UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from tofrom_____________ to____________
Commission File Number: 333-2268100-56168
ORGANIC AGRICULTURAL COMPANY LIMITED
(Exact name of Registrantregistrant as specified in its charter)
Nevada | 82-5442097 | |||
(State or other jurisdiction of | ( | |||
incorporation or organization) | ||||
Identification Number) |
6th Floor A, Chuangxin Yilu,
No. 2305, Technology Chuangxincheng,
Gaoxin Jishu Chanye Technology Development District,
Harbin City. Heilongjiang Province.
China 150090
Office: +86 (0451) 5862-8171
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
None | None | Not Applicable |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☑ | |
Emerging growth company | ☑ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212 b-2 of the Exchange Act).��Yes ☐ No ☒☑
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of the date of filing of this report, there were outstanding 11,162,73616,189,336 shares of the issuer’s common stock, par value $0.001 per share.
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Item Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and six months ended September 30, 2018 are not necessarily indicative of the results that can be expected for the year ended March 31, 2019.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBERJUNE 30, 20182021 AND MARCH 31, 20182021
(EXPRESSED IN US DOLLARS)
September 30, | March 31, | |||||||
2018 | 2018 | |||||||
(Unaudited) | (Audited) | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 114,121 | $ | 458,690 | ||||
Inventories | 1,048,639 | 821,211 | ||||||
Other receivables | 23,590 | 3,184 | ||||||
Prepayments and deferred expenses | 373,937 | 526,100 | ||||||
Total current assets | 1,560,287 | 1,809,185 | ||||||
Property plant and equipment, net | 7,126 | — | ||||||
Total assets | $ | 1,567,413 | $ | 1,809,185 | ||||
Liabilities and shareholders’ equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 94,497 | $ | 72,951 | ||||
Customer deposits | 134,088 | 31,844 | ||||||
Due to related parties | 157,111 | 571,650 | ||||||
Advances for shares to be issued | — | 425,749 | ||||||
Total current liabilities | 385,696 | 1,102,194 | ||||||
Total liabilities | 385,696 | 1,102,194 | ||||||
Shareholders’ equity | ||||||||
Common stock; $0.001 par value, 74,000,000 shares authorized; 11,162,736 and 10,000,000 shares issued and outstanding at September 30, 2018 and March 31, 2018, respectively | 11,163 | 10,000 | ||||||
Additional paid-in capital | 2,350,056 | 1,066,983 | ||||||
Deficit | (1,081,649 | ) | (374,238 | ) | ||||
Other comprehensive income | 9,623 | 37,072 | ||||||
Total shareholders’ equity of the Company | 1,289,193 | 739,817 | ||||||
Non-controlling interest | (107,476 | ) | (32,826 | ) | ||||
Total shareholders’ equity | 1,181,717 | 706,991 | ||||||
Total liabilities and shareholders’ equity | $ | 1,567,413 | $ | 1,809,185 |
June 30, | March 31, | |||||||
2021 | 2021 | |||||||
Unaudited | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 884,311 | $ | 70,506 | ||||
Accounts receivable | 20,361 | 3,168 | ||||||
Prepaid expenses | 9,793 | 11,501 | ||||||
Inventories | 138,641 | 121,726 | ||||||
Other receivables | 14,829 | 8,416 | ||||||
Total current assets | 1,067,935 | 215,317 | ||||||
Operating lease right-of-use asset | 12,406 | 18,330 | ||||||
Total assets | $ | 1,080,341 | $ | 233,647 | ||||
Liabilities and shareholders’ equity (deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 58,439 | $ | 66,394 | ||||
Customer deposits | 165,693 | 164,270 | ||||||
Due to related parties | 91,074 | 89,739 | ||||||
Operating lease liabilities | 28,493 | 37,617 | ||||||
Other payables | 923 | 2,435 | ||||||
Total current liabilities | 344,622 | 360,455 | ||||||
Total liabilities | 344,622 | 360,455 | ||||||
Shareholders’ equity (deficit): | ||||||||
Preferred stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at June 30, 2021 and March 31, 2021 | - | - | ||||||
Common stock; $0.001 par value, 74,000,000 shares authorized; 16,189,336 and 11,724,836 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively | 16,190 | 11,725 | ||||||
Additional paid-in capital | 4,333,958 | 2,659,423 | ||||||
(Deficit) | (3,474,912 | ) | (2,684,213 | ) | ||||
Other comprehensive (loss) | (139,517 | ) | (113,743 | ) | ||||
Total shareholders’ equity (deficit) | 735,719 | (126,808 | ) | |||||
Total liabilities and shareholders’ equity (deficit) | $ | 1,080,341 | $ | 233,647 |
The accompanying notes are an integral part of these unauditedcondensed consolidated financial statements.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20182021 AND 2017 2020
(EXPRESSED(UNAUDITED) (EXPRESSED IN US DOLLARS)
For The Three Months Ended | For The Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | $ | 3,685 | $ | — | $ | 3,685 | $ | — | ||||||||
Cost of Sales | 2,078 | — | 2,078 | — | ||||||||||||
Gross Profit | 1,607 | — | 1,607 | — | ||||||||||||
Operating costs and expenses: | ||||||||||||||||
Salaries and benefits | 34,509 | — | 458,538 | — | ||||||||||||
Office supplies | 86,064 | — | 153,353 | — | ||||||||||||
Rentals and leases | 11,724 | — | 24,346 | — | ||||||||||||
Professional fees | 45,847 | — | 55,794 | — | ||||||||||||
Advertising and promotion expenses | 5,970 | — | 40,579 | — | ||||||||||||
Total operating costs and expenses | 184,114 | — | 732,610 | — | ||||||||||||
Operating loss | (182,507 | ) | — | (731,003 | ) | — | ||||||||||
Other income | 3,342 | — | 3,345 | — | ||||||||||||
(Loss) before provision for income taxes | (179,165 | ) | (727,658 | ) | — | |||||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Net (loss) | (179,165 | ) | — | (727,658 | ) | — | ||||||||||
Less: net loss attributable to non-controlling interests | (19,109 | ) | — | (20,247 | ) | — | ||||||||||
Net (loss) attributable to common shareholders’ | $ | (160,056 | ) | $ | — | $ | (707,411 | ) | $ | — | ||||||
Basic and diluted loss per share | $ | (0.01 | ) | $ | 0.00 | $ | (0.07 | ) | $ | 0.00 | ||||||
Weighted average number of shares outstanding | 11,162,736 | 10,000,000 | 10,792,168 | 10,000,000 | ||||||||||||
Other comprehensive loss: | ||||||||||||||||
Net (loss) | $ | (179,165 | ) | $ | — | $ | (727,658 | ) | $ | — | ||||||
Foreign currency translation adjustment | (35,866 | ) | — | (81,852 | ) | — | ||||||||||
Comprehensive (loss) | (215,031 | ) | — | (809,510 | ) | — | ||||||||||
Less: Comprehensive (loss) attributable to non-controlling interests | (41,316 | ) | — | (74,650 | ) | — | ||||||||||
Comprehensive (loss) attributable to the common shareholders’ | $ | (173,715 | ) | $ | — | $ | (734,860 | ) | $ | — |
For the Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Revenue | $ | 30,091 | $ | 68,528 | ||||
Cost of sales | 20,680 | 39,349 | ||||||
Gross profit | 9,411 | 29,179 | ||||||
Selling, general and administrative expenses | 800,123 | 61,854 | ||||||
Operating (loss) | (790,712 | ) | (32,675 | ) | ||||
Other income | 13 | 382 | ||||||
(Loss) before provision for income taxes | (790,699 | ) | (32,293 | ) | ||||
Provision for income taxes | - | - | ||||||
Net (loss) from continuing operations | (790,699 | ) | (32,293 | ) | ||||
(Loss) on the sale of discontinued operations, net of income taxes | - | (713,722 | ) | |||||
Income from discontinued operations, net of income taxes (Note 3) | - | 743 | ||||||
Net (loss) income from discontinued operations | - | (712,979 | ) | |||||
Net (loss) | (790,699 | ) | (745,272 | ) | ||||
Less: net income from discontinued operations attributable to non-controlling interests | - | 364 | ||||||
Net (loss) attributable to common shareholders | $ | (790,699 | ) | $ | (745,636 | ) | ||
Amounts attributable to common shareholders: | ||||||||
Net (loss) from continuing operations | $ | (790,699 | ) | $ | (32,293 | ) | ||
Net (loss) from discontinued operations | - | (713,343 | ) | |||||
Net (loss) attributable to common shareholders | $ | (790,699 | ) | $ | (745,636 | ) | ||
(Loss) per share continuing operations – basic and diluted | $ | (0.05 | ) | $ | 0.00 | |||
(Loss) per share discontinued operations – basic and diluted | 0.00 | (0.06 | ) | |||||
Basic and diluted (loss) per share | $ | (0.05 | ) | $ | (0.06 | ) | ||
Weighted average number of shares outstanding- basic and diluted | 14,545,142 | 11,718,682 | ||||||
Other comprehensive (loss): | ||||||||
Net (loss) | $ | (790,699 | ) | $ | (745,272 | ) | ||
Foreign currency translation adjustment | (25,774 | ) | (2,958 | ) | ||||
Comprehensive (loss) | (816,473 | ) | (748,230 | ) | ||||
Less: comprehensive income attributable to non-controlling interests | - | 801 | ||||||
Comprehensive (loss) attributable to the common shareholders | $ | (816,473 | ) | $ | (749,031 | ) |
The accompanying notes are an integral part of these unauditedcondensed consolidated financial statements.statements
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS’ (DEFICIT) EQUITY
FOR SIXTHE THREE MONTHS ENDED SEPTEMBERJUNE 30, 20182021 AND 20172020
(EXPRESSED IN US DOLLARS)DOLLARS, EXCEPT SHARES)
For six months ended September 30, | ||||||||
2018 (Unaudited) | 2017 (Unaudited) | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) | $ | (727,658 | ) | $ | — | |||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Share based compensation | 377,000 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepayments and deferred expenses | 107,153 | 103,952 | ||||||
Inventories | (297,687 | ) | (274,556 | ) | ||||
Other receivables | (20,677 | ) | — | |||||
Accounts payable and accrued expenses | 22,397 | — | ||||||
Customer deposits | 104,969 | — | ||||||
Due to related parties | (13,818 | ) | 170,605 | |||||
Net cash (used in) operating activities | (448,321 | ) | 1 | |||||
Cash Flows from Investing Activities | ||||||||
Purchase of fixed assets | (7,126 | ) | — | |||||
Payment to Lvxin original shareholders for transfer of 51% interest | (222,702 | ) | — | |||||
Net cash (used in) investing activities | (229,828 | ) | — | |||||
Cash Flows from Financing Activities | ||||||||
Proceed from sale of common stock | 335,701 | — | ||||||
Net cash provided by financing activities | 335,701 | — | ||||||
