ORANCO INC - FORM 10-Q - May 21, 2020

Attached files

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EX-31.2 - CERTIFICATION - ORANCO INC	f10q0320ex31-2_orancoinc.htm
EX-32.2 - CERTIFICATION - ORANCO INC	f10q0320ex32-2_orancoinc.htm
EX-32.1 - CERTIFICATION - ORANCO INC	f10q0320ex32-1_orancoinc.htm
EX-31.1 - CERTIFICATION - ORANCO INC	f10q0320ex31-1_orancoinc.htm

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 March 31, 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)

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

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 every Interactive Data File required to be submitted 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 ☒

As of May 21, 2020, there were 41,948,757 shares of common stock, $0.001 par value, issued and outstanding.

INDEX

		Page
		Number

PART I.		1

ITEM 1.	Financial Statements (unaudited)	1

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31

ITEM 4.	Controls and Procedures	31

PART II.		33

ITEM 1.	Legal Proceedings	33

ITEM 1A.	Risk Factors	33

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

ITEM 3.	Defaults Upon Senior Securities.	33

ITEM 4.	Mine Safety Disclosures.	33

ITEM 5.	Other Information.	33

ITEM 6.	Exhibits	34

Signatures		35

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. In addition, there is uncertainty about the spread of the COVID-19 virus and the impact it may have on the Company’s operations, the demand for the Company’s products or services, global supply chains and economic activity in general. 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.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORANCO, INC.

CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2020

ORANCO, INC.

TABLE OF CONTENTS

	Page

Financial Statements:

Consolidated Balance Sheets	2

Consolidated Statements of Operations	3

Consolidated Statements of Shareholders’ Equity	4

Consolidated Statements of Cash Flows	5

Notes to Consolidated Financial Statements	6 - 23

ORANCO, INC.

CONSOLIDATED BALANCE SHEETS

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

	(unaudited)
	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$
ASSETS:
Current assets
Cash and cash equivalents		69,594,118		9,828,567		53,163,966		7,744,205
Trade receivables		57,607,753		8,135,769		32,053,899		4,669,177
Inventories		11,519,715		1,626,895		6,900,988		1,005,242
Deposits, prepayments and other receivables		33,532,335		4,735,669		45,610,523		6,643,922
Prepaid land lease and other lease		998,555		141,023		547,180		79,706
		173,252,476		24,467,923		138,276,556		20,142,252

Non-current assets
Investment		1,000,000		141,227		1,000,000		145,666
Property, plant and equipment		2,949,208		416,508		3,124,224		455,095
Prepaid land lease and other lease		8,884,147		1,254,682		9,362,240		1,363,764
		12,833,355		1,812,417		13,486,464		1,964,525
Total assets		186,085,831		26,280,340		151,763,020		22,106,777

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade payables		573,401		80,980		247,685		36,079
Receipts in advance, accruals and other payables		4,618,819		652,303		5,698,168		830,032
Amount due to Director		18,671,556		2,566,314		13,392,777		1,950,878
Current tax liabilities		1,792,682		253,175		3,406,187		496,167
Bank borrowings		220,000		101,683		2,250,000		327,749
		25,876,458		3,654,455		24,994,817		3,640,905
Non-Current liabilities
Amount due to Director		81,781,805		11,549,797		81,781,805		11,912,863
		107,658,263		15,204,252		106,776,622		15,553,768
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 and outstanding shares		41,948,748		41,948,748		41,948,748		41,948,748
Number of fully paid shares to be issued		-		-		-		-

Share capital		2,765,228		390,525		2,765,228		402,801
Retained earnings		75,662,340		10,685,563		42,221,170		6,150,208
Total shareholders’ equity		78,427,568		11,076,088		44,986,398		6,553,009
Total liabilities and shareholders’ equity		186,085,831		26,280,340		151,763,020		22,106,777

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

ORANCO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

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

	Nine Months Ended March 31, 2020				Three Months Ended March 31, 2020				Nine Months Ended March 31, 2019		Three Months Ended March 31, 2019
	RMB		USD		RMB		USD		RMB		RMB
Revenue		80,961,250		11,433,913		13,774,340		1,945,308		96,037,641		32,654,876

Cost of sales		23,589,080		3,331,415		3,980,504		562,155		24,395,247		8,801,480
Selling and distribution expenses		2,895,820		408,968		671,687		94,860		3,020,324		884,727
Administrative expenses		9,173,102		1,295,489		3,101,937		438,077		6,159,429		1,338,458
		35,658,002		5,035,872		7,754,128		1,095,092		33,575,000		11,024,665

Other income		138,095		19,503		40,650		5,741		90,807		32,471
Interest and other financial charges		144,189		20,363		2,572		363		41,238		7,198
Income before income taxes		45,297,154		6,397,181		6,058,290		855,594		62,512,210		21,655,484

Income taxes		11,855,983		1,674,385		1,774,454		250,601		16,024,012		5,432,298
Net Income		33,441,171		4,722,796		4,283,836		604,993		46,488,198		16,223,186

Attributable to:
Equity holders of the Company		33,441,171		4,722,796		4,283,836		604,993		46,488,198		16,223,186
Former non-controlling interests		-		-		-		-		-		-
		33,441,171		4,722,796		4,283,836		604,993		46,488,198		16,223,186

Earnings per share:
Basic and diluted earnings per share		0.80		0.11		0.10		0.01		0.11		0.04

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

ORANCO, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

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

	Share Capital		Retained Earnings		Total Shareholders’ Equity
Balance at June 30, 2018		2,765,228		2,240,740		5,005,968

Total comprehensive income for the period		-		9,885,671		9,885,671
balance at September 30, 2018		2,765,228		12,126,411		14,891,639

Total comprehensive income for the period				20,379,341		20,379,341
balance at December 31, 2019		2,765,228		32,505,752		35,270,980

Total comprehensive income for the period				16,223,186		16,223,186
balance at March 31, 2019		2,765,228		48,728,938		51,494,166

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

Balance at September 30, 2019		2,765,228		52,273,370		55,038,598

Total comprehensive income for the period				19,105,135		19,105,135
balance at December 31, 2020		2,765,228		71,378,505		74,143,733

