STYLE="font: 10pt Times New Roman, Times, Serif">
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly
period ended December 31, 2020
or
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition
period from_____________ to____________
Commission File
Number: 0-56168
ORGANIC
AGRICULTURAL COMPANY LIMITED
(Exact name of registrant as specified
in its charter)
Nevada | 82-5442097 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) |
6th Floor A, Chuangxin Yilu,
No. 2305, Technology Chuangxincheng,
Gaoxin Jishu Chanye Technology Development
District,
Harbin City. Heilongjiang Province.
China 150090
Office: +86 (0451) 5862-8171
(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 | 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. Y
es
þ
No ☐
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). Yes
þ
No
☐
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 ☐ |
Non-accelerated filer ☐ | Smaller reporting company þ |
Emerging growth company þ |
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
þ
APPLICABLE ONLY TO REGISTRANTS INVOLVED
IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:
Indicate by check
mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
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 11,724,836 shares of the issuer’s common stock, par value $0.001 per share.
TABLE OF CONTENTS
Page | ||
PART I—FINANCIAL INFORMATION | ||
Item 1 | Financial Statements. | F-1 – F-17 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 1 |
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
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-
1
ORGANIC AGRICULTURAL COMPANY LIMITED AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 AND MARCH 31,
2020
(EXPRESSED IN US DOLLARS)
December 31, | March 31, | |||||||
2020 | 2020 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 123,842 | $ | 240,834 | ||||
Accounts receivable | 13,055 | 5,212 | ||||||
Due from related parties | 3,442 | - | ||||||
Prepaid expenses | 11,382 | 48,789 | ||||||
Inventories | 122,963 | 56,610 | ||||||
Other receivables | 8,401 | 13,105 | ||||||
Current assets, discontinued operations (Note 3) | - | 558,425 | ||||||
Total current assets | 283,085 | 922,975 | ||||||
Property plant and equipment, net | 2,586 | 4,498 | ||||||
Operating lease right-of-use assets | - | 25,727 | ||||||
Non-current assets, discontinued operations (Note 3) | - | 1,981,547 | ||||||
Total assets | $ | 285,671 | $ | 2,934,747 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 41,889 | $ | 69,437 | ||||
Customer deposits | 164,930 | 88,131 | ||||||
Due to related parties | 69,571 | 84,288 | ||||||
Operating lease liabilities (current) | 23,708 | 18,630 | ||||||
Other payables | 898 | 8,411 | ||||||
Current liabilities, discontinued operations (Note 3) | - | 335,405 | ||||||
Total current liabilities | 300,996 | 604,302 | ||||||
Non-current liabilities, discontinued operations (Note 3) | - | 1,424,600 | ||||||
Total liabilities | 300,996 | 2,028,902 | ||||||
Shareholders’ (deficit) equity: | ||||||||
Preferred stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and March 31, 2020 | - | - | ||||||
Common stock; $0.001 par value, 74,000,000 shares authorized; 11,724,836 and 11,693,836 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively | 11,725 | 11,694 | ||||||
Additional paid-in capital | 2,115,261 | 2,612,954 | ||||||
(Deficit) | (2,033,508 | ) | (1,752,671 | ) | ||||
Other comprehensive income (loss) | (108,803 | ) | 9,891 | |||||
Total shareholders’ (deficit) equity of the Company | (15,325 | ) | 881,868 | |||||
Non-controlling interest | - | 23,977 | ||||||
Total shareholders’ (deficit) equity | (15,325 | ) | 905,845 | |||||
Total liabilities and shareholders’ equity | $ | 285,671 | $ | 2,934,747 | ||||
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
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER
31, 2020 AND 2019
(UNAUDITED) (EXPRESSED IN US DOLLARS)
| For the Nine Months Ended December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | $ | 20,273 | $ | 140,804 | $ | 119,789 | $ | 196,172 | ||||||||
Cost of sales | 14,597 | 117,679 | 82,387 | 154,188 | ||||||||||||
Gross profit | 5,676 | 23,125 | 37,402 | 41,984 | ||||||||||||
Selling, general and administrative expenses | 56,544 | 156,199 | 137,128 | 443,801 | ||||||||||||
Operating (loss) | (50,868 | ) | (133,074 | ) | (99,726 | ) | (401,817 | ) | ||||||||
Other income (loss) | (3,736 | ) | 1,516 | (2,322 | ) | 1,516 | ||||||||||
(Loss) before provision for income taxes | (54,604 | ) | (131,558 | ) | (102,048 | ) | (400,301 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net (loss) from continuing operations | (54,604 | ) | (131,558 | ) | (102,048 | ) | (400,301 | ) | ||||||||
(Loss) on the sale of discontinued operations, net of income taxes | - | - | (941,819 | ) | - | |||||||||||
