FARMMI, INC.
TABLE OF CONTENTS
Page | |
Unaudited Condensed Consolidated Financial Statements | |
Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and September 30, 2021 | F-3 |
F-4 | |
F-5 | |
F-6 | |
Notes to Unaudited Condensed Consolidated Financial Statements | F-7 - F-41 |
Farmmi, Inc.
Condensed Consolidated Balance Sheets
| March 31, |
| September 30, | |||
2022 | 2021 | |||||
(Unaudited) | ||||||
Assets |
|
|
| |||
Current Assets |
|
|
|
| ||
Cash | $ | | $ | | ||
Short-term deposit | | | ||||
Short-term investments | | — | ||||
Notes receivable |
| |
| — | ||
Accounts receivable, net |
| |
| | ||
Advances to suppliers, net | | | ||||
Other receivable |
| |
| — | ||
Inventories, net | | | ||||
Other current assets | | | ||||
Due from a related party | | — | ||||
Current assets from discontinued operations | — | | ||||
Total current assets |
| |
| | ||
Prepayment to acquire a subsidiary |
| — |
| | ||
Long-term investments | | — | ||||
Property, plant and equipment, net | | | ||||
Intangible assets, net | | | ||||
Right-of-use assets | | | ||||
Non-current assets from discontinued operations |
| — |
| | ||
Total Assets | $ | | $ | | ||
Liabilities and Shareholders' Equity |
|
|
|
| ||
Current Liabilities |
|
|
|
| ||
Short-term bank loans | $ | | $ | | ||
Accounts payable | | | ||||
Due to related parties | — | | ||||
Operating lease liabilities – current |
| |
| | ||
Other current liabilities | | | ||||
Current liabilities from discontinued operations |
| — |
| | ||
Total current liabilities |
| |
| | ||
Long-term bank loan | ||||||
Operating lease liabilities – non-current | ||||||
Non-current liabilities from discontinued operations |
| — |
| — | ||
Total Liabilities |
| |
| | ||
Commitment and contingencies | ||||||
Shareholders' Equity |
|
|
|
| ||
|
| |||||
Ordinary share, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Statutory reserve |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive income | | | ||||
Total Farmmi, Inc.’s Shareholders’ Equity |
| |
| | ||
Noncontrolling Interest | — | | ||||
Total Shareholders' Equity | | | ||||
Total Liabilities and Shareholders' Equity | $ | | $ | | ||
| 1. | On May 31, 2022, the Company consolidated its ordinary shares at the ratio of one-for-twenty-five. The authorized number of ordinary shares had been retrospectively adjusted from |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
Farmmi, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
For the Six Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Revenues |
|
|
|
| ||
Sales to third parties | $ | | $ | | ||
Sales to related parties |
| |
| | ||
Total revenues |
| |
| | ||
Cost of revenues |
| ( |
| ( | ||
Gross Profit |
| |
| | ||
Operating income (expenses) |
|
| ||||
Allowance for doubtful debts | ( | | ||||
Selling and distribution expenses |
| ( |
| ( | ||
General and administrative expenses |
| ( |
| ( | ||
Total operating expenses |
| ( |
| ( | ||
(Loss) income from operations |
| ( |
| | ||
Other income (expenses) |
|
| ||||
Interest income |
| |
| | ||
Interest expense |
| ( |
| ( | ||
Other expenses, net |
| |
| ( | ||
Total other income (expenses) |
| |
| ( | ||
Loss (income) before income taxes |
| ( |
| | ||
Income taxes |
| |
| | ||
Net (loss) income from continuing operations |
| ( |
| | ||
Discontinued operations |
|
| ||||
Net loss from discontinued operations, net of tax | — | ( | ||||
Net (loss) income | ( | | ||||
|
| |||||
Net loss attributable to non-controlling interest from discontinued operations | — | | ||||
|
|
| ||||
Net (loss) income attributable to Farmmi, Inc. | $ | ( | $ | | ||
|
| |||||
Comprehensive income (loss) | ||||||
Net (loss) income | $ | ( | $ | | ||
Other comprehensive income: foreign currency translation gain | | | ||||
Total comprehensive income |
| |
| | ||
Comprehensive (income) loss attributable to noncontrolling interest | — | ( | ||||
Comprehensive income attributable to Farmmi, Inc. | $ | | $ | | ||
Weighted average number of shares1 | ||||||
Basic | | | ||||
Diluted | | | ||||
Basic (loss) earnings per ordinary share | $ | ( | $ | | ||
Continuing operations | $ | ( | $ | | ||
Discontinued operations | — | $ | ( | |||
