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 our variable interest entity, or "VIE." We control and receive the economic benefits of our 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, our 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 91.7% and 100% of our total revenue for the nine months endedSeptember 30, 2021 , and 2020, 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. With the focus on producing organic fertilizers, we also sell 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 nine months endedSeptember 30, 2021 , and 2020. We expect to generate more revenues from the sales of apples as the apple orchards become more mature in the next few years. 31
In addition, we plan to engage in the processing and distribution of black goat products, with business commencing at the end of 2021. 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 2021. We have sold our industrial land and buildings inShanghai through an administratively organized private sale before the end of the fiscal year endedDecember 31, 2020 . 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 inFebruary 2021 and ready for launch inApril 2021 . Viagoo Business Model
Viagoo business model has three main revenue streams.
32
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. 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.
33
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
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
Principles of Consolidation
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.
34
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 provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company is subject to the Enterprise Income Tax law ("EIT") ofthe People's Republic of China . The Company's operations in producing and selling fertilizers are subject to the 25% enterprise income tax. 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. 35
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. 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 91.7% of our total revenue
for the nine 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 nine months endedSeptember 30, 2021 inChina . And we are growing our revenue steadily currently and will keep growing through 2021.
36 Results of Operations for the Three Months EndedSeptember 30, 2021 and 2020 Three Months Ended September 30, 2021 2020 Fluctuation $ $ $ %
Revenues-fertilizer 3,135,009 3,079,335 55,674 1.81 % Reveues-logistic 206,521 - 206,521 N/A Reveues-agricutural products - 69,387 - N/A Subtoal of revenue 3,341,530
3,148,722 262,195 8.33 % Cost-fertilizer 2,058,843 1,644,008 414,835 25.23 % Cost- logistic 95,943 - 95,943 N/A
Cost- agricultural products -
82,987 - N/A Subtotal of cost 2,154,786 1,726,995 510,778 29.58 % Gross profit 1,186,744 1,421,727 (248,583 ) -17.48 % Gross margin 35.51 % 45.15 % Operating expenses: General and administrative expenses 348,288
487,486 (139,198 ) -28.55 % Selling expenses 122,274 156,063 (33,789 ) -21.65 % Total operating expenses 470,562 643,549 (172,987 ) -26.88 % Income(loss) from operations 716,182 778,178 (75,596 ) -9.71 % Other income (expense): Interest expense (25,884 ) (147,404 ) 121,520 -82.44 % Rent net income - 2,923 (2,923 ) N/A Other income (expense), net 43,773 15,849 27,924 176.19 % Total other income (expense) 17,889 (128,632 ) 146,521 -113.91 % Income before income taxes 734,071 649,546 70,925 10.92 % Income taxes 7,469 18,834 (11,365 ) N/A Net income (loss) 726,602 630,712 82,290 13.05 % Revenue
Total revenue for fertilizer increased from$3,079,335 for the three months endedSeptember 30, 2020 , to$3,135,009 for the three months endedSeptember 30, 2021 , which represented an increase of$55,674 , or approximately 1.81%. The increase in revenue was mainly due to the restoring confidence in the future economic growth for most of our customers. 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. Cost of sales
Cost of sales for fertilizer increased from$1,644,008 for the three months endedSeptember 30, 2020 , to$2,058,843 for the three months endedSeptember 30, 2021 , which represented an increase of approximately$414,835 , or 25.23%. The increase in the cost of revenue for fertilizer was in line with the increase in revenue. Gross profit The gross profit decreased from$1,421,727 for the three months endedSeptember 30, 2020 , to a gross profit of$1,186,744 for the three months endedSeptember 30, 2021 . The gross margin decreased from 45.15% for the three months endedSeptember 30, 2020 , to 35.51% for the three months endedSeptember 30, 2021 . Expenses We incurred$122,274 in selling expenses for the three months endedSeptember 30, 2021 , compared to$156,063 for the three months endedSeptember 30, 2020 . We incurred$348,288 in general and administrative expenses for the three months endedSeptember 30, 2021 , compared to$487,486 for the three months endedSeptember 30, 2020 . Total selling, general and administrative expenses decreased by$172,987 , or 26.88% for the three months endedSeptember 30, 2021 , as compared to the same period in 2020. Our selling expenses decreased by$33,789 , and our general and administrative expenses decreased by$139,198 . We expect our general and administrative expenses to increase in the near future if we successfully complete our public offering. 37 Interest income (expense) We incurred$25,884 in interest expense during the three months endedSeptember 30, 2021 , compared with interest expense of$147,404 for the three months endedSeptember 30, 2020 . Net income
Our net income was
Results of Operations for the Nine Months EndedSeptember 30, 2021 and 2020
Nine Months Ended September 30, 2021 2020 Fluctuation $ $ $ % Revenues-fertilizer 6,856,190 6,986,986 (130,796 ) -1.87 % Reveues-logistic 616,859 - 616,859 N/A Reveues-agricutural products 120 214,867 (214,747 ) -99.94 % Subtoal of revenue 7,473,169 7,201,853 271,316 3.77 % Cost-fertilizer 4,234,896 3,920,444 314,452 8.02 % Cost- logistic 327,845 - 327,845 N/A
Cost- agricultural products 90 156,105
