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 paddy and selenium-enriched paddy products, rice and other agricultural products. At June
30, 2020, the Company’s subsidiaries were:
|
●
|
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 owned 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.
|
Reorganization
On May 16, 2018, the Company completed
a corporate reorganization to combine several controlled entities (now referred to as the “subsidiaries”) into Organic
Agricultural. The specific transactions related to this reorganization are as follows:
On March 31, 2017, Hao Shuping and the
shareholders of Baoqing County Lvxin Paddy Rice Plant Specialized Cooperative (“Lvxin”) signed an Equity Transfer Agreement,
whereby shareholders of Lvxin transferred 51% of the controlling interest in Lvxin to Hao Shuping. Hao Shuping agreed to pay the
Lvxin shareholders RMB 2,029,586 (US$305,472) in cash and cause the company that would become Organic Agricultural to issue to
them 152,736 shares (valued at US$152,736). Hao Shuping and the shareholders of Lvxin also signed an irrevocable supplemental agreement
that gave Hao Shuping voting and managerial control over Lvxin. By June 22, 2018, Tianci Liangtian paid all of the consideration
to Lvxin’s former shareholders.
On January 1, 2018, pursuant to the Equity
Transfer Agreement between Hao Shuping and Tianci Liangtian, Hao Shuping transferred his 51% controlling interest in Lvxin to Tianci
Liangtian. As control of both entities resided with Hao Shuping, we accounted for the combination of Lvxin with Tianci Liangtian
as a transaction between entities under common control.
On January 8, 2018, the shareholders of
Tianci Liangtian transferred ownership of Tianci Liangtian to Organic Agricultural HK, which is wholly owned by Organic Agricultural
Samoa.
On May 16, 2018, the Company issued 10,000,000
shares of its common stock, par value $0.001 to the shareholders of Organic Agricultural Samoa, in exchange for 100% of the outstanding
shares of Organic Agricultural Samoa (the “Share Exchange”).
As a result of the Share Exchange, Hao
Shuping acquired 48.8% of the Company’s outstanding shares. Prior to the Share Exchange, Hao Shuping controlled Lvxin and
Tianci Liangtian. Therefore, the Share Exchange was accounted for as a business combination of entities under common control in
accordance with ASC 805-50-30-5. Accordingly, the assets and liabilities of the Company and its subsidiaries are presented at their
carrying values at the date of the transaction; the Company’s historical stockholders’ equity was retroactively restated
to the first period presented, as the acquisition of Organic Agricultural Samoa, Organic Agricultural HK, Tianci Liangtian and
Lvxin was treated as a combination of entities under common control.
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Continued)
On April 24, 2020 Tianci Liangtian entered
into an Equity Transfer Agreement providing for the transfer to Lou Zhengui of Tianci’s 51% interest in the equity of Baoqing
County Lvxin Paddy Rice Plant Specialized Cooperative. The Agreement transferred the equity to Lou Zhengui as of April 30, 2020.
Tianci Liangtian retained responsibility for the liabilities incurred by Lvxin prior to April 30, 2020, including debt of 257,731
RMB (approx. US$36,380) owed by Lvxin to Yuxingqi. Tianci Liangtian also waived a debt of 3,672,002 RMB (approx. US$518,321) owed
by Lvxin to Tianci Liangtian.
In exchange for the 51% interest in Lvxin,
Lou Zhengui assumed the obligation to satisfy a debt of 300,000 RMB (approx. US$42,350) owed by Tianci Liangtian to Hao Shuping,
a member of the Registrant’s Board of Directors.
The business of Lvxin is growing paddy
rice. The divestment of Lvxin by Tianci will enable Tianci to focus on its other business: processing and marketing food stuffs.
In accordance with U.S. GAAP, the financial
position and results of operations of Lvxin are presented as discontinued operations and, as such, have been excluded from continuing
operations for all periods presented. The restated historical financial statements reflecting the divestment are unaudited, but
have been derived from the Company’s historical audited annual reports. The sum of the individual earnings per share amounts
from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding.