Income from discontinued operations, net of income taxes (Note 3) | - | 60,081 | 743 | 52,795 | ||||||||||||
Total income (loss) from discontinued operations | - | 60,081 | (941,076 | ) | 52,795 | |||||||||||
Net (loss) | (54,604 | ) | (71,477 | ) | (1,043,124 | ) | (347,506 | ) | ||||||||
Less: net income from discontinued operations attributable to non-controlling interests | - | 29,440 | 364 | 25,870 | ||||||||||||
Net (loss) attributable to common shareholders | $ | (54,604 | ) | $ | (100,917 | ) | $ | (1,043,488 | ) | $ | (373,376 | ) | ||||
Amounts attributable to common shareholders: | ||||||||||||||||
Net (loss) from continuing operations | $ | (54,604 | ) | $ | (131,558 | ) | $ | (102,048 | ) | $ | (400,301 | ) | ||||
Net income (loss) from discontinued operations | - | 30,641 | (941,440 | ) | 26,925 | |||||||||||
Net (loss) attributable to common shareholders | $ | (54,604 | ) | $ | (100,917 | ) | $ | (1,043,488 | ) | $ | (373,376 | ) | ||||
(Loss) per share continuing operations – basic and diluted | $ | - | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | |||||
(Loss) per share discontinued operations – basic and diluted | - | - | (0.08 | ) | - | |||||||||||
Basic and diluted (loss) per share | $ | - | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.03 | ) | |||||
Weighted average number of shares outstanding- basic and diluted | 11,724,836 | 11,534,926 | 11,721,776 | 11,336,269 | ||||||||||||
Other comprehensive (loss): | ||||||||||||||||
Net (loss) | $ | (54,604 | ) | $ | (71,477 | ) | $ | (1,043,124 | ) | $ | (347,506 | ) | ||||
Foreign currency translation adjustment | (66,316 | ) | (3,512 | ) | (127,865 | ) | (1,621 | ) | ||||||||
Comprehensive (loss) | (120,920 | ) | (74,989 | ) | (1,170,989 | ) | (349,127 | ) | ||||||||
Less: comprehensive income attributable to non-controlling interests | - | 32,417 | 801 | 20,848 | ||||||||||||
Comprehensive (loss) attributable to the common shareholders | $ | (120,920 | ) | $ | (107,406 | ) | $ | (1,171,790 | ) | $ | (369,975 | ) | ||||
The accompanying notes are an integral
part of these unaudited consolidated financial statements
F-
3
ORGANIC AGRICULTURAL COMPANY LIMITED AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31,
2020 AND 2019
(EXPRESSED IN US DOLLARS, EXCEPT SHARES)
Common stock | Additional Paid-in | Other Comprehensive |
| Non- controlling | Total Shareholders Equity (Deficit) and | |||||||||||||||||||||||||||
Quantity | Amount | Capital | (Deficit) | Income (Loss) | (Deficit) | Interest | NCI | |||||||||||||||||||||||||
Balance at March 31, 2019 | 11,167,736 | $ | 11,168 | $ | 1,833,730 | $ | (1,278,133 | ) | $ | (1,473 | ) | $ | 565,292 | $ | 3,759 | $ | 569,051 | |||||||||||||||
Net (loss) | - | - | - | (115,007 | ) | - | (115,007 | ) | (3,622 | ) | (118,629 | ) | ||||||||||||||||||||
Sale of common shares | 56,000 | 56 | 72,744 | - | - | 72,800 | - | 72,800 | ||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | 2,426 | 2,426 | (3,024 | ) | (598 | ) | ||||||||||||||||||||||
Balance at June 30, 2019, (unaudited) | 11,223,736 | 11,224 | 1,906,474 | (1,393,140 | ) | 953 | 525,511 | (2,887 | ) | 522,624 | ||||||||||||||||||||||
Net (loss) income | - | - | - | (157,452 | ) | - | (157,452 | ) | 52 | (157,400 | ) | |||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | 7,464 | 7,464 | (4,975 | ) | 2,489 | |||||||||||||||||||||||
Balance at September 30, 2019, (unaudited) | 11,223,736 | 11,224 | 1,906,474 | (1,550,592 | ) | 8,417 | 375,523 | (7,810 | ) | 367,713 | ||||||||||||||||||||||
Net (loss) income | - | - | - | (100,917 | ) | - | (100,917 | ) | 29,440 | (71,477 | ) | |||||||||||||||||||||
Sale of common shares | 417,347 | 417 | 627,343 | - | - | 627,760 | - | 627,760 | ||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (6,489 | ) | (6,489 | ) | 2,977 | (3,512 | ) | |||||||||||||||||||||
Balance at December 31, 2019, (unaudited) | 11,641,083 | $ | 11,641 | $ | 2,533,817 | $ | (1,651,509 | ) | $ | 1,928 | $ | 895,877 | $ | 24,607 | $ | 920,484 | ||||||||||||||||
Balance at March 31, 2020 | 11,693,836 | $ | 11,694 | $ | 2,612,954 | $ | (1,752,671 | ) | $ | 9,891 | $ | 881,868 | $ | 23,977 | $ | 905,845 | ||||||||||||||||
Net (loss) income | - | - | - | (973,733 | ) | - | (973,733 | ) | 364 | (973,369 | ) | |||||||||||||||||||||
Sale of common shares | 31,000 | 31 | 46,469 | - | - | 46,500 | - | 46,500 | ||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (3,395 | ) | (3,395 | ) | 437 | (2,958 | ) | |||||||||||||||||||||
Divestment of Lvxin | - | - | (544,162 | ) | 762,651 | 9,608 | 228,097 | (24,778 | ) | 203,319 | ||||||||||||||||||||||
Balance at June 30, 2020, (unaudited) | 11,724,836 | 11,725 | 2,115,261 | (1,963,753 | ) | 16,104 | 179,337 | - | 179,337 | |||||||||||||||||||||||
