes the terms of the series of preferred stock the Company offers before the issuance of the related series of preferred stock.

As of December 31, 2016, the Company has 20,000,000 shares of preferred stock authorized, with a par value of $.001 per share, of which no shares are issued or outstanding.

NOTE 12 - CONCENTRATIONS

Market Concentration

All of the Company's revenue-generating operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.

The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other things, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.

Vendor and Customer Concentration

There were two vendors from which the Company purchased 20.1% and 14.6% of its raw materials for the three month ended December 31, 2016. Total purchase from these two venders amounted to $10,100,403 as of December 31, 2016.

There were two vendors from which the Company purchased 29.8% and 16.4% of its raw materials for the three months ended December 31, 2015. Total purchase from these two vendors amounted to $40,065,118 as of December 31, 2015.

None customer accounted over 10% of the Company’s sales for the three months ended December 31, 2016.

One customer was accounted for 26.6% of the Company’s sales for the three months ended December 31, 2015.

| 17 |

NOTE 13 - SEGMENT REPORTING

As of December 31, 2016, the Company was organized into four main business segments based on location and product, including fertilizer production with Jinong, fertilizer production with Gufeng , agricultural products production with Yuxing and distribution of agricultural products with the acquisition of the VIE Companies completed as of June 30, 2016. Each of the four operating segments referenced above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) receives financial information, including revenue, gross margin, operating income and net income produced from the various general ledger systems to make decisions about allocating resources and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income by segment

|  | Three Months Ended December 31, |  |  | Six Months Ended December 31, |
Revenues from unaffiliated customers: |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Jinong |  | $ | 26,825,674 |  |  | $ | 31,302,561 |  |  | $ | 58,253,394 |  |  | $ | 66,010,365 |
Gufeng |  |  | 21,066,559 |  |  |  | 23,579,674 |  |  |  | 36,876,073 |  |  |  | 41,814,506 |
Yuxing |  |  | 2,454,314 |  |  |  | 2,083,765 |  |  |  | 3,809,725 |  |  |  | 3,325,400 |
VIES |  |  | 8,398,466 |  |  |  | - |  |  |  | 21,690,443 |  |  |  | - |
Consolidated |  | $ | 58,745,013 |  |  | $ | 56,966,000 |  |  | $ | 120,629,635 |  |  | $ | 111,150,271 |
Operating income : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 5,740,784 |  |  | $ | 3,698,620 |  |  | $ | 12,120,004 |  |  | $ | 11,654,274 |
Gufeng |  |  | 1,906,816 |  |  |  | 3,052,879 |  |  |  | 2,991,899 |  |  |  | 5,662,832 |
Yuxing |  |  | 330,780 |  |  |  | 511,213 |  |  |  | 487,810 |  |  |  | 917,510 |
VIES |  |  | 637,284 |  |  |  | - |  |  |  | 2,440,764 |  |  |  | - |
Reconciling item (1) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Reconciling item (2) |  |  | - |  |  |  | 297,606 |  |  |  | - |  |  |  | (219,754 | )
Reconciling item (2)--stock compensation |  |  | (1,510,148 | ) |  |  | (1,780,587 | ) |  |  | (1,856,270 | ) |  |  | (2,857,081 | )
Consolidated |  | $ | 7,105,516 |  |  | $ | 5,779,731 |  |  | $ | 16,184,207 |  |  | $ | 15,157,781 |
Net income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 4,849,485 |  |  | $ | 3,187,514 |  |  | $ | 10,195,773 |  |  | $ | 10,000,365 |
Gufeng |  |  | 1,268,439 |  |  |  | 2,049,897 |  |  |  | 1,984,925 |  |  |  | 3,670,264 |
Yuxing |  |  | 330,509 |  |  |  | 513,099 |  |  |  | 487,589 |  |  |  | 919,384 |
VIES |  |  | 567,726 |  |  |  | - |  |  |  | 2,045,574 |  |  |  | - |
Reconciling item (1) |  |  | - |  |  |  | 5 |  |  |  | - |  |  |  | 29 |
Reconciling item (2) |  |  | (1,510,148 | ) |  |  | (1,477,980 | ) |  |  | (1,856,270 | ) |  |  | (3,076,835 | )
Consolidated |  | $ | 5,506,011 |  |  | $ | 4,272,535 |  |  | $ | 12,857,591 |  |  | $ | 11,513,207 |
Depreciation and Amortization: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 3,675,142 |  |  | $ | 9,358,107 |  |  | $ | 9,988,231 |  |  | $ | 19,292,089 |
Gufeng |  |  | 631,041 |  |  |  | 728,466 |  |  |  | 1,258,350 |  |  |  | 1,474,061 |
Yuxing |  |  | 306,210 |  |  |  | 336,433 |  |  |  | 620,126 |  |  |  | 679,741 |
VIES |  |  | 123,070 |  |  |  | - |  |  |  | 249,202 |  |  |  | - |
Consolidated |  | $ | 4,735,463 |  |  | $ | 10,423,006 |  |  | $ | 12,115,909 |  |  | $ | 21,445,891 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 55,979 |  |  |  | - |  |  |  | 113,352 |  |  |  | - |
Gufeng |  |  | 58,306 |  |  |  | 302,644 |  |  |  | 118,439 |  |  |  | 731,679 |
Consolidated |  | $ | 114,285 |  |  | $ | 302,644 |  |  | $ | 231,791 |  |  | $ | 731,679 |
Capital Expenditure: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 571 |  |  | $ | 6,643 |  |  | $ | 1,793 |  |  | $ | 6,643 |
Gufeng |  |  | 556 |  |  |  | - |  |  |  | 4,999 |  |  |  | 1,770 |
Yuxing |  |  | - |  |  |  | 6,449 |  |  |  | 548 |  |  |  | 7,252 |
VIES |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Consolidated |  | $ | 1,127 |  |  | $ | 13,092 |  |  | $ | 7,340 |  |  | $ | 15,665 |

| 18 |

|  | As of |
|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
Identifiable assets: |  |  |  |  |  |
Jinong |  | $ | 194,544,513 |  |  | $ | 198,599,977 |
Gufeng |  |  | 143,819,547 |  |  |  | 149,891,328 |
Yuxing |  |  | 41,925,427 |  |  |  | 45,448,157 |
VIES June 30, 2016 |  |  | 23,666,211 |  |  |  | 24,675,499 |
Reconciling item (1) |  |  | 23,487 |  |  |  | 170,444 |
Reconciling item (2) |  |  | (2,878 | ) |  |  | (2,878 | )
Consolidated |  | $ | 403,976,307 |  |  | $ | 418,782,527 |

(1) Reconciling amounts refer to the unallocated assets or expenses of Green New Jersey.

(2) Reconciling amounts refer to the unallocated assets or expenses of the Parent Company.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

On June 29, 2016, Jinong signed an office lease with Kingtone Information. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provided for a two-year term effective as of July 1, 2016 with monthly rent of $3,525 (RMB 24,480).

In January 2008, Jintai signed a ten-year land lease with Xi’an Jinong Hi-tech Agriculture Demonstration Zone for a monthly rent of $749 (RMB 5,200).

In February 2004, Tianjuyuan signed a fifty-year lease with the village committee of Dong Gao Village and Zhen Nan Zhang Dai Village in the Beijing Ping Gu District, at a monthly rent of $426 (RMB 2,958).

Accordingly, the Company recorded an aggregate of $28,198 and $28,261 as rent expenses for the six months ended December 31, 2016 and 2015, respectively. Rent expenses for the next five years ended December 31, are as follows:

Years ending December 31, |  |  |
2017 |  | $ | 56,396 |
2018 |  |  | 47,411 |
2019 |  |  | 47,411 |
2020 |  |  | 47,411 |
2021 |  |  | 47,411 |

| 19 |

NOTE 15 - BUSINESS COMBINATIONS

On June 30, 2016, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements to qualify as VIEs with the shareholders of the VIE Companies.

