UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from _______ to _______
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
(Former address of principal executive offices) (Zip 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 | ||
| The
|
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.
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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 | ☐ |
| ☒ | 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 ☐
As of February 8, 2024, there were shares of common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
| i |
On February 2, 2024, the Company’s stockholders approved the effectiveness of a 1-for-10 reverse stock split of the shares (the “Reverse Stock Split”) of the Company’s common stock, with a par value of $0.001 per share. As a result of the Reverse Stock Split, each of the ten pre-split shares of common stock outstanding will automatically combine and convert to one issued and outstanding share of common stock without any action on the part of the stockholders. Unless otherwise indicated, all share amounts and per share amounts in this report have been presented to give effect to the 1-for-10 reverse stock split of the shares of the Company’s common stock.
| ii |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHINECO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Due from related parties | ||||||||
| Inventories, net | ||||||||
| Advances to suppliers, net | ||||||||
| Derivative financial assets | ||||||||
| Other current assets, net | ||||||||
| Current assets held for discontinued operations | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Land use right, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Non-current assets held for discontinued operations | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term loans | $ | $ | ||||||
| Long-term loans - current portion | ||||||||
| Accounts payable | ||||||||
| Contract liabilities | ||||||||
| Due to related parties | ||||||||
| Other payables and accrued expenses | ||||||||
| Operating lease liabilities - current | ||||||||
| Convertible note payable | ||||||||
| Taxes payable | ||||||||
| Current liabilities held for discontinued operations | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Income tax payable - noncurrent portion | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Long-term loans | ||||||||
| Deferred tax liability | ||||||||
| Other long-term payable | ||||||||
| Non-current liabilities held for discontinued operations | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| EQUITY: | ||||||||
| Common stock; par value $, shares authorized; and shares issued and outstanding at December 31, 2023 and June 30, 2023* | ||||||||
| Additional paid-in capital | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ equity of Shineco, Inc. | ||||||||
| Non-controlling interest | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
SHINECO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Six Months Ended December 31, | For the Three Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| Cost of products | ||||||||||||||||
| Business and sales related tax | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| GROSS INCOME | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Income (loss) from equity method investment | ( | ) | ||||||||||||||
| Investment income from derivative financial assets | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Amortization of debt issuance and other costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| BENEFIT FOR INCOME TAXES | ( | ) | ( | ) | ||||||||||||
| NET LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations, net of taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income from disposal of discontinued operations | ||||||||||||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO SHINECO, INC. | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Other comprehensive income (loss): foreign currency translation income (loss) | ( | ) | ||||||||||||||
| Total comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: comprehensive income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHINECO, INC. | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares basic and diluted* | ||||||||||||||||
| Basic and diluted earnings (loss) per common share | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Earnings (loss) per common share | ||||||||||||||||
| Continuing operations - Basic and Diluted | ) | ) | ) | ) | ||||||||||||
| Discontinued operations - Basic and Diluted | ) | ) | ||||||||||||||
| Net earnings (loss) per common share - basic and diluted | ) | ) | ) | |||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
SHINECO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022
(UNAUDITED)
| COMMON STOCK | SUBSCRIPTION | ADDITIONAL PAID-IN | STATUTORY | ACCUMULATED | ACCUMULATED OTHER COMPREHENSIVE | NON- CONTROLLING | TOTAL | |||||||||||||||||||||||||||||
| SHARES* | AMOUNT | RECEIVABLE | CAPITAL | RESERVE | DEFICIT | LOSS | INTEREST | EQUITY | ||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Stock issuance | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common shares for convertible notes redemption | ||||||||||||||||||||||||||||||||||||
| Common stock issued for management and employees | ||||||||||||||||||||||||||||||||||||
| Net loss from continuing operations for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss from discontinued operation for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Acquisition of Wintus | ( | ) | ||||||||||||||||||||||||||||||||||
| Disposal of Tenet-Jove | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Stock issuance | ||||||||||||||||||||||||||||||||||||
| Forgiveness of subscription receivable | - | |||||||||||||||||||||||||||||||||||
| Issuance of common shares for convertible notes redemption | ||||||||||||||||||||||||||||||||||||
| Common stock issued for management and employees | ||||||||||||||||||||||||||||||||||||
| Net loss from continuing operations for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net income (loss) from discontinued operation for the period | - | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
SHINECO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(UNAUDITED)
| COMMON STOCK | SUBSCRIPTION | ADDITIONAL PAID-IN | STATUTORY | ACCUMULATED | ACCUMULATED OTHER COMPREHENSIVE | NON-CONTROLLING | TOTAL | |||||||||||||||||||||||||||||
| SHARES* | AMOUNT | RECEIVABLE | CAPITAL | RESERVE | DEFICIT | LOSS | INTEREST | EQUITY | ||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Stock issuance | ||||||||||||||||||||||||||||||||||||
| Net loss from continuing operations for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss from discontinued operation for the period | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | - | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Stock issuance | ||||||||||||||||||||||||||||||||||||
| Forgiveness of subscription receivable | ||||||||||||||||||||||||||||||||||||
| Issuance of common shares for convertible notes redemption | ||||||||||||||||||||||||||||||||||||
| Common stock issued for management and employees | - | |||||||||||||||||||||||||||||||||||
| Net loss from continuing operations for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
SHINECO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Net income (loss) from discontinued operations, net of tax | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Allowance for credit losses and doubtful accounts | ||||||||
| Reversal of inventory reserve | ( | ) | ||||||
| Deferred tax benefit | ( | ) | ||||||
| Loss from equity method investment | ||||||||
| Amortization of right of use assets | ||||||||
| Forgiveness of subscription receivable | ||||||||
| Common stock issued for management and employees | ||||||||
| Amortization of debt issuance and other costs | ||||||||
| Accrued interest expense for convertible notes | ||||||||
| Accrued interest income from third parties | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Advances to suppliers | ( | ) | ||||||
| Inventories | ||||||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Contract liabilities | ||||||||
| Other payables and accrued expenses | ||||||||
| Other long-term payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ||||||
| Taxes payable | ||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisitions of property and equipment | ( | ) | ||||||
| Payment made for loans to third parties | ( | ) | ||||||
| Repayment from loans to third parties | ||||||||
| Repayment from loans to related parties | ||||||||
| Payment for derivative financial assets | ( | ) | ||||||
| Redemption of derivative financial assets | ||||||||
| Payment made for business acquisition | ( | ) | ||||||
| Acquisition of subsidiaries, net of cash | ||||||||
| Disposal of VIEs - Tenet-Jove, net of cash | ( | ) | ||||||
| Net cash provided by (used in) investing activities from continuing operations | ( | ) | ||||||
| Net cash provided by investing activities from discontinued operations | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term loans | ||||||||
| Repayment of short-term loans | ( | ) | ||||||
| Repayment of long-term loans | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Repayments of advances from related parties | ( | ) | ( | ) | ||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash provided by (used in) financing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS - Beginning of the period | ||||||||
| CASH AND CASH EQUIVALENTS - End of the period | $ | $ | ||||||
| Less: cash and cash equivalents of discontinued operations - Ended of the period | ||||||||
| Cash and cash equivalents of continuing operations - Ended of the period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of common shares for convertible notes redemption | $ | $ | ||||||
| Issuance of common shares for proceeds received in prior year | $ | $ | ||||||
| Issuance of common shares for business acquisition | $ | $ | ||||||
| Transferal of equity interest of Tenet Jove for business acquisition of Wintus | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Repayments of loans to third parties offset by other payables | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Shineco, Inc. (“Shineco” or the “Company”) was incorporated in the State of Delaware on August 20, 1997. The Company is a holding company whose primary purpose is to develop business opportunities in the People’s Republic of China (the “PRC” or “China”).
On
December 30, 2004, the Company acquired all of the issued and outstanding shares of Beijing Tenet-Jove Technological Development Co.,
Ltd. (“Tenet-Jove”), a PRC company, in exchange for restricted shares of the Company’s common stock, and the sole operating
business of the Company became that of its subsidiary, Tenet-Jove. Tenet-Jove was incorporated on December 15, 2003 under the laws of
China. Consequently, Tenet-Jove became a
On December 31, 2008, June 11, 2011, and May 24, 2012, Tenet-Jove entered into a series of contractual agreements including an Executive Business Cooperation Agreement, a Timely Reporting Agreement, an Equity Interest Pledge Agreement, and an Executive Option Agreement (collectively, the “VIE Agreements”), with each one of the following entities, Ankang Longevity Pharmaceutical (Group) Co., Ltd. (“Ankang Longevity Group”), Yantai Zhisheng International Freight Forwarding Co., Ltd. (“Zhisheng Freight”) and Qingdao Zhihesheng Agricultural Produce Services., Ltd. (“Qingdao Zhihesheng”). On February 24, 2014, Tenet-Jove entered into the same series of contractual agreements with Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. (“Zhisheng Bio-Tech”), which was incorporated in 2014. Zhisheng Bio-Tech, Zhisheng Freight and Qingdao Zhihesheng are collectively referred to herein as the “Zhisheng VIEs.”
Pursuant to the VIE Agreements, Tenet-Jove has the exclusive right to provide to the Zhisheng VIEs and Ankang Longevity Group consulting services related to their business operations and management. All the above contractual agreements obligate Tenet-Jove to absorb a majority of the risk of loss from the Zhisheng VIEs and Ankang Longevity Group’s activities and entitle Tenet-Jove to receive a majority of their residual returns. In essence, Tenet-Jove has become the primary beneficiary of the operations of the Zhisheng VIEs and Ankang Longevity Group. Therefore, the Zhisheng VIEs and Ankang Longevity Group are treated as variable interest entities (“VIEs”) under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation.” Accordingly, the accounts of these entities are consolidated with those of Tenet-Jove.
Since
Shineco is effectively controlled by the majority shareholders of the Zhisheng VIEs and Ankang Longevity Group, Shineco owns
On
September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with registered
capital of RMB
On
December 10, 2016, Tenet-Jove entered into a purchase agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”),
an online e-commerce company based in Tianjin, China, specializing in distributing Luobuma related products and branded products of Daiso
100-yen shops, pursuant to which Tenet-Jove would acquire a
| 6 |
On
March 13, 2019, Tenet-Jove established Beijing Tenjove Newhemp Biotechnology Co., Ltd. (“TNB”) with registered capital of
RMB
On
July 23, 2020, Shanghai Jiaying International Trade Co., Ltd. (“Shanghai Jiaying”) was established with registered capital
of RMB
On
January 7, 2021, Inner Mongolia Shineco Zhonghemp Biotechnology Co., Ltd. (“SZB”) was established with registered capital
of RMB
On
December 7, 2021, the Company established Shineco Life Science Research Co., Ltd. (“Life Science”) as a wholly foreign-owned
entity with registered capital of US$
On
April 13, 2022, the Company established Shineco Life Science Group Hong Kong Co., Limited (“Life Science HK”) as a wholly
owned entity with registered capital of US$
On
May 16, 2023, Fuzhou Meida Health Management Co., Ltd (“Fuzhou Meida”), formerly known as Pangke Planet (Fuzhou) Health Management
Co., Ltd, was established with registered capital of RMB
On
May 16, 2023, Shinkang Technology (Jiangsu) Co., Ltd (“Shinkang”) was established with registered capital of RMB
On
May 23, 2023, Life Science established Beijing Shineco Chongshi Information Consulting Co., Ltd (“Chongshi”) as a wholly
owned entity with registered capital of RMB
On
June 8, 2021, Tenet-Jove entered into a Restructuring Agreement with various parties. Pursuant to the terms of the Restructuring Agreement,
(i) the Company transferred all of its rights and interests in Ankang Longevity to the Shareholders of Yushe County Guangyuan Forest
Development Co., Ltd. (“Guangyuan”) in exchange for the control of
| 7 |
On
December 30, 2022, Life Science closed the acquisition of
On
May 29, 2023, Life Science HK entered into a stock purchase agreement with Dream Partner Limited, a BVI corporation (“Dream
Partner”), Chongqing Wintus Group, a corporation incorporated under the laws of mainland China (“Wintus”) and
certain shareholders of Dream Partner (the “Wintus Sellers”), pursuant to which Life Science HK shall acquire
The Company, through its subsidiaries, currently operates three main business segments: 1) Biowin specializes in the development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid Diagnostic and Other Products”); 2) Wintus is engaged in producing, processing and distribution of agricultural products, such as silk and silk fabrics as well as trading of fresh fruit; and (3) Fuzhou Meida operates a health-oriented chain restaurant that specializes in developing healthy meals for people with slow metabolic health and those in recovery from metabolic disorders. Due to the Acquisition mentioned above, the Company’s business segments, that were operated by Tenet-Jove and its subsidiaries, Guangyuan and Zhisheng VIEs which Tenet-Jove is the primary beneficiary of (the “Tenet-Jove Disposal Group”), are classified as discontinued operations on the Company unaudited condensed consolidated financial statements. These business segments are: 1) Tenet-Jove is engaged in manufacturing and selling Bluish Dogbane and related products, also known in Chinese as “Luobuma,” including therapeutic clothing and textile products made from Luobuma; 2) Qingdao Zhihesheng and Guangyuan are engaged in planting, processing, and distributing green agricultural produce; (“Agricultural Products”); and 3) Zhisheng Freight is providing domestic and international logistic services (“Freight Services”).
NOTE 2. GOING CONCERN UNCERTAINTIES
As
disclosed in the Company’s unaudited condensed consolidated financial statements, the Company had recurring net losses of US$
| 8 |
Despite those negative financial trends, as of December 31, 2023, the Company had the following measurements which the management has taken to enhance the Company’s liquidity:
| 1) | On
January 12, 2023, the Board of the Company approved the sales of shares
of the Company’s common stock to the Company’s employees for gross proceeds of up to US$.
As the date of this report, proceeds amounted to US$ |
| 2) | On
December 22, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US
investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to
shares (the “Shares”) of its common stock at a per share purchase price of $ for gross proceeds of up to $ |
| 3) | The
Company financed from commercial banks and third parties. As of December 31, 2023, the
Company had US$ |
Management believes that the foregoing measures collectively will provide sufficient liquidity for the Company to meet its future liquidity needs 12 months from the date of this filing.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules of the SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2023, which was filed on September 28, 2023.
The unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries, its VIEs and its VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in the Company’s majority owned subsidiaries and VIEs. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation of Variable Interest Entities
VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
There are no consolidated assets of the VIEs and the VIEs’ subsidiaries that are collateral for the obligations of the VIEs and the VIEs’ subsidiaries and can only be used to settle the obligations of the VIEs and the VIEs’ subsidiaries.
As the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors or beneficial interest holders of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of the VIEs in normal course of business.
| 9 |
There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs and the VIEs’ subsidiaries. However, if the VIEs and the VIEs’ subsidiaries ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIEs and the VIEs’ subsidiaries through loans to the shareholder of the VIEs and the VIEs’ subsidiaries or entrustment loans to the VIEs and the VIEs’ subsidiaries.
The total carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information and the carrying amount of the VIEs and their subsidiaries’ consolidated income information held for discontinued operations were as follows:
| December 31, 2023 | June 30, 2023 | |||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | ||||||||
| Total liabilities | ( | ) | ||||||
| Net assets | $ | $ | ||||||
| For the six months ended
December 31, | For the three months ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Gross loss | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income from operations | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
Non-controlling Interests
U.S. GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the non-controlling interests in the net loss of these entities are reported separately in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
Risks and Uncertainties
The operations of the Company are located in the PRC and are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these factors and believes that it is in compliance with existing laws and regulations, there is no guarantee that the Company will continue to do so in the future.
Members of the current management team own controlling interests in the Company and are also the owners of the VIEs in the PRC. The Company only has contractual arrangements with the VIEs, which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the agreement terms, as a result of which the Company would not retain the economic benefits from the VIEs. In addition, should these agreements be challenged or litigated, they would also be subject to the laws and courts of the PRC legal system, which could make enforcing the Company’s rights difficult.
| 10 |
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting periods. Significant estimates required to be made by management include, but are not limited to, useful lives of property and equipment, and intangible assets, the recoverability of long-lived assets, assessment of expected credit losses for accounts receivable and other current asset, the valuation allowance of deferred taxes, and inventory reserves. Actual results could differ from those estimates.
