ADAMA Ltd.
Special report on································Difference between Actual and Promised Gross Profits forPurchase of ADAMA Huifeng (Shanghai) AgriculturalTechnology Co., Ltd
For the year ended 31 December 2023
Note: The Special Repot on Difference between Actual and Promised Gross Profits for Purchase ofADAMA Huifeng (Shanghai) Agricultural Technology Co., Ltd will be issued in Chinese. This specialexplanation is English translation prepared for the Company's management review purpose only andcannot be provided to third parties for other purpose. If there is any conflict between the Chinese andEnglish version, the Chinese version shall prevail.
Special Report onDifference between Actual and Promised Gross Profits forPurchase of ADAMA Huifeng (Shanghai) Agricultural Technology Co., Ltd
De Shi Bao (He) Zi (24) No. E00116
(Page 1 of 2).
To the Board of Directors of ADAMA Ltd:
We have reviewed the attached explanatory statement of the difference between the actual andcommitted gross profits generated for the three-year period from January 1, 2021 to December 31, 2023from the business between ADAMA Huifeng (Shanghai) Agricultural Technology Co., Ltd.(hereinafter referred to as "ADAMA Huifeng Shanghai") and the controlling subsidiary of JiangsuHuifeng Biological Agriculture Co., Ltd. (hereinafter referred to as "Jiangsu Huifeng") - Nongyi E-Commerce (Beijing) Co., Ltd. and its subsidiaries (hereinafter referred to as "Nongyi") (hereinafterreferred to as "the Statement") as prepared by the management of ADAMA Ltd. (hereinafter referredto as "ADAMA") .
1. Responsibilities of management
It is the responsibility of ADAMA's management to prepare the Statement in accordance with the"Share Purchase Agreement" and the "Supplemental Agreement to the Share Purchase Agreement"signed between ADAMA and Jiangsu Huifeng, and to ensure that it is true, accurate and complete, andthat there are no false records, misleading statements or material omissions.
2. Responsibilities of certified public accountants
It is our responsibility to express an opinion on the Statement based on our assurance work. Weperformed the assurance work in accordance with the Standards on Other Assurance Engagements forCertified Public Accountants No. 3101 - Assurance Engagements Other Than Audits or Reviews ofHistorical Financial Information. This standard requires that we comply with the Code of Ethics andplan and conduct audits to obtain reasonable assurance that the Statement is free from materialmisstatement.
During our assurance work, we implemented assurance procedures such as inquiry, inspection, andrecalculation that we considered necessary to obtain evidence about the amounts and disclosures in theStatement. We believe that our assurance work provides a reasonable basis for the opinion.
Special Report onDifference between Actual and Promised Gross Profits forPurchase of ADAMA Huifeng (Shanghai) Agricultural Technology Co., Ltd - continued
De Shi Bao (He) Zi (24) No. E00116
(Page 2 of 2).
3. Review opinions
In our opinion, the Statement prepared by ADAMA reflects, in all material respects, the differencebetween the actual average annual gross profit and the committed average annual gross profit from thebusiness between ADAMA Huifeng Shanghai and Nongyi over the three-year period from January 1,2021 to December 31, 2023.
4. Emphasis of matters
We would like to draw the attention of the users to the description of "The progress of the performancecommitment compensation and the measures to be taken by the Company " in part 4 of the Statement.As at the date of this Special Report, ADAMA has not received any confirmation from Jiangsu Huifengfor the price adjustment payment, nor has it received the corresponding price adjustment payment.There are currently disputes between the ADAMA and Jiangsu Huifeng regarding the price adjustmentpayment, and there is uncertainty about the final realization of the aforesaid price adjustment payment.
5. Scope of use of the report
This report is only for the purpose of disclosing the difference between the actual average annual grossprofit and the committed average annual gross profit from the business between ADAMA HuifengShanghai and Nongyi in 2023 annual report in accordance with the requirements of the Guide to Self-Regulation for Listed Companies of Shenzhen Stock Exchange No. 1 - Business Conduct", and shallnot be used for any other purpose.
Deloitte Touche Tohmatsu CPA LLP Chinese Certified Public Accountants:
Shanghai, China
Chinese Certified Public Accountants:
March 25, 2024
Explanatory Statement of the difference between the actual average annual gross profit from operating
business and the committed average annual gross profit for the three-year period from FY2021 to
FY2023
ADAMA Ltd. (hereinafter referred to as "ADAMA" or the "Company") has prepared this note inaccordance with the statement of the Equity Purchase Agreement and the Supplementary Agreement tothe Equity Purchase Agreement (hereinafter referred to as "Supplementary Agreement(1)") with JiangsuHuifeng Bio-agriculture Co., Ltd. (hereinafter referred to as "Jiangsu Huifeng").
