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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 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 registrant as specified in its charter)

 

Delaware   52-2175898

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

T1, South Tower, Jiazhaoye Square

Chaoyang District,

Beijing, People’s Republic of China, 100022

(Address of principal executive offices) (Zip Code)

 

(+86) 10-87227366

(Registrant’s telephone number, including area code)

 

 

(Former address of principal executive offices) (Zip Code)

 

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

 

Title of each Class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001 per share   SISI   The Nasdaq Stock Market LLC

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of February 8, 2024, there were 6,412,902 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page Number
     
PART I. FINANCIAL INFORMATION 1
     
Item 1. Financial Statements 1
     
  Condensed Consolidated Balance Sheets (unaudited) 1
     
  Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (unaudited) 2
     
  Condensed Consolidated Statements of Changes in Equity (unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows (unaudited) 5
     
  Notes to the Condensed Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 48
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 70
     
Item 4. Controls and Procedures 70
     
PART II. OTHER INFORMATION 71
     
Item 1. Legal Proceedings 71
     
Item 1A. Risk Factors 71
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 71
     
Item 3. Defaults Upon Senior Securities 72
     
Item 4. Mine Safety Disclosures 72
     
Item 5. Other Information 72
     
Item 6. Exhibits 72
     
SIGNATURES 73

 

i
 

 

On February 2, 2024, the Company’s stockholders approved the effectiveness of a 1-for-10 reverse stock split of the shares (the “Reverse Stock Split”) of the Company’s common stock, with a par value of $0.001 per share. As a result of the Reverse Stock Split, each of the ten pre-split shares of common stock outstanding will automatically combine and convert to one issued and outstanding share of common stock without any action on the part of the stockholders. Unless otherwise indicated, all share amounts and per share amounts in this report have been presented to give effect to the 1-for-10 reverse stock split of the shares of the Company’s common stock.

 

ii
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SHINECO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   December 31, 2023   June 30, 2023 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS:          
Cash and cash equivalents  $1,187,200   $625,966 
Accounts receivable, net   6,958,185    34,586 
Due from related parties   476,722    - 
Inventories, net   1,988,830    324,406 
Advances to suppliers, net   8,486,049    2,697 
Derivative financial assets   3,645    - 
Other current assets, net   2,749,308    2,827,042 
Current assets held for discontinued operations   -    37,109,046 
TOTAL CURRENT ASSETS   21,849,939    40,923,743 
           
Property and equipment, net   6,408,236    1,213,116 
Land use right, net   621,675    - 
Intangible assets, net   45,425,630    12,049,473 
Goodwill   28,015,104    6,574,743 
Operating lease right-of-use assets   133,318    132,366 
Non-current assets held for discontinued operations   -    2,575,698 
TOTAL ASSETS  $102,453,902   $63,469,139 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES:          
Short-term loans  $14,917,912   $1,240,431 
Long-term loans - current portion   649,736    - 
Accounts payable   2,443,077    191,148 
Contract liabilities   3,371,992    89,490 
Due to related parties   1,574,968    48,046 
Other payables and accrued expenses   1,892,374    669,147 
Operating lease liabilities - current   126,857    86,978 
Convertible note payable   14,353,591    15,126,198 
Taxes payable   1,175,377    500,869 
Current liabilities held for discontinued operations   -    5,393,844 
TOTAL CURRENT LIABILITIES   40,505,884    23,346,151 
           
Income tax payable - noncurrent portion   335,145    335,145 
Operating lease liabilities - non-current   19,563    44,469 
Long-term loans   1,115,851    - 
Deferred tax liability   9,623,224    1,416,592 
Other long-term payable   34,605    68,913 
Non-current liabilities held for discontinued operations   -    1,404,823 
TOTAL LIABILITIES   51,634,272    26,616,093 
           
Commitments and contingencies        - 
           
EQUITY:          
Common stock; par value $0.001, 100,000,000 shares authorized; 6,412,902 and 2,639,338 shares issued and outstanding at December 31, 2023 and June 30, 2023*   6,413    2,639 
Additional paid-in capital   65,838,872    68,871,317 
Subscription receivable   (178,332)   (3,782,362)
Statutory reserve   4,198,107    4,198,107 
Accumulated deficit   (30,696,669)   (31,735,422)
Accumulated other comprehensive loss   (94,049)   (4,992,381)
Total Stockholders’ equity of Shineco, Inc.   39,074,342    32,561,898 
Non-controlling interest   11,745,288    4,291,148 
TOTAL EQUITY   50,819,630    36,853,046 
           