Total comprehensive income for the period		-		4,283,835		4,283,835
balance at March 31, 2020		2,765,228		75,662,340		78,427,568

Balance at March 31, 2020 (US$)		390,525		10,685,563		11,076,088

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

ORANCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

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

	(unaudited) Nine months ended March 31, 2020						(unaudited) Nine months ended March 31, 2019
	RMB			US$			RMB
Operating activities
Net income		33,441,171			4,722,795			46,488,198
Adjustments to reconcile net income to cash generated from operating activities:
Depreciation and amortization		1,055,195			149,022			246,248
Changes in working capital:

Trade receivables		(25,553,854	)		(3,608,894	)		(33,352,881	)
Inventories		(4,618,727	)		(652,289	)		(325,080	)
Deposits, prepayments and other receivables		12,078,188			1,705,766			11,945,528
Trade payables		325,716			46,000			99,457
Receipts in advance, accruals and other payables		(2,427,933	)		(272,276	)		743,376
Current tax liabilities		(1,613,505	)		(227,870	)		2,598,923
Amount due to Director		3,378,779			406,561			445,288
Cash generated from operating activities		16,065,030			2,268,815			28,889,057

Investing activities
Payments for acquisition of property, plant and equipment		(4,878	)		(689	)		-
Acquisition of interest in an associate		-			-			(250,000	)
Cash used in investing activities		(4,878	)		(689	)		(250,000	)

Financing activities
Repayment of bank borrowings		(130,000	)		(18,360	)		-
Proceeds from bank borrowings		500,000			70,613			2,250,000
Cash used in financing activities		370,000			52,254			2,250,000

Effect of exchange rate on cash		-			(236,019	)		-
(Decrease)/increase in cash and cash equivalents		16,430,152			2,320,381			30,889,057
Cash and cash equivalents, beginning of the period		53,163,966			7,744,205			26,504,962
Cash and cash equivalents, end of the period		69,594,118			9,828,567			57,394,019

Supplemental disclosure of cash flows information
Cash paid during the period for interest		(19,455	)		(2,748	)		(34,040	)
Cash paid during the period for income taxes		13,468,094			1,902,058			13,427,680

The non-cash transactions have been disclosed in Note 23.

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

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 had been in the business of developing mineral deposits. During the year 1983, all activities were abandoned, and the Company 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 the marketing and wholesaling of self-branded spirits and imported wines in the People’s Republic of China (the “PRC”).

As disclosed in the Form 8-K filed with the Securities and Exchange Commission on October 19, 2018, the Company entered into a business agreement with Guangzhou Silicon Technology Co., Ltd on August 20, 2018 to have Guangzhou Silicon Technology Co., Ltd. develop an anti-counterfeiting laser recognition proprietary system using blockchain technology.

Details of the subsidiaries are set out in Note 20 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 United States (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.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

1.	SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(b)

Basis of consolidation and presentation – continued

Business Combinations

The acquisition of subsidiaries that meet the criteria for business combinations is accounted for using the acquisition method of accounting. The considerations transferred for the acquisition are the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group.

The considerations transferred include the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

Any contingent consideration to be transferred by the Group are recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized, either in the Statement of Operations or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of the identifiable net assets acquired and liabilities assumed.

(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.

(e)

Revenue recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), to update the financial reporting requirements for revenue recognition. Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfil a contract. This guidance became effective for the Group beginning on July 1, 2018, and the Group has the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. We adopted this standard using the modified retrospective approach on July 1, 2018.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

(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 – continued

In preparation for adoption of the standard, we have completed our impact assessment of implementing this guidance. We have evaluated each of the five steps in Topic 606, which are as follows: 1) identify the contract with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) performance obligations are satisfied.

Revenue was not affected materially in any period due to the adoption of ASC Topic 606 because: (1) we identified similar performance obligations under ASC Topic 606 as compared with deliverables and separate units of account previously identified; our performance obligation is to deliver the spirits and wine; (2) we determined the transaction price to be consistent; and (3) we recorded revenue at the same point in time, upon delivery under both ASC Topic 605 and ASC Topic 606, as applicable under the terms of the contract with the customer. Additionally, the accounting for fulfilment costs or costs incurred to obtain a contract were not affected materially in any period due to the adoption of Topic 606.

There are also certain considerations related to accounting policies, business processes and internal control over financial reporting that are associated with implementing Topic 606. We have evaluated our policies, processes, and control framework for revenue recognition, and identified and implemented the changes needed in response to the new guidance.

Lastly, disclosure requirements under the new guidance in Topic 606 have been significantly expanded in comparison to the disclosure requirements under the current guidance, including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, the judgments made in revenue recognition determinations, adjustments to revenue which relate to activities from previous quarters or years, any significant reversals of revenue, and costs to obtain or fulfil contracts.

We conclude that the adoption of the standard has no material impact on our revenue recognition policy.

(f)

Trade receivables and allowance for doubtful accounts

Trade 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. There is no allowance for doubtful accounts in these consolidated financial statements.

(g)

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted-average method. The components of inventories include raw materials, processing cost of finished goods and the purchase cost of products. 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.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

1.	SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(h)

Property, plant and equipment and depreciation

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 unfavourable 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.

(i)

VAT and VAT refund

VAT on sales is charged at 13% on revenue from product sales 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.

(j)

Operating leases

Right-of-use (ROU) Assets represent the Company’s right to control the use of an identified asset for a period of time, or term, in exchange for consideration, and Lease Liabilities represent its obligation to make lease payments arising from the aforementioned right.

The Company determines if an arrangement is, or contains, a lease at the inception date, and the Company measures and records a non-current ROU Asset and corresponding Lease Liabilities, classified as current and non-current, on its consolidated balance sheet at the lease commencement date for all leases except for short-term leases with a term of 12 months or less. ROU Assets and Lease Liabilities are initially recorded based on the present value of lease payments over the lease term, which may include options to extend or terminate the lease when it is reasonably certain at the commencement date that such options will be exercised. As the rate implicit for each of the Company’s leases is not readily determinable, the Company uses its incremental borrowing rate, based on the information available at the lease commencement date in determining the present value of its expected lease payments. The ROU Asset also includes any initial direct costs and any lease payments made prior to the lease commencement date and is reduced by any lease incentives received. The ROU Asset is amortized on a straight-line basis as the operating lease cost over the lease term on the consolidated statements of income. ROU Asset amortization, referred to as noncash lease expense, along with the change in the operating lease liabilities are separately presented within the cash flows from operating activities on the consolidated statements of cash flows.

