NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS
Muliang
Viagoo Technology, Inc (“Muliang Viagoo”), formerly known as M & A Holding Corporation., Mullan Agritech Inc.
and Muliang Agritech Inc. was incorporated under the laws of the State of Nevada on November 5, 2014. Muliang Viagoo’s
core business activities of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in
agricultural industry are conducted through several indirectly owned subsidiaries in China.
On
June 9, 2016, M & A Holding Corporation filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”)
with the Secretary of State of the State of Nevada, changing its name from “M & A Holding Corporation,” to “Mullan
Agritech, Inc.”
On
July 11, 2016, the Financial Industry Regulatory Authority (FINRA) effected in the marketplace the change of the corporate name
from “M & A Holding Corporation,” to “Mullan Agritech, Inc.”, and effective on such date.
On
April 4, 2019, the Company changed its corporate name from “Mullan Agritech Inc.” to “Muliang Agritech Inc.”
The name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG”.
On
June 26, 2020, Muliang Agritech, Inc. filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of
the State of the State of Nevada, changing its name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology,
Inc.”. The Company will trade under the new name upon approval by FINRA.
History
Shanghai
Muliang Industry Co., Ltd. (referred to herein as “Muliang Industry”) was incorporated in PRC on December 7, 2006
as a limited liability company, owned 95% by Lirong Wang and 5% by Zongfang Wang. Muliang Industry through its own operations
and its subsidiaries is engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic
fertilizers for use in the agricultural industry.
On
May 27, 2013, Muliang Industry entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding
equity of Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a corporation organized under the laws of the People’s
Republic of China. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009. Fukang is focused on the distribution
of organic fertilizers and the development of new bio-organic fertilizers. As a result of the completion of the transaction, Fukang
became a 99% owned subsidiary of Muliang Industry, with the remaining 1% equity interest owned by Mr. Hui Song.
On
July 11, 2013, Muliang Industry established a wholly owned subsidiary, Shanghai Muliang Agritech Development Co., Ltd. (“Agritech
Development”) in Shanghai, China. On November 6, 2013, Muliang Industry sold 40% of the outstanding equity of Agritech Development
to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Agritech Development does not currently conduct
any operations.
On
July 17, 2013, Muliang Industry entered into an equity purchase agreement to acquire 100% of the outstanding equity of Shanghai
Zongbao Environmental Construction Co., Ltd. (“Zongbao”) with consideration of approximately $3.2 million or RMB 20
million, effectively becoming the wholly-owned subsidiary of Muliang Industry. Zongbao was incorporated in Shanghai on January
25, 2008. Zongbao processes and distributes organic fertilizers. Zongbao wholly owns, Shanghai Zongbao Environmental Construction
Co., Ltd. Cangzhou Branch (“Zongbao Cangzhou”).
On
August 21, 2014, Muliang Agricultural Limited (“Muliang HK”) was incorporated in Hong Kong as an investment holding
company.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
January
27, 2015, Muliang HK incorporated a wholly foreign-owned enterprise, Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai
Mufeng”), in the People’s Republic of China (“PRC”).
On
July 8, 2015, Muliang Agritech entered into certain stock purchase agreement with Muliang Agriculture, Inc., pursuant to which
Muliang Agritech, for a consideration of $5,000, acquired 100% interest in Muliang HK and its wholly-owned subsidiary Shanghai
Mufeng. Both Muliang HK and Shanghai Mufeng are controlled by the Company’s sole officer and director, Lirong Wang.
On
July 23, 2015, Muliang Industry established a wholly owned subsidiary, Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang
Sales”) in Shanghai, China.
On
September 3, 2015, Muliang Agritech effected a split of its outstanding common stock resulting in an aggregate of 150,525,000
shares outstanding of which 120,000,000 were owned by Chenxi Shi the founder of Muliang Agritech and its sole officer and director.
The remaining 30,525,000 were held by a total of 39 investors.
On
January 11, 2016, Muliang Agritech issued 129,475,000 shares of its common stock to Lirong Wang for an aggregate consideration
of $64,737.50. On the same date, Chenxi Shi, the sole officer and director of Muliang Agritech on that date, transferred 120,000,000
shares of the common stock of the Company held by him to Lirong Wang for $800 pursuant to a transfer agreement.
On
February 10, 2016, Shanghai Mufeng entered into a set of contractual agreements known as Variable Interest Entity (“VIE”)
Agreements, including (1) Exclusive Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option
Cooperation Agreement, with Muliang Industry, and its Principal Shareholders. As a result of the Stock Purchase Agreement and
the set of VIE Agreements, Shanghai Muliang Industry Co., Ltd., along with its consolidated subsidiaries, became entities controlled
by Muliang Agritech whereby Muliang Agritech would derive all substantial economic benefit generated by Muliang Industry and its
subsidiaries.
