ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(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 paddy and selenium-enriched paddy agricultural products, rice and other agricultural 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 shareholders of Lvxin transferred 51% of the controlling interest in Lvxin to Hao Shuping. Hao Shuping agreed to pay the Lvxin shareholders RMB 2,029,586 (US$305,472) in cash and cause 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 Lvxin also signed an irrevocable supplemental agreement that gave Hao Shuping voting and managerial control over Lvxin. By June 22, 2018, Tianci Liangtian paid off all of the consideration to Lvxin’s former shareholders.

ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(AMOUNTS IN US DOLLARS)

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

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 unaudited 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 December 31, 2018 and for the three and nine months ended December 31, 2018 and 2017, have been prepared in accordance with accounting principles generally accepted in the United States of Americainstructions to Form 10-Q and the rulesItem Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, regulations of the SEC which apply to interim financial statements. Accordingly, theytherefore, do not include all of the information and footnotes normally required by accounting principlesnecessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted in the United States of America for annual financial statements.accounting principles. In the opinion of management, such information contains all adjustments consisting only of normal recurring adjustments,considered necessary for a fair presentation of the results for the periods presented. The interimof operations and financial information should be read in conjunction with the financial statementsposition have been included and the notes thereto, included in the Company’s Registration Statement on Form S-1 (File No. 333-226810) filed with the SEC. Theall such adjustments are of a normal recurring nature. Operating results of operations for the three and ninesix months ended December 31, 2018September 30, 2019 are not necessarily indicative of the results tothat can be expected for future quarters or for the year endingended March 31, 2019.2020.

The Company’s 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.

ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(AMOUNTS IN USD) (UNAUDITED)US DOLLARS)

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.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. 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 December 31, 2018September 30, 2019 and March 31, 2018.2019.

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 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.

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.

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 is reasonably assured, all of which generally occur when the customer receives the products. 

ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(AMOUNTS IN USD) (UNAUDITED)US DOLLARS)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

There was no impact onGiven the nature of this revenue source of the Company’s financial statements as a result of adopting Topic 606business and the applicable rules guiding revenue recognition, the revenue recognition practices for the three and nine months ended December 31, 2018 and 2017.sale do not contain estimates that materially affect results of operations nor does the Company have any policy for return of products.

Fair Value 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.

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, 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 ninesix months ended December 31 2018September 30, 2019 and 2017.2018.

Financial assets and liabilities of the Company primarily consists of cash, prepayments &and deferred expenses, inventories, other receivables, right of use asset, accounts payable and accrued liabilities, customer deposits, due to related parties, advances for shares to be issued and other payables. As at December 31, 2018September 30, 2019 and March 31, 2018,2019, the carrying values of these financial instruments approximated their fair values due to the short-term nature of these instruments.

ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(AMOUNTS IN USD) (UNAUDITED)US DOLLARS)

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 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 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 AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(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 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, accordingtax. According to the “PRC Income Tax Law” Article 27 (1)”, income from agricultural, forestry, animal husbandry and the fisheries Industriesindustries shall be exempt from business tax.

According to the “PRC Income Tax Law”, Tianci Liantian and Yuxinqi are subject to a 25% standard enterprise income tax in the PRC.

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 shares of converted common stockshares 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 AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(AMOUNTS IN USD) (UNAUDITED)US DOLLARS)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Share-Based Compensation

The Company has adoptedfollows 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.award and recognized over its vesting period. No equity instruments were granted during the yearsix months ended March 31, 2018September 30, 2019 and no compensation expense is required to be recognized under provisions of ASC 718 with respect to employees. During the ninesix months ended December 31,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 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 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. In China, the insurance coverage of each bank is RMB500,000 (approximately USD$75,000). As of December 31, 2018,September 30, 2019, the Company’s doesCompany did not have balanceany balances that exceedexceeded the insurance balance.amounts.

As of December 31, 2018September 30, 2019 and March 31, 2018,2019, the Company has customer deposits of $219,338$104,046 and $31,844 from four and one customers, respectively.$164,362. As of December 31, 2018,September 30, 2019, Shouhang Commerce and Trade Zhao Zhilian and Zhang Jianhua represented 70.2%, 14.6% and 13.3%83.4% of total customer deposits, respectively.deposits. As of March 31, 2018, Zhao Zhilian2019, Shouhang Commerce and Trade represented 100%76.2% of total customer deposits.

