| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of presentation The
accompanying consolidated financial statements have been prepared on the accrual basis of accounting. All significant intercompany
accounts and transactions have been eliminated in consolidation when applicable. 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 are listed as follows:
Name Place
of Incorporation Attributable Authorized
Organic Agricultural
(Samoa) Co., Ltd. Samoa 100 USD 1,000,000
Organic Agricultural Company Limited
(Hong Kong) Hong Kong 100 HKD 10,000
Heilongjiang Tianci Liangtian Agricultural
Technology Development Company Limited China 100 0
Heilongjiang Yuxinqi Agricultural
Technology Development Company Limited China 100 0
Baoqing County Lvxin Paddy Rice Plant
Specialized Cooperative China 51 0 Use
of estimates The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates
using the best information available at the time the estimates are made; however, actual results could differ from those estimates.
One significant item subject to such estimates and assumptions is the inventory valuation allowance. These estimates are often
based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable.
Actual results could differ from these estimates. Cash
and cash equivalents 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 and cash equivalents. The Company's cash and cash
equivalents consist of cash on hand and cash in bank, as of March 31, 2019 and 2018. Revenue
recognition The
Company recognized revenue for the year ended March 31, 2018 in accordance with the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 605, " Revenue Recognition The
Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow
to the entity, and specific criteria have been met for each of the Company's activities as described below. The
Company sells paddy and selenium-enriched paddy products, rice and other agricultural products. All revenue is recognized when
it is both earned and realized. The Company's policy is to recognize the sale when the products, ownership and risk of loss
have transferred to the purchasers, and collection of the sales proceeds is reasonably assured, all of which generally occur when
the customer receives the products. Given
the nature of this revenue source of the Company's business and the applicable rules guiding revenue recognition, the revenue
recognition practices for the sale do not contain estimates that materially affect results of operations nor does the Company
have any policy for return of products. Effective
April 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products and contracts by applying the following steps: (1) identify the contract with a
customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
There was no impact on the Company's financial statements as a result of adopting Topic 606 for the year ended March 31,
2019. Fair
Value Measurements The
Company applies the provisions of ASC 820, Fair Value Measurements Fair
value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In determining the fair value for the assets and liabilities required or
permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact, and it considers
assumptions that market participants would use when pricing the asset or liability. ASC
820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may 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). There
were no transfers between level 1, level 2 or level 3 measurements during the years ended March 31, 2019 and 2018. Financial
assets and liabilities of the Company primarily consists of cash, prepayments and deferred expenses, inventories, other receivables,
accounts payable and accrued liabilities, customer deposits, due to related parties, and other payables. As at March 31, 2019
and 2018, 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, 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,
2019 2018
(USD to RMB/USD to HKD) (USD to RMB)
Assets and liabilities period end exchange rate 6.7111 / 7.8493 6.2807
Revenue and expenses period average 6.7108 / 7.8416 6.6269 Income
taxes The
Company follows FASB ASC Topic 740, Income Taxes 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 740-10-30, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized
in the first subsequent financial reporting period in which that threshold is met. Under ASC 740-10-40, previously recognized
tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial
reporting period in which that threshold is no longer met. The
application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of
regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result
in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax
asset valuation allowance. Lvxin
products sales and services have been exempt from enterprise income tax. According to the "PRC Income Tax Law" Article
27 (1), income from agricultural, forestry, animal husbandry and fisheries Industries shall be exempt from business tax. According
to the "PRC Income Tax Law", Tianci Liantian and Yuxinqi are subject to a 25% standard enterprise income tax in the
PRC. Earnings
(loss) per share The
Company computes earnings (loss) Earnings 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. Share-Based
Compensation The
Company has adopted the provisions of ASC 718 requiring employee equity awards to be accounted for under the fair value method.
Accordingly, share-based compensation is measured at grant date, based on the fair value of the award and recognized over its
vesting period. No equity instruments were granted during the year ended March 31, 2018 and no compensation expense is required
to be recognized under provisions of ASC 718 with respect to employees. During the year ended March 31, 2019, specifically on
June 13, 2018, the Company granted a total of 290,000 shares with a fair value on the grant date of $1.30 per share to 8 employees,
and $377,000 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 FASB ASC Topic 280, Segment Reporting Concentration
of Credit Risk The
Company maintains cash balances in four banks in China. In China, the insurance coverage of each bank is RMB500,000 (approximately
USD$75,000). As of March 31, 2019, the Company did not have any balance that exceeded the insurance amounts. As
of March 31, 2019 and 2018, the Company has customer deposits of $164,362 and $31,844 from nine customers and one customers respectively.
As of March 31, 2019, Shouhang Commerce and Trade represented 76.2% of total customer deposits. As of March 31, 2018, Zhao Zhilian
represented 100% of total customer deposits. During the year ended March 31, 2019, major customers Li Jiaxu, Sun Rongmao, Zhao
Shihai and Shouhang commerce and trade Ltd. generated 21%, 18%, 33% and 20% of revenue, respectively. During the year ended March
31, 2018, State Grain Reserves Shuangyashan Storage, Tan Gang, Wang Changyu, Li Jicai, Zhang Yong generated
26%, 20%, 15%, 13% and 13% of revenue, respectively. As of March 31, 2019 and 2018, the Company
has prepayments and deferred expenses of $121,257 and $159,075, respectively, with three and one vendors, respectively. As of March
31, 2019, Taole Agricultural Means of Production represented 70% of total prepayments. For the years ended March 31, 2019 and 2018,
the Company's purchases from this vendor totaled $134,705 and $161,860, respectively. Recently
issued accounting pronouncements In
July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional, optional
transition method related to implementing the new leases standard. ASU 2018-11 provides that companies can initially apply the
new leases standard at adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. Management is evaluating the new guidance and expects to report increased assets and liabilities as a result
of recording right-of-use assets and lease liabilities. We will adopt this guidance for our interim and annual periods beginning
after March 31, 2019. In
February 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-02, Income Statement - Reporting
Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income In
July 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-11, Earnings Per Share (Topic 260); Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) In
May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: (Topic 718): Scope of Modification Accounting In
January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-01, Business Combinations (Topic 805)
- Clarifying the Definition of a Business In
March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients In
February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use ("ROU") model
that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than
12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition
in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with
certain practical expedients available. The Company is currently evaluating the impact the adoption of this new standard will
have on its consolidated financial statements. Upon the adoption of this standard, the Company believes it will recognize a ROU
asset in the range of approximately $1.8 to $2.1 million and a corresponding lease liability in the same amount. We
do not believe other 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. |
