UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-25963
GREENSMART CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 98-0352588
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Unit C11, 8th Floor, Wing Hing Industrial Building, 14 Hing Yip Street, Hong
Kong
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(Address of principal executive offices)
011-852-2519-3933
--------------------------
(Issuer's telephone number)
AGROCAN CORPORATION
Suite 706, Dominion Centre, 43-59 Queen's Road East, Hong Kong
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(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2003, the Company had 44,342,188 shares of common stock issued
and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
GREENSMART CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- June 30, 2003 (Unaudited) and September 30, 2002 (Audited)
Consolidated Statements of Operations (Unaudited)
- Three Months and Nine Months Ended June 30, 2003 and 2002
Consolidated Statements of Cash Flows (Unaudited)
- Nine Months Ended June 30, 2003 and 2002
Notes to Consolidated Financial Statements (Unaudited)
- Nine Months Ended June 30, 2003 and 2002
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREENSMART CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND SEPTEMBER 30, 2002
(UNITED STATES DOLLARS)
(UNAUDITED) (AUDITED)
JUN 30, 2003 SEP 30, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43,414 $ 128,615
Accounts receivable, less allowance for
doubtful accounts of $178,617 838,360 934,600
Other receivables and prepayments 82,598 132,399
Interest receivable 15,490 -
Inventories 4,113,319 284,886
Amount due from related parties, net 422,415 422,415
Deferred consulting fees 28,575 -
----------------- -----------------
TOTAL CURRENT ASSETS 5,544,171 1,902,915
ADVANCES RECEIVABLE, NET 117,952 168,145
PROPERTY, PLANT AND EQUIPMENT - NET 764,145 673,209
----------------- -----------------
TOTAL ASSETS $ 6,426,268 $ 2,744,269
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans-unsecured $ 296,411 $ 296,411
Short-term bank loan 114,458 120,482
Account payable 42,862 82,624
Other payables and accruals 40,140 139,903
Deposits received 269,145 296,375
Amount due to related parties 76,291 341,196
Income tax payable 73,149 72,263
----------------- -----------------
TOTAL LIABILITIES, ALL CURRENT 912,456 1,349,254
MINORITY INTEREST 66,255 74,644
SHAREHOLDERS' EQUITY
Preferred stock, par value US$0.0001
per share, authorized 10,000,000 shares;
none issued - -
Common stock, par value US$0.0001
per share, authorized 100,000,000 shares;
issued and outstanding 44,342,188 at June 30, 2003
and 3,673,304 at September 30, 2002 4,434 367
Capital in excess of par value 6,131,872 1,885,251
Retained earnings
Unappropriated (810,307) (686,805)
Appropriated 120,457 120,457
Other comprehensive income 1,101 1,101
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 5,447,557 1,320,371
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,426,268 $ 2,744,269
================= =================
See notes to consolidated financial statements
3
GREENSMART CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNITED STATES DOLLARS)
2003 2002
NET SALES $ 557,897 $ 622,109
COST OF SALES 493,699 503,874
------------ -----------
GROSS PROFIT 64,198 118,235
ADMINISTRATIVE AND GENERAL EXPENSES 102,983 137,136
SELLING EXPENSES 29,939 29,610
------------ -----------
LOSS FROM OPERATIONS (68,724) (48,511)
OTHER INCOME (EXPENSE)
Interest income 5,133 5,920
Interest expense (1,772) (2,857)
------------ -----------
LOSS BEFORE INCOME TAXES (65,363) (45,448)
INCOME TAXES - 6,410
------------ -----------
LOSS BEFORE MINORITY INTEREST (65,363) (51,858)
MINORITY INTEREST 1,605 3,224
------------ -----------
NET LOSS $ (63,758) $ (48,634)
============ ===========
WEIGHT AVERAGE SHARES OUTSTANDING
Basic and diluted 29,116,013 3,061,630
BASIC AND DILUTED LOSS PER SHARES $ (0.00) $ (0.02)
============ ===========
See notes to consolidated financial statements
4
GREENSMART CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNITED STATES DOLLARS)
2003 2002
NET SALES $ 1,044,032 $1,197,145
COST OF SALES 862,998 978,160
