10-Q 1 f10q1218_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, 2018

☐ 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 Taibai

Road, 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 | ☒
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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: 39,546,945 shares of common stock, $0.001 par value, as of February 2, 2019.

TABLE OF CONTENTS

|  | Page
PART I | FINANCIAL INFORMATION | 1
Item 1. | Financial Statements | 1
| Consolidated Condensed Balance Sheets As of December 31, 2018 (Unaudited) and June 30, 2018 | 1
| Consolidated Condensed Statements of Income and Comprehensive Income For the Three Months Ended December 31, 2018 and 2017 (Unaudited) | 2
| Consolidated Condensed Statements of Cash Flows For the Three Months Ended December 31, 2018 and 2017 (Unaudited) | 3
| Notes to Consolidated Condensed Financial Statements As of December 31, 2018 (Unaudited) | 4
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36
Item 4. | Controls and Procedures | 37
PART II | OTHER INFORMATION | 38
Item 6. | Exhibits | 38
Signatures | 39
Exhibits/Certifications | 40

i

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|  | December 31, 2018 |  |  | June 30, 2018 |
ASSETS |  |  |  |  |  |  |  |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 117,546,683 |  |  | $ | 150,805,639 |
Accounts receivable, net |  |  | 120,505,844 |  |  |  | 174,460,937 |
Inventories |  |  | 115,013,591 |  |  |  | 53,784,814 |
Prepaid expenses and other current assets |  |  | 3,173,718 |  |  |  | 2,945,247 |
Amount due from related parties |  |  | 0 |  |  |  | 235,551 |
Advances to suppliers, net |  |  | 40,777,894 |  |  |  | 25,194,463 |
Total Current Assets |  |  | 397,017,730 |  |  |  | 407,426,651 |
Plant, Property and Equipment, Net |  |  | 28,227,394 |  |  |  | 30,894,683 |
Other Assets |  |  | 267,539 |  |  |  | 294,550 |
Other Non-current Assets |  |  | 14,311,626 |  |  |  | 15,885,696 |
Intangible Assets, Net |  |  | 18,710,644 |  |  |  | 20,317,914 |
Goodwill |  |  | 7,863,605 |  |  |  | 8,166,467 |
Total Assets |  | $ | 466,398,538 |  |  | $ | 482,985,960 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 13,312,634 |  |  | $ | 27,128,921 |
Customer deposits |  |  | 6,862,214 |  |  |  | 7,251,967 |
Accrued expenses and other payables |  |  | 11,286,369 |  |  |  | 10,207,058 |
Amount due to related parties |  |  | 3,640,504 |  |  |  | 3,271,619 |
Taxes payable |  |  | 31,071,532 |  |  |  | 29,952,206 |
Short term loans |  |  | 4,362,000 |  |  |  | 4,726,300 |
Interest payable |  |  | 582,327 |  |  |  | 462,060 |
Derivative liability |  |  | 2,248 |  |  |  | 66,143 |
Total Current Liabilities |  |  | 71,119,828 |  |  |  | 83,066,274 |
Long-term Liabilities |  |  |  |  |  |  |  |
Convertible notes payable |  |  | 7,302,743 |  |  |  | 7,371,899 |
Total Liabilities |  | $ | 78,422,571 |  |  | $ | 90,438,173 |
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, 39,546,945 and 38,896,945, shares issued and outstanding as of December 31, 2018 and June 30, 2018, respectively |  |  | 39,547 |  |  |  | 38,897 |
Additional paid-in capital |  |  | 129,706,886 |  |  |  | 129,337,035 |
Statutory reserve |  |  | 31,399,827 |  |  |  | 30,947,344 |
Retained earnings |  |  | 246,887,783 |  |  |  | 235,822,726 |
Accumulated other comprehensive income |  |  | (20,058,076 | ) |  |  | (3,598,215 | )
Total Stockholders’ Equity |  |  | 387,975,967 |  |  |  | 392,547,787 |
Total Liabilities and Stockholders’ Equity |  | $ | 466,398,538 |  |  | $ | 482,985,960 |

The accompanying notes are an integral part of these 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, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Sales |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 16,987,360 |  |  | $ | 26,211,280 |  |  | $ | 39,483,893 |  |  | $ | 52,985,040 |
Gufeng |  |  | 22,355,690 |  |  |  | 24,447,721 |  |  |  | 39,828,941 |  |  |  | 42,669,787 |
Yuxing |  |  | 2,623,493 |  |  |  | 1,953,748 |  |  |  | 5,011,039 |  |  |  | 3,746,391 |
VIEs - others |  |  | 10,287,920 |  |  |  | 10,986,576 |  |  |  | 25,885,396 |  |  |  | 26,326,758 |
Net sales |  |  | 52,254,463 |  |  |  | 63,599,325 |  |  |  | 110,209,269 |  |  |  | 125,727,976 |
Cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 8,994,882 |  |  |  | 13,265,827 |  |  |  | 20,198,054 |  |  |  | 26,378,583 |
Gufeng |  |  | 19,764,817 |  |  |  | 21,160,024 |  |  |  | 35,069,680 |  |  |  | 37,146,453 |
Yuxing |  |  | 2,166,566 |  |  |  | 1,536,238 |  |  |  | 4,213,729 |  |  |  | 2,928,791 |
VIEs - others |  |  | 9,083,973 |  |  |  | 9,135,024 |  |  |  | 22,013,941 |  |  |  | 21,828,653 |
Cost of goods sold |  |  | 40,010,238 |  |  |  | 45,097,113 |  |  |  | 81,495,404 |  |  |  | 88,282,480 |
Gross profit |  |  | 12,244,225 |  |  |  | 18,502,212 |  |  |  | 28,713,865 |  |  |  | 37,445,496 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 8,069,103 |  |  |  | 7,668,468 |  |  |  | 11,489,530 |  |  |  | 12,822,665 |
General and administrative expenses |  |  | (99,632 | ) |  |  | 902,883 |  |  |  | 2,209,728 |  |  |  | 7,817,685 |
Total operating expenses |  |  | 7,969,471 |  |  |  | 8,571,351 |  |  |  | 13,699,258 |  |  |  | 20,640,350 |
Income from operations |  |  | 4,274,754 |  |  |  | 9,930,861 |  |  |  | 15,014,607 |  |  |  | 16,805,146 |
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (187,753 | ) |  |  | (276,836 | ) |  |  | (226,083 | ) |  |  | (284,047 | )
Discontinued VIE operation - Zhenbai |  |  |  |  |  |  | (330,966 | ) |  |  |  |  |  |  | (330,966 | )
Interest income |  |  | 95,957 |  |  |  | 130,248 |  |  |  | 223,341 |  |  |  | 218,162 |
Interest expense |  |  | (149,578 | ) |  |  | (94,587 | ) |  |  | (312,264 | ) |  |  | (274,162 | )
Total other income (expense) |  |  | (241,374 | ) |  |  | (572,141 | ) |  |  | (315,006 | ) |  |  | (671,013 | )
Income before income taxes |  |  | 4,033,380 |  |  |  | 9,358,720 |  |  |  | 14,699,601 |  |  |  | 16,134,133 |
Provision for income taxes |  |  | 1,527,645 |  |  |  | 1,530,938 |  |  |  | 3,182,061 |  |  |  | 3,253,593 |
Net income from continuing operations, net of tax |  |  | 2,505,735 |  |  |  | 7,827,782 |  |  |  | 11,517,540 |  |  |  | 12,880,540 |
Net income from discontinued operation, net of tax |  |  | - |  |  |  | (1,676 | ) |  |  | - |  |  |  | 40,394 |
Net income, net of tax |  |  | 2,505,735 |  |  |  | 7,826,107 |  |  |  | 11,517,540 |  |  |  | 12,920,934 |
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (472,069 | ) |  |  | 8,256,738 |  |  |  | (16,459,861 | ) |  |  | 8,496,956 |
Comprehensive income (loss) |  | $ | 2,033,666 |  |  | $ | 16,082,845 |  |  | $ | (4,942,321 | ) |  | $ | 21,417,890 |
Basic weighted average shares outstanding |  |  | 39,546,945 |  |  |  | 38,551,264 |  |  |  | 39,546,945 |  |  |  | 38,551,264 |
Basic net earnings per share from continuing operations |  | $ | 0.06 |  |  | $ | 0.20 |  |  |  | 0.29 |  |  | $ | 0.33 |
Basic net earnings per share from discontinued operations |  |  | - |  |  | $ | 0.00 |  |  |  | - |  |  | $ | 0.00 |
|  |  | 0 |  |  |  |  |  |  |  |  |  |  |  |  |
Diluted weighted average shares outstanding |  |  | 39,546,945 |  |  |  | 38,551,264 |  |  |  | 39,546,945 |  |  |  | 38,185,277 |
Diluted net earnings per share from continuing operations |  | $ | 0.06 |  |  | $ | 0.20 |  |  | $ | 0.29 |  |  | $ | 0.34 |
Diluted net earnings per share from discontinued operations |  |  | - |  |  | $ | 0.00 |  |  | $ | - |  |  | $ | 0.00 |

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

2

CHINA GREEN AGRICULTURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED

|  | Six Months Ended December 31, |
|  | 2018 |  |  | 2017 |
Cash flows from operating activities |  |  |  |  |  |
Net income |  | $ | 11,517,540 |  |  | $ | 12,880,541 |
Income from discontinued operations, net of income taxes |  |  |  |  |  |  |  |
Income from continuing operations, net of income taxes |  |  |  |  |  |  |  |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 2,434,189 |  |  |  | 3,406,443 |
Gain (Loss) on disposal of plant, property and equipment |  |  | 4,415 |  |  |  | 15,318 |
Amortization of debt discount |  |  | 204,765 |  |  |  | 377,450 |
Issuance of common stock for consulting services |  |  | 370,500 |  |  |  | - |
Change in fair value of derivative liability |  |  | (61,601 | ) |  |  | (114,233 | )
Changes in operating assets |  |  |  |  |  |  |  |
Accounts receivable |  |  | 47,607,489 |  |  |  | 19,963,077 |
Amount due from related parties |  |  | 227,400 |  |  |  | 1,436,875 |
Other current assets |  |  | 1,618,463 |  |  |  | 1,019,062 |
Inventories |  |  | (63,386,505 | ) |  |  | (25,549,564 | )
Advances to suppliers |  |  | (16,560,396 | ) |  |  | 4,106,058 |
Other assets |  |  | (969,558 | ) |  |  | 974,189 |
Changes in operating liabilities |  |  |  |  |  |  |  |
Accounts payable |  |  | (12,851,196 | ) |  |  | 2,694,536 |
Customer deposits |  |  | (121,118 | ) |  |  | (226,314 | )
Tax payables |  |  | 1,157,226 |  |  |  | (554,210 | )
Accrued expenses and other payables |  |  | 1,227,568 |  |  |  | 988,125 |
Interest payable |  |  | 137,757 |  |  |  | 142,283 |
Net cash provided by (used in) continuing operating activities |  |  | (27,443,062 | ) |  |  | 21,559,636 |
Net cash provided by (used in) discontinued operating activities |  |  | 0 |  |  |  | (1,024,276 | )
Net cash provided by (used in) operating activities |  |  | (27,443,062 | ) |  |  | 20,535,360 |
Cash flows from investing activities |  |  |  |  |  |  |  |
Purchase of plant, property, and equipment |  |  | (57,195 | ) |  |  | (11,758 | )
Change in construction in process |  |  | 16,128 |  |  |  | (11,328 | )
Net cash used in investing activities |  |  | (41,067 | ) |  |  | (23,086 | )
Cash flows from financing activities |  |  |  |  |  |  |  |
Proceeds from loans |  |  | 0 |  |  |  | 153,300 |
Repayment of loans |  |  | (189,508 | ) |  |  | (1,678,603 | )
Advance from related parties |  |  | 409,230 |  |  |  | 195,013 |
Net cash provided by (used in) financing activities |  |  | 219,722 |  |  |  | (1,330,290 | )
Effect of exchange rate change on cash and cash equivalents |  |  | (5,994,548 | ) |  |  | 3,184,627 |
Net increase in cash and cash equivalents |  |  | (33,258,955 | ) |  |  | 22,366,611 |
Cash and cash equivalents, beginning balance |  |  | 150,805,639 |  |  |  | 123,050,548 |
Cash and cash equivalents, ending balance |  | $ | 117,546,683 |  |  | $ | 145,417,159 |
Supplement disclosure of cash flow information |  |  |  |  |  |  |  |
Interest expense paid |  | $ | 105,733 |  |  | $ | 206,368 |
Income taxes paid |  | $ | 2,024,835 |  |  | $ | 3,807,803 |

The accompanying notes are an integral part of these 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 this Report, 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 TechTeam Jinong Humic 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”), Songyuan Jinyangguang Sannong Service Co., Ltd. (“Jinyangguang”), Shenqiu County Zhenbai Agriculture Co., Ltd. (“Zhenbai”), Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), Aksu Xindeguo 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”).

