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 100% owned subsidiary of Shineco and was officially granted the status of a wholly foreign-owned
entity by Chinese authorities on July 14, 2006. This transaction was accounted for as a recapitalization. Tenet-Jove owns 90% interest
of Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).
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”),
Yantai Zhisheng International Trade Co., Ltd. (“Zhisheng Trade”), Yantai Mouping District Zhisheng Agricultural Produce Cooperative
(“Zhisheng Agricultural”), 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, Zhisheng Trade, Zhisheng
Agricultural, 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 100% of
Tenet-Jove. Accordingly, Shineco, Tenet-Jove, and the VIEs, the Zhisheng VIEs and Ankang Longevity Group are effectively controlled by
the same majority shareholders. Therefore, Shineco, Tenet-Jove, and the VIEs of Tenet-Jove are considered under common control. The consolidation
of Tenet-Jove and its VIEs into Shineco was accounted for at historical cost and prepared on the basis as if the aforementioned exclusive
contractual agreements between Tenet-Jove and its VIEs had become effective as of the beginning of the first period presented in the
accompanying consolidated financial statements.
On
September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with registered
capital of RMB10.0 million (US$1,502,650). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering Co., Ltd.
(“Runze”) with registered capital of RMB10.0 million (US$1,502,650). Xinjiang Taihe and Runze became wholly-owned subsidiaries
of Tenet-Jove. The Company ceased the business operation of Xinjiang Taihe and Runze in September 2020 and October 2020, respectively.
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 51%
equity interest in Tianjin Tajite for cash consideration of RMB14,000,000
(approximately US$2.1
million). On December 25, 2016, the Company paid the full amount as the deposit to secure the deal. In May, 2017, the Company
amended the agreement and required Tianjin Tajite to satisfy certain preconditions related to product introductions into China. On
October 26, 2017, the Company completed the acquisition for 51%
of the shares in Tianjin Tajite. On May 5, 2019, two minority shareholders of Tianjin Tajite transferred their
26.4% of the equity interest to the Company. There was no consideration paid for the transfers, and after the transfers,
the Company owns 77.4%
equity interest of Tianjin Tajite.
On
March 13, 2019, Tenet-Jove established Beijing Tenjove Newhemp Biotechnology Co., Ltd. (“TNB”) with registered capital of
RMB10.0 million (US$1,502,650). TNB became a wholly-owned subsidiary of Tenet-Jove.
On
December 07, 2021, the Company established Shineco Life Science Research Co., Ltd. (“Life Science”) as a wholly foreign-owned
entity with registered capital of US$10.0 million.
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$10.0 million. On April 24, 2022, the Company entered into a Share Transfer Agreement (“Agreement”) with Life
Science HK. Pursuant to the Agreement, the Company transferred its 100% of the equity interest of Life Science to Life Science HK. There
was no consideration paid for the transfer, and after the transfer, Life Science became a wholly-owned subsidiary of Life Science HK.
On
July 23, 2020, Shanghai Jiaying International Trade Co., Ltd. (“Shanghai Jiaying”) was established with registered capital
of RMB200 million (approximately US$29.9 million). Tenet-Jove owned an equity interest of 90% of Shanghai Jiaying, and the remaining
10% equity interests was owned by an individual shareholder. Jiaying Trade did engage in any active business operations, and the operating
of Shanghai Jiaying was ceased on December 21, 2021.
On
January 7, 2021, Inner Mongolia Shineco Zhonghemp Biotechnology Co., Ltd. (“SZB”) was established with registered capital
of RMB50 million (approximately US$7.5 million). Tenet-Jove owned an equity interest of 55% of SZB, and the remaining 45% equity interests
was owned by an individual shareholder. SZB is currently not engaging in any active business operations.
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 Yushe County Guangyuan Forest
Development Co., Ltd. (“Guangyuan”)’s Shareholders in exchange for Guangyuan Shareholders entering into the VIE Agreements with Tenet-Jove, which composes of one group of
similar identifiable assets; (ii) Tenet-Jove entered a Termination Agreement with Ankang Longevity and the Ankang Shareholders;
(iii) as a consideration to the Restructuring Agreement and based on a valuation report on the equity interests of Guangyuan issued
by an independent third party, Tenet-Jove relinquished all of its rights and interests in Ankang Longevity and transferred those
rights and interests to the Guangyuan Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of
variable interest entity agreements with Tenet-Jove. After signing of the Restructuring Agreement, the Company and the shareholders
of Ankang and Guangyuan actively carried out the transferring of rights and interests in Ankang and Guangyuan, and the transferring
was completed subsequently on July 5, 2021. Afterwards, with the completion of all other follow-ups works, on August 16, 2021, the
Company, through its subsidiary Tenet-Jove, completed the previously announced acquisition pursuant to the Restructuring Agreement
dated June 8, 2021.
The Company, its subsidiaries, its
VIEs, and its VIEs’ subsidiaries (collectively the “Group”) operate four main business segments: 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 Guanyuan are engaged in planting, processing, and distributing
green agricultural produce; (“Agricultural Products”); 3) Zhisheng Freight is providing domestic and international logistic
services (“Freight Services”); and, 4) Ankang Longevity Group, which is reclassified as discontinued operations, manufactures
traditional Chinese medicinal herbal products as well as other retail pharmaceutical products. These different business activities and
products can potentially be integrated and benefit from one another.
NOTE
2. GOING CONCERN UNCERTAINTIES
As
disclosed in the Company’s consolidated financial statements, the Company had recurring net losses of US$27,067,139 and
US$32,056,433, and continuing cash outflow of US$5,712,562 and US$14,649,557 from operating activities for the years ended June 30,
2022 and 2021. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going
concern for the next twelve months. In assessing the Company’s going concern, management monitors and analyzes the Company’s cash on-hand
and its ability to generate sufficient revenue sources in the future to support its operating and capital expenditure commitments.
The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure
obligations. Direct offering and debt financing have been utilized to finance the working capital requirements of the Company. In
addition, the Company’s shareholders, made pledges to provide continuous financial support to the Company whenever the Company
has liquidity difficulty for at least next 12 months from the date of this filing.
Despite
those negative financial trends, as of June 30, 2022, the Company had positive working capital due to the following measurements the
management has taken to enhance the Company’s liquidity:
| 1) | 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 2,354,500 shares
of common stock of the Company (the “Shares”) at a price of US$2.12 per share.
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 $4,991,540. |
| | |
| 2) | 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 will sell to the Investors, up to 1,921,683 shares (the “Shares”)
of its common stock at a per share purchase price of $0.915 for gross proceeds of up to US$1,758,340.
As the date of this report, proceeds amounted to US$1.0 million has been received by the
Company, and the remaining balance of the proceeds is expected to be fully collected by December
31, 2022. |
Management
believes that the foregoing measures collectively will provide sufficient liquidity for the Company to meet its future liquidity needs
12 months from this report issuance date.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”).
The
consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries, the VIEs and the
VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in the Company’s majority
owned subsidiaries and the 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.
The
total carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information were as follows:
SCHEDULE
OF CONSOLIDATED ASSETS AND LIABILITIES AND INCOME INFORMATION
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Current assets | |
$ | 34,723,255 | | |
$ | 44,631,744 | |
| Plant and equipment, net | |
| 1,446 | | |
| 4,698,184 | |
| Other non-current assets | |
| 1,211,293 | | |
| 4,894,445 | |
| Total assets | |
| 35,935,994 | | |
| 54,224,373 | |
| Total liabilities | |
| (5,719,289 | ) | |
| (7,377,886 | ) |
| Net assets | |
$ | 30,216,705 | | |
$ | 46,846,487 | |
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| Net sales | |
$ | 2,142,511 | | |
$ | 10,991,641 | |
| Gross loss | |
$ | (1,556,403 | ) | |
$ | (3,165,304 | ) |
| Loss from operations | |
$ | (11,476,699 | ) | |
$ | (22,319,655 | ) |
| Net loss | |
$ | (14,023,582 | ) | |
$ | (27,754,161 | ) |
The
carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information held for discontinued
operations were as follows:
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Current assets | |
$ | - | | |
$ | 19,659,742 | |
| Plant and equipment, net | |
| - | | |
| 3,683,525 | |
| Other non-current assets | |
| - | | |
| 1,359,506 | |
| Total assets | |
| - | | |
| 24,702,773 | |
| Total liabilities | |
| - | | |
| (4,866,934 | ) |
| Net assets | |
$ | - | | |
$ | 19,835,839 | |
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| Net sales | |
$ | - | | |
$ | 8,085,527 | |
| Gross profit | |
$ | - | | |
$ | 986,174 | |
| Loss from operations | |
$ | - | | |
$ | (4,544,819 | ) |
| Net loss | |
$ | (2,433,395 | ) | |
$ | (10,038,088 | ) |
The
carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information held for continued
operations were as follows:
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Current assets | |
$ | 34,723,255 | | |
$ | 24,972,002 | |
| Plant and equipment, net | |
| 1,446 | | |
| 1,014,659 | |
| Other non-current assets | |
| 1,211,293 | | |
| 3,534,939 | |
| Total assets | |
| 35,935,994 | | |
| 29,521,600 | |
| Total liabilities | |
| (5,719,289 | ) | |
| (2,510,952 | ) |
| Net assets | |
$ | 30,216,705 | | |
$ | 27,010,648 | |
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| Net sales | |
$ | 2,142,511 | | |
$ | 2,906,114 | |
| Gross loss | |
$ | (1,556,403 | ) | |
$ | (4,151,478 | ) |
| Loss from operations | |
$ | (11,476,699 | ) | |
$ | (17,774,836 | ) |
| Net loss | |
$ | (11,590,187 | ) | |
$ | (17,716,073 | ) |
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 income of these entities are reported separately
in the consolidated statements of loss and comprehensive 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.
Use
of Estimates
The
preparation of the 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 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, and the valuation of accounts receivable, advances to suppliers, deferred taxes, and inventory reserves. Actual
results could differ from those estimates.