As of December 31, 2018 and March 31, 2018, During the Company has prepayments & deferred expenses of $0 and $128,293, respectively, to one vendor. For the ninesix months ended December 31, 2018September 30, 2019, major customers Li Jiaxu and 2017, the Company’s purchases from this vendor total $134,905Shouhang Commerce and $104,742,Trade generated 67% and 19% of revenue, respectively. For the three months ended 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 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 issuedRecently Adopted 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 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 was 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 consolidated 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 was effective for the Company’s fiscal year beginning April 1, 2018 and subsequent interim periods with no impact on the Company’s consolidated financial statements.Revenue

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 ninethree and six months ended December 31, 2018September 30, 2019 and 2017.2018.

ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

(AMOUNTS IN USD) (UNAUDITED)US DOLLARS)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Leases.

In February 2016,July 2018, the FASB issued ASU No. 2016-02, Leases. The2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional, optional transition method related to implementing the new leases standard. ASU 2018-11 provides that companies can initially apply the new lease standard establishesat adoption and recognize a right-of-use (“ROU”) model that requires a lesseecumulative-effect adjustment to record a ROU asset and a lease liability on the opening 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 recognitionretained earnings in the income statement.period of adoption. The new standardCompany adopted the guidance as of April 1, 2019, there 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,no cumulative-effect adjustment to the beginningCompany’s opening balance of the earliest comparative period presentedretained earnings in the financial statements, with certain practical expedients available. This accounting standard update is not expected to have a material impact on the Company’s financial statements.period of adoption. See Note 9 - Leases for further details.

We do not believe otherany 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.

NOTE 3. PREPAYMENTS AND DEFERREDPREPAID EXPENSES

Prepayments are reported as prepayments and deferred expenses on the consolidated balance sheets. Deferred expenses include prepaid paddy planting land rentproduction materials, prepayment of rice processing charges, and Tianci Liangtian office rent.prepayment for products to be purchased. As of December 31, 2018September 30, 2019 and March 31, 2018,2019, prepayments and deferred expenses were $99,703$31,831 and $526,100,$121,257, respectively.

NOTE 4. LONG-TERM LEASE PREPAYMENTS

Long-term lease prepayments include land rent prepayment over one year. As of March 31, 2019, long-term lease prepayments were $273,275. As a result of the adoption of the new accounting standards applicable to leases, long-term lease prepayments reduced the lease liability as of September 30, 2019.

NOTE 5. INVENTORIES

Inventories are generally kept for a short period of time. Inventories compriseare comprised of growing costs, harvesting costs, raw materials, and finished goods (including harvesting agricultural produce Paddypaddy and manufactured goodsprocessed rice and other agricultural products).

Growing costs, also referred to as culturalagricultural costs, consist of seeds, cultivation, fertilization, labor costs 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.costs of materials purchased to be used in production of the Company’s products.

Harvesting agriculturalAgricultural produce Paddypaddyis 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(usually April to September), agricultural 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 culturalagricultural costs are expensed when incurred and capitalized costs areas inventories, then amortized as a cost of plantingsales in accordance with LIFOFIFO recognition of historical costs.costs when the inventory is sold.

ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(AMOUNTS IN US DOLLARS)

NOTE 5. INVENTORIES(Continued)

Most culturalagricultural costs, including amortization of capitalized culturalagricultural 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 Harvestingharvesting agricultural produce Paddypaddy 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 marketnet realizable value.

Manufactured goods, rice and other productsincludes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition.

ORGANIC AGRICULTURAL COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD) (UNAUDITED)

NOTE 4. INVENTORIES (continued)

The Company values inventory on its balance sheet at the lower of cost or net realizable value. Based on recent sales experience, the Company determined that the net realizable value of its inventory was less than the costs incurred in producing the inventory. Therefore, an impairment charge was made. At December 31, 2018September 30, 2019 and March 31, 2018,2019, inventories consisted of the following: