The following discussion of our financial condition and results of operations should also be read in conjunction with our unaudited consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. The following discussion contains forward-looking statements relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report. Business Overview
We are a holding company incorporated inNevada . As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries established inthe People's Republic of China , or "PRC" or "China ," and the variable interest entity, or "VIE." We control and receive the economic benefits of the VIE's business operations through certain contractual arrangements. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to a limitation on foreign ownership of internet technology companies and regulatory review of overseas listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. In addition, the VIE Agreements may not be effective in providing control over VIE. If we fail to comply with their rules and regulations, we may also be subject to sanctions imposed by PRC regulatory agencies, including theChinese Securities Regulatory Commission .
We primarily engage in the manufacturing and distribution of organic fertilizer and the sales of agricultural products in the PRC. Our organic fertilizer products are sold under our brand names "Zongbao," "Fukang," and "Muliang."
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 through our patented technology. Straws are common agricultural by-products. In PRC, farmers usually remove the straw stubble that remains after grains by burning them 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 a loss of nutrients. We turn waste into treasure by transforming the straws into organic fertilizer, effectively reducing air pollution. The straw organic fertilizer we produce does not contain the heavy metals, antibiotics, and harmful bacteria 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 healthy crops and vegetables. In addition, it can effectively reduce the use of chemical fertilizers and pesticides and reduce the penetration of large chemical fertilizers and pesticides into the soil, thus avoiding water pollution. Therefore, our fertilizer can effectively improve soil fertility and the quality and safety of agricultural products. We generated our revenue mainly from our organic fertilizers, which accounted for approximately 87.1% and 90.1% of our total revenue for the six months endedJune 30, 2022 , and 2021, respectively. We currently have two integrated factories in Weihai City,Shandong Province , PRC, to produce our organic fertilizers, which have been in operation sinceAugust 2015 . We plan to improve the technology for our existing straw organic 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. 31
In addition, we plan to engage in the processing and distribution of black goat products, with business commencing at the end of 2022. We are currently constructing a deep-processing slaughterhouse and processing plant that is expected to slaughter 200,000 black goats per year in Chuxiong City,Yunnan Province , inChina . Our black goat processing products include 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 at the end of 2022. We have sold our industrial land and buildings inShanghai through an administratively organized private sale before the end of the fiscal year endedDecember 31, 2021 . We have cleared all liens and legal claims attached to our subsidiary Zongbao and improved our cash position through the sale. We have completed the sale inApril 2021 . Viagoo Solutions
Viagoo logistic platform aims to provide a solution for shippers to easily optimize the logistics resources by either listing their assets in the platform for other shippers to book or requesting the logistic services via the platform. Furthermore, the flexible sharing model ensures shippers and carriers can get the best deals to reduce costs by maximizing unused resources. Viagoo platform provides full online tracking, route optimization, and capacity planning options to help the carriers efficiently manage their operations. Using the Internet of Things (IoT), GPS, mobile integration, document and data integration services, the Viagoo platform can empower shippers and carriers with an up-to-date digital platform to support their digital transformations. Furthermore, with a ready Application Programming Interface (API) to various eCommerce platforms, shippers and carriers can plan their digital strategies and grow their businesses.
Viagoo platform is built on a secured cloud environment tested and approved by some key corporate users in the healthcare and logistics sectors. Viagoo is seeking investments to expand its digital capability with advanced technology in its plans, particularly in 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, the 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 ofViagoo Pte Ltd , aSingapore -based online logistic platform, will enable the Muliang group of companies to optimize the transport logistics to lower the cost of delivery and increase efficiency. The platform will connect truck drivers to Muliang and provide end-to-end tracking of the delivery status. With this platform, it is expected to reduce delivery costs by 30%. Viagoo platform is expected to be opened to theChina market where other companies and merchants can book delivery services, and transporters can sign on to list and provide their services. Development work began inAugust 2020 to provide localization and support for map and address services inChina . The development and testing are expected to be completed inJune 2022 and ready
for launch inJuly 2022 . 32 Viagoo Business Model
Viagoo business model has three main revenue streams.