ASC 842 provides various optional transition practical expedients. Upon transition to ASC 842, the Company elected the use of the package of practical expedients to not reassess: whether a contract is or contains a lease, lease classification and indirect costs. The Company did not elect the hindsight practical expedient in transition. The Company has elected to not separate lease and non-lease components. See Note 17—Operating Lease Arrangements for additional information.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

1.	SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(k)

Foreign currency translation

Substantially 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 operations. During 2019 and 2018, 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. Translation differences are recorded in accumulated other comprehensive loss, a component of shareholders’ deficits.

Convenience translation

Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB 7.0808 on March 31, 2020, representing the noon buying rate set forth in the H.10 statistical release of the US Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be converted, realized or settled into US$ at such rate or at any other rate.

(l)

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.

(m)

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.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

1.	SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(m)

Fair value measurement – continued

The Group’s financial instruments include cash and cash equivalents, term deposits, trade and other receivables, trade and other payables, and bank borrowings. The Group considers the carrying amounts approximate fair value because of the short maturity of these financial instruments.

(n)

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.

(o)

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.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

1.	SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

(p)

Adoption of new accounting standards

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with a term of more than one year. Accounting by lessors remains similar to pre-existing US GAAP. Subsequent accounting standards updates have been issued, which amend and/or clarify the application of ASU 2016-02. The Company adopted Topic 842 effective January 1, 2019. See “Note 17, operating leases arrangement” for further details.

The adoption of the standard in the consolidated financial statements for the financial period ended March 31, 2020 had no significant impact to the provision for income taxes and had no impact to the net cash used in, or generated by, operating, investing, or financing activities in the Group’s consolidated statements of cash flows.

(q)

Recently issued accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), amending existing guidance on the accounting for credit losses on financial instruments within its scope. The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for the Company beginning after December 15, 2020. The Company is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework. The purpose of the update is to improve the effectiveness of the fair value measurement disclosures that allow for clear communication of information that is most important to the users of financial statements. There were certain required disclosures that have been removed or modified. In addition, the update added the following disclosures: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The standard became effective for the Company for its periods beginning after December 15, 2019; early adoption is permitted. The Company is currently evaluating the impact of ASU 2018-13 on its condensed consolidated financial statements.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the condensed consolidated financial statements of the Company.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

(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.

	Nine months ended March 31, 2020				Nine months ended March 31, 2019
	RMB		US$		RMB

Revenue		80,961,250		11,433,913		96,037,641
Other income		138,095		19,503		90,807
		81,099,345		11,453,416		96,128,448

All revenue is derived in China.

A concentration analysis of the revenue is as follows:

	Nine months ended March 31, 2020			Nine months ended March 31, 2019

Customer A		17	%		13	%
Customer B		16	%		12	%
Customer C		14	%		12	%
Customer D		11	%		11	%
Customer E		11	%		11	%
Customer F		11	%		10	%
Others		20	%		31	%
		100	%		100	%

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

3.	SELLING AND DISTRIBUTION EXPENSES

The following expenses are included in the selling and distribution expenses:

	Nine months ended March 31, 2020				Nine months ended March 31, 2019
	RMB		US$		RMB

Freight		138,095		19,503		16,209
Packaging cost		-		-		147,716
		138,095		19,503		163,925

4.	PROPERTY, PLANT AND EQUIPMENT, NET

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

	March 31, 2020						June 30, 2019
	RMB			US$			RMB			US$

Computer and office equipment		334,631			47,259			268,550			39,119
Building		3,754,625			530,254			3,754,625			546,923
Add: Computer and office equipment		4,878			689			66,081			9,626
		4,094,134			578,202			4,089,256			595,668
Less: accumulated depreciation		(1,144,926	)		(161,694	)		(965,032	)		(140,573	)
Property, plant and equipment, net,		2,949,208			416,508			3,124,224			455,095

5.	PREPAID LAND LEASE AND OTHER LEASE, NET

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

	March 31, 2020						June 30, 2019
	RMB			US$			RMB			US$

Prepaid land lease and other lease		11,134,369			1,572,473			5,412,120			788,364
Less: accumulated amortization		(1,378,003	)		(194,611	)		(502,700	)		(73,227	)
Add: other lease asset-ROU – note 17		126,336			17,842			5,000,000			728,333
Prepaid land lease and other lease, net		9,882,702			1,395,705			9,909,420			1,443,470

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

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Current assets		998,555		141,023		547,180		79,706
Non-current assets		8,884,147		1,254,682		9,362,240		1,363,764
		9,882,702		1,395,705		9,909,420		1,443,470

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

5.	PREPAID LAND LEASE AND OTHER LEASE, NET – CONTINUED

Prepaid land lease represents the costs of the land use rights in respect of leasehold land in the People’s Republic of China, on which the Group’s buildings are situated. Prepaid other lease represents the lease of the Company’s warehouse in the PRC.

The prepaid land lease’ terms are 70 years, ending in 2082 and other leases terms are 10 years, ending in 2029.

6.	INVENTORIES

Inventories consist of the following:

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Raw materials		5,971,079		843,277		4,500,125		655,517
Finished goods		5,371,938		758,663		2,216,931		322,932
Packaging material		176,698		24,955		183,932		26,793
		11,519,715		1,626,895		6,900,988		1,005,242

7.	TRADE RECEIVABLES

March 31,
2020

June 30,
2019

RMB

US$

RMB

US$

Trade receivables

57,607,753

8,135,769

32,053,899

4,669,177

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 trade receivables. Overdue trade receivables are reviewed regularly by the Board of Directors.