As
a result, Muliang Agritech has a direct wholly-owned subsidiary, Muliang HK and an indirectly wholly owned subsidiary Shanghai
Mufeng. Through its VIE Agreements, Muliang Agritech exercises control over Muliang Industry. Muliang Industry has two wholly-owned
subsidiaries (Zongbao and Muliang Sales), one 99% owned subsidiary (Fukang), one 60% owned subsidiary (Agritech Development),
and one indirectly wholly owned subsidiary Zongbao Cangzhou.
On
June 6, 2016, Muliang Industry established a wholly-owned subsidiary, namely, Muliang (Ningling) Bio-chemical Fertilizer Co. Ltd
(“Ningling Fertilizer”) in Henan Province, the central plain of China. On October 12, 2017, the Company ceased operation
of Ningling Fertilizer and deregistered Ningling Fertilizer with the Administration for Industry and Commerce as the Land use
right was not approved by the government. The Company closed Ningling Fertilizer with net assets of $2,275 and accumulated deficit
of $34,739 as of October 12, 2017. The ceased operation does not constitute a strategic shift that will have a major effect on
our operations or financial results and as such, the disposal is not classified as discontinued operations in our consolidated
financial statements.
On
July 7, 2016, Muliang Industry established a subsidiary, namely, Zhonglian Huinong (Beijing) Technology Co., Ltd (“Zhonglian”)
in Beijing City, China. Muliang Industry owns 65% shares of Zhonglian, and a third-party company, Zhongrui Huilian (Beijing) Technology
Co., Ltd owns the other 35% shares. Zhonglian has no operating activity as of December 31, 2018.
On
October 27, 2016, Muliang Industry established a subsidiary, namely, Yunnan Muliang Animal Husbandry Development Co., Ltd (“Yunnan
Muliang”) in Yunnan Province, China. Muliang Industry owns 55% shares of Yunnan Muliang, and a third-party company, Shuangbai
County Development Investment Co., Ltd. owns the other 45% shares. On December 8, 2018, Muliang Industry acquired 25% of the shares
of Yunnan Muliang with a consideration of $727,125 (RMB5,000,000) from Shuangbai County Development Investment Co., Ltd. And the
other 20% of the shares were acquired by Lirong Wang. Yunnan Muliang was setup for goat slaughtering and processing project located
in Shuangbai County, Chuxiong City, Yunnan Province, PRC.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
On
March 21, 2019, Muliang Industry established a subsidiary, namely, Heilongjiang Suistraw Biotechnology Co., Ltd (“Heilongjiang”)
in Heilongjian Province,China. Muliang Industry owns 51% shares of Heilongjiang, Mr Lirong Wang owns 39% shares, and a third-party
individual owns the other 10% shares. Heilongjiang was established to develop the organic fertilizer business in the northeast
of China.
On
April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of
the issued and outstanding shares of the Company’s common stock, change of corporate name from “Mullan Agritech Inc.”
to “Muliang Agritech Inc.”, and creation of one hundred million (100,000,000) shares of Blank Check Preferred Stock.
On
April 5, 2019, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of
Nevada to reflect the Name Change and to authorize the creation of Blank Check Preferred Stock. As a result, the capital stock
of the Company consists of 500,000,000 shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred
stock, $0.0001 par value.
On
April 16, 2019, we filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of
Nevada to reflect the reverse stock split. Any fractional shares are to be rounded up to whole shares. The reverse stock split
does not affect the par value or the number of authorized shares of common stock of the Company.
The
reverse stock split and the name change took effect on May 7, 2019.
On
June 19, 2020, Muliang Agritech Inc. entered into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and all
the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo.
Viagoo
is a Singapore-based logistics sharing platform that enables shippers and carriers to share and optimize resources to lower cost
and increase efficiency. From last mile delivery to cross border transportation, the platform provides digital transaction contracts
for customers to source for service providers to deliver goods and services in a convenient manner. Viagoo partners with various
Singapore agencies to promote the platform to support urban logistics need in Singapore, such as Enterprise Singapore, a government
agency to support Singapore small and medium businesses, and Singapore Logistics Association.
Pursuant
to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and
to the Viagoo’s capital stock. The aggregate purchase price for the Shares shall be US$2,830,800, payable in 1,011,000 shares
of the Company’s restricted common stock, valued at $2.80 per share. The Company recognized $673,278 in goodwill as result
of this transaction.
Management
determined that the results of operations of Viagoo from June 19, 2020 to June 30, 2020 were not material to the Company’s
consolidated results of operations, and as a result has excluded them from the Company’s consolidated results of operations
and cash flows for the six months end June 30, 2020.
Muliang
Agritech, Muliang HK, Shanghai Mufeng, Muliang Industry, Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development,
Yunnan Muliang, Zhonglian, and Viagoo are referred to as subsidiaries. The Company and its consolidated subsidiaries are collectively
referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an
entity.
