The information set forth in this section contains certain "forward-looking statements", including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as "believes", "anticipates", "intends" or "expects". These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses. You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report.
US dollars are referred to herein as “USD”, “$” and “dollars”.
We mainly engage in the manufacture and distribution of organic fertilizers and the sale of agricultural products in the PRC. Our organic fertilizer products are sold under our brands “Zongbao”, “Fukang” and “Muliang”.
Through our patented technology, we process crop straw (including corn, rice, wheat, cotton, and other crops) into high quality organic nutritious fertilizers that are easily absorbed by crops in three hours. Straws are common agricultural by-products. In PRC, farmers usually remove the straw stubble that are remains after grains, by burning them in order to continue farming on the same land. These activities have resulted in significant air pollution, and they damage the surface structure of the soil with loss of nutrients. We turn waste into treasure by transforming the straws into organic fertilizer, which also effectively reduces air pollution. The organic straw fertilizer we produce does not contain the heavy metals, antibiotics and harmful bacteria that are common in the traditional manure fertilizer. Our fertilizers also provide optimum levels of primary plant nutrients, including multi-minerals, proteins and carbohydrates that promote the healthiest soils capable of growing the healthy crops and vegetables. It can effectively reduce the use of chemical fertilizers and pesticides as well as reduce the penetration of large chemical fertilizers and pesticides into the soil, thus avoiding water pollution. Therefore, our fertilizer can effectively improve the fertility of soil, and the quality and safety of agricultural products. We generated our revenue mainly from our organic fertilizers, which accounted for approximately 91.5% and 95.8% of our total revenue for the years ended
December 31, 2021and 2020, respectively. We currently have two integrated factories in Weihai City, Shandong Province, PRC to produce our organic fertilizers, which have been in operations since August 2015. We plan to improve the technology for our existing organic straw fertilizer production lines in the following aspects: (i) adopt more advanced automatic control technology for raw material feed to shorten the processing time of raw material, and (ii) manufacture powdered organic fertilizer instead of granular organic fertilizer production in order to avoid the drying and cooling process, as such will increase our production capacity. 72 With the focus of producing organic fertilizers, we also engage in the business of selling agriculture food products including apples, and as a sales agent for other large agriculture companies in the PRC. In 2014, we rented 350 mu (about 57.66 acres) of mountainous land as an apple orchard. The sales of apples generated less than 1% of our total revenue for the years ended December 31, 2021and 2020. We expect to generate more revenues from the sales of apples as the apple orchards become more mature in the next few years. In addition, we plan to engage in the processing and distribution of black goat products, with business commencing in June 2022. We are currently constructing a deep-processing slaughterhouse and processing plant which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City, Yunnan Province, in China. Our black goat processing products including goat rib lets, goat loin roast, goat loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat, goat stew meat, whole goat, half goat, lamb viscera, etc. We expect to start generating revenue from the black goat products in 2022.
Viagoo logistic platform aims to provide a solution for shippers to easily optimise the logistics resources by either listing their assets in the platform for other shippers to book or request the logistic services via the platform. The flexible sharing model ensures shippers and carriers to be able to get the best deals so as to reduce the cost by maximizing utilization of the unused resources. Viagoo platform provides full online tracking, route optimization and capacity planning options to help the carriers efficiently manage their operations. Using Internet of Things (IOT), GPS, mobile integration, document and data integration services, Viagoo platform is able to empower shippers and carriers with an up to date digital platform to support their digital transformations. With a ready Application Programming Interface (API) to various eCommerce platforms, shippers and carriers are able to plan their digital strategies and grow their businesses. Viagoo platform is built on a secured cloud environment that has been tested and approved by some key corporate users in healthcare as well as logistics sectors. With advanced technology in plan, Viagoo is seeking investments to expand the digital capability particularly in the area of Artificial Intelligence, machine learning, blockchain in transaction handling, data analytics in resource distribution and cold chain management. Also, using document automation and data integration technologies, Viagoo platform will offer value added services such as insurance on the go, vehicle lease financing, link up to rest stop, fuel, vehicle workshop services. The acquisition of
Viagoo Pte Ltd, a Singaporebased online logistic platform, will enable the Muliang group of companies to optimize the transport logistics to lower the cost of delivery and increase the efficiency. The platform will connect truck drivers to Muliang and provide end to end tracking of delivery status. With this platform, it is expected to reduce delivery costs by 30%. Viagoo platform is expected to be opened to the Chinamarket where other companies and merchants can book delivery services and transporters can sign on to list and provide their services. Development work has begun in August 2020to provide localization and support for map and address services in China. The development and testing are expected to be completed in June 2022and ready
for launch in
July 2022. Viagoo Business Model
Viagoo’s business model has 3 main sources of revenue.
