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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Farmmi Inc | NASDAQ:FAMI | NASDAQ | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.0286 | 8.76% | 0.3549 | 0.3455 | 0.36 | 0.3575 | 0.3054 | 0.3345 | 1,102,965 | 21:16:43 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the six months ended
Commission File Number:
(Registrant’s name) |
People’s Republic of
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.:
Form 20-F ☒ Form 40-F ☐
Incorporation By Reference
This report on Form 6-K is hereby incorporated by reference into the Company’s registration statements on Form S-8 (file No. 333-224463), Form S-8 (file No. 333-262696), Form F-3 (file No. 333-254036), and Form F-3 (file No. 333-254397).
Explanatory Note:
The Registrant is filing this Report on Form 6-K to report its financial results for the six months ended March 31, 2023 and to discuss its recent corporate developments.
Attached as exhibits to this Report on Form 6-K are:
| (1) | the unaudited condensed interim consolidated financial statements and related notes as Exhibit 99.1; |
|
|
|
| (2) | Management’s Discussion and Analysis of Financial Condition and Results of Operations as Exhibit 99.2; |
|
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| (3) | Press release dated August 31, 2023; |
|
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| (4) | Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T. |
2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this current report with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, including but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. Therefore, investors should not place undue reliance on such forward-looking statements. Actual results may differ significantly from those set forth in the forward-looking statements.
All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
3 |
Exhibit Index:
| |||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
| |||||||
101.INS |
| XBRL Instance Document. | |||||
101.SCH |
| XBRL Taxonomy Extension Schema Document. | |||||
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document. | |||||
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document. | |||||
101.LAB |
| XBRL Taxonomy Extension Labels Linkbase Document. | |||||
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document. | |||||
4 |
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.
| FARMMI, INC. |
| |
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| |
Date: August 31, 2023 | By: | /s/ Yefang Zhang |
|
| Name: | Yefang Zhang |
|
| Title: | Chief Executive Officer |
|
5 |
EXHIBIT 99.1
FARMMI, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2023 AND SEPTEMBER 30, 2022 AND
FOR THE SIX MONTHS ENDED MARCH 31, 2023 AND 2022
| F-1 |
| Table of Contents |
FARMMI, INC.
TABLE OF CONTENTS
| Page |
F-1 | |
Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and September 30, 2022 | F-3 |
F-4 | |
F-5 | |
F-6 | |
Notes to Unaudited Condensed Consolidated Financial Statements | F-7 |
| F-2 |
| Table of Contents |
Farmmi, Inc.
Condensed Consolidated Balance Sheets
|
| March 31, |
|
| September 30, |
| ||
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| 2023 |
|
| 2022 |
| ||
Assets |
| (unaudited) |
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| (audited) |
| ||
Current Assets |
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Cash |
| $ |
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Short-term deposit |
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Short-term investments |
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Notes receivable |
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Accounts receivable, net |
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Advances to suppliers, net |
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Other receivable |
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Inventories, net |
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Other current assets |
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Due from a related party |
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Total current assets |
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Biological assets |
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Long-term investments |
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Property, plant and equipment, net |
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Intangible assets, net |
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Right-of-use assets, net |
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Deferred tax assets |
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Total Assets |
| $ |
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Liabilities and Shareholders' Equity |
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Current Liabilities |
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Short-term loans |
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Long-term loans - current portion |
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Convertible promissory notes |
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Derivative liability |
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Note payable |
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Accounts payable |
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Due to related parties |
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Operating lease liabilities – current |
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Other current liabilities |
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Total current liabilities |
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Long-term loans - non-current portion |
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Operating lease liabilities – non-current |
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Total Liabilities |
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Commitment and contingencies |
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Shareholders' Equity |
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Ordinary share, $ |
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Additional paid-in capital |
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Statutory reserve |
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Retained earnings |
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Accumulated other comprehensive (loss) income |
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| ( | ) |
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| ( | ) |
Total Farmmi, Inc.’s Shareholders' Equity |
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Noncontrolling Interest |
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Total Shareholders' Equity |
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Total Liabilities and Shareholders' Equity |
| $ |
|
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| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
| Table of Contents |
Farmmi, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| For the six months ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenues |
|
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Sales to third parties |
| $ |
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| $ |
| ||
Sales to related parties |
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Total revenues |
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Cost of revenues |
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| ( | ) |
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| ( | ) |
Gross profit |
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Operating expenses |
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Allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Selling and distribution expenses |
|
| ( | ) |
|
| ( | ) |
General and administrative expenses |
|
| ( | ) |
|
| ( | ) |
Total operating expenses |
|
| ( | ) |
|
| ( | ) |
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Income (loss) from operations |
|
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| ( | ) | |
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Other income (expenses) |
|
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Change in fair value of derivative liability |
|
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| ||
Interest income |
|
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| ||
Interest expense |
|
| ( | ) |
|
| ( | ) |
Amortization of debt issuance costs |
|
| ( | ) |
|
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| |
Loss from extinguishment |
|
| ( | ) |
|
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| |
Government grant |
|
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| ||
Other income, net |
|
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| ||
Total other income, net |
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| ||
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Income (loss) before income taxes |
|
|
|
|
| ( | ) | |
Provision for income taxes |
|
| ( | ) |
|
| ( | ) |
Net income (loss) |
| $ |
|
| $ | ( |
| |
|
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Comprehensive income |
|
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Net income (loss) |
| $ |
|
| $ | ( |
| |
Foreign currency translation |
|
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| ||
Comprehensive income attributable to Farmmi, Inc. |
| $ |
|
| $ |
| ||
|
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| |
Weighted average number of ordinary shares |
|
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Basic |
|
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| ||
Diluted |
|
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| ||
Earnings (loss) per ordinary share |
|
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Basic |
| $ |
|
| $ | ( |
| |
Diluted |
| $ |
|
| $ | ( |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
| Table of Contents |
Farmmi, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended March 31, 2023 and 2022
(Unaudited)
|
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| Additional |
|
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| Accumulated Other |
|
| Total Farmmi, Inc.’s |
|
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| Total |
| |||||||||
|
| Ordinary shares |
|
| Paid in |
|
| Statutory |
|
| Retained |
|
| Comprehensive |
|
| Shareholders' |
|
| Noncontrolling |
|
| Shareholders' |
| ||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Reserve |
|
| Earnings |
|
| Income (loss) |
|
| Equity |
|
| Interest |
|
| Equity |
| |||||||||
Balance at September 30, 2021 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
|
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Share-based compensation expenses |
|
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| |||||||||
Issuance of common shares, net |
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| |||||||||
Reverse share-split adjustment |
|
| ( | ) |
|
| ( | ) |
|
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| ||||||
Foreign currency translation gain |
|
| - |
|
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|
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|
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|
|
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| ||||||||
Disposal of a subsidiary |
|
| - |
|
|
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|
| ( | ) |
|
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|
|
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|
|
|
|
|
| ( | ) |
|
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| ||||||
Net loss for the year |
|
| - |
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|
| ( | ) |
|
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|
| ( | ) |
|
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| ( | ) | |||||
Statutory reserve |
|
| - |
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| ( | ) |
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Balance at March 31, 2022 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
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| $ |
| |||||||||
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Balance at September 30, 2022 |
|
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|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( |
|
| $ |
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| $ |
| ||||||||
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|
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|
|
|
|
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Foreign currency translation gain |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||
Disposal of a subsidiary |
|
| - |
|
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| ( | ) |
|
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| |||||||
Net income for the year |
|
| - |
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| ||||||||
Statutory reserve |
|
| - |
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| ( | ) |
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Balance at March 31, 2023 |
|
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| $ |
|
| $ |
|
| $ |
|
| $ |
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| $ | ( |
|
| $ |
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| $ |
| ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
| Table of Contents |
Farmmi, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the six months ended March 31, |
| |||||
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| 2023 |
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| 2022 |
| ||
Cash flows from operating activities |
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| ||
Net income (loss) |
| $ |
|
| $ | ( |
| |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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| |
Changes in allowances - accounts receivable |
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| ( | ) | |
Changes in allowances - advances to suppliers |
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Changes in allowances - inventories |
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Changes in allowances - long-term investment |
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Depreciation and amortization |
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Amortization of operating lease right-of-use assets |
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| ( | ) | |
Loss (gain) on short-term investment |
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| ( | ) | |
(Gain) loss from disposal of a subsidiary |
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| ( | ) |
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| |
Amortization of debt issuance costs |
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Amortization of biological assets |
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Change in fair value of derivative liability |
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| ( | ) |
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| |
Loss from extinguishment |
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| ||
Share-based compensation |
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| ||
Changes in operating assets and liabilities: |
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Accounts receivable |
|
| ( | ) |
|
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| |
Advances to suppliers |
|
| ( | ) |
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| ( | ) |
Notes receivables |
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| ( | ) | |
Inventory, net |
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| ( | ) | |
Other current assets |
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| ( | ) |
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| |
Accounts payable |
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| ||
Operating lease liabilities |
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| ( | ) |
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| |
Other current liabilities |
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| ( | ) | |
Net cash (used in) provided by operating activities |
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| ( | ) |
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Cash flows from investing activities |
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Purchase of property, plant and equipment |
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| ( | ) | |
Short-term deposits |
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| ( | ) | |
Acquisition of subsidiaries |
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| ( | ) | |
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Proceeds from disposal of subsidiary |
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Purchase of long-term investments |
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| ( | ) |
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| ( | ) |
Purchase of short-term investments |
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| ( | ) | |
Other receivables |
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| ( | ) | |
Advances to related parties |
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| ( | ) |
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Repayment of advances to related party |
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Net cash provided by (used in) investing activities |
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| ( | ) | |
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Cash flows from financing activities |
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Net proceeds from share issuance |
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Borrowings from bank loans |
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Repayments of bank loans |
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| ( | ) |
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| ( | ) |
Repayment of advances from related parties |
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| ( | ) | |
Proceeds from advances from related parties |
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| ||
Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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| ( | ) | |
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Net increase (decrease) in cash |
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| ( | ) | |
Cash, beginning of period |
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| ||
Cash, end of period |
| $ |
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| $ |
| ||
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| - |
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Supplemental disclosure information: |
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|
|
|
|
|
|
|
Income taxes paid |
| $ |
|
| $ |
| ||
Interest paid |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash financing activities |
|
|
|
|
|
|
|
|
Right of use assets obtained in exchange for operating lease obligations |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-6 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and nature of business
Farmmi, Inc. (“FAMI” or the “Company”) is a holding company incorporated under the laws of the Cayman Islands on July 28, 2015. FAMI owns
Farmmi Health Development owns
Farmmi Enterprise, Farmmi Technology and Farmmi Ecology own
On December 23, 2021, a board resolution of Zhejiang Farmmi Agricultural Technology Group Co., Ltd. (“Farmmi Agricultural”) (formerly known as Hangzhou Suyuan Agriculture Technology Co., Ltd., “Suyuan Agriculture”), a company incorporated in the PRC, was passed to reorganize certain companies mentioned below with nil consideration.
Under the above-mentioned reorganization, (i) on December 30, 2021, Farmmi Holdings started to own
On September 27, 2021,the Company,through its subsidiary, Zhejiang Fammi Agricultural Supply Chain Co., Ltd., acquired Jiangxi Xiangbo Agriculture and Forestry Development Co. Ltd (“Jiangxi Xiangbo”), established under the laws of the PRC, from Ganzhou Tengguang Agriculture and Forestry Development Co., Ltd. for a total price of RMB70 million ($
On September 27, 2021, the Company, through its subsidiary, Zhejiang Fammi Agricultural Supply Chain Co., Ltd., acquired Guoning Zhonghao (Ningbo) Trading Co., Ltd. (“Guoning Zhonghao”), established under the laws of the PRC, from Ningbo Guoning Zhonghao Technology Co., Ltd. and Jianxin Huang, an individual, for a total consideration of RMB5,000 ($
Farmmi Agricultural owns
| F-7 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and nature of business (continued)
On September 18, 2016, Farmmi Agricultural entered into a series of contractual agreements with Zhengyu Wang, the then sole-owner of Nongyuan Network. These agreements include an Exclusive Management Consulting and Technology Agreement, an Equity Pledge Agreement, an Exclusive Call Option Agreement, a Proxy Agreement and a Power of Attorney (collectively, the “Original VIE Agreements”). The Original VIE Agreements empowered Farmmi Agricultural to exercise management control over the activities that most significantly impact the operation results of Nongyuan Network, obligated Farmmi Agricultural to absorb a majority of the risk of loss from Nongyuan Network’s activities, and entitled Farmmi Agricultural to receive a majority of their residual returns. In essence, Farmmi Agricultural and the Company had gained effective control over Nongyuan Network.
On December 4, 2019, Zhengyu Wang transferred
| (1) | Zhengyu Wang, Nongyuan Network and Farmmi Agricultural signed a termination agreement to confirm that the Original VIE Agreements had been terminated because Zhengyu Wang was no longer the shareholder of Nongyuan Network; |
|
|
|
| (2) | Zhengyu Wang, Dehong Zhang (the legal representative of Nongyuan Network), Xinyang Wang, Nongyuan Network and Farmmi Agricultural signed a joint statement to confirm that the board of directors of the Company had the ultimate authority over the matters of the VIE (defined below), Nongyuan Network. |
FAMI believes that Xinyang Wang VIE Agreements enable Farmmi Agricultural and FAMI to keep effective control over Nongyuan Network, and as a result Nongyuan Network should be considered as a Variable Interest Entity (“VIE”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation. Accordingly, the accounts of Nongyuan Network are consolidated with those of Farmmi Agricultural.
On September 7, 2021, Zhejiang Yitang Medical Service Co., Ltd. (“Yitang Mediservice”) was established under the laws of the PRC. Nongyuan Network and Farmmi Ecology own
On September 17, 2021, Zhejiang Yiting Medical Technology Co., Ltd. (“Yiting Meditech”) was established under the laws of the PRC. Yitang Mediservice owns
On November 23, 2021, the Company incorporated Shanghai Zhongjian Yiting Healthcare Technology Partnership (Limited Partnership) (“Zhongjian Yiting”), and Yiting Meditech owns
On January 10, 2022, Lishui Yifeng Medical Health Technology Co., Ltd (“Yifeng Medihealth”) was established under the laws of the PRC.