8.	DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Prepaid expenses		32,877,565		4,643,199		45,054,919		6,562,989
Other receivables		654,770		92,470		555,604		80,933
		33,532,335		4,735,669		45,610,523		6,643,922

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

9.	CASH AND CASH EQUIVALENTS

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Cash on hand		475,750		67,189		419,446		61,099
Cash held in banks		69,118,368		9,761,378		52,744,520		7,683,106
		69,594,118		9,828,567		53,163,966		7,744,205

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

10.	TRADE PAYABLES

March 31,
2020

June 30,
2019

RMB

US$

RMB

US$

Trade payables

573,401

80,980

247,685

36,079

For larger suppliers, the Group makes payment in advance for the inventories. For 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 year is as follows:

	March 31, 2020			March 31, 2019

Supplier A		54	%		56	%
Supplier B		24	%		22	%
Supplier C		18	%		10	%
Supplier D		3	%		3	%
Supplier E		1	%		3	%
Supplier F		-	%		1	%
Others		-	%		5	%
		100	%		100	%

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

11.	RECEIPTS IN ADVANCE, ACCRUALS AND OTHER PAYABLES

Receipts in advance, accruals and other payables consist of the following:

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Accrued payroll and bonus		270,244		38,166		301,894		43,976
Accrued and other payables		2,831,500		399,884		3,430,703		499,738
Other tax payables		629,225		88,864		466,538		67,959
Receipts in advance		887,850		125,389		1,499,033		218,359
		4,618,819		652,303		5,698,168		830,032

12.	AMOUNT DUE TO DIRECTOR

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Current-liabilities		18,171,556		2,566,314		13,392,777		1,950,878
Non-Current-liabilities		81,781,805		11,549,797		81,781,805		11,912,863
		99,953,361		14,116,111		95,174,582		13,863,741

The amount due to director is interest-free, unsecured and repayable on demand.

13.	BANK BORROWINGS

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Loans from a financial institution – Note (i)		220,000		31,070		2,250,000		327,749
Classified as:
Current liabilities		220,000		31,070		2,250,000		327,749

Note:

(i)	A loan from financial institution bears fixed interest rates at approximately 5.59% per annum and will mature on April 1, 2020.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

14.	SHARE CAPITAL AND CAPITAL MANAGEMENT

	Issued and fully paid							Shares to be issued									Total share capital
	Number of shares			Value US$		Value RMB		Number of shares			Value US$			Value RMB			value RMB
Company
At June 30, 2018		98,191,40			98,191		638,708		321,296,000			321,296			2,126,520			2,765,228
Shares reverse split on August 7, 2019		(88,372,332	)		-		-		(289,166,400	)		-			-			-
Restated at June 30, 2018 and March 31, 2019		9,819,148			98,191		638,708		32,129,600			321,296			2,126,520			2,765,228
Shares were issued as consideration for business acquisition note 1		32,129,600			321,296		2,126,520		(32,129,600	)		(321,296	)		(2,126,520	)		-

Total at June 30, 2019 and March 31, 2020		41,948,748			419,487		2,765,228		-			-			-			2,765,228

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

Notes:

1.	The 321,296,000 new shares, at $0.001 per share, were part of the consideration of the acquisition of Reliant Galaxy International Limited by the Company. The aggregated nominal value of the shares is US$321,296.

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 its then issued and outstanding shares of common stock at a ratio of 10-for-1. All current and historical information contained herein related to the per share information for the Company’s common stock reflects the 1-for-10 reverse stock split that became market effective on August 7, 2019.

3.	On August 7, 2019, the Company effected a decrease in the number of its authorized common stock from 500,000,000 to 50,000,000, with its common stock’s par value unchanged at $0.001 per share.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

15.	INCOME TAXES

The Company is subject to taxes in the United States (the “US”). The Company has had no taxable income under Federal or State tax laws. The Company has loss carry forwards totalling $24,581 that may be offset against future federal income taxes. If not used, the carry forwards will expire 20 years after they are incurred.

The Company’s British Virgin Islands subsidiary is not subject to taxation.

The Company’s Hong Kong subsidiary is subject to taxes in Hong Kong. However, 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 in China is set out below:

	Nine months ended March 31, 2020						Nine months ended March 31, 2019
	RMB			US$			RMB

Profit before income tax		45,297,154			6,397,181			62,512,210
Taxation at the applicable tax rate of 25%		11,324,289			1,599,295			15,768,870
Tax effect on non-taxable income		(34,524	)		(4,876	)		(285,732	)
Tax effects of expense that are not deductible		1,249,976			176,530			540,874
(Over)/under-provision in respect of previous year		683,758			96,564			-
Income taxes		11,855,983			1,674,385			16,024,012

16.	CONTRIBUTION PLAN IN THE PRC

As stipulated by the PRC State regulations, the Company’s PRC subsidiaries should 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 as set out above.

According to the relevant rules and regulations of the PRC, the Company’s PRC subsidiaries and their employees are each required to make contributions to an accommodation fund at 9% of the employees’ salaries and wages, 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 as stated above.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

17.	OPERATING LEASE ARRANGEMENT

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 nonlease 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 recognized additional operating lease right-of-use assets and lease liabilities of $0.126 million as of March 31, 2020.

The Company is currently a lessee under a number of operating leases for offices and a warehouse. The Company’s leases generally have remaining lease terms of 1 year to 5 years and some of which include options to terminate within 1 year. These leases do not have significant 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:

	March 31, 2020
Components of lease costs:
Total operating lease costs		388,875

	March 31, 2020

Weighted average remaining lease term (years) of operating leases:		1.25

Weighted average discount rate of operating leases:		2.9	%

	March 31, 2020

Other - right-of-use assets		388,875

Lease liabilities included in:
Accrued expenses - current portion of lease liabilities		(372,776	)
Total lease liabilities		(372,776	)

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

17.	OPERATING LEASE ARRANGEMENT – CONTINUED

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

	March 31, 2020			March 31, 2019
	RMB			RMB

Within 1 year		409,110			216,000
After 1 year but within 2 years		-			54,000
After 2 years but within 3 years		-			-
After 3 years		-			-
Total lease payments		409,110			270,000

Less: Interest		(10,604	)		-
Present value of lease liabilities		398,506			-

The Group is a lessee under a number of operating leases for offices and a warehouse. The Company’s leases generally have remaining lease terms of 1 year to 5 years and some of which include options to terminate within 1 year.