Viagoo Transport Marketplace(VTM) - This is the transaction platform for shippers and carriers to list and accept delivery jobs. The platform provides sharing functions where a group of shippers can share the transport fleet to some common places (e.g. shopping malls in the city). This service will reduce the waiting time and fuels and resulting in huge cost savings.
? VTM provides single job and bulk orders or API connection for job posting. the
charges are pre-calculated based on distance, zones, volume matrix weight, type
goods, delivery options and time.
? Task tracking - Shippers can track the delivery status if the option for tracking is required. 73
? eWallet Option – eWallet will be used for service purposes and payment will be
be deducted from the stored value of the electronic wallet.
? Reports – Delivery reports are available for shippers to track performance
and the status of the delivery operation.
VTM is billed to carriers based on a certain percentage of freight charges. Other complementary services like online insurance, rest services will be charged in percentage to the service providers.
Viagoo Enterprise Services (VES) - is a cloud base service that provides the operation management to support the Transport and Logistics team. With the use of the various modules, carrier's transport management is able to greatly optimised the resources and achieve higher efficiency.
? Automatic scheduling – Delivery/invoice data will be transmitted to the VES for
automatic timetable to the driver via the VES mobile application. Automatic criteria
planning is based on location, time preference and route zoning. these
criteria can be configured and fine-tuned as the business progresses.
? Route Optimization – The system is able to automatically calculate the best
routes based on various delivery points and constraints such as the “time window”.
Thanks to route optimization, the transport planner is able to manage new
delivery addresses dynamically. Also if there is a change in delivery plans
due to various unforeseen circumstances such as vehicle breakdown, customer
last minute cancellation, the system is able to quickly re-optimize by pushing
? VES Driver App – Task Tracker – Once tasks are started, they will be
followed until the work is completed. If electronic signature is accepted, customers can sign
and acknowledge acceptance of goods using VES’ mobile signaling feature designed
in the app or by taking a photo of signed invoices or delivering orders
(usually the last page of the document). ? Customer Notification - Customers will be notified via email upon the
making the delivery. A copy of the invoice / delivery note accompanied
the signed copies will be sent to customers (customer email list to be maintained in the system) via email.
? Reports – Delivery reports are available for operations managers to track
performance and status of the delivery operations.
? VES Temperature Sensor Tracking Services – This is an add-on module for
real-time tracking of temperature control (via GPS temperature tracking
device installed in the truck) trucks with the aim of preventing food waste
and ensuring food safety.
The VES is invoiced on the basis of a monthly subscription per vehicle and per user. It is integrated with VTM and jobs received through VTM can be automatically assigned and tracked by VES.