Yitang Mediservice owns
On January 10, 2022, Lishui Yilong Enterprise Management Co., Ltd (“Yilong Enterprise”) was established under the laws of the PRC. Yitang Mediservice owns
On January 19, 2022, Lishui Yifeng Yilong Medical Technology Development Partnership (Limited Partnership) (“YF YL MediTech”) was established under the laws of the PRC. Yifeng Medihealth owns
| F-8 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and nature of business (continued)
On January 19, 2022, Lishui Yitang Shangke Medical and Health Technology Partnership (Limited Partnership) (“YT SK Medihealth”) was established under the laws of the PRC. Yifeng Medihealth owns
On May 27, 2022, Zhejiang Farmmi Ecological Agriculture Technology Co., Ltd (“Farmmi Eco Agri”) was established under the laws of the PRC. FLS Mushroom owns
On July 13, 2022, Farmmi Canada Inc. (Farmmi Canada) was established under the laws of the Canada. Farmmi Inc. owns
On April 20, 2023, Farmmi USA Inc. (Farmmi USA) was established under the laws of the United States of America. Farmmi Inc. owns
As of March 31, 2023, details of the subsidiaries of FAMI are set out below:
Name of Entity | Date of Incorporation | Place of Incorporation | % of Ownership | Principal activities |
FAMI | Parent | |||
Farmmi International | ||||
Farmmi Enterprise | ||||
Farmmi Technology | ||||
Farmmi Agricultural | ||||
Farmmi Food | ||||
Farmmi E-Commerce | ||||
Farmmi Biotech | ||||
Farmmi Ecology | ||||
Farmmi Supply Chain | ||||
Farmmi Health Development | ||||
Farmmi Medical Health | ||||
Farmmi Holdings | ||||
Jiangxi Xiangbo | ||||
Yudu Yada | ||||
Guoning Zhonghao | ||||
Farmmi Eco Agri | ||||
Farmmi Canada | ||||
Farmmi USA | ||||
Nongyuan Network | 0 (VIE) | |||
Yitang Mediservice | ||||
Yiting Meditech | ||||
Yifeng Medihealth | ||||
Yilong Enterprise | ||||
YF YL MediTech | ||||
YT SK Medihealth |
| F-9 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and nature of business (continued)
FAMI, its subsidiaries, VIE and VIE’s subsidiaries (herein collectively referred to as the “Company”) are engaged in processing and distributing dried Shiitake mushrooms, Mu Er mushrooms, trading agricultural products such as tapioca, corn, cotton and corn starch. Approximately
Note 2 — Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended September 30, 2022 and 2021. Operating results for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.
The unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company’s main operation subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
Consolidation of variable interest entities
In accordance with accounting standards regarding consolidation of variable interest entities (“VIEs”), VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
| F-10 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities
The Company determined that Nongyuan Network is a VIE because the Company is the primary beneficiary of risks and rewards of this VIE. The condensed consolidating table below disaggregated the Condensed Consolidated Balance Sheets of the Company into into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated as of March 31, 2023 and September 30, 2022.
|
| As of March 31, 2023 (unaudited) |
| |||||||||||||||||
|
| Other entities |
|
| WFOE that is |
|
|
|
|
|
|
|
|
|
| |||||
|
| that are |
|
| the primary |
|
| VIE and its |
|
|
|
|
| Consolidated |
| |||||
|
| consolidated |
|
| beneficiary |
|
| subsidiaries |
|
| FAMI |
|
| total |
| |||||
Intercompany receivables |
| $ |
|
| $ |
|
|
|
|
| $ |
|
|
|
| |||||
Current assets excluding intercompany receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in subsidiaries |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Non-current assets excluding investment in subsidiaries |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Non-current assets |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities excluding intercompany payables |
|
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|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
|
|
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|
|
|
|
|
|
|
|
|
| |||||
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total shareholders' equity (net assets) |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
| As of September 30, 2022 |
| |||||||||||||||||
|
| Other entities |
|
| WFOE that is |
|
|
|
|
|
|
| ||||||||
|
| that are |
|
| the primary |
|
| VIE and its |
|
|
|
| Consolidated |
| ||||||
|
| consolidated |
|
| beneficiary |
|
| subsidiaries |
|
| FAMI |
|
| total |
| |||||
Intercompany receivables |
| $ |
|
| $ |
|
|
|
|
| $ |
|
|
|
| |||||
Current assets excluding intercompany receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in subsidiaries |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Non-current assets excluding investment in subsidiaries |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Non-current assets |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities excluding intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total shareholders' equity (net assets) |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
| F-11 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities
The condensed consolidating table below disaggregated the Consolidated Statements of Operations and Comprehensive Income (Loss) of the Company into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated for the six months ended March 31, 2023 and 2022.
|
| For the six months ended March 31, 2023 (unaudited) |
| |||||||||||||||||
|
| Other entities |
|
| WFOE that is |
|
|
|
|
|
|
|
|
|
| |||||
|
| that are |
|
| the primary |
|
| VIE and its |
|
|
|
|
| Consolidated |
| |||||
|
| consolidated |
|
| beneficiary |
|
| subsidiaries |
|
| FAMI |
|
| total |
| |||||
Revenues |
| $ |
|
| $ |
|
| $ |
|
|
|
|
| $ |
| |||||
Cost of revenues |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Gross profit |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Operating expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Income (loss) from operations |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
| ||
Other income (expenses) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| |||
Income (loss) before income taxes |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| |||
Provision for income taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| - |
|
|
| ( | ) | |
Net income (loss) |
| $ |
|
| $ | ( |
|
| $ |
|
| $ | ( |
|
| $ |
| |||
|
| For the six months ended March 31, 2022 (unaudited) |
| |||||||||||||||||
|
| Other entities |
|
| WFOE that is |
|
|
|
|
|
|
|
|
|
| |||||
|
| that are |
|
| the primary |
|
| VIE and its |
|
|
|
|
|
|
| Consolidated |
| |||
|
| consolidated |
|
| beneficiary |
|
| subsidiaries |
|
|
| FAMI |
|
|
| total |
| |||
Revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of revenues |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Gross profit |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
| ||||
Operating expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Income (loss) from operations |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Other expenses |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||
Income (loss) before income taxes |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Provision for income taxes |
|
| ( | ) |
|
|
|
|
|
|
|
| — |
|
|
| ( | ) | ||
Net income (loss) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
| F-12 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities
The condensed consolidating table below disaggregated the Consolidated Statements of Cash Flows of the Company into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated for the six months ended March 31, 2023 and 2022.
|
| For the six months ended March 31, 2023 (unaudited) |
| |||||||||||||||||
|
|
|
|
| WFOE |
|
|
|
|
|
|
|
|
|
| |||||
|
| Other |
|
| that is the |
|
|
|
|
|
|
|
|
|
| |||||
|
| entities |
|
| primary |
|
| VIE |
|
|
|
|
|
|
| |||||
|
| that are |
|
| beneficiary |
|
| and its |
|
|
|
|
| Consolidated |
| |||||
|
| consolidated |
|
| of the VIE |
|
| subsidiaries |
|
| FAMI |
|
| total |
| |||||
Net cash (used in) provided by operating activities |
| $ |
|
| $ | ( |
|
| $ | ( |
|
| $ | ( |
|
| $ | ( |
| |
Net cash provided by (used in) investing activities |
|
| ( | ) |
|
|
|
|
|
|
|
| - |
|
|
|
| |||
Net cash provided by (used in) financing activities |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of exchange rate changes on cash |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
| ||
Net (decrease) increase in cash and restricted cash |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| |||
Cash, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash, end of period |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
|
|
| For the six months ended March 31, 2022 |
|
|
|
| ||||||||||||
|
| Other |
|
| WFOE |
|
|
|
|
|
|
|
|
|
| |||||
|
| that is the |
|
| VIE |
|
|
|
|
|
|
|
| |||||||
|
| entities |
|
| primary |
|
| VIE |
|
|
|
| ||||||||
|
| that are |
|
| beneficiary |
|
| and its |
|
|
| Consolidated |
| |||||||
|
| consolidated |
|
| of the VIE |
|
| subsidiaries |
|
| FAMI |
| total |
| ||||||
Net cash (used in) provided by operating activities from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
continuing operations |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Net cash (used in) provided by investing activities from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| — |
|
|
| ( | ) | |
Net cash provided by financing activities from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of exchange rate changes on cash and restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash |
|
| ( | ) |
|
|
|
|
|
|
|
| — |
|
|
| ( | ) | ||
Net increase (decrease) in cash and restricted cash |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Cash and restricted cash from continuing operations, |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
beginning of year |
|
|
|
|
|
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|
|
|
|
|
|
|
| |||||
Cash and restricted cash from continuing operations, end |
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
of year |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| F-13 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities
Cash is transferred within the Company through the banking system in PRC. Under the VIE agreements, the Company intends to distribute
|
| Transfer to |
| |||||||||||||||||
|
| Holding |
|
|
|
| Consolidated |
|
| Other |
|
|
| |||||||
Transfer from |
| Company |
|
| WFOE |
|
| VIE |
|
| subsidiaries |
|
| Investors |
| |||||
Holding company |
|
| - |
|
| $ |
|
|
|
|
|
|
|
|
| - |
| |||
WFOE |
|
| - |
|
|
| - |
|
| $ |
|
| $ |
|
|
| - |
| ||
Consolidated VIE |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
| ||
Other subsidiaries |
|
| - |
|
| $ |
|
| $ |
|
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| - |
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| F-14 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Use of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include allowance for doubtful accounts and advances to suppliers, the valuation of inventories, the useful lives of property, plant and equipment, the valuation of beneficial conversion feature of the convertible notes, valuation of the warrants and the valuation of deferred tax assets. Actual results could differ from those estimates.
Cash
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. All cash balances are in bank accounts in PRC. Cash maintained in banks within the People’s Republic of China of less than RMB0.5 million ($72,806) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China.
Restricted cash
The Company adopted Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash on October 1, 2018. This ASU applies to all entities that have restricted cash or restricted cash equivalents to be presented in the statement of cash flows under ASC Topic 230. As of March 31, 2023 and September 30, 2022, the Company had restricted cash of nil and nil, respectively.
Short-term deposit
Short-term deposit relates to fixed terms cash deposits with financial institutions with original maturities of more than three months and less than a year. As of March 31, 2023 and September 30, 2022, the Company had short-term deposit of nil and $
Short-term investments
The Company accounts for all investments in accordance with ASC topic 320 (“ASC 320”), Investments – Debt and Equity Securities. The Company classifies the investments in debt and equity securities as “held-to-maturity”, “trading” or “available-for-sale”, whose classification determines the respective accounting methods stipulated by ASC 320. All investments with original maturities of greater than three months not exceeding twelve months are classified as short-term investments, while those of more than twelve months are classified as long-term investments. Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments. Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all categories of investments in securities, are included in earnings. Any realized gains or losses on the sale of the short-term investments, are determined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses are realized.
The securities that the Company has the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost.
The securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Unrealized holding gains and losses for trading securities are included in earnings.
Investments not classified as trading or as held-to-maturity are classified as available-for-sale securities. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income. Realized gains or losses are included in earnings during the period in which the gain or loss is realized. An impairment loss on the available-for-sale securities is recognized in the consolidated statements of income when the decline in value is determined to be other-than-temporary.
| F-15 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Accounts receivable, net
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful.
Advances to suppliers, net
Advances to suppliers represent prepayments made to ensure continuous high-quality supplies and favorable purchase prices for premium quality. These advances are directly related to the purchases of raw materials used to fulfill sales orders. The Company is required from time to time to make cash advances when placing its purchase orders. These advances are settled upon suppliers delivering raw materials to the Company when the transfer of ownership occurs. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance.
Inventory, net
The Company values its inventories at the lower of cost, determined on a weighted average basis, or net realizable value. The Company reviews its inventories periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value.
Long-term investments
The Company’s long-term investments consist of equity securities without readily determinable fair value.
The Company adopted ASC Topic 321, Investments-Equity Securities (“ASC 321”) from September 1, 2018. Pursuant to ASC 321, for equity securities measured at fair value with changes in fair value record in earnings, the Company does not assess whether those investments are impaired. For those equity securities that the Company selects to use the measurement alternative, the Company uses the measurement alternative to measure those investments at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”). If the fair value is less than the investment’s carrying value, the Company recognizes an impairment loss in net income equal to the difference between the carrying value and fair value.
As of March 31, 2023 and September 30, 2022, the Company evaluated its investments, taking into consideration, including, but not limited to, the duration, degree and causes of the decline in financial results, its intent and ability to hold the investment and the invested companies' financial performance and near-term prospects. Based on the evaluation, the company’s long-term investment is not impaired.
The Company invests from time to time in equity securities of private companies. If the Company determines that the Company has control over these companies, the Company includes them in the consolidated financial statements. If the Company determines that the Company does not have control over these companies, the Company then determines if the Company has an ability to exercise significant influence via voting interests, board representation or other business relationships.
The Company accounts for the investments where the Company exercises significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, the Company applies it to all its financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity and long-term investments, net on the consolidated statements of income.
If the Company concludes that it does not have an ability to exercise significant influence over an investee, the Company may elect to account for the security without a readily determinable fair value using the measurement alternative under ASC Topic 312, Investments – Equity Securities. This measurement alternative allows the Company to measure the equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company’s long-term investments are equity method investments. Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in-substance common shares, are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between
Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into net loss and accordingly adjusts the carrying amount of the investment. The Company reviews its equity method investments for impairment whenever an event or circumstance indicates that any other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investment.
An Impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. As of March 31, 2023 and September 30, 2022, the Company had no impairment for long-term investments.
| F-16 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Biological assets
Biological assets mainly consist of bamboo forests managed for future bamboo harvest and sales, of which the Company owned 82 forest right certificates with expiry dates ranging from December 30, 2026 to December 9, 2070 and with an area of 9.6 km2. The forest types are mixed mature forests which can be harvested for commercial purposes. The forests mainly consist of bamboo, fir trees and other trees. Biological assets are initially measured at cost and subsequently amortized on a straight-line basis over its estimated useful lives.
Amortization expenses were $109,570 and nil for the six months ended March 31, 2023 and 2022, respectively.
Property, plant and equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:
Forestry | |
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Leasehold improvement |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized.
Intangible assets, net
Intangible assets consist primarily of purchased software. Intangible assets are stated at cost less accumulated amortization, which are amortized using the straight-line method with the estimated useful lives of three years.
Amortization expenses were $
| F-17 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets was recognized for the six months ended March 31, 2023 and 2022.
Revenue recognition
The Company follows ASU 2014-09 Revenue from Contracts with Customers (“ASC Topic 606”). In accordance with ASC 606, to determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract (s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a price per ton.
The Company’s contract liabilities primarily include advance from customers. As of March 31, 2023 and September 30, 2022, the contract liabilities are $
Cost of revenues
Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead.
Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues.
| F-18 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average ordinary shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential ordinary 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. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
The component of basic and diluted EPS were as follows:
Six months ended March 31, |
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| F-19 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Fair value of financial instruments
The FASB ASC Topic 820, Fair Value Measurements, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.