The
consolidated financial statements were prepared assuming that the Company has controlled Muliang HK and its intermediary holding
companies, operating subsidiaries, and variable interest entities: Shanghai Mufeng, Muliang Industry, Zongbao, Zongbao Cangzhou,
Muliang Sales, Fukang, Heilongjiang, and Agritech Development, from the first period presented. The transactions detailed above
have been accounted for as reverse takeover transaction and a recapitalization of the Company; accordingly, the Company (the legal
acquirer) is considered the accounting acquiree and Muliang HK (the legal acquiree) is considered the accounting acquirer. No
goodwill has been recorded for these transactions. As a result of this transaction, the Company is deemed to be a continuation
of the business of Muliang HK, Shanghai Mufeng, and Muliang Industry.
Liquidity
and Going Concern
As
reflected in the accompanying consolidated financial statements, we had net accumulated deficit of $8,475,253 and $9,571,836 as
of September 30, 2020 and December 31, 2019, respectively. Our cash balances as of September 30, 2020 and December 31, 2019 were
$92,073 and $103,868, respectively. We had current liabilities of $18,940,757 and $14,688,418 at September 30, 2020 and December
31, 2019, which would be due within the next 12 months. In addition, we had a working capital deficit of $5,144,319 and $6,213,140
at September 30, 2020 and December 31, 2019, respectively.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
In August, 2020, the land use right and
building of this factory was listed on the Taobao’s online auction platform for sale by the Shanghai Jinshan People’s
Court. The sale price achieved after competitive biddings was RMB 74,515,000 (approximately $10.8 million). Based on this, we have
entered into a settlement agreement with ABC for the settlement of the remaining balance of RMB 29,900,000 (approximately $4.3
million). We plan to repay ABC and amount owed to the contractor (RMB 24,800,000) with the sales proceeds and expect to receive
the remaining RMB19,815,000. We expect the sale to close on December 2020. We plan to use the remaining sales proceeds for general
working capital needs.
The
Company plans to continue its expansion and investments, which will require continued improvements in revenue, net income, and
cash flows.
The
ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business
plan, raise additional capital, and generate more revenues. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
NOTE
2 – SUMMARY OF SIGNIFICANT 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”); however, the accompanying consolidated
financial statements have been translated and presented in United States Dollars (“USD”).
Interim
Financial Statements
The
accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP)
applicable to interim financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities
and Exchange Commission. Accordingly, they do not include all of the information and disclosure required by accounting principles
generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative
of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the
financial position and the results of operations and cash flows for the interim periods have been included. These interim financial
statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019, as not all
disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial
statements follow the same accounting policies and methods of computations as the audited financial statements for the year ended
December 31, 2019.
Use
of Estimates
The
preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent
assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the
reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include
the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment
for long-term assets.
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% controlled Agritech Development, 99% controlled
Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang and 51% controlled Heilongjiang. The 40% equity interest holder
of Agritech Development, 1% equity interest holders in Fukang, 35% equity interest holders in Zhonglian, 20% interest in Yunnan
Muliang and 49% equity interest in Heilongjiang are accounted as non-controlling interest in the Company’s consolidated
financial statements.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Cash
and Cash Equivalents
For
purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three
months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions.
Accounts
Receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for
estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current
credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Inventories
Inventories,
consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower
of cost or market utilizing the weighted average method.
Property,
Plant and Equipment
Plant
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets
are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets
when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included
in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation
and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance
these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress
until such time as the relevant assets are completed and ready for their intended use.
Estimated
useful lives of the Company’s assets are as follows:
|
|
Useful
Life
|
|
Building
|
|
20 years
|
|
Operating equipment
|
|
5-10 years
|
|
Vehicle
|
|
3-5 years
|
|
Electronic equipment
|
|
3-20 years
|
|
Office equipment
|
|
3-20 years
|
|
Apple orchard
|
|
10 years
|
|
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
apple orchard includes rental of an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to
purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become
commercially productive are capitalized, which require a two-year period. The estimated production life for apple tree is 10 years,
and the costs are depreciated without a residual value. Expenses incurred maintaining apple trees during the growth cycle until
seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in Process—apple
orchard, a component of inventories.
Depreciation
expenses pertaining to apple trees will be included in inventory costs for those apples to be sold and ultimately become a component
of cost of goods sold. Similar to other assets, the failure of our apple trees to be serviceable over the entirety of their anticipated
useful lives or to be sold at their anticipated residual value will negatively impact our operating results.
Intangible
Assets
Included
in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies
or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible
assets are being amortized using the straight-line method over their lease terms or estimated useful life.
Estimated
useful lives of the Company’s intangible assets are as follows:
|
|
Useful
Life
|
|
Land use rights
|
|
50 years
|
|
Non-patented technology
|
|
10 years
|
|
The
Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the
possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their
recorded value may not be recoverable. The Company computes amortization using the straight-line method over estimated useful
life of 50 years for the land use rights.
Impairment
of Long-lived Assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded
no impairment charge for the six months ended June 30, 2020 and 2019.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advances
from Customers
Advances
from customers consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize
the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance
with the Company’s revenue recognition policy.
