Organic Agricultural Co Ltd - Annual Report: 2023 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2023
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) |
Room G510, Building No. 3, Kejichuangxincheng Chuangxinchuangye Plaza,
High and New Technology Industrial Development District,
Harbin City, Heilongjiang Province,
China 150090
Office: +86 (0451) 5152-7001
(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 |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant 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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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 | ☒ |
| 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 93,726,994 shares of the issuer’s common stock, par value $0.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
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PART I
Cautionary Statement Regarding Forward Looking Statements
The discussion contained in this Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases like “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “target,” “expects,” “management believes,” “we believe,” “we intend,” “we may,” “we will,” “we should,” “we seek,” “we plan,” the negative of those terms, and similar words or phrases. We base these forward-looking statements on our expectations, assumptions, estimates and projections about our business and the industry in which we operate as of the date of this Form 10-K. These forward-looking statements are subject to a number of risks and uncertainties that cannot be predicted, quantified or controlled and that could cause actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Form 10-K describe factors, among others, that could contribute to or cause these differences. Actual results may vary materially from those anticipated, estimated, projected or expected should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect. Because the factors discussed in this Form 10-K could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Form 10-K.
Item 1. Business
Corporate Structure
Organic Agricultural Company Limited (“Organic Agricultural”, the “Company”, “we” or “us”) was incorporated in the State of Nevada on April 17, 2018. Our website address is www.oacl.top. Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this Report.
The Company carries on business through its subsidiaries with headquarters in Harbin of China. At the beginning of fiscal year 2023, the Company’s operating subsidiaries consisted of Heilongjiang Yuxinqi Agricultural Technology Development Company Limited (“Yuxinqi”), which marketed agricultural products, and 51% owned Tianci Wanguan (Xiamen) Digital Technology Company Limited (“Tianci Wanguan”), which provided software development. As of June 30, 2022, the Company had suspended the operations of Tianci Wanguan and on August 19, 2022, completed the divestment of Tianci Wanguan. The divestment of Tianci Wanguan will enable the Company to focus on its other business: processing and marketing food products.
With the divestment of Tianci Wanguan, the Company’s remaining subsidiaries are:
Organic Agricultural (Samoa) Co., Ltd. (“Organic Agricultural Samoa”), a wholly owned limited company registered in Samoa on December 15, 2017. 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. Organic Agricultural HK wholly owns all of the registered equity of Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited.
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Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited. (“Tianci Liangtian”), a wholly owned limited company registered in Heilongjiang, China on November 2, 2017. Tianci Liangtian owns all of the registered equity of Yuxinqi.
Heilongjiang Yuxinqi Agricultural Technology Development Company Limited (“Yuxinqi”), which was incorporated in Heilongjiang, China on February 5, 2018. Tianci Liangtian organized Yuxinqi to function as a marketing company, selling paddy and other crops to customers in the PRC. Yuxinqi shares offices in Harbin with Tianci Liangtian. Yuxinqi is engaged in marketing. As our operations grow, Yuxinqi will undertake a broader range of marketing activities, both for paddy and for other food products.
Our present corporate structure is as follows:
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Our Business
Our subsidiary, Yuxinqi, was organized in February 2018. To date, Yuxinqi has devoted its efforts to the marketing and distribution of selenium-enriched agricultural products, primarily paddy rice and coarse cereals. Going forward, Yuxinqi intends to continue its focus on the marketing and sale of agricultural products, while enlarging its offerings to include a variety of crop foods, dry goods as well as processed foods.
Selenium is one of the “essential” nutrients for humans, meaning that our bodies cannot produce it, and so we have to get it from our diet. Selenium deficiency can cause health problems including Keshan’s disease, a form of cardiomyopathy. The World Health Organization has found that between 50 and 250 micrograms of selenium constitute a healthy daily intake.
Scientists now know selenium is necessary in the body’s production of selenoproteins, a family of proteins that contain selenium in the form of an amino acid. So far, 25 different selenoproteins in the body have been isolated, but only half of their functions have been identified. Selenium is one of several nutrients known to have antioxidant properties, meaning selenium plays a part in chemical reactions that stop free radicals from damaging cells and DNA. Human and animal research has found selenoproteins are involved in embryo development, thyroid hormone metabolism, antioxidant defense, sperm production, muscle function and the immune system’s response to vaccinations. Antioxidant supplements, including selenium, are often touted to help prevent heart disease, cancer and vision loss.
According to the Chinese Selenium Supplements Association, selenium is purported to help people with asthma, and reduce the risk of rheumatoid arthritis and cardiovascular disease. Selenium levels drop with age, so some have claimed selenium can slow the aging process, cognitive decline and dementia. Low selenium levels are also implicated in depression, male infertility, weak immune systems and thyroid problems.
Plants grown in soil containing selenium convert it into a form that is usable to humans and animals. Soil around the world varies in its selenium concentration. The higher the concentration of selenium in soil, the higher the concentration of selenium is in crops. Soil in Nebraska, South and North Dakota, for example, is especially rich in selenium, and people living in these areas typically have the highest dietary intake of selenium in the United States. On the other hand, seventy-two percent (72%) of the land in China is selenium-poor.
Because rice is a staple food in China, selenium-enriched rice obtained by bioenrichment to increase the selenium content of rice was determined to be a good selenium source for the population in selenium-deficient regions.
All our products come from the Sanjiang Plain. The Sanjiang Plain is noteworthy for, among other things, the relatively high content of selenium in its soil. By focusing on the marketing and distribution of selenium-enhanced rice, the Company hopes to develop a sustainable position in the Chinese rice market.
Operating Licenses
Our products are subject to regulation by governmental agencies in the PRC and Heilongjiang Province. Business and company registrations, along with the products, are certified on a regular basis and must be in compliance with the laws and regulations of the PRC and provincial and local governments and industry agencies, which are controlled and monitored through the issuance of licenses. Our licenses include:
| ● | Tianci Liangtian and Yuxinqi operating licenses enable us to undertake agricultural technology development services, primary processing of agricultural products, grain and legume cultivation, and agricultural product sales. (Legally approved projects can be launched after approval by the relevant departments). The registration numbers are 91230100MA1ATNP757 and 91230109MA1AYU4P51, respectively; and they are valid from November 2, 2017 and February 5, 2018, respectively, with no expiration date. |
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Competition
Currently, the distribution of selenium-enriched agricultural products in China is the province of small and medium-sized enterprises, with no dominant participant in the market. The diversity of the market is primarily a function of the relatively brief period that the inclusion of selenium-enriched food stuffs in the Chinese diet has been popular. As the practice becomes more well-established, the emergence of market leaders will be likely.
We are a small company. However, with our recent focus on distribution of selenium-enriched products, we are entering a growing market. We believe that we will be able to compete effectively in this market because we have the advantage of product specificity, which should enable our brand to become identified as a source for selenium-enriched products.
Suppliers
Over the years of operations, we have developed a solid and reliable image and reputation with suppliers. We have established supplier relationships with several local companies.
Marketing
We believe that the importance of selenium to human health and the fact of selenium deficiency in large parts of China create a vast market potential for development. Selenium has been studied extensively in China. These efforts have resulted in confirming that selenium is an important element for human health and that there are areas within China that are significantly deficient in the soil and water. In the past decade, Chinese government policy has helped to enhance the importance of selenium and the potential of the selenium market.
The Company offers value-added products, both products based on rice and products based on other food stuffs, such as organic red beans and millet.
Insurance
We do not maintain fire, theft, product liability or other insurance of any kind. We bear the economic risk with respect to loss of or damage or destruction to our property and to the interruption of our business as well as liability to third parties for damage or destruction to them or their property that may be caused by our personnel or products.
Income Taxes
United States
The company is subject to an income tax rate of 21% in the United States of America.
Samoa
Organic Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under the current laws of Samoa, is not subject to income tax.
China
Tianci Liantian and Yuxinqi are subject to a 25% standard enterprise income tax in the PRC.
Employees
As of March 31, 2023, we had 15 employees. None of our employees are represented by a labor union or similar collective bargaining organization.
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Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and other information in this 10K before deciding to invest in our Company. If any of the following risks actually occur, our business, financial condition and results of operations could be seriously harmed. As a result, the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to Our Business
Changes in relations between the United States and China and/or regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares.
The U.S. government, including the SEC, has made statements and taken actions that led to changes in United States relations with China, and will impact companies with connections to the United States or China. Actions by the U.S. government included imposing several rounds of tariffs affecting certain products manufactured in China and imposing certain sanctions and restrictions in relation to China. Actions by the SEC included issuing statements indicating its intent to 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 companies with significant connections to the U.S. or to China, our industry or on us. Any unfavorable government policies on cross-border relations, including increased scrutiny of companies with significant China-based operations, capital controls or tariffs, may affect our ability to raise capital and the market price of our shares.
Furthermore, the SEC has issued statements primarily focused on companies with significant China-based operations, such as us. For example, on July 30, 2021, Gary Gensler, Chairman of the SEC, issued a Statement on Investor Protection Related to Recent Developments in China, in which Chairman Gensler stated that he has asked the SEC staff to engage in targeted additional reviews of filings for companies with significant China-based operations. The statement also addressed risks inherent in companies with a Variable Interest Entity, or a VIE structure. We do not have a VIE structure and are not in an industry that is subject to foreign ownership limitations by China. Further, we believe that we have robust disclosures relating to our operations in China, including the relevant risks noted in Chairman Gensler’s statement. However, it is possible that the Company’s periodic reports and other filings with the SEC may be subject to enhanced review by the SEC and this additional scrutiny could affect our ability to effectively raise capital in the United States.
In response to the SEC’s July 30 statement, the China Securities Regulatory Commission (CSRC) announced on August 1, 2021 that “it is our belief that Chinese and U.S. regulators shall continue to enhance communication with the principle of mutual respect and cooperation, and properly address the issues related to the supervision of China-based companies listed in the U.S. so as to form stable policy expectations and create a benign rules framework for the market.” While the CSRC will continue to collaborate “closely with different stakeholders including investors, companies, and relevant authorities to further promote transparency and certainty of policies and implementing measures,” CSRC emphasized that it “has always been open to companies’ choices to list their securities on international or domestic markets in compliance with relevant laws and regulations.”
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.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
The Company continues to generate operating losses and has not completed its efforts to establish a stabilized source of revenue sufficient to cover its operating costs over an extended period of time. These factors, among others, caused our independent auditor, in its audit opinion for the fiscal year ended March 31, 2023, to express substantial doubt about the Company’s ability to continue as a going concern.
The Company’s operations have been financed primarily by advances and loans from related parties and proceeds from sales of shares. Nevertheless, there can be no assurance that we would be able to raise the additional funding needed to support our continuing operations, implement our business plans or cover unanticipated costs.