Viagoo Transport Marketplace (VTM) is the transaction platform for shippers and carriers to list and accept delivery jobs. In addition, the platform provides sharing functions where 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 result in huge cost savings.
? VTM provides single job and bulk orders or API connections for a job posting.
The fees are pre-calculated based on distance, areas, volume matric weight,
type of goods, delivery options, and time.
? Task tracking - Shippers can track the delivery status if the option for
tracking is required.
? eWallet option - eWallet will be used for the service purpose, and payment
will be deducted from the eWallet stored value.
? Reports - Delivery reports are available for shippers to track the performance
and status of the delivery operation. VTM is charged to carriers based on a certain percentage of the freight charges. In addition, other add-on services like online insurance, rest stop services will be an additional percentage charged to the service providers. Viagoo Enterprise Services (VES) - is a cloud-based service that provides the operation management to support the Transport and Logistics team. Through various modules, the carrier's transport management can greatly optimize the resources and achieve higher efficiency.
? Automatic Scheduling - Delivery / Invoice data will be pushed to the VES for
an automatic schedule to the driver via VES mobile app. The criteria of
automatic scheduling are based on location, time preference, and route zoning.
These criteria can be configured and fine-tuned as the business progresses.
? Route Optimisation - The system can automatically calculate the best routes
based on various delivery points and constraints such as "time window." With
route optimization, the transport planner can handle new delivery addresses
dynamically. Also, if there is a change in delivery plans due to various
unforeseen circumstances such as vehicle breakdown and customer last-minute
cancellation, the system can re-optimize quickly by pushing a button.
? VES Driver app - Task tracking - Once the tasks are started, they will be
tracked until they are completed. If e-sign is accepted, customers can sign
and acknowledge the acceptance of goods using VES' mobile sign feature built
into the app or by taking a photo of the signed invoices or delivering orders
(usually the last page of the document). ? Customer Notification - Customers will be notified via email upon the
completion of the delivery. A copy of the invoice/delivery order and 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 the
performance and status of the delivery operations.
? VES Temperature Sensor Tracking Services - This is an additional module for
real-time tracking of temperature control (via a GPS temperature tracking
device installed in the truck) trucks to prevent food waste and ensure food
safety.
VES is charged based on a monthly subscription by vehicles and by users. It is integrated with VTM and jobs received via VTM can be assigned and tracked automatically 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's smart logistics platform gains acceptance in local markets, we expect business opportunities to arise for us to custom-build enterprise solutions in the healthcare and logistics sectors. For example, Parkway Pantai Singapore uses us to custom build the online logistic job assignment and track lab sample collection/delivery between clinics/hospitals and labs. This is to facilitate efficient deployment of the delivery resources and to ensure compliance is achieved in a tightly controlled fashion. 33Recent Development Impact of COVID-19
Started inDecember 2019 , the outbreak of COVID-19 caused by a novel strain of the coronavirus has become widespread inChina and 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 ofJanuary 2020 . We followed the requirements of local health authorities to suspend operation and production and have employees work remotely in February andMarch 2020 . SinceApril 2020 , we gradually resumed production and are now operating at full capacity. As a result of the COVID-19 outbreak inDecember 2019 and 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. 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 withU.S. generally accepted accounting principles. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate 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. Accordingly, actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are those that reflect significant judgments, estimates, and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following are our critical accounting policies: 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") andSingapore dollar("SGD"); however, the accompanying consolidated financial statements have been translated and presented inUnited States Dollars ("USD"). 34 Principles of Consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIE, including the VIE' subsidiaries, for whichMuliang Viagoo is the primary beneficiary.
All transactions and balances among the Company, its subsidiaries, the VIE and the VIE' subsidiaries have been eliminated upon consolidation.