Non-controlling
Interest
Non-controlling
interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a
component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change
of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included
in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any,
will be reported at fair value with any gain or loss recognized in earnings.
Revenue
Recognition
On
January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Results for the reporting period beginning
after January 1, 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.
Revenue
for sale of products is derived from contracts with customers, which primarily include the sale of fertilizer products and environmental
protection equipment. The Company’s sales arrangements do not contain variable consideration. The Company recognizes revenue
at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the
customer are satisfied and control of the products has been transferred to the customer. For vast majority of the Company’s
product sales, the performance obligations and control of the products transfer to the customer when products are delivered, and
customer has accepted the products.
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 the Shanghai new plant to third parties as warehouse. The Company recognizes
building leasing revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned.
The
Company recognized rental income from leasing a portion of its manufacturing facility located in Shanghai to third parties. For
the nine months ended September 30, 2020 and 2019, rental income of $33,890 and $181,478 were recognized as other income.
Cost
of Sales
Cost
of sales consists primarily of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor,
depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution
costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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”) of the People’s Republic of China. The Company’s
operations in producing and selling fertilizers are subject to the 25% enterprise income tax.
Related
Parties
Parties
are related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related
party transactions.
Accumulated
Other Comprehensive Income (Loss)
Comprehensive
income (loss) comprised of net income (loss) and all changes to the statements of stockholders’ equity, except those due
to investments by stockholders, changes in paid-in capital and distributions to stockholders. The Company’s comprehensive
income (loss) consist of net income (loss) and unrealized gains from foreign currency translation adjustments.
Foreign
Currency Translation
The
Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying consolidated financial
statements have been translated and presented in United States Dollars (“USD”). Results of operations and cash flows
are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate
at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities
reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance
sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars
are included in determining comprehensive income/loss. The translation adjustment for nine months ended September 30, 2020 and
2019 were gain of $281,571 and loss of $399,663 respectively. Transactions denominated in foreign currencies are translated into
the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign
currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All
of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material
transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on
the results of operations of the Company.
Asset
and liability accounts at September 30, 2020 and December 31, 2019 were translated at 6.7782 RMB to $1 USD and 6.9499 RMB to $1
USD, respectively, which were the exchange rates on the balance sheet dates. The average translation rates applied to the statements
of income for the nine months ended September 30, 2020 and 2019 were 6.8641 RMB and 6.8539 RMB to $1 USD, respectively.
Earnings
(Loss) per Share
Basic
earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common
shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share
gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants,
using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to
be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted
method. Earnings per share excludes all potential dilutive shares of common stock if their effect is anti-dilutive. There were
no potential dilutive securities at September 30, 2020 and December 31, 2019 and for the nine months ended September 30, 2020
and 2019.
Fair
Value of Financial Instruments
The
Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level
2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and
inputs derived from or corroborated by observable market data.
Level
3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market
participants would use in pricing the asset or liability based on the best available information.
The
carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers,
prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable
and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC
Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets
and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and
is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and
losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply
the fair value option to any outstanding instruments.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
following table summarizes the carrying values of the Company’s financial instruments:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Short-term loans
|
|
$
|
34,379
|
|
|
$
|
-
|
|
Current portion of long-term debt
|
|
|
4,403,486
|
|
|
|
5,373,859
|
|
Long-term loan
|
|
|
1,372,783
|
|
|
|
1,855,294
|
|
Total
|
|
$
|
5,810,648
|
|
|
$
|
7,229,153
|
|
Government
Contribution Plan
Pursuant
to the laws applicable to PRC law, the Company is required to participate in a government-mandated multi-employer defined contribution
plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations
require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly
basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations;
the Company has no further commitments beyond its monthly contribution.
Statutory
Reserve
Pursuant
to the laws applicable to the PRC, the Company must make appropriations from after-tax profit to the non-distributable “statutory
surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual
appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined
under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises
and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises,
the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated
appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated
loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss.
Segment
Information
The
standard, “Disclosures about Segments of an Enterprise and Related Information,” codified with ASC-280, requires certain
financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise.
The Company believes that it operates in three business segments of which two are geographically located in China, and one in
Singapore.
Recent
Accounting Pronouncement
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases (Topic 842)”. ASU 2016-02
requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for interim
and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. For finance leases, a lessee is required
to do the following:
|
●
|
Recognize a right-of-use
asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial
position
|
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
●
|
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.
|
In
July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect
not to recast their comparative periods in transition (the “Comparatives Under 840 Option”). ASU 2018-11 allows entities
to change their date of initial application to the beginning of the period of adoption. In doing so, entities would:
|
●
|
Apply ASC 840 in
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 January 1, 2019 using the modified retrospective
method of adoption.