Enterprise Systems - This is a project based system integration. The enterprise system is charged based on project price and annual maintenance service fees. As Viagoo smart logistics platform gains acceptance in local markets, we expect business opportunities to arise for us to custom build enterprise solutions in the healthcare as well as logistics sectors. For example,
Parkway Pantai Singaporeis using us to custom build the online logistic job assignment and tracking of lab sample collection / delivery between clinics / hospitals and lab. This is to facilitate efficient deployment of the delivery resources and to ensure compliance is achieved in a tightly controlled fashion. On January 11, 2021, Viagoo Pte Ltdentered into a joint venture to form a new legal entity Runnerzzz Pte Ltdtogether with a well-established incumbent logistics company, Big Foot Logistics Pte Ltd.Big Foot holds 51% of equity stakes while Viagoo Pte Ltdholds 49% equity stakes of Runnerzzz Pte Ltd.We believe that the strategic joint venture will pave way for Viagoo to create more business opportunities in the logistics space, leveraging on the stronghold
Big Foot Logistics Pte Ltd.74 Recent DevelopmentImpact of COVID-19
December 2019, the outbreak of COVID-19 caused by a novel strain of the coronavirus has become widespread in Chinaand in the rest of the world, including in each of the areas in which the Company, its suppliers and its customers operate. In order to avoid the risk of the virus spreading, the Chinese government enacted various restrictive measures, including suspending business operations and quarantines, starting from the end of January 2020. We followed the requirements of local health authorities to suspend operation and production and have employees work remotely in February and March 2020. Since April 2020, we gradually resumed production and are now operating at full capacity. As a result of the COVID-19 outbreak in December 2019and continuing in the first quarter of 2020, the Company's businesses, results of operations, financial position and cash flows were adversely affected in 2020 with potential continuing impacts on subsequent periods, including but not limited to the material adverse impact on the Company's revenues as result of the suspension of operations and decline in demand by the Company's customers. We are monitoring the global outbreak and spread of the novel strain of coronavirus (COVID-19) and taking steps in an effort to identify and mitigate the adverse impacts on, and risks to, our business (including but not limited to our employees, customers, other business partners, our manufacturing capabilities and capacity and our distribution channels) posed by its spread and the governmental and community reactions thereto. We continue to assess and update our business continuity plans in the context of this pandemic, including taking steps in an effort to help keep our workforces healthy and safe. The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations in certain cases, and cancellation of physical participation in certain meetings, events and conferences), and we expect to take further actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, customers and other business partners. We are also working with our suppliers to understand the existing and future negative impacts to our supply chain and take actions in an effort to mitigate such impacts. Due to the speed with which the COVID-19 situation is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration and ultimate impact; therefore, any negative impact on our overall financial and operating results (including without limitation our liquidity) cannot be reasonably estimated at this time, but the pandemic could lead to extended disruption of economic activity and the impact on our financial and operating results could be material.
Assignment of land use right and production facility for debt repayment
The Company completed its sale of industrial land and production facility in
Shanghaithrough an administratively organized private sale on June 16, 2021. Through the sale, the Company's subsidiary Shanghai Zongbao is able to satisfy its debt obligations due to Agricultural Bank of China and Shanghai Zhongta Constructionand Engineering Co., Ltd.and improve its cash position. As a result of the sale, Agricultural Bank of China received RMB 35,632,193.36, Shanghai Zhongta Constructionand Engineering Co., Ltd.received RMB 26,000,000and Shanghai Zongbao received the remaining RMB 7,921,902.28. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate, on an on-going basis, our estimates for reasonableness as changes occur in our business environment. We base our estimates on experience, the use of independent third-party specialists and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that reflect significant judgments, estimates and uncertainties and that may cause results to differ materially under different assumptions and conditions. We believe the following are our significant accounting policies:
75 Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC ("PRC GAAP"). The differences between US GAAP and PRC GAAP have been adjusted in these consolidated financial statements. The Company's functional currency is the Chinese Renminbi ("RMB") and
Singaporedollar("SGD"); however, the accompanying consolidated financial statements have been translated and presented in United StatesDollars ("USD").