On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Zhenbai.

Yuxing, Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred to as the “the VIE Companies”; Lishijie, Jinyangguang, Zhenbai, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred to as “the sales VIEs” or “the sales VIE companies”.

4

The Company’s corporate structure as of December 31, 2018, is set forth in the diagram below:

5

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, and the VIE Companies. All significant inter-company accounts and transactions have been eliminated in consolidation.

Effective June 16, 2013, Yuxing was converted from being a wholly-owned foreign enterprise 100% owned by Jinong to a domestic enterprise 100% owned one natural person, who is not affiliated to the Company (“Yuxing’s Owner”). Effective the same day, Yuxing’s Owner entered into a series of contractual agreements with Jinong pursuant to which Yuxing became the VIE of Jinong.

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 performs 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 of 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 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 three 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 and June 30, 2018, were $117,546,683 and $150,805,639, respectively. The Company had $117,296,696 and $150,785,737 in cash in banks in China and had $249,987 and $19,902 in cash in two banks in the United States as of December 31 and June 30, 2018, respectively. Cash overdrafts as of a 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 creditworthiness, 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, 2018, and June 30, 2018, the Company had accounts receivable of $120,505,844 and $174,460,937, net of allowance for doubtful accounts of $17,699,871 and $24,551,796, respectively.

6

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. On December 31, 2018 and 2017, the Company had no reserve for obsolete goods.

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. The Company has not recorded an impairment of intangible assets as of December 31, 2018 and 2017 respectively.

Customer deposits

Payments received before all 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, 2018, and June 30, 2018, the Company had customer deposits of $6,862,214 and $7,251,967, respectively.

Earnings per share

Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are 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.

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

|  | Three Months Ended |
|  | December 31, |
|  | 2018 |  |  | 2017 |
Net Income from continuing operations for Basic Earnings Per Share |  |  | 2,505,735 |  |  |  | 7,827,782 |
Net Income from discontinued operations for Basic Earnings Per Share |  | $ | 0 |  |  | $ | (1,676 | )
Basic Weighted Average Number of Shares |  |  | 39,546,945 |  |  |  | 38,511,264 |
Basic net earnings per share from continuing operations |  |  | 0.06 |  |  |  | 0.20 |
Basic net earnings per share from discontinued operations |  | $ | 0.00 |  |  | $ | 0.00 |
Net Income from continuing operations for Diluted Earnings Per Share |  |  | 2,505,735 |  |  |  | 7,827,782 |
Net Income from discontinued operations for Diluted Earnings Per Share |  | $ | 0 |  |  | $ | (1,676 | )
Diluted Weighted Average Number of Shares |  |  | 39,546,945 |  |  |  | 38,551,264 |
Diluted net earnings per share from continuing operations |  |  | 0.06 |  |  |  | 0.20 |
Diluted net earnings per share from discontinued operations |  | $ | 0.00 |  |  | $ | 0.00 |

|  | Six Months Ended |
|  | December 31, |
|  | 2018 |  |  | 2017 |
Net Income from continuing operations for Basic Earnings Per Share |  |  | 11,517,540 |  |  |  | 12,880,540 |
Net Income from discontinued operation for Basic Earnings Per Share |  | $ | 0 |  |  | $ | 40,394 |
Basic Weighted Average Number of Shares |  |  | 39,546,945 |  |  |  | 38,551,264 |
Basic net earnings per share from continuing operations |  |  | 0.29 |  |  |  | 0.33 |
Basic net earnings per share from discontinued operations |  | $ | 0 |  |  | $ | 0.00 |
Net Income from continuing operations for Diluted Earnings Per Share |  |  | 11,517,540 |  |  |  | 12,880,540 |
Net Income from discontinued operations for Diluted Earnings Per Share |  | $ | 0 |  |  | $ | 40,394 |
Diluted Weighted Average Number of Shares |  |  | 39,546,945 |  |  |  | 38,551,264 |
Diluted net earnings per share from continuing operations |  |  | 0.29 |  |  |  | 0.34 |
Diluted net earnings per share from discontinued operations |  | $ | 0 |  |  | $ | 0 |

7

Recent accounting pronouncements

Revenue Recognition: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede 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 that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process that is required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method). We are currently assessing the impact on our consolidated financial statements and have not yet selected a transition approach.

Disclosure of Going Concern Uncertainties: In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for us in our fourth quarter of fiscal 2017 with early adoption permitted. We do not believe the impact of our pending adoption of ASU 2014-15 on the Company’s financial statements will be material.

Financial instrument: In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

Leases: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease amendments to the FASB Accounting Standard Codification. This ASU will be effective for us beginning on May 1, 2019. We are currently in the process of evaluating the impact of the adoption of ASU 2016-2 on our consolidated financial statements.

Stock-based Compensation: In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for us in the first quarter of 2018, and earlier adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

Financial Instruments - Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision-useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.

Statement of Cash Flows: In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.

Statement of Cash Flows: In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is permitted. The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes in restricted cash activity, which are currently recognized in other financing activities, on the Statements of Consolidated Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated Cash Flows. The Company anticipates adopting this new guidance effective July 1, 2018. The Company is currently evaluating this guidance and the impact it will have on the Consolidated Financial Statements and disclosures.

8

Business Combination: In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

Stock-based Compensation: In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities that offer share-based payment awards, ASU 2017-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU 2017-09 on its condensed consolidated financial statements.

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, |
|  | 2018 |  |  | 2018 |
Raw materials |  | $ | 39,755,211 |  |  | $ | 13,154,465 |
Supplies and packing materials |  | $ | 486,032 |  |  | $ | 566,254 |
Work in progress |  | $ | 385,082 |  |  | $ | 417,130 |
Finished goods |  | $ | 74,387,266 |  |  | $ | 39,646,965 |
Total |  | $ | 115,013,591 |  |  | $ | 53,784,814 |

NOTE 4 – PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Building and improvements |  | $ | 38,824,105 |  |  | $ | 40,319,393 |
Auto |  |  | 3,383,116 |  |  |  | 3,504,028 |
Machinery and equipment |  |  | 18,098,079 |  |  |  | 18,765,192 |
Agriculture assets |  |  | 740,026 |  |  |  | 768,528 |
Total property, plant, and equipment |  |  | 61,045,325 |  |  |  | 63,357,141 |
Less: accumulated depreciation |  |  | (32,817,931 | ) |  |  | (32,462,458 | )
Total |  | $ | 28,227,394 |  |  | $ | 30,894,683 |

NOTE 5 – INTANGIBLE ASSETS

Intangible assets consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Land use rights, net |  | $ | 9,445,315 |  |  | $ | 9,930,420 |
Technology patent, net |  |  | 3,219 |  |  |  | 3,570 |
Customer relationships, net |  |  | 2,808,791 |  |  |  | 3,578,724 |
Non-compete agreement |  |  | 535,539 |  |  |  | 659,500 |
Trademarks |  |  | 5,917,780 |  |  |  | 6,145,700 |
Total |  | $ | 18,710,644 |  |  | $ | 20,317,914 |

LAND USE RIGHT

On September 25, 2009, Yuxing was granted 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 $10,641,084). The intangible asset is being amortized over the grant period of 50 years using the straight-line method.

9

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 $152,081). 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 $1,059,253). The intangible asset is being amortized over the grant period of 50 years.

The Land Use Rights consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Land use rights |  | $ | 11,852,416 |  |  |  | 12,308,907 |
Less: accumulated amortization |  |  | (2,407,101 | ) |  |  | (2,378,488 | )
Total land use rights, net |  | $ | 9,445,315 |  |  |  | 9,930,419 |

TECHNOLOGY PATENT

On August 16, 2001, Jinong was issued a technology patent related to a proprietary formula used in the production of humic acid. The fair value of the related intangible asset was determined to be the respective cost of RMB 5,875,068 (or $854,235) 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 of the acquired technology patent was estimated to be RMB9,200,000 (or $1,337,680) and is amortized over the remaining useful life of six years using the straight-line method. As of December 31, 2018, this technology patent is fully amortized.

The technology know-how consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Technology know-how |  | $ | 2,196,693 |  |  | $ | 2,276,335 |
Less: accumulated amortization |  |  | (2,196,693 | ) |  |  | (2,276,335 | )
Total technology know-how, net |  | $ | - |  |  | $ | - |

CUSTOMER RELATIONSHIPS

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired customer relationships was estimated to be RMB65, 000,000 (or $9,451,000) and is amortized over the remaining useful life of ten years. On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired customer relationships was estimated to be RMB16, 472,179 (or $2,395,055) and is amortized over the remaining useful life of seven to ten years.

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Customer relationships |  | $ | 11,592,684 |  |  | $ | 12,039,169 |
Less: accumulated amortization |  |  | (8,783,893 | ) |  |  | (8,460,445 | )
Total customer relationships, net |  | $ | 2,808,791 |  |  | $ | 3,578,724 |

NON-COMPETE AGREEMENT

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The fair value of the acquired non-compete agreement was estimated to be RMB1, 320,000 (or $191,928) and is amortized over the remaining useful life of five years using the straight-line method. On June 30, 2016 and January 1, 2017, the Company acquired the sales VIE Companies. The fair value of the acquired non-compete agreements was estimated to be RMB6, 150,683 (or $894,309) and is amortized over the remaining useful life of five years using the straight-line method.

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Non-compete agreement |  | $ | 1,186,964 |  |  | $ | 1,232,680 |
Less: accumulated amortization |  |  | (651,425 | ) |  |  | (573,180 | )
Total non-compete agreement, net |  | $ | 535,539 |  |  | $ | 659,500 |

TRADEMARKS

On July 2, 2010, the Company acquired Gufeng and its wholly-owned subsidiary Tianjuyuan. The preliminary fair value of the acquired trademarks was estimated to be RMB40,700,000 (or $5,917,780) and is subject to an annual impairment test.

10

AMORTIZATION EXPENSE

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

Twelve Months Ended on September 30, |  | Expense ($) |
2019 |  |  | 1,838,839 |
2020 |  |  | 1,306,324 |
2021 |  |  | 729,135 |
2022 |  |  | 563,663 |
2023 |  |  | 496,482 |

NOTE 6 – OTHER NON-CURRENT ASSETS

Other non-current assets mainly include advance payments related to leasing land for use by the Company. As of December 31, 2018, the balance of other non-current assets was $16,263,621, which was the lease fee advances for agriculture lands that the Company engaged in Shiquan County from 2018 to 2027.

In March 2017, Jinong entered into a lease agreement for approximately 3,400 mu, and 2600-hectare agriculture lands in Shiquan County, Shaanxi Province. The lease was from April 2017 and was renewable for every ten-year period up to 2066. The aggregate leasing fee was approximately RMB 13 million per annum, The Company had made 10-year advances of leasing fee per lease terms. The Company has amortized $1 million as expenses for the six months ended December 31, 2018.

