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 (“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 (“WFOE”) 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 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 Group”.
Pursuant
to the VIE Agreements, Tenet-Jove has the exclusive right to provide to the Zhisheng Group 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 Group and Ankang Longevity Group’s activities and entitle Tenet-Jove
to receive a majority of their residual returns. In essence, Tenet-Jove has gained effective control over the Zhisheng Group and
Ankang Longevity Group. Therefore, the Zhisheng Group 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 Group and Ankang Longevity Group, Shineco owns
100% of Tenet-Jove. Accordingly, Shineco, Tenet-Jove, and its VIEs, the Zhisheng Group and Ankang Longevity Group are effectively
controlled by the same majority shareholders. Therefore, Shineco, Tenet-Jove and its VIEs 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
April 19, 2017, Tenet-Jove established Xinjiang Tiankunrunze Biological Engineering Co., Ltd. (“Tiankunrunze”) with
registered capital of RMB 50.0 million (US$ 7,262,000) and owns 65% interest of Tiankunrunze. On April 28, 2017, Tiankunrunze
established Xinjiang Tianzhuo Technology Development Co., Ltd. (“Tianzhuo”) with registered capital of RMB 10.0 million
(US$ 1,450,233). On May 22, 2017, Tiankunrunze established Xinjiang Tianhuihechuang Agriculture Development Co., Ltd. (“Tianhuihechuang”)
with registered capital of RMB 10.0 million (US$ 1,452,294). On May 23, 2017, Tiankunrunze established Xinjiang Tianxintongye
Biotechnology Development Co., Ltd. (“Tianxintongye”) with registered capital of RMB 10.0 million (US$ 1,451,615).
Therefore, Tenet-Jove controls Tiankunrunze and its wholly owned subsidiaries.
On
May 2, 2017, the Company entered into a Strategic Cooperation Agreement with Beijing Zhongke Biorefinery Engineering Technology
Co., Ltd. (“Biorefinery”), a leading high-tech biomass refining company financially backed by the Chinese Academy
of Sciences Institute of Process Engineering, to establish the Institute of Chinese Apocynum Industrial Technology Research (“ICAITR”).
Pursuant to the Strategic Cooperation Agreement the two parties agreed to establish the ICAITR, the Company and Biorefinery own
80% and 20% of the equity interests of ICAITR, respectively. Shineco invested RMB 5.0 million (US$ 737,745) as the registered
capital, and Biorefinery will invest a technology patent named “Steam Explosion Degumming”.
On
September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with
registered capital of RMB 10.0 million (US$ 1,502,650). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering
Co., Ltd. (“Runze”) with registered capital of RMB 10.0 million (US$ 1,502,650). Xinjiang Taihe and Runze became wholly-owned
subsidiaries of Tenet-Jove.
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 RMB 14,000,000 (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 that 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
October 27, 2017, the Company, through its subsidiary Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”), obtained
contractual rights to distribute branded products of Daiso Industries Co., Ltd. (“Daiso”), a large franchise of 100-yen
shops founded in Japan, via JD.com (“JD”), one of the largest e-commerce companies and one of the largest retailers
in China. On November 3, 2017, the Company further developed the cooperation with Daiso by entering into a supply and purchase
agreement (the “Daiso Agreement”) for the purpose of establishing a continuous supply and sale of Daiso’s products
in China. Pursuant to the Daiso Agreement, the Company planned to purchase Daiso Products in the amount of approximately RMB 20
million by August, 2018 and add orders as circumstance requires. The term of the Daiso Agreement is for one year, and it renews
for an additional one-year at the end of each term unless terminated by written notice by either Tianjin Tajite or Daiso. Due
to the policy of China Customs, many of the bestselling products of Daiso are not allowed to be imported through the general form
of trade model, but only through cross-border e-commence business model. As a result, the Company and Daiso agreed to suspend the
cooperation temporarily and wait for the opening of the China-Japan-South Korea Free Trade Zone.
On
November 1, 2017, the Company established an Apocynum Industrial Park in Xinjiang, China. The industrial park is focusing on planting
and purchasing Bluish Dogbane, processing and distributing Bluish Dogbane preliminary products.
On
March 13, 2019, Tenet-Jove established Beijing Tenjove Newhemp Biotechnology Co., Ltd. (“TNB”) with registered capital
of RMB 10.0 million (US$ 1,502,650). TNB became a wholly-owned subsidiary of Tenet-Jove.
The
business operation of Tiankunrunze and its wholly owned subsidiaries was ceased in July 2019.
On
August 22, 2019, Tenet-Jove established Shineco Zhong Hemp Group Co., Ltd. (“Zhong Hemp”) with registered capital
of RMB 200.0 million (US$ 28,237,022) and owns 60% interest of Zhong Hemp.
The
Company, its subsidiaries, its VIEs and its VIEs’ subsidiaries (collectively the “Group”) operate three main
business segments: 1) Tenet-Jove is engaged in manufacturing and selling of Bluish Dogbane and related products, also known in
Chinese as “Luobuma”, including therapeutic clothing and textile products made from Luobuma; 2) Zhisheng Group is
engaged in the business of planting, processing and distributing of green agricultural produce as well as providing domestic and
international logistic services for agricultural products (“Agricultural Products”); and, 3) Ankang Longevity Group
manufactures traditional Chinese medicinal herbal products as well as other retail pharmaceutical products. These different business
activities and products can potentially be integrated and benefit from one another.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules
of the SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for
the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s Form 10-K for the fiscal year ended June 30, 2019, which was filed on September 27, 2019.
The
unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries,
its VIEs and its VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in
the Company’s majority owned subsidiaries and VIEs. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation
of Variable Interest Entities
VIEs
are generally entities that lack sufficient equity to finance their activities without additional financial support from other
parties or whose equity holders lack adequate decision making ability. All VIEs and their subsidiaries with which the Company
is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary
is required to consolidate the VIE for financial reporting purposes.
The
carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities are as follows:
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
57,539,496
|
|
|
$
|
57,328,097
|
|
Plant and equipment, net
|
|
|
8,562,202
|
|
|
|
8,965,671
|
|
Other non-current assets
|
|
|
11,382,612
|
|
|
|
11,028,775
|
|
Total assets
|
|
|
77,484,310
|
|
|
|
77,322,543
|
|
Total liabilities
|
|
|
(5,301,117
|
)
|
|
|
(6,090,955
|
)
|
Net assets
|
|
$
|
72,183,193
|
|
|
$
|
71,231,588
|
|
Non-controlling
Interests
US
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 income and comprehensive income.
