UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended
or
For the transition period from_____________ to____________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
Office:
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| None | Not Applicable |
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.
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 | ☐ | |
| ☐ | 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 12 b-2 of the Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of the date of filing
of this report, there were outstanding
TABLE OF CONTENTS
| Page | ||
| PART I—FINANCIAL INFORMATION | ||
| Item 1 | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 5 |
| Item 4. | Controls and Procedures | 5 |
| PART II—OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 6 |
| Item 1A. | Risk Factors | 6 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 6 |
| Item 3. | Defaults Upon Senior Securities | 6 |
| Item 4. | Mine Safety Disclosure | 6 |
| Item 5. | Other Information | 6 |
| Item 6. | Exhibits | 7 |
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
1
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2023 AND MARCH 31, 2023
(EXPRESSED IN US DOLLARS)
| September 30, | March 31, | |||||||
| 2023 | 2023 | |||||||
| Unaudited | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses | ||||||||
| Inventories | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Customer deposits | ||||||||
| Due to related parties | ||||||||
| Other payables | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock; $ | ||||||||
| Common stock; $ | ||||||||
| Additional paid-in capital | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| (Deficit) | ( | ) | ( | ) | ||||
| Other comprehensive income (loss) | ( | ) | ||||||
| Total shareholders’ equity of the Company | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED) (EXPRESSED IN US DOLLARS)
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ||||||||||||
| Gain on the sale of discontinued operations, net of income taxes (Note 3) | ||||||||||||||||
| (Loss) from discontinued operations, net of income taxes (Note 3) | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: (loss) from discontinued operations attributable to non-controlling interests | ||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Amounts attributable to common shareholders: | ||||||||||||||||
| Net income (loss) from continuing operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income from discontinued operations | ||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| $ | $ | $ | $ | ( | ) | |||||||||||
| ( | ) | |||||||||||||||
| $ | $ | $ | $ | ( | ) | |||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Foreign currency translation adjustment | ||||||||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: comprehensive income attributable to non-controlling interests | ||||||||||||||||
| Comprehensive income (loss) attributable to the common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
F-2
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT) EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED) (EXPRESSED IN US DOLLARS, EXCEPT SHARES)
| Common stock * | Additional Paid-in | Subscription | Other Comprehensive Income | Total Shareholders’ Equity | Non- controlling | Total Shareholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||
| Quantity | Amount | Capital | Receivable | (Deficit) | (Loss) | (Deficit) | Interest | and NCI | ||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net (loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 (unaudited) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net (loss) | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Shares issued | - | - | - | - | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Divestment of Tianci Wanguan | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 (unaudited) | $ | $ | $ | - | $ | ( | ) | $ | $ | $ | - | $ | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Net (loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Payment received | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 (unaudited) | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Payment received | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
F-3
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED) (EXPRESSED IN US DOLLARS)
| For the Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income (loss) from continuing operations | $ | $ | ( | ) | ||||
| Net income from discontinued operations | ||||||||
| Shares issued as compensation | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of discontinued operations | ( | ) | ||||||
| Exchange loss | ||||||||
| Changes in operating assets and liabilities, discontinued operations | ( | ) | ||||||
| Changes in operating assets and liabilities, continuing operations: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid and deferred expenses | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Other receivables | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Customer deposits | ||||||||
| Due to (from) related parties | ( | ) | ||||||
| Other payables | ( | ) | ||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash disbursed on divestment of Tianci Wanguan | ( | ) | ||||||
| Net cash (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate fluctuations on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period-continuing operations | ||||||||
| Cash, beginning of period-discontinued operations | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period-continuing operations | ||||||||
| Cash, end of period-discontinued operations | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
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
Organic Agricultural Company Limited (“Organic Agricultural”, the “Company”, “we” or “us”) was incorporated in the State of Nevada on April 17, 2018.
