China Organic Fertil (GREY:CHOR)

Beijing Shennongxing remains in a pre-market stage of its operations.  During the past few years we have focused on developing our technology and product offering, then on establishing marketing channels, including developing access to agribusiness clients.  Sales have been incidental to these activities and, therefore, limited.  During the year ended March 31, 2010 we recorded only $36,413 in revenue, all of which was earned in the quarter ended June 30, 2009.  During the year ended March 31, 2009 we recorded $117,414 in revenue.  These sales were made to a small number of farms and plantations, generally at cost, and primarily for the purpose of initiating distribution for testing purposes.  Primarily because the cost of goods sold recorded on our Statements of Operations includes an allocation of indirect production costs (such as utilities) and an allocation of indirect labor (such as assembly and packaging), in each period we realized negative gross margin:  a gross loss of $51,683 in the year ended March 31, 2010 and a gross loss of $37,527 during the year ended March 31, 2009.

An additional reason for our negative margins has been recent increases in the cost of the specialized raw materials that we use in our fertilizer.  Specifically, the cost of carbamide, which serves as an important raw material for our products, increased by 20.6% to RMB 1750 per ton in 2009 from RMB 1450 per ton a year earlier. In addition, the costs of monoammonium, potassium, and potassium chloride have increased significantly during 2009.  Our prospects for profitable operations in the future will depend, in part, on how the international market for these raw materials develops in the next few years.  Similarly, because the cost of transportation represents a significant portion of our cost of goods sold, the international market for oil will also influence our profitability in future periods.

Since Beijing Shennongxing was organized, its operations have been funded primarily by loans from our shareholders. As of March 31, 2010, therefore, the balance due to our shareholders was $1,882,656.  This is recorded on our balance sheet as loan from stockholders, because the creditors are members of the management of Beijing Shennongxing, and they have committed that they will not seek repayment of the loan during the next fiscal year and not until the Company can afford to repay the loan without damage to its business prospects.

As of March 31, 2010, SNX had a working capital deficit of $2,652,143. Included in our current assets at March 31, 2010 are “other account receivable” of $648,170.  The greater portion of this item represents funds advanced to middlemen for future purchases of raw materials.  The accounts will be amortized as raw materials are received.
 
The second largest item in our current liabilities is denoted “accrued expenses and other payable.”  As of March 31, 2010 this item totaled $864,522. Included in this item is $564,151 related to the conversion of the facilities of the XiangYu Fertilizer Company for use in our operations.  The item includes amounts owed (but, in most cases, not yet payable) for services by contractors, and also includes refundable contract deposits and bidding deposits given to Beijing Shennongxing in connection with the construction process.
 
In order to fully implement our business plan, we will require working capital far in excess of our current asset value. Our expectation, therefore, is that we will seek to access the capital markets in both the U.S. and China to obtain the funds we require. At the present time, however, we do not have commitments of funds from any source.

In order to fully implement our business plan, we will require working capital far in excess of our current asset value. Our expectation, therefore, is that we will seek to access the capital markets in both the U.S. and China to obtain the funds we require. At the present time, however, we do not have commitments of funds from any source.

To date we have focused our attention on research and development of our product line. For that reason our revenues have been modest. Our products are now ready for full scale marketing, and it is out plan to promote our product in more districts around China, and to set up additional manufacture bases in central China and southern China. Implementation of that plan will require capital, however. So our focus in the coming months will be on obtaining the working capital that will enable us to take advantage of the market opportunities available to our company.

Investors should be aware that financial portals indicate that China Organic Fertilizer  has 5.9 million shares outstanding after a 1 for 10 reverse split. However, as part of the original merger agreement there are also series c convertible preferred sock convertible into 360,000,000 common shares (Pre-split). This is the company's second attempt at a reverse merger in the China space.

On January 15, 2010 China SXAN Biotech acquired the outstanding capital stock of SNX Organic Fertilizers, Inc. SNX Organic is a holding company that owns all of the registered capital of Beijing Shennongxing Technology Co., Ltd., a corporation organized under the laws of The People’s Republic of China. Beijing Shennongxing is engaged in the business of manufacturing and marketing organic fertilizer. All of Beijing Shennongxing’s business is currently in China.

Beijing Shennongxing remains in a pre-market stage of its operations. During the past few years we have focused on developing our technology and product offering, then on establishing marketing channels, including developing access to agribusiness clients. Sales have been incidental to these activities and, therefore, limited.

GeoTeam® Note: This marks a second attempt at operating a Chinese entity, referencing this symbol. The first was China Sxan Biotech Inc, a company engaged in the business of manufacturing and marketing wines and tonics derived from domesticated forest frogs.

Please see share structure which shows that Shennongxing Technology will have over 400 million shares outstanding. 

Post Merger Share Calculation:

• 19,919,795: Pre reverse merger outstanding shares
• 40,000,000: Newly issued shares of Common Stock
• 360,000,000: Shares from convertible notes associated with transaction:
• 6,600,000 : Shares issued to management:

 GeoTeam® best effort calculation of total post reverse merger outstanding shares assuming full conversions:  426,519,795

For the fiscal year ended June 30, 2008, we experienced record growth in terms of sales as we recorded $12.58 million in revenue, a 127% increase compared to fiscal year 2007. However our gross and net margins drastically deteriorated to 37.7% and 22.2% for fiscal year 2008 as compared to 59.6% and 43.4% for fiscal year 2007. This is primarily due to the increase of grain prices within China which has in turn increased our expenses for feedstock. In light of increasing production costs, raw material costs, and costs associated with being a public company, management has concluded that the current business is not sustainable. 

As a result, management resolved to temporarily halt operations and formed an exploratory committee to evaluate the possibility of utilizing the current production lines and inventories toward the manufacture and distribution of other frog related products.

Source:  SEC Form 10Q (For the quarterly period ended December 31, 2008)