Diluted (loss) earnings per ordinary share | $ | ( | $ | | ||
Continuing operations | $ | ( | $ | | ||
Discontinued operations | — | $ | ( | |||
1. | On May 31, 2022, the Company consolidated its ordinary shares at the ratio of one-for-twenty-five. The weighted average number of shares had been retrospectively adjusted from |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
Farmmi, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended March 31, 2022 and 2021
(Unaudited)
Accumulated | ||||||||||||||||||||||||||
Additional | Other | Total | Noncontrolling | |||||||||||||||||||||||
Ordinary Shares | Paid in | Statutory | Retained | Comprehensive | Farmmi, Inc.’s | Total | ||||||||||||||||||||
| Shares |
| Amount |
| Capital |
| Reserve |
| Earnings |
| Income |
| Shareholders’ Equity |
| Interest |
| Shareholders' Equity | |||||||||
Balance at September 30, 2020 |
| |
| $ | | $ | |
| $ | | $ | |
| $ | | $ | | $ | | $ | | |||||
Share-based compensation expenses | — | — | — | — | ||||||||||||||||||||||
Issuance of common shares, net | | | | — | — | — | | — | | |||||||||||||||||
Foreign currency translation gain | — | — | — | — | — | | | | | |||||||||||||||||
Net income (loss) for the year | — | — | — | — | | — | | ( | | |||||||||||||||||
Statutory reserve | — | — | — | | ( | — | — | — | — | |||||||||||||||||
Balance at March 31, 2021 | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Balance at September 30, 2021 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Share-based compensation expenses | | | | — | — | — | | — | | |||||||||||||||||
Issuance of common shares, net |
| |
| |
| |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Reverse share-split adjustment | ( | ( | | — | — | — | — | — | — | |||||||||||||||||
Foreign currency translation gain |
| — |
| — |
| — |
| — |
| — |
| |
| |
| — |
| | ||||||||
Disposal of a subsidiary | — | — | ( | — | | | | ( | | |||||||||||||||||
Net loss for the year | — | — | — | — | ( | — | ( | — | ||||||||||||||||||
Statutory reserve | — | — | — | | ( | — | — | — | — | |||||||||||||||||
Balance at March 31, 2022 |
| $ | $ | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
Farmmi, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities |
|
|
|
| ||
Net (loss) income | $ | ( | $ | | ||
Net (income) loss from discontinued operations |
| — |
| | ||
Net (loss) income from continuing operations | ( | | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||
Changes in allowances - accounts receivable | ( | | ||||
Changes in allowances - advances to suppliers |
| |
| ( | ||
Changes in allowances - inventories |
| — |
| ( | ||
Depreciation and amortization | | | ||||
Non-cash lease expenses | ( | — | ||||
Gain on short-term investments |
| ( |
| — | ||
Loss from disposal of a subsidiary |
| |
| — | ||
Share-based compensation |
| |
| | ||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| |
| ( | ||
Advances to suppliers | ( | | ||||
Inventories, net |
| ( |
| ( | ||
Notes receivable |
| ( |
| — | ||
Other current assets |
| |
| | ||
Accounts payable | | | ||||
Operating lease liabilities |
| |
| — | ||
Other current liabilities |
| ( |
| ( | ||
Net cash provided by operating activities from continuing operations |
| |
| | ||
Net cash provided by operating activities from discontinued operations | — | | ||||
Net cash provided by operating activities |
| |
| | ||
Cash flows from investing activities | ||||||
Purchase of property, plant and equipment |
| ( |
| — | ||
Purchase of intangible assets |
| — |
| ( | ||
Short-term deposits | ( | ( | ||||
Acquisition of subsidiaries | ( | — | ||||
Other receivable | ( | — | ||||
Proceeds from disposal of a subsidiary | | — | ||||
Purchase of long-term investments | ( | — | ||||
Purchase of short-term investments | ( | — | ||||
Net cash used in investing activities from continuing operations |
| ( |
| ( | ||
Net cash used in investing activities from discontinued operations | — | ( | ||||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities | ||||||
Net proceeds from stock issuance |
| |
| | ||
Repayments of bank loans |
| ( |
| ( | ||
Repayment of advances from related parties |
| ( |
| — | ||
Proceeds from advances from related parties |
| — |
| | ||
Net cash provided by financing activities from continuing operations |
| |
| | ||
Net cash provided by financing activities from discontinued operations | — | — | ||||
Net cash provided by financing activities | | | ||||
Effect of exchange rate changes on cash and restricted cash | ( |
| | |||
Net (decrease) increase in cash and restricted cash | ( |
| | |||
Cash and restricted cash, beginning of year | |
| | |||
Cash and restricted cash, end of year | $ | | $ | | ||
Less: cash from discontinued operations | — | | ||||
Cash and restricted cash, end of year | $ | | $ | | ||
Reconciliation of cash and restricted cash, beginning of year | ||||||
Cash | $ | | $ | | ||
Restricted cash | — | | ||||
Cash from continuing operations | $ | | $ | | ||
Cash from discontinued operations | | | ||||
Cash and restricted cash, beginning of year | $ | | $ | | ||
Reconciliation of cash and restricted cash, end of year | ||||||
Cash | $ | | $ | | ||
Restricted cash | — | | ||||
Cash from continuing operations | $ | | $ | | ||
Cash from discontinued operations | — | | ||||
Cash and restricted cash, end of year | $ | | $ | | ||
Supplemental disclosure information: | ||||||
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
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 RMB
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 RMB
Farmmi Agricultural owns
F-7
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
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 September 27, 2021, an agreement was signed to divest
As of March 31, 2022, details of the subsidiaries of FAMI are set out below:
Date of | Place of | % of | ||||||
Name of Entity |
| Incorporation |
| Incorporation |
| Ownership |
| Principal activities |
FAMI | Parent |
| ||||||
Farmmi International |
| |||||||
Farmmi Enterprise |
| |||||||
Farmmi Technology |
| |||||||
Farmmi Agricultural |
| |||||||
FLS Mushroom |
| |||||||
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 | ||||||||
Nongyuan Network | ||||||||
Yitang Mediservice | ||||||||
Yiting Meditech | ||||||||
Yifeng Medihealth | ||||||||
Yilong Enterprise | ||||||||
YF YL MediTech | ||||||||
YT SK Medihealth |
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
F-9
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and nature of business (continued)
FAMI, Farmmi International, Farmmi Enterprise, Farmmi Technology, Farmmi Agricultural, FLS Mushroom, 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, Nongyuan Network, Yitang Mediservice, Yitang Meditech, Yifeng Medihealth, Yilong Enterprise, YF YL Meditech and YT SK Medihealth (herein collectively referred to as the “Company”) are engaged in processing and distributing dried Shiitake mushrooms, Mu Er mushrooms, corn and cotton. Farmmi Holdings, FLS Mushroom, Nongyuan Network, Farmmi Agricultural, Farmmi Technology, Farmmi Food, Farmmi E-Commerce, Farmmi Biotech, Farmmi Supply Chain, Farmmi Supply Chain and Guoning Zhonghao are the main operating entities located in China, all other entities holding companies or dormant without any material activities. Approximately
Note 2 — Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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.
The 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
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities (Continued)
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, 2022 and September 30, 2021.
| As of March 31, 2022 (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 | | | | — | | ||||||||||
Current liabilities | | | | | | ||||||||||
Non-current liabilities | | — | | — | | ||||||||||
Total liabilities | | | | | | ||||||||||
Total shareholders’ equity (net assets) | $ | | $ | | $ | | $ | | $ | | |||||
As of September 30, 2021 | |||||||||||||||
Other entities | WFOE that is | ||||||||||||||
that are | the primary | VIE and its | Consolidated | ||||||||||||
| consolidated |
| beneficiary of the VIE |
| 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
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities (Continued)
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, 2022 and 2021.