18.	RELATED PARTY BALANCES AND TRANSACTIONS

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

	March 31, 2020				June 30, 2019
	RMB		US$		RMB		US$

Current-liabilities		18,671,556		2,636,927		13,392,777		1,950,878
Non-Current-liabilities		81,781,805		11,549,797		81,781,805		11,912,863
		100,453,361		14,186,724		95,174,582		13,863,741

The balance represented the amount due to our director, Mr. Peng Yang, for the three months ended as at March 31, 2020.

At the end of each reporting period, neither the Group nor the Company had any other related party transaction.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

19.	CONTINGENT LIABILITIES

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

20.	DETAILS OF SUBSIDIARIES

Company name	Place and date of incorporation	Capital	Attributable Equity interest		Principal activities

Reliant Galaxy International Limited	Established in the British Virgin Islands on January 3, 2017	Registered and paid-in capital of RMB 69,100	100	%	Investment holding

Sure Rich Investment	Established in	Share capital	100	%	Investment holding
(Group) Limited	Hong Kong On February 1, 2007	RMB 1

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 self-owned 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 self-owned 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 self-owned 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	%⁽ⁱ⁾	Dormant

Notes:

(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 as permitted by the PRC’s regulations on company registration. The amount due to the subsidiary is interest-free and unsecured.

ORANCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED (UNAUDITED)

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

21.	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

Notes:

(i)	On September 1, 2018, Fenyang Huaxin Spirit Development Co., Ltd acquired 20% of Guangzhou Silicon Technology Co., Ltd..

22.	REVERSE MERGER

On June 29, 2018, Oranco, Inc. acquired 100% of the issued capital of Reliant in a share exchange transaction with the then shareholders of Reliant. Due to the relative size of the companies, the shareholders of Reliant became the majority shareholders in the consolidated group.

Pursuant to the share exchange, Oranco issued an aggregate of 349,296,000 new shares of common stock, with par value of $0.001 per share, of which 28,000,000 were issued on June 29, 2018. The remaining 321,296,000 shares were issued on May 29, 2019 following the completion of the increase of the Company’s authorized shares on February 15, 2019.

At the date of the share exchange transaction, Oranco, Inc. was a shell company with minimal assets and operations. The transaction has been treated as a group reconstruction and has been accounted for using the reverse merger accounting method. Accordingly, the consolidated financial statements have been treated as being a continuation of the consolidated financial statements of Reliant, with Oranco, Inc. being treated as the acquired entity for accounting purposes. Accordingly, the financial information for the previous period and comparatives reflects the consolidated operations of Reliant.

23.	NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

Disclosure of non-cash item:

(i)	Mr. Peng Yang, the director of the Company, settled a bank loan in the amount of RMB2,400,000 on behalf of the Company for the period ended March 31, 2020.

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

On June 29, 2018, Oranco, Inc. completed a share exchange transaction (the “Share Exchange”) pursuant to 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”); (ii) and the shareholders of Reliant (“Sellers”), pursuant to which Reliant became a wholly owned subsidiary of the Company. 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 the Company’s 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 Amendment”) 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 Amendment 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 a 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 for as an interest in an associate.

The outbreak of the novel coronavirus, commonly referred to as “COVID-19”, first found in mainland China, then in Asia and eventually throughout the world, has significantly affected business and manufacturing activities within China, including travel restrictions, widespread mandatory quarantines, and suspension of business activities within China. These government mandates may cause severe business disruptions to our customers and suppliers, and may also lead to postponement of payment from these parties. Our business operation was suspended until early March of 2020. Further, our manufacturing and branding business activities depend on reliable sources of raw materials such as bulk packaged Fenjiu liquor from Shanxi Province and bulk packaged imported wines from foreign countries. We have experienced substantive diminutions in raw material supplies due to the COVID-19 outbreak and ensuing lockdowns, which have negatively impacted our business. Accordingly, our business, results of operations and financial condition were adversely affected. In light of the current situation, we estimate that our revenues and net income for the fiscal quarter ended on March 31, 2020 would decrease due to the COVID-19 outbreak.

As of the date of this quarterly report, China has shown signs of COVID-19 slowdown and Chinese industries have partially resumed businesses as government officials started to ease the restrictive measures. We believe that the impact of the COVID-19 outbreak on our business is both temporary and limited, and we expect our revenue to start growing again once our business becomes fully operational again. Our management expects that our financial performance will recover during the fiscal quarter of June 30, 2020.

Results of Operations

Overview

For the three months ended March 31, 2020 and 2019:

	Three months ended March 31, 2020 (Unaudited)				Three months ended March 31, 2019 (Unaudited)				Variance
	RMB		USD		RMB		USD		RMB			%			USD			%
Revenue		13,774,340		1,945,308		32,654,876		4,865,728		(18,880,536	)		(58	)%		(2,920,420	)		(60	)%
Cost of sales		3,980,504		562,155		8,801,480		1,311,461		(4,820,976	)		(55	)%		(749,307	)		(57	)%
Gross profit		9,793,836		1,383,154		23,853,396		3,554,267		(14,059,560	)		(59	)%		(2,171,113	)		(61	)%
Selling and distribution expenses		671,687		94,860		884,727		131,828		(213,040	)		(24	)%		(36,968	)		(28	)%
Administrative expenses		3,101,937		438,077		1,338,458		199,436		(1,763,479	)		132	%		238,641			120	%
Income from operations		6,020,212		850,216		21,630,211		3,223,002		(15,609,999	)		(72	)%		(2,372,786	)		(74	)%
Other income		40,650		5,741		32,471		4,838		8,179			25	%		903			19	%
Interest and other financial charges		2,572		363		7,198		1,073		(4,626	)		(64	)%		(709	)		(66	)%
Income before income taxes		6,058,290		855,594		21,655,485		3,226,768		(1,555,181	)		(72	)%		(2,371,174	)		(73	)%
Income taxes		1,774,454		250,601		5,432,298		809,438		(280,975	)		(67	)%		(558,837	)		(69	)%
Net income		4,283,836		604,993		16,223,187		2,417,330		(1,274,206	)		(74	)%		(1,812,337	)		(75	)%