Risks
and Uncertainties
The
operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the general state
of the PRC economy. The Company’s operations in the PRC 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 other factors,
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 situations and believes that it is
in compliance with existing laws and regulations, changes could affect the Company’s interest in these entities and
its operations in the PRC.
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 controls the VIEs through contractual arrangements 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 control of 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 US 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, plant, and equipment, and intangible assets, the recoverability of long-lived assets and the valuation of accounts
receivable, deferred taxes and inventory reserves. Actual results could differ from those estimates.
Revenue
Recognition
The
Company previously recognized revenue from sales of Luobuma products, Chinese medicinal herbal products and agricultural products,
as well as providing logistic services and other processing services to external customers. The Company 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) the Company’s collection of
such fees was reasonably assured. These criteria, as related to the Company’s 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 rendering of services: Revenue from international freight forwarding, 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 believes that its previous revenue recognition policies are
generally consistent with the new revenue recognition standards set forth in ASC 606. Potential adjustments to input measures
are not expected to be pervasive to the majority of the Company’s contracts. There is no significant impact upon adoption of the
new guidance.
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to
withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with
various financial institutions mainly in the PRC. As of December 31, 2019 and June 30, 2019, 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
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 December 31, 2019 and June 30, 2019, the allowance for doubtful accounts was US$ 4,769,928 and
US$ 4,323,141, respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful.
Inventories
Inventories,
which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods
related to the Company’s products. Cost is determined using the first in first out (“FIFO”) method. Agricultural
products that the Company farms are recorded at cost, which includes direct costs such as seed selection, fertilizer, labor cost
and contract fees that are spent in growing agricultural products on the leased farmland, and indirect costs which include amortization
of prepayments of farmland leases and farmland development costs. All the costs are accumulated until the time of harvest and
then allocated to the harvested crops costs when they are sold. The Company periodically evaluates its inventory and records an
inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value.
Advances
to Suppliers
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 December 31, 2019 and June 30, 2019, the Company had
an allowance for uncollectible advances to suppliers of US$ 2,417,959 and US$ 431,646, respectively.
Business
Acquisitions
Business
acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify
the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed
and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a bargain gain from the purchase.
The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition.
Assets acquired and liabilities assumed are recorded at their fair values on the date acquired and the excess of the purchase
price over the amounts assigned is recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase
price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill
over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction
and post-acquisition restructuring costs be charged to expense as committed, and requires the Company to recognize and measure
certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the
fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds
its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the
implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair
value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying
amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized
in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined
using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash
flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable
companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent
available).
Leases
The
Company adopted ASU 2016-02, “Leases” on July 1, 2019 and used the alternative transition approach which permits the
effects of adoption to be applied at the effective date. The new standard provides a number of optional practical expedients in
transition. The Company elected the ‘package of practical expedients’, which permits us not to reassess under the new standard
our prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the
short-term lease exemption and combining the lease and non-lease components practical expedients. The most significant impact
upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s
balance sheet for office space operating leases. Upon adoption, the Company recognized additional operating liabilities of approximately
US$ 0.4 million, with corresponding ROU assets of US$ 3.2 million based on the present value of the remaining rental payments
under current leasing standards for existing operating leases. There was no cumulative effect of adopting the standard.
Property
and Equipment
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:
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|
Estimated
useful lives
|
|
|
|
Buildings
|
|
20-50
years
|
Machinery
equipment
|
|
5-10
years
|
Motor
vehicles
|
|
5-10
years
|
Office
equipment
|
|
5-10
years
|
Farmland
leasehold improvements
|
|
12-18
years
|
Land
Use Rights
According
to Chinese laws and regulations regarding land use rights, land in urban districts is owned by the State, while land in the
rural areas and suburban areas, except otherwise provided for by the State, is collectively owned by individuals designated as
resident farmers by the State. In accordance with the legal principle that land ownership is separate from the right to the use
of the land, the government grants individuals and companies the rights to use parcels of land for a specified period of time.
Land use rights, which are usually prepaid, are stated at cost less accumulated amortization. Amortization is provided over the
life of the land use rights, using the straight-line method. The useful life is 50 years, based on the term of the land use rights.
Long-lived
Assets
Finite-lived
assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability
of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount,
the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily
of property, plant and equipment, land use rights, investments and long-term prepaid leases. For the six and three months ended
December 31, 2019 and 2018, 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 does not have any uncertain tax positions at December 31, 2019 and June 30, 2019. The Company has not provided deferred
taxes for undistributed earnings of non-U.S. subsidiaries at December 31, 2019, 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 2015 and thereafter. As of December 31, 2019, the tax years ended December 31, 2014 through December 31, 2019 for
the Company’s People’s Republic of China (“PRC”) subsidiaries remain 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 will be 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 has caused us to
re-measure the Company’s 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 US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB
118, additional work is necessary to do a more detailed analysis of the Act as well as potential correlative adjustments. Any
subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2019 when the analysis is complete. The
Company elects to pay the transition tax over an eight-year period using specified percentages (eight percent per year for the
first five years, 15 percent in year six, 20 percent in year seven, and 25 percent in year eight).
Value
Added Tax
Sales
revenue represents the invoiced value of goods, net of a Value-Added Tax (“VAT”). Before May 1, 2018, all of the Company’s
products that were sold in the PRC were subject to a Chinese value-added tax at a rate of 17% of the gross sales price. After
May 1, 2018, the Company subject a tax rate of 16%, and after April 1, 2019, the tax rate was further reduced to 13% based on
the new Chinese tax law. This VAT may be offset by VAT paid by the Company is 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 income (loss).
The
balance sheet amounts, with the exception of equity, at December 31, 2019 and June 30, 2019 were translated at 1 RMB to 0.1435
USD and at 1 RMB to 0.1456 USD, respectively. The average translation rates applied to the income and cash flow statement amounts
for the six months ended December 31, 2019 and 2018 were at 1 RMB to 0.1422 USD and at 1 RMB to 0.1454 USD, respectively. The
average translation rates applied to income and cash flow statement amounts for the three months ended December 31, 2019 and 2018
were at 1 RMB to 0.1420 USD and at 1 RMB to 0.1446 USD, respectively.
