NOTE 1 - ORGANIZATION
AND NATURE OF OPERATIONS [FOOTNOTES NEED TO BE UPDATED FOR THIS QUARTER – THESE FOOTNOTES ARE FROM THE 10-Q FILED FOR THE
QUARTER ENDED SEPTEMBER 30, 2019]
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, 2018, which was filed on October 15, 2018.
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:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Current assets
|
|
$
|
55,139,374
|
|
|
$
|
57,328,097
|
|
Plant and equipment, net
|
|
|
8,492,058
|
|
|
|
8,965,671
|
|
Other noncurrent assets
|
|
|
11,227,447
|
|
|
|
11,028,775
|
|
Total assets
|
|
|
74,858,879
|
|
|
|
77,322,543
|
|
Total liabilities
|
|
|
(5,742,633
|
)
|
|
|
(6,090,955
|
)
|
Net assets
|
|
$
|
69,116,237
|
|
|
$
|
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 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 September 30, 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
September 30, 2019 and June 30, 2019, the allowance for doubtful accounts was US$ 4,577,770 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 September 30, 2019 and June 30, 2019, the Company had an allowance for uncollectible
advances to suppliers of US$ 1,254,051 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 three months ended September 30, 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 September 30, 2019 and June 30, 2019. The Company has not provided deferred taxes for undistributed earnings of non-U.S. subsidiaries
at September 30, 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 September
30, 2019, the tax years ended June 30, 2014 through June 30, 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, and
after May 1, 2018, the Company subject a tax rate of 16% 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 September 30, 2019 and June 30, 2019 were translated at 1 RMB to 0.1401 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 three months ended September 30, 2019
and 2018 were at 1 RMB to 0.1425 USD and at 1 RMB to 0.1470 USD, respectively.
Comprehensive Income
Comprehensive income consists of two components,
net income 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 and comprehensive income.
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 was no
anti-dilutive effect for the three months ended September 30, 2019 and 2018.
New Accounting Pronouncements
In September 2017, the FASB issued ASU
2017-13, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842). The main objective of this pronouncement is
to clarify the effective date of the adoption of ASC Topic 606 and ASC Topic 842 and the definition of public business entity as
stipulated in ASU 2014-09 and ASU 2016-02. ASU 2014-09 provides that a public business entity and certain other specified entities
adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within
that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December
15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. ASU 2016-12 requires
that “a public business entity and certain other specified entities adopt ASC Topic 842 for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. All other entities are required to adopt ASC Topic 842 for fiscal
years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020”. ASU
2017-13 clarifies that the SEC would not object to certain public business entities electing to use the non-public business entities
effective dates for applying ASC 606 and ASC 842. ASU 2017-13, however, limits such election to certain public business entities
that “otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion
of its financial statements or financial information in another entity’s filings with the SEC”. The Company expects
that the adoption of this ASU will not have a material impact on its financial statements.
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 July 2018, the FASB issued ASU No. 2018-10,
“Codification Improvements to Topic 842, Leases,” which clarifies how to apply certain aspects of the new leases standard.
This ASU addresses the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease
classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain
transition adjustments. This ASU has the same effective date and transition requirements as the new leases standard, which is effective
for annual periods beginning after December 15, 2018. The Company expects that the adoption of this ASU will have a material impact
on its financial statements.
In July 2018, the FASB issued ASU No.
2018-11, “Leases (Topic 842): Targeted Improvements” which provides a new transition method and a practical expedient
for separating components of a contract. This ASU is intended to reduce costs and ease the implementation of the new leasing standard
for financial statement preparers. The effective date and transition requirements for the amendments related to separating components
of a contract are the same as the effective date and transition requirements in ASU 2016-02. In December 2018 FASB issued ASU
2018-20, Leases (Topic) 842: Narrow-scope Improvements for Lessors which provides for certain policy elections and changes lessor
accounting for sales and similar taxes and certain lessor costs. In March 2019 the FASB issued ASU 2019-01, Leases Codification
Improvements Codification improvements to Topic 842 (leases), which provides narrow amendments to clarify how to apply certain
aspects of the new lease standard. The Company has evaluated the impact of the new standard on its unaudited condensed consolidated
financial statements and the guidance does not have a material impact on the Company. 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.