Effect of exchange rate fluctuation on cash and cash equivalents | (2,121 | ) | 1 | |||||
Net (decrease) increase in cash and cash equivalents | (344,569 | ) | 2 | |||||
Cash and cash equivalents, beginning of year | 458,690 | 38 | ||||||
Cash and cash equivalents, end of year | $ | 114,121 | $ | 40 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | — | $ | — | ||||
Cash paid for interest | $ | — | $ | — |
Common stock | Additional Paid-in | Other Comprehensive Income | Total Shareholders’ Equity | Non- controlling | Total Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||
Quantity | Amount | Capital | (Deficit) | (Loss) | (Deficit) | Interest | and NCI | |||||||||||||||||||||||||
Balance at March 31, 2020 | 11,693,836 | 11,694 | 2,612,954 | (1,752,671 | ) | $ | 9,891 | $ | 881,868 | 23,977 | 905,845 | |||||||||||||||||||||
Net (loss) | - | - | - | (745,636 | ) | - | (745,636 | ) | 364 | (745,272 | ) | |||||||||||||||||||||
Sale of common shares | 31,000 | 31 | 46,469 | - | - | 46,500 | - | 46,500 | ||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (3,395 | ) | (3,395 | ) | 437 | (2,958 | ) | |||||||||||||||||||||
Balance at June 30, 2020 | 11,724,836 | $ | 11,725 | $ | 2,659,423 | $ | (2,498,307 | ) | $ | 6,496 | $ | 179,337 | $ | 24,778 | $ | 204,115 | ||||||||||||||||
Balance at March 31, 2021 | 11,724,836 | $ | 11,725 | $ | 2,659,423 | $ | (2,684,213 | ) | $ | (113,743 | ) | $ | (126,808 | ) | $ | - | $ | (126,808 | ) | |||||||||||||
Net (loss) | - | - | - | (790,699 | ) | - | (790,699 | ) | - | (790,699 | ) | |||||||||||||||||||||
Sale of common shares | 4,119,500 | 4,120 | 915,880 | - | - | 920,000 | - | 920,000 | ||||||||||||||||||||||||
Shares issued as compensation | 345,000 | 345 | 758,655 | - | - | 759,000 | - | 759,000 | ||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (25,774 | ) | (25,774 | ) | - | (25,774 | ) | |||||||||||||||||||||
Balance at June 30, 2021 | 16,189,336 | $ | 16,190 | $ | 4,333,958 | $ | (3,474,912 | ) | $ | (139,517 | ) | $ | 735,719 | $ | - | $ | 735,719 |
The accompanying notes are an integral part of these unauditedcondensed consolidated financial statements
ORGANIC AGRICULTURAL COMPANY LIMITEDAND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(UNAUDITED) (EXPRESSED IN US DOLLARS)
For the Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) from continuing operations | $ | (790,699 | ) | $ | (32,293 | ) | ||
Net (loss) from discontinued operations | - | (712,979 | ) | |||||
Shares issued as compensation | 759,000 | - | ||||||
Depreciation and amortization | 6,202 | 705 | ||||||
Changes in operating assets and liabilities, discontinued operations | - | 713,722 | ||||||
Changes in operating assets and liabilities, continuing operations: | ||||||||
Accounts receivable | (17,140 | ) | 3,137 | |||||
Prepaid and deferred expenses | 1,883 | (14,165 | ) | |||||
Inventories | (15,052 | ) | 67,010 | |||||
Other receivables | (6,281 | ) | 6,053 | |||||
Accounts payable and accrued expenses | (8,357 | ) | (16,758 | ) | ||||
Customer deposits | (1,086 | ) | 19,953 | |||||
Due to related parties | (1,335 | ) | (45,503 | ) | ||||
Lease liability | (9,696 | ) | 9,652 | |||||
Other payables | (1,525 | ) | (16 | ) | ||||
Net cash (used in) operating activities | (84,086 | ) | (1,482 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Cash disbursed on divestment of Lvxin | - | (1,343 | ) | |||||
Net cash (used in) investing activities | - | (1,343 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Proceeds from sale of common stock | 920,000 | 38,900 | ||||||
Net cash provided by financing activities | 920,000 | 38,900 | ||||||
Effect of exchange rate fluctuations on cash | (22,109 | ) | 4,247 | |||||
Net increase in cash | 813,805 | 40,322 | ||||||
Cash, beginning of year-continuing operations | 70,506 | 240,834 | ||||||
Cash, beginning of year-discontinued operations | - | 1,340 | ||||||
Cash, beginning of year | 70,506 | 242,174 | ||||||
Cash, end of year-continuing operations | 884,311 | 282,496 | ||||||
Cash, end of year-discontinued operations | - | - | ||||||
Cash, end of year | $ | 884,311 | $ | 282,496 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest | $ | - | $ | - | ||||
Supplemental disclosure of non-cash activities: | ||||||||
(Loss) on sale of discontinued operations | $ | - | $ | (713,722 | ) | |||
Divestment of Lvxin | $ | - | $ | 203,319 | ||||
Operating ROU assets obtained in exchange for lease liabilities | $ | 28,493 | $ | 18,682 | ||||
Shares issued for compensation | $ | 759,000 | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Organic Agricultural Company Limited (“Organic Agricultural”, the “Company”, “we” or “us”) was incorporated in the State of Nevada on April 17, 2018.
The Company, through its subsidiaries with headquarters in Harbin, China, sells paddyselenium-enriched products and selenium-enriched paddyother agricultural products. TheAt June 30, 2021, the Company’s subsidiaries include: were:
● | Organic Agricultural (Samoa) Co., Ltd. (“Organic Agricultural Samoa”), a |
● | Organic Agricultural Company Limited (Hong Kong) (“Organic Agricultural HK”), which was established on December 6, 2017 under the laws of Hong |
● | Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited. |
owns all of the registered equity of Heilongjiang Yuxinqi Agricultural Technology Development Company Limited. |
● | Heilongjiang Yuxinqi Agricultural Technology Development Company Limited (“Yuxinqi”), |
● |
Reorganization
On May 16, 2018, the Company completed a corporate reorganization to combine several controlled entities (now referred to as the “subsidiaries”) into Organic Agricultural. The specific transactions related to this reorganization are as follows:
On March 31, 2017, Hao Shuping and the shareholders of Baoqing County Lvxin Paddy Rice Plant Specialized Cooperative (“Lvxin”) signed an Equity Transfer Agreement, whereby the shareholders of Lvxin transferred 51% of theirthe controlling interest in Lvxin to Hao Shuping. Hao Shuping agreed to pay thesethe Lvxin shareholders RMB 2,029,586 (US$305,472) in cash and havecause the company that would become Organic Agricultural to issue to them 152,736 shares (valued at US$152,736). Hao Shuping and the shareholders of LxvinLvxin also signed an irrevocable supplemental agreement that gave Hao Shuping voting and managerial control over Lxvin. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 805, the Company is in the process of having a valuation performedLvxin. By June 22, 2018, Tianci Liangtian paid all of the assets acquired and liabilities assumed in the transaction. This could result in goodwill or a bargain purchase gain being recognized, however the Company believes that the purchase price approximated the fair value of the assets acquired and liabilities assumed.consideration to Lvxin’s former shareholders.
On January 1, 2018, pursuant to the Equity Transfer Agreement between Hao Shuping and Tianci Liangtian, Hao Shuping transferred his 51% controlling interest in Lvxin to Tianci Liangtian. As control of both entities resided with Hao Shuping, we have accounted for the combination of Lvxin with Tianci Liangtian as a transaction between entities under common control.
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
On January 8, 2018, the shareholders of Tianci Liangtian transferred ownership of Tianci Liangtian to Organic Agricultural HK, which is wholly owned by Organic Agricultural Samoa.
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued)On May 16, 2018, the Company issued 10,000,000 shares of its common stock, par value $0.001 to the shareholders of Organic Agricultural Samoa, in exchange for 100% of the outstanding shares of Organic Agricultural Samoa (the “Share Exchange”).
As a result of the Share Exchange, Hao Shuping acquired 48.8% of the Company’s outstanding shares. Prior to the Share Exchange, Hao Shuping controlled Lvxin and Tianci Liangtian. Therefore, the Share Exchange was accounted for as a business combination of entities under common control in accordance with ASC 805-50-30-5. Accordingly, the assets and liabilities of the Company and its subsidiaries are presented at their carrying values at the date of the transaction; the Company’s historical stockholders’shareholders’ equity was retroactively restated to the first period presented, as the acquisition of Organic Agricultural Samoa, Organic Agricultural HK, Tianci Liangtian and Lvxin was treated as a business combination of entities under common control.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Continued)
On April 24, 2020 Tianci Liangtian entered into an Equity Transfer Agreement providing for the transfer to Lou Zhengui of Tianci’s 51% interest in the equity of Baoqing County Lvxin Paddy Rice Plant Specialized Cooperative. The Agreement transferred the equity to Lou Zhengui as of April 30, 2020. Tianci Liangtian retained responsibility for the liabilities incurred by Lvxin prior to April 30, 2020, including debt of 257,731 RMB (approx. US$36,380) owed by Lvxin to Yuxinqi. Tianci Liangtian also waived a repayment of 3,672,002 RMB (approx. US$518,321) owed by Lvxin to Tianci Liangtian.
In exchange for the 51% interest in Lvxin, Lou Zhengui assumed the obligation to satisfy a debt of 300,000 RMB (approx. US$42,350) owed by Tianci Liangtian to Hao Shuping, a member of the Company’s Board of Directors.
The business of Lvxin was growing paddy rice. The divestment of Lvxin by Tianci will enable Tianci to focus on its other business: processing and marketing food stuffs.
In accordance with U.S. GAAP, the financial position and results of operations of Lvxin are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. The comprehensive income related to Lvxin has not been segregated and is included in the Condensed Consolidated Statements of Comprehensive Income for all periods presented. With the exception of Note 3, the Notes to the Unaudited Condensed Consolidated Financial Statements reflect the continuing operations of the Company. See Note 3 - Discontinued Operations below for additional information regarding discontinued operations.