Revenue
Recognition
We
previously recognized revenue from sales of Luobuma products, Chinese medicinal herbal products, and agricultural products, as well as
providing logistic services and other processing services to external customers. We recognized revenue when all of the following have
occurred: (i) there was persuasive evidence of an arrangement with a customer; (ii) delivery had occurred or services had been rendered;
(iii) the sales price was fixed or determinable; and (iv) our collection of such fees was reasonably assured. These criteria, as related
to our revenue, were considered to have been met as follows:
Sales
of products: The Company recognized revenue from the sale of products 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 this type of services transactions. Revenue from domestic air and overland freight forwarding services was recognized 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.
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 adopted the new revenue standard beginning July 1, 2018, and adopted a
modified retrospective approach upon adoption. 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 revenues 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 revenues 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
consolidated financial statements upon adoption of ASC 606.
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 June 30, 2022 and 2021, the Company had no cash equivalents.
Under
PRC law, 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 uncollectible accounts, as necessary.
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the
collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many
factors, including the age of the balance, the customers’ historical payment history, their current credit-worthiness, and current
economic trends. The fair value of long-term receivables is determined using a present value technique by discounting the future expected
contractual cash flows using current rates at which similar instruments would be issued at the measurement date. As of June 30, 2022
and 2021, the allowance for doubtful accounts from the continuing operations was US$7,317,236 and US$9,805,402,
respectively. As of June 30, 2022 and 2021, the allowance for doubtful accounts from the discontinued operations was US$ nil and
US$3,675,619, respectively. Accounts are written off against the allowance after efforts
at collection prove unsuccessful.
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. Cost is determined using the first in first out (“FIFO”) method. Agricultural products that
the Company farms are recorded at cost, which includes direct costs such as seed selection, fertilizer, labor cost and contract fees
that are spent in growing agricultural products on the leased farmland, and indirect costs which include amortization of prepayments
of farmland leases and farmland development costs. All the costs are accumulated until the time of harvest and then allocated to the
harvested crops costs when they are sold. 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 June 30, 2022 and 2021, the inventory reserve
from the continuing operations was US$1,249,543 and US$1,349,288,
respectively. As of June 30, 2022 and 2021, the inventory reserve from the discontinued operations were both US$ nil.
Advances
to Suppliers, Net
Advances
to suppliers consist of payments to suppliers for materials that have not been received. Advances to suppliers are reviewed periodically
to determine whether their carrying value has become impaired. As of June 30, 2022 and 2021, the Company had an allowance for uncollectible
advances to suppliers from the continuing operations of US$13,544,627 and US$11,546,609,
respectively. As of June 30, 2022 and 2021, the Company had an allowance for uncollectible advances to suppliers from the discontinued
operations of US$ nil and US$1,773,698, respectively.
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 adopted ASU 2016-02, “Leases” on July 1, 2019 and used the alternative transition approach, which permits the effects
of adoption to be applied at the effective date. The new standard provides a number of optional practical expedients in transition. The
Company elected the “package of practical expedients,” which permits it not to reassess under the new standard its prior
conclusions about lease identification, lease classification, and initial direct costs. The Company also elected the short-term lease
exemption and combining the lease and non-lease components practical expedients. The most significant impact upon adoption relates to
the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s balance sheet for office
space operating leases. Upon adoption, the Company recognized additional operating liabilities of approximately US$0.5
million, with corresponding ROU assets of US$3.6 million
based on the present value of the remaining rental payments under current leasing standards for existing operating leases. There was
no cumulative effect of adopting the standard. All ROU assets are reviewed for impairment annually. For
the years ended June 30, 2022 and 2021, the Company had an impairment for ROU lease assets from the continuing operations of US$2,268,344
and US$ nil, respectively. For the years ended June 30, 2022 and 2021, the impairment for
ROU lease assets from the discontinued operations were both US$ nil.
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:
SCHEDULE
OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| | |
Estimated useful lives |
| | |
|
| Buildings | |
20-50 years |
| Machinery equipment | |
5-10 years |
| Motor vehicles | |
5-10 years |
| Office equipment | |
5-10 years |
| Farmland leasehold improvements | |
12-18 years |
| Leasehold improvement | |
Lesser of useful life and lease term |
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 50 years,
based on the term of the land use rights.
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, distribution right, ROU assets and investments. For the years ended June 30, 2022 and 2021, the Company
had an impairment for long-lived assets from the continuing operations of US$4,315,888
and US$ nil,
respectively. For the years ended June 30, 2022 and 2021, the impairment for long-lived assets from the discontinued operations were
both US$ nil.
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.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the 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 June 30, 2022 and 2021. The Company
had not provided deferred taxes for undistributed earnings of non-U.S. subsidiaries from the continuing operations and the discontinued
operations at June 30, 2022, 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 2019 and thereafter. As of June 30, 2022, the tax years ended December 31, 2017 through December 31, 2021 for the Company’s
PRC subsidiaries 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 35% to 21%. As the Company has a June 30 fiscal year end, the lower corporate income tax rate
was phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ended June 30, 2018, and 21% for subsequent
fiscal years. Additionally, 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 caused the Company to re-measure its income tax liability
and record an estimated income tax expense of US$744,766 for the year ended June 30, 2018. On December 22, 2017, Staff Accounting Bulletin
No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the
necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of The Act. In accordance with SAB 118, additional work is necessary to do a more detailed analysis of The Act as
well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal
2019 when the analysis is complete. The Company elects to pay the transition tax over an eight-year period using specified percentages
(eight percent per year for the first five years, 15 percent in year six, 20 percent in year seven, and 25 percent in year eight).
Value-Added
Tax
Sales
revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). Before
May 1, 2018, all of the Company’s products that were sold in the PRC were subject to a Chinese value-added tax at a rate of 17%
of the gross sales price. After May 1, 2018, the Company was subject a tax rate of 16%, and after April 1, 2019, the tax rate was further
reduced to 13% based on the new Chinese tax law. This VAT may be offset by VAT paid by the Company
on raw materials and other materials included in the cost of producing finished products or acquiring finished products. The Company
records a VAT payable or VAT receivable in the accompanying consolidated financial statements.
Foreign
Currency Translation
The
Company uses the United States dollar (“U.S. dollars,” “USD,” or “US$”) 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 June 30, 2022 and 2021 were translated at 1 RMB to 0.1493 USD and at 1 RMB to
0.1549 USD, respectively. The average translation rates applied to the income and cash flow statement amounts for the years ended June
30, 2022 and 2021 were 1 RMB to 0.1549 USD and 1 RMB to 0.1510
USD, respectively.
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.
Comprehensive
Loss
Comprehensive
loss consists of two components, net 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 income (loss) in the consolidated
statements of loss and comprehensive loss.
Equity
Investment
An
investment in which the Company has the ability to exercise significant influence, but does not have a controlling interest, is accounted
for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the
voting stock between 20%
and 50%, and other factors, such as representation on the board of directors, voting rights,
and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate.
Loss
per Share
The
Company computes 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 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 years ended June 30, 2022 and 2021.
The
following table presents a reconciliation of basic and diluted loss per share for the years ended June 30, 2022 and 2021:
SCHEDULE
OF RECONCILIATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| Net loss from continuing operations attributable to Shineco | |
$ | (24,599,699 | ) | |
$ | (21,407,359 | ) |
| Net loss from discontinued operations attributable to Shineco | |
| (2,433,395 | ) | |
| (10,038,088 | ) |
| Net loss attributable to Shineco | |
| (27,033,094 | ) | |
| (31,445,447 | ) |
| | |
| | | |
| | |
| Weighted average shares outstanding - basic and diluted | |
| 9,458,077 | | |
| 4,401,048 | |
| | |
| | | |
| | |
| Net loss from continuing operations per share of common share | |
| | | |
| | |
| Basic and diluted | |
$ | (2.60 | ) | |
$ | (4.86 | ) |
| | |
| | | |
| | |
| Net loss from discontinued operations per share of common share | |
| | | |
| | |
| Basic and diluted | |
$ | (0.26 | ) | |
$ | (2.28 | ) |
| | |
| | | |
| | |
| Net loss per share of common share | |
| | | |
| | |
| Basic and diluted | |
$ | (2.86 | ) | |
| (7.14 | ) |
Reclassifications
Certain
prior year balances were reclassified to conform to the current year’s presentation with consideration of reflecting the Company’s
Ankang Longevity 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
November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers
(Topic 606). The guidance identifies, evaluates, and improves areas of GAAP for which cost and complexity can be reduced while maintaining
or improving the usefulness of the information provided. The amendments in that ASU expanded the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from nonemployees. For entities that have adopted the amendments in Update 2018-07,
the updated guidance is effective for annual periods beginning after December 15, 2019, and is applicable to the Company in fiscal 2021.
Early adoption is permitted. The Company adopted this ASU on July 1, 2020 and the adoption of this ASU did not have a material impact
on its financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The FASB is issuing
this Update as part of its initiative to reduce complexity in accounting standards (the “Simplification Initiative”). The
objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced
while maintaining or improving the usefulness of the information provided to users of financial statements. The specific areas of potential
simplification in this ASU were submitted by stakeholders as part of the Simplification Initiative. For public business entities, the
amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
The Company adopted this ASU on July 1, 2021 and the adoption of this ASU did not have a material impact on its financial statements.
In
March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, (“ASU 2020-03”). ASU 2020-03
improves various financial instruments topics, including the CECL Standard. ASU 2020-03 includes seven different issues that describe
the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating
inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 were effective upon issuance
of ASU 2020-03. The amendments related to Issue 3, Issue 6, and Issue 7 were effective for the Company beginning on January 1, 2020.
The Company adopted this ASU on July 1, 2020 and the adoption of this ASU did not have a material impact on its financial statements.
In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships,
and other transactions affected by reference rate reform. The amendments in this standard can be applied anytime between the first quarter
of 2020 and the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of adoption of the new rules
on the Company’s financial condition, results of operations, cash flows, and disclosures.
The
Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s consolidated
financial statements.
