10-Q 1 f10q0920_orancoinc.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

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 000-28181

 

ORANCO, INC.

(Exact name of registrant as specified in charter)

 

Nevada   87-0574491
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
One Liberty Plaza, Suite 2310 PMB# 21,
New York, NY 10006
  10006
(Address of principal executive offices)   (Zip Code)

 

(646)7593614

(Registrant’s telephone number, including area code)

 

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 and posted every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A        

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date

 

Class   Outstanding as of January 4, 2022
Common Stock, $0.001   41,968,757

 

 

 

 

 

 

INDEX

 

    Page
    Number 
PART I.  
     
ITEM 1. Financial Statements (unaudited) 1
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
ITEM 4. Controls and Procedures 24
     
PART II.    
     
ITEM 1. Legal Proceedings 27
     
ITEM 1A. Risk Factors 27
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
ITEM 3. Defaults Upon Senior Securities 27
     
ITEM 4. Mine Safety Disclosures 27
     
ITEM 5. Other Information 27
     
ITEM 6. Exhibits 27
     
Signatures 28

  

i

 

 

FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. Forward-looking statements may appear throughout this report and other documents we file with the Securities and Exchange Commission (SEC), including without limitation, the following sections: Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

 

Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “may,” “could,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ORANCO, INC.

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

 

ORANCO, INC.

 

TABLE OF CONTENTS

 

    Page
     
Financial Statements:    
     
Consolidated Balance Sheets   2
     
Consolidated Statements of Comprehensive Income   3
     
Consolidated Statements of Shareholders’ Equity   4
     
Consolidated Statements of Cash Flows   5
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   6

 

1

 

 

ORANCO, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited) 

(Amounts in RMB and US$, except for number of shares and per share data)

 

   (unaudited)     
   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
ASSETS:                
Current assets                
Cash and cash equivalents   93,910,376    13,831,503    87,050,226    12,321,160 
Inventories   11,330,857    1,668,855    12,735,975    1,802,660 
Accounts receivable, net   44,984,419    6,625,489    29,594,130    4,188,777 
Other current assets   28,362,060    4,177,280    35,847,104    5,073,827 
Prepaid land lease and other leases   609,680    89,796    652,465    92,350 
Total current assets   179,197,392    26,392,923    165,879,900    23,478,774 
                     
Non-current assets                    
Investment   1,000,000    147,284    1,000,000    141,541 
Property and equipment   2,701,290    397,857    2,889,437    408,973 
Prepaid land lease and other leases   8,620,974    1,269,732    8,731,727    1,235,897 
Total non-current assets   12,322,264    1,814,873    12,621,164    1,786,411 
Total assets   191,519,656    28,207,796    178,501,064    25,265,185 
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY                    
Current liabilities                    
Accounts payable   700,451    103,165    667,451    94,472 
Receipts in advance, accrued expenses and other current liabilities   5,967,209    878,875    5,787,006    819,097 
Amount due to Director   18,678,214    2,751,004    18,625,841    2,636,317 
Current tax liabilities   4,034,364    594,197    2,983,469    422,283 
Total current liabilities   29,380,238    4,327,241    28,063,767    3,972,169 
Non-current liabilities                    
Amount due to Director   81,781,805    12,045,158    81,781,805    11,575,463 
Total liabilities   111,162,043    16,372,399    109,845,572    15,547,632 
                     
Shareholders’ equity                    
Number of authorized shares with par value US$0.001   50,000,000    50,000,000    50,000,000    50,000,000 
Number of issued shares   41,948,748    41,948,748    41,948,748    41,948,748 
                     
Equity                    
Fully paid shares   276,523    40,727    276,523    39,139 
Additional paid-in capital   2,488,705    366,547    2,488,705    377,538 
Retained earnings   77,592,385    11,428,123    65,890,264    9,300,876 
Total shareholders’ equity   80,357,613    11,835,397    68,655,492    9,717,553 
Total liabilities and shareholders’ equity   191,519,656    28,207,796    178,501,064    25,265,185 

 

The accompanying notes are an integral part of the consolidated financial statements. 

 

2

 

 

ORANCO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Amounts in RMB and US$, except for number of shares and per share data)

 

   Three months
ended
September 30,
2020
   Three months
ended
September 30,
2019
 
   RMB   US$   RMB   US$ 
                 
Revenue   26,115,339    3,846,374    25,667,997    3,591,085 
    26,115,339    3,846,374    25,667,997    3,591,085 
                     
Cost of sales   7,311,946    1,076,933    7,413,971    1,037,253 
Selling and distribution expenses   1,231,658    181,404    877,871    122,819 
Administrative expenses   1,925,114    283,539    3,412,079    477,367 
    10,468,718    1,541,876    11,703,921    1,637,439 
                     
Other income   66,288    9,763    45,852    6,415 
Interest and other financial charges   225    33    19,455    2,722 
Income before income taxes   15,712,684    2,314,228    13,990,473    1,957,339 
                     
Income taxes   4,010,563    590,692    3,938,273    550,985 
Net Income   11,702,121    1,723,536    10,052,200    1,406,354 
                     
Earnings per share:                    
Basic and diluted earnings per share   0.28    0.04    0.24    0.03 

 

The accompanying notes are an integral part of the consolidated financial statements. 

 

3

 

 

ORANCO, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(Amounts in RMB and US$, except for number of shares and per share data)

 

   Share
capital
   Additional
paid-in
capital
   Retained
earnings
   Total
shareholders’
equity
 
                 
Balance at June 30, 2019   2,765,228    -    42,221,170    44,986,398 
                     
Total comprehensive income for the period   -    -    10,052,200    10,052,200 
Reverse split (Note a)   (2,488,705)   2,488,705    -    - 
                     
Balance at September 30, 2019   276,523    2,488,705    52,273,370    55,038,598 
                     
Balance at September 30, 2019 (US$)   38,687    348,183    7,313,312    7,700,182 
                     
Balance at June 30, 2020   276,523    2,488,705    65,890,264    68,655,492 
                     
Total comprehensive income for the year   -    -    11,702,121    11,702,121 
                     
Balance at September 30, 2020   276,523    2,488,705    77,592,385    80,357,613 
                     
Balance at September 30, 2020 (US$)   40,727    366,547    11,428,123    11,835,397 

 

Note a:

 

On August 7, 2019, Oranco, Inc. effected a one-for-ten reverse split of its issued common stock (the “Reverse Split”) and decreased the number of authorized shares of common stock of the Company (“Common Stock”) from 500,000,000 to 50,000,000.