On November 6, 2020 Organic Agricultural entered into a Cooperation Agreement with Unbounded IOT Block Chain Limited (“Unbounded”), an entity with offices in Xiamen City, Fujian Province. The purpose of the Cooperation Agreement was to promote the use of blockchain technology in agriculture, specifically the development of tracing systems for agricultural products, the development of a blockchain-based shopping mall for agricultural products, and related improvements to the agricultural sector of the economy. To accomplish those purposes, Tianci Wanguan (Xiamen) Digital Technology Co., Ltd. was incorporated in Xiamen, China on November 5, 2020. Tianci Wanguan is 51% owned by Organic Agricultural HK and 49% owned by Chen Zewu on behalf of Unbounded. Each party had committed to provide capital resources to Tianci Wanguan in proportion to its ownership percentage.
On July 19, 2021 the parties executed a supplement to the Cooperation Agreement. The Supplementary Agreement sets forth performance criteria for Unbounded’s management of Tianci Wanguan: specifically that within 12 months after the shares mentioned below are issued to Unbounded, Tianci Wanguan must have made a profit of five million Renminbi (approximately $774,000) from the business described in the Cooperation Agreement or any other business approved by Organic Agricultural. Any profits generated by Tianci Wanguan will be held for use by that company.
The Supplementary Agreement further provides that, after implementing a 5.16 -for-1 stock split contemplated by the Cooperation Agreement and the supplement, Organic Agricultural will issue 10 million shares of its common stock to Unbounded with one month after signing of the Supplementary Agreement. The certificate for the shares will be held by Chen Zewu, who will vote the shares in accordance with the direction he receives from Hao Shuping, a member of the Organic Agricultural Board of Directors. If Unbounded fails to satisfy the criteria described above, the 10 million shares must be returned to Organic Agricultural. If Unbounded does satisfy the criteria, then it will have unrestricted ownership of the 10 million shares, and Organic Agricultural will issue an additional 10 million shares to Unbounded.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
Management has determined there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues and recurring losses. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company’s operations have been financed primarily by proceeds from sales of shares. The Company received $920,000 in April 2021 from sales of shares. The Company intends to use these funds for working capital.
Management intends to expand product offerings to include value-added products, both products based on rice and products based on other food stuffs, such as organic red beans and millet. The marketing personnel of the Company are opening new marketing channels and hope to build a stable base of customers. In this manner, Management hopes to generate sufficient operating cash inflow to support its future operations and development of the Company in addition to capital raised from sales of shares and shareholders’ support based on need.
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation when applicable.
The unaudited interim financial statements of the Company as of September 30, 2018 and for the three and six months ended September 30, 2018 and 2017, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply toU.S. GAAP for interim financial statements.information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of AmericaU.S. GAAP for annualcomplete financial statements. In the opinion of management, such information contains all adjustments consisting only of a normal and recurring adjustments,nature considered necessary for a fair presentation of the results for the periods presented. The interim financial information should be read in conjunction with the financial statements and the notes thereto,have been included in the Company’s Registration Statement on Form S-1 (File No. 333-226810) filed with the SEC.accompanying condensed consolidated financial statements. The results of operations for the three and six months ended September 30, 2018 and 2017interim period are not necessarily indicative of the results tothat will be expectedrealized for future quarters orthe entire fiscal year. These condensed consolidated financial statements should be read in conjunction with Organic Agricultural Company’s audited financial statements and accompanying notes thereto as of and for the year endingended March 31, 2019.2021 included in Company’s current report on Form 10-K as filed with the SEC on June 29, 2021.
The Company’s condensed consolidated financial statements are expressed in U.S. Dollars and are presented in accordance with accounting principles generally accepted in the United States Generally Accepted Accounting Principlesof America (“U.S. GAAP”).
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.eliminated in consolidation. The condensed consolidated financial statements include the assets, liabilities, and net income or loss of these subsidiaries.
The Company’s subsidiaries as of June 30, 2021 are listed as follows:
Name | Place of Incorporation | Attributable equity interest % | ||||
Organic Agricultural (Samoa) Co., Ltd. | Samoa | 100 | ||||
Organic Agricultural Company Limited (Hong Kong) | Hong Kong | 100 | ||||
Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited | China | 100 | ||||
Heilongjiang Yuxinqi Agricultural Technology Development Company Limited | China | 100 | ||||
Tianci Wanguan (Xiamen) Digital Technology Company Limited | China | 51 |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
The Company’s subsidiaries are listed as follows:
Name | Place of Incorporation | Attributable equity interest % | Authorized capital | |||
Organic Agricultural (Samoa) Co., Ltd. | Samoa | 100 | USD 1,000,000 | |||
Organic Agricultural Company Limited | Hong Kong | 100 | HKD 10,000 | |||
Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited | China | 100 | 0 | |||
Heilongjiang Yuxinqi Agricultural Technology Development Company Limited | China | 100 | 0 | |||
Baoqing County Lvxin Paddy Rice Plant Specialized Cooperative | China | 51 | 0 |
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ from those estimates. One significant item subject to such estimates and assumptions is the inventory valuation allowances.allowance. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
Cash and cash equivalents
Cash consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use.use in the PRC. All highly liquid investments with original stated maturities of three months or less are classified as cash and cash equivalents. Cash equivalents approximate or equal fair value due to their short-term nature.cash. The Company’s cash and cash equivalents consist of cash on hand and cash in bank, as of SeptemberJune 30, 20182021 and March 31 2018.2021.
Revenue recognition
TheEffective April 1, 2018, the Company recognizes revenue in accordance with theadopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.
Effective April 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow to the entity, and specific criteria have been met for each of the Company’s activities as described below.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)The Company sells paddy and selenium-enriched paddy products, rice and other agricultural products. All revenue is recognized when it is both earned and realized. The Company’s policy is to recognize the sale when the products, ownership and risk of loss have transferred to the purchasers, and collection of the sales proceeds, if not prepaid, is reasonably assured, all of which generally occur when the customer receives the products. Accordingly, revenue is recognized at the point in time when delivery is made.
There was no impact onGiven the nature of this revenue generated by the Company’s financial statements as a resultbusiness and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do not include estimates that materially affect results of adopting Topic 606operations nor does the Company have any policy for the three and six months ended September 30, 2018 and 2017.return of products.
Fair Value Measurementsvalue measurements
The Company applies the provisions of FASB ASC 820,Fair Value Measurements for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that mayare to be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices, other than those in Level 1, in markets that are not active or for similar assets and liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
There were no transfers between level 1, level 2 or level 3 measurements during the three and six months ended September 30, 2018 and 2017.
Financial assets and liabilities of the Company primarily compriseconsists of cash, prepayments & deferredaccounts receivable, prepaid expenses, inventories, other receivables, accounts payable and accrued liabilities, operating lease liability, customer deposits, due to related partyparties, and advances for shares to be issued.other payables. As at SeptemberJune 30, 20182021 and March 31, 2018,2021, the carrying values of these financial instruments approximated their fair values due to the short-term nature of these instruments.
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
Functional currency and foreign currency translation
An entity’s functional currency is the currency of the primary economic environment in which it operates. Normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of the Company is the Chinese Renminbi (“RMB’), except the functional currency of Organic Agricultural HK is the Hong Kong Dollar (“HKD”), and the functional currency of Organic Agricultural Samoa and Organic Agricultural is the United States dollar (“US Dollars” “USD” or “$”). The reporting currency of these condensed consolidated financial statements is in US Dollars.
The financial statements of the Company, which are prepared using the RMB and the HKD, are translated into the Company’s reporting currency, the US Dollar. Assets and liabilities are translated using the exchange rate at each reporting period end date. Revenue and expenses are translated using weighted average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income or loss.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
The exchange rates used for foreign currency translation are as follows:
For the Three Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
(USD to RMB/USD to HKD) | (USD to RMB) | |||||||
Assets and liabilities | period end exchange rate | 6.8683 / 7.8287 | 6.6549 | |||||
Revenue and expenses | period weighted average | 6.8048 / 7.8450 | 6.6715 |
For Six Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
(USD to RMB/USD to HKD) | (USD to RMB) | |||||||
Assets and liabilities | period end exchange rate | 6.8683 / 7.8287 | 6.6549 | |||||
Revenue and expenses | period weighted average | 6.5925 / 7.8465 | 6.7659 |
For the three months ended June 30, | March 31, | |||||||||||
2021 | 2020 | 2021 | ||||||||||
(USD to RMB/USD to HKD) | (USD to RMB/USD to HKD) | (USD to RMB/USD to HKD) | ||||||||||
Assets and liabilities period end exchange rate | 6.4579 | /7.7652 | 7.0697 | /7.7504 | 6.5565 | /7.7744 | ||||||
Revenue and expenses period average | 6.4596 | /7.7655 | 7.0864 | /7.7514 | N/A |
F-8
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
Income taxes
The Company follows FASB ASC Topic 740,Income Taxes, which requires the recognition of deferred income taxes for the differences between the basis of assets and liabilities for financial statements and income tax purposes. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating losses and for tax credit carryforwards. Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
ASC 740-10-30 requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-30, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Under ASC 740-10-40, previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretation, judgmentinterpretations, judgments and uncertainty.uncertainties. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy,policies, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance.
Lvxin products sales and services have been exempt from enterprise income tax, accordingChina
According to the “PRC Income Tax Law” Article 27 (1)”, Tianci Liantian, Tianci Wanguan and Yuxinqi are subject to the 25% standard enterprise income from agricultural, forestry, animal husbandrytax rate in the PRC.
United States
The Company is subject to the U.S. corporation tax rate of 21%.
Samoa
Organic Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, fisheries Industry shall be exempt from businessunder the current laws of Samoa, it is not subject to income tax.
Hong Kong
Organic Agricultural Company Limited (Hong Kong) was incorporated in Hong Kong and is subject to Hong Kong profits tax. Organic Agricultural Company Limited (Hong Kong) is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.
Earnings (loss) per share
The Company computes earnings(loss) per share (“EPS”) in accordance with FASB ASC 260,Earnings Per ShareUnited States. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding during the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stock using the treasury stock method and the potential shares of converted common stock associated with the convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS.
F-9
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
Share-Based Compensation
The Company has adopted the provisions of ASC 718 requiring employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award. No equity instruments were granted during the year ended March 31, 2018 and no compensation expense is required to be recognized under provisions of ASC 718 with respect to employees. During the six months ended September 30, 2018, specifically on June 13, 2018, the Company granted a total of 290,000 shares with a fair value on the grant date of $1.30 per share to 8 employees and $377,000 compensation expense was required to be recognized under provisions of ASC 718. These shares were fully vested when issued.
