The accompanying notes are an integral part of these unaudited consolidated financial statements.

ORGANIC AGRICULTURAL COMPANY LIMITED 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

FOR SIXNINE MONTHS ENDED SEPTEMBER 30,DECEMBER 31, 2018 AND 2017 

(EXPRESSED IN US DOLLARS)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ORGANIC AGRICULTURAL COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(AMOUNTS IN USD) (UNAUDITED)

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 paddy and selenium-enriched paddy agricultural products, rice and other products. The Company’s subsidiaries include: 

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 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 performed 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.Lvxin. By June 22, 2018, Tianci Liangtian paid off all 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)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued)

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’ 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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying 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,December 31, 2018 and for the three and sixnine months ended September 30,December 31, 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 to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, 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, included in the Company’s Registration Statement on Form S-1 (File No. 333-226810) filed with the SEC. The results of operations for the three and sixnine months ended September 30,December 31, 2018 and 2017 are not necessarily indicative of the results to be expected for future quarters or for the year ending March 31, 2019.

The Company’s consolidated financial statements are expressed in U.S. Dollars and are presented in accordance with the United States Generally Accepted Accounting Principles (“U.S. GAAP”).

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include the assets, liabilities, and net income or loss of these subsidiaries.

ORGANIC AGRICULTURAL COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(AMOUNTS IN USD) (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

The Company’s subsidiaries are listed as follows:

Use of estimates

The preparation of 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. 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. 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. The Company’s cash and cash equivalents consist of cash on hand and cash in bank, as of September 30,December 31, 2018 and March 31, 2018.

Revenue recognition

The Company recognizes revenue in accordance with the 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)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the three and sixnine months ended September 30,December 31, 2018 and 2017.

Fair Value Measurements

The Company applies the provisions of 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.

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 may 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 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 sixnine months ended September 30,December 31 2018 and 2017.

Financial assets and liabilities of the Company primarily compriseconsists of cash, prepayments & deferred expenses, inventories, other receivables, accounts payable and accrued liabilities, customer deposits, due to related party andparties, advances for shares to be issued.issued and other payables. As at September 30,December 31, 2018 and March 31, 2018, 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” or “$”). The reporting currency of these consolidated financial statements is in US Dollars.

The financial statements of the Company, which are prepared using the RMB, 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:

ORGANIC AGRICULTURAL COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(AMOUNTS IN USD) (UNAUDITED)

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 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, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, 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, according to the “PRC Income Tax Law” Article 27 (1)”, income from agricultural, forestry, animal husbandry and fisheries IndustryIndustries shall be exempt from business tax.

Earnings (loss) per share

The Company computes earnings(loss)per share (“EPS”) in accordance with 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 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.

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 sixnine months ended September 30,December 31, 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 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 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,In China, the deposit insurance for up tocoverage of each bank is RMB500,000 in China. Therefore, the Company will bear a risk if any of these banks become insolvent.(approximately USD$75,000). As of September 30, 2018, and MarchDecember 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.does not have balance that exceed the insurance balance.

As of September 30,December 31, 2018 and March 31, 2018, the Company has customer deposits of $134,088$219,338 and $31,844 from two customers, respectively,four and one customers, respectively. As of December 31, 2018, Shouhang Commerce and Trade, Zhao Zhilian and Zhang Jianhua represented 70.2%, 14.6% and 13.3% of total customer representing 99.9%deposits, respectively. As of March 31, 2018, Zhao Zhilian represented 100% of total customer deposits.

As of September 30,December 31, 2018 and March 31, 2018, the Company has prepayments & deferred expenses of nil$0 and $128,293, respectively, to one vendor, representing nil and 24%, respectively, of prepayments & deferred expenses.vendor. For sixthe nine months ended September 30,December 31, 2018 and 2017, the Company’s purchases from this vendor total $137,120$134,905 and $103,952,$104,742, respectively. For the three months ended September 30,December 31, 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.statements.

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.statements.

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 iswas 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 revenuesconsolidated financial statements 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 bewas 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 potentialno 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 sixnine months ended September 30,December 31, 2018 and 2017.

ORGANIC AGRICULTURAL COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(AMOUNTS IN USD) (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

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 electedThis accounting standard update is not expected to adopt ASU 2016-02 forhave a material impact on the reporting period ending March 31, 2019.Company’s financial statements.

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,December 31, 2018 and March 31, 2018, prepayments and deferred expenses were $373,937$99,703 and $526,100, respectively.

NOTE 4. INVENTORIES

Inventories are generally kept for a short period of time. The significant componentsInventories comprise of inventories are growing costs, harvesting costs, raw materials, finished goods (including harvesting agricultural produce Paddy and harvesting costs.manufactured goods rice and other products).

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.

Raw materialsinclude all purchasing cost.

Harvesting agricultural produce Paddyis 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.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 inventoryHarvesting agricultural produce Paddy 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.