As PRC laws and regulations welcome to invest in organic fertilizer industry businesses,Muliang Viagoo operates 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"),Muliang Viagoo , through WFOEs, obtained control over Muliang Industry and its subsidiaries (collectively referred as "VIE"). The VIE Agreements enableMuliang Viagoo to (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,Muliang Viagoo is considered the primary beneficiary of the VIE and has consolidated the VIE' financial results of operations, assets and liabilities inMuliang Viagoo's consolidated financial statements. In making the conclusion thatMuliang Viagoo is the primary beneficiary of the VIE,Muliang Viagoo's rights under the Power of Attorney also provideMuliang Viagoo's abilities to direct the activities that most significantly impact the VIE' economic performance.Muliang Viagoo also 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 toMuliang Viagoo . By charging service fees to be determined and adjusted at the sole discretion ofMuliang Viagoo , and by ensuring that the Master Exclusive Service Agreement is executed and remains effective,Muliang Viagoo has the rights to receive substantially all of the economic benefits
from the VIE.
Comparative VIE financials, are set forth below:
As of As of June 30, 2022 December 31, 2021 Current assets$ 20,655,965 $ 18,972,383 Non-current assets 8,230,436 8,995,363 Total Assets 28,886,401 27,967,746 Current liabilities 13,906,587 12,788,253 Non-current liabilities 8,965,451 422,480 Total liabilities 22,872,038 20,745,846 Total shareholders' equity (deficit)$ 6,014,363 $ 7,221,900 For six months ended June 30, 2022 2021 Net income $ - $ -
Net cash provided by (used in) operating activities 301,982 3,976,411 Net cash provided by (used in) investment activities (27,857 )
-
Net cash provided by (used in) financing activities
35
Quantitative Metrics of the VIE, Shanghai Muliang Industry Co., Ltd.are set forth below:
For the six months ended
Shanghai Muliang Industry WFOE Elimination (Shanghai Co., Ltd. and its of % of the Parent Mufeng) subsidiaries intercompany Consolidated Consolidated company - Note 3 (the VIEs) Subsidiaries balances Financials Financials A B C D E F=A+B+C+D+E G=C/F
Cash and cash equivalence $ - - 13,402 47,393 - 60,795 22 % Current assets - - 20,655,965 177,682 - 20,833,647 99 % Intercompany receivable from VIE - Note 3 8,815,769 - - (8,815,769 ) - N/A Investment in Subsidiaries 2,046,656 Note 1 - - - (2,046,656 ) - N/A Total Assets$ 2,046,656 8,815,769 28,886,401 875,094 (10,862,425 ) 29,761,495 97 % Current liabilities 11,784 31,081 13,906,587 609,483 14,558,935 96 % Intercompany payable to WFOE - - 8,815,769 - (8,815,769 ) - N/A Total liabilities$ 11,784 31,081 22,872,038 609,483 (8,815,769 ) 14,708,617 156 % Total shareholders' equity (deficit)$ 2,034,872 8,784,688 6,014,363 Note 2 265,611 (2,046,656 ) 15,052,878 40 % Revenues - - 3,038,749 450,752 - 3,489,501 87 % Gross profit - - 1,357,525 192,348 - 1,549,873 88 % Service fee expense from VIE to WFOE - - 868,131 - (868,131 ) - N/A Total operating expenses - - 1,279,937 295,025 (868,131 ) 706,831 181 % Operating Income - 868,131 945,719 (102,677 ) (868,131 ) 843,042 112 % Income from VIE - 868,131 - - (868,131 ) - N/A Income (loss) from equity method investment 970,808 - - - (970,808 ) - N/A Net income (loss)$ 970,808 868,131 - (107,519 ) (970,808 ) 760,612 0 % Total Comprehensive Income 970,808 868,131 (604,398 ) 85,195 (970,808 ) 348,928 -173 % OPERATING ACTIVITIES Net income 970,808 868,131 - (107,519 ) (970,808 ) 760,612 0 % Equity in earnings of subsidiaries (970,808 ) - - 970,808 - N/A Intercompany receivable / payable between WFOE and VIE - (868,131 ) 868,131 - - - N/A Net cash provided by (used in) operating activities $ - - 301,982 (180,913 ) - 121,069 249 % Net cash provided by (used in) investment activities - - (27,857 ) - - (27,857 ) 100 % Net cash provided by (used in) financing activities $ - - (266,408 ) - - (266,408 ) 100 %
Note 1 The investment refers to the acquisition of 100% shares of
Note 2 The Company's shareholders would not hold any ownership interest, direct or indirect, in the operating company inChina , i.e. the VIE, and would merely have a contractual relationship with the VIE.
