Quarterly Report (10-q)

Date : 11/14/2018 @ 4:27PM
Source : Edgar (US Regulatory)
Stock : Oranco, Inc. (PC) (ORNC)
Quote : 0.22  0.11 (100.00%) @ 3:16PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File number 000-28181

 

ORANCO, INC.

(Exact name of registrant as specified in charter)

 

Nevada   87-0574491
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
One Liberty Plaza , Suite 2310 PMB# 21,
New York, NY 10006
  84117
(Address of principal executive offices)   (Zip Code)

 

(646)7593614

(Registrant’s telephone number, including area code)

 

 

(Former name, former address, and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   Accelerated Filer  
Non-Accelerated filer   Smaller Reporting Company  
      Emerging Growth Company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date

 

Class   Outstanding as of November 12, 2018
Common Stock, $0.001  

98,191,480

  

 

 

 

 

 

INDEX

 

    Page
    Number
PART I.    
     
ITEM 1. Financial Statements (unaudited) 1
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 29
     
ITEM 4. Controls and Procedures 30
     
PART II.    
     
ITEM 6. Exhibits 32
     
Signatures   33

  

i

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Our unaudited interim financial statements for the three-month period ended September 30, 2018 form part of this quarterly report. They are stated in Chinese Renminbi (RMB ¥) and are prepared in accordance with United States Generally Accepted Accounting Principles.

  

  

1

 

 

ORANCO, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

THREE MONTHS ENDED SEPTEMBER 30, 2018

  

 

 

2

 

 

ORANCO, INC.

 

TABLE OF CONTENTS

 

  Page
Report of Independent Registered Public Accounting Firm 4
   
Financial Statements:  
   
Consolidated Statements of Balance Sheets 5
   
Consolidated Statements of Operations 6
   
Consolidated Statements of Shareholders’ Equity 7
   
Consolidated Statements of Cash Flows 8
   
Notes to Consolidated Financial Statements 9 - 25

 

3

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of Oranco, Inc.

 

Results of Review of Financial Statements

 

We have reviewed the accompanying consolidated balance sheet of Oranco, Inc. and its subsidiaries (the Company) as of September 30, 2018, the related consolidated statements of operations, shareholders’ equity and cashflows for the three month periods ended September 30, 2018 and 2017, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of June 30, 2018, and the related consolidated statements of operations, shareholders’ equity and cashflows for the year then ended (not presented herein), and in our report dated September 28, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of June 30, 2018, and the consolidated statement of changes in shareholders’ equity for the year ended June 30, 2018, is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived.

 

Basis for Review Results

 

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

 

  /s/ PKF Littlejohn LLP

 

We have served as the Company’s auditor since March 7, 2018.

 

PKF Littlejohn LLP

London, UK

November 14, 2018

 

4

 

 

ORANCO, INC.

CONSOLIDATED BALANCE SHEETS 

( Chinese Renminbi )

 

    (unaudited)        
   

  September 30,

2018

   

June 30,

2018

 
ASSETS:            
Current assets            
Cash and cash equivalents     55,697,004       26,504,962  
Inventories     5,349,300       7,346,549  
Trade receivables     34,774,890       33,933,857  
Deposits, prepayments and other receivables     23,113,249       33,249,590  
Prepaid land lease     109,680       109,680  
      119,044,123       101,144,638  
                 
Non-current assets                
Investment in an associate     1,000,000       -  
Property, plant and equipment     3,238,909       3,296,146  
Prepaid land lease     4,882,000       4,909,420  
      9,120,909       8,205,566  
Total assets     128,165,032       109,350,204  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities                
Trade payables     2,406,504       44,636  
Receipts in advance, accruals and other payables     5,944,696       5,140,025  
Amount due to Director     11,462,689       96,231,368  
Current tax liabilities     4,277,699       2,928,207  
Bank borrowings     1,400,000       -  
      25,491,588       104,344,236  
                 
Non-current liability                
Amount due to director     87,781,805       -  
                 
Shareholders’ equity                
                 
Number of authorized shares with par value US$0.001     100,000,000       100,000,000  
Number of issued and outstanding shares     98,191,480       98,191,480  
Number of fully paid shares to be issued     321,296,000       321,296,000  
                 
Share capital     638,708       638,708  
Fully paid shares to be issued     2,126,520       2,126,520  
Additional paid-in capital     -       -  
Retained earnings     12,126,411       2,240,740  
Equity attributable to equity holders of the Company     14,891,639       5,005,968  
Non-controlling interest     -       -  
Total shareholders’ equity     14,891,639       5,005,968  
Total liabilities and shareholders’ equity     128,165,032       109,350,204  

 

The accompanying notes are an integral part of the consolidated interim financial statements. 

 

5

 

 

ORANCO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

( Chinese Renminbi )

 

   

Three months ended September 30,

2018

   

Three months ended September 30,

2017

 
Revenue     23,962,454       21,705,623  
                 
Cost of sales     6,068,934       6,017,306  
Selling and distribution expenses     979,639       1,208,934  
Administrative expenses     2,876,592       1,530,463  
      9,925,165       8,756,703  
                 
Other income     19,037       93,706  
Interest and other financial charges     3,172       840,500  
Income before income taxes     14,053,154       12,202,126  
                 
Income taxes     4,167,483       2,854,658  
Net Income     9,885,671       9,347,468  
                 
Attributable to:                
Equity holders of the Company     9,885,671       9,085,946  
Former non-controlling interests     -       261,522  
      9,885,671       9,347,468  
                 
Earnings per share:                
Basic and diluted earnings per share     0.02       2.13  

 

The accompanying notes are an integral part of the consolidated interim financial statements. 