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) | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||
For the six months ended March 31, 2021 (unaudited) | ||||||||||||||||||
Other entities | WFOE that is | |||||||||||||||||
that are | Discontinued | the primary | VIE and its | Consolidated | ||||||||||||||
| consolidated |
| operations |
| 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
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities (Continued)
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, 2022 and 2021.
For the six months ended March 31, 2022 | |||||||||||||||
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 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, beginning of year |
| |
| |
| |
| |
| | |||||
Cash and restricted cash from continuing operations, end of year | $ | ( | $ | | $ | | $ | | $ | | |||||
For the six months ended March 31, 2021 | ||||||||||||||||||
WFOE | ||||||||||||||||||
Other | that is | |||||||||||||||||
entities | primary | VIE | ||||||||||||||||
that are | Discontinued | beneficiary | and its | Consolidated | ||||||||||||||
| consolidated |
| operations |
| of the VIE |
| subsidiaries |
| FAMI |
| total | |||||||
Net cash (used in) provided by operating activities from continuing and discontinued operations | $ | | $ | | $ | | $ | ( | $ | ( | $ | |||||||
Net cash (used in) provided by investing activities from continuing and discontinued operations |
| ( |
| ( |
| ( |
| — |
| — |
| |||||||
Net cash provided by financing activities from contiuing and discontinued 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 and discontinued operations, beginning of year |
| |
| |
| |
| |
| |
| | ||||||
Cash and restricted cash from continuing and discontinued operations, end of year | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
F-13
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Consolidation of variable interest entities (Continued)
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 | $ | | $ | | $ | |
| — |
| — | ||||
Investors |
| — |
| — |
| — |
| — |
| — | ||||
F-14
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, 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 RMB
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, 2022 and September 30, 2021, the Company had short-term deposit of $
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
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. As of March 31, 2022 and September 30, 2021, allowance for doubtful accounts was $
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. As of March 31, 2022 and September 30, 2021, allowance for doubtful accounts was $
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. The Company recorded
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, 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.
F-16
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
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 |
| fair value |
Plant, machinery and equipment |
| – |
Transportation equipment |
| |
Office equipment | ||
Leasehold improvement | Shorter of lease term or useful life |
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
Amortization expenses were $
F-17
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.
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, 2022 and September 30, 2021, the contract liabilities are $
Refer to Note 15 — Segment reporting for details of revenue segregation.
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
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, |
| 2022 |
| 2021 | ||
Net (loss) income available for ordinary shareholders (A) | $ | ( | $ | | ||
- continuing operations |
| ( |
| | ||
- discontinued operations |
| — |
| ( | ||
Weighted average ordinary shares outstanding (B) | ||||||
- continuing and discontinued operations | | | ||||
(Loss) earnings per share - basic and diluted (A/B) | ( | | ||||
- continued operations | ( | | ||||
- discontinued operations |
| — | ( | |||
1. | On May 31, 2022, the Company consolidated its ordinary shares at the ratio of one-for-twenty-five. The weighted average number of shares had been retrospectively adjusted from |
F-19
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
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, 2022 and September 30 2021, $
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
F-21
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 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, 2022 and September 30, 2021 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-22
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
Income taxes
The Company is subject to the income tax laws of the PRC. No taxable income was generated outside the PRC for the six months ended March 31, 2022 and 2021. 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
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-23
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.
In December 2019, a novel strain of coronavirus (“COVID-19”) was identified in Wuhan, China. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic—the first pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. The Chinese government has ordered quarantines, travel restrictions, and the temporary closure of stores and facilities. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses.
Because of the shelter-in-place orders and travel restrictions mandated by the Chinese government, the production and sales activities of the Company temporarily suspended during the end of January and February 2020, which adversely impacted the Company’s production and sales during that period. Although the production and sales have resumed at the end of March 2020, if COVID-19 further impacts its production and sales, the Company’s financial condition, results of operations, and cash flows could continue to be adversely affected.