NOTE
4 – ACCOUNTS RECEIVABLE, NET
The
accounts receivable, net consisted of the following:
SCHEDULE OF ACCOUNTS RECEIVABLE
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Accounts receivable | |
$ | 9,138,790 | | |
$ | 19,640,749 | |
| Less: allowance for doubtful accounts | |
| (7,317,236 | ) | |
| (13,481,021 | ) |
| Accounts receivable, net | |
| 1,821,554 | | |
| 6,159,728 | |
| Less: accounts receivable, net, held for discontinued operations | |
| - | | |
| (3,473,057 | ) |
| Accounts receivable, net, held for continuing operations | |
$ | 1,821,554 | | |
$ | 2,686,671 | |
Movement
of allowance for doubtful accounts is as follows:
SCHEDULE OF MOVEMENT OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Beginning balance | |
$ | 13,481,021 | | |
$ | 5,235,436 | |
| Charge to expense | |
| 1,632,670 | | |
| 7,556,516 | |
| Less: cessation of subsidiaries and disposal of VIE | |
| (7,524,110 | ) | |
| - | |
| Foreign currency translation adjustments | |
| (272,345 | ) | |
| 689,069 | |
| Ending balance | |
$ | 7,317,236 | | |
$ | 13,481,021 | |
NOTE
5 – INVENTORIES, NET
The
inventories, net consisted of the following:
SCHEDULE OF INVENTORIES, NET
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Raw materials | |
$ | 67,467 | | |
$ | 208,253 | |
| Work-in-process | |
| 18,709,325 | | |
| 1,232,787 | |
| Finished goods | |
| 1,191,275 | | |
| 1,512,884 | |
| Less: inventory reserve | |
| (1,249,543 | ) | |
| (1,349,288 | ) |
| Total inventories, net | |
| 18,718,524 | | |
| 1,604,636 | |
| Less: inventories, net, held for discontinued operations | |
| - | | |
| (281,245 | ) |
| Inventories, net, held for continuing operations | |
$ | 18,718,524 | | |
$ | 1,323,391 | |
Work-in-process
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 amounted to US$1,574,241 and US$3,942,784 during the years ended June
30, 2022 and 2021, respectively. It was due to flood disaster caused by severe typhoon weather in autumn, which resulted in the
damage and death of a large number of yew trees.
NOTE
6 – ADVANCES TO SUPPLIERS, NET
The
advances to suppliers, net consisted of the following:
SCHEDULE OF ADVANCES TO SUPPLIERS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Advances to suppliers | |
$ | 13,548,178 | | |
$ | 21,810,781 | |
| Less: allowance for doubtful accounts | |
| (13,544,627 | ) | |
| (13,320,307 | ) |
| Advance to suppliers, net | |
| 3,551 | | |
| 8,490,474 | |
| Less: advance to suppliers, net, held for discontinued operations | |
| - | | |
| (700,348 | ) |
| Advance to suppliers, net, held for continuing operations | |
$ | 3,551 | | |
$ | 7,790,126 | |
Advances
to suppliers consist of mainly payments to suppliers for yew trees that have not been received.
Movement
of allowance for doubtful accounts is as follows:
SCHEDULE OF MOVEMENT OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS ON ADVANCES TO SUPPLIERS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Beginning balance | |
$ | 13,320,307 | | |
$ | 3,342,590 | |
| Charge to expense | |
| 4,938,064 | | |
| 9,420,385 | |
| Less: cessation of subsidiaries and disposal of VIE | |
| (4,210,407 | ) | |
| - | |
| Foreign currency translation adjustments | |
| (503,337 | ) | |
| 557,332 | |
| Ending balance | |
$ | 13,544,627 | | |
$ | 13,320,307 | |
NOTE
7 – OTHER CURRENT ASSETS
Other
current assets consisted of the following:
SCHEDULE OF
OTHER CURRENT ASSETS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Loan to third parties (1) | |
$ | 16,345,717 | | |
$ | 1,654,844 | |
| Other receivables (2) | |
| 3,246,293 | | |
| 2,770,136 | |
| Short-term deposit | |
| 164,261 | | |
| 391,274 | |
| Prepaid expenses | |
| 20,872 | | |
| 46,453 | |
| Other current assets, gross | |
| 19,777,143 | | |
| 4,862,707 | |
| Less: allowance for doubtful accounts | |
| 2,545,565 | | |
| 995,760 | |
| Total other current assets, net | |
| 17,231,578 | | |
| 3,866,947 | |
| Less: other current assets, net, held for discontinued operations | |
| - | | |
| (2,523,609 | ) |
| other current assets, net, held for continuing operations | |
$ | 17,231,578 | | |
$ | 1,343,338 | |
| (1) |
Loans
to third-parties are mainly used for short-term funding to support the Company’s external business partners or employees of
the Company. These loans bear interest or no interest and have terms of no more than one year. The Company periodically reviewed
the loans to third parties as to whether their carrying values remain realizable. The Company believes that the risk associated with
the above loans are relatively low based on the evaluation of the creditworthiness of these third-party debtors and the relationships
with them. As the date of the report, approximately US$12.5 million or 76% was collected by the Company and the remaining part was
expected to be paid in full by end of June 2023. |
| |
|
| (2) |
Other
receivable are mainly business advances to officers and staffs represent advances for business travel and sundry expenses. |
Movement
of allowance for doubtful accounts is as follows:
SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Beginning balance | |
$ | 995,760 | | |
$ | 761,782 | |
| Charge to expense | |
| 2,117,316 | | |
| 158,334 | |
| Less: cessation of subsidiaries and disposal of VIE | |
| (326,491 | ) | |
| - | |
| Foreign currency translation adjustments | |
| (241,020 | ) | |
| 75,644 | |
| Ending balance | |
$ | 2,545,565 | | |
$ | 995,760 | |
NOTE
8 - PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Buildings | |
$ | 1,808,172 | | |
$ | 8,242,357 | |
| Machinery and equipment | |
| 27,351 | | |
| 688,979 | |
| Motor vehicles | |
| 139,077 | | |
| 63,090 | |
| Office equipment | |
| 178,271 | | |
| 243,543 | |
| Leasehold improvement | |
| 186,314 | | |
| - | |
| Farmland leasehold improvements | |
| 3,139,729 | | |
| 3,256,339 | |
| Total property and equipment,
gross | |
| 5,478,914 | | |
| 12,494,308 | |
| Less: accumulated depreciation and amortization | |
| (3,388,640 | ) | |
| (6,556,839 | ) |
| Less: impairment for property and equipment | |
| (714,802 | ) | |
| - | |
| Total property and equipment, net | |
| 1,375,472 | | |
| 5,937,469 | |
| Less: property and equipment, net, held for discontinued operations | |
| - | | |
| (3,683,525 | ) |
| Property and equipment, net held for continuing operations | |
$ | 1,375,472 | | |
$ | 2,253,944 | |
Depreciation
and amortization expense charged to the continuing operations was US$386,972 and US$255,255 for the years
ended June 30, 2022 and 2021, respectively. Depreciation and amortization expense charged to the discontinued operations was US$
nil and US$260,317 for the years ended June 30, 2022 and 2021, respectively.
During
the year ended June 30, 2022, the management performed evaluation on the impairment of property and equipment, and impairment
loss of US$741,644 and US$ nil was recorded for the years ended June 30, 2022 and 2021. Due to the continuous impact from the COVID-19
pandemic, the Company’s Zhisheng VIEs, has not been able to grow and cultivate green agricultural
produce on its leased farmland, 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 leased farmland (Note 12). Therefore, farmland leasehold improvements
relating to these farmlands were also fully impaired during the year ended June 30, 2022.
Farmland
leasehold improvements consisted of following:
SCHEDULE OF LEASEHOLD IMPROVEMENTS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Blueberry farmland leasehold improvements | |
$ | 2,412,079 | | |
$ | 2,501,664 | |
| Yew tree planting base reconstruction | |
| 270,242 | | |
| 280,279 | |
| Greenhouse renovation | |
| 457,408 | | |
| 474,396 | |
| Less: impairment for property and equipment | |
| (3,139,729 | ) | |
| - | |
| Total farmland leasehold improvements | |
| - | | |
| 3,256,339 | |
| Less: farmland leasehold improvement, held for discontinued operations | |
| - | | |
| - | |
| Total farmland leasehold improvement, held for continuing operations | |
$ | - | | |
$ | 3,256,339 | |
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 50 years and amortizes the rights on a straight-line basis over
the period of 50 years.
SCHEDULE OF LAND USE RIGHTS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Land use rights | |
$ | - | | |
$ | 1,722,396 | |
| Less: accumulated amortization | |
| - | | |
| (448,134 | ) |
| Total land use rights, net | |
| - | | |
| 1,274,262 | |
| Less: land use rights, net, held for discontinued operations | |
| - | | |
| (1,274,262 | ) |
| Land use rights, net, held for continuing operations | |
$ | - | | |
$ | - | |
For
the years ended June 30, 2022 and 2021, amortization expenses from the continuing operations were both US$ nil. For the years ended June
30, 2022 and 2021, the Company recognized amortization expenses from the discontinued operations of US$ nil and US$39,592, respectively.
NOTE
10 - DISTRIBUTION RIGHTS
The
Company acquired distribution rights to distribute branded products of Daiso 100-yen shops through the acquisition of Tianjin
Tajite. As this distribution right is difficult to acquire and will contribute significant revenue to Tianjin Tajite, such
distribution rights were identified and valued as an intangible asset in the acquisition of Tianjin Tajite. The distribution rights,
which have no expiration date, have been determined to have an indefinite life. Since the distribution rights have an indefinite
life, the Company will evaluate them for impairment at least annually or earlier if determined necessary. During the year ended June
30, 2022, the management performed evaluation on the impairment of distribution rights. As the
Company is unable to generate any revenue and profit from the distribution right due to the unfavorable policy of China Customs and
current business environment caused by the continuous impact from the COVID-19, the management fully recorded an impairment loss on distribution rights of Tianjin
Tajite.