------------ -----------
GROSS PROFIT 181,034 218,985
ADMINISTRATIVE AND GENERAL EXPENSES 248,013 262,227
SELLING EXPENSES 64,570 46,165
------------ -----------
LOSS FROM OPERATIONS (131,549) (89,407)
OTHER INCOME (EXPENSE)
Interest income 15,727 17,888
Interest expense (5,385) (6,440)
------------ -----------
LOSS BEFORE INCOME TAXES (121,207) (77,959)
INCOME TAXES 10,684 10,943
------------ -----------
LOSS BEFORE MINORITY INTEREST (131,891) (88,902)
MINORITY INTEREST 8,389 4,416
------------ -----------
NET LOSS $ (123,502) $ (84,486)
============ ===========
WEIGHT AVERAGE SHARES OUTSTANDING
Basic and diluted 12,874,757 2,906,883
BASIC AND DILUTED LOSS PER SHARES $ (0.01) $ (0.03)
============ ===========
See notes to consolidated financial statements
5
GREENSMART CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNITED STATES DOLLARS)
2003 2002
OPERATING ACTIVITIES
Net loss $ (123,502) $ (84,486)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Common shares issued for directors' remuneration 60,000 90,000
Amortization of deferred consulting fees 9,525 -
Depreciation 69,322 56,176
Minority interest in net loss (8,389) (4,416)
Decrease in account receivable 96,240 240,546
Decrease in other receivables, deposit
and prepayments 49,801 1,971
(Increase) in interest receivable (15,490) -
(Increase) in inventories (38,526) (324,683)
(Increase) in amounts due from related parties - (47,320)
(Decrease) in accounts payable (39,762) (112,207)
(Decrease) increase in tax payable 886 (12,087)
(Decrease) in other payables and accruals (99,763) (13,740)
(Decrease) increase in deposits received (27,230) 290,156
(Decrease) increase in amounts due to related parties (47,264) 13,263
----------- ----------
Net cash provided by (used in) operating activities (114,152) 93,173
----------- ----------
INVESTING ACTIVITIES
Decrease in advances receivable 50,193 -
Additions to property, plant and equipment (15,218) (40,458)
----------- ----------
Net cash provided by (used in) investing activites 34,975 (40,458)
----------- ----------
FINANCING ACTIVITIES
Repayment of short term bank loan (6,024) (119,639)
Proceeds from short term loans - unsecured - 36,145
----------- ----------
Net cash used in financing activities (6,024) (83,494)
----------- ----------
Net decrease in cash and cash equivalents (85,201) (30,779)
Cash and cash equivalents at beginning of period 128,615 71,309
----------- ----------
Cash and cash equivalents at end of period $ 43,414 $ 40,530
=========== ==========
Supplemental schedule of non-cash investing and
financing activities:
Common shares issued for amount due to related parties $ 277,641 $ 180,071
Common shares issued for consulting fees $ 38,100 $ -
Common shares issued for assets acquisition $3,934,947 $ -
Cash paid during the nine months for income taxes $ 9,798 $ 23,030
Cash paid during the nine months for interest $ 5,385 $ 6,440
See notes to consolidated financial statements
6
GREENSMART CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
1. THE INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by GreenSmart Corporation
(formerly known as AgroCan Corporation) and in the opinion of management,
reflect all material adjustments which are necessary to a fair statement of
results for the interim periods presented, including normal recurring
adjustments. Certain information and footnote disclosures made in the most
recent annual financial statements included in our Form 10-KSB for the year
ended September 30, 2002, have been condensed or omitted for the interim
statements. It is our opinion that, when the interim statements are read in
conjunction with the September 30, 2002 financial statements, the disclosures
are adequate to make the information presented not misleading. The results of
operations for the nine months ended June 30, 2003 and 2002 are not necessarily
indicative of the operating results for the full fiscal year, as the Company's
business fluctuates in accordance with planting seasons resulting in increased
revenues in the second and third quarters.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the 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.
