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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

annual report pursuant to Section 13 or 15(d) of the Securities Exchange

Act of 1934

 

For the fiscal year ended June 30, 2023

or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange

Act of 1934

 

For the transition period from _________ to _________

 

Commission File Number: 001-37776

 

 

SHINECO, INC.
(Exact name of issuer as specified in its charter)

 

Delaware   52-2175898
(State or other jurisdiction of   (I.R.S. employer
incorporation or organization)   identification number)

 

T1, Jiazhaoye Square,  
Chaoyang District,  

 

RM 3D-1603 New World Center Apartment,    
Chong Wen Men Wai Blvd,    
Beijing, People’s Republic of China   100022
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (+86) 10-68130220

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Ticker Symbol   Name of each exchange on which registered
Common stock, $0.001 par value   SISI   NASDAQ Capital Market

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No

 

The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $46,782,541 as of December 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price of the registrant’s common stock on such date of $2.38 per share, as reported on the Nasdaq Capital Market.

 

As of September 28, 2023, the registrant had 43,840,642 shares of common stock issued and outstanding.

 

 

 

   
 

 

TABLE OF CONTENTS

TO ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED JUNE 30, 2023

 

Part I   4
Item 1. Business 4
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 19
Item 2. Properties 20
Item 3. Legal Proceedings 21
Item 4. Mine Safety Disclosures 21
Part II   22
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities 22
Item 6. [Reserved] 26
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 41
Item 8. Financial Statements and Supplementary Data 41
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 42
Item 9A. Controls and Procedures 42
Item 9B. Other Information 44
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 44
Part III   45
Item 10. Directors, Executive Officers and Corporate Governance 45
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 50
Item 13. Certain Relationships and Related Transactions, and Director Independence 51
Item 14. Principal Accounting Fees and Services 52
Part IV   53
Item 15. Exhibits and Financial Statement Schedules 53
Item 16. Form 10-K Summary 59

 

All references to “we,” “us,” “our,” “SISI,” “Company,” “registrant” or similar terms used in this report refer to Shineco, Inc., a Delaware corporation (“SISI”), including the variable interest entities (“VIEs”) and its consolidated subsidiaries, unless the context otherwise indicates. In the context of describing our business, “we,” “us,” “our,” “SISI,” “Company,” or “registrant” refers to the VIEs and their subsidiaries, unless the context otherwise indicates.

 

Our reporting currency is the US$. The functional currency of our entities located in China is the RMB. For the entities whose functional currency is the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into US$ are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currencies at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

2
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-K (the “Report”) and other reports (collectively the “Filings”) filed by the registrant from time to time with the Securities and Exchange Commission (the “SEC”) contain or may contain forward looking statements and information that are based upon beliefs of, and information currently available to, the registrant’s management as well as estimates and assumptions made by the registrant’s management. When used in the filings the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” or the negative of these terms and similar expressions as they relate to the registrant or the registrant’s management identify forward looking statements. Such statements reflect the current view of the registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this Report entitled “Risk Factors”) relating to the registrant’s industry, the registrant’s operations and results of operations and any businesses that may be acquired by the registrant. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Although the registrant believes that the expectations reflected in the forward-looking statements are reasonable, the registrant cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the registrant does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with the registrant’s financial statements and the related notes thereto included in this Report.

 

3
 

 

Part I

 

ITEM 1. Business

 

General Overview

 

Shineco, Inc. is a holding company incorporated in Delaware. As a holding company with no material operations of our own, we conduct our operations through our subsidiaries and in the two years ended June 30, 2022 and 2023, through the variable interest entities (the “VIEs”) and subsidiaries. Our shares of common stock currently listed on the Nasdaq Capital Markets are shares of our Delaware holding company. The Chinese regulatory authorities could disallow our structure, which could result in a material change in our operations and the value of our securities could decline or become worthless.

 

Current Business

 

On September 19, 2023, the Company and Shineco Life Science Group Hong Kong Co., Limited (“Shineco Life”), a company established under the laws of Hong Kong and a wholly owned subsidiary of the Company (together as the “Buying Parties”) closed the acquisition of 71.42% equity interest (the “Acquisition”) in Dream Partner Limited, a BVI corporation (“Dream Partner”), pursuant to the stock purchase agreement (the “Agreement”) dated May 29, 2023, entered into by and among the Buying Parties, Dream Partner, Chongqing Wintus Group, a corporation incorporated under the laws of mainland China (“Wintus”) and certain shareholders of Dream Partner (the “Sellers,” together with Dream Partner and Wintus as the “Selling Parties”).

 

As the consideration for the Acquisition, the Company (a) paid the Sellers an aggregate cash consideration of $2,000,000 (the “Cash Consideration”); (b) issued certain shareholders, as listed in the Agreement, an aggregate of 10,000,000 shares of the Company’s restricted Common Stock (the “Shares”); and (c) transferred and sold to the Sellers 100% of the Company’s equity interest in Beijing Tenet-Jove Technological Development Co., Ltd. (the “Tenet-Jove Shares”).

 

Following the closing of the Acquisition and the sale of the Tenet-Jove Shares, the Company divested its equity interest in its operating subsidiary Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”) and thereby terminated its VIE Structure.

 

Dream Partner is a holding company incorporated in British Virgin Islands. As a holding company with no material operations of its own, it conducts a substantial majority of its operations through the operating entities established in the People’s Republic of China, or the PRC.

 

Dream Partner, via its subsidiaries, integrates the production, processing, export and domestic trade of cocoon silk products in the silk manufacturing industrial chain, established for more than 20 years, committed to the research and development, production and sales of functional silk fabrics. Dream Partner owns several large-scale sericulture bases in mainland China, where it can use them to cultivate silkworm cocoons, which is the raw material for silk production. Dream Partner also has production plant equipped with advanced machinery, such as Italian rapier looms to produce silk fabric. Dream Partner’s products are sold domestically and globally, mainly in India. Dream Partner cooperates with a number of scientific research institutions conducting silk fabric innovative research and development and market applications, and launching a variety of new functional silk fabrics, which possess various qualities, such as waterproof, oilproof, antibacterial, antiviral and other characters, in response to market demand. Dream Partner advocates a healthy, comfortable and tasteful lifestyle, creates economic and social benefits with high value-added products, and enhances the core competitiveness of enterprises. Dream Partner generates revenue from the following three streams:

 

Processing and distributing agricultural produce as well as growing and cultivating mulberry trees and silkworm cocoons - Dream Partner currently breeds silkworms and produces related agricultural products, and continues to develop the sericulture base. Dream Partner works closely with domestic scientific research institutions to promote mulberry seeds, silkworm seeds and advanced production modes according to local conditions, reduce the risk of sericulture planting, reduce labor intensity and increase farmers’ income. The adequate output and high quality of silkworm cocoons in our own sericulture base not only can ensure our own fabric production and manufacturing, but also can satisfy the outside customers. Dream Partner also carries out fruit distribution business through collaboration with many domestic fruit traders, and continuously expands the domestic market with high quality imported fruits. Dream Partner imports high quality fruits mainly from Southeast Asian countries, such as Thailand and Malaysia.

 

Processing and distributing silk and silk fabrics as well as other by-products – Processing and distributing silk and silk fabrics is our major business. We conduct this segment of our business relying on our own bases and factory. Through the integrated operation system of trade, industry and agriculture, it can achieve real and controllable raw materials, control the production costs and production cycles. In the last 20 years of development, Dream Partner has continued to innovate and upgrade, introduced advanced intelligent manufacturing equipment, improved production efficiency and product quality, developed innovative varieties, and had strong market competitiveness and won the recognition of new and old customers. Our silk textiles are sold domestically and globally, mainly in India.

 

Distributing automotive batteries for production of electric automotive - In 2020, Dream Partner began to export automotive batteries to U.S. automakers for manufacturing electric automotives. Due to the new policy requirements of “manufacturing returning to the United States” introduced in the second half of 2022, American automobile manufacturers have adjusted their procurement strategies accordingly and selected more products produced and assembled in the United States. After this, our revenue from sales of automotive batteries declined significantly.

 

4
 

 

Factors Affecting Financial Performance

 

Dream Partner believes that the following factors will affect its financial performance:

 

Increasing demand for our products – Dream Partner believes that the increasing demand for its agricultural products will have a positive impact on its financial position. Dream Partner plans to develop new products and expand its distribution network as well as to grow its business through product innovation, aiming at increasing its brand awareness, developing customer loyalty, meeting customer demands in various markets and providing solid foundations for its growth.

 

Maintaining effective control of our costs and expenses - Successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices. Dream Partner will focus on improving its long-term cost control strategies, including establishing long-term alliances with certain suppliers to ensure adequate supply. Dream Partner currently enjoys the economies of scale and advantages from the nationwide distribution network and diversified offerings.

 

Economic and Political Risks

 

Dream Partner’s operations are conducted primarily in the PRC and subject to special considerations and significant risks associated with suppliers and customers in Southeast Asia and North America. These risks include the political, economic and legal environment and foreign currency exchange risks. Our financial results may be adversely affected by changes in the political and social conditions in the PRC, and PRC governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions, remittances abroad, and rates and methods of taxation, among other things.

 

Discontinued Business

 

Prior to the Acquisition we conducted a majority of our operations through the operating entities established in the People’s Republic of China, or the PRC, through the variable interest entities (the “VIEs”), which were then terminated in September 2023, following the Acquisition. We did not have any equity ownership of the VIEs, instead we received the economic benefits of the VIEs’ business operations through certain contractual arrangements. We used our subsidiaries and the VIEs’ vertically and horizontally integrated production, distribution, and sales channels to provide plant-based health and well-being focused products. The health and well-being focused plant-based products previously sold by the Company are divided into the following three major segments:

 

Processing and distributing traditional Chinese herbal medicine products as well as other pharmaceutical products - This segment was conducted through Ankang Longevity Pharmaceutical (Group) Co., Ltd. (“Ankang Longevity Group”), a Chinese company formerly under contractual arrangement with the Company which operated 66 cooperative retail pharmacies throughout Ankang Longevity Group, a city in southern Shaanxi province, China, through which we sold directly to individual customers traditional Chinese medicinal products produced by us as well as by third parties. Ankang Longevity Group also owned a factory specializing in decoction, which was the process by which solid materials are heated or boiled in order to extract liquids, and distributed decoction products to wholesalers and pharmaceutical companies around China.

 

On June 8, 2021, Tenet-Jove entered into a Restructuring Agreement with various parties. Pursuant to the terms of the Restructuring Agreement, (i) the Company transferred all of its rights and interests in Ankang Longevity Group to Yushe County Guangyuan Forest Development Co., Ltd. (“Guangyuan”)’s Shareholders in exchange for Guangyuan Shareholders entering into VIE agreements with Tenet-Jove, which composed of one group of similar identifiable assets; (ii) Tenet-Jove entered a Termination Agreement with Ankang Longevity Group and the Ankang Longevity Group Shareholders; (iii) as a consideration to the Restructuring Agreement and based on a valuation report on the equity interests of Guangyuan issued by an independent third party, Tenet-Jove relinquished all of its rights and interests in Ankang Longevity Group and transferred those rights and interests to the Guangyuan Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of variable interest entity agreements with Tenet-Jove. After signing of the Restructuring Agreement, the Company and the shareholders of Ankang Longevity Group and Guangyuan actively carried out the transferring of rights and interests in Ankang Longevity Group and Guangyuan, and the transferring was completed subsequently on July 5, 2021. Afterwards, with the completion of all other follow-ups works, on August 16, 2021, the Company, through its subsidiary Tenet-Jove, completed the previously announced acquisition pursuant to the Restructuring Agreement dated June 8, 2021. The management determined that July 5, 2021 was the disposal date of Ankang Longevity Group.

 

Processing and distributing green and organic agricultural produce as well as growing and cultivating yew trees (taxus media) - We cultivated and soled yew mainly to group and corporate customers, but did not process yew into Chinese or Western medicines. This segment was conducted through the following VIEs: Qingdao Zhihesheng Agricultural Produce Services, Ltd (“Qingdao Zhihesheng”). Meanwhile, we planted fast-growing bamboo willows and scenic greening trees through Guangyuan. The operations of this segment were located in the North regions of Mainland China, mostly carried out in Shanxi Province.

 

Providing domestic air and overland freight forwarding services - We provided domestic air and overland freight forwarding services by outsourcing these services to a third party. This segment was conducted through the Zhisheng VIE, Yantai Zhisheng International Freight Forwarding Co., Ltd (“Zhisheng Freight”).

 

Developing and distributing specialized fabrics, textiles, and other byproducts derived from an indigenous Chinese plant Apocynum Venetum, grown in the Xinjiang region of China, and known in Chinese as “Luobuma” or “bluish dogbane” - The Luobuma products are specialized textile and health supplement products designed to incorporate traditional Eastern medicines with modern scientific methods. These products are predicated on centuries-old traditions of Eastern herbal remedies derived from the Luobuma raw material. This segment is channeled through our directly-owned subsidiary, Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”), and its 90% subsidiary Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).