Since we have not generated significant revenues and have experienced recurring losses, an investment in our shares is highly risky and could result in a complete loss of your investment if we are unsuccessful in implementing our business plans and achieving profitable operations.
Based upon current plans, we expect to incur operating losses in future periods as we incur significant expenses associated with the effort of expanding our business. Further, we cannot guarantee that we will be successful in realizing sufficient revenues or in achieving or sustaining positive cash flows at any time in the future. Any such failure could result in the possible closure of our business or force us to seek additional financing through loans or additional sales of our equity securities to continue business operations, which could dilute the value of any shares you purchase.
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COVID-19 has adversely impacted our business and may further impact our business, financial results and liquidity for an unknown period of time.
The COVID-19 pandemic has led government and other authorities to impose measures intended to control its spread, including restrictions on freedom of movement, restrictions on gatherings of large numbers of people, and temporary closure of company operations. The COVID-19 pandemic has led to significant disruptions in our distribution operations and supply chains.
In response to COVID-19, we have taken steps to reduce operating costs and improve efficiency, including furloughing of our employees. Such steps, and further changes we may make in the future to reduce our costs, may negatively impact our ability to attract and retain employees. If this were to occur, we may experience operational challenges that result in a negative impact on our customer services and ultimately, loss of market share, which could limit our ability to grow and expand our business.
In addition to the disruption to many aspects of our business operations, the COVID-19 pandemic has adversely impacted overall economic conditions and customer demand. We believe the COVID-19 pandemic could continue to impact customer demand for our products and services and customer spending levels.
Since December 2022, many of the restrictive measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have been revoked or replaced with more flexible measures. The revocation or replacement of the restrictive measures to contain the COVID-19 pandemic could have a positive impact on the Company’s normal operations. However, there has recently been and may continue to be an increase in COVID-19 cases in China, and as a result, we experienced temporary disruption to our operations where many employees were infected with COVID-19. The extent to which the COVID-19 pandemic impacts the Company’s business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and when and to what extent normal economic and operating activities can resume. With the uncertainties surrounding the COVID-19 outbreak, the threat to the Company’s business disruption and the related financial impact remains.
We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.
Our marketing efforts will not be successful if we are unable to develop a broad awareness of our brand.
Our business is now primarily focused on the marketing and distribution of selenium-enriched rice paddy and other foodstuffs through our Yuxinqi subsidiary. Food distribution in China is a highly competitive business, with many very large participants in the market. Our plan to increase participation in the market depends on our ability to market our brand as a source for selenium-enriched products. By identifying our brand with the growing market for selenium-enriched foodstuffs, we hope that growth will increase with the value of our brand. If this plan fails to be realized, it will be difficult for us to distinguish Yuxinqi from the many small food distributors who operate with modest profitability, which may prevent our shareholders from realizing value from their investment in the Company.
Some residents of China have recently begun to use supplements to offset selenium deficiency in their diets. We cannot predict the extent to which they may come to prefer supplements as a remedy for selenium deficiencies rather than selenium-enhanced food products.
Selenium deficiency has been a problem in eastern China for centuries, and the relationship of selenium deficiencies to Keshan Disease has long been known. Until recently, efforts to alleviate selenium deficiencies have been limited to changes in diet and the introduction of selenium-rich foods, where available. The use of selenium supplements is relatively recent. The use of selenium supplements does offer certain advantages, however, selenium supplements, if purchased from a reliable vendor, provide an assured quantity of selenium, whereas the selenium quantity in a specific item of grocery food is untested. Selenium supplements may be more cost-effective than selenium-enhanced foods, depending on the development of the market for each. For these and other reasons, the growth of the market for selenium supplements may be an obstacle to the growth of the market for selenium-enhanced foods.
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Product liability claims could materially impact operating results and profitability.
Excessive ingestion of selenium can have serious harmful effects on an individual. While our technicians will use their best efforts to achieve an optimal selenium content in our products, many factors determine the selenium levels in a crop. Our technicians may be unable to determine when a crop contains an excess amount of selenium. Moreover, even if our technicians are successful in optimizing the selenium value in our products, consumers who suffer symptoms of selenium poisoning may focus their blame on our products. In either such situation, we may be subject to lawsuits for damages. Such lawsuits could drain our financial resources, particularly as we do not presently carry any product liability insurance or business interruption insurance. Lawsuits by customers may also distract the time and attention of our management. In addition, a product liability claim, regardless of merit or eventual outcome, could result in damage to our reputation, decreased demand for our products, product recalls and loss of revenue.
We do not presently maintain fire, theft, product liability or any other property insurance, which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.
We do not maintain fire, theft, product liability or other insurance of any kind. We bear the economic risk with respect to loss of or damage or destruction to our property and to the interruption of our business, as well as liability to third parties for damage or destruction to them or their property that may be caused by our personnel or products. Such liability could be substantial and the occurrence of such loss or liability may have a material adverse effect on our business, financial condition and prospects.
We may not be able to effectively control and manage our planned growth.
We have limited operational, administrative and financial resources, which may be inadequate to sustain the growth we want to achieve. If our business and markets grow and develop, it will be necessary for us to finance and manage expansion accordingly. In addition, we may face challenges in managing our expanding product and service offerings, and in integrating any businesses we acquire with our own. Such growth would place increased demands on our existing management, employees and facilities. Our failure to meet these demands could interrupt or adversely affect our operations and cause administrative inefficiencies. Additionally, failure to execute our planned growth strategy could have a material adverse effect on our business, financial condition and results of operation.
As a smaller marketing company with reporting obligations, we may be at a competitive disadvantage to other food distribution companies. The food distribution industry has low barriers to entry.
Because the food distribution market is competitive, is driven in large part by costs, and consists mostly of private companies that do not have public reporting obligations, our reporting obligations may put us at a competitive disadvantage. The food distribution industry has low barriers to entry, and is populated by a number of giant companies as well as multitudes of modest to small companies. In addition, we will face additional expenses that a private food distribution company does not have, such as PCAOB auditor fees, Edgar filing fees and legal fees related to our SEC reporting obligations. Other non-public food distribution companies do not incur these costs. We are at a competitive disadvantage to our competitors because of this.
Risks Relating to our Management
The loss of the services of any of our officers or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our products and sales.
The development of our business will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers, Shen Zhenai, our President, Chairman of the Board and Director, Xun Jianjun, our Chief Executive Officer and Director, Wang Qiu, our Chief Financial Officer, as well as the continued involvement of Hao Shuping, our Director who brought together the elements of our business. They are developing our business, which will depend on our ability to identify and retain competent employees with the skills required to execute our business objectives. The loss of the services of any of our officers or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our products and sales, which could adversely affect our financial results and impair our growth.
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If we are unable to hire, retain or motivate qualified personnel, consultants, independent contractors, and advisors, we may not be able to grow effectively.
Our performance will be largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization. Competition for such qualified employees is intense. If we do not succeed in attracting competent personnel or in retaining or motivating them, we may be unable to grow effectively. In addition, our future success depends largely on our ability to retain key consultants and advisors. We cannot assure that any skilled individuals will agree to become an employee, consultant, or independent contractor of Organic Agricultural Company Limited. Our inability to retain their services could negatively impact our business and our ability to execute our business strategy.
Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As a newly public reporting company, we will be in a continuing process of developing, establishing, and maintaining internal controls and procedures that will allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002. Although our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act until the date we are no longer an emerging growth company, our management will be required to report on our internal controls over financial reporting under Section 404. If we fail to achieve and maintain the adequacy of our internal controls, we would not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, that must be performed may reveal other material weaknesses or that the material weaknesses noted have not been fully remediated. If we do not remediate the material weaknesses noted, or if other material weaknesses are identified or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or could subsequently require restatement, we could receive an adverse opinion regarding our internal controls over financial reporting from our independent registered public accounting firm and we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources.
Our lack of an independent audit committee and audit committee financial expert at this time may hinder our board of directors’ effectiveness in monitoring the Company’s compliance with its disclosure and accounting obligations. Until we establish such committee, we will be unable to obtain a listing on a national securities exchange.
Although our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by NASDAQ. Currently, we have no independent audit committee. Our board of directors functions as our audit committee and is comprised of four directors. An independent audit committee would play a crucial role in the corporate governance process, assessing our Company’s processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may deprive the Company of management’s independent judgment. We may, however, have difficulty attracting and retaining independent directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. An independent audit committee is required for listing on any national securities exchange. Therefore, until such time as we meet the audit committee independence requirements of a national securities exchange, we will be ineligible for listing on any national securities exchange.
Our board of directors acts as our compensation committee, which presents the risk that compensation and benefits paid to those executive officers who are board members and other officers may not be commensurate with our financial performance.
A compensation committee consisting of independent directors is a safeguard against self-dealing by company executives. Our board of directors, which has no independent members, acts as the compensation committee for the Company and determines the compensation and benefits of our executive officers, administers our employee stock and benefit plans, and reviews policies relating to the compensation and benefits of our employees. Our lack of an independent compensation committee presents the risk that an executive officer on the board may have influence over his or her personal compensation and benefit levels that may not be commensurate with our financial performance or the market place.
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Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing a lawsuit against an officer or director.
Our Company’s certificate of incorporation and bylaws provide, with certain exceptions as required by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director or officer, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing a lawsuit against a director or officer for breach of fiduciary duty and may reduce the likelihood of derivative litigation by stockholders on the Company’s behalf against a director or officer.
Our management has limited experience managing a public company.
At the present time, none of our management has experience in managing a public company. This may hinder our ability to establish effective controls and systems and comply with all applicable requirements associated with being a public company. If compliance problems result, these problems could have a material adverse effect on our business, financial condition or results of operations. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, as well as rules subsequently implemented by the SEC, have imposed various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to our new compliance requirements. Moreover, these requirements will increase our legal, accounting and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect it will be difficult and expensive for us to obtain director and officer liability insurance. These requirements could also make it more difficult for us to attract and retain independent and qualified persons to serve on our board of directors, our board committees or as executive officers.
We may have difficulty establishing adequate management, legal and financial controls in the PRC.
The PRC historically has not adopted a western style of management and financial reporting concepts and practices, as in modern banking, computer and other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet western standards. Therefore, we may, in turn, experience difficulties and additional costs in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes Oxley Act of 2002.
Risks Related to Regulation
The recent joint statement by the SEC and PCAOB and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. These developments could add uncertainties to holding and investing in shares of our common stock.