Revenue Recognition
The Company generates its revenue primarily through sales of Luobuma products, other agricultural products, healthy meals and rapid diagnostic and other products, as well as providing logistic services and other processing services to external customers in accordance with ASC 606. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
With the adoption of ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The Company has assessed the impact of the guidance by reviewing its existing customer contracts to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control, and principal versus agent considerations. In accordance with ASC 606, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is a principal, that the Company obtains control of the specified goods or services before they are transferred to the customers, the revenue should be recognized in the gross amount of consideration to which it expects to be entitled in exchange for the specified goods or services transferred. When the Company is an agent and its obligation is to facilitate third parties in fulfilling their performance obligation for specified goods or services, the revenue should be recognized in the net amount for the amount of commission which the Company earns in exchange for arranging for the specified goods or services to be provided by other parties. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of Topic 606 and therefore there was no material changes to the Company’s financial statements upon adoption of ASC 606.
More specifically, revenue related to the Company’s products and services is generally recognized as follows:
Sales of products: The Company recognized revenue from the sale of products at the point in time when the goods were delivered and title to the goods passed to the customer, provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.
Revenue from the provision of services: The Company merely acts as an agent in these types of services transactions. Revenue from domestic air and overland freight forwarding services was recognized at the point in time upon the performance of services as stipulated in the underlying contract or when commodities were being released from the customer’s warehouse; the service price was fixed or determinable; and collectability was deemed probable.
| 11 |
Cash and Cash Equivalents
Cash
and cash equivalents consist of cash on hand, cash on deposit, and other highly liquid investments which are unrestricted as to withdrawal
or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial
institutions mainly in the PRC. As of December 31, 2023 and June 30, 2023, the Company had
Under PRC laws, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’ rights over and interests in their deposited money. PRC banks are subject to a series of risk control regulatory standards, and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a material credit crisis. The Company monitors the banks utilized and has not experienced any problems.
Accounts Receivable, Net
Accounts
receivable are recorded at net realizable value, consisting of the carrying amount less an allowance for credit losses, as necessary.
As of December 31, 2023 and June 30, 2023, the allowance for credit losses from the continuing operations was US$
Advances to Suppliers, Net
Advances
to suppliers consist of payments to suppliers for materials that have not been received. As of December 31, 2023 and June 30, 2023, the
allowance for uncollectible advances to suppliers from the continuing operations was US$
Credit Losses
On July 1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The adoption of the credit loss accounting standard has no material impact on the Company’s unaudited condensed consolidated financial statements as of July 1, 2023.
The Company’s account receivables and other receivables included in other current assets on the unaudited condensed consolidated balance sheets are within the scope of ASC Topic 326. The Company makes estimates of expected credit and collectability trends for the allowance for credit losses based upon assessment of various factors, including historical experience, the age of the accounts receivable and other receivables balances, credit-worthiness of the customers and other debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and other debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
ASC Topic 326 is also applicable to loans to third parties that included in the other current assets on the unaudited condensed consolidated balance sheets. Management estimates the allowance for credit losses on loans not sharing similar risk characteristics on an individual basis. The key factors considered when determining the above allowances for credit losses include estimated loan collection schedule, discount rate, and assets and financial performance of the borrowers.
Expected credit losses are recorded as general and administrative expenses on the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss). After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses.
| 12 |
Inventories, Net
Inventories,
which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods related
to the Company’s products. Net realizable value is the estimated selling price in the normal course of business less any costs
to complete and sell products. Cost is determined using the first in first out (“FIFO”) method. The Company periodically
evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable
value. As of December 31, 2023 and June 30, 2023, the inventory reserve from the continuing operations was US$
Business Acquisitions
Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a bargain gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values on the date acquired and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than 12 months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed, and requires the Company to recognize and measure certain assets and liabilities, including those arising from contingencies and contingent consideration in a business combination.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available).
Leases
The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, warehouse, and farmland which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
| 13 |
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and includes initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. All operating lease ROU assets are reviewed for impairment annually. For the six and three months ended December 31, 2023 and 2022, the Company did not recognize any impairment of its ROU assets.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for additions, major renewals, and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis, less estimated residual value, if any, over an asset’s estimated useful life. Farmland leasehold improvements are amortized over the shorter of lease term or estimated useful lives of the underlying assets. The estimated useful lives of the Company’s property and equipment are as follows:
| Estimated useful lives | ||
| Buildings | ||
| Machinery equipment | ||
| Motor vehicles | ||
| Office equipment | ||
| Farmland leasehold improvements | ||
| Fixture and furniture |
Construction in progress includes property and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognized impairment loss. Construction in progress is classified to the appropriate category of property and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Land Use Rights, Net
According
to Chinese laws and regulations regarding land use rights, land in urban districts is owned by the State, while land in the rural areas
and suburban areas, except otherwise provided for by the State, is collectively owned by individuals designated as resident farmers by
the State. In accordance with the legal principle that land ownership is separate from the right to the use of the land, the government
grants individuals and companies the rights to use parcels of land for a specified period of time. Land use rights, which are usually
prepaid, are stated at cost less accumulated amortization. Amortization is provided over the life of the land use rights, using the straight-line
method. The useful life is
Long-lived Assets
Finite-lived assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property and equipment, land use rights, ROU assets and investments. For the six and three months ended December 31, 2023 and 2022, the Company did not recognize any impairment of its long-lived assets.
| 14 |
Derivative Financial Assets
Derivative financial assets are measured at fair value and recognized as either assets or liabilities on the unaudited condensed consolidated balance sheets in either other current or non-current assets or other current liabilities or non-current liabilities depending upon maturity and commitment. Changes in the fair value of derivatives are either recognized periodically in the unaudited condensed consolidated statements of comprehensive income (loss) or in other comprehensive income (loss) depending on the use of the derivatives and whether they qualify for hedge accounting.
The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in prices of raw material for silk products. These financial exposures are monitored and managed by the Company as an integral part of its risk management program. The Company does not engage in derivative instruments for speculative or trading purposes. The Company’s derivative financial assets are not qualified for hedge accounting, thus changes in fair value are recognized in “Investment income from derivative financial assets” in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss). The cash flows of derivative financial assets are classified in the same category as the cash flows from the items subject to the economic hedging relationships. The estimated fair value of the derivatives is determined based on relevant market information.
Derivative financial assets are presented as net if rights of setoff exist, with all of the following conditions met: (a) each of two parties owes the other determinable amounts; (b) the reporting party has the right to set off the amount owed with the amount owed by the other party; (c) the reporting party intends to set off; and (d) the right of setoff is enforceable at law.
The
outstanding derivative financial assets as of December 31, 2023 and June 30, 2023 was US$
Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.
The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.
| 15 |
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company did not have any uncertain tax positions from the continuing operations and the discontinued operations at December 31, 2023 and June 30, 2023. The Company had not provided deferred taxes for undistributed earnings of non-U.S. subsidiaries from the continuing operations and the discontinued operations at December 31, 2023, as it is the Company’s policy to indefinitely reinvest these earnings in non-U.S. operations. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable.
The statute of limitations for the Company’s U.S. federal income tax returns and certain state income tax returns remains open for tax year 2020 and thereafter. As of December 31, 2023, the tax years ended December 31, 2019 through December 31, 2023 for the Company’s PRC subsidiaries from the continuing operations and the discontinued operations remained open for statutory examination by PRC tax authorities.
On
December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of The Act, the
U.S. corporate tax rate decreased from
Value-Added Tax
Sales
revenue represents the invoiced value of goods, net of a value-added tax (“VAT”).
| 16 |
Foreign Currency Translation
The Company uses the United States dollar (“U.S. dollars,” “USD,” or “US$”) for financial reporting purposes. The Company’s subsidiaries and VIEs maintain their books and records in their functional currency of Renminbi (“RMB”), the currency of the PRC.
In general, for consolidation purposes, the Company translates the assets and liabilities of its subsidiaries and VIEs into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statements of income and cash flows are translated at average exchange rates during the reporting periods. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the financial statements of the subsidiaries and VIEs are recorded as accumulated other comprehensive loss.
The
balance sheet amounts, with the exception of equity, at December 31, 2023 and June 30, 2023 were translated at
Convertible Notes Payable
In accordance with ASC 470 Debt with conversion and other option, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Issuance costs should be allocated proportionally to the debt host and conversion feature. Deferred financing costs will be discounted and amortized subsequently, and the convertible notes are subsequently carried at amortized cost.
Research and Development Expenses
Research
and development costs relating to the development of new processes and significant improvements and refinements to existing processes
are expensed when incurred in accordance with the FASB ASC 730, “Research and Development.” The research and development
costs primarily comprise employee costs, consultant fees, materials and testing costs, and depreciation to property and equipment used
in the research and development activities and other miscellaneous expenses. For the six months ended December 31, 2023 and 2022, total
research and development expense from continuing operations were approximately US$
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to USD is reported in other comprehensive (loss) in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
| 17 |
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., outstanding convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is no anti-dilutive effect for the six and three months ended December 31, 2023 and 2022.
| For the six months ended
December 31, | For the three months ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss from continuing operations attributable to Shineco | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations attributable to Shineco | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Shineco | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted average shares outstanding - basic and diluted* | ||||||||||||||||
| Net loss from continuing operations per share of common share | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Net earnings (loss) from discontinued operations per share of common share | ||||||||||||||||
| Basic and diluted | $ | $ | ) | $ | $ | ) | ||||||||||
| Net earnings (loss) per share of common share | ||||||||||||||||
| Basic and diluted | $ | $ | ) | $ | ) | $ | ) | |||||||||
| * |
Reclassifications
Certain prior year balances were reclassified to conform to the current year’s presentation with consideration of reflecting the Company’s Tenet-Jove Disposal Group as discontinued operations. None of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented.
New Accounting Pronouncements
In June 2022, FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security’s unit of account. The amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company plans to adopt this guidance effective July 1, 2024 and the adoption of this ASU is not expected to have a material impact on its financial statements.
| 18 |
In March 2023, FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements. The amendments in ASU 2023-01 improve current GAAP by clarifying the accounting for leasehold improvements associated with common control leases, thereby reducing diversity in practice. Additionally, the amendments provide investors and other allocators of capital with financial information that better reflects the economics of those transactions. The amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company plans to adopt this guidance effective July 1, 2024 and the adoption of this ASU is not expected to have a material impact on its financial statements.
The Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s unaudited condensed consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
The accounts receivable, net consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | ||||||||
| Less: accounts receivable, net held for discontinued operations | ( | ) | ||||||
| Accounts receivable, net held for continuing operations | $ | $ | ||||||
Movement of allowance for credit losses is as follows:
| December 31, 2023 | June 30, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Acquisition of subsidiaries | ||||||||
| Charge to allowance | ||||||||
| Less: disposal of VIEs | ( | ) | ||||||
| Less: write-off | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 5 – INVENTORIES, NET
The inventories, net consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Less: inventory reserve | ( | ) | ( | ) | ||||
| Total inventories, net | ||||||||
| Less: inventories, net, held for discontinued operations | ( | ) | ||||||
| Inventories, net, held for continuing operations | $ | $ | ||||||
| 19 |
Work-in-process mainly includes direct costs such as seed selection, fertilizer, labor cost, and subcontractor fees that are spent in growing agricultural products on the leased farmland, and indirect costs which include amortization of the prepayment of the farmland lease fees and farmland development costs. All the costs are accumulated until the time of harvest and then allocated to harvested crop costs when they are sold.
The
Company wrote off inventory held for discontinued operations amounted to US$ and US$
NOTE 6 – ADVANCES TO SUPPLIERS, NET
The advances to suppliers, net consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Advances to suppliers | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Advance to suppliers, net | ||||||||
| Less: advance to supplier, net, held for discontinued operations | ||||||||
| Advance to supplier, net, held for continuing operations | $ | $ | ||||||
Advances to suppliers consist of mainly payments to suppliers for raw materials or products that have not been received.
Movement of allowance for doubtful accounts is as follows:
| December 31, 2023 | June 30, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Acquisition of subsidiaries | ||||||||
| Charge to (reversal of) allowance | ( | ) | ||||||
| Less: disposal of VIEs | ( | ) | ||||||
| Less: write-off | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
| 20 |
NOTE 7 – OTHER CURRENT ASSETS, NET
Other current assets, net consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Loans to third parties (1) | $ | $ | ||||||
| Other receivables (2) | ||||||||
| Prepayment for business acquisition (3) | ||||||||
| Short-term deposit | ||||||||
| Prepaid expenses | ||||||||
| Subtotal | ||||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Total other current assets, net | ||||||||
| Less: other current assets, net, held for discontinued operations | ( | ) | ||||||
| Other current assets, net, held for continuing operations | $ | $ | ||||||
| 1) | |
| 2) | |
| 3) |
Movement of allowance for credit losses is as follows:
| December 31, 2023 | June 30, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Acquisition of subsidiaries | ||||||||
| Charge to allowance | ||||||||
| Less: disposal of VIEs | ( | ) | ||||||
| Less: write-off | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
| 21 |
NOTE 8 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Motor vehicles | ||||||||
| Office equipment | ||||||||
| Fixture and furniture | ||||||||
| Construction in progress | ||||||||
| Farmland leasehold improvements | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Less: accumulated impairment for property and equipment | ( | ) | ( | ) | ||||
| Total property and equipment, net | ||||||||
| Less: property and equipment, net, held for discontinued operations | ( | ) | ||||||
| Property and equipment, net held for continuing operations | $ | $ | ||||||
Depreciation
and amortization expense charged to the continuing operations was US$
Depreciation
and amortization expense charged to the discontinued operations was US$
The management performed evaluation on the impairment of property and equipment periodically. Due to the continuous impact from the COVID-19 pandemic, the Company’s Zhisheng VIEs, have not been able to grow and cultivate green agricultural produce on the leased farmlands, and based on the management estimation, these farmlands are unlikely to generate enough future profit and cashflow, hence, the Company decided to record full impairment of such leased farmland. Therefore, farmland leasehold improvements relating to these farmlands were also fully impaired. No impairment loss on property and equipment from the continuing operations and discontinued operations for the six and three months ended December 31, 2023 and 2022, respectively.
The Company pledged certain property and equipment for the Company’s bank loans and its related party’s personal loan (see Note 12 and Note 13).
Farmland leasehold improvements, net consisted of following:
| December 31, 2023 | June 30, 2023 | |||||||
| Blueberry farmland leasehold improvements | $ | $ | ||||||
| Yew tree planting base reconstruction | ||||||||
| Greenhouse renovation | ||||||||
| Subtotal | ||||||||
| Less: accumulated amortization | ( | ) | ||||||
| Less: impairment for farmland leasehold improvements | ( | ) | ||||||
| Total farmland leasehold improvements, net | $ | $ | ||||||
| 22 |
NOTE 9 - LAND USE RIGHTS, NET
Land
use rights are recognized at cost less accumulated amortization. According to the Chinese laws and regulations regarding land use rights,
land in urban districts is owned by the state, while land in the rural areas and suburban areas, except otherwise provided for by the
state, is collectively owned by individuals designated as resident farmers by the state. However, in accordance with the legal principle
that land ownership is separate from the right to the use of the land, the government grants the user a “land use right”
to use the land. The Company has the land use right to use the land for
| December 31, 2023 | June 30, 2023 | |||||||
| Land use rights | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ||||||
| Total land use rights, net | ||||||||
| Less: land use rights, net, held for discontinued operations | ||||||||
| Land use rights, net, held for continuing operations | $ | $ | ||||||
Amortization
expense charged to the continuing operations was US$
The estimated future amortization expenses are as follows:
| 12 months ending December 31: | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 10 - LEASES
The
Company leases offices space and warehouse under non-cancelable operating leases, with terms ranging from one to seven and a half years.