In
December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides
an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the
anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially
based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires
an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which
goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires
that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the
interim period that includes the enactment date. The standard is effective for the Company for fiscal years beginning after December
15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its
consolidated financial statements.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or
remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and
Level 3 fair value measurements. The amendments in this Update modify the disclosure requirements on fair value measurements based
on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,
including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal
year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The
amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years, with early adoption permitted. The Company is currently evaluating the potential impacts of ASU 2018-13 on its consolidated
financial statements.
The
Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact
on our financial position or results of operations.
NOTE
3 – ACCOUNTS RECEIVABLE
Accounts
receivable consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts receivable
|
|
$
|
11,457,105
|
|
|
$
|
8,047,929
|
|
Less: Allowance for doubtful accounts
|
|
|
(495,555
|
)
|
|
|
(341,667
|
)
|
Total, net
|
|
$
|
10,961,550
|
|
|
$
|
7,706,262
|
|
The
Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to
the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company
recognize bad debt allowance of $153,888 for the nine months ended September 30, 2020 and did not recognized bad debt for the
nine months ended September 30, 2019.
NOTE
4 – INVENTORIES
Inventories
consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
91,034
|
|
|
$
|
116,907
|
|
Finished goods
|
|
|
94,545
|
|
|
|
145,775
|
|
Total, net
|
|
$
|
185,579
|
|
|
$
|
262,682
|
|
The
Company did not recognize loss from inventory impairment for the nine months ended September 30, 2020 and 2019.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5 – PREPAYMENTS
As of September 30, 2020 and December
31, 2019, the Company had outstanding prepayments balances of $2,510,264 and $354,813 to suppliers for the purchase of raw materials
to be delivered withing one operating period from those respective reporting dates.
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment at September 30, 2020 and December 31, 2019 consisted of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Building
|
|
$
|
13,028,291
|
|
|
$
|
12,715,941
|
|
Operating equipment
|
|
|
2,648,602
|
|
|
|
2,785,557
|
|
Vehicle
|
|
|
83,618
|
|
|
|
81,552
|
|
Office equipment
|
|
|
25,966
|
|
|
|
20,762
|
|
Apple Orchard
|
|
|
1,041,377
|
|
|
|
789,344
|
|
Construction in progress
|
|
|
1,829,057
|
|
|
|
1,709,144
|
|
|
|
|
18,656,911
|
|
|
|
18,102,300
|
|
Less: Accumulated depreciation
|
|
|
(3,880,018
|
)
|
|
|
(3,008,220
|
|
|
|
$
|
14,776,893
|
|
|
$
|
15,094,080
|
|
For
the nine months ended September 30, 2020 and 2019, depreciation expense amounted to $696,200 and $636,027, respectively. Depreciation
is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing
equipment or any construction in progress, construction in progress balances will be classified to their respective property and
equipment category.
The
construction in progress of $1,684,231 represents the investment of a black goat processing plant located in Shuangbai County,
Chuxiong City, Yunnan Province, PRC.
NOTE
7 – INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land use rights
|
|
$
|
3,670,863
|
|
|
$
|
3,580,172
|
|
Non-patented technology
|
|
|
14,753
|
|
|
|
14,389
|
|
Software development cost
|
|
|
20,085
|
|
|
|
-
|
|
Trademark - FleetnexG
|
|
|
9,828
|
|
|
|
-
|
|
|
|
|
3,715,529
|
|
|
|
3,594,561
|
|
Less: Accumulated amortization
|
|
|
(572,800
|
)
|
|
|
(489,722
|
)
|
|
|
$
|
3,142,729
|
|
|
$
|
3,104,839
|
|
For
the nine months ended September 30, 2020 and 2019, amortization of intangible assets amounted to $83,078 and $94,816, respectively.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8 – DEFERRED TAX ASSETS, NET
The
components of the deferred tax assets are as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets, non-current
|
|
|
|
|
|
|
|
|
Deficit carried-forward
|
|
|
1,082
|
|
|
|
19,348
|
|
Deferred tax assets
|
|
|
1,082
|
|
|
|
19,348
|
|
Less: valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Deferred tax assets, non-current
|
|
$
|
1,082
|
|
|
$
|
19,348
|
|
Deferred
taxation is calculated under the liability method in respect of taxation effect arising from all timing differences, which are
expected with reasonable probability to realize in the foreseeable future. The Company’s subsidiary registered in the PRC
is subject to income taxes within the PRC at the applicable tax rate.
NOTE
9 – LOANS PAYABLE
Current
portion of long-term loans amounted to $4,403,486 representing balance due to Agricultural Bank of China, with an annual interest
rate of 5.70% + (Hongkong InterBank Offered Rate (“HIBOR”)). This loan was collateralized with land use rights and
guaranteed by Mr. Lirong Wang, the CEO.
Current
portion of long-term loans amounted to $1,104,275 representing balance due to Rushan City Rural Credit Union.
Long-term
loans represent amounts due to lenders that are due in more than one year, whose balance was $1,372,783 and $1,855,294 as of September
30, 2020 and December 31, 2019, respectively. These loans are non-interest bearing, unsecured.