On April 21, 2020, the SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in a “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national securities exchange or in the over-the-counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
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On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. This would reduce the time period before our securities may be prohibited from trading or delisted from three years to two years.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 16, 2021, PCAOB issued a report on its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the PRC, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies Accountable Act (the “HFCAA”). If the PCAOB is unable to inspect or investigate completely a registered public accounting firm headquartered in mainland China or Hong Kong because of a position taken by one or more authorities in mainland China or Hong Kong, investors are deprived of the benefits of such PCAOB inspections, which could cause investors to lose confidence in audit procedures and the quality of financial statements. In addition, under the HFCAA, a company’s securities may be prohibited from trading on the U.S. stock exchanges or in the over-the-counter trading market in the U.S. if its auditor is not inspected by the PCAOB, and this ultimately could result in a company’s common stock being delisted.
The audit report included in this annual report on Form 10-K for the year ended March 31, 2023, was issued by Wei, Wei & Co., LLP, a U.S.-based accounting firm that is registered with the PCAOB and can be inspected by the PCAOB. Our auditor is headquartered in New York and is subject to inspection by the PCAOB on a regular basis with the last inspection in 2020. We have no intention of dismissing Wei, Wei & Co., LLP in the future or of engaging any auditor not based in the U.S. and not subject to regular inspection by the PCAOB. There is no guarantee, however, that any future auditor engaged by the Company would remain subject to full PCAOB inspection during the entire term of our engagement.
However, the recent developments would add uncertainties to holding and investing in our common stock and we cannot assure you whether regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. It remains unclear what the SEC’s implementation process related to the June 2021 interim final amendments will entail or what further actions the SEC or the PCAOB will take to address these issues and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). In addition, the June 2021 interim final amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our common stock could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirements or being required to engage a new audit firm, which would require significant expense and management time.
Changes in the policies of the PRC government could have an adverse effect on our business.
Policies of the PRC government can have significant effects on the economic conditions in the PRC. Although the PRC government has been pursuing economic reform policies and transitioning to a market-oriented economy, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC’s political, economic and social conditions. Our business could be adversely affected by changes in PRC government policies, including but not limited to changes in policies relating to taxation, currency conversion, imports and exports, and ownership of private enterprises.
PRC laws and regulations governing our current business operations are sometimes vague and subject to interpretation, and any changes in PRC laws and regulations may have a material and adverse effect on our business.
There are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations, including but not limited to the laws and regulations governing our business. These laws and regulations are sometimes vague and are subject to future changes, and their official interpretation and enforcement by the various branches of the PRC government may involve substantial uncertainty. The PRC legal system is based in part on governmental policies and internal rules some of which are not published on a timely basis or at all. New laws, regulations, rules and policies that affect existing and proposed future businesses may also be applied retroactively. We cannot predict with certainty what effect existing or new PRC laws or regulations may have on our business. In addition, there is less published guidance regarding PRC laws as compared to laws in the United States, and prior rulings and interpretations of PRC laws may not necessarily carry the same precedential value as in the United States.
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Governmental control of currency conversion may affect the value of your investment.
The People’s Republic of China (PRC) government imposes controls on the convertibility of Renminbi (RMB) into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We receive substantially all of our revenues in RMB, which is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.
The PRC government also may at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.
The fluctuation of RMB may materially and adversely affect your investment.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. As we rely entirely on revenues earned in the PRC, any significant revaluation of RMB may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into RMB for our operations, appreciation of the RMB against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making dividend payments on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.
Because our principal assets are located outside of the United States and because all of our directors and all our officers reside outside of the United States, it may be difficult for you to use the United States Federal securities laws to enforce your rights against us and our officers or to enforce judgments of United States courts against us or them in the PRC.
All of our present officers and directors reside outside of the United States. In addition, our operating subsidiaries, Tianci Liangtian and Yuxinqi, are located in the PRC and substantially all of their assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the United States Federal securities laws against us in the courts of either the United States or the PRC and, even if civil judgments are obtained in courts of the United States, to enforce such judgments in PRC courts. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties, under the United States Federal securities laws or otherwise.
Risks Relating to Our Common Stock
We are an emerging growth company and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies. The exemptions available to emerging growth companies include the right to present only two years of audited financial statements in our registration statements and annual reports, an exemption from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act relating to internal controls, reduced disclosure about executive compensation arrangements, and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements. Some of these exemptions are also available to us as a smaller reporting company (i.e. a company with less than $250 million of its voting equity held by non-affiliates). We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
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Pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of The JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates. This election is irrevocable.
Because the worldwide market value of our common stock held by non-affiliates, or public float, was below $250 million on the last day of our second quarter, we are also a “smaller reporting company” as defined under the Exchange Act. Some of the foregoing reduced disclosure and other requirements are also available to us because we are a smaller reporting company and may continue to be available to us even after we are no longer an emerging growth company under the JOBS Act but remain a smaller reporting company under the Exchange Act. As a smaller reporting company, we are not required to:
| ● | have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| ● | present more than two years of audited financial statements in our registration statements and annual reports on Form 10-K; or |
| ● | present any selected financial data in such registration statements and annual reports filings made by the Company. |
Because we will be subject to “penny stock” rules, the level of trading activity in our stock may be reduced.
Until we are able to secure a listing for our common stock on a national securities exchange, it is likely that our common stock will be classified as a “penny stock”. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges). Broker-dealer practices in connection with transactions in “penny stocks” are regulated by penny stock rules adopted by the Securities and Exchange Commission. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules. If a trading market does develop for our common stock, these regulations will likely be applicable, and investors in our common stock may find it difficult to sell their shares.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares of our common stock.
Shareholders do not have pre-emptive rights, which will cause them to experience dilution if we issue additional securities.
In the future, we may issue or sell additional shares of our authorized but previously unissued shares of common stock, preferred stock, or common stock warrants on such terms and conditions as our Board of Directors, in its sole discretion, may determine without consent of our shareholders. Our shareholders do not have pre-emptive rights to acquire additional shares should we in the future issue or sell additional securities. Thus, we are not required to offer any existing shareholder the right to purchase his or her pro rata portion of any future issuance of securities and, therefore, upon the issuance of any additional securities by us hereafter, our shareholders will not be able to maintain their then existing pro rata ownership in our outstanding shares of common stock, preferred stock, or common stock warrants without additional purchases of securities at the price then set internally by us or the market.
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We are unlikely to pay cash dividends in the foreseeable future.
We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries. Our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%. Certain payments from our PRC subsidiaries are subject to PRC taxes.
Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company. As of the date of filing of this report, our PRC subsidiary currently does not have plan to declare and pay dividends and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. The Company intends to apply for the tax resident certificate when our PRC subsidiary plans to declare and pay dividends. When our PRC subsidiary plans to declare and pay dividends and when we intend to apply for the tax resident certificate from the relevant Hong Kong tax authority, we plan to inform the investors through SEC filings, such as a current report on Form 8-K, prior to such actions.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties.
The Company does not own any real property. We believe the premises we now have under lease will be adequate for our operations for the foreseeable future.
Office Leases
On March 23, 2022, Yuxingqi leased office space from March 23, 2022 to March 22, 2023 under an operating lease agreement (approximately 337.3 square meters). Under the terms of the lease, Yuxingqi committed to make annual lease payments of RMB136,607 (approximately US$20,000, including VAT tax). The government of Harbin issued policy on house rent relief for small, medium and micro enterprises and individual industrial and commercial households, and Yuxingqi got a three months rent-free period after March 22, 2023. On July 5, 2023, Yuxingqi renewed the operating lease agreement for the period from June 23, 2023 to June 22, 2024. Under the terms of the lease, Yuxingqi committed to make an annual lease payment of RMB136,607 (approximately US$20,000, including VAT tax).
Item 3. 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 4. Mine Safety Disclosure
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our shares of common stock have been listed for trading on the OTCQB (a/k/a OTC Venture Market) under the trading symbol “OGAA” since June 24, 2019.
Holders of Securities
As of the date of filing of this report, we had 242 shareholders of record and 93,726,994 outstanding shares of common stock, par value $0.001.
Dividends
We have not declared or paid any cash dividends on our common stock since our inception, and our board of directors currently intends to retain all earnings for use in the business for the foreseeable future. Any future payment of dividends will depend upon our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors. There are currently no restrictions that limit our ability to declare cash dividends on our common stock. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
Securities Authorized for Issuance Under Equity Compensation Plans
We have no equity compensation plans.
Sales of Unregistered Securities
The Company did not have any unregistered sales of equity securities during the fiscal quarter ended March 31, 2023.
Repurchase 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 fiscal quarter ended March 31, 2023.
Item 6. [Reserved]
Smaller reporting companies are not required to provide information under this item.
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Item 7. 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 consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K, 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. The analysis set forth below is provided pursuant to applicable SEC regulations and is not intended to serve as a basis for projections of future events. See “Cautionary Statement Regarding Forward Looking Statements” above.
Results of Operations for the Years Ended March 31, 2023 and 2022
The following table shows key components of the results of operations during the years ended March 31, 2023 and 2022:
| For the Years Ended March 31, | Change | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue | $223,037 | $310,648 | $(87,611) | (28 | )% | |||||||||||
| Cost of Sales | 184,296 | 219,092 | (34,796 | ) | (16 | )% | ||||||||||
| Gross Profit | 38,741 | 91,556 | (52,815 | ) | (58 | )% | ||||||||||
| Total operating costs and expenses | 668,686 | 1,141,718 | (473,032 | ) | (41 | )% | ||||||||||
| (Loss) from operations before other income and income taxes | (629,945 | ) | (1,050,162 | ) | 420,217 | (40 | )% | |||||||||
| Other income | 2,461 | 1,989 | 472 | 24 | % | |||||||||||
| (Loss) from operations before income taxes | (627,484 | ) | (1,048,173 | ) | 420,689 | (40 | )% | |||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net (loss) from continuing operations | (627,484 | ) | (1,048,173 | ) | 420,689 | (40 | )% | |||||||||
| Income on the sale of discontinued operations, net of income taxes | 68,359 | - | 68,359 | - | ||||||||||||
| Net (loss) from discontinued operations, net of income taxes | (1 | ) | (139,871 | ) | 139,870 | (100 | )% | |||||||||
| Total net income (loss) from discontinued operations | 68,358 | (139,871 | ) | 208,229 | (149 | )% | ||||||||||
| Net (loss) | (559,126 | ) | (1,188,044 | ) | 628,918 | (53 | )% | |||||||||
| Less: net (loss) income attributable to non-controlling interests | - | (68,537 | ) | 68,537 | (100 | )% | ||||||||||
| Net (loss) attributable to common shareholders’ | $ | (559,126 | ) | $ | (1,119,507 | ) | $ | 560,381 | (50 | )% | ||||||
All of our revenue during the years ended March 31, 2023 and 2022 was generated by our subsidiary Yuxinqi. Yuxinqi is a marketing enterprise with a focus on milled rice and other agricultural products. Yuxinqi’s sales are erratic, since a stable customer base has not been established yet. Sales by Yuxinqi during the fiscal year ended March 31, 2023 were lower than during the fiscal year ended March 31, 2022. The decrease in revenue occurred primarily because our principal customer, Jiufu Zhenyuan, decreased its orders. The planned expansion of our business still was hindered during the year ended March 31, 2023 by the Covid-19 pandemic.