Consequently, the COVID-19 outbreak has adversely affected the Company’s business operations and condition and operating results for 2020, including but not limited to material negative impact on its total revenue, slower collection of accounts receivable and accrued allowance for bad debt, slower utilization of advances to suppliers and accrued allowance, and inventory allowance. The COVID-19 impact on the Company’s business operations and operating results for fiscal 2021 and for the six months ended March 31, 2022 appears to be minimal and appears to be temporary. The Company will continue to monitor and modify the operating strategies.
F-24
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 consolidated financial statements but does not expect this guidance will have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740, and also improves consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. The Company will adopt this ASU within annual reporting period of September 30, 2022 and expects that the adoption of this ASU will not have a material impact on the Company’s 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 consolidated financial statements and disclosures.
F-25
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Business combinations
During the six months ended March 31, 2022, the Company completed
Goodwill arising from the business combinations, which are not tax deductible, are mainly attributable to synergies expected to be achieved from the acquisitions. Pro forma financial information of the acquirees is not presented as the effects of the acquisitions on the Company’s consolidated financial statements were not material.
(a)Acquisition of Jiangxi Xiangbo
On September 27, 2021, Farmmi Supply Chain entered into an acquisition agreement with Ganzhou Tengguang Agriculture and Forestry Development Co., Ltd., a third party, to acquire all the shares of Jiangxi Xiangbo for a total price of RMB
The allocation of the purchase price as of the date of acquisition is summarized as follows:
For the six months ended March 31, | ||||
| 2022 |
| 2022 | |
| RMB |
| $ | |
Net tangible assets (i) |
| | | |
Goodwill |
| ( | ( | |
Total fair value of purchase price allocation |
| | | |
Consideration |
| | | |
(i)Net tangible assets consisted of forestry of RMB
The purchase price allocation for the acquisition was based on a valuation determined by the Company with the assistance of an independent third-party valuation firm.
(b)Acquisition of Guoning Zhonghao
On September 27, 2021, the Company acquired Guoning Zhonghao from Ningbo Guoning Zhonghao Technology Co., Ltd. and Jianxin Huang for a total consideration of RMB
F-26
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Business combinations (continued)
The allocation of the purchase price as of the date of acquisition is summarized as follows:
For the six months ended March 31, | ||||
| 2022 |
| 2022 | |
| RMB |
| $ | |
Net tangible liabilities (i) | ( | ( | ||
Goodwill | ( | ( | ||
Total fair value of purchase price allocation | | | ||
Consideration | | | ||
(i) | Net tangible liabilities primarily included cash of RMB |
Note 4 — Accounts receivable, net
Accounts receivable from the Company’s continuing operations consisted of the following:
As of | As of | |||||
March 31, | September 30, | |||||
| 2022 |
| 2021 | |||
(unaudited) | ||||||
Accounts receivable - trade | $ | | $ | | ||
Accounts receivable - related party |
| |
| | ||
Accounts receivable |
| |
| | ||
Less: allowance for doubtful accounts | ( | ( | ||||
Accounts receivable, net | $ | | $ | | ||
Allowance for doubtful accounts of $
F-27
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 — Advances to suppliers, net
Movement of advances to suppliers from the Company’s continuing operations is as follows:
As of | As of | |||||
March 31, | September 30, | |||||
| 2022 |
| 2021 | |||
(unaudited) | ||||||
Beginning balance | $ | | $ | | ||
Increased during the year | | | ||||
Less: utilized during the year | ( | ( | ||||
Exchange rate difference | | | ||||
Sub-total | | | ||||
Less: allowance for doubtful accounts | ( | — | ||||
Ending balance | $ | | $ | | ||
On April 1, 2016, the Company entered into two separate framework supply agreements (“Framework Agreements”) with
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 two 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 JLT and QNMI, 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 JLT/QNMI. The Company accrues for any allowance for possible loss on advances when there is doubt as to the collectability of the refund.