Long-term
loan and current portion of long-term loan consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Loan payable to Agricultural Bank of China, annual interest rate of 5.70% + HIBOR, due by September 25, 2019, and extended for another year.
|
|
$
|
4,403,486
|
|
|
$
|
4,294,707
|
|
Loan payable to Rushan City Rural Credit Union, annual interest 8.3125%, due by July 25, 2019, and extended for another two year.
|
|
|
1,104,275
|
|
|
|
1,079,152
|
|
Long-term loans due to individuals and entities without interest
|
|
|
268,508
|
|
|
|
1,855,294
|
|
|
|
|
5,776,269
|
|
|
|
7,229,153
|
|
Current portion of long-term loans payable
|
|
|
4,403,486
|
|
|
|
5,373,859
|
|
Total, net
|
|
$
|
1,372,783
|
|
|
$
|
1,855,294
|
|
As
of September 30, 2020, the Company’s future loan obligations according to the terms of the loan agreement are as follows:
within 1 year
|
|
$
|
4,403,486
|
|
1-2 years
|
|
|
1,372,783
|
|
3 years
|
|
|
-
|
|
Total
|
|
$
|
5,776,269
|
|
The
Company recognized interest expenses of $344,179 and $270,544 for the nine months ended September 30, 2020 and 2019, respectively.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10 – STOCKHOLDERS EQUITY
Authorized
Stock
The
Company has authorized 500,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder
to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
On
April 5, 2019, the Company filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the
State of Nevada to reflect the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company consisted
of 500,000,000 shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock after the filling.
On
October 30, 2019, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check
preferred stock.
Common
Share Issuances
On
June 29, 2018, the outstanding amount $326,348 due to Mr. Wang, CEO and Chairman of the Company, were converted into 43,200 shares
of Common Shares at $ 7.55 per share.
On
June 29, 2018 the Company issued 298,518 common shares of the Company at $7.55 for proceeds of $2,255,111 to Mr. Wang, CEO and
Chairman of the Company.
On
April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of
the issued and outstanding shares of the Company’s common stock (the “Reverse Stock Split”). No fractional shares
of Common Stock will be issued as a result of the reverse stock split. The Stock Split does not affect the par value or the number
of authorized shares of common stock of the Company.
On
April 16, 2019, the Company filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the
State of Nevada to reflect the Reverse stock Split. The reverse stock split took effect on May 7, 2019 The common shares outstanding
have been retroactively restated to reflect the reverse stock split.
On
October 10, 2019 and November 1, 2019, the Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang,
the CEO and Chairman of the Company, in exchange for 19,000,000 shares of common stock beneficially owned by him. Following the
transaction, 19,000,000 shares of common stock were cancelled and returned to treasury.
On
June 19, 2020, Muliang Viagoo Technology Inc. entered into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”)
and all the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo.
Pursuant
to the Share Exchange Agreement, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title
and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares shall be US$2,830,800, payable
in 1,011,000 shares of the Company’s restricted common stock, valued at $2.80 per share.
On
June 28, 2020, the Company issued 50,000 of restricted common stock as the compensation for Shaw Cheng “David” Chong,
the new Chief Financial Officer of the Company.
As
of the date of this report, there were 38,402,954 shares of common stock outstanding.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10 – STOCKHOLDERS EQUITY (CONTINUED)
Blank
Check Preferred Stock
On
April 4, 2019, the Company’s Board of Directors and majority shareholder approved creation of one hundred million (100,000,000)
shares of Blank Check Preferred Stock, $0.0001 par value. To the fullest extent permitted by the laws of the State of Nevada,
as the same now exists or may hereafter be amended or supplemented, the Board of Directors may fix and determine the designations,
rights, preferences or other variations of each class or series within each class of preferred stock of the Company. The Company
may issue the shares of stock for such consideration as may be fixed by the Board of Directors.
On
April 5, 2019, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the
State of Nevada to authorize the creation of Blank Check Preferred Stock.
On
October 30, 2019, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check
preferred stock.
Series
A Preferred Stock
On
October 30, 2019, the Company’s Board of Directors and majority shareholder approved to designate 30,000,000 shares as Series
A Preferred Stock out of the 100,000,000 shares of blank check preferred stock, which the preferences and relative and other rights,
and the qualifications, limitations or restrictions thereof, shall be set forth in the discussion below under the “Series
A Preferred Stock”. A certificate of designation for the Series A Preferred Stock was filed with the Secretary of the State
of the State of Nevada on October 30, 2019.
The
holders of Series A Preferred Stock shall not be entitled to receive dividends of any kind.
The
Series A Preferred Stock shall not be subject to conversion into Common Stock or other equity authorized to be issued by the Corporation.
The
holders of the issued and outstanding shares of Series A Preferred Stock shall have voting rights equal to ten (10) shares of
Common Stock for each share of Series A Preferred Stock.
On
November 1, 2019, the Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman
of the Company, in exchange for 19,000,000 shares of common stock beneficially owned by him. Following the transaction, 19,000,000
shares of common stock were cancelled and returned to treasury.