The cost of sales of $184,296 and $219,092 for the fiscal years ended March 31, 2023 and 2022, respectively, was attributable to our purchases of milled rice and other foodstuffs. Those operations yielded a gross profit of $38,741 and $91,556 with gross margins of 17.4% and 29.5%, respectively. The decrease in gross margin during the year ended March 31, 2023, compared to the previous year was primarily attributable to our promotions of new products at discount prices and below-cost sales of products near the end of their shelf life.
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In April 2021, in order to boost sales, the Company granted a total of 1,780,200 fully vested shares with a fair value on the grant date of $0.43 per share to 25 individuals for sales promotion services. As a result, $759,000 (the market value of the shares on date of grant) in compensation expense was recognized as advertising and promotion expenses for the year ended March 31, 2022. That represented the primary component of the Company’s operating expenses from continuing operations, which totaled $1,141,718 during the years ended March 31, 2022. The components of operating expenses for the years ended March 31, 2023 and 2022 were:
| For the Years Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Salaries and benefits | $ | 163,428 | $ | 224,274 | ||||
| Office expense | 143,995 | 89,054 | ||||||
| Rentals and leases | 17,887 | 18,930 | ||||||
| Professional fees | 132,560 | 102,131 | ||||||
| Exchange (gain) | 181,128 | (76,631 | ) | |||||
| Advertising and promotion expenses | 29,688 | 783,782 | ||||||
| Depreciation and amortization | - | 178 | ||||||
| Total operating expenses | $ | 668,686 | $ | 1,141,718 | ||||
Salaries and benefits decreased in the year ended March 31, 2023, because sales bonuses decreased due to the decrease in sales and the number of employees decreased due to Covid-19. Office expenses increased in the year ended March 31, 2023 primarily attributable to a consulting services fee of $58,372. Professional fees increased in the year ended March 31, 2023 primarily attributable to an increase in the audit fee.
The Company’s operating expenses for the 2023 fiscal year included $181,128 of exchange loss. This represented the loss on foreign exchange adjustment at the end of the year for the US Dollar debt payable by Tianci Liangtian to Organic Agricultural, which was the result of the appreciation in the USD to CNY exchange rate from 6.3431 to 6.8680. By comparison, the Company’s operating expenses were partially offset by $76,631 of gain on exchange realized during the 2022 fiscal year. This represented the gain on foreign exchange adjustment at the end of the year for the US Dollar debt, as a result of the decline in the USD to CNY exchange rate from 6.5565 to 6.3431 in fiscal 2022.
The Company’s continuing operations produced a net loss of $627,484 and $1,048,173 for the fiscal years of 2023 and 2022, respectively.
The Company produced a gain from disposal of discontinued operations of $68,358 for the 2023 fiscal year, and a net loss of $139,871 for the 2022 fiscal year from the 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. The Company received $920,000 from the sale of 21,256,620 shares during fiscal 2022. The Company received partial proceeds of $41,905 from the sale of 10,000,000 shares for a price of $880,000 to two investors during fiscal 2023. The two subscribers agreed to pay the remaining proceeds of $838,095 on or before October 16, 2024, and $146,667 or RMB1,050,000 was paid by Heilongjiang Chuangyi as of the date of this report. The debt is recorded as a subscription receivable in shareholders’ equity at March 31, 2023. As of March 31, 2023, our working capital was $23,226. Working capital decreased by $280,649 during the 2023 fiscal year, primarily due the net loss we incurred during the 2023 fiscal year.
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The largest components of working capital at March 31, 2023 were cash of $49,862 and inventories of $149,757, which were offset by $151,435 in customer deposits against future sales. Furthermore, due to the divestment of Tianci Wanguan, the $210,604 of liabilities and $69,075 of assets of Tianci Wanguan were reclassified as assets and liabilities of discontinued operations at March 31, 2022, and were disposed of during the year ended March 31, 2023.
Cash Flows
The following table summarizes our cash flows for the years ended March 31, 2023 and 2022.
For the Years Ended March 31, | Change | |||||||||||
| 2023 | 2022 | $ | ||||||||||
| Net cash (used in) operating activities | $ | (372,522 | ) | $ | (645,682 | ) | $ | 273,160 | ||||
| Net cash (used in) investing activities | (288 | ) | - | (288 | ) | |||||||
| Net cash provided by financing activities | 41,905 | 920,000 | (878,095 | ) | ||||||||
| Effect of exchange rate fluctuation on cash and cash equivalents | (27,696 | ) | 63,639 | (91,335 | ) | |||||||
| Net (decrease) increase in cash and cash equivalents | (358,601 | ) | 337,957 | (696,558 | ) | |||||||
| Cash and cash equivalents, beginning of year | 408,463 | 70,506 | 337,957 | |||||||||
| Cash and cash equivalents, end of year | $ | 49,862 | $ | 408,463 | $ | (358,601 | ) | |||||
During fiscal 2023, our operations used net cash of $372,522. The Company incurred a cash use from operations primarily because it recorded a net loss of $627,484 from continuing operations. The difference between net loss and cash used was primarily attributable to the non-cash exchange loss of $181,128 plus a $40,471 reduction in inventories and a $32,871 reduction in prepaid expenses. During fiscal 2022, our operations used net cash of $645,682. The Company incurred a cash use from operations primarily because it recorded a net loss of $1,188,044. The difference between net loss and cash used was primarily attributable to the non-cash expense of $759,000 for stock we issued as compensation, which was offset by an increase in the balance of prepaid expenses by $24,762, a $79,114 increase in inventories, and a $132,841 increase in the balance due from related parties.
The Company’s only investing activity during fiscal 2023 was the distribution of $288 of cash in connection with the sale of the discontinued operations, and the Company had no investing activities during fiscal 2022.
Our financing activities during fiscal 2023 generated $41,905 from the sale of common stock. Our financing activities during fiscal 2022 generated $920,000 from the sale of common stock.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its 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 year ended March 31, 2023, there was no accounting estimate we made that was subject to a high degree of uncertainty and was critical to our results.
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.
17
The Company intends to expand its product offerings to include more products and our marketing personnel are endeavoring to develop new customers with the hope 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 March 31, 2023, a stable customer base has not been established yet.
The COVID-19 pandemic has had a significant adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges in sales, which have increased the Company’s financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of the COVID-19 pandemic and are very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the extent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration, spread and severity of the pandemic; the actions taken to contain the virus 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 the economic recovery.
Since December 2022, many of the restrictive measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have been revoked or replaced with more flexible measures. The revocation or replacement of the restrictive measures to contain the COVID-19 pandemic could have a positive impact on the Company’s normal operations. However, there has recently been and may continue to be an increase in COVID-19 cases in China, and as a result, we experienced temporary disruption to our operations where many employees were infected with COVID-19. The extent to which the COVID-19 pandemic impacts the Company’s business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and when and to what extent normal economic and operating activities can resume. With the uncertainties surrounding the COVID-19 outbreak, the threat to the Company’s business disruption and the related financial impact remains.
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.
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
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 consolidated financial statements included in this annual report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
18
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders Organic Agricultural Company Limited.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Organic Agricultural Company Limited (the “Company”) as of March 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive (loss), changes in shareholders’ (deficit) equity and cash flows for each of the years in the two-year period ended March 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of a matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the financial statements, the Company reported net losses of approximately $559,000 and $1,188,000 for the years ended March 31, 2023 and 2022, respectively. At March 31, 2023, the Company had an accumulated deficit of approximately $4,360,000 and has had to rely on additional borrowings and financing to continue its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wei, Wei & Co., LLP
We have served as the Company’s auditor since 2017.
