NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN 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 selenium-enriched products and other agricultural products. At December 31, 2022, the Company’s subsidiaries
are as follows:
|
● |
Organic Agricultural (Samoa) Co., Ltd. (“Organic Agricultural Samoa”), a limited company incorporated in Samoa on December 15, 2017, is wholly owned by Organic Agricultural. Organic Agricultural Samoa owns all of the outstanding shares of capital stock of Organic Agricultural Company Limited (Hong Kong). |
|
● |
Organic Agricultural Company Limited (Hong Kong) (“Organic Agricultural HK”), which was established on December 6, 2017 under the laws of Hong Kong, is wholly owned by Organic Agricultural Samoa. Organic Agricultural HK owns all of the registered equity of Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited. |
|
● |
Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited. (“Tianci Liangtian”), a company incorporated in Heilongjiang, China on November 2, 2017, is wholly owned by Organic Agricultural HK. Tianci Liangtian owns all of the registered equity of Heilongjiang Yuxinqi Agricultural Technology Development Company Limited. |
|
● |
Heilongjiang Yuxinqi Agricultural Technology Development Company Limited (“Yuxinqi”), a company incorporated in Heilongjiang, China on February 5, 2018, is wholly owned by Tianci Liangtian. Yuxinqi sells agricultural products, including paddy and other crops, to customers. |
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)
Divestment of Tianci Wanguan
On November 6, 2020 Organic Agricultural entered
into a Cooperation Agreement with Unbounded IOT Block Chain Limited (“Unbounded”). 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. (“Tianci Wanguan”) was incorporated
on November 5, 2020. Tianci Wanguan was 51% owned by Organic Agricultural HK and 49% owned by Chen Zewu on behalf of Unbounded. On
July 19, 2021 the parties executed a Supplementary Agreement to the Cooperation Agreement.
The Supplementary Agreement set 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 generate a profit of five million Renminbi (approximately US$774,000) from the business described in
the Cooperation Agreement or any other business approved by Organic Agricultural. On November 23, 2021, Organic Agricultural issued 10
million shares of its common stock to Chen Zewu, who held them as agent for Unbounded. If Unbounded failed to satisfy the criteria described
above, the 10 million shares must be returned to Organic Agricultural. If Unbounded did satisfy the criteria, then it would have unrestricted
ownership of the 10 million shares, and Organic Agricultural would issue an additional 10 million shares to Unbounded. According to FASB
ASC 505-50-S99-1 and 2, as the 10,000,000 shares issued on November 23, 2021 were unvested and forfeitable, these shares were treated
as unissued until they vest when the target described above was met.
The share-based compensation was measured at grant
date, based on the fair value of the award and would be recognized over its vesting period if it was determined that the target would
more likely than not be met. After the criteria described above was satisfied, the Company would grant to Unbounded a total of 20,000,000
shares, including the 10,000,000 shares issued on November 23, 2021, with a fair value on the grant date, which is July 19, 2021, of $0.0969
per share. If the performance condition described above was satisfied, $1,938,000 in compensation expense would have been recognized under
the provisions of ASC 718.
As of June 30, 2022, the Company had suspended
the operations of Tianci Wanguan and on August 19, 2022, completed the divestment of its subsidiary. On August 19, 2022, the Company and
Unbounded entered into an Agreement on Termination of Joint Operation. The parties agreed that Organic Agricultural would surrender to
Unbounded its 51% interest in Tianci Wanguan, and Unbounded would return the 10 million shares to Organic Agricultural. The 10,000,000
shares previously issued on November 23, 2021 were returned and cancelled with no compensation expense recognized.
In accordance with U.S. GAAP, the financial position
and results of operations of Tianci Wanguan are presented as discontinued operations and, as such, have been excluded from continuing
operations for all periods presented. The restated historical financial statements reflecting the divestment are unaudited. The cash flows
and comprehensive income related to Tianci Wanguan have not been segregated and are included in the Condensed Consolidated Statements
of Cash Flows and Comprehensive Income, respectively, 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.
Certain amounts in the prior year’s condensed
consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as
a result of the divestment of Tianci Wanguan.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (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 the sale of shares. The Company received $920,000 in April 2021 from the sale of shares. The Company sold an
additional 10 million shares of its common stock in November 2022 for a price of $880,000 USD, with the payments for the shares scheduled
to be paid before August 15, 2023. The Company will use these funds for working capital.