The three levels are defined as follows:
Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
Level 3 — Inputs to the valuation methodology are unobservable.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, short-term deposit, short-term investments, notes receivable, accounts receivable, advances to suppliers, other current assets, short-term bank loans accounts payable, due to related parties, operating lease liabilities –current and other current liabilities, approximate their recorded values due to their short-term in nature. The fair value of longer term operating lease liabilities approximate their recorded values as their stated interest rates approximate the rates currently available.
| F-20 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Beneficial conversion feature
The Company evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes is due using the effective interest method. If the notes payable is retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
Debt issuance costs and debt discounts
The Company may record debt issuance costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.
Fair value of the embedded derivatives in the convertible promissory notes
The convertible promissory notes consisted of a liability component (“financial liability”) and an embedded derivative conversion feature (“derivative liability”). The net proceeds of these convertible promissory notes were first allocated to the fair value of the derivative liability. Subsequent changes in fair value of the derivative liability were recorded in other income.
The Company measures the fair value of the embedded derivative by reference to the fair value on the issuance date and maturity date of the convertible promissory notes and revalues them at each reporting date. In determining the fair value of the embedded derivatives, the Company used the Black-Scholes option pricing model with the following assumptions: average volatility rate; market price at the reporting date; risk-free interest rate; and the remaining life of the embedded derivatives. The inputs used in the Black-Scholes model are taken from observable markets. Changes to assumptions used can affect the amounts recognized in the consolidated financial statements.
| F-21 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and advances to suppliers. As of March 31, 2023 and September 30 2022, $
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustment from the Company not using the U.S. dollar as its functional currency.
Leases
The Company adopted ASU 2016-02, Leases on October 1, 2019 and used the alternative transition approach which permits the effects of adoption to be applied at the effective date. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease exemption and combining the lease and non-lease components practical expedients. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets for office space operating leases.
| F-22 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Foreign currency translation
The Company’s financial information is presented in U.S. dollars (“USD”). The functional currency of the Company is the Chinese Yuan Renminbi (“RMB”), the currency of PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The unaudited condensed consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
The exchange rates in effect as of March 31, 2023 and September 30, 2022 were RMB1 for $
Shipping and handling expenses
All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $
| F-23 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Value added tax
The Company is generally subject to the value added tax (“VAT”) for selling merchandise, except for FLS Mushroom. Before May 1, 2018, the applicable VAT rate was 13% or
Income taxes
The Company is subject to the income tax laws of the PRC and a subsidiary in Canada is subject to income tax laws of Canada. The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or not be deductible in the future.
ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2023 and September 30, 2022. As of March 31, 2023, the tax years ended December 31, 2015 through December 31, 2022 for the Company’s PRC subsidiary remain open for statutory examination by PRC tax authorities.
Statement of Cash Flows
In accordance with ASC 230, Statement of Cash Flows, cash flows from the Company’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
| F-24 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Risks and uncertainties
The operations of the Company are located in PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in PRC, in addition to the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political and social conditions in PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expense transactions are denominated in RMB, and a substantial part of the Company’s assets and liabilities are also denominated in RMB. RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of China. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.
The Company’s operating entities in PRC do not carry any business interruption insurance, product liability insurance or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.
The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations.
| F-25 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued)
Recent accounting pronouncements
The Company considers the applicability and impact of all ASUs. Management periodically reviews new accounting standards that are issued.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 was subsequently amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company plans to adopt this guidance effective October 1, 2023. The Company is currently evaluating the impact of its pending adoption of ASU 2016-13 on its unaudited condensed consolidated financial statements but does not expect this guidance will have a material impact on its unaudited condensed consolidated financial statements.
In August 2020, the FASB issued 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 (ASU 2020-06). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplify the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for smaller reporting companies, as defined by the SEC. 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 evaluating the impact of this ASU on its unaudited condensed consolidated financial statements and disclosures.
| F-26 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Accounts receivable, net
Accounts receivable consisted of the following:
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| F-27 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Advances to suppliers, net
Advances to suppliers consisted of the following:
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On April 1, 2016, the Company entered into two separate framework supply agreements (“Framework Agreements”) with two co-operatives, Jingning Liannong Trading Co., Ltd (“JLT”) and Qingyuan Nongbang Mushroom Industry Co., Ltd (“QNMI”). These two Framework Agreements were renewed for another three years in April 2019 upon expiration and were further renewed for another three years in June 2021. Jingning County and Qingyuan County where JLT and QNMI are located produce premium Shiitake and Mu Er.
In order to enter into the trading of agricultural products in bulk, the Company signed a framework agreement on agricultural products purchase and sales cooperation with Ningbo Caixiang Trading Co., Ltd. on May 25, 2021. Ningbo Caixiang Trading Co., Ltd. is located in Ningbo City, a port city, and is the gathering and distributing place of agriculture products in bulks in the Yangtze River Delta region, with rich resources of agricultural products. The contract with Ningbo Caixiang Trading Co., Ltd. expired in May 2022, and the two parties renewed the agricultural product supply agreement in May 2022, with a validity of 3 years. The agreement agreed that Ningbo Caixiang should provide the Company with agricultural products of no less than RMB200 million yuan (including but not limited to cotton, corn, etc.) and pay part of the payment in advance to lock up the goods.
On April 1, 2020, the Company signed a framework cooperation agreement with Lishui Zhelin Trade Co., Ltd. (“Zhelin Trade”), which is valid for
Due to the increase of edible fungus business and preventing untimely supply of goods arising from natural disasters, the Company signed a cooperation agreement with Suizhou Huayu Ecological Agriculture Co., Ltd. on August 1, 2022. Suizhou Huayu is located in Suizhou City, Hubei Province. Suizhou City is the main production area of edible fungi in central China. The cultivation of edible fungi in this area is mainly family farms and cooperatives. Advance payment is required to ensure supply, The timely and stable supply of goods and the quality of goods can be guaranteed by paying the suppliers in advance.
Many competitors of the Company and other large buyers go there to source their supplies. Family farms and co-operatives traditionally request advance payments to secure supplies. By making advance payments to these suppliers, the Company is also able to lock in a more favorable price for premium quality than would be available in the open market.
The Framework Agreements only provide general guidelines. Actual prices are negotiated and agreed upon in individual purchase orders, and are typically set at market prices based on the quality grade and quantities determined and agreed with the suppliers. Prices may vary based on market demand and crop condition etc. The Company can generally secure the premium quality raw material supplies at prices slightly higher than the typical market prices for average quality raw materials. The quality of supplies must meet standardized specifications of both the mushroom industry and standards set by the Company.
The Company advances certain initial payments based on its estimated purchase plan from these suppliers and additional advances based on individual purchase orders placed. The Company pays advances for no other reason than to secure an adequate supply of dried mushrooms to meet its sales demands. The Company’s purchase orders require that the advances shall be refunded by suppliers if they fail to produce any dried mushrooms or fail to deliver supplies to the Company timely.
Advances to suppliers are carried at cost and evaluated for recoverability. The realizability evaluation process is similar to that of the lower of cost or net realizable value evaluation process for inventories. The Company periodically evaluates its advances for recoverability by monitoring suppliers’ ability to deliver a sufficient supply of mushrooms as well as current crop and market condition. This includes analyzing historical quantity and quality of production with monitoring of crop information provided by the Company’s field personnel related to weather or disaster or any other reason. If for any reason the Company believes that it will not receive supplies of the contracted volumes, the Company will assess its advances for any likelihood of recoverability and adjust advances on its financial statements at the lower of cost or estimated recoverable amounts. The advances are made primarily to these suppliers, which are co-operatives formed by many family farms, with which the Company has had long-term relationships over the years. If any of these family farms fail to deliver supplies, the Company would expect to receive a refund of the advances through these suppliers. The Company accrues for any allowance for possible loss on advances when there is doubt as to the collectability of the refund. Allowance for doubtful accounts of $
| F-28 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 — Inventories, net
Inventories, net, from the Company’s continuing operations consisted of the following:
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
|
| ||
Raw materials |
| $ |
|
| $ |
| ||
Packaging materials |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
|
| ||
Less: allowance for inventory reserve |
|
| ( | ) |
|
| ( | ) |
Inventory, net |
| $ |
|
| $ |
| ||
As of March 31, 2023 and September 30, 2022, allowance for inventory reserve was $
Note 6 — Property, plant and equipment, net
Property, plant and equipment, stated at cost less accumulated depreciation, consisted of the following:
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
|
| ||
Plant, machinery and equipment |
| $ |
|
| $ |
| ||
Transportation equipment |
|
|
|
|
|
| ||
Office equipment |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
Depreciation expense was $
| F-29 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 — Loans
The following table summarizing the loan commencement date, loan maturity date, loan amount in RMB and its equivalent to the United States dollar, and the effective annual interest rate of each secured and unsecured short-term and long-term loan:
|
|
|
|
|
| As of |
|
| As of |
|
|
|
|
| ||||||||||
|
|
|
|
|
| March 31, |
|
| September 30, |
|
|
|
|
| ||||||||||
|
|
|
|
|
| 2023 |
|
| 2022 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
| |||||||||||
|
| Loan |
| Loan |
| Loan |
|
| Loan |
|
| Loan |
|
| Effective |
|
|
| ||||||
|
| commencement |
| maturity |
| amount |
|
| amount |
|
| amount |
|
| interest |
|
|
| ||||||
As of March 31, 2023 |
| date |
| date |
| in RMB |
|
| in USD |
|
| in USD |
|
| rate |
|
| Note |
| |||||
Secured short-term loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
China Guangfa Bank Co., Ltd. |
|
|
|
|
|
| $ |
|
|
|
|
|
| % |
|
| 1 |
| ||||||
Industrial Bank Co., Ltd |
|
|
|
|
|
|
|
|
|
| - |
|
|
| % |
|
| 2 |
| |||||
Total secured short-term loans |
|
|
|
|
|
|
|
| $ |
|
|
| - |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured short-term loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Beijing |
|
|
|
|
|
|
|
|
|
| - |
|
|
| % |
|
|
|
| |||||
Total unsecured short-term loans |
|
|
|
|
|
|
|
| $ |
|
|
| - |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured long-term loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loans, current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Beijing |
|
|
|
|
|
| $ |
|
| $ |
|
|
| % |
|
| 3 |
| ||||||
Huaneng Guicheng Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 4 |
| ||||||
Huaneng Guicheng Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 4 |
| ||||||
Jiangsu Suning Bank |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 5 |
| ||||||
China Resources Shenzhen Investment Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 6 |
| ||||||
China Resources Shenzhen Investment Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 6 |
| ||||||
Total long-term loans, current portion |
|
|
|
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
|
|
|
| |||
Long-term loans, non-current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huaneng Guicheng Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 4 |
| ||||||
Huaneng Guicheng Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 4 |
| ||||||
Jiangsu Suning Bank |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 5 |
| ||||||
China Resources Shenzhen Investment Trust Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
| % |
|
| 6 |
| ||||||
Total long-term loans, non-current portion |
|
|
|
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term and long-term loans |
|
|
|
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
|
|
|
| |||
(1) | The loan is guaranteed by Ms Xinyang Wang, the 100% shareholder of Nongyuan Network, Ms Aihong Wang, sister to Mr Zhengyu Wang, Chairman of the Company, and Mr. Dehong Zhang, a legal representative of Farmmi Food. |
|
|
(2) | The loan is guaranteed by Mr. Dehong Zhang, a legal representative of Farmmi Food for up to RMB2 million ($ |
|
|
(3) | The loan is guaranteed by Ms Xinyang Wang, the |
|
|
(4) | These loans are guaranteed by a related party, Mr. Dehong Zhang, a legal representative of Farmmi Agricultural for up to RMB3 million ($ |
|
|
(5) | This loan is guaranteed by the CEO of the Company, Ms Yefang Zhang on the outstanding principal and interest. |
|
|
(6) | These loans are guaranteed by a related party, Mr. Dehong Zhang, a legal representative of Farmmi Agricultural for up to RMB3 million ($0.4 million) of the outstanding principal and interest. |
Interest expenses amounted to $
| F-30 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Convertible promissory notes and derivative liability
On September 26, 2022, the Company completed a $
Subsequent to September 30, 2022, the Company received comments from the Staff of NASDAQ Listing Qualifications that the Note did not provide for a floor price for the possible future conversions and that a future priced security without a floor price has public interest implications pursuant to NASDAQ Listing Rule 5101 (the “Rule”); management of
On April 7, 2023 and May 3, 2023, the Investor redeemed $
On June 16, 2023 and July 25, 2023, the Investor redeemed $
| F-31 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9 —Shareholders’ Equity
Ordinary shares
On September 12, 2020, the authorized share capital of the Company was increased from
Statutory reserve
The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations to the statutory surplus reserve are required to be at least
| F-32 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Concentration of major customers and suppliers
For the six months ended March 31, 2023, two major customers accounted for approximately
As of March 31, 2023, two major customers accounted for approximately
For the six months ended March 31, 2023, four major suppliers accounted for approximately
As of March 31, 2023, five major suppliers accounted for approximately
Note 11 — Leases
The Company rent its factories in Lishui City Zhejiang Province from a related party, Zhejiang Tantech Bamboo Technology Co., Ltd., for processing dried edible fungi and a floor in an office building in Hangzhou from third parties.
As of March 31, 2023 and September 30, 2022, the remaining average lease term was an average of
| F-33 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Leases (continued)
Supplemental balance sheet information related to operating leases was as follows:
As of | As of | |||||||
March 31, | September 30, | |||||||
2023 | 2022 | |||||||
Right-of-use assets under operating leases | $ | $ | ||||||
Operating lease liabilities, current | ||||||||
Operating lease liabilities, non-current | ||||||||
Total operating lease liabilities | $ | $ | ||||||
|
| As of |
| |
|
| March 31, |
| |
|
| 2023 |
| |
For the remaining months of fiscal 2023 |
| $ |
| |
Fiscal 2024 |
|
|
| |
Fiscal 2025 |
|
|
| |
Fiscal 2026 |
|
|
| |
Fiscal 2027 |
|
|
| |
Thereafter |
|
|
| |
Total Future minimum lease payments |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Total |
| $ |
| |
Note 12 — Segment reporting
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company currently has three main products from which revenue is earned and expenses are incurred: Shiitake Mushroom, Mu Er Mushroom and other edible fungi and other agricultural products. The operations of these product categories have similar economic characteristics. In particular, the Company uses the same or similar production processes; sells to the same or similar type of customers and uses the same or similar methods to distribute these products. The resources required by these products share high similarity. Switching cost between different products is minimal. Production is primarily determined by sales orders received and market trend. Therefore, management, including the chief operating decision maker, primarily relies on the revenue data of different products in allocating resources and assessing performance. Based on management’s assessment, the Company has determined that it has only one operating segment and therefore one reportable segment as defined by ASC.
| F-34 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 12 — Segment reporting (continued)
The following table presents revenue by major product categories (from third parties and related party) from the Company’s continuing operations for the six months ended March 31, 2023 and 2022, respectively:
|
| For the six months ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Tapioca |
| $ |
|
|
|
| ||
Corn |
|
|
|
|
|
| ||
Shiitake |
|
|
|
|
|
| ||
Mu Er |
|
|
|
|
|
| ||
Cotton |
|
|
|
|
|
| ||
Corn starch |
|
|
|
|
|
| ||
Other edible fungi |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
All of the Company’s long-lived assets are located in PRC. As the Company generates all of its revenue in PRC, no geographical segments are presented.