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:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Raw materials
|
|
$
|
777,744
|
|
|
$
|
974,639
|
|
Work-in-process
|
|
|
540,057
|
|
|
|
651,769
|
|
Finished goods
|
|
|
1,753,374
|
|
|
|
1,533,318
|
|
Less: inventory reserve for raw materials
|
|
|
(1,082,425
|
)
|
|
|
(944,167
|
)
|
Total
|
|
$
|
1,988,750
|
|
|
$
|
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:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Buildings
|
|
$
|
11,414,743
|
|
|
$
|
11,994,407
|
|
Building improvements
|
|
|
-
|
|
|
|
79,628
|
|
Machinery and equipment
|
|
|
852,343
|
|
|
|
930,109
|
|
Motor vehicles
|
|
|
46,191
|
|
|
|
81,541
|
|
Construction in progress
|
|
|
75,425
|
|
|
|
78,407
|
|
Office equipment
|
|
|
232,293
|
|
|
|
219,605
|
|
Farmland leasehold improvements
|
|
|
2,945,934
|
|
|
|
3,062,410
|
|
|
|
|
15,566,929
|
|
|
|
16,446,107
|
|
Less: accumulated depreciation and amortization
|
|
|
(5,615,813
|
)
|
|
|
(5,778,377
|
)
|
Property and equipment, net
|
|
$
|
9,951,116
|
|
|
$
|
10,667,730
|
|
Depreciation and amortization expense charged to operations
was US$ 178,215 and US$ 186,852 for the three months ended September 30, 2019 and 2018, respectively.
Farmland leasehold improvements consist
of following:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Blueberry farmland leasehold improvements
|
|
$
|
2,263,197
|
|
|
$
|
2,352,679
|
|
Yew tree planting base reconstruction
|
|
|
253,562
|
|
|
|
263,587
|
|
Greenhouse renovation
|
|
|
429,175
|
|
|
|
446,144
|
|
Total farmland leasehold improvements
|
|
$
|
2,945,934
|
|
|
$
|
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.
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Land use rights
|
|
$
|
1,558,211
|
|
|
$
|
1,619,820
|
|
Less: accumulated amortization
|
|
|
(349,907
|
)
|
|
|
(355,511
|
)
|
Land use rights, net
|
|
$
|
1,208,304
|
|
|
$
|
1,264,309
|
|
For the three months ended September 30,
2019 and 2018, the Company recognized amortization expense of US$ 9,214 and US$ 9,638, respectively.
The estimated future amortization expenses
are as follows:
Twelve months ending September 30:
|
|
|
|
|
|
|
|
2019
|
|
$
|
31,164
|
|
2020
|
|
|
31,164
|
|
2021
|
|
|
31,164
|
|
2022
|
|
|
31,164
|
|
2023
|
|
|
31,164
|
|
Thereafter
|
|
|
1,052,484
|
|
Total
|
|
$
|
1,208,304
|
|
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 September 30, 2019, the distribution rights were evaluated at RMB 7,380,000 (US$ 1,033,860).
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$ 69,899 and US$ 143,135 for the three months ended September 30, 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 three months ended September
30, 2019 and 2018, a total of US$ Nil and US$ 292,439 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.