Net (loss) | - | - | - | (15,151 | ) | - | (15,151 | ) | - | (15,151 | ) | |||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (58,591 | ) | (58,591 | ) | - | (58,591 | ) | |||||||||||||||||||||
Balance at September 30, 2020, (unaudited) | 11,724,836 | 11,725 | 2,115,261 | (1,978,904 | ) | (42,487 | ) | 105,595 | - | 105,595 | ||||||||||||||||||||||
Net (loss) | - | - | - | (54,604 | ) | - | (54,604 | ) | - | (54,604 | ) | |||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (66,316 | ) | (66,316 | ) | - | (66,316 | ) | |||||||||||||||||||||
Balance at December 31, 2020, (unaudited) | 11,724,836 | $ | 11,725 | $ | 2,115,261 | $ | (2,033,508 | ) | $ | (108,803 | ) | $ | (15,325 | ) | $ | - | $ | (15,325 | ) | |||||||||||||
The accompanying notes are an integral
part of these unaudited consolidated financial statements
F-
4
ORGANIC AGRICULTURAL COMPANY LIMITED
AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
2020 AND 2019
(UNAUDITED) (EXPRESSED IN US DOLLARS)
| ||||||||
2020 | 2019 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) from continuing operations | (102,048 | ) | (400,301 | ) | ||||
Net (loss) income from discontinued operations | $ | (941,076 | ) | $ | 52,795 | |||
Depreciation and amortization | 2,181 | 2,976 | ||||||
Changes in operating assets and liabilities, discontinued operations | 952,318 | (56,902 | ) | |||||
Changes in operating assets and liabilities, continuing operations: | ||||||||
Accounts receivable | (7,030 | ) | (796 | ) | ||||
Prepayments and deferred expenses | 39,492 | (11,580 | ) | |||||
Inventories | (58,457 | ) | 17,680 | |||||
Right-of-use asset | 26,527 | (36,027 | ) | |||||
Other receivables | 5,531 | 2,345 | ||||||
Accounts payable and accrued expenses | (29,864 | ) | (8,705 | ) | ||||
Customer deposits | 65,829 | (57,206 | ) | |||||
Due to (from) related parties | 17,316 | 7,178 | ||||||
Lease liability | 3,316 | 18,973 | ||||||
Other payables | 602 | (14,304 | ) | |||||
Net cash (used in) operating activities | (25,363 | ) | (483,874 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of fixed assets | - | (1,319 | ) | |||||
Cash disbursed on divestment of Lvxin | (1,343 | ) | - | |||||
Net cash (used in) investing activities | (1,343 | ) | (1,319 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from sale of common stock | 46,400 | 647,260 | ||||||
Proceeds from related parties loans | - | 49,772 | ||||||
Net cash provided by financing activities | 46,400 | 697,032 | ||||||
Effect of exchange rate fluctuations on cash | (138,026 | ) | 1,191 | |||||
Net increase (decrease) in cash | (118,332 | ) | 213,030 | |||||
Cash, beginning of year-continuing operations | 242,174 | 11,695 | ||||||
Cash, beginning of year-discontinued operations | - | 1,258 | ||||||
Cash, beginning of year | 242,174 | 12,953 | ||||||
Cash, end of year-continuing operations | 123,842 | 224,563 | ||||||
Cash, end of year-discontinued operations | - | 1,420 | ||||||
Cash, end of year | $ | 123,842 | $ | 225,983 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest | $ | - | $ | - | ||||
Supplemental disclosure of non-cash activities: | ||||||||
(Loss) on sale of discontinued operations | $ | (941,819 | ) | $ | - | |||
Divestment of Lvxin | $ | 203,319 | $ | - | ||||
Right-of-use assets and related lease liabilities | $ | 23,708 | $ | 18,955 | ||||
The accompanying notes are an integral
part of these condensed consolidated financial statements.
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
Organic Agricultural Company Limited (“Organic
Agricultural”, the “Company”, “we” or “us”) was incorporated in the State of Nevada on
April 17, 2018.
The Company, through its subsidiaries with
headquarters in Harbin, China, sells selenium-enriched products and other agricultural products. At December 31, 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 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. | |
● | Tianci Wanguan (Xiamen) Digital Technology Company Limited (“Tianci Wanguan”), a company incorporated in Xiamen, China on November 5, 2020, is 51% owned by Organic Agricultural HK. |
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 shareholders’ 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.
F-
6
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 repayment 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 Company’s
Board of Directors.
The business of Lvxin was 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 the March 31,
2020 balance sheet information has 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 comprehensive income related to Lvxin have not been segregated and are included in the Condensed
Consolidated Statements of Comprehensive Income 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’s presentation
as a result of the divestment of Lvxin.