As
of the filling date, there were 19,000,000 shares of Series A Preferred Stock issued outstanding.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
11 – RELATED PARTY TRANSACTIONS
Ms.
Hui Song was the Company’s former sales director. In 2013, Ms. Hui Song resigned from the Company and no longer had any
significant control or influence over the Company; therefore, she was no longer considered a related party. Jilin Jiliang Zongbao
Biological Technology Co., Ltd., an entity controlled by Ms. Hui Song, and Yantai Zongbao Tele-Agriculture Service Co., Ltd.,
a related company of Ms. Hui Song, were also no longer considered as related parties of the Company.
*Accounts
payable to and purchase from Ms. Hui Song and her associated company
For
the nine months ended September 30, 2020 and 2019, the Company purchased fertilizer of $2,631,780 and $3,077,700 from Jilin Jiliang
Zongbao Biological Technology Co., Ltd., respectively.
As
of September 30, 2020 and December 31, 2019, accounts payable to Jilin Jiliang Zongbao Biological Technology Co., Ltd. were $2,665,132
and $505,331 respectively.
*Loan
from Ms. Hui Song
As
of September 30, 2020, long-term loan payable balances for Ms. Hui Song were $268,508.
*Due
to related party
Outstanding
balance due to Mr. Lirong Wang, Ms. Xueying Sheng and Mr. Guohua Lin below are advances to the Company as working capital. These
advances are due on demand, non-interest bearing, and unsecured, unless further disclosed.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Relationship
|
Mr. Lirong Wang
|
|
$
|
450,726
|
|
|
$
|
861,702
|
|
|
The CEO and Chairman / Actual controlling person
|
Ms. Xueying Sheng
|
|
|
89,358
|
|
|
|
73,474
|
|
|
Controller/Accounting Manager of the Company
|
Mr. Guohua Lin
|
|
|
21,921
|
|
|
|
74,149
|
|
|
Senior management / One of the Company’s shareholders
|
Total
|
|
$
|
556,940
|
|
|
$
|
1,009,325
|
|
|
|
For
the nine months ended September 30, 2020, the Company borrowed $2,612,499 from Mr. Lirong Wang, and repaid $3,028,540.
For
the nine months ended September 30, 2020, the Company borrowed $36,567 from Mr. Guohua Lin, and repaid $88,795.
For
the nine months ended September 30, 2020, the Company borrowed $38,680 from Ms. Xueying Sheng and repaid $22,796.
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12 – CONCENTRATIONS
Customer
Concentrations
The
following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for
the nine months ended September 30, 2020 and 2019.
|
|
|
For the nine months ended
|
|
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
Customer
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
A
|
|
|
|
2,597,402
|
|
|
|
36
|
%
|
|
|
2,581,602
|
|
|
|
27
|
%
|
B
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2,164,700
|
|
|
|
22
|
%
|
C
|
|
|
|
3,011,449
|
|
|
|
42
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Supplier
Concentrations
The
following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for
the nine months ended September 30, 2020 and 2019.
|
|
|
For the nine months ended
|
|
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
Suppliers
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
A
|
|
|
|
1,035,654
|
|
|
|
24
|
%
|
|
|
1,072,611
|
|
|
|
20
|
%
|
B
|
|
|
|
2,631,780
|
|
|
|
61
|
%
|
|
|
3,077,700
|
|
|
|
58
|
%
|
Credit
Risks
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results
of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s
economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically
associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods
of taxation, among other things.
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts
receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these
deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed
to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily
to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations
of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs
ongoing credit evaluations of its customers to help further reduce credit risk. At September 30, 2020 and December 31, 2019, the
Company’s cash balances by geographic area were as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
China
|
|
$
|
41,734
|
|
|
|
45
|
%
|
|
$
|
103,868
|
|
|
|
100
|
%
|
Singapore
|
|
|
50,339
|
|
|
|
55
|
%
|
|
|
-
|
|
|
|
-
|
|
Total cash and cash equivalents
|
|
$
|
92,073
|
|
|
|
100
|
%
|
|
$
|
103,868
|
|
|
|
100
|
%
|
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
13 – INCOME TAXES
United
States
Muliang
Viagoo is established in the State of Nevada in the United States and is subject to Nevada State and US Federal tax laws. Muliang
Viagoo has approximately $102,000 of unused net operating losses (“NOLs”) available for carrying forward to future
years for U.S. federal income tax reporting purposes. The benefit from the carry forward of such NOLs will begin expiring during
the year ended December 31, 2034. Because United States tax laws limit the time during which NOL carry forwards may be applied
against future taxable income, the Company may be unable to take full advantage of its NOLs for federal income tax purposes should
the Company generate taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations
due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations,
the Company has significant NOLs for which realization of tax benefits is uncertain.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law. The Company has considered the accounting impact of the effects of the Act during the year ended December 31,
2018 including a reduction in the corporate tax rate from 34% to 21% among other changes.