The marketing personnel of the Company are developing
new customers 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 in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial 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 required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included in the accompanying condensed
consolidated financial statements. The results of operations for the interim period are not necessarily indicative of the results that
will be realized for the 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 ended March 31, 2022 included
in Company’s current report on Form 10-K as filed with the SEC on July 14, 2022.
The Company’s condensed consolidated financial
statements are expressed in U.S. Dollars and are presented in accordance with 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
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 December
31, 2022 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 | |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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. Significant items subject to such estimates and assumptions
include the inventory valuation allowance. This estimate is 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
Cash consists of cash on hand and bank deposits,
which are unrestricted as to withdrawal and use in the PRC and the USA. All highly liquid investments with original stated maturities
of three months or less are classified as cash. The Company’s cash consisted of cash on hand and cash in bank, as of December 31,
2022 and March 31, 2022.
Revenue recognition
The Company follows the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 — Revenue from Contracts with Customers.
Under ASC 606, the Company recognizes revenue from the commercial sales of products 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 and provides software development services. All revenue is recognized when it is
both earned and realized. The Company’s policy is to recognize the sale when the products and services, 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 and services. Accordingly, revenue is recognized at the point in time when delivery
is made and services are provided.
Given the nature of this revenue generated by
the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do
not include 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.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (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 are 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).
Financial assets and liabilities of the Company
primarily consists of cash, accounts receivable, prepaid expenses, inventories, other receivables, accounts payable and accrued liabilities,
customer deposits, due to related parties, and other payables. As at December 31, 2022 and March 31, 2022, the carrying values of these
financial instruments approximated their fair values due to the short-term nature of these instruments.
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 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 nine months ended
December 31, |
|
|
March 31, |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
(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 |
|
|
6.8983/7.8088 |
|
|
|
6.3614/7.7974 |
|
|
|
6.3431/7.8306 |
|
Revenue and expenses - period average |
|
|
6.8557/7.8390 |
|
|
|
6.3939/7.7896 |
|
|
|
N/A |
|
|
|
For the three months ended
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(USD to
RMB/USD
to HKD) |
|
|
(USD to
RMB/USD
to HKD) |
|
Assets and liabilities - period end exchange rate |
|
|
6.8983/7.8088 |
|
|
|
6.3614/7.7974 |
|
Revenue and expenses - period average |
|
|
7.1111/7.8227 |
|
|
|
6.4413/7.7777 |
|
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN 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. A valuation allowance is 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 740-10-40, 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 interpretations, judgments and uncertainties. Tax laws and regulations themselves are subject to change as
a result of changes in fiscal 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 net deferred tax asset valuation allowance.
China
According to the “PRC Income Tax Law”,
Tianci Liantian and Yuxinqi are subject to the 25% standard enterprise income tax 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, under 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 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. Stock splits are given retroactive recognition for earnings (loss) per share.
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
(UNAUDITED) (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 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 nine months ended December 31, 2022, specifically
on July 1, 2022, the Company granted a total of 140,000 shares with a fair value on the grant date of $0.0899 per share to 11 individuals
for a sales bonus on promotion services, and on November 29, 2022, the Company granted a total of 50,000 shares with a fair value on the
grant date of $0.0880 per share for promotion services. A total of $16,986 in compensation expense was recognized under the provisions
of ASC 718. During the nine months ended December 31, 2021, specifically on April 12, 2021, the Company granted a total of 1,780,200 shares
with a fair value on the grant date of $0.43 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 US$70,000). As of December 31, 2022, the Company
had no cash on deposit in excess of the insurance amounts.
During the nine months ended December 31, 2022,
two customers, Jiufu Zhenyuan and Chuangyi Agriculture, generated 60% and 13% of our revenues, respectively. During the nine months ended
December 31, 2021, Jiufu Zhenyuan, generated 93% of our revenues.
