Financial Highlights (Twelve Months ended 9/30/19 compared to 9/30/18):

• 3.4% Increase in Revenue to $30.8 Million
• 7.0% Increase in Gross Profit to $5.4 Million
• 59 Basis Point Improvement in Gross Margin to 17.58%

LISHUI, China, Jan. 1, 2020 /PRNewswire/ — Farmmi, Inc. (the “Company”) (Nasdaq: FAMI), an agriculture products supplier in China, today announced its financial results for the fiscal year ended September 30, 2019.

Ms. Yefang Zhang, Farmmi’s Chairwoman and CEO, stated, “Fiscal year 2019 was a very successful year for Farmmi as we continued to execute on our long-term growth plan, further establish our brand and build the foundation for our future success.  Overall revenues would have been higher absent the impact of the depreciation of the RMB against the U.S. dollar.  We are very encouraged with the ongoing expansion of our online sales platform, which accounted for over 20% of total sales in the fiscal year 2019, representing an increase of more than 83% over the fiscal year 2018.  Our success in developing an effective online sales platform positions us for accelerated domestic growth as we are directly aligned with the shift in Chinese consumers purchasing higher volumes of products like ours both online and in brick and mortar stores.  This will also make our products accessible in international markets with the click of a mouse.”

Ms. Zhang continued: “We achieved a significant improvement in gross margin to 17.58% in fiscal year 2019 from 16.99% in fiscal year 2018, as we benefited from higher online sales combined with strategic programs targeting both pricing and operating costs.  We benefited from relatively stable unit prices for Shiitake, which was partially offset by unit price declines for Mu Er.  The pricing dynamic is a function both the overall supply dynamics and our deep understanding of the edible fungi market, constant market research, and communication with our key suppliers.  As a result, we have been able to obtain favorable prices for premium quality raw materials.  We are also pleased with our progress in further developing relationships with key partners, both major suppliers and family farms. We are benefitting from growth in orders across all channels, but have higher confidence given the strong, multi-year relationships we have with some of China’s largest exporters that can fuel our growth.  Overall, we are encouraged with our progress but have much work ahead of us as we continue to leverage our premium product quality, highly experienced employee base, local production facilities and strong supply chain relationships.  Our team is focused and we remain dedicated to building value for the Company and shareholders.”

Financial Highlights

Notes:

* pp represents percentage points

** The fiscal year ended September 30, 2019 reflects the significant negative impact of $3.31 million in expenses due to the amortization of debt issuance costs and interest expenses associated with the Company’s convertible notes issued in November 2018, as compared to $0.15 million in the same period of last year.

Revenue

Total revenues for the fiscal year ended September 30, 2019 increased by $1.02 million, or 3.43%, to $30.8 million from $29.8 million.

Revenue from sales of Shiitake increased by $1.1 million, or 6.81%, to $17.9 million for the fiscal year ended September 30, 2019 from $16.8 million for the same period of last year, mainly due to the increased sales volume of our Shiitake products, from 1,299 tons for the fiscal year ended September 30, 2018 to 1,420 tons for the fiscal year ended September 30, 2019, while unit sales price for Shiitake remained relatively stable.

Revenue from sales of Mu Er decreased by $0.53 million, or 4.36%, to $11.7 million for the fiscal year ended September 30, 2019 from $12.2 million for the same period of last year, due a slight decrease in sales volume, and unit sales price due to the depreciation of RMB against U.S. dollar. Sales volume was 945 tons for the fiscal year ended September 30, 2019, as compared to 967 tons for the same period of last year, while average unit sales price was $12,338 and $12,606, respectively.

Revenue from sales of other edible fungi and other agricultural products increased by $0.41 million, or 47.15%, to $1.3 million for the fiscal year ended September 30, 2019 from $0.88 million for the same period of last year. The increase was primarily due to increased online sales of high-end edible fungi, which has higher unit sales prices. In addition, after the completion of software development and payment system upgrades in March 2018, the Company reorganized its operating team to put greater effort into advertising activities in order to enhance brand awareness and attract more customers. As a result, online sales increased significantly in the six months ended March 31, 2019.

Beginning October 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (FASB ASC Topic 606) using the modified retrospective method under which cumulative effects are recognized at the date of the initial application of ASC 606. With the adoption of ASC 606, revenue is recognized by following the five steps: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The Company believes that its current revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASC 606. Based on the Company’s assessment, potential adjustments to input measures are not expected to be pervasive to the majority of its contracts. As such, the Company has concluded that the adoption of this new guidance did not result in a material cumulative catch-up adjustment to the opening balance sheet of retained earnings at the effective date or any other material impact on its consolidated financial statements.

Cost of Revenues

Cost of revenues increased by $0.67 million, or 2.70%, to $25.4 million for the fiscal year ended September 30, 2019 from $24.8 million for the same period of last year.