The Company, through its subsidiaries with headquarters in Harbin, China, sells selenium-enriched products and other agricultural products. At September 30, 2023, the Company’s subsidiaries are as follows:
| ● | Organic Agricultural (Samoa) Co., Ltd. (“Organic Agricultural Samoa”), a limited company incorporated in Samoa on December 15, 2017, is wholly owned by Organic Agricultural. Organic Agricultural Samoa owns all of the outstanding shares of capital stock of Organic Agricultural Company Limited (Hong Kong). |
| ● | Organic Agricultural Company Limited (Hong Kong) (“Organic Agricultural HK”), which was established on December 6, 2017 under the laws of Hong Kong, is wholly owned by Organic Agricultural Samoa. Organic Agricultural HK owns all of the registered equity of Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited. |
| ● | Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited. (“Tianci Liangtian”), a company incorporated in Heilongjiang, China on November 2, 2017, is wholly owned by Organic Agricultural HK. Tianci Liangtian owns all of the registered equity of Heilongjiang Yuxinqi Agricultural Technology Development Company Limited. |
| ● | Heilongjiang Yuxinqi Agricultural Technology Development Company Limited (“Yuxinqi”), a company incorporated in Heilongjiang, China on February 5, 2018, is wholly owned by Tianci Liangtian. Yuxinqi sells agricultural products, including paddy and other crops, to customers. |
F-5
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Continued)
Divestment of Tianci Wanguan
On November 6, 2020 Organic Agricultural entered
into a Cooperation Agreement with Unbounded IOT Block Chain Limited (“Unbounded”). The purpose of the Cooperation Agreement
was to promote the use of blockchain technology in agriculture, specifically the development of tracing systems for agricultural products,
the development of a blockchain-based shopping mall for agricultural products, and related improvements to the agricultural sector of
the economy. To accomplish those purposes, Tianci Wanguan (Xiamen) Digital Technology Co., Ltd. (“Tianci Wanguan”) was incorporated
on November 5, 2020. Tianci Wanguan was
The Supplementary Agreement set forth performance
criteria for Unbounded’s management of Tianci Wanguan: specifically that within 12 months after the shares mentioned below are issued
to Unbounded, Tianci Wanguan must generate a profit of
The share-based compensation was measured at grant
date, based on the fair value of the award and would be recognized over its vesting period if it was determined that the target would
more likely than not be met. After the criteria described above was satisfied, the Company would grant to Unbounded a total of
As of June 30, 2022, the Company had suspended
the operations of Tianci Wanguan and on August 19, 2022, completed the divestment of its subsidiary. On August 19, 2022, the Company and
Unbounded entered into an Agreement on Termination of Joint Operation. The parties agreed that Organic Agricultural would surrender to
Unbounded its
In accordance with U.S. GAAP, the financial position and results of operations of Tianci Wanguan are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. The restated historical financial statements reflecting the divestment are unaudited. The cash flows and comprehensive income related to Tianci Wanguan have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all periods presented. With the exception of Note 3, the Notes to the Unaudited Condensed Consolidated Financial Statements reflect the continuing operations of the Company. See Note 3 - Discontinued Operations below for additional information regarding discontinued operations.
Certain amounts in the prior year’s condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as a result of the divestment of Tianci Wanguan.
F-6
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
Management has determined there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues and recurring losses. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company’s operations have been financed
primarily by proceeds from the sale of shares. The Company sold an additional
The marketing personnel of the Company are developing new customers and hope to build a stable base of customers. In this manner, Management hopes to generate sufficient operating cash inflow to support its future operations and development of the Company in addition to capital raised from sales of shares and shareholders’ support based on need.
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. The results of operations for the interim period are not necessarily indicative of the results that will be realized for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with Organic Agricultural Company’s audited financial statements and accompanying notes thereto as of and for the year ended March 31, 2023 included in Company’s current report on Form 10-K as filed with the SEC on November 17, 2023.
The Company’s condensed consolidated financial statements are expressed in U.S. Dollars and are presented in accordance with U.S. GAAP.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements include the assets, liabilities, and net income or loss of these subsidiaries.
| Name | Place of Incorporation | Attributable equity interest % | ||||
| Organic Agricultural (Samoa) Co., Ltd. | ||||||
| Organic Agricultural Company Limited (Hong Kong) | ||||||
| Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited | ||||||
| Heilongjiang Yuxinqi Agricultural Technology Development Company Limited | ||||||
F-7
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the inventory valuation allowance. This estimate is often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
Cash
Cash consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use in the PRC and the USA. All highly liquid investments with original stated maturities of three months or less are classified as cash. The Company’s cash consisted of cash on hand and cash in bank, as of September 30, 2023 and March 31, 2023.