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 which has increased the Company’s 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 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, including “lockdowns” of infected areas 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, since December 2022, many of the restrictive
measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have been revoked or
replaced with more flexible measures since December 2022. The revocation or replacement of the restrictive measures to contain the COVID-19
pandemic could have a positive impact on the Company’s normal operations. However, there has recently been and may continue to be
an increase in COVID-19 cases in China, and as a result, we experienced temporary disruption to our operations where many employees were
infected with COVID-19 in December 2022. The extent to which the COVID-19 pandemic impacts the Company’s business, prospects and
results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited
to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and when and to what
extent normal economic and operating activities can resume. With the uncertainties surrounding the COVID-19 outbreak, the threat to the
Company’s business disruption and the related financial impact remains.
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.
Stock split
On October 21, 2021,
the Company implemented a 5.16-for-1 forward split of its outstanding common stock. The Distribution Date was November 18, 2021,
at which time Organic Agricultural issued an additional 4.16 shares of common stock to the holders of each outstanding share of common
stock.
The stock split increased the number of shares
outstanding by 67,347,638. The par value per share remained $0.001. The financial statements in this Report and all share and per share
amounts have been retroactively adjusted to give effect to this stock split.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 3. DISCONTINUED OPERATIONS
As discussed in Note 1. Basis of Presentation
above, on August 19, 2022, the Company completed the divestment of Tianci Wanguan and the requirements for the presentation of Tianci
Wanguan as a discontinued operation were met on that date. Accordingly, Tianci Wanguan’s historical financial results are reflected
in the Company’s unaudited condensed 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 Tianci Wanguan are presented
as income (loss) from discontinued operations, net of income taxes in the unaudited condensed consolidated statements of operations. The
following table presents the financial results of Tianci Wanguan.
| |
Nine months ended | |
| |
December 31, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
Net sales | |
$ | - | | |
$ | - | |
Cost of sales | |
| - | | |
| - | |
Gross profit | |
| - | | |
| - | |
Selling, general and administrative expenses | |
| 1 | | |
| 96,589 | |
Operating income (loss) | |
| (1 | ) | |
| (96,589 | ) |
Other income | |
| - | | |
| - | |
Income (loss) before income taxes | |
| (1 | ) | |
| (96,589 | ) |
Income tax (expense) benefit | |
| - | | |
| - | |
Income (loss) from discontinued operations, net of income taxes | |
| (1 | ) | |
| (96,589 | ) |
Less: Net income (loss) attributable to non-controlling interest | |
| - | | |
| (47,328 | ) |
Net income (loss) from discontinued operations attributable to controlling interest | |
$ | (1 | ) | |
$ | (49,261 | ) |
The following table summarizes the carrying value
of major classes of assets and liabilities of Tianci Wanguan, reclassified as assets and liabilities of discontinued operations at March
31, 2022.
| |
March 31, 2022 | |
ASSETS | |
| |
Cash | |
$ | 6,014 | |
Prepaid expenses | |
| 63,061 | |
Total current assets, discontinued operations | |
$ | 69,075 | |
| |
| | |
LIABILITIES | |
| | |
Accounts payable and accrued expenses | |
$ | 14,267 | |
Customer deposits | |
| 151,346 | |
Other payables | |
| 44,991 | |
Total current liabilities, discontinued operations | |
$ | 210,604 | |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (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 December 31, 2022 and March 31, 2022, prepayments and deferred
expenses were as follows:
| |
December 31, 2022 | | |
March 31, 2022 | |
| |
(Unaudited) | | |
| |
Prepayments for expenses | |
$ | 1,967 | | |
$ | 8,325 | |
Prepayments for short-term lease | |
| 4,043 | | |
| 19,324 | |
Prepayments of processing charges and products to be purchased: | |
| | | |
| | |
Baoqing County Fengnian Agricultural Product Purchase and Sale Ltd. | |
| 5,432 | | |
| 5,908 | |
Heilongjiang Yaohe County Heifengyuan Apiculture Ltd. | |
| 1,779 | | |
| 2,236 | |
Others | |
| 364 | | |
| 537 | |
Total | |
$ | 13,585 | | |
$ | 36,330 | |
For the nine months ended December 31, 2022, prepayments
for the short-term lease were reduced by US$15,281 and recorded as rent expense.