 

6

 

 

ORANCO, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

( Chinese Renminbi )

 

    Share capital     Shares to be issued (Note a)     Additional paid-in capital     Retained Earnings/ (loss)     Attributable to the Company     Non-controlling interests     Total
shareholders’
Equity
 
Balance at June 30, 2017     27,775       -       (27,774 )     52,253,435       52,253,436       2,882,756       55,136,192  
Total comprehensive income for the year     -       -               9,085,946       9,085,946       261,522       9,347,468  
Acquisition of additional interest in subsidiary                                                        
Balance at September 30, 2017     27,775       -       (27,774 )     61,339,381       61,339,381       3,144,278       64,483,660  
Balance at June 30, 2018     638,708       2,126,520       -       2,240,740       5,005,968       -       5,005,968  
Total comprehensive income for the year     -       -               9,885,671       9,885,671       -       9,885,671  
Conversion of loans to common stock                                                        
Conversion of amount due to director to common stock                                                        
Shares issued for cash                                                        
Shares issued as consideration for business acquisition                                                        
Fully paid shares to be issued as consideration for business acquisition                                                        
Reverse merger                                                        
Balance at September 30, 2018     638,708       2,126,520       -       12,126,411       14,891,639       -       14,891,639  

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

7

 

 

ORANCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

( Chinese Renminbi )

 

 
 
 
 
 
 
Three months ended
September 30,
2018
 
 
 
 
 
 
Three months ended
September 30,
2017
 
 
 
Operating activities            
Net income     9,885,671       9,347,468  
Adjustments to reconcile net income to cash generated from operating activities:                
Depreciation and amortization     84,657       79,596  
Changes in working capital:                
Inventories     1,997,249       167,048  
Trade receivables     (841,033 )     4,420,788  
Deposits, prepayments and other receivables     10,136,341       1,327,784  
Trade payables     2,361,868       790,567  
Receipts in advance, accruals and other payables     (145,329 )     296,677  
Current tax liabilities     1,349,492       1,631,030  
Amount due to Director     3,013,126       (626,449 )
Cash generated from operating activities     27,842,042       17,434,509  
                 
Investing activities                
Acquisition of interest in an associate     (50,000 )     -  
Payments for acquisition of property, plant and equipment     -       (172,585 )
Cash used in investing activities     (50,000 )     (172,585 )
                 
Financing activities                
Repayment of bank borrowings     1,400,000       6,00,000  
Cash used in financing activities     1,400,000       6,000,000  
                 
Increase in cash and cash equivalents     29,192,042       23,261,924  
Cash and cash equivalents, beginning of the period     26,504,962       6,607,407  
Cash and cash equivalents, end of the period     55,697,004       29,869,331  
                 
Supplemental disclosure of cash flows information                
Cash paid during the year for interest     (3,172 )     (840,500 )
Cash paid during the year for income taxes     (2,817,991 )     (2,337,200 )

 

The accompanying notes are an integral part of the consolidated interim financial statements.

 

8

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

( Chinese Renminbi )

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

  (a) Description of Business

 

The Company was incorporated under the laws of the State of Nevada on June 16, 1977. The Company has been in the business of the development of mineral deposits. During 1983 all activities were abandoned, and the Company had remained inactive until June 29, 2018 when it acquired the business of Reliant Galaxy International Limited (“Reliant”). The Company and its subsidiaries (the “Group”) are principally engaged in the trading of spirits in the People’s Republic of China (the “PRC”).

 

As disclosed in the Form 8-K filed with the Securities and Exchange Commission on October 19, 2018, the Company entered into a business agreement with Guangzhou Silicon Technology Co., Ltd. on August 20, 2018 to have Guangzhou Silicon Technology Co., Ltd. develop an anti-counterfeiting laser recognition proprietary system using blockchain technology.

 

Details of the subsidiaries are set out in note 20 to the consolidated financial statements.

 

  (b) The basis of consolidation and presentation

  

The Consolidated Financial Statements include the Financial Statements of Oranco, Inc. and the Financial Statements of its wholly-owned subsidiaries.

 

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

 

The accompanying financial statements have been prepared in accordance with the U.S. generally accepted accounting principles or GAAP. The Company operates in one reportable segment and solely within the PRC. Accordingly, no segment or geographic information has been presented.

 

Non-controlling interests are shown as a component of shareholders’ equity on the consolidated balance sheet and the share of the net income attributable to non-controlling interests is shown as a component of net income in the consolidated statements of operations.

 

9

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi )

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (b) Basis of consolidation and presentation – continued

 

Business Combinations

 

The acquisition of other subsidiaries that meet the criteria for business combinations is accounted for using the acquisition method of accounting. The consideration transferred for the acquisition is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group.

 

The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

 

Any contingent consideration to be transferred by the Group are recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized, either in the Statement of Operations or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the identifiable net assets acquired and liabilities assumed.

 

  (c) Financial instruments

 

Financial instruments of the Group primarily consist of cash and cash equivalents, trade receivables, deposits, prepayments and other receivables, prepaid land lease, trade payables, receipts in advance, accruals and other payables, and bank borrowings. The carrying values of the Group’s financial instruments approximate their fair values, principally because of the short-term maturity of these instruments or their terms.

 

The Group has no derivative financial instruments.

 

  (d) Cash and cash equivalents

 

Cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased.

 

10

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi )

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (e) Revenue recognition

 

The Group’s revenues are derived from sales of products recorded net of value added tax (“VAT”). Revenue is recognized when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery of the products has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. These criteria are related to each of the following major revenue generating activities described below.

 

  (i) Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. This is usually taken as the time when the goods are delivered and the customers have accepted the goods.

 

  (ii) Interest income is recognized on an accrual basis using the effective interest method.

 

  (f) Trade receivables and allowance for doubtful accounts

 

Trade receivables are stated at the amount the Group expects to collect. The Group maintains allowances for doubtful accounts for estimated losses. Management considers the following factors when determining the collectability of specific accounts: historical experience, creditworthiness of the clients, aging of the receivables and other specific circumstances related to the accounts. Allowance for doubtful accounts is made and recorded into general and administrative expenses based on the aging of trade receivables and on any specifically identified receivables that may become uncollectible. Trade receivables which are deemed to be uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company takes a write off of the account balances when the Company can demonstrate all means of collection on the outstanding balances have been exhausted. There is no allowance for doubtful accounts in these consolidated financial statements.