Jinong, the VIE Companies, and the shareholders of the VIE Companies also entered into a series of contractual agreements for the VIE Companies to qualify as VIEs (the “VIE Agreements”). The VIE Agreements are as follows:

Entrusted Management Agreements

Pursuant to the terms of certain Entrusted Management Agreements dated June 30, 2016, between Jinong and the shareholders of the VIE Companies (the “Entrusted Management Agreements”), the VIE Companies and their shareholders agreed to entrust the operations and management of its business to Jinong. According to the Entrusted Management Agreement, Jinong possesses the full and exclusive right to manage the VIE Companies’ operations, assets and personnel, has the right to control all of the VIE Companies' cash flows through an entrusted bank account, is entitled to the VIE Companies' net profits as a management fee, is obligated to pay all of the VIE Companies’ payables and loan payments, and bears all losses of the VIE Companies. The Entrusted Management Agreements will remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the VIE Companies; or (iii) Jinong acquires all of the assets or equity of the VIE Companies (as more fully described below under “Exclusive Option Agreements”).

Exclusive Technology Supply Agreements

Pursuant to the terms of certain Exclusive Technology Supply Agreements dated June 30, 2016, between Jinong and the VIE Companies (the “Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to the VIE Companies. The VIE Companies agreed to pay Jinong all fees payable for technology supply prior to making any payments under the Entrusted Management Agreement. The Exclusive Technology Supply Agreements shall remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of the VIE Companies; or (iii) Jinong acquires the VIE Companies (as more fully described below under “Exclusive Option Agreements”).

Shareholder’s Voting Proxy Agreements

Pursuant to the terms of certain Shareholder’s Voting Proxy Agreements dated June 30, 2016, among Jinong and the shareholders of the VIE Companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders of the VIE Companies irrevocably appointed Jinong as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of the VIE Companies, including the appointment and election of directors of the VIE Companies. Jinong agreed that it shall maintain a board of directors, the composition and appointment of which shall be approved by the Board of the Company. The Shareholder’s Voting Proxy Agreements will remain in effect until Jinong acquires all of the assets or equity of the VIE Companies.

Exclusive Option Agreements

Pursuant to the terms of certain Exclusive Option Agreements dated June 30, 2016, among Jinong, the VIE Companies, and the shareholders of the VIE Companies (the “Exclusive Option Agreements”), the shareholders of the VIE Companies granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire the VIE Companies’ equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The Option is exercisable at any time at Jinong’s discretion so long as such exercise and subsequent acquisition of the VIE Companies does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of such consideration. Jinong may transfer all rights and obligations under the Exclusive Option Agreements to any third parties without the approval of the shareholders of the VIE Companies so long as a written notice is provided. The Exclusive Option Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.

| 20 |

Equity Pledge Agreements

Pursuant to the terms of certain Equity Pledge Agreements dated June 30, 2016, among Jinong and the shareholders of the VIE Companies (the “Pledge Agreements”), the shareholders of the VIE Companies pledged all of their equity interests in the VIE Companies to Jinong, including the proceeds thereof, to guarantee all of Jinong's rights and benefits under the Entrusted Management Agreements, the Exclusive Technology Supply Agreements, the Shareholder’ Voting Proxy Agreements and the Exclusive Option Agreements. Prior to termination of the Pledge Agreements, the pledged equity interests cannot be transferred without Jinong's prior written consent. The Pledge Agreements may be terminated only upon the written agreement of the parties.

Non-Compete Agreements

Pursuant to the terms of certain Non-Compete Agreements dated June 30, 2016, among Jinong and the shareholders of the VIE Companies (the “Non-Compete Agreements”), the shareholders of the VIE Companies agreed that during the period beginning on the initial date of their services with Jinong, and ending five (5) years after termination of their services with Jinong, without Jinong’s prior written consent, they will not provide services or accept positions including but not limited to partners, directors, shareholders, managers, proxies or consultants, provided by any profit making organizations with businesses that may compete with Jinong. They will not solicit or interfere with any of the Jinong’s customers, or solicit, induce, recruit or encourage any person engaged or employed by Jinong to terminate his or her service or engagement. In the event that the shareholders of the VIE Companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; in the event that the damages are difficult to determine, remedies bore the shareholders of the VIE Companies shall be no less than 50% of the salaries and other expenses Jinong provided in the past.

The Company entered into these VIE Agreements as a way for the Company to have more control over the distribution of its products. The transactions are accounted for as business combinations in accordance with ASC 805. A summary of the purchase price allocations at fair value is below:

Cash |  | $ | 708,737 |
Accounts receivable |  |  | 6,422,850 |
Advances to suppliers |  |  | 1,803,180 |
Prepaid expenses and other current assets |  |  | 807,645 |
Inventories |  |  | 7,787,043 |
Machinery and equipment |  |  | 140,868 |
Intangible assets |  |  | 270,900 |
Other assets |  |  | 3,404,741 |
Good will |  |  | 3,158,179 |
Accounts payable |  |  | (3,962,670 | )
Customer deposits |  |  | (3,486,150 | )
Accrued expenses and other payables |  |  | (4,653,324 | )
Taxes payable |  |  | (16,912 | )
Purchase price |  | $ | 12,385,087 |

A summary of the purchase consideration paid for the VIE Companies is below:

Cash |  | $ | 5,568,500 |
Convertible notes |  |  | 6,671,769 |
Derivative liability |  |  | 144,818 |
|  | $ | 12,385,087 |

The cash component of the purchase price for these acquisitions was paid in September 2016.

NOTE 16 - VARIABLE INTEREST ENTITIES

In accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which a company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

Green Nevada through one of its subsidiaries, Jinong, entered into a series of agreements (the “VIE Agreements”) with Yuxing for it to qualify as a VIE, effective June 16, 2013.

The Company has concluded, based on the contractual arrangements, that Yuxing is a VIE and that the Company’s wholly-owned subsidiary, Jinong, absorbs a majority of the risk of loss from the activities of Yuxing, thereby enabling the Company, through Jinong, to receive a majority of Yuxing expected residual returns.

On June 30, 2016, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and also into a series of contractual agreements to qualify as VIEs with the shareholders of the VIE Companies.

| 21 |

Jinong, the VIE Companies, and the shareholders of the VIE Companies also entered into a series of contractual agreements for the VIE Companies to qualify as VIEs (the “VIE Agreements”).

As a result of these contractual arrangements, with Yuxing and the VIE Companies the Company is entitled to substantially all of the economic benefits of Yuxing and the VIE Companies. The following financial statement amounts and balances of the VIEs were included in the accompanying consolidated financial statements as of December 31, 2016 and June 30, 2016:

|  | December 31, |  |  | June 30, |
|  | 2016 |  |  | 2016 |
ASSETS |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,030,482 |  |  | $ | 1,017,841 |
Accounts receivable, net |  |  | 9,596,532 |  |  |  | 7,050,201 |
Inventories |  |  | 23,999,754 |  |  |  | 26,370,202 |
Other current assets |  |  | 1,709,991 |  |  |  | 1,875,912 |
Advances to suppliers |  |  | 2,119,048 |  |  |  | 4,900,524 |
Total Current Assets |  |  | 38,455,807 |  |  |  | 41,214,680 |
Plant, Property and Equipment, Net |  |  | 12,292,713 |  |  |  | 13,377,817 |
Other assets |  |  | 216,136 |  |  |  | 334,264 |
Intangible Assets, Net |  |  | 12,017,863 |  |  |  | 12,913,776 |
Goodwill |  |  | 3,021,632 |  |  |  | 3,158,179 |
Total Assets |  | $ | 66,004,151 |  |  | $ | 70,998,716 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 4,308,607 |  |  | $ | 3,840,052 |
Customer deposits |  |  | 1,803,140 |  |  |  | 3,486,150 |
Accrued expenses and other payables |  |  | 3,304,318 |  |  |  | 5,580,642 |
Amount due to related parties |  |  | 39,722,237 |  |  |  | 43,478,158 |
Total Current Liabilities |  |  | 49,560,557 |  |  |  | 56,385,002 |
Stockholders' equity |  |  | 16,443,594 |  |  |  | 14,613,714 |
Total Liabilities and Stockholders' Equity |  | $ | 66,004,151 |  |  | $ | 70,998,716 |

|  | Three months ended December 31, |  |  | Six months ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Revenue |  | $ | 10,852,779 |  |  | $ | 2,083,765 |  |  | $ | 25,500,167 |  |  | $ | 3,325,400 |
Expenses |  |  | 9,954,543 |  |  |  | 1,570,665 |  |  |  | 22,967,005 |  |  |  | 2,406,015 |
Net income (loss) |  | $ | 898,236 |  |  | $ | 513,100 |  |  | $ | 2,533,162 |  |  | $ | 919,385 |

