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 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. The analysis set forth below is provided pursuant to applicableSEC 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
The following table shows key components of the results of operations during the
years ended
For the Years Ended March 31, Change 2022 2021 $ % Revenue$ 310,648 $ 126,922 $ 183,726 145 % Cost of Sales 219,092 87,760 131,332 150 % Gross Profit 91,556 39,162 39,162 134 %
Total operating costs and expenses 1,281,589 255,006 1,026,583 403 % (Loss) from operations before other income and income taxes (1,190,033 ) (215,844 ) (974,189 ) 451 % Other income (loss) 1,989 (2,355 ) 4,344 (184 %) (Loss) from operations before income taxes (1,188,044 ) (218,199 ) (969,845 ) 444 % Income taxes - - - N/A Net (loss) from continuing operations (1,188,044 ) (218,199 ) (969,845 ) 444 % (Loss) on the sale of discontinued operations, net of income taxes - (713,722 ) 713,722 (100 %) Net income from discontinued operations, net of income taxes - 743 (743 ) (100 %) Total net (loss) income from discontinued operations - (712,979 ) 712,979 (100 %) Net (loss) (1,188,044 ) (931,178 ) (256,866 ) 28 % Less: net (loss) income attributable to non-controlling interests (68,537 ) 364 (68,901 ) (18,929 %) Net (loss) attributable to common shareholders'$ (1,119,507 ) $ (931,542 ) $ (187,965 ) 20 % All of our revenue during the years endedMarch 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. Yuxinqi's sales are erratic, since a stable customer base has not been established yet. Sales by Yuxinqi during the fiscal year endedMarch 31, 2022 were higher than during the fiscal year endedMarch 31, 2021 . The increase in revenue occurred primarily because our principal customer, Jiufu Zhenyuan, increased its orders. Although the revenue increased, the planned expansion of our business still was hindered this year by the Covid-19 pandemic, as other customers reduced their orders. The cost of sales of$219,092 and$87,760 for the fiscal years endedMarch 31, 2022 and 2021, respectively, was attributable to our purchases of milled rice and other foodstuffs. Those operations yielded a gross profit of$91,556 and$39,162 with gross margins of 29.5% and 30.9%, respectively. 15 InApril 2021 , in order to boost sales, the Company granted a total of 345,000 fully vested shares with a fair value on the grant date of$2.20 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 endedMarch 31, 2022 . That represented the primary component of the Company's operating expenses from continuing operations, which totaled$1,281,589 and$255,006 during the years endedMarch 31, 2022 and 2021, respectively. The components of operating expenses were: For the Years Ended March 31, 2022 2021 Salaries and benefits$ 341,751 $ 102,149 Office expense 102,100 62,146 Rentals and leases 28,278 26,076 Professional fees 102,131 140,884 Exchange (gain) (76,631 ) (134,541 )
Advertising and promotion expenses 783,782 53,588 Depreciation and amortization
178 4,704 Total operating expenses$ 1,281,589 $ 255,006 In addition to the stock-based promotional expense, salaries and benefits and office expenses increased in fiscal year 2022 because Tianci Wanguan initiated its operations and Yuxingqi implemented an expansion of our business. The Company's operating expenses were partially offset by$76,631 and$134,541 of gain on exchange realized during the 2022 and 2021 fiscal years. This represented the increase in the USD value of Tianci's debt toOrganic Agricultural as a result of the decline in the USD to CNY exchange rate from 6.5565 to 6.3431 in fiscal 2022 and 7.1383 to 6.5565 in fiscal 2021.
The Company's continuing operations produced a net loss of
UntilApril 2020 the Company's operations were focused on the production of paddy rice by its subsidiary, Lvxin. To re-focus operations toward the sale of value-added processed products, the Company's subsidiary, Tianci Liangtian, completed the spin-off of its ownership interest in Lvxin onApril 30, 2020 . During the year endedMarch 31, 2021 , the Company incurred$713,722 of investment loss due to the divestment of Lvxin. During fiscal year 2022, the Company's net loss was increased by the$68,537 net loss attributable to the non-controlling interest in Tianci Wanguan; during fiscal year 2021, the Company's net loss was increased by the$364 net income attributable to the non-controlling interest in Lvxin. As a result, the Company recorded net loss attributable to its common shareholders of$1,119,507 for the year endedMarch 31, 2022 and$931,542 for the year endedMarch 31, 2021 . OnNovember 6, 2020 Organic Agricultural entered into a Cooperation Agreement withUnbounded 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 in this agreement,Tianci Wanguan (Xiamen) Digital Technology Co., Ltd. ("Tianci Wanguan") was incorporated onNovember 5, 2020 . Tianci Wanguan is 51% owned by Organic Agricultural HK and 49% owned by Chen Zewu on behalf of Unbounded. OnJuly 19, 2021 the parties executed a supplement to the Cooperation Agreement.