NOTE
11 - INVESTMENTS
In
2013, Ankang Longevity Group entered into two equity investment agreements with Shaanxi Pharmaceutical Group Pai’ang Medicine Co.
Ltd. (“Shaanxi Pharmaceutical Group”), a Chinese state-owned pharmaceutical enterprise, to invest a total of RMB6.8 million
(approximately US$1.0 million) for a 49% equity interest in a pharmacy retail company called Shaanxi Pharmaceutical Sunsimiao Drugstores
Ankang Retail Chain Co., Ltd. (“Sunsimiao Drugstores”), and a 49% equity interest in a pharmaceutical wholesale distribution
company named Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (“Shaanxi Longevity Pharmacy”). These two
entities were incorporated to collaborate with Shaanxi Pharmaceutical Group to expand sales to regional hospitals and clinics and to
establish the presence of retail pharmacies under the brand name “Sunsimiao.” The investments were accounted for using the
equity method because Ankang Longevity Group has significant influence, but no control of these two entities. The Company’s discontinued
operations, Ankang Longevity Group recorded US$ nil and a loss of US$3,784,000 for the years ended
June 30, 2022 and 2021, respectively, from the investments, which was included in “Loss from discontinued operations, net
of taxes” in the consolidated statements of loss and comprehensive loss (See Note 22). On March 5, 2021, Ankang Longevity Group
entered into two equity investment transfer agreements with a third-party company to sell all of its 49% equity interest in Sunsimiao
Drugstores and its 49% equity interest in Shaanxi Longevity Pharmacy for a total consideration of RMB6.86 million (approximately US$1.0
million), and the full amount had been received by March 31, 2021.
In
2013, Ankang Longevity Group entered into a supplemental agreement with Shaanxi Pharmaceutical Group. According to the supplemental agreement,
new 49% equity investment companies established by Shaanxi Pharmaceutical Group and Ankang Longevity Group are required to exclusively
purchase certain raw materials and drug products from Shaanxi Pharmaceutical Group. In return, Shaanxi Pharmaceutical Group has agreed
to compensate Ankang Longevity Group with a purchase rebate of 7% of the total purchases made from Shaanxi Pharmaceutical Group. For
the years ended June 30, 2022 and 2021, no income was recognized by Ankang Longevity Group
from this supplemental agreement in addition to its 49% share of the income from the equity investment companies.
On
October 21, 2013, the Company, through its controlled subsidiaries, Zhisheng Freight and Zhisheng Agricultural, entered into an agreement
with an unrelated third party, Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd. (“Zhen’Ai Network”), and
invested RMB14.5 million (approximately US$2.2 million) into Tiancang Systematic Warehousing project (“Tiancang Project”)
operated by Zhen’Ai Network. The Tiancang Project is an online platform established to provide comprehensive warehousing and logistic
solutions to companies involved in E-commerce. The Company is entitled to 29% of Tiancang Project’s after-tax net income annually,
less 30% statutory reserve and a 10% employee welfare fund contribution. When the amount of the accumulated statutory reserve reaches
30% of the total investment for the Tiancang Project, no additional appropriation to the statutory reserve is required. The Company considered
it unlikely to obtain any investment income in the future, and decided the make a full impairment on this investment during the year
ended June 30, 2020.
Guangyuan
entered into an equity investment agreement with Shanxi Pharmaceutical Group Yushe Pharmaceutical Development Co., Ltd. (“Yushe
Pharmaceutical”), a Chinese pharmaceutical enterprise to invest a total of RMB 2.0 million (approximately US$0.3 million) for a
20% equity interest in Yushe Pharmaceutical. The investment is accounted for using the equity method because Guangyuan has significant
influence, but no control of the entity. The Company considered it unlikely to obtain any investment income in the future, and decided
the make a full impairment on this investment during the year ended June 30, 2022.
On
August 31, 2021, the Company entered into a capital injection agreement with the other shareholders of Shanghai Gaojing Private Fund
Management (“Gaojing Private Fund”), a Chinese private fund management company, to complete the injection of a total RMB
4.8 million (approximately US$0.75 million) for its 32% equity interest in Gaojing Private Fund. The investment is accounted for using
the equity method because the Company has significant influence, but no control of the entity. As of June
30, 2022, a total of US$0.75 million was fully injected by the Company. The Company recorded a loss of US$132,554 for the year
ended June 30, 2022 from the investment, respectively, which was included in “Loss from equity method investments”
in the consolidated statements of loss and comprehensive loss.
On
January 18, 2022, the Company entered into three share transfer agreements (the “Purchase Agreements”), respectively with
Beijing Qing Chuang Technology Incubator Co., Ltd., Hangzhou Sheng Dou Shi Bio Technology Co., Ltd. and Peng He (collectively, the “Selling
Shareholders”), each a shareholder of Xiang Peng You Kang (Beijing) Technology Co., Ltd. (“XPYK”), pursuant to which
the Company shall acquire a total of 51% issued and outstanding equity interest of XPYK from the Selling Shareholders (the “XPYK
Shares”). Under the Purchase Agreements, the Company will issue an aggregate of 700,551 shares (“Company Shares”) of
its common stock valued at a per share price of $8 (subject to the terms and conditions of the Purchase Agreements) as the consideration
for the XPYK Shares. As the date of this report, no share has been issued and no equity interest of XPYK has been acquired by the Company.
On
January 30, 2022, the Company entered into a cooperation agreement (the “Cooperation Agreement”) with Weifang Jianyi Medical
Devices Co., Ltd. (“WJM”), a leading Chinese medical device company based in Shandong Province, China, pursuant to which
the Company and WJM shall jointly manufacture and sell nuclear medical imaging devices (the “Joint Project”), including PET,
PET-CT, and PET-MRI. Under the Cooperation Agreement, the Company will provide working capital and manufacturing facilities while WJM
shall contribute patented and unpatented technologies and know-how, medical device manufacturing permits, skilled engineers and project
managers to produce such nuclear medical imaging devices. The term of the Cooperation Agreement shall be three (3) years commencing from
January 30, 2022. In accordance with the Cooperation Agreement, WJM shall be entitled to 30% of the net income generated by the Joint
Project while the Company shall be entitled to 70% of the net income thereof and bear 100% of the net losses of the Joint Project. In
addition, the Company and WJM shall manage the Joint Project jointly with WJM making the budgets and the Company approving such budgets.
Furthermore, the Cooperation Agreement provides that the Company shall receive any and all of the intellectual property rights to be
developed as a result of the Joint Project. As the date of this report, the Joint Project has not started, and no working capital and
manufacturing facilities have been provided by the Company.
The
Company’s investments in unconsolidated entities consist of the following:
SCHEDULE OF INVESTMENT IN
UNCONSOLIDATED ENTITIES
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Gaojing Private Fund | |
$ | 617,446 | | |
$ | - | |
| Total investment | |
| 617,446 | | |
| - | |
| Less: investment, held for discontinued operations | |
| - | | |
| - | |
| Investment, held for continuing operations | |
$ | 617,446 | | |
$ | - | |
Summarized
financial information of unconsolidated entities from continued operations is as follows:
SCHEDULE OF FINANCIAL INFORMATION OF
UNCONSOLIDATED ENTITIES FROM CONTINUED OPERATIONS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Current assets | |
$ | 558,962 | | |
$ | - | |
| Current liabilities | |
| 1,478 | | |
| - | |
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Net sales | |
$ | - | | |
$ | - | |
| Gross loss | |
| (94 | ) | |
| - | |
| Loss from operations | |
| (403,069 | ) | |
| - | |
| Net loss | |
| (414,231 | ) | |
| - | |
Summarized
financial information of unconsolidated entities from discontinued operations is as follows:
SCHEDULE OF FINANCIAL INFORMATION OF UNCONSOLIDATED
ENTITIES FROM DISCONTINUED OPERATIONS
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Net sales | |
$ | - | | |
$ | 21,373,037 | |
| Gross profit | |
| - | | |
| 1,763,172 | |
| Loss from operations | |
| - | | |
| (4,099,079 | ) |
| Net loss | |
| - | | |
| (4,124,960 | ) |
NOTE
12 - LEASES
Effective
July 1, 2019, the Company adopted the new lease accounting standard using the optional transition method, which allowed it to continue
to apply the guidance under the lease standard in effect at the time in the comparative periods presented. In addition, the Company elected
the package of practical expedients, which allowed it to not reassess whether any existing contracts contain a lease, to not reassess
historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected
the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company has also elected the practical
expedient, allowing it to not separate the lease and non-lease components for all classes of underlying assets. Adoption of this standard
resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities of $3,587,788 and $450,123, respectively,
as of July 1, 2019 with no impact on accumulated deficit. Financial position for reporting periods beginning on or after July 1, 2019,
are presented under the new guidance, while prior-period amounts are not adjusted and continue to be reported in accordance with previous
guidance.
The
Company leases offices space under non-cancelable operating leases, with terms ranging from one to six 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 3
years to 24 years. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination
of the lease term and initial measurement of ROU assets and lease liabilities. Lease expenses for lease payment are recognized on a straight-line
basis over the lease term. Leases with initial terms of 12 months or less are not recorded on the balance sheet.
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.
The
table below presents the operating lease related assets and liabilities from the continuing operations recorded on the balance sheets.
No operating lease related assets and liabilities from the discontinued operations.
SCHEDULE OF OPERATING LEASE RELATED ASSETS AND LIABILITIES
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| ROU lease assets | |
$ | 2,088,149 | | |
$ | 3,585,703 | |
| | |
| | | |
| | |
| Operating lease liabilities – current | |
| 959,909 | | |
| 434,411 | |
| Operating lease liabilities – non-current | |
| 1,025,967 | | |
| 352,863 | |
| Total operating lease liabilities | |
$ | 1,985,876 | | |
$ | 787,274 | |
The
weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June
30, 2022 and 2021:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES FOR OPERATING LEASES
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Remaining lease term and discount rate: | |
| | | |
| | |
| Weighted average remaining lease term (years) | |
| 6.88 | | |
| 7.25 | |
| Weighted average discount rate | |
| 5.30 | % | |
| 5.00 | % |
Rent
expenses totaled US$1,084,749 and US$641,486 from the continuing operations for the years ended June
30, 2022 and 2021, respectively. Rent expenses were US$ nil from the discontinued operations for the years
ended June 30, 2022 and 2021, respectively.
