The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements.
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 (approximately US$1.5 million). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering
Co., Ltd. (“Runze”) with registered capital of RMB10.0 million (approximately US$1.5 million). 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 (approximately US$1.5 million). TNB became a wholly-owned subsidiary of Tenet-Jove.
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
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
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.
On
December 30, 2022, Life Science closed the acquisition of 51% of the issued equity interests of Changzhou Biowin Pharmaceutical Co.,
Ltd. (“Biowin”), a company established under the laws of China, pursuant to the previously announced stock purchase agreement,
dated as of October 21, 2022, among Beijing Kanghuayuan Medicine Information Consulting Co., Ltd., a company established under the laws
of China (“Seller”), Biowin, the Company and Life Science (the “Agreement”). As the consideration for the acquisition,
the Company paid to Seller US$9 million in cash and the Company issued 3,260,000 shares (the “Shares”) of the Company’s
common stock, par value US$0.001 per share (the “Common Stock”) to the equity holders of Biowin or any persons designated
by Biowin. According to the Supplementary Agreement, dated as of December 30, 2022, by and among Life Science, the Seller and Biowin,
the Seller enjoyed 51% of the issued equity interests of Biowin before January 1, 2023, and transferred the 51% of the issued equity
interests of Biowin together with its controlling rights of production and operation of Biowin to Life Science from January 1, 2023.
On
January 13, 2023, the Company entered into a non-binding framework agreement (the “LOI”) with certain shareholders of Dream
Partner Limited (“Dream Ltd.”) to acquire 80% equity interests of Dream Ltd., which indirectly owns 100% equity interests
of Chongqing Wintus Group (“Wintus”), which is a private company based in China that produces specialized antiviral silk
fabric materials that can be widely used in the medical, hygiene, pharmaceutical and personal health fields. According to the LOI, the
total purchase price of the acquisition is estimated to be approximately US$40 million which is expected to consist of cash and the Company’s
common stock. The LOI represents terms for a proposed transaction and will be subject to legal and financial due diligence, which includes
a third-party audit and evaluation, Shineco’s shareholder’s approval and definitive documentation.
The
Company, its subsidiaries, its VIEs, and its VIEs’ subsidiaries (collectively the “Group”) currently 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) Biowin is specializing in development,
production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid
Diagnostic 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 unaudited condensed consolidated financial statements, the Company had recurring net losses of US$7,824,816
and US$20,033,826, and continuing cash outflow of US$2,853,387 and US$6,755,462 from operating activities for the nine months ended March
31, 2023 and 2022. 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 March 31, 2023, the Company had positive working capital due to the following measurements the
management has taken to enhance the Company’s liquidity:
| 1) |
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
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$1.6 million has been received by the Company, and the remaining balance of the proceeds is expected to be
fully collected by June 30, 2023. |
| 2) |
On
January 12, 2023, the Board of the Company approved the sales of 722,222 shares of the Company’s common stock to the Company’s
employees for gross proceeds of up to US$650,000, and the balance of the proceeds is expected to be fully collected by September
30, 2023. |
| |
|
| 3) |
The
Company financed from commercial banks. As of March 31, 2023, the Company had US$1.3 million in bank loans outstanding. The management
expects that the Company will be able to renew its existing bank loans upon their maturity based on past experience and its good
credit history. |
| |
|
| 4) |
As
of March 31, 2023, the Company had cash and cash equivalents in the amount of approximately US$15.4 million for the next operating
cycle in next twelve months. |
Management
believes that the foregoing measures collectively will provide sufficient liquidity for the Company to meet its future liquidity needs
12 months from the date of this filing.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules of the SEC
and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s
Form 10-K for the fiscal year ended June 30, 2022, which was filed on September 28, 2022.
The
unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries,
its VIEs and its VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in the Company’s
majority owned subsidiaries and VIEs. All intercompany accounts and transactions have been eliminated in consolidation. Operating results
for the nine months ended March 31, 2023 and 2022 are not necessarily indicative of the results that may be expected for the full year.
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’ unaudited condensed consolidated assets and liabilities and income information
were as follows:
SCHEDULE
OF CONSOLIDATED ASSETS AND LIABILITIES AND INCOME INFORMATION
| | |
March
31,
2023 | | |
June
30,
2022 | |
| | |
| | |
| |
| Current assets | |
$ | 35,323,904 | | |
$ | 34,723,255 | |
| Non-current assets | |
| 810,221 | | |
| 1,212,739 | |
| Total assets | |
| 36,134,125 | | |
| 35,935,994 | |
| Total liabilities | |
| (4,581,768 | ) | |
| (5,719,289 | ) |
| Net assets | |
$ | 31,552,357 | | |
$ | 30,216,705 | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For
the nine months ended
March
31, | | |
For
the three months ended
March
31, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Net sales | |
$ | 1,514,166 | | |
$ | 1,937,137 | | |
$ | 984,042 | | |
$ | 609,573 | |
| Gross loss | |
$ | (331,212 | ) | |
$ | (1,673,759 | ) | |
$ | (234,967 | ) | |
$ | (498,060 | ) |
| Income (loss) from operations | |
$ | 1,311,850 | | |
$ | (8,392,455 | ) | |
$ | 923,945 | | |
$ | (1,027,601 | ) |
| Net income (loss) | |
$ | 1,347,099 | | |
$ | (11,655,014 | ) | |
$ | 947,367 | | |
$ | (1,014,123 | ) |
The
carrying amount of the VIEs and their subsidiaries’ unaudited condensed consolidated income information held for discontinued operations
were as follows:
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For
the nine months ended
March
31, | | |
For
the three months ended
March
31, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Net loss | |
$ | - | | |
$ | (3,135,237 | ) | |
$ | - | | |
$ | - | |
The
carrying amount of the VIEs and their subsidiaries’ unaudited condensed consolidated assets and liabilities and income information
held for continued operations were as follows:
| | |
March 31, 2023 | | |
June 30, 2022 | |
| | |
| | |
| |
| Current assets | |
$ | 35,323,904 | | |
$ | 34,723,255 | |
| Non-current assets | |
| 810,221 | | |
| 1,212,739 | |
| Total assets | |
| 36,134,125 | | |
| 35,935,994 | |
| Total liabilities | |
| (4,581,768 | ) | |
| (5,719,289 | ) |
| Net assets | |
$ | 31,552,357 | | |
$ | 30,216,705 | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For the nine months ended March 31, | | |
For the three months ended
March 31, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Net sales | |
$ | 1,514,166 | | |
$ | 1,937,137 | | |
$ | 984,042 | | |
$ | 609,573 | |
| Gross loss | |
$ | (331,212 | ) | |
$ | (1,673,759 | ) | |
$ | (234,967 | ) | |
$ | (498,060 | ) |
| Income (loss) from operations | |
$ | 1,311,850 | | |
$ | (8,392,455 | ) | |
$ | 923,945 | | |
$ | (1,027,601 | ) |
| Net income (loss) | |
$ | 1,347,099 | | |
$ | (8,519,777 | ) | |
$ | 947,367 | | |
$ | (1,014,123 | ) |
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 (loss) of these entities are reported
separately in the unaudited condensed 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 unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the
reporting periods. Significant estimates required to be made by management include, but are not limited to, useful lives of property
and equipment, and intangible assets, the recoverability of long-lived assets, 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, agricultural products and rapid diagnostic 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 these 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 March 31, 2023 and June 30, 2022, 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 March 31, 2023
and June 30, 2022, the allowance for doubtful accounts was US$7,552,901 and US$7,317,236, 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. Net realizable value is the estimated selling price in the normal course of business less
any costs to complete and sell products. Cost is determined using the first in first out (“FIFO”) method. 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 March 31, 2023 and June
30, 2022, the inventory reserve was US$1,431,963
and US$1,249,543,
respectively.