Note 3 The intercompany balances of
The amount is accumulated from the date that the VIE agreements when into effect onFebruary 16, 2016 . As the Company has disclosed, the VIE has not paid amounts in cash or other means to settle the payables balances owed by the
VIE to the WOFE. 36
VIE Agreements that were entered to give
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 Agreement 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. Spousal Consent 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. 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 to9F 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 enables
Equity Interest 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.
Master Exclusive Service Agreement
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. 37
Risks in relation to the VIE structure
Muliang Viagoo believes 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 limitMuliang Viagoo's ability 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 the business and operating licenses ofMuliang Viagoo's PRC subsidiaries or consolidated affiliated entities;
? Discontinue or restrict the operations of any related-party transactions among
Muliang Viagoo's PRC subsidiaries or consolidated affiliated entities;
? Impose fines or other requirements on
consolidated affiliated entities;
? Require
to revise the relevant ownership structure or restructure operations; and/or;
? Restrict or prohibit
public offering to finance
? Shut downMuliang Viagoo's servers or blockingMuliang Viagoo's online platform;
? Discontinue or place restrictions or onerous conditions on
operations; and/or
? Require
Muliang Viagoo's ability 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 Viagoo may 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 Viagoo currently 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 inMuliang Viagoo's consolidated financial statements after the elimination of intercompany balances and transactions: Under the VIE Arrangements,Muliang Viagoo has the power to direct activities of the VIE and can have assets transferred out of the VIE. Therefore,Muliang Viagoo considers 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 ofMuliang Viagoo for any of the liabilities of the VIE. Currently there is no contractual arrangement which requiresMuliang Viagoo to provide additional financial support to the VIE. However, asMuliang Viagoo conducts its businesses primarily based on the licenses held by the VIE,Muliang Viagoo has 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 toMuliang Viagoo's operations. The ICP licenses require that core PRC trademark registrations and domain names are held by the VIE that provide the relevant services. 38
Muliang Viagoo consolidates the following entities, including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable interest entities, Muliang Industry, and Zhongbao, 60% controlledAgritech Development , 99% controlled Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang and 51% controlledHeilongjiang . Accordingly, the 40% equity interest holder ofAgritech Development , 1% equity interest holders in Fukang, 35% equity interest holders in Zhonglian, 20% interest inYunnan Muliang, and 49% equity interest inHeilongjiang are accounted as non-controlling interest in the Company's consolidated financial statements. The variable interest entities consolidated for which the Company is deemed the primary beneficiary. All significant inter-company accounts and transactions have been eliminated in consolidation. Use of Estimates
In preparing financial statements in conformity withU.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 and 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. Accordingly, actual results could differ from those estimates.
Accounts Receivable We state accounts receivable at cost, net of allowance for doubtful accounts. Based on our experience and current practice in the PRC, management provides a 100% allowance for doubtful accounts equivalent to those not collected within one year and 50% for receivables outstanding for longer than six months. Management believes 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. Revenue Recognition OnJanuary 1, 2018 , the Company adopted ASC 606 using the modified retrospective method. Results for the reporting period beginning afterJanuary 1, 2018 , are 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 reported financial statements in any prior period, nor did it result in a cumulative-effect adjustment to opening retained earnings.
39
Revenue for the 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 considerations. 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 services 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 a certain percentage of the freight charges. For VES service, revenue is recognized based on monthly subscriptions by vehicles and by users. For system integration service, revenue is recognized over time based on the progress of the 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 currently leased part of the building of theShanghai new plant to third parties as a warehouse. Accordingly, the Company recognizes building leasing revenue over the beneficial period described by the agreement, as the revenue is realized or
realizable and earned. Income Taxes 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 InFebruary 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 afterDecember 15, 2018 . Early adoption is permitted. For finance leases, a lessee is required to do the following:
? Recognize a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments, in the statement of financial
position
? Recognize interest on the lease liability separately from amortization of the
right-of-use asset in the statement of comprehensive income
? Classify repayments of the principal portion of the lease liability within
financing activities and payments of interest on the lease liability and
variable lease payments within operating activities in the statement of cash
flows.