Estimated amortization expenses of the lease advance payments for the next four twelve-month periods ended December 31 and thereafter are as follows:

Twelve months ending December 31, |  |  |
2019 |  | $ | 1,951,995 |
2020 |  | $ | 1,951,995 |
2021 |  | $ | 1,951,995 |
2022 |  | $ | 1,951,995 |
2023 and thereafter |  | $ | 8,455,641 |

NOTE 7 - ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consisted of the following:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Payroll payable |  | $ | 25,925 |  |  | $ | 13,788 |
Welfare payable |  |  | 149,274 |  |  |  | 155,023 |
Accrued expenses |  |  | 6,172,604 |  |  |  | 5,368,348 |
Other payables |  |  | 4,816,624 |  |  |  | 4,543,261 |
Other levy payable |  |  | 121,942 |  |  |  | 126,638 |
Total |  | $ | 11,286,369 |  |  | $ | 10,207,058 |

NOTE 8 - RELATED PARTIES TRANSACTIONS

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 $3,707,700). For the six months ended December 31, 2018 and 2017, Yuxing has sold approximately $198,115 and $181,201 products to 900LH.com.

The amount due from 900LH.com to Yuxing was $0 and $235,551 as of December 31 and June 30, 2018, respectively.

11

As of December 31, 2018, and June 30, 2018, the amount due to related parties was $3,640,504 and $3,271,619, respectively. As of December 31, 2018, and June 30, 2018, $1,017,800 and $1,057,000, respectively were amounts that Gufeng borrowed from a related party, Xi’an Techteam Science & Technology Industry (Group) Co. Ltd., a company controlled by Mr. Zhuoyu 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.

As of December 31, 2018, and June 30, 2018, the Company’s subsidiary, Jinong, owed 900LH.com $402,234 and $393,565, respectively.

On June 29, 2018, Jinong renewed the office lease with Kingtone Information Technology Co., Ltd. (“Kingtone Information”), of which Mr. Tao Li, former Chairman and CEO of the Company, serves as Chairman of its board of directors. Pursuant to the lease, Jinong rented 612 square meters (approximately 6,588 square feet) of office space from Kingtone Information. The lease provides for a four-year term effective as of July 1, 2018, with a monthly rent of RMB24,480 (approximately $3,559)

NOTE 9- LOAN PAYABLES

As of December 31, 2018, the short-term loan payables consisted of two loans which mature on dates ranging from May 21 through June 18, 2019, with interest rates ranging from 5.22% to 6.31%. Both loans are collateralized by Tianjuyuan’s land use right and building ownership right.

No. |  | Payee |  | Loan period per agreement |  | Interest Rate |  |  | December 31, 2018 |
1 |  | Bank of Beijing - Pinggu Branch |  | May 22, 2018-May 21, 2019 |  |  | 5.22 | % |  |  | 1,454,000 |
2 |  | Postal Saving Bank of China - Pinggu Branch |  | June 19, 2018-June 18, 2019 |  |  | 6.31 | % |  |  | 2,908,000 |
|  | Total |  |  |  |  |  |  |  | $ | 4,362,000 |

The interest expense from short-term loans was $312,264 and $274,162 for the six months ended December 31, 2018 and 2017, respectively.

12

NOTE 10 – CONVERTIBLE NOTES PAYABLE

Relating to the acquisition of the VIE Companies, the Company subsidiary, Jinong, issued to the VIE Companies shareholders convertible notes payable twice, in the aggregate notional amount of RMB 51,000,000 ($7,415,400) with a term of three years and an annual interest rate of 3%.

No. |  | Related Acquisitions of Sales VIEs |  | Issuance Date |  | Maturity Date |  | Notional Interest Rate |  |  | Conversion Price |  |  | Notional Amount (in RMB) |
1 |  | Wangtian, Lishijie, Xindeguo, Xinyulei, Jinyangguang |  | June 30, 2016 |  | June 30, 2019 |  | 3 | % |  | $ | 5.00 |  |  |  | 39,000,000 |
2 |  | Fengnong, Xiangrong |  | January 1, 2017 |  | December 31, 2019 |  | 3 | % |  | $ | 5.00 |  |  |  | 12,000,000 |

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 maturity 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. Due to the discontinuation of VIE agreements with Zhenbai’s shareholders, certain convertible notes issued on June 30, 2016, with a face amount of RMB 12,000,000 ($1,744,800) were tendered back to the Company. All outstanding balance of unpaid principal and accrued interest in the tendered convertible notes were forfeited.

The Company determined that the fair value of the convertible note payable was RMB 50,225,192 ($7,302,743) and RMB 48,820,525 ($7,371,899) as of December 31, 2018 and June 30, 2018, respectively. Aside from the forfeiture of the convertible notes previously issued to Zhenbai’s shareholders, the difference between the fair value of the notes and the face amount of the notes is being amortized to accretion implied interest expense over the three-year life of the notes. As of December 31, 2018, the accumulated amortization of this discount into accretion expenses was $1,126,814.

NOTE 11 – 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 were eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, because of the expiration of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the six-month period ended December 31, 2018 and 2017 of $ 1,356,998 and $1,845,926, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to a 25% EIT rate and thus it made provision for income taxes of $1,071,227 and $1,106,590 for the six months ended December 31, 2018 and 2017, respectively.

Value-Added Tax

Certain 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.

Income Taxes and Related Payables

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
VAT provision |  | $ | (343,283 | ) |  | $ | (449,140 | )
Income tax payable |  |  | 1,598,671 |  |  |  | 554,065 |
Other levies |  |  | 805,609 |  |  |  | 836,747 |
Total |  | $ | 2,060,997 |  |  | $ | 941,672 |

The provision for income taxes consists of the following

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Current tax - foreign |  | $ | 3,182,061 |  |  | $ | 6,841,592 |
Repatriation Tax |  |  | - |  |  |  | 29,010,535 |
Total |  | $ | 3,182,061 |  |  | $ | 35,852,127 |

13

Our effective tax rates were approximately 21.6% and 20.1% for the six months ended December 31, 2018 and 2017, respectively. Substantially all 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 21% to income before income taxes for the three months ended December 31, 2018 and 2017 for the following reasons:

December 31, 2018

Tax Rate Reconciliation

|  | China |  |  |  |  |  | United States |  |  |  |  |  |  |  |  |  |
December 31, 2018 |  | 15% - 25% |  |  |  |  |  | 21% |  |  |  |  |  | Total |  |  |  |
Pretax income (loss) |  | $ | 15,663,575 |  |  |  |  |  |  |  | (963,974 | ) |  |  |  |  |  | $ | 14,699,601 |  |  |  |  |
Expected income tax expense (benefit) |  |  | 3,915,894 |  |  |  | 25.0 | % |  |  | (202,435 | ) |  |  | 21.0 | % |  |  | 3,713,459 |  |  |  |  |
High-tech income benefits on Jinong |  |  | (904,666 | ) |  |  | (5.8 | )% |  |  | - |  |  |  | - |  |  |  | (904,666 | ) |  |  |  |
Losses from subsidiaries in which no benefit is recognized |  |  | 170,833 |  |  |  | 1.1 | % |  |  | - |  |  |  | - |  |  |  | 170,833 |  |  |  |  |
Change in valuation allowance on deferred tax asset from US tax benefit |  |  | - |  |  |  |  |  |  |  | 202,435 |  |  |  | (21.0 | )% |  |  | 202,435 |  |  |  |  |
Actual tax expense |  | $ | 3,182,061 |  |  |  | 20.3 | % |  | $ | - |  |  |  | - | % |  | $ | 3,182,061 |  |  |  | 21.6 | %

|  | China |  |  |  |  |  | United States |  |  |  |  |  |  |  |  |  |
December 31, 2017 |  | 15% - 25% |  |  |  |  |  | 34% |  |  |  |  |  | Total |  |  |  |
Pretax income (loss) |  | $ | 16,805,296 |  |  |  |  |  |  | $ | (630,768 | ) |  |  |  |  |  | $ | 16,174,528 |  |  |  |  |
Expected income tax expense (benefit) |  |  | 4,201,324 |  |  |  | 25 | % |  |  | (214,461 | ) |  |  | 34 | % |  |  | 3,986,863 |  |  |  |  |
High-tech income benefits on Jinong |  |  | (1,230,618 | ) |  |  | -7.3 | % |  |  |  |  |  |  |  |  |  |  | (1,230,618 | )) |  |  |  |
Losses from subsidiaries in which no benefit is recognized |  |  | 282,887 |  |  |  | 1.7 | % |  |  |  |  |  |  |  |  |  |  | 282,887 |  |  |  |  |
Change in valuation allowance on deferred tax asset from US tax benefit |  |  | 0 |  |  |  |  |  |  |  | 214,461 |  |  |  | -34 | % |  |  | 214,461 |  |  |  |  |
Actual tax expense |  | $ | 3,253,593 |  |  |  | 19.4 | % |  | $ | 0 |  |  |  | 0.00 | % |  | $ | 3,253,593 |  |  |  | 20.1 | %

NOTE 12 – STOCKHOLDERS’ EQUITY

Common Stock

In December 2018, the Company issued an aggregate of 650,000 shares of common stock to pay off consulting services under the 2009 Plan. The value of the stock was $370,500 and is based on the fair value of the Company’s common stock on the grant date.

There was no share issuance of common stock during the three and six months ended December 31, 2017.

As of December 31, and June 30, 2018, there were 39,546,945 and 38,896,945 shares of common stock issued and outstanding.

14

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, 2018, 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 13 –CONCENTRATIONS

Market Concentration

All 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 three vendors from each of which the Company purchased more than 10% of its raw materials, with the total of 34.3% of its raw materials for the six months ended December 31, 2018. Total purchases from these three vendors amounted to $33,149,745 for the six-month period ended December 31, 2018.

None of the vendors accounted for over 10% of the Company’s purchase of raw materials and supplies for the six months ended December 31, 2017.

No customer accounted for over 10% of the Company’s sales for the six months ended December 31, 2018 and 2017.