In addition, the Zhisheng VIEs and Guangyuan entered into several farmland lease contracts with farmer cooperatives to lease farmland
in order to plant and grow organic vegetables, fruit, and Chinese yew trees, fast-growing bamboo willows and scenic greening trees. The
lease terms vary from
When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
| 23 |
The table below presents the operating lease related assets and liabilities held for continuing operations recorded on the balance sheets.
| December 31, 2023 | June 30, 2023 | |||||||
| ROU lease assets | $ | $ | ||||||
| Operating lease liabilities – current | ||||||||
| Operating lease liabilities – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms and discount rates for all of operating leases held for continuing operations were as follows as of December 31, 2023 and June 30, 2023:
| December 31, 2023 | June 30, 2023 | |||||||
| Remaining lease term and discount rate: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
The table below presents the operating lease related assets and liabilities held for discontinued operations recorded on the balance sheets.
| December 31, 2023 | June 30, 2023 | |||||||
| ROU lease assets | $ | $ | ||||||
| Operating lease liabilities – current | ||||||||
| Operating lease liabilities – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms and discount rates for all of operating leases held for discontinued operations were as follows as of December 31, 2023 and June 30, 2023:
| December 31, 2023 | June 30, 2023 | |||||||
| Remaining lease term and discount rate: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | |||||||
Rent
expenses totaled US$
Rent
expenses totaled US$
| 24 |
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2023:
| Continuing operations | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 11 - ACQUISITION
Acquisition of Guangyuan
On
June 8, 2021, Tenet-Jove entered into a Restructuring Agreement with various parties. Pursuant to the terms of the Restructuring Agreement,
(i) the Company transferred all of its rights and interests in Ankang Longevity to the Shareholders of Yushe County Guangyuan Forest
Development Co., Ltd. (“Guangyuan”) in exchange for the control of
The management determined that July 5, 2021 was the acquisition date of Guangyuan. The acquisition provides a unique opportunity for the Company to enter the market of planting fast-growing bamboo willows and scenic greening trees.
The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date.
As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Non-controlling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of the fair value of net assets acquired.
The following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:
| Due from related party | $ | |||
| Inventory | ||||
| Other current assets | ||||
| Right of use assets | ||||
| Long-term investments and other non-current assets | ||||
| Other payables and other current liabilities | ( | ) | ||
| Operating lease liabilities | ( | ) | ||
| Total purchase price for acquisition, net of US$ | $ |
| 25 |
Under ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. Acquisition-related costs were US$ for the six and three months ended December 31, 2023 and 2022.
The
Company has included the operating results of Guangyuan in the unaudited condensed consolidated financial statements since the Acquisition
Date. US$ in net sales and US$
Acquisition of Biowin
On
October 21, 2022, the Company, through its wholly-owned subsidiary, Life Science, entered into a stock purchase agreement with the Seller
and Biowin, pursuant to which Life Science would acquire
The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date.
As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Non-controlling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of the fair value of net assets acquired.
The
excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill which amounted to US$
| 26 |
The following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:
| Accounts receivable, net | $ | |||
| Inventories, net | ||||
| Other current assets, net | ||||
| Property and equipment, net | ||||
| Intangible assets | ||||
| Operating lease right-of-use assets | ||||
| Goodwill | ||||
| Deferred tax assets, net | ||||
| Short-term bank loans | ( | ) | ||
| Accounts payable | ( | ) | ||
| Advances from customers | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Operating lease liabilities - non-current | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Non-controlling interest | ( | ) | ||
| Total purchase price for acquisition, net of US$ | $ |
The fair value of identified intangible assets, which are trademarks and patents, and its estimated useful lives as of December 31, 2023 is as follows:
| Average | ||||||||
| Useful Life | ||||||||
| (in Years) | ||||||||
| Intangible assets | $ | |||||||
| Less: accumulated amortization | ( | ) | ||||||
| Total intangible assets, net | ||||||||
| Less: intangible assets, net held for discontinued operations | ||||||||
| Total intangible assets, net held for continuing operations | $ | |||||||
The
amortization expense of intangible assets was US$$$
Under
ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component
of consideration transferred, but are expensed in the periods in which the costs are incurred. Acquisition-related costs were US$
and US$
The
Company has included the operating results of Biowin in continuing operations in its unaudited condensed consolidated financial statements
since the Acquisition Date. US$
| 27 |
Acquisition of Wintus
On
May 29, 2023, Life Science HK entered into a stock purchase agreement with Dream Partner, Wintus and the Wintus Sellers,
pursuant to which Life Science HK shall acquire
The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date.
As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Non-controlling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of the fair value of net assets acquired.
The
excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill which amounted to US$
The following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:
| Accounts receivable, net | $ | |||
| Advances to suppliers, net | ||||
| Inventories, net | ||||
| Derivative financial assets | ||||
| Other current assets, net | ||||
| Property and equipment, net | ||||
| Intangible assets | ||||
| Operating lease right-of-use assets | ||||
| Goodwill | ||||
| Short-term bank loans | ( | ) | ||
| Accounts payable | ( | ) | ||
| Advances from customers | ( | ) | ||
| Tax payable | ( | ) | ||
| Deferred income | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Long-term bank loans | ( | ) | ||
| Operating lease liabilities - non-current | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Non-controlling interest | ( | ) | ||
| Total purchase price for acquisition, net of $ | $ |
| 28 |
The fair value of identified intangible assets, which are trademarks and patents, and its estimated useful lives as of December 31, 2023 is as follows:
| Average | ||||||||
| Useful Life | ||||||||
| (in Years) | ||||||||
| Intangible assets | $ | |||||||
| Less: accumulated amortization | ( | ) | ||||||
| Total intangible assets, net | ||||||||
| Less: intangible assets, net held for discontinued operations | ||||||||
| Total intangible assets, net held for continuing operations | $ | |||||||
The
amortization expense of intangible assets was US$
Under
ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component
of consideration transferred, but are expensed in the periods in which the costs are incurred. Acquisition-related costs were US$
The
Company has included the operating results of Wintus in continuing operations in its unaudited condensed consolidated financial statements
since the Acquisition Date. US$
NOTE 12 - RELATED PARTY TRANSACTIONS
Due from Related Parties, Net
The Company has made temporary advances to certain stockholders and senior management of the Company and to other entities that are either owned by family members of those stockholders or to other entities that the Company has investments in.
| 29 |
As of December 31, 2023 and June 30, 2023, the outstanding amounts due from related parties consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Chongqing Yufan Trading Co., Ltd (“Chongqing Yufan”) | $ | $ | ||||||
| Chongqing Dream Trading Co., Ltd | ||||||||
| Ren Zhiwei | ||||||||
| Wintus China Limited | ||||||||
| Shanghai Gaojing Private Fund Management (a) | ||||||||
| Zhongjian Yijia Health Technology (Qingdao) Co., Ltd. (“Zhongjian Yijia”) (b) | ||||||||
| Zhongjian (Qingdao) International Logistics Development Co., Ltd. (“Zhongjian International”) (c) | ||||||||
| Subtotal | ||||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Total due from related parties, net | ||||||||
| Less: due from related parties, held for discontinued operations | ( | ) | ||||||
| Due from related parties, held for continuing operations | $ | $ | ||||||
| a. | |
| b. |
Interest
income was US$ and US$ |
| c. |
Interest
income was US$ |
| 30 |
Due to Related Parties
As
of December 31, 2023 and June 30, 2023, the Company had related party payables of US$
| December 31, 2023 | June 30, 2023 | |||||||
| Wang Sai | $ | $ | ||||||
| Li Baolin | ||||||||
| Zhao Min (a) | ||||||||
| Zhou Shunfang | ||||||||
| Huang Shanchun | ||||||||
| Liu Fengming | ||||||||
| Yan Lixia | ||||||||
| Zhan Jiarui | ||||||||
| Liu Xiqiao | ||||||||
| Mike Zhao | ||||||||
| Zhao Pengfei | ||||||||
| Wang Xiaohui | ||||||||
| Chi Keung Yan | ||||||||
| Chongqing Fuling District Renyi Zhilu Silk Industry Co., Ltd | ||||||||
| Chongqing Huajian Housing Development Co., Ltd (“Chongqing Huajian”) | ||||||||
| Total due to related parties | ||||||||
| Less: due to related parties, held for discontinued operations | ( | ) | ||||||
| Due to related parties, held for continuing operations | $ | $ | ||||||
| a. |
| 31 |
Interest
expenses on loans due to related parties were US$
Sales to a Related Party
The
Company made sales of US$
Loan guarantee provided by related parties
The Company’s related parties provide guarantee for the Company’s bank loans (see Note 13).
Loan guarantee provided to a related party
On
May 29, 2023, the Company’s Board approved the pledge of real estate property with a net book value of US$
NOTE 13 – LOANS
Short-term loans
Loan from a third party
On
September 27, 2023, the Company entered into a loan agreement with a third party to borrow US$
Interest
expenses from discontinued operations were both US$ for the six and three months ended December 31, 2023 and 2022, respectively.
The Company recorded interest expenses from continuing operations of US$
| 32 |
Short-term bank loans
Short-term bank loans consisted of the following:
| Lender | December 31, 2023 | Maturity Date | Int. Rate/Year | |||||||
| Jiangnan Rural Commercial Bank-a | $ | % | ||||||||
| Bank of Jiangsu-b | % | |||||||||
| Bank of China-c | % | |||||||||
| Chongqing Rural Commercial Bank-d | % | |||||||||
| United Overseas Bank-e | % | |||||||||
| Bank of China-f | % | |||||||||
| Industrial and Commercial Bank of China | % | |||||||||
| Industrial and Commercial Bank of China-g | % | |||||||||
| Total short-term bank loans | ||||||||||
| Less: short-term bank loans, held for discontinued operations | ||||||||||
| Short-term bank loans, held for continuing operations | $ | |||||||||
The loans outstanding were guaranteed by the following properties, entities or individuals:
| a. | |
| b. | |
| c. | |
| d. |
| e. | |
| f. | |
| g. |
| 33 |
| Lender | June 30, 2023 | Maturity Date | Int. Rate/Year | |||||||
| Jiangnan Rural Commercial Bank-a | $ | % | ||||||||
| Bank of Jiangsu-b | % | |||||||||
| Bank of China-c | % | |||||||||
| Total short-term bank loans | ||||||||||
| Less: short-term bank loans, held for discontinued operations | ||||||||||
| Short-term banks loans, held for continuing operations | $ | |||||||||
The loans outstanding were guaranteed by the following properties, entities or individuals:
| a. | |
| b. | |
| c. |
Long-term loans
Long-term bank loans consisted of the following:
| Lender | December 31, 2023 | Maturity Date | Int. Rate/Year | |||||||
| Chongqing Rural Commercial Bank-a | $ | % | ||||||||
| Bank of Chongqing-b | % | |||||||||
| Total long-term bank loans | $ | |||||||||
| Long-term bank loans-current | $ | |||||||||
| Long-term bank loans-non-current | $ | |||||||||
The loans outstanding were guaranteed by the following properties, entities or individuals:
| a. | Guaranteed
by Ms. Wang Xiaohui and Mr. Chi Keung Yan, two of the shareholders of the Company, and the family member of Ms. Wang Xiaohui.
The loan is also guaranteed by other subsidiaries of the Company, Chongqing Wintus and Wulong Wintus. In addition, the
Company’s properties with net book values of US$ |
| b. | Guaranteed
by Ms. Wang Xiaohui and Mr. Chi Keung Yan, two of the shareholders of the Company, and the family members of Ms. Wang Xiaohui.
In addition, the Company’s properties with net book values of US$ |
The future maturities of long-term bank loans as of December 31, 2023 were as follows:
| Twelve months ending December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| Total long-term bank loans | $ | |||
| 34 |
Interest
expenses from discontinued operations were both US$ for the six and three months ended December 31, 2023 and 2022, respectively.
The Company recorded interest expenses from continuing operations of US$
NOTE 14 - CONVERTIBLE NOTES PAYABLE
On
June 16, 2021, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued an unsecured
convertible promissory note with a maturity date of June 17, 2022 (“the Note”) to an institutional accredited investor
Streeterville Capital, LLC (“Investor”). The Note has the original principal amount of US$
On
July 16, 2021, the Company entered into a Securities Purchase Agreement (the “July Agreement”) pursuant to which the Company
issued two unsecured convertible promissory notes with a maturity term (the “Notes”) to the same Investor. The first
convertible promissory note (“Note #1”) has an original principal amount of US$
On
August 19, 2021, the Company entered into a Securities Purchase Agreement (the “Agreement”) pursuant to which the
Company issued an unsecured convertible promissory note with a maturity date of August 23, 2022 (the “Note”) to the same
Investor. The Note has an original principal amount of US$
| 35 |
For
the above-mentioned convertible promissory notes issued, interest accrues on the outstanding balance of these notes at
For
the six months ended December 31, 2023 and 2022, a total of US$
As
of December 31, 2023, shares of the Company’s common stock totaling were issued by the Company to the Investor equaling
principal and interests amounted to US$
NOTE 15 - TAXES
(a) Corporate Income Taxes
The Company is subject to income taxes on an entity basis on income arising in or derived from the location in which each entity is domiciled.
Shineco
is incorporated in the United States and has no operating activities. Tenet-Jove and the VIEs are governed by the Income Tax Laws of
the PRC, and are currently subject to tax at a statutory rate of
On
December 22, 2017, The Act was enacted. The Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign
subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused the Company to re-measure its income
tax liability and record an estimated income tax expense of US$
| 36 |
i) The components of the income tax benefit were as follows:
| For the six months ended December 31, | For the three months ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Current income tax benefit | $ | $ | $ | $ | ||||||||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||||||||||
| Total income tax benefit | ( | ) | ( | ) | ||||||||||||
| Less: income tax benefit, held for discontinued operations | ||||||||||||||||
| Income tax benefit, held for continuing operations | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
ii) The components of the deferred tax liability were as follows:
| December 31, 2023 | June 30, 2023 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for credit loss/doubtful accounts | $ | $ | ||||||
| Inventory reserve | ||||||||
| Net operating loss carry-forwards | ||||||||
| Total | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets | ||||||||
| Deferred tax liability: | ||||||||
| Intangible assets | ( | ) | ( | ) | ||||
| Total deferred tax liability | ( | ) | ( | ) | ||||
| Deferred tax liability, net | ( | ) | ( | ) | ||||
| Less: deferred tax liability, net, held for discontinued operations | ||||||||
| Deferred tax liability, net, held for continuing operations | $ | ( | ) | $ | ( | ) | ||
Movement of the valuation allowance:
| December 31, 2023 | June 30, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Acquisition of subsidiaries | ||||||||
| Disposal of Tenet Jove | ( | ) | ||||||
| Current year reduction | ( | ) | ( | ) | ||||
| Exchange difference | ( | ) | ||||||
| Ending balance | ||||||||
| Less: valuation allowance, held for discontinued operations | ( | ) | ||||||
| Valuation allowance, held for continuing operations | $ | $ | ||||||
| 37 |
(b) Value-Added Tax
The
Company is subject to a VAT for selling goods.