 

Contractual Arrangements with Each VIE

 

Shineco conducted its business through a combination of contractual arrangements with PRC operating companies and equity ownership of PRC subsidiaries. The contractual arrangements with respect to the VIEs were not equivalent to an equity ownership in the business of the VIEs but were used to replicate foreign investments in China-based companies where Chinese law prohibit or limit direct foreign investment in Chinese companies belonging to certain categories. Where Shineco operated its business through such contractual relationships, it was subject to risks related to such operation. As of June 30, 2023, any references to control or benefits that accrued to Shineco because of the VIEs are limited to, and subject to conditions we have satisfied for consolidation of the VIEs under U.S. GAAP. As of June 30, 2023, the VIEs are consolidated for accounting purposes but none of them is an entity in which Shineco owned equity. Shineco did not conduct any active operations and was the primary beneficiary of the VIEs for accounting purposes. Our shareholders did not own any equity in any of Shineco’s subsidiaries or the VIEs.

 

The principal regulation governing foreign ownership of businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue, effective as of April 10, 2015 (the “Catalogue”). The Catalogue classifies various industries into three categories: encouraged, restricted and prohibited. Shineco was engaged in businesses and industries where direct foreign investment is expressly prohibited: the preparation of traditional Chinese medicines in small pieces ready for decoction.

 

Due, in part, to the regulations on foreign ownership of PRC businesses, neither Shineco neither our subsidiaries owned any equity interest in the Zhisheng Group, with which Beijing Tenet-Jove Technological Development Co., Ltd., a Chinese company and wholly-owned subsidiary of Shineco (“WFOE”) had entered into one set of VIE agreements respectively with each following Chinese operating companies: Zhisheng Biotech, Yantai Zhisheng and Zhihesheng. In addition, as a result of the Restructuring Agreement dated June 8, 2021, WFOE entered into the series of VIE agreements with Guangyuan Forest and its shareholders on the same date. Instead of direct ownership, Shineco received the economic benefits of each VIEs’ business operations through a series of contractual arrangements. WFOE, each of the four VIEs and their shareholders had entered into a series of contractual arrangements, also known as VIE Agreements.

 

5
 

 

Each set of the VIE Agreements is described below and consisted of, for each of the Zhisheng Group and Guangyuan, (a) exclusive business cooperation agreements, (b) equity interest pledge agreements, (c) exclusive option agreements, and (d) powers of attorney. As an overview, these agreements taken together were designed to allow Shineco to manage the operations of each of the VIEs and to receive all of the net income of such VIEs in return therefor. To secure WFOE’s interest in the VIEs, the equity interest pledges and option agreements and the powers of attorney were designed to allow WFOE to step in and convert its contractual interest into an equity interest in the event we determined that doing so is warranted.

 

The following is a summary of the common contractual arrangements that enabled us to receive substantially all of the economic benefits from the four VIEs’ operations for accounting purposes under U.S. GAAP in the years ended June 30, 2022 and 2023.

 

Exclusive Business Cooperation Agreements

 

WFOE entered into an Exclusive Business Cooperation Agreement with Zhisheng Biotech, Yantai Zhisheng, Zhihesheng, and Guangyuan Forest on February 24, 2014, June 16, 2011, May 24, 2012, and June 8, 2021, respectively. WFOE managed each VIE pursuant to the terms of each of the four Exclusive Business Cooperation Agreements.

 

Pursuant to substantially identical Exclusive Business Cooperation Agreements between each VIE and WFOE, WFOE provided each VIE with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, each VIE had granted an irrevocable and exclusive option to WFOE to purchase from such VIE, any or all of its assets, to the extent permitted under applicable PRC law. WFOE also could exercise, at its sole discretion, the option to purchase from each VIE any or all of such VIE’s assets at the lowest purchase price permitted by PRC law. If WFOE exercised such option, the parties had to enter into a separate asset transfer or similar agreement. WFOE owned all intellectual property rights that are developed during the course of each Exclusive Business Cooperation Agreement. For services rendered to each VIE by WFOE under the agreement to which such VIE is a party, WFOE was entitled to collect a service fee calculated based on the time of services rendered multiplied by the corresponding rate, which were approximately equal to the net income of such VIE.

 

Each Exclusive Business Cooperation Agreement remained in effect for ten years until it was extended or terminated by WFOE, which could have be done unilaterally, except in the case of gross negligence or fraud, in which case the VIE could terminate the agreements. Pursuant to each such agreement, WFOE had absolute authority relating to the management of each VIE, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operational functions. Although the Exclusive Business Cooperation Agreements did not prohibit related party transactions, the audit committee of Shineco was required to review and approve in advance any related party transactions, including transactions involving WFOE or any VIE. To continue the contractual relationship with Zhihesheng, WFOE entered into an amendment dated April 24, 2022 to the Exclusive Business Cooperation Agreement with Zhihesheng to extend the term of such Agreement for additional twenty (20) years from May 23, 2022. Similarly, to continue the contractual relationship with Yantai Zhisheng, WFOE entered into an amendment dated June 1, 2021 to the Exclusive Business Cooperation Agreement with Yantai Zhisheng to extend the term of such Agreement for additional twenty (20) years from June 15, 2021.

 

Equity Interest Pledge Agreements

 

Under the Equity Interest Pledge Agreements among the WFOE, each VIE and each group of shareholders of the VIE, the shareholders pledged all of their equity interests in each such VIE to WFOE to guarantee the performance of such VIE’s obligations under the respective Exclusive Business Cooperation Agreement. Under the terms of each agreement, in the event that the VIE or its shareholders breached their respective contractual obligations under the Exclusive Business Cooperation Agreement to which they are a party, WFOE, as pledgee, was entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. Each VIE’s shareholders also agreed that upon occurrence of any event of default, as set forth in the applicable Equity Interest Pledge Agreement, WFOE was entitled to dispose of the pledged equity interest in accordance with applicable PRC laws. Each VIE’s shareholders further agreed not to dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest in the applicable VIE.

 

Each Equity Interest Pledge Agreement was effective until all payments due under the related Exclusive Business Cooperation Agreement were paid by the VIE party thereto. WFOE could cancel or terminate an Equity Interest Pledge Agreement upon a VIE’s full payment of fees payable under its applicable Exclusive Business Cooperation Agreement.

 

Exclusive Option Agreements

 

Under the Exclusive Option Agreements, shareholders of each VIE irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in each VIE. The option price was equal to the capital paid in by the applicable VIE shareholders subject to any appraisal or restrictions required by applicable PRC laws and regulations. The option purchase price could be increased in case the applicable VIE shareholders make additional capital contributions to such VIE.

 

Each agreement remained effective for a term of ten years and could be unilaterally renewed at WFOE’s election. WFOE, Zhihesheng and all of the shareholders of Zhihesheng entered into an amendment dated April 25, 2022 to the Exclusive Option Agreement to extend the term of such Agreement for additional twenty (20) years from May 23, 2022. Yantai Zhisheng, WFOE and all of the shareholders of Yantai Zhisheng entered into an amendment dated June 1, 2021 to the Exclusive Option Agreement with Yantai Zhisheng to extend the term of such Agreement for additional twenty (20) years from June 15, 2021.

 

6
 

 

Powers of Attorney

 

Under the Powers of Attorney, the shareholders of each VIE authorized WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders of the respective VIEs, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of the respective VIEs.

 

Summary of challenges and risks involved in the VIE Arrangements and enforcing the VIE Agreements

 

Prior to the Acquisition and the termination of the VIE structure, Shineco was also subject to the legal and operational risks associated with being based in and having the majority of its operations in China and operating through VIEs. These risks could result in material changes in operations, or a complete hindrance of Shineco’s ability to offer or continue to offer its securities to investors, and could cause the value of Shineco’s securities to significantly decline or become worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. On July 10, 2021, the PRC State Internet Information Office issued the Measures of Cybersecurity Review, which requires cyberspace companies with personal information of more than one (1) million users that want to list their securities on a non-Chinese stock exchange to file a cybersecurity review with the Office of Cybersecurity Review of China. On December 28, 2021, a total of thirteen governmental departments of the PRC, including the Cyberspace Administration of China (the “CAC”), issued the Measures of Cybersecurity Review, which became effective on February 15, 2022. The Cybersecurity Review Measures provide that an online platform operator, which possesses personal information of at least one million users, must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries. Because our previous operations doid not possess personal information from more than one million users at this moment, Shineco did not believe that it is subject to the cybersecurity review by the CAC.

 

As of June 30, 2023, neither the Measures of Cybersecurity Review nor the anti-monopoly regulatory actions had impacted Shineco’s ability to conduct its business, accept foreign investments, or continue its listing on Nasdaq or on another non-Chinese stock exchange; however, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely impact the Company’s overall business and financial outlook. In summary, as of June 30, 2023, the recent statements and regulatory actions by China’s government related to the use of variable interest entities and data security or antimonopoly concerns had not affected the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign exchange. However, since these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules have not been issued, it is highly uncertain what the potential impact such modified or new laws and regulations will have on Shineco’s daily business operation, the ability to accept foreign investments and list on a U.S. or non-Chinese exchange. The Standing Committee of the National People’s Congress (the “SCNPC”) or other PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that would require Shineco or any of its subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S.

 

Prior to the Acquisition and the termination of the VIE structure, because Shineco did not hold equity interests in the VIEs, we were subject to risks due to the uncertainty of the interpretation and application of the PRC laws and regulations, including but not limited to regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the contractual arrangement with the VIEs. We were also subject to the risks of the uncertainty that the PRC government could disallow the VIE structure, which could have likely resulted in a material change in our operations, or a complete hindrance of our ability to offer or continue to offer our securities to investors, and the value of our shares of common stock may had depreciated significantly. The arrangements of VIE Agreements are less effective than direct ownership due to the inherent risks of the VIE structure and that Shineco could have had difficulty in enforcing any rights it had under the VIE agreements with the VIEs, its founders and shareholders in the PRC because all of the VIE agreements are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, where the legal environment is uncertain and not as developed as in the United States, and where the Chinese government has significant oversight and discretion over the conduct of Shineco’s business and may intervene or influence Shineco’s operations at any time with little advance notice, which could result in a material change in our operations and/or the value of your common stock. In addition, the contractual agreements with the VIEs have not been tested in court in China and this structure involves unique risks to investors. Furthermore, these VIE agreements may not be enforceable in China if the PRC authorities or courts take a view that such VIE agreements contravene with the PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we were unable to enforce these VIE Agreements, Shineco would have not been able to derive economic benefits from the VIEs and Shineco’s ability to conduct its business could have been materially and adversely affected. As of June 30, 2023, any references to economic benefits that accrued to Shineco because of the VIEs are limited to, and subject to conditions we had satisfied for consolidation of the VIEs under U.S. GAAP. The VIEs are consolidated for accounting purposes but none of them is an entity in which Shinceco owned equity. Shineco did not conduct any active operations and ws the primary beneficiary of the VIEs for accounting purposes. See “Risk Factors — Risks Relating to Our Corporate Structure”, “Risk Factors — Risks Associated With Doing Business in China” and “Risk Factors — Risks Relating to Investment in Our Common Stock” for more information.

 

Asset Transfer and Dividend Distribution Among Shineco, its Subsidiaries and the VIEs

 

As of the date of this report, Shineco, any of its subsidiaries or any of the VIEs have not distributed any earnings or settled any amounts owed under the VIE Agreements. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

 

As of June 30, 2023, Shineco’s operating subsidiaries and the VIEs received substantially all of the Company’s revenue in RMB. Under our previous corporate structure of mixed ownership and VIE arrangement, the WFOE had paid some of Shineco’s expenses and Shineco had from time to time transferred cash to WFOE to fund WFOE and other subsidiaries’ or VIEs’ operations. For the year ended June 30, 2023, Shineco transferred cash in the total amount of $200,000 to WFOE and WFOE paid expense approximately $23,746 on behalf of Shineco. For the year ended June 30, 2022, Shineco transferred cash in the aggregate amount of $15,349,077 to the WFOE and WFOE paid $978,979 to Shineco’s creditors on behalf of Shineco. The assets transfer was for business operation purposes. There was no distribution of earnings by the PRC operating subsidiaries to Shineco during the years ended June 30, 2023 and 2022, respectively.

 

Under the existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange (the “SAFE”) by complying with certain procedural requirements. Approval from or registration with appropriate government authorities is, however, required where RMB is to be converted into a foreign currency and remitted out of China to pay capital expenses, such as the repayment of loans denominated in foreign currencies. The PRC government may also, at its discretion, restrict access in the future to foreign currencies for Shineco’s accounts with little advance notice.

 

7
 

 

Product Description

 

Yew Trees, fast-growing bamboo willows and scenic greening trees

 

Prior to the Acquisition and the termination of the VIE structure, through Zhisheng Group VIEs, we sold ornamental yew trees and yew cuttings to third parties. We also rented ornamental yew trees to companies who desired the environmental benefits of natural plants in their workplaces. Before engaging in the business of selling yew trees and yew cuttings, we were primarily engaged in the production, distribution and sale of agricultural products, including the planting and processing of organic fruits and vegetables, such as tomatoes, eggplants, string beans, peppers as well as certain popular fruits in China like blueberries and wine grapes, but those operations were temporarily scaled back due to stiff competition and a change of our internal policy in favor of the expansion of the yew tree business.