Liquidity and going concern
As reflected in the accompanying consolidated financial statements, we had net accumulated deficit of
$6,876,227and $8,596,332as of December 31, 2021and December 31, 2020, respectively. Our cash balances as of December 31, 2020and December 31, 2020were $38,013and $348,834, respectively. We had current liability of $13,770,110at December 31, 2021which would be due within the next 12 months. In addition, we had a working capital of $5,403,720and working capital of $5,145,436at December 31, 2021and 2020, respectively. According to the normal operation, the company does not have problems with business sustainability. But the new covid-19 pandemic from the beginning of 2020 greatly impacts the company's operation. In 2020 and 2021, the company's sales had declined, and the recovery of accounts receivable was slow. As a result, the Company has taken the following measures :(1) while actively opening up new markets and new customers, the Company have increased the collection of accounts receivable and strive to control the turnover days of accounts receivable to be within 90 days at the end of 2021;(2) As of the period end, the company has completed the disposal of Shanghaiindustrial land transfer transaction and paid off all loans. Because the company is gradually recovering the accounts receivables affected by the Covid-19, and the sales are gradually returning to the normal level, the company's current cash revenue and expenditure are normal, which did not affect the normal operation. Now, after Covid-19, the company has no problems with business sustainability. IPO financing will be used for new investments to expand the operating scale and does not affect the existing operating scale.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIE, including the VIE' subsidiaries, for which the
Muliang Viagoois the primary beneficiary.
All transactions and balances between the Company, its subsidiaries, VIE and VIE’s subsidiaries have been eliminated on consolidation.
As PRC laws and regulations welcome to invest in organic fertilizer industry businesses, the
Muliang Viagoooperates its fertilizer business in the PRC through Muliang Industry and its subsidiaries, which are collectively referred as the "WFOEs". By entering into a series of agreements (the "VIE Agreements"), the Muliang Viagoo, through WFOEs, obtained control over Muliang Industry and its subsidiaries (collectively referred as "VIE"). The VIE Agreements enable the Muliang Viagooto (1) have power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the Muliang Viagoois considered the primary beneficiary of the VIE and has consolidated the VIE' financial results of operations, assets and liabilities in the Muliang Viagoo'sconsolidated financial statements. In making the conclusion that the Muliang Viagoois the primary beneficiary of the VIE, the Muliang Viagoo'srights under the Power of Attorney also provide the Muliang Viagoo'sabilities to direct the activities that most significantly impact the VIE' economic performance. The Muliang Viagooalso believes that this ability to exercise control ensures that the VIE will continue to execute and renew the Master Exclusive Service Agreement and pay service fees to Muliang Viagoo. By charging service fees to be determined and adjusted at the sole discretion of Muliang Viagoo, and by ensuring that the Master Exclusive Service Agreement is executed and remains effective, Muliang Viagoohas the rights to receive substantially all of the economic benefits from the VIE. 76
The details of the VIE agreements are shown below:
As of As of December 31, December 31, 2021 2020 Current assets
$ 18,972,383 $ 25,878,427Non-current assets 8,995,363 8,863,429 Total Assets 27,967,746 34,741,856 Current liabilities 12,794,076 20,475,295 Non-current liabilities 422,480 1,425,475 Total liabilities 13,216,556 21,900,770
Total equity (deficit)
For the year ended December 31, 2021 2020 Net income
$ 2,254,902 $ 1,198,517
Net cash generated by (used in) operating activities 5,484,916 1,413,581 Net cash generated by (used in) investing activities (1,158,773 )
(75,346 ) Net cash provided by (used in) financing activities
The VIE agreements that have been concluded to give the
Voting Rights Proxy Agreement and Irrevocable Power of Attorney
Under which each shareholder of the VIE grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, appointing directors, supervisors and officers of the VIE as well as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such shareholders of the VIE. The proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders of the VIE do not have the right to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive option contract
Under which each shareholder of the VIE granted 9F or any third party designated by 9F the exclusive and irrevocable right to purchase from such shareholders of the VIE, to the extent permitted by PRC law and regulations, all or part of their respective equity interests in the VIE for a purchase price equal to the registered capital. The shareholders of the VIE will then return the purchase price to 9F or any third party designated by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own option. The VIE and its shareholders agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity interests or declare any dividends. The restated option agreement will remain effective until 9F or any third party designated by 9F acquires all equity interest of the VIE.