F-28
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 — Advances to suppliers, net (continued)
As of August 8, 2022, approximately $
Note 6 — Inventories, net
Inventories, net, from the Company’s continuing operations consisted of the following:
As of | As of | |||||
March 31, | September 30, | |||||
| 2022 |
| 2021 | |||
(unaudited) | ||||||
Raw materials | $ | | $ | | ||
Packaging materials | | | ||||
Finished goods | | | ||||
Inventory | | | ||||
Less: allowance for inventory reserve |
| — |
| — | ||
Inventory, net | $ | | $ | | ||
Note 7 – Other receivable
On November 5, 2021, one of the Company’s subsidiaries singed an Equity Transfer Framework Agreement to invest
Note 8 — 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, | |||||
2022 | 2021 | |||||
(unaudited) | ||||||
Forestry | $ | | — | |||
Plant, machinery and equipment |
| |
| | ||
Transportation equipment |
| |
| | ||
Office equipment |
| |
| | ||
Subtotal |
| |
| | ||
Accumulated depreciation | ( | ( | ||||
Total | $ | | $ | | ||
Depreciation expense was $
F-29
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Loans
Short-term and long-term loans from the Company’s continuing operations consist of the following:
| As of |
| As of | |||
March 31, | September 30, | |||||
2022 | 2021 | |||||
(unaudited) | ||||||
Short-term loan | ||||||
Zhejiang Mintai Commercial Bank (Hangzhou Branch) (1) | $ | | $ | | ||
Total short-term loan | | | ||||
Long-term loan | ||||||
China Resources Shenzhen Investment Trust Co., Ltd. (2) | | | ||||
Total short-term and long-term loans | $ | | $ | | ||
| (1) | The loan in the amount of RMB |
The loan is guaranteed by Ci Ge Ma Holdings (Hangzhou) Co., Ltd., and Aijiang Wang and is secured by a real property owned by Xinyang Wang, the
| (2) | The revolving loan in the amount of RMB |
This revolving loan is guaranteed by a related party, Mr. Dehong Zhang, a legal representative of Farmmi Food.
Interest expenses amounted to $
Note 10 — Convertible notes payable
On November 1, 2018, the Company completed a $
The Notes were initially convertible into
F-30
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Convertible notes payable (continued)
On March 10, 2020, the Company adjusted the warrant exercise price of the Investor Warrants and the Placement Agent Warrants to $
At the time of issuance, the Company allocated the proceeds to the Notes and Investor Warrants based on their relative fair values, and evaluated the intrinsic value of the beneficial conversion feature (“BCF”) associated with the conversion feature of the Notes. The Investor Warrants and BCF were recorded into additional paid-in capital.
The Investor Warrants were treated as a discount on the Notes and were valued at $
On March 29, 2021, May 4, 2021, September 20, 2021 and February 28, 2022, the Company adjusted the warrant exercise price of the Investor Warrants and the Placement Agent Warrants to $
F-31
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 —Shareholders’ Equity
Ordinary shares
On September 12, 2020, the authorized share capital of the Company was increased from
During the six months ended March 31, 2022, the Company issued
Warrants
A summary of the status of the Company’s outstanding warrants as of March 31, 2022 and September 30, 2021 and changes during the years then ended are presented below:
Weighted | ||||||||||
Weighted | average | |||||||||
Number | average | Total | remaining | |||||||
of | exercise | intrinsic | contractual | |||||||
| warrants |
| price |
| value |
| life (in years) | |||
Outstanding as of September 30, 2021 |
| | $ | | $ | |
| |||
Outstanding as of March 31, 2022 |
| | $ | | $ | — |
| |||
Warrants exercisable as of March 31, 2022 |
| | $ | | $ | — |
| |||
On March 29, 2021, May 4, 2021, September 20, 2021 and February 28, 2022, the Company adjusted the warrant exercise price of the Investor Warrants and the Placement Agent Warrants to $
The fair value of the warrants has been estimated using Black-Scholes option pricing model. Inherent in the assumptions related to expected stock price volatility, expected life, risk-free interest rate and dividend yield as presented below:
For the six | For the six | |||
months ended | months ended | |||
March 31, 2022 | March 31, 2021 | |||
| (unaudited) |
| (unaudited) | |
Exercise price | $ | $ | ||
Stock price | $ | $ | ||
Term (in years) | ||||
Volatility | ||||
Risk-free interest rate | ||||
Dividend yield | | — |