Revenue

	Three months ended March 31, 2020 (Unaudited)							Three months ended March 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD			%
Sales of Fenjiu liquor products		11,513,593		1,626,030		84	%		28,977,713		4,317,814		89	%		(17,464,120	)		(60	)%		(2,691,784	)		(62	)%
Sales of imported wine products		2,260,747		319,278		16	%		3,677,163		547,914		11	%		(1,416,416	)		(39	)%		(228,636	)		(42	)%
Total Amount		13,774,340		1,945,308		100	%		32,654,876		4,865,728		100	%		18,880,536			(58	)%		(2,920,420	)		60	%

For the three months ended March 31, 2020, revenue generated from our Fenjiu liquor business was RMB11,513,593 (USD1,626,030), representing a decrease of RMB17,464,120 (USD2,691,784), or -60% (-62%), as compared to that of RMB28,977,713 (USD4,317,814) for the three months ended March 31, 2019. The overall decrease in revenue generated from the Company’s Fenjiu business was mainly due to the outbreak of COVID-19. The Company suspended its business operation from mid-January 2020 to early March 2020 according to government mandates.

For the three months ended March 31, 2020, revenue generated from our imported wine business was RMB2,260,747 (USD319,278), representing a decrease of RMB1,416,416 (USD228,636), or -39% (-42%), as compared to that of RMB3,677,163 (USD547,914) for the three months ended March 31, 2019. The overall decrease in revenue generated from the Company’s imported wine business was mainly due to the outbreak of COVID-19. The Company suspended its business operation from mid-January 2020 to early March 2020 according to government mandates.

Cost of Sales

	Three months ended March 31, 2020 (Unaudited)							Three months ended March 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD			%
Sales of Fenjiu liquor products		3,437,531		485,473		86	%		7,809,057		1,163,586		94	%		(4,371,526	)		(56	)%		(678,113	)		(58	)%
Sales of imported wine products		542,973		76,682		14	%		992,423		147,876		6	%		(449,450	)		(45	)%		(71,194	)		(48	)%
Total Amount		3,980,504		562,155		100.0	%		8,801,480		1,311,461		100.0	%		(4,820,976	)		(55	)%		(749,306	)		(57	)%

For the three months ended March 31, 2020, cost of sales from our Fenjiu liquor business was RMB3,437,531 (USD485,473), representing a decrease of RMB4,371,526 (USD678,113), or -56% (-58%), as compared to that of RMB7,809,057 (USD1,163,586) for the three months ended March 31, 2019.

For the three months ended March 31, 2020, cost of sales from our imported wine business was RMB542,973 (USD76,682), representing a decrease of RMB449,450 (USD71,194), or 45% (48%), as compared to that of RMB992,423 (USD147,876) for the three months ended March 31, 2019.

The decrease in the cost of sales was due to a corresponding decrease in revenue generated by the Company for the three months ended March 31, 2020. Such decrease was due the Company’s suspension of its business from mid-January 2020 to early March 2020, as a result of the lockdown imposed by the authorities in response to the COVID-19 outbreak.

Gross Profit

	Three months ended March 31, 2020 (Unaudited)							Three months ended March 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD			%
Sales of Fenjiu liquor products		8,076,062		1,140,558		83	%		21,168,656		3,154,228		95	%		(13,092,594	)		(62	)%		(2,013,670	)		(64	)%
Sales of imported wine products		1,717,774		242,596		17	%		2,684,740		400,039		5	%		(966,966	)		(36	)%		(157,443	)		39	%
Total Amount		9,793,836		1,383,154		100	%		23,853,396		3,554,267		100	%		(14,059,560	)		(59	)%		(2,171,113	)		(61	)%

Gross profit from our Fenjiu liquor business decreased by RMB13,092,594 (USD2,013,670), or -62% (-64%), for the three months ended March 31, 2020, as compared to that of the same period of 2019. The gross profit percentage contributed by our Fenjiu liquor business was 70.1% for the three months ended March 31, 2020, as compared to that of 73.1% for the same period of 2019. The decrease in gross profit ratio was primarily due to the Company’s strategy of focusing on products with relatively higher per-unit costs, which outweighed the higher profit margins brought by these products.

Gross profit from our imported wine business decreased by RMB966,966 (USD157,443), or -36% (-39%), for the three months ended March 31, 2020, as compared to the same period of 2019. The gross profit percentage contributed by our imported wine business was 76.0% for the three months ended March 31, 2020, as compared to 73.0% for the same period of 2019. The decrease in gross profit ratio was primarily due to the Company’s strategy of focusing on products with relatively higher profit margins, which outweighed the higher per-unit costs brought by these products.

Selling and Distribution Expenses

For the three months ended March 31, 2020, our selling and distribution expenses were RMB671,687 (USD94,860), representing a decrease of RMB213,040 (USD36,968), or -24% (-28%), as compared to those of the same period of 2019. The decrease was primarily due to the Company’s suspension of its business from mid-January 2020 to early March 2020, as a result of the lockdown imposed by the authorities in response to the COVID-19 outbreak.

Administrative Expenses

For the three months ended March 31, 2020, our administrative expenses were RMB3,101,937 (USD438,077), representing an increase of RMB1,763,479 (USD238,641), or 132% (120%), as compared to the same period of 2019. The increase was primarily caused by the increase in consulting fees for maintaining a public company status, and depreciation in our property, plant, and equipment.

Other Income

For the three months ended March 31, 2020, our other income was RMB40,650 (USD5,741), representing an increase of RMB8,179 (USD903), or 25% (19%), as compared to the same period of 2019. The increase was primarily due to the Company’s increased income from bank interests.

Interest and Other Financial Charges

For the three months ended March 31, 2020, our interest and other financial charges were RMB144,189 (USD20,363), as compared to RMB41,238 (USD6,145) for the same period of 2019. The increase was primarily due to additional interest and other financial charges incurred in relation to the Company’s increased average repayment of bank borrowings during the period ended March 31, 2020.

