ORGANIC AGRICULTURAL COMPANY LIMITED The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
Application of Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of operations is based upon its condensed consolidated financial statements, which have been prepared in accordance withUnited 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 nine months endedDecember 31, 2022 , there was one accounting estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results. That was the determination to record the$866,032 subscription receivable without a reserve. The Company made that determination based on its knowledge of the subscribers' financial condition. Results of Operations
The following table shows key components of the unaudited results of operations
during the three and nine months ended
For the Three Months Ended
December 31, Change
2022 2021 $ %
Revenue $ 93,531 $ 164,876 $ (71,345 ) (43 )%
Cost of Sales 83,514 119,572 (36,058 ) (30 )%
Gross Profit 10,017 45,304 (35,287 ) (78 )%
Total operating costs and expenses 9,564 99,107 (89,543 ) (90 )%
Income (loss) from operations before
other (expense) income and income taxes 453 (53,803 ) 54,256 (101 )%
Other (expense) income (46 ) 234 (280 ) (120 )%
Income (loss) from operations before
income taxes 407 (53,569 ) (53,976 ) (101 )%
Income taxes - - - N/A
Net income (loss) from continuing
operations 407 (53,569 ) (53,976 ) (101 )%
(Loss) from discontinued operations, net
of income taxes - (66,463 ) 66,463 (100 )%
Net income (loss) 407 (120,032 ) 120,439 (100 )%
Less: (loss) from discontinued
operations attributable to
non-controlling interests - (32,566 ) 32,566 (100 )%
Net income (loss) attributable to common
shareholders' $ 407 $ (87,466 ) $ 87,873 (100 )%
2
For the Nine Months Ended
December 31, Change
2022 2021 $ %
Revenue $ 170,792 $ 242,922 $ (72,130 ) (30 )%
Cost of Sales 146,276 171,827 (25,551 ) (15 )%
Gross Profit 24,516 71,095 (46,579 ) (66 )%
Total operating costs and expenses 544,920 983,346 (438,426 ) (45 )% (Loss) from operations before other income and income taxes (520,404 ) (912,251 ) 391,847 (43 )% Other income 2,435 236 2,199 932 % (Loss) from operations before income taxes (517,969 ) (912,015 ) 394,046 (43 )% Income taxes - - - N/A Net (loss) from continuing operations (517,969 ) (912,015 ) 394,046 (43 )% Income (loss) from discontinued operations, net of income taxes 68,358 (96,589 ) 164,947 (171 )% Net (loss) (449,611 ) (1,008,604 ) 558,993 (55 )% Less: (loss) from discontinued operations attributable to non-controlling interests - (47,328 ) 47,328 (100 )% Net (loss) attributable to common shareholders'$ (449,611 ) $ (961,276 ) $ 511,665 (53 )%
All of our revenue during the three and nine months endedDecember 31, 2022 and 2021 was generated by our subsidiary Yuxinqi. Yuxinqi is a marketing enterprise with a focus on milled rice and other agricultural products. Incorporated onFebruary 5, 2018 , Yuxinqi's sales are erratic, since a stable customer base has not been established yet. Sales by Yuxinqi during the three and nine months endedDecember 31, 2022 were 43% and 30% less than during the three and nine months endedDecember 31, 2021 . The decrease in revenue occurred primarily because of the decrease in orders from Jiufu Zhenyuan, which is a shareholder and whose president is a member of our board. For the three and nine months endedDecember 31, 2022 and 2021, our revenue was attributable to the sales of milled rice and other foodstuffs. The cost of sales were$83,514 and$119,572 for the three months and$146,276 and$171,827 for the nine months endedDecember 31, 2022 and 2021, respectively. Those operations yielded gross profit for the three months periods of$10,017 and$45,304 and for the nine months periods of$24,516 and$71,095 with gross margin of 10.7%, 27.5%, 14.4% and 29.3%, respectively. The decrease in gross margin during the three and nine months endedDecember 31, 2022 , compared to the same period of 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. 3 InApril 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 nine months endedDecember 31, 2021 , representing the primary component of the Company's operating expenses during the nine months endedDecember 31, 2021 . InJuly 2022 , the Company granted a total of 140,000 fully vested shares with a fair value on the grant date of$0.0899 per share to 11 individuals for sales promotion services. OnNovember 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 sales promotion services. As a result,$16,986 (the market value of the shares on date of grant) in compensation expense was recognized as advertising and promotion expenses for the nine months endedDecember 31, 2022 . The Company incurred operating expenses totaling$9,564 and$99,107 during the three months endedDecember 31, 2022 and 2021, and$544,920 and$983,346 during the nine months endedDecember 31, 2022 and 2021, respectively. The components of operating expenses (unaudited) were: Three Months Ended Nine Months Ended December 31 December 31 2022 2021 2022 2021 Salaries and benefits$ 37,808 $ 68,814 $ 130,349 $ 154,243 Office expenses 11,360 20,066 115,429 51,072 Rentals and leases 4,445 1,754 13,811 14,146 Professional fees 22,875 22,624 65,710 59,044 Exchange (gain) loss (76,195 ) (24,163 ) 192,194 (70,061 )
Advertising and promotion expenses 9,271 10,012 27,427
774,902
Total operating expenses $ 9,564 $ 99,107 $ 544,920 $ 983,346 Salaries and benefits decreased in the three and nine months ended