 

As our inventories of young yew trees matured, our long-term goals were particularly focused on the extraction of paclitaxel or taxol, which is derived from certain species of yew trees including those we grew. Taxol, a broad-spectrum mitotic inhibitor used in cancer chemotherapy, can be extracted from mature yew trees. As a mitotic inhibitor, taxol adheres to rapidly dividing cancerous cells during mitosis (cell division) and interferes with the division process. It may suppress tumor growth through regulating microtubule stabilization, inducing apoptosis and adjusting immunologic mechanism. Taxol is also used for the prevention of restenosis, which is the narrowing of blood vessels. In the treatment of certain soft tissue cancers, such as breast cancer, taxol is given for early stage and metastatic breast cancer after combination anthracycline and cytoxan therapy and is also given as treatment to shrink a tumor before surgery. It can also be used together with a drug called Cisplatin to treat advanced ovarian cancer and non-small cell lung cancer, or “NSCLC.” The U.S. Food and Drug Administration approved taxol as the primary and secondary treatment for NSCLC. There are other generally accepted protocols for the use of taxol as a cancer drug alone or in combination with other drugs depending upon the diagnosis, staging and type of cancer, as well as a patient’s medical history, tolerances and allergies, among other relevant factors. Taxol is usually sold to large pharmaceutical companies to be used in their products, which can be used to treat patients with lung, ovarian, breast, head and neck cancer, and advanced forms of Kaposi’s sarcoma.

 

Following the acquisition of Guangyuan, we entered the market of planting fast-growing bamboo willows and scenic greening trees. The operations of this segment were located in the North regions of Mainland China, mostly carried out in Shanxi Province.

 

8
 

 

Tenet-Jove Textiles

 

Various scientists and other Chinese researchers have brought modern scientific methods to the study of Luobuma, and have determined that Luobuma fibers have an increased tendency to radiate light at the “far infrared” end of the light spectrum, with wavelengths measuring between 8-15 microns (referred to as “FIR”). Based on Chinese scientific studies some believe that Luobuma’s FIR-radiating qualities exert a positive effect on various functions of the human body, including cellular metabolism. For this reason, we had marketed and sold these products utilizing such technology. These products are popular with Chinese customers seeking the perceived benefits of traditional Chinese medicine.

 

For example, according to a report by the College of Science of Tianjin University, tests conducted by the PRC’s National Institute of Metrology have reported that the radiance rate of far infrared light from Luobuma fiber is 84%, 2 to 4 times higher than that from cotton and other natural fibers. The same tests found that the FIR radiance rate from our proprietary bio-ceramic powder reaches 91%. Healthful benefits have been observed at radiance rate levels above 70%. Based on these observations about FIR radiance, we had developed textiles that our customers can wear and from which we believe they can receive those health benefits commonly associated with Chinese herbal remedies.

 

Tenet-Jove first commercially developed the natural FIR-radiant properties of the Luobuma plant in 1997. We referred to this natural Luobuma fiber as a “Second Generation” FIR textile. The “First Generation” of FIR-radiant textiles initially became popular in China around 1989, when manufacturers learned to add 3% of a FIR-radiant inorganic material to synthetic fibers comparable to nylon or polyester. This “First Generation” FIR material employs a relatively low level of technology and has relatively few perceived or measurable health benefits. The “Second Generation” FIR textiles we had developed are softer, smoother and more breathable natural fibers that are not as prone to static electricity as the low technology “First Generation” FIR-radiant textiles.

 

The Luobuma fabrics had been a success in the Chinese domestic market and had also received numerous awards. The technology applied to the Luobuma-based FIR Therapeutic Clothing and Textile Products had received a “Special Golden Award” from the China National Intellectual Property Bureau at China’s National Patent and Brand Expo. The products under the brand name of “Tenethealth” had also been honored with the title of “Consumer’s Favorite Products” by the Chinese Consumer Association.

 

The fibers of natural Luobuma FIR materials can contain up to 32 medicinal compounds, many of which are familiar to practitioners of traditional Chinese medicine. In addition, the processes for manufacturing Luobuma textiles produced a fabric that is smooth, air-permeable, and soft. By combining a product that is familiar to PRC consumers seeking the benefits of traditional Chinese medicine with quality and comfort, we believes we were innovative and had chosen a product that had great commercial potential in the Chinese textile market.

 

Tenet-Jove Product Development

 

We had developed what we term a “Third Generation” of FIR textiles under a contract with the Institute of Process Engineering at the Chinese Academy of Sciences, one of the leading scientific institutions in China. Our research and development had focused on adding nanotechnology enhancements to the Luobuma textile products, in which we used small-scale nanotechnology to be embed or impregnate our Luobuma-fiber textiles with other FIR-radiant materials, bio-ceramic materials, or other Chinese herbal remedies. Using these nanotechnology methods, we had developed and marketed health-promoting textile goods that are impregnated with FIR-radiant materials or other Chinese herbal remedies, which are then absorbed through the wearer’s skin. We believed that these “Third Generation” FIR textiles will better combine the health benefits of Luobuma with an even softer, more natural cotton-like fabric that will be popular with Chinese consumers.

 

Prior to the Acquisition and the termination of the VIE structure, the Company produced approximately 100 “Third Generation” FIR textile products. These textile products included:

 

  Far Infrared bedding sets (including various pillows, comforters, and sheets);
     
  Far Infrared underwear, T-shirts, and socks;
     
  Far Infrared knee and shin pads, waist supports and other protective clothing; and
     
  Far Infrared body wraps or protectors (for the ankle, elbow, wrist, and knee).

 

All our textile products were made of Luobuma-based fibers and were impregnated with bio-ceramic powder, which contains various minerals such as halloysite. Both the fiber and the bio-ceramic powder were developed with the Company’s patented, proprietary techniques.

 

9
 

 

Manufacturing and Production Facilities

 

Prior to the Acquisition and the termination of the VIE structure, we had formed strategic alliances with several certified knitting and clothing manufacturers throughout China in order to produce the Luobuma products. We assigned them limited manufacturing jobs and require certain conditions, including protecting our proprietary techniques and meeting our rigid quality standards.

 

Strategy for Research and Development

 

  To keep the products proprietary and patented;
     
  To commit to further development of the Luobuma byproducts, houpu magnolia products, and selenium-enriched herbs and plants; and
     
  To build strategic alliances with universities and scientific institutions, which allowed us exposure to advanced technologies, excellent researchers and scientists and we believed that it will lower the costs and timing of the development of new products.

 

Tenet-Jove specialized in developing Luobuma products and combining FIR technology with natural herbal medicines. We estimated that there are large supplies of Luobuma in China, especially Xinjiang Province. In China, Luobuma can grow as high as 3.6 meters. In the first year after planting, Luobuma can be harvested once during that year; thereafter, it can be harvested twice per year before or at the beginning of the flowering period in June and a second time around September.

 

Intellectual Property

 

Trademarks

 

Tenet-Jove had obtained 18 trademark registrations at the China Trademark Office. As of June 30, 2023, we are not aware of any valid claim or challenges to our right to use the registered trademark  or any counterfeit or other infringement to the registered trademark.

 

Distribution Network

 

Prior to the Acquisition and the termination of the VIE structure, we sold the products through various distribution networks.

 

The Luobuma product distribution networks consisted of four distributors who distribute the products to approximately 21 outlets, including flagship stores, retail stores and sales counters. These distributors sold the products throughout mainland China, under the proprietary brand name and “Tenethealth®” trademark. We also sold the Luobuma textile products online through third party e-commerce websites, such as Taobao, Tmall and JD. The yew trees and agricultural products were primarily sold through our sales personnel and group and institutional sales.

 

Our sales and distribution strategy for the products focused on expanding our distribution network of retail stores and sales counters into all major provinces and cities of China. We also planned to use our then distribution network to introduce the newly developed products into target markets more efficiently and effectively.

 

Sales and Marketing

 

Prior to the Acquisition and the termination of the VIE structure, we marketed Luobuma to consumers primarily by highlighting its unique characteristics— the material is soft like cotton, breathable like hemp and is smooth to the touch like silk, and its FIR-radiating qualities are believed by some to exert a positive effect on various functions of the human body. Very few other companies in China were involved with Luobuma fiber production, so we were chiefly able to market the products against products of natural and man-made fibers that do not have the perceived advantages of Luobuma. The small number of companies that were involved in Luobuma fiber production were still using the traditional, outdated methods of producing Luobuma. We were the only company using advanced technologies. Tenet-Jove’s overall marketing strategy included:

 

  Brand marketing strategy, primarily through media publicity, product- and market-oriented strategy;
     
  Distinguishing Luobuma as a high-end, technologically advanced native Chinese product; and
     
  Online advertising, which included online advertisements appearing on the sites where we sold our products, as well as social media advertising, including Wechat, and direct e-mail solicitations.

 

10
 

 

The Zhisheng Group emphasized the following marketing strategies:

 

  Focusing on the advanced growing conditions provided by the modern greenhouse operations and the potential pharmaceutical byproducts of yew, especially paclitaxel or taxol; and
     
  Brand marketing to focus on the yew’s brand positioning.

 

Prior to the discontinuation and the Acquisition, the Company’s sales were generated through the following five major channels:

 

  1. Retail stores and sales counters. We mainly sold the Luobuma related products through sales counters and medicine through the pharmacy chain stores.
     
  2. Sales to group or institutional customers. We mainly sold the organic agricultural products and yew trees to group or corporate customers.
     
  3. Seminars and conferences. Because a majority of new consumers need to learn about our new products before buying them, it was very important and effective for us to organize or sponsor seminars and events to present healthcare knowledge while introducing and selling the products to new users.
     
  4. E-commerce. We mainly sold the Luobuma related products through Tmall and Taobao to underdeveloped regions in China, Taiwan and Macau. We were one of only three certified online sellers of Luobuma textile products on China’s largest online sales platform, Tmall run by Alibaba. Selling through the Internet had become increasingly important to our sales in undeveloped regions and developed cities.

 

The Market

 

Prior to the Acquisition and the termination of the VIE structure, we primarily marketed our health and wellbeing-focused products in China. We did not sell any of our products in the United States or Canada. On the demand side, we believed that the following four forces drove market growth in all three of the business segments:

 

  1. The rapid growth of China’s economy, which has produced one of the largest groups of middle-class families in the world, with the largest collective purchasing power in the world. The Brookings Institution estimates that by 2030, over 70 percent of China’s population could be middle class, consuming approximately $10 trillion in goods and services.
     
  2. The increase of China’s aging population. The China Census Bureau predicts that the majority of the China “baby boom” population (representing 40% of China’s total population) will be 66 or older by 2021, which represents over 500 million potential consumers of our pharmaceutical and healthcare products, the majority of which are sold to older customers.
     
  3. Chinese people’s increasing attention and awareness to healthy and active lifestyles, especially in urban areas.
     
  4. Chinese healthcare reforms.

 

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Competition

 

We competed with other top-tier healthcare companies in China. Many of them were more established than we were and had significantly greater financial, technical, marketing and other resources than we possessed. Some of our competitors had greater name recognition and a larger customer base. Those competitors could have responded more quickly to new or changing opportunities and customer requirements and could have undertaken more extensive promotional activities, offer more attractive terms to customers, and adopt more aggressive pricing policies. Some of our competitors had also developed similar products that compete with ours.

 

Our most prominent competitors in China’s textile products market were primarily large-scale textile companies, such as Luolai Home Textile Co., Fuanna Bedding and Furnishing Co., Ltd., Violet Home Textile Co., and Shuixing Home Textile Co., Ltd, as well as Bauerfeind Sports and Albert Medical, makers of protective clothing products similar to our protective clothing products. Our most prominent competitors in China’s agricultural market were Beijing Jinfu Yinong Agricultural Technology Group Co., Ltd. for vegetables and other produce and Shenyang Xincheng Garden Engineering Co., Ltd. for yew trees.

 

Zhisheng Group

 

There were dozens of companies planting and cultivating yew trees in China, some of which were large-scale companies. Shenyang Xincheng Garden Engineering Co., Ltd. was a large agricultural competitor whose main product is yew. Their nurseries had the most mature yew trees in northeast China, and the average age of their yew trees is more than eleven years old. Another competitor, Chongqing Jiangjin District Mansheng Agricultural Development Co., Ltd., had the biggest nursery for young plants in Southwest China. And Jingyin City Hengtu Town Green Industry Yew Base specializes in cultivating, planting, gardening, and technological development of yew trees. They were the first company to introduce taxus media yew trees in China.

 

Tenet-Jove

 

There were few viable competitors producing advanced technology textile products with health benefits like our Luobuma textile products. Principally, our competitors were those that market and sold traditional textile products, such as Luolai Home Textile Co., Fuanna Bedding and Furnishing Co., Ltd., Violet Home Textile Co., and Shuixing Home Textile Co., Ltd, as well as those companies that marketed and sold protective clothing, like Bauerfeind Sports and Albert Medical. Luobuma is native to China, thus our ability to source raw materials locally greatly enhanced our competitive position in the Chinese market for high quality textile products with perceived health benefits.

 

Corporate Structure

 

The chart below depicts the corporate structure of the Company as of the date of this report.

 

 

The chart below depicts the corporate structure of the Company as of June 30, 2023.