On November 6, 2020 Organic Agricultural
entered into a Cooperation Agreement with Unbounded IOT Block Chain Limited (“Unbounded”), an entity with offices in
Xiamen City, Fujian Province. The purpose of the Cooperation Agreement is 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. incorporated in Xiamen, China on November 5, 2020, is 51% owned by Organic Agricultural
HK and 49% owned by Chen Zewu on behalf of Unbounded. Each party will provide capital resources to Tianci Wanguan in proportion
to its ownership percentage. The Cooperation Agreement provides that Organic Agricultural will issue shares of its common stock
to Unbounded if certain technological goals specified in the Cooperation Agreement are achieved and the revenue goals and other
targets that Organic Agricultural and Unbounded set for Tianci Wanguan are met. Within sixty days after these conditions are satisfied,
Organic Agricultural will implement a 4.9-for-1 stock split, following which it will issue 20 million common shares to Unbounded.
Tianci Wanguan does not have any assets, liabilities or operations since its inception.
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 sales of shares. The Company received $46,400 during the nine months ended December 31, 2020.
These funds were used for working capital. Hao Shuping, Shen Zhenai, Xun Jianjun were the primary sources of financing for the
early operations of the entity and will continue to provide support in the future if there is any need for capital.
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
are opening new marketing channels 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.
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)
Basis of presentation
The
accompanying
condensed consolidated financial statements have been prepared in accordance with 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, 2020 included in Company’s current report on Form 10-K as filed with the SEC on August 14, 2020.
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
December 31, 2020 are listed as follows:
Name |
| Attributable equity interest % | ||||
Organic Agricultural (Samoa) Co., Ltd. | Samoa | 100 | ||||
Organic Agricultural Company Limited (Hong Kong) | Hong Kong | 100 | ||||
Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited | China | 100 | ||||
Heilongjiang Yuxinqi Agricultural Technology Development Company Limited | China | 100 | ||||
Tianci Wanguan (Xiamen) Digital Technology Company Limited | China | 51 | ||||
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
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. The Company’s cash consist of cash on hand and cash in bank, as of December 31, 2020
and March 31, 2020.
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)
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 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.
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, due from related parties, other receivables, accounts payable and
accrued liabilities, customer deposits, due to related parties, and other payables. As at December 31, 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.
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)
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:
| 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 | 6.5326/7.7527 | 6.9680/7.7876 | 7.0896/7.7529 | ||||
Revenue and expenses | period average | 6.6228/7.7517 | 7.0435/7.8251 | N/A | ||||
| 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 | 6.5326/7.7527 | 6.9680/7.7876 | 7.0896/7.7529 | ||||
Revenue and expenses | period average | 6.8757/7.7512 | 6.9612/7.8315 | 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 740-10-40, 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.
China
According to the “PRC Income Tax
Law”, Tianci Liantian, Tianci Wanguan and Yuxinqi are subject to a 25% standard enterprise income tax in the PRC.
United States
The Company is subject to the U.S. corporation
tax rate of 21%.
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)
Samoa
Organic Agricultural (Samoa) Co., Ltd was
incorporated in Samoa and, under the current laws of Samoa, it is not subject to income tax.
Hong Kong
Organic Agricultural Company Limited (Hong
Kong) was incorporated in Hong Kong and is subject to Hong Kong profits tax. Organic Agricultural Company Limited (Hong Kong) is
subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The
applicable statutory tax rate is 16.5%.
Earnings (loss) per share
The Company computes earnings
(loss)
per share (“EPS”) in accordance with FASB ASC 260,
Earnings Per Share
. ASC 260 requires companies with complex
capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average
common shares outstanding during the period.
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 and nine months ended December 31, 2020 and 2019, and no compensation expense has been recognized.
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
two banks in China. In China, the insurance coverage of each bank is RMB500,000 (approximately USD$73,000). As of December 31,
2020, the Company had approximately RMB49,000 (approximately USD$7,000) in excess of the insurance amounts.
During the three months ended December
31, 2020, major customers Huiye and Jiufu Zhenyuan generated 54% and 20% of revenue, respectively. During the three months ended
December 31, 2019, Huiye and Jiufu Zhenyuan generated 72% and 25% of revenue.
During the nine months ended December 31, 2020, major customers
Shouhang Commerce & Trade, Jiufu Zhenyuan and Huiye generated 26%, 30% and 21% of revenue, respectively. During the nine months
ended December 31, 2019, major customers Shouhang Commerce & Trade, Jiufu Zhenyuan and Huiye generated 15%, 28% and 52% of
revenue, respectively.
Risks and uncertainties
The COVID-19 pandemic has had a significant adverse impact and
created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges
in sales 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 pandemic and are very difficult to quantify. It is difficult
to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors
that will impact the extent to which the COVID-19 affects our business, financial results and financial condition include: the
duration, spread and severity of the pandemic; the actions taken to contain the virus or treat its impact, including government
actions to mitigate the economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions
can resume, including whether any future outbreak interrupts the economic recovery.
Recently 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 lease 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 was 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.