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 March 31, 2023 and June 30, 2022, the Company had an allowance for
uncollectible advances to suppliers of US$11,256,031 and US$13,544,627, 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 unaudited condensed consolidated financial statements from the date of acquisition. Assets acquired
and liabilities assumed are recorded at their fair values on the date acquired and the excess of the purchase price over the amounts
assigned is recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase price consideration, a bargain
purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not
longer than 12 months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring
costs be charged to expense as committed, and requires the Company to recognize and measure certain assets and liabilities, including
those arising from contingencies and contingent consideration in a business combination.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value,
goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of
a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined
in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each
of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques,
including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market
approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded
or which are part of a public or private transaction (to the extent available).
Leases
The
Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, warehouse, and farmland
which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following
for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i)
lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and
(ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term.
Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental
borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating
lease ROU asset also includes any lease payments made and excludes lease incentives and includes initial direct costs incurred. The Company’s
lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. All operating lease ROU assets
are reviewed for impairment annually. For the nine and three months ended March 31, 2023 and 2022, the Company did not recognize any
impairment of its ROU assets.
Property
and Equipment, Net
Property
and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for additions, major renewals, and betterments
are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided on a straight-line
basis, less estimated residual value, if any, over an asset’s estimated useful life. Farmland leasehold improvements are amortized
over the shorter of lease term or estimated useful lives of the underlying assets. The estimated useful lives of the Company’s
property and equipment are as follows:
SCHEDULE
OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| | |
Estimated useful lives |
| | |
|
| Buildings | |
20-50 years |
| Machinery equipment | |
3-10 years |
| Motor vehicles | |
5-10 years |
| Office equipment | |
3-10 years |
| Farmland leasehold improvements | |
12-18 years |
| Leasehold improvement | |
Lesser of useful life and lease term |
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 nine months ended March 31, 2023
and 2022, the Company recognized an impairment of its distribution right of US$ nil and US$1,140,551, respectively. For the three months ended March 31, 2023 and 2022, the Company did not recognize any impairment of its long-lived
assets.
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 unaudited condensed
consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
the results of operations in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
The
provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for
consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This
ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company did
not have any uncertain tax positions at March 31, 2023 and June 30, 2022. The Company had not provided deferred taxes for undistributed
earnings of non-U.S. subsidiaries at March 31, 2023, as it is the Company’s policy to indefinitely reinvest these earnings in non-U.S.
operations. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable.
The
statute of limitations for the Company’s U.S. federal income tax returns and certain state income tax returns remains open for
tax year 2019 and thereafter. As of March 31, 2023, the tax years ended December 31, 2018 through December 31, 2022 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$744,766 for the year ended June 30, 2018. On December 22, 2017, Staff Accounting Bulletin
No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the
necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of The Act. In accordance with SAB 118, additional work is necessary to do a more detailed analysis of The Act as
well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal
2019 when the analysis is complete. The Company elects to pay the transition tax over an eight-year period using specified percentages
(eight percent per year for the first five years, 15 percent in year six, 20 percent in year seven, and 25 percent in year eight).
Value-Added
Tax
Sales
revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). All of the Company’s products that
were sold in the PRC were subject to a Chinese value-added tax at rates ranging from 3% to 13%, depending on the type of products sold.
For overseas sales, VAT is exempted on the exported goods. This VAT may be offset by VAT paid by the Company on raw materials and other
materials included in the cost of producing finished products or acquiring finished products. The Company records a VAT payable or VAT
receivable in the accompanying unaudited condensed consolidated financial statements.
Foreign
Currency Translation
The
Company uses the United States dollar (“U.S. dollars,” “USD,” or “US$”) 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 March 31, 2023 and June 30, 2022 were translated at 1 RMB to 0.1456 USD and at
1 RMB to 0.1493 USD, respectively. The average translation rates applied to the income and cash flow statement amounts for the nine months
ended March 31, 2023 and 2022 were 1 RMB to 0.1442 USD and 1 RMB to 0.1562 USD, respectively. The average translation rates applied to
income and cash flow statement amounts for the three months ended March 31, 2023 and 2022 were 1 RMB to 0.1462 USD and 1 RMB to 0.1576
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.
Research
and Development Expenses
Research
and development costs relating to the development of new processes and significant improvements and refinements to existing
processes are expensed when incurred in accordance with the FASB ASC 730, “Research and Development.” The research and
development costs primarily comprise employee costs, consultant fees, materials and testing costs, and depreciation to property and
equipment used in the research and development activities and other miscellaneous expenses. For the nine and three months ended
March 31, 2023 and 2022, total research and development expense were approximately US$58,384
and US$ nil,
respectively.
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 unaudited
condensed 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 nine and three months ended March 31, 2023 and 2022.
The
following table presents a reconciliation of basic and diluted loss per share for the nine and three months ended March 31, 2023 and
2022:
SCHEDULE
OF RECONCILIATION OF BASIC AND DILUTED (LOSS) PER SHARE
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For
the nine months ended March
31, | | |
For
the three months ended
March
31, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Net loss from continuing operations
attributable to Shineco | |
$ | (7,878,128 | ) | |
$ | (16,873,390 | ) | |
$ | (2,668,533 | ) | |
$ | (2,892,584 | ) |
| Net loss from discontinued operations attributable
to Shineco | |
| - | | |
| (3,135,237 | ) | |
| - | | |
| - | |
| Net loss attributable to Shineco | |
| (7,878,128 | ) | |
| (20,008,627 | ) | |
| (2,668,533 | ) | |
| (2,892,584 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average shares outstanding - basic and diluted | |
| 17,653,428 | | |
| 9,026,568 | | |
| 20,523,358 | | |
| 9,652,228 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss from continuing operations per share
of common share Basic and diluted | |
$ | (0.45 | ) | |
$ | (1.87 | ) | |
$ | (0.13 | ) | |
$ | (0.30 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss from discontinued operations per share
of common share Basic and diluted | |
$ | - | | |
$ | (0.35 | ) | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss per share of common share Basic and
diluted | |
$ | (0.45 | ) | |
$ | (2.22 | ) | |
$ | (0.13 | ) | |
$ | (0.30 | ) |
New
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial
assets measured at amortized cost. ASU 2016-13 was subsequently amended by Accounting Standards Update 2018-19, Codification Improvements
to Topic 326, Financial Instruments—Credit Losses, Accounting Standards Update 2019-04 Codification Improvements to Topic
326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and Accounting
Standards Update 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments are effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its
amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives
and Hedging (Topic 815), and Leases (Topic 842)” (“ASU 2019-10”). ASU 2019-10 (i) provides a framework to stagger effective
dates for future major accounting standards and (ii) amends the effective dates for certain major new accounting standards to give implementation
relief to certain types of entities. Specifically, ASU 2019-10 changes some effective dates for certain new standards on the following
topics in the FASB Accounting Standards Codification (ASC): (a) Derivatives and Hedging (ASC 815) – now effective for fiscal years
beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021; (b) Leases (ASC 842) - now
effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021;
(c) Financial Instruments — Credit Losses (ASC 326) - now effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years; and (d) Intangibles — Goodwill and Other (ASC 350) - now effective for fiscal years
beginning after December 15, 2022, including interim periods within those fiscal years. The Company plans to adopt this guidance effective
July 1, 2023 and the adoption of this ASU is not expected to have a material impact on its financial statements.