During
the year ended June 30, 2022, the management performed evaluation on the impairment of ROU
lease assets, and impairment loss for the ROU lease assets of US$2,268,344
and US$ nil
was recorded for the years ended June 30, 2022 and 2021. Due to the continuous impact from the COVID-19 pandemic, the
Company’s Zhisheng VIEs, has not been able to grow and cultivate green agricultural
produce on its leased farmland, and based on the management estimation, these farmlands are unlikely to generate enough
future profit and cashflow. Therefore, the Company decided to record full impairment of
leased farmland during the year ended June 30, 2022.
The
following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| | |
| | |
| 2023 | |
$ | 1,034,731 | |
| 2024 | |
| 589,981 | |
| 2025 | |
| 180,776 | |
| 2026 | |
| 22,396 | |
| 2027 | |
| 22,396 | |
| Thereafter | |
| 455,380 | |
| Total lease payments | |
| 2,305,660 | |
| Less: imputed interest | |
| (319,784 | ) |
| Present value of lease liabilities | |
$ | 1,985,876 | |
NOTE
13 - SHORT-TERM LOANS
No
short-terms loan was outstanding as of June 30, 2022, as the Company disposed Ankang Group
on July 5, 2021.
Short-term
loans as of June 30, 2021 consisted of the following:
SCHEDULE OF SHORT-TERM LOANS
| Lender | |
June 30, 2021 | | |
Maturity Date | |
Int. Rate/Year | |
| Agricultural Bank of China-a^ | |
| 1,548,502 | | |
2022/2/27 | |
| 5.66 | % |
| Agricultural Bank of China-b# | |
| 309,700 | | |
2022/9/1 | |
| 5.66 | % |
| Total short-term loans | |
| 1,858,202 | | |
| |
| | |
| Less: short-term loans, held for discontinued operations | |
| (1,858,202 | ) | |
| |
| | |
| Short-term loans, held for continuing operations | |
$ | - | | |
| |
| | |
The
loans outstanding were guaranteed by the following properties, entities or individuals:
| a. |
Guaranteed
by a commercial credit guaranty company unrelated to the Company and also by Jiping Chen, a stockholder of the Company. |
| |
|
| b. |
Collateralized
by the building owned by Xiaoyan Chen and Jing Chen, who are both related parties of the Company. Xiaoyan Chen is one of the shareholders
of Ankang Longevity Group. Jing Chen is the sister of Xiaoyan Chen but not a shareholder of Ankang Longevity Group. |
| |
|
| ^ |
Upon
the original maturity date of February 27, 2021, the Company signed a loan extension agreement with Agricultural Bank of China to
extend the loan repayment date to February 27, 2022 with the same interest rate of 5.66% per annum. |
| |
|
| # |
Upon
the original maturity date of September 1, 2021, the Company signed a loan extension agreement with Agricultural Bank of China to
extend the loan repayment date to September 1, 2022 with the same interest rate of 5.66% per annum. |
Interest
expenses from continuing operations were US$ nil for the years ended June 30, 2022 and 2021,
respectively.
The
Company recorded interest expenses from discontinued operations of US$ nil and US$115,806 for the years
ended June 30, 2022 and 2021, respectively. The annual weighted average interest rates from discontinued operations were nil and
5.44% for the years ended June 30, 2022 and 2021, respectively.
NOTE
14 - ACQUISITION
Acquisition
of Tianjin Taijite
On
December 12, 2016, the Company entered into a merger and acquisition agreement with Tianjin Tajite, a professional e-commerce company
distributing Luobuma fabric commodities and branded products of Daiso 100-yen shops, based in Tianjin, China, to acquire 51% equity interests
in Tianjin Tajite. Pursuant to the agreement, the Company made a payment of RMB14,000,000 (approximately US$2.1 million) at the end of
December 2016 as the total consideration for the acquisition of Tianjin Tajite. On October 26, 2017, the Company completed the acquisition
of Tianjin Tajite. The acquisition provides a unique opportunity for the Company to enter the market of Luobuma fabric commodities and
branded products of Daiso 100-yen shops.
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 represents 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 RMB14,010,195
(approximately US$2.1 million). The results of operations of Tianjin Tajite have been included in the consolidated statements of operations
from the date of acquisition.
In
June 2018, the management performed evaluation on the impairment of goodwill. Due to the lower than expected revenue and profit, and
unfavorable business environment, the management fully recorded an impairment loss on goodwill of Tianjin Tajite.
The
fair value of distribution rights and its estimated useful lives from continuing operations are as follows:
SCHEDULE
OF FAIR VALUE OF DISTRIBUTION RIGHTS AND ESTIMATED USEFUL LIVES
| | |
Preliminary Fair Value | | |
Weighted Average Useful Life (in Years) | |
| Distribution rights | |
$ | 1,101,871 | | |
| 0(a | ) |
| (a) |
The
distribution rights with no expiration date has been determined to have an indefinite life. |
On
May 5, 2019, two minority shareholders of Tianjin Tajite transferred 26.4% of the equity interest hold to the Company. There was no consideration
paid for the transfers, and after the transfers, the Company owns 77.4% equity interest of Tianjin Tajite.
During
the year ended June 30, 2022, the management performed evaluation on the impairment of
distribution rights. As the Company is unable to generate any revenue and profit from the distribution right due to the unfavorable policy of China Customs and current
business environment caused by the continuous impact from the COVID-19, the management fully recorded an impairment loss on distribution rights of Tianjin Tajite.
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
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 Yushe County Guangyuan Forest Development Co., Ltd.
(“Guangyuan”)’s Shareholders in exchange for Guangyuan Shareholders entering into the VIE agreements with Tenet-Jove, which composes of
one group of similar identifiable assets; (ii) Tenet-Jove entered a Termination Agreement with Ankang Longevity and the Ankang Shareholders;
(iii) as a consideration to the Restructuring Agreement and based on a valuation report on the equity interests of Guangyuan issued by
an independent third party, Tenet-Jove relinquished all of its rights and interests in Ankang Longevity and transferred those rights
and interests to the Guangyuan Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of variable interest
entity agreements with Tenet-Jove. After signing of the Restructuring Agreement, the Company and the shareholders of Ankang and Guangyuan
actively carried out the transferring of rights and interests in Ankang and Guangyuan, and the transferring was completed subsequently
on July 5, 2021. Afterwards, with the completion of all other follow-ups works, on August 16, 2021, the Company, through its subsidiary
Tenet-Jove, completed the previously announced acquisition pursuant to the Restructuring Agreement dated June 8, 2021.
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:
SUMMARIZES
THE ALLOCATION OF ESTIMATED FAIR VALUES
| | |
| | |
| Due from related party | |
| 108,296 | |
| Inventory | |
| 18,115,423 | |
| Other current assets | |
| 224,522 | |
| Right of use assets | |
| 1,127,130 | |
| Long-term investments and other non-current assets | |
| 166,107 | |
| Other payables and other current assets | |
| (2,503,607 | ) |
| Operating lease liabilities | |
| (1,013,492 | ) |
| Total purchase price for acquisition, net of US$112,070 of cash | |
$ | 16,224,379 | |
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$ nil
in the year ended June 30, 2022.
The
Company has included the operating results of Guangyuan in its consolidated financial statements since the Acquisition Date. US$44,150
in net sales and US$904,922 in net loss of Guangyuan were included in the consolidated financial statements for the year ended
June 30, 2022.
NOTE
15 - RELATED PARTY TRANSACTIONS
Due
from Related Parties
The
Company has made temporary advances to certain stockholders 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. Those advances are due on demand and non-interest bearing.
As
of June 30, 2022 and 2021, the outstanding amounts due from related parties consisted of the following:
SCHEDULE
OF DUE FROM RELATED PARTIES
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Yang Bin | |
$ | - | | |
$ | 46,454 | |
| Beijing Huiyinansheng Asset Management Co., Ltd (a.) | |
| - | | |
| 23,228 | |
| Wang Qiwei | |
| - | | |
| 62,716 | |
| Zhao Min | |
| 1,410 | | |
| - | |
| Shanghai Gaojing Private Fund Management (b.) | |
| 429,998 | | |
| - | |
| Zhongjian Yijia Health Technology (Qingdao) Co., Ltd. (c.) | |
| 1,719,568 | | |
| - | |
| Zhongjian (Qingdao) International Logistics Development Co., Ltd. (d.) | |
| 4,644,011 | | |
| - | |
| Total due from related parties | |
| 6,794,987 | | |
| 132,398 | |
| Less: due from related parties, held for discontinued operations | |
| - | | |
| - | |
| Due from related parties, held for continuing operations | |
$ | 6,794,987 | | |
$ | 132,398 | |
| a. |
This
company is wholly owned by one of the Company’s senior managements. |
| |
|
| b. |
The
Company owns 32% equity interest in this company. (Note 11) |
| |
|
| c. |
On
September 17, 2021, the Company entered into a loan agreement with Zhongjian Yijia Health Technology (Qingdao) Co., Ltd. to with
an amount of US$1,642,355 (RMB 11.0 million) for its working capital for one year, with a maturity date of September 16, 2022. The
loans bore a fixed annual interest rate of 6.0% per annum. The Company recorded interest receivable amounted to US$77,213 as of June
30, 2022. Interest income were US$80,113 for the year ended June 30, 2022. Upon
maturity date, the Company signed a loan extension agreement with the related party to extend
the loan repayment by installments, among which, US$223,957 (RMB 1.5 million) will be paid by September 30, 2022, US$746,525 (RMB
5.0 million) will be paid by December 31, 2022, and the remaining loan and unpaid interest will be paid by June 30, 2023 |
| |
|
| d. |
On
October 28, 2021, the Company entered into a loan agreement with Zhongjian (Qingdao) International Logistics Development Co., Ltd.
to with an amount of US$4,464,219 (RMB 29.9 million) for its working capital for one year, with a maturity date of October 27, 2022.