 

 

Employees

 

As of June 30, 2023, we employed a total of 87 full-time and no part-time employees in the following functions.

 

Department  June 30, 2023 
Senior Management   12 
Human Resource & Administration   9 
Finance   11 
Research & Development   6 
Production & Procurement   38 
Sales & Marketing   11 
Total   87 

 

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.

 

The Company plans to hire additional employees as required. Its management and employees enjoy both compensation and welfare benefits pursuant to Chinese laws. We are required under PRC law to make contributions to employee benefit plans at specified percentages of our after-tax profit. In addition, we are required by PRC law to cover employees in China with various types of social insurance. In 2023 and 2022, we contributed approximately $200,875 and $136,398, respectively, to employee social insurance. The effect on our liquidity by the payments for these contributions is immaterial. We believe that we are in material compliance with the relevant PRC employment laws.

 

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Relevant PRC Regulations

 

Permissions from the PRC Authorities to Issue Our Common Stock to Foreign Investors

 

As of June 30, 2023, Shineco, our subsidiaries and the VIEs, (1) were not required to obtain any permission from any PRC authorities to offer, sell or issue our common stock to non-Chinese investors, (2) were not covered by the permission requirements from the China Securities Regulatory Commission (the “CSRC”), Cyberspace Administration of China (the “CAC”), or any other regulatory agency that is required to approve of the VIEs’ operations, and (3) had not received nor been denied such permissions by any PRC authorities. Nevertheless, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the July 6, 2021 Opinions, which were made available to the public on July 6, 2021. The July 6, 2021 Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Given the current PRC regulatory environment, it is uncertain whether and when we or any of our subsidiaries, will be required to obtain any permission from the PRC government to list or continue listing on a U.S. stock exchange in the future, and even when we obtain such permission, whether it will be denied or rescinded. We have been closely monitoring regulatory developments in China regarding any necessary approvals from the CSRC, CAC or other PRC governmental authorities required for overseas listings.

 

If (i) we, our subsidiaries inadvertently conclude that any of such permission was not required or (ii) it is determined in the future that the approval of the CSRC, CAC or any other regulatory authority is required for maintaining listing of our securities on Nasdaq, we will actively seek such permissions or approvals but may face sanctions by the CSRC, CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from offerings into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. The CSRC, CAC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt offerings before settlement and delivery of our securities. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of our securities. In the event that we failed to obtain such required approvals or permissions, it would be likely that our securities would be delisted from the Nasdaq or any other foreign exchange our securities are listed then.

 

The Holding Foreign Companies Accountable Act

 

On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act (“HFCAA”) requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. On December 18, 2020, the Holding Foreign Companies Accountable Act or HFCAA was signed into law. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which prohibits foreign companies from listing their securities on U.S. exchanges if the company has been unavailable for PCAOB inspection or investigation for three consecutive years.

 

Our common stock may be prohibited from trading on a national exchange or “over-the-counter” markets under the HFCAA if the Public Company Accounting Oversight Board (“PCAOB”) determines that it is unable to inspect or fully investigate our auditor and as a result the exchange where our securities are traded may delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which was signed into law on December 29, 2022, amending the HFCAA and requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchange if its auditor is not subject to PCAOB inspections for two consecutive years instead of three consecutive years. Pursuant to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021, which found that the PCAOB was unable to inspect or investigate completely certain named registered public accounting firms headquartered in mainland China and Hong Kong. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. 

 

Our auditor, an independent registered public accounting firm, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our newly engaged auditor Assensture PAC is headquartered in Singapore, and is subject to inspection by the PCAOB on a regular basis. Notwithstanding the foregoing, in the future, if there is any regulatory change or step taken by PRC regulators that does not permit our auditor to provide audit documentations located in China or Hong Kong to the PCAOB for inspection or investigation, you may be deprived of the benefits of such inspection which could result in limitation on or restriction to our access to the U.S. capital markets and trading of our securities, including trading on the national exchange and trading on “over-the-counter” markets.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

The following historical statements of operations and statements of cash flows for the fiscal years ended June 30, 2023 and June 30, 2022, and balance sheet data as of June 30, 2023 and June 30, 2022, which have been derived from our audited financial statements for those periods. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

Selected Condensed Consolidated Statements of Operations

 

   For the Year Ended June 30, 2023 
   Shineco, Inc. (U.S.)   Subsidiaries (Hong Kong & PRC)   WFOE and WFOE’s Subsidiaries (PRC)   VIE and VIE’s Subsidiaries (PRC)   Eliminations   Consolidated Total 
Revenue  $-   $550,476   $-   $-   $-   $550,476 
Revenues from discontinued operations  $-   $-   $43,431   $2,448,508   $    $2,491,939
Cost of revenue  $-   $424,291   $-   $-   $-   $424,291 
Cost of revenue from discontinued operations  $      $    $2,638  $3,042,798   $    $3,045,436
Service income from VIE and VIE’s subsidiaries  $-   $-   $-   $-   $-   $- 
Share of loss from subsidiaries  $(5,590,602)  $-   $-   $-   $5,590,602   $- 
Net loss from discontinued operations  $   $   $(3,760,652)  $515,789  $   $(3,244,863)
Consulting fee in relation to services rendered by WFOE  $-   $-   $-   $-   $-   $- 
Net loss attributable to Shineco, Inc.  $(13,879,188)  $(1,838,318)   $(3,752,284)  $515,789   $5,590,602   $(13,363,399)
Comprehensive loss attributable to Shineco, Inc.  $(13,879,188)  $2,974,394   $(9,249,594)  $(1,691,238)  $5,590,602   $(16,255,024)

 

   For the Year Ended June 30, 2022 
   Shineco, Inc. (U.S.)   Subsidiaries (Hong Kong & PRC)   WFOE and WFOE’s Subsidiaries (PRC)   VIE and VIE’s Subsidiaries (PRC)   Eliminations   Consolidated Total 
Revenue  $-   $-   $-   $-   $-   $- 
Revenues from discontinued operations  $-   $-   $43,949   $2,142,511   $-   $2,186,460 
Cost of revenue  $-   $-   $-   $-   $-   $- 
Cost of revenue from discontinued operations  $    $-  $98,209   $3,698,914   $     $3,797,123
Service income from VIE and VIE’s subsidiaries  $-   $-   $-   $-   $-   $- 
Share of loss from subsidiaries  $(5,660,306)  $-   $-   $-   $5,660,306   $- 
Net loss from discontinued operations  $   $   $(5,450,499)  $(14,023,582)  $   $(19,474,081)
Consulting fee in relation to services rendered by WFOE  $-   $-   $-   $-   $-   $- 
Net loss attributable to Shineco, Inc.  $(13,009,512)  $(243,853)  $(5,416,453)  $(14,023,582)  $5,660,306   $(27,033,094)
Comprehensive loss attributable to Shineco, Inc.  $(13,009,512)  $(235,029)  $(5,306,089)  $(15,511,721)  $5,660,306   $(28,402,045)

 

Selected Condensed Consolidated Balance Sheets

 

   As of June 30, 2023 
   Shineco, Inc. (U.S.)   Subsidiaries (Hong Kong & PRC)   WFOE and WFOE’s Subsidiaries (PRC)   VIE and VIE’s Subsidiaries (PRC)   Eliminations   Consolidated Total 
Cash and cash equivalents  $45,539   $580,427   $-   $-   $-   $625,966 
Service fee receivable due from VIE and VIE’s subsidiaries  $-   $-   $37,085,179   $-   $(37,085,179)  $- 
Intercompany receivable  $44,177,210   $-   $1,368,690   $-   $(45,545,900)  $- 
Current assets held for discontinued operations  $-   $-   $43,030,297   $32,532,618   $(38,453,869)  $37,109,046 
Total current assets  $46,272,162   $1,719,745   $43,030,297   $32,532,618   $(82,631,079)  $40,923,743 
Investments in subsidiaries  $17,225,175   $-   $-   $-   $(17,225,175)  $- 
Non-current assets held for discontinued operations  $-   $-   $81,816   $2,493,882   $-   $2,575,698 
Total non-current assets  $17,225,175   $19,969,698   $81,816   $2,493,882   $(17,225,175)  $22,545,396 
Total Assets  $63,497,337   $21,689,443   $43,112,113   $35,026,500   $(99,856,254)  $63,469,139 
Service fee payable due to WFOE  $-   $-   $-   $37,085,179   $(37,085,179)  $- 
Intercompany payable  $-   $15,631,584   $24,916,426   $4,997,890   $(45,545,900)  $- 
Total liabilities held for discontinued operations  $-   $-   $25,762,654   $48,035,508   $(66,999,495)  $6,798,667 
Total Liabilities  $16,498,932   $18,950,078   $25,762,654   $48,035,508   $(82,631,079)  $26,616,093 
Total Shareholders’ Equity (Deficit)  $46,998,405   $2,739,365   $13,058,311   $(13,009,008)  $(17,225,175)  $32,561,898 
Non-controlling interest  $-   $-   $4,291,148   $-   $-   $4,291,148 
Total Equity (Deficit)  $46,998,405   $2,739,365   $17,349,459   $(13,009,008)  $(17,225,175)  $36,853,046 
Total Liabilities and Equity (Deficit)  $63,497,337   $21,689,443   $43,112,113   $35,026,500   $(99,856,254)  $63,469,139 

 

   As of June 30, 2022 
   Shineco, Inc. (U.S.)   Subsidiaries (Hong Kong & PRC)   WFOE and WFOE’s Subsidiaries (PRC)   VIE and VIE’s Subsidiaries (PRC)   Eliminations   Consolidated Total 
Cash and cash equivalents  $828,437   $109,575   $-   $-   $-   $938,012 
Service fee receivable due from VIE and VIE’s subsidiaries  $-   $-   $37,085,179   $-   $(37,085,179)  $- 
Intercompany receivable  $26,116,526   $72,898   $-    $-   $(26,189,424)  $- 
Current assets held for discontinued operations  $-   $-   $45,348,396   $34,723,255   $(37,085,179)  $42,986,472 
Total current assets  $42,753,363   $185,014   $45,348,396   $34,723,255   $(63,274,603)  $59,735,425 
Investments in subsidiaries  $22,815,777   $-   $-   $-   $(22,815,777)  $- 
Non-current assets held for discontinued operations  $-   $-   $2,258,755   $1,212,739   $-   $3,471,494 
Total non-current assets  $23,433,223   $1,652   $2,258,755   $1,212,739   $(22,815,777)  $4,090,592 
Total Assets  $66,186,586   $186,666   $47,607,151   $35,935,994   $(86,090,380)  $63,826,017 
Service fee payable due to WFOE  $-   $-   $-   $37,085,179   $(37,085,179)  $- 
Intercompany payable  $-   $414,737   $21,325,391   $4,449,296   $(26,189,424)  $- 
Current liabilities held for discontinued operations  $ -   $-   $25,697,594   $47,253,764   $(62,859,866   $10,091,492 
Total Liabilities  $20,414,679   $421,695   $25,697,594   $47,253,764   $(63,274,603)  $30,513,129 
Total Shareholders’ Equity (Deficit)  $45,771,907   $(235,029)  $22,307,905  $(11,317,770)  $(22,815,777)  $33,711,236 
Non-controlling interest  $-   $-   $(398,348)  $-   $-   $(398,348)
Total Equity (Deficit)  $45,771,907   $(235,029)  $21,909,557   $(11,317,770)  $(22,815,777)  $33,312,888 
Total Liabilities and Equity (Deficit)  $66,186,586   $186,666   $47,607,151   $35,935,994   $(86,090,380)  $63,826,017 

 

14
 

 

Selected Condensed Consolidated Statements of Cash Flows

 

   For the Year Ended June 30, 2023 
   Shineco, Inc. (U.S.)   Subsidiaries (Hong Kong & PRC)   WFOE and WFOE’s Subsidiaries (PRC)   VIE and VIE’s Subsidiaries (PRC)   Eliminations   Consolidated Total 
Net cash used in operating activities from continuing operations  $(2,390,511)  $(2,488,339)  $-   $-   $357,506   $(4,521,344)
Net cash provided by (used in) operating activities from discontinued operations  $-   $-   $(954,674)  $442,930   $(357,506)  $(869,250)
Net cash provided by (used in) investing activities from continuing operations  $(3,184,315)  $603,133   $-   $-   $3,099,444   $518,262 
Net cash provided by investing activities from discontinued operations  $-  $-   $217,106   $-   $298,106   $515,212 
Net cash provided by financing activities from continuing operations  $4,769,777   $3,486,724   $-   $-   $(3,782,769)  $4,473,732 
Net cash provided by (used in) financing activities from discontinued operations  $-   $-   $(429,291)  $51,708   $385,219   $7,636 

 

   For the Year Ended June 30, 2022 
   Shineco, Inc. (U.S.)   Subsidiaries (Hong Kong & PRC)   WFOE and WFOE’s Subsidiaries (PRC)   VIE and VIE’s Subsidiaries (PRC)   Eliminations   Consolidated Total 
Net cash used in operating activities from continuing operations  $(2,776,539)  $(366,842)  $-   $-   $(869,759)  $(4,013,140)
Net cash used in operating activities from discontinued operations  $-   $-   $(1,470,619)  $(1,098,562)  $869,759   $(1,699,422)
Net cash used in investing activities from continuing operations  $(31,014,033)  $(1,815)  $-   $-   $15,829,827   $(15,186,021)
Net cash used in investing activities from discontinued operations  $-   $-   $(8,434,180)  $(12,395,992)  $-   $(20,830,172)
Net cash provided by financing activities from continuing operations  $26,699,232   $482,278   $-   $-   $(482,278)  $26,699,232 
Net cash provided by financing activities from discontinued operations  $-   $-   $14,945,141   $2,115,409   $(15,347,547)  $1,713,003

 

15
 

 

Roll-Forward of Investment in Subsidiaries

 

Balance, June 30, 2021  $28,476,083 
Share of loss from subsidiaries   (5,660,306)
Balance, June 30, 2022  $22,815,777 
Share of loss from subsidiaries   (5,590,602)
Balance, June 30, 2023  $17,225,175 

 

Item 1a. Risk Factors

 

Risks Relating to Our Corporate Structure

 

If the PRC government deems that the VIE Agreements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries or other laws or regulations of the PRC, or if these regulations or the interpretation of existing regulations change in the future, Shineco’s shares could have declined in value or become worthless provided that Shineco was unable to assert its contractual control rights over the assets of its PRC subsidiaries that conducted all or substantially all of the operations.