Consent of spouse
The spouse of each shareholder of the VIE has entered into a spousal consent letter to acknowledge that he or she consents to the disposition of the equity interests held by his or her spouse in the VIE in accordance with the exclusive option agreement, the power of attorney and the equity pledge agreement regarding VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time to time. Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements contemplated under the mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity interests held by his or her spouse in the VIE do not constitute property jointly owned with his or her spouse and each such spouse unconditionally and irrevocably waives any right or interest in such equity
interests. 77 Loan Agreement Pursuant to the loan agreements between WFOEs and each shareholder of the VIE, WFOEs extended loans to the shareholders of the VIE, who had contributed the loan principal to the VIE as registered capital. The shareholders of VIE may repay the loans only by transferring their respective equity interests in VIE to
9F Inc.or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain effective until the date of full performance by the parties of their respective obligations thereunder.
VIE agreements that allow
Participation pledge agreement
Pursuant to equity interest pledge agreement, each shareholder of the VIE has pledged all of his or her equity interest held in the VIE to WFOEs to secure the performance by VIE and their shareholders of their respective obligations under the contractual arrangements, including the payments due to WFOEs for services provided. In the event that the VIE breach any obligations under these agreements, WFOEs as the pledgees, will be entitled to request immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds from the disposal of the pledged equity interests. The shareholders of the VIE shall not transfer their equity interests or create or permit to be created any pledges without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until the master exclusive service agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire or terminate.
Exclusive service contract
Pursuant to exclusive service agreement, WFOEs have the exclusive right to provide the VIE with technical support, consulting services and other services. WFOEs shall exclusively own any intellectual property arising from the performance of the agreement. During the term of this agreement, the VIE may not accept any services covered by this agreement provided by any third party. The VIE agree to pay service fees to be determined and adjusted at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement in writing.
Risks related to the VIE structure
Muliang Viagoobelieves that the contractual arrangements with the VIE and their current shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Muliang Viagoo'sability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
? Revoke business and operating licenses of
consolidated subsidiaries or affiliated entities;
? Suspend or restrict the operations of any related party transaction between
? Imposing fines or other requirements on
consolidated affiliated entities;
? Require the
entities to revise the relevant ownership structure or restructure operations;
? Restrict or prohibit the
public financing offer
? stop it
? Suspend or impose restrictions or onerous conditions on the
? Require the
Muliang Viagoo'sability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, Muliang Viagoomay not be able to consolidate the VIE in its consolidated financial statements as it may lose the ability to exert effective control over the VIE and its shareholders, and it may lose the ability to receive economic benefits from the VIE. Muliang Viagoocurrently does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, WFOEs, or the VIE. The following table sets forth the assets, liabilities, results of operations and cash flows of the VIE and their subsidiaries, which are included in Muliang Viagoo'sconsolidated financial statements after the elimination of intercompany balances and transactions: Under the VIE Arrangements, Muliang Viagoohas the power to direct activities of the VIE and can have assets transferred out of the VIE. Therefore, Muliang Viagooconsiders that there is no asset in the VIE that can be used only to settle obligations of the VIE, except for assets that correspond to the amount of the registered capital and PRC statutory reserves, if any. As the VIE are incorporated as limited liability companies under the Company Law of the PRC, creditors of the VIE do not have recourse to the general credit of Muliang Viagoofor any of the liabilities of the VIE. Currently there is no contractual arrangement which requires Muliang Viagooto provide additional financial support to the VIE. However, as Muliang Viagooconducts its businesses primarily based on the licenses held by the VIE, Muliang Viagoohas provided and will continue to provide financial support to the VIE. Revenue-producing assets held by the VIE include certain internet content provision ("ICP") licenses and other licenses, domain names and trademarks. The ICP licenses and other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses in the PRC, and therefore are integral to Muliang Viagoo'soperations. The ICP licenses require that core PRC trademark registrations and domain names are held by the VIE that provide the relevant services. Muliang Viagooconsolidates the following entities, including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable interest entities, Muliang Industry, and Zhongbao, 60% controlled Agritech Development, 99% controlled Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang and 51% controlled Heilongjiang. Accordingly, the 40% equity interest holder of Agritech Development, 1% equity interest holders in Fukang, 35% equity interest holders in Zhonglian, 20% interest in YunnanMuliang, and 49% equity interest in Heilongjiangare accounted as non-controlling interest in the Company's consolidated financial statements.