Comprehensive
Income (loss)
Comprehensive
income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The foreign currency translation
gain or loss resulting from translation of the financial statements expressed in RMB to USD is reported in other comprehensive
income (loss) in the unaudited condensed consolidated statements of income (loss) and comprehensive income (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.
Earnings
per Share
The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC
260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured
as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of potential common shares (e.g., outstanding convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded
from the calculation of diluted EPS. There is no anti-dilutive effect for the six and three months ended December 31, 2019 and
2018.
New
Accounting Pronouncements
In
February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments
in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax
Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments
only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires
that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments
in this update also require certain disclosures about stranded tax effects. The guidance is effective for fiscal years beginning
after December 15, 2018 with early adoption permitted, including interim periods within those years. The Company expects that
the adoption of this ASU will not have a material impact on its financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting,” or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based
payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under
this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need
to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according
to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification
upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. The Company expects that the adoption of this ASU will not have a material
impact on its financial statements.
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to
financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers
between Level 1 and Level 2 of the fair value hierarchy, policies for timing of transfers between different levels for fair value
measurements, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range
and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this
update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2019. The Company expects that the adoption of this ASU will not have a material impact on its financial statements
In
August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,”
(ASU 2018-15), to align the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract
with the requirements for capitalizing implementation costs relating to internal-use software. The update requires entities in
a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs
to capitalize as an asset and which costs to expense. ASU 2018-15 is effective for the Corporation on January 1, 2020 and may
be applied using either the retrospective or prospective approach. Early adoption is permitted. The Company expects that the adoption
of this ASU will have a material impact on its financial statements.
In
October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance
for Variable Interest Entities”. The new standard changes how entities evaluate decision-making fees under the variable
interest entity guidance. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years. Early adoption is permitted in any interim period after issuance. The standard should be applied on
a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period
of adoption. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.
In
November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.”
ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment
of receivables arising from operating leases should be accounted for in accordance with Accounting Standard Codification (“ASC”)
842, Leases. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.
In
November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts
with Customers (Topic 606). The guidance identifies, evaluates, and improves areas of GAAP for which cost and complexity can be
reduced while maintaining or improving the usefulness of the information provided. The amendments in that Update expanded the
scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For entities
that have adopted the amendments in Update 2018-07, the updated guidance is effective for annual periods beginning after December
15, 2019, and is applicable to the Company in fiscal 2021. Early adoption is permitted. The Company expects that the adoption
of this ASU will not have a material impact on its financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The
Board is issuing this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).
The objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP for which cost and complexity
can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The
specific areas of potential simplification in this Update were submitted by stakeholders as part of the Simplification Initiative.
For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. The Company expects that the adoption of this ASU will not 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 condensed
unaudited consolidated financial statements.
NOTE
3 - INVENTORIES
The
inventories consist of the following:
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
609,963
|
|
|
$
|
974,639
|
|
Work-in-process
|
|
|
1,177,110
|
|
|
|
651,769
|
|
Finished goods
|
|
|
1,936,918
|
|
|
|
1,533,318
|
|
Less: inventory reserve
|
|
|
(1,105,948
|
)
|
|
|
(944,167
|
)
|
Total
|
|
$
|
2,618,043
|
|
|
$
|
2,215,559
|
|
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.
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
|
|
December 31,
2019
|
|
|
June
30,
2019
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
11,693,729
|
|
|
$
|
11,994,407
|
|
Building improvements
|
|
|
-
|
|
|
|
79,628
|
|
Machinery and equipment
|
|
|
873,174
|
|
|
|
930,109
|
|
Motor vehicles
|
|
|
47,320
|
|
|
|
81,541
|
|
Construction in progress
|
|
|
-
|
|
|
|
78,407
|
|
Office equipment
|
|
|
235,834
|
|
|
|
219,605
|
|
Farmland leasehold improvements
|
|
|
3,017,935
|
|
|
|
3,062,410
|
|
|
|
|
15,867,992
|
|
|
|
16,446,107
|
|
Less: accumulated depreciation and amortization
|
|
|
(5,918,767
|
)
|
|
|
(5,778,377
|
)
|
Property and equipment, net
|
|
$
|
9,949,225
|
|
|
$
|
10,667,730
|
|
Depreciation
and amortization expense charged to operations was US$ 419,958 and US$ 307,772 for the six months ended December 31, 2019 and
2018, respectively. Depreciation and amortization expense charged to operations was US$ 241,743 and US$ 120,920 for the three
months ended December 31, 2019 and 2018, respectively.
Farmland
leasehold improvements consist of following:
|
|
December
31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Blueberry farmland leasehold improvements
|
|
$
|
2,318,512
|
|
|
$
|
2,352,679
|
|
Yew tree planting base reconstruction
|
|
|
259,759
|
|
|
|
263,587
|
|
Greenhouse renovation
|
|
|
439,664
|
|
|
|
446,144
|
|
Total farmland leasehold improvements
|
|
$
|
3,017,935
|
|
|
$
|
3,062,410
|
|
NOTE
5 - LAND USE RIGHTS
Land
use rights are recognized at cost less accumulated amortization. According to the Chinese laws and regulations regarding land
use rights, land in urban districts is owned by the State, while land in the rural areas and suburban areas, except otherwise
provided for by the State, is collectively owned by individuals designated as resident farmers by the State. However, in accordance
with the legal principle that land ownership is separate from the right to the use of the land, the government grants the user
a “land use right” (the “Right”) to use the land. The Company has the Right to use the land for 50 years
and amortizes the rights on a straight-line basis over the period of 50 years.
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Land use rights
|
|
$
|
1,596,295
|
|
|
$
|
1,619,820
|
|
Less: accumulated amortization
|
|
|
(366,603
|
)
|
|
|
(355,511
|
)
|
Land use rights, net
|
|
$
|
1,229,692
|
|
|
$
|
1,264,309
|
|
For
the six months ended December 31, 2019 and 2018, the Company recognized amortization expense of US$ 18,427 and US$ 19,072, respectively.
For the three months ended December 31, 2019 and 2018, the Company recognized amortization expense of US$ 9,213 and US$ 9,434,
respectively.