On May 13, 2003, the Company executed an Asset Acquisition Agreement with
Winsmart Development Limited. The basic terms of the agreement are that the
Company issued to Winsmart 29,868,737 shares of the Company's common stock and
Winsmart sold the Company i) approximately 553,212 young eucalyptus trees
planted in a total of 340 leased hectares and ii) a tree seedlings and nursery
farm with annual production capacity of 10 million seedlings situated on 3.3
leased hectares. The leased land is subject to a 50 year lease which is
currently in its first year. The assets were valued based on an independent
apprasial at $3,774,747 and the price of the Company's stock was determined to
be $0.126 per share to arrive at the number of shares to issue to Winsmart.
7
2. INVENTORIES
Inventories at June 30, 2003 and September 30, 2002 are comprised of the
following:
(Trees held for sale inventories are currently being marketed and are included
in current assets, although a portion of these inventories may not be sold
within one year.)
JUNE 30, 2003 SEPTEMBER 30, 2002
(UNAUDITED) (AUDITED)
USD USD
RAW MATERIALS $ 139,216 $ 110,030
FINISHED GOODS 184,196 174,856
--------------- ------------------
$ 323,412 $ 284,886
TREES HELD FOR SALE $ 3,475,919 --
SEEDLINGS 313,988 --
--------------- ------------------
$ 3,789,907 --
--------------- ------------------
TOTAL INVENTORIES $ 4,113,319 $ 284,886
=============== ==================
3. SHORT-TERM LOANS
Short-term loans-unsecured represent amounts borrowed from third parties. Loans
in the amount of $296,411 are unsecured, non-interest bearing and payable on
demand.
As of June 30, 2003, the Company has a bank loan of $114,458. The bank loan
bears interest at 6.04% per annum and is due on April 2004. The loan is
guaranteed by a customer of the Company.
4. INCOME TAXES
During the nine months ended June 30, 2003, our subsidiaries recorded an income
tax of $10,684. We are subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which each entity is
domiciled. Our British Virgin Islands subsidiary is not liable for income taxes.
Our PRC subsidiaries comprise two wholly owned foreign enterprises and a 70%
held Sino-Foreign Equity Joint Venture. PRC Companies are generally subject to
income taxes at an effective rate of 33% (30% Chinese national income tax plus
3% Chinese state income tax). Two of our PRC subsidiaries, Fenglin and Linmao,
are manufacturing companies operating in special zones, and they are entitled to
a reduced national income taxes rate of 24%. All the subsidiaries are exempt
from state income tax. Further, pursuant to the approval of the relevant PRC tax
authorities, all the subsidiaries have been granted a "tax holidays", whereby
the subsidiaries are fully exempted from PRC income taxes for two years starting
from the year profits are first made, followed by a 50% exemption for the next
three
8
years. In 1999, the two-year, 100% exemption expired for Fenglin and Linmao,
subjecting them to income tax at a rate of 12%. Effective January 1, 2001, the
two-year, 100% exemption expired for Jiali and it became subject to income tax
at a rate of 15%. Losses incurred by PRC companies may be carried forward for
five years. Deferred tax assets and liabilities are not considered material at
June 30, 2003 and 2002.
5. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares of common stock
outstanding. Diluted earnings per share assumes the conversion, exercise or
issuance of all potential common stock instruments such as options, warrants and
convertible securities, unless the effect is to reduce loss per share or
increase earnings per share.
6. CHANGES IN SECURITIES
On May 13, 2003, the Board of Directors and stockholders approved an increase in
the number of authorized common share to 100,000,000. During the nine months
ended June 30, 2003, the Company issued 40,668,884 shares of common stock. Among
those shares, 545,454 shares, with an aggregate value of $60,000, were issued to
two of the Company's directors / officers in lieu of cash as remuneration for
their services to the Company, 7,254,693 shares were issued to the shareholders
in lieu of cash as repayment to the shareholders' loan of $217,641, and
3,000,000 shares (see Note 7.) with an aggregate value of $198,300 were issued
to two dividuals in lieu of cash for their consulting services to the Company.
In addition, 29,868,737 shares were issued to Winsmart Development Limited for
the Assets Acquisition Agreement, with an aggregate value of $3,774,747. As
disclosed on May 13, 2003 in a Form 8-K filing with the Securities and Exchange
Commission, there was a change in control as a result of the shares issued to
Winsmart Development Limited related to the Asset Acquisition Agreement.