Revenue recognition
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow to the entity, and specific criteria have been met for each of the Company’s activities as described below.
The Company sells paddy and selenium-enriched paddy products, rice and other agricultural products. All revenue is recognized when it is both earned and realized. The Company’s policy is to recognize the sale when the products and services, ownership and risk of loss have transferred to the purchasers, and collection of the sales proceeds, if not prepaid, is reasonably assured, all of which generally occur when the customer receives the products and services. Accordingly, revenue is recognized at the point in time when delivery is made and services are provided.
Given the nature of this revenue generated by the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do not include estimates that materially affect results of operations nor does the Company have any policy for return of products.
Fair value measurements
The Company applies the provisions of FASB ASC 820, Fair Value Measurements for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
F-8
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that are to be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices, other than those in Level 1, in markets that are not active or for similar assets and liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Financial assets and liabilities of the Company primarily consists of cash, accounts receivable, prepaid expenses, inventories, other receivables, accounts payable and accrued liabilities, customer deposits, due to or from related parties, and other payables. As at September 30, 2023 and March 31, 2023, the carrying values of these financial instruments approximated their fair values due to the short-term nature of these instruments.
Functional currency and foreign currency translation
An entity’s functional currency is the currency of the primary economic environment in which it operates. Normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of the Company is the Chinese Renminbi (“RMB’), except the functional currency of Organic Agricultural HK is the Hong Kong Dollar (“HKD”), and the functional currency of Organic Agricultural Samoa and Organic Agricultural is the United States dollar (“US Dollars” “USD” or “$”). The reporting currency of these condensed consolidated financial statements is in US Dollars.
The financial statements of the Company, which are prepared using the RMB and the HKD, are translated into the Company’s reporting currency, the US Dollar. Assets and liabilities are translated using the exchange rate at each reporting period end date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income or loss.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
| For the three months ended September 30, | March 31, | |||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| (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 | ||||||||||||
| Revenue and expenses - period average | ||||||||||||
| For the six months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| (USD to RMB/USD to HKD) | (USD to RMB/USD to HKD) | |||||||
| Assets and liabilities - period end exchange rate | ||||||||
| Revenue and expenses - period average | ||||||||
F-9
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
The Company follows FASB ASC Topic 740, Income Taxes, which requires the recognition of deferred income taxes for the differences between the basis of assets and liabilities for financial statements and income tax purposes. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating losses and for tax credit carryforwards. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
ASC 740-10-30 requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-40, previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretations, judgments and uncertainties. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policies, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the net deferred tax asset valuation allowance.
China
According to the “PRC Income Tax Law”,
Tianci Liantian and Yuxinqi are subject to the
United States
The Company is subject to the U.S. corporation
tax rate of
Samoa
Organic Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under the current laws of Samoa, it is not subject to income tax.
Hong Kong
Organic Agricultural Company Limited (Hong Kong)
was incorporated in Hong Kong and is subject to Hong Kong profits tax. Organic Agricultural Company Limited (Hong Kong) is subject to
Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory
tax rate is
Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with FASB ASC 260, Earnings Per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding during the period. Stock splits are given retroactive recognition for earnings (loss) per share.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stock using the treasury stock method and the potential common shares associated with convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS.
F-10
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)
Segment information and geographic data
The Company is operating in
Concentration of credit and customer risks
The Company maintains cash balances in two banks
in China. In China, the insurance coverage of each bank is RMB
During the six months ended September 30, 2022,
three customers, Jiufu Zhenyuan, Chuangyi Agriculture and Qingdao Huadao, generated
Recently adopted accounting standards
We do not believe any recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the condensed consolidated financial position, statements of operations and cash flows.