Note 13 — Related party transactions
The relationship and the nature of related party transactions are summarized as follow:
Name of related party |
| Relationship to the Company |
| Nature of transactions |
Forasen Group Co., Ltd. ("Forasen Group") |
| Owned by Mr Zhengyu Wang, the Chairman of Board of Directors of the Company |
| Purchases from the Company |
Zhejiang Tantech Bamboo Technology Co., Ltd |
| Under common control of Mr Zhengyu Wang and Ms Yefang Zhang, CEO of the Company |
| Lease factory building to the Company; purchases from the Company |
Hangzhou Forasen Technology Co., Ltd |
| Controlled by Mr. Zhengyu Wang |
| Sublease of office space from the Company. |
Xinyang Wang |
| Shareholder of Nongyuan Network |
| Provide guarantees and a real property as additional security for certain loans. |
Dehong Zhang |
| Ms Yefang Zhang's, CEO of the Company, brother |
| Provide guarantees as an additional security for certain loans |
Ms Aihong Wang |
| Mr Zhengyu Wang's, the Chairman of Board of Directors of the Company, sister. |
| Provide a guarantee as an additional security for a revolving loan |
| F-35 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13 — Related party transactions (continued)
Due from related parties consisted of the following:
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
|
| ||
Xinyang Wang |
|
| - |
|
| $ |
| |
Zhejiang Yili Yuncang Holding Group Co., Ltd |
| $ |
|
|
|
| ||
FarmNet |
|
|
|
|
|
| ||
Epakia Canada Inc |
|
|
|
|
|
| ||
Dehong Zhang |
|
|
|
|
|
| ||
Shanghai Zhongjian Yiting Medical Health Technology Partnership |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
As of March 31, 2023, balances due from related parties mainly consisted of payment of expenses on behalf of related parties.
Due to related parties consisted of the following:
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
|
| ||
Zhejiang Tantech Bamboo Technology Co., Ltd. |
| $ |
|
| $ |
| ||
Forasen Holdings Group Co., Ltd |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
As of March 31, 2023, due to related parties mainly consisted of water and electricity expenses payable to related parties during the Company’s normal course of business. These payables were non-interest bearing and due on demand.
Sales to related parties
The Company periodically sells merchandise to its related parties during the ordinary course of business. For the six months ended March 31, 2023 and 2022, the Company recorded sales to related parties of nil and $
Operating lease from related parties
The following table summarizing operating leases with related parties, Zhejiang Tantech Bamboo Technology Co., Ltd., detailing lease begin date, lease end date, leasing purpose, leasing areas in square meters, annual rent in RMB and its equivalent in USD.
Zhejiang Tantech Bamboo Technology Co., Ltd. |
| Lease No 1 |
|
| Lease No. 2 |
|
| Lease No. 3 |
|
|
|
| ||||
Lease begin date |
| August 1, 2021 |
|
| July 14, 2021 |
|
| March 1, 2023 |
|
|
|
| ||||
Lease end date |
| July 31, 2031 |
|
| July 13, 2031 |
|
| February 29, 2028 |
|
|
|
| ||||
Leasing purpose |
| Factory building |
|
| Factory building |
|
| Office |
|
| Total |
| ||||
Annual rent in RMB |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Annual rent in USD |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Area (in square meters) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the six months ended March 31, 2023 and 2022, the Company recorded lease expense of $
| F-36 |
| Table of Contents |
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13 — Related party transactions (continued)
Sublease to a related party
In August 2020, the Company entered into a sublease agreement with Hangzhou Forasen Technology Co., Ltd to sublease its office space. The lease term is two years with annual rent of RMB
For the six months ended March 31, 2023 and 2022, the Company recorded lease income of nil and $
Guarantees and collaterals provided by related parties
The Company’s related parties provide guarantees for the Company’s short-term bank loans (see Note 7). The Company’s related party also pledged their properties as collaterals to safeguard the Company’s short-term bank loans (see Note 7).
Note 14 – Subsequent events
1.On July 12, 2023, the Company entered into a securities purchase agreement with certain purchasers (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers and the Purchasers agreed to purchase from the Company, an aggregate of
On July 18, 2023, the Company closed the Transaction.
2.Subsequent to March 31, 2023, the Company entered into 13 loan agreements with five financial institutions and obtained a total of $
3. On April 7, 2023 and May 3, 2023, the Investor redeemed $
On June 16, 2023 and July 25, 2023, the Investor redeemed $
| F-37 |
Cover |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Cover [Abstract] | |
| Entity Registrant Name | Farmmi, Inc. |
| Entity Central Index Key | 0001701261 |
| Document Type | 6-K |
| Amendment Flag | false |
| Current Fiscal Year End Date | --09-30 |
| Document Period End Date | Mar. 31, 2023 |
| Document Fiscal Period Focus | Q2 |
| Document Fiscal Year Focus | 2023 |
| Entity File Number | 001-38397 |
| Entity Address Address Line 1 | Fl 1, Building No. 1,888 Tianning Street |
| Entity Address Address Line 2 | Liandu District |
| Entity Address City Or Town | Lishui |
| Entity Address Country | CN |
| Entity Address Postal Zip Code | 323000 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Condensed Consolidated Balance Sheets | ||
| Common stock, par or stated value per share (in dollars per share) | $ 0.025 | $ 0.025 |
| Common stock, shares authorized | 24,000,000 | 24,000,000 |
| Common stock, shares, issued | 23,906,985 | 23,906,985 |
| Common stock, shares, outstanding | 23,906,985 | 23,906,985 |
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) |
Total |
Accumulated Other Comprehensive Income (Loss) |
Common Stock |
Additional Paid-In Capital |
Statutory Reserve |
Retained Earnings (Accumulated Deficit) |
Total Farmmi Inc Shareholders Equity |
Non-controlling Interest |
|---|---|---|---|---|---|---|---|---|
| Balance, shares at Sep. 30, 2021 | 22,311,215 | |||||||
| Balance, amount at Sep. 30, 2021 | $ 160,792,418 | $ 2,128,972 | $ 557,781 | $ 147,088,227 | $ 973,555 | $ 9,127,377 | $ 159,875,912 | $ 916,506 |
| Share-based compensation expenses, shares | 400,000 | |||||||
| Share-based compensation expenses, amount | 2,007,328 | 0 | $ 10,000 | 1,997,328 | 0 | 0 | 2,007,328 | 0 |
| Issuance of common shares, net, shares | 1,200,000 | |||||||
| Issuance of common shares, net, amount | 6,000,000 | 0 | $ 30,000 | 5,970,000 | 0 | 0 | 6,000,000 | 0 |
| Reverse share-split adjustment, shares | 4,230 | |||||||
| Reverse share-split adjustment, amount | 0 | 0 | $ (106) | 106 | 0 | 0 | 0 | |
| Foreign currency translation gain | 2,430,396 | 2,430,396 | 0 | 0 | 0 | 0 | 2,430,396 | 0 |
| Disposal of a subsidiary | 5,334 | 82,449 | 0 | (2,893,001) | 0 | 3,732,392 | 921,840 | (916,506) |
| Net loss for the year | (586,938) | 0 | 0 | 0 | 0 | (586,938) | (586,938) | 0 |
| Statutory reserve | 0 | 0 | 0 | 0 | 17,144 | (17,144) | 0 | 0 |
| Balance, amount at Mar. 31, 2022 | 170,648,538 | 4,641,817 | $ 597,675 | 152,162,660 | 990,699 | 12,255,687 | 170,648,538 | 0 |
| Balance, Shares at Mar 31, 2022 at Mar. 31, 2022 | 23,906,985 | |||||||
| Balance, shares at Sep. 30, 2022 | 23,906,985 | |||||||
| Balance, amount at Sep. 30, 2022 | 154,684,091 | 14,133,546 | $ 597,675 | 152,162,658 | 1,153,813 | 14,903,491 | 154,684,091 | 0 |
| Foreign currency translation gain | 5,689,147 | 5,689,147 | 0 | 0 | 0 | 0 | 5,689,147 | 0 |
| Disposal of a subsidiary | 38,213 | 0 | 0 | 0 | (948,792) | 987,005 | 38,213 | 0 |
| Net loss for the year | 1,579,859 | 0 | 0 | 0 | 0 | 1,579,859 | 1,579,859 | 0 |
| Statutory reserve | 0 | 0 | 0 | 0 | 358,215 | (358,215) | 0 | 0 |
| Balance, amount at Mar. 31, 2023 | $ 161,991,310 | $ 8,444,399 | $ 597,675 | $ 152,162,658 | $ 563,236 | $ 17,112,140 | $ 161,991,310 | $ 0 |
| Balance, Shares at Mar 31, 2022 at Mar. 31, 2023 | 23,906,985 |
Organization and nature of business |
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| Organization and nature of business | Note 1 — Organization and nature of business
Farmmi, Inc. (“FAMI” or the “Company”) is a holding company incorporated under the laws of the Cayman Islands on July 28, 2015. FAMI owns 100% equity interest of Farmmi International Limited (“Farmmi International”), a Hong Kong company, which in turn owns 100% equity interest of Farmmi (Hangzhou) Enterprise Management Co., Ltd. (“Farmmi Enterprise”), Lishui Farmmi Technology Co., Ltd. (“Farmmi Technology”), Zhejiang Farmmi (Hangzhou) Ecology Agriculture Development Co., Ltd. (“Farmmi Ecology”) and Farmmi (Hangzhou) Health Development Co., Ltd (“Farmmi Heath Development”), four wholly foreign-owned entities (each, a “WFOE”) formed by Farmmi International under the laws of the People’s Republic of China (“PRC” or “China”).
Farmmi Health Development owns 100% equity interest in Zhejiang Farmmi Medical Health Technology Co., Ltd (“Farmmi Medical Health”) which was established under the laws of the PRC on September 18, 2021.
Farmmi Enterprise, Farmmi Technology and Farmmi Ecology own 30%, 40% and 30% of equity interests in Zhejiang Farmmi Holdings Group Co., Ltd. (“Farmmi Holdings”), respectively, which was established under the laws of the PRC on September 18, 2021.
On December 23, 2021, a board resolution of Zhejiang Farmmi Agricultural Technology Group Co., Ltd. (“Farmmi Agricultural”) (formerly known as Hangzhou Suyuan Agriculture Technology Co., Ltd., “Suyuan Agriculture”), a company incorporated in the PRC, was passed to reorganize certain companies mentioned below with nil consideration.
Under the above-mentioned reorganization, (i) on December 30, 2021, Farmmi Holdings started to own 100% interest in Farmmi Agricultural, which was previously owned by Farmmi Enterprise (31.7%) and Farmmi Technology (68.3%); (ii) Farmmi Agricultural owns 100% of the equity interest of Zhejiang Farmmi Agricultural Supply Chain Co., Ltd (“Farmmi Supply Chain”), a company established under the laws of the PRC, on February 10, 2022 and was previously 100% owned by Farmmi Ecology.
On September 27, 2021,the Company,through its subsidiary, Zhejiang Fammi Agricultural Supply Chain Co., Ltd., acquired Jiangxi Xiangbo Agriculture and Forestry Development Co. Ltd (“Jiangxi Xiangbo”), established under the laws of the PRC, from Ganzhou Tengguang Agriculture and Forestry Development Co., Ltd. for a total price of RMB70 million ($11 million). After the consummation of the acquisition, Farmmi Supply Chain owns 100% equity interest in Jiangxi Xiangbo, which in turn owns 100% interest in Yudu County Yada Forestry Co., Ltd, established under the laws of the PRC (“Yudu Yada”). As a result, Jiangxi Xiangbo and Yudu Yada became the subsidiaries of the Company.
On September 27, 2021, the Company, through its subsidiary, Zhejiang Fammi Agricultural Supply Chain Co., Ltd., acquired Guoning Zhonghao (Ningbo) Trading Co., Ltd. (“Guoning Zhonghao”), established under the laws of the PRC, from Ningbo Guoning Zhonghao Technology Co., Ltd. and Jianxin Huang, an individual, for a total consideration of RMB5,000 ($788). After the consummation of the acquisition, Farmmi Supply Chain owns 100% equity interest in Guoning Zhonghao.
Farmmi Agricultural owns 100% of equity interests in Zhejiang FLS Mushroom Co., Ltd. (“FLS Mushroom”), Zhejiang Farmmi Biotechnology Co., Ltd. (“Farmmi Biotech”) and Zhejiang Farmmi Food Co., Ltd. (“Farmmi Food”) and 77.2% equity interest in Lishui Farmmi E-Commerce Co., Ltd. (“Farmmi E-Commerce”). FLS Mushroom, Farmmi Biotech, Farmmi Food, and Farmmi E-Commerce”) were all established under the laws of the PRC. The remaining 22.8% equity interest in Farmmi E-Commerce is owned by Hangzhou Nongyuan Network Technology Co., Ltd. (“Nongyuan Network”). Nongyuan Network was incorporated on December 8, 2015 under the laws of the PRC and focuses on the development of network marketing and provides a network platform for sales of agriculture products. On September 18, 2016, Farmmi Agricultural entered into a series of contractual agreements with Zhengyu Wang, the then sole-owner of Nongyuan Network. These agreements include an Exclusive Management Consulting and Technology Agreement, an Equity Pledge Agreement, an Exclusive Call Option Agreement, a Proxy Agreement and a Power of Attorney (collectively, the “Original VIE Agreements”). The Original VIE Agreements empowered Farmmi Agricultural to exercise management control over the activities that most significantly impact the operation results of Nongyuan Network, obligated Farmmi Agricultural to absorb a majority of the risk of loss from Nongyuan Network’s activities, and entitled Farmmi Agricultural to receive a majority of their residual returns. In essence, Farmmi Agricultural and the Company had gained effective control over Nongyuan Network.
On December 4, 2019, Zhengyu Wang transferred 100% of his shares of Nongyuan Network to his daughter Xinyang Wang. As a result, Xinyang Wang started to hold 100% of the ownership interest of Nongyuan Network. On December 10, 2019, Xinyang Wang, as the new sole owner of Nongyuan Network, signed a series of VIE agreements (the “Xinyang Wang VIE Agreements”) with Nongyuan Network and Farmmi Agricultural. On May 15, 2020, the following agreements were signed with the effective date of December 10, 2019:
FAMI believes that Xinyang Wang VIE Agreements enable Farmmi Agricultural and FAMI to keep effective control over Nongyuan Network, and as a result Nongyuan Network should be considered as a Variable Interest Entity (“VIE”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation. Accordingly, the accounts of Nongyuan Network are consolidated with those of Farmmi Agricultural.