Income Taxes

For the three months ended March 31, 2020, our income taxes were RMB1,774,454 (USD250,601), as compared to RMB5,432,298 (USD809,438) for the same period of 2019. The decrease in the income taxes was primarily due to the Company’s decreased taxable income for the three months ended March 31, 2020.

For the nine months ended March 31, 2020 and 2019:

	Nine months ended March 31, 2020 (Unaudited)				Nine months ended March 31, 2019 (Unaudited)				Variance
	RMB		USD		RMB		USD		RMB			%			USD			%
Revenue		80,961,250		11,433,913		96,037,641		14,310,055		(15,076,391	)		(16	)%		(2,876,142	)		(20	)%
Cost of sales		23,589,080		3,331,415		24,395,247		3,635,005		(806,167	)		(3	)%		(303,591	)		(8	)%
Gross profit		57,372,170		8,102,498		71,642,394		10,675,050		(14,270,224	)		(20	)%		(2,572,551	)		(24	)%
Selling and distribution expenses		2,895,820		408,968		3,020,324		450,042		(124,504	)		(4	)%		(41,074	)		(9	)%
Administrative expenses		9,173,102		1,295,489		6,159,429		917,784		3,013,673			49	%		377,706			41	%
Income from operations		45,303,248		6,398,041		62,462,641		9,307,224		(17,159,393	)		(28	)%		(2,909,183	)		(31	)%
Other income		138,095		19,503		90,807		13,531		47,288			52	%		5,972			44	%
Interest and other financial charges		144,189		20,363		41,238		6,145		102,951			250	%		14,219			231	%
Income before income taxes		45,297,154		6,397,181		62,512,210		9,314,610		(17,215,056	)		(28	)%		(2,917,430	)		(31	)%
Income taxes		11,855,983		1,674,385		16,024,012		2,387,652		(4,168,029	)		(26	)%		(713,268	)		(30	)%
Net income		33,441,171		4,722,796		46,488,198		6,926,958		(13,047,027	)		(28	)%		(2,204,162	)		(32	)%

Revenue

	Nine months ended March 31, 2020 (Unaudited)							Nine months ended March 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD			%
Sales of Fenjiu liquor products		71,714,536		10,128,028		89	%		87,738,861		13,073,498		93	%		(16,024,325	)		(18	)%		(2,945,470	)		(23	)%
Sales of imported wine products		9,246,714		1,305,885		11	%		8,298,780		1,236,557		7	%		947,934			11	%		69,328			6	%
Total Amount		80,961,250		11,433,913		100	%		96,037,641		14,310,055		100	%		(15,076,391	)		(16	)%		(2,876,142	)		(20	)%

For the nine months ended March 31, 2020 and 2019, revenue generated from our Fenjiu liquor business was RMB71,714,536 (USD10,128,028) and RMB87,738,861 (USD13,073,498), respectively, which represented a decrease of RMB16,024,325 (USD2,945,470), or -18% (-23%). The decrease in revenue generated from our Fenjiu liquor business was mainly due to the Company’s suspension of business from mid-January 2020 to early March 2020 as a result of the lockdown imposed by the authorities in response to the COVID-19 outbreak.

For the nine months ended March 31, 2020 and 2019, revenue generated from our imported wine business was RMB9,246,714 (USD1,305,885) and RMB8,298,780 (USD1,236,557), respectively, which represented an increase of RMB947,934 (USD69,328), or 11% (6%). The increase was due to the Company’s strategy of focusing on products with relatively higher profit margins, which outweighed the higher per-unit costs brought by these products and negative impact on revenue caused by COVID-19 during the first half of the Company’s fiscal year.

Cost of Sales

	Nine months ended March 31, 2020 (Unaudited)							Nine months ended March 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD			%
Sales of Fenjiu liquor products		21,476,598		3,033,075		91	%		22,157,376		3,301,552		92	%		(680,778	)		(3	)%		(268,477	)		(8	)%
Sales of imported wine products		2,112,482		298,340		9	%		2,237,871		333,453		8	%		(125,389	)		(6	)%		(35,113	)		(10	)%
Total Amount		23,589,080		3,331,415		100	%		24,395,247		14,310,055		100	%		(806,167	)		(3	)%		(303,590	)		(8	)%

For the nine months ended March 31, 2020 and 2019, cost of sales from our Fenjiu liquor business was RMB21,476,598 (USD3,033,075) and RMB22,157,376 (USD3,301,552), respectively, which represented a decrease of RMB680,778 (USD268,477) or -3% (-8%). The overall decrease in costs of sales of the Company’s Fenjiu business was mainly due to the outbreak of COVID-19. The Company suspended its business operation from mid-January 2020 to early March 2020 according to government mandates.

For the nine months ended March 31, 2020 and 2019, cost of sales from our imported wine business was RMB2,112,482 (USD298,340) and RMB2,237,871 (USD333,453), respectively, which represented a decrease of RMB125,389 (USD35,113), or -6% (-10%). The overall decrease in costs of sales of the Company’s imported wine business was mainly due to the outbreak of COVID-19. The Company suspended its business operation from mid-January 2020 to early March 2020 according to government mandates.

Gross Profit

	Nine months ended March 31, 2020 (Unaudited)							Nine months ended March 31, 2019 (Unaudited)							Variance
	RMB		USD		%			RMB		USD		%			RMB			%			USD			%
Sales of Fenjiu liquor products		50,237,938		7,094,952		88	%		65,581,485		9,771,946		92	%		(15,343,547	)		(23	)%		(2,676,994	)		(27	)%
Sales of imported wine products		7,134,232		1,007,546		12	%		6,060,909		903,104		8	%		1,073,323			18	%		104,442			12	%
Total Amount		57,372,170		8,102,498		100	%		71,642,394		10,675,050		100	%		14,270,224			20	%		2,572,552			24	%

Gross profit from our Fenjiu liquor business decreased by RMB15,343,547 (USD2,676,994), or 23% (27%), for the nine months ended March 31, 2020, as compared to the same period of 2019. The gross profit ratio of Fenjiu liquor business was 70.0% for the nine, months ended March 31, 2020, as compared to 74.7% for the same period of 2019. The decrease in gross profit ratio was due to the Company’s strategy of focusing on products with relatively higher per-unit costs, which outweighed the higher profit margins brought by these products.