The cash flows and comprehensive income related to Lvxin 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 spin-off of Lvxin.
Forward-Looking Statements
Statements in this report that are not
of historical fact are forward-looking statements that involve risks and uncertainties that could affect the actual results of
the Company. A description of the important factors that could cause the Company’s actual results to differ materially from
the forward-looking statements contained in this report may be found in this report and the Company’s other reports filed
with the Securities and Exchange Commission (the “SEC”). For further information, refer to the consolidated financial
statements, footnotes and definitions thereto included in the Company’s Annual Report on Form 10-K for the year ended March
31, 2010, filed with the SEC on August 14, 2020.
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 adjustments that might result from the outcome of this uncertainty.
The Company’s operations have been
financed primarily by proceeds from sales of shares. The Company received $46,400 during the three months ended June 30, 2020,
and an additional $91,500 from June 1, 2020 to the date of filling this report, from the sale of shares. These funds provided sufficient
working capital for the Company.
Management intends to expand product offerings
to include value-added products, both products based on rice and products based on other food stuffs, such as organic red beans
and millet.
The marketing personnel of the Company
will endeavor to expand awareness of our brand, open new marketing channels, and educate the nation about the health benefits of
selenium-enriched rice.
In this manner, Management hopes to make
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 needs.
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)
Basis of presentation
The accompanying consolidated financial
statements have been prepared on the accrual basis of accounting. All significant intercompany accounts and transactions have been
eliminated in consolidation when applicable.
The Company’s consolidated financial
statements are expressed in U.S. Dollars and are presented in accordance with Accounting Principles Generally Accepted in the United
States of America (“U.S. GAAP”).
Principles of consolidation
The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated
in consolidation. The consolidated financial statements include the assets, liabilities, and net income or loss of these subsidiaries.
The Company’s subsidiaries as of
June 30, 2020 are listed as follows:
Name
|
|
Place of
Incorporation
|
|
Attributable
equity interest
%
|
|
|
Authorized
capital
|
|
Organic Agricultural (Samoa) Co., Ltd.
|
|
Samoa
|
|
|
100
|
|
|
USD
|
1,000,000
|
|
Organic Agricultural Company Limited (Hong Kong)
|
|
Hong Kong
|
|
|
100
|
|
|
HKD
|
10,000
|
|
Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited
|
|
China
|
|
|
100
|
|
|
|
0
|
|
Heilongjiang Yuxinqi Agricultural Technology Development Company Limited
|
|
China
|
|
|
100
|
|
|
|
0
|
|
Use of estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available
at the time the estimates are made; however, actual results could differ from those estimates. One significant item subject to
such estimates and assumptions is the inventory valuation allowance. These estimates are often based on complex judgments and assumptions
that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these
estimates.
Cash and cash equivalents
Cash consists of cash on hand and bank
deposits, which are unrestricted as to withdrawal and use. All highly liquid investments with original stated maturities of three
months or less are classified as cash and cash equivalents. The Company’s cash and cash equivalents consist of cash on hand
and cash in bank, as of June 30, 2020 and March 31, 2020.
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)
Revenue recognition
Effective April 1, 2018, the Company adopted
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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. All revenue is recognized when it is both earned and realized. The Company’s
policy is to recognize the sale when the products, ownership and risk of loss have transferred to the purchasers, and collection
of the sales proceeds, if not prepaid, is reasonably assured, all of which generally occur when the customer receives the products. Accordingly,
revenue is recognized at the point in time when delivery is made.
Given the nature of this revenue source
of the Company’s business and the applicable rules guiding revenue recognition, the revenue recognition practices for the
sale do not contain estimates that materially affect results of operations nor does the Company have any policy for return of products.