F-32
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 —Shareholders’ Equity (continued)
Warrants (Continued)
The fair value of the Investor Warrants and Placement Agent Warrants was computed using the Black-Scholes option-pricing model. Variables used in the option-pricing model include (1) risk-free interest rate of
Share incentive plan
The Company established a pool for shares and share options for employees. This pool contains shares and options to purchase
On July 22, 2021, the Company’s shareholders approved the 2021 Stock Incentive Plan (the “2021 Plan”) and authorized the Company to reserve a total of
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
Noncontrolling interest
The Company’s noncontrolling interest of
| As of |
| As of | ||
March 31, | September 30, | ||||
Non-controlling interest | 2022 | 2021 | |||
Paid-in capital | — | $ | | ||
Additional paid-in capital | — |
| | ||
Foreign currency translation gain (loss) attributed to noncontrolling interest | — |
| | ||
Net loss attributed to noncontrolling interest | — |
| ( | ||
Total noncontrolling interest | — | $ | | ||
F-33
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 12 — Concentration of major customers and suppliers
For the six months ended March 31, 2022 and 2021,
As of March 31, 2022,
For the six months ended March 31, 2022,
As of March 31, 2022,
Note 13 — 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, 2022 and September 30, 2021, the remaining average lease term was an average of
F-34
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Leases (continued)
Supplemental balance sheet information related to operating leases from the Company’s continuing operations was as follows:
| As of | As of | ||||
March 31, | September 30, | |||||
2022 |
| 2021 | ||||
Right-of-use assets under operating leases | $ | | $ | | ||
Operating lease liabilities, current | | | ||||
Operating lease liabilities, non-current |
| |
| | ||
Total operating lease liabilities | $ | | $ | | ||
| As of | ||
March 31, | |||
Twelve months ending March 31, | 2022 | ||
2023 | $ | | |
2024 | | ||
2025 | | ||
2026 | | ||
2027 | | ||
Thereafter | | ||
Total Future minimum lease payments | | ||
Less: Imputed interest |
| ( | |
Total | $ | | |
Note 14 — 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-35
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — 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, 2022 and 2021, respectively:
For the six | For the six | |||||
months ended | months ended | |||||
| March 31, 2022 |
| March 31, 2021 | |||
(unaudited) | (unaudited) | |||||
Shiitake | $ | | $ | | ||
Mu Er |
| |
| | ||
Cotton | | — | ||||
Corn | | — | ||||
Other edible fungi and other agricultural products |
| |
| | ||
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 15 — 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 | Purchases from the | ||
Zhejiang Tantech Bamboo Technology Co., Ltd | Under common control of Mr Zhengyu | Lease factory building to the | ||
Hangzhou Forasen Technology Co., Ltd | Controlled by Mr. Zhengyu Wang | Sublease of office space | ||
Xinyang Wang | Shareholder of Nongyuan Network | Provide a real property as additional security for a short-term bank. | ||
Dehong Zhang | CEO of the Company, Yefang Zhang’s brother |
| Provide a guarantee as an additional security for a revolving loan |
F-36
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 15 — Related party transactions (continued)
Due from related parties consisted of the following:
| As of |
| As of | ||
March 31, | September 30, | ||||
| 2022 |
| 2021 | ||
Yefang Zhang | $ | |
| — | |
Farmnet |
| |
| — | |
Xinyang Wang |
| |
| — | |
Total | $ | |
| — | |
As of March 31, 2022, balances due from related parties mainly consisted of payment of expenses on behalf of related parties. As of August 19, 2022, balances due from related parties were fully repaid.
Due to related parties consisted of the following:
As of | As of | ||||
March 31, | September 30, | ||||
| 2022 |
| 2021 | ||
Farmnet |
| — | $ | | |
Zhejiang Tantech Bamboo Technology Co., Ltd. |
| — |
| | |
Total |
| — | $ | | |
As of September 30, 2021, the balance of due to related parties mainly consisted of advances from the Company’s related parties for working capital purposes during the Company’s normal course of business. These advances were non-interest bearing and due on demand and were fully repaid to related parties as of March 31, 2022.