 

Shineco is a holding company incorporated in Delaware. As a holding company with no material operations of our own, we conducted a substantial majority of our operations through our then operating entities established in the People’s Republic of China, or the PRC, primarily the variable interest entities (the “VIEs”) prior to the termination of the VIE structure. Due to PRC legal restrictions on foreign ownership in any internet-related businesses we may explore and operate, we did not have any equity ownership of the VIEs, instead we controlled and received the economic benefits of the VIEs’ business operations through certain contractual arrangements. Our common stock that currently listed on the Nasdaq Capital Markets are shares of our Delaware holding company. The Chinese regulatory authorities could disallow our structure, which could result in a material change in our operations and the value of our securities could decline or become worthless. For a description of our corporate structure and contractual arrangements, see “Business” on page 4 above.

 

We believe that our previous corporate structure and contractual arrangements complied with the applicable PRC laws and regulations. We also believe that each of the contracts among our then wholly-owned PRC subsidiary, the consolidated VIEs and its shareholders is valid, binding and enforceable in accordance with its terms. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. In addition, the contractual agreements with the VIE have not been tested in court in China and this structure involves unique risks to investors. Thus, the PRC governmental authorities may take a view contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structure will be adopted or if adopted, what they would provide. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations.

 

If these regulations change or are interpreted differently in the future and our previous corporate structure and contractual arrangements are deemed by the relevant regulators that have competent authority, to be illegal, either in whole or in part, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

 

  revoking our business and operating licenses;

 

16
 

 

  levying fines on us;
     
  confiscating any of our income that they deem to be obtained through illegal operations;
     
  shutting down our services;
     
  discontinuing or restricting our operations in China;
     
  imposing conditions or requirements with which we may not be able to comply;
     
  requiring us and the PRC entities to restructure the relevant ownership structure; and
     
  taking other regulatory or enforcement actions that could be harmful to our business.

 

Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. Occurrence of any of these events could materially and adversely affect our business, financial condition and results of operations and the market price of our common stock. In addition, if the imposition of any of these penalties or requirement to restructure our corporate structure may cause the value of our common stock to decline significantly or even become worthless.

 

Risks Associated With Doing Business in China

 

In light of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business, our listing on Nasdaq, financial condition, and results of operations.

 

The regulatory requirements with respect to cybersecurity and data privacy are constantly evolving and can be subject to varying interpretations, and significant changes, resulting in uncertainties about the scope of our responsibilities in that regard. Failure to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, may subject us to government enforcement actions and investigations, fines, penalties, suspension or disruption of our operations, among other things. The Cybersecurity Law, which was adopted by the National People’s Congress on November 7, 2016 and came into force on June 1, 2017, and the Cybersecurity Review Measures, or the “Review Measures,” which were promulgated on April 13, 2020, provide that personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to cybersecurity review by the CAC. In addition, a cybersecurity review is required where critical information infrastructure operators, or the “CIIOs,” purchase network-related products and services, which products and services affect or may affect national security. Due to the lack of further interpretations, the exact scope of what constitute a “CIIO” remains unclear. Further, the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws.

 

17
 

 

On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law requires that data shall not be collected by theft or other illegal means, and also provides for a data classification and hierarchical protection system. The data classification and hierarchical protection system puts data into different groups according to its importance in economic and social development, and the damages it may cause to national security, public interests, or the legitimate rights and interests of individuals and organizations in case the data is falsified, damaged, disclosed, illegally obtained or illegally used. In addition, the Office of the Central Cyberspace Affairs Commission and the Office of Cybersecurity Review under the CAC, published the Measures of Cybersecurity Review (Revised Draft for Comments) on July 10, 2021, which provides that, aside from CIIOs, data processing operators engaging in data processing activities that affect or may affect national security, must be subject to the cybersecurity review by the Cybersecurity Review Office. On December 28, 2021, a total of thirteen governmental departments of the PRC, including the PRC State Internet Information Office, issued the Measures of Cybersecurity Review, which became effective on February 15, 2022. According to the Measures of Cybersecurity Review, a cybersecurity review is conducted by the CAC, to assess potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Measures of Cybersecurity Review further, if effective, would require that critical information infrastructure operators and services and data processing operators that possess personal data of at least one (1) million users must apply for a review by the Cybersecurity Review Office of PRC, if they plan to conduct securities listings on foreign exchanges. In addition to the new Measures of Cybersecurity Review, it also remains uncertain whether any future regulatory changes would impose additional restrictions on companies like us.

 

However, it remains uncertain as to how the Measures of Cybersecurity Review will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Measures of Cybersecurity Review. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all reasonable measures and actions to comply therewith. However, we cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and we will not be subject to the cybersecurity review by the CAC or designated as a CIIO. We may experience disruptions to our operations should we be required to have a cybersecurity review by the CAC. Any cybersecurity review could also result in uncertainty to our continued Nasdaq listing, negative impacts on our share trading prices and diversion of our managerial and financial resources.

 

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. If the Chinese government intervenes or influences our operations in the future, it could result in a material change in our operations and/or the value of your common stock.

 

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulations and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, insurance commissions, property and other matters. The central or local governments of these jurisdictions may impose new and restrictive regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China, and result in a material change in our operations and/or the value of our common stock.

 

For example, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that Didi Global Inc.’s application be removed from all the smartphone application stores in China.

 

Given the example of Didi Global Inc. and recent statements of by the Chinese government indicating an intent to exert more oversight and control overseas offerings and foreign investments in China-based companies, such regulatory actions could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value and trading prices of our common stock to significantly decline or become worthless.

 

We have been closely monitoring regulatory developments in China regarding any necessary approvals from the CSRC, CAC or other PRC governmental authorities required for overseas listings. If (i) we, our subsidiaries inadvertently conclude that any of such permission was not required or (ii) it is determined in the future that the approval of the CSRC, CAC or any other regulatory authority is required for maintaining listing of our securities on Nasdaq, we will actively seek such permissions or approvals but may face sanctions by the CSRC, CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from offerings into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. The CSRC, CAC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt offerings before settlement and delivery of our securities. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of our securities. In the event that we failed to obtain such required approvals or permissions, it would be likely that our securities would be delisted from Nasdaq or any other foreign exchange our securities are listed then.

 

Although we are currently not required to obtain any permission from any PRC government to continue listing our common stock on Nasdaq, it will remain uncertain when and whether we will be required to obtain any permission from the PRC government to continue listing our shares of common stock on Nasdaq, and even when we obtain such permission in accordance with the new rules and regulations, it will be unclear whether such permission will be rescinded or revoked at some point in time.

 

18
 

 

Risk Factors Related to the Acquisition

 

The Company has and expects to incur substantial costs related to the Acquisition.

 

We have incurred and may continue to incur a number of non-recurring costs associated with the Acquisition and related transactions. These costs include legal, valuation, accounting, consulting and other advisory fees, closing, integration and other related costs. Some of these costs are payable regardless of whether or not the Issuance is completed.

 

Our estimates and judgments related to the valuation used to determine the purchase price related to the acquisition of Dream Partner may be inaccurate.

 

Our management has made significant estimates and exercised judgment related to the acquisition of Dream Partner, based on its valuation of Wintus. Our business, operating results, and financial condition could be materially adversely impacted in future periods if such judgments and estimates prove to be inaccurate.

 

If we are unable to effectively manage Wintus’s business, our reputation and operating results may be harmed.

 

Following the Acquisition, we are required to integrate the silk products and other businesses of Wintus into the operations of the Company. As our management has no prior experience in these fields, we may be unable to successfully integrate these into our business operations. If we are unable to do so for any reason, our reputation and operating results may be harmed and we would be unable to realize the business-related benefits of the transaction.

 

Wintus is highly susceptible to changes in market demand for the types of silk-based products it sells.

 

A significant portion of Wintus’s revenues are derived from its silk-based products. We therefore will become highly susceptible to changes in market demand for silk-based products, which may be impacted by factors over which we have limited or no control. Factors that could lead to a decline in market demand for silk-based products in general include economic conditions, demand for luxury goods and evolving consumer preferences. A substantial downturn in market demand for such silk-based products may have a material adverse effect on our business and on our results of operations.

 

Competitors and potential competitors may develop products and technologies that make ours obsolete or garner greater market share than ours.

 

Wintus’s ability to compete successfully will depend on its ability to demonstrate that its products are superior to and/or less expensive than other products available in the market. Some of its competitors have the benefit of marketing their products under brand names that have better market recognition than Wintus or have stronger marketing and distribution channels. Increased competition as to any of Wintus’s products could result in price reduction, reduced margins and loss of market share, which could negatively affect Wintus’s profitability.

 

Certain of Wintus’s competitors may benefit from government support and other incentives that are not available to Wintus. As a result, Wintus’s competitors may be able to develop competing and/or superior products and compete more aggressively and sustain that competition over a longer period of time than Wintus can. As more companies develop new intellectual property in Wintus’s markets, a competitor could acquire patent or other rights that may limit Wintus’s ability to successfully market its products.

 

If Wintus’s technologies or products are stolen, misappropriated, or reverse engineered, others could use the technologies to produce competing technologies or products.

 

Third parties, including collaborators, contractors, and others involved in Wintus’s business often have access to its technologies. If such technologies or products were to be stolen, misappropriated, or reverse engineered, they could be used by other parties that may be able to reproduce Wintus’s technologies or products using such technologies for their own commercial gain. If this were to occur, it would be difficult for us to challenge this type of use.

 

Wintus operates in a regulated industry in China which subjects its operations to regulatory and political risks

 

The Wintus Group presently holds a number of permits and licenses in China to operate its business operations, including a food business license. The group may be subject to additional licensing requirements for its business operations due to changing regulatory policies or the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities.

 

Moreover, the PRC government has recently indicated an intent to exert more oversight over securities offerings that are conducted overseas and/or foreign investment in China-based businesses, such as Wintus, and published a series of proposed rules for public comments in this regard, the enaction timetable, final content, interpretation and implementation of which remains uncertain. Therefore, there are substantial uncertainties as to how PRC governmental authorities will regulate overseas listing in general and whether we will be required to complete filing or obtain any specific regulatory approvals from the CSRC, CAC or any other PRC governmental authorities for our future offshore offerings. If we had inadvertently concluded that such approvals were not required, or if applicable laws, regulations or interpretations change in a way that requires us to obtain such approval in the future, we may be unable to obtain such necessary approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of our Common Stock to significantly decline or be worthless.

 

Item 1b. Unresolved Staff Comments

 

None.

 

19
 

 

Item 2. Properties

 

According to Chinese laws and regulations regarding land usage rights, land in urban districts is owned by the State, while land in the rural areas and suburban areas, except as otherwise provided for by the State, is collectively owned by individuals designated as resident farmers by the State. Also, in accordance with the legal principle that land ownership is separate from the right to the use of the land, the State assigns land usage rights to land users for a certain number of years in return for the payment of fees. The maximum term with respect to the assigned land usage right is 50 years for industrial purposes and 40 years for commercial purposes.

 

Because the period of land usage is quite long, can be renewed, enables its users to transfer, lease, or mortgage the land usage right, or use it for other economic activities, and the lawful rights and interests are protected by the laws of the State, in common practice, we consider or refer to the right of land usage below for certain properties as an asset “owned” by the company. None of our properties are encumbered by debt, and we are not aware of any environmental concerns or limitations on the use of our properties for the purposes we currently use them or intend to use them in the future. Following is a list of our properties as of June 30, 2023, all of which we leased or for which we had land use rights:

 

Property Description   Address  

Rental/ownership

Term

  Space

Office—leased out to an unrelated third party—Beijing Shineco chongshi  information Consulting Co., Ltd serves as the lessor.

  Room B-3106, Jianwai SOHO, 39 East Middle Third Ring Road, Chaoyang District, Beijing   Company owns the property right  

280 square

meters

             

Office and WareHouse - Tianjin Tenet Huatai Technological Development

Co., Ltd.