The
Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s unaudited
condensed consolidated financial statements.
NOTE
4 – ACCOUNTS RECEIVABLE, NET
The
accounts receivable, net consisted of the following:
SCHEDULE
OF ACCOUNTS RECEIVABLE
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Accounts receivable | |
$ | 10,609,689 | | |
$ | 9,138,790 | |
| Less: allowance for doubtful accounts | |
| (7,552,901 | ) | |
| (7,317,236 | ) |
| Accounts receivable, net | |
$ | 3,056,788 | | |
$ | 1,821,554 | |
Movement
of allowance for doubtful accounts is as follows:
SCHEDULE
OF MOVEMENT OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Beginning balance | |
$ | 7,317,236 | | |
$ | 13,481,021 | |
| Acquisition of Biowin | |
| 477,358 | | |
| - | |
| Charge to (reversal of) expense | |
| (59,638 | ) | |
| 1,632,670 | |
| Less: cessation of subsidiaries and disposal of VIE | |
| - | | |
| (7,524,110 | ) |
| Foreign currency translation adjustments | |
| (182,055 | ) | |
| (272,345 | ) |
| Ending balance | |
$ | 7,552,901 | | |
$ | 7,317,236 | |
NOTE
5 – INVENTORIES, NET
The
inventories, net consisted of the following:
SCHEDULE
OF INVENTORIES, NET
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Raw materials | |
$ | 516,753 | | |
$ | 67,467 | |
| Work-in-process | |
| 18,367,116 | | |
| 18,709,325 | |
| Finished goods | |
| 1,541,746 | | |
| 1,191,275 | |
| Less: inventory reserve | |
| (1,431,963 | ) | |
| (1,249,543 | ) |
| Total inventories, net | |
$ | 18,993,652 | | |
$ | 18,718,524 | |
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$668,088 and US$1,303,312 during the nine months ended March 31, 2023 and 2022, respectively.
The Company wrote off inventory amounted to US$205,152 and US$401,731 during the three months ended March 31, 2023 and 2022, respectively.
It was due to the continuous impact from the COVID-19 pandemic 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
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Advances to suppliers | |
$ | 11,276,859 | | |
$ | 13,548,178 | |
| Less: allowance for doubtful accounts | |
| (11,256,031 | ) | |
| (13,544,627 | ) |
| Advance to suppliers, net | |
$ | 20,828 | | |
$ | 3,551 | |
Advances
to suppliers consist of mainly payments to suppliers for yew trees, as well as raw materials or products 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
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Beginning balance | |
$ | 13,544,627 | | |
$ | 13,320,307 | |
| Acquisition of Biowin | |
| 60,038 | | |
| - | |
| Charge to (reversal of) expense | |
| (1,853,183 | ) | |
| 4,938,064 | |
| Less: cessation of subsidiaries and disposal of VIE | |
| - | | |
| (4,210,407 | ) |
| Foreign currency translation adjustments | |
| (495,451 | ) | |
| (503,337 | ) |
| Ending balance | |
$ | 11,256,031 | | |
$ | 13,544,627 | |
NOTE
7 – OTHER CURRENT ASSETS, NET
Other
current assets, net consisted of the following:
SCHEDULE
OF OTHER CURRENT ASSETS
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Loans to third
parties (1) | |
$ | 4,074,779 | | |
$ | 16,345,717 | |
| Other receivables (2) | |
| 1,943,934 | | |
| 3,246,293 | |
| Short-term deposit | |
| 947,746 | | |
| 164,261 | |
| Prepaid expenses | |
| 21,239 | | |
| 20,872 | |
| Subtotal | |
| 6,987,698 | | |
| 19,777,143 | |
| Less: allowance for doubtful accounts | |
| (4,532,183 | ) | |
| (2,545,565 | ) |
| Total other current assets, net | |
$ | 2,455,515 | | |
$ | 17,231,578 | |
| 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. Due to the impact from COVID-19, the Company did
not receive repayments of loans to third parties according to the loan agreements, hence, the Company recorded allowance according
to the Company’s accounting policy based on its best estimates. As of March 31, 2023 and June 30, 2022, the allowance for doubtful
accounts was US$1,766,448 and US$384,915, respectively. Management will continue putting effort in collection of overdue loans to
third parties. |
| |
|
| 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
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Beginning balance | |
$ | 2,545,565 | | |
$ | 995,760 | |
| Acquisition of Biowin | |
| 15,322 | | |
| - | |
| Charge to expense | |
| 2,401,297 | | |
| 2,117,316 | |
| Less: cessation of subsidiaries and disposal of VIE | |
| - | | |
| (326,491 | ) |
| Foreign currency translation adjustments | |
| (430,001 | ) | |
| (241,020 | ) |
| Ending balance | |
$ | 4,532,183 | | |
$ | 2,545,565 | |
NOTE
8 - PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consisted of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Buildings | |
$ | 1,763,325 | | |
$ | 1,808,172 | |
| Machinery and equipment | |
| 1,062,553 | | |
| 27,351 | |
| Motor vehicles | |
| 205,399 | | |
| 139,077 | |
| Office equipment | |
| 187,984 | | |
| 178,271 | |
| Leasehold improvement | |
| 181,693 | | |
| 186,314 | |
| Farmland leasehold improvements | |
| 3,061,857 | | |
| 3,139,729 | |
| Subtotal | |
| 6,462,811 | | |
| 5,478,914 | |
| Less: accumulated depreciation and amortization | |
| (4,453,875 | ) | |
| (3,388,640 | ) |
| Less: impairment for property and equipment | |
| (697,074 | ) | |
| (714,802 | ) |
| Total property and equipment, net | |
$ | 1,311,862 | | |
$ | 1,375,472 | |
Depreciation
and amortization expense was US$185,339 and US$284,901 for the nine months ended March 31, 2023 and 2022, respectively. Depreciation
and amortization expense was US$20,668 and US$70,170 for the three months ended March 31, 2023 and 2022, respectively.