For operating leases, a lessee is required to do the following:
? Recognize a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments, in the statement of financial
position
? Recognize a single lease cost, calculated so that the cost of the lease is
allocated over the lease term on a generally straight-line basis
? Classify all cash payments within operating activities in the statement of
cash flows. 40
InJuly 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 the comparative periods.
? Provide the disclosures 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-effect adjustment to
retained earnings for the period of adoption. 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.
The management has reviewed the accounting pronouncements and adopted the new
standard on
InDecember 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 afterDecember 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. InAugust 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 afterDecember 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. InFebruary 2020 , the FASB issued ASU 2020-02, "Financial Instruments - Credit Losses (Topic 326) and Leases (topic 842) Amendments to SEC Paragraphs Pursuant toSEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (topic 842)". This ASU provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. This ASU is effective for interim and annual periods beginning afterDecember 15, 2019 , and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements. The Company believes that no other accounting standards were recently issued that had or are expected to have a material impact on our financial position or results of operations. Results of Operations
We are principally engaged in the organic fertilizer manufacture and
distribution business in the PRC, which account for 87.1% of our total revenue
for the six months ended
As a result of the COVID-19 outbreak inDecember 2019 and 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 six months endedJune 30, 2022 inChina . And we are growing our revenue steadily currently and will keep growing through 2022. 41
Results of Operations for the Three Months Ended
Three Months Ended June 30, 2022 2021 Fluctuation $ $ $ % Revenues-fertilizer 1,093,541 2,336,367 (1,242,826 ) -53.2 % Reveues-logistic 95,885 226,185 (130,300 ) -57.6 % Subtoal of revenue 1,189,426 2,562,552 (1,373,126 ) -53.6 % Cost-fertilizer 549,534 1,372,824 (823,290 ) -60.0 % Cost- logistic 59,822 134,380 (74,558 ) -55.5 % Subtotal of cost 609,356 1,507,204 (897,848 ) -59.6 % Gross profit 580,070 1,055,348 (475,278 ) -45.0 % Gross margin 48.77 % 41.18 % Operating expenses:
General and administrative expenses 136,663 380,564 (243,901 ) -64.1 % Selling expenses 82,989 137,884 (54,895 ) -39.8 % Total operating expenses 219,652 518,448 (298,796 ) -57.6 % Income(loss) from operations 360,418 536,900 (176,482 ) -32.9 % Other income (expense): Interest expense (34,299 ) (48,807 ) 14,508 -29.7 % Other income (expense), net (22,216 ) 50,432 (72,648 ) -144.1 % Total other income (expense) (56,515 ) 1,625 (58,140 ) -3577.8 % Income before income taxes 303,903 538,525
(234,622 ) -43.6 % Income taxes 5,466 - 5,466 N/A Net income (loss) 298,437 538,525 (240,088 ) -44.6 % Revenue
Total revenue for fertilizer decreased from$2,336,367 for the three months endedJune 30, 2021 , to$1,093,541 for the three months endedJune 30, 2022 , which represented a decrease of$1,242,826 , or approximately 53.2%. The decrease in revenue was mainly due to the continuing impact of COVID-19. Traditionally, we experience some seasonality in our sales. We tend to sell more fertilizer products in the second half of the year. Additionally, 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.