  Room 21-4 Huaming Road,dongle District,Tianjin   1 years (December 11,2022- December 10, 2024)  

1052 square

meters

             
Office— Fuzhou Meida Health Management Co., Ltd.  

Room 1209-1210, Shuitou Road,Jinan District, Fuzhou city

 

1 years (June 21,2023- June 20, 2024)

  80 square meters
             
Office Factory and WareHouse-Changzhou Biowin Pharmaceutical Co., Ltd.   Room 3-3,Jiazhou Technological port,Changzhou city   7.5 years (December 1,2017- May 30, 2025)  

2000 square

meters

             
Production facility-Yushe conunty Guanyuan Forest Development Co., Ltd   Changyin village,Yushe conunty Shanxi province   3 years (May ,2021- April , 2024)  

633327 square

meters

             
Production facility-Yushe conunty Guanyuan Forest Development Co., Ltd   Tan village,Yushe conunty Shanxi province   3 years (April ,2021- March , 2024)  

43333 square

meters

             
Production facility-Yushe conunty Guanyuan Forest Development Co., Ltd   Dongfangshan village,Yushe conunty Shanxi province   6 years (November ,2021- June , 2028)  

2666640 square

meters

             
Production facility-Yushe conunty Guanyuan Forest Development Co., Ltd   Dengyu village,Yushe conunty Shanxi province   3 years (May ,2021- April , 2024)  

45333 square

meters

             
Office— Shineco,Inc (General office) ;Beijing Tenet Jove Technological Development Co., Ltd.   Room 2302, T1, Jiazhaoye Square, Chaoyang District, Beijing   1 years (July 1,2023- June 30, 2024)   273.30 square meter
             
Office— Qingdao Zhihesheng Agricultural Produce Services Co., Ltd (General office);.   766-43 Wangsha Road, Chengyang District, Qingdao City  

3 years

(March 1,2022-

February 28, 2025)

  234.16 square meters
             
Office— Yantai ZhishengFreight ForwardingCo., Ltd.Qingdao Sub.   Haier Road, Laoshan District, Qingdao   5 years (May 1, 2023- May 1, 2028)  

1,075.5square

meters

             
Factory— Yantai Mouping District Zhisheng Agricultural Produce Cooperative*   Gaoling Village, Muping District, Yantai City  

30 years

(April 27, 2011 -

April 26, 2041)

  13,333 square meters
             
Production facility— Qingdao Zhihesheng Agricultural Produce Services Co., Ltd., Yantai Mouping District Zhisheng Agricultural Produce Cooperative (Agricultural use)*   Mafang Town, Pinggu District, Beijing   18 years (August 31, 2012- August 31, 2030)  

26,666 square

meters

             
Production facility— Qingdao Zhihesheng Agricultural Produce Services Co., Ltd., Yantai Mouping District Zhisheng Agricultural Produce Cooperative (Agricultural use)   South of Bridge, Jixiang Temple, Xiangnaixi Village, Cuigezhuang, Chaoyang District, Beijing   12 years (August 1, 2012- July 31, 2024)  

73,333 square

meters

             
WareHouse—YantaiZhisheng Freight ForwardingCo., Ltd.Qingdao Sub. (Fright use)   Nanquan Town, Jimo City, Shandong provinece   3years (May1, 2023- April 30, 2026)  

10,000 square

meters

  

* Zhisheng Freight took over the lease following the deregistration of Zhisheng Agricultural in 2017.

 

20
 

 

Item 3. Legal Proceedings

 

Other than ordinary routine litigation (of which we are not currently involved), we know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation, and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our company except as set forth below:

 

On May 16, 2017, Mrs. Guiqin Li (the “Plaintiff”) commenced a lawsuit against the Company in the People’s Court of Chongqing Pilot Free Trade Zone of China. Plaintiff alleged that due to the misguidance given by the Company’s securities trading department, the Plaintiff did not manage to complete the sales of the Company’s common stock on the day of the Company’s initial public offering in the United States. As the price of the Company’s common stock continued falling after initial public offering, the Plaintiff incurred losses and hence is seeking monetary damages against the Company. Based on the judgment of the initial trial, the Company was required to pay the Plaintiff a settlement payment, including the monetary compensation, interests and other legal fees.

 

In January 2023, the Company entered into a Settlement Agreement and Release (the “Agreement”) with the Plaintiff, pursuant to which the Company paid the Plaintiff a total sum of US$700,645 (approximately RMB 4.8 million) as settlement payment, and upon acceptance of the settlement payment from the Company, the Plaintiff waived, released, and forever discharged the Company from all past and future claims. As of June 30, 2023, the Company has made the payments in full to the Plaintiff according to the Agreement.

 

On November 26, 2021, the Company filed a complaint in the Supreme Court of the State of New York, New York County against Lei Zhang and Yan Li, as defendants, and Transhare Corporation, as a nominal defendant, asserting that defendants had not paid for certain restricted shares of the Company’s common stock pursuant to stock purchase agreements they executed with the Company. In December, defendants filed an answer and counterclaim against the Company, which they amended on January 27, 2022 after the Company moved to dismiss their counterclaims. They brought claims for, among others, breach of contract, breach of the covenant of good faith and fair dealing, and fraud, asserting that the Company made false and materially misleading statements, specifically regarding the sale of such shares to Lei Zhang and Yan Li and the removal of their restrictive legends. Defendants are seeking money damages of at least $9 million, punitive damages of $10 million, plus interest, costs, and fees. In April 2022, the Court granted the Company’s motion for a preliminary injunction to restrain the Company’s transfer agent from removing the restrictive legends on the shares, provided that the Company posts a bond, which the Company declined to do. On June 13, 2022, the restriction imposed on the shares were lifted.

 

Nominal defendant Transhare Corporation moved to dismiss the defendants’ counterclaim against it for wrongful refusal to remove restrictions pursuant to 6 Del. C. § 8-401, and its motion was fully submitted in April 2022. On September 9, 2022, the Court granted Transhare Corporation’s motion to dismiss defendants’ counterclaim for wrongful refusal to remove restrictions. Defendants have appealed the Court’s September 9, 2022 order dismissing defendants’ counterclaim for wrongful refusal to remove restrictions. On October 3, 2022 the parties submitted a stipulation dismissing defendants’ outstanding counterclaim against Transhare Corporation seeking declaratory judgment.

 

The Company remains engaged in litigation in Shineco, Inc. v. Lei Zhang, et al., Index No. 160669/2021 before the New York Supreme Court’s Commercial Division. The note of issue date is November 15, 2023. The parties have not been able to reach a settlement. As of March 31, 2023, the total unpaid shares issued to Lei Zhang and Yan Li by the Company was 982,500 shares, and the subscription receivable was US$3,024,000 which was recorded on the unaudited condensed consolidated balance sheet.

 

Item 4. Mine Safety Disclosures

 

The information required by Item 4 is not applicable to us, as we have no mining operations in the United States.

 

21
 

 

Part II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

 

Market Information

 

On September 27, 2016, we completed an initial public offering of 1,713,190 shares of common stock at a $4.50 offering price. Our common stock started trading on the NASDAQ Capital Market under the symbol of “TYHT” on September 28, 2016, which later changed to “SISI,” our current common stock trading symbol. Based on the records of our transfer agent, we had 47,645,642 shares of common stock issued and outstanding as of September 28, 2023.

 

Holders

 

As of September 28, 2023 there were 178 registered holders of record of our common stock.

 

Dividends

 

We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant. Furthermore, our ability to pay dividends is limited by the Delaware General Corporation Law, which provides that a corporation may only pay dividends out of existing “surplus,” which is defined as the amount by which a corporation’s net assets exceeds its stated capital.

 

During the current fiscal year and the two most recent completed fiscal years, we did not declare or pay any cash dividends on our shares of common stock, and we do not expect to pay cash dividends in the foreseeable future. If we determine to pay dividends on any of our common stock in the future, as a holding company, we will be dependent principally on receipt of funds from our operating subsidiaries. Current PRC regulations permit our PRC subsidiaries to pay dividends to Shineco only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

 

In addition, pursuant to the EIT Law and its implementation rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries are subject to withholding tax at a rate of 10% unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

 

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations in China may be used to pay dividends to our company.

 

22
 

 

Registrar and Stock Transfer Agent

 

Our transfer agent is TranShare Cooperation, with an office address at Bayside Center 1, 17755 North US Highway 19, Suite # 140, Clearwater FL 33764. Its telephone number is (303) 662-1112.

 

Penny Stock Regulations

 

Our shares of common stock are subject to the “penny stock” rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and various rules thereunder. In general terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues. In the last case, the issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years or the issuer’s average revenues for each of the past three years must exceed $6,000,000.

 

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

As of the fiscal ended June 30, 2023, the Company had adopted the following compensation plans:

 

2022 Equity Incentive Plan 

 

On July 21, 2022, our shareholders approved the adoption of the Company’s 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”), under which an aggregate of 1,500,000 of our shares of Common Stock or options to purchase shares of Common Stock may be issued, and such number of shares of Common Stock shall be and is hereby reserved for such purpose.

 

Administration.

 

Authority to administer and manage the 2022 Equity Incentive Plan shall be vested in the Board of the Company or by the compensation committee set up for such purpose (the “Committee”). The Committee shall consist of two or more directors who are (i) “Independent Directors” (as such term is defined under the rules of the NASDAQ Stock Market) and (ii) “Non-Employee Directors” (as such term is defined in Rule 16b-3), which shall serve at the pleasure of the Board. The Board or the Committee administering the 2022 Equity Incentive Plan (the “Administrator”) shall have full power and authority to designate recipients of options and restricted stock, and to determine the terms and conditions of the respective option and restricted stock agreements (which need not be identical) and to interpret the provisions and supervise the administration of the 2022 Equity Incentive Plan.

 

23
 

 

Eligibility.

 

The persons eligible for participation in the 2022 Equity Incentive Plan as recipients of options or restricted stock shall include directors, officers and employees of, and consultants and advisors to, the Company or any subsidiary; provided that incentive options may only be granted to employees of the Company and any subsidiary.

 

Awards.

 

A maximum of 1,500,000 shares of the Company’s Common Stock, par value $0.001 per share shall be subject to the 2022 Equity Incentive Plan. The shares of Common Stock subject to the 2022 Equity Incentive Plan shall consist of unissued shares, treasury shares or previously issued shares held by any subsidiary of the Company, and such number of shares of Common Stock shall be and is hereby reserved for such purpose.

 

Options.

 

The purchase price of each share of Common Stock purchasable under an incentive option shall be determined by the Administrator at the time of grant, but shall not be less than 100% of the Fair Market Value of such share of common stock on the date the option is granted.

 

The term of each option shall be fixed by the Administrator, but no incentive option shall be exercisable more than ten years after the date such option is granted and in the case of an incentive option granted to an optionee who, at the time such incentive option is granted, owns (within the meaning of Section 424(d) of the code) more than 10% of the total combined voting power of all classes of stock of the Company or of any subsidiary, no such incentive option shall be exercisable more than five years after the date such incentive option is granted

 

Change of Control.

 

Upon the occurrence of a change in control, the Administrator may accelerate the vesting of outstanding restricted stock, in whole or in part, as determined by the Administrator, in its sole discretion.

 

2023 Equity Incentive Plan

 

On June 28, 2023, our shareholders approved the adoption of the Company’s 2023 Equity Incentive Plan (the “2023 Equity Incentive Plan”), under which an aggregate of 4,000,000 of our shares of Common Stock or options to purchase shares of Common Stock may be issued, and such number of shares of Common Stock shall be and is hereby reserved for such purpose.

 

Administration.

 

Authority to administer and manage the 2023 Equity Incentive Plan shall be vested in the Board of the Company or by the compensation committee set up for such purpose (the “Committee”). The Committee shall consist of two or more directors who are (i) “Independent Directors” (as such term is defined under the rules of the NASDAQ Stock Market) and (ii) “Non-Employee Directors” (as such term is defined in Rule 16b-3), which shall serve at the pleasure of the Board. The Board or the Committee administering the 2023 Equity Incentive Plan (the “Administrator”) shall have full power and authority to designate recipients of options and restricted stock, and to determine the terms and conditions of the respective option and restricted stock agreements (which need not be identical) and to interpret the provisions and supervise the administration of the 2023 Equity Incentive Plan.

 

Eligibility.

 

The persons eligible for participation in the 2023 Equity Incentive Plan as recipients of options or restricted stock shall include directors, officers and employees of, and consultants and advisors to, the Company or any subsidiary; provided that incentive options may only be granted to employees of the Company and any subsidiary.

 

24
 

 

Awards.

 

A maximum of 4,000,000 shares of the Company’s Common Stock, par value $0.001 per share shall be subject to the 2023 Equity Incentive Plan. The shares of Common Stock subject to the 2023 Equity Incentive Plan shall consist of unissued shares, treasury shares or previously issued shares held by any subsidiary of the Company, and such number of shares of Common Stock shall be and is hereby reserved for such purpose.

 

Options.

 

The purchase price of each share of Common Stock purchasable under an incentive option shall be determined by the Administrator at the time of grant, but shall not be less than 100% of the Fair Market Value of such share of common stock on the date the option is granted.

