China Organic Fertilizer (PINK: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.