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4

 

 

ORANCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in RMB and US$, except for number of shares and per share data) 

 

   Three months
ended
September 30,
2020
   Three months
ended
September 30,
2019
 
   RMB   US$   RMB   US$ 
Operating activities                
Net income   11,702,121    1,723,536    10,052,200    1,406,353 
Adjustments:                    
Depreciation and amortization   341,685    31,841    173,388    24,258 
Changes in assets and liabilities, net of effects of acquisitions:                    
Inventories   1,405,118    206,952    73,503    10,283 
Accounts receivable, net   (15,390,289)   (2,266,745)   (1,337,218)   (187,084)
Other current assets   7,485,044    1,120,912    8,049,008    1,126,098 
Accounts payable   33,000    4,860    91,435    12,792 
Receipts in advance, accrued expenses and other current liabilities   180,203    26,541    1,371,624    191,897 
Current tax liabilities   1,050,895    154,780    532,086    74,442 
Amount due to Director   52,373    7,714    925,660    129,505 
Cash generated from operating activities   6,860,150    1,010,391    19,931,686    2,788,544 
                     
Investing activities                    
Acquisition of ROU assets   -    -    (342,277)   (48,446)
Payments for acquisition of property and equipment and other leases   -    -    (4,878)   (690)
Cash used in investing activities   -    -    (347,155)   (49,136)
                     
Financing activities                    
Proceeds of bank borrowings   -    -    500,000    69,953 
Cash generated from financing activities   -    -    500,000    69,953 
                     
Effect of exchange rate on cash   -    499,952    -    (306,293)
Increase in cash and cash equivalents   6,860,150    1,010,391    20,431,686    2,788,544 
Cash and cash equivalents, beginning of the period   87,050,226    12,321,160    53,163,966    7,744,205 
Cash and cash equivalents, end of the period   93,910,376    13,831,503    73,595,652    10,296,410 
                     
Supplemental disclosure of cash flows information                    
Cash paid during the period for interest   -    -    (19,455)   (2,722)
Cash paid during the period for income taxes   2,959,668    435,912    (3,404,793)   (476,348)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in RMB and US$, except for number of shares and per share data)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

  (a) Description of Business

 

Oranco, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on June 16, 1977. The Company has been in the business of the development of mineral deposits. During 1983 all activities were abandoned, and the Company had remained inactive until June 29, 2018 when it acquired the business of Reliant Galaxy International Limited (“Reliant”). The Company and its subsidiaries (the “Group”) are principally engaged in marketing and wholesale of own-brand spirits and wine in the People’s Republic of China (the “PRC”).

  

Details of the subsidiaries are set out in note 18 to the consolidated financial statements.

 

  (b) Basis of consolidation and presentation

 

The Consolidated Financial Statements include the financial statements of Oranco, Inc. and its wholly owned subsidiaries.

 

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

 

The accompanying financial statements have been prepared in accordance with the U.S. generally accepted accounting principles or GAAP. The Company operates in one reportable segment and solely within the PRC. Accordingly, no segment or geographic information has been presented.

  

  (c) Financial instruments

 

Financial instruments of the Group primarily consist of cash and cash equivalents, trade receivables, deposits, prepayments and other receivables, prepaid land lease, trade payables, receipts in advance, accruals and other payables, and bank borrowings. The carrying values of the Group’s financial instruments approximate their fair values, principally because of the short-term maturity of these instruments or their terms.

 

The Group has no derivative financial instruments.

 

  (d) Cash and cash equivalents

 

Cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased.

 

6

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (e) Revenue recognition

 

Our revenue consists primarily of the sale of own-brand products, wine, and co-branded products with Fenjiu Liquor in the China. Sales of products are for cash or otherwise agreed-upon credit terms. Our payment terms vary by location and customer. Our customers consist primarily of wholesale distributors. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are delivered to the customer, depending upon the method of distribution, and shipping terms. We have elected to treat transportation as a fulfillment activity. Revenue is measured as the amount of consideration we expect to receive in exchange for our product. Our sales terms do not allow for a right of return except for matters related to any manufacturing defects on our part. Certain customers receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues. We believe that there will not be significant changes to our estimates of variable consideration.

 

  (f) Non-marketable investments

 

We account for non-marketable equity investments through which we exercise significant influence but do not have control over the investee under the equity method. Our non-marketable equity securities not accounted for under the equity method are primarily accounted for under the measurement alternative. Under the measurement alternative, the carrying value of our non-marketable equity investments is adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment. Adjustments are determined primarily based on a market approach as of the transaction date and are recorded as a component of other income (expense), net. Non-marketable investments that do not have stated contractual maturity dates are classified as non-current assets on the Consolidated Balance Sheets

 

  (g) Impairment of investments

 

We periodically review our non-marketable equity investments for impairment. We consider whether impairment indicators exist by evaluating the companies’ financial and liquidity position, access to capital resources and the time since the last adjustment to fair value, among others. If the assessment indicates that the investment is impaired, we write down the investment to its fair value by recording the corresponding charge as a component of other income (expense), net. Fair value is estimated using the best information available, which may include cash flow projections or other available market data.