The
estimated future amortization expenses are as follows:
Twelve months ending December 31:
|
|
|
|
|
|
|
|
2020
|
|
$
|
31,926
|
|
2021
|
|
|
31,926
|
|
2022
|
|
|
31,926
|
|
2023
|
|
|
31,926
|
|
2024
|
|
|
31,926
|
|
Thereafter
|
|
|
1,070,062
|
|
Total
|
|
$
|
1,229,692
|
|
NOTE
6 - 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. As of December 31, 2019, the
distribution rights were evaluated at RMB 7,380,000 (US$ 1,059,128).
NOTE
7 - INVESTMENTS
Ankang
Longevity Group entered into two equity investment agreements with Shaanxi Pharmaceutical Group Pai’ang Medicine Co. Ltd.
(“Shaanxi Pharmaceutical Group”), a Chinese state-owned pharmaceutical enterprise to invest a total of RMB 6.8 million
(approximately US$ 1.0 million) for a 49% equity interest in a pharmacy retail company called Shaanxi Pharmaceutical Sunsimiao
Drugstores Ankang Retail Chain Co., Ltd. (“Sunsimiao Drugstores”), and a 49% equity interest in a pharmaceutical wholesale
distribution company named Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (“Shaanxi Longevity Pharmacy”).
These two equity investments were formed as new business entities to collaborate with Shaanxi Pharmaceutical Group to expand sales
to regional hospitals and clinics and to establish the presence of retail pharmacies under the Brand name “Sunsimiao”.
The investments are accounted for using the equity method because Ankang Longevity Group has significant influence, but no control
of these two entities. Ankang Longevity Group recorded income of US$ 140,582 and US$ 288,877 for the six months ended December
31, 2019 and 2018, respectively and recorded income of US$ 70,683 and US$ 145,742 for the three months ended December 31, 2019
and 2018, respectively, from the investments, which was included in “Income from equity method investments” in the
unaudited condensed consolidated statements of income and comprehensive income (see Note 11).
Ankang
Longevity Group entered into a supplemental agreement with Shaanxi Pharmaceutical Group. According to the supplemental agreement,
new 49% equity investment companies established by Shaanxi Pharmaceutical Group and Ankang Longevity Group are required to exclusively
purchase certain raw materials and drug products from Shaanxi Pharmaceutical Group. In return, Shaanxi Pharmaceutical Group has
agreed to compensate Ankang Longevity Group with a purchase rebate of 7% of the total purchases made from Shaanxi Pharmaceutical
Group. For the six months ended December 31, 2019 and 2018, a total of US$ Nil and US$ 517,626 was recognized by Ankang Longevity
Group from this supplemental agreement in addition to its 49% share of the income from the equity investment companies, respectively.
For the three months ended December 31, 2019, total income of US$ Nil was recognized by Ankang Longevity Group from this supplemental
agreement, compared to US$ 225,187 in the same period in 2018.
On
October 21, 2013, the Company, through its controlled subsidiaries, Zhisheng Freight and Zhisheng Agricultural, entered into an
agreement with an unrelated third party, Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd. (“Zhen’Ai Network”),
and invested RMB 14.5 million (approximately US$ 2.2 million) into Tiancang Systematic Warehousing project (“Tiancang Project”)
operated by Zhen’Ai Network. The Tiancang Project is an online platform established to provide comprehensive warehousing
and logistic solutions to companies involved in E-commerce. The Company is entitled to 29% of Tiancang Project’s after-tax
net income annually, less 30% statutory reserve and a 10 % employee welfare fund contribution. When the amount of the accumulated
statutory reserve reaches 30% of the total investment for the Tiancang Project, no additional appropriation to the statutory reserve
is required. For the six and three months ended December 31, 2019 and 2018, the Company did not record investment income from
this investment.
On
November 21, 2016, the Company (the “Investor”) entered into an agreement with Original Lab Inc., a California corporation
(the “Investee”), and made a payment of US$ 200,000 in exchange for the right to acquire certain shares of the Investee’s
common and preferred stock. The Company considered it’s unlikely to obtain any investment income in the near future, and
decided the make a fully impairment on this investment during the year ended June 30, 2019.
The
Company’s investments in unconsolidated entities consist of the following:
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (Ankang Longevity Pharmacy)
|
|
$
|
3,774,388
|
|
|
$
|
3,717,277
|
|
Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Chain Co., Ltd.
|
|
|
840,853
|
|
|
|
822,058
|
|
Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd.
|
|
|
2,080,942
|
|
|
|
2,111,609
|
|
Total
|
|
$
|
6,696,183
|
|
|
$
|
6,650,944
|
|
Summarized
financial information of unconsolidated entities is as follows:
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
38,714,700
|
|
|
$
|
35,675,858
|
|
Noncurrent assets
|
|
|
220,420
|
|
|
|
241,580
|
|
Current liabilities
|
|
|
29,531,039
|
|
|
|
26,668,485
|
|
|
|
For the six months ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
16,283,932
|
|
|
$
|
16,306,851
|
|
Gross profit
|
|
|
1,674,366
|
|
|
|
2,020,501
|
|
Income from operations
|
|
|
287,432
|
|
|
|
665,455
|
|
Net income
|
|
|
286,902
|
|
|
|
589,545
|
|
NOTE
8 - LEASES
Effective
July 1, 2019, the Company adopted the new lease accounting standard using the optional transition method which allowed us to continue
to apply the guidance under the lease standard in effect at the time in the comparative periods presented. In addition, the Company
elected the package of practical expedients, which allowed us to not reassess whether any existing contracts contain a lease,
to not reassess historical lease classification as operating or finance leases, and to not reassess initial direct costs. The
Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The
Company has also elected the practical expedient allowing us to not separate the lease and non-lease components for all classes
of underlying assets. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating
lease liabilities of $3,587,788 and $450,123, respectively, as of July 1, 2019 with no impact on accumulated deficit. Financial
position for reporting periods beginning on or after July 1, 2019, are presented under the new guidance, while prior period amounts
are not adjusted and continue to be reported in accordance with previous guidance.