During
the year ended June 30, 2022, the management performed evaluation on the impairment of property and equipment. Due to the continuous
impact from the COVID-19 pandemic, the Company’s Zhisheng VIEs, have not been able to grow and cultivate green agricultural
produce on the leased farmlands, and based on the management estimation, these farmlands are unlikely to generate enough future
profit and cashflow, hence, the Company decided to record full impairment of such leased farmland (Note 11). Therefore, farmland
leasehold improvements relating to these farmlands were also fully impaired as of June 30, 2022. The impairment for property and
equipment of US$697,074
and US$714,802
was recorded as of March 31, 2023 and June 30, 2022, respectively.
Farmland
leasehold improvements, net consisted of following:
SCHEDULE
OF LEASEHOLD IMPROVEMENTS
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Blueberry farmland leasehold improvements | |
$ | 2,352,255 | | |
$ | 2,412,079 | |
| Yew tree planting base reconstruction | |
| 263,539 | | |
| 270,242 | |
| Greenhouse renovation | |
| 446,063 | | |
| 457,408 | |
| Subtotal | |
| 3,061,857 | | |
| 3,139,729 | |
| Less: accumulated amortization | |
| (2,364,783 | ) | |
| (2,424,927 | ) |
| Less: impairment for farmland leasehold improvements | |
| (697,074 | ) | |
| (714,802 | ) |
| Total farmland leasehold improvements, net | |
$ | - | | |
$ | - | |
NOTE
9 - 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
10 - INVESTMENTS
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$0.3 million) for a
20% equity interest in Yushe Pharmaceutical. The investment is accounted for using the equity method because Guangyuan has significant
influence, but no control of the entity. The Company recorded a loss of US$ nil and US$16,153 for the nine months ended March 31, 2023
and 2022, respectively, and US$ nil was recorded for the three months ended March 31, 2023 and 2022, respectively, from the investment,
which was included in “Loss from equity method investments” in the unaudited condensed consolidated statements of loss and
comprehensive loss. 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$0.70 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 December 31, 2022, a total of US$0.70
million was fully injected by the Company. The Company recorded a loss of US$20,932 and US$140,082 for the nine months ended March 31,
2023 and 2022, respectively, and a loss of US$14,711 and US$49,247 for the three months ended March 31, 2023 and 2022, respectively,
from the investment, which was included in “Loss from equity method investments” in the unaudited condensed 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 investment in unconsolidated entities consists of the following:
SCHEDULE
OF INVESTMENT IN UNCONSOLIDATED ENTITIES
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Gaojing Private Fund | |
$ | 596,514 | | |
$ | 617,446 | |
| Total investment | |
$ | 596,514 | | |
$ | 617,446 | |
Summarized
financial information of unconsolidated entities is as follows:
SCHEDULE
OF FINANCIAL INFORMATION OF UNCONSOLIDATED ENTITIES FROM CONTINUED OPERATIONS
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Current assets | |
$ | 607,929 | | |
$ | 558,962 | |
| Non-current assets | |
| 145,456 | | |
| - | |
| Current liabilities | |
| 275,769 | | |
| 1,478 | |
| | |
2023 | | |
2022 | |
| | |
For
the nine months ended March
31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Net sales | |
$ | 29,986 | | |
$ | 315,520 | |
| Gross loss | |
| - | | |
| (599 | ) |
| Loss from operations | |
| (63,761 | ) | |
| (493,570 | ) |
| Net loss | |
| (65,413 | ) | |
| (518,880 | ) |
NOTE
11 - LEASES
The
Company leases offices space and warehouse under non-cancelable operating leases, with terms ranging from one to seven and a half
years. In addition, the Zhisheng VIEs and Guangyuan entered into several farmland lease contracts with farmer cooperatives to lease
farmland in order to plant and grow organic vegetables, fruit, and Chinese yew trees, fast-growing bamboo willows and scenic
greening trees. The lease terms vary from 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 recorded on the balance sheets.
SCHEDULE
OF OPERATING LEASE RELATED ASSETS AND LIABILITIES
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| ROU lease assets | |
$ | 1,022,097 | | |
$ | 2,088,149 | |
| | |
| | | |
| | |
| Operating lease liabilities – current | |
| 369,870 | | |
| 959,909 | |
| Operating lease liabilities – non-current | |
| 605,420 | | |
| 1,025,967 | |
| Total operating lease liabilities | |
$ | 975,290 | | |
$ | 1,985,876 | |
The
weighted average remaining lease terms and discount rates for all of operating leases were as follows as of March 31, 2023 and June 30,
2022:
SCHEDULE
OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES FOR OPERATING LEASES
| | |
March
31, 2023 | | |
June
30, 2022 | |
| | |
| | |
| |
| Remaining lease term and discount rate: | |
| | | |
| | |
| Weighted average remaining lease term
(years) | |
| 8.82 | | |
| 6.88 | |
| Weighted average discount rate | |
| 5.24 | % | |
| 5.30 | % |
Rent
expenses totaled US$512,862 and US$693,684 for the nine months ended March 31, 2023 and 2022, respectively. Rent expenses totaled US$126,717
and US$229,477 for the three months ended March 31, 2023 and 2022, 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 was recorded for the year ended June 30, 2022. Due to the continuous impact from the COVID-19 pandemic,
the Company’s Zhisheng VIEs have not been able to grow and cultivate green agricultural produce on the leased 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 March 31, 2023:
SCHEDULE
OF MATURITIES OF LEASE LIABILITIES
| | |
| | |
| Remainder of 2023 | |
$ | 260,391 | |
| 2024 | |
| 271,049 | |
| 2025 | |
| 196,744 | |
| 2026 | |
| 21,840 | |
| 2027 | |
| 21,840 | |
| Thereafter | |
| 444,087 | |
| Total lease payments | |
| 1,215,951 | |
| Less: imputed interest | |
| (240,661 | ) |
| Present value of lease liabilities | |
$ | 975,290 | |
NOTE
12 - 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.
On
May 5, 2019, two minority shareholders of Tianjin Tajite transferred 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.
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 9).
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 liabilities | |
| (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
for the nine and three months ended March 31, 2023 and 2022.
The
Company has included the operating results of Guangyuan in its unaudited condensed consolidated financial statements since the Acquisition
Date. US$ nil in net sales and US$97,487 in net loss of Guangyuan were included in the unaudited condensed consolidated financial statements
for the nine months ended March 31, 2023. US$22,331 in net sales and US$694,051 in net loss of Guangyuan were included in the unaudited
condensed consolidated financial statements for the nine months ended March 31, 2022. US$ nil in net sales and US$22,353 in net loss
of Guangyuan were included in the unaudited condensed consolidated financial statements for the three months ended March 31, 2023. US$22,331
in net sales and US$71,250 in net loss of Guangyuan were included in the unaudited condensed consolidated financial statements for the
three months ended March 31, 2022.