F-11
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 3. DISCONTINUED OPERATIONS
As discussed in Note 1: Basis of Presentation above, on August 19, 2022 the Company completed the divestment of Tianci Wanguan and the requirements for the presentation of Tianci Wanguan as a discontinued operation were met on that date. Accordingly, Tianci Wanguan’s historical financial results are reflected in the Company’s unaudited condensed consolidated financial statements as discontinued operations. The Company did not allocate any general corporate overhead or interest expense to discontinued operations.
| For the Three months ended September 30, 2022 | For the Six months ended September 30, 2022 | |||||||
| (Unaudited ) | (Unaudited) | |||||||
| Net sales | $ | $ | - | |||||
| Cost of sales | - | |||||||
| Gross profit | - | |||||||
| Selling, general and administrative expenses | ||||||||
| Operating (loss) | ( | ) | ||||||
| Other income | - | |||||||
| (Loss) before income taxes | ( | ) | ||||||
| Income tax (expense) benefit | - | |||||||
| (Loss) from discontinued operations, net of income taxes | ( | ) | ||||||
| Less: Net (loss) attributable to non-controlling interest | - | |||||||
| Net (loss) from discontinued operations attributable to controlling interest | $ | $ | ( | ) | ||||
F-12
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 4. PREPAID EXPENSES
Prepaid expenses include prepayments for expenses,
and prepayments of processing charges and products to be purchased.
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Prepayments for expenses | $ | $ | ||||||
| Prepayments of processing charges and products to be purchased: | ||||||||
| Baoqing County Fengnian Agricultural Product Purchase and Sale Ltd. | ||||||||
| Harbin Huichuan Package Products Co., ltd | ||||||||
| Others | ||||||||
| Total | ||||||||
| Less: Provision for bad debts | ||||||||
| Prepaid expenses, net | $ | $ | ||||||
NOTE 5. INVENTORIES
The Company’s inventories are all non-perishable
products. The Company’s inventory consists principally of rice and other products which are vacuum-packed and have more than one
year shelf life. The Company reviews its products and sells products near the end of their shelf life through promotions. As of September
30, 2023 and March 31, 2023, no reserve was considered necessary. The Company values inventory on its balance sheet at the lower of cost
or net realizable value.
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Rice and other products | $ | $ | ||||||
| Packing and other materials | ||||||||
| Total inventories at cost | $ | $ | ||||||
F-13
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 6. INCOME TAXES
| For the three months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| United States | $ | ( | ) | $ | ( | ) | ||
| Foreign | ( | ) | ||||||
| Income (loss) before income taxes | $ | $ | ( | ) | ||||
| For the six months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| United States | $ | ( | ) | $ | ( | ) | ||
| Foreign | ( | ) | ||||||
| Income (loss) before income taxes | $ | $ | ( | ) | ||||
| September 30, 2023 | September 30, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| U.S. federal statutory income tax rate | % | % | ||||||
| U.S. valuation allowance | ( | )% | ( | )% | ||||
| The Company’s effective tax rate | ( | )% | ( | )% | ||||
F-14
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 6. INCOME TAXES (Continued)
| September 30, 2023 | September 30, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Rates for Tianci Liangtian, and Yuxinqi, net | % | % | ||||||
| Utilization of net operating loss carryforward | ( | )% | ||||||
| PRC valuation allowance | ( | )% | ||||||
| The Company’s effective (benefit) tax rate | ( | )% | ( | )% | ||||
The Company did not recognize deferred tax assets since it is not likely to incur taxes against which such deferred tax assets may be offset. The deferred tax assets would apply to the Company in the U.S. and to Yuxinqi and Tianci Liangtian in China.