Hong
Kong
Muliang
HK is established in Hong Kong and its income is subject to a 16.5% profit tax rate for income sourced within the Special Administrative
Region. For the nine months ended September 30, 2020 and 2019, Muliang HK did not earn any income derived in Hong Kong, and therefore
was not subject to Hong Kong Profits Tax.
Singapore
Viagoo
is incorporated in Singapore where tax is levied on profits at rate of 17.0%. Singapore uses a territorial tax system. Post-tax
profit distributions (i.e. dividends) to shareholders are tax-free. Singapore does not tax on capital gains.
China,
PRC
Shanghai
Mufeng and its subsidiaries Muliang Industry, Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Zhongliang,
Heilongjiang and Yunnan Muliang are established in China and its income is subject to income tax rate of 25%.
The
reconciliation of effective income tax rate as follows:
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
US Statutory income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Valuation allowance
|
|
|
(21
|
)%
|
|
|
(21
|
)%
|
Total
|
|
|
-
|
|
|
|
-
|
|
The
provision for income taxes consists of the following:
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Current
|
|
$
|
34,433
|
|
|
$
|
295,782
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
34,433
|
|
|
$
|
295,782
|
|
MULIANG
VIAGOO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES
OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
13 – INCOME TAXES (CONTINUED)
Accounting
for Uncertainty in Income Taxes
The
tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC
after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results
are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s
PRC entities’ tax filings, which may lead to additional tax liabilities.
ASC
740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.
The management evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was
necessary as of September 30, 2020 and December 31, 2019.
NOTE
14 – BUSINESS SEGMENTS
The
revenues and cost of goods sold from operation consist of the following:
|
|
Revenues
|
|
|
Cost of Sales
|
|
|
|
For the Nine Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Fertilizer sales
|
|
$
|
6,735,189
|
|
|
$
|
9,047,298
|
|
|
$
|
3,829,659
|
|
|
$
|
5,058,254
|
|
Logistic
|
|
|
251,797
|
|
|
|
-
|
|
|
|
90,785
|
|
|
|
-
|
|
Agricultural products (food) sales
|
|
|
214,867
|
|
|
|
630,061
|
|
|
|
156,105
|
|
|
|
651,441
|
|
Total
|
|
$
|
7,201,853
|
|
|
$
|
9,677,359
|
|
|
$
|
4,076,549
|
|
|
$
|
5,709,695
|
|
NOTE
15 – SUBSEQUENT EVENTS
The
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued.
Based on this evaluation, the Company concluded that subsequent to September 30, 2020 but prior to November 16, 2020, the date
the financial statements were available to be issued, there was no subsequent event that would require disclosure to or adjustment
to the financial statements other than the ones disclosed above.
As our factory area
in Jinshan District, Shanghai City is too close to the urban area to produce straw organic fertilizer, some factory buildings,
office buildings and spare land in Jinshan District, Shanghai City, have been leased to third parties. We expect to sell our industrial
land and office space in Shanghai through an administratively organized private sale by the end of the fiscal year ended December
31, 2020. Through the sale, we expect to clear all liens and legal claims attached to our subsidiary Zongbao and improve our cash
position.
Currently, we have two civil proceedings,
including: (1) default over a loan agreement between Shanghai Zongbao and Agricultural Bank of China Jinshan Sub-branch, the judgment
for which has become effective since January 14th, 2019; and (2) default over a construction contract between Shanghai Zongbao
and Shanghai Zhongta Construction and Engineering Co., Ltd., as to which both parties reached a mediation agreement through the
mediation procedure held by the court. The cause for both cases is that the established project of organic fertilizer production
could not be continued due to the change of business focus of the industrial park in which the company is located to food, machinery
and new energy industries. This caused defaults with both aforementioned parties. The relevant land and production building were
mortgaged under to Agricultural Bank of China, and Shanghai Zongbao and Shanghai Zhongta Construction and Engineering Co., Ltd
., with the understanding that the value of the assets will be sufficient to cover the debts under these two cases. We expect the
outstanding defaults will be satisfied by a disposition of the mortgaged asset. Both the Agriculture Bank of China (“ABC”)
and Shanghai Zongbao agreed to allow Shanghai Jinshan People’s Court to list the asset on Taobao’s online auction platform
for sale. On August 5, 2020, the sale price achieved after competitive biddings was RMB 74,515,000 (approximately $10.8 million).
Based on this, we have entered into a settlement agreement with ABC for the settlement of the remaining balance of RMB 29,900,000
(approximately $4.3 million). We plan to repay ABC and amount owed to the contractor (RMB 24,800,000) with the sales proceeds and
expect to receive the remaining RMB19,815,000. We expect the sale to close on December 2020. We plan to use the remaining sales
proceeds for general working capital needs. The manufacturing base for the project of Shanghai Zongbao has already been relocated
and therefore the sale of the land use rights and building facility will have no material adverse impact on our operations.