NOTE 17 – SUBSEQUENT EVENTS

On January 1, 2017, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and a series of contractual agreements with the shareholders of the following two companies that are organized under the laws of the PRC and would be deemed VIEs Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), and Anhui Fengnong Seed Co., Ltd. (“Fengnong”). Jinong, entered into (i) Strategic Acquisition Agreements (the “SAA”), and (ii) Agreements for Convertible Notes (the “ACN”), with the shareholders of the two companies (“Targets”). The transaction represented by the SAA, ACN and the VIE Agreements as defined below are collectively referred to as the “Strategic Acquisitions.”

Company Name |  | Business Scope |  | Cash Payment for Acquisition (USD) |  |  | Principal of Notes for Acquisition (USD) |
Sunwu County Xiangrong Agricultural Materials Co., Ltd. |  | Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches. |  | $ | 576,000 |  |  | $ | 864,000 |
Anhui Fengnong Seed Co., Ltd. |  | Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers and plant growth regulators |  | $ | 576,000 |  |  | $ | 864,000 |
Total |  |  |  | $ | 1,152,000 |  |  | $ | 1,728,000 |

| 22 |

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as the slow-down of the macro-economic environment in China and its impact on economic growth in general, the competition in the fertilizer industry and the impact of such competition on pricing, revenues and margins, the weather conditions in the areas where our customers are based, the cost of attracting and retaining highly skilled personnel, the prospects for future acquisitions, and the factors set forth elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Unless the context indicates otherwise, as used in the notes to the financial statements of the Company, the following are the references herein of all the subsidiaries of the Company (i) Green Agriculture Holding Corporation (“Green New Jersey”), a wholly-owned subsidiary of Green Nevada, incorporated in the State of New Jersey; (ii) Shaanxi TechTeamJinongHumic Acid Product Co., Ltd. (“Jinong”), a wholly-owned subsidiary of Green New Jersey organized under the laws of the People’s Republic of China (the “PRC”); (iii) Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd. (“Yuxing”), a Variable Interest Entity (“VIE”) in the PRC controlled by Jinong through a series of contractual agreements; (iv) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”), (v) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”), Shaanxi Lishijie Agrochemical Co., Ltd.(“Lishijie”), a VIE in the PRC controlled by Jinong, SongyuanJinyangguangSannong Service Co., Ltd., (“Jinyangguang”), a VIE in the PRC controlled by Jinong, Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), a VIE in the PRC controlled by Jinong, Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), a VIE in the PRC controlled by Jinong, AksuXindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), a VIE in the PRC controlled by Jinong, Xinjiang Xinyulei Eco-agriculture Science and Technology co., Ltd. (“Xinyulei”), a VIE in the PRC controlled by Jinong. Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”). Anhui Fengnong Seed Co., Ltd.(“Fengnong”). Yuxing, Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong and Fengnong may also collectively be referred to as the “the VIE Companies”

Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (iii) “RMB”, “Yuan” and Renminbi are to the currency of the PRC or China.

Overview

We are engaged in the research, development, production and sale of various types of fertilizers and agricultural products in the PRC through our wholly-owned Chinese subsidiaries, Jinong and Gufeng (including Gufeng’s subsidiary Tianjuyuan), and our VIE Companies. Our primary business is fertilizer products, specifically humic-acid based compound fertilizer produced by Jinong and compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizer, highly-concentrated water-soluble fertilizer and mixed organic-inorganic compound fertilizer produced by Gufeng. In addition, through Yuxing, we develop and produce various agricultural products, such as top-grade fruits, vegetables, flowers and colored seedlings. Also through the VIE Companies, we have entered the distribution business of agricultural business. For financial reporting purposes, our operations are organized into four business segments: fertilizer products (Jinong), fertilizer products (Gufeng), agricultural products (Yuxing) and fertilizer product distribution (VIE Companies).

| 23 |

The fertilizer business conducted by Jinong and Gufeng generated approximately 78.9% and 97.0% of our total revenues for the six months ended December 31, 2016 and 2015, respectively. Yuxing serves as a research and development base for our fertilizer products. The VIE Companies serves as in-house distribution channels for our fertilizer products, forming a vertical business integration.

Fertilizer Products

As of December 31, 2016, we had developed and produced a total of 668 different fertilizer products in use, of which 132 were developed and produced by Jinong and 332 by Gufeng, and 224 by the VIE companies.

Below is a table that shows the metric tons of fertilizer sold by Jinong and Gufeng and the revenue per ton for the periods indicated:

|  | Three Months Ended December 31, |  |  | Change from 2015 to 2016 |
|  | 2016 |  |  | 2015 |  |  | Amount |  |  | % |
|  | (metric tons) |  |  |  |  |  |  |
Jinong |  |  | 8,955 |  |  |  | 9,539 |  |  |  | (584 | ) |  |  | (6.1 | )%
Gufeng |  |  | 63,167 |  |  |  | 62,775 |  |  |  | 392 |  |  |  | 0.6 | %
|  |  | 72,122 |  |  |  | 72,314 |  |  |  | (192 | ) |  |  |  |

|  |  | Three Months Ended December 31, |
|  |  | 2016 |  |  |  | 2015 |
|  |  | (revenue per ton) |
Jinong |  | $ | 2,996 |  |  | $ | 3,374 |
Gufeng |  |  | 334 |  |  |  | 367 |

|  |  | Six Months Ended December 31, |  |  |  | Change from 2015 to 2016 |
|  |  | 2016 |  |  |  | 2015 |  |  |  | Amount |  |  |  | % |
|  |  | (metric tons) |  |  |  |  |  |  |  |  |
Jinong |  |  | 18,635 |  |  |  | 19,603 |  |  |  | (968 | ) |  |  | (4.9 | )%
Gufeng |  |  | 108,698 |  |  |  | 108,397 |  |  |  | 301 |  |  |  | 0.3 | %
|  |  | 127,333 |  |  |  | 128,000 |  |  |  | (667 | ) |  |  |  |

|  |  | Six Months Ended December 31, |
|  |  | 2016 |  |  |  | 2015 |
|  |  | (revenue per ton) |
Jinong |  | $ | 3,126 |  |  | $ | 3,406 |
Gufeng |  |  | 339 |  |  |  | 384 |

For the three months ended December 31, 2016, we sold approximately 72,122 metric tons of fertilizer products, as compared to 72,314 metric tons for the three months ended December 31, 2015. For the three months ended December 31, 2016, Jinong sold approximately 8,955 metric tons of fertilizer products, a decrease of 584 metric tons, or 6.1%, as compared to 9,539 metric tons for the three months ended December 31, 2015. For the three months ended December 31, 2016, Gufeng sold approximately 63,167 metric tons of fertilizer products, as compared to 62,775 metric tons for the three months ended December 31, 2015.

For the six months ended December 31, 2016, we sold approximately 127,333 metric tons of fertilizer products, as compared to 128,000 metric tons for the six months ended December 31, 2015. For the six months ended December 31, 2016, Jinong sold approximately 18,635 metric tons of fertilizer products, a decrease of 968 metric tons, or 4.9%, as compared to 19,603 metric tons for the six months ended December 31, 2015. For the six months ended December 31, 2016, Gufeng sold approximately 108,698 metric tons of fertilizer products, as compared to 108,397 metric tons for the six months ended December 31, 2015.