Use of estimates
In preparing financial statements in conformity with
U.S.GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.
We state accounts receivable at cost, net of allowance for doubtful accounts. Based on our past experience and current practice in the PRC, management provides for an 100% allowance for doubtful accounts equivalent to those accounts that are not collected within one year, and 50% for receivables outstanding for longer than six months. It is management's belief that the current bad debt allowance adequately reflects an appropriate estimate based on management's judgment. Inventory Valuation We value our fertilizer inventories at the lower of cost, determined on a weighted average basis, and net realizable value (the estimated market price). Substantially all inventory expenses, packaging and supplies are valued by
the weighted average method. 79 Revenue Recognition On
January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Results for the reporting period beginning after January 1, 2018are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605.
Management has determined that the adoption of ASC 606 did not impact the Company’s previously issued financial statements for any prior period or result in a cumulative adjustment to the opening retained earnings.
Revenue for sale of products is derived from contracts with customers, which primarily include the sale of fertilizer products and environmental protection equipment. The Company's sales arrangements do not contain variable consideration. The Company recognizes revenue at a point in time based on management's evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the products has been transferred to the customer. For vast majority of the Company's product sales, the performance obligations and control of the products transfer to the customer when products are delivered, and customer acceptance is made. Revenue for logistics-related service is derived from Viagoo subsidiaries. Through an online service platform, the company provides the operation management service to support customers. For VTM service, revenue is charged to carriers based on certain percentage of the freight charges. For VES service, revenue is recognized based on monthly subscription by vehicles and by users. For system integration service, revenue is recognized over time based on the progress of project and annual maintenance service. Pursuant to the guidance of ASC Topic 840, rent shall be reported as income by lessors over the lease term as it becomes receivable. The Company leased part of the building of the
Shanghainew plant to third parties as a warehouse. The Company recognizes building leasing revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned.
The Company accounts for income taxes under the provision of FASB ASC 740-10, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. New Accounting Standards In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) "Leases (Topic 842)". ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. For finance leases, a lessee is required to do the following:
? Recognize a right of use and a rental debt initially valued at
the present value of rents, in the statement of financial results
? Recognize interest on the lease liability separately from the amortization of
right-of-use asset in the statement of comprehensive income
? Classify repayments of the main part of the lease liability in
financing activities and interest payments on lease debt and
variable lease payments in operating activities in the statement of cash
For operating leases, a lessee is required to do the following:
? Recognize a right of use and a rental debt initially valued at
the present value of rents, in the statement of financial results
? Recognize a single lease cost, calculated so that the cost of the lease is
spread over the term of the lease on a generally straight-line basis
? Classify all cash payments as operating activities in the statement of
cash flows. In
July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not to recast their comparative periods in transition (the "Comparatives Under 840 Option"). ASU 2018-11 allows entities to change their date of initial application to the beginning of the period of adoption. In doing so, entities would:
? Apply ASC 840 in comparative periods.
? Provide the information required by ASC 840 for all periods that continue to
be presented in accordance with ASC 840.
? Recognize the effects of applying ASC 842 as a cumulative adjustment
retained earnings for the adoption period.
In addition, the FASB also issued a series of amendments to ASU 2016-02 that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard.