The loans bore a fixed annual interest rate of 6.0% per annum. The Company recorded interest receivable amounted to US$179,792 as
of June 30, 2022. Interest income were US$186,543 for the year ended June 30, 2022. |
Due
to Related Parties
As
of June 30, 2022 and 2021, the Company had related party payables of US$2,798,800 and US$1,159,407, respectively, mainly due to the principal
stockholders or certain relatives of the stockholders of the Company who lend funds for the Company’s operations. The payables
are unsecured, non-interest bearing, and due on demand.
SCHEDULE
OF DUE TO RELATED PARTIES
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Wu Yang | |
$ | 95,630 | | |
$ | 99,183 | |
| Wang Sai | |
| 96,081 | | |
| 91,433 | |
| Zhou Guocong | |
| - | | |
| 551,314 | |
| Li Baolin (a.) | |
| - | | |
| 232,275 | |
| Zhao Min (b.) | |
| 562,528 | | |
| 185,202 | |
| Zhou Shunfang (c.) | |
| 2,044,561 | | |
| - | |
| Total due to related parties | |
| 2,798,800 | | |
| 1,159,407 | |
| Less: due to related parties, held for discontinued operations | |
| - | | |
| - | |
| Due to related parties, held for continuing operations | |
$ | 2,798,800 | | |
$ | 1,159,407 | |
| a. |
On December 10, 2019, the Company entered into a loan agreement with Li Baolin to borrow an amount of US$232,275 (RMB 1.5 million) for the Company’s working capital needs, with a maturity date of March 31, 2022. The loans bore a fixed annual interest rate of 20.0% per annum. The loan was fully repaid by the Company upon its maturity. |
| |
|
| b. |
During the year ended June 30, 2022, the Company entered into a series of loan agreements with Zhao Min to borrow an aggregated amount of US$365,797 (RMB 2.45 million) for the Company’s working capital needs for three months, with a maturity date range between July 2022 to September 2022. The loans bore a fixed annual interest rate of 5.0% per annum. Upon maturity date, the Company signed loan extension agreements with Zhao Min to extend the loan period for another nine months, with the same interest rate of 5.0% per annum. |
| |
|
| c. |
During the year ended June 30, 2022, the Company entered into a series of loan agreements with Zhou Shunfang to borrow an aggregated amount of US$1,269,092 (RMB 8.5 million) for the Company’s working capital needs for less than one year, with a maturity date range on March 31, 2022. The loans bore a fixed annual interest rate of 20.0% per annum. All loans were fully repaid by the Company upon their maturity. |
Interest expenses on loans due to related parties
were US$442,241 and US$ nil for the years ended June 30, 2022 and 2021, respectively.
Sales
to Related Parties
For
the years ended June 30, 2022 and 2021, no sales to related parties or balance of accounts receivables were from continuing operations.
The Company recorded sales to Shaanxi Pharmaceutical Group from the discontinued operations, a related party (see Note 11), of US$ nil
and US$1,892,410 for the years ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and 2021, the balance of accounts receivable
due from Shaanxi Pharmaceutical Group from discontinued operations was US$ nil and US$551,237, respectively.
NOTE
16 - 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 one-year maturity (“the Note”) to an institutional accredited investor Streeterville Capital, LLC
(“Investor”). The 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. On September 7, 2022, the Company signed
an extension amendment with the Investor to extend the maturity date to June 15, 2023.
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 one-year maturity term (the “Notes”) to the same Investor. The first
convertible promissory note (“Note #1”) 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 (“Note #2”) has an 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.
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 one-year maturity term (the “Note”) to the same Investor. 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. On September 7, 2022, the Company signed an extension amendment with the Investor
to extend the maturity date to August 18, 2023.
For
the above-mentioned convertible promissory notes issued, interest accrues on the outstanding balance of these notes at 6% per annum.
The Investor may redeem all or any part of the outstanding balance of the note, at any time after six months from the issue date upon
three trading days’ notice, in cash or converting into shares of the Company’s common stock at a price equal to 80% multiplied
by the lowest daily volume weighted average price (“VWAP”) during the fifteen trading days immediately preceding the applicable
redemption conversion, subject to certain adjustments and ownership limitations specified in the note. Following the receipt of a redemption
notice, the Company may either ratify Investor’s proposed allocation in the applicable redemption notice or elect to change the
allocation by written notice to Investor within twenty-four (24) hours of its receipt of such redemption notice, so long as the sum of
the cash payments and the amount of redemption conversions equal the applicable redemption amount. As the date of this report, the Company
received principal in full from the Investor. The Company anticipates using the proceeds for general working capital purposes.
As
of June 30, 2022, the Company received principal in full from the Investor. For the year
ended June 30, 2022, a total of US$1,379,777 in amortization of the debt discounts was recorded on the consolidated statements
of loss and comprehensive loss.
As
of June 30, 2022, shares of the Company’s common stock totaling 1,837,155 were issued
by the Company to the Investor equaling principal and interests amounted to US$7,365,002, and the Notes balance was US$14,416,956, with
a carrying value of US$14,525,401, net of deferred financing costs of US$108,445 was recorded in the accompanying consolidated balance
sheets.
NOTE
17 - 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 25% on taxable income. Two VIEs and Xinjiang Taihe receive a full income
tax exemption from the local tax authority of the PRC as agricultural enterprises as long as the favorable tax policy remains unchanged.
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$744,766 for the year ended June 30, 2018. In accordance with SAB 118,
additional work is necessary to do a more detailed analysis of The Act as well as potential correlative adjustments. Any subsequent adjustment
to these amounts will be recorded to current tax expense in fiscal 2019 when the analysis is complete. The Company elects to pay the
transition tax over an eight-year period using specified percentages (eight percent per year for the first five years, 15 percent in
year six, 20 percent in year seven, and 25 percent in year eight).
i)
The components of the income tax expenses were as follows:
SCHEDULE
OF COMPONENTS OF INCOME TAX EXPENSE (BENEFITS)
| | |
2022 | | |
2021 | |
| | |
For the years ended June 30, | |
| | |
2022 | | |
2021 | |
| Current income tax provision | |
$ | (6,454 | ) | |
$ | 43,701 | |
| Deferred income tax benefit | |
| (285,812 | ) | |
| - | |
| Less: income tax expenses, held for discontinued operations | |
| - | | |
| (43,701 | ) |
| Income tax benefit, held for continuing operations | |
$ | (292,266 | ) | |
$ | - | |
SCHEDULE OF FINANCIAL REPORTING BASIS AND TAX BASIS OF ASSETS AND LIABILITIES
| | |
June 30, 2022 | | |
June 30, 2021 | |
| Deferred tax assets: | |
| | | |
| | |
| Allowance for doubtful accounts | |
$ | 1,252,245 | | |
$ | 951,136 | |
| Inventory reserve | |
| 311,439 | | |
| 306,308 | |
| Net operating loss carry-forwards | |
| 979,682 | | |
| 552,579 | |
| Total | |
| 2,543,366 | | |
| 1,810,023 | |
| Valuation allowance | |
| (2,543,366 | ) | |
| (1,810,023 | ) |
| Total deferred tax assets | |
| - | | |
| - | |
| Deferred tax liability: | |
| | | |
| | |
| Distribution rights | |
| - | | |
| (285,699 | ) |
| Total deferred tax liability | |
| - | | |
| (285,699 | ) |
| Deferred tax liability, net | |
| - | | |
| (285,699 | ) |
| Less: deferred tax liability, net, held for discontinued operations | |
| - | | |
| - | |
| Deferred tax liability, net, held for continuing operations | |
$ | - | | |
$ | (285,699 | ) |
Movement
of the valuation allowance:
SCHEDULE OF MOVEMENT OF VALUATION ALLOWANCE
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Beginning balance | |
$ | 1,810,023 | | |
$ | 1,185,655 | |
| Current year addition | |
| 798,160 | | |
| 512,028 | |
| Exchange difference | |
| (64,817 | ) | |
| 112,340 | |
| Ending balance | |
| 2,543,366 | | |
| 1,810,023 | |
| Less: valuation allowance, held for discontinued operations | |
| - | | |
| (1,362,329 | ) |
| Valuation allowance, held for continuing operations | |
$ | 2,543,366 | | |
$ | 447,694 | |
(b)
Value-Added Tax
The
Company is subject to a VAT for selling merchandise. The applicable VAT rate was 17% before May 1, 2018 for products sold in the PRC
and decreased to 16% thereafter, and after April 1, 2019, the tax rate was further reduced to 13% based on the new Chinese tax law. The
amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT
paid on purchases made with the relevant supporting invoices (input VAT). Under commercial practice in the PRC, the Company pays VAT
based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be
a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued.
In
the event 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 no assessed penalties during the years
ended June 30, 2022 and 2021, respectively.
(c)
Taxes Payable
Taxes
payable consisted of the following:
SCHEDULE OF TAXES PAYABLE
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Income tax payable | |
$ | 992,780 | | |
$ | 3,376,499 | |
| Value added tax payable | |
| 34,925 | | |
| 73,390 | |
| Business tax and other taxes payable | |
| 3,375 | | |
| 8,573 | |
| Total tax payable | |
| 1,031,080 | | |
| 3,458,462 | |
| Less: tax payable, held for discontinued operations | |
| - | | |
| (1,743,673 | ) |
| Tax payable, held for continuing operations | |
$ | 1,031,080 | | |
$ | 1,714,789 | |
| | |
| | | |
| | |
| Income tax payable - current portion | |
$ | 584,220 | | |
$ | 2,952,021 | |
| Less: income tax payable - current portion, held for discontinued operations | |
| - | | |
| (1,743,673 | ) |
| Income tax payable - current portion, held for continuing operations | |
$ | 584,220 | | |
$ | 1,208,348 | |
| | |
| | | |
| | |
| Income tax payable - noncurrent portion | |
$ | 446,860 | | |
$ | 506,441 | |
| Less: income tax payable - noncurrent portion, held for discontinued operations | |
| - | | |
| - | |
| Income tax payable - noncurrent portion, held for continuing operations | |
$ | 446,860 | | |
$ | 506,441 | |
NOTE
18 - STOCKHOLDERS’ EQUITY
Initial
Public Offering
On
September 28, 2016, the Company completed its initial public offering of 190,354 shares of common stock at a price of US$40.50 per share
for gross proceeds of US$7.7 million and net proceeds of approximately US$5.4 million. The Company’s common shares began trading
on September 28, 2016 on the NASDAQ Capital Market under the symbol “TYHT.”