In
the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right
to assess a penalty based on the amount of the taxes which are determined to be late or deficient, and the penalty will be expensed in
the period if and when a determination is made by the tax authorities. There were
(c) Taxes Payable
Taxes payable consisted of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Income tax payable | $ | $ | ||||||
| Value added tax payable | ||||||||
| Business tax and other taxes payable | ||||||||
| Total tax payable | ||||||||
| Less: tax payable, held for discontinued operations | ( | ) | ||||||
| Tax payable, held for continuing operations | $ | $ | ||||||
| Income tax payable - current portion | $ | $ | ||||||
| Less: income tax payable - current portion, held for discontinued operations | ( | ) | ||||||
| Income tax payable - current portion, held for continuing operations | $ | $ | ||||||
| Income tax payable - noncurrent portion | $ | $ | ||||||
| Less: income tax payable - noncurrent portion, held for discontinued operations | ||||||||
| Income tax payable - noncurrent portion, held for continuing operations | $ | $ | ||||||
| 38 |
NOTE 16 - STOCKHOLDERS’ EQUITY
Initial Public Offering
On
September 28, 2016, the Company completed its initial public offering of shares of common stock at a price of US$ per share
for gross proceeds of US$
Statutory Reserve
The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations
to the statutory surplus reserve are required to be at least
On
July 10, 2020, the Company’s stockholders approved a
On
April 10, 2021, the Company issued shares of common stock to selected investors at a price of US$ per share. The Company received
net proceeds of US$
On
June 13, 2022, the Company entered into a certain stock purchase agreement with certain non-U.S. investors (the “Purchasers”),
pursuant to which the Company agreed to sell, and the Purchasers agreed to purchase, severally and not jointly, an aggregate of
shares of common stock of the Company (the “Shares”) at a price of US$ per share. In reliance on the Purchasers’
representations to the Company, the shares issued in this offering were not subject to the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), pursuant to Regulation S promulgated thereunder. The Company’s shareholders
approved the offer and sale of the Shares at a meeting of the shareholders of the Company that was held on July 21, 2022. The closing
for the offer and sale of the Shares occurred on July 26, 2022 and the Company issued the Shares in exchange for gross proceeds of $
On
July 21, 2022, the stockholders of the Company approved the Company’s 2022 Equity Incentive Plan (the “2022 Plan”),
pursuant to which shares of the Company’s common stock will be made available for issuance under the 2022 Plan. Pursuant
to the terms of the 2022 Plan, no shares shall be granted on or after the date which is ten years from the effective date of the 2022
Plan. On July 27, 2022, the Board of Directors of the Company approved the issuance of shares of common stock pursuant to the Company’s
2022 Plan in the aggregate amount of shares (the “Shares”). The fair value of the Shares was US$
| 39 |
On
August 11, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US
investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to
shares (the “Shares”) of its common stock at a per share purchase price of $
(subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to US$
On
October 21, 2022, the Company, through its wholly-owned subsidiary, Life Science, entered into a stock purchase agreement with the Seller
and Biowin, pursuant to which Life Science would acquire
On
January 12, 2023, the Board of the Company approved the sales of shares
of the Company’s common stock to the Company’s employees for gross proceeds of up to US$
On
January 12, 2023, the Board of the Company approved the issuance of shares of the Company’s common stock to the Company’s
service provider as the compensation for service provided, with a value of US$
On
May 17, 2023, the Board of Directors of the Company approved the issuance of shares of common stock pursuant to the Company’s 2022
Plan in the aggregate amount of shares (the “Shares”). The fair value of the Shares was US$
On
June 19, 2023, the Company entered into a certain securities purchase agreement (the “SPA”) with a non-U.S. investor (the
“Buyer”), pursuant to which the Company agreed to sell, and the Buyer agreed to purchase an aggregate of up to shares
of common stock of the Company (the “Shares”) at a price of $ per share. The transaction contemplated by the SPA was
approved by the Company’s board of directors at a board meeting on March 14, 2023. The Company has received gross proceeds of $
On
June 21, 2023, the Company entered into a certain stock purchase agreement with certain non-U.S. investors
(the “Investors”), pursuant to which the Company agreed to sell, and the Investors agreed to purchase, severally and not
jointly, an aggregate of up to shares of common stock of the Company (the “Shares”) at a price of $ per share. The
transaction contemplated by the agreement was approved by the Company’s board of directors at a board meeting on June 8, 2023.
The Company has received gross proceeds of $
On
August 30, 2023, the Board of Directors of the Company approved the issuance of shares of common stock pursuant to the Company’s
2023 Equity Incentive Plan (the “2023 Plan”) in the aggregate amount of shares (the “Shares”) to its
non-officer employees. The fair value of the Shares was US$
On
May 29, 2023, Life Science HK entered into a stock purchase agreement with Dream Partner, Wintus and the Wintus
Sellers, pursuant to which Life Science HK shall acquire
| 40 |
On
December 22, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain
non-US investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to
shares (the “Shares”) of its common stock at a per share purchase price of $ for gross proceeds of up to $
On
February 2, 2024, the Company’s stockholders approved the effectiveness of a
NOTE 17 - CONCENTRATIONS AND RISKS
The
Company maintains principally all bank accounts in the PRC. The cash balance held in the PRC bank accounts from the continuing operations
was US$
During
the six and three months ended December 31, 2023 and 2022, almost
For
the six months ended December 31, 2023, three customers accounted for approximately
For
the six and three months ended December 31, 2022, no sales were generated from the continuing operations. For the six months ended December
31, 2022, five customers accounted for approximately
For the six months ended December 31, 2023, one vendor accounted for approximately % of the Company’s total purchases from the continuing operations, respectively. For the three months ended December 31, 2023, one vendor accounted for approximately % of the Company’s total purchases from the continuing operations, respectively.
For the six and three months ended December 31, 2022, no purchases were made from the continuing operations. For the six months ended December 31, 2022, two vendors accounted for approximately % of the Company’s total purchases from the discontinued operations. For the three months ended December 31, 2022, one vendor accounted for approximately % of the Company’s total purchases from the discontinued operations.
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NOTE 18 - COMMITMENTS AND CONTINGENCIES
Legal Contingencies
On
May 16, 2017, Ms. Guiqin Li (the “Plaintiff”) commenced a lawsuit against the Company in the People’s Court of Chongqing
Pilot Free Trade Zone of China. Plaintiff alleged that due to the misguidance given by the Company’s security trading department,
the Plaintiff did not manage to complete the sales of the Company’s common stock on the day of the Company’s initial public
offering in the United States. As the price of the Company’s common stock continued falling after the initial public offering,
the Plaintiff incurred losses and hence seek money damages against the Company. Based on the judgment of the first trial, the Company
was required to pay the Plaintiff a settlement payment, including the money compensation, interests and other legal fees. In January
2023, the Company entered into a Settlement Agreement and Release with the Plaintiff, pursuant to which
the Company paid the Plaintiff a total sum of approximately US$
On
November 26, 2021, the Company filed a complaint in the Supreme Court of the State of New York, New York County against Lei Zhang and
Yan Li, as defendants, and Transhare Corporation (“Transhare”), as a nominal defendant, asserting that defendants had not
paid for certain restricted shares of the Company’s common stock pursuant to stock purchase agreements they executed with the Company.
In December, defendants filed an answer and counterclaim against the Company, which they amended on January 27, 2022 after the Company
moved to dismiss their counterclaims. They brought claims for, among others, breach of contract, breach of the covenant of good faith
and fair dealing, and fraud, asserting that the Company made false and materially misleading statements, specifically regarding the sale
of such shares to Lei Zhang and Yan Li and the removal of their restrictive legends. Defendants are seeking money damages of at least
$
Nominal defendant Transhare Corporation moved to dismiss the defendants’ counterclaim against it for wrongful refusal to remove restrictions pursuant to 6 Del. C. § 8-401, and its motion was fully submitted in April 2022. On September 9, 2022, the Court granted Transhare Corporation’s motion to dismiss defendants’ counterclaim for wrongful refusal to remove restrictions. Defendants have appealed the Court’s September 9, 2022 order dismissing defendants’ counterclaim for wrongful refusal to remove restrictions. On October 3, 2022, the parties submitted a stipulation dismissing defendants’ outstanding counterclaim against Transhare Corporation seeking declaratory judgment.
On December 15, 2023, the Company entered into a Settlement Agreement with the defendants and Transhare, pursuant to which the three parties released and forever discharge one another all past and future claims. On December 22, 2023, the Company, together with the defendants and Transhare, filed and signed a stipulation discontinuing action (“Stipulation”) with the Supreme Court of the State of New York. Under the Stipulation, the Supreme Court of the State of New York discontinued the lawsuit filed by the Company together with all cross-claims and counterclaims with prejudice and without costs to any of the parties. The subscription receivable amounted to US$was waived by the Company during the six months ended December 31, 2023, and the Company will not retrieve the shares that were issued to the defendants.
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NOTE 19 - SEGMENT REPORTING
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Group’s internal organizational management structure as well as information about geographical areas, business segments, and major customers in for details on the Group’s business segments.
The Company’s chief operating decision maker has been identified as the Chief Executive Officer who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the Group. Based on management’s assessment, the Company has determined that it has following operating segments according to its major products and locations as follows:
| ● | Developing, manufacturing, and distributing of specialized fabrics, textile products, and other by-products derived from an indigenous Chinese plant called Apocynum Venetum, commonly known as “Bluish Dogbane” or known in Chinese as “Luobuma” (referred to herein as Luobuma), which are reclassified as discontinued operations: |
| The operating companies of this segment, namely Tenet-Jove and Tenet Huatai, specialize in Luobuma growing, development and manufacturing of relevant products, as well as purchasing Luobuma raw materials processing. | |
| This segment’s operations are focused in the north region of Mainland China, mostly carried out in Beijing, Tianjin, and Xinjiang. | |
| ● | Planting, processing, and distributing of green and organic agricultural produce as well as growing and cultivating of Chinese Yew trees (“Other agricultural products”), which are reclassified as discontinued operations: |
| The operating company of this segment, Qingdao Zhihesheng, is engaged in the business of growing and distributing green and organic vegetables and fruits. This segment has been focusing its efforts on the growing and cultivating of Chinese yew trees (formally known as “taxus media”), a small evergreen tree whose branches can be used for the production of medications believed to be anti-cancer and the tree itself can be used as an ornamental indoor bonsai tree, which are known to have the effect of purifying air quality. The operations of Zhihesheng are located in the East and North regions of Mainland China, mostly carried out in Shandong Province and in Beijing, where Zhihesheng have newly developed over 100 acres of modern greenhouses for cultivating yew trees and other plants. | |
| The other operating company of this segment, Guangyuan, is engaged in the business of landscaping, afforestation, road greening, scenic greening, garden engineering, landscaping construction, and green afforestation, especially in planting fast-growing bamboo willows and scenic greening trees. The operations of Guangyuan are located in the North regions of Mainland China, mostly carried out in Shanxi Province, where Guangyuan has developed over 350 acres of farmland for cultivating bamboo willows and other plants. | |
| ● | Providing domestic air and overland freight forwarding services (“Freight services”), which are reclassified as discontinued operations: |
| The operating company of this segment, Zhisheng Freight, is engaged in the business of providing domestic air and overland freight forwarding services by outsourcing these services to a third party. The Company merely serves as an agent and its obligation is to facilitate third-party logistic companies in fulfilling its performance obligation for specified freight services. | |
| ● | Developing, producing and distributing innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid Diagnostic and Other Products”): |
| The operating company of this segment, Biowin, specializes in the development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases. The operations of this segment are located in Jiangsu Province. Its products are sold not only in China but also overseas in countries such as Germany, Spain, Italy, Thailand, Japan and others. |
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| ● | Producing, processing and distribution of agricultural products, such as silk and silk fabrics, as well as trading of fresh fruits (“Other agricultural products”): |
| The operating company of this segment, Wintus, specializes in producing, processing and distributing agricultural products, such as silk and silk fabrics, as well as fresh fruit. The operations of this segment are located in Chongqing, China. Wintus has established approximately 150,000 acres of mulberry orchards in Fuling District and Wulong District of Chongqing. Wintus operates a silk factory in Liangping District, Chongqing, for processing silk products, which are then distributed worldwide through dealers. Its products are sold not only in China but also overseas countries such as the United States, Europe (Germany, France, Italy, Poland), Japan, South Korea, and Southeast Asia (India, Thailand, Indonesia, Bangladesh, and Cambodia), among other countries and regions. In addition to silk products, Wintu also engages in the fruit trading business. It imports fruits from Southeast Asia and other regions, distributing them through dealers to supermarkets and stores nationwide in China. |
| ● | Developing and selling healthy meals for people with slow metabolic health and those in recovery from metabolic disorders. (“Healthy meals products”): |
| The operating company of this segment, Fuzhou Meida, operates a health-oriented chain restaurant that focuses on the concept of “improving metabolism through diet.” Fuzhou Meida specializes in developing healthy meals for people with slow metabolic health and those in recovery from metabolic disorders. Fuzhou Meida recently opened its restaurant in Fuzhou city, Fujian Province. The restaurant features an open kitchen and adopts a modern Chinese style, offering a variety of modern Chinese healthy light meals and metabolism-boosting meal sets. The Company plans to gradually establish additional branches in key cities across China, including Beijing, Shanghai, Guangzhou, and other southeastern coastal regions. |
The following table presents summarized information by segment for the six months ended December 31, 2023:
| For the six months ended December 31, 2023 | ||||||||||||||||||||||||||||
| Continuing Operations | Discontinued Operations | |||||||||||||||||||||||||||
| Rapid diagnostic and other | Other agricultural | Healthy meals | Luobuma | Other agricultural | Freight | |||||||||||||||||||||||
| products | products | products | products | products | services | Total | ||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of revenue and related business and sales tax | ||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||||||||||||||
| Gross profit (loss) % | % | % | ( | )% | % | % | ||||||||||||||||||||||
The following table presents summarized information by segment for the six months ended December 31, 2022:
| For the six months ended December 31, 2022 | ||||||||||||||||||||||||||||
| Continuing Operations | Discontinued Operations | |||||||||||||||||||||||||||
| Rapid diagnostic and other | Other agricultural | Healthy meals | Luobuma | Other agricultural | Freight | |||||||||||||||||||||||
| products | products | products | products | products | services | Total | ||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of revenue and related business and sales tax | ||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Gross profit (loss) % | % | ( | )% | % | ( | )% | ||||||||||||||||||||||
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The following table presents summarized information by segment for the three months ended December 31, 2023:
| For the three months ended December 31, 2023 | ||||||||||||||||||||||||||||
| Continuing Operations | Discontinued Operations | |||||||||||||||||||||||||||
| Rapid diagnostic and other | Other agricultural | Healthy meals | Luobuma | Other agricultural | Freight | |||||||||||||||||||||||
| products | products | products | products | products | services | Total | ||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of revenue and related business and sales tax | ||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||||||||||||||
| Gross profit (loss) % | % | % | ( | )% | % | |||||||||||||||||||||||
The following table presents summarized information by segment for the three months ended December 31, 2022:
| For the three months ended December 31, 2022 | ||||||||||||||||||||||||||||
| Continuing Operations | Discontinued Operations | |||||||||||||||||||||||||||
| Rapid diagnostic and other | Other agricultural | Healthy meals | Luobuma | Other agricultural | Freight | |||||||||||||||||||||||
| products | products | products | products | products | services | Total | ||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of revenue and related business and sales tax | ||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Gross profit (loss) % | % | ( | )% | % | ( | )% | ||||||||||||||||||||||
Total assets as of December 31, 2023 and June 30, 2023 were as follows:
| December 31, 2023 | June 30, 2023 | |||||||
| Luobuma products | $ | $ | ||||||
| Other agricultural products | ||||||||
| Freight services | ||||||||
| Rapid diagnostic and other products | ||||||||
| Healthy meals products | ||||||||
| Total assets | ||||||||
| Less: total assets held for discontinued operations | ( | ) | ||||||
| Total assets, held for continuing operations | $ | $ | ||||||
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NOTE 20 - DISCONTINUED OPERATIONS
On
May 29, 2023, Life Science HK entered into a stock purchase agreement with Dream Partner, Wintus and certain shareholders of Dream Partner (the “Sellers”), pursuant to which Life Science HK shall acquire
In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes benefit, shall be reported as a component of net loss separate from the net loss of continuing operations in accordance with ASC 205-20-45. The assets and liabilities of the Tenet-Jove Disposal Group have been reclassified as “assets of discontinued operations” and “liabilities of discontinued operations” within current and non-current assets and liabilities, respectively, on the unaudited condensed consolidated balance sheet as of December 31, 2023 and the consolidated balance sheet as of June 30, 2023. The results of operations of Tenet-Jove Disposal Group have been reclassified to “net income (loss) from discontinued operations” in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) for the six and three months ended December 31, 2023 and 2022.