 

  (g) Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The components of inventories include raw materials, processing cost of finished goods and purchase cost of products. The Group routinely evaluate the net realizable value of the inventories in light of current market conditions and market trends and record a write-down against the cost of inventories should the net realizable value falls below the cost.

 

11

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (h) Property, plant and equipment and depreciation

 

Property, plant and equipment are carried at cost less accumulated depreciation and any recorded impairment. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

 

  Category   Estimated useful life   Estimated residual values
  Building   20 years   0-10%
  Computer and office equipment   3 years   0-10%

 

Repairs and maintenance are expensed as incurred and asset improvements are capitalized. Consideration is given at each balance sheet date to determine whether there is any indication of impairment of the carrying amounts of the property, plant and equipment. The indication could be an unfavorable development of a business or severe economic slowdown as well as reorganization of the operation. In assessing value in use, the estimated future cash flows are discounted to their present value, based on the time value of money and the risks specific to the country where the assets are located.

 

  (i) VAT and VAT refund

 

VAT on sales is charged at 17% on revenue from product sales and is subsequently paid to the PRC tax authorities after netting input VAT on purchases. The excess of output VAT over input VAT is recognized in other payables, and the excess of input VAT over output VAT is recognized in other receivables in the consolidated balance sheets.

 

  (j) Operating leases

 

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease periods.

 

  (k) Foreign currency translation

 

Substantially all of the Group’s operations are conducted in China and as a result, the functional and reporting currency of the Group is the Chinese Renminbi.

 

Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Transactions in currencies other than the functional currency are converted into the functional currency at the applicable rates of exchange prevailing at the transaction dates. Transaction gains and losses are recognized in the consolidated statements of operations.

 

12

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (k) Foreign currency translation – continued

 

In translating the financial statements of the Company’s subsidiaries outside the PRC into the reporting currency, assets and liabilities are translated from the subsidiaries’ functional currencies to the reporting currency at the exchange rate at the balance sheet date. Equity amounts are translated at historical exchange rates; revenues, expenses, and other gains and losses are translated using the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income/(loss) in the consolidated statements of operations. During 2018 and 2017, such translation adjustments were not material.

 

  (l) Income taxes

 

Income taxes are provided for in accordance with the laws and regulations applicable to the Group as enacted by the relevant tax authorities. The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit of the related tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Group records interest and penalties related to unrecognized tax benefits (if any) in interest expenses and general and administrative expenses, respectively.

 

On December 22, 2017, the United States enacted TCJA which instituted fundamental changes to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. The TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of the Company’s foreign subsidiary as of December 31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception by the relevant foreign subsidiary, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially other factors. The Company acquired the foreign operations on 29 June 2018, hence the Company does not have any qualifying earnings or profits from its foreign subsidiary under the transition tax calculation thus no transition tax is payable.

 

  (m) Fair value measurement

 

The Group defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group 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.

 

13

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (m) Fair value measurement – continued

 

The Group’s financial instruments include cash and cash equivalents, term deposits, trade and other receivables, and trade and other payables. The Group considers the carrying amounts approximate fair value because of the short maturity of these financial instruments.

 

  (n) Business combinations

 

In a business combination achieved in stages, the Group remeasures its previously held equity interest in the acquire immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in earnings.

 

  (o) Transactions between entities under common control

 

When accounting for a transfer of assets or exchange of shares between entities under common control of the Group, the carrying amounts of the assets and liabilities transferred shall remain unchanged subsequent to the transaction, and no gain or loss shall be recorded in the Group’s consolidated statements of operations.

 

  (p) Commitments and contingencies

 

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.

  

14

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

(q) Adoption of new accounting standards

 

On July 1, 2018, we adopted ASU No. 2014-09, "Revenue from Contracts with Customers" and the related amendments using the modified retrospective method. The adoption of ASC 606 had no impact on total reported revenues, costs and net income.

 

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted. The Company adopted this standard on July 1, 2018 and applied the standard to any future business combinations.

 

  (r) Recently issued accounting pronouncements not yet adopted

 

In August 2016, FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The standard provides new authoritative guidance addressing eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The standard is effective for the Group in the first quarter of the fiscal year 2019. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

 

In February 2016, FASB issued ASU No. 2016-02, Leases. The standard increases transparency and comparability among organizations by requiring companies to recognize leased assets and related liabilities on the balance sheet and disclose key information about leasing arrangements. This standard is effective for the Group in the first quarter of the fiscal year 2020. The Group is evaluating the impact the adoption of this standard will have on its consolidated financial statements.

 

The adoption of the standard in the consolidated financial statements for the financial year ended June 30, 2019 will have no significant impact to the provision for income taxes and will have no impact to the net cash used in, or generated by, operating, investing, or financing activities in the Group’s consolidated statements of cash flows.

 

The Group is finalizing the impact of the standard on its consolidated financial statements and disclosures, as well as changes to its systems, processes, and internal controls. The Company’s preliminary assessments are subject to change.

 

15

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

2. REVENUE AND OTHER INCOME

 

Revenue represents the invoiced spirits products sold to the external customers less discounts, returns, and surcharges.

 

     

September 30,

2018

    September 30,
2017
 
               
  Revenue     23,962,454       21,705,623  
  Other income     19,037       93,706  
        23,981,491       21,799,329  

 

All revenue is derived in China.