NOTE 4. INVENTORIES
The Company’s inventories are all non-perishable
products. The Company’s inventory consists principally of rice and other products which are vacuum-packed and have more than one
year shelf life. The Company reviews its products and sells products near the end of their shelf life through promotions. As of December
31, 2022 and March 31,2022, no reserve was considered necessary. The Company values inventory on its balance sheet at the lower of cost
or net realizable value. Inventories consisted of the following:
| |
December 31,
2022 | | |
March 31, 2022 | |
| |
(Unaudited) | | |
| |
Rice and other products | |
$ | 127,210 | | |
$ | 182,030 | |
Packing and other materials | |
| 30,287 | | |
| 23,843 | |
Total inventories at cost | |
$ | 157,497 | | |
$ | 205,873 | |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 5. INCOME TAXES
A reconciliation of income (loss) before income
taxes for domestic and foreign locations for the nine months ended December 31, 2022 and 2021 is as follows:
| |
For the three months ended December 31, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
United States | |
$ | (30,616 | ) | |
$ | (29,237 | ) |
Foreign | |
| 31,023 | | |
| (24,332 | ) |
Income (loss) before income taxes | |
$ | 407 | | |
$ | (53,569 | ) |
| |
For the nine months ended December 31, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
United States | |
$ | (91,766 | ) | |
$ | (828,851 | ) |
Foreign | |
| (426,203 | ) | |
| (83,164 | ) |
(Loss) before income taxes | |
$ | (517,969 | ) | |
$ | (912,015 | ) |
The difference between the U.S. federal statutory
income tax rate and the Company’s effective tax rate was as follows:
| |
December 31, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
U.S. federal statutory income tax rate | |
| 21 | % | |
| 21 | % |
U.S. Valuation allowance | |
| (21 | )% | |
| (21 | )% |
Rates for Tianci Liangtian, 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 and Tianci Liangtian in China.
As of December 31, 2022, Yuxinqi and Tianci Liangtian
have total net operating loss carry forwards of approximately $1,328,000 in the PRC that expire in 2027. Due to the uncertainty of utilizing
these carry forwards, the Company provided a 100% valuation allowance on the net deferred tax assets of approximately $332,000 and $296,000
related to its operations in the PRC as of December 31, 2022 and March 31, 2022, respectively. The PRC valuation allowance increased by
approximately $36,000 and $45,000 for the nine months ended December 31, 2022 and 2021, respectively.
The Company incurred losses from its United States
operations during all periods presented of approximately $1,540,000. The Company’s United States operations consist solely of ownership
of its foreign subsidiaries, and the losses arise from administrative expenses and shares issued as compensation. Accordingly, management
provided a 100% valuation allowance of approximately $323,000 and $304,000 against the net deferred tax assets related to the Company’s
United States operations as of December 31, 2022 and March 31, 2022, 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 increased by approximately $19,000 and
$174,000 for the nine months ended December 31, 2022 and 2021, 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, 2018 | |
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 6. CUSTOMER DEPOSITS
Customer deposits consisted of the following:
| |
December 31, 2022 | | |
March 31, 2022 | |
| |
| (Unaudited) | | |
| | |
Shouhang | |
$ | 51,801 | | |
$ | 56,335 | |
Beiqinhai | |
| 98,807 | | |
| 107,455 | |
Others | |
| 432 | | |
| 1,014 | |
Total customer deposits | |
$ | 151,040 | | |
$ | 164,804 | |
NOTE 7. RELATED PARTY TRANSACTIONS
Amounts due to related parties consisted of the
following as of the periods indicated:
| |
December 31, 2022 | | |
March 31, 2022 | |
| |
| (Unaudited) | | |
| | |
Jiufu Zhenyuan | |
$ | - | | |
| 1,159 | |
Shen Zhenai | |
| 188 | | |
| 19,192 | |
Heilongjiang Chuangyi | |
| 2,847 | | |
| - | |
Xun Jianjun | |
| - | | |
| 797 | |
| |
$ | 3,035 | | |
$ | 21,148 | |
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.
Jilin Jiufu Zhenyuan Technology Development Co,
Ltd (“Jiufu Zhenyuan”) owns 22.68% of the Company and its President is a member of the Company’s Board of Director.
The advances represent advances for purchases from the Company in the future. During the nine months ended December 31, 2022, Jiufu Zhenyuan
purchased agricultural products from the Company totaling $103,194.