The carrying amount of the major classes of assets and liabilities of discontinued operations as of December 31, 2023 and June 30, 2023 consist of the following:
| December 31, 2023 | June 30, 2023 | |||||||
| Assets of discontinued operation: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivables, net | ||||||||
| Due from related parties | ||||||||
| Inventories, net | ||||||||
| Other current assets, net | ||||||||
| Total current assets of discontinued operation | ||||||||
| Property and equipment, net | ||||||||
| Long-term deposit and other noncurrent assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets of discontinued operation | $ | $ | ||||||
| Liabilities of discontinued operation: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to related parties | ||||||||
| Other payables and accrued expenses | ||||||||
| Operating lease liabilities - current | ||||||||
| Taxes payable | ||||||||
| Total current liabilities of discontinued operation | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total liabilities of discontinued operation | $ | $ | ||||||
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The summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements of operations consist of the following:
| For the Six Months Ended December 31, | For the Three Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| Cost of products | ||||||||||||||||
| Stock written off due to natural disaster | ||||||||||||||||
| Business and sales related tax | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | ( | ) | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER EXPENSE | ||||||||||||||||
| Other expense, net | ||||||||||||||||
| Interest income (expense), net | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| LOSS BEFORE BENEFIT FOR INCOME TAXES FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| BENEFIT FOR INCOME TAXES FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| LOSS FROM DISCONTINUED OPERATIONS, NET OFF TAX | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME ON DISPOSAL OF DISCONTINUED OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO SHINECO, INC. | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
NOTE 21 - SUBSEQUENT EVENTS
On
February 2, 2024, the Company’s stockholders approved the effectiveness of a
These unaudited condensed consolidated financial statements were approved by management and available for issuance on February 8, 2024, and the Company has evaluated subsequent events through this date. No subsequent events required adjustments to or disclosure in these unaudited condensed consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements include:
| ● | the timing of the development of future products; | |
| ● | projections of revenue, earnings, capital structure, and other financial items; | |
| ● | local, regional, national, and global price fluctuations of raw materials; | |
| ● | statements of our plans and objectives, including those that relate to our proposed expansions and the effect such expansions may have on our revenue; | |
| ● | statements regarding the capabilities of our business operations; | |
| ● | statements of expected future economic performance; | |
| ● | the impact of the COVID-19 pandemic; | |
| ● | statements regarding competition in our market; and | |
| ● | assumptions underlying statements regarding us or our business. |
The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Nonetheless, we reserve the right to make such updates from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report. No such update shall be deemed to indicate that other statements not addressed by such update is incorrect or create an obligation to provide any other updates.
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The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.
General Overview
Shineco, Inc. is a holding company incorporated in Delaware. Prior to the following acquisition and the termination of the VIE structure, as a holding company with no material operations of our own, we conducted a substantial majority of our operations through the operating entities established in the People’s Republic of China, or the PRC, primarily the variable interest entities (the “VIEs”). We did not have any equity ownership of the VIEs, instead we received the economic benefits of the VIEs’ business operations through certain contractual arrangements. Our common stock that currently listed on the Nasdaq Capital Markets are shares of our Delaware holding company. The Chinese regulatory authorities could disallow our structure, which could result in a material change in our operations and the value of our securities could decline or become worthless.
On December 30, 2022, Life Science closed the acquisition of 51% of the issued equity interests of Changzhou Biowin Pharmaceutical Co., Ltd. (“Biowin”), a company established under the laws of China, pursuant to the previously announced stock purchase agreement, dated as of October 21, 2022, among Beijing Kanghuayuan Medicine Information Consulting Co., Ltd., a company established under the laws of China (“Seller”), Biowin, the Company and Life Science. As the consideration for the acquisition, the Company paid to Seller US$9 million in cash and the Company issued 326,000 shares of the Company’s common stock, par value US$0.001 per share to the equity holders of Biowin or any persons designated by Biowin. According to the Supplementary Agreement, dated as of December 30, 2022, by and among Life Science, the Seller and Biowin, the Seller owned 51% of the issued equity interests of Biowin before January 1, 2023, and transferred the 51% of the issued equity interests of Biowin together with its controlling rights of production and operation of Biowin to Life Science from January 1, 2023.
On May 29, 2023, Life Science HK entered into a stock purchase agreement with Dream Partner Limited, a BVI corporation (“Dream Partner”), Chongqing Wintus Group, a corporation incorporated under the laws of mainland China (“Wintus”) and certain shareholders of Dream Partner (the “Sellers”), pursuant to which Life Science HK shall acquire 71.42% equity interest in Wintus (the “Acquisition”). On September 19, 2023, the Company closed the Acquisition. As the consideration for the Acquisition, the Company (a) paid the Sellers an aggregate cash consideration of $2,000,000; (b) issued certain shareholders, as listed in the agreement, an aggregate of 1,000,000 shares of the Company’s restricted Common Stock; and (c) transferred and sold to the Sellers 100% of the Company’s equity interest in Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”). Following the closing of the Acquisition and the sale of the Tenet-Jove Shares, the Company divested its equity interest in its operating subsidiary Tenet-Jove (“Tenet-Jove Disposal Group”) and thereby terminated its VIE Structure.
We used our subsidiaries’ vertically and horizontally integrated production, distribution, and sales channels to provide health and well-being focused plant-based products. Through our newly acquired subsidiary, Biowin, which specializes in the development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases, we also stepped into the Point-of-Care Testing industry. Also, following the acquisition of Wintus, we entered into a new business segment of producing, processing and distributing agricultural products, such as silk, silk fabrics and fresh fruit. Meanwhile, our newly established subsidiary, Fuzhou Meida, recently opened its restaurant, which is a health-oriented chain restaurant that focuses on the concept of “improving metabolism through diet.” As of December 31, 2023, the Company, through its subsidiaries, operates the following main business segments:
Developing, producing and distributing innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid Diagnostic and Other Products”) - This segment is conducted through Biowin, which specializes in the development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases. The operations of this segment are located in Jiangsu Province. Its products are sold not only in China, but also overseas countries such as Germany, Spain, Italy, Thailand, Japan and other countries.
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Producing, processing and distribution of agricultural products, such as silk and silk fabrics as well as fresh fruit s (“Other agricultural products”): – This segment is conducted through Wintus, which specializes in producing, processing and distribution of agricultural products, such as silk and silk fabrics as well as trading of fresh fruit. The operations of this segment are located in Chongqing, China. Its products are sold not only in China, but also overseas countries such as United States, Europe (Germany, France, Italy, Poland), Japan, South Korea, and Southeast Asia (India, Thailand, Indonesia, Bangladesh, Cambodia), among other countries and regions. In addition to silk products, Wintus also engages in fruit trading business. It imports fruits from Southeast Asia and other regions, distributing them through dealers to supermarkets and stores nationwide in China.
Developing and selling healthy meals for people with slow metabolic health and those in recovery from metabolic disorders. (“Healthy meals products”): – This segment is conducted through Fuzhou Meida, which specializes in developing healthy meals for people with slow metabolic health and those in recovery from metabolic disorders. Fuzhou Meida recently opened its restaurant in Fuzhou city, Fujian Province. The restaurant features an open kitchen and adopts a modern Chinese style, offering a variety of modern Chinese healthy light meals and metabolism-boosting meal sets. The Company plans to gradually establish additional branches in key cities across China, including Beijing, Shanghai, Guangzhou, and other southeastern coastal regions.
For the other three business segments conducted by Tenet-Jove Disposal Group, first, developing, manufacturing, and distributing specialized fabrics, textiles, and other by-products derived from an indigenous Chinese plant Apocynum Venetum, known in Chinese as “Luobuma” or “Bluish Dogbane,” as well as Luoboma raw materials processing; this segment is conducted through our wholly owned subsidiary, Tenet-Jove. Second, planting, processing and distributing green and organic agricultural produce, growing and cultivation of yew trees, as well as planting fast-growing bamboo willows and scenic greening trees; this segment is conducted through Qingdao Zhihesheng and Guangyuan. Third, providing domestic air and overland freight forwarding services by outsourcing these services to a third party; this segment is conducted through Zhisheng Freight. These three business segments were reclassified them as discontinued operations. The assets and liabilities of the Tenet-Jove Disposal Group have been reclassified as “assets of discontinued operations” and “liabilities of discontinued operations” within current and non-current assets and liabilities, respectively, on the unaudited condensed consolidated balance sheets as of December 31, 2023 and June 30, 2023. The results of operations of Tenet-Jove Disposal Group have been reclassified to “net income (loss) from discontinued operations” in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) for the six and three months ended December 31, 2023 and 2022.
Financing Activities
On June 16, 2021, the Company entered into a securities purchase agreement pursuant to which the Company issued an unsecured convertible promissory note with a one-year maturity term to an institutional accredited investor, Streeterville Capital, LLC (“Investor”). The note had an original principal amount of US$3,170,000 and Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. Interest accrues on the outstanding balance of the note at 6% per annum. The Company has received the principal in full from the Investor and used the proceeds for general working capital purposes. On September 7, 2022, the Company signed an extension amendment with the Investor to extend the maturity date to June 15, 2023. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant to which the Investor would not seek to redeem any portion of the Note during the period from October 21, 2022 to January 20, 2023. On or around January 20, 2023, the Investor re-started the redemption of the Notes. On January 18, 2023, the Investor re-started the redemption of the Notes. On June 15, 2023, the Company signed an extension amendment with the Investor to extend the maturity date to June 17, 2024. On December 21, 2023, the Company entered into a preliminary agreement with the Investor, pursuant to which the Investor would not seek repayment of any portion of the note during the period from December 31, 2023 to April 16, 2024. As of December 31, 2023, no share of the Company’s common stock under this agreement was issued by the Company to the Investor, and the Notes balance was US$3,989,380, with a carrying value of US$4,100,632, net of deferred financing costs of US$111,252 was recorded in the accompanying unaudited condensed consolidated balance sheets.
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On July 16, 2021, the Company entered into another securities purchase agreement with the Investor, pursuant to which the Company issued the Investor two unsecured convertible promissory notes each with a one-year maturity term. The first convertible promissory note had an original principal amount of US$3,170,000 and the Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. The second convertible promissory note has the original principal amount of US$4,200,000 and Investor gave consideration of US$4.0 million, reflecting original issue discount of US$200,000. Interest accrues on the outstanding balance of the Notes at 6% per annum. The Company has received the principal in full from the Investor and used the proceeds for general working capital purposes. As of December 31, 2023, the Notes was fully converted and shares of the Company’s common stock totaling 194,677 were issued by the Company to the Investor equaling principal and interests amounted to US$7,472,638.
On August 19, 2021, the Company entered into another securities purchase agreement with the Investor, pursuant to which the Company issued the Investor an unsecured convertible promissory note with a one-year maturity term. The note has an original principal amount of US$10,520,000 and Investor gave consideration of US$10.0 million, reflecting original issue discount of US$500,000 and Investor’s legal fee of US$20,000. Interest accrues on the outstanding balance of the note at 6% per annum. The Company has received the principal in full from the Investor and used the proceeds for general working capital purposes. On September 7, 2022, the Company signed an extension amendment with the Investor to extend the maturity date to August 18, 2023. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant to which the Investor will not seek to redeem any portion of the Note during the period from October 21, 2022 to January 20, 2023. On June 15, 2023, the Company signed an extension amendment with the Investor to extend the maturity date to August 23, 2024. On December 21, 2023, the Company entered into a preliminary agreement with the Investor, pursuant to which the Investor would not seek repayment of any portion of the note during the period from December 31, 2023 to April 16, 2024. As of December 31, 2023, shares of the Company’s common stock totaling 1,305,719 were issued by the Company to the Investor equaling principal and interests amounted to US$2,515,720, and the Notes balance was US$10,364,211, with a carrying value of US$10,751,195, net of deferred financing costs of US$386,984 was recorded in the accompanying unaudited condensed consolidated balance sheets.
On August 11, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to 192,168 shares (the “Shares”) of its common stock at a per share purchase price of $9.15 (subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to US$1,758,340. As of December 31, 2023, the proceeds were fully collected, and all of the Shares were issued.
On January 12, 2023, the Board of the Company approved the sales of 72,222 shares of the Company’s common stock to the Company’s employees for gross proceeds of up to US$650,000. As of December 31, 2023, the subscription receivable was amounted to US$178,332 which was recorded on the consolidated balance sheet, and the proceeds is expected to be fully collected by March 31, 2024.
On June 19, 2023, the Company entered into a certain securities purchase agreement (the “SPA”) with a non-U.S. investor (the “Buyer”), pursuant to which the Company agreed to sell, and the Buyer agreed to purchase an aggregate of up to 113,717 shares of common stock of the Company (the “Shares”) at a price of $10.5 per share. The transaction contemplated by the SPA was approved by the Company’s board of directors at a board meeting on March 14, 2023. The Company has received gross proceeds of $1.2 million from the Purchasers and all of the Shares were issued on June 22, 2023.
On June 21, 2023, the Company entered into a certain stock purchase agreement with certain non-U.S. investors (the “Investors”), pursuant to which the Company agreed to sell, and the Investors agreed to purchase, severally and not jointly, an aggregate of up to 400,000 shares of common stock of the Company (the “Shares”) at a price of $5 per share. The transaction contemplated by the agreement was approved by the Company’s board of directors at a board meeting on June 8, 2023. The Company has received gross proceeds of $2.0 million from the Investors and all of the Shares were issued on June 22, 2023.
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On December 22, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to 1,200,000 shares (the “Shares”) of its common stock at a per share purchase price of $1.2 for gross proceeds of up to $1,440,000. The Company has received gross proceeds in full from the Investors, and all of the Shares were issued on December 28, 2023.
Factors Affecting Financial Performance
We believe that the following factors will affect our financial performance:
Increasing demand for our products – We believe that the increasing demand for our products will have a positive impact on our financial position. We plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses, all aimed at increasing awareness of our brand, developing customer loyalty, meeting customer demands in various markets and providing solid foundations for our growth. As of the date of this Quarterly Report, however, we do not have any agreements, undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will.
Maintaining effective control of our costs and expenses - Successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices. We will focus on improving our long-term cost control strategies including establishing long-term alliances with certain suppliers to ensure adequate supply is maintained. We will carry forward the economies of scale and advantages from our nationwide distribution network and diversified offerings.
Economic and Political Risks
Our operations are conducted primarily in the PRC and subject to special considerations and significant risks not typically associated with companies operating in North America and/or Western Europe. These include risks with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions, remittances abroad, and rates and methods of taxation, among other things.
COVID-19 Impact
The COVID-19 pandemic has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. In accordance with the epidemic control measures imposed by the local governments related to COVID-19, our offices and retail stores was closed or had limited business operations occasionally. In addition, COVID-19 had caused severe disruptions in transportation, limited access to our facilities and limited support from workforce employed in our operations, and as a result, we experienced delays or the inability to delivery our products to customers on a timely basis. Further, some of our customers or suppliers experienced financial distress, delayed or defaults on payment, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. Any decreased collectability of accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations. Wider-spread COVID-19 in China and globally could prolong the deterioration in economic conditions and could cause decreases in or delays in spending and reduce and/or negatively impact our short-term ability to grow our revenue. In early December 2022, China announced a nationwide loosening of its zero-COVID policy, and the country faced a wave in infections after the lifting of these restrictions. Although the spread of the COVID-19 was slowed down and appears to be successfully under control currently, the extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the date our unaudited condensed consolidated financial statements are released.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our unaudited condensed consolidated financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Report.
Consolidation of Variable Interest Entities
VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
There are no consolidated assets of the VIEs and the VIEs’ subsidiaries that are collateral for the obligations of the VIEs and the VIEs’ subsidiaries and can only be used to settle the obligations of the VIEs and the VIEs’ subsidiaries.
As the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors or beneficial interest holders of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of the VIEs in normal course of business.
There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs and the VIEs’ subsidiaries. However, if the VIEs and the VIEs’ subsidiaries ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIEs and the VIEs’ subsidiaries through loans to the shareholder of the VIEs and the VIEs’ subsidiaries or entrustment loans to the VIEs and the VIEs’ subsidiaries.
Use of Estimates
Significant estimates required to be made by management include, but are not limited to, useful lives of property and equipment, and intangible assets, the recoverability of long-lived assets, assessment of expected credit losses for accounts receivable and other current asset, the valuation allowance of deferred taxes and inventory reserves. Actual results could differ from those estimates.
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Credit Losses
On July 1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The adoption of the credit loss accounting standard has no material impact on the Company’s unaudited condensed consolidated financial statements as of July 1, 2023.