As of September 30, 2023, Yuxinqi and Tianci Liangtian
have total net operating loss carry forwards of approximately $
The Company incurred losses from its United States
operations during all periods presented of approximately $
The Company is subject to examination by the Internal
Revenue Service (IRS) in the United States as well as by the taxing authorities in China, where the Company has its operations. The tax
years subject to examination vary by jurisdiction.
| The year as of | ||||
| U.S. Federal | ||||
| China |
F-15
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 7. CUSTOMER DEPOSITS
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Shouhang | $ | $ | ||||||
| Beiqinhai | ||||||||
| Others | ||||||||
| Total customer deposits | $ | $ | ||||||
NOTE 8. RELATED PARTY TRANSACTIONS
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Tianzhi | $ | |||||||
| Shen Zhenai | ||||||||
| Heilongjiang Chuangyi | ||||||||
| $ | $ | |||||||
Shen Zhenai is the President, Chairman of the Board, director and a shareholder of the Company. These advances represent temporary borrowings for operating costs between the Company and management. They are non-interest bearing and due on demand.
Heilongjiang
Chuangyi Agriculture Co., Ltd (“Heilongjiang Chuangyi”) owns
Tianzhi Equity Investment Fund Management (Shanghai) Co., Ltd. (“Tianzhi”) is controlled by Shen Zhenai, the president and chairman of the Board of the Company.
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Jiufu Zhenyuan | $ | $ | ||||||
| $ | $ | |||||||
The amount due from Jiufu Zhenyuan was account receivable from sales transactions between the Company and Jiufu Zhenyuan.
Jilin Jiufu Zhenyuan Technology Development Co,
Ltd (“Jiufu Zhenyuan”) owns
F-16
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 9. LEASE
On April 1, 2019, the Company adopted FASB ASC 842, “Leases” (“new lease standard”). The new lease standard was adopted using the optional transition method approach that allows for the cumulative effect adjustment to be recorded without restating prior periods. The Company has elected the practical expedient package related to the identification, classification and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before the effective date. As the Company will not reassess such conclusions, the Company has not adopted the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended or terminated or whether a purchase option will be exercised.
Operating leases are reflected on our balance sheet within “operating lease right-of-use asset.” Right-of use (“ROU”) assets and the related operating lease liabilities represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease agreement. ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease regarding the terms.
The Company’s adoption of the new lease standard included new processes and controls regarding asset financing transactions, financial reporting and a system-related implementation required for the new lease standard. The impact of the adoption of the new lease standard included the recognition of right-of-use (“ROU”) asset and lease liabilities.
Leases with an initial term of
On March 23, 2022, Yuxinqi leased office space
from March 23, 2022 to March 22, 2023 under an operating lease agreement (approximately
For the six months ended September 30, 2023 and
2022, the amortization of lease expenses were US$
F-17
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN US DOLLARS)
NOTE 10. SUBSCRIPTION RECEIVABLE
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Sun Ying | $ | $ | ||||||
| Heilongjiang Chuangyi Agriculture Co., Ltd. | ||||||||
| $ | $ | |||||||
On November 28, 2022 the Company entered into
an agreement to sell
On November 29, 2022 the Registrant entered into
an agreement to sell
NOTE 11. 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 September 30, 2023 and through the date of this report.
NOTE 12. SUBSEQUENT EVENTS
On Qingdao Tianci Liangtian Agricultural Technology Development Co., Ltd. was established in Shandong, China, on December 29, 2023, and is wholly owned by Tianci Liangtian.
On January 30, 2024, Sun Ying and the Company entered into an agreement that cancelled the Shares Increase Contract. Sun Ying agreed to surrender the shares to the Registrant for cancellation.
Management has evaluated subsequent events through the date which the consolidated financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2023 have been incorporated into these consolidated financial statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
F-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
Application of Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.
In connection with the preparation of our financial statements for the six months ended September 30, 2023, there was one accounting estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results. That was the determination to record the $705,396 in subscriptions receivable without a reserve. The Company made that determination based on its knowledge of the subscribers’ financial condition.