  

  (h) Accounts receivable and allowance for credit loss

 

Accounts receivables are stated at the amount the Group expects to collect. The Group maintains allowances for doubtful accounts for estimated losses. Management considers the following factors when determining the collectability of specific accounts: historical experience, creditworthiness of the clients, aging of the receivables and other specific circumstances related to the accounts. Allowance for doubtful accounts is made and recorded into general and administrative expenses based on the aging of trade receivables and on any specifically identified receivables that may become uncollectible. Trade receivables which are deemed to be uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company takes a write-off of the account balances when the Company can demonstrate all means of collection on the outstanding balances have been exhausted. For the period ended September 30, 2020, our assessment considered the impact of COVID-19 and estimates of expected credit and collectability trends. Volatility in market conditions and evolving credit trends are difficult to predict and may cause variability and volatility that may have an impact on our allowance for credit losses in future periods. There is no allowance for doubtful accounts in these Consolidated Financial Statements.

 

7

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (i) Inventory

 

Inventory consists of raw materials, processing cost of finished goods and finished products. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Group routinely evaluate the net realizable value of the inventories in light of current market conditions and market trends and record a write-down against the cost of inventories should the net realizable value falls below the cost.

 

  (j) Property and equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation and any recorded impairment. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

 

Category   Estimated useful life   Estimated residual values
Building   20 years   0-10%
Computer and office equipment   3 years   0-10%
Leasehold improvement   Over the shorter of lease term or the estimated useful lives of the assets

 

Repairs and maintenance are expensed as incurred and asset improvements are capitalized. Consideration is given at each balance sheet date to determine whether there is any indication of impairment of the carrying amounts of the property, plant and equipment. The indication could be an unfavorable development of a business or severe economic slowdown as well as reorganization of the operation. In assessing value in use, the estimated future cash flows are discounted to their present value, based on the time value of money and the risks specific to the country where the assets are located.

 

  (k) VAT and VAT refund

 

VAT on sales is charged at 13% on revenue from product sale and is subsequently paid to the PRC tax authorities after netting input VAT on purchases. The excess of output VAT over input VAT is recognized in other payables, and the excess of input VAT over output VAT is recognized in other receivables in the Consolidated Balance Sheets.  

 

  (l) Operating leases

 

We determine if an arrangement is a lease at inception. Payments under our lease arrangements are fixed. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable, lease term when determining the lease assets and liabilities. Lease assets also include any prepaid lease payments and lease incentives. The current portion of our operating lease liabilities is included in accrued expenses and other current liabilities. Should there be long term portion, the non-current lease liabilities will be included in operating lease liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.

 

8

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (m) Foreign currency translation

 

All of the Group’s operations are conducted in China and as a result, the functional and reporting currency of the Group is the Chinese Renminbi.

 

Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Transactions in currencies other than the functional currency are converted into the functional currency at the applicable rates of exchange prevailing at the transaction dates. Transaction gains and losses are recognized in the consolidated statements of operations.

 

In translating the financial statements of the Company’s subsidiaries outside the PRC into the reporting currency, assets and liabilities are translated from the subsidiaries’ functional currencies to the reporting currency at the exchange rate at the balance sheet date. Equity amounts are translated at historical exchange rates; revenues, expenses, and other gains and losses are translated using the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income/(loss) in the consolidated statements of comprehensive income. During 2020 and 2019, such translation adjustments were not material.

 

The Group uses the average exchange rate for the year and the exchange rate at the balance sheet date to translate the operating results and financial position, respectively.

 

Convenience translation

 

Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB 6.7896 on September 30, 2020 and RMB 7.0651 on June 30, 2020, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be converted, realized or settled into US$ at such rate or at any other rate.

 

  (n) Income taxes

 

Income taxes are provided for in accordance with the laws and regulations applicable to the Group as enacted by the relevant tax authorities. The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit of the related tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Group records interest and penalties related to unrecognized tax benefits (if any) in interest expenses and general and administrative expenses, respectively.

 

  (o) COVID-19 impact

 

The novel coronavirus, or COVID-19, pandemic has created, and may continue to create, significant uncertainty in macroeconomic conditions. The full extent to which the COVID-19 pandemic will directly or indirectly impact the global economy, the lasting social effects, and impact on the Company’s business, results of operations, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. As of the date of issuance of the financial statements, the Company is not aware of any specific event of circumstance related to COVID-19 that would require it to update its estimates or judgments or adjust the carrying value of its assets or liabilities. Actual results could differ from those estimates and any such differences may be material to the consolidated financial statements. As events continue to evolve and additional information becomes available, the Company’s estimates and assumptions may change materially in future periods.

 

9

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (p) Fair value measurement

 

The Group defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group 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.

 

The Group’s financial instruments include cash and cash equivalents, accounts receivable, other receivables, accounts payable, other payables. The Group considers the carrying amounts approximate fair value because of the short maturity of these financial instruments.

 

  (q) Business combinations

 

We include the results of operations of the businesses that we acquire as of the acquisition date. We allocate the purchase price of the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

 

  (r) Transactions between entities under common control

 

When accounting for a transfer of assets or exchange of shares between entities under common control of the Group, the carrying amounts of the assets and liabilities transferred shall remain unchanged subsequent to the transaction, and no gain or loss shall be recorded in the Group’s consolidated statements of operations.

 

  (s) Commitments and contingencies

 

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.

 

  (t) Stock split

 

On July 22, 2019, the Company’s board of directors approved an amendment to its certificate of incorporation to effect a split of shares of the issued and outstanding common at a ‘one share for every ten shares’ ratio. The stock split was approved by the Company’s stockholders and effected on August 7, 2019.

 

We record the reverse stock split to reduce the common stock and increase additional paid-in capital.

 

All issued and outstanding shares of common stock amounts contained in these consolidated financial statements have been adjusted to reflect these stock splits for all periods presented.

 

10

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

  (u) Software development costs

 

We expense software development costs, including costs to develop software products or the software to be sold, leased or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products and as a result, development costs that meet the criteria for capitalization were not material for the periods presented.

 

Software development costs also include costs to develop software to be used solely to meet internal needs. We capitalize development costs related to these software applications once the preliminary project sage is complete and it is probable that the project will be complete, and the software will be used to perform the function intended. Costs capitalized for developing such software applications were not material for the periods presented.

 

  (v) Recently issued accounting pronouncements not yet adopted

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under current GAAP, there are five accounting models for convertible debt instruments. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, the FASB decided to add disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital. ASU 2020-06 will be effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of the adoption of this accounting pronouncement to its financial statements.