On September 7, 2021, Zhejiang Yitang Medical Service Co., Ltd. (“Yitang Mediservice”) was established under the laws of the PRC. Nongyuan Network and Farmmi Ecology own 95% and 5% of the equity interests in Yitang Mediservice, respectively.
On September 17, 2021, Zhejiang Yiting Medical Technology Co., Ltd. (“Yiting Meditech”) was established under the laws of the PRC. Yitang Mediservice owns 100% interest in Yiting Meditech.
On November 23, 2021, the Company incorporated Shanghai Zhongjian Yiting Healthcare Technology Partnership (Limited Partnership) (“Zhongjian Yiting”), and Yiting Meditech owns 93.75% of the ownership interest of it.
On January 10, 2022, Lishui Yifeng Medical Health Technology Co., Ltd (“Yifeng Medihealth”) was established under the laws of the PRC.
Yitang Mediservice owns 100% of the equity interest in Yifeng Medihealth. Yifeng Medihealth was deregistered in April 2023.
On January 10, 2022, Lishui Yilong Enterprise Management Co., Ltd (“Yilong Enterprise”) was established under the laws of the PRC. Yitang Mediservice owns 100% of the equity interest in Yilong Enterprise. Yilong Enterprise was deregistered in April 2023.
On January 19, 2022, Lishui Yifeng Yilong Medical Technology Development Partnership (Limited Partnership) (“YF YL MediTech”) was established under the laws of the PRC. Yifeng Medihealth owns 20% and Yilong Enterprise owns 80% interest in YF YL MediTech. YF YL MediTech was deregistered in April 2023. On January 19, 2022, Lishui Yitang Shangke Medical and Health Technology Partnership (Limited Partnership) (“YT SK Medihealth”) was established under the laws of the PRC. Yifeng Medihealth owns 20% and Yilong Enterprise owns 80% interest in YT SK Medihealth. YT SK Medihealth was deregistered in April 2023.
On May 27, 2022, Zhejiang Farmmi Ecological Agriculture Technology Co., Ltd (“Farmmi Eco Agri”) was established under the laws of the PRC. FLS Mushroom owns 100% of the equity interest in Farmmi Eco Agri.
On July 13, 2022, Farmmi Canada Inc. (Farmmi Canada) was established under the laws of the Canada. Farmmi Inc. owns 100% of the equity interest in Farmmi Canada.
On April 20, 2023, Farmmi USA Inc. (Farmmi USA) was established under the laws of the United States of America. Farmmi Inc. owns 100% of the equity interest in Farmmi USA.
As of March 31, 2023, details of the subsidiaries of FAMI are set out below:
FAMI, its subsidiaries, VIE and VIE’s subsidiaries (herein collectively referred to as the “Company”) are engaged in processing and distributing dried Shiitake mushrooms, Mu Er mushrooms, trading agricultural products such as tapioca, corn, cotton and corn starch. Approximately 99.9% of the Company’s products are sold in China. |
Summary of significant accounting policies |
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| Summary of significant accounting policies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of significant accounting policies | Note 2 — Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended September 30, 2022 and 2021. Operating results for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.
The unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company’s main operation subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
Consolidation of variable interest entities
In accordance with accounting standards regarding consolidation of variable interest entities (“VIEs”), VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The Company determined that Nongyuan Network is a VIE because the Company is the primary beneficiary of risks and rewards of this VIE. The condensed consolidating table below disaggregated the Condensed Consolidated Balance Sheets of the Company into into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated as of March 31, 2023 and September 30, 2022.
The condensed consolidating table below disaggregated the Consolidated Statements of Operations and Comprehensive Income (Loss) of the Company into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated for the six months ended March 31, 2023 and 2022.
The condensed consolidating table below disaggregated the Consolidated Statements of Cash Flows of the Company into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated for the six months ended March 31, 2023 and 2022.
Cash is transferred within the Company through the banking system in PRC. Under the VIE agreements, the Company intends to distribute 95% of VIE’s earnings after eliminating VIE’s accumulated losses and making appropriation of VIE’s after-tax net income into the statutory surplus reserve based on at least 10% of the after-tax net income determined in accordance with generally accepted accounting principles of the PRC. When there are retained earnings available for distribution, the distribution of VIE’s earnings will be through payment of service fees to Farmmi Agricultural, such service fee is subject to 6% value-added sales tax, other taxes of 12% which calculation is based on 6% value-added taxes and Farmmi Agricultural is subject to corporate income tax up to 25% for its net income. Under the VIE agreements, when there is a change of shareholder in VIE, amount owed by VIE to the Company should be first settled. The condensed consolidating table below quantified the transfer between FAMI, its subsidiaries, VIE and its subsidiaries, WFOE that is the primary beneficiary of the VIE and the investors for the six months ended March 31, 2023 and 2022. These transfers were mainly for the purpose of providing working capital between FAMI, its subsidiaries, VIE and its subsidiaries and WFOE that is the primary beneficiary of the VIE.
Use of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include allowance for doubtful accounts and advances to suppliers, the valuation of inventories, the useful lives of property, plant and equipment, the valuation of beneficial conversion feature of the convertible notes, valuation of the warrants and the valuation of deferred tax assets. Actual results could differ from those estimates.
Cash
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. All cash balances are in bank accounts in PRC. Cash maintained in banks within the People’s Republic of China of less than RMB0.5 million ($72,806) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China.
Restricted cash
The Company adopted Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash on October 1, 2018. This ASU applies to all entities that have restricted cash or restricted cash equivalents to be presented in the statement of cash flows under ASC Topic 230. As of March 31, 2023 and September 30, 2022, the Company had restricted cash of nil and nil, respectively.
Short-term deposit
Short-term deposit relates to fixed terms cash deposits with financial institutions with original maturities of more than three months and less than a year. As of March 31, 2023 and September 30, 2022, the Company had short-term deposit of nil and $35,144,444 earning interest at nil and 2.05% per annum with one year maturity on October 15, 2022, respectively.
Short-term investments
The Company accounts for all investments in accordance with ASC topic 320 (“ASC 320”), Investments – Debt and Equity Securities. The Company classifies the investments in debt and equity securities as “held-to-maturity”, “trading” or “available-for-sale”, whose classification determines the respective accounting methods stipulated by ASC 320. All investments with original maturities of greater than three months not exceeding twelve months are classified as short-term investments, while those of more than twelve months are classified as long-term investments. Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments. Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all categories of investments in securities, are included in earnings. Any realized gains or losses on the sale of the short-term investments, are determined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses are realized.
The securities that the Company has the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost.
The securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Unrealized holding gains and losses for trading securities are included in earnings.
Investments not classified as trading or as held-to-maturity are classified as available-for-sale securities. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income. Realized gains or losses are included in earnings during the period in which the gain or loss is realized. An impairment loss on the available-for-sale securities is recognized in the consolidated statements of income when the decline in value is determined to be other-than-temporary. Accounts receivable, net
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful.
Advances to suppliers, net
Advances to suppliers represent prepayments made to ensure continuous high-quality supplies and favorable purchase prices for premium quality. These advances are directly related to the purchases of raw materials used to fulfill sales orders. The Company is required from time to time to make cash advances when placing its purchase orders. These advances are settled upon suppliers delivering raw materials to the Company when the transfer of ownership occurs. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance.
Inventory, net
The Company values its inventories at the lower of cost, determined on a weighted average basis, or net realizable value. The Company reviews its inventories periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value.
Long-term investments
The Company’s long-term investments consist of equity securities without readily determinable fair value.
The Company adopted ASC Topic 321, Investments-Equity Securities (“ASC 321”) from September 1, 2018. Pursuant to ASC 321, for equity securities measured at fair value with changes in fair value record in earnings, the Company does not assess whether those investments are impaired. For those equity securities that the Company selects to use the measurement alternative, the Company uses the measurement alternative to measure those investments at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”). If the fair value is less than the investment’s carrying value, the Company recognizes an impairment loss in net income equal to the difference between the carrying value and fair value.
As of March 31, 2023 and September 30, 2022, the Company evaluated its investments, taking into consideration, including, but not limited to, the duration, degree and causes of the decline in financial results, its intent and ability to hold the investment and the invested companies' financial performance and near-term prospects. Based on the evaluation, the company’s long-term investment is not impaired.
The Company invests from time to time in equity securities of private companies. If the Company determines that the Company has control over these companies, the Company includes them in the consolidated financial statements. If the Company determines that the Company does not have control over these companies, the Company then determines if the Company has an ability to exercise significant influence via voting interests, board representation or other business relationships.
The Company accounts for the investments where the Company exercises significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, the Company applies it to all its financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity and long-term investments, net on the consolidated statements of income.
If the Company concludes that it does not have an ability to exercise significant influence over an investee, the Company may elect to account for the security without a readily determinable fair value using the measurement alternative under ASC Topic 312, Investments – Equity Securities. This measurement alternative allows the Company to measure the equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company’s long-term investments are equity method investments. Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in-substance common shares, are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.
Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into net loss and accordingly adjusts the carrying amount of the investment. The Company reviews its equity method investments for impairment whenever an event or circumstance indicates that any other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investment.
An Impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. As of March 31, 2023 and September 30, 2022, the Company had no impairment for long-term investments. Biological assets
Biological assets mainly consist of bamboo forests managed for future bamboo harvest and sales, of which the Company owned 82 forest right certificates with expiry dates ranging from December 30, 2026 to December 9, 2070 and with an area of 9.6 km2. The forest types are mixed mature forests which can be harvested for commercial purposes. The forests mainly consist of bamboo, fir trees and other trees. Biological assets are initially measured at cost and subsequently amortized on a straight-line basis over its estimated useful lives.
Amortization expenses were $109,570 and nil for the six months ended March 31, 2023 and 2022, respectively.
Property, plant and equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized.
Intangible assets, net
Intangible assets consist primarily of purchased software. Intangible assets are stated at cost less accumulated amortization, which are amortized using the straight-line method with the estimated useful lives of three years.
Amortization expenses were $6,885 and $17,965 for the six months ended March 31, 2023 and 2022, respectively. Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets was recognized for the six months ended March 31, 2023 and 2022.
Revenue recognition
The Company follows ASU 2014-09 Revenue from Contracts with Customers (“ASC Topic 606”). In accordance with ASC 606, to determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract (s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a price per ton.
The Company’s contract liabilities primarily include advance from customers. As of March 31, 2023 and September 30, 2022, the contract liabilities are $479,490 and $637,165, respectively, and included in other current liabilities on the consolidated balance sheets. For the six months ended March 31, 2023 and 2022, there was no revenue recognized from performance obligations related to prior periods.
Cost of revenues
Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead.
Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues. Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average ordinary shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential ordinary 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. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
The component of basic and diluted EPS were as follows:
Fair value of financial instruments
The FASB ASC Topic 820, Fair Value Measurements, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.
The three levels are defined as follows:
Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
Level 3 — Inputs to the valuation methodology are unobservable.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, short-term deposit, short-term investments, notes receivable, accounts receivable, advances to suppliers, other current assets, short-term bank loans accounts payable, due to related parties, operating lease liabilities –current and other current liabilities, approximate their recorded values due to their short-term in nature. The fair value of longer term operating lease liabilities approximate their recorded values as their stated interest rates approximate the rates currently available. Beneficial conversion feature
The Company evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes is due using the effective interest method. If the notes payable is retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
Debt issuance costs and debt discounts
The Company may record debt issuance costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.
Fair value of the embedded derivatives in the convertible promissory notes
The convertible promissory notes consisted of a liability component (“financial liability”) and an embedded derivative conversion feature (“derivative liability”). The net proceeds of these convertible promissory notes were first allocated to the fair value of the derivative liability. Subsequent changes in fair value of the derivative liability were recorded in other income.
The Company measures the fair value of the embedded derivative by reference to the fair value on the issuance date and maturity date of the convertible promissory notes and revalues them at each reporting date. In determining the fair value of the embedded derivatives, the Company used the Black-Scholes option pricing model with the following assumptions: average volatility rate; market price at the reporting date; risk-free interest rate; and the remaining life of the embedded derivatives. The inputs used in the Black-Scholes model are taken from observable markets. Changes to assumptions used can affect the amounts recognized in the consolidated financial statements. Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and advances to suppliers. As of March 31, 2023 and September 30 2022, $69,332,191 and $76,308,051 of the Company’s cash is maintained in banks within the People’s Republic of China of which deposits of RMB0.5 million (equivalent to $72,806) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China. The Company has not experienced any losses in such accounts. A significant portion of the Company’s sales are credit sales primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas. The Company also makes cash advances to certain suppliers to ensure the stable supply of key raw materials. The Company performs ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk.
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustment from the Company not using the U.S. dollar as its functional currency.
Leases
The Company adopted ASU 2016-02, Leases on October 1, 2019 and used the alternative transition approach which permits the effects of adoption to be applied at the effective date. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease exemption and combining the lease and non-lease components practical expedients. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets for office space operating leases. Foreign currency translation
The Company’s financial information is presented in U.S. dollars (“USD”). The functional currency of the Company is the Chinese Yuan Renminbi (“RMB”), the currency of PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The unaudited condensed consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
The exchange rates in effect as of March 31, 2023 and September 30, 2022 were RMB1 for $0.1456 and $0.1406, respectively. The average exchange rates for the six months ended March 31, 2023 and 2022 were RMB1 for $0.1434 and $0.1573, respectively.
Shipping and handling expenses
All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $37,053 and $105,918 for the six months ended March 31, 2023 and 2022, respectively, which included selling and distribution expenses in the accompanying unaudited condensed statements of operations. Value added tax
The Company is generally subject to the value added tax (“VAT”) for selling merchandise, except for FLS Mushroom. Before May 1, 2018, the applicable VAT rate was 13% or 17% (depending on the type of goods involved) for products sold in PRC. After May 1, 2018, the Company is subject to a tax rate of 12% or 16%, and after April 1, 2019, the tax rate was further reduced to 9% or 13% based on the new Chinese tax law. Pursuant to approval issued by the State Administration of Taxation, Nongyuan Network’s and Nongmi East’s major operation can be classified as agriculture products and its revenue is exempt from VAT. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under the commercial practice of PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax authorities have the right to assess a penalty based on the amount of taxes which is determined to be late or deficient, with any penalty being expensed in the period when a determination is made by the tax authorities that a penalty is due. During the reporting periods, the Company had no dispute with PRC tax authorities and there was no tax penalty incurred.