The
Company leases offices space under non-cancelable operating leases, with terms ranging from one to three years. In addition, one
of the Company’s controlled subsidiaries, Zhisheng Group 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. The lease terms vary from 5 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 right of use assets and lease liabilities. Lease expense for lease payment is recognized
on a straight-line basis over the lease term. Leases with initial term 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 discount 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.
|
|
December
31,
2019
|
|
Rights of use lease assets
|
|
$
|
3,105,286
|
|
|
|
|
-
|
|
Operating lease liabilities – current
|
|
$
|
411,280
|
|
Operating lease liabilities – non-current
|
|
|
3,132
|
|
Total operating lease liabilities
|
|
$
|
414,412
|
|
The
weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2019:
|
|
December 31,
2019
|
|
Remaining lease term and discount rate:
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
9.74
|
|
Weighted average discount rate
|
|
|
5.0
|
%
|
Rent
expense totaled US$ 201,328 and US$ 295,460 for the six months ended December 31, 2019 and 2018, respectively. Rent expense totaled
US$ 109,003 and US$ 136,109 for the three months ended December 31, 2019 and 2018, respectively.
The
following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019:
2020
|
|
$
|
735,163
|
|
2021
|
|
|
310,101
|
|
2022
|
|
|
209,689
|
|
2023
|
|
|
209,163
|
|
2024
|
|
|
209,163
|
|
Thereafter
|
|
|
1,439,177
|
|
Total lease payments
|
|
|
3,112,456
|
|
Less: imputed interest
|
|
|
(7,170
|
)
|
Less: prepayments
|
|
|
(2,690,874
|
)
|
Present value of lease liabilities
|
|
$
|
414,412
|
|
NOTE
9 - SHORT-TERM LOANS
Short-term
loans consist of the following:
Lender
|
|
December
31,
2019
|
|
|
Maturity
Date
|
|
Int.
Rate/Year
|
|
Agricultural
Bank of China-c
|
|
|
1,435,132
|
|
|
2020-2-25
|
|
|
5.66
|
%
|
Agricultural
Bank of China-c
|
|
|
287,027
|
|
|
2020-8-26
|
|
|
5.60
|
%
|
Total
|
|
$
|
1,722,159
|
|
|
|
|
|
|
|
Lender
|
|
June
30,
2019
|
|
|
Maturity
Date
|
|
Int.
Rate/Year
|
|
MY
Bank-a
|
|
|
7,282
|
|
|
2019-8-29
|
*
|
|
15.80
|
%
|
Agricultural
Bank of China-b
|
|
|
291,256
|
|
|
2019-8-12
|
*
|
|
5.66
|
%
|
Agricultural
Bank of China-b
|
|
|
655,327
|
|
|
2019-11-13
|
|
|
3.92
|
%
|
Agricultural
Bank of China-c
|
|
|
1,456,282
|
|
|
2020-2-25
|
|
|
5.66
|
%
|
Total
|
|
$
|
2,410,147
|
|
|
|
|
|
|
|
The
loans outstanding were guaranteed by the following properties, entities or individuals:
|
a.
|
Not
collateralized or guaranteed.
|
|
b.
|
Guaranteed
by a commercial credit guaranty company, unrelated to the Company and also by Jiping Chen, a shareholder of the Company.
|
|
c.
|
Collateralized
by the building owned by Xiaoyan Chen and Jing Chen, who are both related parties of the Company. Xiaoyan Chen is one of the shareholders
of Ankang Longevity Group. Jing Chen is the sister of the Xiaoyan Chen but not a shareholder of Ankang Longevity Group.
|
|
*
|
The
Company repaid the loan in full on maturity date.
|
The
Company recorded interest expense of US$ 58,266 and US$ 58,544 for the six months ended December 31, 2019 and 2018, respectively.
The annual weighted average interest rates are 5.32% and 5.74% for the six months ended December 31, 2019 and 2018, respectively.
The
Company recorded interest expense of US$ 27,989 and US$ 27,172 for the three months ended December 31, 2019 and 2018, respectively.
The annual weighted average interest rates are 5.52% and 5.77% for the three months ended December 31, 2019 and 2018, respectively.
NOTE
10 - ACQUISITION
On
December 12, 2016, the Company entered into a merger and acquisition agreement with Tianjin Tajite E-Commerce Co., Ltd. (“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 a 51 % equity interest of Tianjin Tajite.
Pursuant
to the agreement, the Company made a payment of RMB 14,000,000 (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 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 Noncontrolling 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:
Accounts receivable, net
|
|
|
26,635
|
|
Inventory
|
|
|
57,275
|
|
Other current assets
|
|
|
182,056
|
|
Distribution rights
|
|
|
1,059,128
|
|
Property, plant and equipment
|
|
|
13,865
|
|
Advance from customers
|
|
|
(77,127
|
)
|
Tax payable
|
|
|
(16,648
|
)
|
Deferred tax liabilities
|
|
|
(264,782
|
)
|
Salary payable
|
|
|
(24,755
|
)
|
Accrued liabilities and other current liabilities
|
|
|
(980,277
|
)
|
Non-controlling interest
|
|
|
1,406
|
|
Goodwill
|
|
|
2,010,649
|
|
Total purchase price for acquisition, net of US$ 21,761 of cash
|
|
$
|
1,987,425
|
|
The
excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill. The results of operations
of Tianjin Tajite have been included in the unaudited condensed consolidated statements of operations from the date of acquisition.
In
June 2018, the management performed evaluation on the impairment of goodwill. Due to the lower than expected revenue and profit,
and unfavorable business environment, the management fully recorded an impairment loss on goodwill of Tianjin Tajite.
The
fair value of distribution rights and its estimated useful lives is as follows:
|
|
Preliminary
Fair Value
|
|
|
Weighted
Average Useful Life
(in Years)
|
Distribution
rights
|
|
$
|
1,059,128
|
|
|
(a)
|
(a)
The distribution rights with no expiration date has been determined to have an indefinite life.
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
nil in the six months ended December 31, 2019.
NOTE
11 - RELATED PARTY TRANSACTIONS
DUE
FROM RELATED PARTIES
The
Company had previously made temporary advances to certain shareholders of the Company and to other entities that are either owned
by family members of those shareholders or to other entities that the Company has investments in. Those advances are due on demand,
non-interest bearing.