 

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations. 

 

11

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

2. REVENUE AND OTHER INCOME

 

Revenue represents the invoiced spirits and wine products sold to customers less discounts, returns, and surcharges.

 

   Three months
ended
September 30,
2020
   Three months
ended
September 30,
2019
 
   RMB   US$   RMB   US$ 
Revenue   26,115,339    3,846,374    25,667,997    3,591,085 
Other income   66,288    9,763    45,852    6,415 
    26,181,627    3,856,137    25,713,849    3,597,500 

 

All revenue is derived in China. A concentration analysis of the revenue is as follows:

 

   September 30,
2020
   September 30,
2019
 
Customer A   16%   16%
Customer B   14%   16%
Customer C   11%   42%
Customer D   11%   12%
Customer E   11%   12%
Customer F   9%   10%
Others   28%   21%
    100%   100%

 

3. PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net, consist of the following:

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Computer and office equipment   339,509    50,004    334,631    47,364 
Building   3,754,625    552,996    3,754,625    531,433 
Add: Computer and leasehold improvement   -    -    4,878    690 
    4,094,134    603,000    4,094,134    579,487 
Less: accumulated depreciation   (1,392,844)   (205,143)   (1,204,697)   (170,514)
Property, plant and equipment, net   2,701,290    397,857    2,889,437    408,973 

 

12

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

4. PREPAID LAND LEASE AND OTHER LEASES

 

Prepaid land lease and other leases net, consists of the following:

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Prepaid land lease   10,754,396    1,583,951    10,754,396    1,522,187 
Less: accumulated amortization   (1,523,742)   (224,422)   (1,370,204)   (193,940)
   9,230,654    1,359,529    9,384,192    1,328,247 

 

The carrying amounts of the prepaid land lease and other leases are analyzed as:

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Current assets   609,680    89,796    652,465    92,350 
Non-current assets   8,620,974    1,269,733    8,731,727    1,235,897 
    9,230,654    1,359,529    9,384,192    1,328,247 

 

Prepaid land lease represents the cost of the rights of the use of the land in respect of leasehold land in the PRC, on which the Group’s buildings are situated. Prepaid other leases represent the leases of warehouse and offices in the PRC. The prepaid land lease’ terms are 70 years, ending in 2082.

 

The other lease consists of the prepayment made in full for the lease of a warehouse for 10 years starting from August 12, 2019.

 

5. INVENTORIES

 

Inventories consist of the following:

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Raw materials   8,733,290    1,286,275    8,880,631    1,256,971 
Finished goods   2,435,516    358,712    3,693,293    522,752 
Packaging material   162,051    23,868    162,051    22,937 
    11,330,857    1,668,855    12,735,975    1,802,660 

  

6. ACCOUNTS RECEIVABLE, NET

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Accounts receivable, net   44,984,419    6,625,489    29,594,130    4,188,777 
    44,984,419    6,625,489    29,594,130    4,188,777 

 

The Group normally allows credit terms to well-established customers ranging from 30 to 150 days. The Group seeks to maintain strict control over its accounts receivable. Overdue accounts receivable are reviewed regularly by the Board of Directors.

 

13

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

7. OTHER CURRENT ASSETS

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Prepaid expenses   27,556,972    4,058,703    35,144,544    4,974,387 
Other receivables   805,088    118,577    702,560    99,440 
    28,362,060    4,177,280    35,847,104    5,073,827 

 

8. CASH AND CASH EQUIVALENTS

 

  

September 30,

2020

   June 30,
2020
 
   RMB   US$   RMB   US$ 
Cash on hand   215,048    31,673    353,758    50,071 
Cash held in banks   93,695,328    13,799,830    86,696,468    12,271,089 
    93,910,376    13,831,503    87,050,226    12,321,160 

 

Cash held in banks earns interest at floating rates based on daily bank deposit rates.

 

9. ACCOUNTS PAYABLE

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Accounts payable   700,451    103,165    667,451    94,472 
    700,451    103,165    667,451    94,472 

 

For the larger suppliers, the Group makes payment in advance for the inventories. For the smaller suppliers, the Group obtains credit terms ranging from 30 to 90 days.

 

A concentration analysis of the suppliers based on the purchases made during the period is as follows:

 

   September 30,
2020
   September 30,
2019
 
Supplier A   99%   52%
Supplier B   1%   37%
Supplier C   0%   8%
Supplier D   0%   2%
    100%   100%

 

14

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

10. RECEIPTS IN ADVANCE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Receipts in advance, accrued expenses and other current liabilities consist of the following:

 

  

September 30,

2020

  

June 30,

2020

 
   RMB   US$   RMB   US$ 
Accrued payroll and bonus   305,832    45,044    291,877    41,313 
Accrued and other payables   3,241,870    477,478    3,767,422    533,245 
Other tax payables   1,531,657    225,589    838,277    118,650 
Receipts in advance   887,850    130,764    889,430    125,889 
    5,967,209    878,875    5,787,006    819,097 

 

11. AMOUNT DUE TO DIRECTOR

 

  

September 30,

2020

  

June 30,

2020

 
   RMB   US$   RMB   US$ 
Current liabilities   18,678,214    2,751,004    18,625,841    2,636,317 
Non-current liabilities   81,781,805    12,045,158    81,781,805    11,575,463 
    100,460,019    14,796,162    100,407,646    14,211,780 

 

The short-term loans due to director is interest-free, unsecured and repayable on demand.

 

The non-current liabilities are repayable in instalments over 15 years from 2019 onwards. The Director has not demanded repayment from the Group during the period ended September 30, 2020 and will not be seeking repayment that may cause stress on the Group’s working capital.