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 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 information and 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 for the reporting periods prior to April 30, 2020.
|
| |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net sales | $ | - | $ | 642,158 | $ | 37,317 | $ | 755,481 | ||||||||
Cost of sales | - | 582,025 | 36,574 | 702,679 | ||||||||||||
Gross profit | - | 60,133 | 743 | 52,802 | ||||||||||||
Selling, general and administrative expenses | - | 51 | - | 441 | ||||||||||||
Operating income | - | 60,082 | 743 | 52,361 | ||||||||||||
Other income (loss) | - | (1 | ) | - | 434 | |||||||||||
Income before income taxes | - | 60,081 | 743 | 52,795 | ||||||||||||
Income tax (expense) benefit | - | - | - | - | ||||||||||||
Income from discontinued operations, net of income taxes | - | 60,081 | 743 | 52,795 | ||||||||||||
Less: Net income attributable to non-controlling interest | - | 29,440 | 364 | 25,870 | ||||||||||||
Net income from discontinued operations attributable to controlling interest | $ | - | $ | 30,641 | $ | 379 | $ | 26,925 | ||||||||
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 | $ | 1,340 | ||
Inventories, net | 557,085 | |||
Total current assets, discontinued operations | 558,425 | |||
Lease right-of-use assets | 1,981,547 | |||
Total assets, discontinued operations | $ | 2,539,972 | ||
LIABILITIES | ||||
Due to related parties | $ | 37,146 | ||
Lease liabilities (current) | 298,259 | |||
Total current liabilities, discontinued operations | 335,405 | |||
Lease liabilities (non-current) | 1,424,600 | |||
Total liabilities, discontinued operations | $ | 1,760,005 | ||
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. As of December 31, 2020 and March 31, 2020, prepayments and deferred expenses
were as follows:
December 31, | March 31, | |||||||
2020 | 2020 | |||||||
(Unaudited) | ||||||||
Prepayments for expenses | $ | 208 | $ | 32,882 | ||||
Prepayments of processing charges and products to be purchased: | ||||||||
Baoqing County Fengnian Agricultural Product Purchase and Sale Ltd. | 5,736 | 5,643 | ||||||
Heilongjiang Yaohe County Heifengyuan Apiculture Ltd. | 5,438 | 10,264 | ||||||
Total | $ | 11,382 | $ | 48,789 | ||||
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 process the Company’s
products.
Processed 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:
December 31, | March 31, | |||||||
2020 | 2020 | |||||||
(Unaudited) | ||||||||
Rice and other products | $ | 113,009 | $ | 41,153 | ||||
Packing and other materials | 9,954 | 15,457 | ||||||
Total inventories at cost | $ | 122,963 | $ | 56,610 | ||||
NOTE 6. INCOME TAXES
A reconciliation of income (loss) before
income taxes for domestic and foreign locations for the three and nine months ended December 31, 2020 and 2019 is as follows:
| ||||||||
2020 | 2019 | |||||||
(Unaudited) | (Unaudited) | |||||||
United States | $ | (19,373 | ) | $ | (58,029 | ) | ||
Foreign | (35,231 | ) | (73,529 | ) | ||||
(Loss) before income taxes | $ | (54,604 | ) | $ | (131,558 | ) | ||
| ||||||||
2020 | 2019 | |||||||
(Unaudited) | (Unaudited) | |||||||
United States | $ | (86,741 | ) | $ | (131,884 | ) | ||
Foreign | (15,307 | ) | (268,417 | ) | ||||
(Loss) before income taxes | $ | (102,048 | ) | $ | (400,301 | ) | ||
F-
13
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:
December 31, | December 31, | |||||||
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 to
Yuxinqi and Tianci Liangtian in China.
As of December 31, 2020, Yuxinqi and Tianci
Liangtian have total net operating loss carry forwards of approximately $707,000 in the PRC that expire in 2024. Due to the uncertainty
of utilizing these carry forwards, the Company provided a 100% valuation allowance on all deferred tax assets of approximately
$177,000 and $166,000 related to its operations in the PRC as of December 31, 2020 and March 31, 2020, respectively. The PRC valuation
allowance has increased by approximately $11,000 and $65,000 for the nine months ended December 31, 2020 and 2019, respectively.
The Company has incurred losses from its United States operations
during all periods presented of approximately $483,000. The Company’s United States operations consist solely of ownership
of its foreign subsidiaries, and the losses arise from administrative expenses. Accordingly, management provided a 100% valuation
allowance of approximately $101,000 and $83,000 against the deferred tax assets related to the Company’s United States operations
as of December 31, 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 realized. The US valuation allowance has increased by approximately $18,000 and $28,000
for the nine months ended December 31, 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 Company has its operations. The tax
years subject to examination vary by jurisdiction. The table below presents the earliest tax years that remain subject to examination
by major jurisdiction.
The year as of | ||
U.S. Federal | March 31, 2019 | |
China | December 31, 2017 |
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 and nine months ended
December 31, 2020 and 2019.
NOTE 7. OTHER PAYABLES
Other payables consisted of the following as of the periods
indicated:
December 31, | March 31, | |||||||
2020 | 2020 | |||||||
(Unaudited) | ||||||||
Advances for purchase of shares | $ | - | $ | 8,167 | ||||
Other | 898 | 244 | ||||||
$ | 898 | $ | 8,411 | |||||
As of March 31, 2020, the Company had received $8,167 as an
advance for the purchase of common shares, of which $7,500 was refunded on April 3, 2020. The Company had received $114,000 as
an advance for the purchase of common shares during the nine months ended December 31, 2020 which was refunded in December 2020.