 

A concentration analysis of the revenue is as follows:

 

     

September 30,

2018

    September 30,
2017
 
               
  Customer A     12 %     23 %
  Customer B     11 %     22 %
  Customer C     11 %     10 %
  Customer D     10 %     10 %
  Customer E     10 %     9 %
  Customer F     9 %     6 %
  Others     37 %     20 %
        100 %     100 %

 

An analysis of other income is as follows:

 

     

September 30,

2018

    September 30,
2017
 
               
  Bank interest income     19,037       5,120  
  Interest from a director     -          
  Written back of other payables     -       88,586  
        19,037       93,706  

 

16

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

3. SELLING AND DISTRIBUTION EXPENSES

 

The following expenses are included in the selling and distribution expenses: 

 

     

September 30,

2018

    September 30,
2017
 
               
  Freight     280       8,232  
  Packaging cost     143,216       333,059  
        143,496       341,291  

 

4. PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net, consist of the following: 

 

     

September 30,

2018

    June 30,
2018
 
               
  Computer and office equipment     268,550       268,550  
  Building     3,754,625       3,754,625  
        4,023,175       4,023,175  
  Less: accumulated depreciation     (784,266 )     (727,029 )
  Property, plant and equipment, net,     3,238,909       3,296,146  

 

5. PREPAID LAND LEASE, NET

 

Prepaid land lease, net, consists of the following: 

 

     

September 30,

2018

    June 30,
2018
 
               
  Prepaid land lease     5,412,120       5,412,120  
  Less: accumulated amortization     (420,440 )     (393,020 )
  Prepaid land lease, net     4,991,680       5,019,000  

 

The carrying amounts of the prepaid land lease are analyzed as: 

 

     

September 30,

2018

    June 30,
2018
 
               
  Current assets     109,680       109,680  
  Non-current assets     4,882,000       4,909,420  
        4,991,680       5,019,000  

 

17

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

5. PREPAID LAND LEASE, NET – CONTINUED

 

Prepaid land lease represents the cost of the rights of the use of the land in respect of leasehold land in the People’s Republic of China, on which the Group’s buildings are situated.

 

The lease term is 70 years, ending in 2082.

 

6. INVENTORIES

 

Inventories consist of the following:

 

      September 30,
2018
    June 30,
2018
 
               
  Raw materials     3,701,745       4,451,541  
  Finished goods     1,463,622       2,622,873  
  Packaging material     183,933       272,135  
        5,349,300       7,346,549  

 

7. TRADE RECEIVABLES

 

      September 30,
2018
    June 30,
2018
 
               
  Trade receivables     34,774,890       33,933,857  
        34,774,890       33,933,857  

 

The Group normally allows credit terms to well-established customers ranging from 30 to 150 days. The Group seeks to maintain strict control over its trade receivables. Overdue trade receivables are reviewed regularly by the Board of Directors.

 

8. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

 

      September 30,
2018
    June 30,
2018
 
               
  Prepaid expenses     22,268,620       23,571,363  
  Deposits     -       9,000,000  
  Other receivables     844,629       678,227  
        23,113,249       33,249,590  

 

18

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

9. CASH AND CASH EQUIVALENTS

 

      September 30,
2018
    June 30,
2018
 
               
  Cash on hand     305,103       394,082  
  Cash held in banks     55,391,901       26,110,880  
        55,697,004       26,504,962  

 

Cash held in banks earns interest at floating rates based on daily bank deposit rates.

 

10. TRADE PAYABLES

 

      September 30,
2018
    June 30,
2018
 
               
  Trade payables     2,406,504       44,636  
        2,406,504       44,636  

 

For the larger suppliers, the Group makes payment in advance for the inventories. For the smaller suppliers, the Group obtains credit terms ranging from 30 to 90 days.

 

A concentration analysis of the suppliers based on the purchases made during the year is as follows:

 

      September 30,
2018
   

September 30,

2017

 
               
  Supplier A     59 %     20 %
  Supplier B     17 %     20 %
  Supplier C     11 %     20 %
  Supplier D     4 %     17 %
  Supplier E     4 %     16 %
  Supplier F     3 %     4 %
  Others     2 %     2 %
        100 %     100 %

 

19

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

11. RECEIPTS IN ADVANCE, ACCRUALS AND OTHER PAYABLES

 

Receipts in advance, accruals and other payables consist of the following:

 

      September 30,
2018
    June 30,
2018
 
               
  Trade payables     2,406,504       2,288,475  
  Accrued payroll and bonus     301,324       272,408  
  Other payables     950,000       734,122  
  Other tax payables     1,220,232       623,868  
  Receipt in advance     2,139,220       1,221,152  
        5,944,696       5,140,025  

 

12. AMOUNT DUE TO A DIRECTOR

 

      September 30,
2018
    June 30,
2018
 
               
  Amount due to a director     99,244,494       96,231,368  
        99,244,494       96,231,368  

 

      September 30,
2018
    June 30,
2018
 
  Classified as:            
  Non-current liabilities     87,781,805       -  
  Current liabilities     11,462,689       96,231,368  
        99,244,494       96,231,368  

 

The amount due to a director is interest-free, unsecured and not repayable on demand.

 

Renminbi 94,051,934 of the amount due to a director relates to Reliant’s acquisition of Sure Rich Investment (Group) Limited. The amount is due to the seller of Sure Rich Investment (Group) Limited, who is also a director of Reliant and the Company.

 

13. BANK BORROWINGS

 

      September 30,
2018
    June 30,
2018
 
  Secured - at amortized cost            
  Loans from bank – Note (i)     1,400,00             -  
        1,400,00       -  
  Classified as:                
  Current liabilities     1,400,00       -  
        1,400,00       -  

  

Note:

 

  (i) Loan from the bank is bearing a fixed interest rate ranging from 5.44% per annum.