 

15

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

12. SHARE CAPITAL AND CAPITAL MANAGEMENT

 

   Issued and fully paid   Shares to be issued   Additional
paid-in
capital
   Total share capital 
Company  Number of
shares
   Value
US$
   Value
RMB
   Number of
shares
   Value
US$
   Value
RMB
   Value
US$
   Value
RMB
   Value
RMB
 
                                     
At June 30, 2018   98,191,480    98,191    638,708    321,296,000    321,296    2,126,520    -    -    2,765,228 
Shares issued – note a   321,296,000    321,296    2,126,520    (321,296,000)   (321,296)   (2,126,520)   -    -    - 
Foreign currency translation   -    (16,686)   -    -    -    -    -    -    - 
At June 30, 2019   419,487,480    419,487    2,765,228    -    -    -    -    -    2,765,228 
Shares reverse split – note b   (377,538,732)   (377,538)   (2,488,705)   -    -    -    377,538    2,488,705    - 
Foreign currency translation   -    (2,810)   -    -    -    -    -    -    - 
At June 30, 2020   41,948,748    39,139    276,523    -    -    -    377,538    2,488,705    2,765,228 
Foreign currency translation   -    1,588    -    -    -    -    10,991    -    - 
At September 30, 2020   41,948,748    40,727    276,523    -    -    -    366,547    2,488,705    2,765,228 

 

Each share has a nominal value of US$0.001 per share.

 

Note: 

 

a. The 321,296,000 shares at $0.001 per share are part of the consideration of the acquisition of Reliant Galaxy International Limited by the Company were issued on May 29, 2019. The aggregated nominal value of the shares is US$321,296.

 

b. On July 22, 2019, the Company filed a Certificate of Amendment with the Secretary of State of Nevada to effect a reverse stock split of the issued and outstanding shares of its common stock at a ratio of one share for every 10 shares outstanding prior to the effective date of the reverse stock split. All current and historical information contained herein related to the share and per share information for the Company’s common stock or stock equivalents reflects the 1-for-10 reverse stock split of the Company’s outstanding shares of common stock that became market effective on August 7, 2019.

 

16

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

13. INCOME TAXES

 

The Company is subject to taxes in the USA. The Company has had no taxable income under Federal or State tax laws. The Company has loss carryforwards totaling US$24,581 that may be offset against future federal income taxes. If not used, the carryforwards will expire 20 years after they are incurred.

 

The Company’s BVI subsidiary is not subject to taxation.

 

The Company’s Hong Kong subsidiary is subject to taxes in Hong Kong. The Hong Kong subsidiary has had no taxable income.

 

The Company’s PRC subsidiaries are subject to taxes in China. The applicable PRC statutory income tax rate is 25% according to the Enterprise Income Tax Law.

 

A reconciliation of the income tax expenses is set out below:

 

  

Three months
ended
September 30,

2020

  

Three months
ended
September 30,
2019

 
   RMB   US$   RMB   US$ 
Profit before income tax   15,712,684    2,314,228    13,990,473    1,957,339 
Taxation at the applicable tax rate of 25%/16.5%/21%   3,928,171    578,557    3,497,619    489,335 
Tax effect on non-taxable income   (84,227)   (12,405)   (11,464)   (1,604)
Tax effect of expenses that are not deductible   166,619    24,540    452,118    63,254 
Income taxes   4,010,563    590,692    3,938,273    550,985 

 

14. CONTRIBUTION PLAN IN THE PRC

 

As stipulated by the PRC state regulations, the subsidiaries in the PRC participate in the state-run defined contribution retirement scheme. All employees are entitled to an annual pension payment equal to a fixed proportion of the average basic salary of the geographical area of their last employment at their retirement date. The PRC subsidiaries are required to make contributions to the local social security bureau at 29.4% to 37.4% of the previous year’s average basic salary amount of the geographical area where the employees are under employment with the PRC subsidiaries. The Group has no obligation for the payment of pension benefits beyond the annual contributions.

 

According to the relevant rules and regulations of the PRC, the PRC subsidiaries and their employees are each required to make contributions to an accommodation fund at 9% of the salaries and wages of the employees which are administered by the Public Accumulation Funds Administration Centre. There is no further obligation for the Group except for such contributions to the accommodation fund. The Group had no significant obligation apart from the contributions.

 

17

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

15. SHORT-TERM OPERATING LEASE

 

On September 30, 2019, the Company adopted ASU 2016-02 using the modified retrospective method as of the effective date of September 30, 2019 (the “effective date method”). Under the effective date method, financial results reported prior to 2019 are unchanged. In transition to the new lease guidance, the Company elected the package of practical expedients permitted under the transition guidance within the new standard that allowed the Company to not reassess whether a contract is or contains a lease, lease classification and initial direct costs; however, the Company did not elect the hindsight transitional practical expedient. The Company has also elected the practical expedient to not account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components. After assessment of the cumulative impact of adopting ASU 2016-02, it was determined that the cumulative effect adjustment required under the new guidance was immaterial and therefore the Company did not record a retrospective adjustment to the opening balance of retained earnings at September 30, 2020. The Company has not recognised any additional short-term operating lease right-of-use assets or lease liabilities as of September 30, 2020. 

 

The Company is a lessee under a number of operating leases for offices and staff residence. The Company’s leases generally have remaining lease terms of 3 months to 1 years and some of which include options to terminate the leases within 1 year. These leases do not have rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. 

 

Supplemental information related to leases and the Company’s Consolidated Financial Statements is as follows:

 

   September 30,
2020
 
   RMB 
Operating lease costs   230,878 

 

   September 30,
2020
 
Weighted average remaining lease term (years) of operating leases:   Nil 
      
Weighted average discount rate of operating leases:   2.9%

 

   September 30,
2020
 
   RMB 
Right-of-use assets                   - 
Total lease liabilities   - 

 

The Group has total future minimum lease payments under non-cancellable operating lease payable as follows: 

 

   September 30,
2020
   September 30,
2019
 
   RMB   US$   RMB 
Within 1 year         -          -    792,694 
After 1 year but within 2 years   -    -    4,500 
    -    -    797,194 

 

Note:

 

1.The Company made full prepayments for the non-cancellable operating leases and the prepayments would be utilized according to the lease terms.