TOTAL LIABILITIES AND EQUITY  $102,453,902   $63,469,139 

 

*Retrospectively restated for effect of the Reverse Stock Split on February 2, 2024.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1
 

 

SHINECO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited)

 

   2023   2022   2023   2022 
   For the Six Months Ended December 31,   For the Three Months Ended December 31, 
   2023   2022   2023   2022 
                 
REVENUE  $3,952,759   $-   $2,306,902   $- 
                     
COST OF REVENUE                    
Cost of products   3,534,177    -    1,988,252    - 
Business and sales related tax   7,309    -    6,332    - 
Total cost of revenue   3,541,486    -    1,994,584    - 
                     
GROSS INCOME   411,273    -    312,318    - 
                     
OPERATING EXPENSES                    
General and administrative expenses   8,851,375    3,294,780    5,591,910    1,482,895 
Selling expenses   132,195    -    84,362    - 
Research and development expenses   45,916    -    22,218    - 
Total operating expenses   9,029,486    3,294,780    5,698,490    1,482,895 
                     
LOSS FROM OPERATIONS   (8,618,213)   (3,294,780)   (5,386,172)   (1,482,895)
                     
OTHER INCOME (EXPENSE)                    
Income (loss) from equity method investment   -    (6,221)   -    83 
Investment income from derivative financial assets   3,534    -    766    - 
Other income, net   274,883    -    274,065    - 
Amortization of debt issuance and other costs   (366,057)   (355,972)   (199,234)   (201,569)
Interest expenses, net   (821,301)   (290,846)   (452,090)   (240,742)
Total other expenses   (908,941)   (653,039)   (376,493)   (442,228)
                     
LOSS BEFORE PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS   (9,527,154)   (3,947,819)   (5,762,665)   (1,925,123)
                     
BENEFIT FOR INCOME TAXES   (957,928)   -    (706,562)   - 
                     
NET LOSS FROM CONTINUING OPERATIONS   (8,569,226)   (3,947,819)   (5,056,103)   (1,925,123)
                     
DISCONTINUED OPERATIONS:                    
Loss from discontinued operations, net of taxes   (49,455)   (1,267,012)   -    (847,388)
Income from disposal of discontinued operations   8,904,702    -    -    - 
Net income (loss) from discontinued operations   8,855,247    (1,267,012)   -    (847,388)
                     
NET INCOME (LOSS)   286,021    (5,214,831)   (5,056,103)   (2,772,511)
                     
Net loss attributable to non-controlling interest   (752,732)   (5,236)   (728,661)   (2,638)
                     
NET INCOME (LOSS) ATTRIBUTABLE TO SHINECO, INC.  $1,038,753   $(5,209,595)  $(4,327,442)  $(2,769,873)
                     
COMPREHENSIVE INCOME (LOSS)                    
Net income (loss)  $286,021   $(5,214,831)  $(5,056,103)  $(2,772,511)
Other comprehensive income (loss): foreign currency translation income (loss)   138,355    (1,156,311)   40,390    1,125,027  
Total comprehensive income (loss)   424,376    (6,371,142)   (5,015,713)   (1,647,484)
Less: comprehensive income (loss) attributable to non-controlling interest   (743,333)   6,287    (702,789)   (14,461)
                     
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHINECO, INC.  $1,167,709   $(6,377,429)  $(4,312,924)  $(1,633,023)
                     
Weighted average number of shares basic and diluted*   4,145,127    1,624,966    5,129,978    1,785,018 
                     
Basic and diluted earnings (loss) per common share  $0.25   $(3.21)  $(0.84)  $(1.55)
                     
Earnings (loss) per common share                    
Continuing operations - Basic and Diluted   (1.89)   (2.43)   (0.84)   (1.08)
Discontinued operations - Basic and Diluted   2.14    (0.78)   -    (0.47)
Net earnings (loss) per common share - basic and diluted   0.25    (3.21)   (0.84)   (1.55)

 