Acquisition
of Changzhou Biowin Pharmaceutical Co., Ltd. (“Biowin”)
On
October 21, 2022, the Company, through its wholly-owned subsidiary, Life Science, entered into a stock purchase agreement with the Seller
and Biowin, pursuant to which Life Science would acquire 51% of the issued equity interests of Biowin from Seller. On December 30, 2022,
Life Science closed the acquisition of 51% of the issued equity interests of Biowin. As the consideration for the acquisition, the Company
paid to Seller US$9.0 million in cash and the Company issued 3,260,000 shares of the Company’s common stock, par value US$0.001
per share to the equity holders of Biowin or any persons designated by Biowin, the total consideration of the acquisition was US$12,097,000.
According to the Supplementary Agreement, dated as of December 30, 2022, by and among the Life Science, the Seller and Biowin, the Seller
transferred its controlling rights of production and operation of Biowin to Life Science from January 1, 2023. The management determined
that January 1, 2023 was the acquisition date of Biowin. The acquisition provides a unique opportunity for the Company to step into the
Point-of-Care Testing (“POCT”) industry.
The
transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent
appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values
assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date.
As
required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Non-controlling Interest, management
conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s
measurement procedures for recognition of the fair value of net assets acquired.
The
excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill which amounted to US$6,574,743.
The results of operations of Biowin have been included in the unaudited condensed consolidated statements of operations from the date
of acquisition.
The
following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:
SUMMARIZES
THE ALLOCATION OF ESTIMATED FAIR VALUES
| | |
| | |
| Accounts receivable, net | |
$ | 807,771 | |
| Inventories, net | |
| 784,336 | |
| Other current assets, net | |
| 49,979 | |
| Property and equipment, net | |
| 138,252 | |
| Intangible assets | |
| 12,683,656 | |
| Operating lease right-of-use assets | |
| 173,831 | |
| Goodwill | |
| 6,574,743 | |
| Deferred tax assets, net | |
| 346,523 | |
| Short-term bank loans | |
| (1,594,596 | ) |
| Accounts payable | |
| (349,989 | ) |
| Deferred revenue | |
| (407,437 | ) |
| Other current liabilities | |
| (446,729 | ) |
| Operating lease liabilities - non-current | |
| (45,730 | ) |
| Deferred tax liabilities | |
| (1,937,804 | ) |
| Non-controlling interest | |
| (5,301,785 | ) |
| Total purchase price for acquisition, net of US$621,979
of cash | |
$ | 11,475,021 | |
The
fair value of identified intangible assets, which are trademarks and patents, and its estimated useful lives as of March 31, 2023 is
as follows:
SCHEDULE
OF INTANGIBLE ASSETS
| | |
| | |
|
| | |
| | |
Average |
| | |
U.S. Dollars | | |
Useful Life |
| | |
(Unaudited) | | |
(in Years) |
| | |
| | |
|
| Intangible assets | |
$ | 12,683,655 | | |
10 |
| Less: accumulated amortization | |
| (317,091 | ) | |
|
| Total intangible assets, net as of March 31, 2023 | |
$ | 12,366,564 | | |
|
The
amortization expense of intangible assets was US$317,091 for the nine and three months ended March 31, 2023, respectively.
Under
ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component
of consideration transferred, but are expensed in the periods in which the costs are incurred. Acquisition-related costs were US$ nil
for the nine and three months ended March 31, 2023 and 2022.
The
Company has included the operating results of Biowin in its unaudited condensed consolidated financial statements since the Acquisition
Date. US$231,513 in net sales and US$123,390 in net income of Biowin were included in the unaudited condensed consolidated financial statements
for the nine and three months ended March 31, 2023.
NOTE
13 - RELATED PARTY TRANSACTIONS
Due
from Related Parties, Net
The
Company has made temporary advances to certain stockholders and senior management of the Company and to other entities that are either
owned by family members of those stockholders or to other entities that the Company has investments in.
As
of March 31, 2023 and June 30, 2022, the outstanding amounts due from related parties consisted of the following:
SCHEDULE OF DUE FROM RELATED PARTIES
| | |
March 31, 2023 | | |
June 30, 2022 | |
| | |
| | |
| |
| Zhao Min | |
$ | - | | |
$ | 1,410 | |
| Shanghai Gaojing Private Fund Management (a.) | |
| 419,334 | | |
| 429,998 | |
| Zhongjian Yijia Health Technology (Qingdao) Co., Ltd. (“Zhongjian Yijia”) (b.) | |
| 1,513,015 | | |
| 1,719,568 | |
| Zhongjian (Qingdao) International Logistics Development Co., Ltd. (“Zhongjian International”) (c.) | |
| 4,724,916 | | |
| 4,644,011 | |
| Subtotal | |
| 6,657,265 | | |
| 6,794,987 | |
| Less: allowance for doubtful accounts | |
| (728,010 | ) | |
| - | |
| Total due from related parties, net | |
$ | 5,929,255 | | |
$ | 6,794,987 | |
| a. |
The
Company owns 32%
equity interest in this company. Those advances are due on demand and non-interest bearing (Note 10). |
| |
|
| b. |
On
September 17, 2021, the Company entered into a loan agreement with Zhongjian Yijia 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. Upon maturity date, the Company signed a loan extension agreement with this related
party to extend the loan repayment by installments, among which, US$217,445 (RMB 1.5 million)
will be paid by September 30, 2022, US$724,816 (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. During
the nine months ended March 31, 2023, the Company received payment of US$218,403 (RMB 1.5
million) from this related party. However, due to the impact from COVID-19, the Company did
not receive the second installment repayment of US$728,010 (RMB 5.0 million) according to
the loan agreements, hence, the Company recorded allowance according to the Company’s
accounting policy based on its best estimates. As of March 31, 2023, the allowance for doubtful
accounts was US$728,010, and the total outstanding balance including the principal and interest
was amounted to US$1,513,015 as of March 31, 2023. Management will continue putting effort
in collection of overdue loans to this related party.
Interest
income was US$53,981 and US$55,062 for the nine months ended March 31, 2023 and 2022, respectively. Interest income was US$9,778
and US$55,062 for the three months ended March 31, 2023 and 2022, respectively. |
| |
|
| c. |
On
October 28, 2021, the Company entered into a loan agreement with Zhongjian International
to with an amount of US$4,334,401 (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. Upon maturity date, the Company signed a loan extension agreement with this
related party to extend the loan for another year with the new maturity date of October 27,
2023. The total outstanding balance including the principal and interest were amounted to
US$4,724,916 and US$4,644,011 as of March 31, 2023 and June 30, 2022, respectively.