7. CONSULTING AGREEMENTS
As disclosed on April 7, 2003 in a Form S-8 filing with the Securities and
Exchange Commission, on March 28, 2003, the Company entered into one year
consulting agreements with Winnex Enterprises Ltd. and Mr. Wong Wai Hung (the
"Consultants"). The services to be rendered include assisting the Company
through its relationships with potential sources on a best efforts basis in
order to identity sources for the acquisition of the Company's equity securities
in connection with up to $5,000,000. The agreement calls for 500,000 shares of
freely tradable shares of common stock to be issued to each consultant upon the
signing of the agreement. In accordance with SFAS 123 and EITF 96-18, the
Company has accounted for the shares based on the fair market value of the
Company's stock at the commencement date of the agreement, and the Company has
recorded deferred consulting fees and consulting expense of $28,575 and $9,525,
respectively as of June 30, 2003. In the event the consultants introduce the
Company to any party that leads to merger and / or acquisition transaction with
the Company that the Consultants will be compensated at the time of closing of
the transaction a fee up to six percent each on the transaction based on the
number of shares issued by the Company for the transaction.
9
In connection with the assets acquired from Winsmart on May 13, 2003, the
Company issued 2,000,000 shares to the Consultants for their service. The
Company has capitalized and allocated an aggregate value of $160,200 to the
assets acquired, which was based on the fair market value of the Company's stock
at the date of acquisition.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
2003 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning our expectations regarding sales trends, gross and net
operating margin trends, political and economic matters, the availability of
equity capital to fund our capital requirements, and other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. The forward-looking statements in this Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 2003 are subject to risks and
uncertainties that could cause actual results to differ materially from those
results expressed in or implied by the statements contained herein.
Overview:
GreenSmart Corporation (formerly known as AgroCan Corporation) was incorporated
on December 8, 1997 in the State of Delaware. Effective December 31, 1997, we
issued 1,598,646 shares of common stock, which represented all of the capital
stock outstanding at the completion of this transaction, to the shareholders of
AgroCan (China) Inc., a corporation incorporated in the British Virgin Islands,
in exchange for all of the capital stock of AgroCan (China) Inc.
Prior to the above transaction, we had no material operations. The AgroCan
(China) Inc. transaction was accounted for as a recapitalization of AgroCan
(China) Inc., as the shareholders of AgroCan (China) Inc. acquired all of the
capital stock of the company in a reverse acquisition. Accordingly, the assets
and liabilities of AgroCan (China) Inc. were recorded at historical cost, and
the shares of common stock issued by the company were reflected in the
consolidated financial statements giving retroactive effect as if we had been
the parent company from inception.
On May 13, 2003, we executed an Asset Acquisition Agreement with Winsmart
Development Limited. The basic terms of the agreement are that we issued to
Winsmart 29,868,737 shares of our common stock and Winsmart sold us i)
approximately 553,212 young eucalyptus trees planted in a total of 340 leased
hectares and ii) a tree seedlings and nursery farm with annual production
capacity of 10 million seedlings situated on 3.3 leased hectares. The leased
land is subject to a 50 year lease which is currently in its first year. The
assets were valued based on an independent appraisal at $3,774,747 and the price
of our stock was determined to be $0.126 per share to arrive at the number of
shares to issue to Winsmart.
We, through AgroCan (China) Inc., currently own 100% interest in two
wholly-owned subsidiaries, Guangxi Linmao Fertilizer Company Limited ("Guangxi
Linmao") and Jiangxi Jiali
11
Chemical Industry Company Limited ("Jiangxi Jiali"). We, through AgroCan (China)
Inc., also own a 70% interest in Jiangxi Fenglin Chemical Industry Company
Limited, a Sino-Foreign Equity Joint Venture ("Jiangxi Fenglin"). All of the
aforementioned entities are located in the People's Republic of China ("China"
or the "PRC").
