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 six
months ended
Results of Operations
The following table shows key components of the unaudited results of operations
during the three and six months ended
For the Three Months Ended
September 30, Change
2022 2021 $ %
Revenue $ 38,277 $ 47,955 $ (9,678 ) (20 )%
Cost of Sales 31,490 31,575 (85 ) 0 %
Gross Profit 6,787 16,380 (9,593 ) (59 )%
Total operating costs and expenses 309,487 84,133 225,354 268 % (Loss) from operations before other income and income taxes (302,700 ) (67,753 ) (234,947 ) 347 % Other income 1,464 2 1,462 73,100 % (Loss) from operations before income taxes (301,236 ) (67,751 ) (233,485 ) 345 % Income taxes - - - N/A Net (loss) from continuing operations (301,236 ) (67,751 ) (233,485 ) 345 % Income (loss) from discontinued operations, net of income taxes 68,359 (30,122 ) 98,481 (327 )% Net (loss) (232,877 ) (97,873 ) (135,004 ) 138 % Less: (loss) from discontinued operations attributable to non-controlling interests - (14,762 ) 14,762 (100 )% Net (loss) attributable to common shareholders'$ (232,877 ) $ (83,111 ) $ (149,766 ) 180 % 2 For the Six Months Ended September 30, Change 2022 2021 $ % Revenue$ 77,261 $ 78,046 $ (785 ) (1 )% Cost of Sales 62,762 52,255 10,507 20 % Gross Profit 14,499 25,791 (11,292 ) (44 )%
Total operating costs and expenses 535,356 884,239 (348,883 ) (39 )% (Loss) from operations before other income and income taxes (520,857 ) (858,448 ) 337,591 (39 )% Other income 2,481 2 2,479 123,950 % (Loss) from operations before income taxes (518,376 ) (858,446 ) 340,070 (40 )% Income taxes - - - N/A Net (loss) from continuing operations (518,376 ) (858,446 ) 340,070 (40 )% Income (loss) from discontinued operations, net of income taxes 68,358 (30,126 ) 98,484 (327 )% Net (loss) (450,018 ) (888,572 ) 438,554 (49 )% Less: (loss) from discontinued operations attributable to non-controlling interests - (14,762 ) 14,762 (100 )% Net (loss) attributable to common shareholders'$ (450,018 ) $ (873,810 ) $ 423,792 (48 )%
All of our revenue during the three and six months endedSeptember 30, 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 six months endedSeptember 30, 2022 were 20% and 1% less than during the three and six months endedSeptember 30, 2021 . The decrease in revenue occurred primarily because of the decrease in orders from Jiufu Zhenyuan, a shareholder and board member. For the three and six months endedSeptember 30, 2022 and 2021, our revenue was attributable to the sales of milled rice and other foodstuffs. The cost of sales were$31,490 and$31,575 for the three months and$62,762 and$52,255 for the six months endedSeptember 30, 2022 and 2021, respectively. Those operations yielded gross profit for the three months periods of$6,787 and$16,380 and for the six months periods of$14,499 and$25 ,791with gross margin of 17.7%, 34.2%, 18.8% and 33.0%, respectively. The decrease in gross margin during the three and six months endedSeptember 30, 2022 , compared to the same period of the previous year was primarily attributable to below-cost sales of a new product and 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 six months endedSeptember 30, 2021 , representing the primary component of the Company's operating expenses during the six months endedSeptember 30, 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. As a result,$12,586 (the market value of the shares on date of grant) in compensation expense was recognized as advertising and promotion expenses for the three and six months endedSeptember 30, 2022 . The Company incurred operating expenses totaling$309,487 and$84,133 during the three months endedSeptember 30, 2022 and 2021, and$535,356 and$884,239 during the six months endedSeptember 30, 2022 and 2021, respectively. The components of operating expenses (unaudited) were: Three Months Ended Six Months Ended Sept. 30 Sept. 30 2022 2021 2022 2021 Salaries and benefits$ 46,223 $ 52,415 $ 92,541 $ 85,429 Office Expense 77,392 16,721 104,069 31,006 Rentals and leases 4,624 6,190 9,366 12,392 Professional fees 25,112 18,310 42,835 36,420 Exchange loss (gain) 140,846 (12,553 ) 268,389 (45,898 )
Advertising and promotion expenses 15,290 3,050 18,156
764,890
Total operating expenses $ 309,487 $ 84,133 $ 535,356 $ 884,239 Salaries and benefits increased in the six months ended
The Company's operating expenses for the three and six months endedSeptember 30, 2022 included$140,846 and$268,389 of an exchange loss. This represented the decrease in the USD value of Tianci's debt toOrganic Agricultural , which increased as a result of the appreciation in the USD to CNY exchange rate from 6.3431 to 7.1128. By comparison, the Company's operating expenses during the three and six months endedSeptember 30, 2021 were partially offset by$12,553 and$45,898 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 decline in the USD to CNY exchange rate from 6.5565 to 6.4580.