Flushing,
New York |
F-2
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2023 AND 2022
(EXPRESSED IN US DOLLARS)
| March 31, | March 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 49,862 | $ | 402,449 | ||||
| Accounts receivable | 14,357 | 2,532 | ||||||
| Due from related parties | 324 | 17,373 | ||||||
| Prepaid expenses | 756 | 36,330 | ||||||
| Inventories | 149,757 | 205,873 | ||||||
| Other receivables | 22,533 | 32,071 | ||||||
| Current assets, discontinued operations | 69,075 | |||||||
| Total current assets | 237,589 | 765,703 | ||||||
| Total assets | $ | 237,589 | $ | 765,703 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 61,469 | $ | 64,347 | ||||
| Customer deposits | 151,435 | 164,804 | ||||||
| Due to related parties | 726 | 21,148 | ||||||
| Other payables | 733 | 925 | ||||||
| Current liabilities, discontinued operations | 210,604 | |||||||
| Total current liabilities | 214,363 | 461,828 | ||||||
| Total liabilities | 214,363 | 461,828 | ||||||
| SHAREHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock; $0.001 par value, 1,000,000 shares authorized, shares issued and outstanding at March 31, 2023 and 2022 | ||||||||
| Common stock; $0.001 par value, 274,000,000 shares authorized; 93,726,994 and 83,536,994 shares issued and outstanding at March 31, 2023 and 2022 respectively* | 93,727 | 83,537 | ||||||
| Additional paid-in capital | 5,153,407 | 4,266,611 | ||||||
| Subscription receivable | (838,095 | ) | ||||||
| (Deficit) | (4,359,869 | ) | (3,803,720 | ) | ||||
| Other comprehensive (loss) | (25,944 | ) | (173,204 | ) | ||||
| Total shareholders’ equity of the Company | 23,226 | 373,224 | ||||||
| Non-controlling interest | (69,349 | ) | ||||||
| Total shareholders’ equity | 23,226 | 303,875 | ||||||
| Total liabilities and shareholders’ equity | $ | 237,589 | $ | 765,703 | ||||
| * | After giving retroactive effect to a 5.16 for 1 forward stock split effective October 21, 2021. |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
FOR THE YEARS ENDED MARCH 31, 2023 AND 2022
(EXPRESSED IN US DOLLARS)
| For the Years Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 223,037 | $ | 310,648 | ||||
| Cost of sales | 184,296 | 219,092 | ||||||
| Gross profit | 38,741 | 91,556 | ||||||
| Selling, general and administrative expenses | 668,686 | 1,141,718 | ||||||
| Operating (loss) | (629,945 | ) | (1,050,162 | ) | ||||
| Other income | 2,461 | 1,989 | ||||||
| (Loss) before provision for income taxes | (627,484 | ) | (1,048,173 | ) | ||||
| Provision for income taxes | ||||||||
| Net (loss) from continuing operations | (627,484 | ) | (1,048,173 | ) | ||||
| Income on the sale of discontinued operations, net of income taxes | 68,359 | |||||||
| (Loss) from discontinued operations, net of income taxes (Note 3) | (1 | ) | (139,871 | ) | ||||
| Net income (loss) from discontinued operations | 68,358 | (139,871 | ) | |||||
| Net (loss) | (559,126 | ) | (1,188,044 | ) | ||||
| Less: net (loss) from discontinued operations attributable to non-controlling interests | (68,537 | ) | ||||||
| Net (loss) attributable to common shareholders | $ | (559,126 | ) | $ | (1,119,507 | ) | ||
| Amounts attributable to common shareholders: | ||||||||
| Net (loss) from continuing operations | $ | (627,484 | ) | $ | (1,048,173 | ) | ||
| Net income (loss) from discontinued operations | 68,358 | (71,334 | ) | |||||
| Net (loss) attributable to common shareholders | $ | (559,126 | ) | $ | (1,119,507 | ) | ||
| $ | (0.01 | ) | $ | (0.01 | ) | |||
| (Loss) per share discontinued operations – basic and diluted | ||||||||
| $ | (0.01 | ) | $ | (0.01 | ) | |||
| 87,033,587 | 81,439,270 | |||||||
| Other comprehensive (loss): | ||||||||
| Net (loss) | $ | (559,126 | ) | $ | (1,188,044 | ) | ||
| Foreign currency translation adjustment | 153,909 | (60,273 | ) | |||||
| Comprehensive (loss) | (405,217 | ) | (1,248,317 | ) | ||||
| Less: comprehensive income (loss) attributable to non-controlling interests | 3,672 | (69,349 | ) | |||||
| Comprehensive (loss) attributable to the common shareholders | $ | (408,889 | ) | $ | (1,178,968 | ) | ||
| * | After giving retroactive effect to a 5.16 for 1 forward stock split effective October 21, 2021. |
The accompanying notes are an integral part of these consolidated financial statements
F-4
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT) EQUITY
FOR THE YEARS ENDED MARCH 31, 2023 AND 2022
(AMOUNTS IN USD, 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, 2021 | 60,500,174 | $ | 60,500 | $ | 2,610,648 | $ | $ | (2,684,213 | ) | $ | (113,743 | ) | $ | (126,808 | ) | $ | $ | (126,808 | ) | |||||||||||||||||
| Net (loss) | - | (1,119,507 | ) | (1,119,507 | ) | (68,537 | ) | (1,188,044 | ) | |||||||||||||||||||||||||||
| Sale of common shares | 21,256,620 | 21,257 | 898,743 | 920,000 | 920,000 | |||||||||||||||||||||||||||||||
| Shares issued as compensation | 1,780,200 | 1,780 | 757,220 | - | 759,000 | 759,000 | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | (59,461 | ) | (59,461 | ) | (812 | ) | (60,273 | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | 83,536,994 | 83,537 | 4,266,611 | (3,803,720 | ) | (173,204 | ) | 373,224 | (69,349 | ) | 303,875 | |||||||||||||||||||||||||
| Net (loss) | - | (559,126 | ) | (559,126 | ) | (559,126 | ) | |||||||||||||||||||||||||||||
| Shares issued as compensation | 190,000 | 190 | 16,796 | 16,986 | 16,986 | |||||||||||||||||||||||||||||||
| Sale of common shares | 10,000,000 | 10,000 | 870,000 | (838,095 | ) | 41,905 | 41,905 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | 150,237 | 150,237 | 3,672 | 153,909 | |||||||||||||||||||||||||||||||
| Divestment of Tianci Wanguan | - | 2,977 | (2,977 | ) | 65,677 | 65,677 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 93,726,994 | $ | 93,727 | $ | 5,153,407 | $ | (838,095 | ) | $ | (4,359,869 | ) | $ | (25,944 | ) | $ | 23,226 | $ | $ | 23,226 | |||||||||||||||||
| * | After giving retroactive effect to a 5.16 for 1 forward stock split effective October 21, 2021. |
The accompanying notes are an integral part of these consolidated financial statements
F-5
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2023 AND 2022
(EXPRESSED IN US DOLLARS)
| For the Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) from continuing operations | $ | (627,484 | ) | $ | (1,048,173 | ) | ||
| Net income (loss) from discontinued operations | 68,358 | (139,871 | ) | |||||
| Depreciation and amortization | 178 | |||||||
| Shares issued as compensation | 16,986 | 759,000 | ||||||
| Amortization of ROU | 18,930 | |||||||
| Exchange loss | 181,128 | (76,631 | ) | |||||
| Divestments of Tianci Wanguan | (68,359 | ) | ||||||
| Changes in operating assets and liabilities, discontinued operations | (5,381 | ) | 146,003 | |||||
| Changes in operating assets and liabilities, continuing operations: | ||||||||
| Accounts receivable | (12,046 | ) | 734 | |||||
| Prepaid expenses | 32,871 | (24,762 | ) | |||||
| Inventories | 40,471 | (79,114 | ) | |||||
| Other receivables | 7,103 | (23,097 | ) | |||||
| Accounts payable and accrued expenses | (1,043 | ) | (2,900 | ) | ||||
| Customer deposits | (774 | ) | (4,934 | ) | ||||
| Due from/to related parties | (4,231 | ) | (132,841 | ) | ||||
| Lease liability | (38,204 | ) | ||||||
| Other payables | (121 | ) | ||||||
| Net cash (used in) operating activities | (372,522 | ) | (645,682 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash disbursed on divestment of Tianci Wanguan | (288 | ) | ||||||
| Net cash (used in) investing activities | (288 | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of common stock | 41,905 | 920,000 | ||||||
| Net cash provided by financing activities | 41,905 | 920,000 | ||||||
| Effect of exchange rate fluctuations on cash | (27,696 | ) | 63,639 | |||||
| Net (decrease) increase in cash | (358,601 | ) | 337,957 | |||||
| Cash, beginning of year-continuing operations | 402,449 | 68,967 | ||||||
| Cash, beginning of year-discontinued operations | 6,014 | 1,539 | ||||||
| Cash, beginning of year | 408,463 | 70,506 | ||||||
| Cash, end of year-continuing operations | 49,862 | 402,449 | ||||||
| Cash, end of year-discontinued operations | 6,014 | |||||||
| Cash, end of year | $ | 49,862 | $ | 408,463 | ||||
| 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 | $ | 68,359 | $ | |||||
| Shares issued for compensation | $ | 16,986 | $ | 759,000 | ||||
| Issuance of common stock as cash was not received | $ | 838,095 | $ | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 March 31, 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. |
Divestment of Tianci Wanguan
On November 6, 2020 Organic Agricultural entered into a Cooperation Agreement with Unbounded IOT Block Chain Limited (“Unbounded”). The purpose of the Cooperation Agreement was to promote the use of blockchain technology in agriculture, specifically the development of tracing systems for agricultural products, the development of a blockchain-based shopping mall for agricultural products, and related improvements to the agricultural sector of the economy. To accomplish those purposes, Tianci Wanguan (Xiamen) Digital Technology Co., Ltd. (“Tianci Wanguan”) was incorporated on November 5, 2020. Tianci Wanguan was 51% owned by Organic Agricultural HK and 49% owned by Chen Zewu on behalf of Unbounded. On July 19, 2021 the parties executed a Supplementary Agreement to the Cooperation Agreement.
The Supplementary Agreement set forth performance criteria for Unbounded’s management of Tianci Wanguan: specifically that within 12 months after the shares mentioned below are issued to Unbounded, Tianci Wanguan must generate a profit of five million Renminbi (approximately US$774,000) from the business described in the Cooperation Agreement or any other business approved by Organic Agricultural. On November 23, 2021, Organic Agricultural issued 10 million shares of its common stock to Chen Zewu, who held them as agent for Unbounded. If Unbounded failed to satisfy the criteria described above, the 10 million shares must be returned to Organic Agricultural. If Unbounded did satisfy the criteria, then it would have unrestricted ownership of the 10 million shares, and Organic Agricultural would issue an additional 10 million shares to Unbounded. According to FASB ASC 505-50-S99-1 and 2, as the 10,000,000 shares issued on November 23, 2021 were unvested and forfeitable, these shares were treated as unissued until they vest when the target described above was met.
The share-based compensation was measured at grant date, based on the fair value of the award and would be recognized over its vesting period if it was determined that the target would more likely than not be met. After the criteria described above was satisfied, the Company would grant to Unbounded a total of 20,000,000 shares, including the 10,000,000 shares issued on November 23, 2021, with a fair value on the grant date, which is July 19, 2021, of $0.0969 per share. If the performance condition described above was satisfied, $1,938,000 in compensation expense would have been recognized under the provisions of ASC 718.
As of June 30, 2022, the Company had suspended the operations of Tianci Wanguan and on August 19, 2022, completed the divestment of its subsidiary. On August 19, 2022, the Company and Unbounded entered into an Agreement on Termination of Joint Operation. The parties agreed that Organic Agricultural would surrender to Unbounded its 51% interest in Tianci Wanguan, and Unbounded would return the 10 million shares to Organic Agricultural. The 10,000,000 shares previously issued on November 23, 2021 were returned and cancelled with no compensation expense recognized.
In accordance with U.S. GAAP, the financial position and results of operations of Tianci Wanguan are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. The restated historical financial statements reflecting the divestment are unaudited. The cash flows and comprehensive income related to Tianci Wanguan have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all periods presented. With the exception of Note 3, the Notes to the Unaudited Condensed Consolidated Financial Statements reflect the continuing operations of the Company. See Note 3 - Discontinued Operations below for additional information regarding discontinued operations.
Certain amounts in the prior year’s condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as a result of the divestment of Tianci Wanguan.
F-7
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
Management has determined there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues and recurring losses. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company’s operations have been financed primarily by proceeds from the sale of shares. The Company received $920,000 in April 2021 from the sale of shares. The Company sold an additional 10 million shares of its common stock in November 2022 for a price of $880,000 USD, with $41,905 cash received as payment as of March 31, 2023. The two subscribers agreed to pay the remaining balance due of $838,095 on or before October 16, 2024, and $146,667 or RMB1,050,000 was paid by Heilongjiang Chuangyi as of the date of this report. In addition, the Company received an interest free loan from a related party of RMB200,000 or $29,120 in August 2023 (See Note 12). The Company will use these funds for working capital.
The marketing personnel of the Company are developing new customers and hope to build a stable base of customers. In this manner, Management hopes to generate sufficient operating cash inflow to support its future operations and development of the Company in addition to capital raised from sales of shares and shareholders’ support based on need.
Basis of presentation
The Company’s consolidated financial statements are expressed in U.S. Dollars and are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements include the assets, liabilities, and net income or loss of these subsidiaries.