Gross profit from our imported wine business increased by RMB1,073,323 (USD104,442), or 18% (12%), for the nine months ended March 31, 2020, as compared to that of the same period of 2019. The gross profit ratio of imported wine business was 77.2% for the nine months ended March 31, 2020, as compared to that of 73.0% for the same period of 2019. The increase in gross profit ratio was due to the Company’s strategy of focusing on products with relatively higher profit margins, which outweighed the higher per-unit costs brought by these products.

Selling and Distribution Expenses

For the nine months ended March 31, 2020, our selling and distribution expenses were RMB2,895,820 (USD408,968), representing a decrease of RMB124,504 (USD41,074), or -4% (-9%), as compared to those of the same period of 2019. The decrease was primarily due to the Company’s suspension of its business from mid-January 2020 to early March 2020 as a result of the lockdown imposed by the authorities in response to the COVID-19 outbreak.

Administrative Expense

For the nine months ended March 31, 2020, our administrative expenses were RMB9,173,102 (USD1,295,489), representing an increase of RMB3,013,673 (USD377,706), or 49% (41%), as compared to that of the same period of 2019. The increase was primarily due to the decrease in RMB’s exchange rate, and depreciation in our property, plant, and equipment.

Other Income

For the nine months ended March 31, 2020, our other income was RMB138,095 (USD19,503), representing an increase of RMB47,288 (USD5,972), or 52% (44%), as compared to the same period of 2019. The increase was primarily due to the Company’s increased income from bank interests.

Interest and Other Financial Charges

For the nine months ended March 31, 2020, our interest and other financial charges were RMB144,189 (USD20,363), as compared to RMB41,238 (USD6,145) for the same period of 2019. The increase in interest and other financial charges was primarily due to additional financial charges incurred in relation to repayment of certain bank borrowings during the period ended March 31, 2020.

Income Taxes

For the nine months ended March 31, 2020, our income taxes were RMB11,855,983 (USD1,674,385), as compared to that of RMB16,024,012 (USD2,387,652) for the same period of 2019. The decrease in the income taxes was primarily due to the Company’s decreased taxable income for the nine months ended March 31, 2020.

Liquidity and Capital Resources

Operating Activities

Operating activities generated cash of RMB 16,065,030 (USD 2,268,815) and RMB28,889,057 (USD4,304,603) in 2020 and 2019, respectively. The decrease of RMB15,821,446 (USD2,459,104) in 2020 was primarily due to the temporary closure of operation from mid of January 2020 to early March 2020 as a result of the lockdown imposed by the authorities in response to the COVID-19 outbreak.

Activities from inventories resulted a net decrease of RMB4,618,727 (USD652,289) for the nine months ended March 31, 2020, as compared to RMB325,080 (USD48,438) for same period of 2019. The decrease in the Company’s inventory level for the nine months ended March 31, 2020 was greater than for same period in 2019 because the Company suspended its business operations from mid-January 2020 to early March 2020 as a result of the lockdown imposed by the authorities in response to the COVID-19 outbreak.

Activities from trade receivables resulted a net decrease of RMB25,553,854 (USD3,608,894) for the nine months ended March 31, 2020, as compared to RMB33,352,881 (USD4,969,734) for the nine months ended March 31, 2019. The decrease in trade receivables level for the nine months ended March 31, 2020 was less than for the same period in 2019. Such changes represented the Company’s increased cash flows from operating activities during the nine months ended March 31, 2020 due to the Company’s increased payment collection efforts, which outweighed the negative impact on the Company’s cash flows caused by the COVID-19 outbreak.

Activities from deposits, prepayments and other receivables resulted a net increase of RMB12,078,188 (USD1,705,766) for the nine months ended March 31, 2020, as compared to RMB11,945,528 (USD1,779,939) for the same period in 2019.

Activities from receipts in advance, accruals, and other payables resulted in a net decrease of RMB1,927,933 (USD46,000) for the nine months ended March 31, 2020, as compared to a net increase of RMB743,376 (USD110,766) for the same period in 2019.

Activities from current tax liabilities resulted a net decrease of RMB1,613,505 (USD227,870) for the nine months ended March 31, 2020, as compared to a net increase of RMB2,598,923 (USD387,252) for the same period in 2019.

Activities from amount due to a director included a net increase of RMB3,378,779 (USD561) for the nine months ended March 31, 2020, as compared to that of RMB445,288 (USD66,350) for the same period in 2019.

Investing Activities

The Company’s investing activities used RMB4,878(USD689) and RMB250,000 (USD37,251) for the nine months ended March 31, 2020 and 2019, respectively.

The Company used cash amounted to RMB4,878 (USD689) for acquiring properties, plant and equipment during the nine months ended March 31, 2020.

The cash used for investing activities in during the nine months ended March 31,2019 was RMB250,000 (USD37,251) and was primarily related to the acquisition of interests in an associate.

Financing Activities

Financing activities generated RMB 370,000 (USD 52,254) and RMB2,250,000 (USD335,260) for the nine months ended on March 31, 2020 and 2019, respectively.

The Company received cash amounted to RMB370,000 (USD52,254) during the nine months ended March 31, 2020 primarily from net proceeds of bank borrowings. The Company received cash amounted to RMB2,250,000 (USD335,260) during the nine months ended March 31, 2019 primarily from net proceeds of bank borrowings.

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.

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 March 31, 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 March 31, 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 March 31, 2020, to have materially affected the Company’s internal control over financial reporting.

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 March 31, 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 March 31, 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
104		Cover page interactive data file (the cover page XBRL tags are embedded within the Inline XBRL document)

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.

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: May 21, 2020	/s/ Peng Yang
	Peng Yang
	President, Secretary and Director
	(Principal Executive Officer, and Principal Financial Officer and Principal Accounting Officer)

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