 

20

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

14. SHARE CAPITAL AND CAPITAL MANAGEMENT

 

      Issued and fully paid     Shares to be issued     Additional paid in capital  
  Company   Number of shares    

value

US$

   

value

RMB

    Number of shares    

value

US$

   

value

RMB

   

value

US$

   

value

RMB

   

Total

RMB

 
  At June 30, 2018     98,191,480       98,191       638,708       321,296,000       321,296       2,126,520             -              -       2,765,228  
  Common stock conversion                                                                        
  Conversion of amount due to a director                                                                        
  Shares issued for cash                                                                        
  Shares issued as consideration for business acquisition                                                                        
  Shares to be issued as consideration for business acquisition                                                                        
  Reverse merger                                                                        
                                                                           
  At September 30, 2018     98,191,480       98,191       638,708       321,296,000       321,296       2,126,520       -       -       2,765,228  

 

Each share has a nominal value of US$0.001 per share.

 

The shares to be issued as consideration for business acquisition are the 321,296,000 new shares at $0.001 per share as part of the consideration of the acquisition of Reliant Galaxy International Limited. The aggregated nominal value of the shares is US$321,296.

 

21

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

15. INCOME TAXES

 

The Company is subject to taxes in the USA. The Company has had no taxable income under Federal or State tax laws. The Company has loss carryforwards totaling $359,065 that may be offset against future federal income taxes. If not used, the carryforwards will expire 20 years after they are incurred.

 

The Company’s subsidiary in the BVI is not subject to taxation.

 

The Company’s Hong Kong subsidiary is subject to taxes in Hong Kong. The Hong Kong subsidiary has had no taxable income.

 

The Company’s PRC subsidiaries are subject to taxes in China. The applicable PRC statutory income tax rate is 25% according to the Enterprise Income Tax Law.

 

A reconciliation of the income tax expenses in China is set out below:

 

      September 30,
2018
    September 30,
2017
 
               
  Profit before income tax     14,053154       12,202,126  
  Taxation at the applicable tax rate of 25%     3,513,289       3,050,532  
  Tax effect on non-taxable income     (4,759 )     (19,375 )
  Tax effects of expense that are not deductible     658,953       -  
  (Over)/under-provision in respect of previous year             (176,499 )
  Income taxes     4,167,483       2,854,658  

 

16. CONTRIBUTION PLAN IN THE PRC

 

As stipulated by the PRC state regulations, the subsidiaries in the PRC participate in the state-run defined contribution retirement scheme. All employees are entitled to an annual pension payment equal to a fixed proportion of the average basic salary of the geographical area of their last employment at their retirement date. The PRC subsidiaries are required to make contributions to the local social security bureau at 29.4% to 37.4% of the previous year’s average basic salary amount of the geographical area where the employees are under employment with the PRC subsidiaries. The Group has no obligation for the payment of pension benefits beyond the annual contributions as set out above.

 

According to the relevant rules and regulations of the PRC, the PRC subsidiaries and their employees are each required to make contributions to an accommodation fund at 9% of the salaries and wages of the employees which are administered by the Public Accumulation Funds Administration Centre. There is no further obligation for the Group except for such contributions to the accommodation fund. The Group had no significant obligation apart from the contributions as stated above.

 

22

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

  

17. OPERATING LEASE ARRANGEMENT

 

The Group has total future minimum lease payments under non-cancellable operating lease payable as follows: 

 

      September 30,
2018
    June 30,
2018
 
               
  Within 1 year     216,000       134,294  
  After 1 year but within 2 years     54,000       18,000  
  After 2 years but within 3 years     -       9,000  
  After 3 years     -       -  
        270,000       161,294  

 

The Group is the lessee of a few office premises and staff residence held under operating leases. The leases typically run for an initial period of one to five years.

 

18. RELATED PARTY BALANCES AND TRANSACTIONS

 

The Group made sales to Fuqing Jing Hong Trading Co., Ltd, the director of which was a family member of the CEO Mr. Yang Peng. The family resigned from Fuqing Jing Hong Trading Co., Ltd on June 28, 2018, hence Fuqing Jing Hong ceased to be a related party on June 28, 2018.

 

      September 30,
2018
    September 30,
2017
 
               
  Revenue               -       4,781,362  
        -       4,781,362  

 

Management is of the opinion that these related party transactions were conducted in the normal course of business of the Group with standard sales terms and conditions.

 

19. CONTINGENT LIABILITIES

 

At the end of each reporting period, neither the Group nor the Company had any significant contingent liabilities.

 

23

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

20. DETAILS OF SUBSIDIARIES

 

  Company name   Place and date of incorporation   Capital     Attributable Equity interest       Principal activities
                     
  Reliant Galaxy International
Limited
  Established in British Virgin Islands on January 3, 2017   Registered and
paid-in capital of
RMB 69,100
    100 %   Investment holding
                       
  Sure Rich Investment   Established in   Share capital     100 %   Investment holding
  (Group) Limited   Hong Kong
On February 1, 2007
  RMB 1          
                       
  Fujian Jinou Trading Co., Ltd.   Established in the PRC
on July 5, 2004
  Registered and
paid-in capital of US$
1,650,000
    100 %   Investment holding
                       
  Fenyang Huaxin Spirit Development Co., Ltd.   Established in the PRC
on November 7, 2013
  Registered and
Paid-in capital of RMB
1,000,000
Note (i)
    100 %   Trading of spirit
                       
  Fenyang Jinqiang Spirit Co., Ltd.   Established in the PRC
on November 7, 2013
  Registered and
Paid-in capital of RMB
5,000,000
     100
Note

%

 

  Trading of spirit
                       
  Beijing Huaxin Tianchuang Enterprise Management Consulting Co., Ltd.   Established in the PRC
on April 14, 2018
  Registered and
issued capital of
RMB1,000,000
      51
Note

%
(i)

  Dormant

 

Notes:

  

  (i) The subsidiary was registered with payable share capital and the Company committed to pay up its share of the issued capital in the amount of RMB 510,000 on March 31, 2038, which is 20 years from the date of incorporation permitted by the Regulation of the People’s Republic of China on Company Registration. The amount due to the subsidiary is interest-free and unsecured.