We account for our interest in Jiangxi Fenglin similar to a majority-owned
subsidiary because of our 70% interest, our contractual ability to appoint four
out of six directors to the Board of Directors, which is the highest authority
for the joint venture, and our right to appoint the Chairman of the Board. Due
to the rights asserted by the PRC partner under customary joint venture
agreements, joint venture interests in the PRC are generally not consolidated in
the financial statements of companies that report under the periodic reporting
requirements of the United States Securities and Exchange Commission. However,
as a result of the aforementioned factors specific to Jiangxi Fenglin,
management believes that it is appropriate to consolidate the joint venture's
operations into our consolidated financial statements.
We produce various compound fertilizers. These ingredients used are blended in
different proportions and packed into 50 kilogram bags. As of June 30, 2003, we
have established an annual production capacity of 125,000 metric tons for
compound fertilizers in Guangxi and Jiangxi, two of the largest agricultural
provinces in China, and we intend to enter markets in other provinces in China.
The asset acquisition from Winsmart Development Limited represents a significant
addition to the assets of GreenSmart. The trees acquired are currently being
marketed and are held for sale, and we will also continue to engage in our
fertilizer business as we see the asset acquisition as a step in growing the
company into a multi-product agricultural company.
The consolidated financial statements of GreenSmart include the accounts of
GreenSmart and our wholly-owned and majority-owned subsidiaries. All material
intercompany balances and transactions are eliminated at consolidation. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and have been
presented in U.S. Dollars ("$"). The functional currency of our PRC operations
is the Chinese Renminbi ("RMB"). The accounts of foreign operations are prepared
in their local currency and are translated into RMB using the applicable rate of
exchange. The resulting translation adjustments are included in comprehensive
income (loss). Transactions denominated in currencies other than the U.S.
Dollars are translated into USD using the applicable exchange rates. Monetary
assets and liabilities denominated in other currencies are translated into U.S.
Dollars at the applicable rate of exchange at the balance sheet date. The
resulting exchange gains or losses are credited or charged to the consolidated
statements of operations.
Consolidated Results of Operations:
Three Months Ended June 30, 2003 and 2002:
12
Sales. The sales for the three months ended June 30, 2003 were $557,897 as
compared to sales of $622,109 for the three months ended June 30, 2002, a
decrease of $64,212 or 10.3%. The decrease was due to lower demands from our
major customers. In addition, during the quarter, China, especially in the
southern part, was suffering from the outbreak of the SARS virus, which
contributed to a decline in overall economic conditions. We have obtained some
urban greening contracts subsequent to the period ended June 30, 2003, and
management believes that revenue for the year ended September 30, 2003 will be
approximately the same as prior year levels however there can be no assurance
that this will occur.
Gross Profit. Gross profit for the three months ended June 30, 2003 was
$64,198 or 11.5% of revenues, as compared to $118,235 or 19% of revenues for the
three months ended June 30, 2002. The gross profit margin decreased in 2003 as
compared to 2002 because the slower economic conditions and lower demand of the
fertilizer products caused us to lower the selling price for our fertilizer
products. Management believes that the lower profit margin is temporary due to
the bad economic conditions during this quarter. Management also believes that
we will resume a higher profit margin in the coming quarter as the SARS virus
has been put under control.
Administrative and General Expenses. Administrative and general expenses for
the three months ended June 30, 2003 were $102,983 or 18.5% of revenues, as
compared to $137,136 or 22% of revenues for the three months ended June 30,
2002, a decrease of $34,153. The decrease is mainly due to lower legal and
professional fee and traveling expenses as compared to last year.
Selling Expenses. Selling expenses for the three months ended June 30, 2003
were $29,939 or 5.4% of revenues, as compared to $29,610 or 4.8% of revenues for
the three months ended June 30, 2002.
Loss from Operations. Loss from operations was $68,724 for the three months
ended June 30, 2003, as compared to a loss from operations of $48,511 for the
three months ended June 30, 2002.
Other Income (Expense). We recorded interest income of $5,133 and $5,920 for
the three months ended June 30, 2003 and 2002, respectively.
We recorded interest expense of $1,772 and $2,857 for the three months ended
June 30, 2003 and 2002, respectively. As of June 30, 2003, we had a bank loan of
$114,458, which bears interest at 6.04% per annum and is due on April 2004.
Income Taxes. During the three months ended June 30, 2003, we did not
record any income tax. We recognized income tax of $6,410 for the three months
ended June 30, 2002.