Statutory
Reserve
The
Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve,
based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations
to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until
the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at
the discretion of the board of directors. As of June 30, 2022 and 2021, the balance of the
required statutory reserves was US$4,198,107 and US$4,198,107, respectively.
On
September 3, 2019, the Company granted 184,763 restricted shares of common stock to its employees as compensation cost for awards. The
fair value of the restricted shares was US$1,022,660 based on the closing stock price US$5.54 at September 3, 2019. These restricted
shares vested immediately on the grant date.
On
September 5, 2019, the Company entered into a securities purchase agreement with select investors whereby the Company agreed to sell,
and the investors agreed to purchase, up to 310,977 shares of common stock at a purchase price of US$4.68 per Share. The Company received
net proceeds of US$1,500,203. The offering was made pursuant to the Company’s effective registration statement on Form S-3 (Registration
Statement No. 333-221711) previously filed with the Securities and Exchange Commission and a prospectus supplement thereunder.
On
July 10, 2020, the Company’s stockholders approved a 1-for-9 reverse stock split of the Company’s common stock, par value
$0.001 per share, with a market effective date of August 14, 2020 (the “Reverse Stock Split”). As a result of the Reverse
Stock Split, each nine pre-split shares of common stock outstanding automatically combined and converted to one issued and outstanding
share of common stock without any action on the part of stockholders. No fractional shares of common stock were issued to any stockholders
in connection with the Reverse Stock Split. Each stockholder was 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 remained at 100,000,000
shares, and the par value of the common stock following the Reverse Stock Split remained at $0.001 per share. As of August 14, 2020 (immediately
prior to the effective date), there were 27,333,428 shares of common stock outstanding, and the number of common stock outstanding after
the Reverse Stock Split was 3,037,048, taking into account of the effect of rounding fractional shares into whole shares. As a result
of the Reverse Stock Split, the Company’s shares and per share data as reflected in the consolidated financial statements were
retroactively restated as if the transaction occurred at the beginning of the periods presented.
On
December 10, 2020, the Company entered into a securities purchase agreement with select investors whereby the Company agreed to sell,
and the investors agreed to purchase, up to 604,900 shares of common stock at a purchase price of US$2.73 per share. The Company received
net proceeds of US$1,643,087. The offering was made pursuant to the Company’s effective registration statement on Form S-3 (Registration
Statement No. 333-221711) previously filed with the Securities and Exchange Commission and a prospectus supplement thereunder.
On
January 27, 2021, the Company issued 364,445 shares of common stock to three investors at a price of US$3.0 per share. The Company received
net proceeds of US$1,093,355.
On
April 10, 2021, the Company issued 3,872,194 shares of common stock to selected investors at a price of US$3.2 per share. The Company
received net proceeds of US$7,981,204 and US$3,024,000 was outstanding as of June 30, 2022.
On
December 6, 2021, the Company entered into a securities purchase agreement with GHS
Investments, LLC (“GHS”). Under the Purchase Agreement, the Company sold GHS 291,775 shares of its common stock at a per
share purchase price of $6.8546 for gross proceeds of $2,000,000. After the deduction of issuance cost, the Company received net
proceeds of US$1,970,000.
On
April 11, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Jing Wang (the “Investor”).
Under the Purchase Agreement, the Company will sell to the Investor, up to 973,451 shares (the “Shares”) of its common stock
at a per share purchase price of $2.26 (subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to $2,200,000
which were fully received, and the Shares were issued to the Investor on April 18, 2022.
On
June 13, 2022, the Company entered into a certain stock purchase agreement (the “SPA”) 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 2,354,500 shares of common stock of the Company (the “Shares”) at a price of US$2.12 per share. 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 $4,991,540.
NOTE
19 - 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$15,164,950 and US$16,333,102 as of June 30, 2022 and 2021, respectively. The cash
balance held in the PRC bank accounts from the discontinued operations was US$ nil and US$12,676,416 as of June 30, 2022
and 2021, respectively.
During
the years ended June 30, 2022 and 2021, almost 100% of the Company’s assets were located
in the PRC and 100% of the Company’s revenues were derived from its subsidiaries and VIEs located in the PRC.
For
the year ended June 30, 2022, five customers accounted for approximately 91%
of the Company’s total sales from the continuing operations, respectively. At June 30, 2022,
three customers accounted for approximately 71%
of the Company’s accounts receivable from the continuing operations.
For
the year ended June 30, 2021, four customers accounted for approximately 72% of the Company’s total sales from the continuing operations,
respectively. For the year ended June 30, 2021, six customers accounted for approximately 100% of the Company’s total sales from
the discontinued operations, respectively. At June 30, 2021, four customers accounted for approximately 80% of the Company’s accounts
receivable from the continuing operations, and five customers accounted for approximately 98% of the Company’s accounts receivable
from the discontinued operations.
For
the year ended June 30, 2022, one vendor accounted for approximately 92% of the Company’s
total purchases from the continuing operations.
For
the year ended June 30, 2021, one vendor accounted for approximately 95% of the Company’s total purchases from the continuing operations,
respectively. For the year ended June 30, 2021, six vendors accounted for approximately 100% of the Company’s total purchases from
the discontinued operations, respectively.
NOTE
20 - COMMITMENTS AND CONTINGENCIES
Legal
Contingencies
On
May 16, 2017, Bonwick Capital Partners, LLC (the “Plaintiff”) commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against the
Company in the United States District Court for the Southern District of New York. Plaintiff alleged that the Company entered into an
agreement with the Plaintiff, pursuant to which the Plaintiff was to provide the Company with financial advisory services in connection
with the Company’s initial public offering in the United States. The Plaintiff alleged that the Company breached the Agreement
and seek money damages up to US$6 million. In March 2021, 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$47,500 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.
On
May 16, 2017, Mrs. 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 initial public offering, the
Plaintiff incurred losses and hence seek money damages against the Company. Based on the judgment of the first trail, the Company required
to pay the Plaintiff a settlement payment, including the money compensation, interests and other legal fees. As of June
30, 2022, the Company accrued a total sum of US$837,225 (approximately RMB 5.4 million) for this lawsuit. The Company made the
appeal to the People’s Court, and will vigorously defend itself and seek for less settlement payment in the second trail of this
litigation.
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 restricted shares
of the Company 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
claimed that the Company made false and materially misleading statements, specifically regarding the sale of the shares and the removal
of their restrictive legends. Defendants seek a declaratory judgment, indemnification, and money damages of at least $9 million, punitive
damages of $10 million, plus interest, costs, and fees. The Company moved to dismiss the counterclaims,
and its motion was fully-submitted in April, 2022. Also 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 in the amount of US$1.5 million by May 20, 2022. On June 13, 2022, the restriction imposed on the shares were lifted. The Company moved to dismiss the counterclaims,
and its motion was fully submitted in April 2022. On September 9, 2022, the Court granted the Company’s motion to dismiss defendants’
counterclaims on all but three counterclaims. Defendants’ outstanding counterclaims are for breach of contract, conversion, and
wrongful refusal to remove restrictions pursuant to 6 Del. C. § 8-401. Trial is currently scheduled for September 18, 2023. The outcome
of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. The Company intends
to recover on its claims, and vigorously defend itself in this litigation. As of June 30, 2022, the total unpaid shares issued
to Lei Zhang and Yan Li by the Company was 982,500 shares, and the subscription receivable was amounted to US$3,024,000 which was recorded
on the consolidated balance sheet.
NOTE
21 - 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 four 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): |
| |
|
| |
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. |
| |
|
| ● |
Processing
and distributing of traditional Chinese medicinal herbal products as well as other pharmaceutical products (“Herbal products”): |
| |
|
| |
The
operating companies of this segment, namely AnKang Longevity Group and its subsidiaries, which are reclassified as discontinued operations,
process more than 600 kinds of Chinese medicinal herbal products with an established domestic sales and distribution network. |
| |
|
| |
Ankang
Longevity Group is also engaged in the retail pharmacy business and the operating revenue, which is not material, is also included
in this segment. |
| |
|
| ● |
Planting,
processing, and distributing of green and organic agricultural produce as well as growing and cultivating of Chinese Yew trees (“Other
agricultural products”): |
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 this segment 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 companies 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 this segment 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”): |
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. During the year ended June 30, 2022, there was a change in the Company’s business strategies, from being
the service providers, Zhisheng Freight outsourced the freight services to third-party
logistic companies and 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.