 

18

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

  

16. RELATED PARTY BALANCES AND TRANSACTIONS

 

The Group had the following transactions with related party balance during the financial periods:

 

   September 30,
2020
   June 30,
2020
 
   RMB   US$   RMB   US$ 
Current liabilities   18,678,214    2,751,004    18,625,841    2,636,317 
Non-current liabilities   81,781,805    12,045,158    81,781,805    11,575,463 
    100,460,019    14,796,162    100,407,646    14,211,780 

 

The balance represented the amount due to Director, Mr. Peng Yang, for the period ended as at September 30, 2020.

 

17. CONTINGENT LIABILITIES

 

At the end of each reporting period, neither the Group nor the Company had any significant contingent liabilities.

   

18. DETAILS OF SUBSIDIARIES

 

Company name  Place and date of
incorporation
  Capital  Attributable equity
interest
  Principal activities
             
Reliant Galaxy International Limited  Established in British Virgin Islands on
January 3, 2017
  Registered and paid-in capital of RMB 69,100  100%  Investment holding
             
Sure Rich Investment
(Group) Limited
  Established in
Hong Kong
On February 1, 2007
  Share capital
RMB 1
  100%  Investment holding
             
Fujian Jinou Trading Co., Ltd.  Established in the PRC on July 5, 2004  Registered and paid-in capital of US$ 1,650,000  100%  Investment holding and marketing own-brand and wholesaling of spirits
             
Fenyang Huaxin Spirit Development Co., Ltd.  Established in the PRC on November 7, 2013  Registered and Paid-in capital of RMB 1,000,000  100%  Marketing own-brand  and wholesaling of spirits and wines
             
Fenyang Jinqiang Spirit Co., Ltd.  Established in the PRC on November 7, 2013  Registered capital 10,000,000 and Paid-in capital of RMB 5,000,000  100%  Marketing own-brand and wholesaling of spirits
             
Beijing Huaxin Tianchuang Enterprise Management Consulting Co., Ltd.  Established in the PRC on April 14, 2018  Registered and issued capital of RMB1,000,000  51%
Note (i)
  Dormant

 

Note:

 

(i) The subsidiary was registered with payable share capital and the Company committed to pay up its share of the issued capital in the amount of RMB 510,000 on March 31, 2037, which is 20 years from the date of incorporation permitted by the Regulation of the People’s Republic of China on Company Registration. The amount due to the subsidiary is interest-free and unsecured.

 

19

 

 

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

(Amounts in RMB and US$, except for number of shares and per share data)

 

19. INVESTMENT

 

Company name  Place and date of
incorporation
  Capital  Attributable equity
interest
  Principal activities
             
Guangzhou Silicon Technology Co., Ltd  Established in the PRC on September 8, 2015  Registered and issued capital of RMB5,000,000  20%  Development, sale and provision of software solutions

 

Note:

 

(i) On September 1, 2018, Fenyang Huaxin Spirit Development Co., Ltd acquired 20% of Guangzhou Silicon Technology Co., Ltd which then became an associate of the Company.

 

20

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

On June 29, 2018, Oranco, Inc. completed and closed a share exchange transaction (the “Share Exchange”) under a share exchange agreement (the “Share Exchange Agreement”), entered into by (i) Oranco, Inc. (the “Company”); (ii) Reliant Galaxy International Limited, a British Virgin Islands company with limited liability (“Reliant”); and (iii) the shareholders of Reliant (“Sellers”), pursuant to which Reliant became a wholly owned subsidiary of ours. Pursuant to the Share Exchange Agreement, the Company acquired from the Sellers all of the issued and outstanding equity interests of Reliant in exchange for 349,296,000 newly issued shares of common stock; 28,000,000 were issued at the closing date of June 29, 2018, and the remaining 321,296,000 shares were issued to the Sellers on May 29, 2019. As a result of the Share Exchange, the Sellers, as the former shareholders of Reliant, became the controlling shareholders of the Company. The Share Exchange was accounted for under the business combination under common control method of accounting.

 

As disclosed in the Form 8-K filed with the Securities and Exchange Commission on August 7, 2019, the Company filed a Certificate of Change Pursuant to NRS 78.209 (the “Certificate of Change”) with the Secretary of State of Nevada to effect a ten-for-one reverse stock split of the issued and outstanding shares of the Company’s common stock, par value $0.001 per share (the “Reverse Split”). The Certificate of Change was filed on July 22, 2019 and the Reverse Split became effective on August 7, 2019. The Company’s shares of common stock began trading on a reverse stock split adjusted basis on the OTC Market on August 7, 2019. The trading symbol for the Company’s common stock remains as “ORNC”.

 

On September 1, 2018, Fenyang Huaxin Spirit Development Co., Ltd., a subsidiary of the Company, acquired 20% equity interest in Guangzhou Silicon Technology Co., Ltd., a company established in the People’s Republic of China. The acquisition of 20% equity interest in Guangzhou Silicon Technology Co., Ltd. was accounted as an interest in an associate.

 

Results of Operations

 

Overview

 

For the three months ended September 30, 2021 and 2020:

 

  

Three months ended

September 31, 2020

(Unaudited)

  

Three months ended

September 31, 2019

(Unaudited)

   Variance 
   RMB   USD   RMB   USD   RMB   %   USD   % 
Revenue   26,115,339    3,846,374    25,667,997    3,591,085    447,342    1.7%   225,289    7.1%
Cost of sales   7,311,946    1,076,933    7,413,971    1,037,253    (102,025)   (1.4)%   39,680    3.8%
Gross profit   18,803,393    2,769,441    18,254,026    2,553,832    549,367    3.0%   215,609    8.4%
Selling and distribution expenses   1,231,658    181,404    877,871    122,819    353,787    40.3%   58,585    47.7%
Administrative expenses   1,925,114    283,539    3,412,079    477,367    (1,486,965)   (43.6)%   (193,828)   (40.6)%
Income from operations   15,646,621    2,304,498    13,964,076    1,953,646    1,682,545    12.0%   350,852    18.0%
Other income   66,288    9,763    45,852    6,415    20,436    44.6%   3,348    52.2%
Interest and other financial charges   225    33    19,455    2,722    (19,230)   (98.8)%   (2,689)   (98.8)%
Income before income taxes   15,712,684    2,314,228    13,990,473    1,957,339    1,722,211    12.3%   356,889    18.2%
Income taxes   4,010,563    590,692    3,938,273    550,985    72,290    1.8%   39,707    7.2%
Net income   11,702,121    1,723,536    10,052,200    1,406,354    1,649,921    16.4%   317,182    22.6%