15

NOTE 14 – SEGMENT REPORTING

As of December 31, 2018, the Company was organized into four main business segments based on location and product: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production) and the sales VIEs. 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 |  |  | Three Months Ended |  |  | Six Months Ended |  |  | Six Months Ended |
Revenues from unaffiliated customers: |  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Jinong |  | $ | 16,987,360 |  |  | $ | 26,211,280 |  |  | $ | 39,483,893 |  |  | $ | 52,985,040 |
Gufeng |  |  | 22,355,690 |  |  |  | 24,447,721 |  |  |  | 39,828,941 |  |  |  | 42,669,787 |
Yuxing |  |  | 2,623,493 |  |  |  | 1,953,748 |  |  |  | 5,011,039 |  |  |  | 3,746,391 |
Sales VIEs |  |  | 10,287,922 |  |  |  | 10,986,576 |  |  |  | 25,885,396 |  |  |  | 26,326,758 |
Consolidated |  | $ | 52,254,465 |  |  | $ | 63,599,325 |  |  | $ | 110,209,269 |  |  | $ | 125,727,976 |
Operating income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 2,171,448 |  |  | $ | 5,577,154 |  |  | $ | 9,099,538 |  |  | $ | 12,343,229 |
Gufeng |  |  | 2,493,457 |  |  |  | 2,549,525 |  |  |  | 4,102,509 |  |  |  | 4,655,738 |
Yuxing |  |  | (3,796,684 | ) |  |  | 222,275 |  |  |  | (3,603,507 | ) |  |  | 397,748 |
Sales VIEs |  |  | 3,748,752 |  |  |  | 2,014,662 |  |  |  | 6,380,051 |  |  |  | 39,203 |
Reconciling item (1) |  |  | 0 |  |  |  | (2 | ) |  |  | 0 |  |  |  | 0 |
Reconciling item (2) |  |  | (342,219 | ) |  |  | (432,753 | ) |  |  | (963,984 | ) |  |  | (630,772 | )
Consolidated |  | $ | 4,274,754 |  |  | $ | 9,930,861 |  |  | $ | 15,014,607 |  |  | $ | 16,805,146 |
Net income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 1,789,640 |  |  | $ | 4,719,159 |  |  | $ | 7,689,656 |  |  | $ | 10,460,249 |
Gufeng |  |  | 1,731,121 |  |  |  | 1,727,764 |  |  |  | 2,851,465 |  |  |  | 3,216,831 |
Yuxing |  |  | (3,796,526 | ) |  |  | 222,869 |  |  |  | (3,603,348 | ) |  |  | 398,491 |
Sales VIEs |  |  | 3,136,310 |  |  |  | 1,915,799 |  |  |  | 5,556,339 |  |  |  | (239,204 | )
Reconciling item (1) |  |  | 8 |  |  |  | 2 |  |  |  | 10 |  |  |  | 3 |
Reconciling item (2) |  |  | (342,218 | ) |  |  | (432,753 | ) |  |  | (963,984 | ) |  |  | (630,772 | )
Reconciling item (3) |  |  | (12,598 | ) |  |  | (325,058 | ) |  |  | (12,598 | ) |  |  | (325,058 | )
Consolidated |  | $ | 2,505,735 |  |  | $ | 7,827,782 |  |  | $ | 11,517,540 |  |  | $ | 12,880,540 |
Depreciation and Amortization: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 194,706 |  |  | $ | 422,383 |  |  | $ | 392,964 |  |  | $ | 1,276,126 |
Gufeng |  |  | 529,305 |  |  |  | 552,299 |  |  |  | 1,065,924 |  |  |  | 1,100,057 |
Yuxing |  |  | 299,900 |  |  |  | 315,282 |  |  |  | 604,719 |  |  |  | 627,801 |
Sales VIEs |  |  | 183,777 |  |  |  | 210,482 |  |  |  | 370,583 |  |  |  | 430,405 |
Consolidated |  | $ | 1,207,689 |  |  | $ | 1,500,446 |  |  | $ | 2,434,189 |  |  | $ | 3,434,389 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 68,317 |  |  |  | 71,447 |  |  |  | 137,758 |  |  |  | 142,283 |
Gufeng |  |  | 81,384 |  |  |  | 101,645 |  |  |  | 174,506 |  |  |  | 206,368 |
Yuxing |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Sales VIEs |  |  | (123 | ) |  |  | (78,505 | ) |  |  | 0 |  |  |  | (74,489 | )
Consolidated |  | $ | 149,578 |  |  | $ | 94,587 |  |  | $ | 312,264 |  |  | $ | 274,162 |
Capital Expenditure: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 456 |  |  | $ | 808 |  |  | $ | 3,492 |  |  | $ | 4,149 |
Gufeng |  |  | 18,616 |  |  |  | 297 |  |  |  | 45,604 |  |  |  | 14,165 |
Yuxing |  |  | 6,850 |  |  |  | 4,773 |  |  |  | 8,099 |  |  |  | 4,773 |
Sales VIEs |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Consolidated |  | $ | 25,922 |  |  | $ | 5,878 |  |  | $ | 57,195 |  |  | $ | 23,086 |

16

|  | As of |
|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Identifiable assets: |  |  |  |  |  |
Jinong |  | $ | 191,790,465 |  |  | $ | 226,335,489 |
Gufeng |  |  | 198,089,974 |  |  |  | 168,572,947 |
Yuxing |  |  | 0 |  |  |  | 0 |
Sales VIEs |  |  | 75,698,359 |  |  |  | 87,567,782 |
Reconciling item (1) |  |  | 822,619 |  |  |  | 512,622 |
Reconciling item (2) |  |  | (2,879 | ) |  |  | (2,879 | )
Consolidated |  | $ | 466,398,538 |  |  | $ | 482,985,960 |

(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.

(3) | Reconciling amounts refer to the adjustment for net gain on derivative liability on convertible bonds.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

On June 29, 2018, Jinong renewed 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 four-year term effective as of July 1, 2018, with a monthly rent of $3,559 (approximately RMB 24,480).

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 $430 (RMB 2,958).

Accordingly, the Company recorded an aggregate of $23,937 and $30,020 as rent expenses from these committed property leases for the six-month periods ended December 31, 2018 and 2017, respectively. The contingent rent expenses herein for the next five twelve-month periods ended December 31 are as follows:

Years ending December 31, |  |  |
2019 |  | $ | 47,874 |
2020 |  |  | 47,874 |
2021 |  |  | 47,874 |
2022 |  |  | 47,874 |
2023 |  |  | 47,874 |

NOTE 16 – VARIABLE INTEREST ENTITIES

In accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack enough 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 most 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 and January 1, 2017, the Company, through its wholly-owned subsidiary Jinong, entered into strategic acquisition agreements and into a series of contractual agreements to qualify as VIEs with the shareholders of the sales VIE Companies.

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

17

On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, exited the VIE agreements with the shareholders of Zhenbai.

As a result of these contractual arrangements with Yuxing and the sales VIE companies, the Company is entitled to substantially all 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 and June 30, 2018:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
ASSETS |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 2,216,592 |  |  | $ | 982,312 |
Accounts receivable, net |  |  | 19,385,523 |  |  |  | 38,295,505 |
Inventories |  |  | 25,072,690 |  |  |  | 21,133,970 |
Other current assets |  |  | 703,112 |  |  |  | 988,051 |
Related party receivable |  |  | 0 |  |  |  | (359,005 |
Advances to suppliers |  |  | 4,182,891 |  |  |  | 848,458 |
Total Current Assets |  |  | 51,560,808 |  |  |  | 61,889,291 |
Plant, Property and Equipment, Net |  |  | 10,281,928 |  |  |  | 11,206,667 |
Other assets |  |  | 218,249 |  |  |  | 226,654 |
Intangible Assets, Net |  |  | 10,569,436 |  |  |  | 11,348,180 |
Goodwill |  |  | 3,204,371 |  |  |  | 3,319,732 |
Total Assets |  | $ | 75,834,792 |  |  | $ | 87,990,524 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Short-term loan |  | $ | 0 |  |  | $ | 0 |
Accounts payable |  |  | 11,903,980 |  |  |  | 25,584,614 |
Customer deposits |  |  | 618,762 |  |  |  | 841,694 |
Accrued expenses and other payables |  |  | 5,151,624 |  |  |  | 3,896,340 |
Amount due to related parties |  |  | 41,805,103 |  |  |  | 43,339,286 |
Total Current Liabilities |  | $ | 59,479,469 |  |  | $ | 73,661,934 |
Long-term Loan |  |  | 0 |  |  |  | 0 |
Total Liabilities |  | $ | 59,479,469 |  |  | $ | 73,661,934 |
Stockholders’ equity |  |  | 16,355,323 |  |  |  | 14,328,590 |
Total Liabilities and Stockholders’ Equity |  |  | 75,834,792 |  |  | $ | 87,990,524 |

|  | Three Months Ended December 31, |
|  | 2018 |  |  | 2017 |
Revenue |  | $ | 12,911,414 |  |  | $ | 13,304,643 |
Expenses |  |  | 13,571,628 |  |  |  | 10,989,225 |
Net income |  | $ | (660,214 | ) |  | $ | 2,136,994 |

|  | Six Months Ended December 31, |
|  | 2018 |  |  | 2017 |
Revenue |  | $ | 30,896,434 |  |  | $ | 31,077,318 |
Expenses |  |  | 28,943,442 |  |  |  | 25,590,542 |
Net income |  | $ | 1,952,992 |  |  | $ | 199,680 |

18

NOTE 17 – 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 Shaanxi Lishijie Agrochemical Co., Ltd., Songyuan Jinyangguang Sannong Service Co., Ltd., Shenqiu County Zhenbai Agriculture Co., Ltd., Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd., Aksu Xindeguo Agricultural Materials Co., Ltd., and Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd.

Subsequently, on January 1, 2017, Jinong entered into similar strategic acquisition agreements and a series of contractual agreements to qualify as VIEs with the shareholders of Sunwu County Xiangrong Agricultural Materials Co., Ltd., and Anhui Fengnong Seed Co., Ltd.

On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Zhenbai.

The VIE Agreements are as follows:

Entrusted Management Agreements

Pursuant to the terms of certain Entrusted Management Agreements dated June 30, 2016 and January 1, 2017, between Jinong and the shareholders of the sales VIE Companies (the “Entrusted Management Agreements”), the sales 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 sales VIE Companies’ operations, assets and personnel, has the right to control all the sales VIE Companies’ cash flows through an entrusted bank account, is entitled to the sales VIE Companies’ net profits as a management fee, is obligated to pay all the sales VIE Companies’ payables and loan payments, and bears all losses of the sales 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 sales VIE Companies; or (iii) Jinong acquires all the assets or equity of the sales 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 and January 1, 2017, between Jinong and the sales VIE companies (the “Exclusive Technology Supply Agreements”), Jinong is the exclusive technology provider to the sales VIE companies. The sales 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 sales VIE companies; or (iii) Jinong acquires the sales 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 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Shareholder’s Voting Proxy Agreements”), the shareholders of the sales 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 sales VIE companies, including the appointment and election of directors of the sales 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 the assets or equity of the sales VIE companies.

19

Exclusive Option Agreements

Pursuant to the terms of certain Exclusive Option Agreements dated June 30, 2016 and January 1, 2017, among Jinong, the sales VIE companies, and the shareholders of the sales VIE companies (the “Exclusive Option Agreements”), the shareholders of the sales VIE companies granted Jinong an irrevocable and exclusive purchase option (the “Option”) to acquire the sales 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 sales 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 sales VIE companies so long as written notice is provided. The Exclusive Option Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.

Equity Pledge Agreements

Pursuant to the terms of certain Equity Pledge Agreements dated June 30, 2016 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Pledge Agreements”), the shareholders of the sales VIE companies pledged all of their equity interests in the sales 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 and January 1, 2017, among Jinong and the shareholders of the sales VIE companies (the “Non-Compete Agreements”), the shareholders of the sales 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. If the shareholders of the sales VIE companies breach the non-compete obligations contained therein, Jinong is entitled to all loss and damages; if the damages are difficult to determine, remedies bore the shareholders of the sales 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:

For acquisitions made on June 30, 2016:

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 |
Goodwill |  |  | 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 |

20

A summary of the purchase consideration paid 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 made on June 30, 2016 was paid in July and August 2016.

For acquisitions made on January 1, 2017:

Working Capital |  | $ | 941,192 |
Machinery and equipment |  |  | 222,875 |
Intangible assets |  |  | 1440 |
Goodwill |  |  | 684,400 |
Customer Relationship |  |  | 522,028 |
Non-compete Agreement |  |  | 392,852 |
Purchase price |  | $ | 2,764,787 |

A summary of the purchase consideration paid is below:

Cash |  | $ | 1,201,888 |
Convertible notes |  |  | 1,559,350 |
Derivative liability |  |  | 3,549 |
|  | $ | 2,764,787 |

The cash component of the purchase price for these acquisitions made on January 1, 2017 was paid during March 2017.

On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Zhenbai. In return, the shareholders of Zhenbai agreed to tender the whole payment consideration in the SAA back to the Company with early termination penalties. The convertible notes paid to Zhenbai’s shareholders and the accrued interest has been forfeited.

