Business Overview
We primarily engage in researching, developing, manufacturing and selling bamboo
charcoal biomass organic fertilizers, amino acid water-soluble fertilizers,
selenium-rich foliage fertilizers and other types of fertilizers in the PRC
through our subsidiary,
We generated our revenue from the sales of our organic fertilizers. We currently have one integrated factory covering a land area of 143,590 square feet in Yichun City,Jiangxi Province , PRC to produce our organic fertilizers, which has been in operations since 2017. We plan to expand our production capacity and build an automatic and standardized production line. We believe that our brand reputation and ability to tailor our products to meet the requirements of various regions of the PRC affords us a competitive advantage. We purchase the majority of our raw materials from suppliers located in the PRC and use suppliers that are located in close proximity to our manufacturing facilities, which helps us to control our cost of revenue. Amidst the COVID-19 outbreak in 2020, our business operations were adversely impacted. In particular, the lockdown policy inChina has caused delays in the logistics industry and consequently, the supply of our raw materials was impacted. In addition, the restrictions of face-to-face interactions have slowed down the process of our marketing, client meeting and new products launching activities. The spread of COVID-19 has been effectively controlled inChina . People's daily life and businesses' operations started going to normalcy. As a result, we believe these negative impacts are temporary. However, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the economy ofChina and the rest of the world and, as such, the extent of the business disruption and the related financial impact cannot be reasonably estimated at this time.China is the principal market for our products, which are primarily sold to our customers through distributors in over twenty provinces inChina , includingJiangxi ,Hunan ,Hubei ,Fujian ,Jiangsu ,Shanghai ,Zhejiang ,Sichuan ,Chongqing ,Guangdong ,Hainan ,Xinjiang ,Guizhou ,Anhui ,Shandong ,Shanxi ,Shaanxi ,Liaoning ,Jilin ,Heilongjiang ,Yunnan andGuangxi provinces. Critical Accounting Policies
Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. Our financial statements reflect the selection and application of accounting policies that require management to make significant estimates and judgments. We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our financial statements included elsewhere in this report. Basis of Presentation
Our financial statements are prepared in accordance with generally accepted
accounting principles in
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the Company has incurred a net income of$107,620 for the three months endedMarch 31, 2022 . As ofMarch 31, 2022 , the Company had an accumulated deficit of$2,329,337 , working capital deficit of$ 3,650,670 ; its net cash used in operating activities for the three months endedMarch 31, 2022 was$335,858 .
The Company plans to continue its expansion and investments, which will require continued improvements in revenue, net income, and cash flows.
19 Revenue Recognition The Company adopted ASC 606 "Revenue Recognition", and recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company derives its revenues from the sale of fertilizer products. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfils its obligations under each of its agreements: ? identify the contract with a customer; ? identify the performance obligations in the contract; ? determine the transaction price;
? allocate the transaction price to performance obligations in the contract; and
? recognize revenue as the performance obligation is satisfied. Results of Operations
Comparison of the Three months ended
For the Three months ended March 31, Variance 2022 2021 Amount % $ $ $ Revenues 1,894,177 71,066 1,823,111 2565.38 % Cost of revenues 1,428,427 134,282 1,294,145 963.75 % Gross profit 465,750 (63,216 ) 528,966 (836.76 )% Operating expenses: Selling expenses 63,947 69,592 (5,645 ) (8.11 )%
General and administrative expenses 191,140 72,219 118,921 164.67 % Total operating expenses 255,087 141,811 113,276 79.88 % Loss from operations 210,663 (205,027 ) 415,690 (202.75 )% Other income (expense): Interest expense (8,355 ) (7,040 ) (1,315 ) 18.68 % Other income, net 159 16,567 (16,408 ) (99.04 )% Other expenses (94,847 ) - (94,847 ) - Total other income (103,043 ) 9,527 (112,570 ) (1181.59 )%
Loss before income taxes 107,620 (195,500
) 303,120 (155.05 )% Income taxes - - - Net loss 107,620 (195,500 ) 303,120 (155.05 )% Revenue For the three months endedMarch 31, 2022 , our total revenue was$1,894,177 , representing an increase of 2565.38% compared to$71,066 for the same period in 2021. This increase was mainly due to an increase in demand of our products after the Company developed and obtained more customers. 20
The Company's disaggregate revenue streams are summarized as follows:
For the Three months endedMarch 31, 2022 2021
Revenues - Bamboo charcoal biomass organic fertilizers $
-
- - Revenues - High concentration of foliar fertilizer 100ML 5,305 720 Revenues - Water-soluble fertilizers 2.5L 252 200 Revenues - Water-soluble fertilizers 2L - 1,463 Revenues - Winter fertilizers 25KG 11,198 - Revenues - Winter fertilizers 40KG 1,838,701 6,388 Revenues - Grape organic fertilizers - 7,985 Revenues - Towel gourd bamboo charcoal biomass organic fertilizers - 7,250 Revenues - Blueberry fertilizers