Management has reviewed the accounting pronouncements and adopted the new standard on
August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impacts of ASU 2018-13 on its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
The Company believes that no other recently issued accounting standards have had or are expected to have a material impact on its financial position or results of operations.
81 Results of Operations
We are mainly engaged in the manufacture and distribution of organic fertilizers in the PRC, which accounted for 91.5% of our total sales for the year ended
As a result of the COVID-19 outbreak in
December 2019and continuing in the year of 2020, the Company's businesses, results of operations, financial position and cash flows were adversely affected in 2020. However, the COVID-19 was under control for the year ended December 31, 2021in China. And we are growing our revenue and net income steadily currently and expect to keep growing for the coming years.
Results of operations for the years ended
Year Ended December 31, 2021 2020 Fluctuation $ $ $ % Revenues-fertilizer 9,730,962 10,548,324 (817,362 ) -7.7 % Revenues-logistic 904,320 378,853 525,467 138.7 %
Revenues-agricultural products 120 81,355
(81,235 ) -99.9 % Subtotal of revenue 10,635,402 11,008,532 (373,130 ) -3.4 % Cost-fertilizer 5,910,703 5,994,087 (83,384 ) -1.4 % Cost- logistic 477,978 133,905 344,073 257.0 %
Cost- agricultural products 90 120,765
(120,675 ) -99.9 % Subtotal of cost 6,388,771 6,248,757 140,014 2.2 % Gross profit 4,246,631 4,759,775 (513,144 ) -10.8 % Gross margin 39.93 % 43.24 % Operating expenses:
General and administrative expenses 2,033,234 2,677,054
(643,820 ) -24.0 % Selling expenses 467,859 464,942 2,917 0.6 % Total operating expenses 2,501,093 3,141,996 (640,903 ) -20.4 % Income(loss) from operations 1,745,538 1,617,779 127,759 7.9 % Other income (expense): Interest expense (151,720 ) (700,030 ) 548,310 -78.3 % Rent net income - 6,276 (6,276 ) -100.0 % Other income (expense), net 352,340 (339,097 ) 691,437 -203.9 % Total other income (expense) 200,620 (1,032,851 ) 1,233,471 -119.4 % Income before income taxes 1,946,158 584,928 1,361,230 232.7 % Income taxes 214,981 (394,979 ) 609,960 -154.4 % Net income (loss) 1,731,177 979,907 751,270 76.7 % Revenue. Revenue for fertilizer decreased from
$10,548,324for the year ended December 31, 2020to $9,730,962for the year ended December 31, 2021, which represented a decrease of $817,362, or approximately 7.7%. The decrease in revenue was mainly due to the economic depression resulting from continuous impact of COVID-19. However, there has been a general recovery in the economy after the height of the pandemic. We expect to see a trend of improving sales as the epidemic moves further into the past.
Logistics revenues went from
82 Cost of sales
Fertilizer cost of sales decreased by
Cost of sales for fertilizer increased from
$133,905for the year ended December 31, 2020to $477,978for the year ended December 31, 2021, which represented an increase of $344,073, or 257.0%.
The gross profit for fertilizer decreased from
$4,554,237for the year ended December 31, 2020to gross profit of $3,820,259for the year ended December 31, 2021. The gross margin decreased from 43.2% for the year ended December 31, 2020to 39.3% for the year ended December 31, 2021. The decreased gross margin was due to the increase in material cost.. The gross profit for logistic increased from $244,948for the year ended December 31, 2020to gross profit of $426,342for the year ended December 31, 2021. The gross margin decreased from 64.7% for the year ended December 31, 2020to 47.1% for the year ended December 31, 2021.