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 three months ended September 30, 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:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (Ankang Longevity Pharmacy)
|
|
$
|
3,627,582
|
|
|
$
|
3,717,277
|
|
Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Chain Co., Ltd.
|
|
|
807,807
|
|
|
|
822,058
|
|
Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd.
|
|
|
2,031,296
|
|
|
|
2,111,609
|
|
Total
|
|
$
|
6,466,685
|
|
|
$
|
6,650,944
|
|
Summarized financial information of unconsolidated
entities is as follows:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Current assets
|
|
$
|
37,362,920
|
|
|
$
|
35,675,858
|
|
Noncurrent assets
|
|
|
218,073
|
|
|
|
241,580
|
|
Current liabilities
|
|
|
28,543,605
|
|
|
|
26,668,485
|
|
|
|
For the three months ended
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
Net sales
|
|
$
|
7,540,520
|
|
|
$
|
7,438,062
|
|
Gross profit
|
|
|
764,612
|
|
|
|
1,013,655
|
|
Income from operations
|
|
|
138,891
|
|
|
|
292,670
|
|
Net income
|
|
|
144,590
|
|
|
|
292,113
|
|
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 $3,241,426
and $431,883, 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.
|
|
September 30,
2019
|
|
Rights of use lease assets
|
|
$
|
3,241,426
|
|
|
|
|
|
|
Operating lease liabilities – current
|
|
$
|
428,863
|
|
Operating lease liabilities – non-current
|
|
|
3,020
|
|
Total operating lease liabilities
|
|
$
|
431,883
|
|
The weighted average remaining lease terms and discount rates
for all of operating leases were as follows as of September 30, 2019:
|
|
September 30,
2019
|
|
Remaining lease term and discount rate:
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
9.77
|
|
Weighted average discount rate
|
|
|
5.0
|
%
|
Rent expense totaled US$ 92,325 and US$ 159,351 for the three
months ended September 30, 2019 and 2018, respectively.
The following is a schedule, by years, of maturities of lease
liabilities as of September 30, 2019:
2020
|
|
$
|
860,742
|
|
2021
|
|
|
644,227
|
|
2022
|
|
|
426,331
|
|
2023
|
|
|
204,173
|
|
2024
|
|
|
204,173
|
|
Thereafter
|
|
|
913,740
|
|
Total lease payments
|
|
|
3,253,386
|
|
Less: imputed interest
|
|
|
(11,960
|
)
|
Less: prepayments
|
|
|
(2,809,543
|
)
|
Present value of lease liabilities
|
|
$
|
431,883
|
|
NOTE 9 - SHORT-TERM LOANS
Short-term loans consist of the following:
Lender
|
|
September 30,
2019
|
|
|
Maturity
Date
|
|
Int.
Rate/Year
|
|
Agricultural Bank of China-b
|
|
|
630,402
|
|
|
2019/11/13*
|
|
|
3.92
|
%
|
Agricultural Bank of China-c
|
|
|
1,400,894
|
|
|
2020/2/25
|
|
|
5.66
|
%
|
Agricultural Bank of China-c
|
|
|
280,179
|
|
|
2020/8/26
|
|
|
5.60
|
%
|
Total
|
|
$
|
2,311,475
|
|
|
|
|
|
|
|
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$ 30,277 and US$
31,372 for the three months ended September 30, 2019 and 2018, respectively. The annual weighted average interest rates are 5.31%
and 5.83% for the three months ended September 30, 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
|
|
|
26,000
|
|
Inventory
|
|
|
55,909
|
|
Other current assets
|
|
|
177,712
|
|
Distribution rights
|
|
|
1,033,860
|
|
Property, plant and equipment
|
|
|
13,534
|
|
Advance from customers
|
|
|
(75,287
|
)
|
Tax payable
|
|
|
(16,251
|
)
|
Deferred tax liabilities
|
|
|
(258,465
|
)
|
Salary payable
|
|
|
(24,165
|
)
|
Accrued liabilities and other current liabilities
|
|
|
(956,890
|
)
|
Non-controlling interest
|
|
|
1,372
|
|
Goodwill
|
|
|
1,962,680
|
|
Total purchase price for acquisition, net of US$ 22,076 of cash
|
|
$
|
1,940,009
|
|
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
|
|
$
|
1,033,860
|
|
|
(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 three months ended September
30, 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 September 30, 2019 and June 30, 2019, the outstanding
amounts due from related parties consist of the following:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Yang Bin
|
|
$
|
42,027
|
|
|
$
|
43,688
|
|
Beijing Huiyinansheng Asset Management Co., Ltd (a.)