Income taxes
The Company is subject to the income tax laws of the PRC and a subsidiary in Canada is subject to income tax laws of Canada. The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or not be deductible in the future.
ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2023 and September 30, 2022. As of March 31, 2023, the tax years ended December 31, 2015 through December 31, 2022 for the Company’s PRC subsidiary remain open for statutory examination by PRC tax authorities.
Statement of Cash Flows
In accordance with ASC 230, Statement of Cash Flows, cash flows from the Company’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Risks and uncertainties
The operations of the Company are located in PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in PRC, in addition to the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political and social conditions in PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expense transactions are denominated in RMB, and a substantial part of the Company’s assets and liabilities are also denominated in RMB. RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of China. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.
The Company’s operating entities in PRC do not carry any business interruption insurance, product liability insurance or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.
The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations. Recent accounting pronouncements
The Company considers the applicability and impact of all ASUs. Management periodically reviews new accounting standards that are issued.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 was subsequently amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company plans to adopt this guidance effective October 1, 2023. The Company is currently evaluating the impact of its pending adoption of ASU 2016-13 on its unaudited condensed consolidated financial statements but does not expect this guidance will have a material impact on its unaudited condensed consolidated financial statements.
In August 2020, the FASB issued 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 (ASU 2020-06). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplify the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for smaller reporting companies, as defined by the SEC. 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 evaluating the impact of this ASU on its unaudited condensed consolidated financial statements and disclosures. |
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Accounts receivable net |
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| Accounts receivable, net | Note 3 — Accounts receivable, net
Accounts receivable consisted of the following:
Allowance for doubtful accounts of $135,537 and $7,249 was made for certain accounts receivable as of March 31, 2023 and September 30, 2022, respectively. |
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Advances to suppliers net |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Advances to suppliers, net | Note 4 — Advances to suppliers, net
Advances to suppliers consisted of the following:
On April 1, 2016, the Company entered into two separate framework supply agreements (“Framework Agreements”) with two co-operatives, Jingning Liannong Trading Co., Ltd (“JLT”) and Qingyuan Nongbang Mushroom Industry Co., Ltd (“QNMI”). These two Framework Agreements were renewed for another three years in April 2019 upon expiration and were further renewed for another three years in June 2021. Jingning County and Qingyuan County where JLT and QNMI are located produce premium Shiitake and Mu Er.
In order to enter into the trading of agricultural products in bulk, the Company signed a framework agreement on agricultural products purchase and sales cooperation with Ningbo Caixiang Trading Co., Ltd. on May 25, 2021. Ningbo Caixiang Trading Co., Ltd. is located in Ningbo City, a port city, and is the gathering and distributing place of agriculture products in bulks in the Yangtze River Delta region, with rich resources of agricultural products. The contract with Ningbo Caixiang Trading Co., Ltd. expired in May 2022, and the two parties renewed the agricultural product supply agreement in May 2022, with a validity of 3 years. The agreement agreed that Ningbo Caixiang should provide the Company with agricultural products of no less than RMB200 million yuan (including but not limited to cotton, corn, etc.) and pay part of the payment in advance to lock up the goods.
On April 1, 2020, the Company signed a framework cooperation agreement with Lishui Zhelin Trade Co., Ltd. (“Zhelin Trade”), which is valid for 4 years. Zhelin Trade is located in the agricultural product distribution center in Liandu District - Southwest Zhejiang Agricultural Trade City, which has convenient logistics and timely agricultural product information. Therefore, the cooperation agreement stipulates that Zhelin Trade will process and deliver edible mushroom products on behalf of Zhelin Trade, and the Company is required to make advance payment to ensure the timeliness of goods supply and delivery.
Due to the increase of edible fungus business and preventing untimely supply of goods arising from natural disasters, the Company signed a cooperation agreement with Suizhou Huayu Ecological Agriculture Co., Ltd. on August 1, 2022. Suizhou Huayu is located in Suizhou City, Hubei Province. Suizhou City is the main production area of edible fungi in central China. The cultivation of edible fungi in this area is mainly family farms and cooperatives. Advance payment is required to ensure supply, The timely and stable supply of goods and the quality of goods can be guaranteed by paying the suppliers in advance.
Many competitors of the Company and other large buyers go there to source their supplies. Family farms and co-operatives traditionally request advance payments to secure supplies. By making advance payments to these suppliers, the Company is also able to lock in a more favorable price for premium quality than would be available in the open market.
The Framework Agreements only provide general guidelines. Actual prices are negotiated and agreed upon in individual purchase orders, and are typically set at market prices based on the quality grade and quantities determined and agreed with the suppliers. Prices may vary based on market demand and crop condition etc. The Company can generally secure the premium quality raw material supplies at prices slightly higher than the typical market prices for average quality raw materials. The quality of supplies must meet standardized specifications of both the mushroom industry and standards set by the Company.
The Company advances certain initial payments based on its estimated purchase plan from these suppliers and additional advances based on individual purchase orders placed. The Company pays advances for no other reason than to secure an adequate supply of dried mushrooms to meet its sales demands. The Company’s purchase orders require that the advances shall be refunded by suppliers if they fail to produce any dried mushrooms or fail to deliver supplies to the Company timely.
Advances to suppliers are carried at cost and evaluated for recoverability. The realizability evaluation process is similar to that of the lower of cost or net realizable value evaluation process for inventories. The Company periodically evaluates its advances for recoverability by monitoring suppliers’ ability to deliver a sufficient supply of mushrooms as well as current crop and market condition. This includes analyzing historical quantity and quality of production with monitoring of crop information provided by the Company’s field personnel related to weather or disaster or any other reason. If for any reason the Company believes that it will not receive supplies of the contracted volumes, the Company will assess its advances for any likelihood of recoverability and adjust advances on its financial statements at the lower of cost or estimated recoverable amounts. The advances are made primarily to these suppliers, which are co-operatives formed by many family farms, with which the Company has had long-term relationships over the years. If any of these family farms fail to deliver supplies, the Company would expect to receive a refund of the advances through these suppliers. The Company accrues for any allowance for possible loss on advances when there is doubt as to the collectability of the refund. Allowance for doubtful accounts of $3,375 and $3,258 was made for certain advances to suppliers as of March 31, 2023 and September 30, 2022, respectively. |
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Inventories net |
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| Inventories, net | Note 5 — Inventories, net
Inventories, net, from the Company’s continuing operations consisted of the following:
As of March 31, 2023 and September 30, 2022, allowance for inventory reserve was $0.1 million and $0.05 million, respectively. |
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Property plant and equipment net |
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| Property, plant and equipment, net | Note 6 — Property, plant and equipment, net
Property, plant and equipment, stated at cost less accumulated depreciation, consisted of the following:
Depreciation expense was $12,724 and $18,375 for the six months ended March 31, 2023 and 2022, respectively. |
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Loans |
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| Loans | Note 7 — Loans
The following table summarizing the loan commencement date, loan maturity date, loan amount in RMB and its equivalent to the United States dollar, and the effective annual interest rate of each secured and unsecured short-term and long-term loan:
Interest expenses amounted to $76,799 and $85,125 for the six months ended March 31, 2023 and 2022, respectively. |
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Convertible promissory notes and derivative liability |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Convertible promissory notes and derivative liability | |
| Convertible promissory notes and derivative liability | Note 8 - Convertible promissory notes and derivative liability
On September 26, 2022, the Company completed a $6.42 million convertible promissory note with an institutional investor (the “Investor”). Pursuant to the Securities Purchase Agreement, dated as of September 26, 2022, the Company issued and sold to the Investor a convertible promissory note of $6.42 million due on September 25, 2023, convertible into ordinary shares, $0.025 par value per share, at a discount of $0.42 million. Upon issuance, this convertible promissory note converts at the 80% of the market price. The Company accounted for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of $3.87 million and a debt discount of $3.87 million upon issuance of this convertible promissory note. As of March 31, 2023 and September 30, 2022, the fair value of this derivative liability was nil and $3.45 million, the change in fair value of derivative liability of $2.1 million and $0.42 million was recorded in other income, respectively. The debt discount was amortized over the term of the convertible promissory note and, as of March 31, 2023 and September 30, 2022 the Company recorded amortization of debt issuance cost of $1.5 million and $48,160 in other expenses, respectively. As of March 31, 2023 and September 30, 2022, the balance of the convertible promissory note, net of amortization, amounted to $6.2 million and $2.18 million, respectively.
Subsequent to September 30, 2022, the Company received comments from the Staff of NASDAQ Listing Qualifications that the Note did not provide for a floor price for the possible future conversions and that a future priced security without a floor price has public interest implications pursuant to NASDAQ Listing Rule 5101 (the “Rule”); management of the Company has determined that the floor price under the Note is assumed to be $0.12, which is calculated based on an 80% discount of the Nasdaq Minimum Price of $0.5785 on the date of the Company’s entry into the Agreement with the Investor; and the Company believes it to be in the best interests of the Company and the shareholders that the Company shall repay the Note in cash in the event conversions would result in the aggregate effective conversion price falling below $0.12.
On April 7, 2023 and May 3, 2023, the Investor redeemed $0.15 million and $0.2 million of the outstanding balance at a conversion price of $0.3645 and $0.3501 and 411,522 and 571,265 ordinary shares were issued as a result of conversion, respectively.
On June 16, 2023 and July 25, 2023, the Investor redeemed $0.2 million and $0.35 million of the outstanding balance at a conversion price of $0.3599 and $0.3622 and 561,955 and 966,316 ordinary shares were issued as a result of conversion, respectively. |
Shareholders Equity |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Shareholders' Equity | |
| Shareholders' Equity | Note 9 —Shareholders’ Equity
Ordinary shares
On September 12, 2020, the authorized share capital of the Company was increased from 20,000,000 ordinary shares of $0.001 par value each to 200,000,000 ordinary shares of $0.001 par value each. On July 22, 2021, the authorized share capital of the Company was increased from 200,000,000 ordinary shares of $0.001 par value each to 600,000,000 ordinary shares of $0.001 par value each. On May 31, 2022, the Company consolidated its ordinary share at the ratio of one-for-twenty-five. The authorized number of ordinary shares was reduced from 600,000,000 ordinary shares, $0.001 par value, to 24,000,000 ordinary shares, $0.025 par value.
Statutory reserve
The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations to the statutory surplus reserve are required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. As of March 31, 2023 and September 30, 2022, the balance of the required statutory reserves was $0.6 million and $1.2 million, respectively. |
Concentration of major customers and suppliers |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Concentration of major customers and suppliers | |
| Concentration of major customers and suppliers | Note 10 — Concentration of major customers and suppliers
For the six months ended March 31, 2023, two major customers accounted for approximately 27.7% and 21.7% of the Company’s total sales. For the six months ended March 31, 2022, one major customer accounted for approximately 39% of the Company’s total sales. Any decrease in sales to these major customers may negatively impact the Company’s operations and cash flows if the Company fails to increase its sales to other customers.
As of March 31, 2023, two major customers accounted for approximately 57% and 26.5% of the Company’s accounts receivable balance. As of September 30, 2022, two major customers accounted for approximately 65% and 34% of the Company’s accounts receivable balance.
For the six months ended March 31, 2023, four major suppliers accounted for approximately 16.7%, 15.7%, 12.8% and 12.2% of the total purchases. For the six months ended March 31, 2022, three major suppliers accounted for approximately 33%, 15% and 12% of the total purchases.
As of March 31, 2023, five major suppliers accounted for approximately 27.0%, 26.5%, 20.7%, 13.8% and 10.4% of the Company’s advances to suppliers balance. As of September 30, 2022, four major suppliers accounted for approximately 35%, 26%, 15% and 15% of the Company’s advances to suppliers’ balance. |
Leases |
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| Leases | Note 11 — Leases
The Company rent its factories in Lishui City Zhejiang Province from a related party, Zhejiang Tantech Bamboo Technology Co., Ltd., for processing dried edible fungi and a floor in an office building in Hangzhou from third parties.
As of March 31, 2023 and September 30, 2022, the remaining average lease term was an average of 7.5 years and 8.2 years, respectively. The Company’s lease agreements do not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, the Company estimates its incremental borrowing rate based on actual incremental borrowing interest rates from financial institutions in order to discount lease payments to present value. The weighted average discount rate of the Company’s operating leases was 10.1% per annum and 10.0% per annum, as of March 31, 2023 and September 30, 2022, respectively. Supplemental balance sheet information related to operating leases was as follows:
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Segment reporting |
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| Segment reporting | Note 12 — Segment reporting
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company currently has three main products from which revenue is earned and expenses are incurred: Shiitake Mushroom, Mu Er Mushroom and other edible fungi and other agricultural products. The operations of these product categories have similar economic characteristics. In particular, the Company uses the same or similar production processes; sells to the same or similar type of customers and uses the same or similar methods to distribute these products. The resources required by these products share high similarity. Switching cost between different products is minimal. Production is primarily determined by sales orders received and market trend. Therefore, management, including the chief operating decision maker, primarily relies on the revenue data of different products in allocating resources and assessing performance. Based on management’s assessment, the Company has determined that it has only one operating segment and therefore one reportable segment as defined by ASC. The following table presents revenue by major product categories (from third parties and related party) from the Company’s continuing operations for the six months ended March 31, 2023 and 2022, respectively:
All of the Company’s long-lived assets are located in PRC. As the Company generates all of its revenue in PRC, no geographical segments are presented. |
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Related party transactions |
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| Related party transactions | Note 13 — Related party transactions
The relationship and the nature of related party transactions are summarized as follow:
Due from related parties consisted of the following:
As of March 31, 2023, balances due from related parties mainly consisted of payment of expenses on behalf of related parties.
Due to related parties consisted of the following:
As of March 31, 2023, due to related parties mainly consisted of water and electricity expenses payable to related parties during the Company’s normal course of business. These payables were non-interest bearing and due on demand.
Sales to related parties
The Company periodically sells merchandise to its related parties during the ordinary course of business. For the six months ended March 31, 2023 and 2022, the Company recorded sales to related parties of nil and $1,050, respectively.
Operating lease from related parties
The following table summarizing operating leases with related parties, Zhejiang Tantech Bamboo Technology Co., Ltd., detailing lease begin date, lease end date, leasing purpose, leasing areas in square meters, annual rent in RMB and its equivalent in USD.
For the six months ended March 31, 2023 and 2022, the Company recorded lease expense of $43,910 and $13,278, respectively. Sublease to a related party
In August 2020, the Company entered into a sublease agreement with Hangzhou Forasen Technology Co., Ltd to sublease its office space. The lease term is two years with annual rent of RMB283,258 (equivalent of $41,639). This lease was terminated on February 14, 2022.
For the six months ended March 31, 2023 and 2022, the Company recorded lease income of nil and $21,555, respectively.