For the discontinuation of Zhenbai made on November 30, 2017, the Company gave up the control of the following assets in Zhenbai:

Working Capital |  | $ | 1,179,352 |
Intangible assets |  |  | 896,559 |
Customer Relationship |  |  | 684,727 |
Non-compete Agreement |  |  | 211,833 |
Goodwill |  |  | 538,488 |
Total Asset |  | $ | 2,614,401 |

In return, the purchase consideration returned to the Company from Zhenbai’s shareholders is summarized below:

Cash |  | $ | 461,330 |
Interest Payable |  |  | 83,039 |
Convertible notes |  |  | 1,724,683 |
Derivative liability |  |  | 13,353 |
Total Payback |  | $ | 2,282,406 |
Net Loss |  |  | (331,995 | )

21

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 contain 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 TechTeam Jinong Humic 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 in the PRC (“VIE”) controlled by Jinong through contractual agreements; (iv) Shaanxi Lishijie Agrochemical Co., Ltd. (“Lishijie”), a VIE controlled by Jinong through contractual agreements; (v) Songyuan Jinyangguang Sannong Service Co., Ltd. (“Jinyangguang”), a VIE in the PRC controlled by Jinong through contractual agreements; (vi) Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. (“Wangtian”), a VIE controlled by Jinong through contractual agreements; (vii) Aksu Xindeguo Agricultural Materials Co., Ltd. (“Xindeguo”), a VIE controlled by Jinong through contractual agreements; (vii) Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd (“Xinyulei”), a VIE controlled by Jinong through contractual agreements; (ix) Sunwu County Xiangrong Agricultural Materials Co., Ltd. (“Xiangrong”), a VIE controlled by Jinong through contractual agreements; (x) Anhui Fengnong Seed Co., Ltd. (“Fengnong”), a VIE controlled by Jinong through contractual agreements; (xi) Beijing Gufeng Chemical Products Co., Ltd., a wholly-owned subsidiary of Jinong in the PRC (“Gufeng”); and (xii) Beijing Tianjuyuan Fertilizer Co., Ltd., Gufeng’s wholly-owned subsidiary in the PRC (“Tianjuyuan”). Yuxing, Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred to as the “the VIE Companies”; Lishijie, Jinyangguang, Wangtian, Xindeguo, Xinyulei, Xiangrong, and Fengnong may also collectively be referred to as “the sales VIEs” or “the sales 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 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, Yuxing. 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. For financial reporting purposes, our operations are organized into three business segments: fertilizer products (Jinong), fertilizer products (Gufeng) and agricultural products production (Yuxing).

The fertilizer business conducted by Jinong and Gufeng generated approximately 72.0% and 75.5% of our total revenues for the six months ended December 31, 2018 and 2017, respectively. The sales VIEs generated 23.5% and 21.6% of our revenues for the six months ended December 31, 2018 and 2017, respectively. Yuxing serves as a research and development base for our fertilizer products.

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Fertilizer Products

As of December 31, 2018, we had developed and produced a total of 726 different fertilizer products in use, of which 142 were developed and produced by Jinong, 333 by Gufeng, and 251 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 2017 to 2018 |
|  | 2018 |  |  | 2017 |  |  | Amount |  |  | % |
|  | (metric tons) |  |  |  |  |  |  |
Jinong |  |  | 17,389 |  |  |  | 13,165 |  |  |  | 4,224 |  |  |  | 32.1 | %
Gufeng |  |  | 65,351 |  |  |  | 66,237 |  |  |  | (886 | ) |  |  | -1.3 | %
|  |  | 82,740 |  |  |  | 79,402 |  |  |  | 3,338 |  |  |  | 4.2 | %

|  | Three Months Ended December 31, |
|  | 2018 |  |  | 2017 |
|  | (revenue per tons) |
Jinong |  | $ | 1,033 |  |  | $ | 2,107 |
Gufeng |  |  | 348 |  |  |  | 364 |

|  | Six Months Ended |  |  |  |  |  |  |
|  | December 31, |  |  | Change 2017 to 2018 |
|  | 2018 |  |  | 2017 |  |  | Amount |  |  | % |
|  | (metric tons) |  |  |  |  |  |  |
Jinong |  |  | 35,994 |  |  |  | 27,690 |  |  |  | 8,304 |  |  |  | 30.0 | %
Gufeng |  |  | 114,597 |  |  |  | 129,404 |  |  |  | (14,807 | ) |  |  | -11.4 | %
|  |  | 150,591 |  |  |  | 157,094 |  |  |  | (6,503 | ) |  |  | -4.1 | %

|  | Six Months Ended December 31, |
|  | 2018 |  |  | 2017 |
|  | (revenue per tons) |
Jinong |  | $ | 1,169 |  |  | $ | 2,045 |
Gufeng |  |  | 349 |  |  |  | 352 |

For the three months ended December 31, 2018, we sold approximately 82,740 metric tons of fertilizer products, as compared to 79,402 metric tons for the three months ended December 31, 2017. For the three months ended December 31, 2018, Jinong sold approximately 17,839 metric tons of fertilizer products, as compared to 13,165 metric tons for the three months ended December 31, 2017. For the three months ended December 31, 2018, Gufeng sold approximately 65,351 metric tons of fertilizer products, as compared to 66,237 metric tons for the three months ended December 31, 2017.

For the six months ended December 31, 2018, we sold approximately 150,591 metric tons of fertilizer products, as compared to 157,094 metric tons for the six months ended December 31, 2017. For the six months ended December 31, 2018, Jinong sold approximately 35,994 metric tons of fertilizer products, an increase of 8,304 metric tons, or 30.0%, as compared to 27,690 metric tons for the six months ended December 31, 2017. For the six months ended December 31, 2018, Gufeng sold approximately 114,597 metric tons of fertilizer products, a decrease of 14,807 metric tons, or 11.4% as compared to 129,404 metric tons for the six months ended December 31, 2017

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Our sales of fertilizer products to customers in five provinces within China accounted for approximately 65.0% of our fertilizer revenue for the three months ended December 31, 2018. Specifically, the provinces and their respective percentage contributing to our fertilizer revenues were Hebei (27.8%), Heilongjiang (11.5%), Liaoning (9.3%), Inner Mongolia (8.4%) and Shaanxi (8.0%).

As of December 31, 2018, we had a total of 1,984 distributors covering 22 provinces, 4 autonomous regions and 4 central-government-controlled municipalities in China. Jinong had 1,167 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 3.7% of its fertilizer revenues for the three months ended December 31, 2018. Gufeng had 319 distributors, including some large state-owned enterprises. Gufeng’s top five distributors accounted for 77.4% of its revenues for the three months ended December 31, 2018.

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 and municipalities that accounted for 82.0% of our agricultural products revenue for the three months ended December 31, 2018 were Shaanxi (73.2%), Hebei (4.7%) and Sichuan (4.2%).

Recent Developments

New Products

During the three months ended December 31, 2018, Jinong did not launch any new fertilizer products but added 5 new distributors. During the three months ended December 31, 2018, Gufeng did not launch any new fertilizer products but added 1 new distributor.

Strategic Acquisitions

On June 30, 2016 and January 1, 2017, through 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 identified below (the “Targets”).

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June 30, 2016:

|  |  |  | Cash |  |  | Principal of |
|  |  |  | Payment for |  |  | Notes for |
|  |  |  | Acquisition |  |  | Acquisition |
Company Name |  | Business Scope |  | (RMB[1]) |  |  | (RMB) |
Shaanxi Lishijie Agrochemical Co., Ltd. |  | Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches. |  |  | 10,000,000 |  |  |  | 3,000,000 |
Songyuan Jinyangguang Sannong Service Co., Ltd. |  | Promotion and consulting services regarding agricultural technologies; Retail sales of chemical fertilizers (including compound fertilizers and organic fertilizers); Wholesale and retail sales of pesticides, agricultural machinery and accessories; Collection of agricultural information; Development of saline-alkali soil; Promotion and development of high-efficiency agriculture and related information technology solutions for agriculture, agricultural and biological engineering high technologies; E-commerce; Cultivation of freshwater fish, poultry, fruits, flowers, vegetables, and seeds; Recycling and complex utilization of straw and stalk; Technology transfer and training; Recycling of agricultural materials ; Ecological industry planning. |  |  | 8,000,000 |  |  |  | 12,000,000 |
Shenqiu County Zhenbai Agriculture Co., Ltd. |  | Cultivation of crops; Storage, sales, preliminary processing and logistics distribution of agricultural by-products; Promotion and application of agricultural technologies; Purchase and sales of agricultural materials; Electronic commerce. |  |  | 3,000,000 |  |  |  | 12,000,000 |
Weinan City Linwei District Wangtian Agricultural Materials Co., Ltd. |  | Promotion and application of new agricultural technologies; Professional prevention of plant diseases and insect pests; Sales of plant protection products, plastic mulches, material, chemical fertilizers, pesticides, agricultural medicines, micronutrient fertilizers, hormones, agricultural machinery and medicines, and gardening tools. |  |  | 6,000,000 |  |  |  | 12,000,000 |
Aksu Xindeguo Agricultural Materials Co., Ltd. |  | Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers, plant growth regulators, agricultural machinery, and water economizers; Consulting services for agricultural technologies; Purchase and sales of agricultural by-products. |  |  | 10,000,000 |  |  |  | 12,000,000 |
Xinjiang Xinyulei Eco-agriculture Science and Technology Co., Ltd |  | Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, organic fertilizers, plant growth regulators, agricultural machineries, and water economizers; Purchase and sales of agricultural by-products; Cultivation of fruits and vegetables; Consulting services and training for agricultural technologies; Storage services; Sales of articles of daily use, food and oil; On-line sales of the above-mentioned products. |  |  |  |  |  |  |  |
Total |  |  |  |  | 37,000,000 |  |  |  | 51,000,000 |

(1) | The exchange rate between RMB and U.S. dollars on June 30, 2016 is RMB1=US$0.1508, according to the exchange rate published by Bank of China.
(2) | On November 30, 2017, the Company, through its wholly-owned subsidiary Jinong, discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of Zhenbai. In return, the shareholders of Zhenbai agreed to tender the whole payment consideration in the SAA back to the Company with early termination penalties. The convertible notes paid to Zhenbai’s shareholders and the accrued interest has been forfeited.

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January 1, 2017:

|  |  |  | Cash |  |  | Principal of |
|  |  |  | Payment for |  |  | Notes for |
|  |  |  | Acquisition |  |  | Acquisition |
Company Name |  | Business Scope |  | (RMB[1]) |  |  | (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) | 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 retaining possession of the equity interests and continuing 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 aggregate amount of RMB45,000,000 (approximately $6,731,600) to be paid by Jinong within three days following the execution of the SAA, ACN and the VIE Agreements, and convertible notes with an aggregate face value of RMB 63,000,000 (approximately $9,418,800) with an annual fixed compound interest rate of 3% and term of three years.

Jinong acquired the Targets using the VIE arrangement based on our need to further develop our business and comply with the regulatory requirements under the PRC laws.

As our business focuses on the production of fertilizer, all our business activities intertwine with those in the agriculture industry in China. Specifically, we deal with compliance, regulation, safety, inspection, and licenses in fertilizer production, farmland use and transfer, growing and distribution of agriculture goods, agriculture basic supplies, seeds, pesticides, and trades of grains. It is an industry in which heavy regulations get implemented and strictly enforced. In addition, E-commerce, which is also under strict government regulation in the PRC, has lately become a sales and distribution channel for agricultural products. Currently, we are developing an online platform to connect the physical distribution network we either own or lease.

Compared with the regulatory environment in other jurisdictions, the regulatory environment in the PRC is unique. For example, the “M&A Rules” purports to require that an offshore special purpose vehicle controlled directly or indirectly by PRC companies or individuals and formed for purposes of overseas listing through acquisition of PRC domestic interests held by such PRC companies or individuals obtain the approval of the China Securities Regulatory Commission (the “CSRC”) prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures regarding its approval of overseas listings by special purpose vehicles.