 

21

 

 

Revenue

 

    Three months ended  September 31, 2020 (Unaudited)       Three months ended  September 31, 2019 (Unaudited)   Variance 
   RMB   USD   %   RMB   USD   %   RMB   %   USD   % 
Sales of Fenjiu liquor products   23,019,648    3,390,428    88.1%   22,755,962    3,183,676    88.7%   263,686    1.2%   206,752    6.5%
Sales of imported wine products   3,095,691    455,946    11.9%   2,912,035    407,409    11.3%   183,656    6.3%   48,537    11.9%
Total Amount   26,115,339    3,846,374    100.0%   25,667,997    3,591,085    100.0%   447,342    1.7%   255,289    7.1%

 

For the three months ended September 30, 2020, revenue generated from our Fenjiu liquor business was RMB23,019,648 (USD3,390,428), representing a slight increase of RMB263,686 or 1.2%, as compared to that of RMB22,755,962 (USD3,183,676) for the three months ended September 30, 2019. The revenue generated from our Fenjiu liquor business remained relatively stable as compared to the same period in 2019.

 

For the three months ended September 30, 2020, revenue generated from our imported wine business was RMB3,095,691 (USD455,946), representing an increase of RMB183,656 or 6.3%, as compared to that of RMB2,912,035 (USD407,409) for the three months ended September 30, 2019. The increase was mainly due to the increased sales volume as a result of change in product mix and customers’ increased demand for imported red wine.

 

Cost of Sales

 

  

Three months ended

September 31, 2020

(Unaudited)

  

Three months ended

September 31, 2019

(Unaudited)

   Variance 
   RMB   USD   %   RMB   USD   %   RMB   %   USD   % 
Sales of Fenjiu liquor products   6,578,514    968,910    90.0%   6,773,234    947,610    91.4%   (194,720)   (2.9)%   21,300    2.2%
Sales of imported wine products   733,432    108,023    10.0%   640,737    89,643    8.6%   92,695    14.5%   18,380    20.5%
Total Amount   7,311,946    1,076,933    100.0%   7,413,971    1,037,253    100.0%   (102,025)   (1.4)%   39,680    3.8%

 

For the three months ended September 30, 2020, cost of sales from our Fenjiu liquor business was RMB6,578,514 (USD968,910), representing a decrease of RMB194,720 or 2.9%, as compared to that of RMB6,773,234 (USD947,610) for the three months ended September 30, 2019. The cost of sales from our Fenjiu liquor business remained relatively stable as compared to the same period in 2019.

 

For the three months ended September 30, 2020, cost of sales from our imported wine business was RMB733,432 (USD108,023), representing an increase of RMB92,695 or 14.5%, as compared to that of RMB640,737 (USD89,643) for the three months ended September 30, 2019. The increase was in line with the increased sales volume.

 

Gross Profit

  

Three months ended

September 31, 2020

(Unaudited)

  

Three months ended

September 31, 2019

(Unaudited)

   Variance 
   RMB   USD   %   RMB   USD   %   RMB   %   USD   % 
Sales of Fenjiu liquor products   16,441,134    2,421,518    87.4%   15,982,728    2,236,066    87.6%   458,406    2.9%   185,452    8.3%
Sales of imported wine products   2,362,259    347,923    12.6%   2,271,298    317,766    12.4%   90,961    4.0%   30,157    9.5%
Total Amount   18,803,393    2,769,441    100.0%   18,254,026    2,553,832    100.0%   549,367    3.0%   215,609    8.4%

 

Gross profit from our Fenjiu liquor business increased slightly of RMB458,406 or 2.9% for the three months ended September 30, 2020, as compared to that of the same period of 2019. The gross profit contribution percentage of Fenjiu liquor business was 71.4% for the three months ended September 30, 2020, as compared to that of 70.2% for the same period of 2019. The gross profit margin remained relatively stable for the periods. The slight improvement in gross profit margin is mainly caused by the change in product mix as the sales volume for several white wine products with higher margin increased for the three months ended September, 2020 as compared to the same period of 2019.

 

22

 

 

Gross profit from our imported wine business increased by RMB90,961 or 4.0% for the three months ended September 30, 2020, as compared to that of the same period of 2019. The gross profit contribution percentage of imported wine business was 76.3% for the three months ended September 30, 2020, as compared to that of 78.0% for the same period of 2019. The decrease was primarily due to the slight increase in unit costs for several imported red wine products.

 

Selling and Distribution Expenses

 

For the three months ended September 30, 2020, our selling and distribution expenses were RMB1,231,658 (USD181,404), representing an increase of RMB353,787 or 40.3%, as compared to that of the same period of 2019. The increase was primarily due to the increase in freight costs during the three months ended September 30, 2020 as higher rates were charged under the COVID-19 pandemic.

 

Administrative Expenses

 

For the three months ended September 30, 2020, our administrative expenses were RMB1,925,114 (USD283,539), representing a decrease of RMB1,486,965 or 43.6%, as compared to that of the same period of 2019. The decrease in administrative expenses was mainly due to the higher costs incurred as a result of business expansion for the three months ended September 30, 2019.

 

Other Income

 

For the three months ended September 30, 2020, our other income was RMB66,288 (USD9,763), representing an increase of RMB20,436 or 44.6%, as compared to that of the same period of 2019. The increase was primarily due to the increased income from bank interests.

 

Interest and Other Financial Charges

 

For the three months ended September 30, 2020, our interest and other financial charges were RMB225 (USD33), as compared to those of RMB19,455 (USD2,722) for the same period of 2019. The decrease of RMB19,230 or 98.8% was primarily due to the decrease in charges incurred on bank borrowings.