  

24

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (Unaudited)

( Chinese Renminbi)

 

21. DETAILS OF AN ASSOCAITE

 

  Company name   Place and date of incorporation   Capital  

Attributable

Equity
interest

    Principal activities
                     
  Guangzhou Silicon Technology Co., Ltd   Established in the PRC
on September 8, 2015
 

Registered and

issued capital of

RMB5,000,000

    20 %  

Development, sale and provision of software solutions

 

Notes:

 

  (i) On September 1, 2018, Fenyang Huaxin Spirit Development Co., Ltd acquired shares of 20% of the associate Guangzhou Silicon Technology Co., Ltd which then became an associate of the Company. The associate’s results were not material to the Group in the period to September 30, 2018.

   

25

 

 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Oranco, Inc., or the Company, was incorporated under the laws of the State of Nevada, on June 16, 1977. The purposes for which the corporation was organized were: (1) to engage in any lawful business from time to time authorized by the board of directors, (2) to act as principal, agent, partner or joint venture or in any other capacity in any transaction, (3) to do business anywhere in the world, and (4) to have and exercise all rights and powers from time to time granted to the corporation by law.

 

From 1977 until 1981 the Company was dormant and undertook no activities. Beginning in 1982 the Company explored the option of entering into a joint venture to develop a mercury mining property at Mercury Mountain, Nevada. As a part of these activities the Company, through the sale of its common stock, raised funds to engage the services of an independent mining engineer to prepare a report on the feasibility of the project. By late 1983 it had been determined that the project did not warrant any further investment. From that time until 1997 the Company’s activities concentrated on maintaining its corporate existence and looking for other opportunities for the Company. In May of 1997 new management was appointed, a shareholders’ meeting was held, amendments to the Company’s articles of incorporation were approved, and additional effort was made by new management to make the Company a viable merger candidate. These efforts included engaging the services of a certified Public Accounting firm to audit the Company’s financial statements, obtaining an Opinion of Counsel as to the tradability of the Company’s outstanding shares, preparation of the information required by Rule 15c2-11, and applying to the OTC Bulletin Board for trading on the medium.

 

By September of 1999, no viable acquisitions or merger candidates had been located for the Company and management became aware that the Company would be required to register its shares under the Securities Exchange Act of 1934 in order to maintain its stock on the OTC Bulletin Board. Management determined that the Company needed new management which might be better positioned to find a suitable acquisition or merger candidate and which would be in a position of funding the upcoming expenses of the Company. On September 1, 1999 management of the Company resigned and Claudio Gianascio was appointed as sole director and officer. On November 9, 1999 the Company sold 700,000 of its shares of common stock to Mr. Gianascio for $.05 per share, netting a total of $35,000. On November 18, 1999 the Company filed a registration statement on Form 10SB which became effective sixty days thereafter.

 

The Company had an initial authorized capital of $25,000 consisting of 100,000 shares of $.25 par value common stock. On June 10, 1997 the shareholders approved an amendment to the Articles of Incorporation of The Company changing the authorized capital to 100,000,000 shares at a par value of $.001 and providing for a 10 to 1 share forward split of the outstanding shares. The Articles of Amendment were filed with the State of Nevada on August 6, 1998.

 

In the summer of 2000, the Company completed a private placement of 2,500,000 units for which it received $250,000. Each unit consisted of one share of common stock; one “a” warrant giving the holder thereof the right to purchase, upon a minimum of 60 days prior notice of exercise, one share of common stock at $.10 per share within two years of the date of issuance; and one “b” warrant giving the holder thereof the right to purchase, upon a minimum of 60 days prior notice of exercise, one share of common stock at $.25 per share within two years of the date of issuance. Both “a” & “b” warrants expired without exercise.

 

On December 26, 2017, Million Success Business Limited, a British Virgin Islands corporation (“Buyer”) entered into a Share Purchase Agreement (“Purchase Agreement”) with the then largest shareholder of the Company, Mr. Claudio Gianascio, who owned 90.4% of the total outstanding shares of the Company (“Seller”). Pursuant to the terms of the Purchase Agreement, the Seller sold to the Buyer all of his shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), or 38,121,530 shares of the Common Stock for $340,000 (such transaction, the “Share Purchase”). The Share Purchase closed on December 29, 2017.

 

At the closing of the Share Purchase, there was a change in our board and executive officers. Mr. Claudio Gianascio, sole director, President, Treasurer and Secretary of the Company appointed Mr. Peng Yang to serve as sole director, President, Treasurer and Secretary of the Company, with such appointment effective on January 5, 2018, being ten days from the date the Information Statement on Schedule 14F-1 (the “Schedule 14F-1”) reporting the change in control as a result of the Share Purchase was mailed to all the stockholders of the Company. Mr. Gianascio resigned from all his positions with the Company effective on January 5, 2018.

 

On June 29, 2018, Oranco, Inc. completed and closed a share exchange (the “Share Exchange”) under a Share Exchange Agreement (the “Share Exchange Agreement”), entered into by and among by and among (i) Oranco, Inc.(“ORNC”); (ii) Reliant Galaxy International Limited, a British Virgin Islands company with limited liability ( “Reliant”); (ii) and the shareholders of Reliant (“Sellers”) pursuant to which Reliant became a wholly owned subsidiary of ours. Pursuant to the Share Exchange Agreement, ORNC acquired from the Sellers all of the issued and outstanding equity interests of Reliant in exchange for 349,296,000 newly-issued shares of common stock of the Company to Sellers, of which 28,000,000 were issued at the closing date of June 29, 2018, and the remaining 321,296,000 shares shall be issued at the completion of the increase of the Company’s authorized shares (the “Common Stock”). As a result of the Share Exchange, the Sellers, as the former shareholders of Reliant, became the controlling shareholders of the Company. The Share Exchange was accounted for under the business combination under common control of accounting.

 

26

 

 

On September 1, 2018, Fenyang Huaxin Spirit Development Co.. Ltd., a subsidiary of the Company, acquired 20% equity interest in Guangzhou Silicon Technology Co., Ltd. a company established in the People’s Republic of China. The acquisition of 20% equity interest in Guangzhou Silicon Technology Co., Ltd. was accounted for as an interest in an associate.