For both e-commerce and agriculture industries, PRC regulators limit the investment from foreign entities and set rules for foreign-owned entities to conduct business. We expect these limitations on foreign-owned entities will continue to exist in e-commerce and agriculture industries. The VIE arrangement, however, provides feasibility for obtaining administrative approval process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity. The VIE agreements reduce uncertainty and the current limitation risk. It is our understanding that the VIE agreements, as well as the control we obtained through VIE arrangement, are valid and enforceable. Such a legal structure does not violate the known, published, and current PRC laws. While there are substantial uncertainties regarding the interpretation and application of PRC Laws and future PRC laws and regulations, and there can be no assurance that the PRC authorities will take a view that is not contrary to or otherwise different from our belief and understanding stated above, we believe the substantial difficulty that we experienced previously to conduct business in agriculture as a foreign ownership can be greatly reduced by the VIE arrangement. Further, as an integral part of the VIE arrangement, the underlying equity pledge agreements provide legal protection for the control we obtained. Pursuant to the equity pledge agreements, we have completed the equity pledge processes with the Targets to ensure the complete control of the interests in the Targets. The shareholders of the Targets are not entitled to transfer any shares to a third party under the exclusive option agreements. If necessary, they may transfer shares to our company without consideration.

While the VIE arrangement provides us with the feasibility to conduct our business in the E-Commerce and agriculture industries, validity and enforceability of VIE arrangement is subject to (i) any applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws affecting creditors’ rights generally, (ii) possible judicial or administrative actions or any PRC Laws affecting creditors’ rights, (iii) certain equitable, legal or statutory principles affecting the validity and enforceability of contractual rights generally under concepts of public interest, interests of the State, national security, reasonableness, good faith and fair dealing, and applicable statutes of limitation; (iv) any circumstance in connection with formulation, execution or implementation of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercive at the conclusions thereof; and (v) judicial discretion with respect to the availability of indemnifications, remedies or defenses, the calculation of damages, the entitlement to attorney’s fees and other costs, and the waiver of immunity from jurisdiction of any court or from legal process. Validity and enforceability of VIE arrangement are also subject to risk derived from the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC. As a result, there can no assurance that any of such PRC Laws will not be changed, amended or replaced in the immediate future or in the longer term with or without retrospective effect.

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Results of Operations

Three Months ended December 31, 2018 Compared to the Three Months ended December 31, 2017.

|  | 2018 |  |  | 2017 |  |  | Change $ |  |  | Change % |
Sales |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 16,987,360 |  |  | $ | 26,211,280 |  |  |  | (9,223,920 | ) |  |  | -35.2 | %
Gufeng |  |  | 22,355,690 |  |  |  | 24,447,721 |  |  |  | (2,092,031 | ) |  |  | -8.6 | %
Yuxing |  |  | 2,623,493 |  |  |  | 1,953,748 |  |  |  | 669,745 |  |  |  | 34.3 | %
VIEs - others |  |  | 10,287,920 |  |  |  | 10,986,576 |  |  |  | (698,656 | ) |  |  | -6.4 | %
Net sales |  |  | 52,254,463 |  |  |  | 63,599,325 |  |  |  | (11,344,862 | ) |  |  | -17.8 | %
Cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 8,994,882 |  |  |  | 13,265,827 |  |  |  | (4,270,945 | ) |  |  | -32.2 | %
Gufeng |  |  | 19,764,817 |  |  |  | 21,160,024 |  |  |  | (1,395,207 | ) |  |  | -6.6 | %
Yuxing |  |  | 2,166,566 |  |  |  | 1,536,238 |  |  |  | 630,328 |  |  |  | 41.0 | %
VIEs - others |  |  | 9,083,973 |  |  |  | 9,135,024 |  |  |  | (51,051 | ) |  |  | -0.6 | %
Cost of goods sold |  |  | 40,010,238 |  |  |  | 45,097,113 |  |  |  | (5,086,875 | ) |  |  | -11.3 | %
Gross profit |  |  | 12,244,225 |  |  |  | 18,502,212 |  |  |  | (6,257,987 | ) |  |  | -33.8 | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 8,069,103 |  |  |  | 7,668,468 |  |  |  | 400,635 |  |  |  | 5.2 | %
General and administrative expenses |  |  | (99,632 | ) |  |  | 902,883 |  |  |  | (1,002,515 | ) |  |  | -111.0 | %
Total operating expenses |  |  | 7,969,471 |  |  |  | 8,571,351 |  |  |  | (601,880 | ) |  |  | -7.0 | %
Income from operations |  |  | 4,274,754 |  |  |  | 9,930,861 |  |  |  | (5,656,107 | ) |  |  | -57.0 | %
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (187,753 | ) |  |  | (276,836 | ) |  |  | 89,083 |  |  |  | -32.2 | %
Discontinued VIE operation - Zhenbai |  |  | 0 |  |  |  | (330,966 | ) |  |  | 330,966 |  |  |  | -100.0 | %
Interest income |  |  | 95,957 |  |  |  | 130,248 |  |  |  | (34,291 | ) |  |  | -26.3 | %
Interest expense |  |  | (149,578 | ) |  |  | (94,587 | ) |  |  | (54,991 | ) |  |  | 58.1 | %
Total other income (expense) |  |  | (241,374 | ) |  |  | (572,141 | ) |  |  | 330,767 |  |  |  | -57.8 | %
Income before income taxes |  |  | 4,033,380 |  |  |  | 9,358,720 |  |  |  | (5,325,340 | ) |  |  | -56.9 | %
Provision for income taxes |  |  | 1,527,645 |  |  |  | 1,530,938 |  |  |  | (3,293 | ) |  |  | -0.2 | %
Net income from continuing operations |  |  | 2,505,735 |  |  |  | 7,827,782 |  |  |  | (5,322,047 | ) |  |  | -68.0 | %
Net income from discontinued operation, net of tax |  |  | 0 |  |  |  | (1,676 | ) |  |  | 1,676 |  |  |  | -100.0 | %
Net income |  |  | 2,505,735 |  |  |  | 7,826,106 |  |  |  | (5,320,372 | ) |  |  | -68.0 | %
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (472,069 | ) |  |  | 8,256,738 |  |  |  | (8,728,807 | ) |  |  | -105.7 | %
Comprehensive income (loss) |  | $ | 2,0033,666 |  |  | $ | 16,082,844 |  |  | $ | (14,049,179 | ) |  |  | -87.4 | %
Basic weighted average shares outstanding |  |  | 39,546,945 |  |  |  | 38,551,264 |  |  |  | 995,681 |  |  |  | 2.6 | %
Basic net earnings per share from continuing operations |  |  | 0.06 |  |  |  | 0.20 |  |  |  | -0.14 |  |  |  | -68.6 | %
Basic net earnings per share from discontinued operations |  |  | - |  |  |  | -0.00 |  |  |  | 0.00 |  |  |  | -100.0 | %
Diluted weighted average shares outstanding |  |  | 39,546,945 |  |  |  | 38,551,264 |  |  |  | 995,681 |  |  |  | 2.6 | %
Diluted net earnings per share from continuing operations |  |  | 0.06 |  |  |  | 0.20 |  |  |  | -0.14 |  |  |  | -68.6 | %
Diluted net earnings per share from discontinued operations |  |  | - |  |  |  | -0.00 |  |  |  | 0.00 |  |  |  | -100.0 | %

27

Net Sales

Total net sales for the three months ended December 31, 2018 were $52,254,463, a decrease of $11,344,862 or 17.8%, from $63,599,325 for the three months ended December 31, 2017. This decrease was primarily due to a decrease in Jinong’s and Gufeng’s net sales.

For the three months ended December 31, 2018, Jinong’s net sales decreased $9,223,920, or 35.2%, to $16,987,360 from $ 26,211,280 for the three months ended December 31, 2017. This decrease was mainly attributable to the decrease in Jinong’s sales price in the last three months.

For the three months ended December 31, 2018, Gufeng’s net sales were $22,355,690, a decrease of $2,092,031, or 8.6% from $ 24,447,721 for the three months ended December 31, 2017. This decrease was mainly attributable to the decrease in Gufeng’s sales price in the last three months.

For the three months ended December 31, 2018, Yuxing’s net sales were $2,623,493, an increase of $669,745 or 34.3%, from $1,953,748 for the three months ended December 31, 2017. The increase was mainly attributable to the increase in market demand and the higher prices on Yuxing’s top-grade flowers during the three months ended December 31, 2018.

Cost of Goods Sold

Total cost of goods sold for the three months ended December 31, 2018 was $ 40,010,238, a decrease of $5,086,875, or 11.3%, from $45,097,113 for the three months ended December 31, 2017. The decrease was mainly due to the decrease in Jinong’s and Gufeng’s cost of goods sold which decreased 32.2% and 6.6% respectively.

Cost of goods sold by Jinong for the three months ended December 31, 2018 was $ 8,994,882, a decrease of $4,270,945, or 32.2%, from $13,112,756 for the three months ended December 31, 2017. The decrease in cost of goods was primarily attributable to the 35.2% decrease in net sale during the last three months.

Cost of goods sold by Gufeng for the three months ended December 31, 2018 was $ 19,764,817, a decrease of $1,395,207, or 6.6%, from $21,160,024 for the three months ended December 31, 2017. This decrease was primarily attributable to the 8.6% decrease in net sale during the last three months.

For three months ended December 31, 2018, cost of goods sold by Yuxing was $2,166,566, an increase of $630,328, or 41.0%, from $1,536,238 for the three months ended December 31, 2017. This increase was mainly due to the increase in Yuxing’s net sales during the last three months.

Gross Profit

Total gross profit for the three months ended December 31, 2018 decreased by $6,257,987, or 33.8%, to $12,244,225 as compared to $18,502,212 for the three months ended December 31, 2017. Gross profit margin was 23.4% and 29.1% for the three months ended December 31, 2018 and 2017, respectively.

Gross profit generated by Jinong decreased by $4,952,975, or 38.3%, to $7,992,478 for the three months ended December 31, 2018 from $12,945,453 for the three months ended December 31, 2017. Gross profit margin from Jinong’s sales was approximately 47.0% and 49.4% for the three months ended December 31, 2018 and 2017, respectively. The decrease in gross profit margin was mainly due to the lower sales prices.

For the three months ended December 31, 2018, gross profit generated by Gufeng was $2,590,873, a decrease of $696,824, or 21.2%, from $3,287,697 for the three months ended December 31, 2017. Gross profit margin from Gufeng’s sales was approximately 11.6% and 13.4% for the three months ended December 31, 2018 and 2017, respectively. The decrease in gross profit was mainly due to the increase in product costs and the decrease in sales prices.

For the three months ended December 31, 2018, gross profit generated by Yuxing was $456,927, an increase of $39,417, or 9.4% from $417,510 for the three months ended December 31, 2017. The gross profit margin was approximately 17.4% and 21.4% for the three months ended December 31, 2018 and 2017, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs and the decrease in sales prices.

Gross profit generated by VIEs decreased by $647,605, or 35.0%, to $1,203,947 for the three months ended December 31, 2018 from $1,851,552 for the three months ended December 31, 2017. Gross profit margin from VIE’s sales was approximately 11.7% and 16.9% for the three months ended December 31, 2018 and 2017, respectively. The decrease in gross profit percentage was mainly due to the increase in product costs.

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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 $8,069,103, or 15.4%, of net sales for the three months ended December 31, 2018, as compared to $7,668,468, or 12.1% of net sales for the three months ended December 31, 2017, an increase of $400,635, or 5.2%.

The selling expenses of Jinong for the three months ended December 31, 2018 were $6,986,819 or 41.1% of Jinong’s net sales, as compared to selling expenses of $7,172,773 or 27.4% of Jinong’s net sales for the three months ended December 31, 2017. The selling expenses of Yuxing were $10,444 or 0.4% of Yuxing’s net sales for the three months ended December 31, 2018, as compared to $10,498 or 0.5% of Yuxing’s net sales for the three months ended December 31, 2017. The selling expenses of Gufeng were $160,863 or 0.7% of Gufeng’s net sales for the three months ended December 31, 2018, as compared to $ 189,945 or 0.1% of Gufeng’s net sales for the three months ended December 31, 2017.

