UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File number 000-28181

ORANCO, INC.

(Exact name of registrant as specified in charter)

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

(646)7593614

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

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

INDEX

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

i

FORWARD LOOKING STATEMENTS

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

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

ii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORANCO, INC.

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

ORANCO, INC.

TABLE OF CONTENTS

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

1

ORANCO, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited) 

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

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

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

2

ORANCO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

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

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

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

3

ORANCO, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

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

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

Note a:

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

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

4

ORANCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

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

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

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

5

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

(a) Description of Business

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

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

(b) Basis of consolidation and presentation

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

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

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

(c) Financial instruments

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

The Group has no derivative financial instruments.

(d) Cash and cash equivalents

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

6

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(e) Revenue recognition

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

(f) Non-marketable investments

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

(g) Impairment of investments

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

(h) Accounts receivable and allowance for credit loss

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

7

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(i) Inventory

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

(j) Property and equipment

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

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

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

(k) VAT and VAT refund

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

(l) Operating leases

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

8

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(m) Foreign currency translation

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

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

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

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

Convenience translation

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

(n) Income taxes

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

(o) COVID-19 impact

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

9

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(p) Fair value measurement

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

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

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

(q) Business combinations

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

(r) Transactions between entities under common control

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

(s) Commitments and contingencies

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

(t) Stock split

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

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

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

10

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(u) Software development costs

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

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

(v) Recently issued accounting pronouncements not yet adopted

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

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

11

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

2. REVENUE AND OTHER INCOME

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

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

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

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

3. PROPERTY, PLANT AND EQUIPMENT, NET

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

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

12

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

4. PREPAID LAND LEASE AND OTHER LEASES

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

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

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

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

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

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

5. INVENTORIES

Inventories consist of the following:

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

6. ACCOUNTS RECEIVABLE, NET

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

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

13

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

7. OTHER CURRENT ASSETS

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

8. CASH AND CASH EQUIVALENTS

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

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

9. ACCOUNTS PAYABLE

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

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

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

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

14

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

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

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

	September 30, 2020				June 30, 2020
	RMB		US$		RMB		US$
Accrued payroll and bonus		305,832		45,044		291,877		41,313
Accrued and other payables		3,241,870		477,478		3,767,422		533,245
Other tax payables		1,531,657		225,589		838,277		118,650
Receipts in advance		887,850		130,764		889,430		125,889
		5,967,209		878,875		5,787,006		819,097

11. AMOUNT DUE TO DIRECTOR

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

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

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

15

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

12. SHARE CAPITAL AND CAPITAL MANAGEMENT

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

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

Note: 

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

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

16

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

13. INCOME TAXES

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

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

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

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

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

	Three months ended September 30, 2020						Three months ended September 30, 2019
	RMB			US$			RMB			US$
Profit before income tax		15,712,684			2,314,228			13,990,473			1,957,339
Taxation at the applicable tax rate of 25%/16.5%/21%		3,928,171			578,557			3,497,619			489,335
Tax effect on non-taxable income		(84,227	)		(12,405	)		(11,464	)		(1,604	)
Tax effect of expenses that are not deductible		166,619			24,540			452,118			63,254
Income taxes		4,010,563			590,692			3,938,273			550,985

14. CONTRIBUTION PLAN IN THE PRC

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

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

17

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

15. SHORT-TERM OPERATING LEASE

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

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

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

	September 30, 2020
	RMB
Operating lease costs		230,878

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

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

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

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

Note:

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

18

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

16. RELATED PARTY BALANCES AND TRANSACTIONS

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

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

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

17. CONTINGENT LIABILITIES

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

18. DETAILS OF SUBSIDIARIES

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

Note:

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

19

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED

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

19. INVESTMENT

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

Note:

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

20

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

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

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

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

Results of Operations

Overview

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

	Three months ended September 31, 2020 (Unaudited)				Three months ended September 31, 2019 (Unaudited)				Variance
	RMB		USD		RMB		USD		RMB			%			USD			%
Revenue		26,115,339		3,846,374		25,667,997		3,591,085		447,342			1.7	%		225,289			7.1	%
Cost of sales		7,311,946		1,076,933		7,413,971		1,037,253		(102,025	)		(1.4	)%		39,680			3.8	%
Gross profit		18,803,393		2,769,441		18,254,026		2,553,832		549,367			3.0	%		215,609			8.4	%
Selling and distribution expenses		1,231,658		181,404		877,871		122,819		353,787			40.3	%		58,585			47.7	%
Administrative expenses		1,925,114		283,539		3,412,079		477,367		(1,486,965	)		(43.6	)%		(193,828	)		(40.6	)%
Income from operations		15,646,621		2,304,498		13,964,076		1,953,646		1,682,545			12.0	%		350,852			18.0	%
Other income		66,288		9,763		45,852		6,415		20,436			44.6	%		3,348			52.2	%
Interest and other financial charges		225		33		19,455		2,722		(19,230	)		(98.8	)%		(2,689	)		(98.8	)%
Income before income taxes		15,712,684		2,314,228		13,990,473		1,957,339		1,722,211			12.3	%		356,889			18.2	%
Income taxes		4,010,563		590,692		3,938,273		550,985		72,290			1.8	%		39,707			7.2	%
Net income		11,702,121		1,723,536		10,052,200		1,406,354		1,649,921			16.4	%		317,182			22.6	%

21

Revenue

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

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

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

Cost of Sales

	Three months ended September 31, 2020 (Unaudited)							Three months ended September 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD		%
Sales of Fenjiu liquor products		6,578,514		968,910		90.0	%		6,773,234		947,610		91.4	%		(194,720	)		(2.9	)%		21,300		2.2	%
Sales of imported wine products		733,432		108,023		10.0	%		640,737		89,643		8.6	%		92,695			14.5	%		18,380		20.5	%
Total Amount		7,311,946		1,076,933		100.0	%		7,413,971		1,037,253		100.0	%		(102,025	)		(1.4	)%		39,680		3.8	%

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

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

Gross Profit

	Three months ended September 31, 2020 (Unaudited)							Three months ended September 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB		%			USD		%
Sales of Fenjiu liquor products		16,441,134		2,421,518		87.4	%		15,982,728		2,236,066		87.6	%		458,406		2.9	%		185,452		8.3	%
Sales of imported wine products		2,362,259		347,923		12.6	%		2,271,298		317,766		12.4	%		90,961		4.0	%		30,157		9.5	%
Total Amount		18,803,393		2,769,441		100.0	%		18,254,026		2,553,832		100.0	%		549,367		3.0	%		215,609		8.4	%

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

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

Selling and Distribution Expenses

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

Administrative Expenses

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

Other Income

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

Interest and Other Financial Charges

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

Income Taxes

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

Liquidity and Capital Resources

Operating Activities

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

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

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

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

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

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

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

Investing Activities

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

Financing Activities

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures. 

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

Management’s Report on Internal Control over Financial Reporting  

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

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

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

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

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

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

Remediation  

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

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

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

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

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

Changes in Internal Control over Financial Reporting  

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

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures. 

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

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

Changes in Internal Controls over Financial Reporting

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

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PART 2 - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Not applicable to a smaller reporting company.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS 

(a) Exhibits

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

*

Filed herewith

**

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

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SIGNATURES

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

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

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