Segment Information and Geographic Data
The Company is operating in one segment in accordance with the accounting guidance FASB ASC Topic 280,Segment Reporting. The Company’s revenues are from customers in the People’s Republic of China (“PRC”). All assets of the Company are located in the PRC.
Concentration of Credit Risk
The Company maintains cash balances in four banks in China. Currently, the deposit insurance for up to RMB500,000 in China. Therefore, the Company will bear a risk if any of these banks become insolvent. As of September 30, 2018, and March 31, 2018, the Company’s cash balances were approximately $114,121 and $458,690, respectively, uninsured cash in bank balances were approximately $342,764 and $3,351, respectively.
As of September 30, 2018 and March 31, 2018, the Company has customer deposits of $134,088 and $31,844 from two customers, respectively, and one customer representing 99.9% of total customer deposits.
As of September 30, 2018 and March 31, 2018, the Company has prepayments & deferred expenses of nil and $128,293, respectively, to one vendor, representing nil and 24%, respectively, of prepayments & deferred expenses. For six months ended September 30, 2018 and 2017, the Company’s purchases from this vendor total $137,120 and $103,952, respectively. For three months ended September 30, 2018 and 2017, there were no purchases from this vendor.
Recently accounting pronouncements
In February 2018, the FASB issued ASU No. 2018-02,Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 was issued as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”) on December 22, 2017. Accounting guidance required deferred tax items to be revalued based on the new tax laws (the most significant of which reduced the corporate tax rate to 21% percent from 34% percent) and to include the change in income from continuing operations. ASU 2018-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The adoption of ASU No.2018-02 will not have an effect on the Company’s financial statement.
F-10
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
In July 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-11,Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815). The update changes the classification of certain equity-linked financial instruments (or embedded features) with down round features. The update also clarifies existing disclosure requirements for equity-classified instruments. The update is effective retrospectively for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted for all companies in any interim or annual period.The adoption of ASU No.2017-11 will not have an effect on the Company’s financial statement.
In May 2017, the FASB issued ASU No. 2017-09,Compensation – Stock Compensation: (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We adopted the new standard using the full retrospective application, and the adoption did not have a significant impact on our recognition of net revenues or related disclosures for any period.
In January 2017, theFinancial Accounting Standards Board (“FASB”)issued Accounting Standards Update (“ASU”) No. 2017-01,Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning April 1, 2018 and subsequent interim periods with prospective application with impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition.
In November 2016, the FASB issued ASU No. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU 2016-18 for the reporting period ending March 31, 2018.
In October 2016, the FASB issued ASU No. 2016-16,Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The standard is intended to address diversity in practice and complexity in financial reporting, particularly for intra-entity transfers of intellectual property. ASU 2016-16 will be effective for the Company beginning with the interim periods of fiscal 2019 and requires the modified retrospective method of adoption. Early adoption is permitted. The Company has evaluated the potential impact of ASU 2016-16 on its consolidated financial statements. The adoption of ASU 2016-16 is not expected to have a material effect on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment in this update affects entities with transactions included within the scope of Topic 606, The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, the amendments in ASU 2016-10 provide more detailed guidance, including additional implementation guidance and examples in the following key areas: 1) identifying performance obligations and 2) licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). The amendments do not change the core principles of the standard, but clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration and certain transition matters. This update becomes effective concurrently with ASU No. 2014-09. The Company adopted ASU 2016-12 effective April 1, 2018. There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the six months ended September 30, 2018 and 2017.
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company elected to adopt ASU 2016-02 for the reporting period ending March 31, 2019.
We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.
NOTE 3. PREPAYMENTS AND DEFERRED EXPENSES
Prepayments are reported as prepayments and deferred expenses on the consolidated balance sheets. Deferred expenses include prepaid paddy planting land rent and Tianci Liangtian office rent. As of September 30, 2018 and March 31, 2018, prepayments and deferred expenses were $373,937 and $526,100, respectively.
NOTE 4. INVENTORIES
Inventories are generally kept for a short period of time. The significant components of inventories are growing costs and harvesting costs.
Growing costs, also referred to as cultural costs, consist of seeds cultivation, fertilization and soil improvement, pest control and irrigation. Harvest costs are comprised of labor and equipment expenses incurred to harvest and deliver crops to the packinghouses.
Paddy is grown in Lvxin’s planting base. This crop has distinct growing, harvest, and selling periods, each of which lasts approximately four to six months. During the growing period, cultural costs are capitalized, as they are associated with benefiting and preparing the crops for the harvest and selling period. During the harvest and selling period, harvest costs and cultural costs are expensed when incurred and capitalized costs are amortized as cost of planting in accordance with LIFO recognition of historical costs.
Most cultural costs, including amortization of capitalized cultural costs and certain other costs, such as indirect labor including farm supervision and management and irrigation that benefit multiple crops are allocated to crops on a per-kilogram basis.
The cost of inventory includes all relevant expenditures incurred before and during the entire cultivation period and after harvesting, mainly including seed, fertilizer and other production materials, land rent, labor, and other related costs, subject to impairment if the cost of inventory exceeds market value.
F-12
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 4. INVENTORIES (continued)
At September 30, 2018 and March 31, 2018, inventories consisted of the following:
September 30 | March 31 | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
Growing cost | $ | 869,759 | $ | 633,607 | ||||
Selenium enriched paddy | 120,246 | 187,604 | ||||||
Rice | 51,651 | — | ||||||
Packing and other materials | 6,983 | — | ||||||
$ | 1,048,639 | $ | 821,211 |
NOTE 5. INCOME TAXES
A reconciliation of income (loss) before income taxes for domestic and foreign locations for six months ended September 30, 2018, and 2017 is as follows:
2018 | 2017 | |||||||
(Unaudited) | (Unaudited) | |||||||
United States | $ | (55,794 | ) | $ | — | |||
Foreign | (671,864 | ) | — | |||||
(Loss) before income taxes | $ | (727,658 | ) | $ | — |
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:
September 30 | September 30 | |||||||
2018 | 2017 | |||||||
U.S. federal statutory income tax rate | 21 | % | 34 | % | ||||
Lower rates in PRC, net | 25 | % | 25 | % | ||||
Valuation allowance | (25 | )% | (25 | )% | ||||
Effects of tax basis differences | (21 | )% | (34 | )% | ||||
The Company’s effective tax rate | (0 | )% | (0 | )% |
The Company did not recognize deferred taxes since it is not likely to realize such deferred taxes. The deferred tax would only apply to the Company in the U.S., as the Company’s current operations in China are not subject to income tax. Lvxin products sales and services have been exempt from enterprise income tax, according to the “PRC Income Tax Law” Article 27 (1)”, income from agricultural, forestry, animal husbandry and fisheries Industry shall be exempt from business tax.
As of September 30, 2018, the Company has a net operating loss carry forward in the PRC that expires in 2023. As a result, the Company provided a 100% allowance on all deferred tax assets of approximately $168,000 and nil related to its operations in the PRC as of September 30, 2018 and 2017, respectively. The valuation allowance has increased by $168,000 and nil for the six months ended September 30, 2018 and 2017, respectively.
The Company has incurred losses from its United States operations during all periods presented. Accordingly, management provided a 100% valuation allowance of approximately $11,700 and nil against the deferred tax assets related to the Company’s United States operations as of September 30, 2018 and 2017, respectively, because the deferred tax benefits of the net operating loss carry forward in the United States might not be utilized.
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 5. INCOME TAX(Continued)
The Company is subject to examination by the Internal Revenue Service (IRS)U.S. corporation tax rate of 21%.
Samoa
Organic Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under the United States as well as by the taxing authorities in China, where the firm has significant business operations. The tax years under examination vary by jurisdiction. The table below presents the earliest tax year that remaincurrent laws of Samoa, it is not subject to examination by major jurisdiction. income tax.
Hong Kong
Organic Agricultural Company Limited (Hong Kong) was incorporated in Hong Kong and is subject to Hong Kong profits tax. Organic Agricultural Company Limited (Hong Kong) is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.
Earnings (loss) per share
The Company accounts for income taxescomputes earnings (loss) per share (“EPS”) in accordance with FASB ASC 740,Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred tax assets are also recognized for operating losses and tax credit carryforwards. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.
260, United States
Organic AgriculturalThe Company Limited is subject to the United StatesU.S. corporation tax at the rate of 21%. At September 30, 2018, the Company’s unremitted foreign loss of its PRC subsidiaries totaled approximately $0.45 million and the Company held approximately $0.11 million of cash and cash equivalents in the PRC. These unremitted earnings are planned to be reinvested indefinitely into the operations of the Company in the PRC. While repatriation of cash held in the PRC may be restricted by local PRC laws, most of the Company’s foreign cash balances could be repatriated to the United States but, under current U.S. income tax laws, would be subject to U.S. federal income taxes less applicable foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability on the unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation, and as the Company does not plan to repatriate any cash in the PRC to the United States during the foreseeable future, no deferred tax liability has been accrued.
Samoa
Organic Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under the current laws of Samoa, it is not subject to income tax.
ChinaHong Kong
Tianci Liantian and Yuxinqi are subject to a 25% standard enterprise income tax in the PRC. Income tax was nil at September 30, 2018 and 2017.
Lvxin products sales and services have been exempt from enterprise income tax, according to the “PRC Income Tax Law” Article 27 (1), which states that income from agricultural, forestry, animal husbandry and fisheries Industry shall be exempt from business income tax.
F-14
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 6. ADVANCES FOR SHARES TO BE ISSUED
Advances for shares to be issued consisted of the following as of the periods indicated:
September 30 | March 31 | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
Advances for shares to be issued | $ | — | $ | 425,749 | ||||
$ | — | $ | 425,749 |
As of March 31, 2018, the Company had received an advance for 410,000 shares to be issued of $425,749. This amount was prepaid to Tianci Liangtian by certain individuals in anticipation of the formation of Organic Agricultural Company Limited (Hong Kong) was incorporated in Hong Kong and was reclassified as a capital contributionis subject to the Company afterHong Kong profits tax. Organic Agricultural Company Limited was organized(Hong Kong) is subject to Hong Kong taxation on its activities conducted in April 2018Hong Kong and entered into Subscription Agreements with those individuals.income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.
Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with FASB ASC 260, Earnings Per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding during the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stock using the treasury stock method and the potential common shares associated with convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Share-based compensation
The Company follows the provisions of FASB ASC 718 requiring employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award and recognized over its vesting period. During the three months ended June 30, 2021, specifically on April 12, 2021, the Company granted a total of 345,000 shares with a fair value on the grant date of $2.20 per share to 25 individuals for sales promotion services during the period from April 12, 2021 through December 31, 2021., $759,000 in compensation expense was recognized under the provisions of ASC 718. These shares were fully vested when issued.
Segment information and geographic data
The Company is operating in one segment in accordance with the accounting guidance in FASB ASC Topic 280, Segment Reporting. The Company’s revenues are from the sales of agricultural products to customers in the People’s Republic of China (“PRC”). All assets of the Company are located in the PRC.
Concentration of credit and customer risks
The Company maintains cash balances in two banks in China. In China, the insurance coverage of each bank is RMB500,000 (approximately USD$77,000). As of June 30, 2021, the Company had RMB5,178,406 (approximately $802,000) in excess of the insurance amounts.
During the three months ended June 30, 2021, 1 customer, Jiufu Zhenyuan, generated 85% of revenues. During the three months ended June 30, 2020, Shouhang Commerce and Jiufu Zhenyuan generated 44% and 41% of revenue, respectively.
Risks and uncertainties
The COVID-19 pandemic has had a significant adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges in sales and has suffered a significant decrease in revenues which has increased financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of the COVID-19 pandemic and are very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the extent to which the COVID-19 affects our business, financial results and financial condition include: the duration, spread and severity of the pandemic; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreak interrupts the economic recovery.
Recently adopted accounting standards
We do not believe any recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the condensed consolidated financial position, statements of operations and cash flows.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 3. DISCONTINUED OPERATIONS
As discussed in Note 1. Basis of Presentation above, on April 30, 2020, the Company completed the divestment of Lvxin and the requirements for the presentation of Lvxin as a discontinued operation were met on that date. Accordingly, Lvxin’s historical financial information and results are reflected in the Company’s consolidated financial statements as discontinued operations. The Company did not allocate any general corporate overhead or interest expense to discontinued operations.
The financial results of Lvxin are presented as income (loss) from discontinued operations, net of income taxes, in the Condensed Consolidated Statements of Operations. The following table presents the financial results of Lvxin for the reporting periods prior to April 30, 2020.
For Three Months ended June 30, 2020 | ||||
(Unaudited) | ||||
Net sales | $ | 37,317 | ||
Cost of sales | 36,574 | |||
Gross profit | 743 | |||
Selling, general and administrative expenses | - | |||
Operating income | 743 | |||
Other income (loss) | - | |||
Income before income taxes | 743 | |||
Income tax (expense) benefit | - | |||
Income from discontinued operations, net of income taxes | 743 | |||
Less: net income attributable to non-controlling interest | (364 | ) | ||
Net income from discontinued operations attributable to controlling interest | $ | 379 |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 4. PREPAID EXPENSES
Prepaid expenses include prepayments for expenses, and prepayments of processing charges and products to be purchased. As of June 30, 2021 and March 31, 2021, prepayments and deferred expenses were as follows:
June 30, 2021 | March 31, 2021 | |||||||
Unaudited | ||||||||
Prepayments for expenses | $ | 17 | $ | 370 | ||||
Prepayments of processing charges and products to be purchased: | ||||||||
Baoqing County Fengnian Agricultural Product Purchase and Sale Ltd. | 5,803 | 5,715 | ||||||
Heilongjiang Yaohe County Heifengyuan Apiculture Ltd. | 3,973 | 5,416 | ||||||
Total | $ | 9,793 | $ | 11,501 |
NOTE 5. INVENTORIES
The Company’s inventories are all non-perishable products. There is no reserve. The Company values inventory on its balance sheet at the lower of cost or net realizable value. Inventories consisted of the following:
June 30, 2021 | March 31, 2020 | |||||||
Unaudited | ||||||||
Rice and other products | $ | 126,758 | $ | 112,132 | ||||
Packing and other materials | 11,883 | 9,594 | ||||||
Total inventories at cost | $ | 138,641 | $ | 121,726 |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 6. INCOME TAXES
A reconciliation of income (loss) before income taxes for domestic and foreign locations for the three months ended June 30, 2021 and 2020 is as follows:
For the three months ended June 30, | ||||||||
2021 | 2020 | |||||||
Unaudited | ||||||||
United States | $ | (777,152 | ) | $ | (16,580 | ) | ||
Foreign | (13,547 | ) | (15,713 | ) | ||||
(Loss) before income taxes | $ | (790,699 | ) | $ | (32,293 | ) |
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:
June 30, 2021 | June 30, 2020 | |||||||
Unaudited | ||||||||
U.S. federal statutory income tax rate | 21 | % | 21 | % | ||||
U.S. Valuation allowance | (21 | )% | (21 | )% | ||||
Rates for Tianci Liangtian, Tianci Wanguan and Yuxinqi, net | 25 | % | 25 | % | ||||
PRC Valuation allowance | (25 | )% | (25 | )% | ||||
The Company’s effective tax rate | (0 | )% | (0 | )% |
The Company did not recognize deferred tax assets since it is not likely to incur taxes against which such deferred tax assets may be offset. The deferred tax assets would apply to the Company in the U.S. and to Yuxinqi, Tianci Liangtian and Tianci Wanguan in China.
As of June 30, 2021, Yuxinqi, Tianci Liangtian and Tianci Wanguan have total net operating loss carry forwards of approximately $903,000 in the PRC that expire in 2025. Due to the uncertainty of utilizing these carry forwards, the Company provided a 100% valuation allowance on the net deferred tax assets of approximately $226,000 and $222,000 related to its operations in the PRC as of June 30 and March 31, 2021, respectively. The PRC valuation allowance has increased by approximately $3,000 and $6,000 for the three months ended June 30, 2021 and 2020, respectively.
The Company has incurred losses from its United States operations during all periods presented of approximately $1,334,000. The Company’s United States operations consist solely of ownership of its foreign subsidiaries, and the losses arise from administrative expenses. Accordingly, management provided a 100% valuation allowance of approximately $280,000 and $117,000 against the net deferred tax assets related to the Company’s United States operations as of June 30, 2021 and March 31, 2021, respectively, because the deferred tax benefits of the net operating loss carry forwards in the United States will not likely be realized. The US valuation allowance has increased by approximately $163,000 and $4,000 for the three months ended June 30, 2021 and 2020, respectively.
The Company is subject to examination by the Internal Revenue Service (IRS) in the United States as well as by the taxing authorities in China, where the Company has its operations. The tax years subject to examination vary by jurisdiction. The table below presents the earliest tax years that remain subject to examination by jurisdiction.
The year as of | ||||
U.S. Federal | March 31, 2019 | |||
China | December 31, 2017 |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 7. OTHER PAYABLES
As of June 30 and March 31, 2021, other payables were 923 and 2,435.
NOTE 8. RELATED PARTY TRANSACTIONS
Amount due to related parties
AmountAmounts due to related parties consisted of the following as of the periods indicated:
September 30 | March 31 | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
Hao Shuping | $ | 59,956 | $ | 112,690 | ||||
Shen Zhenai | 6,161 | 752 | ||||||
15 shareholders of Lvxin | 90,994 | 458,208 | ||||||
$ | 157,111 | $ | 571,650 |
June 30, 2021 | March 31, 2021 | |||||||
Unaudited | ||||||||
Shen Zhenai | 82,547 | 81,341 | ||||||
Xun Jianjun | 8,527 | 8,398 | ||||||
$ | 91,074 | $ | 89,739 |
Hao Shuping is the main shareholder of the Company, and
Shen Zhenai is the President, Chairman of the Board, director and a shareholder of the Company, and Xun Jianjun is the CEO and a shareholder of the Company. These advances represent temporary borrowings for operating costs between the Company and management. They are non-interest bearing and due on demand.
During the three months ended June 30, 2021, Hao Shuping, a member of the Company's Board of Directors, purchased agricultural products from the Company totaling $1,487.
NOTE 9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
On April 1, 2019, the Company adopted FASB ASC 842, “Leases” (“new lease standard”). The new lease standard was adopted using the optional transition method approach that allows for the cumulative effect adjustment to be recorded without restating prior periods. The Company has elected the practical expedient package related to the identification, classification and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before the effective date. As of September 30, 2018,the Company will not reassess such conclusions, the Company has not adopted the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended or terminated or whether a purchase option will be exercised.
Operating leases are reflected on our balance sheet within ROU assets and the related operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease agreement. ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the terms.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Continued)
Tianci Liangtian has an operating lease for office space (approximately 666 square meters). Under the terms of the lease, Tianci Liangtian paid approximately $1,549 in lease deposits and committed to make annual lease payments. On December 20, 2019, the lease was renewed. Under the renewed terms, annual lease payments are RMB290,000 (approximately US$45,000, including VAT tax) for the period from December 20, 2019 to December 19, 2020. On December 20, 2020, the contract expired. Because of the COVID-19 pandemic, the renewal was delayed. On May 14, 2021, Yuxinqi and the lessor signed a supplemental agreement which, due to 15 shareholdersa leak in the building, credited Yuxinqi with RMB62,570 (approximately US$10,000) of Lvxinrental expense paid for the previous rental period. On May 14, 2021, Yuxinqi signed a new lease agreement (approximately 370 square meters). Under the terms, Yuxinqi reduced the rental area due to a leak in the building, and committed to make annual lease payments of $90,994, which was recordedRMB184,005 (approximately US$28,000, including VAT tax) for the period from December 20, 2020 to January 19, 2022. As of June 30 and March 31, 2021, US$28,493 and $37,617 were accounted as Due To Related Parties. It represents advances for expenses paid to suppliers by the 15 shareholders. The balance is non-interest bearinglease liabilities (current), $12,406 and due on demand.$18,330 were accounted as a lease right-of-use asset, respectively.
The Company’s adoption of the new lease standard included new processes and controls regarding asset financing transactions, financial reporting and a system-related implementation required for the new lease standard. The impact of the adoption of the new lease standard included the recognition of right-of-use (“ROU”) asset and lease liabilities. For the three months ended June 30, 2021 and 2020, the amortization was $6,202 and $9,652, respectively.