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, 2022 and 2021, the Company recorded sales to related parties of $
Operating lease from related parties
In July 2020, the Company entered into a lease agreement with Zhejiang Tantech Bamboo Technology Co., Ltd. for leasing the factory building. The lease term is
In August 2020, the Company entered into a -year lease agreement with Forasen Group for leasing a processing facility, with monthly rent of RMB
In July 2021, the Company entered into a lease agreement with Zhejiang Tantech Bamboo Technology Co., Ltd. for leasing the factory building. The lease term is
For the six months ended March 31, 2022 and 2021, the Company recorded lease expense of $
F-37
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 15 — 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
For the six months ended March 31, 2022 and 2021, the Company recorded lease income of $
Guarantees provided by related parties
The Company’s related parties provide guarantees for the Company’s short-term bank loans (see Note 9). The Company’s related party also pledged their properties as collaterals to safeguard the Company’s short-term bank loans (see Note 9).
Note 16 – Subsequent events
| 1. | On May 31, 2022, the Company consolidated its ordinary shares at the ratio of . The share consolidation reduced the authorized number of ordinary shares from |
| 2. | 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 |
| 3. | On July 13, 2022, Farmmi Canada Inc. (Farmmi Canada) was established under the laws of the Canada. Farmmi Inc. owns |
F-38
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — Condensed financial information of the parent company
Pursuant to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirement and concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiaries exceeded 25% of the consolidated net assets of the Company, therefore, the condensed financial statements for the parent company are included herein.
For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries” and the respective profit or loss as “Equity in earnings of subsidiaries” on the condensed statements of income.
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods presented. As of March 31, 2022 and September 30, 2021, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.
F-39
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — Condensed financial information of the parent company (continued)
Farmmi, Inc.
Parent Company Balance Sheets
| As of |
| As of | |||
March 31, | September 30, | |||||
2022 | 2021 | |||||
Assets |
|
|
|
| ||
Current assets |
|
|
|
| ||
Cash | $ | | $ | | ||
Due from related parties | | — | ||||
Other receivables |
| |
| | ||
| | |||||
Non-current assets |
|
|
|
| ||
Investment in subsidiaries |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Equity |
|
|
|
| ||
Current liabilities |
|
|
|
| ||
Due to related parties |
| — |
| | ||
Total liabilities |
| — | $ | | ||
Commitments and contingencies |
|
|
|
| ||
Shareholders’ equity |
|
|
|
| ||
Ordinary share, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | | ||
F-40
FARMMI, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — Condensed financial information of the parent company (continued)
Farmmi, Inc.
Parent Company Statements of Operations
For the six | For the six | |||||
months ended | months ended | |||||
| March 31, 2022 |
| March 31, 2021 | |||
(unaudited) | (unaudited) | |||||
Operating expenses: |
|
|
|
| ||
General and administrative expenses | $ | ( | $ | ( | ||
Other expenses |
|
|
|
| ||
Other expenses |
| ( |
| ( | ||
Loss from operations |
| ( |
| ( | ||
Equity in income of subsidiaries and VIE |
| |
| | ||
Net (loss) income attributable to Farmmi, Inc. | $ | ( | $ | | ||
Farmmi, Inc.
Parent Company Statements of Cash Flows
For the six | For the six | |||||
months ended | months ended | |||||
| March 31, 2022 |
| March 31, 2021 | |||
(unaudited) | (unaudited) | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net loss | $ | ( | $ | ( | ||
Share-based compensation | | | ||||
Adjustments to reconcile net cash flows from operating activities | ||||||
Equity in earnings of subsidiaries | | | ||||
Other current assets | ( | ( | ||||
Other current liabilities | — | ( | ||||
Net cash provided by operating activities | | | ||||
Cash flow from financing activities | ||||||
Investment in subsidiaries | ( | ( | ||||
Net proceeds from issuance of ordinary shares | | | ||||
Advances from related parties | — | | ||||
Repayment of advances from related parties |
| ( |
| — | ||
Net cash used in financing activities | ( | ( | ||||
Change in cash |
| ( |
| | ||
Cash, beginning of year |
| |
| | ||
Cash, end of year | $ | | $ | | ||
F-41