- 2,619 Revenues - Others 38,721 8,022 Total revenues$ 1,894,177 $ 71,066 Cost of revenues Cost of revenues for the fertilizers was$1,428,427 and$134,282 for the three months endedMarch 31, 2022 and 2021, respectively, representing an increase of 963.75%. The increase in cost of sales was due to an increase in the revenues in first quarter of 2022. The Company's disaggregate cost of revenues streams are summarized as follows: For the Three months ended March 31, 2022 2021 Cost of revenues - Bamboo charcoal biomass organic fertilizers $
-
- 61
Cost of revenues - High concentration of foliar fertilizer 100ML
2,156 172 Cost of revenues - Water-soluble fertilizers 2.5L 3,771 99 Cost of revenues - Water-soluble fertilizers 2L - 31,211 Cost of revenues - Winter fertilizers 25KG 12,768 - Cost of revenues - Winter fertilizers 40KG 1,333,115 7,149 Cost of revenues - Grape organic fertilizers
- 18,331 Cost of revenues - Towel gourd bamboo charcoal biomass organic fertilizers
- 18,880 Cost of revenues - Blueberry fertilizers
- 5,337 Cost of revenues - Others 76,617 5,556 Total cost of revenues$ 1,428,427 $ 134,282 Gross Profit Our gross profit was positive$465,750 and negative$63,216 with gross margin of positive 25.0% and negative 89.0%, for the three months endedMarch 31, 2022 and 2021, respectively. 21 Selling Expenses Our selling expenses were$63,947 for the three months endedMarch 31, 2022 , representing an decrease of$5,645 or 8.11% compared to$69,592 for the three months endedMarch 31, 2021 .
General and Administrative Expenses
General and administrative expenses increased by
Research and Development ("R&D") Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company's research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled$42,529 and$6,171 for the three months endedMarch 31, 2022 and 2021, respectively. Net Income (loss) Our net income (loss) was$107,620 and$(195,500) for the three months endedMarch 31, 2022 and 2021, respectively, representing an increase of$303,120 . The Company is at its developing stage and we incurred more promotion fee by introducing our products to more customers acrossChina during the first quarter of 2022. The Company also incurred more material cost by developing more new product lines. The Company expects that more time is needed to achieve a better balance between our operating expenses and revenues.
Liquidity and Capital Resources
Our working capital deficit was
We have respectively financed our operations over the three months endedMarch 31, 2022 and 2021 primarily through proceeds from advances from related parties and the long-term loans.
The components of cash flows are discussed below:
For the Three months endedMarch 31, 2022 2021
Net cash used in operating activities
(10,206 ) (211,743 ) Net cash provided by financing activities 356,854 716,599 Exchange rate effect on cash (11,819 ) (1,041 ) Net cash inflow/(outflow)$ (1,029 ) $ 94,020 22
Cash used in Operating Activities
For the three months endedMarch 31, 2022 , net cash used in operating activities was$335,858 , which consisted primarily of net income of$107,620 , which was adjusted by depreciation and amortization of$37,167 . The Company had an increase of$303,998 in account payables and accrued payables which was due to the fact that the Company purchased raw materials and paid off the bills in longer terms, an increase of$635,196 in accounts receivable which was due to longer payment terms offered to loyal customers, an increase of$26,599 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment. The Company incurred an increase in inventories of$81,194 and an increase in other receivable of$41,654 which was due to an increase in advances to different departments and an increase in security deposit. For the three months endedMarch 31, 2021 , net cash used in operating activities was$409,795 , which consisted primarily of net loss of$195,500 , which was adjusted by depreciation and amortization of$9,517 . The Company had an increase of$97,611 in account payables and accrued payables which was due to the fact that the Company purchased raw materials and paid off the bills in longer terms, an increase of$24,254 in accounts receivable which was due to longer payment terms offered to loyal customers, an increase of$253,980 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment, which were offset by an increase of$66,106 in advances from customers which was due to the Company receiving more purchasing orders from more customers. The Company incurred an increase in inventories of 37,418 and an increase in other receivable of$71,877 which was due to an increase in advances to different departments and an increase in security deposit.
Cash used in Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was$211,743 for the three months endedMarch 31, 2021 . The activities consisted of$211,743 in purchasing plant and equipment and construction in progress.
Cash Provided by Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was$716,599 for the three months endedMarch 31, 2021 . During this period, cash provided by financing activities mainly included proceeds from related parties of$284,634 and long-term loans of$431,965 for operating expenses.
Off-balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to its shares and classified as shareholder's equity or that are not reflected in its consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us. 23
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