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Our sales of fertilizer products to five provinces accounted for approximately 49.8% of our fertilizer revenue for the three months ended December 31, 2016. Specifically, the provinces and their respective percentage contributed to our fertilizer revenues were: Hebei (18.3%), Heilongjiang (10.8%), Shaanxi (8.5%), Liaoning (6.0%), and Inner Mongolia (6.1%).

As of December 31, 2016, we had a total of 1,919 distributors covering 27 provinces, four autonomous regions and three central government-controlled municipalities in China. Jinong had 1,086 distributors in China. Jinong’s sales are not dependent on any single distributor or any group of distributors. Jinong’s top five distributors accounted for 2.6% of its fertilizer revenues for the three months ended December 31, 2016. Gufeng had 305 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for 77.3% of its revenues for the three months ended December 31, 2016.

Agricultural Products

Through Yuxing, we develop, produce and sell high-quality flowers, green vegetables and fruits to local marketplaces and various horticulture and planting companies. We also use certain of Yuxing’s greenhouse facilities to conduct research and development activities for our fertilizer products. The three PRC provinces that accounted for 85.5% of our agricultural products revenue for the three months ended December 31, 2016 were Shaanxi (74.8%), Sichuan (6.5%), and Gansu (4.2%).

Recent Developments

New products and distributors

During the three months ended December 31, 2016, Jinong did not launch any new fertilizer product. However, Jinong added 2 new distributors during this period. Gufeng did not launch any new fertilizer products, but added four new distributors during the three months ended December 31, 2016.

Strategic Acquisitions

As previously reported, on January 1, 2017, through Jinong, as authorized by our board of directors and Jinong, we entered into (i) Strategic Acquisition Agreements (the “SAA”), and (ii) Agreements for Convertible Notes (the “ACN”), with the shareholders of the companies as listed below (the “Targets”). The transaction represented by the SAA, ACN and the VIE Agreements as defined below are collectively referred to as the “Strategic Acquisitions.”

Company Name |  | Business Scope |  | Cash Payment for Acquisition (RMB[1]) |  |  | Principal of Notes for Acquisition (RMB) |
Sunwu County Xiangrong Agricultural Materials Co., Ltd. |  | Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches. |  |  | 4,000,000 |  |  |  | 6,000,000 |
Anhui Fengnong Seed Co., Ltd. |  | Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers and plant growth regulators |  |  | 4,000,000 |  |  |  | 6,000,000 |
Total |  |  |  |  | 8,000,000 |  |  |  | 12,000,000 |

[1] | RMB: Abbreviation for renminbi, the official currency of the People’s Republic of China where Jinong and the Targets operate. The exchange rate between RMB and U.S. dollars on January 1, 2017 is RMB1=US$0.144, according to the exchange rate published by Bank of China.

Pursuant to the SAA and the ACN, the shareholders of the Targets, while be in possession of the equity interests and will continue to be the legal owners of such interests, agreed to pledge and entrust all of their equity interests, including the proceeds thereof but excluding any claims or encumbrances, and the operations and management of its business to Jinong, in exchange of an aggregated amount of RMB8,000,000 (approximately $1,152,000) to be paid by Jinong within three days following the execution of the SAA, ACN and the VIE Agreements, and convertible notes with an aggregated face value of RMB12,000,000 (approximately $1,728,000) with an annual fixed compound interest rate of 3% and term of three years.

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Results of Operations

Three months ended December 31, 2016 Compared to the Three months ended December 31, 2015.

|  | Three Months Ended December 31, |  |  |  |  |  |  |
|  | 2016 |  |  | 2015 |  |  | Change$ |  |  | Change% |
Sales |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 26,825,674 |  |  | $ | 31,302,561 |  |  |  | (4,476,887 | ) |  |  | -14.3 | %
Gufeng |  |  | 21,066,559 |  |  |  | 23,579,674 |  |  |  | (2,513,115 | ) |  |  | -10.7 | %
Yuxing |  |  | 2,454,314 |  |  |  | 2,083,765 |  |  |  | 370,549 |  |  |  | 17.8 | %
VIEs |  |  | 8,398,466 |  |  |  | - |  |  |  |  |  |  |  |  |
Net sales |  |  | 58,745,013 |  |  |  | 56,966,000 |  |  |  | 1,779,013 |  |  |  | 3.1 | %
Cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 12,332,360 |  |  |  | 13,434,686 |  |  |  | (1,102,326 | ) |  |  | -8.2 | %
Gufeng |  |  | 18,138,659 |  |  |  | 19,712,848 |  |  |  | (1,574,189 | ) |  |  | -8.0 | %
Yuxing |  |  | 1,934,046 |  |  |  | 1,182,898 |  |  |  | 751,148 |  |  |  | 63.5 | %
VIEs |  |  | 7,159,707 |  |  |  | - |  |  |  |  |  |  |  |  |
Cost of goods sold |  |  | 39,564,772 |  |  |  | 34,330,432 |  |  |  | 5,234,340 |  |  |  | 15.2 | %
Gross profit |  |  | 19,180,241 |  |  |  | 22,635,568 |  |  |  | (3,455,327 | ) |  |  | -15.3 | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 3,965,382 |  |  |  | 5,285,103 |  |  |  | (1,319,721 | ) |  |  | -25.0 | %
Selling expenses - amortization of deferred asset |  |  | 3,475,438 |  |  |  | 8,664,752 |  |  |  | (5,189,314 | ) |  |  | -59.9 | %
General and administrative expenses |  |  | 4,633,905 |  |  |  | 2,905,982 |  |  |  | 1,727,923 |  |  |  | 59.5 | %
Total operating expenses |  |  | 12,074,725 |  |  |  | 16,855,837 |  |  |  | (4,781,112 | ) |  |  | -28.4 | %
Income from operations |  |  | 7,105,516 |  |  |  | 5,779,731 |  |  |  | 1,325,785 |  |  |  | 22.9 | %
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (114,115 | ) |  |  | 729 |  |  |  | (114,844 | ) |  |  | -15753.6 | %
Interest income |  |  | 76,494 |  |  |  | 74,270 |  |  |  | 2,224 |  |  |  | 3.0 | %
Interest expense |  |  | (93,246 | ) |  |  | (302,644 | ) |  |  | 209,398 |  |  |  | -69.2 | %
Total other income (expense) |  |  | (130,867 | ) |  |  | (227,645 | ) |  |  | 96,778 |  |  |  | -42.5 | %
Income before income taxes |  |  | 6,974,649 |  |  |  | 5,552,086 |  |  |  | 1,422,563 |  |  |  | 25.6 | %
Provision for income taxes |  |  | 1,468,638 |  |  |  | 1,284,551 |  |  |  | 184,087 |  |  |  | 14.3 | %
Net income |  |  | 5,506,011 |  |  |  | 4,267,535 |  |  |  | 1,238,476 |  |  |  | 29.0 | %
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (1,205,884 | ) |  |  | (7,616,129 | ) |  |  | 6,410,245 |  |  |  | -84.2 | %
Comprehensive income (loss) |  | $ | 4,300,127 |  |  | $ | (3,348,594 | ) |  |  | 7,648,721 |  |  |  | -228.4 | %
Basic weighted average shares outstanding |  |  | 37,658,062 |  |  |  | 36,933,002 |  |  |  | 725,060 |  |  |  | 2.0 | %
Basic net earnings per share |  | $ | 0.15 |  |  | $ | 0.12 |  |  |  | 0 |  |  |  | 26.5 | %
Diluted weighted average shares outstanding |  |  | 37,658,062 |  |  |  | 36,933,002 |  |  |  | 725,060 |  |  |  | 2.0 | %
Diluted net earnings per share |  |  | 0.15 |  |  |  | 0.12 |  |  |  | 0 |  |  |  | 26.5 | %

Net Sales

Total net sales for the three months ended December 31, 2016 were $58,745,013, an increase of $1,779,013, or 3.1%, from $56,966,000 for the three months ended December 31, 2015.