F-
14
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:
December 31, | March 31, | |||||||
2020 | 2020 | |||||||
(Unaudited) | ||||||||
Hao Shuping | $ | - | $ | 38,874 | ||||
Shen Zhenai | 61,143 | 37,647 | ||||||
Xun Jianjun | 8,428 | 7,767 | ||||||
$ | 69,571 | $ | 84,288 | |||||
Hao Shuping is the largest 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:
December 31, | March 31, | |||||||
2020 | 2020 | |||||||
(Unaudited) | ||||||||
Hao Shuping | $ | 3,442 | $ | - | ||||
It is non-interest bearing and due on demand.
During the nine months ended December 31,
2020, Hao Shuping purchased agricultural products from the Company which generated $8,652 of revenue.
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.
Tianci Liangtian has an operating
lease for office space (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 renewed terms, annual lease payments were RMB290,000 (approximately US$42,000) for the period from December 6, 2018
to December 5, 2019. On December 20, 2019, the lease was renewed. Under the renewed terms, annual lease payments are
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 made on December 23, 2019. On December 20, 2020, the term of the contract
expired. Because of the COVID-19 re-emergence in Heilongjiang province, the renewed contract is delayed. As of December 31,
2020 and March 31, 2020, US$23,708 and $18,630 were accounted as lease liabilities (current), $0 and $25,727 were accounted
as lease right-of-use asset, respectively. Due to the COVID-19 pandemic, the Company has not made the required residual lease
payments for the period from December 20, 2019 to December 19, 2020 as of December 31,2020.
The Company’s adoption of the new
lease standard included new processes and controls regarding asset financing transactions, financial reporting and a system-related
implementation required for the new lease standard. The impact of the adoption of the new lease standard included the recognition
of right-of-use (“ROU”) asset and lease liabilities. For the nine months ended December 31, 2020 and 2019, the amortization
was $29,843 and $29,835, respectively.
F-
15
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 December 31, 2020, the Company has
the following amounts recorded on the Company’s unaudited condensed consolidated balance sheet:
| ||||
(Unaudited) | ||||
Assets | ||||
Right-of-use asset (non-current) | $ | - | ||
Total | $ | - | ||
Liabilities | ||||
Lease liability (current) | $ | 23,708 | ||
Total | $ | 23,708 | ||
Office lease: | ||||
Remaining Lease Term | 1 year, renewal option | |||
Incremental borrowing rate | 4.9 | % | ||
The components of lease expense were as
follows:
| ||||
(Unaudited) | ||||
Amortization of ROU Asset | ||||
Office Lease | $ | 29,843 | ||
Interest expense | - | |||
Total lease expense | $ | 29,843 | ||
Future annual minimum lease payments for
non-cancellable operating leases are as follows:
Year Ending March 31 | Operating Leases | |||
2021 | $ | 23,708 | ||
Thereafter | - | |||
Total | 23,708 | |||
Less: imputed interest | - | |||
Total | $ | 23,708 | ||
Reconciliation to lease liabilities: | ||||
Lease liabilities - current | $ | 23,708 | ||
Lease Liabilities | $ | 23,708 | ||
F-
16
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 December 31, 2020 or March 31, 2020 and through the date of this report.
NOTE 11. SUBSEQUENT EVENTS
The Management of the Company determined that there were no other
reportable subsequent events to be adjusted for and/or disclosed as of February 12, 2021 except as follows:.
The COVID-19 pandemic has had a significant
adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company
is experiencing challenges in sales 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 pandemic and are very difficult
to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or
financial condition.
F-
17
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
In preparing our financial statements,
we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those
values. In our preparation of the financial statements for the three and nine months ended December 31, 2020 and 2019, there was
no estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results.