|
|
|
21,041
|
|
|
|
21,873
|
|
Beijing Shengguang Tianyi Clothing Co., Ltd (b.)
|
|
|
2,948
|
|
|
|
63,911
|
|
Wang Qiwei
|
|
|
56,737
|
|
|
|
58,981
|
|
|
|
$
|
122,753
|
|
|
$
|
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 September 30, 2019 and June 30,
2019, the Company had related party payables of US$ 287,066 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.
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Wu Yang
|
|
$
|
89,727
|
|
|
$
|
93,275
|
|
Wang Sai
|
|
|
8,405
|
|
|
|
8,738
|
|
Chen Jiping
|
|
|
952
|
|
|
|
989
|
|
Zhang Yuying
|
|
|
0
|
|
|
|
2,913
|
|
Zhao Min
|
|
|
187,982
|
|
|
|
128,585
|
|
|
|
$
|
287,066
|
|
|
$
|
234,500
|
|
SALES TO RELATED PARTIES
For the three months ended September 30,
2019 and 2018, the Company recorded sales to Shaanxi Pharmaceutical Group, a related party (see Note 7), of US$ 795,548 and US$
802,910, respectively. As of September 30, 2019 and June 30, 2019, the balance of accounts receivable due from Shaanxi Pharmaceutical
Group was US$ 2,285,268 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 are as follows:
|
|
|
For the three months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current income tax provision
|
|
$
|
140,841
|
|
|
$
|
217,156
|
|
Deferred income tax provision (benefit)
|
|
|
(145,624
|
)
|
|
|
1,627
|
|
Total
|
|
$
|
(4,783
|
)
|
|
$
|
218,783
|
|
ii)
|
The following table summarizes deferred tax assets resulting from differences between the financial reporting basis and tax basis of assets and liabilities:
|
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
290,270
|
|
|
$
|
197,962
|
|
Inventory reserve
|
|
|
263,485
|
|
|
|
228,893
|
|
Net operating loss carry-forwards
|
|
|
499,906
|
|
|
|
519,671
|
|
Total
|
|
|
1,053,661
|
|
|
|
946,526
|
|
Valuation allowance
|
|
|
(499,906
|
)
|
|
|
(519,671
|
)
|
Total deferred tax assets
|
|
|
553,755
|
|
|
|
426,855
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Distribution rights
|
|
|
(258,464
|
)
|
|
|
(268,684
|
)
|
Total deferred tax liability
|
|
|
(258,464
|
)
|
|
|
(268,684
|
)
|
Deferred tax liability, net
|
|
$
|
295,291
|
|
|
$
|
158,171
|
|
Movement of the valuation allowance:
|
|
September 30,
2019
|
|
|
June 30,
2018
|
|
Beginning balance
|
|
$
|
519,671
|
|
|
$
|
539,061
|
|
Current year addition
|
|
|
-
|
|
|
|
-
|
|
Exchange difference
|
|
|
(19,765
|
)
|
|
|
(19,390
|
)
|
Ending balance
|
|
$
|
499,906
|
|
|
$
|
519,671
|
|
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. 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 three months ended September 30, 2019 and 2018.
Taxes payable consists of the following:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Income tax payable
|
|
$
|
3,295,635
|
|
|
$
|
3,425,080
|
|
Value added tax payable
|
|
|
531,351
|
|
|
|
536,486
|
|
Business tax and other taxes payable
|
|
|
7,816
|
|
|
|
5,909
|
|
Total
|
|
|
3,833,807
|
|
|
|
3,967,475
|
|
Less: current portion
|
|
|
3,208,204
|
|
|
|
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 September 30, 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 three 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 tokens that Tenet-Jove plans to raise up to US$ 20,000,000 in the Offering, and up to an additional US$ 20,000,000 in an offering
under Regulation S of the Securities Act. 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 tokens represent shares of preferred stock of Tenet-Jove. On an annual basis, Tenet-Jove will distribute to token holders the
greater of (A) 5% of the total amount of proceeds raised by Tenet-Jove in the offerings, or (B) 40% of net profits generated from
the Operations. The Company will guarantee Tenet-Jove’s obligations to distribute such amount. Token holders shall also have
the option to convert the tokens into shares of common stock of the Company. As the date of this report, the Offering of tokens
is in process, and none of the tokens has been sold.