Our revenue for logistic also decreased from
Cost of sales
Cost of sales for fertilizer decreased from$1,372,824 for the three months endedJune 30, 2021 , to$549,534 for the three months endedJune 30, 2022 , which represented a decrease of approximately$823,290 , or 60.0%. The decrease in the cost of revenue for fertilizer was in line with the decrease in revenue. Cost of sales for logistic decreased from$134,380 for the three months endedJune 30, 2021 , to$59,822 for the three months endedJune 30, 2022 , which represented a decrease of approximately$74,558 , or 55.5%. The decrease in the cost of revenue for logistic was in line with the decrease in revenue. 42 Expenses
We incurred$82,989 in selling expenses for the three months endedJune 30, 2022 , compared to$137,884 for the three months endedJune 30, 2021 . We incurred$136,663 in general and administrative expenses for the three months endedJune 30, 2022 , compared to$380,564 for the three months endedJune 30, 2021 . Total selling, general and administrative expenses decreased by$298,796 , or 57.6% for the three months endedJune 30, 2022 , as compared to the same period in 2021. Our selling expenses decreased by$54,895 , and our general and administrative expenses decreased by$243,901 . We expect our general and administrative expenses to increase in the near future if we successfully complete our public offering. Interest income (expense)
We incurred$34,299 in interest expense during the three months endedJune 30, 2022 , compared with interest expense of$48,807 for the three months ended
June 30, 2021 . Net income
Our net income was
Results of Operations for the Six Months Ended
Six Months Ended June 30, 2022 2021 Fluctuation $ $ $ % Revenues-fertilizer 3,038,749 3,721,181 (682,432 ) -18.3 % Reveues-logistic 450,752 410,338 40,414 9.8 % Reveues-others - 120 (120 ) -100.0 % Subtoal of revenue 3,489,501 4,131,639 (642,138 ) -15.5 % Cost-fertilizer 1,681,224 2,176,053 (494,829 ) -22.7 % Cost- logistic 258,404 231,903 26,501 11.4 % Cost- others - 89 (89 ) -100.0 % Subtotal of cost 1,939,628 2,408,045 (468,417 ) -19.5 % Gross profit 1,549,873 1,723,594 (173,721 ) -10.1 % Gross margin 44.42 % 41.72 % Operating expenses:
General and administrative expenses 586,234 709,256 (123,022 ) -17.3 % Selling expenses 120,597 209,404 (88,807 ) -42.4 % Total operating expenses 706,831 918,660 (211,829 ) -23.1 % Income(loss) from operations 843,042 804,934 38,108 4.7 % Other income (expense): Interest expense (77,566 ) (65,645 ) (11,921 ) 18.2 % Other income (expense), net 1,542 59,740 (58,198 ) -97.4 % Total other income (expense) (76,024 ) (5,905 ) (70,119 ) 1187.5 % Income before income taxes 767,018 799,029
(32,011 ) -4.0 % Income taxes 6,406 - 6,406 N/A Net income (loss) 760,612 799,029 (38,417 ) -4.8 % Revenue Total revenue for fertilizer decreased from$3,721,181 for the six months endedJune 30, 2021 , to$3,038,749 for the six months endedJune 30, 2022 , which represented a decrease of$682,432 , or approximately 18.3%. The decrease in revenue was mainly due to the continuing impact of COVID-19. Traditionally, we experience some seasonality in our sales. We tend to sell more fertilizer products in the second half of the year. Additionally, 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.
Our revenue for logistic also decreased from
43 Cost of sales Cost of sales for fertilizer decreased from$2,176,053 for the six months endedJune 30, 2021 , to$1,681,224 for the six months endedJune 30, 2022 , which represented a decrease of approximately$494,829 , or 22.7%. The decrease in the cost of revenue for fertilizer was in line with the decrease in revenue. Cost of sales for logistic increased from$231,903 for the six months endedJune 30, 2021 , to$258,404 for the six months endedJune 30, 2022 , which represented an increase of approximately$26,501 , or 11.4%. The increase in the cost of revenue for logistic was in line with the increase in revenue. Gross profit The gross profit for fertilizer decreased from$1,545,128 for the six months endedJune 31, 2021 , to a gross profit of$1,357,525 for the six months endedJune 30, 2022 . And the gross margin for fertilizer slightly increased from 41.5% for the six months endedJune 30, 2021 , to 44.7% for the six months endedJune 30, 2022 . The gross profit for logistic increased from$178,435 for the six months endedJune 30, 2021 , to a gross profit of$192,348 for the six months endedJune 30, 2022 . And the gross margin for logistic decreased from 43.5% for the six months endedJune 30, 2021 , to 42.7% for the six months endedJune 30, 2022 Expenses
We incurred$120,597 in selling expenses for the six months endedJune 30, 2022 , compared to$209,404 for the six months endedJune 30, 2021 . We incurred$586,234 in general and administrative expenses for the six months endedJune 30, 2022 , compared to$709,256 for the six months endedJune 30, 2021 . Total selling, general and administrative expenses decreased by$211,829 , or 23.1% for the six months endedJune 30, 2022 , as compared to the same period in 2021. Our selling expenses decreased by$88,807 , and our general and administrative expenses decreased by$123,022 . We expect our general and administrative expenses to increase in the near future if we successfully complete our public offering. Interest income (expense) We incurred$77,566 in interest expense during the six months endedJune 30, 2022 , compared with interest expense of$65,645 for the six months endedJune 30, 2021 . Net income
Our net income was
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 a going concern basis. AtJune 30, 2022 andDecember 31, 2021 our net current assets (working capital) were$6,274,712 and$5,403,720 , respectively.