Results of Operations
The following table shows key components
of the results of operations during the three and nine months ended December 31, 2020 and 2019:
For the three months ended December 31, | Change | |||||||||||||||
2020 | 2019 | $ | % | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue | $ | 20,273 | $ | 140,804 | $ | (120,531 | ) | (86 | %) | |||||||
Cost of Sales | 14,597 | 117,679 | (103,082 | ) | (86 | %) | ||||||||||
Gross Profit | 5,676 | 23,125 | (17,449 | ) | (75 | %) | ||||||||||
Selling, general and administrative expenses | 56,544 | 156,199 | (99,655 | ) | (64 | %) | ||||||||||
(Loss) from operations before other income and income taxes | (50,868 | ) | (133,074 | ) | 82,206 | (62 | %) | |||||||||
Other income (loss) | (3,736 | ) | 1,516 | (5,252 | ) | (346 | %） | |||||||||
(Loss) from operations before income taxes | (54,604 | ) | (131,558 | ) | 76,954 | (58 | %) | |||||||||
Income taxes | - | - | - | N/A | ||||||||||||
Net (loss) from continuing operations | (54,604 | ) | (131,558 | ) | 76,954 | (58 | %) | |||||||||
Net income from discontinued operations, net of income taxes | - | 60,081 | (60,081 | ) | (100 | %) | ||||||||||
Net (loss) | (54,604 | ) | (71,477 | ) | 16,873 | (24 | %) | |||||||||
Less: net income attributable to non-controlling interests | - | 29,440 | (29,440 | ) | (100 | %) | ||||||||||
Net (loss) attributable to common shareholders’ | $ | (54,604 | ) | $ | (100,917 | ) | $ | 46,313 | (46 | %) | ||||||
1
For the nine months ended December 31, | Change | |||||||||||||||
2020 | 2019 | $ | % | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue | $ | 119,789 | $ | 196,172 | $ | (76,383 | ) | (39 | %) | |||||||
Cost of Sales | 82,387 | 154,188 | (71,801 | ) | (47 | %) | ||||||||||
Gross Profit | 37,402 | 41,984 | (4,582 | ) | (11 | %) | ||||||||||
Selling, general and administrative expenses | 137,128 | 443,801 | (306,673 | ) | (69 | %) | ||||||||||
(Loss) from operations before other income and income taxes | (99,726 | ) | (401,817 | ) | 302,091 | (75 | %) | |||||||||
Other income (loss) | (2,322 | ) | 1,516 | (3,838 | ) | (253 | %) | |||||||||
(Loss) from operations before income taxes | (102,048 | ) | (400,301 | ) | 298,253 | (75 | %) | |||||||||
Income taxes | - | - | - | N/A | ||||||||||||
Net (loss) from continuing operations | (102,048 | ) | (400,301 | ) | 298,253 | (75 | %) | |||||||||
(Loss) on the sale of discontinued operations, net of income taxes | (941,819 | ) | - | (941,819 | ) | N/A | ||||||||||
Net income from discontinued operations, net of income taxes | 743 | 52,795 | (52,052 | ) | (99 | %) | ||||||||||
Total net income (loss) from discontinued operations | (941,076 | ) | 52,795 | (993,871 | ) | (1,883 | %) | |||||||||
Net (loss) | (1,043,124 | ) | (347,506 | ) | (695,618 | ) | 200 | % | ||||||||
Less: net income attributable to non-controlling interests | 364 | 25,870 | (25,506 | ) | (99 | %) | ||||||||||
Net (loss) attributable to common shareholders’ | $ | (1,043,488 | ) | $ | (373,376 | ) | $ | (670,112 | ) | 179 | % | |||||
Yuxinqi is a marketing enterprise with
a focus on milled rice and other agricultural products. Incorporated on February 5, 2018, with a short operating history, Yuxingqi’s
sales are erratic, since a stable customer base has not been established yet. Sales by Yuxinqi during the three and nine months
ended December 31, 2020 were lower than during the three and nine months ended December 31, 2019. The decreases in revenue occurred
primarily because our principal customer, Huiye, reduced its orders as a result of the Covid-19 pandemic. The planned expansion
of our business was stifled in recent months by the Covid-19 pandemic and the restrictions on business activity imposed by the
government in an effort to contain the effects of the pandemic in Heilongjiang Province.
The cost of sales of $82,387 and $154,188
for the nine months ended December 31, 2020 and 2019, respectively, was attributable to the sales of milled rice and other foodstuffs.
Those operations yielded a gross profit of $37,402 and $41,984 with a gross margin of 31.2% and 21.4%, respectively. The increase
in gross margin during the three and nine months ended December 31, 2020 compared to the same period of the previous year was
primarily attributable to changes in major customers and the products they purchased. During the three and nine months ended December
31, 2019, our largest customer, Huiye, purchased the Tuohuangzhe series of rice products, which has a gross margin of about 4%.
These sales accounted for 21% of total non-paddy revenue for the nine months ended December 31, 2020 and 52% for the nine months
ended December 31, 2019. During the nine months ended December 31, 2020, however, the Company also sold its Tianci and Jiufu series
of rice products, which had a gross margin of about 35%, primarily to our customers Shouhang Commerce and Trade and Jiufu Zhenyuan.
These higher-margin sales accounted for 56% of total non-paddy revenue for the nine months ended of December 31, 2020. The sale
of these higher margin rice products was responsible for the increase in gross margin during the nine months ended December 31,
2020 as well as the increase in the recent quarter, which yielded a gross margin of 28%, compared to 16.4% in the three months
ended December 31, 2019.
2
To focus on the sale of value-added processed
products, the Company's subsidiary, Tianci Liangtian, completed the spin-off of its ownership interest in Lvxin on April 30, 2020.
During the three and nine months ended December 31, 2020, the Company incurred $941,819 of investment loss due to the divestment
of Lvxin.
During the nine months ended December 31, 2020 and 2019, the
Company incurred $137,128 and $443,801, respectively, in operating expenses, the greater portion of which was attributable to administrative
expenses - i.e. salaries and office expenses. Salaries and benefits expenses were $72,610 and $136,937, office expenses were $30,724
and $93,755 and professional fees were $87,463 and $131,525, respectively, for the nine months ended December 31, 2020 and 2019.
During the three months ended December 31, 2020 and 2019, the Company incurred $56,544 and $156,199, respectively, in operating
expenses, including salaries and benefits expense of $25,974 and $49,186, and professional fees of $20,132 and $57,905, respectively.