 

Income Taxes

 

For the three months ended September 30, 2020, our income taxes were RMB4,010,563 (USD590,692), as compared to those of RMB3,938,273 (USD550,985) for the same period of 2019. The increase of RMB72,290 or 1.8% in income taxes was primarily due to the increased taxable income for the three months ended September 30, 2020.

 

Liquidity and Capital Resources

 

Operating Activities

 

Operating activities generated cash of RMB6,860,150 (USD1,010,391) primarily from net income for the three months ended September 30, 2020, when comparing with RMB20,431,686 (USD2,788,544) for the same period in 2019.

 

Net income increased by RMB1,649,921 (USD317,183) for the three months ended September 30, 2020, when comparing with the same period in 2019.

 

Activities from inventories were a net decrease of RMB1,405,118 (USD206,952) for the three months ended September 30, 2020, as compared to that of RMB73,503 (USD10,283) for the same period of 2019.

 

Activities from other current assets provided a net increase of RMB7,485,044 (USD1,120,912) for the three months ended September 30, 2020, as compared to that of RMB8,049,008 (USD1,126,098) for the same period of 2019.

 

Activities from accounts receivable, net provided a net decrease of RMB15,390,289 (USD2,266,745) for the three months ended September 30, 2020, as compared to that of RMB1,337,218 (USD187,084) for the same period of 2019. The significant increase in accounts receivable is mainly due to the delay in settlements from customers under the COVID-19 pandemic.

 

23

 

 

Activities from receipts in advance, accrued expenses and other current liabilities provided a net increase of RMB180,203 (USD26,541) for the three months ended September 30, 2020, as compared to that of RMB1,371,624 (USD191,897) for the same period of 2019.

 

Activities from amount due to director included a net decrease of RMB52,373 (USD7,714) for the three months ended September 30, 2020, as compared to a net increase of RMB925,660 (USD129,505) for the same period in 2019.

 

Investing Activities

 

Investing activities used of RMB347,155 (USD49,136) for the three months ended September 30, 2019, which were mainly related to the payments for acquisition of ROU assets. There were no investing activities for the three months ended September 30, 2020.

 

Financing Activities

 

Financing activities provided RMB500,000 (USD69,953) for the three months ended September 30, 2019, which were primarily related to proceeds of bank borrowings. There were no financing activities for the three months ended September 30, 2020.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is not required to provide the information required by this Item as it is a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Control and Procedures

 

Under the supervision and with the participation of our management, including our president and controller, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our president and treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective, based on having insufficient resources to establish an effective control and procedures environment during the quarter covered by this 10-Q report. Although we do have a subcontracted outside accountant, there is not enough personnel to establish proper controls and procedures with checks and balances at this time.

 

Management’s Report on Internal Control over Financial Reporting  

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

  Apply to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

 

  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

24

 

 

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 or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

We carried out an assessment, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of September 30, 2020. Integrated Framework (2013). Based on that assessment and on those criteria, our CEO and CFO concluded that our internal control over financial reporting was not effective as of September 30, 2020. The principal basis for this conclusion is failure to engage sufficient resources in regards to our accounting and reporting obligations.

 

Remediation  

 

We have initiated remediation efforts to continue strengthening our internal control over financial reporting and to specifically address the control deficiencies that led to our material weaknesses. These efforts include the following:

 

  Required all of the accounting personnel in the accounting department to take a minimum of 24 CPE credits annually with a focus on US GAAP and financial reporting standards. We also required the Chief Financial Officer to take a minimum of 40 CPE credits annually with a focus on US GAAP and financial reporting standards;

 

  Implemented an internal review process over financial reporting to continue to improve our ongoing review and supervision of our internal control over financial reporting; and

 

  Implemented an ongoing initiative and training in the Company to ensure the importance of internal controls and compliance with the established policies and procedures are fully understood throughout the organization, and we plan to provide continuous US GAAP knowledge training to relevant employees involved to ensure the performance of and the compliance with those procedures and policies.

 

We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. If the steps we take do not remediate the material weaknesses in a timely manner, we will be unable to conclude that we maintain effective disclosure controls and procedures or effective internal control over financial reporting. Additionally, these material weaknesses could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected.

  

Changes in Internal Control over Financial Reporting  

 

We plan to enhance our internal controls over financial reporting related to this new adoption to ensure all related accounting policy and disclosures reflect this change.

 

Except for the aforementioned remediation plans, there have not been any other changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2019, to have materially affected the Company’s internal control over financial reporting.

 

25

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

  

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Control and Procedures

 

Under the supervision and with the participation of our management, including our president and controller, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our president and treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective, based on having insufficient resources to establish an effective control and procedures environment during the first quarter of 2020. Although we do have a subcontracted outside accountant, there is not enough personnel to establish proper controls and procedures with checks and balances at this time.

 

A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. We believe our disclosure on controls and procedures are designed to provide reasonable assurance of achieving their objectives and our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

26

 

 

PART 2 - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

ITEM 1A. RISK FACTORS

 

Not applicable to a smaller reporting company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2020 that were not previously disclosed in reports filed with the SEC.   

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

No senior securities were issued and outstanding during the three-month period ended September 30, 2020.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS 

 

(a) Exhibits

 

Exhibit
Number
  Description
3.1   Initial Articles of Incorporation (incorporated by reference to our Form 10-K exhibit 3.1 filed with the SEC on November 18, 1999)
     
3.2   Articles of Amendment to the Articles of Incorporation (incorporated by reference to our Form 10-K exhibit 3.2 filed with the SEC on November 18, 1999)
     
3.3   By-Laws (incorporated by reference to our Form 10-K exhibit 3.2 filed with the SEC on November 18, 1999)
     
31.1*   Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
     
31.2*   Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
     
32.1**   Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
     
32.2**   Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith
** In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act.

 

27

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  

 

  ORANCO, INC.
   
Date: January 4, 2022 /s/ Peng Yang
  Peng Yang
  President, Secretary and Director
  (Principal Executive Officer)

 

 

28