We have financed our operations over the six months ended
The components of cash flows are discussed below:
Six Months EndedJune 30, 2022 2021
Net cash provided by (used in) operating activities
-
Net cash used in financing activities (266,408 ) (3,974,127 ) Exchange rate effect on cash 195,978 62,146 ) Net cash inflow (outflow)$ 22,782 $ (293,168 ) 44
Cash Provided by Operating Activities
Net cash provided by operating activities was$121,069 for the six months endedJune 30, 2022 . The net cash inflow consisted primarily of net income of$760,612 , depreciation and amortization of$311,998 , an increase of$2,282,413 in account payable, a decrease of$527,517 in account receivable, a bad debt provision of$350,169 , which were offset by an increase of$1,525,324 in prepayment, an increase of$1,908,767 in inventory, a decrease of$205,385 in advance from customers, and a decrease of$529,642 in other payable. Net cash provided by operating activities was$3,618,813 for the six months endedJune 30, 2021 . The net cash inflow consisted primarily of net income of$799,029 , depreciation and amortization of$284,392 , a decrease of$4,028,765 in account receivable, a decrease of$10,723,849 in other receivable, which were offset by an increase of$3,842,909 in prepayment, a decrease of$5,540,309 in accounts payable and accrued payables, and a decrease of$2,942,573 in other payable.
Cash used in Investing Activities
The Company purchased office euipment in amount of$27,857 for the six months endedJune 30, 2022 . There is no cash flow in investing activities for the
six months endedJune 30, 2021 .
Cash Used in Financing Activities
Net cash used in financing activities was$266,408 for the six months endedJune 30, 2022 . During the period, cash used in financing activities mainly consisted of the repayment to related parties of$267,034 and offset by proceeds from short-term loan of$ 626 . Net cash used in financing activities was$3,974,127 for the six months endedJune 30, 2021 . During the period, cash used in financing activities mainly consisted of the proceeds from related parties of$629,490 , and repayment of short-term loan of$4,603,617 . We anticipate that our current cash reserves plus cash from our operating activities will not be sufficient to meet our ongoing obligations and fund our operations for the next twelve months. As a result, we will need to seek additional funding in the near future. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of shares of our common stock or renewing our current obligations with lenders. We may also seek to obtain short-term loans from our directors or unrelated parties. Additional funding may not be available, or at acceptable terms, to us at this time. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results.
Contractual Commitments and Commitments for Capital Expenditure
Contractual Commitments
The following table summarizes our contractual obligations atJune 30, 2022 and the effect those obligations are expected to have on our liquidity and cash
flow in future periods. Payments Due by Period as of June 30, 2022 Less than 2 - 3 4 - 5 Over Total 1 Year Years Years 5 Years Contractual obligations Loans$ 1,159,821 $ 1,108,810 $ 51,011 , $ - $ - Others - - - - -$ 1,159,821 $ 1,108,810 $ 51,011 $ - $ - 45
Commitments for Capital Expenditure
There were no non-cancelable commitments for capital expenditure as of
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 inthe United States .
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