As
of December 31, 2019 and June 30, 2019, the outstanding amounts due from related parties consist of the following:
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Yang Bin
|
|
$
|
43,054
|
|
|
$
|
43,688
|
|
Beijing Huiyinansheng Asset Management Co., Ltd (a.)
|
|
|
21,556
|
|
|
|
21,873
|
|
Beijing Shengguang Tianyi Clothing Co., Ltd (b.)
|
|
|
-
|
|
|
|
63,911
|
|
Wang Qiwei
|
|
|
58,124
|
|
|
|
58,981
|
|
|
|
$
|
122,734
|
|
|
$
|
188,453
|
|
|
a.
|
This
Company is wholly owned by one of the Company’s senior management.
|
|
b.
|
This
Company is wholly owned by one of the Company’s shareholders.
|
DUE
TO RELATED PARTIES
As
of December 31, 2019 and June 30, 2019, the Company had related party payables of US$ 495,555 and US$ 234,500, respectively, mainly
due to the principal shareholders or certain relatives of the shareholders of the Company who lend funds for the Company’s
operations. The payables are unsecured, non-interest bearing and due on demand.
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Wu Yang
|
|
$
|
91,920
|
|
|
$
|
93,275
|
|
Wang Sai
|
|
|
8,611
|
|
|
|
8,738
|
|
Chen Jiping
|
|
|
-
|
|
|
|
989
|
|
Zhang Yuying
|
|
|
-
|
|
|
|
2,913
|
|
Zhou Guocong
|
|
|
11,481
|
|
|
|
-
|
|
Li Baolin
|
|
|
215,270
|
|
|
|
-
|
|
Zhao Min
|
|
|
168,273
|
|
|
|
128,585
|
|
|
|
$
|
495,555
|
|
|
$
|
234,500
|
|
SALES
TO RELATED PARTIES
For
the six and three months ended December 31, 2019, the Company recorded sales to Shaanxi Pharmaceutical Group, a related party
(see Note 7), of US$ 1,545,849 and US$ 750,301, respectively. For the six and three months ended December 31, 2018, the Company
recorded sales to Shaanxi Pharmaceutical Group, a related party, of US$ 1,801,787 and US$ 998,877, respectively. As of December
31, 2019 and June 30, 2019, the balance of accounts receivable due from Shaanxi Pharmaceutical Group was US$ 2,054,466 and US$
2,706,111, respectively.
NOTE
12 - 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 its VIEs entities 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 VIE entities and Xinjiang
Taihe receive a full income tax exemption from the local tax authority of the PRC as agricultural enterprises as long as the favorable
tax policy remains unchanged.
On
December 22, 2017, the “Tax Cuts and Jobs Act” (“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 us to re-measure the Company’s 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 expense (benefit) are as follows:
|
|
|
For the six months ended December 31,
|
|
|
For the three months ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
Current income tax provision
|
|
$
|
333,902
|
|
|
$
|
468,049
|
|
|
$
|
193,061
|
|
|
$
|
250,893
|
|
Deferred income tax benefit
|
|
|
(169,510
|
)
|
|
|
(23,903
|
)
|
|
|
(23,886
|
)
|
|
|
(25,530
|
)
|
Total
|
|
$
|
164,392
|
|
|
$
|
444,146
|
|
|
$
|
169,175
|
|
|
$
|
225,363
|
|
|
ii)
|
The
following table summarizes deferred tax assets resulting from differences between the financial reporting basis and tax basis
of assets and liabilities:
|
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
322,480
|
|
|
$
|
197,962
|
|
Inventory reserve
|
|
|
269,192
|
|
|
|
228,893
|
|
Net operating loss carry-forwards
|
|
|
512,124
|
|
|
|
519,671
|
|
Total
|
|
|
1,103,796
|
|
|
|
946,526
|
|
Valuation allowance
|
|
|
(512,124
|
)
|
|
|
(519,671
|
)
|
Total deferred tax assets
|
|
|
591,672
|
|
|
|
426,855
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Distribution rights
|
|
|
(264,782
|
)
|
|
|
(268,684
|
)
|
Total deferred tax liability
|
|
|
(264,782
|
)
|
|
|
(268,684
|
)
|
Deferred tax assets, net
|
|
$
|
326,890
|
|
|
$
|
158,171
|
|
Movement
of the valuation allowance:
|
|
December 31,
2019
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
519,671
|
|
|
$
|
539,061
|
|
Current year addition
|
|
|
-
|
|
|
|
-
|
|
Exchange difference
|
|
|
(7,547
|
)
|
|
|
(19,390
|
)
|
Ending balance
|
|
$
|
512,124
|
|
|
$
|
519,671
|
|
(b)
Value Added Tax
The
Company is subject to a value added tax (“VAT”) for selling merchandise. The applicable VAT rate is 17% before May
1, 2018 for products sold in the PRC and decreased to 16% thereafter, and after April 1, 2019, the tax rate was further reduced
to 13% based on the new Chinese tax law. The amount of VAT liability is determined by applying the applicable tax rate to the
invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT).
Under commercial practice in the PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent
to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized
and the date on which the tax invoice is issued.
In
the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has
the right to assess a penalty based on the amount of the taxes which are determined to be late or deficient, and will be expensed
in the period if and when a determination is made by the tax authorities. There were no assessed penalties during the six and
three months ended December 31, 2019 and 2018.
(c)
Taxes Payable
Taxes
payable consists of the following:
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Income tax payable
|
|
$
|
3,422,879
|
|
|
$
|
3,425,080
|
|
Value added tax payable
|
|
|
542,600
|
|
|
|
536,486
|
|
Business tax and other taxes payable
|
|
|
7,478
|
|
|
|
5,909
|
|
Total
|
|
|
3,972,957
|
|
|
|
3,967,475
|
|
Less: current portion
|
|
|
3,347,354
|
|
|
|
3,341,872
|
|
Income tax payable - noncurrent portion
|
|
$
|
625,603
|
|
|
$
|
625,603
|
|
NOTE
13 - SHAREHOLDERS’ EQUITY
Initial
Public Offering
On
September 28, 2016, the Company completed its initial public offering of 1,713,190 shares of common stock at a price of US$ 4.50
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 December 31, 2019 and June 30, 2019, the balance of the required
statutory reserves was US$ 4,198,107 and US$ 4,198,107, respectively.