As of March 31, 2018,June 30, 2021, the Company has athe following amounts recorded on the Company’s consolidated balance due to the 15 shareholders of Lvxin of $458,208, which was recorded as Due To Related Parties. This balance was paid off on June 22, 2018, as consideration for the sale of their 51% interest to Tianci Liangtian.sheet:
As of June 30, | ||||
2021 | ||||
Unaudited | ||||
Assets | ||||
Right-of-use asset (non-current) | $ | 12,406 | ||
Total | $ | 12,406 | ||
Liabilities | ||||
Lease liability (current) | $ | 28,493 | ||
Total | $ | 28,493 |
F-15
Office lease: | |||||
1 year, renewal option | |||||
Remaining Lease Term | |||||
Incremental borrowing rate | 4.9 | % |
Future annual minimum lease payments for non-cancellable operating leases are as follows:
Year Ending March 31 | ||||
2022 | $ | 28,493 | ||
Thereafter | - | |||
Total | 28,493 | |||
Less: imputed interest | 333 | |||
Total | $ | 28,160 | ||
Reconciliation to lease liabilities: | ||||
Lease liabilities - current | $ | 28,493 | ||
Lease Liabilities | $ | 28,493 |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)US DOLLARS)
NOTE 10. CONTINGENCIES
NOTE 8. CONTINGENCIES AND COMMITMENT
Contingencies
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
The Company was not subject to any material loss contingencies as of SeptemberJune 30 2018 and March 31, 2018.2021 and through the date of this report.
Commitments
In November 2017, Tianci Liangtian leased new office space from November 20, 2017 to December 05, 2018 under an operating lease agreement (approximately 666 square feet). Under the terms of the lease, the period from November 20, 2017 to December 5, 2017 is a rent-free period. Tianci Liangtian paid approximately $1,592 in lease deposits and is committed to make annual lease payments. Annual rental is CNY¥ 290,000 (approximately US$42,000).
In April 2018, Lvxin leased office space of approximately176.86 square meters under a one year lease agreement. Lvxin paid approximately US$4,532 (RMB30,000) as rent and is committed to make annual lease payments of $4,532 (RMB30,000). The office address is the Fuyuanguandi, Pingshun Street, Baoqing County, Shuangyasha City, Heilongjiang Province. China 155600. The office contains our administrative functions, sales, e-commerce operations and marketing functions.
The Company recorded rent expense of $24,346 for six months ended September 30, 2018 and $11,724 for three months ended September 30, 2018.
The Company leases 497 hectares of cultivated land for cultivating pursuant to more than 300 lease agreements with individual farmers. Some of the leases are paid annually, some of the leases are paid in advance for periods from 12 to 22 years. The Company accounts for the land rental costs as a cost of production of the growing paddy annually. The Company recorded land rental costs of $nil and $nil for six months ended September 30, 2018 and 2017, and $nil and $nil for three months ended September 30, 2018 and 2017.NOTE 11. SUBSEQUENT EVENTS
ORGANIC AGRICULTURAL COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD) (UNAUDITED)
NOTE 8. CONTINGENCIES AND COMMITMENT(Continued)
As of September 30, 2018, the Company had made $335,624 prepayments for cultivated land leases. Future annual minimum lease payments for non-cancellable operating leases are as follows:
Fiscal year end of March 31 | Amount $ | ||||
2019 | $ | 372,726 | |||
2020 | 402,596 | ||||
2021 | 357,460 | ||||
2022 | 280,862 | ||||
2023 | 201,073 | ||||
thereafter | 1,001,366 | ||||
Total | $ | 2,616,083 |
NOTE 9. NON-CONTROLLING INTERESTS
Lvxin is the Company’s majority-owned subsidiary which is consolidated in the Company’s financial statements with a non-controlling interest (NCI) recognized. The Company holds 51% interest of Lvxin as of September 30, 2018 and March 31, 2018.
As of September 30, 2018, and March 31, 2018, NCI in the consolidated balance sheet was $(107,476) and $(32,826), respectively.
For six months ended September 30, 2018, the comprehensive income (loss) attributable to shareholders’ equity and NCI was $(734,860) and $(74,650), respectively. For six months ended September 30, 2017, the comprehensive income (loss) attributable to shareholders’ equity and NCIs was $nil and $nil, respectively.
For three months ended September 30, 2018, the comprehensive income (loss) attributable to shareholders’ equity and NCI was $(173,715) and $(41,316), respectively. For three months ended September 30, 2017, the comprehensive income (loss) attributable to shareholders’ equity and NCI was $nil and $nil, respectively.
NOTE 10. SUBSEQUENT EVENTS
The Management of the Company determined that there were no reportable subsequent events to be disclosed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSadjusted for and/or disclosed as of August 16, 2021 except as follows:
The COVID-19 pandemic has had a significant adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges in sales and has suffered a significant decrease in revenues which has increased financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of the COVID-19 pandemic and are very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition.
On July 19, 2021 the Company and Unbounded IOT Block Chain Limited ("Unbounded") executed a supplement to the Cooperation Agreement. The Supplementary Agreement sets forth performance criteria for Unbounded’s management of Tianci Wanguan: specifically that within 12 months after the shares mentioned below are issued to Unbounded, Tianci Wanguan must have made a profit of five million Renminbi from the business described in the Cooperation Agreement or any other business approved by Organic Agricultural. Any profits generated by Tianci Wanguan will be held for use by that company.
The Supplementary Agreement further provides that, after implementing a 5.16 -for-1 stock split contemplated by the Cooperation Agreement and the supplement, Organic Agricultural will issue 10 million shares of its common stock to Unbounded. The certificate for the shares will be held by Chen Zewu, who will vote the shares in accordance with the direction he receives from Hao Shuping, a member of the Organic Agricultural Board of Directors. If Unbounded fails to satisfy the criteria described above, the 10 million shares must be return to Organic Agricultural. If Unbounded does satisfy the criteria, then it will have unrestricted ownership of the 10 million shares, and Organic Agricultural will issue an additional 10 million shares to Unbounded.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States of America.States. The preparation of such 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 these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on 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. There can be no assurance that actual results will not differ from those estimates. See “Cautionary Statement Regarding Forward Looking Statements” above.
Corporate Reorganization: Basis forApplication of Critical Accounting Policies
On May 16, 2018, the Company completed a corporate reorganizationIn preparing our financial statements, we are required to combine several controlled entities (now referred to as the “subsidiaries”) into Organic Agricultural Company Limited. The specific transactions related to this reorganization are as follows:
On March 31, 2017, Hao Shuping acquired the controlling equity interest in Lvxin and entered into an agreement with the shareholdersformulate working policies regarding valuation of Lvxin that gave him managerial control over the operations of Lvxin. On January 1, 2018, Hao Shuping assigned his interest in Lvxin to Tianci Liangtian, an entity that he had recently organized and controlled.
On January 8, 2018, the equity owners of Tianci Liangtian assigned ownership of Tianci Liangtian to Organic Agricultural HK. Hao Shuping had recently organized Organic Agricultural HK in Hong Kong as a subsidiary of Organic Agricultural Samoa, a holding company in which Hao Shuping held the controlling interest.
On May 16, 2018, Organic Agricultural Company Limited acquired ownership of Organic Agricultural Samoa in exchange for 10,000,000 shares of the Company’s common stock issued to the shareholders of Organic Agricultural Samoa. As a result, Organic Agricultural Company Limited became the beneficial owner of each holding company listed above and of the 51% equity interest in Lvxin, the Company’s operating entity.
The aforesaid series of transactions has been accounted for as a business combination by entities under common control in accordance with ASC 805-50-30-5. Accordingly, the consolidatedour assets and liabilities and to develop estimates of the Company and its subsidiaries have been presented at their carrying values at the datethose values. In our preparation of the transaction; the Company’s historical stockholders’ equity has been retroactively restated to
the first period presented, and the financial statements included in this Form 10Q reflectfor the consolidationthree months ended June 30, 2021 and 2020, there was no estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results.
Results of Operations
The following table shows key components of the results of operations during the three months ended June 30, 2021 and cash flows2020:
For the Three Months Ended June 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
Revenue | $ | 30,091 | $ | 68,528 | $ | (38,437 | ) | (56 | %) | |||||||
Cost of Sales | 20,680 | 39,349 | (18,669 | ) | (47 | %) | ||||||||||
Gross Profit | 9,411 | 29,179 | (19,768 | ) | (68 | %) | ||||||||||
Total operating costs and expenses | 800,123 | 61,854 | 738,269 | 1,194 | % | |||||||||||
(Loss) from operations before other income and income taxes | (790,712 | ) | (32,675 | ) | (758,037 | ) | 2,320 | % | ||||||||
Other income | 13 | 382 | (369 | ) | (97 | %) | ||||||||||
(Loss) from operations before income taxes | (790,699 | ) | (32,293 | ) | (758,406 | ) | 2,349 | % | ||||||||
Income taxes | - | - | - | N/A | ||||||||||||
Net (loss) from continuing operations | (790,699 | ) | (32,293 | ) | (758,406 | ) | 2,349 | % | ||||||||
(Loss) on the sale of discontinued operations, net of income taxes | - | (713,722 | ) | 713,722 | (100 | %) | ||||||||||
Net income from discontinued operations, net of income taxes | - | 743 | (743 | ) | (100 | %) | ||||||||||
Total net (loss) income from discontinued operations | - | (712,979 | ) | 712,979 | (100 | %) | ||||||||||
Net (loss) | (790,699 | ) | (745,272 | ) | (45,427 | ) | 6 | % | ||||||||
Less: net income attributable to non-controlling interests | - | 364 | (364 | ) | (100 | %) | ||||||||||
Net (loss) attributable to common shareholders’ | $ | (790,699 | ) | $ | (745,636 | ) | $ | (45,063 | ) | 6 | % |
All of Tianci Liangtian,the Company’s operations are currently carried out by its subsidiary, Yuxinqi. Yuxinqi and Lvxin since their respective inceptions.
Plan of Operation
Our subsidiary, Lvxin, has been involved in growing, threshing and selling unmilled rice since 2012, using leased farmland and the part-time labor of local farmers. During the 2018 fiscal year, which ended on March 31, 2018, Lvxin concentrated its leasing in the selenium-rich areas on the Sanjiang Plain. Asis a result, at both March 31, 2018 and September 30, 2018 Lvxin held a harvested inventory of selenium-enriched paddymarketing enterprise with a book value of $187,604. Because of the need to increase the selenium in the diets of many residents of China, particularly in the northeastern portion of China where Lvxin’s operations are located, we believe that this recent focus on production of selenium-enriched paddy will allow us to collect premium prices formilled rice and other agricultural products. Incorporated on February 5, 2018, with a short operating history, Yuxinqi’s sales are erratic, since a stable customer base has not been established yet. Sales by Yuxinqi during the three months ended June 30, 2021 were lower than during the three months ended June 30, 2020. The decrease in revenue occurred primarily because our paddy.principal customers, such as Huiye and Shouhang Commerce, reduced their orders.