Guarantees and collaterals provided by related parties
The Company’s related parties provide guarantees for the Company’s short-term bank loans (see Note 7). The Company’s related party also pledged their properties as collaterals to safeguard the Company’s short-term bank loans (see Note 7). |
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Subsequent events |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Subsequent events | |
| Subsequent events | Note 14 – Subsequent events
1.On July 12, 2023, the Company entered into a securities purchase agreement with certain purchasers (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers and the Purchasers agreed to purchase from the Company, an aggregate of 21,052,632 ordinary shares, par value $0.025 per share of the Company, at a price of $0.38 per share for aggregate gross proceeds of $8 million (the “Transaction”).
On July 18, 2023, the Company closed the Transaction.
2.Subsequent to March 31, 2023, the Company entered into 13 loan agreements with five financial institutions and obtained a total of $1.5 million short-term loans from one financial institution at a weighted average effective interest rate of 3.5% per annum and weighted average of one year loan period; and a total of $0.7 million long-term loans from four financial institutions at a weighted average effective interest rate of 2.6% per annum and weighted average of two years loan period. These loans are all guaranteed by a related party, Mr. Dehong Zhang, Ms Yefang Zhang's, CEO of the Company, brother, for the outstanding principal and interest and is collateralized by a property owned by Mr. Dehong Zhang for additional security.
3. On April 7, 2023 and May 3, 2023, the Investor redeemed $0.15 million and $0.2 million of the outstanding balance at a conversion price of $0.3645 and $0.3501 and 411,522 and 571,265 ordinary shares were issued as a result of conversion, respectively.
On June 16, 2023 and July 25, 2023, the Investor redeemed $0.2 million and $0.35 million of the outstanding balance at a conversion price of $0.3599 and $0.3622 and 561,955 and 966,316 ordinary shares were issued as a result of conversion, respectively. |
Summary of significant accounting policies (Policies) |
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| Summary of significant accounting policies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation and principles of consolidation | The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended September 30, 2022 and 2021. Operating results for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.
The unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company’s main operation subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. |
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| Consolidation of variable interest entities | In accordance with accounting standards regarding consolidation of variable interest entities (“VIEs”), VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The Company determined that Nongyuan Network is a VIE because the Company is the primary beneficiary of risks and rewards of this VIE. The condensed consolidating table below disaggregated the Condensed Consolidated Balance Sheets of the Company into into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated as of March 31, 2023 and September 30, 2022.
The condensed consolidating table below disaggregated the Consolidated Statements of Operations and Comprehensive Income (Loss) of the Company into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated for the six months ended March 31, 2023 and 2022.
The condensed consolidating table below disaggregated the Consolidated Statements of Cash Flows of the Company into FAMI, the VIE and its subsidiaries, the WFOE that is the primary beneficiary of the VIEs and an aggregation of other entities that are consolidated for the six months ended March 31, 2023 and 2022.
Cash is transferred within the Company through the banking system in PRC. Under the VIE agreements, the Company intends to distribute 95% of VIE’s earnings after eliminating VIE’s accumulated losses and making appropriation of VIE’s after-tax net income into the statutory surplus reserve based on at least 10% of the after-tax net income determined in accordance with generally accepted accounting principles of the PRC. When there are retained earnings available for distribution, the distribution of VIE’s earnings will be through payment of service fees to Farmmi Agricultural, such service fee is subject to 6% value-added sales tax, other taxes of 12% which calculation is based on 6% value-added taxes and Farmmi Agricultural is subject to corporate income tax up to 25% for its net income. Under the VIE agreements, when there is a change of shareholder in VIE, amount owed by VIE to the Company should be first settled. The condensed consolidating table below quantified the transfer between FAMI, its subsidiaries, VIE and its subsidiaries, WFOE that is the primary beneficiary of the VIE and the investors for the six months ended March 31, 2023 and 2022. These transfers were mainly for the purpose of providing working capital between FAMI, its subsidiaries, VIE and its subsidiaries and WFOE that is the primary beneficiary of the VIE.
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| Use of estimates | In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include allowance for doubtful accounts and advances to suppliers, the valuation of inventories, the useful lives of property, plant and equipment, the valuation of beneficial conversion feature of the convertible notes, valuation of the warrants and the valuation of deferred tax assets. Actual results could differ from those estimates. |
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| Cash | Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. All cash balances are in bank accounts in PRC. Cash maintained in banks within the People’s Republic of China of less than RMB0.5 million ($72,806) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China. |
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| Restricted cash | The Company adopted Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash on October 1, 2018. This ASU applies to all entities that have restricted cash or restricted cash equivalents to be presented in the statement of cash flows under ASC Topic 230. As of March 31, 2023 and September 30, 2022, the Company had restricted cash of nil and nil, respectively. |
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| Short-term deposit | Short-term deposit relates to fixed terms cash deposits with financial institutions with original maturities of more than three months and less than a year. As of March 31, 2023 and September 30, 2022, the Company had short-term deposit of nil and $35,144,444 earning interest at nil and 2.05% per annum with one year maturity on October 15, 2022, respectively. |
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| Short-term investments | The Company accounts for all investments in accordance with ASC topic 320 (“ASC 320”), Investments – Debt and Equity Securities. The Company classifies the investments in debt and equity securities as “held-to-maturity”, “trading” or “available-for-sale”, whose classification determines the respective accounting methods stipulated by ASC 320. All investments with original maturities of greater than three months not exceeding twelve months are classified as short-term investments, while those of more than twelve months are classified as long-term investments. Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments. Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all categories of investments in securities, are included in earnings. Any realized gains or losses on the sale of the short-term investments, are determined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses are realized.
The securities that the Company has the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost.
The securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Unrealized holding gains and losses for trading securities are included in earnings.
Investments not classified as trading or as held-to-maturity are classified as available-for-sale securities. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income. Realized gains or losses are included in earnings during the period in which the gain or loss is realized. An impairment loss on the available-for-sale securities is recognized in the consolidated statements of income when the decline in value is determined to be other-than-temporary. |
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| Accounts receivable, net | Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful. |
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| Advances to suppliers, net | Advances to suppliers represent prepayments made to ensure continuous high-quality supplies and favorable purchase prices for premium quality. These advances are directly related to the purchases of raw materials used to fulfill sales orders. The Company is required from time to time to make cash advances when placing its purchase orders. These advances are settled upon suppliers delivering raw materials to the Company when the transfer of ownership occurs. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance. |
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| Inventory, net | The Company values its inventories at the lower of cost, determined on a weighted average basis, or net realizable value. The Company reviews its inventories periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value. |
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| Long-term investments | The Company’s long-term investments consist of equity securities without readily determinable fair value.
The Company adopted ASC Topic 321, Investments-Equity Securities (“ASC 321”) from September 1, 2018. Pursuant to ASC 321, for equity securities measured at fair value with changes in fair value record in earnings, the Company does not assess whether those investments are impaired. For those equity securities that the Company selects to use the measurement alternative, the Company uses the measurement alternative to measure those investments at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”). If the fair value is less than the investment’s carrying value, the Company recognizes an impairment loss in net income equal to the difference between the carrying value and fair value.
As of March 31, 2023 and September 30, 2022, the Company evaluated its investments, taking into consideration, including, but not limited to, the duration, degree and causes of the decline in financial results, its intent and ability to hold the investment and the invested companies' financial performance and near-term prospects. Based on the evaluation, the company’s long-term investment is not impaired.
The Company invests from time to time in equity securities of private companies. If the Company determines that the Company has control over these companies, the Company includes them in the consolidated financial statements. If the Company determines that the Company does not have control over these companies, the Company then determines if the Company has an ability to exercise significant influence via voting interests, board representation or other business relationships.
The Company accounts for the investments where the Company exercises significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, the Company applies it to all its financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity and long-term investments, net on the consolidated statements of income.
If the Company concludes that it does not have an ability to exercise significant influence over an investee, the Company may elect to account for the security without a readily determinable fair value using the measurement alternative under ASC Topic 312, Investments – Equity Securities. This measurement alternative allows the Company to measure the equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company’s long-term investments are equity method investments. Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in-substance common shares, are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.
Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into net loss and accordingly adjusts the carrying amount of the investment. The Company reviews its equity method investments for impairment whenever an event or circumstance indicates that any other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investment.
An Impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. As of March 31, 2023 and September 30, 2022, the Company had no impairment for long-term investments. |
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| Biological assets | Biological assets mainly consist of bamboo forests managed for future bamboo harvest and sales, of which the Company owned 82 forest right certificates with expiry dates ranging from December 30, 2026 to December 9, 2070 and with an area of 9.6 km2. The forest types are mixed mature forests which can be harvested for commercial purposes. The forests mainly consist of bamboo, fir trees and other trees. Biological assets are initially measured at cost and subsequently amortized on a straight-line basis over its estimated useful lives.
Amortization expenses were $109,570 and nil for the six months ended March 31, 2023 and 2022, respectively. |
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| Property, plant and equipment, net | Property, plant and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. |
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| Intangible assets, net | Intangible assets consist primarily of purchased software. Intangible assets are stated at cost less accumulated amortization, which are amortized using the straight-line method with the estimated useful lives of three years.
Amortization expenses were $6,885 and $17,965 for the six months ended March 31, 2023 and 2022, respectively. |
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| Impairment of long-lived assets | The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets was recognized for the six months ended March 31, 2023 and 2022. |
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| Revenue recognition | The Company follows ASU 2014-09 Revenue from Contracts with Customers (“ASC Topic 606”). In accordance with ASC 606, to determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract (s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a price per ton.
The Company’s contract liabilities primarily include advance from customers. As of March 31, 2023 and September 30, 2022, the contract liabilities are $479,490 and $637,165, respectively, and included in other current liabilities on the consolidated balance sheets. For the six months ended March 31, 2023 and 2022, there was no revenue recognized from performance obligations related to prior periods. |
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| Cost of revenues | Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead.
Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues. |
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| Earnings (loss) per share | The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average ordinary shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential ordinary 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. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
The component of basic and diluted EPS were as follows:
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| Fair value of financial instruments | The FASB ASC Topic 820, Fair Value Measurements, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.
The three levels are defined as follows:
Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
Level 3 — Inputs to the valuation methodology are unobservable.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, short-term deposit, short-term investments, notes receivable, accounts receivable, advances to suppliers, other current assets, short-term bank loans accounts payable, due to related parties, operating lease liabilities –current and other current liabilities, approximate their recorded values due to their short-term in nature. The fair value of longer term operating lease liabilities approximate their recorded values as their stated interest rates approximate the rates currently available. |
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| Beneficial conversion feature | The Company evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes is due using the effective interest method. If the notes payable is retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion. |
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| Debt issuance costs and debt discounts | The Company may record debt issuance costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed. |
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| Fair value of the embedded derivatives in the convertible promissory notes | The convertible promissory notes consisted of a liability component (“financial liability”) and an embedded derivative conversion feature (“derivative liability”). The net proceeds of these convertible promissory notes were first allocated to the fair value of the derivative liability. Subsequent changes in fair value of the derivative liability were recorded in other income.
The Company measures the fair value of the embedded derivative by reference to the fair value on the issuance date and maturity date of the convertible promissory notes and revalues them at each reporting date. In determining the fair value of the embedded derivatives, the Company used the Black-Scholes option pricing model with the following assumptions: average volatility rate; market price at the reporting date; risk-free interest rate; and the remaining life of the embedded derivatives. The inputs used in the Black-Scholes model are taken from observable markets. Changes to assumptions used can affect the amounts recognized in the consolidated financial statements. |
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| Concentrations of credit risk | Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and advances to suppliers. As of March 31, 2023 and September 30 2022, $69,332,191 and $76,308,051 of the Company’s cash is maintained in banks within the People’s Republic of China of which deposits of RMB0.5 million (equivalent to $72,806) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China. The Company has not experienced any losses in such accounts. A significant portion of the Company’s sales are credit sales primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas. The Company also makes cash advances to certain suppliers to ensure the stable supply of key raw materials. The Company performs ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk. |
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| Comprehensive income (loss) | Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustment from the Company not using the U.S. dollar as its functional currency. |
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| Leases | The Company adopted ASU 2016-02, Leases on October 1, 2019 and used the alternative transition approach which permits the effects of adoption to be applied at the effective date. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease exemption and combining the lease and non-lease components practical expedients. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets for office space operating leases. |
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| Foreign currency translation | The Company’s financial information is presented in U.S. dollars (“USD”). The functional currency of the Company is the Chinese Yuan Renminbi (“RMB”), the currency of PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The unaudited condensed consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
The exchange rates in effect as of March 31, 2023 and September 30, 2022 were RMB1 for $0.1456 and $0.1406, respectively. The average exchange rates for the six months ended March 31, 2023 and 2022 were RMB1 for $0.1434 and $0.1573, respectively. |
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| Shipping and handling expenses | All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $37,053 and $105,918 for the six months ended March 31, 2023 and 2022, respectively, which included selling and distribution expenses in the accompanying unaudited condensed statements of operations. |
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| Value added tax | The Company is generally subject to the value added tax (“VAT”) for selling merchandise, except for FLS Mushroom. Before May 1, 2018, the applicable VAT rate was 13% or 17% (depending on the type of goods involved) for products sold in PRC. After May 1, 2018, the Company is subject to a tax rate of 12% or 16%, and after April 1, 2019, the tax rate was further reduced to 9% or 13% based on the new Chinese tax law. Pursuant to approval issued by the State Administration of Taxation, Nongyuan Network’s and Nongmi East’s major operation can be classified as agriculture products and its revenue is exempt from VAT. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under the commercial practice of PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax authorities have the right to assess a penalty based on the amount of taxes which is determined to be late or deficient, with any penalty being expensed in the period when a determination is made by the tax authorities that a penalty is due. During the reporting periods, the Company had no dispute with PRC tax authorities and there was no tax penalty incurred. |
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| Income taxes | The Company is subject to the income tax laws of the PRC and a subsidiary in Canada is subject to income tax laws of Canada. The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or not be deductible in the future.
ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2023 and September 30, 2022. As of March 31, 2023, the tax years ended December 31, 2015 through December 31, 2022 for the Company’s PRC subsidiary remain open for statutory examination by PRC tax authorities. |
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| Statement of Cash Flows | In accordance with ASC 230, Statement of Cash Flows, cash flows from the Company’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. |
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| Risks and uncertainties | The operations of the Company are located in PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in PRC, in addition to the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political and social conditions in PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expense transactions are denominated in RMB, and a substantial part of the Company’s assets and liabilities are also denominated in RMB. RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of China. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.
The Company’s operating entities in PRC do not carry any business interruption insurance, product liability insurance or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.
The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations. |
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| Recent accounting pronouncements | The Company considers the applicability and impact of all ASUs. Management periodically reviews new accounting standards that are issued.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 was subsequently amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company plans to adopt this guidance effective October 1, 2023. The Company is currently evaluating the impact of its pending adoption of ASU 2016-13 on its unaudited condensed consolidated financial statements but does not expect this guidance will have a material impact on its unaudited condensed consolidated financial statements.