Fair value measurements
The Company applies the provisions of FASB
ASC 820, Fair Value Measurements for fair value measurements of financial assets and financial liabilities and for fair
value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also
establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that
would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company
considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants
would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are as follows:
Level 1: Unadjusted quoted prices in active
markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices, other than those
in Level 1, in markets that are not active or for similar assets and liabilities, or inputs that are observable, either directly
or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
There were no transfers between level 1,
level 2 or level 3 measurements during the three months ended June 30, 2020 and 2019.
Financial assets and liabilities of the
Company primarily consists of cash, account receivables, prepaid expenses, inventories, other receivables, accounts payable and
accrued liabilities, customer deposits, due to related parties, and other payables. As at June 30, 2020 and March 31, 2020, the
carrying values of these financial instruments approximated their fair values due to the short-term nature of these instruments.
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Functional currency and foreign currency
translation
An
entity’s functional currency is the currency of the primary economic environment in which it operates. Normally that is the
currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential
to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing
and inter-company transactions and arrangements. The functional currency of the Company is the Chinese Renminbi (“RMB’),
except the functional currency of Organic Agricultural HK is the Hong Kong Dollar (“HKD”), and the functional currency
of Organic Agricultural Samoa and Organic Agricultural is the United States dollar (“US Dollars” “USD”
or “$”). The reporting currency of these consolidated financial statements is in US Dollars.
The financial statements of the Company,
which are prepared using the RMB 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 three months ended
June 30,
|
|
March 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
|
|
|
(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
|
|
7.0697/7.7504
|
|
6.8656/7.8119
|
|
7.0896/7.7529
|
Revenue and expenses
|
|
period average
|
|
7.0864/7.7514
|
|
6.8210/7.8396
|
|
N/A
|
Income taxes
The Company follows FASB ASC Topic 740,
Income Taxes, which requires the recognition of deferred income taxes for the differences between the basis of assets and
liabilities for financial statements and income tax purposes. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts
at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected
to affect taxable income. Deferred tax assets are also recognized for operating losses and for tax credit carryforwards. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740-10-30 requires income tax positions
to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-30, tax positions
that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting
period in which that threshold is met. Under ASC 740-10-40, previously recognized tax positions that no longer meet the more-likely-than-not
threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations
is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change
as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the
actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities
or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance.
According to the “PRC Income Tax
Law”, Tianci Liantian and Yuxinqi are subject to a 25% standard enterprise income tax in the PRC.
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)
Earnings (loss) per share
The Company computes earnings (loss)
per share (“EPS”) in accordance with FASB ASC 260, Earnings Per Share. ASC 260 requires companies with complex
capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average
common shares outstanding during the period.
Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation
of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stock using the treasury stock method
and the potential common shares associated with convertible debt using the if-converted method. Potential common shares that have
an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation
of diluted EPS.
Share-based compensation
The Company follows the provisions of FASB
ASC 718 requiring employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation
is measured at grant date, based on the fair value of the award and recognized over its vesting period. No equity instruments were
granted during the three months ended June, 2020 and 2019, and no compensation expense is required to be recognized under provisions
of ASC 718 with respect to employees.
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 risk
The Company maintains cash balances in
three banks in China. In China, the insurance coverage of each bank is RMB500,000 (approximately USD$71,000). As of June 30, 2020,
the Company had RMB1,281,670 (approximately USD$181,000) in excess of the insurance amounts.
During the three months ended June 30,
2020, major customers Shouhang Commerce & Trade and Jiufu Zhenyuan generated 49% and 49% of revenue, respectively. During the
three months ended June 30, 2019, major customer Shouhang Commerce & Trade generated 97% of revenue, respectively.
Recently adopted accounting standards
Leases
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic
842): Targeted Improvements, which provides an additional, optional transition method related to implementing the new leases standard.