Interest
income was US$194,224 and US$118,201 for the nine months ended March 31, 2023 and 2022, respectively. Interest income was US$64,628
and US$69,297 for the three months ended March 31, 2023 and 2022, respectively. |
Due
to Related Parties
As
of March 31, 2023 and June 30, 2022, the Company had related party payables of US$2,622,798 and US$2,798,800, respectively, mainly due
to the principal stockholders or certain relatives of the stockholders, and senior management 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
| | |
March 31, 2023 | | |
June 30, 2022 | |
| | |
| | |
| |
| Wu Yang | |
$ | - | | |
$ | 95,630 | |
| Wang Sai | |
| 38,206 | | |
| 96,081 | |
| Zhou Guocong | |
| 2,100 | | |
| - | |
| Li Baolin | |
| 2,038 | | |
| - | |
| Zhao Min (a.) | |
| 423,134 | | |
| 562,528 | |
| Zhou Shunfang (b.) | |
| 1,988,282 | | |
| 2,044,561 | |
| Liu Fengming | |
| 44,157 | | |
| - | |
| Yan Lixia | |
| 1,790 | | |
| - | |
| Zhang Yuying | |
| 72,646 | | |
| - | |
| Huang Shanchun | |
| 50,445 | | |
| - | |
| Total due to related parties | |
$ | 2,622,798 | | |
$ | 2,798,800 | |
| a. |
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. During the nine months ended March 31, 2023, the Company borrowed additional loan of US$29,120 (RMB 0.2 million), resulted
a total outstanding balance including principal and the interest of US$395,894 as of March 31, 2023. |
| |
|
| b. |
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$14,332 and US$ nil for the nine months ended March 31, 2023 and 2022, respectively.
Interest expenses on loans due to related parties were US$5,012 and US$ nil for the three months ended March 31, 2023 and 2022, respectively.
Loan
guarantee provided by related parties
The
Company’s related parties provide guarantee for the Company’s short-term bank loans (see Note 14).
NOTE
14 - SHORT-TERM BANK LOANS
Short-term
bank loans consisted of the following:
SCHEDULE OF SHORT TERM BANK LOANS
| Lender | |
March 31, 2023 | | |
Maturity Date | |
Int. Rate/Year | |
| Jiangnan Rural Commercial Bank-a | |
$ | 436,806 | | |
2024/3/29 | |
| 4.80 | % |
| Bank of Jiangsu-b | |
| 436,806 | | |
2023/6/15 | |
| 4.20 | % |
| Bank of China-c | |
| 436,806 | | |
2023/7/24 | |
| 3.70 | % |
| Total short-term bank loans | |
$ | 1,310,418 | | |
| |
| | |
The
loans outstanding were guaranteed by the following properties, entities or individuals:
| a. |
Guaranteed by Mr. Liu Fengming, the CEO of the Company, and pledged
by the patent rights of the Company. |
| |
|
| b. |
Guaranteed
by Mr. Liu Fengming, the CEO of the Company, Beijing Kanghuayuan Technology, one of the shareholders of the Company, and Biowin Development,
the wholly-owned subsidiary of the Company. |
| |
|
| c. |
Guaranteed
by Mr. Liu Fengming, the CEO of the Company, and his wife, Mrs. Jie Liang. |
The
Company recorded interest expenses of US$17,312 and US$ nil for the nine and three months ended March 31, 2023 and 2022, respectively.
The annual weighted average interest rates were 4.65% and nil for the nine and three months ended March 31, 2023 and 2022, respectively.
NOTE
15 - 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 October 21, 2022, the Company signed a standstill
agreement with the Investor, pursuant to which the Investor would not seek to redeem any portion of the Note during the period from October
21, 2022 to January 20, 2023. On January 18, 2023, the Investor re-started the redemption of the Notes.
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. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant
to which the Investor will not seek to redeem any portion of the Note during the period from October 21, 2022 to January 20, 2023.
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
of March 31, 2023, the Company received principal in full from the Investor. For the nine months ended March 31, 2023 and 2022, a total
of US$579,664 and $1,142,215 in amortization of the debt discounts was recorded on the unaudited condensed consolidated statements of
loss and comprehensive loss, respectively. For the three months ended March 31, 2023 and 2022, a total of US$223,692 and $287,897 in
amortization of the debt discounts was recorded on the unaudited condensed consolidated statements of loss and comprehensive loss, respectively.
As
of March 31, 2023, shares of the Company’s common stock totaling 2,649,735 were issued by the Company to the Investor equaling
principal and interests amounted to US$8,192,639, and the Notes balance was US$14,873,579, with a carrying value of US$15,205,875, net
of deferred financing costs of US$332,296 was recorded in the accompanying unaudited condensed consolidated balance sheets.
NOTE
16 - 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.
Biowin is subject to corporate income tax at a reduced rate of 15% starting from December 2019, when it was approved by local government
as a High and New Technology Enterprises (“HNTEs”), to December 2022. In December 2022, the Company successfully renewed
its HNTE certification with local government and will continue to enjoy the reduced income tax rate of 15% for another three years through
December 2025.
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 benefit were as follows:
SCHEDULE
OF INCOME TAX BENEFIT
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For the nine months ended March 31, | | |
For the three months ended
March 31, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Current income tax benefit | |
$ | - | | |
$ | (6,507 | ) | |
$ | - | | |
$ | (29 | ) |
| Deferred income tax benefit | |
| (33,089 | ) | |
| - | | |
| (33,089 | ) | |
| - | |
| Total income tax benefit | |
$ | (33,089 | ) | |
$ | (6,507 | ) | |
$ | (33,089 | ) | |
$ | (29 | ) |
ii)
The components of the deferred tax liability were as follows:
SCHEDULE OF FINANCIAL REPORTING BASIS AND TAX BASIS OF ASSETS AND LIABILITIES
| |
|
March
31,
2023 |
|
|
June
30,
2022 |
|
| Deferred
tax assets: |
|
|
|
|
|
|
|
|
| Allowance
for doubtful accounts |
|
$ |
1,180,479 |
|
|
$ |
1,252,245 |
|
| Inventory
reserve |
|
|
339,515 |
|
|
|
311,439 |
|
| Net
operating loss carry-forwards |
|
|
1,434,005 |
|
|
|
979,682 |
|
| Total |
|
|
2,953,999 |
|
|
|
2,543,366 |
|
| Valuation
allowance |
|
|
(2,644,553 |
) |
|
|
(2,543,366 |
) |
| Total
deferred tax assets |
|
|
309,446 |
|
|
|
- |
|
| Deferred
tax liability: |
|
|
|
|
|
|
|
|
| Intangible
assets |
|
|
(1,866,478 |
) |
|
|
- |
|
| Total
deferred tax liability |
|
|
(1,866,478 |
) |
|
|
- |
|
| Deferred
tax liability, net |
|
$ |
(1,557,032 |
) |
|
$ |
- |
|
Movement
of the valuation allowance:
SCHEDULE
OF MOVEMENT OF VALUATION ALLOWANCE
| | |
March 31, 2023 | | |
June 30, 2022 | |
| | |
| | |
| |
| Beginning balance | |
$ | 2,543,366 | | |
$ | 1,810,023 | |
| Acquisition of Biowin | |
| 397,305 | | |
| - | |
| Current year addition (reduction) | |
| (233,037 | ) | |
| 798,160 | |
| Exchange difference | |
| (63,081 | ) | |
| (64,817 | ) |
| Ending balance | |
$ | 2,644,553 | | |
$ | 2,543,366 | |
(b)
Value-Added Tax
The
Company is subject to a VAT for selling goods. All of the Company’s products that were sold in the PRC were subject to a Chinese
value-added tax at rates ranging from 3% to 13%, depending on the type of products sold. For overseas sales, VAT is exempted on the exported
goods. 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 nine and three months
ended March 31, 2023 and 2022, respectively.