(156,015 ) -99.94 % Subtotal of cost 4,562,831 4,076,549 486,282 11.93 % Gross profit 2,910,338 3,125,304 (214,966 ) -6.88 % Gross margin 38.94 % 43.40 % Operating expenses: General and administrative expenses 1,057,544 1,396,869
(339,325 ) -24.29 % Selling expenses 331,678 266,072 65,606 24.66 % Total operating expenses 1,389,222 1,662,941 (273,719 ) -16.46 % Income(loss) from operations 1,521,116 1,462,363 58,753 4.02 % Other income (expense): Interest expense (91,529 ) (344,179 ) 252,650 -73.41 % Rent net income - 6,309 (6,309 ) N/A Other income (expense), net 103,513 11,738 91,775 781.86 % Total other income (expense) 11,984 (326,132 ) 338,116 -103.67 % Income before income taxes 1,533,100 1,136,231 396,869 34.93 % Income taxes 7,469 34,433 -26,964 N/A Net income (loss) 1,525,631 1,101,798 423,833 38.47 % Revenue Total revenue for fertilizer slightly decreased from$6,986,986 for the nine months endedSeptember 30, 2020 to$6,856,190 for the nine months endedSeptember 30, 2021 , which represented a decrease of$130,796 , or approximately negative 1.87%. 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. 38 Cost of sales
The cost of sales for fertilizer slightly increased from$3,920,444 for the nine months endedSeptember 30, 2020 to$4,234,896 for the nine months endedSeptember 30, 2021 , which represented an increase of approximately$314,452 , or 8.02%. The increase in cost of revenue for fertilizer was due to the increase in raw materials Gross profit The gross profit decreased from$3,125,304 for the nine months endedSeptember 30, 2020 to a gross profit of$2,9104,338 for the nine months endedSeptember 30, 2021 . The gross margin decreased from 43.0% for the nine months endedSeptember 30, 2020 to 38.94% for the nine months endedSeptember 30, 2021 .
Expenses We incurred$331,678 in selling expenses for the nine months endedSeptember 30, 2021 , compared to$266,072 for the nine months endedSeptember 30, 2020 . We incurred$1,057,544 in general and administrative expenses for the nine months endedSeptember 30, 2021 , compared to$1,396,869 for the nine months endedSeptember 30, 2020 . Total selling, general and administrative expenses decreased by$273,719 , or 16.46% for the nine months endedSeptember 30, 2021 , as compared to the same period in 2020. Our selling expenses increased by$65,606 , and our general and administrative expenses decreased by$339,325 . 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
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. AtSeptember 30, 2021 andDecember 31, 2020 our net current assets (working capital) were$4,469,722 and$5,145,436 , respectively.
We have financed our operations over the nine months ended
The components of cash flows are discussed below:
Nine Months Ended September 30, 2021 2020 Net cash provided by (used in) operating activities$ 4,388,257 $ 2,021,694 Net cash provided by (used in) investing activities (1,221,133 (42,579 ) Net cash used in financing activities (3,594,247 ) (2,080,739 ) Exchange rate effect on cash 156,869 89,829 Net cash inflow (outflow)$ (270,255 ) $ (11,795 ) 39
Cash Provided by Operating Activities
Net cash provided by operating activities was$4,388,257 for the nine months endedSeptember 30, 2021 . The net cash inflow consisted primarily of net income of$1,525,631 , depreciation and amortization of$532,346 , a decrease of$4,660,950 in account receivable, a decrease of$10,746,267 in other receivable, which were offset by an increase of$979,020 in prepayment, a decrease of$9,107,812 in accounts payable and accrued payables, and a decrease of$3,068,139 in other payable. Net cash provided by operating activities was$2,021,694 for the nine months endedSeptember 30, 2020 . The net cash inflow consisted primarily of net income of$1,101,798 , depreciation and amortization of$711,530 , an increase of$4,678,264 in account payable and accrued payables, an increase of$324,745 in other payable, a decrease of$82,709 in inventory, which was offset by an increase of$2,017,922 in prepayment, an increase of$2,918,741 in accounts receivable.
Cash used in Investing Activities
Net cash used in investing activities was$1,221,133 for the nine months endedSeptember 30, 2021 . The activities referred to the construction in progress
of$1,221,133 .
Net cash used in investing activities was
Cash Used in Financing Activities
Net cash used in financing activities was$3,594,247 for the nine months endedSeptember 30, 2021 . During the period, cash used in financing activities mainly consisted of the proceeds from related parties of$1,023,389 and repayment of short-term loan of$4,617,637 . Net cash used in financing activities was$2,080,739 for the nine months endedSeptember 30, 2020 . During the period, cash used in financing activities consisted of the repayment to related parties of$1,266,476 and repayment of a short-term loan of$814,263 . We anticipate that our current cash reserves plus cash from our operating activities will not be sufficient to meet our ongoing obligations and fund our operations for the next twelve months. As a result, we will need to seek additional funding in the near future. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of shares of our common stock or renewing our current obligations with lenders. We may also seek to obtain short-term loans from our directors or unrelated parties. Additional funding may not be available, or at acceptable terms, to us at this time. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results.
Contractual Commitments and Commitments for Capital Expenditure
Contractual Commitments
The following table summarizes our contractual obligations atSeptember 30, 2021 and the effect those obligations are expected to have on our liquidity and
cash flow in future periods. Payments Due by Period as of September 30, 2021 Less than 2 - 3 4 - 5 Over Total 1 Year Years Years 5 Years Contractual obligations Loans$ 1,156,938 $ 1,156,938 $ -1 $ - $ - Others - - - - -$ 1,156,938 $ 1,156,938 $ - $ - $ - 40
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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