Minority Interest. For the three months ended June 30, 2003 and 2002, we
recorded a minority interest of $1,605 and $3,224 respectively, to reflect the
interest of our 30% joint venture partner in the net income of Jiangxi Fenglin.
Net Loss. Net loss was $63,758 for the three months ended June 30, 2003, as
compared to a
13
net loss of $48,634 for the three months ended June 30, 2002. The reason for
recording higher net loss for the three months ended June 30, 2003 than the
three months ended June 30, 2002 was primarily the result of the decrease in
sales and decrease in profit margin.
Nine Months Ended June 30, 2003 and 2002:
Sales. The sales for the nine months ended June 30, 2003 were $1,044,032 as
compared to sales of $1,197,145 for the nine months ended June 30, 2002, a
decrease of $153,113 or 12.8%. The decrease was due to lower demands from our
major customers. In addition, during the quarter, China, especially in the
southern part, was suffering from the outbreak of the SARS virus, which
contributed to a decline in overall economic conditions. However, since we
obtained some urban greening contracts subsequent to the period ended June 30,
2003, management believes that revenue for the year ended September 30, 2003
will be approximately the same as prior year levels.
Gross Profit. Gross profit for the nine months ended June 30, 2003 was
$181,034 or 17.3% of revenues, as compared to $218,985 or 18.3% of revenues for
the nine months ended June 30, 2002. The gross profit margin decreased in 2003
as compared to 2002 because the slower economic condition and lower demand of
the fertilizer products. We needed to lower the price for selling its products.
Administrative and General Expenses. Administrative and general expenses for
the nine months ended June 30, 2003 were $248,013 or 23.8% of revenues, as
compared to $262,227 or 21.9% of revenues for the nine months ended June 30,
2002, a decrease of $14,214. The decrease is mainly due to lower legal and
professional fee and traveling expenses as compared to last year.
Selling Expenses. Selling expenses for the nine months ended June 30, 2003
were $64,570 or 6.2% of revenues, as compared to $46,165, or 3.9% of revenues
for the nine months ended June 30, 2002, an increase of $18,405. Selling
expenses increased in 2003 compared to 2002 as a result of higher freight for
delivering of our fertilizer products.
Loss from Operations. Loss from operations was $131,549 for the nine months
ended June 30, 2003, as compared to a loss from operations of $89,407 for the
nine months ended June 30, 2002.
Other Income (Expense). We recorded interest income of $15,727 and $17,888
for the nine months ended June 30, 2003 and 2002, respectively.
We recorded interest expense of $5,385 and $6,440 for the nine months ended June
30, 2003 and 2002, respectively. As of June 30, 2003, we had a bank loan of
$114,458, which bears interest at 6.04% per annum and is due on April 2004.
Income Taxes. During the nine months ended June 30, 2003, we recorded
income tax of
14
$10,684. We recognized income tax of $10,943 for the nine months ended June 30,
2002.
Minority Interest. For the nine months ended June 30, 2003 and 2002, we
recorded a minority interest of $8,389 and $4,416 respectively, to reflect the
interest of our 30% joint venture partner in the net income of Jiangxi Fenglin.
Net Loss. Net loss was $123,502 for the nine months ended June 30, 2003, as
compared to a net loss of $84,486 for the nine months ended June 30, 2002. The
reason for recording more net loss for the nine months ended June 30, 2003 than
the nine months ended June 30, 2002 was primarily the result of the decreasing
sales and lower profit margin.
Consolidated Financial Condition:
Liquidity and Capital Resources - June 30, 2003
We reported a 12.8% decrease in sales during the nine months ended June 30, 2003
compared to the nine months ended June 30, 2002. Subsequent to the quarter ended
of June 30, 2003, we obtained urban greening contracts for greening and
environmental improvement projects of Suzhou Industrial Park, Jiangsu Province
in Eastern China. The value of the contracts is $450,000. Management believes
that it has adequate funds to support operations for the current fiscal year
ending September 30, 2003.
To address its on-going and long-term cash needs, we plan to initiate
discussions with investment banks and financial institutions and attempt to
raise funds to support current and future operations. This includes attempting
to raise additional working capital through the sale of additional capital stock
or through additional bank or third party borrowings. We cannot provide any
assurance that it will be able to raise any such funds.