The Company’s subsidiaries as of March 31, 2023 are listed as follows:
| Name | Place of Incorporation |
Attributable equity interest % |
||||
| Organic Agricultural (Samoa) Co., Ltd. | Samoa | 100 | ||||
| Organic Agricultural Company Limited (Hong Kong) | Hong Kong | 100 | ||||
| Heilongjiang Tianci Liangtian Agricultural Technology Development Company Limited | China | 100 | ||||
| Heilongjiang Yuxinqi Agricultural Technology Development Company Limited | China | 100 | ||||
F-8
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Significant items subject to such estimates and assumptions include 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 March 31, 2023 and 2022.
Revenue recognition
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow to the entity, and specific criteria have been met for each of the Company’s activities as described below.
The Company sells paddy and selenium-enriched paddy products, rice and other agricultural products. 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-9
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, due from related parties, other receivables, accounts payable and accrued liabilities, customer deposits, due to related parties, and other payables. As at March 31, 2023 and 2022, the carrying values of these financial instruments approximated their fair values due to the short-term nature of these instruments.
Functional currency and foreign currency translation
An entity’s functional currency is the currency of the primary economic environment in which it operates. Normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of the Company is the Chinese Renminbi (“RMB’), except the functional currency of Organic Agricultural HK is the Hong Kong Dollar (“HKD”), and the functional currency of Organic Agricultural Samoa and Organic Agricultural is the United States dollar (“US Dollars” “USD” or “$”). The reporting currency of these consolidated financial statements is in US Dollars.
The financial statements of the Company, which are prepared using the RMB and the HKD, are translated into the Company’s reporting currency, the US Dollar. Assets and liabilities are translated using the exchange rate at each reporting period end date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income or loss.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
The exchange rates used for foreign currency translation are as follows:
| For the years ended March 31, | ||||||
| 2023 | 2022 | |||||
| (USD to RMB/USD to HKD) | (USD to RMB/USD to HKD) | |||||
| Assets and liabilities | period end exchange rate | 6.8680/7.8498 | 6.3431/7.8306 | |||
| Revenue and expenses | period average | 6.8526/7.8387 | 6.4183/7.7844 | |||
F-10
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
The Company follows FASB ASC Topic 740, Income Taxes, which requires the recognition of deferred income taxes for the differences between the basis of assets and liabilities for financial statements and income tax purposes. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating losses and for tax credit carryforwards. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
ASC 740-10-30 requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-40, previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretations, judgments and uncertainties. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policies, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the net deferred tax asset valuation allowance.
China
According to the “PRC Income Tax Law”, Tianci Liantian and Yuxinqi are subject to the 25% standard enterprise income tax rate in the PRC.
United States
The Company is subject to the U.S. corporation tax rate of 21%.
Samoa
Organic Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under the current laws of Samoa, it is not subject to income tax.
Hong Kong
Organic Agricultural Company Limited (Hong Kong) was incorporated in Hong Kong and is subject to Hong Kong profits tax. Organic Agricultural Company Limited (Hong Kong) is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.
Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with FASB ASC 260, Earnings Per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding during the period. Stock splits are given retroactive recognition for earnings (loss) per share.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stock using the treasury stock method and the potential common shares associated with convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS.
F-11
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Share-based compensation
The Company follows the provisions of FASB ASC 718 requiring equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award and recognized over its vesting period. During the 2023 fiscal year, specifically on July 1, 2022, the Company granted a total of 140,000 shares with a fair value on the grant date of $0.0899 per share to 11 individuals for a sales bonus on promotion services, and on November 29, 2022, the Company granted a total of 50,000 shares with a fair value on the grant date of $0.0880 per share for promotion services. A total of $16,986 in compensation expense was recognized under the provisions of ASC 718. During the 2022 fiscal year, specifically on April 12, 2021, the Company granted a total of 1,780,200 shares with a fair value on the grant date of $0.43 per share to 25 individuals for sales promotion services during the period from April 12, 2021 through December 31, 2021. $759,000 in compensation expense was recognized under the provisions of ASC 718. These shares were fully vested when issued.
Segment information and geographic data
The Company is operating in one segment in accordance with the accounting guidance in FASB ASC Topic 280, Segment Reporting. The Company’s revenues are from the sales of agricultural products to customers in the People’s Republic of China (“PRC”). All assets of the Company are located in the PRC.
Concentration of credit and customer risks
The Company maintains cash balances in two banks in China. In China, the insurance coverage of each bank is RMB500,000 (approximately USD$79,000). As of March 31, 2023, the Company had no bank balance in excess of the insurance amounts.
During fiscal year 2023, major customers Jiufu Zhenyuan, Chuangyi Agriculture and Wenlian Commercial generated 52%, 13% and 11% of revenue, respectively. During the fiscal year of 2022, Jiufu Zhenyuan generated 89% of revenue.
Risks and uncertainties
The COVID-19 pandemic has had a significant adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges in sales which has increased the Company’s financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of the COVID-19 pandemic and are very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the extent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration, spread and severity of the pandemic; the actions taken to contain the virus , including “lockdowns” of infected areas or treat its impact, including government actions to mitigate the economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreak interrupts the economic recovery.
Since December 2022, many of the restrictive measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have been revoked or replaced with more flexible measures. The revocation or replacement of the restrictive measures to contain the COVID-19 pandemic could have a positive impact on the Company’s normal operations. However, there has recently been and may continue to be an increase in COVID-19 cases in China, and as a result, we experienced temporary disruption to our operations where many employees were infected with COVID-19 in December 2022. The extent to which the COVID-19 pandemic impacts the Company’s business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and when and to what extent normal economic and operating activities can resume. With the uncertainties surrounding the COVID-19 outbreak, the threat to the Company’s business disruption and the related financial impact remains.
Recently adopted accounting standards
We do not believe any recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.
Stock split
On October 21, 2021, the Company implemented a 5.16-for-1 forward split of its outstanding common stock. The Distribution Date was November 18, 2021, at which time Organic Agricultural issued an additional 4.16 shares of common stock to the holders of each outstanding share of common stock.
The stock split increased the number of shares outstanding by 67,347,638. The par value per share remained $0.001. The financial statements in this Report and all share and per share amounts have been retroactively adjusted to give effect to this stock split.
F-12
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 consolidated financial statements as discontinued operations. The Company did not allocate any general corporate overhead or interest expense to discontinued operations.
The financial results of Tianci Wanguan are presented as income (loss) from discontinued operations, net of income taxes in the consolidated statements of operations. The following table presents the financial results of Tianci Wanguan.
| For the years ended | ||||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative expenses | 1 | 139,871 | ||||||
| Operating (loss) | (1 | ) | (139,871 | ) | ||||
| Other income | ||||||||
| (Loss) before income taxes | (1 | ) | (139,871 | ) | ||||
| Income tax (expense) benefit | ||||||||
| (Loss) from discontinued operations, net of income taxes | (1 | ) | (139,871 | ) | ||||
| Less: Net (loss) attributable to non-controlling interest | (68,537 | ) | ||||||
| Net (loss) from discontinued operations attributable to controlling interest | $ | (1 | ) | $ | (71,334 | ) | ||
The following table summarizes the carrying value of major classes of assets and liabilities of Tianci Wanguan, reclassified as assets and liabilities of discontinued operations at March 31, 2022.
| March 31, 2022 | ||||
| ASSETS | ||||
| Cash | $ | 6,014 | ||
| Prepaid expenses | 63,061 | |||
| Total current assets, discontinued operations | $ | 69,075 | ||
| LIABILITIES | ||||
| Accounts payable and accrued expenses | $ | 14,267 | ||
| Customer deposits | 151,346 | |||
| Other payables | 44,991 | |||
| Total current liabilities, discontinued operations | $ | 210,604 | ||
F-13
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 March 31, 2023 and 2022, prepayments and deferred expenses were as follows:
| March 31, 2023 | March 31, 2022 | |||||||
| Prepayments for expenses | $ | $ | 8,325 | |||||
| Prepayments for short-term lease | 19,324 | |||||||
| Prepayments of processing charges and products to be purchased: | ||||||||
| Baoqing County Fengnian Agricultural Product Purchase and Sale Ltd. | 5,456 | 5,908 | ||||||
| Heilongjiang Yaohe County Heifengyuan Apiculture Ltd. | 2,236 | |||||||
| Others | 756 | 537 | ||||||
| Total | 6,212 | 36,330 | ||||||
| Less: Provision for bad debts | 5,456 | |||||||
| Prepaid expenses, net | $ | 756 | $ | 36,330 | ||||
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 March 31, 2023 and March 31,2022, there was $874 and $ of inventory revaluation reserve, respectively. The Company values inventory on its balance sheet at the lower of cost or net realizable value. Inventories consisted of the following:
| March 31, 2023 | March 31, 2022 | |||||||
| Rice and other products | $ | 119,233 | $ | 182,030 | ||||
| Packing and other materials | 30,524 | 23,843 | ||||||
| Inventories, net | $ | 149,757 | $ | 205,873 | ||||
F-14
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 6. CUSTOMER DEPOSITS
As of March 31, 2023 and 2022, customer deposits were as follows:
| March 31, 2023 | March 31, 2022 | |||||||
| Shouhang commerce and trade | $ | 52,030 | $ | 56,335 | ||||
| Beiqinhai | 99,242 | 107,455 | ||||||
| Others | 163 | 1,014 | ||||||
| Total | $ | 151,435 | $ | 164,804 | ||||
NOTE 7. INCOME TAXES
A reconciliation of (loss) before income taxes for domestic and foreign locations for the fiscal years ended March 31, 2023 and 2022 is as follows:
| For the years ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | (161,019 | ) | $ | (892,336 | ) | ||
| Foreign | (466,465 | ) | (155,837 | ) | ||||
| (Loss) before income taxes | $ | (627,484 | ) | $ | (1,048,173 | ) | ||
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:
| March 31, 2023 | March 31, 2022 | |||||||
| U.S. federal statutory income tax rate | 21 | % | 21 | % | ||||
| U.S. valuation allowance | (21 | )% | (21 | )% | ||||
| Rates for Tianci Liangtian and Yuxinqi, net | 25 | % | 25 | % | ||||
| PRC valuation allowance | (25 | )% | (25 | )% | ||||
| The Company’s effective tax rate | (0 | )% | (0 | )% | ||||
The Company did not recognize deferred tax assets since it is not likely to incur taxes against which such deferred tax assets may be offset. The deferred tax assets would apply to the Company in the U.S. and to Yuxinqi, Tianci Liangtian in China.
As of March 31, 2023, Yuxinqi and Tianci Liangtian have total net operating loss carry forwards of approximately $1,366,000 in the PRC that expire in 2028. Due to the uncertainty of utilizing these carry forwards, the Company provided a 100% valuation allowance on the net deferred tax assets of approximately $341,000 and $296,000 related to its operations in the PRC as of March 31, 2023 and 2022, respectively. The PRC valuation allowance has increased by approximately $45,000 and $74,000 for the year ended March 31, 2023 and 2022, respectively, after adjusting for the divestment of Tianci Wanguan.