In August 2020, the FASB issued 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 (ASU 2020-06). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplify the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for smaller reporting companies, as defined by the SEC. 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 evaluating the impact of this ASU on its unaudited condensed consolidated financial statements and disclosures. |
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| Schedule of subsidiaries upon reorganization |
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| Schedule of carrying amount of this variable interest entities of financials |
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| Schedule of useful lives of property, plant and equipment |
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| Summary of component of basic and diluted EPS |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Advances to suppliers net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of advance to suppliers |
|
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Inventories net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventories |
|
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Property plant and equipment net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property plant and equipment net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property, plant and equipment, stated at cost less accumulated depreciation |
|
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Loans (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of short-term and long-term loans |
|
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of supplemental balance sheet information related to operating leases |
|
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| Summary of maturities of operating lease liabilities |
|
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Segment reporting (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment reporting | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of revenue by major product categories |
|
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Related party transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related party transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of relationship and the nature of related party transactions |
|
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| Schedule of due from related parties |
|
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| Schedule of due to related parties |
|
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| Schedule of operating lease related parties |
|
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Summary of significant accounting policies (Details 3) |
Mar. 31, 2023
USD ($)
|
|---|---|
| Other [Member] | |
| FAMI | $ 0 |
| WFOE that is the primary beneficiary of the VIE | 7,578,036 |
| VIE and its subsidiaries | 212 |
| Nongyuan Network | |
| FAMI | 291,223 |
| Other subsidiaries | 1,724,246 |
| VIE and its subsidiaries | 5,782,726 |
| variable interest entity and subsidiaries. | |
| FAMI | 0 |
| WFOE that is the primary beneficiary of the VIE | 418,780 |
| Other subsidiaries | $ 71,771 |
Summary of significant accounting policies (Details 4) |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Transportation equipment | |
| Intangible assets estimated useful lives | 4 years |
| Leasehold Improvement | |
| Intangible assets estimated useful lives | Shorter of lease term or useful life |
| Forestry | |
| Intangible assets estimated useful lives | fair value |
| Minimum | Plant, machinery and equipment | |
| Intangible assets estimated useful lives | 5 years |
| Minimum | Office equipment | |
| Intangible assets estimated useful lives | 3 years |
| Maximum | Plant, machinery and equipment | |
| Intangible assets estimated useful lives | 10 years |
| Maximum | Office equipment | |
| Intangible assets estimated useful lives | 5 years |
Summary of significant accounting policies (Details 5) - USD ($) |
6 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Component of basic and diluted EPS | ||
| Net income (loss) available for common shareholders (A) | $ 1,579,859 | $ (586,939) |
| Weighted average outstanding shares of ordinary shares (B) | 23,906,985 | 22,583,259 |
| Diluted ordinary shares and ordinary shares equivalents (C) | 38,029,792 | 22,583,259 |
| Earnings per share | ||
| Basic (A/B) | $ 0.07 | $ (0.03) |
| Diluted (A/B) | $ 0.04 | $ (0.03) |
Accounts receivable net (Details) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Accounts receivable net | ||
| Accounts receivable | $ 27,477,450 | $ 16,358,493 |
| Less: allowance for doubtful accounts | (135,537) | (7,249) |
| Accounts receivable | $ 27,341,913 | $ 16,351,244 |
Accounts receivable net (Details Narrative) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Accounts receivable net | ||
| Allowance for doubtful accounts | $ 135,537 | $ 7,249 |
Advances to suppliers net (Details) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Advances to suppliers net | ||
| Advances to suppliers | $ 58,979,620 | $ 48,636,862 |
| Less: allowance for doubtful accounts | (3,375) | (3,258) |
| Advances to suppliers, net | $ 58,976,245 | $ 48,633,604 |
Advances to suppliers net (Details Narrative) - USD ($) |
1 Months Ended | ||
|---|---|---|---|
Apr. 30, 2020 |
Mar. 31, 2023 |
Sep. 30, 2022 |
|
| Advances to suppliers net | |||
| Frame work Agreement | 4 years | ||
| Allowance for doubtful debts relating to advances to suppliers | $ 3,375 | $ 3,258 |
Inventories net (Details) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Inventories net | ||
| Raw materials | $ 418,788 | $ 620,252 |
| Packaging materials | 80,346 | 63,703 |
| Finished goods | 63,325 | 81,975 |
| Inventory | 562,459 | 765,930 |
| Less: allowance for inventory reserve | (120,275) | (49,652) |
| Inventory, net | $ 442,184 | $ 716,278 |
Inventories net (Details Narrative) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Inventories net | ||
| Allowance for inventory reserve | $ 100 | $ 50 |
Property plant and equipment net (Details) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Subtotal | $ 138,740 | $ 133,944 |
| Accumulated depreciation | (105,182) | (89,076) |
| Total | 33,558 | 44,868 |
| Plant, machinery and equipment | ||
| Subtotal | 66,756 | 64,449 |
| Transportation equipment. | ||
| Subtotal | 51,004 | 49,241 |
| Office equipment | ||
| Subtotal | $ 20,980 | $ 20,254 |
Property plant and equipment net (Details narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Property plant and equipment net | ||
| Depreciation expense | $ 12,724 | $ 18,375 |
Loans (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Interest expenses amount | $ 76,799 | $ 85,125 |
| Mr Dehong Zhang [Member] | ||
| Outstanding principal amount | 400,000 | |
| Loan amount | $ 291,223 | |
| Ms Xinyang Wang [Member] | ||
| Percentage of ownership interest | 100.00% | |
| Outstanding principal amount | $ 2,200,000 | |
| Property owned valuation | $ 2,700,000 | |
Convertible promissory notes and derivative liability (Details Narrative) - USD ($) |
1 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
May 03, 2023 |
Apr. 07, 2023 |
Jul. 25, 2023 |
Jun. 16, 2023 |
Sep. 26, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Sep. 30, 2022 |
|
| Redemption of outstanding amount | $ 200,000 | $ 150,000 | $ 350,000 | $ 200,000 | ||||
| Conversion price | $ 0.3645 | $ 0.3501 | $ 0.3622 | $ 0.3599 | ||||
| Shares issued | 571,265 | 411,522 | 966,316 | 561,955 | ||||
| Change in fair value of derivative liability | $ 2,129,709 | $ 0 | ||||||
| Convertible promissory note [Member] | ||||||||
| Issued Convertible promissory note | $ 6,420,000 | |||||||
| Derivative liability | 3,870,000 | $ 3,450,000 | ||||||
| Convertible promissory note | 6,420,000 | |||||||
| Change in fair value of derivative liability | $ 2,100,000 | 420,000 | ||||||
| Debt discount | $ 3,870,000 | |||||||
| Convertible into ordinary shares | $ 0.025 | |||||||
| description of amortization | the Company has determined that the floor price under the Note is assumed to be $0.12, which is calculated based on an 80% discount of the Nasdaq Minimum Price of $0.5785 on the date of the Company’s entry into the Agreement with the Investor | |||||||
| Discount amount | $ 420,000 | |||||||
| Amortization of debt issuance costs | $ (1,500,000) | $ (48,160,000,000) | ||||||
| Net of amortization | $ 6,200,000 | $ 2,180,000 | ||||||
| Conversion price | $ 0.12 | |||||||
Shareholders Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Millions |
6 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2023 |
Sep. 30, 2022 |
May 31, 2022 |
Jul. 22, 2021 |
Sep. 12, 2020 |
|
| Common stock, shares authorized | 24,000,000 | 24,000,000 | |||
| Ordinary shares, par value | $ 0.025 | $ 0.025 | |||
| Statutory reserve | $ 0.6 | $ 1.2 | |||
| Statutory surplus reserve | 10.00% | ||||
| Farmmi Inc. | |||||
| Ownership in subsidiary | 50.00% | ||||
| Minimum [Member] | |||||
| Common stock, shares authorized | 24,000,000 | 200,000,000 | 20,000,000 | ||
| Ordinary shares, par value | $ 0.025 | $ 0.001 | $ 0.001 | ||
| Maximum [Mmber] | |||||
| Common stock, shares authorized | 600,000,000 | 600,000,000 | 200,000,000 | ||
| Ordinary shares, par value | $ 0.001 | $ 0.001 | $ 0.001 |
Concentration of major customers and suppliers (Details Narrative) |
6 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| One Customer | ||
| Total sales | 27.70% | 39.00% |
| Accounts receivable | 57.00% | 65.00% |
| Customer Two | ||
| Total sales | 21.70% | |
| Accounts receivable | 26.50% | 34.00% |
| Supplier One | ||
| Total Purchase | 16.70% | 33.00% |
| Advances to supplier | 27.00% | 35.00% |
| Supplier Two | ||
| Total Purchase | 15.70% | 15.00% |
| Advances to supplier | 26.50% | 26.00% |
| Supplier Three | ||
| Total Purchase | 12.80% | 12.00% |
| Advances to supplier | 20.70% | 15.00% |
| Supplier Four | ||
| Total Purchase | 12.20% | |
| Advances to supplier | 13.80% | 15.00% |
| Supplier Five | ||
| Advances to supplier | 10.40% | |
Leases (Details) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Leases | ||
| Right-of-use assets under operating leases | $ 579,901 | $ 534,351 |
| Operating lease liabilities, current | 70,621 | 46,543 |
| Operating lease liabilities, non-current | 523,988 | 517,156 |
| Total operating lease liabilities | $ 594,609 | $ 563,699 |
Leases (Details 1) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Maturities of operating lease liabilities | ||
| For the remaining months of fiscal 2023 | $ 64,221 | |
| Fiscal 2024 | 125,243 | |
| Fiscal 2025 | 105,149 | |
| Fiscal 2026 | 105,149 | |
| Fiscal 2027 | 105,149 | |
| Thereafter | 351,807 | |
| Total future minimum lease payments | 856,718 | |
| Less: Imputed interest | (262,109) | |
| Total | $ 594,609 | $ 563,699 |
Leases (Details Narrative) |
6 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Sep. 30, 2022 |
|
| Leases | |||
| Discount rate | 10.10% | 10.00% | |
| Remaining lease term | 7 years 6 months | 8 years 2 months 12 days | |
Segment reporting Revenue by major product categories (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenue from third parties and related party | $ 60,547,274 | $ 42,135,715 |
| Tapioca | ||
| Revenue from third parties and related party | 31,472,734 | 0 |
| Corn | ||
| Revenue from third parties and related party | 9,334,913 | 10,209,876 |
| Shiitake | ||
| Revenue from third parties and related party | 8,841,248 | 10,009,944 |
| Mu Er | ||
| Revenue from third parties and related party | 7,540,236 | 10,854,307 |
| Cotton | ||
| Revenue from third parties and related party | 1,893,711 | 10,283,106 |
| Corn starch | ||
| Revenue from third parties and related party | 1,354,432 | 0 |
| Other edible fungi | ||
| Revenue from third parties and related party | $ 110,000 | $ 778,482 |
Related party transactions (Details) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Due to related parties | $ 1,265 | $ 948 |
| Due from related parties | 20,920 | 59,983 |
| Represents information about Farm Net Limited. | ||
| Due from related parties | 4,100 | 0 |
| Xinyang Wang | ||
| Due from related parties | 0 | 59,983 |
| Represents information pertaining to Zhejiang Tantech Bamboo Technology Co., Ltd. | ||
| Due to related parties | 1,087 | 948 |
| Represents information pertaining to Zhejiang Yili Yuncang Holding Group Co., Ltd | ||
| Due from related parties | 13,350 | 0 |
| Represents information pertaining to Epakia Canada Inc | ||
| Due from related parties | 2,996 | 0 |
| Represents information pertaining to Dehong Zhang | ||
| Due from related parties | 146 | 0 |
| Represents information pertaining to Shanghai Zhongjian Yiting Medical Health Technology Partnership | ||
| Due from related parties | 328 | 0 |
| Represents information pertaining to Forasen Holdings Group Co.Ltd | ||
| Due to related parties | $ 178 | $ 0 |
Related party transactions (Details 1) |
6 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
ft²
| |
| Annual rent RMB | $ 722,120 |
| Annual rent | $ 103,578 |
| Area (in square meters) | ft² | 3,573 |
| Lease No 3 [Member] | Represents information pertaining to Zhejiang Tantech Bamboo Technology Co., Ltd. | |
| Annual rent RMB | $ 131,835 |
| Annual rent | $ 18,910 |
| Area (in square meters) | ft² | 479 |
| Lease No 2 [Member] | Represents information pertaining to Zhejiang Tantech Bamboo Technology Co., Ltd. | |
| Annual rent RMB | $ 421,431 |
| Annual rent | $ 60,448 |
| Area (in square meters) | ft² | 1,914 |
| Lease No 1 [Member] | Represents information pertaining to Zhejiang Tantech Bamboo Technology Co., Ltd. | |
| Annual rent RMB | $ 168,854 |
| Annual rent | $ 24,220 |
| Area (in square meters) | ft² | 1,180 |
Related party transactions (Details Narrative) |
1 Months Ended | 6 Months Ended | |
|---|---|---|---|
|
Aug. 31, 2020
CNY (¥)
|
Mar. 31, 2023
USD ($)
|
Mar. 31, 2022
USD ($)
|
|
| Revenue from Related Parties | $ 0 | $ 1,050 | |
| Annual rent | 103,578 | ||
| Lease expenses | 43,910 | 13,278 | |
| Represents information pertaining to Hangzhou Forasen Technology Co., Ltd. | |||
| Annual rent | ¥ | ¥ 283,258 | ||
| Terms of sublease agreement | 2 years | ||
| Lease income | $ 0 | $ 21,555 | |
Subsequent events (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jul. 12, 2023 |
May 03, 2023 |
Apr. 07, 2023 |
Jul. 25, 2023 |
Jun. 16, 2023 |
Mar. 31, 2023 |
|
| Redemption of outstanding amount | $ 200 | $ 150 | $ 350 | $ 200 | ||
| Conversion price | $ 0.3645 | $ 0.3501 | $ 0.3622 | $ 0.3599 | ||
| Shares issued | 571,265 | 411,522 | 966,316 | 561,955 | ||
| Short term loan | $ 1,500 | |||||
| Interest rate of short term loan | 3.50% | |||||
| Long term loan | $ 700 | |||||
| Interest rate of Long term loan | 2.60% | |||||
| Subsequent Event Member | Common Shares | ||||||
| Purchase of common stock | 21,052,632 | |||||
| Purchase of common stock par value | $ 0.025 | |||||
| Purchase price per share | $ 0.38 | |||||
| Gross proceeds issue of share | $ 8,000 | |||||
1 Year Farmmi Chart |
1 Month Farmmi Chart |
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