In response to COVID-19, we have taken steps to reduce operating costs and improve efficiency, including furloughing of our employees
and regulating expenditures.
The Company's operating expenses were partially
offset by $56,642 and $137,896 of gain on exchange realized during the three and nine months ended December 31, 2020 respectively.
This represented the increase in the USD value of Tianci's debt to Organic Agricultural as a result of the decline in the USD to
CNY exchange rate from 7.1383 to 6.5326.
The Company’s continuing operations
produced a net loss of $102,048 and $400,301 for nine months ended December 31, 2020 and 2019, and net loss of $54,604 and $131,558
for the three months ended December 31, 2020 and 2019, respectively.
Liquidity and Capital Resources
The Company’s operations have been
financed primarily by proceeds from the sale of shares. The Company received $46,400 from the sale of 31,000 shares during the
nine months ended December 31, 2020. As of December 31, 2020, our working capital was negative. Working capital decreased by $336,584
during the nine months ended December 31, 2020, primarily due to our net loss for that period and the Company’s divestment
of Lvxin.
The largest components of working capital
at December 31, 2020 were cash of $123,842 and inventories of $122,963, which were offset by $164,930 in customer deposits against
future sales.
Cash Flows
The following table summarizes our cash
flows for the nine months ended December 31, 2020 and 2019.
| Change | |||||||||||
2020 | 2019 | $ | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Net cash (used in) operating activities | $ | (25,363 | ) | $ | (483,874 | ) | $ | 320,764 | ||||
Net cash (used in) investing activities | (1,343 | ) | (1,319 | ) | (24 | ) | ||||||
Net cash provided by financing activities | 46,400 | 697,032 | (650,632 | ) | ||||||||
Effect of exchange rate fluctuation on cash | (138,026 | ) | 1,191 | (1,470 | ) | |||||||
Net increase in cash | (118,332 | ) | 213,030 | (331,362 | ) | |||||||
Cash, beginning of quarter | 242,174 | 12,953 | 229,221 | |||||||||
Cash, end of quarter | $ | 123,842 | $ | 225,983 | $ | (102,141 | ) | |||||
During the nine months ended December 31,
2020, our operations used net cash of $25,363. Net cash was used primarily due to the $102,048 of net loss from continuing operations
and the $58,457 increase in inventories. During the same period, we increased customer deposits by $65,829 and amortized prepaid
expenses by $39,492. During the nine months ended December 31, 2019, the Company recorded $483,874 of cash use in operating activities,
primarily due to the net loss of $400,301 during that period.
3
The Company's only investing activity during the nine months
ended December 31, 2020 was the distribution of $1,343 of cash in connection with the sale of the discontinued operations. Our
financing activities during the nine months ended December 31, 2020 generated $46,400 from the sale of common stock. During the
nine months ended December 31, 2019, our financing activities generated $697,032, including $647,260 from sales of common stock
and a $49,772 loan from related parties.
Trends, Events and Uncertainties
The Company intends to expand its 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.
On November 6, 2020 Organic Agricultural
Company Limited (“Organic Agricultural”) entered into a Cooperation Agreement with Unbounded IOT Block Chain Limited
(“Unbounded”), an entity with offices in Xiamen City, Fujian Province. The purpose of the Cooperation Agreement is
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. incorporated in Xiamen, China
on November 5, 2020, is 51% owned by Organic Agricultural HK and 49% owned by Chen Zewu on behalf of Unbounded. Each party will
provide capital resources to Tianci Wanguan in proportion to its ownership percentage. The Cooperation Agreement provides that
Organic Agricultural will issue shares of its common stock to Unbounded if certain technological goals specified in the Cooperation
Agreement are achieved and the revenue goals and other targets that Organic Agricultural and Unbounded set for Tianci Wanguan are
met. Within sixty days after these conditions are satisfied, Organic Agricultural will implement a 4.9-for-1 stock split, following
which it will issue 20 million common shares to Unbounded. Tianci Wanguan did not have any operations, assets and liabilities yet
since its inception.
Our marketing personnel 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, the Company hopes to make
a sufficient operating cash inflow to support the future operation and development of the Company. There is no guarantee that the
Company’s new strategy will be successful.
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 pandemic and is very difficult
to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or
financial condition. Factors that will impact the extent to which the COVID-19 pandemic affects our business, financial results
and financial condition include: the duration, spread and severity of the pandemic; the actions taken to contain the virus or treat
its impact, including government actions to mitigate the economic impact of the pandemic; and how quickly and to what extent normal
economic and operating conditions can resume, including whether any future outbreaks interrupt economic recovery.
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.
4
Off-Balance Sheet Arrangements
We do not currently have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results
of operations.
Recent Accounting
Pronouncements
New accounting rules and disclosure requirements
can significantly impact the comparability of our financial statements. Please refer to Note 2 of our condensed consolidated financial
statements included in this quarterly report.
There were no recent accounting pronouncements
that we expect to have a material effect on the Company’s financial position or results of operations.
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 is 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 December 31, 2020. 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 issues 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 was not effective
as of December 31, 2020 for the purposes described in this paragraph.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal
control over financial reporting occurred during the Company’s last quarter that has materially affected, or is likely to
materially affect, the Company’s internal control over financial reporting.
5
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
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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