Cost of revenues of Shiitake increased by $0.8 million or 5.71%, to $14.8 million for the fiscal year ended September 30, 2019 from $14.0 million for the same period of last year.  Cost of revenues of Mu Er decreased by $0.44 million, or 4.41%, to $9.7 million for the fiscal year ended September 30, 2019 from $10.1 million for the same period of last year. Cost of revenues of other edible fungi and agricultural products increased by $0.32 million, or 48.02%, to $0.98 million for the fiscal year ended September 30, 2019 from $0.66 million for the same period of last year.

Gross Profit

Overall gross profit increased by $0.35 million, or 7.00%, to $5.42 million for the fiscal year ended September 30, 2019 from $5.07 million for the same period of the last year. Gross profit from sales of Shiitake increased by $0.34 million, or 12.29%, to $3.14 million for the fiscal year ended September 30, 2019 from $2.80 million for the same period of last year. Gross profit from sales of Mu Er decreased by $.09 million, or 4.07%, to $1.97 million for the fiscal year ended September 30, 2019 from $2.06 million for the same period of last year. Gross profit from sales of other edible fungi and agricultural products increased by $0.10 million, or 44.44%, to $0.31 million for the year ended September 30, 2019 from $0.21 million for the same period of last year. The increased overall gross profit was led by increased sales for the fiscal year ended September 30, 2019, as compared to the prior period.

Overall gross margin increased by 0.59 percentage points to 17.58% for the fiscal year ended September 30, 2019 from 16.99% for the same period of last year. The increase in overall gross margin was primarily due to increased revenue generated from the Company’s online shopping platforms, combined with strategic programs targeting both pricing and operating costs. Sales made through the online shopping platforms have higher gross margin than traditional sales.

Income from Operations

Selling and distribution expenses increased by $0.04 million, or 7.64 %, to $0.59 million for the fiscal year ended September 30, 2019 from $0.55 million for the same period of last year, primarily due to the increase in service fees, as more services were provided by third parties for the Company’s  online platforms along with the increased online business activities during the fiscal year ended September 30, 2019, as compared to the same period of last year.

General and administrative expenses increased by $0.35 million, or 24.61%, to $1.79 million for the fiscal year ended September 30, 2019 from $1.44 million for the same period of last year. The increase was primarily attributable to increased labor costs,  as the Company expanded its team to support demand growth in its business, along with increased costs associated with being a public company.

As a result, income from operations decreased by $0.42 million or 1.37%, to $3.04 million for the fiscal year ended September 30, 2019 from $3.08 million for the same period of last year.

Interest Expense

Interest expense was $1.20 million for the fiscal year ended September 30, 2019, as compared to $0.15 million for the same period of last year. The increase in interest expense was primarily attributable to the interest expense incurred for the senior convertible notes issued in November 2018.

Provision for Income Taxes

For the fiscal years ended September 30, 2019 and 2018, the Company’s income tax expense was $34,564 and $9,063, respectively. The low income tax expense was primarily due to an income tax incentive the Company received from the tax authority of Lishui City.  During the fiscal year ended September 30, 2019, the Company’s subsidiaries, FLS Mushroom and Farmmi Food received an income tax break from the local tax authority of Lishui City, for engaging in the agricultural products processing industry. Management expects that the Company will continue to enjoy the tax break going forward.

Net Income (loss)

Net loss was $0.31 million for the fiscal year ended September 30, 2019, a decrease of  $3.54 million from net income of $3.23 million for the same period of fiscal year 2018.  The fiscal year ended September 30, 2019 reflects the significant negative impact of $3.31 million in expenses due to the amortization of debt issuance costs and interest expenses associated with the Company’s convertible notes issued in November 2018, as compared to $0.15 million in the same period of last year.

Financial Condition

Primarily due to advances made to the Company’s suppliers, as of September 30, 2019, the Company had a balance of cash and cash equivalents of $0.14 million with a restricted cash balance of $0.6 million.  As of December 19, 2019, approximately $13.5 million, or 98% of the Company’s accounts receivable balance, as of September 30, 2019, was collected, and approximately $6.1 million or 44% of the Company’s advances to suppliers were utilized.  Advances were made based on sales orders received and expected demand over the coming months.  The remaining balance of advances to suppliers is expected to be fully utilized by March 2020.

About Farmmi, Inc.

Headquartered in Lishui, Zhejiang, Farmmi, Inc. (NASDAQ: FAMI), is a leading agricultural products supplier, processor and retailer of Shiitake mushrooms, Mu Er mushrooms, other edible fungi, and many other sought-after agricultural products.  The Company’s Farmmi Liangpin Market serves as a global trading platform for Chinese geographical indication agricultural products and is one of the largest platforms for consumers to access locally sourced agricultural products. For further information about the Company, please visit: http://ir.farmmi.com.cn/.

Forward-Looking Statements

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results.

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