(c)
Taxes Payable
Taxes
payable consisted of the following:
SCHEDULE OF TAXES PAYABLE
| | |
March 31, 2023 | | |
June 30, 2022 | |
| | |
| | |
| |
| Income tax payable | |
$ | 986,629 | | |
$ | 992,780 | |
| Value added tax payable | |
| 27,577 | | |
| 34,925 | |
| Business tax and other taxes payable | |
| 1,654 | | |
| 3,375 | |
| Total tax payable | |
| 1,015,860 | | |
| 1,031,080 | |
| Less: income tax payable - current portion | |
| 569,000 | | |
| 584,220 | |
| Income tax payable – non-current portion | |
$ | 446,860 | | |
$ | 446,860 | |
NOTE
17 - 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 March 31, 2023 and June 30, 2022, the balance of the required statutory reserves was
US$4,198,107 and US$4,198,107, respectively.
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 unaudited condensed consolidated financial
statements were retroactively restated as if the transaction occurred at the beginning of the periods presented.
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 March 31, 2023.
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 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. In reliance on the Purchasers’
representations to the Company, the shares issued in this offering were not subject to the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), pursuant to Regulation S promulgated thereunder. The Company’s shareholders
approved the offer and sale of the Shares at a meeting of the shareholders of the Company that was held on July 21, 2022. The closing
for the offer and sale of the Shares occurred on July 26, 2022 and the Company issued the Shares in exchange for gross proceeds of $5.0
million.
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. Pursuant
to the terms of the 2022 Plan, no shares shall be granted on or after the date which is ten years from the effective date of the 2022
Plan. On July 27, 2022, the Board of Directors of the Company approved the issuance of shares of common stock pursuant to the Company’s
2022 Plan in the aggregate amount of 600,000 shares (the “Shares”). The fair value of the Shares was US$612,000 based on
the fair value of share price US$1.02 at July 21, 2022. The Shares were fully vested immediately on the issuance date.
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. In reliance on the Purchasers’ representations to the Company, the shares
issued in this offering were not subject to the registration requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to Regulation S promulgated thereunder. As the date of this report, proceeds amounted to US$1.6 million has been
received by the Company, and the remaining balance of the proceeds is expected to be fully collected by March 31, 2023. As of March 31,
2023, the subscription receivable was amounted to US$148,362 which was recorded on the unaudited condensed consolidated balance sheet.
On
October 21, 2022, the Company, through its wholly-owned subsidiary, Life Science, entered into a stock purchase agreement with the Seller
and Biowin, pursuant to which Life Science would acquire 51% of the issued equity interests of Biowin from Seller. As the consideration
for the acquisition, the Company paid to Seller US$9.0 million in cash and the Company issued 3,260,000 shares of the Company’s
common stock, par value US$0.001 per share to the equity holders of Biowin or any persons designated by Biowin (Note 12).
On
January 12, 2023, the Board of the Company approved the sales of 722,222 shares of the Company’s common stock to the Company’s
employees for gross proceeds of up to US$650,000. As of March 31, 2023, the subscription receivable was amounted to US$650,000 which
was recorded on the unaudited condensed consolidated balance sheet, and the proceeds is expected to be fully collected by September 30,
2023.
On
January 12, 2023, the Board of the Company approved the issuance of 10,000 shares of the Company’s common stock to the Company’s
service provider as the compensation for service provided, with a value of US$30,000 based on share price of US$3.0. All of the shares
were issued on January 12, 2023.
On
March 14, 2023, the Company entered into a securities 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 1,137,170
shares of common stock of the Company (the “Shares”) at a price of US$1.05 per share. The Company’s board of director
approved the offer and sale of the Shares at a meeting of the Board of the Company that was held on March 14, 2023. The Company has received
gross proceeds of $1.2 million from the Purchasers and the Shares had not been issued as of March 31, 2023.
NOTE
18 - CONCENTRATIONS AND RISKS
The
Company maintains principally all bank accounts in the PRC. The cash balance held in the PRC bank accounts was US$15,334,432 and US$15,164,950
as of March 31, 2023 and June 30, 2022, respectively.
During
the nine and three months ended March 31, 2023 and 2022, 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 nine months ended March 31, 2023, four customers accounted for approximately 65% of the Company’s total sales. For the three
months ended March 31, 2023, three customers accounted for approximately 44% of the Company’s total sales. At March 31, 2023, three
customers accounted for approximately 66% of the Company’s accounts receivable.
For
the nine months ended March 31, 2022, five customers accounted for approximately 76% of the Company’s total sales. For the three
months ended March 31, 2022, five customers accounted for approximately 81% of the Company’s total sales.
For
the nine months ended March 31, 2023, two vendors accounted for approximately 98% of the Company’s total purchases. For the three
months ended March 31, 2023, two vendors accounted for approximately 96% of the Company’s total purchases.
For
the nine months ended March 31, 2022, one vendor accounted for approximately 92% of the Company’s total purchases. For the three
months ended March 31, 2022, two vendors accounted for approximately 83% and 17% of the Company’s total purchases, respectively.
NOTE
19 - COMMITMENTS AND CONTINGENCIES
Legal
Contingencies
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 the initial public offering, the Plaintiff incurred losses and hence seek money damages against the Company. Based on the
judgment of the first trial, the Company was required to pay the Plaintiff a settlement payment, including the money compensation,
interests and other legal fees. In January 2023, the Company entered into a Settlement Agreement and Release (the
“Agreement”) with the Plaintiff, pursuant to which the Company paid the Plaintiff a total sum of approximately US$0.7
million (approximately RMB 4.8
million) as settlement payment, and upon acceptance of the settlement payment from the Company, the Plaintiff waived, released, and
forever discharged the Company from all past and future claims. As of March 31, 2023, the Company has made the payments in full to
the Plaintiff according to the Agreement.
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. The Company sought money damages of $9,088,125.00
plus interest, punitive damages, and reimbursement of all costs, expenses, and attorneys’ fees. In December, defendants filed an
answer and counterclaims 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 monetary damages of at least $9 million,
punitive damages of $10 million, plus interest, costs, and fees. In April 2022, the Court granted the Company’s motion for a preliminary
injunction to restrain the Company’s transfer agent from removing the restrictive legends on the shares, provided that the Company
posts a bond in the amount of US$1.5 million by May 20, 2022, which the Company declined to do. On June 13, 2022, the restrictions 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.
Nominal
defendant Transhare Corporation moved to dismiss the defendants’ counterclaim against it for wrongful refusal to remove restrictions
pursuant to 6 Del. C. § 8-401, and its motion was fully submitted in April 2022. On September 9, 2022, the Court granted Transhare
Corporation’s motion to dismiss defendants’ counterclaim for wrongful refusal to remove restrictions. Defendants have appealed
the Court’s September 9, 2022 order dismissing defendants’ counterclaim for wrongful refusal to remove restrictions. On October
3, 2022 the parties submitted a stipulation dismissing defendants’ outstanding counterclaim against Transhare Corporation seeking
declaratory judgment.