This increase was largely due to the inclusion of VIEs’ net sales during the three months ended December 31, 2016, which contributed approximately $8.4 million, or 14.3%, of the total net sales. The total net sales without including VIEs’ net sales for the three months ended December 31, 2016 were $50,346,547, a decrease of $6,619,453, or 11.6%, from the same period a year ago.

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For the three months ended December 31, 2016, Jinong’s net sales decreased by $4,476,887, or 14.3%, to $26,825,674 from $31,302,561 for the three months ended December 31, 2015. This decrease was mainly attributable to the decrease in Jinong’s sales volume, which was result of Jinong’s implementation of its new sales strategy that further focuses on producing high-margin liquid fertilizer during the last three months.

For the three months ended December 31, 2016, Gufeng’s net sales were $21,066,559, a decrease of $2,513,115 or 10.7% from $23,579,674 for the three months ended December 31, 2015. This decrease was mainly attributable to Gufeng’s lowering selling prices to answer to market demand during the three months ended December 31, 2016.

For the three months ended December 31, 2016, Yuxing’s net sales were $2,454,314, an increase of $370,549 or 17.8%, from $2,083,765 during the three months ended December 31, 2015. The increase was mainly attributable to the increase in market demand and the higher prices on Yuxing’s top-grade flowers.

Cost of Goods Sold

Total cost of goods sold for the three months ended December 31, 2016 was $39,564,772, an increase of $5,234,340, or 15.2%, from $34,330,432 for the three months ended December 31, 2015. The increase was mainly due to the production and sale of VIEs’ products, which accounted for $7,159,707, or 18.1% of total cost of goods sold. The total cost of goods sold without including VIEs’ cost of goods sold for the three months ended December 31, 2016 was $32,405,065, a decrease of $1,925,367, or 5.6%, from the same period a year ago.

Cost of goods sold by Jinong for the three months ended December 31, 2016 was $12,332,360, a decrease of $1,102,326, or 8.2%, from $13,434,686 for the three months ended December 31, 2015. The decrease in cost of goods sold was primarily attributable to the decreased in net sales during the last three months.

Cost of goods sold by Gufeng for the three months ended December 31, 2016 was $18,138,659, a decrease of $1,574,189, or 8.0%, from $19,712,848 for the three months ended December 31, 2015. This decrease was primarily attributable to the less products sold during the last three months.

For the three months ended December 31, 2016, cost of goods sold by Yuxing was $1,934,046, an increase of $751,148, or 63.5%, from $1,182,898 for the three months ended December 31, 2015. This increase was mainly due to the increase in Yuxing’s net sales and the labor cost.

Gross Profit

Total gross profit for the three months ended December 31, 2016 decreased by $3,455,327 to $19,180,241, as compared to $22,635,568 for the three months ended December 31, 2015. Gross profit margin was 32.6% and 39.7% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to the Jinong, Gufeng and Yuxing’s decreased gross margins for the three months ended December 31, 2016, compared to the same period last year.

Gross profit generated by Jinong decreased by $3,374,561, or 18.9%, to $14,493,314 for the three months ended December 31, 2016 from $17,867,875 for the three months ended December 31, 2015. Gross profit margin from Jinong’s sales was approximately 54.0% and 57.1% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to the higher raw material cost and packaging cost.

For the three months ended December 31, 2016, gross profit generated by Gufeng was $2,927,900, a decrease of $938,926, or 24.3%, from $3,866,826 for the three months ended December 31, 2015. Gross profit margin from Gufeng’s sales was approximately 13.9% and 16.4% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit percentage was mainly due to the increased weight for lower-margin products sales in Gufeng’s total sales answering to market demand.

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For the three months ended December 31, 2016, gross profit generated by Yuxing was $520,268, a decrease of $380,599, or 42.2% from $900,867 for the three months ended December 31, 2015. The gross profit margin was approximately 21.2% and 43.2% for the three months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to the higher labor cost during the three months ended December 31, 2016.

Gross profit generated by VIEs were $1,238,759 with a gross profit margin of approximately 14.7% for the three months ended December 31, 2016.

Selling Expenses

Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $3,965,382, or 6.8%, of net sales for the three months ended December 31, 2016, as compared to $5,285,103 or 9.3% of net sales for the three months ended December 31, 2015, a decrease of $1,319,721, or 25.0%. The selling expenses of VIEs were $248,248, or 3.0%, of VIEs’ net sales. The selling expenses of Yuxing were $11,264 or 0.5% of Yuxing’s net sales for the three months ended December 31, 2016, as compared to $135,466, or 6.5% of Yuxing’s net sales for the three months ended December 31, 2015. The selling expenses of Gufeng were $68,080 or 0.3% of Gufeng’s net sales for the three months ended December 31, 2016, as compared to $110,972, or 0.5% of Gufeng’s net sales for the three months ended December 31, 2015. The selling expenses of Jinong for the three months ended December 31, 2016 were $3,637,790 or 13.6% of Jinong’s net sales, as compared to selling expenses of $5,038,665, or 16.1% of Jinong’s net sales for the three months ended December 31, 2015.

Selling Expenses – amortization of deferred assets

Our selling expenses - amortization of our deferred assets were $3,475,438, or 5.9%, of net sales for the three months ended December 31, 2016, as compared to $8,664,752 or 15.2% of net sales for the three months ended December 31, 2015, a decrease of $5,189,314, or 59.9%. This decrease was due to the fact that some of the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets during the three months ended December 31, 2016.

General and Administrative Expenses

General and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation and travel expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred and accrued for certain litigations. General and administrative expenses were $4,633,905, or 7.9% of net sales for the three months ended December 31, 2016, as compared to $2,905,982, or 5.1%, of net sales for the three months ended December 31, 2015, an increase of $1,727,923, or 59.5%. The increase in general and administrative expenses was mainly due to VIEs, which had $208,164 general and administrative expenses during the last three months.

Total Other Expenses

Total other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. The total other expense for the three months ended December 31, 2016 was $130,867, as compared to $227,645 for the three months ended December 31, 2015, a decrease of $96,778, or 42.5%. The decrease in total other expense was partly resulted from interest expense decreased by $209,398 or 69.2%, to $130,867 during the three months ended December 31, 2016 as compared to $302,644 during the three months ended December 31, 2015, due to a lesser amount of short-term loans.

Income Taxes

Jinong is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of $891,953 for the three months ended December 31, 2016, as compared to $584,959 for the three months ended December 31, 2015, an increase of $306,994, or 52.5%.

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $484,768 for the three months ended December 31, 2016, as compared to $699,591 for the three months ended December 31, 2015, a decrease of $214,823, or 30.7%.

Yuxing has no income tax for the three months ended December 31, 2016 as a result of being exempted from paying income tax due to the fact its products fall into the tax exemption list set out in the EIT.

Net Income

Net income for the three months ended December 31, 2016 was $5,506,011, an increase of $1,238,476, or 29.0%, compared to $4,267,535 for the three months ended December 31, 2015. Net income as a percentage of total net sales was approximately 9.4% and 7.5% for the three months ended December 31, 2016 and 2015, respectively.