On
January 23, 2018, Shineco, Inc. entered into a Common Stock Purchase Agreement (“Purchase Agreement”) with IFG Opportunity
Fund LLC (“IFG Fund”) whereby, upon the terms and subject to the conditions and limitations set forth therein, the
Company had the right, from time to time in its sole discretion during the 24-month term of the Purchase Agreement, to direct
IFG Fund to purchase up to a total of US$ 15,000,000 worth of shares of common stock. As consideration for IFG Fund to enter into
the Purchase Agreement, the Company agreed to issue 200,000 shares of the Company’s Common Stock (the “Commitment
Shares”) to IFG Fund. The Purchase Shares are being offered in an indirect primary offering consisting of an equity line
of credit, in accordance with the terms and conditions of the Purchase Agreement. The total number of Purchase Shares shall not
exceed 4,000,000. On January 23, 2018, the Company issued the Commitment Shares to IFG Fund. On July 3, 2018, the Company and
IFG Fund entered into a termination agreement, dated July 3, 2018 (the “Termination Agreement”) effective as of July
3, 2018, to terminate the Purchase Agreement and the Registration Rights Agreement. IFG retained the 200,000 commitment shares
which were valued at US$ 434,000 and written off during the six months ended September 30, 2018.
On
September 27, 2018, the Company entered into a securities purchase agreement with selected investors whereby the Company agreed
to sell up to 1,637,700 of common stock at a purchase price of US$ 1 per share, for gross proceeds to the Company of approximately
US$ 1,637,700 (the “2018 Offering”). After deducting the offering cost, the net proceeds the Company received was
US$ 1,589,892. The 2018 Offering closed on September 28, 2018. The 2018 Offering was made pursuant to the Company’s effective
registration statement on Form S-3 (Registration Statement No. 333-221711) previously filed with the Securities and Exchange Commission
and a prospectus supplement thereunder.
On May 8, 2019, TNB, filed with the United
States Securities and Exchange Commission a Notice of Exempt Offering of Securities on Form D regarding an offering (“Offering”)
of simple agreement for future tokens. Tenet-Jove intends to use the net proceeds from sales of the tokens to develop land and
facilities for cultivating industrial hemp in China under a newly formed wholly owned subsidiary (the “Operations”).
The minimum target amount in this private placement is $1,000,000. Once Shineco raises $1,000,000, investors will have the option
to convert smart contracts that represent preferred stock into Shinceo’s common stock. For this, smart contracts that shall
be convertible into common stock at the following ratio of 20:1. If Shineco raises $1,000,000 in this private placement, then
up to 500,000 shares of common stock will be issued pursuant to the following calculation if the smart contract holders choose
to convert their smart contracts that represent preferred stock into Shinceo’s common stock:
1. Each smart contract is $ 0.1;
2. $1,000,000 can get 10,000,000 smart
contracts. ($1,000,000 divided by 0.1 equals to 10,000,000 smart contracts.)
3. The conversion ratio of smart contracts
to common stock is 20:1
4. Therefore,-10,000,000-smart-contracts-divided
by 20 -equals-500,000-common stock.
Shineco plans to issue no more than 4,000,000 shares in connection
with this transaction, specifically for the exchange of smart contracts.
On
September 3, 2019, the Company granted 1,662,864 restricted shares to its employees as compensation cost for awards. The fair
value of the restricted shares was US$ 1,022,661 based on the closing stock price US$ 0.615 at September 3, 2019. These restricted
shares were vested immediately from the grant date.
On
September 5, 2019, the Company entered into a securities purchase agreement with select investors whereby the Company agreed to
sell, and the investors agreed to purchase, up to 2,798,792 shares of common stock (the “Shares”) at a purchase price
of US$ 0.52 per Share. The net proceeds that the Company received was US$ 1,500,203. The offering is being made pursuant to the
Company’s effective registration statement on Form S-3 (Registration Statement No. 333-221711) previously filed with the
Securities and Exchange Commission and a prospectus supplement thereunder.
NOTE
14 - CONCENTRATIONS AND RISKS
The
Company maintains principally all bank accounts in the PRC. The cash balance held in the PRC bank accounts was US$ 42,070,119
and US$ 35,311,106 as of December 31, 2019 and June 30, 2019, respectively.
During
the six months ended December 31, 2019 and 2018, 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 six months ended December 31, 2019, four customers accounted for approximately 13%, 11%, 10% and 10% of the Company’s
total sales, respectively. For the three months ended December 31, 2019, four customers accounted for approximately 12%, 10%,
10% and 10% of the Company’s total sales, respectively. At December 31, 2019, five customers accounted for approximately
70% of the Company’s accounts receivable.
For
the six months ended December 31, 2018, five customers accounted for approximately 14%, 11%, 11%, 11% and 11% of the Company’s
total sales, respectively. For the three months ended December 31, 2018, two customers accounted for approximately 15% and 12%
of the Company’s total sales, respectively.
For
the six months ended December 31, 2019, two vendors accounted for approximately 41% and 14% of the Company’s total purchases,
respectively. For the six months ended December 31, 2018, three vendors accounted for approximately 45%, 15% and 10% of the Company’s
total purchases, respectively.
For
the three months ended December 31, 2019, two vendor accounted for approximately 45% and 13% of the Company’s total purchases,
respectively. For the three months ended December 31, 2018, one vendor accounted for approximately 28% of the Company’s
total purchases, respectively.
NOTE
15 - COMMITMENTS AND CONTIGENCIES
Lease
Commitments
The
Company sublets the above-mentioned farmland to a third party under a non-cancelable operating lease agreement through May 31,
2020. The future minimum sublease rental income to be received is as follows:
Twelve months ending December 31:
|
|
|
|
|
|
|
|
2020
|
|
$
|
85,350
|
|
Total
|
|
$
|
85,350
|
|
Sublease
rental income totaled US$ 102,420 and US$ 104,688 for the six months ended December 31, 2019 and 2018, respectively.
Sublease
rental income totaled US$ 51,111 and US$ 51,784 for the three months ended December 31, 2019 and 2018, respectively.
Legal
Contingencies
On
May 16, 2017, Bonwick Capital Partners, LLC (“Plaintiff”) commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against
the Company in the United States District Court for the Southern District of New York. Plaintiff alleges that the Company entered
into an agreement with Plaintiff (the “Agreement”), pursuant to which Plaintiff was to provide the Company with financial
advisory services in connection with the Company’s initial public offering in the United States. Plaintiff alleges that
the Company breached the Agreement and seeks money damages up to US$ 6 million. The Company believes that these claims are without
merit and intends to vigorously defend its position.
NOTE
16 - 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 three 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
City.
|
●
|
Processing
and distributing of traditional Chinese medicinal herbal products as well as other pharmaceutical
products (“Herbal products”):
|
The
operating companies of this segment, namely AnKang Longevity Group and its subsidiaries,
process more than 600 kinds of Chinese medicinal herbal products with an established
domestic sales and distribution network.