Selling Expenses – amortization of deferred assets

Our selling expenses - amortization of our deferred assets were 0 for the three months ended December 31, 2018 and 2017. All the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets for the fiscal year ended December 31, 2018 and 2017.

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 litigation. General and administrative expenses were $(99,632), or -0.2% of net sales for the three months ended December 31, 2018, as compared to $902,883, or 1.4% of net sales for the three months ended December 31, 2017, a decrease of $1,002,515, or 111.0%. The decrease was mainly due to the adjustment for bad debt expense 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. Total other expense for the three months ended December 31, 2018 was $241,374, as compared to $572,155 for the three months ended December 31, 2017, a decrease in expense of $330,767, or 57.8%. The decrease in total other expense mainly resulted from a decrease in bank charges and accretion expenses.

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 $315,818 for the three months ended December 31, 2018, as compared to $828,989 for the three months ended December 31, 2017, a decrease of $513,171, or 61.9%.

Gufeng is subject to a tax rate of 25%, incurred income tax expenses of $598,173 for the three months ended December 31, 2018, as compared to $594,794 for the three months ended December 31, 2017, a slight increase of $3,379.

Yuxing has no income tax for the three months ended December 31, 2018 and 2017 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.

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Net Income

Net income for the three months ended December 31, 2018 was $2,505,735, a decrease of $5,322,047, or 68.0%, compared to $7,827,782 for the three months ended December 31, 2017. Net income as a percentage of total net sales was approximately 4.8% and 12.3% for the three months ended December 31, 2018 and 2017, respectively.

Six Months ended December 31, 2018 Compared to the Six Months ended December 31, 2017.

|  | Six Months Ended December 31, |  |  |  |  |  |  |
|  | 2018 |  |  | 2017 |  |  | Change $ |  |  | Change % |
Sales |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  | $ | 39,483,893 |  |  | $ | 52,985,040 |  |  |  | (13,501,147 | ) |  |  | -25.5 | %
Gufeng |  |  | 39,828,941 |  |  |  | 42,669,787 |  |  |  | (2,840,846 | ) |  |  | -6.7 | %
Yuxing |  |  | 5,011,039 |  |  |  | 3,746,391 |  |  |  | 1,264,648 |  |  |  | 33.8 | %
VIEs - others |  |  | 25,885,396 |  |  |  | 26,326,758 |  |  |  | (441,362 | ) |  |  | -1.7 | %
Net sales |  |  | 110,209,269 |  |  |  | 125,727,976 |  |  |  | (15,518,707 | ) |  |  | -12.3 | %
Cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Jinong |  |  | 20,198,054 |  |  |  | 26,378,583 |  |  |  | (6,180,529 | ) |  |  | -23.4 | %
Gufeng |  |  | 35,069,680 |  |  |  | 37,146,453 |  |  |  | (2,076,773 | ) |  |  | -5.6 | %
Yuxing |  |  | 4,213,729 |  |  |  | 2,928,791 |  |  |  | 1,284,938 |  |  |  | 43.9 | %
VIEs - others |  |  | 22,013,941 |  |  |  | 21,828,653 |  |  |  | 185,288 |  |  |  | 0.8 | %
Cost of goods sold |  |  | 81,495,404 |  |  |  | 88,282,480 |  |  |  | (6,787,076 | ) |  |  | -7.7 | %
Gross profit |  |  | 28,713,865 |  |  |  | 37,445,496 |  |  |  | (8,731,631 | ) |  |  | -23.3 | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 11,489,530 |  |  |  | 12,822,665 |  |  |  | (1,333,135 | ) |  |  | -10.4 | %
General and administrative expenses |  |  | 2,209,728 |  |  |  | 7,817,685 |  |  |  | (5,607,957 | ) |  |  | -71.7 | %
Total operating expenses |  |  | 13,699,258 |  |  |  | 20,640,350 |  |  |  | (6,941,092 | ) |  |  | -33.6 | %
Income from operations |  |  | 15,014,607 |  |  |  | 16,805,146 |  |  |  | (1,790,539 | ) |  |  | -10.7 | %
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (226,083 | ) |  |  | (284,047 | ) |  |  | 57,964 |  |  |  | -20.4 | %
Discontinued VIE operation - Zhenbai |  |  | 0 |  |  |  | (330,966 | ) |  |  | 330,966 |  |  |  | -100.0 | %
Interest income |  |  | 223,341 |  |  |  | 218,162 |  |  |  | 5,178 |  |  |  | 2.4 | %
Interest expense |  |  | (312,264 | ) |  |  | (274,162 | ) |  |  | (38,102 | ) |  |  | 13.9 | %
Total other income (expense) |  |  | (315,006 | ) |  |  | (671,013 | ) |  |  | 356,006 |  |  |  | -53.1 | %
Income before income taxes |  |  | 14,699,061 |  |  |  | 16,134,133 |  |  |  | (1,434,532 | ) |  |  | -8.9 | %
Provision for income taxes |  |  | 3,182,061 |  |  |  | 3,253,593 |  |  |  | (71,532 | ) |  |  | -2.2 | %
Net income from continuing operations |  |  | 11,517,540 |  |  |  | 12,880,540 |  |  |  | (1,363,000 | ) |  |  | -10.6 | %
Net income from discontinued operation, net of tax |  |  | 0 |  |  |  | 40,394 |  |  |  | (40,394 | ) |  |  | -100.0 | %
Net income |  |  | 11,517,540 |  |  |  | 12,920,934 |  |  |  | (1,403,394 | ) |  |  | -10.9 | %
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (16,459,861 | ) |  |  | 8,496,956 |  |  |  | (24,956,817 | ) |  |  | -293.7 | %
Comprehensive income (loss) |  | $ | (4,942,321 | ) |  | $ | 21,417,890 |  |  |  | (26,360,211 | ) |  |  | -123.1 | %
Basic weighted average shares outstanding |  |  | 39,546,945 |  |  |  | 38,551,264 |  |  |  | 995,681 |  |  |  | 2.6 | %
Basic net earnings per share from continuing operations |  |  | 0.29 |  |  |  | 0.33 |  |  |  | -0.04 |  |  |  | -12.7 | %
Basic net earnings per share from discontinued operations |  |  | - |  |  |  | 0.00 |  |  |  | -0.00 |  |  |  | -100.0 | %
Diluted weighted average shares outstanding |  |  | 39,546,945 |  |  |  | 38,185,277 |  |  |  | 1,361,668 |  |  |  | 3.6 | %
Diluted net earnings per share from continuing operations |  |  | 0.29 |  |  |  | 0.34 |  |  |  | -0.05 |  |  |  | -14.2 | %
Diluted net earnings per share from discontinued operations |  |  | - |  |  |  | 0.00 |  |  |  | -0.00 |  |  |  | -100.0 | %

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Net Sales

Total net sales for the six months ended December 31, 2018 were $110,209,269, a decrease of $15,518,707, or 12.3%, from $125,727,976 for the six months ended December 31, 2017.This decrease was largely due to the decrease of Jinong’s net sales during the six months ended December 31, 2018. The Jinong’s net sales for the six months ended December 31, 2018 were $39,483,893, a decrease of $13,501,147, or 25.5% from the same period a year ago.

For the six months ended December 31, 2018, Jinong’s net sales decreased of $13,501,147, or 25.5%, to $39,483,893 from $52,985,040 for the six months ended December 31, 2017. This decrease was mainly due to the decrease in Jinong’s sales price.

For the six months ended December 31, 2018, Gufeng’s net sales were $39,828,941, a decrease of $2,840,846 or 6.7% from $42,669,787 for the six months ended December 31, 2017. This decrease was mainly due to the decrease in Gufeng’s sales volume, which was the result of the decrease in market demand during the six months ended December 31, 2017.

For the six months ended December 31, 2018, Yuxing’s net sales were $5,011,039, an increase of $1,264,648 or 33.8%, from $3,746,391 during the six months ended December 31, 2017. The increase was mainly attributable to the increase in market demand.

For the six months ended December 31, 2018, VIEs’ net sales were $ 25,885,396, a decrease of $441,362 or 1.7% from $ 26,326,758 for the six months ended December 31, 2017. This decrease was mainly due to the discontinue of Zhenbai on November 30, 2017.

Cost of Goods Sold

Total cost of goods sold for the six months ended December 31, 2018 was $81,495,404, a decrease of $6,787,076 or 7.7%, from $88,282,480 for the six months ended December 31, 2017. This decrease was mainly due to the decrease of Jinong and Gufeng’s cost of goods sold.

Cost of goods sold by Jinong for the six months ended December 31, 2018 was $20,198,504, a decrease of $6,180,529, or 23.4%, from $26,378,583 for the six months ended December 31, 2017. The decrease was primarily due to the decrease in net sales during the last six months.

Cost of goods sold by Gufeng for the six months ended December 31, 2018 was $35,069,680 a decrease of $2,076,773, or 5.6%, from $37,146,453 for the six months ended December 31, 2017. This decrease was primarily due to the decrease in net sales during the last six months.

For the six months ended December 31, 2018, cost of goods sold by Yuxing was $4,213,729, an increase of $1,284,938, or 43.9%, from $2,928,791 for the six months ended December 31, 2017. This increase was mainly attributable to the increase in Yuxing’s net sales.

Cost of goods sold by VIEs for the six months ended December 31, 2018 was $21,828,653, a decrease of $185,288, or 0.8%, from $ 22,661,751 for the six months ended December 31, 2017. This decrease was primarily due to the decrease in net sales during the last six months.

Gross Profit

Total gross profit for the six months ended December 31, 2018 decreased by $8,731,631 to $28,713,865, as compared to $37,445,496 for the six months ended December 31, 2017. Gross profit margin was 26.1% and 29.8% for the six months ended December 31, 2018 and 2017, respectively.

Gross profit generated by Jinong decreased by $ 7,320,618, or 27.5%, to $19,285,839 for the six months ended December 31, 2018 from $26,606,457 for the six months ended December 31, 2017. Gross profit margin from Jinong’s sales was approximately 48.8% and 50.2% for the six months ended December 31, 2018 and 2017, respectively. The decrease in gross profit margin was mainly due to the lower sales price.

For the six months ended December 31, 2018, gross profit generated by Gufeng was $4,759,261, a decrease of $764,073, or 13.8%, from $5,523,334 for the six months ended December 31, 2017. Gross profit margin from Gufeng’s sales was approximately 11.9% and 12.9% for the six months ended December 31, 2018 and 2017, 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, 2018, gross profit generated by Yuxing was $797,310, a slight decrease of $20,290, or 2.5% from $817,600 for the six months ended December 31, 2017. The gross profit margin was approximately 15.9% and 21.8% for the six months ended December 31, 2018 and 2017, respectively. The decrease in gross profit margin was mainly due to the higher material cost.

For the six months ended December 31, 2018, gross profits generated by VIEs were $3,871,455, a decrease of $626,650, or 13.9%, from $4,498,105 for the six months ended December 31, 2017. Gross profit margin from VIEs’ sales was approximately 15.0% and 17.1% for the six months ended December 31, 2018 and 2017, respectively. The decrease in gross profit percentage was mainly due to higher raw material cost.