Our other subsidiary, Yuxinqi, was organized in February 2018, and has only recently initiated its business plan. Yuxinqi will devote its efforts to marketing and distribution of selenium-enriched agricultural products, initially the selenium-enriched paddy grown by Lvxin, but in the future a range of selenium-enriched agricultural products.
We plan to continue to expand our operations. Over the next twelve months, we will concentrate on the following areas to grow our operations:
|
|
|
Results of Operations
For The Three Months Ended September 30, | Change | |||||||||||||||
2018 (Unaudited) | 2017 (Unaudited) | $ | % | |||||||||||||
N/A | ||||||||||||||||
Revenue | $ | 3,685 | $ | — | 3,685 | N/A | ||||||||||
Cost of Sales | 2,078 | — | 2,078 | N/A | ||||||||||||
Gross Profit | 1,607 | — | 1,607 | N/A | ||||||||||||
Total operating costs and expenses | 184,114 | — | 184,114 | N/A | ||||||||||||
(Loss) from operations before other income and income taxes | (182,507 | ) | — | (182,507 | ) | N/A | ||||||||||
Other income | 3,342 | — | 3,342 | N/A | ||||||||||||
(Loss) from operations before income taxes | (179,165 | ) | — | (179,165 | ) | N/A | ||||||||||
Income tax | — | — | — | N/A | ||||||||||||
Net (loss) | (179,165 | ) | — | (179,165 | ) | N/A | ||||||||||
Less: net loss attributable to non-controlling interests | (19,109 | ) | — | (19,109 | ) | N/A | ||||||||||
Net (loss) attributable to common shareholders’ | $ | (160,056 | ) | $ | — | (160,056 | ) | N/A |
For The Six Months Ended September 30, | Change | |||||||||||||||
2018 (Unaudited) | 2017 (Unaudited) | $ | % | |||||||||||||
N/A | ||||||||||||||||
Revenue | $ | 3,685 | $ | — | 3,685 | N/A | ||||||||||
Cost of Sales | 2,078 | — | 2,078 | N/A | ||||||||||||
Gross Profit | 1,607 | — | 1,607 | N/A | ||||||||||||
N/A | ||||||||||||||||
Total operating costs and expenses | 732,610 | — | 732,610 | N/A | ||||||||||||
Earnings from operations before other income and income taxes | (731,003 | ) | — | (731,003 | ) | N/A | ||||||||||
Other income(expenses) | 3,345 | — | 3,345 | N/A | ||||||||||||
(Loss) from operations before income taxes | (727,658 | ) | — | (727,658 | ) | N/A | ||||||||||
Income tax | — | — | — | N/A | ||||||||||||
Net (loss) | (727,658 | ) | — | (727,658 | ) | N/A | ||||||||||
Less: net loss attributable to non-controlling interests | (20,247 | ) | — | (20,247 | ) | N/A | ||||||||||
Net (loss) attributable to common shareholders’ | $ | (707,411 | ) | $ | — | (707,411 | ) | N/A |
The Company recorded $3,685cost of sales of $20,680 and nil revenues in both$39,349 for the three and the six months ended SeptemberJune 30, 20182021 and 2017, respectively. This lack of revenue occurs because of the seasonal nature of paddy production, for which the period from April through September is the planting and growing season. Likewise, we incurred cost of goods sold of $2,078 and nil during those periods. The costs incurred in planting and growing paddy are capitalized as additions to inventory until the harvest season, when the capitalized costs are amortized against sales.
During the three and six months ended September 30, 2018, we incurred $184,114 and $732,610,2020, respectively, in operating expenses, the greater portion of which was attributable to the costssales of ourmilled rice and other foodstuffs. Those operations - i.e. salariesyielded a gross profit of $9,411 and office expenses. Salaries$29,768 with a gross margin of 31.3% and benefits expense was particularly high42.6%, respectively. The decrease in gross margin during the sixthree months ended SeptemberJune 30, 2018 because2021, compared to the same period of the previous year was primarily attributable to the reduced price of products and the change of series of products.
To focus on the sale of value-added processed products, the Company’s subsidiary, Tianci Liangtian, completed the spin-off of its ownership interest in May 2018Lvxin on April 30, 2020. During the three months ended June 30, 2020, the Company incurred $713,722 of investment loss due to the divestment of Lvxin.
In April 2021, in order to boost sales, the Company granted a total of 290,000345,000 fully vested shares to 8 employees, which resulted in $377,000 of additional compensation expense. representing thewith a fair value of those shares on the grant date issued.
In addition, during the six months ended September 30, 2018, we incurredof $2.20 per share to 25 individuals for sales promotion services. As a result, $759,000 in compensation expense was recognized as advertising and promotion expenses of $39,348 for the purposethree months ended June 30, 2021. Therefore, during the three months ended June 30, 2021 and 2020, the Company incurred $800,123 and $61,854, respectively, in operating expenses. In addition to the advertising and promotion expense in 2021, for the three months ended of promotingJune 30, 2021 and 2020, salaries and benefits expenses were $33,014 and $24,280, office expenses were $14,302 and $4,243, professional fees were $18,110 and $16,543 and advertising and promotion expenses were $761,840 and $6,431, respectively.
The Company’s operating expenses were partially offset by $33,345 of gain on exchange realized during the Company’s expansion. We also incurred expenses relating to our efforts to become a reporting companythree months ended June 30, 2021. This represented the increase in the United States, including legal and accounting fees, fees forUSD value of Tianci’s debt to Organic Agricultural as a transfer agent andresult of the like.decline in the USD to CNY exchange rate from 6.5565 to 6.4579.
During the six months ended September 30, 2017, we incurred no operating expenses, as Lvxin in that period had no office or employees.
The Company’s continuing operations produced a net loss of $179,165$790,699 and $32,293 for the three months ended SeptemberJune 30, 20182021 and $727,658 for the six months ended September 30, 2018, approximately equal to its operating expenses in each case. However, because we own only 51% of the equity in Lvxin, U.S. GAAP directs us to record all of the revenue and expenses attributable to the operations of Lvxin, but to then offset the portion of net income or net loss attributable to the noncontrolling interest. Therefore we eliminated $19,109 of the net loss realized during the three months ended September 30, 2018 and $20,247 of net loss realized during the six months ended September 30, 2018, representing 49% of Lvxin’s net loss for those periods. As a result, the net loss attributable to the Company was $160,056 for the three months ended September 30, 2018 and $707,411 for the six months ended September 30, 2018.2020, respectively.
Liquidity and Capital Resources
The Company’s operations have been financed primarily by loansproceeds from related parties.the sale of shares. The shareholdersCompany received $920,000 from the sale of Lvxin financed4,119,500 shares to a single investor during the operationsthree months ended June 30, 2021. As of that entity, and their loans have been repaid. Recently, Hao Shuping has been the primary source of financing for Tianci Liangtian and Yuxinqi. As a result, at SeptemberJune 30, 2018, the Company’s loans payable to related parties totaled $157,111 (a decrease from $571,650 at March 31, 2018), which was owed to members of the Company’s management. This left the Company with significant liquidity, as its2021, our working capital totaled $1,174,591. Working capital increased by $467,600was $723,313, an increase of $868,451 during the sixthree months ended SeptemberJune 30, 2018,2021, primarily because $425,749 that had been advanced fordue to the purchasesale of shares during the prior fiscal year was reclassified to shareholders’ equity when Organic Agricultural Company Limited was organized in April 2018 and the shares were issued.4,119,500 shares.
The largest componentcomponents of working capital is inventory,at June 30, 2021 were cash of $884,311 and inventories of $138,641, which is measuredwere offset by the expenses incurred for rice$165,693 in the field and in the warehouse. It is noteworthy that Lvxin had no accounts receivable at either September 30, 2018 or March 31, 2018. This occurs because the payment terms given by Lvxin to its customers are very constricted: most sales are made with COD (cash on delivery) terms, and no customer is afforded more than three days to complete payment.deposits against future sales.
Cash Flows
The following table summarizes our cash flows for the sixthree months ended SeptemberJune 30, 20182021 and 2017.2020.
For the Six Months Ended September 30, | Change | |||||||||||
2018 (Unaudited) | 2017 (Unaudited) | $ | ||||||||||
Net cash (used in) operating activities | $ | (448,321 | ) | $ | 1 | (448,322 | ) | |||||
Net cash (used in) investing activities | (229,828 | ) | — | (229,828 | ) | |||||||
Net cash provided by financing activities | 335,701 | — | 335,701 | |||||||||
Effect of exchange rate fluctuation on cash and cash equivalents | (2,121 | ) | 1 | (2,122 | ) | |||||||
Net (decrease) in cash and cash equivalents | (344,569 | ) | 2 | (344,571 | ) | |||||||
Cash and cash equivalents, beginning of year | 458,690 | 38 | 458,652 | |||||||||
Cash and cash equivalents, ending of year | $ | 114,121 | $ | 40 | 114,081 |
For the Three Months Ended June 30, | Change | |||||||||||
2021 | 2020 | $ | ||||||||||
Net cash (used in) operating activities | $ | (84,086 | ) | $ | (1,482 | ) | $ | (82,604 | ) | |||
Net cash (used in) investing activities | - | (1,343 | ) | 1,343 | ||||||||
Net cash provided by financing activities | 920,000 | 38,900 | 881,100 | |||||||||
Effect of exchange rate fluctuation on cash and cash equivalents | (22,109 | ) | 4,247 | (26,356 | ) | |||||||
Net increase in cash and cash equivalents | 813,805 | 40,322 | 773,483 | |||||||||
Cash and cash equivalents, beginning of year | 70,506 | 242,174 | (171,668 | ) | ||||||||
Cash and cash equivalents, end of year | $ | 884,311 | $ | 282,496 | $ | 601,815 |
The Company recorded no net cash provided or used duringDuring the sixthree months ended SeptemberJune 30, 2017, as all cash generated by operations during that year was payable to the individuals who were shareholders of Lvxin at that time.
During the six months ended September 30, 2018,2021, our operations used net cash of $448,321. Net$84,086. The Company incurred a cash use from operations primarily because it recorded an increase in accounts receivable of $17,140 and an increase in investories by $15,051. During the three months ended June 30, 2020, the Company recorded $1,482 of cash used in operating activities, primarily due to the net loss of $32,293 from continuing operations during that period.