Results of Operations
The following table shows key components of the unaudited results of operations during the three and six months ended September 30, 2023 and 2022:
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue | $ | 817,410 | $ | 38,277 | $ | 779,133 | 2,036 | % | ||||||||
| Cost of Sales | 544,487 | 31,490 | 512,997 | 1,629 | % | |||||||||||
| Gross Profit | 272,923 | 6,787 | 266,136 | 3,921 | % | |||||||||||
| Total operating costs and expenses | 94,597 | 309,487 | (214,890 | ) | (69 | )% | ||||||||||
| Income (loss) from operations before other income and income taxes | 178,326 | (302,700 | ) | 481,026 | (159 | )% | ||||||||||
| Other income | - | 1,464 | (1,464 | ) | (100 | )% | ||||||||||
| Income (loss) from operations before income taxes | 178,326 | (301,236 | ) | 479,562 | (159 | )% | ||||||||||
| Income taxes | - | - | - | N/A | ||||||||||||
| Net income (loss) from continuing operations | 178,326 | (301,236 | ) | 479,562 | (159 | )% | ||||||||||
| Income from discontinued operations, net of income taxes | - | 68,359 | (68,359 | ) | (100 | )% | ||||||||||
| Net income (loss) | 178,326 | (232,877 | ) | 411,203 | (177 | )% | ||||||||||
| Less: (loss) from discontinued operations attributable to non-controlling interests | - | - | - | N/A | ||||||||||||
| Net income (loss) attributable to common shareholders’ | $ | 178,326 | $ | (232,877 | ) | $ | 411,203 | (177 | )% | |||||||
| For the Six Months Ended September 30, | Change | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue | $ | 991,179 | $ | 77,261 | $ | 913,918 | 1,183 | % | ||||||||
| Cost of Sales | 666,688 | 62,762 | 603,926 | 962 | % | |||||||||||
| Gross Profit | 324,491 | 14,499 | 309,992 | 2,138 | % | |||||||||||
| Total operating costs and expenses | 299,838 | 535,356 | (235,518 | ) | (44 | )% | ||||||||||
| Income (loss) from operations before other income and income taxes | 24,653 | (520,857 | ) | 545,510 | (105 | )% | ||||||||||
| Other income | 17 | 2,481 | (2,464 | ) | (99 | )% | ||||||||||
| Income (loss) from operations before income taxes | 24,670 | (518,376 | ) | 543,046 | (105 | )% | ||||||||||
| Income taxes | - | - | - | N/A | ||||||||||||
| Net income (loss) from continuing operations | 24,670 | (518,376 | ) | 543,046 | (105 | )% | ||||||||||
| Income from discontinued operations, net of income taxes | - | 68,358 | (68,358 | ) | (100 | )% | ||||||||||
| Net income (loss) | 24,670 | (450,018 | ) | 474,688 | (105 | )% | ||||||||||
| Less: (loss) from discontinued operations attributable to non-controlling interests | - | - | - | N/A | ||||||||||||
| Net income (loss) attributable to common shareholders’ | $ | 24,670 | $ | (450,018 | ) | $ | 474,688 | (105 | )% | |||||||
2
All of our revenue during the three and six months ended September 30, 2023 and 2022 was generated by our subsidiary Yuxinqi. Yuxinqi is a marketing enterprise with a focus on milled rice and other agricultural products. Incorporated on February 5, 2018, Yuxinqi’s sales are erratic, since a stable customer base has not been established yet. 97% of the Company’s revenue during the six months ending September 30, 2023 were attributable to a single customer.
For the three and six months ended September 30, 2023 and 2022, our revenue was attributable to the sales of milled rice and other foodstuffs. Sales by Yuxinqi during the three and six months ended September 30, 2023 were 2,036% and 1,183% more than during the three and six months ended September 30, 2022, respectively. The increase in revenue occurred primarily because of the orders from our customer Yuanzheng during the periods.
The cost of sales was $544,487 and $31,490 for the three months ended September 30, 2023 and 2022, $666,688 and $62,762 for the six months ended September 30, 2023, respectively. Operations during the three months ended September 30, 2023 yielded gross profit of $272,923 and $6,787 with gross margin of 33.4% and 17.7%, respectively. Operations during the six months ended September 30, 2023 yielded gross profit of $324,491 and $14,499 with gross margin of 32.7% and 18.8%, respectively. The increase in gross margin during the three and six months ended September 30, 2023, compared to the same period of the previous year, was primarily attributable to our promotions of new products at discount prices during the previous year and the recovery during 2023 by the “Jiufu” product series of the gross profit margin it realized in earlier periods.