$467,859in selling expenses for the year ended December 31, 2021, compared to $464,942for the year ended December 31, 2020. We incurred $2,033,234in general and administrative expenses for the year ended December 31, 2021, compared to $2,677,054for the year ended December 31, 2020. Total selling, general and administrative expenses decreased by $643,820, or 24.0% for the year ended December 31, 2021as compared to the same period in 2020. Our selling expenses increased by $2,917and our general and administrative expenses decreased by $848,189. The decrease in general and administrative expenses was due to the improved management for the year ended December 31, 2021. We expect our general and administrative expense to increase for the next year, if we successfully complete our public offering. Interest expense
$151,720in interest expense during the year ended December 31, 2021, compared with interest expense of $700,030for the year ended December 31, 2020. The decreased interest expense reflects the decreased loan balance as
December 31, 2021. Net Income. Our net income was $1,731,177for the year ended December 31, 2021, compared with net income of $979,907for the year ended December 31, 2020, representing an increase of $751,270, or 76.7%. The significant increase in net income was mainly due to the significant decrease in General and administrative expenses, the significant decrease in interest expense, and gain from disposal of Land use right and Plant for the year ended December 31, 2021. Liquidity and Capital Resources Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2021and December 31, 2020our working capital was $5,403,720and $5,145,436, respectively. The improvement in our working capital deficit was reflecting faster decrease in our current liability, especially the significant decrease in current portion of long-term debt balance.
We have financed our operations over the years ended
The cash flow components are described below:
For the Years Ended December 31, 2021 2020 Net cash provided by (used in) operating activities
$ 4,930,236 $ 1,807,790Net cash provided by (used in) investing activities (1,158,773 ) (75,346 ) Net cash (used in) provided by financing activities (4,363,568 ) (1,368,247 ) Exchange rate effect on cash 281,284 (119,231 ) Net cash inflow (outflow) $ (310,821 ) $ 244,966
Cash flow from operating activities
Net cash provided by operating activities was
$4,930,236for the year ended December 31, 2021. Cash provided by operating activities for the year ended December 31, 2021consisted primarily of net income of $1,731,177which was adjusted by depreciation and amortization of $513,563. The Company had a decrease of $1,978,747in account receivable, a decrease of $10,758,708in other receivable, which was offset by an increase of $6,292,144in prepayment and a decrease of $2,393,158in accounts payable and accrued payables. Net cash provided by operating activities was $1,807,790for the year ended December 31, 2020. Cash provided by operating activities for the year ended December 31, 2020consisted primarily of net income of $979,907, which was adjusted by depreciation and amortization of $965,296, and deferred income tax assets of $429,232. The Company had an increase of $3,974,562in account payables, an increase of $870,166in other payable, which were offset by an increase of $6,121,606in accounts receivable, and an increase of $125,255in inventory.
Cash used in investing activities
Net cash used in investing activities was
Net cash used in investing activities was
Cash flows used in financing activities
Net cash used in financing activities was
Net cash used in financing activities was
$1,368,247for the year ended December 31, 2020. During the period, cash used in financing activities consisted of repayment of $845,807to related party, short term loan repayment of $802,440, and proceeds from issuing common stock of $280,000. We anticipate that our current cash reserves plus cash from our operating activities will not be sufficient to meet our ongoing obligations and fund our operations for the next twelve months. As a result, we will need to seek additional funding in the near future. We are looking to obtain additional funding through equity financing in the secondary market, and/or renewing our current obligations with loaners. We may also seek to obtain short-term loans from our directors or unrelated parties. Additional funding may not be available, or at acceptable terms, to us at this time. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results. 84 Contractual Commitments and Commitments for Capital Expenditure
The following table summarizes our contractual obligations as of
December 31, 2021and the effect those obligations are expected to have on our liquidity and cash flow in future periods. Payments Due by Period as of December 31, 2021 Less than 1 - 3 3 - 5 Over Total 1 Year Years Years 5 Years Contractual obligations Loans $ 1,458,616 $ 1,174,756 $ 283,860$ - $ - Others - - - - - $ 1,458,616 $ 1,174,756 $ 283,860$ - $ -
Commitments for capital expenditure
There is no investment commitment
Off-balance sheet items
We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in
the United States.
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