Ankang
Longevity Group is also engaged in the retail pharmacy business and the operating revenue, which is not material, is also included
in this segment.
|
●
|
Planting,
processing and distributing of green and organic agricultural produce as well as growing and cultivating of Chinese Yew trees
(“Other agricultural products”):
|
The
operating companies of this segment, the Zhisheng Group, is engaged in the business of growing and distributing green and organic
vegetables and fruits as well as providing logistics services for distributing agricultural products. This segment has been focusing
its efforts on the growing and cultivating of Chinese yew trees (formally known as “taxus media”), a small evergreen
tree whose branches can be used for the production of medications believed to be anti-cancer and the tree itself can be used as
an ornamental indoor bonsai tree, which are known to have the effect of purifying air quality.
The
operations of this segment are located in the East and North regions of Mainland China, mostly carried out in Shandong Province
and in Beijing where the Zhisheng Group has newly developed over 100 acres of modern greenhouses for cultivating yew trees and
other plants.
The
following table presents summarized information by segment for the six months ended December 31, 2019:
|
|
For the six months ended December 31, 2019
|
|
|
|
Luobuma
|
|
|
Herbal
|
|
|
Other agricultural
|
|
|
|
|
|
|
products
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
138,759
|
|
|
$
|
6,839,600
|
|
|
$
|
7,937,034
|
|
|
$
|
14,915,393
|
|
Cost of revenue and related business and sales tax
|
|
|
269,157
|
|
|
|
5,227,120
|
|
|
|
5,414,234
|
|
|
|
10,910,511
|
|
Gross profit
|
|
|
(130,398
|
)
|
|
|
1,612,480
|
|
|
|
2,522,800
|
|
|
|
4,004,882
|
|
Gross profit %
|
|
|
(94.0
|
)%
|
|
|
23.6
|
%
|
|
|
31.8
|
%
|
|
|
26.9
|
%
|
The
following table presents summarized information by segment for the six months ended December 31, 2018:
|
|
For the six months ended December 31, 2018
|
|
|
|
Bluish
|
|
|
Herbal
|
|
|
Other agricultural
|
|
|
|
|
|
|
dogbane
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
510,724
|
|
|
$
|
6,797,904
|
|
|
$
|
8,662,385
|
|
|
$
|
15,971,013
|
|
Cost of revenue and related business and sales tax
|
|
|
221,786
|
|
|
|
5,154,956
|
|
|
|
6,083,265
|
|
|
|
11,460,007
|
|
Gross profit
|
|
|
288,938
|
|
|
|
1,642,948
|
|
|
|
2,579,120
|
|
|
|
4,511,006
|
|
Gross profit %
|
|
|
56.6
|
%
|
|
|
24.2
|
%
|
|
|
29.8
|
%
|
|
|
28.2
|
%
|
The
following table presents summarized information by segment for the three months ended December 31, 2019:
|
|
For the three months ended December 31, 2019
|
|
|
|
Luobuma
|
|
|
Herbal
|
|
|
Other agricultural
|
|
|
|
|
|
|
products
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
73,240
|
|
|
$
|
3,539,279
|
|
|
$
|
4,256,093
|
|
|
$
|
7,868,612
|
|
Cost of revenue and related business and sales tax
|
|
|
37,653
|
|
|
|
2,627,716
|
|
|
|
2,838,256
|
|
|
|
5,503,625
|
|
Gross profit
|
|
|
35,587
|
|
|
|
911,563
|
|
|
|
1,417,837
|
|
|
|
2,364,987
|
|
Gross profit %
|
|
|
48.6
|
%
|
|
|
25.8
|
%
|
|
|
33.3
|
%
|
|
|
30.1
|
%
|
The
following table presents summarized information by segment for the three months ended December 31, 2018:
|
|
For the three months ended December 31, 2018
|
|
|
|
Luobuma
|
|
|
Herbal
|
|
|
Other agricultural
|
|
|
|
|
|
|
products
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
344,539
|
|
|
$
|
3,499,581
|
|
|
$
|
4,537,812
|
|
|
$
|
8,381,932
|
|
Cost of revenue and related business and sales tax
|
|
|
167,357
|
|
|
|
2,580,690
|
|
|
|
3,233,806
|
|
|
|
5,981,853
|
|
Gross profit
|
|
|
177,182
|
|
|
|
918,891
|
|
|
|
1,304,006
|
|
|
|
2,400,079
|
|
Gross profit %
|
|
|
51.4
|
%
|
|
|
26.3
|
%
|
|
|
28.7
|
%
|
|
|
28.6
|
%
|
Total
Assets as of
|
|
December 31,
2019
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
Luobuma products
|
|
$
|
4,971,200
|
|
|
$
|
6,268,974
|
|
Herbal products
|
|
|
46,125,282
|
|
|
|
45,095,019
|
|
Other agricultural products
|
|
|
31,976,226
|
|
|
|
32,375,480
|
|
|
|
$
|
83,072,708
|
|
|
$
|
83,739,473
|
|
NOTE 17 - SUBSEQUENT EVENTS
These
unaudited condensed consolidated financial statements were approved by management and available for issuance on February XX, 2019,
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.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This document contains
certain statements of a forward-looking nature. Forward-looking statements involve risks and uncertainties, such as statements
about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements
by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”
“ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,”
“will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected
to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors
that could cause actual results to differ materially from any future results, performances or achievements expressed or implied
by the forward-looking statements.
Examples of forward-looking
statements include:
|
●
|
the timing of the development of future products;
|
|
●
|
projections of revenue, earnings, capital structure and other financial items;
|
|
●
|
statements of our plans and objectives, including those that relate to our proposed expansions and the effect such expansions may have on our revenues;
|
|
●
|
statements regarding the capabilities of our business operations;
|
|
●
|
statements of expected future economic performance;
|
|
●
|
statements regarding competition in our market; and
|
|
●
|
assumptions underlying statements regarding us or our business.
|
The ultimate correctness
of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material
risks under the heading “Risk Factors” in our annual report on Form 10-K and Registration Statement on Form S-1. Many
factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.
Consequently, you should not place undue reliance on these forward-looking statements.
The forward-looking
statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report
or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to
indicate that other statements not addressed by such update is incorrect or create an obligation to provide any other updates.