The Company incurred operating expenses totaling $94,597 and $309,487 during the three months ended September 30, 2023 and 2022, and $299,838 and $535,356 during the six months ended September, respectively. The components of operating expenses (unaudited) were:
| Three Months Ended September 30 | Six Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Salaries and benefits | $ | 40,195 | $ | 46,223 | $ | 80,309 | $ | 92,541 | ||||||||
| Office expenses | 15,220 | 77,392 | 30,348 | 104,069 | ||||||||||||
| Rentals and leases | 7,029 | 4,624 | 7,373 | 9,366 | ||||||||||||
| Professional fees | 8,639 | 25,112 | 29,139 | 42,835 | ||||||||||||
| Exchange loss | 13,239 | 140,846 | 139,643 | 268,389 | ||||||||||||
| Advertising and promotion expenses | 10,275 | 15,290 | 13,026 | 18,156 | ||||||||||||
| Total operating expenses | $ | 94,597 | $ | 309,487 | $ | 299,838 | $ | 535,356 | ||||||||
Salaries and benefits decreased in the three and six months ended September 30, 2023, due to a decrease in the total number of employees. Office expenses decreased in the three and six months ended September 30, 2023 primarily attributable to the decrease in management service expenses.
The Company’s operating expenses for the six months ended September 30, 2023 included $139,643 of an exchange loss. This represented the increase in the RMB value of Tianci’s debt to Organic Agricultural as a result of the increase in the USD to CNY exchange rate from 6.8680 to 7.2952 during that period. By comparison, the Company’s operating expenses during the six months ended September 30, 2022 included $268,389 of exchange loss. This represented the increase in the RMB value of Tianci’s debt to Organic Agricultural as a result of the increase in the USD to CNY exchange rate from 6.3431 to 7.1128.
The Company’s operations produced a net income of $178,326 and a net loss of $301,236 from continuing operations for the three months ended September 30, 2023 and 2022, and a net income of $24,670 and a net loss of $518,376 from continuing operations for the six months ended September 30, 2023 and 2022, respectively.
The Company produced a net income of $68,359 and $68,358 for the three and six months ended September 30, 2022 from the discontinued operations of Tianci Wanguan. On August 19, 2022, the Company completed the divestment of Tianci Wanguan.
Liquidity and Capital Resources
The Company’s operations have been financed primarily by proceeds from the sale of shares. During the six months ended September 30, 2023, the Company received partial proceeds of $132,699 from the sale of 10,000,000 shares for a price of $880,000 to two investors in November 2022. The two subscribers have agreed to pay the remaining proceeds of $705,396 on or before October 16, 2024. The debt is recorded as a subscription receivable in shareholders’ equity at September 30, 2023. Subsequent to September 30, 2023, one of the investors, Sun Ying, and the Company entered into an agreement that cancelled the Shares Increase Contract. Sun Ying agreed to surrender the shares to the Registrant for cancellation in exchange for cancellation of his commitment to pay 630,000 RMB (US$86,358) for the shares.
As of September 30, 2023, our working capital was $309,200, an increase of $285,974 during the six months ended September 30, 2023. The increase was primarily due to our use of the partial proceeds from the sale of 10 million shares to increase our inventory balance.
The largest components of working capital at September 30, 2023 were cash of $95,141, and inventories of $337,234, which were offset by $152,412 in customer deposits against future sales.
3
Cash Flows
The following unaudited table summarizes our cash flows for the six months ended September 30, 2023 and 2022.