1、 Basic information on the acquisition transaction
Pursuant to the resolutions of the 18
th, 21st and 27
th Meetings of the 8
thSession of the Board of Directorsof the Company, the Company signed the Equity Purchase Agreement, the Supplementary Agreement toEquity Purchase Agreement (“Supplementary Agreement (I)”) and the Supplementary Agreement (II) toEquity Purchase Agreement (“Supplementary Agreement (II)”) with Jiangsu Huifeng Bio-agriculture Co.,Ltd. (hereinafter referred to as “Jiangsu Huifeng”) on November 6, 2019, February 26, 2020 and October28, 2020, respectively, to acquire from Jiangsu Huifeng 50% of the equity interest in Shanghai Dibai PlantProtection Co. Ltd. (renamed to ADAMA Huifeng (Shanghai) Agricultural Technology Co., Ltd.,hereinafter referred to as “ADAMA Huifeng (Shanghai)”) and subsequently signed the Equity PurchaseAgreement on 28
th
December 2020 in relation to the acquisition of 51% equity interest in Jiangsu KelinongAgrochemical Co., Ltd. and 1% equity interest of ADAMA Huifeng (Shanghai).
The Company completed the delivery of its 51% equity interest in ADAMA Huifeng(Shanghai) and 51%equity interest in ADAMA Huifeng(Jiangsu) on December 31, 2020 and May 28, 2021, respectively.
2、 Performance commitments and compensation methods
Pursuant to Article 2.4 of the Supplementary Agreement (I) signed between the Company and JiangsuHuifeng, Jiangsu Huifeng undertakes that the average annual gross profit of ADAMA Huifeng (Shanghai)generated by the business of Nongyi E-commerce (Beijing) Co., Ltd.(“Nongyi”), a minority-ownedcompany of itself and Nongyi’s subsidiaries (hereinafter referred to as the “Nongyi Business”) for the threeyears of 2021, 2022 and 2023 (“Gross Profit by Nongyi Business”) should be at least RMB 8.6 millionyuan(Nongyi Business Benchmark).
If the Gross Profit by Nongyi Business fails to reach the Nongyi Business Benchmark, Jiangsu Huifengshould pay the price to the Company in accordance with the following formula: the payable value byJiangsu Huifeng ( “Price Adjustment Payment”) = (Nongyi Business Benchmark – Gross Profit by NongyiBusiness) x 13. In addition, Jiangsu Huifeng should be liable for all the taxes and expenses which theCompany will bear due to the Price Adjustment Payment. If it meets or exceeds the Nongyi BusinessBenchmark, no such adjustment shall occur between the two parties.
In addition, it is agreed by both parties that ADAMA Huifeng(Shanghai) should prepare financialstatements relating to the gross profit of Nongyi ("Nongyi Financial Statements") within 30 days after theexpiration of the three-year period. After receiving the financial statements of Nongyi, each party has 14days to notify the other party in writing whether it has any objection to the gross profit of Nongyibusiness. If no written notice of objection is issued by either party, the financial statements shall beconsidered to be the final version accepted by both parties. After the price adjustment is confirmed,Jiangsu Huifeng shall pay the price adjustment within 5 business days.
3、 Achievement of performance commitments and a description of variances
According to the financial statements prepared by ADAMA Huifeng(Shanghai), its gross profit arisingfrom the Nongyi Business during the period from 2021 to 2023 totaled RMB 10,907,117 yuan, with anaverage annual gross profit of RMB 3,635,706 yuan.
For the period from 2021 to 2023, the difference between the actual average annual gross profit and thecommitted average annual gross profit is as follows:
Unit: RMB
| Fiscal Year | Revenue | Cost of sales | Gross profit | Actual average annual gross profit (Gross profit of Nongyi Business). | Committed average annual gross profit (Nongyi Business Benchmark). |
| 2021 | 66,510,381 | 61,854,635 | 4,655,746 | ||
| 2022 | 44,911,451 | 41,650,961 | 3,260,489 | ||
| 2023 | 42,608,249 | 39,617,367 | 2,990,882 | ||
| Total | 154,030,081 | 143,122,964 | 10,907,117 | 3,635,706 | 8,600,000 |
The above-mentioned performance commitments has not been fulfilled. The amount of the priceadjustment payment calculated in accordance with the statement of the Supplement Agreement (I) shall beRMB 64,535,827.
4、The progress of the performance commitment compensation and the measures to be taken bythe company
According to the agreement, on February 1, 2024, ADAMA Huifeng(Shanghai) delivered the financialstatements of Nongyi to the Company and Jiangsu Huifeng. As of February 15, 2024, ADAMAHuifeng(Shanghai) has not received any objection from Jiangsu Huifeng. Accordingly, on February 21,2024, the Company issued a Notice Letter to Jiangsu Huifeng on the "Payment of Price Adjustment forthe Performance Commitment of Nongyi Business", requiring Jiangsu Huifeng to pay the priceadjustment payment of RMB 64,535,827 to the Company within 5 business days from February 18, 2024in accordance with the confirmed financial statements of Nongyi and the price adjustment paymentmethod agreed in the agreement.
As of the date of this statement of differences, the Company has not received any confirmation fromJiangsu Huifeng for the price adjustment payment, nor has it received the corresponding price adjustmentpayment. There are currently disputes between the Company and Jiangsu Huifeng regarding the priceadjustment payment, and there is uncertainty about the final realization of the above-mentioned priceadjustment payment. The company will take necessary means to recover the price adjustment paymentfrom Jiangsu Huifeng to safeguard the interests of the company.