As disclosed in the Form 8-K filed with the Securities and Exchange Commission on October 19, 2018, the Company entered into a business agreement with Guangzhou Silicon Technology Co., Ltd. on August 20, 2018 to have Guangzhou Silicon Technology Co., Ltd. develop an anti-counterfeiting laser recognition proprietary system using blockchain technology.

 

Results of Operations

 

For the three months ended September 30, 2018 and 2017

  

    Three Months Ended
September 30,
    Variance  
   

2018

(Unaudited)

   

2017

(Unaudited)

    Amount     %  
Revenue     23,962,454       21,705,623       2,256,831       10.4 %
Cost of sales     6,068,934       6,017,306       51,628       0.9 %
Gross profit     17,893,520       15,688,317       2,205,203       14.1 %
Selling and distribution expenses     979,639       1,208,934       (229,295 )     (19.0 )%
Administrative expenses     2,876,592       1,530,463       1,346,129       88.0 %
Income from operations     14,037,289       12,948,920       1,088,369       8.4 %
Other income     19,037       93,706       (74,669 )     (79.7 )%
Interest and other financial charges     3,172       840,500       (837,328 )     (99.6 )%
Income before income taxes     14,053,154       12,202,126       1,851,028       15.2 %
Income taxes     4,167,483       2,854,658       1,312,825       46.0 %
Net income     9,885,671       9,347,468       538,203       5.8 %

 

Revenue

 

    Three Months Ended September 30,     Variance  
    2018
(Unaudited)
    %     2017
(Unaudited)
    %     Amount     %  
Sales of Fenjiu liquor products     21,374,790       89.2 %     19,228,044       88.6 %     2,146,746       11.2 %
Sales of imported wine products     2,587,664       10.8 %     2,477,579       11.4 %     110,085       4.4 %
Total Amount     23,962,454       100.0 %     21,705,623       100.0 %     2,256,831       10.4 %

 

For the three months ended September 30, 2018 and 2017, revenue generated from our Fenjiu liquor wholesale business was RMB21,374,790 and RMB19,228,044, respectively, which represented an increase of RMB2,146,746 or 11.2%. The increase of revenue generated from our Fenjiu liquor wholesale business was mainly due to the increased sales volume of our Fenjiu liquor products.

 

For the three months ended September 30, 2018 and 2017, revenue generated from our imported wine wholesale business was RMB2,587,664 and RMB2,477,579, respectively, which represented an increase of RMB110,085 or 4.4%. The increase represents that the Company adopted its strategy to sell products with higher profit margins and to increase the selling price of such products.

 

Cost of Sales

 

    Three months ended September 30,     Variance  
    2018
(Unaudited)
    %     2017
(Unaudited)
    %     Amount     %  
Sales of Fenjiu liquor products     5,356,825       88.3 %     5,293,714       88.0 %     63,111       1.2 %
Sales of imported wine products     712,109       11.7 %     723,592       12.0 %     (11,483 )     (1.6 )%
Total Amount     6,068,934       100.0 %     6,017,306       100.0 %     51,628       0.9 %

 

For the three months ended September 30, 2018 and 2017, cost of sales from our Fenjiu liquor wholesale business was RMB5,356,825 and RMB5,293,714, respectively, which represented an increase of RMB63,111 or 1.2%. The increase of cost of sales from our Fenjiu liquor wholesale business was mainly due to the increased sales volume of our Fenjiu liquor products.

 

For the three months ended September 30, 2018 and 2017, cost of sales from our imported wine wholesale business was RMB712,109 and RMB723,592, respectively, which represented a decrease of RMB11,483 or 1.6%. The slight decrease represents that the Company adopted its strategy to sell products with higher profit margins. The weightings on these products were different for the three months ended September 30, 2018 and 2017. The overall cost of sales was slightly decreased.

 

27

 

  

Gross Profit

 

    Three months ended September 30,     Variance  
    2018
(Unaudited)
    %     2017
(Unaudited)
    %     Amount     %  
Sales of Fenjiu liquor products     16,017,965       89.5 %     13,934,330       88.8 %     2,085,635       15.0 %
Sales of imported wine products     1,875,555       10.5 %     1,753,987       11.2 %     121,568       6.9 %
Total Amount     17,893,520       100.0 %     15,688,317       100.0 %     2,205,203       14.1 %

 

Gross profit from our Fenjiu liquor wholesale business increased by RMB2,083,635 or 15.0% for the three months ended September 30, 2018, as compared to the same period of 2017. The Company increased sales volume of some products with higher profit margins. The overall gross profit contribution percentage of Fenjiu liquor wholesale business was 74.9% for the three months ended September 30, 2018, as comparted to 72.5% for the same period of 2017.

 

Gross profit from our imported wine wholesale business increased by RMB121,568 or 6.9% for the three months ended September 30, 2018, as compared to the same period of 2017. The gross profit contribution percentage of imported wine wholesale business was 72.5% for the three months ended September 30, 2018, as compared to 70.8%. for the same period of 2017. The increase represents that the Company adopted its strategy to sell products with higher profit margins and to increase the selling price of such products.

 

Selling and Distribution Expenses

 

For the three months ended September 30, 2018, our selling and distribution expenses were RMB979,639, representing a decrease of RMB229,295, or 19.0%, as compared to the same period of 2017. The decrease was primarily due to decreased packaging expenses during the three ended September 30, 2018, as compared to the same period of 2017.

 

Administrative Expense

 

For the three months ended September 30, 2018, our administrative expenses were RMB2,876,592, representing an increase of RMB1,346,129 or 88.0%, as compared to the same period of 2017. The increase was primarily due to salaries, foreign exchange loss and professional fees for share exchange of Reliant Galaxy International Limited.