For the Six Months Ended September 30, | Change | |||||||||||
| 2023 | 2022 | $ | ||||||||||
| Net cash (used in) operating activities | $ | (84,635 | ) | $ | (245,772 | ) | $ | 161,137 | ||||
| Net cash (used in) Investing activities | - | (288 | ) | 288 | ||||||||
| Net cash provided by financing activities | 132,699 | - | 132,699 | |||||||||
| Effect of exchange rate fluctuation on cash and cash equivalents | (2,785 | ) | (29,727 | ) | 26,942 | |||||||
| Net increase (decrease) in cash and cash equivalents | 45,279 | (275,787 | ) | 321,066 | ||||||||
| Cash and cash equivalents, beginning of period | 49,862 | 408,463 | (358,601 | ) | ||||||||
| Cash and cash equivalents, end of period | $ | 95,141 | $ | 132,676 | $ | (37,535 | ) | |||||
During the six months ended September 30, 2023, our operations used net cash of $84,635. Although the Company recorded net income of $24,670 during the six month period, its operations resulted in a net cash loss primarily because it used $200,984 in cash to increase inventories and decrease accounts payable and accrued expenses by $31,855. During the six months ended September 30, 2022, our operations used net cash of $245,772 primarily because it recorded a net loss of $450,018.
During the six months ended September 30, 2022, our investing activities used net cash of $288. The Company completed the divestment of Tianci Wanguan in this period, and the cash was disbursed on divestment of Tianci Wanguan.
Our financing activities during the six months ended September 30, 2023 generated $132,699 from cash collected on account of the subscriptions receivable. The Company had no financing activities during the six months ended September 30, 2022.
Trends, Events and Uncertainties
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.
The Company is expanding its product offerings to include more products. In addition, our marketing personnel are developing new customers with the intention of building a stable base of customers. In this manner, the Company hopes to increase sales to support the future operations and development of the Company. There is no guarantee that the Company’s new strategy will be successful. As of September 30, 2023, a stable customer base has not been established yet.
The U.S. government, including the SEC, has made statements and taken actions that have led to changes in relations between the U.S. and China, and will impact companies with connections to the United States or China. Those actions by the U.S. government included imposing several rounds of tariffs affecting certain products manufactured in China and imposing sanctions and restrictions in relation to China. Actions by the SEC included issuing statements indicating that it would make enhanced review of companies with significant China-based operations. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on U.S.-domiciled companies with significant connections to China, our industry or on us. Any unfavorable government policies on cross-border relations, including increased scrutiny on companies with significant China-based operations, capital controls or tariffs, may affect our ability to raise capital and the market price of our shares. If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing trade agreements are renegotiated or if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tensions, such changes could have an adverse effect on our business, financial condition and results of operations, our ability to raise capital and the market price of our shares. Changes in United States and China relations and/or regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares.
Other than the factors listed above we do not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on our net sales or revenues or income from continuing operations.
Recent Accounting Pronouncements
There were no recent accounting pronouncements that we expect to have a material effect on the Company’s financial position or results of operations. Please refer to Note 2 of our condensed consolidated financial statements included in this quarterly report.
4
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2023. Based on this evaluation, we concluded that our disclosure controls and procedures have the following material weaknesses:
| ● | The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. |
| ● | Our internal financial staff lack expertise in identifying and addressing complex accounting issue under U.S. Generally Accepted Accounting Principles. |
| ● | Our Chief Financial Officer is not familiar with the accounting and reporting requirements of a U.S. public company. |
| ● | We have not developed sufficient documentation concerning our existing financial processes, risk assessment and internal controls. |
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures were not effective as of September 30, 2023 for the purposes described in this paragraph.
Changes in Internal Control over Financial Reporting
No changes in the Company’s internal control over financial reporting came to management’s attention during the quarter ended September 30, 2023 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.
5
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
There have been no material changes from the risk factors included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, as filed with the SEC on November 17, 2023.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
During the quarter ended September 30, 2023, the Company did not complete any unregistered sales of equity securities.
The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the quarter ended September 30, 2023.
Item 3. Defaults upon Senior Securities.
Not applicable
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information.
None.
6
Item 6. Exhibits
INDEX TO EXHIBITS
7
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.
ORGANIC AGRICULTURAL COMPANY LIMITED
| Signature | Title | Date | ||
| /s/ Wu Zhiwei | Chief Executive Officer | February 8, 2024 | ||
| Wu Zhiwei | (Principal Executive Officer) | |||
| /s/ Sun Xiuxia | Chief Financial Officer | February 8, 2024 | ||
| Sun Xiuxia | (Principal Financial and Accounting Officer) |
8