 

The term of each option shall be fixed by the Administrator, but no incentive option shall be exercisable more than ten years after the date such option is granted and in the case of an incentive option granted to an optionee who, at the time such incentive option is granted, owns (within the meaning of Section 424(d) of the code) more than 10% of the total combined voting power of all classes of stock of the Company or of any subsidiary, no such incentive option shall be exercisable more than five years after the date such incentive option is granted

 

Change of Control.

 

Upon the occurrence of a change in control, the Administrator may accelerate the vesting of outstanding restricted stock, in whole or in part, as determined by the Administrator, in its sole discretion.

 

 

Recent Sales of Unregistered Securities 

 

On January 27, 2021, the Company issued 364,445 shares of common stock to three investors at a price of US$3.0 per share. The Company received net proceeds of US$1,093,355.

 

On April 10, 2021, the Company issued 3,872,194 shares of common stock to selected investors at a price of US$3.2 per share. The Company received net proceeds of US$7,981,204 and US$3,024,000 was outstanding as of June 30, 2022.

 

On June 16, 2021, the Company entered into a securities purchase agreement pursuant to which the Company issued an unsecured convertible promissory note with a maturity date of June 17, 2022, to an institutional accredited investor, Streeterville Capital, LLC (“Investor”). The note has the original principal amount of US$3,170,000 and Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. Interest accrues on the outstanding balance of the note at 6% per annum. The Company used the proceeds for general working capital purposes. The Company received principal in full from the Investor. On September 7, 2022, the Company signed an extension amendment (the “First June Note Amendment”) with the Investor to extend the maturity date of this note to June 17, 2023, resulting in an increase of the principal amount to $3,500,528.40. Thereafter, the Company signed a second extension amendment (the “Second June Note Amendment”) dated as June 15, 2023, with the Investor to extend the maturity date thereof to June 17, 2024, thereby increasing the principal amount to $3,929,497.72. Copies of the First June Note Amendment and the Second June Note Amendment have been filed with this report as Exhibits 4.5 and 4.7, respectively, and are incorporated by reference herein.

 

On August 19, 2021, the Company entered into another securities purchase agreement pursuant to which the Company issued an unsecured convertible promissory note with a maturity date of August 23, 2022, to the same Investor. The note has the original principal amount of US$10,520,000.00 and Investor gave consideration of US$10 million, reflecting original issue discount of US$500,000 and Investor’s legal fee of US$20,000. Interest accrues on the outstanding balance of the note at 6% per annum. The Company used the proceeds for general working capital purposes. On September 7, 2022, the Company signed an extension amendment (the “First August Note Amendment”) with the Investor to extend the maturity date of this note to August 23, 2023, thereby increasing the principal amount to $11,053,443.50. Thereafter, the Company signed a second extension amendment (the “Second August Note Amendment”) dated as June 15, 2023, with the Investor to extend the maturity date to August 23, 2024, thereby increasing the principal amount to $11,878,240.57. Copies of the First August Note Amendment and the Second August Note Amendment have been filed with this report as Exhibits 4.4 and 4.6, respectively, and are incorporated by reference herein.

 

On June 13, 2022, the Company entered into a certain stock purchase agreement with certain non-U.S. investors, pursuant to which the Company agreed to sell, and the investors agreed to purchase, severally and not jointly, an aggregate of 2,354,500 shares of common stock of the Company at a price of $ 2.12 per share in exchange for gross proceeds of $4,991,540.

 

On October 21, 2022, Shineco Life entered into a stock purchase agreement (the “Agreement”) with Beijing Kanghuayuan Medicine Information Consulting Co., Ltd., a company established under the laws of China (“Seller”), and Changzhou Biowin Pharmaceutical Co., Ltd., a company established under the laws of China (“Target”), pursuant to which Shineco Life acquired 51% of the issued equity interests of Target from Seller. As consideration for the acquisition of the Target, the Company issued 3,260,000 shares of the Company’s common stock to the equity holders of Seller or any persons designated by Seller.

 

The above-mentioned issuances of securities of the Company deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof as transactions not involving any public offering. In addition, certain issuances were deemed not to fall within Section 5 under the Securities Act and to be further exempt under Rule 901 and 903 of Regulation S promulgated thereunder by virtue of being issuances of securities by non-U.S. companies to non-U.S. citizens or residents, conducted outside the United States and not using any element of interstate commerce.

 

Repurchase of Equity Securities

 

Not Applicable .

 

25
 

 

Item 6. Selected Financial Data

 

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

This Annual Report on Form 10-K contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

 

Examples of forward-looking statements include:

 

  the timing of the development of future products;
     
  projections of revenue, earnings, capital structure, and other financial items;
     
  local, regional, national, and global Luobuma price fluctuations;
     
  statements of our plans and objectives, including those that relate to our proposed expansions and the effect such expansions may have on our revenue;
     
  statements regarding the capabilities of our business operations;
     
  statements of expected future economic performance;
     
  the impact of the COVID-19 outbreak;
     
  statements regarding competition in our market; and
     
  assumptions underlying statements regarding us or our business.

 

The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements.

 

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Nonetheless, we reserve the right to make such updates from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Annual 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.

 

The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the notes included in this Annual Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.

 

26
 

 

General Overview

 

Shineco, Inc. is a holding company incorporated in Delaware. Prior to the Acquisition and the termination of the VIE structure, as a holding company with no material operations of our own, we conducted a substantial majority of our operations through the operating entities established in the People’s Republic of China, or the PRC, primarily the variable interest entities (the “VIEs”). We did not have any equity ownership of the VIEs, instead we received the economic benefits of the VIEs’ business operations through certain contractual arrangements. Our common stock that currently listed on the Nasdaq Capital Markets are shares of our Delaware holding company. The Chinese regulatory authorities could disallow our structure, which could result in a material change in our operations and the value of our securities could decline or become worthless.

 

We used our subsidiaries and the VIEs’ vertically and horizontally integrated production, distribution, and sales channels to provide health and well-being focused plant-based products. Our products were only sold domestically in China. We utilized modern engineering technologies and biotechnologies to produce, among other products, Chinese herbal medicines, organic agricultural produce, and specialized textiles. Through our newly acquired subsidiary, Changzhou Biowin Pharmaceutical Co., Ltd. (“Biowin”), which is specializing in development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases, we also stepped into the Point-of-Care Testing industry. Also, following the acquisition of Dream Parter, which through its wholly owned subsidiary Wintus is engaged in the production, processing, export and domestic trade of cocoon silk products in the whole industrial chain silk manufacturing, we have entered into the silk industry. As of June 30, 2023, the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries (collectively the “Group”) operated the following main business segments:

 

Developing and distributing specialized fabrics, textiles, and other byproducts derived from an indigenous Chinese plant Apocynum Venetum, grown in the Xinjiang region of China, and known in Chinese as “Luobuma” or “bluish dogbane” - The Luobuma products were specialized textile and health supplement products designed to incorporate traditional Eastern medicines with modern scientific methods. These products were predicated on centuries-old traditions of Eastern herbal remedies derived from the Luobuma raw material. This segment was channeled through our then directly-owned subsidiary, Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”), and its 90% subsidiary Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).

 

Processing and distributing green and organic agricultural produce as well as growing and cultivating yew trees (taxus media) - We cultivated and sold yew mainly to group and corporate customers, but did not process yew into Chinese or Western medicines. This segment was conducted through the VIEs: Qingdao Zhihesheng Agricultural Produce Services, Ltd (“Qingdao Zhihesheng”). Meanwhile, we planted fast-growing bamboo willows and scenic greening trees through Yushe County Guangyuan Forest Development Co., Ltd. (“Guangyuan”). The operations of this segment were located in the North regions of Mainland China, mostly carried out in Shanxi Province.

 

Providing domestic air and overland freight forwarding services - We provided domestic air and overland freight forwarding services by outsourcing these services to a third party. This segment was conducted through the VIE, Yantai Zhisheng International Freight Forwarding Co., Ltd (“Zhisheng Freight”).

 

Developing, producing and distributing innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid Diagnostic and Other Products”) – This segment is conducted through Biowin, which is specializing in development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases. The operations of this segment are located in Jiangsu Province. Its products are sold not only in China, but also overseas countries such as Germany, Spain, Italy, Thailand, Japan and other countries.

 

27
 

 

On June 8, 2021, Tenet-Jove entered into a Restructuring Agreement with various parties. Pursuant to the terms of the Restructuring Agreement, (i) the Company transferred all of its rights and interests in Ankang Longevity to the Shareholders of Yushe County Guangyuan Forest Development Co., Ltd. (“Guangyuan”) in exchange for the control of 100% of equity interests and assets in Guangyuan; (ii) Tenet-Jove entered a Termination Agreement with Ankang Longevity Group and the Ankang Longevity Group Shareholders; (iii) as a consideration to the Restructuring Agreement and based on a valuation report on the equity interests of Guangyuan issued by an independent third party, Tenet-Jove relinquished all of its rights and interests in Ankang Longevity Group and transferred those rights and interests to the Guangyuan Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of variable interest entity agreements with Tenet-Jove. After signing of the Restructuring Agreement, the Company and the shareholders of Ankang Longevity Group and Guangyuan actively carried out the transferring of rights and interests in Ankang Longevity Group and Guangyuan, and the transferring was completed subsequently on July 5, 2021. Afterwards, with the completion of all other follow-ups works, on August 16, 2021, the Company, through its subsidiary Tenet-Jove, completed the previously announced acquisition pursuant to the Restructuring Agreement dated June 8, 2021. The management determined that July 5, 2021 was the disposal date of Ankang Longevity Group.

 

On May 29, 2023, Life Science HK entered into a stock purchase agreement (the “Agreement”) with Dream Partner Limited, a BVI corporation (“Dream Partner”), Chongqing Wintus Group, a corporation incorporated under the laws of mainland China (“Wintus”) and certain shareholders of Dream Partner (the “Sellers”), pursuant to which Shineco Life shall acquire 71.42% equity interest in Wintus (the “Acquisition”). On September 19, 2023, the Company closed the Acquisition. As the consideration for the Acquisition, the Company (a) paid the Sellers an aggregate cash consideration of $2,000,000; (b) issued certain shareholders, as listed in the Agreement, an aggregate of 10,000,000 shares of the Company’s restricted Common Stock; and (c) transferred and sold to the Sellers 100% of the Company’s equity interest in Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”). Following the closing of the Acquisition and the sale of the Tenet-Jove Shares, the Company divested its equity interest in its operating subsidiary Tenet-Jove and thereby terminated its VIE Structure.

 

The assets and liabilities of the Tenet-Jove Disposal Group have been reclassified as “assets of discontinued operations” and “liabilities of discontinued operations” within current and non-current assets and liabilities, respectively, on the consolidated balance sheets as of June 30, 2023 and 2022. The results of operations of Ankang Longevity and Tenet-Jove Disposal Group have been reclassified to “net loss from discontinued operations” in the consolidated statements of loss and comprehensive loss for the years ended June 30, 2023 and 2022.

 

Financing Activities

 

On June 16, 2021, the Company entered into a securities purchase agreement pursuant to which the Company issued an unsecured convertible promissory note with a maturity date of June 17, 2022, to an institutional accredited investor, Streeterville Capital, LLC (“Investor”). The note had an original principal amount of US$3,170,000 and Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. Interest accrues on the outstanding balance of the note at 6% per annum. The Company has received the principal in full from the Investor and used the proceeds for general working capital purposes. On September 7, 2022, the Company signed an extension amendment (the “First June Note Amendment”) with the Investor to extend the maturity date of this note to June 17, 2023, resulting in an increase of the principal amount to $3,500,528.40. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant to which the Investor would not seek to the re-payment of any portion of the note during the period from October 21, 2022 to January 20, 2023. On or around January 20, 2023, the Investor re-started the repayment of the notes. On January 18, 2023, the Investor re-started the redemption of the Notes. Thereafter, the Company signed a second extension amendment (the “Second June Note Amendment”) dated as June 15, 2023, with the Investor to extend the maturity date to June 17, 2024, thereby increasing the principal amount to $3,929,497.72. As of June 30, 2023, no share of the Company’s common stock under this agreement was issued by the Company to the Investor, and the notes balance was US$3,787,749, with a carrying value of US$3,939,321, net of deferred financing costs of US$151,572 was recorded in the accompanying consolidated balance sheets. Copies of the First June Note Amendment and the Second June Note Amendment have been filed with this report as Exhibits 4.5 and 4.7, respectively, and are incorporated by reference herein.

 

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On July 16, 2021, the Company entered into another securities purchase agreement with the Investor, pursuant to which the Company issued the Investor two unsecured convertible promissory notes each with a one-year maturity term. The first convertible promissory note had an original principal amount of US$3,170,000 and the Investor gave consideration of US$3.0 million, reflecting original issue discount of US$150,000 and Investor’s legal fee of US$20,000. The second convertible promissory note has the original principal amount of US$4,200,000 and Investor gave consideration of US$4.0 million, reflecting original issue discount of US$200,000. Interest accrues on the outstanding balance of the Notes at 6% per annum. The Company has received the principal in full from the Investor and used the proceeds for general working capital purposes. As of June 30, 2023, the Notes was fully converted and shares of the Company’s common stock totaling 1,946,766 were issued by the Company to the Investor equaling principal and interests amounted to US$7,472,638.