The Company has incurred losses from its United States operations during all periods presented of approximately $1,610,000. The Company’s United States operations consist solely of ownership of its foreign subsidiaries, and the losses risen from administrative expenses and shares issued as compensation. Accordingly, management provided a 100% valuation allowance of approximately $338,000 and $304,000 against the net deferred tax assets related to the Company’s United States operations as of March 31, 2023 and 2022, respectively, because the deferred tax benefits of the net operating loss carry forwards in the United States will not likely be realized. The US valuation allowance has increased by approximately $34,000 and $187,000 for the years ended March 31, 2023 and 2022, respectively.
The Company is subject to examination by the Internal Revenue Service (IRS) in the United States as well as by the taxing authorities in China, where the Company has its operations. The tax years subject to examination vary by jurisdiction. The table below presents the earliest tax years that remain subject to examination by jurisdiction.
| The year as of | ||
| U.S. Federal | March 31, 2020 | |
| China | December 31, 2018 |
F-15
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 8. RELATED PARTY TRANSACTIONS
Amounts due to related parties consisted of the following as of the periods indicated:
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Jiufu Zhenyuan | $ | $ | 1,159 | |||||
| Shen Zhenai | 511 | 19,192 | ||||||
| Xun Jianjun | 797 | |||||||
| Heilongjiang Chuagnyi | 215 | |||||||
| $ | 726 | $ | 21,148 | |||||
Shen Zhenai is the President, Chairman of the Board, director and a shareholder of the Company, and Xun Jianjun is the CEO and a shareholder of the Company. These advances represent temporary borrowings for operating costs between the Company and management. They are non-interest bearing and due on demand.
Jilin Jiufu Zhenyuan Technology Development Co, Ltd (“Jiufu Zhenyuan”) owns 22.68% of the Company and its President is a member of the Company’s Board of Directors. The advances represent advances for purchases from the Company in the future. During the year ended March 31, 2023, Jiufu Zhenyuan purchased agricultural products from the Company totaling $115,532.
Heilongjiang Chuangyi Agriculture Co., Ltd (“Heilongjiang Chuangyi”) owns 9.60% of the Company. The advances represent advances for purchases from the Company in the future. During the year ended March 31, 2023, Heilongjiang Chuangyi purchased agricultural products from the Company totaling $29,183.
Amounts due from related parties consisted of the following as of the periods indicated:
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Hao Shuping | $ | $ | 17,373 | |||||
| Jiufu Zhenyuan | 324 | |||||||
| $ | 324 | $ | 17,373 | |||||
Hao Shuping is the largest shareholder of the Company. This amount was a temporary loan from the Company and was non-interest bearing. On June 30, 2022, an agreement for the assignment of debt was signed between Hao Shuping, Shen Zhenai, Tianci Liangtian and Yuxingqi, whereby the total receivable due from Hao Shuping was transferred to Shen Zhenai, partially offsetting the amount due to Shen Zhenai.
During the years ended March 31, 2023 and 2022, Hao Shuping, a member of the Company’s Board of Directors, purchased agricultural products from the Company totaling $49 and $1,807, respectively.
The receivable from Jiufu Zhenyuan represents sales receivables.
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.
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.
F-16
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Continued)
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. On December 20, 2019, the lease was renewed. Under the renewed terms, annual lease payments are RMB290,000 (approximately US$45,000, including VAT tax) for the period from December 20, 2019 to December 19, 2020. On December 20, 2020, the contract expired. Because of the COVID-19 pandemic, the renewal was delayed. On May 14, 2021, Yuxinqi and the lessor signed a supplemental agreement which, due to a leak in the building, credited Yuxinqi with RMB62,570 (approximately US$10,000) of rental expense paid for the previous rental period. On May 14, 2021, Yuxinqi signed a new lease agreement (approximately 370 square meters). Under the terms, Yuxinqi reduced the rental area due to a leak in the building, and committed to make annual lease payments of RMB184,005 (approximately US$29,000, including VAT tax) for the period from December 20, 2020 to January 19, 2022. For the period from January 20, 2022 to March 19, 2022, Yuxingqi renewed the lease agreement and committed to make a lease payment of RMB 30,247 (approximately US$4,700, including VAT tax). The lease obligation was fully paid. This lease was not renewed.
On March 23, 2022, Yuxingqi leased office space from March 23, 2022 to March 22, 2023 under an operating lease agreement (approximately 337.3 square meters). Under the terms of the lease, Yuxingqi committed to make annual lease payments of RMB136,607 (approximately US$21,000, including VAT tax). The annual payment was fully paid on March 23, 2022. Since it is a short-term lease, the payment was recorded as prepaid expenses. On November 22, 2022, Yuxinqi and the lessor signed a supplemental agreement which, due to the COVID-19, gave Yuxinqi a rent-free extension period from March 23, 2023 to June 22, 2023. On July 5, 2023, Yuxingqi renewed the operating lease agreement for the period from June 23, 2023 to June 22, 2024. Under the terms of the lease, Yuxingqi committed to make an annual lease payment of RMB136,607 (approximately US$20,000, including VAT tax).
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. As of December 31, 2021, the lease liability was fully paid off and the right-of-use asset was fully amortized.
For the years ended March 31, 2023 and 2022, the rent expense was $17,887 and $18,930, respectively.
F-17
ORGANIC AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US DOLLARS)
NOTE 10. SUBSCRIPTION RECEIVABLE
Subscription receivable consisted of the following as of the periods indicated:
| March 31, 2023 | March 31, 2022 | |||||||
| Sun Ying | $ | 74,032 | $ | |||||
| Heilongjiang Chuangyi Agriculture Co., Ltd. | 764,063 | |||||||
| $ | 838,095 | $ | ||||||
On November 28, 2022 the Registrant entered into an agreement to sell 9,000,000 shares of its common stock to Heilongjiang Chuangyi Agriculture Co., Ltd. for a price of 5,670,000 RMB (US$792,000). The Company received partial proceeds of $27,937 from Heilongjiang Chuangyi Agriculture Co., Ltd during fiscal 2023 with the remaining balance due on or before October 16, 2024.
On November 29, 2022, the Registrant entered into an agreement to sell 1,000,000 shares of its common stock to Sun Ying for a price of 630,000 RMB (US$88,000). The Company received partial proceeds of $13,968 from Sun Ying during fiscal 2023 with the remaining balance due on or before October 16, 2024.
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 March 31, 2023 and through the date of this report.
NOTE 12. SUBSEQUENT EVENTS
As of November 15, 2023, $146,667 or RMB1,050,000 of subscription receivable was paid by Heilongjiang Chuangyi. On August 6, 2023, the Company received an interest-free loan of RMB200,000 or $29,120 from Tianzhi Equity Investment Fund Management (Shanghai) Co., Ltd, a related party through certain common shareholders.
The Management of the Company determined that there were no additional reportable subsequent events to be adjusted for and/or disclosed as of November 15, 2023.
F-18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 disclosures.
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 March 31, 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 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 March 31, 2023 for the purposes described in this paragraph.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. The Company’s management is also required to assess and report on the effectiveness of the Company’s internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of the Company’s financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect the Company’s transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of the Company’s financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
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As of March 31, 2023, our management, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as required by Rules 13a-15(c) and 15d-15(c) under the Exchange Act. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (1992), including the following five framework components: i) control environment, ii) risk assessment, iii) control activities, iv) information and communications, and v) monitoring. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified four material weaknesses in our internal control over financial reporting. These material weaknesses consisted of the four material weaknesses identified above under the heading “Evaluation of Disclosure Controls and Procedures.”
Management does not believe that the current level of the Company’s operations warrants a remediation of the weaknesses identified in this assessment. However, because of the above condition, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of March 31, 2023.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. The Company’s internal control over financial reporting was not subject to attestation by the Company’s registered public accounting firm as we are a smaller reporting company.
Our management will continue to monitor and evaluate the effectiveness of its disclosure controls and procedures, as well as its internal control over financial reporting, on an ongoing basis, and is committed to taking further action and implementing additional improvements, as necessary and as funds allow. However, our management cannot guarantee that the measures taken or any future measures will remediate the material weaknesses identified or that any additional material weaknesses or significant deficiencies will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting. Notwithstanding the material weaknesses described above, our management believes that there are no material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the consolidated financial statements included in this annual report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control over Financial Reporting
No changes in the Company’s internal control over financial reporting has come to management’s attention during the quarter ended March 31, 2023 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth certain information concerning our directors and executive officers:
| Name | Age | Position | Director Since | |||||||
| Shen Zhenai | 61 | President, Chairman of the Board | 2018 | |||||||
| Xun Jianjun | 53 | Chief Executive Officer and Director | 2018 | |||||||
| Wang Qiu | 35 | Chief Financial Officer and Director | 2022 | |||||||
| Hao Shuping | 65 | Director | 2018 | |||||||
| Yongchun Zhang | 57 | Director | 2021 | |||||||
Shen Zhenai, President, Chairman of the Board and Director
Ms. Shen is our founder and has served as our president and director since we were organized. In 2017 Ms. Shen was employed as president of the Hong Kong International Intellectual Property Trading Center Korea Branch. She served as the General Manager at International Department of Seoul Shandong Sirius Group Co., Ltd in 2015. From 2012 to 2014 Ms. Shen served as the director of the marketing department of Beijing Hui Lian commercial network. She served as the General Manager of the Jiling Province Yanbian Nanshan Mountain Village between 2004 and 2006. She served as the Customer Service Manager of Japanese Bear Valley Hotel between 2001 to 2003. Ms. Shen provides hands-on leadership, strategic direction and operations management with a focus on business development, exceptional quality service and fiscal accountability. Ms. Shen studied Hotel Management in Seoul, South Korea from 1995 to 1997, and learned Traditional Chinese Medicine in Lin Province Changchun College of Traditional Chinese Medicine from 1987 to 1990. She can speak Mandarin and Korean.
Xun Jianjun, Chief Executive Officer and Director
Mr. Xun has served as our Chief Executive Officer (“CEO”) and Director since we were organized. From 2015 to 2016 Mr. Xun served as Business Department General Manager of Dongsheng Weiye Group Co., Ltd Changbai Mountain Ginseng. He was the principal founder and President of Zhejiang Kangzhiyuan Water Purification Equipment Co., Ltd from 2002 to 2012. He was employed by Guangdong Province Foshan City Ronshen Electric Co., Ltd as Sales Department Director between 1994 and 2000. Mr. Xun has more than 20 years in management experirence, where he has been responsible for business operations, budget development, analysis and oversight; marketing including volume growth/program development; expense control; policy and procedure development and implementation; and process development to facilitate regulatory compliance. Mr. Xun was trained at Beijing University in 2014. He graduated from Shandong University with a major in Law in 1993.