Operating. For the nine months ended June 30, 2003, our operations utilized
cash resources of $114,152 as compared to generating $93,173 for the nine months
ended June 30, 2002. Our operations utilized more cash resources in 2003 as
compared to 2002 primarily as a result of the settlement of other payables, less
collection from accounts receivable and less in deposits received. At June 30,
2003, cash and cash equivalents decreased by $85,201 to $43,414, as compared to
$128,615 at September 30, 2002. We had working capital of $4,631,715, at June
30, 2003, as compared to $553,661 at September 30, 2002, resulting in current
ratios of 6.1:1 and 1.41:1 at June 30, 2003 and September 30, 2002,
respectively.
Accounts receivable. Accounts receivable decreased by $96,240, to
$838,360 at June 30, 2003, from $934,600 at September 30, 2002. Accounts
receivable decreased during the nine months ended June 30, 2003 as a result of
settlement of part of the accounts receivable from customers.
Inventories. Inventories increased by $3,828,433, to $4,113,319 at June
30, 2003, from
15
$284,886 at September 30, 2002. The significant increase in inventories is due
to the asset acquisition during May 2003.
Investing. During the nine months ended June 30, 2003 and 2002, additions to
property, plant and equipment aggregated $160,258 and $40,458, respectively. The
majority of the additions is due to the asset acquisition during May 2003.
During the nine months ended June 30, 2003, there were payments on the advance
receivables of $50,193.
Financing. During the nine months ended June 30, 2003 and 2002, one of our
subsidiaries paid $6,024 and $119,639, respectively, on the short-term bank
loans and received proceeds of $0 and $36,145, respectively, from the unsecured
short-term loan.
Inflation and Currency Matters:
In recent years, the Chinese economy has experienced periods of rapid economic
growth as well as relatively high rates of inflation, which in turn has resulted
in the periodic adoption by the Chinese government of various corrective
measures designed to regulate growth and contain inflation. Since 1993, the
Chinese government has implemented an economic program designed to control
inflation, which has resulted in the tightening of working capital available to
Chinese business enterprises. Our success depends in substantial part on the
continued growth and development of the Chinese economy. During the fiscal
quarters ended June 30, 2003 and 2002, inflation and changing prices have had a
minor impact on our operations and financial position. The actual rate of
inflation in the agricultural sector has been nominal, and the price level of
fertilizer products has been stable.
Foreign operations are subject to certain risks inherent in conducting business
abroad, including price and currency exchange controls, and fluctuations in the
relative value of currencies. Changes in the relative value of currencies occur
periodically and may, in certain instances, materially affect our results of
operations. In addition, the Renminbi is not freely convertible into foreign
currencies, and the ability to convert the Renminbi is subject to the
availability of foreign currencies. Effective December 1, 1998, all foreign
exchange transactions involving the Renminbi must take place through authorized
banks in China at the prevailing exchange rates quoted by the People's Bank of
China. We expect that a portion of its revenues will need to be converted into
other currencies to meet foreign exchange currency obligations, including the
payment of any dividends declared.
Although the central government of China has repeatedly indicated that it does
not intend to devalue its currency in the near future, recent announcements by
the central government of China indicate that devaluation is an increasing
possibility. Should the central government of China decide to devalue the
Renminbi, we do not believe that such an action would have a detrimental effect
on our operations, since we conduct virtually all of its business in China, and
the sale of
16
our products is settled in Renminbi. However, devaluation of the Renminbi
against the United States dollar would adversely affect our financial
performance when measured in United States dollars.
New Accounting Pronouncements:
In July 2001, the FASB issued Statement No.142 "Goodwill and Other Intangible
Assets". Statement No.142 requires the use of a nonamortization approach to
account for purchased goodwill and indefinite lived intangibles. Under a
nonamortization approach, goodwill and indefinite lived intangibles will not be
amortized into results of operations, but instead would be reviewed for
impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and indefinite lived intangibles
is more than its fair value. The provisions of Statement No.142 will be
effective for us in fiscal 2003. We do not expect this standard, when
implemented, to have a material effect on its future results of operations or
financial position.