The Company’s account receivables and other receivables included in other current assets on the unaudited condensed consolidated balance sheets are within the scope of ASC Topic 326. The Company makes estimates of expected credit and collectability trends for the allowance for credit losses based upon assessment of various factors, including historical experience, the age of the accounts receivable and other receivables balances, credit-worthiness of the customers and other debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and other debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
ASC Topic 326 is also applicable to loans to third parties that included in the other current assets on the unaudited condensed consolidated balance sheets. Management estimates the allowance for credit losses on loans not sharing similar risk characteristics on an individual basis. The key factors considered when determining the above allowances for credit losses include estimated loan collection schedule, discount rate, and assets and financial performance of the borrowers.
Expected credit losses are recorded as general and administrative expenses on the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss). After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses.
Inventories, Net
Inventories, which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods related to the Company’s products. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost is determined using the first in first out (“FIFO”) method. The Company periodically evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value. As of December 31, 2023 and June 30, 2023, the inventory reserve from the continuing operations was US$31,249 and US$56,655, respectively. As of December 31, 2023 and June 30, 2023, the inventory reserve from the discontinued operations was US$ nil and US$1,106,649, respectively.
Revenue Recognition
We generate our revenue primarily through sales of Luobuma products, other agricultural products, healthy meals and rapid diagnostic and other products, as well as providing logistic services and other processing services to external customers in accordance with ASC 606. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
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With the adoption of ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The Company has assessed the impact of the guidance by reviewing its existing customer contracts to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control, and principal versus agent considerations. In accordance with ASC 606, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is a principal, that the Company obtains control of the specified goods or services before they are transferred to the customers, the revenue should be recognized in the gross amount of consideration to which it expects to be entitled in exchange for the specified goods or services transferred. When the Company is an agent and its obligation is to facilitate third parties in fulfilling their performance obligation for specified goods or services, the revenue should be recognized in the net amount for the amount of commission which the Company earns in exchange for arranging for the specified goods or services to be provided by other parties. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of Topic 606 and therefore there was no material changes to the Company’s financial statements upon adoption of ASC 606.
More specifically, revenue related to our products and services is generally recognized as follows:
Sales of products: We recognized revenue from the sale of products at the point in time when the goods were delivered and title to the goods passed to the customer, provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.
Revenue from provision of services: The Company merely acts as an agent in these types of services transactions. Revenue from domestic air and overland freight forwarding services was recognized at the point in time upon the performance of services as stipulated in the underlying contract or when commodities were being released from the customer’s warehouse; the service price was fixed or determinable; and collectability was deemed probable.
Fair Value of Financial Instruments
We follow the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.
The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.
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Results of Operations for the Six Months Ended December 31, 2023 and 2022
Overview
The following table summarizes our results of operations for the six months ended December 31, 2023 and 2022:
Six Months Ended December 31, | Variance | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| Revenue | $ | 3,952,759 | $ | - | $ | 3,952,759 | 100.00 | % | ||||||||
| Cost of revenue | 3,541,486 | - | 3,541,486 | 100.00 | % | |||||||||||
| Gross profit | 411,273 | - | 411,273 | 100.00 | % | |||||||||||
| General and administrative expenses | 8,851,375 | 3,294,780 | 5,556,595 | 168.65 | % | |||||||||||
| Selling expenses | 132,195 | - | 132,195 | 100.00 | % | |||||||||||
| Research and development expenses | 45,916 | - | 45,916 | 100.00 | % | |||||||||||
| Loss from operations | (8,618,213 | ) | (3,294,780 | ) | (5,323,433 | ) | 161.57 | % | ||||||||
| Loss from equity method investments | - | (6,221 | ) | 6,221 | (100.00 | )% | ||||||||||
| Investment income from derivative financial assets | 3,534 | - | 3,534 | 100.00 | % | |||||||||||
| Other income, net | 274,883 | - | 274,883 | 100.00 | % | |||||||||||
| Amortization of debt issuance and other costs | (366,057 | ) | (355,972 | ) | (10,085 | ) | 2.83 | % | ||||||||
| Interest expenses, net | (821,301 | ) | (290,846 | ) | (530,455 | ) | 182.38 | % | ||||||||
| Loss before income tax benefit from continuing operations | (9,527,154 | ) | (3,947,819 | ) | (5,579,335 | ) | 141.33 | % | ||||||||
| Benefit for income taxes | (957,928 | ) | - | (957,928 | ) | 100.00 | % | |||||||||
| Net loss from continuing operations | (8,569,226 | ) | (3,947,819 | ) | (4,621,407 | ) | 117.06 | % | ||||||||
| Net income (loss) from discontinued operations | 8,855,247 | (1,267,012 | ) | 10,122,259 | (798.91 | )% | ||||||||||
| Net income (loss) | $ | 286,021 | $ | (5,214,831 | ) | $ | 5,500,852 | (105.48 | )% | |||||||
| Comprehensive income (loss) attributable to Shineco Inc. | $ | 1,167,709 | $ | (6,377,429 | ) | $ | 7,545,138 | (118.31 | )% | |||||||
Revenue
Currently, we, through our PRC subsidiaries, have three major business segments from continuing operations. First, developing, producing and distributing innovative rapid diagnostic and other products and related medical devices for the most common diseases; this segment is conducted through Biowin. Second, producing, processing and distributing silk products, and providing fruit trading business; this segment is conducted through Wintus. Third, developing and selling healthy meals for people with slow metabolic health and those in recovery from metabolic disorders; this segment is conducted through Fuzhou Meida.
The following table sets forth the breakdown of our revenue for the six months ended December 31, 2023 and 2022, respectively:
| Six Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Rapid diagnostic and other products | $ | 299,122 | 7.57 | % | $ | - | - | $ | 299,122 | 100.00 | % | |||||||||||||
| Other agricultural products | 3,642,533 | 92.15 | % | - | - | 3,642,533 | 100.00 | % | ||||||||||||||||
| Healthy meal products | 11,104 | 0.28 | % | - | - | 11,104 | 100.00 | % | ||||||||||||||||
| Total Amount | $ | 3,952,759 | 100.00 | % | $ | - | - | $ | 3,952,759 | 100.00 | % | |||||||||||||
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For the six months ended December 31, 2023 and 2022, revenue from sales of rapid diagnostic and other products was US$299,122 and US$ nil, respectively, representing an increase of US$299,122, or 100.00%. The increase was mainly due to revenue generated by our newly acquired subsidiary Biowin during the six months ended December 31, 2023.
For the six months ended December 31, 2023 and 2022, revenue from sales of other agricultural products was US$3,642,533 and US$ nil, respectively, representing an increase of US$3,642,533, or 100.00%. The increase was mainly due to revenue generated by our newly acquired subsidiary Wintus during the six months ended December 31, 2023.
For the six months ended December 31, 2023 and 2022, revenue from sales of healthy meal products was US$11,104 and US$ nil, respectively, representing an increase of US$11,104, or 100.00%. The increase was mainly due to revenue generated by our newly established subsidiary Fuzhou Meida during the six months ended December 31, 2023.
Cost of Revenue and Related Tax
The following table sets forth the breakdown of the cost of revenue for the six months ended December 31, 2023 and 2022:
| Six Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Rapid diagnostic and other products | $ | 114,145 | 3.22 | % | $ | - | - | $ | 114,145 | 100.00 | % | |||||||||||||
| Other agricultural products | 3,400,586 | 96.02 | % | - | - | 3,400,586 | 100.00 | % | ||||||||||||||||
| Healthy meal products | 19,446 | 0.55 | % | - | - | 19,446 | 100.00 | % | ||||||||||||||||
| Business and sales related tax | 7,309 | 0.21 | % | - | - | 7,309 | 100.00 | % | ||||||||||||||||
| Total Amount | $ | 3,541,486 | 100.00 | % | $ | - | - | $ | 3,541,486 | 100.00 | % | |||||||||||||
For the six months ended December 31, 2023 and 2022, cost of revenue from sales of rapid diagnostic and other products was US$114,145 and US$ nil, respectively, representing an increase of US$114,145, or 100.00%. The increase was mainly due to cost of revenue generated by our newly acquired subsidiary Biowin during the six months ended December 31, 2023.
For the six months ended December 31, 2023 and 2022, cost of revenue from sales of other agricultural products was US$3,400,586 and US$ nil, respectively, representing an increase of US$3,400,586, or 100.00%. The increase was mainly due to cost of revenue generated by our newly acquired subsidiary Wintus during the six months ended December 31, 2023.
For the six months ended December 31, 2023 and 2022, cost of revenue from sales of healthy meal products was US$19,446 and US$ nil, respectively, representing an increase of US$19,446, or 100.00%. The increase was mainly due to cost of revenue generated by our newly established subsidiary Fuzhou Meida during the six months ended December 31, 2023.
Gross Profit (Loss)
The following table sets forth the breakdown of the gross profit (loss) for the six months ended December 31, 2023 and 2022:
| Six Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Rapid diagnostic and other products | $ | 183,628 | 44.65 | % | $ | - | - | $ | 183,628 | 100.00 | % | |||||||||||||
| Other agricultural products | 235,987 | 57.38 | % | - | - | 235,987 | 100.00 | % | ||||||||||||||||
| Healthy meal products | (8,342 | ) | (2.03 | )% | - | - | (8,342 | ) | 100.00 | % | ||||||||||||||
| Total Amount | $ | 411,273 | 100.00 | % | $ | - | - | $ | 411,273 | 100.00 | % | |||||||||||||
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Gross profit from sales of rapid diagnostic and other products increased by US$183,628, or 100.00%, for the six months ended December 31, 2023 as compared to the same period in 2022. The increase was mainly due to gross profit contributed by our newly acquired subsidiary Biowin during the six months ended December 31, 2023.
Gross profit from sales of other agricultural products increased by US$235,987, or 100.00%, for the six months ended December 31, 2023 as compared to the same period in 2022. The increase was mainly due to gross profit contributed by our newly acquired subsidiary Wintus during the six months ended December 31, 2023.
Gross loss from sales of healthy meal products increased by US$8,342, or 100.00%, for the six months ended December 31, 2023 as compared to the same period in 2022. The increase was mainly due to gross loss contributed by our newly established subsidiary Fuzhou Meida during the six months ended December 31, 2023.
Expenses
The following table sets forth the breakdown of our operating expenses for the six months ended December 31, 2023 and 2022, respectively:
| Six Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| General and administrative expenses | $ | 8,851,375 | 98.03 | % | $ | 3,294,780 | 100.00 | % | $ | 5,556,595 | 168.65 | % | ||||||||||||
| Selling expenses | 132,195 | 1.46 | % | - | - | 132,195 | 100.00 | % | ||||||||||||||||
| Research and development expenses | 45,916 | 0.51 | % | - | - | 45,916 | 100.00 | % | ||||||||||||||||
| Total Amount | $ | 9,029,486 | 100.00 | % | $ | 3,294,780 | 100.00 | % | $ | 5,734,706 | 174.05 | % | ||||||||||||
General and Administrative Expenses
For the six months ended December 31, 2023, our general and administrative expenses were US$8,851,375, representing an increase of US$5,556,595, or 168.65%, as compared to the same period in 2022. The increase was mainly due to the increased expenses as a result of the forgiveness of the subscription receivable upon settlement of the Company’s legal case; see more details in “Capital Commitments and Contingencies.” The increase was also due to the increased professional service fee in relation to the acquisition of Wintus, as well as increased general and administrative expenses incurred by our newly acquired subsidiaries Biowin and Wintus, and other newly established subsidiaries during the six months ended December 31, 2023.
Selling Expenses
For the six months ended December 31, 2023, our selling expenses were US$132,195, representing an increase of US$132,195, or 100.00%, as compared to the same period in 2022. The increase was mainly due to selling expenses incurred by our newly acquired subsidiaries Biowin and Wintus during the six months ended December 31, 2023.
Research and Development Expenses
For the six months ended December 31, 2023, our research and development expenses were US$45,916, representing an increase of US$45,916, or 100.00%, as compared to the same period in 2022. The increase was mainly due to research and development expenses incurred by our newly acquired subsidiary Biowin during the six months ended December 31, 2023.
Other income, net
For the six months ended December 31, 2023, our net other income was US$274,883, representing an increase of US$274,883, or 100.00%, as compared to the same period in 2022. The increase in net other income was mainly attributable to the increased government subsidies received by our newly acquired subsidiaries Wintus during the six months ended December 31, 2023.
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Interest Expenses, Net
For the six months ended December 31, 2023, our net interest expenses were US$821,301, representing an increase of US$530,455, or 182.38%, as compared to net interest expenses of US$290,846 in the same period in 2022. The increase in net interest expenses was mainly attributable to the increased interest expenses on short-term and long-term loans incurred by our newly acquired subsidiaries Biowin and Wintus. The increase was also due to the decreased interest income generated from loans to third parties.
Benefit for Income Taxes
For the six months ended December 31, 2023, our benefit for income taxes was US$957,928, representing an increase of US$957,928, or 100.00%, as compared to the same period in 2022. The benefit for income taxes was mainly due to the reversal of deferred tax liabilities as a result of the amortization of intangible assets, which are trademarks, patents and land use right that was revalued upon the acquisition of Biowin and Wintus.
Net Loss from Continuing Operations
Our net loss from continuing operations was US$8,569,226 for the six months ended December 31, 2023, an increase of US$4,621,407, or 117.06%, from net loss from continuing operations of US$3,947,819 for the six months ended December 31, 2022. The increase in net loss was primarily a result of the increase in general and administrative expenses, and interest expenses, which was partially offset by the increased income tax benefit.
Net Income (Loss) from Discontinued Operations
As mentioned above, due to the acquisition of Wintus mentioned above, the Company’s Luobuma, Agricultural Products and Freight Services business segments, that are operated by the Tenet-Jove Disposal Group, are reclassified as discontinued operations on the Company’s unaudited condensed consolidated financial statements. We had a total net income from discontinued operations of US$8,855,247 and a net loss from discontinued operations of US$1,267,012 for the six months ended December 31, 2023 and 2022, respectively.
The summarized operating results of our discontinued operations included in our unaudited condensed consolidated statement of income (loss) and comprehensive income (loss) is as follows:
| Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 4,439 | $ | 1,074,945 | ||||
| Cost of revenue | 4,183 | 1,285,690 | ||||||
| Gross profit (loss) | 256 | (210,745 | ) | |||||
| Operating expenses | 69,980 | 927,627 | ||||||
| Other income (expenses), net | 20,269 | (128,640 | ) | |||||
| Loss before income tax | (49,455 | ) | (1,267,012 | ) | ||||
| Provision for income tax benefit | - | - | ||||||
| Net loss from discontinued operations | $ | (49,455 | ) | $ | (1,267,012 | ) | ||
| Income on disposal of discontinued operations | 8,904,702 | - | ||||||
| Total net income (loss) from discontinued operations | $ | 8,855,247 | $ | (1,267,012 | ) | |||
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Net Income (Loss)
Our net income was US$286,021 for the six months ended December 31, 2023, an increase of US$5,500,852, or 105.48%, from a net loss of US$5,214,831 for the same period in 2022. The increase in net income was primarily a result of the increased net income from discontinued operations, partially offset by the increased net loss from continuing operations as mentioned above.
Comprehensive Income (Loss)
The comprehensive income was US$424,376 for the six months ended December 31, 2023, an increase of US$6,795,518 from a comprehensive loss of US$6,371,142 for the same period in 2022. After deduction of non-controlling interest, the comprehensive income attributable to us was US$1,167,709 for the six months ended December 31, 2023, compared to a comprehensive loss attributable to us in the amount of US$6,377,429 for the six months ended December 31, 2022. The increase of comprehensive income was due to the increased net income as mentioned above and the decrease in the recorded loss of foreign currency translation where the financial statements denominated in RMB were translated to the USD denomination.