 

On August 19, 2021, the Company entered into another securities purchase agreement with the Investor, pursuant to which the Company issued the Investor an unsecured convertible promissory note with a maturity date of August 23, 2022. The note has an original principal amount of US$10,520,000 and Investor gave consideration of US$10.0 million, reflecting original issue discount of US$500,000 and Investor’s legal fee of US$20,000. Interest accrues on the outstanding balance of the note at 6% per annum. The Company has received the principal in full from the Investor and used the proceeds for general working capital purposes. On September 7, 2022, the Company signed an extension amendment (the “First August Note Amendment”) with the Investor to extend the maturity date to August 23, 2023, thereby increasing the principal amount to $11,053,443.50. On October 21, 2022, the Company signed a standstill agreement with the Investor, pursuant to which the Investor will not seek to repayment of any portion of the Note during the period from October 21, 2022 to January 20, 2023. Thereafter, the Company signed a second extension amendment (the “Second August Note Amendment”) dated as June 15, 2023, with the Investor to extend the maturity date to August 23, 2024, thereby increasing the principal amount to $ 11,878,240.57.. As of June 30, 2023, shares of the Company’s common stock totaling 1,126,554 were issued by the Company to the Investor equaling principal and interests amounted to US$920,001, and the notes balance was US$11,338,449, with a carrying value of US$11,904,322, net of deferred financing costs of US$565,873 was recorded in the accompanying consolidated balance sheets. Copies of the First August Note Amendment and the Second August Note Amendment have been filed with this report as Exhibits 4.4 and 4.6, respectively, and are incorporated by reference herein.

 

On August 11, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US investors (the “Investors”). Under the Purchase Agreement, the Company will sell to the Investors, up to 1,921,683 shares (the “Shares”) of its common stock at a per share purchase price of $0.915 (subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to US$1,758,340, which was fully received as the date of this report.

 

On January 12, 2023, the Board of the Company approved the sales of 722,222 shares of the Company’s common stock to certain individuals for gross proceeds of up to US$650,000, and the proceeds are expected to be fully collected by December 31, 2023.

 

On June 19, 2023, the Company entered into a certain securities purchase agreement (the “SPA”) with a non-U.S. investor (the “Buyer”), pursuant to which the Company agreed to sell, and the Buyer agreed to purchase an aggregate of up to 1,137,170 shares of common stock of the Company (the “Shares”) at a price of $1.05 per share. The transaction contemplated by the SPA was approved by the Company’s board of directors at a board meeting on March 14, 2023. The Company has received gross proceeds of $1.2 million from the Purchasers and all of the Shares were issued on June 22, 2023.

 

On June 21, 2023, the Company entered into a certain stock purchase agreement (the “Agreements”) with certain non-U.S. investors (the “Investors”), pursuant to which the Company agreed to sell, and the Investors agreed to purchase, severally and not jointly, an aggregate of up to 4,000,000 shares of common stock of the Company (the “Shares”) at a price of $0.5 per share. The transaction contemplated by the Agreement was approved by the Company’s board of directors at a board meeting on June 8, 2023. The Company has received gross proceeds of $2.0 million from the Investors and all of the Shares were issued on June 22, 2023.

 

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Factors Affecting Financial Performance

 

We believe that the following factors will affect our financial performance:

 

Increasing demand for our products – We believe that the increasing demand for our products will have a positive impact on our financial position. We plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses, all aimed at increasing awareness of our brand, developing customer loyalty, meeting customer demands in various markets and providing solid foundations for our growth. As of the date of this Annual Report, however, we do not have any agreements, undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will.

 

Maintaining effective control of our costs and expenses – Successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices. We will focus on improving our long-term cost control strategies including establishing long-term alliances with certain suppliers to ensure adequate supply is maintained. We will carry forward the economies of scale and advantages from our nationwide distribution network and diversified offerings.

 

Economic and Political Risks

 

Our operations are conducted primarily in the PRC and subject to special considerations and significant risks not typically associated with companies operating in North America and/or Western Europe. These include risks with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions, remittances abroad, and rates and methods of taxation, among other things.

 

COVID-19 Impact

 

The COVID-19 outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. In accordance with the epidemic control measures imposed by the local governments related to COVID-19, our offices and retail stores remained closed or had limited business operations after the Chinese New Year holiday until early April 2020. In addition, COVID-19 had caused severe disruptions in transportation, limited access to our facilities and limited support from workforce employed in our operations, and as a result, we experienced delays or the inability to delivery our products to customers on a timely basis. Further, some of our customers or suppliers experienced financial distress, delayed or defaults on payment, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. Any decreased collectability of accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations. Wider-spread COVID-19 in China and globally could prolong the deterioration in economic conditions and could cause decreases in or delays in spending and reduce and/or negatively impact our short-term ability to grow our revenue.

 

Due to the resurgence of COVID-19 cases in China, our headquarters in Beijing were closed down on April 25, 2022 and only resumed our business in mid-June 2022. Meanwhile, the business of our subsidiaries and VIEs was also negatively affected during this period, including but not limited to the execution of our sales contracts and fulfillment of customer orders and the collection of the payments from customers in a timely manner. The resurgence of COVID-19 impact on our operating results and financial performance seems to be temporary, we will continue to monitor and modify the operating strategies in response to the COVID-19. In early December 2022, China announced a nationwide loosening of its zero-covid policy, and the country faced a wave in infections after the lifting of these restrictions. Although the spread of the COVID-19 was slowed down and appears to be successfully under control currently, the extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the date our consolidated financial statements are released.

 

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Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our consolidated financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 3 to our consolidated financial statements included elsewhere in this Report.

 

Consolidation of Variable Interest Entities

 

VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

 

There are no consolidated assets of the VIEs and the VIEs’ subsidiaries that are collateral for the obligations of the VIEs and the VIEs’ subsidiaries and can only be used to settle the obligations of the VIEs and the VIEs’ subsidiaries.

 

As the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors or beneficial interest holders of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of the VIEs in normal course of business.

 

There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs and the VIEs’ subsidiaries.

 

Use of Estimates

 

Significant estimates required to be made by management include, but are not limited to, useful lives of property and equipment, and intangible assets, the recoverability of long-lived assets and the valuation of accounts receivable, advances to suppliers, deferred taxes and inventory reserves. Actual results could differ from those estimates.

 

Accounts Receivable, Net

 

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as necessary. We review 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, we consider many factors, including the age of the balance, the customers’ historical payment history, their current credit-worthiness and current economic trends. The fair value of long-term receivables is determined using a present value technique by discounting the future expected contractual cash flows using current rates at which similar instruments would be issued at the measurement date. As of June 30, 2023 and 2022, the allowance for doubtful accounts from the continuing operations was US$946,892 and US$ nil, respectively. As of June 30, 2023 and 2022, the allowance for doubtful accounts from the discontinued operations was US$7,206,958 and US$7,317,236, respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful.

 

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Inventories, Net

 

Inventories, which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods related to our products. Cost is determined using the first in first out method. Agricultural products that we farm 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 such as 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. We periodically evaluate our inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value. As of June 30, 2023 and 2022, the inventory reserve from the continuing operations was US$56,655 and US$ nil, respectively. As of June 30, 2023 and 2022, the inventory reserve from the discontinued operations was US$1,106,649 and US$1,249,543, respectively.

 

Revenue Recognition

 

We generate our revenues primarily through sales of Luobuma products, agricultural products and rapid diagnostic and other products, as well as providing logistic services and other processing services to external customers in accordance with ASC 606. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

 

With the adoption of ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The Company adopted the new revenue standard beginning July 1, 2018, and adopted a modified retrospective approach upon adoption. The Company has assessed the impact of the guidance by reviewing its existing customer contracts to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control, and principal versus agent considerations. In accordance with ASC 606, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is a principal, that the Company obtains control of the specified goods or services before they are transferred to the customers, the revenues should be recognized in the gross amount of consideration to which it expects to be entitled in exchange for the specified goods or services transferred. When the Company is an agent and Its obligation is to facilitate third parties in fulfilling their performance obligation for specified goods or services, the revenues should be recognized in the net amount for the amount of commission which the Company earns in exchange for arranging for the specified goods or services to be provided by other parties. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of Topic 606 and therefore there was no material changes to the Company’s consolidated financial statements upon adoption of ASC 606.

 

More specifically, revenue related to our products and services is generally recognized as follows:

 

Sales of products: We recognized revenue from the sale of products when the goods were delivered and title to the goods passed to the customer provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.

 

Revenue from provision of services: The Company merely acts as an agent in this type of services transactions. Revenue from domestic air and overland freight forwarding services was recognized upon the performance of services as stipulated in the underlying contract or when commodities were being released from the customer’s warehouse; the service price was fixed or determinable; and collectability was deemed probable.

 

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Fair Value of Financial Instruments

 

We follow the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.

 

The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.

 

Results of Operations for the Years Ended June 30, 2023 and 2022

 

Overview

 

The following table summarizes our results of operations for the years ended June 30, 2023 and 2022:

 

  

Years Ended June 30,

   Variance 
   2023   2022   Amount   % 
Revenue  $550,476   $-   $550,476    100.00%
Cost of revenue   424,291    -    424,291    100.00%
Gross profit   126,185    -    126,185    100.00%
General and administrative expenses   8,610,592    6,199,522    2,411,070    38.89%
Selling expenses   137,387    -    137,387    100.00%
Research and development expenses   135,849    -    135,849    100.00%
Loss from operations   (8,757,643)   (6,199,522)   (2,558,121)   41.26%
Impairment loss on an unconsolidated entity   (596,570)   -    (596,570)   100.00%
Loss from equity method investments   (20,876)   (132,554)   111,678    (84.25)%
Other income, net   181,471    -    181,471    100.00%
Amortization of debt issuance and other costs   (803,355)   (1,379,777)   576,422    (41.78)%
Interest income (expenses), net   (908,759)   118,795    (1,027,554)   (864.98)%
Loss before income tax benefit from continuing operations   (10,905,732)   (7,593,058)   (3,312,674)   43.63%
Benefit for income taxes   (194,564)   -    (194,564)   100.00%
Net loss from continuing operations   (10,711,168)   (7,593,058)   (3,118,110)   41.07%
Net loss from discontinued operations   (3,244,863)   (19,474,081)   16,229,218    (83.34)%
Net loss  $(13,956,031)  $(27,067,139)  $13,111,108    (48.44)%
Comprehensive loss attributable to Shineco Inc.  $(16,255,024)  $(28,402,045)  $12,147,021    (42.77)%

 

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Revenue

 

For the year ended June 30, 2023, we, through our PRC subsidiaries, had one major business segment from continuing operations by developing, producing and distributing innovative rapid diagnostic and other products and related medical devices for the most common diseases; this segment is conducted through Biowin. For the other three business segments, first, developing, manufacturing, and distributing specialized fabrics, textiles, and other by-products derived from an indigenous Chinese plant Apocynum Venetum, known in Chinese as “Luobuma” or “Bluish Dogbane,” as well as Luoboma raw materials processing; this segment is conducted through our wholly owned subsidiary, Tenet-Jove. Second, planting, processing and distributing green and organic agricultural produce, growing and cultivation of yew trees, as well as planting fast-growing bamboo willows and scenic greening trees; this segment is conducted through Qingdao Zhihesheng and Guangyuan. Third, providing domestic air and overland freight forwarding services by outsourcing these services to a third party; this segment is conducted through Zhisheng Freight. These three business segments were conducted by the Tenet-Jove Disposal Group, which we have reclassified them as discontinued operations.

 

The following table sets forth the breakdown of our revenue for the years ended June 30, 2023 and 2022, respectively:

 

   Years Ended June 30,   Variance 
   2023   %   2022   %   Amount   % 
Rapid diagnostic and other products  $550,476    100.00%  $-    -   $550,476    100.00%
Total Amount  $550,476    100.00%  $-    -   $550,476    100.00%

 

For the years ended June 30, 2023 and 2022, revenue from sales of rapid diagnostic and other products was US$550,476 and US$ nil, respectively, representing an increase of US$550,476, or 100.00%. The increase was mainly due to revenue generated by our newly acquired subsidiary Biowin during the year ended June 30, 2023.

 

Cost of Revenue and Related Tax

 

The following table sets forth the breakdown of the cost of revenue for the years ended June 30, 2023 and 2022:

 

   Years Ended June 30,   Variance 
   2023   %   2022   %   Amount   % 
Rapid diagnostic and other products  $421,273    99.29%  $-    -   $421,273    100.00%
Business and sales related tax   3,018    0.71%   -    -    3,018    100.00%
Total Amount  $424,291    100.00%  $-    -   $424,291    100.00%

 

For the years ended June 30, 2023 and 2022, cost of revenue from sales of rapid diagnostic and other products was US$421,273 and US$ nil, respectively, representing an increase of US$421,273, or 100.00%. The increase was mainly due to cost of revenue generated by our newly acquired subsidiary Biowin during the year ended June 30, 2023.

 

Gross Profit

 

The following table sets forth the breakdown of the gross profit for the years ended June 30, 2023 and 2022:

 

   Years Ended June 30,   Variance 
   2023