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Six months ended December 31, 2016 Compared to the Six months ended December 31, 2015.

|  | Six Months Ended December 31, |  |  |  |  |  |  |
|  | 2016 |  |  | 2015 |  |  | Change $ |  |  | Change % |
Sales |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 58,253,394 |  |  | $ | 66,010,365 |  |  |  | (7,756,971 | ) |  |  | -11.8 | %
Gufeng |  |  | 36,876,073 |  |  |  | 41,814,506 |  |  |  | (4,938,433 | ) |  |  | -11.8 | %
Yuxing |  |  | 3,809,725 |  |  |  | 3,325,400 |  |  |  | 484,325 |  |  |  | 14.6 | %
VIEs |  |  | 21,690,443 |  |  |  | - |  |  |  |  |  |  |  |  |
Net sales |  |  | 120,629,635 |  |  |  | 111,150,271 |  |  |  | 9,479,364 |  |  |  | 8.5 | %
Cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 25,601,590 |  |  |  | 27,975,071 |  |  |  | (2,373,481 | ) |  |  | -8.5 | %
Gufeng |  |  | 31,523,736 |  |  |  | 34,458,522 |  |  |  | (2,934,786 | ) |  |  | -8.5 | %
Yuxing |  |  | 2,979,654 |  |  |  | 1,892,948 |  |  |  | 1,086,706 |  |  |  | 57.4 | %
VIEs |  |  | 17,913,386 |  |  |  | - |  |  |  |  |  |  |  |  |
Cost of goods sold |  |  | 78,018,366 |  |  |  | 64,326,541 |  |  |  | 13,691,825 |  |  |  | 21.3 | %
Gross profit |  |  | 42,611,269 |  |  |  | 46,823,730 |  |  |  | (4,212,461 | ) |  |  | -9.0 | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 8,977,450 |  |  |  | 7,628,858 |  |  |  | 1,348,592 |  |  |  | 17.7 | %
Selling expenses - amortization of deferred asset |  |  | 9,584,220 |  |  |  | 18,377,467 |  |  |  | (8,793,247 | ) |  |  | -47.8 | %
General and administrative expenses |  |  | 7,865,392 |  |  |  | 5,659,624 |  |  |  | 2,205,768 |  |  |  | 39.0 | %
Total operating expenses |  |  | 26,427,062 |  |  |  | 31,665,949 |  |  |  | (5,238,887 | ) |  |  | -16.5 | %
Income from operations |  |  | 16,184,207 |  |  |  | 15,157,781 |  |  |  | 1,026,426 |  |  |  | 6.8 | %
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (155,172 | ) |  |  | (3,834 | ) |  |  | (151,338 | ) |  |  | 3947.3 | %
Interest income |  |  | 153,116 |  |  |  | 152,932 |  |  |  | 184 |  |  |  | 0.1 | %
Interest expense |  |  | (231,791 | ) |  |  | (731,679 | ) |  |  | 499,888 |  |  |  | -68.3 | %
Total other income (expense) |  |  | (233,847 | ) |  |  | (582,581 | ) |  |  | 348,734 |  |  |  | -59.9 | %
Income before income taxes |  |  | 15,950,360 |  |  |  | 14,575,200 |  |  |  | 1,375,160 |  |  |  | 9.4 | %
Provision for income taxes |  |  | 3,092,769 |  |  |  | 3,061,993 |  |  |  | 30,776 |  |  |  | 1.0 | %
Net income |  |  | 12,857,591 |  |  |  | 11,513,207 |  |  |  | 1,344,384 |  |  |  | 11.7 | %
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (16,447,063 | ) |  |  | (22,728,368 | ) |  |  | 6,281,305 |  |  |  | -27.6 | %
Comprehensive income (loss) |  | $ | (3,589,472 | ) |  | $ | (11,215,161 | ) |  |  | 7,625,689 |  |  |  | -68.0 | %
Basic weighted average shares outstanding |  |  | 37,653,333 |  |  |  | 36,436,026 |  |  |  | 1,217,307 |  |  |  | 3.3 | %
Basic net earnings per share |  | $ | 0.34 |  |  | $ | 0.32 |  |  |  | 0 |  |  |  | 8.1 | %
Diluted weighted average shares outstanding |  |  | 37,653,333 |  |  |  | 36,436,026 |  |  |  | 1,217,307 |  |  |  | 3.3 | %
Diluted net earnings per share |  |  | 0.34 |  |  |  | 0.32 |  |  |  | 0 |  |  |  | 8.1 | %

Net Sales

Total net sales for the six months ended December 31, 2016 were $120,629,635, an increase of $9,479,364, or 8.5%, from $111,150,271 for the six months ended December 31, 2015.

This increase was largely due to the inclusion of VIEs’ net sales during the six months ended December 31, 2016, which contributed approximately $21.7 million, or 18.0%, of the total net sales. The total net sales without including VIEs’ net sales for the six months ended December 31, 2016 were $98,939,192, a decrease of $12,211,079, or 11.0%, from the same period a year ago.

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For the six months ended December 31, 2016, Jinong’s net sales decreased of $7,756,971, or 11.8%, to $58,253,394 from $66,010,365 for the six months ended December 31, 2015. This decrease was mainly attributable to the decrease in Jinong’s sales volume, which was result of Jinong’s implementation of its new sales strategy that further focuses on producing high-margin liquid fertilizer during the last six months.

For the six months ended December 31, 2016, Gufeng’s net sales were $36,876,073, a decrease of $4,938,433 or 11.8% from $41,814,506 for the six months ended December 31, 2015. This decrease was mainly attributable to Gufeng’s lowering selling prices to answer to market demand during the six months ended December 31, 2016.

For the six months ended December 31, 2016, Yuxing’s net sales were $3,809,725, an increase of $484,325 or 14.6%, from $3,325,400 during the six months ended December 31, 2015. The increase was mainly attributable to the increase in market demand and higher prices on Yuxing’s top-grade flowers.

Cost of Goods Sold

Total cost of goods sold for the six months ended December 31, 2016 was $78,018,366, an increase of $13,691,825, or 21.3%, from $64,326,541 for the six months ended December 31, 2015. This increase was mainly due to the production and sale of VIEs’ products, which accounted for $17,913,386, or 23.0% of total cost of goods sold. The total cost of goods sold without including VIEs’ cost of goods sold for the three months ended December 31, 2016 was $60,104,980, a decrease of $4,221,561, or 6.6%, from the same period a year ago.

Cost of goods sold by Jinong for the six months ended December 31, 2016 was $25,601,590, a decrease of $2,373,481, or 8.5%, from $27,975,071 for the six months ended December 31, 2015. The decrease was primarily attributable to its lower net sales.

Cost of goods sold by Gufeng for the six months ended December 31, 2016 was $31,523,736, a decrease of $2,934,786, or 8.5%, from $34,458,522 for the six months ended December 31, 2015. This decrease was primarily attributable to the less products sold during the last six months. .

For the six months ended December 31, 2016, cost of goods sold by Yuxing was $2,979,654, an increase of $1,086,706, or 57.4%, from $1,892,948 for the six months ended December 31, 2015. This increase was mainly due to the increase in Yuxing’s net sales and the higher labor costs.

Gross Profit

Total gross profit for the six months ended December 31, 2016 decreased by $4,212,461 to $42,611,269, as compared to $46,823,730 for the six months ended December 31, 2015. Gross profit margin was 35.3% and 42.1% for the six months ended December 31, 2016 and 2015, respectively.

Gross profit generated by Jinong decreased by $5,383,490, or 14.2%, to $32,651,804 for the six months ended December 31, 2016 from $38,035,294 for the six months ended December 31, 2015. Gross profit margin from Jinong’s sales was approximately 56.1% and 57.6% for the six months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to higher raw material cost and higher packaging cost.

For the six months ended December 31, 2016, gross profit generated by Gufeng was $5,352,337, a decrease of $2,003,647, or 27.2%, from $7,355,984 for the six months ended December 31, 2015. Gross profit margin from Gufeng’s sales was approximately 14.6% and 17.6% for the six months ended December 31, 2016 and 2015, respectively. The decrease in gross profit percentage was mainly due to the increased weight for lower-margin products sales in Gufeng’s total sales answering to market demand.

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For the six months ended December 31, 2016, gross profit generated by Yuxing was $830,071, a decrease of $602,381, or 42.1% from $1,432,452for the six months ended December 31, 2015. The gross profit margin was approximately 21.8% and 43.1% for the six months ended December 31, 2016 and 2015, respectively. The decrease in gross profit margin was mainly due to the higher labor cost during the six months ended December 31, 2016.Gross profit generated by VIEs were $3,777,057 with a gross profit margin of approximately 17.4% for the six months ended December 31, 2016.