ASU 2018-11 provides that companies can initially apply the new lease standard at adoption and recognize a cumulative-effect adjustment
to the opening balance of retained earnings in the period of adoption. The Company adopted the guidance as of April 1, 2019, there
is no cumulative-effect adjustment to the Company’s opening balance of retained earnings in the period of adoption. See Note
9 - Leases for further details.
We do not believe any recently issued but
not yet effective accounting standards, if currently adopted, would have a material effect on the condensed consolidated financial
position, statements of operations and cash flows.
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE
3. DISCONTINUED OPERATIONS
As
discussed in Note 1. Basis of Presentation above, on April 30, 2020, the Company completed the divestment of Lvxin and the
requirements for the presentation of Lvxin as a discontinued operation were met on that date. Accordingly, Lvxin’s
historical financial 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 Lvxin 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 Lvxin.
|
|
Three months ended
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net sales
|
|
$
|
37,317
|
|
|
$
|
114,964
|
|
Cost of sales
|
|
|
36,574
|
|
|
|
122,401
|
|
Gross profit
|
|
|
743
|
|
|
|
(7,437
|
)
|
Selling, general and administrative expenses
|
|
|
-
|
|
|
|
395
|
|
Operating income (loss)
|
|
|
743
|
|
|
|
(7,832
|
)
|
Other income
|
|
|
-
|
|
|
|
440
|
|
Income (loss) before income taxes
|
|
|
743
|
|
|
|
(7,392
|
)
|
Income tax (expense) benefit
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
743
|
|
|
|
(7,392
|
)
|
Less: Net income (loss) attributable to non-controlling interest
|
|
|
364
|
|
|
|
(3,622
|
)
|
Net income (loss) from discontinued operations attributable to controlling interest
|
|
$
|
379
|
|
|
$
|
(3,770
|
)
|
The
following table summarizes the carrying value of major classes of assets and liabilities of Lvxin, reclassified as assets and
liabilities of discontinued operations at March 31, 2020.
|
|
March 31,
2020
|
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,340
|
|
Inventories, net
|
|
|
557,085
|
|
Total current assets, discontinued operations
|
|
|
558,425
|
|
Operating lease right-of-use assets
|
|
|
1,981,547
|
|
Total non-current assets, discontinued operations
|
|
$
|
2,539,972
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Due to related parties
|
|
$
|
37,146
|
|
Operating lease liabilities (current)
|
|
|
298,259
|
|
Total current liabilities, discontinued operations
|
|
|
335,405
|
|
Operating lease liabilities (non-current)
|
|
|
1,424,600
|
|
Total non-current liabilities, discontinued operations
|
|
$
|
1,760,005
|
|
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE
4. PREPAID EXPENSES
Prepaid
expenses include prepayment of processing charges, and prepayment for products to be purchased. As of June 30, 2020 and March
31, 2020, prepayments and deferred expenses were $63,124 and $48,789, respectively.
NOTE
5. INVENTORIES
Inventories
are comprised of raw materials, and finished goods (including processed rice and other agricultural products).
Raw
materials include all costs of materials purchased to be used in production of the Company’s products.
Manufactured
goods, rice and other products includes all expenditures incurred in bringing the goods to the point of sale and putting them
in a saleable condition.
The
Company values inventory on its balance sheet at the lower of cost or net realizable value. Inventories consisted of the following:
|
|
June 30
|
|
|
March 31
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Rice and other products
|
|
|
13,480
|
|
|
|
41,153
|
|
Packing and other materials
|
|
|
12,856
|
|
|
|
15,457
|
|
Total inventories at cost
|
|
|
26,336
|
|
|
|
56,610
|
|
NOTE
6. INCOME TAXES
A
reconciliation of loss before income taxes for domestic and foreign locations for the three months ended June 30, 2020 and 2019
is as follows:
|
|
For the three months ended
June 30
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
United States
|
|
$
|
(16,580
|
)
|
|
$
|
(25,066
|
)
|
Foreign
|
|
|
(957,532
|
)
|
|
|
(86,171
|
)
|
(Loss) before income taxes
|
|
$
|
(974,112
|
)
|
|
$
|
(111,237
|
)
|
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE
6. INCOME TAXES (Continued)
The
difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(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 realize such deferred taxes. The deferred tax would apply
to the Company in the U.S. and Yuxinqi and Tianci Liangtian, in China.