The Supplementary Agreement sets 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 (approximatelyUS$774,000 ) from the business described in the Cooperation Agreement or any other business approved byOrganic Agricultural . OnNovember 23, 2021 ,Organic Agricultural issued 10 million shares of its common stock to Chen Zewu to be held for the benefit of Unbounded. If Unbounded fails to satisfy the criteria described above, the 10 million shares must be returned toOrganic Agricultural . If Unbounded does satisfy the criteria, then it will have unrestricted ownership of the 10 million shares, andOrganic Agricultural will 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 onNovember 23, 2021 are unvested and forfeitable, these shares are treated as unissued until they vest when the target described above is met. 16 The share-based compensation will be measured at grant date, based on the fair value of the award and recognized over its vesting period once it determined that the target will more likely than not be met. After the criteria described above is satisfied, the Company will grant a total of 20,000,000 shares, including the 10,000,000 shares issued onNovember 23, 2021 , with a fair value on the grant date, which isJuly 19, 2021 , of$0.0969 per share to Unbounded. If the target described above is satisfied,$1,938,000 in compensation expense will be recognized under the provisions of ASC 718. As ofMarch 31, 2022 , Tianci Wanguan had begun its operations and had a net loss of approximately$110,000 for the period fromNovember 23, 2021 toMarch 31, 2022 . Based on the current net loss of Tianci Wanguan, it is currently not likely that they will meet the performance condition. Accordingly, no compensation expense has been recognized as ofMarch 31, 2022 for these shares.
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. As ofMarch 31, 2022 , our working capital was$303,875 . Working capital increased by$449,013 during the 2022 fiscal year, primarily due cash received from the sale of the 21,256,620 shares.
The largest components of working capital at
Cash Flows The following table summarizes our cash flows for the years endedMarch 31, 2022 and 2021. For the Years Ended March 31, Change 2022 2021 $ Net cash (used in) operating activities$ (569,051 ) $ (44,351 ) $ (524,700 ) Net cash (used in) investing activities - (1,343 ) (1,343 ) Net cash provided by financing activities 920,000 46,400 873,600 Effect of exchange rate fluctuation on cash and cash equivalents (12,992 ) (172,374 ) 159,382 Net increase (decrease) in cash and cash equivalents 337,957 (171,668 ) 509,625 Cash and cash equivalents, beginning of year 70,506 242,174 (171,668 ) Cash and cash equivalents, end of year$ 408,463 $ 70,506 $ 337,957 During fiscal 2022, our operations used net cash of$569,051 . 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. Our cash uses included a reduction in the balance due to related parties by$132,841 , a$79,114 increase in inventories and a$68,296 increase in prepaid expenses. During fiscal 2021, our operations used net cash of$44,351 . Net cash was used primarily due to the$218,199 of net loss from continuing operations partially offset by increased customer deposits of$66,708 and the amortization of prepaid expenses of$39,899 . The Company had no investing activities during fiscal 2022, and the Company's only investing activity during fiscal 2021 was the distribution of$1,343 of cash in connection with the sale of the discontinued operations. Our financing activities during fiscal 2022 generated$920,000 from the sale of common stock. Our financing activities during fiscal 2021 generated$46,400
from the sale of common stock. 17 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 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 year
ended
Valuation of Unvested Shares OnNovember 23, 2021 the Company issued 10 million common shares to Chen Zewu as agent forUnbounded IOT Block Chain Limited ("Unbounded"), which owns the minority interest in Tianci Wanguan, and is responsible for managing that company. Our agreement with Unbounded provide that the shares will vest in Unbounded only if Tianci Wanguan generates a profit of five million Renminbi during the twelve months followingNovember 23, 2021 . Upon vesting of the shares, the Company would record a compensation expense of$1,938,000 . For the period fromNovember 23, 2021 toMarch 31, 2022 , Tianci Wanguan realized a net loss of approximately$110,000 , which made it less than likely that the shares will vest. For that reason, the Company has not accrued any compensation expense with respect to the shares issued for benefit of Unbounded.
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 intends to expand its product offerings to include value-added products, both products based on rice and products based on other food stuffs, such as organic red beans and millet. Our marketing personnel will endeavor to expand awareness of our brand, open new marketing channels, and educate the nation about the health benefits of selenium-enriched rice. In this manner, the Company hopes to 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.
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. 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 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.
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