Results of Operations for the Three Months Ended December 31, 2023 and 2022
Overview
The following table summarizes our results of operations for the three months ended December 31, 2023 and 2022:
Three Months Ended December 31, | Variance | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| Revenue | $ | 2,306,902 | $ | - | $ | 2,306,902 | 100.00 | % | ||||||||
| Cost of revenue | 1,994,584 | - | 1,994,584 | 100.00 | % | |||||||||||
| Gross profit | 312,318 | - | 312,318 | 100.00 | % | |||||||||||
| General and administrative expenses | 5,591,910 | 1,482,895 | 4,109,015 | 277.09 | % | |||||||||||
| Selling expenses | 84,362 | - | 84,362 | 100.00 | % | |||||||||||
| Research and development expenses | 22,218 | - | 22,218 | 100.00 | % | |||||||||||
| Loss from operations | (5,386,172 | ) | (1,482,895 | ) | (3,903,277 | ) | 263.22 | % | ||||||||
| Income from equity method investment | - | 83 | (83 | ) | 100.00 | % | ||||||||||
| Investment income from derivative financial assets | 766 | - | 766 | 100.00 | % | |||||||||||
| Other income, net | 274,065 | - | 274,065 | 100.00 | % | |||||||||||
| Amortization of debt issuance and other costs | (199,234 | ) | (201,569 | ) | 2,335 | (1.16 | )% | |||||||||
| Interest expenses, net | (452,090 | ) | (240,742 | ) | (211,348 | ) | 87.79 | % | ||||||||
| Loss before income tax benefit from continuing operations | (5,762,665 | ) | (1,925,123 | ) | (3,837,542 | ) | 199.34 | % | ||||||||
| Benefit for income taxes | (706,562 | ) | - | (706,562 | ) | 100.00 | % | |||||||||
| Net loss from continuing operations | (5,056,103 | ) | (1,925,123 | ) | (3,130,980 | ) | 162.64 | % | ||||||||
| Net loss from discontinued operations | - | (847,388 | ) | 847,388 | (100.00 | )% | ||||||||||
| Net loss | $ | (5,056,103 | ) | $ | (2,772,511 | ) | $ | (2,283,592 | ) | 82.37 | % | |||||
| Comprehensive loss attributable to Shineco Inc. | $ | (4,312,924 | ) | $ | (1,633,023 | ) | $ | (2,679,901 | ) | 164.11 | % | |||||
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Revenue
Currently, we, through our PRC subsidiaries, have three major business segments from continuing operations. First, developing, producing and distributing innovative rapid diagnostic and other products and related medical devices for the most common diseases; this segment is conducted through Biowin. Second, producing, processing and distributing silk products, and providing fruit trading business; this segment is conducted through Wintus. Third, developing and selling healthy meals for people with slow metabolic health and those in recovery from metabolic disorders; this segment is conducted through Fuzhou Meida.
The following table sets forth the breakdown of our revenue for the three months ended December 31, 2023 and 2022, respectively:
| Three Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Rapid diagnostic and other products | $ | 163,995 | 7.11 | % | $ | - | - | $ | 163,995 | 100.00 | % | |||||||||||||
| Other agricultural products | 2,131,803 | 92.41 | % | - | - | 2,131,803 | 100.00 | % | ||||||||||||||||
| Healthy meal products | 11,104 | 0.48 | % | - | - | 11,104 | 100.00 | % | ||||||||||||||||
| Total Amount | $ | 2,306,902 | 100.00 | % | $ | - | - | $ | 2,306,902 | 100.00 | % | |||||||||||||
For the three months ended December 31, 2023 and 2022, revenue from sales of rapid diagnostic and other products was US$163,995 and US$ nil, respectively, representing an increase of US$163,995, or 100.00%. The increase was mainly due to revenue generated by our newly acquired subsidiary Biowin during the three months ended December 31, 2023.
For the three months ended December 31, 2023 and 2022, revenue from sales of other agricultural products was US$2,131,803 and US$ nil, respectively, representing an increase of US$2,131,803, or 100.00%. The increase was mainly due to revenue generated by our newly acquired subsidiary Wintus during the three months ended December 31, 2023.
For the three months ended December 31, 2023 and 2022, revenue from sales of healthy meal products was US$11,104 and US$ nil, respectively, representing an increase of US$11,104, or 100.00%. The increase was mainly due to revenue generated by our newly established subsidiary Fuzhou Meida during the three months ended December 31, 2023.
Cost of Revenue and Related Tax
The following table sets forth the breakdown of the cost of revenue for the three months ended December 31, 2023 and 2022:
| Three Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Rapid diagnostic and other products | $ | 70,959 | 3.56 | % | $ | - | - | $ | 70,959 | 100.00 | % | |||||||||||||
| Other agricultural products | 1,897,847 | 95.15 | % | - | - | 1,897,847 | 100.00 | % | ||||||||||||||||
| Healthy meal products | 19,446 | 0.97 | % | - | - | 19,446 | 100.00 | % | ||||||||||||||||
| Business and sales related tax | 6,332 | 0.32 | % | - | - | 6,332 | 100.00 | % | ||||||||||||||||
| Total Amount | $ | 1,994,584 | 100.00 | % | $ | - | - | $ | 1,994,584 | 100.00 | % | |||||||||||||
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For the three months ended December 31, 2023 and 2022, cost of revenue from sales of rapid diagnostic and other products was US$70,959 and US$ nil, respectively, representing an increase of US$70,959, or 100.00%. The increase was mainly due to cost of revenue generated by our newly acquired subsidiary Biowin during the three months ended December 31, 2023.
For the three months ended December 31, 2023 and 2022, cost of revenue from sales of other agricultural products was US$1,897,847 and US$ nil, respectively, representing an increase of US$1,897,847, or 100.00%. The increase was mainly due to cost of revenue generated by our newly acquired subsidiary Wintus during the three months ended December 31, 2023.
For the three months ended December 31, 2023 and 2022, cost of revenue from sales of healthy meal products was US$19,446 and US$ nil, respectively, representing an increase of US$19,446, or 100.00%. The increase was mainly due to cost of revenue generated by our newly established subsidiary Fuzhou Meida during the three months ended December 31, 2023.
Gross Profit (Loss)
The following table sets forth the breakdown of the gross profit (loss) for the three months ended December 31, 2023 and 2022:
| Three Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Rapid diagnostic and other products | $ | 92,277 | 29.54 | % | $ | - | - | $ | 92,277 | 100.00 | % | |||||||||||||
| Other agricultural products | 228,383 | 73.13 | % | - | - | 228,383 | 100.00 | % | ||||||||||||||||
| Healthy meal products | (8,342 | ) | (2.67 | )% | - | - | (8,342 | ) | 100.00 | % | ||||||||||||||
| Total Amount | $ | 312,318 | 100.00 | % | $ | - | - | $ | 312,318 | 100.00 | % | |||||||||||||
Gross profit from sales of rapid diagnostic and other products increased by US$92,277, or 100.00%, for the three months ended December 31, 2023 as compared to the same period in 2022. The increase was mainly due to gross profit contributed by our newly acquired subsidiary Biowin during the three months ended December 31, 2023.
Gross profit from sales of agricultural products increased by US$228,383, or 100.00%, for the three months ended December 31, 2023 as compared to the same period in 2022. The increase was mainly due to gross profit contributed by our newly acquired subsidiary Wintus during the three months ended December 31, 2023.
Gross loss from sales of healthy meal products increased by US$8,342, or 100.00%, for the three months ended December 31, 2023 as compared to the same period in 2022. The increase was mainly due to gross loss contributed by our newly established subsidiary Fuzhou Meida during the three months ended December 31, 2023.
Expenses
The following table sets forth the breakdown of our operating expenses for the three months ended December 31, 2023 and 2022, respectively:
| Three Months Ended December 31, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| General and administrative expenses | $ | 5,591,910 | 98.13 | % | $ | 1,482,895 | 100.00 | % | $ | 4,109,015 | 277.09 | % | ||||||||||||
| Selling expenses | 84,362 | 1.48 | % | - | - | 84,362 | 100.00 | % | ||||||||||||||||
| Research and development expenses | 22,218 | 0.39 | % | - | - | 22,218 | 100.00 | % | ||||||||||||||||
| Total Amount | $ | 5,698,490 | 100.00 | % | $ | 1,482,895 | 100.00 | % | $ | 4,215,595 | 284.28 | % | ||||||||||||
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General and Administrative Expenses
For the three months ended December 31, 2023, our general and administrative expenses were US$5,591,910, representing an increase of US$4,109,015, or 277.09%, as compared to the same period in 2022. The increase was mainly due to the increased expenses as a result of the forgiveness of the subscription receivable upon settlement of the Company’s legal case; see more details in “Capital Commitments and Contingencies.” The increase was also due to the increased general and administrative expenses incurred by our newly acquired subsidiaries Biowin and Wintus, and other newly established subsidiaries during the three months ended December 31, 2023.
Selling Expenses
For the three months ended December 31, 2023, our selling expenses were US$84,362, representing an increase of US$84,362, or 100.00%, as compared to the same period in 2022. The increase was mainly due to selling expenses incurred by our newly acquired subsidiaries Biowin and Wintus during the three months ended December 31, 2023.
Research and Development Expenses
For the three months ended December 31, 2023, our research and development expenses were US$22,218, representing an increase of US$22,218, or 100.00%, as compared to the same period in 2022. The increase was mainly due to research and development expenses incurred by our newly acquired subsidiaries Biowin and Wintus during the three months ended December 31, 2023.
Other income, net
For the three months ended December 31, 2023, our net other income was US$274,065, representing an increase of US$274,065, or 100.00%, as compared to the same period in 2022. The increase in net other income was mainly attributable to the increased government subsidies received by our newly acquired subsidiaries Wintus.
Interest Expenses, Net
For the three months ended December 31, 2023, our net interest expenses were US$452,090, representing an increase of US$211,348, or 87.79%, as compared to net interest expenses of US$240,742 in the same period in 2022. The increase in net interest expenses was mainly attributable to the increased interest expenses on short-term and long-term loans incurred by our newly acquired subsidiaries Biowin and Wintus. The increase was also due to the decreased interest income generated from loans to third parties.
Benefit for Income Taxes
For the three months ended December 31, 2023, our benefit for income taxes was US$706,562, representing an increase of US$706,562, or 100.00%, as compared to the same period in 2022. The benefit for income taxes was mainly due to the reversal of deferred tax liabilities as a result of the amortization of intangible assets, which are trademarks, patents and land use right that was revalued upon the acquisition of Biowin and Wintus.
Net Loss from Continuing Operations
Our net loss from continuing operations was US$5,056,103 for the three months ended December 31, 2023, an increase of US$3,130,980, or 162.64%, from net loss from continuing operations of US$1,925,123 for the three months ended December 31, 2022. The increase in net loss was primarily a result of the increase in general and administrative expenses and interest expenses, which was partially offset by the increased income tax benefit.
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Net Loss from Discontinued Operations
As mentioned above, due to the acquisition of Wintus mentioned above, the Company’s Luobuma, Agricultural Products and Freight Services business segments, that are operated by the Tenet-Jove Disposal Group, are reclassified as discontinued operations on the Company’s unaudited condensed consolidated financial statements. We had a total net income from discontinued operations of US$ nil and a net loss from discontinued operations of US$847,388 for the three months ended December 31, 2023 and 2022, respectively.
The summarized operating results of our discontinued operations included in our unaudited condensed consolidated statement of income (loss) and comprehensive income (loss) is as follows:
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | - | $ | 539,247 | ||||
| Cost of revenue | - | 659,115 | ||||||
| Gross loss | - | (119,868 | ) | |||||
| Operating expenses | - | 839,968 | ||||||
| Other income, net | - | 112,448 | ||||||
| Loss before income tax | - | (847,388 | ) | |||||
| Provision for income tax benefit | - | - | ||||||
| Net loss from discontinued operations | $ | - | $ | (847,388 | ) | |||
| Income on disposal of discontinued operations | - | - | ||||||
| Total net loss from discontinued operations | $ | - | $ | (847,388 | ) | |||
Net Loss
Our net loss was US$5,056,103 for the three months ended December 31, 2023, an increase of US$2,283,592, or 82.37%, from a net loss of US$2,772,511 for the same period in 2022. The increase in net loss was primarily a result of increased net loss from continuing operations, partially offset by the decreased net loss from discontinued operations as mentioned above.
Comprehensive Loss
The comprehensive loss was US$5,015,713 for the three months ended December 31, 2023, an increase of US$3,368,229 from a comprehensive loss of US$1,647,484 for the same period in 2022. After deduction of non-controlling interest, the comprehensive loss attributable to us was US$4,312,924 for the three months ended December 31, 2023, compared to a comprehensive loss attributable to us in the amount of US$1,633,023 for the three months ended December 31, 2022. The increase of comprehensive loss was due to the increased net loss as mentioned above and the decrease in the recorded gain of foreign currency translation where the financial statements denominated in RMB were translated to the USD denomination.
Treasury Policies
We have established treasury policies with the objectives of achieving effective control of treasury operations and of lowering cost of funds. Therefore, funding for all operations and foreign exchange exposure have been centrally reviewed and monitored from the top level. To manage our exposure to fluctuations in exchange rates and interest rates on specific transactions and foreign currency borrowings, currency structured instruments and other appropriate financial instruments will be used to hedge material exposure, if any.
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Our policy precludes us from entering into any derivative contracts purely for speculative activities. Through our treasury policies, we aim to:
(a) Minimize interest risk
This is accomplished by loan re-financing and negotiation. We will continue to closely monitor the total loan portfolio and compare the loan margin spread under our existing agreements against the current borrowing interest rates under different currencies and new offers from banks.
(b) Minimize currency risk
In view of the current volatile currency market, we will closely monitor the foreign currency borrowings at the company level. As of December 31, 2023 and June 30, 2023, except the above-mentioned convertible note, we did not engage in any foreign currency borrowings or loan contracts.
Liquidity and Capital Resources
We currently finance our business operations primarily through advances from our related parties, short-term and long-term loans, convertible notes and the sale of our common stock. Our current cash primarily consists of cash on hand and cash in bank, which is unrestricted as to withdrawal and use and is deposited with banks in China.
As of December 31, 2023, we had approximately US$14.9 million in short-term loans and US$1.8 million in long-term loans outstanding. We expect that we will be able to renew all of the existing bank loans upon their maturity based on our past experience and outstanding credit history.
On June 16, 2021, we entered into a securities purchase agreement pursuant to which we issued an unsecured convertible promissory note with a one-year maturity term to an institutional accredited investor Streeterville Capital, LLC (“Investor”). The convertible promissory note has the original principal amount of US$3,170,000 and Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. We received principal in full from the Investor. On September 7, 2022, we signed an extension amendment with the Investor to extend the maturity date to June 15, 2023. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant to which the Investor would not seek to redeem any portion of the Note during the period from October 21, 2022 to January 20, 2023. On or around January 20, 2023, the Investor re-started the redemption of the Notes. On June 15, 2023, the Company signed an extension amendment with the Investor to extend the maturity date to June 17, 2024. On December 21, 2023, the Company entered into a preliminary agreement with the Investor, pursuant to which the Investor would not seek repayment of any portion of the note during the period from December 31, 2023 to April 16, 2024.
On July 16, 2021, we entered into a securities purchase agreement pursuant to which we issued two unsecured convertible promissory notes with a one-year maturity term to the same investor. The first convertible promissory note has an original principal amount of US$3,170,000 and the Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. The second convertible promissory note has an original principal amount of US$4,200,000 and the Investor gave consideration of US$4.0 million, reflecting original issue discount of US$200,000.
On August 19, 2021, we entered into a securities purchase agreement pursuant to which we issued an unsecured convertible promissory note with a one-year maturity term to the same investor. The Note has the original principal amount of US$10,520,000 and Investor gave consideration of US$10.0 million, reflecting original issue discount of US$500,000 and Investor’s legal fee of US$20,000. We received principal in full from the Investor and we anticipate using the proceeds for general working capital purposes. On September 7, 2022, the Company signed an extension amendment with the Investor to extend the maturity date to August 18, 2023. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant to which the Investor will not seek to redeem any portion of the Note during the period from October 21, 2022 to January 20, 2023. On June 15, 2023, the Company signed an extension amendment with the Investor to extend the maturity date to August 23, 2024. On December 21, 2023, the Company entered into a preliminary agreement with the Investor, pursuant to which the Investor would not seek repayment of any portion of the note during the period from December 31, 2023 to April 16, 2024.