As
of June 30, 2020, Yuxinqi and Tianci Liangtian have total net operating loss carry forwards of $687,143 in the PRC that expire
in 2024. Due to the uncertainty of utilizing these carry forwards, the Company provided a 100% allowance on all deferred tax assets
of approximately $171,786 and $165,787 related to its operations in the PRC as of June 30, 2020 and March 31, 2020, respectively.
The PRC valuation allowance has increased by approximately $6,000 and $18,000 for the three months ended June 30, 2020 and 2019,
respectively.
The
Company has incurred losses from its United States operations during all periods presented of approximately $414,000. The Company’s
United States operations consist solely of ownership of its foreign subsidiaries, and the losses arise from administration expenses.
Accordingly, management provided a 100% valuation allowance of approximately $87,000 and $83,000 against the deferred tax assets
related to the Company’s United States operations as of June 30, 2020 and March 31, 2020, respectively, because the deferred
tax benefits of the net operating loss carry forwards in the United States will not likely be utilized. The US valuation allowance
has increased by approximately $4,000 and $5,000 for the three months ended June 30, 2020 and 2019, 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 firm has significant business operations. The tax years under examination vary by jurisdiction. The table
below presents the earliest tax year that remain subject to examination by major jurisdiction.
|
|
The year as of
|
U.S. Federal
|
|
March 31, 2019
|
|
|
|
China
|
|
March 31, 2018
|
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.
China
Tianci
Liantian and Yuxinqi are subject to a 25% standard enterprise income tax in the PRC. There was no provision for income taxes for
the three months ended June 30, 2020 and 2019.
NOTE
7. OTHER PAYABLES
Other
payables consisted of the following as of the periods indicated:
|
|
June 30
|
|
|
March 31
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Advances for shares to be issued
|
|
$
|
667
|
|
|
|
8,167
|
|
Others
|
|
|
229
|
|
|
|
244
|
|
|
|
$
|
896
|
|
|
$
|
8,411
|
|
As
of March 31, 2020, the Company had received $8,167 for the sale of common shares to be issued of which $7,500 was refunded on
April 3, 2020. As of June 30, 2020, The Company had received $667 for the sale of common shares to be issued.
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE
8. RELATED PARTY TRANSACTIONS
Amounts
due to related parties consisted of the following as of the periods indicated:
|
|
June 30,
|
|
|
March 31
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Hao Shuping
|
|
$
|
-
|
|
|
$
|
38,874
|
|
Shen Zhenai
|
|
|
36,639
|
|
|
|
37,647
|
|
Xun Jianjun
|
|
|
7,788
|
|
|
|
7,767
|
|
|
|
$
|
44,427
|
|
|
$
|
84,288
|
|
Hao
Shuping is the main shareholder of the Company, Shen Zhenai is the President, Chairman of the Board, director and shareholder
of the Company, and Xun Jianjun is the CEO and 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.
Amounts
due from related parties consisted of the following as of the periods indicated:
|
|
June 30,
|
|
|
March 31
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Hao Shuping
|
|
$
|
3,442
|
|
|
$
|
-
|
|
|
|
$
|
3,442
|
|
|
$
|
-
|
|
NOTE
9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
On
April 1, 2019, the Company adopted FASB ASC 842, “Leases” (“new lease standard”). The new lease standard
was adopted using the optional transition method approach that allows for the cumulative effect adjustment to be recorded without
restating prior periods. The Company has elected the practical expedient package related to the identification, classification
and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before
the effective date. As 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.