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$ 37,591,678 and US$ 35,311,106 as of September 30, 2019
and June 30, 2019, respectively.
During the three months ended September
30, 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 three months ended September 30,
2019, five customers accounted for approximately 14%, 12%, 11%, 10% and 10% of the Company’s total sales, respectively.
At September 30, 2019, two customers accounted for approximately 39% of the Company’s accounts receivable.
For the three months ended September 30,
2018, five customers accounted for approximately 14%, 14%, 14%, 12% and 11% of the Company’s total sales, respectively.
For the three months ended September 30,
2019, three vendors accounted for approximately 36%, 16% and 12% of the Company’s total purchases, respectively. For the
three months ended September 30, 2018, three vendors accounted for approximately 38%, 14% and 11% 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 September 30:
|
|
|
|
|
|
|
|
2020
|
|
|
136,824
|
|
Total
|
|
$
|
136,824
|
|
Sublease rental income totaled US$ 51,309
and US$ 52,904 for the three months ended September 30, 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:
|
Ø
|
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.
|
Ø
|
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.
|
Ø
|
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 three months ended September 30, 2019:
|
|
For the three months ended September 30,
2019
|
|
|
|
Luobuma
|
|
|
Herbal
|
|
|
Other agricultural
|
|
|
|
|
|
|
products
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
65,519
|
|
|
$
|
3,300,321
|
|
|
$
|
3,680,941
|
|
|
$
|
7,046,781
|
|
Cost of revenue and related business and sales tax
|
|
|
231,504
|
|
|
|
2,599,404
|
|
|
|
2,575,978
|
|
|
|
5,406,886
|
|
Gross profit
|
|
|
(165,985
|
)
|
|
|
700,917
|
|
|
|
1,104,963
|
|
|
|
1,639,895
|
|
Gross profit %
|
|
|
(253.3
|
)%
|
|
|
21.2
|
%
|
|
|
30.0
|
%
|
|
|
23.3
|
%
|
The following table presents summarized
information by segment for the three months ended September 30, 2018:
|
|
For the three months ended September 30,
2018
|
|
|
|
Luobuma
|
|
|
Herbal
|
|
|
Other agricultural
|
|
|
|
|
|
|
products
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
166,185
|
|
|
$
|
3,298,323
|
|
|
$
|
4,124,573
|
|
|
$
|
7,589,081
|
|
Cost of revenue and related business and sales tax
|
|
|
54,429
|
|
|
|
2,574,266
|
|
|
|
2,849,459
|
|
|
|
5,478,154
|
|
Gross profit
|
|
|
111,756
|
|
|
|
724,057
|
|
|
|
1,275,114
|
|
|
|
2,110,927
|
|
Gross profit %
|
|
|
67.2
|
%
|
|
|
22.0
|
%
|
|
|
30.9
|
%
|
|
|
27.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets as of
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Luobuma products
|
|
$
|
5,625,159
|
|
|
$
|
6,268,974
|
|
Herbal products
|
|
|
43,900,775
|
|
|
|
45,095,019
|
|
Other agricultural products
|
|
|
31,189,846
|
|
|
|
32,375,480
|
|
|
|
$
|
80,715,780
|
|
|
$
|
83,739,473
|
|
NOTE 17 - SUBSEQUENT EVENTS
These unaudited condensed consolidated financial statements were approved by management and available for issuance on November
14, 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.