A date for trial will
be set at a status conference on September 27, 2023. The outcome of this legal proceeding is uncertain at this point. The Company
intends to recover on its claims, and vigorously defend itself in this litigation. As of March 31, 2023, the total unpaid shares
issued to Lei Zhang and Yan Li by the Company was 982,500
shares, and the subscription receivable was US$3,024,000
which was recorded on the unaudited condensed consolidated balance sheet.
NOTE
20 - 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. |
| |
|
| ● |
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 Zhihesheng are located in the East and North regions of Mainland China, mostly carried out in Shandong Province and
in Beijing, where Zhihesheng have newly developed over 100 acres of modern greenhouses for cultivating yew trees and other plants. |
| |
The
other operating company of this segment, Guangyuan, is engaged in the business of landscaping, afforestation, road greening, scenic
greening, garden engineering, landscaping construction, and green afforestation, especially in planting fast-growing bamboo willows
and scenic greening trees. The operations of Guangyuan are located in the North regions of Mainland China, mostly carried out
in Shanxi Province, where Guangyuan has developed over 350 acres of farmland for cultivating bamboo willows and other plants. |
| |
|
| ● |
Providing
domestic air and overland freight forwarding services (“Freight services”): |
| |
|
| |
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. |
| |
|
| ● |
Developing,
producing and distributing innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid
Diagnostic Products”): |
| |
|
| |
The
operating company of this segment, Biowin, is specializing in development, production and distribution of innovative rapid
diagnostic products and related medical devices for the most common diseases. The operations of this segment are located in Jiangsu
Province. Its products are sold not only in China, but also overseas countries such as Germany, Spain, Italy, Thailand, Japan and
other countries. |
The
following table presents summarized information by segment for the nine months ended March 31, 2023:
SCHEDULE
OF INFORMATION BY SEGMENT
| | |
For the nine months ended March 31, 2023 | |
| | |
Luobuma | | |
Other agricultural | | |
Freight | | |
Rapid diagnostic | | |
| |
| | |
products | | |
products | | |
services | | |
products | | |
Total | |
| Segment revenue | |
$ | 22,298 | | |
$ | 1,154,156 | | |
$ | 360,010 | | |
$ | 231,513 | | |
$ | 1,767,977 | |
| Cost of revenue and related business and sales tax | |
| 2,853 | | |
| 1,600,321 | | |
| 245,057 | | |
| 220,357 | | |
| 2,068,588 | |
| Gross profit (loss) | |
| 19,445 | | |
| (446,165 | ) | |
| 114,953 | | |
| 11,156 | | |
| (300,611 | ) |
| Gross profit (loss) % | |
| 87.2 | % | |
| (38.7 | )% | |
| 31.9 | % | |
| 4.8 | % | |
| (17.0 | )% |
The
following table presents summarized information by segment for the nine months ended March 31, 2022:
| | |
For the nine months ended March 31, 2022 | |
| | |
Luobuma | | |
Other agricultural | | |
Freight | | |
Rapid diagnostic | | |
| |
| | |
products | | |
products | | |
services | | |
products | | |
Total | |
| Segment revenue | |
$ | 43,289 | | |
$ | 1,244,221 | | |
$ | 692,916 | | |
$ | - | | |
$ | 1,980,426 | |
| Cost of revenue and related business and sales tax | |
| 153,508 | | |
| 2,983,804 | | |
| 627,092 | | |
| - | | |
| 3,764,404 | |
| Gross profit (loss) | |
| (110,219 | ) | |
| (1,739,583 | ) | |
| 65,824 | | |
| - | | |
| (1,783,978 | ) |
| Gross profit (loss) % | |
| (254.6 | )% | |
| (139.8 | )% | |
| 9.5 | % | |
| - | | |
| (90.1 | )% |
The
following table presents summarized information by segment for the three months ended March 31, 2023:
| | |
For the three months ended March 31, 2023 | |
| | |
Luobuma | | |
Other agricultural | | |
Freight | | |
Rapid diagnostic | | |
| |
| | |
products | | |
products | | |
services | | |
products | | |
Total | |
| Segment revenue | |
$ | 3,076 | | |
$ | 330,471 | | |
$ | 127,972 | | |
$ | 231,513 | | |
$ | 693,032 | |
| Cost of revenue and related business and sales tax | |
| (6,091 | ) | |
| 484,874 | | |
| 83,758 | | |
| 220,357 | | |
| 782,898 | |
| Gross profit (loss) | |
| 9,167 | | |
| (154,403 | ) | |
| 44,214 | | |
| 11,156 | | |
| (89,866 | ) |
| Gross profit (loss) % | |
| 298.0 | % | |
| (46.7 | )% | |
| 34.5 | % | |
| 4.8 | % | |
| (13.0 | )% |
The
following table presents summarized information by segment for the three months ended March 31, 2022:
| | |
For the three months ended March 31, 2022 | |
| | |
Luobuma | | |
Other agricultural | | |
Freight | | |
Rapid diagnostic | | |
| |
| | |
products | | |
products | | |
services | | |
products | | |
Total | |
| Segment revenue | |
$ | 8,521 | | |
$ | 369,030 | | |
$ | 240,543 | | |
$ | - | | |
$ | 618,094 | |
| Cost of revenue and related business and sales tax | |
| 3,203 | | |
| 899,022 | | |
| 208,611 | | |
| - | | |
| 1,110,836 | |
| Gross profit (loss) | |
| 5,318 | | |
| (529,992 | ) | |
| 31,932 | | |
| - | | |
| (492,742 | ) |
| Gross profit (loss) % | |
| 62.4 | % | |
| (143.6 | )% | |
| 13.3 | % | |
| - | | |
| (79.7 | )% |
Total
assets as of March 31, 2023 and June 30, 2022 were as follows:
| | |
March 31, 2023 | | |
June 30, 2022 | |
| | |
| | |
| |
| Luobuma products | |
$ | 7,708,834 | | |
$ | 10,982,562 | |
| Other agricultural products | |
| 34,105,791 | | |
| 46,488,334 | |
| Freight services | |
| 4,007,675 | | |
| 6,355,121 | |
| Rapid diagnostic products | |
| 21,906,885 | | |
| - | |
| Total assets | |
$ | 67,729,185 | | |
$ | 63,826,017 | |
NOTE
21 - 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 non-current liabilities shall be reported as components of total assets
and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations,
less applicable income taxes benefit, shall be reported as a component of net loss separate from the net loss of continuing operations
in accordance with ASC 205-20-45. The results of operations of Ankang Longevity have been reclassified to “net loss from discontinued
operations” in the unaudited condensed consolidated statements of loss and comprehensive loss for the nine and three months ended
March 31, 2023 and 2022. The Company recorded a loss on disposal of discontinued operations of US$3,135,237 and US$ nil during the nine
and three months ended March 31, 2022, respectively.
NOTE
22 - SUBSEQUENT EVENTS
These
unaudited condensed consolidated financial statements were approved by management and available for issuance on May 15, 2023, and the
Company has evaluated subsequent events through this date. No subsequent events required adjustments to or disclosure in these unaudited
condensed consolidated financial statements.