In
November 2017, Tianci Liangtian leased office space from November 20, 2017 to December 5, 2018 under an operating lease agreement
(approximately 666 square meters). Under the terms of the lease, Tianci Liangtian paid approximately $1,592 in lease deposits
and committed to make annual lease payments. In December 2018, Yuxingqi renewed the lease agreement. Under the terms, Yuxingqi
committed to make annual lease payments of RMB290,000 (approximately US$42,000) for the period from December 6, 2018 to December
5, 2019. On December 20, 2019, Yuxingqi renewed the lease agreement. Under the terms, Yuxingqi committed to make annual lease
payments of RMB290,000 (approximately US$42,000, including VAT tax) for the period from December 20, 2019 to December 19, 2020.
RMB150,000 (approximately US$22,000) payment was paid on December 23, 2019. As of June 30, 2020, US$16,124 and US$18,682 was accounted
as operating lease right-of-use assets and operating lease liabilities (current), respectively
The
Company’s adoption of the new lease standard included new processes and controls regarding asset financing transactions,
financial reporting and a system-related implementation required for the new lease standard. The impact of the adoption of the
new lease standard included the recognition of right-of-use (“ROU”) assets and lease liabilities. For the three months
ended June 30, 2020 and 2020, the amortization was $9,652 and $10,027, respectively.
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
NOTE
9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Continued)
Operating
leases are reflected on our balance sheet within ROU assets and the related current operating lease liabilities. ROU assets represent
the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments
arising from the lease agreement. ROU assets and liabilities are recognized at the commencement date, or the date on which the
lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease
term. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation
regarding the terms.
As
of June 30, 2020, the Company has the following amounts recorded on the Company’s unaudited condensed consolidated balance
sheet:
|
|
As of June 30,
2020
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
Right-of-use asset(non-current)
|
|
$
|
16,124
|
|
Total
|
|
$
|
16,124
|
|
Liabilities
|
|
|
|
|
Lease liability(current)
|
|
$
|
18,682
|
|
Total
|
|
$
|
18,682
|
|
Office lease:
|
|
|
|
Remaining Lease Term
|
|
1 year, renewal option
|
|
Incremental borrowing rate
|
|
|
4.9
|
%
|
|
|
|
|
|
The
components of lease expense were as follows:
|
|
For the three months ended
June 30,
2020
|
|
|
|
(Unaudited)
|
|
Amortization of ROU Asset
|
|
|
|
Office Lease
|
|
$
|
9,652
|
|
Interest expense
|
|
|
-
|
|
Total lease expense
|
|
$
|
9,652
|
|
Future
annual minimum lease payments for non-cancellable operating leases are as follows:
Year Ending March 31
|
|
Operating Leases (Unaudited)
|
|
2021
|
|
$
|
18,638
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
|
18,638
|
|
Less: imputed interest
|
|
|
-
|
|
Total
|
|
$
|
18,638
|
|
|
|
|
|
|
Reconciliation to lease liabilities:
|
|
|
|
|
Lease liabilities - current
|
|
|
18,638
|
|
Lease Liabilities
|
|
$
|
18,638
|
|
ORGANIC AGRICULTURAL COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(AMOUNTS IN US DOLLARS)
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 June 30, 2020 or March 31, 2020 and through the date of this
report.
NOTE
11. SUBSEQUENT EVENTS
During
the period from July 1, 2020 to the date of filling this report, the Company received an advance of $91,500 for the sale of 60,000
shares to be issued.
The
COVID-19 outbreak has had a significant adverse impact and created many uncertainties related to our business, and we expect that
it will continue to do so. The Company is experiencing challenges in sales and has suffered a significant decrease in revenues
which has increased financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of
the COVID-19 outbreak 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 outbreak
affects our business, financial results and financial condition include: the duration, spread and severity of the outbreak; the
actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the outbreak;
and how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks
interrupt economic recovery.
The
Management of the Company determined that there were no other reportable subsequent events to be adjusted for and/or disclosed
as of the date of filing this report.