Selling Expenses

Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses were $8,977,450, or 7.4%, of net sales for the six months ended December 31, 2016, as compared to $7,628,858 or 6.9% of net sales for the six months ended December 31, 2015, an increase of $1,348,592, or 17.7%. This increase was primarily due to Jinong, and the inclusion of VIEs’ selling expenses for the six months ended December 31, 2016. The selling expenses of VIEs were $602,156, or 2.8%, of VIEs’ net sales. The selling expenses of Yuxing were $18,975 or 0.5% of Yuxing’s net sales for the six months ended December 31, 2016, as compared to $143,171, or 4.3% of Yuxing’s net sales for the six months ended December 31, 2015. The selling expenses of Gufeng were $213,408 or 0.6% of Gufeng’s net sales for the six months ended December 31, 2016, as compared to $263,657, or 0.6% of Gufeng’s net sales for the six months ended December 31, 2015. The selling expenses of Jinong for the six months ended December 31, 2016 were $8,142,911 or 14.0% of Jinong’s net sales, as compared to selling expenses of $7,222,030, or 10.9% of Jinong’s net sales for the six months ended December 31, 2015. The increase in Jinong’s selling expenses was due to Jinong’s expanded marketing efforts and the increase in shipping costs.

Selling Expenses – amortization of deferred assets

Our selling expenses - amortization of our deferred assets were $9,584,220, or 7.9%, of net sales for the six months ended December 31, 2016, as compared to $18,377,467 or 16.5% of net sales for the six months ended December 31, 2015, a decrease of $8,793,247, or 47.8%. This decrease was due to the fact that some of the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets during the six months ended December 31, 2016.

General and Administrative Expenses

General and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation and travel expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred and accrued for certain litigations. General and administrative expenses were $7,865,392, or 6.5% of net sales for the six months ended December 31, 2016, as compared to $5,659,624, or 5.1%, of net sales for the six months ended December 31, 2015, an increase of $2,205,768, or 39.0%. The increase in general and administrative expenses was mainly due to VIEs, which had $734,137 general and administrative expenses during the last three months.

Total Other Expenses

Total other expenses consisted of income from subsidies received from the PRC government, interest income, interest expenses and bank charges. The total other expense for the six months ended December 31, 2016 was $233,847, as compared to $582,581 for the six months ended December 31, 2015, a decrease of $348,734, or 59.9%. The decrease in total other expense was partly resulted from interest expense decreased by $499,888 or 68.3%, to $231,791 during the six months ended December 31, 2016 as compared to $731,679 during the six months ended December 31, 2015, due to a lesser amount of short-term loans.

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Income Taxes

Jinong is subject to a preferred tax rate of 15% as a result of its business being classified as a High-Tech project under the PRC Enterprise Income Tax Law (“EIT”) that became effective on January 1, 2008. Jinong incurred income tax expenses of $1,879,465 for the six months ended December 31, 2016, as compared to $1,805,667 for the six months ended December 31, 2015, an increase of $73,798, or 4.1%.

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $792,503 for the six months ended December 31, 2016, as compared to $1,256,325 for the six months ended December 31, 2015, a decrease of $463,822, or 36.9%.

Yuxing has no income tax for the six months ended December 31, 2016 as a result of being exempted from paying income tax due to its products fall into the tax exemption list set out in the EIT.

Net Income

Net income for the six months ended December 31, 2016 was $12,857,591, an increase of $1,344,384, or 11.7%, compared to $11,513,207 for the six months ended December 31, 2015. Net income as a percentage of total net sales was approximately 10.7% and 10.4 % for the six months ended December 31, 2016 and 2015, respectively.

Discussion of Segment Profitability Measures

As of December 31, 2016, we were engaged in the following businesses: i) the production and sale of fertilizers through Jinong and Gufeng, ii) the production and sale of high-quality agricultural products by Yuxing, and iii) the distribution of agricultural products through the VIE Companies For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production) and VIE Companies (agricultural products distribution). Each of the segments has its own annual budget with regard to development, production and sales.

Each of the four operating segments referenced above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) makes decisions with respect to resources allocation and performance assessment upon receiving financial information, including revenue, gross margin, operating income and net income produced from the various general ledger systems; however, net income by segment is the principal benchmark to measure profit or loss adopted by the CODM.

For Jinong, the net income increased by $195,406 or 2.0% to $10,195,772 for the six months ended December 31, 2016 from $10,000,366 for the six months ended December 31, 2015.

For Gufeng, the net income decreased by $1,685,340 or 45.9% to $1,984,925 for the six months ended December 31, 2016 from $3,670,265 for the six months ended December 31, 2015.

For Yuxing, the net income increased by $431,526 or 46.9% to $487,859 for the six months ended December 31, 2016 from $919,385 for the six months ended December 31, 2015.

For the VIE Companies, as we did not have such business segment during the six months ended December 31, 2015, the net income increased by $2,045,574 or 100% during the six months ended December 31, 2016.

Liquidity and Capital Resources

Our principal sources of liquidity include cash from operations, borrowings from local commercial banks and net proceeds of offerings of our securities consummated in July 2009 and November/December 2009 (collectively the “Public Offerings”).

As of December 31, 2016, cash and cash equivalents were $116,574,852, an increase of 13,678,366, or 13.3%, from $102,896,486 as of June 30, 2016.

We intend to use our working capital to acquire new businesses, upgrade production lines and complete Yuxing’s new greenhouse facilities for agriculture products located on 88 acres of land in Hu County, 18 kilometers southeast of Xi’an city. Our liquidity needs have generally consisted of working capital necessary to finance receivables, raw material and finished goods inventory. We believe that we have sufficient cash on hand and positive projected cash flow from operations to support our business growth for the next twelve months to the extent we do not have further significant acquisitions or expansions. However, if events or circumstances occur and we do not meet our operating plan as expected, we may be required to seek additional capital and/or to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market conditions are most advantageous, which may include additional debt and/or equity financings. There can be no assurance that any additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants.

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The following table sets forth a summary of our cash flows for the periods indicated:

|  | Six Months Ended December 31, |
|  | 2016 |  |  | 2015 |
Net cash provided by operating activities |  | $ | 18,178,990 |  |  | $ | 15,686,820 |
Net cash used in investing activities |  |  | (74,353 | ) |  |  | (15,665 | )
Net cash provided by (used in) financing activities |  |  | 300,000 |  |  |  | (3,276,000 | )
Effect of exchange rate change on cash and cash equivalents |  |  | (4,726,271 | ) |  |  | (5,810,344 | )
Net increase (decrease) in cash and cash equivalents |  |  | 13,678,366 |  |  |  | 6,584,811 |
Cash and cash equivalents, beginning balance |  |  | 102,896,486 |  |  |  | 92,982,564 |
Cash and cash equivalents, ending balance |  | $ | 116,574,852 |  |  | $ | 99,567,375 |

Operating Activities

Net cash provided by operating activities was $18,178,990 for the six months ended December 31, 2016, an increase of $2,492,170, or 15.9%, compared to $15,686,820 for the six months ended December 31, 2015. The increase was mainly attributable to the decrease in net income, account receivable and customer deposit, offset by an increase in inventories and advance to suppliers during the six months ended December 31, 2016 as compared to the same period in 2015.

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2016 was $74,353, an increase of $58,688, or 374.6% from $15,665 for the six months ended December 31, 2015. During the six months ended December 31, 2016, we purchased more plants, property and equipments compared to the same period last year.

Financing Activities

Net cash provided by financing activities for the six months ended December 31, 2016 was $300,000, compared to cash used in financing activities of $3,276,000 for the six months ended December 31, 2015, which was largely due to we had nil proceeds and repayment of loans for the three months ended December 31, 2016.