Wang Qiu, Chief Financial Officer and Director
Ms. Wang has been employed by Organic Agricultural Company Limited since 2017, serving as Accountant until her appointment as our Chief Financial Officer. From 2015 to 2016, Ms. Wang was employed as Accounting Supervisor of Dongguan Xiashi Hardware and Plastic Products Factory Co., Ltd., where she moved from accounting management to strategic planning and company control, obtaining advanced knowledge of corporate operations. Ms. Wang has been awarded the Intermediate Accountant Certificate.
Hao Shuping, Director
Mr. Hao has served as our director since 2018. Mr. Hao has been the President of the Tianzhi Equity Investment Fund (Shanghai) Management Co., Ltd. since 2015. He served as the President of the Hong Kong Huixin International Financial Services Co., Ltd. from 2012 to 2014. From 2009 to 2011 Mr. Hao served as the Chief Executive Officer of Beijing Pingchuan Power Engineering Co., Ltd. He served as the chief supervisor of Beijing Re-creation Human Resources Management Co., Ltd. between 1999 to 2008. From 1996 to 1999 Mr. Hao served as the general manager of Sino-Korea Joint Oriental Food Co., Ltd. Mr. Hao has served as Director of the President’s Office of Orient Group from 1991 to 1995. Mr. Hao graduated from Hong Kong Life Power Instructor College in 2005, having studied economic management at the Harbin Normal University between 1994 and 1996. He obtained a Bachelor degree in Chinese Language and Literature from Harbin Normal University in 1985.
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Yongchun Zhang, Director
In 2018 Mr. Zhang founded Jilin Juhaoqing Technology Development Group Co., Ltd. and Jilin Jiufu Zhenyuan Technology Development Co, Ltd, and has managed those two companies since their formation. Since 2007, Mr. Zhang has managed two other companies that he organized: Beijing Juhaoqing International Investment Management Co., Ltd. and Beijing Natural Food Co., Ltd. From 1993 to 2007 Mr. Zhang was involved in a variety of businesses located in Qingdao, China. From 1987 to 1993, he was the principal of a primary school in Ren Wangkui County, China.
There are no family relationships among any of our directors or executive officers.
Legal Proceedings Involving Officers and Directors
To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:
| ● | Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. |
| ● | Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses. |
| ● | Been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. |
| ● | Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. |
| ● | Been the subject of, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Board Committees
Audit Committee
We have not yet appointed an audit committee. At the present time, we believe that the members of the Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We do, however, recognize the importance of good corporate governance and intend to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, when our resources permit and the level of our operations justifies the improvement.
Compensation Committee
We do not presently have a compensation committee. Our Board of Directors currently acts as our compensation committee.
Nominating Committee
We do not presently have a nominating committee. Our Board of Directors currently acts as our nominating committee.
Code of Ethics
Due to the small number of members of our management, we do not presently have a code of ethics applicable to management.
22
Item 11. Executive Compensation.
Executive Compensation
The following table sets forth information with respect to compensation paid by us to our executive officers for services during the fiscal years ended March 31, 2023 and 2022. There was no executive officer to whom we paid or accrued amounts in excess of $100,000 as compensation for services during the year ended March 31, 2023.
| Non-Equity | Non-qualified | |||||||||||||||||||||||||||||||||||
| Incentive | Deferred | All | ||||||||||||||||||||||||||||||||||
| Stock | Option | Plan | Comp. | Other | ||||||||||||||||||||||||||||||||
| Name and Principal | Fiscal | Salary | Bonus | Awards | Awards | Comp. | Earnings | Comp. | Total | |||||||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
| Xun Jianjun | 2023 | 18,524 | - | - | - | - | - | - | 18,524 | |||||||||||||||||||||||||||
| CEO | 2022 | 19,070 | - | - | - | - | - | - | 19,070 | |||||||||||||||||||||||||||
| Wang Qiu | 2023 | 9,980 | - | - | - | - | - | - | 9,980 | |||||||||||||||||||||||||||
| CFO | 2022 | 11,592 | - | - | - | - | - | - | 11,592 | |||||||||||||||||||||||||||
| Shen Zhenai | 2023 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| President | 2022 | 14,022 | - | - | - | - | - | - | 14,022 | |||||||||||||||||||||||||||
Amounts of compensation for 2023 and 2022, reported in the table above, represent accrued compensation. The manner and timing of payments of the accrued compensation will depend on the future financial conditions of the Company.
Outstanding Equity Awards
There were no unexercised options, stock that has not vested, or equity incentive plan awards for any officer or employee as of March 31, 2023 and 2022, respectively.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
We have not entered into any employment or other contracts or arrangements with our executive officers. There are no compensation plans or arrangements, including payments to be made by us, with respect to our officers, directors or consultants that would result from the resignation, retirement or any other termination of such directors, officers or consultants from us. There are no arrangements for directors, officers, employees or consultants that would result from a change-in-control.
Compensation of Directors
We have no formal plan for compensating our directors for their services in their capacity as directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of the Company other than services ordinarily required of a director. To date, we have paid no compensation to any person for services as a member of the Company’s Board of Directors.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding our shares of common stock beneficially owned as of the date hereof for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days as of the date hereof. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
The percentage ownership information shown in the table below is calculated based on 93,726,994 shares of our common stock issued and outstanding as of November 15, 2023. We do not have any outstanding options, warrants or other securities exercisable for or convertible into shares of our common stock.
| Amount and Nature | ||||||||||
| of Beneficial | ||||||||||
| Title of Class | Name of Beneficial Owner | Ownership | Percentage | |||||||
| Common Stock | Shen Zhenai | 516,000 | 0.55 | % | ||||||
| President, Chairman of the board. | Direct | |||||||||
| Common Stock | Xun Jianjun | 4,644,000 | 4.95 | % | ||||||
| CEO, Director | Direct | |||||||||
| Common Stock | Hao Shuping | 25,180,800 | 26.87 | % | ||||||
| Director | Direct | |||||||||
| Common Stock | Wang Qiu | 51,600 | 0.06 | % | ||||||
| CFO, Director | Direct | |||||||||
| Common Stock | Yongchun Zhang(1) | 21,256,620 | 22.68 | % | ||||||
| Director | Direct | |||||||||
| All Officers and Directors as a Group (4 persons) | 51,649,020 | 55.11 | % | |||||||
| (1) | Represents shares owned by Jilin Jiufu Zhenyuan Technology Development Co., Ltd., of which Mr. Zhang is the President. |
24
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Amounts due to related parties consisted of the following as of the periods indicated:
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Jiufu Zhenyuan | $ | - | $ | 1,159 | ||||
| Shen Zhenai | 511 | 19,192 | ||||||
| Xun Jianjun | - | 797 | ||||||
| Heilongjiang Chuagnyi | 215 | - | ||||||
| $ | 726 | $ | 21,148 | |||||
Shen Zhenai is the President, Chairman of the Board, director and a shareholder of the Company, and Xun Jianjun is the CEO and a shareholder of the Company. These advances represent temporary borrowings for operating costs between the Company and management. They are non-interest bearing and due on demand.
Jilin Jiufu Zhenyuan Technology Development Co, Ltd (“Jiufu Zhenyuan”) owns 22.68% of the Company and its President is a member of the Company’s Board of Director. The advances represent advances for purchases from the Company in the future. During the year ended March 31, 2023, Jiufu Zhenyuan purchased agricultural products from the Company totaling $115,532.
Heilongjiang Chuangyi Agriculture Co., Ltd (“Heilongjiang Chuangyi”) owns 9.60% of the Company. The advances represent advances for purchases from the Company in the future. During the year ended March 31, 2023, Heilongjiang Chuangyi purchased agricultural products from the Company totaling $29,183.
Amounts due from related parties consisted of the following as of the periods indicated:
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Hao Shuping | $ | - | $ | 17,373 | ||||
| Jiufu Zhenyuan | 324 | - | ||||||
| $ | 324 | $ | 17,373 | |||||
Hao Shuping is the largest shareholder of the Company. This amount was a temporary loan from the Company and was non-interest bearing. On June 30, 2022, an agreement for the assignment of debt was signed between Hao Shuping, Shen Zhenai, Tianci Liangtian and Yuxingqi, whereby the total receivable due from Hao Shuping was transferred to Shen Zhenai, partially offsetting the amount due to Shen Zhenai.
During the years ended March 31, 2023 and 2022, Hao Shuping, a member of the Company’s Board of Directors, purchased agricultural products from the Company totaling $49 and $1,807, respectively.
Except as set forth above, there have been no transactions since the beginning of the 2023 fiscal year, or any currently proposed transaction, in which Organic Agricultural Company Limited or any of its subsidiaries was or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of the total assets of the Company at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest.
Director Independence
None of the members of the Company’s Board of Directors is independent, as “independence” is defined in the Rules of the NYSE American.
Item 14. Principal Accounting Fees and Services.
Wei, Wei & Co., LLP was engaged to serve as the Company’s independent registered public accounting firm on November 2, 2018.
The following table shows the fees that were billed for the audit and other services provided by Wei, Wei & Co., LLP for the fiscal years ended March 31, 2023 and 2022.
| Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Audit fees | $ | 94,000 | $ | 81,000 | ||||
| Audit-related fees | $ | 5,000 | $ | - | ||||
| Tax fees | $ | - | $ | - | ||||
| All other fees | $ | - | $ | - | ||||
Our Board of Directors pre-approves all audit and non-audit services performed by the Company’s auditor and the fees to be paid in connection with such services.
25
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
INDEX TO EXHIBITS
| (1) | Filed as an exhibit to the Company’s Registration Statement on Form S-1 (File No. 333-226810), filed on August 13, 2018, and incorporated herein by reference. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ORGANIC AGRICULTURAL COMPANY LIMITED
| Signature | Title | Date | ||
| /s/ Jianjun Xun | Chief Executive Officer | November 15, 2023 | ||
| Jianjun Xun | (Principal Executive Officer) | |||
| /s/ Wang Qiu | Chief Financial Officer | November 15, 2023 | ||
| Wang Qiu | (Principal Financial and Accounting Officer) |
In accordance with the Exchange Act, this Report has been signed below on November 15, 2023 by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | |
| /s/ Jianjun Xun | Chief Executive Officer | |
| Jianjun Xun | (Principal Executive Officer); Director | |
| /s/ Wang Qiu | Chief Financial Officer | |
| Wang Qiu | (Principal Financial and Accounting Officer); Director | |
| /s/ Shen Zhenai | Director | |
| Shen Zhenai | ||
| /s/ Hao Shuping | Director | |
| Hao Shuping | ||
| /s/ Yongchun Zhang | Director | |
| Yongchun Zhang |
27