In August 2001, the FASB issued SFAS No.144, "Accounting for Impairment or
Disposal of Long-Lived Assets". This statement supersedes Statement No.121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposal of", and the accounting and reporting provisions of APB Opinion 30,
"Reporting the Results of Operation - Reporting the Effects of Disposal of a
Segment of a Business, and the disposal of a segment of a business. This
statement is effective for us in fiscal 2003. We do not expect the adoption of
Statement No.144 to have a material impact on our future results of operations
or financial position.
In April 2002, the FASB issued Statement No.145 "Rescission of FASB Statements
No.4, 44 and 64. Amendment of FASB Statement No.13, and Technical Corrections".
The Statement addresses the accounting for extinguishment of debt,
sale-leaseback transactions and certain lease modifications. The statement is
effective for us in fiscal 2003. We do not expect the adoption of Statement
No.145 to have a material impact on our future results of operations or
financial position.
In July 2002, the FASB issued Statement No.146, "Accounting for Cost Associated
with Exit or Disposal Activities". The statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
supercedes Emerging Issues Task Force Issue No.94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructing)." The provisions of
Statement No.146 are effective for exit or disposal activities that are
initiated after December 31, 2002. We do not expect the adoption of Statement
No.146 to have a material impact on our future results of operations or
financial position.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial
acquisitions of financial institutions, except transactions between two or more
mutual enterprises. We do not
17
expect that this standard will have any effect on its financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123
"Accounting and Stock Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used in reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. We do not expect the adoption of SFAS No. 148 to have a material effect on
out financial position, results of operations, or cash flows.
18
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the nine months ended June 30, 2003, we issued 40,668,884 shares of
common stock. Among those shares, 545,454 shares were issued to two of our
directors / officers, Mr. Danny Wu and Mr. Lawrence Hon, in lieu of cash as
remuneration for their services to the Company. 7,254,693 shares were issued to
the shareholders, Texon Investments Holdings Ltd., Intermax Ltd. and Masterpiece
Development Ltd., in lieu of cash as repayment to the shareholders' loan.
3,000,000 shares were issued to two individuals in lieu of cash for their
consulting services to the Company. 29,868,737 shares were issued to Winsmart
Development Limited in lieu of cash for the assets acquisition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification by Chief Executive Officer
99.2 Certification by Chief Financial Officer
(b) Reports on Form 8-K:
During the nine months ended June 30, 2003, the Company filed the
Following reports on the Form 8-K:
Form Filing Date Event Reported
----- ------------ ---------------
8-K Oct 4, 2002 A report on Form 8-K (item 4), which announced changing
in the Company's certifying accountant.
8-K/A Oct 23, 2002 A report on Form 8-K/A (item 4), which announced
changing in the Company's certifying accountant.
8-K March 21, 2003 A report on Form 8-K (item 5), which announced issuing
7,254,693 shares of the Company's common stock to repay
the shareholders' loan.
8-K May 13, 2003 A report on Form 8-K (item 1, 2 & 5), which announced
issuing 29,868,737 shares to Winsmart Development
Limited for the assets acquisition and Winsmart will
become the major shareholder of the Company. Also, it
announced the Company's principal executive office was
relocated.
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENSMART CORPORATION
----------------------
(Registrant)
Date: July 31, 2003 By: /s/ LAWRENCE HON
--------------
Lawrence Hon
President and Chief
Executive Officer
(Duly Authorized
Officer)
Date: July 31, 2003 By: /s/ SIMON POON
------------
Simon Poon
Director and Executive
Vice President
Date: July 31, 2003 By: /s/ CARL YUEN
-----------
Carl Yuen
Chief Financial Officer
(Principal Financial
and Accounting Officer)
20
CERTIFICATIONS
I, Lawrence Hon, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of GreenSmart
Corporation a Delaware Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 31, 2003
/s/ Lawrence Hon, Chief Executive Officer
----------------------------------------------------
Principal Executive Officer
21
I, Carl Yuen, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of GreenSmart
Corporation a Delaware Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 31, 2003
/s/ Carl Yuen, Chief Financial Officer
----------------------------------------------------
Principal Financial Officer
22