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For the above-mentioned convertible promissory notes issued, as of December 31, 2023, shares of the Company’s common stock totaling 1,500,396 were issued by the Company to the Investor equaling principal and interests amounted to US$9,988,359, and the Notes balance held for continuing operations was US$14,353,591, with a carrying value of US$14,851,827, net of deferred financing costs of US$498,236.
On June 13, 2022, we entered into a certain stock purchase agreement (the “SPA”) with certain non-U.S. investors (the “Purchasers”), pursuant to which we agreed to sell, and the Purchasers agreed to purchase, severally and not jointly, an aggregate of 235,450 shares of common stock of the Company (the “Shares”) at a price of US$21.2 per share. Our shareholders approved the offer and sale of the Shares at a meeting of the shareholders of the Company that was held on July 21, 2022. The closing for the offer and sale of the Shares occurred on July 26, 2022 and we issued the Shares in exchange for gross proceeds of $5.0 million.
On August 11, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to 192,168 shares (the “Shares”) of its common stock at a per share purchase price of $9.15 (subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to US$1,758,340. As of December 31, 2023, the proceeds were fully collected, and all of the Shares were issued.
On January 12, 2023, the Board of the Company approved the sales of 72,222 shares of the Company’s common stock to the Company’s employees for gross proceeds of up to US$650,000. As of December 31, 2023, the subscription receivable was amounted to US$178,332 which was recorded on the unaudited condensed consolidated balance sheet, and the proceeds is expected to be fully collected by March 31, 2024.
On June 19, 2023, the Company entered into a certain securities purchase agreement (the “SPA”) with a non-U.S. investor (the “Buyer”), pursuant to which the Company agreed to sell, and the Buyer agreed to purchase an aggregate of up to 113,717 shares of common stock of the Company (the “Shares”) at a price of $10.5 per share. The transaction contemplated by the SPA was approved by the Company’s board of directors at a board meeting on March 14, 2023. The Company has received gross proceeds of $1.2 million from the Buyer, and all of the Shares were issued on June 22, 2023.
On June 21, 2023, the Company entered into a certain stock purchase agreement with certain non-U.S. investors (the “Investors”), pursuant to which the Company agreed to sell, and the Investors agreed to purchase, severally and not jointly, an aggregate of up to 400,000 shares of common stock of the Company (the “Shares”) at a price of $5 per share. The transaction contemplated by the agreement was approved by the Company’s board of directors at a board meeting on June 8, 2023. The Company has received gross proceeds of $2.0 million from the Investors and all of the Shares were issued on June 22, 2023.
On December 22, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to 1,200,000 shares (the “Shares”) of its common stock at a per share purchase price of $1.2 for gross proceeds of up to $1,440,000. The Company has received gross proceeds in full from the Investors, and all of the Shares were issued on December 28, 2023.
On February 2, 2024, the Company’s stockholders approved the effectiveness of a 1-for-10 reverse stock split of the shares (the “Reverse Stock Split”) of the Company’s common stock, with a par value of $0.001 per share. As a result of the Reverse Stock Split, each of the ten pre-split shares of common stock outstanding will automatically combine and convert to one issued and outstanding share of common stock without any action on the part of the stockholders. No fractional shares of common stock will be issued to any shareholders in connection with the Reverse Stock Split. Each shareholder will be entitled to receive one share of common stock in lieu of the fractional share that would have resulted from the Reverse Stock Split. The number of the Company’s authorized common stock also increased to 150,000,000 shares, and the par value of the common stock following the Reverse Stock Split shall remain at $0.001 per share. As of February 2, 2024, there were 64,129,020 common stock outstanding, and the estimated number of common stock outstanding after the Reverse Stock Split was 6,412,902. As a result of this Reverse Stock Split, the Company’s shares and per share data as reflected in the unaudited condensed consolidated financial statements has been retroactively restated as if the transaction occurred at the beginning of the periods presented.
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Management believes that our current cash, cash flows from future operations, and access to loans will be sufficient to meet our working capital needs for at least the next 12 months. We intend to continue to carefully execute our growth plans and manage market risk. If we fail to satisfy Nasdaq’s continued listing requirements, such as the corporate governance requirements or the minimum closing bid price requirement, The Nasdaq Stock Market LLC (“Nasdaq”) may take steps to delist our common stock. Any continuing failure to remain in compliance with Nasdaq’s continued listing standards, and any subsequent failure to timely resume compliance with Nasdaq’s continued listing standards within the applicable cure period could have adverse consequences, and among other things, substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.
Working Capital
The following table provides the information about our working capital at December 31, 2023 and June 30, 2023:
| December 31, 2023 | June 30, 2023 | |||||||
| Current Assets | $ | 21,849,939 | $ | 40,923,743 | ||||
| Current Liabilities | 40,505,884 | 23,346,151 | ||||||
| Working Capital | $ | (18,655,945 | ) | $ | 17,577,592 | |||
The working capital decreased by US$36,233,537, or 206.1%, as of December 31, 2023 from June 30, 2023, primarily as a result of a decrease in current assets held for discontinued operations and an increase in short-term loans, partially offset by an increase in accounts receivable and advances to supplies and a decrease in current liabilities held for discontinued operations.
Capital Commitments and Contingencies
Capital commitments refer to the allocation of funds for the possible purchase in the near future for fixed assets or investment. Contingency refers to a condition that arises from past transactions or events, the outcome of which will be confirmed only by the occurrence or non-occurrence of uncertain futures events.
On May 16, 2017, Ms. Guiqin Li (the “Plaintiff”) commenced a lawsuit against us in the People’s Court of Chongqing Pilot Free Trade Zone of China. Plaintiff alleged that due to the misguidance given by our security trading department, the Plaintiff did not manage to complete the sales of our common stock on the day of our initial public offering in the United States. As the price of our common stock continued falling after the initial public offering, the Plaintiff incurred losses and hence seek money damages against us. Based on the judgment of the first trial, we were required to pay the Plaintiff a settlement payment, including the money compensation, interests and other legal fees. In January 2023, the Company entered into a Settlement Agreement and Release with the Plaintiff, pursuant to which the Company paid the Plaintiff a total sum of US$700,645 (approximately RMB 4.8 million) as settlement payment, and upon acceptance of the settlement payment from the Company, the Plaintiff waived, released, and forever discharged the Company from all past and future claims. As of June 30, 2023, the Company has made the payments in full to the Plaintiff according to the Settlement Agreement and Release.
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On November 26, 2021, the Company filed a complaint in the Supreme Court of the State of New York, New York County against Lei Zhang and Yan Li, as defendants, and Transhare Corporation, as a nominal defendant, asserting that defendants had not paid for certain restricted shares of the Company’s common stock pursuant to stock purchase agreements they executed with the Company. In December, defendants filed an answer and counterclaim against the Company, which they amended on January 27, 2022 after the Company moved to dismiss their counterclaims. They brought claims for, among others, breach of contract, breach of the covenant of good faith and fair dealing, and fraud, asserting that the Company made false and materially misleading statements, specifically regarding the sale of such shares to Lei Zhang and Yan Li and the removal of their restrictive legends. Defendants are seeking money damages of at least $9 million, punitive damages of $10 million, plus interest, costs, and fees. In April 2022, the Court granted the Company’s motion for a preliminary injunction to restrain the Company’s transfer agent from removing the restrictive legends on the shares, provided that the Company posts a bond, which the Company declined to do. On June 13, 2022, the restriction imposed on the shares were lifted.
Nominal defendant Transhare Corporation moved to dismiss the defendants’ counterclaim against it for wrongful refusal to remove restrictions pursuant to 6 Del. C. § 8-401, and its motion was fully submitted in April 2022. On September 9, 2022, the Court granted Transhare Corporation’s motion to dismiss defendants’ counterclaim for wrongful refusal to remove restrictions. Defendants have appealed the Court’s September 9, 2022 order dismissing defendants’ counterclaim for wrongful refusal to remove restrictions. On October 3, 2022, the parties submitted a stipulation dismissing defendants’ outstanding counterclaim against Transhare Corporation seeking declaratory judgment.
On December 15, 2023, the Company entered into a Settlement Agreement with the defendants and Transhare, pursuant to which the three parties released and forever discharge one another all past and future claims. On December 22, 2023, the Company, together with the defendants and Transhare, filed and signed a stipulation discontinuing action (“Stipulation”) with the Supreme Court of the State of New York. Under the Stipulation, the Supreme Court of the State of New York discontinued the lawsuit filed by the Company together with all cross-claims and counterclaims with prejudice and without costs to any of the parties. The subscription receivable amounted to US$3,024,000 was waived by the Company during the six months ended December 31, 2023, and the Company will not retrieve the shares that were issued to the defendants.
As of December 31, 2023 and June 30, 2023, we had no other material capital commitments or contingent liabilities.
Off-Balance Sheet Commitments and Arrangements
On May 29, 2023, the Board of the Company approved that we pledged our property with a net book value of US$1,045,883 as collateral to guarantee a personal loan of a related party, Mr. Zhang Yuying, the legal representative of Tenet-Jove. Based on the memorandum entered between us and Mr. Zhang Yuying, Mr. Zhang Yuying is expected to repay his loan and release the pledge before May 31, 2024, and we have the right to claim full compensation if the property is failed to be released by due date.
Except for the above-mentioned guarantee, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own common stock and classified as stockholders’ equity, or that are not reflected in our unaudited condensed consolidated financial statements.
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Cash Flows
The following table provides detailed information about our net cash flows for the six months ended December 31, 2023 and 2022:
| Six months ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (2,710,877 | ) | $ | (1,786,956 | ) | ||
| Net cash provided by (used in) investing activities | (13,916,402 | ) | 2,405,585 | |||||
| Net cash provided by financing activities | 3,418,468 | 1,079,991 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 229,252 | (421,244 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (12,979,559 | ) | 1,277,376 | |||||
| Cash and cash equivalents, beginning of the period | 14,166,759 | 15,165,231 | ||||||
| Cash and cash equivalents, end of the period | $ | 1,187,200 | $ | 16,442,607 | ||||
| Less: cash of discontinued operations - ended of the period | - | (14,123,179 | ) | |||||
| Cash of continuing operations - ended of the period | $ | 1,187,200 | $ | 2,319,428 | ||||
Operating Activities
Net cash used in operating activities during the six months ended December 31, 2023 was approximately US$2.7 million, consisting of net loss from continuing operations of US$8.6 million, depreciation and amortization expenses of US$2.4 million, forgiveness of subscription receivable of US$3.0 million, and net changes in our operating assets and liabilities, which mainly included a decrease in accounts receivable of US$5.2 million and increase in contract liabilities of US$3.1 million, partially offset by the increase in advances to suppliers of US$5.0 million and decrease in accounts payable of US$4.4 million.
Net cash used in operating activities during the six months ended December 31, 2022 was approximately US$1.8 million, consisting of net loss from continuing operations of US$3.9 million, allowance for credit losses of US$0.9 million, common stock issued for management and employees of US$0.6 million, accrued interest expense for convertible notes of US$0.5 million, and amortization of debt issuance and other costs of US$0.4 million.
Investing Activities
For the six months ended December 31, 2023, net cash used in investing activities was US$13.9 million, primarily due to disposal of Tenet-Jove of US$13.9 million, partially offset by the proceeds of business acquisition of Wintus of US$1.0 million.
For the six months ended December 31, 2022, net cash provided by investing activities was US$2.4 million, primarily due to repayment from loans to third parties of US$10.9 million, partially offset by prepayment for business acquisition of US$9.0 million.
Financing Activities
For the six months ended December 31, 2023, net cash provided by financing activities amounted to approximately US$3.4 million, due to proceeds from issuance of common stock of US$2.0 million, and proceeds from short-term loans of US$9.8 million, partially offset by the repayment of short-term loans of US$8.3 million.
For the six months ended December 31, 2022, net cash provided by financing activities amounted to approximately US$1.1 million, due to proceeds from issuance of common stock of US$1.3 million, partially offset by the net cash used in financing activities from discontinued operations of US$0.1 million.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a small reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based on our review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report due to following material weaknesses:
| ● | a lack of full-time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions; and |
| ● | a lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries. |
In order to address the above material weaknesses, our management has taken the following steps:
| ● | recruiting sufficient qualified professionals with appropriate levels of knowledge and experience to assist in reviewing and resolving accounting issues in routine or complex transactions. To mitigate the reporting risks, we engaged an outside professional consulting firm to supplement our efforts to improve our internal control over financial reporting; |
| ● | improving the communication between management, board of directors, and the Chief Financial Officer; and |
| ● | obtaining proper approval for other significant and non-routine transactions from the board of directors. |
We are committed to monitoring the effectiveness of these measures and making any changes that are necessary and appropriate.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the fiscal quarter ended December 31, 2023. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Other than ordinary routine litigation (of which we are not currently involved), we know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation, and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our company except as set forth below:
On May 16, 2017, Ms. Guiqin Li (the “Plaintiff”) commenced a lawsuit against the Company in the People’s Court of Chongqing Pilot Free Trade Zone of China. Plaintiff alleged that due to the misguidance given by the Company’s securities trading department, the Plaintiff did not manage to complete the sales of the Company’s common stock on the day of the Company’s initial public offering in the United States. As the price of the Company’s common stock continued falling after initial public offering, the Plaintiff incurred losses and hence is seeking monetary damages against the Company. Based on the judgment of the initial trial, the Company was required to pay the Plaintiff a settlement payment, including the monetary compensation, interests and other legal fees.
In January 2023, the Company entered into a Settlement Agreement and Release with the Plaintiff, pursuant to which the Company paid the Plaintiff a total sum of US$700,645 (approximately RMB 4.8 million) as settlement payment, and upon acceptance of the settlement payment from the Company, the Plaintiff waived, released, and forever discharged the Company from all past and future claims. As of June 30, 2023, the Company has made the payments in full to the Plaintiff according to the Settlement Agreement and Release.
On November 26, 2021, the Company filed a complaint in the Supreme Court of the State of New York, New York County against Lei Zhang and Yan Li, as defendants, and Transhare Corporation, as a nominal defendant, asserting that defendants had not paid for certain restricted shares of the Company’s common stock pursuant to stock purchase agreements they executed with the Company. In December, defendants filed an answer and counterclaim against the Company, which they amended on January 27, 2022 after the Company moved to dismiss their counterclaims. They brought claims for, among others, breach of contract, breach of the covenant of good faith and fair dealing, and fraud, asserting that the Company made false and materially misleading statements, specifically regarding the sale of such shares to Lei Zhang and Yan Li and the removal of their restrictive legends. Defendants are seeking money damages of at least $9 million, punitive damages of $10 million, plus interest, costs, and fees. In April 2022, the Court granted the Company’s motion for a preliminary injunction to restrain the Company’s transfer agent from removing the restrictive legends on the shares, provided that the Company posts a bond, which the Company declined to do. On June 13, 2022, the restriction imposed on the shares were lifted.
Nominal defendant Transhare Corporation moved to dismiss the defendants’ counterclaim against it for wrongful refusal to remove restrictions pursuant to 6 Del. C. § 8-401, and its motion was fully submitted in April 2022. On September 9, 2022, the Court granted Transhare Corporation’s motion to dismiss defendants’ counterclaim for wrongful refusal to remove restrictions. Defendants have appealed the Court’s September 9, 2022 order dismissing defendants’ counterclaim for wrongful refusal to remove restrictions. On October 3, 2022, the parties submitted a stipulation dismissing defendants’ outstanding counterclaim against Transhare Corporation seeking declaratory judgment.
On December 22, 2023, the Company, Transhare Corporation, Lei Zhang and Yan Li (collectively, the “Parties”) filed and signed a stipulation discontinuing action with the Supreme Court of the State of New York. Under the stipulation, the Supreme Court of the State of New York discontinued the lawsuit filed by the Company together with all cross-claims and counterclaims with prejudice and without costs to any of the Parties.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company,” we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
* This certification is deemed furnished, and not filed, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, 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.
| SHINECO, INC. | ||
| Dated: February 8, 2024 | By: | /s/ Jennifer Zhan |
| Jennifer Zhan | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: February 8, 2024 | By: | /s/ Sai (Sam) Wang |
| Sai (Sam) Wang | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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