As of December 31, 2016 and June 30, 2016, our loans payable were as follows:

|  | December 31, 2016 |  |  | June 30, 2016 |
Short term loans payable: |  | $ | 4,463,783 |  |  | $ | 4,665,500 |
Total |  | $ | 4,463,783 |  |  | $ | 4,665,500 |

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Accounts Receivable

We had accounts receivable of $125,035,022 as of December 31, 2016, as compared to $117,055,376 as of June 30, 2016, an increase of $7,979,646 or 6.8%, which was mainly attributable to Gufeng. As of December 31, 2016, Gufeng had account receivable of $64,297,179, an increase of $16,951,117, comparing to $47,346,062 as of June 30, 2016.

Allowance for doubtful accounts in account receivable for the six months ended December 31, 2016 was $4,343,762, from $397,123 as of June 30, 2016. And the allowance for doubtful accounts as a percentage of accounts receivable was 3.0% as of December 31, 2016 and 0.3% as of June 30, 2016.

Deferred assets

We had deferred assets of $3,536,984 as of December 31, 2016, as compared to $13,431,621 as of June 30, 2016. We have been assisting our distributors in certain marketing efforts and developing standard stores to enhance our competitive advantages and market shares since December 31, 2015. Based on the distributor agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed over three years as long as the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the realization of contractual terms, the unamortized portion of the amount owed by the distributor has to be refunded to us immediately. The Company’s Chairman and CEO, Mr. Li, provided credit backup to guarantee toward potential losses to the Company of any amounts due from distributors in this matter.

Inventories

We had an inventory of $64,255,981 as of December 31, 2016, as compared to $87,436,315 as of June 30, 2016, a decrease of $23,180,334, or 26.5%. The decrease was primarily attributable to Gufeng’s inventory. Gufeng’s inventory was $38,703,152 as of December 31, 2016, compared to $60,183,741 as of June 30, 2016.

Advances to Suppliers

We had advances to suppliers of $28,707,243 as of December 31, 2016 as compared to $26,863,959 as of June 30, 2016, representing an increase of $1,843,284 or 6.9% which was due to the large acquisition of raw material during the last six months. To ensure our ability to deliver compound fertilizer to the distributor timely prior to the planting season, we need to have sufficient raw material in stock to stabilize the production. To build up the inventory, we typically make advance payment to the suppliers to secure the supply of raw material of basic fertilizer. Our inventory level may fluctuate from time to time, depending how fast the raw material gets consumed and replenished during the production process, and how fast the finished goods get sold. The replenishment of raw material relies on the management’s estimate of numerous factors, including but not limited to, the raw material’s future price, and spot price along with their volatility, as well as the seasonal demand and future price of finished fertilizer products. Such estimate may not be accurate, and the purchase decision of raw materials based on the estimate can cause excessive inventories in slow sales and insufficient inventories in peak times.

Accounts Payable

We had accounts payable of $5,577,064 as of December 31, 2016 as compared to $5,246,153 as of June 30, 2016, representing an increase of $330,911, or 6.3%. The increase was primarily due to the VIEs, which had $4,308,607 accounts payable as of December 31, 2016.

Unearned Revenue (Customer Deposits)

We had unearned revenue of $5,413,319 as of December 31, 2016 as compared to $8,578,341 as of June 30, 2016, representing a decrease of $3,165,022, or 36.9%. The decrease was mainly attributable to Gufeng’s $2,427,946 unearned revenue as of December 31, 2016, compared to $4,381,169 unearned revenue as of June 30, 2016, caused by the advancement deposits made by client. This decrease was seasonal fluctuation and we expect to deliver products to our customers during the next three months at which time we will recognize the revenue.

We do not have any off-balance sheet arrangements.

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements, “Basis of Presentation and Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the most critical accounting policies that currently affect our financial condition and results of operations:

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.

Revenue recognition

Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, we have no other significant obligations and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Our revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discounts are normally not granted after products are delivered.

Cash and cash equivalents

For statement of cash flows purposes, we consider all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.

Accounts receivable

Our policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Any accounts receivable of Jinong and Gufeng that is outstanding for more than 180 days will be accounted as allowance for bad debts, and any accounts receivable of Yuxing that is outstanding for more than 90 days will be accounted as allowance for bad debts.

Deferred assets

Deferred assets represent amounts the Company advanced to the distributors in their marketing and stores development to expand our competitive advantage and market shares. Based on the distributor agreements, the amount owed by the distributors in certain marketing efforts and store development will be expensed over three years as long as the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the realization the contractual terms, the unamortized portion of the amount owed by the distributor has to be refunded to us immediately. The Company’s Chairman and CEO, Mr. Li, provided credit backup guarantee toward potential losses to the Company of any amounts due from distributors in this matter.

Segment reporting

FASB ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

As of December 31, 2016, we were organized into three main business segments: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Disclosures About Market Risk

We may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the risk that losses may occur as a result of movements in interest rates and equity prices. We currently do not, in the normal course of business, use financial instruments that are subject to changes in financial market conditions.

Currency Fluctuations and Foreign Currency Risk

Substantially all of our revenues and expenses are denominated in RMB. However, we use U.S. dollar for financial reporting purposes. Conversion of RMB into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of RMB, there can be no assurance that such exchange rate will not again become volatile or that RMB will not devalue significantly against U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC.

Our reporting currency is U.S. dollar. Except for U.S. holding companies, all of our consolidated revenues, consolidated costs and expenses, and our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. If RMB depreciates against U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. Assets and liabilities are translated at the exchange rates as of the balance sheet dates, revenues and expenses are translated at the average exchange rates, and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of shareholders’ equity. As of December 31, 2016, our accumulated other comprehensive income was $22.1 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The value of RMB against U.S. dollar and other currencies is affected by, among other things, changes in the PRC’s political and economic conditions. In 2016, China’s currency dropped by a cumulative 6.8% against the U.S. dollar. The effect on trade can be substantial. Moreover, it is possible that, in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market.

Interest Rate Risk

We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. All of our outstanding debt instruments carry fixed rates of interests. The amount of short-term debt outstanding as of December 31, 2016 and June 30, 2016 was $4.5 million and $4.7 million, respectively. We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our short-term loans, are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans and interest rates are subject to change upon renewal. There were no material changes in interest rates for short-term bank loans renewed during the three months ended December 31, 2016. The original loan term on average is one year, and the remaining average life of the short term-loans is approximately five months.

Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Credit Risk

We have not experienced significant credit risk, as most of our customers are long-term customers with superior payment records. Our receivables are monitored regularly by our credit managers.

Inflation Risk

Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

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Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

At the conclusion of the period ended December 31, 2016 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our CEO and CFO concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that such information was accumulated and communicated to our management, including our CEO and CFO, in a manner that allowed for timely decisions regarding required disclosure.

(b) Changes in internal controls

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended December 31, 2016 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

There are no other actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of the Company’s equity securities during the three months ended December 31, 2016, that were not otherwise disclosed in a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

There is no other information required to be disclosed under this item which was not previously disclosed.

Item 6. Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

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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.

| CHINA GREEN AGRICULTURE, INC.
Date: February 14, 2017 | By: | /s/ Tao Li
| Name: | Tao Li
| Title: | Chief Executive Officer
|  | (principal executive officer)
Date: February 14, 2017 | By: Name: Title: | /s/ Zhuoyu “Richard” Li Zhuoyu “Richard” Li President (deputy executive officer)
Date: February 14, 2017 | By: | /s/ Ken Ren
| Name: | Ken Ren
| Title: | Chief Financial Officer
|  | (principal financial officer and principal accounting officer)

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EXHIBIT INDEX

No. |  | Description
10.1** |  | Form Entrust Management Agreement
10.2** |  | Form Exclusive Option Agreement
10.3** |  | Form Exclusive Product Supply Agreement
10.4** |  | Form Non-Competition Agreement
10.5** |  | Form Pledge of Equity Agreement
10.6** |  | Form Shareholder’s Voting Proxy Agreement
10.7** |  | Form Strategic Acquisition Contract
21.1* |  | List of Subsidiaries of the Company
31.1* |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+ |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+ |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* |  | XBRL Instance Document
101.SCH* |  | XBRL Taxonomy Extension Schema Document
101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

** To be filed by amendment

+ In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

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