 

Other Income

 

For the three months ended September 30, 2018, our other income was RMB19,037, representing a decrease of RMB74,669 or 79.7%, as compared to the same period of 2017. The decrease was primarily due to the decreased write-back of other receivables.

 

Interest and Other Financial Charges

 

For the three months ended September 30, 2018, our interest and other financial charges were RMB3,172 as compared to interest and other financial charges of RMB840,500 in the same period of 2017. The decrease in interest and other financial charges was primarily due to decreased bank borrowings.

  

28

 

   

Income Taxes

 

For the three months ended September 30, 2018 and 2017, our income taxes increased by RMB1,312,825 or 46.0% to RMB4,167,483 for the three months ended September 30, 2018 from RMB2,854,658 for the three months ended September 30, 2017. The increase in the income taxes was primarily due to increased taxable income and higher tax disallowable expenses for the period indicated.

 

Liquidity and Capital Resources

 

Operating Activities

 

Operating activities provided Rmb27,842,042 and Rmb17,434,509 of cash in the first three months of 2018 and 2017, respectively. The increase of Rmb10,407,533 in 2018 was primarily a result of change in net operating assets in 2018 when compared with 2017.

 

Activity from inventories included net increase of Rmb1,997,249 and Rmb167,048 for the first three months ended 30 September 2018 and 2017, respectively.

 

Activity from deposits, prepayments and other receivables included net increase of Rmb10,136,341 and Rmb1,327,784 for the first three months ended 30 September 2018 and 2017, respectively.

 

Activity from trade payables included net increase of Rmb2,361,868 and Rmb790,567 for the first three months ended 30 September 2018 and 2017, respectively.

 

Activity from amount due to a director included net increase of Rmb3,013,126 for the first three months ended 30 September 2018 and net decrease of Rmb626,449 for the three months of 2017.

 

Investing Activities

 

Investing activities used Rmb50,000 and Rmb172,585 for the first three months ended 30 September 2018 and 2017, respectively.

 

Cash of Rmb50,000 used for investing activities in 2018 was primarily related to the acquisition of interest in an associate.

 

Cash of Rmb172,585 used for investing activities in 2017 was primarily related to the payments for acquisition of property, plant, and equipment.

 

Financing Activities

 

Financing activities provided Rmb1,400,000 and Rmb6,000,000 for the first three months ended 30 September 2018 and 2017, respectively. Cash of Rmb1,400,000 provided in 2018 and cash of Rmb6,000,000 provided in 2017 were primarily related to net bank borrowings.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

  

29

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Control and Procedures.  

 

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2018 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The principal basis for this conclusion is the lack of segregation of duties within our financial function and the lack of an operating Audit Committee.

 

Management’s Report on Internal Control over Financial Reporting  

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

Apply to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company

 

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

We carried out an assessment, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of September 30, 2018. Integrated Framework (2013). Based on that assessment and on those criteria, our CEO and CFO concluded that our internal control over financial reporting was not effective as of September 30, 2018. The principal basis for this conclusion is failure to engage sufficient resources in regards to our accounting and reporting obligations.  

  

30

 

 

Remediation  

 

Our management has dedicated resources to correct the control deficiencies and to ensure that we take proper steps to improve our internal control over financial reporting in the area of financial statement preparation and disclosure.

 

We have taken a number of remediation actions that we believe will improve the effectiveness of our internal control over financial reporting, including the following:

 

Required all of the accounting personnel in the accounting department to take a minimum of 24 CPE credits annually with a focus on US GAAP and financial reporting standards. We also required the Chief Financial Officer to take a minimum of 40 CPE credits annually with a focus on US GAAP and financial reporting standards;

 

Implemented an internal review process over financial reporting to continue to improve our ongoing review and supervision of our internal control over financial reporting; and

 

Implemented an ongoing initiative and training in the Company to ensure the importance of internal controls and compliance with the established policies and procedures are fully understood throughout the organization, and we plan to provide continuous U.S. GAAP knowledge training to relevant employees involved to ensure the performance of and the compliance with those procedures and policies.

   

In addition to the above executed remediation plans, we have appointed a full-time CFO on April 16, 2018, who has expertise in U.S. GAAP financial reporting and accounting.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting  

 

We plan to enhance our internal controls over financial reporting related to this new adoption to ensure all related accounting policy and disclosures reflect this change.

 

Except for the aforementioned remediation plans, there have not been any other changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the current quarter ended September 30, 2018, to have materially affected the Company’s internal control over financial reporting.

 

Attestation Report of Registered Public Accounting Firm  

 

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm, regarding internal controls over financial reporting. Our internal control over financial reporting was not subject to such attestation as we are a smaller reporting company.

 

Changes in internal controls  

 

As reported on the Form 8-K filed by the Company with the SEC on January 5, 2018, the Company’s president, secretary, treasurer and director, Claudio Gianascio, resigned and on the same date the Company appointed Peng Yang to serve as president, secretary and director.

 

As reported on the Form 8-K filed by the Company with the SEC on July 6, 2018, the Company appointed Ronald Zhang to serve as the Chief Financial Officer on April 16, 2018.

 

Other than the foregoing, there was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected or is reasonably likely to materially affect, our internal controls over financial reporting .

  

31

 

 

PART 2 - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not applicable to a smaller reporting company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2018 that were not previously disclosed in reports filed with the SEC.   

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS 

 

(a) Exhibits

 

Exhibit No.   Description
     
31.1   Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2   Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1  

Certification of Chief Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS   XBRL Instance Document *
101.SCH   XBRL Taxonomy Extension Schema Document *
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB   XBRL Taxonomy Extension Label Linkbase Document *
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document *

 

* Filed herewith.

  

32

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  

 

  ORANCO, INC.
   
Date: November 14, 2018 /s/ Peng Yang
  Peng Yang
  President, Secretary and Director
  (Principal Executive Officer, and Principal Financial Officer and Principal Accounting Officer)

  

33

 

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