Heilongjiang
Chuangyi Agriculture Co., Ltd (“Heilongjiang Chuangyi”) owns 9.60% of the Company. The advances represent advances for purchases
from the Company in the future. During the nine months ended December 31, 2022, Heilongjiang Chuangyi purchased agricultural products
from the Company totaling $21,947.
Amounts due from related parties consisted of
the following as of the periods indicated:
| |
December 31, 2022 | | |
March 31, 2022 | |
| |
| (Unaudited) | | |
| | |
Hao Shuping | |
$ | - | | |
$ | 17,373 | |
Jiufu Zhenyuan | |
| 1,722 | | |
| - | |
| |
$ | 1,722 | | |
$ | 17,373 | |
Hao Shuping is the largest shareholder of the
Company. This amount was a temporary loan from the Company and was non-interest bearing. On June 30, 2022, an agreement for the assignment
of debt was signed between Hao Shuping, Shen Zhenai, Tianci Liangtian and Yuxingqi, whereby the total receivable due from Hao Shuping
was transferred to Shen Zhenai, partially offsetting the amount due to Shen Zhenai.
During the nine months ended December 31, 2022
and 2021, Hao Shuping, a member of the Company’s Board of Directors, purchased agricultural products from the Company totaling $49
and $1,485, respectively.
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 8. 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 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 “operating lease right-of-use asset.” Right-of use (“ROU”) assets and the related operating lease
liabilities 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 regarding the terms.
Tianci Liangtian has an operating lease for office
space (approximately 666 square meters). Under the terms of the lease, Tianci Liangtian paid approximately US$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 a leak in the building, credited Yuxinqi with RMB62,570 (approximately US$10,000) of rental 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 RMB153,758 (approximately
US$24,000, including VAT tax) for the period from December 20, 2020 to January 19, 2022. For the period from January 20, 2022 to March
19, 2022, Yuxingqi renewed the lease agreement and committed to make a lease payment of RMB 30,247 (approximately US$4,700, including
VAT tax). The lease obligation was fully paid. This lease was not renewed.
On March 23, 2022, Yuxingqi leased office space
from March 23, 2022 to March 22, 2023 under an operating lease agreement (approximately 337.3 square meters). Under the terms of the lease,
Yuxingqi committed to make annual lease payments of RMB136,606.50 (approximately US$20,000, including VAT tax). The annual payment was
fully paid on March 23, 2022. Since it is a short-term lease, the payment was recorded as prepaid expenses.
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 nine months ended December 31, 2022 and 2021, the amortization of ROU was nil and US$14,146, respectively.
NOTE 9. SUBSCRIPTION RECEIVABLE
Subscription receivable consisted of the following
as of the periods indicated:
| |
December 31, 2022 | | |
March 31, 2022 | |
| |
| (Unaudited) | | |
| | |
Sun Ying | |
$ | 74,032 | | |
$ | - | |
Heilongjiang Chuangyi Agriculture Co., Ltd. | |
| 792,000 | | |
| - | |
| |
$ | 866,032 | | |
$ | - | |
On November 28, 2022 the Registrant entered into
an agreement to sell 9,000,000 shares of its common stock to Heilongjiang Chuangyi Agriculture Co., Ltd. for a price of 5,670,000 RMB
(US$792,000). Payment is due as follows: 900,000 RMB(US$125,714) on March 1, 2023; 1,800,000 RMB (US$251,429) on April 15, 2023; and 2,970,000
RMB (US$414,857) on August 15, 2023.
On November 29, 2022 the Registrant entered into
an agreement to sell 1,000,000 shares of its common stock to Sun Ying for a price of 630,000 RMB (US$88,000). Payment is due as follows:
315,000 RMB (US$44,000) on March 1, 2023 and 315,000 RMB (US$44,000) on April 15, 2023. The Company received partial proceeds of 100,000
RMB (US$13,968) from Sun Ying as of December 31, 2022.
NOTE 10. CONTINGENCIES
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 December 31, 2022 and through the date of this report.
NOTE 11. SUBSEQUENT EVENTS
The Management of the Company determined that
there were no reportable subsequent events to be adjusted for and/or disclosed as of February 13, 2023.