The
following table presents summarized information by segment for the year ended June 30, 2022:
SCHEDULE
OF INFORMATION BY SEGMENT
| | |
For the year ended June 30, 2022 | |
| | |
| Continuing Operations | | |
| Discontinued Operations | | |
| | |
| | |
| Luobuma | | |
| Other agricultural | | |
| Freight | | |
| | | |
| Herbal | | |
| | |
| | |
| products | | |
| products | | |
| services | | |
| Total | | |
| products | | |
| Total | |
| Segment revenue | |
$ | 43,949 | | |
$ | 1,687,884 | | |
$ | 454,627 | | |
$ | 2,186,460 | | |
$ | - | | |
$ | 2,186,460 | |
| Cost of revenue and related business and sales tax | |
| 98,209 | | |
| 3,364,744 | | |
| 334,170 | | |
| 3,797,123 | | |
| - | | |
| 3,797,123 | |
| Gross profit (loss) | |
| (54,260 | ) | |
| (1,676,860 | ) | |
| 120,457 | | |
| (1,610,663 | ) | |
| - | | |
| (1,610,663 | ) |
| Gross loss % | |
| (123.5 | )% | |
| (99.3 | )% | |
| 26.5 | % | |
| (73.7 | )% | |
| - | | |
| (73.7 | )% |
The
following table presents summarized information by segment for the year ended June 30, 2021:
| | |
For the year ended June 30, 2021 | |
| | |
| Continuing Operations | | |
| Discontinued Operations | | |
| | |
| | |
| Luobuma | | |
| Other agricultural | | |
| Freight | | |
| | | |
| Herbal | | |
| | |
| | |
| products | | |
| products | | |
| services | | |
| Total | | |
| products | | |
| Total | |
| Segment revenue | |
$ | 115,590 | | |
$ | 2,120,484 | | |
$ | 785,630 | | |
$ | 3,021,704 | | |
$ | 8,085,527 | | |
$ | 11,107,231 | |
| Cost of revenue and related business and sales tax | |
| 200,263 | | |
| 6,334,964 | | |
| 722,628 | | |
| 7,257,855 | | |
| 7,099,353 | | |
| 14,357,208 | |
| Gross loss | |
| (84,673 | ) | |
| (4,214,480 | ) | |
| 63,002 | | |
| (4,236,151 | ) | |
| 986,174 | | |
| (3,249,977 | ) |
| Gross loss% | |
| (73.3 | )% | |
| (198.8 | )% | |
| 8.0 | % | |
| (140.2 | )% | |
| 12.2 | % | |
| (29.3 | )% |
Total
assets as of June 30, 2022 and 2021 were as follows:
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Luobuma products | |
$ | 10,982,562 | | |
$ | 3,849,675 | |
| Other agricultural products | |
| 46,488,334 | | |
| 28,531,029 | |
| Freight services | |
| 6,355,121 | | |
| 4,235,122 | |
| Herbal products | |
| - | | |
| 24,702,773 | |
| Total assets | |
| 63,826,017 | | |
| 61,318,599 | |
| Less: total assets held for discontinued operations | |
| - | | |
| (24,702,773 | ) |
| Total assets, held for continuing operations | |
$ | 63,826,017 | | |
$ | 36,615,826 | |
NOTE
22 - DISCONTINUED OPERATIONS
On
June 8, 2021, Tenet-Jove entered into a Restructuring Agreement (the “Restructuring Agreement”) with the following parties:
| |
● |
Ankang
Longevity, a company incorporated under the laws of the People’s Republic of China (the “PRC”); |
| |
|
|
| |
● |
Mr.
Jiping Chen, who is a minority shareholder of the Company and holds 68.7% of the equity interests in Ankang Longevity, and Ms. Xiaoyan
Chen, who holds 31.3% of the equity interests in Ankang Longevity (collectively, the “Ankang Shareholders”); |
| |
|
|
| |
● |
Yushe
County Guangyuan Forest Development Co., Ltd., a company incorporated under the laws of the PRC (“Guangyuan”); and |
| |
|
|
| |
● |
Mr.
Baolin Li, who is a minority shareholder of the Company and holds 90% of the equity interests in Guangyuan, and Ms. Yufeng Zhang,
who holds 10% of the equity interests in Guangyuan (collectively, the “Guangyuan Shareholders”). |
Pursuant
to the terms of the Restructuring Agreement, (i) the Company transferred all of its rights and interests in Ankang Longevity to the
Guangyuan Shareholders in exchange for the Guangyuan Shareholders entering into the VIE
agreements with Tenet-Jove, which composes of one group of similar identifiable assets; (ii) Tenet-Jove
entered a Termination Agreement with Ankang Longevity and the Ankang Shareholders; (iii) as a consideration to the Restructuring
Agreement and based on a valuation report on the equity interests of Guangyuan issued by an independent third party, Tenet-Jove
relinquished all of its rights and interests in Ankang Longevity and transferred those rights and interests to the Guangyuan
Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of variable interest entity agreements with
Tenet-Jove.
After
signing of the Restructuring Agreement, the Company and the shareholders of Ankang and Guangyuan actively carried out the transferring
of rights and interests in Ankang and Guangyuan, and the transferring was completed subsequently on July 5, 2021. Afterwards, with the
completion of all other follow-ups works, on August 16, 2021, the Company, through its subsidiary Tenet-Jove, completed the previously
announced acquisition pursuant to the Restructuring Agreement dated June 8, 2021. The management determined that July 5, 2021 was the
disposal date of Ankang.
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 noncurrent 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 entities of Ankang Longevity have been reclassified as “assets
of discontinued operations” and “liabilities of discontinued operations” within current and non-current assets and
liabilities, respectively, on the consolidated balance sheets as of June 30, 2022 and 2021.
The results of operations of Ankang Longevity have been reclassified to “net loss from discontinued operations” in the consolidated
statements of loss and comprehensive loss for the years ended June 30, 2022 and 2021.
The
carrying amount of the major classes of assets and liabilities of discontinued operations as of June 30, 2022 and 2021 consist of the
following:
SCHEDULE
OF DISCONTINUED OPERATIONS
| | |
June 30, 2022 | | |
June 30, 2021 | |
| Assets of discontinued operation: | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | - | | |
$ | 12,681,483 | |
| Accounts receivables | |
| - | | |
| 3,473,057 | |
| Inventories, net | |
| - | | |
| 281,245 | |
| Advances to suppliers, net | |
| - | | |
| 700,348 | |
| Other current assets | |
| - | | |
| 2,523,609 | |
| Total current assets of discontinued operation | |
| - | | |
| 19,659,742 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| - | | |
| 3,683,525 | |
| Land use right, net of accumulated amortization | |
| - | | |
| 1,274,262 | |
| Investments | |
| - | | |
| - | |
| Long-term deposit and other noncurrent assets | |
| - | | |
| 85,244 | |
| Total assets of discontinued operation | |
$ | - | | |
$ | 24,702,773 | |
| | |
| | | |
| | |
| Liabilities of discontinued operation: | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Short-term loans | |
$ | - | | |
$ | 1,858,202 | |
| Accounts payable | |
| - | | |
| 46,948 | |
| Other payables and accrued expenses | |
| - | | |
| 1,218,111 | |
| Taxes payable | |
| - | | |
| 1,743,673 | |
| Total liabilities of discontinued operation | |
$ | - | | |
$ | 4,866,934 | |
The
summarized operating result of discontinued operations included in the Company’s consolidated statements of operations consist
of the following:
SCHEDULE
OF DISPOSAL GROUP INCLUDING DISCONTINUED OPERATIONS
| | |
2022 | | |
2021 | |
| | |
For the Years Ended June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| REVENUE | |
$ | - | | |
$ | 8,085,527 | |
| | |
| | | |
| | |
| COST OF REVENUE | |
| | | |
| | |
| Cost of product and services | |
| - | | |
| 7,069,026 | |
| Business and sales related tax | |
| - | | |
| 30,327 | |
| Total cost of revenue | |
| - | | |
| 7,099,353 | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| - | | |
| 986,174 | |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| General and administrative expenses | |
| - | | |
| 5,456,786 | |
| Selling expenses | |
| - | | |
| 74,207 | |
| Total operating expenses | |
| - | | |
| 5,530,993 | |
| | |
| | | |
| | |
| LOSS FROM OPERATIONS | |
| - | | |
| (4,544,819 | ) |
| | |
| | | |
| | |
| OTHER EXPENSE | |
| | | |
| | |
| Loss from equity method investments | |
| - | | |
| (3,784,000 | ) |
| Other expenses, net | |
| - | | |
| (2,171,150 | ) |
| Interest expense, net | |
| - | | |
| (73,318 | ) |
| Total other expense | |
| - | | |
| (6,028,468 | ) |
| | |
| | | |
| | |
| LOSS BEFORE PROVISION FOR INCOME TAXES FROM DISCONTINUED OPERATIONS | |
| - | | |
| (10,573,287 | ) |
| | |
| | | |
| | |
| PROVISION FOR INCOME TAXES FROM DISCONTINUED OPERATIONS | |
| - | | |
| 43,701 | |
| | |
| | | |
| | |
| NET LOSS FROM DISCONTINUED OPERATIONS FROM ANKANG GROUP | |
| - | | |
| (10,616,988 | ) |
| | |
| | | |
| | |
| LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS | |
| (2,433,395 | ) | |
| - | |
| | |
| | | |
| | |
| NET LOSS FROM DISCONTINUED OPERATIONS | |
| (2,433,395 | ) | |
| (10,616,988 | ) |
| | |
| | | |
| | |
| Net loss attributable to non-controlling interest | |
| - | | |
| (578,900 | ) |
| | |
| | | |
| | |
| NET LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO SHINECO, INC. | |
$ | (2,433,395 | ) | |
$ | (10,038,088 | ) |
NOTE
23 - SUBSEQUENT EVENTS
On
July 21, 2022, the stockholders of the Company approved the Company’s 2022 Equity Incentive Plan (the “2022 Plan”),
pursuant to which 1,500,000 shares of the Company’s common stock will be made available for issuance under the 2022 Plan. On July
27, 2022, the Board of Directors of the Company (the “Board”) approved the issuance of shares of common stock to members
of the Board pursuant to the Company’s 2022 Plan for their services to the Company and the Board, in the aggregate amount of 86,000
shares (the “Shares”). The Shares fully vested immediately.
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 will sell to the Investors, up to 1,921,683
shares (the “Shares”) of its common stock at a per share purchase price of $0.915
(subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to US$1,758,340.
As the date of this report, proceeds amounted to US$1.0 million has been received by the Company, and the remaining balance of the
proceeds is expected to be fully collected by December 31, 2022.
These
consolidated financial statements were approved by management and available for issuance on September 28,
2022, and the Company has evaluated subsequent events through this date. No subsequent events required adjustments to or disclosure in
these consolidated financial statements.