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 $11,489,530, or 10.4%, of net sales for the six months ended December 31, 2018, as compared to $12,822,665 or 10.2% of net sales for the six months ended December 31, 2017, a decrease of $ 1,333,135, or 10.4%. This decrease was primarily due to Jinong. The selling expenses of Jinong for the six months ended December 31, 2018 were $ 10,058,050 or 25.5% of Jinong’s net sales, as compared to selling expenses of $12,015,951 or 22.7% of Jinong’s net sales for the six months ended December 31, 2017. The decrease in Jinong’s selling expenses was due to Jinong’s expanded marketing efforts and the increase in shipping costs. The selling expenses of Yuxing were $ 28,173 or 0.6% of Yuxing’s net sales for the six months ended December 31, 2018, as compared to $20,144, or 0.5% of Yuxing’s net sales for the six months ended December 31, 2017. The selling expenses of Gufeng were $ 237,627 or 0.6% of Gufeng’s net sales for the six months ended December 31, 2018, as compared to $285,721 or 0.7% of Gufeng’s net sales for the six months ended December 31, 2017. The selling expenses of VIEs were $ 1,165,679, or 4.5%, of VIEs’ net sales or the six months ended December 31, 2018, as compared to $500,849, or 19% of VIEs’ net sales for the six months ended December 31, 2017.

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 litigation. General and administrative expenses were $2,209,728, or 2.0% of net sales for the six months ended December 31, 2018, as compared to $7,817,685, or 6.2%, of net sales for the six months ended December 31, 2016, a decrease of $5,607,957, or 71.7%. The decrease was mainly due to the adjustment for bad debt expense during the last six 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, 2018 was $315,006, as compared to $671,013 for the six months ended December 31, 2017, a decrease of $356,006, or 53.1%. The decrease in total other expense mainly resulted from the decrease in bank charges and accretion expenses.

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 $ 1,356,998 for the six months ended December 31, 2018, as compared to $1,842,123for the six months ended December 31, 2016, a decrease of $485,125, or 26.3%.

Gufeng, subject to a tax rate of 25%, incurred income tax expenses of $993,428 for the six months ended December 31, 2018, as compared to $1,106,590 for the six months ended December 31, 2017, a decrease of $113,162, or 10.2%. The decrease is mainly due to the decrease in net sales for Gufeng for the six months ended December 31, 2018 comparing to the same period of last year.

Yuxing has no income tax for the six months ended December 31, 2017, 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, 2018 was $11,517,5408, a decrease of $1,363,000, or 10.6%, compared to $12,880,540 for the six months ended December 31, 2017. Net income as a percentage of total net sales was approximately 10.5% and 10.2 % for the six months ended December 31, 2018 and 2017, respectively.

Discussion of Segment Profitability Measures

As of December 31, 2018, we were engaged in the following businesses: the production and sale of fertilizers through Jinong and Gufeng, the production and sale of high-quality agricultural products by Yuxing, and the sales of agriculture materials by the sales VIEs. For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual budget about development, production, and sales.

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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 decreased by $2,770,593, or 26.5% to $7,689,656 for six months ended December 31, 2018, from $10,460,249 for the six months ended December 31, 2017. The decrease was principally due to decreased in the next sales.

For Gufeng, the net income decreased by $625,827 or 18.0% to $ 2,851,465 for six months ended December 31, 2018 from $ 3,477,292 for six months ended December 31, 2017. The decrease was principally due to the decrease in net sales.

For Yuxing, the net income decreased $4,001,839 or 1004.2% to $(3,603,348) for six months ended December 31, 2018 from $ 398,491 for six months ended December 31, 2017. The decrease was mainly due to the increase in general and administrative expenses caused by bacterial infection.

For the sales VIEs, the net income was $ 1,952,993 for period ended December 31, 2018, increased by $ 1,793,707 or 1126.1%, from $159,286 for six months ended December 31, 2017. The increase was mainly due to the decrease in general and administrative expenses for the sales VIEs.

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, 2018, cash and cash equivalents were $117,546,683, a decrease of $33,258,955, or 22.1%, from $150,805,639 as of June 30, 2018.

We intend to use some of the remaining net proceeds from the Public Offerings, as well as other working capital if required, 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. Yuxing purchased a set of agricultural products testing equipment for the year of 2016. 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.

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

|  | Six Months Ended |
|  | December 31, |
|  | 2018 |  |  | 2017 |
Net cash provided by (used in) continued operating activities |  | $ | (27,443,062 | ) |  | $ | 21,559,636 |
Net cash provided by (used in) discontinued operation |  |  | 0 |  |  |  | (1,024,276 | )
Net cash provided by (used in) operating activities |  |  | (27,443,062 | ) |  |  | 20,535,360 |
Net cash provided by used in investing activities |  |  | (41,067 | ) |  |  | (23,086 | )
Net cash provided by (used in) financing activities |  |  | 219,722 |  |  |  | (1,330,290 | )
Effect of the exchange rate change on cash and cash equivalents |  |  | (5,994,548 | ) |  |  | 3,184,627 |
Net increase in cash and cash equivalents |  |  | (33,258,955 | ) |  |  | 22,366,611 |
Cash and cash equivalents, beginning balance |  |  | 150,805,639 |  |  |  | 123,050,548 |
Cash and cash equivalents, ending balance |  | $ | 117,546,683 |  |  | $ | 145,417,159 |

Operating Activities

Net cash used in operating activities was $27,443,062 for the six months ended December 31, 2018, a decrease of $49,002,698, or 227.3% from cash provided by operating activities of $21,559,636 for the six months ended December 31, 2017. The decrease was mainly attributable to a decrease in accounts payable, an increase in advances to suppliers and an increase in inventories during the six months ended December 31, 2018, as compared to the same period in 2017.

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Investing Activities

Net cash used in investing activities for the six months ended December 31, 2018 was $41,067, compared to cash used in investing activities of $23,086 for the six months ended December 31, 2017. The difference was due to Company purchased more plant, property, and equipment during the last six months compared to the same period last year.

Financing Activities

Net cash provided by financing activities for the six months ended December 31, 2018 was $219,722, compared to $1,330,290 net cash used in financing activities for the six months ended December 31, 2017, which was largely due to $364,300 in repayment of loans for the six months ended December 31, 2018, compared to $1,678,603 in the same period last year.

As of December 31, and June 30, 2018, our loans payable was as follows:

|  | December 31, |  |  | June 30, |
|  | 2018 |  |  | 2018 |
Short term loans payable: |  | $ | 4,362,000 |  |  | $ | 4,726,300 |
Total |  | $ | 4,362,000 |  |  | $ | 4,726,300 |

Accounts Receivable

We had accounts receivable of $120,505,844 as of December 31, 2018, as compared to $174,460,937 as of June 30, 2018, a decrease of $53,955,093 or 30.9%. The decrease was primarily attributable to Gufeng’s accounts receivable. As of December 31, 2018, Gufeng’s accounts receivable was $67,377,111, a decrease of $34,736,205 or 34.0% compared to $102,113,316 as of June 30, 2018.

Allowance for doubtful accounts in accounts receivable for the six months ended December 31, 2018 was $17,699,871, from $24,551,796 as of June 30, 2018. And the allowance for doubtful accounts as a percentage of accounts receivable was 12.8% as of December 31, 2018 and 12.3% as of June 30, 2018.

Deferred assets

We had no deferred assets as of December 31, 2018, as compared to $213,289 as of June 30, 2018. During the six months, we assisted the distributors in certain marketing efforts and developing standard stores 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 if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the contractual terms, the unamortized portion of the amount owed by the distributor is payable to us immediately. The deferred assets had been fully amortized as of December 31, 2018.

Inventories

We had inventories of $115,013,591 as of December 31, 2018, as compared to $53,784,814 as of June 30, 2018, an increase of $61,228,777, or 113.8%. The increase was primarily attributable to Gufeng’s inventory. As of December 31, 2018, Gufeng’s inventory was $86,710,252, compared to $31,617,519 as of June 30, 2018, an increase of $55,092,733, or 174.2%.

Advances to Suppliers

We had advanced to suppliers of $40,777,894 as of December 31, 2018, as compared to $25,194,463 as of June 30, 2018, representing an increase of $15,583,431 or 61.9%. Our inventory level may fluctuate from time to time, depending on how quickly the raw material is consumed and replenished during the production process, and how soon the finished goods are sold. The replenishment of raw material relies on management’s estimate of numerous factors, including but not limited to, the raw materials future price, and spot price along with its volatility, as well as the seasonal demand and future price of finished fertilizer products. Such an estimate may not be accurate, and the purchase decision of raw materials based on the estimate can cause excessive inventories in times of slow sales and insufficient inventories in peak times.

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Accounts Payable

We had accounts payable of $13,312,634 as of December 31, 2018 as compared to $27,128,921 as of June 30, 2018, representing a decrease of $13,816,287, or 50.9%. The decrease was primarily due to the decrease in accounts payable for VIEs. They have accounts payable of $11,708,448 as of December 31, 2018 as compared to $25,398,118 as of June 30, 2018, representing a decrease of $13,689,670, or 53.9%.

Unearned Revenue (Customer Deposits)

We had customer deposits of $6,862,214 as of December 31, 2018, as compared to $7,251,967 as of June 30, 2018, representing a decrease of $389,753, or 5.4%. The decrease was mainly attributable to Gufeng’s $4,727,964 unearned revenue as of December 31, 2018, compared to $5,149,905 unearned revenue as of June 30, 2018, decreased 421,941 or 8.2%, caused by the advance deposits made by clients. This decrease was due to seasonal fluctuation and we expect to deliver products to our customers during the next three months at which time we will recognize the revenue.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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 the 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 the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Our revenue consists of the 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 the 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 creditworthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Any accounts receivable of Jinong and Gufeng that are outstanding for more than 180 days will be accounted as an allowance for bad debts, and any accounts receivable of Yuxing that are outstanding for more than 90 days will be accounted as an allowance for bad debts.

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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 if the distributors are actively selling our products. If a distributor defaults, breaches, or terminates the agreement with us earlier than the realization of the contractual terms, the unamortized portion of the amount owed by the distributor is to be refunded to us immediately. The deferred assets had been fully amortized as of December 31, 2018.

Segment reporting

FASB ASC 280 requires the 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 way management disaggregates a company.

As of December 31, 2018, we were organized into ten main business units: Jinong (fertilizer production), Gufeng (fertilizer production), Yuxing (agricultural products production), Lishijie (agriculture sales), Jinyangguang (agriculture sales), Wangtian (agriculture sales), Xindeguo (agriculture sales), Xinyulei (agriculture sales), Fengnong (agriculture sales) and Xiangrong (agriculture sales). For financial reporting purpose, our operations were organized into four main business segments based on locations and products: Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production) and the sales VIEs. Each of the segments has its own annual budget regarding development, production, and sales.

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 our revenues and expenses are denominated in RMB. However, we use the 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 the U.S. dollar. Except for U.S. holding companies, all 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 the U.S. dollars and RMB. If RMB depreciates against the 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, 2018, our accumulated other comprehensive loss was $20.1 million. We have not entered into any hedging transactions to reduce our exposure to foreign exchange risk. The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in PRC’s political and economic conditions. Between July 1 and December 31, 2018, China’s currency dropped by a cumulative 3.8% against the U.S. dollar, making Chinese exports cheaper and imports into China more expensive by that percentage. The effect on trade can be substantial. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the 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 our outstanding debt instruments carry fixed rates of interest. The amount of short-term debt outstanding as of December 31 and June 30, 2018 was $4.4 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 was no material change in interest rates for short-term bank loans renewed during the three months ended December 31, 2018. The original loan term on average is one year, and the remaining average life of the short term-loans is approximately six months.

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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 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.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), at the conclusion of the period ended December 31, 2018 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, 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 Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this 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 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 Chief Executive Officer and Chief Financial Officer, 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, 2018 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There are no other actions, suits, proceedings, inquiries or investigations 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, 2018, 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, 2019 | By: | /s/ Zhuoyu “Richard” Li
| Name: | Zhuoyu “Richard” Li
| Title: | Chief Executive Officer
|  | (principal executive officer)
Date: February 14, 2019 | By: | /s/ Yongcheng Yang
| Name: | Yongcheng Yang
| Title: | Chief Financial Officer
|  | (principal financial officer and principal accounting officer)

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EXHIBIT INDEX

No. |  | Description
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

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

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