The Company had no investing activity during the three months ended June 30, 2021. The Company’s only investing activity during the three months ended June 30, 2020 was primarily the resultdistribution of expenses relating to our efforts to become a reporting company in the United States, including legal and accounting fees, fees for a transfer agent and the like, as well as $297,687 in cash expended to increase our inventories. We partially offset these uses$1,343 of cash by utilizing $107,153 in prepayments and by banking $104,969 in customer deposits.
Our investing activities duringconnection with the six months ended September 30, 2018 used $229,828. Investing activities consistedsale of :the discontinued operations.
Our financing activities during the sixthree months ended SeptemberJune 30, 20182021 generated $335,701. Financing activities consisted of:
Cash flows during the six months ended September 30, 2018 were primarily determined by our absence of revenue. For that reason, the $448,321 in cash used in operations (primarily to fund the $297,687 addition to our inventory of crops in the field) was funded by the sale of common stock. During the three months ended June 30, 2020, our parent company’sfinancing activities generated $38,900 from the sale of common stock.
Trends, Events and Uncertainties
The Company intends to expand its product offerings to include value-added products, both products based on rice and products based on other food stuffs, such as organic red beans and millet. Our marketing personnel will endeavor to expand awareness of our brand, open new marketing channels, and educate the nation about the health benefits of selenium-enriched rice. In this manner, the Company hopes to increase sales to support the future operations and development of the Company. There is no guarantee that the Company’s new strategy will be successful.
On November 6, 2020 Organic Agricultural entered into a Cooperation Agreement with Unbounded IOT Block Chain Limited (“Unbounded”), an entity with offices in Xiamen City, Fujian Province. The purpose of the Cooperation Agreement was to promote the use of blockchain technology in agriculture, specifically the development of tracing systems for agricultural products, the development of a blockchain-based shopping mall for agricultural products, and related improvements to the agricultural sector of the economy. To accomplish those purposes, Tianci Wanguan (Xiamen) Digital Technology Co., Ltd. was incorporated in Xiamen, China on November 5, 2020. Tianci Wanguan is 51% owned by Organic Agricultural HK and 49% owned by Chen Zewu on behalf of Unbounded. Each party committed to provide capital resources to Tianci Wanguan in proportion to its ownership percentage. On July 19, 2021 the parties executed a supplement to the Cooperation Agreement. The Supplementary Agreement sets forth performance criteria for Unbounded’s management of Tianci Wanguan: specifically, that within 12 months after the shares mentioned below are issued to Unbounded, Tianci Wanguan must have made a profit of five million Renminbi from the business described in the Cooperation Agreement or any other business approved by Organic Agricultural. Any profits generated by Tianci Wanguan will be held for use by that company. The Supplementary Agreement further provides that, after implementing a 5.16 -for-1 stock split contemplated by the Cooperation Agreement and the supplement, Organic Agricultural will issue 10 million shares of its common stock to Unbounded. The certificate for the shares will be held by Chen Zewu, who will vote the shares in accordance with the direction he receives from Hao Shuping, a member of the Organic Agricultural Board of Directors. If Unbounded fails to satisfy the criteria described above, the 10 million shares must be returned to Organic Agricultural. If Unbounded does satisfy the criteria, then it will have unrestricted ownership of the 10 million shares, and Organic Agricultural will issue an aggregate capital contribution of $377,000.additional 10 million shares to Unbounded.
ImpactThe COVID-19 outbreak has had a significant adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges in sales and has suffered a significant decrease in revenues which has increased financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of Recent Accounting Pronouncements
New accounting rulesthe COVID-19 pandemic and disclosure requirements can significantlyis very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the comparabilityextent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration, spread and severity of the pandemic; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks interrupt economic recovery.
The U.S. government, including the SEC, has made statements and taken certain actions that led to changes to United States and international relations, and will impact companies with connections to the United States or China, including imposing several rounds of tariffs affecting certain products manufactured in China, imposing certain sanctions and restrictions in relation to China and issuing statements indicating enhanced review of companies with significant China-based operations. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on companies with significant connections to the U.S. or to China, our industry or on us. Any unfavorable government policies on cross-border relations and/or international trade, including increased scrutiny on companies with significant China-based operations, capital controls or tariffs, may affect our ability to raise capital, the market price of our shares. If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing trade agreements are renegotiated or if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tension, such changes could have an adverse effect on our business, financial statements. Please refercondition and results of operations, our ability to Note 2raise capital and the market price of our consolidated financial statements includedshares. Changes in this quarterly report.United States and China relations, as well as relations with other countries, and/or regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares.
There were no recent accounting pronouncementsOther than the factors listed above we do not know of any trends, events or uncertainties that we expecthave had or are reasonably expected to have a material effectimpact on the Company’s financial positionour net sales or results ofrevenues or income from continuing operations.
Off BalanceOff-Balance Sheet TransactionsArrangements
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
Recent Accounting Pronouncements
AsNew accounting rules and disclosure requirements can significantly impact the comparability of our financial statements. Please refer to Note 2 of our condensed consolidated financial statements included in this quarterly report.
There were no recent accounting pronouncements that we expect to have a “smaller reporting company”, we are not required to providematerial effect on the information required by this Item.Company’s financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
EvaluationsEvaluation of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of SeptemberJune 30, 2018.2021. Based on this evaluation, we concluded that our disclosure controls and procedures have the following material weaknesses:
● | The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. |
● | Our internal financial staff lack expertise in identifying and addressing complex accounting issued under U.S. Generally Accepted Accounting Principles. |
● | Our Chief Financial Officer is not familiar with the accounting and reporting requirements of a U.S. public company. |
● | We have not developed sufficient documentation concerning our existing financial processes, risk assessment and internal controls. |
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of SeptemberJune 30, 20182021 for the purposes described in this paragraph.
Changes in Internal Control over Financial Reporting
DuringNo changes in the period covered by this report, there has been no change in ourCompany’s internal control over financial reporting has come to management’s attention during the quarter ended June 30, 2021 that hashave materially affected, or is reasonablyare likely to materially affect, ourthe Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company hasWe are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of existing or pending legal proceedings against the Company, nor is the Company involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which anyexecutive officers of the Company’s directors, officersour Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their respective affiliates, or any beneficial stockholder, iscapacities as such, in which an adverse party or hasdecision could have a material interest adverse to our interest.effect.
Item 1A. Risk Factors.
There have been no material changes from the risk factors included in the Company's RegistrationCompany’s Annual Report on Form 10-K for the year ended March 31, 2021, as filed with the SEC on June 29, 2021, except as follows:
Changes in United States and China relations, as well as relations with other countries, and/or regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares.
The U.S. government, including the SEC, has made statements and taken certain actions that led to changes to United States and international relations, and will impact companies with connections to the United States or China, including imposing several rounds of tariffs affecting certain products manufactured in China, imposing certain sanctions and restrictions in relation to China and issuing statements indicating enhanced review of companies with significant China-based operations. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on companies with significant connections to the U.S. or to China, our industry or on us. Any unfavorable government policies on cross-border relations and/or international trade, including increased scrutiny on companies with significant China-based operations, capital controls or tariffs, may affect our ability to raise capital, the market price of our shares.
Furthermore, the SEC has issued statements primarily focused on companies with significant China-based operations, such as us. For example, on July 30, 2021, Gary Gensler, Chairman of the SEC, issued a Statement on Form S-1 (File No. 333-226810).Investor Protection Related to Recent Developments in China, pursuant to which Chairman Gensler stated that he has asked the SEC staff to engage in targeted additional reviews of filings for companies with significant China-based operations. The statement also addressed risks inherent in companies with a Variable Interest Entity, or a VIE structure. We do not have a VIE structure and are not in an industry that is subject to foreign ownership limitations by China. Further, we believe that we have robust disclosures relating to our operations in China, including the relevant risks noted in Chairman Gensler’s statement. However, it is possible that the Company’s periodic reports and other filings with the SEC may be subject to enhanced review by the SEC and this additional scrutiny could affect our ability to effectively raise capital in the United States.
In response to the SEC’s July 30 statement, the China Securities Regulatory Commission (CSRC) announced on August 1, 2021, that “it is our belief that Chinese and U.S. regulators shall continue to enhance communication with the principle of mutual respect and cooperation, and properly address the issues related to the supervision of China-based companies listed in the U.S. so as to form stable policy expectations and create benign rules framework for the market.” While the CSRC will continue to collaborate “closely with different stakeholders including investors, companies, and relevant authorities to further promote transparency and certainty of policies and implementing measures,” it emphasized that it “has always been open to companies’ choices to list their securities on international or domestic markets in compliance with relevant laws and regulations.”
We did not sell If any new legislation, executive orders, tariffs, laws and/or issue anyregulations are implemented, if existing trade agreements are renegotiated or if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tension, such changes could have an adverse effect on our business, financial condition and results of operations, our ability to raise capital and the market price of our shares.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
During the quarter ended June 30, 2021, the Company recorded two sales of unregistered shares:
On April 2, 2021 the Company entered into an agreement with Jilin Jiufu Zhenyuan Technology Development Co., Ltd (“Jilin Jiufu”), that provides for the sale by the Company to Jilin Jiufu of 4,119,500 shares of unregistered securitiesthe Company’s common stock. On April 15, 2021, Jilin Jiufu paid for the shares by depositing 6,000,000 Renminbi (US$ 920,000) to the account of Heilongjiang Tianci Liangtian Agricultural Technology Development Co., Ltd. The shares were sold in a private offering to an investor who was purchasing for its own account. The offering, therefore, was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act.
On April 12, 2021, the Company issued a total of 345,000 shares with a fair value on the grant date of $2.20 per share to 25 individuals in exchange for sales promotion services during the six months period ended September 30, 2018.from April 12, 2021 through December 31, 2021. The shares were sold in a private offering to investors who were purchasing for their own accounts. The offering, therefore, was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act.
Item 3. Defaults upon Senior Securities.
Not applicable
Item 4. Mine Safety Disclosure
Not applicableapplicable.
Item 5. Other Information.
Not applicableNone.
Item 6. EXHIBITS
INDEX TO EXHIBITS
In accordance with Section 13 or 15(d)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ORGANIC AGRICULTURAL COMPANY LIMITED
Signature | Title | Date | ||
/s/ Jianjun Xun | Chief Executive Officer | |||
Jianjun Xun | (Principal Executive Officer) | |||
/s/ Yongmei Cao | Chief Financial Officer | |||
Yongmei Cao | (Principal Financial and Accounting Officer) |
24
7