The Company's operations produced a net loss from continuing operations of
The Company produced gain from discontinued operations of$68,359 and$68,358 from its disposal for the three and six months endSeptember 30, 2022 , and a net loss of$30,122 and$30,126 for the three and six months endSeptember 30, 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 six months endedSeptember 30, 2021 . As ofSeptember 30, 2022 , our working capital was$170,210 , a decrease of$133,665 during the six months endedSeptember 30, 2022 , primarily due to the net loss from operations. The largest components of working capital atSeptember 30, 2022 were cash of$132,676 and inventories of$148,136 , which were offset by$148,385 in customer deposits against future sales. Cash Flows
The following unaudited table summarizes our cash flows for the six months ended
For the Six Months Ended
September 30, Change
2021 2020 $
Net cash (used in) operating activities $ (245,772 ) $ (226,204 ) $ (19,568 )
Net cash (used in) investing activities (288 ) - (288 )
Net cash provided by financing activities - 920,000 (920,000 )
Effect of exchange rate fluctuation on cash and
cash equivalents (29,727 ) (22,420 ) (7,307 )
Net (decrease) increase in cash and cash
equivalents (275,787 ) 671,376 (947,163 )
Cash and cash equivalents, beginning of year 408,463 70,506 337,957
Cash and cash equivalents, end of year $ 132,676 $ 741,882$ (609,206 ) During the six months endedSeptember 30, 2022 , our operations used net cash of$245,772 . The Company incurred a cash use from operations primarily because it recorded a net loss of$450,018 . For the six months endSeptember 30, 2022 , the difference between net loss and cash used was primarily attributable to the non-cash expense of$268,389 for exchange loss (gain). During the six months endedSeptember 30, 2021 , the Company recorded$226,204 of cash used in operating activities, primarily because of its net loss of$888,572 . For the six months endSeptember 30, 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 six months endedSeptember 30, 2021 , and recorded$288 for cash disbursed on divestment of Tianci Wanguan for the six months endedSeptember 30, 2022 . The Company had no financing activities during the six months endedSeptember 30, 2022 . Our financing activities during the six months endedSeptember 30, 2021 generated$920,000 from the sale of common stock.
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 ofSeptember 30, 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, there has been an increasing number of COVID-19 cases, including cases involving theCOVID-19 Delta and Omicron variants, in multiple cities inChina . The Chinese local authorities have reinstated certain measures to keep COVID-19 in check, including compulsory quarantine arrangements, travel restrictions and stay-at-home orders. The reinstatement of these restrictions in early 2022 have adversely affected our operations by, for example, making it more difficult to conduct our sales and marketing and promotional efforts. The COVID-19 global pandemic has resulted in, and may intensify, global economic distress, and the duration and extent of the impact of COVID-19 outbreak is highly uncertain at this time. 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. 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.
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