The Company's operating expenses for the three months endedDecember 31, 2022 included$76,195 of an exchange gain. This represented the increase in the USD value of Tianci's debt toOrganic Agricultural , which increased as a result of the depreciation in the USD to CNY exchange rate from 7.1128 to 6.8983. The Company's operating expenses for the nine months endedDecember 31, 2022 included$192,194 of exchange loss. This represented the decrease in the USD value of Tianci's debt toOrganic Agricultural , which decreased as a result of the appreciation in the USD to CNY exchange rate from 6.3431 to 6.8983. By comparison, the Company's operating expenses during the three and nine months endedDecember 31, 2021 were partially offset by$24,163 and$70,061 of exchange gain. This represented the increase in the USD value of Tianci's debt toOrganic Agricultural , which increased as a result of the depreciation in the USD to CNY exchange rate from 6.5565 to 6.3614. The Company's operations produced a net income of$407 and a net loss of$53,569 from continuing operations for the three months, and a net loss of$517,969 and$912,015 for the nine months endedDecember 31, 2022 and 2021, respectively. The Company produced a gain from discontinued operations of $nil and$68,358 for the three and nine months endDecember 31, 2022 from its disposal, and a net loss of$66,463 and$96,589 for the three and nine months endDecember 31, 2021 from its operations. OnAugust 19, 2022 , the Company completed the divestment of Tianci Wanguan. 4
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 to a single investor during the nine months endedDecember 31, 2021 . The Company received partial proceeds of$13,968 from the sale of 10,000,000 shares for a price of$880,000 to two investors during the nine months endedDecember 31, 2022 . The two subscribers have agreed to pay the remaining proceeds of$866,032 on or beforeAugust 15, 2023 . The debt is recorded as a subscription receivable in shareholders' equity atDecember 31, 2022 . As ofDecember 31, 2022 , our working capital was$114,088 , a decrease of$189,787 during the nine months endedDecember 31, 2022 , primarily due to the net loss we incurred during those nine months.
The largest components of working capital at
Cash Flows
The following unaudited table summarizes our cash flows for the nine months
ended
For the Nine Months Ended
December 31, Change
2021 2020 $Net cash (used in) operating activities$ (308,692 ) $ (413,930 ) $ 105,238 Net cash (used in) investing activities (288 ) - (288 ) Net cash provided by financing activities 13,968 920,000 (906,032 ) Effect of exchange rate fluctuation on cash and cash equivalents (29,485 ) (9,870 ) (19,615 ) Net (decrease) increase in cash and cash equivalents (324,497 ) 496,200 (820,697 ) Cash and cash equivalents, beginning of period 408,463 70,506 337,957 Cash and cash equivalents, end of period$ 83,966 $
566,706$ (482,740 ) During the nine months endedDecember 31, 2022 , our operations used net cash of$308,692 . The Company incurred a cash use from operations primarily because it recorded a net loss of$517,969 from continuing operations. For the nine months endDecember 31, 2022 , the difference between net loss and cash used was primarily attributable to the non-cash expense of$192,194 for exchange loss. During the nine months endedDecember 31, 2021 , the Company recorded$413,930 of cash used in operating activities, primarily because of its net loss of$1,008,604 . For the nine months endDecember 31, 2021 , 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. The Company had no investing activities during the nine months endedDecember 31, 2021 , and recorded$288 for cash disbursed on divestment in Tianci Wanguan for the nine months endedDecember 31, 2022 .
Our financing activities during the nine months ended
Trends, Events and Uncertainties
There is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues and recurring losses. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. The Company is expanding its product offerings to include more products, our marketing personnel are developing 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 ofDecember 31, 2022 , a stable customer base has not been established yet. 5
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. Recently, sinceDecember 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 sinceDecember 2022 . 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 inChina , and as a result, we experienced temporary disruption to our operations where many employees were infected with COVID-19 inDecember 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. TheU.S. government, including theSEC , has made statements and taken actions that have led to changes in relations between theU.S. andChina , and will impact companies with connections tothe United States orChina . Those actions by theU.S. government included imposing several rounds of tariffs affecting certain products manufactured inChina and imposing sanctions and restrictions in relation toChina . Actions by theSEC included issuing statements indicating that it would make enhanced review of companies with significantChina -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 onU.S. -domiciled companies with significant connections toChina , our industry or on us. Any unfavorable government policies on cross-border relations, including increased scrutiny on companies with significantChina -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 theU.S. or Chinese governments take retaliatory actions due to the recentU.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 inUnited States andChina 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 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 condensed consolidated financial statements included
in
this quarterly report.
6© Edgar Online, source