*Retrospectively restated for effect of the Reverse Stock Split on February 2, 2024.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2
 

 

SHINECO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022

(UNAUDITED)

 

   SHARES*   AMOUNT   RECEIVABLE   CAPITAL   RESERVE   DEFICIT   LOSS   INTEREST   EQUITY 
   COMMON STOCK   SUBSCRIPTION   ADDITIONAL PAID-IN   STATUTORY   ACCUMULATED  

ACCUMULATED

OTHER

COMPREHENSIVE

  

NON-

CONTROLLING

   TOTAL 
   SHARES*   AMOUNT   RECEIVABLE   CAPITAL   RESERVE   DEFICIT   LOSS   INTEREST   EQUITY 
Balance at June 30, 2022   1,098,387   $1,098   $(3,024,000)  $53,008,810   $4,198,107   $(18,372,023)  $(2,100,756)  $(398,348)  $33,312,888 
                                              
Stock issuance   753,618    754    (508,340)   9,854,586    -    -    -    -    9,347,000 
Issuance of common shares for convertible notes redemption   53,731    54    -    527,582    -    -    -    -    527,636 
Common stock issued for management and employees   60,000    60    -    611,940    -    -    -    -    612,000 
Net loss from continuing operations for the period   -    -    -    -    -    (3,947,819)   -    -    (3,947,819)
Net loss from discontinued operation for the period   -    -    -    -    -    (1,261,776)   -    (5,236)   (1,267,012)
Foreign currency translation gain (loss)   -    -    -    -    -    -    (1,167,834)   11,523    (1,156,311)
Balance at December 31, 2022   1,965,736   $1,966   $(3,532,340)  $64,002,918   $4,198,107   $(23,581,618)  $(3,268,590)  $(392,061)  $37,428,382 
                                              
Balance at June 30, 2023   2,639,338   $2,639   $(3,782,362)  $68,871,317   $4,198,107   $(31,735,422)  $(4,992,381)  $4,291,148   $36,853,046 
                                              
Acquisition of Wintus   1,000,000    1,000    -    2,299,000    -    -    (110,788)   8,197,473    10,386,685 
Disposal of Tenet-Jove   -    -    -    (8,904,702)   -    -    4,880,164    -    (4,024,538)
Stock issuance   1,200,000    1,200    -    1,438,800    -    -    -    -    1,440,000 
Forgiveness of subscription receivable   -    -    3,024,000    -    -    -    -    -    3,024,000 
Issuance of common shares for convertible notes redemption   1,193,064    1,193    -    1,594,527    -    -    -    -    1,595,720 
Common stock issued for management and employees   380,500    381    580,030    539,930    -    -    -    -    1,120,341 
Net loss from continuing operations for the period   -    -    -    -    -    (7,817,289)   -    (751,937)   (8,569,226)
Net income (loss) from discontinued operation for the period   -    -    -    -    -    8,856,042         (795)   8,855,247 
Foreign currency translation gain   -    -    -    -    -    -    128,956    9,399    138,355 
Balance at December 31, 2023   6,412,902   $6,413   $(178,332)  $65,838,872   $4,198,107   $(30,696,669)  $(94,049)  $11,745,288   $50,819,630 

 

*Retrospectively restated for effect of the Reverse Stock Split on February 2, 2024.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3
 

 

SHINECO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022

(UNAUDITED)

 

   SHARES*   AMOUNT   RECEIVABLE   CAPITAL   RESERVE   DEFICIT   LOSS   INTEREST   EQUITY 
   COMMON STOCK   SUBSCRIPTION   ADDITIONAL PAID-IN   STATUTORY   ACCUMULATED  

ACCUMULATED

OTHER COMPREHENSIVE

   NON-CONTROLLING   TOTAL 
   SHARES*   AMOUNT   RECEIVABLE   CAPITAL   RESERVE   DEFICIT   LOSS   INTEREST   EQUITY 
Balance at September 30, 2022   1,639,736   $1,640   $(3,782,340)  $60,906,244   $4,198,107   $(20,811,745)  $(4,405,440)  $(377,600)  $35,728,866 
                                              
Stock issuance   326,000    326    250,000    3,096,674    -    -    -    -    3,347,000 
Net loss from continuing operations for the period   -    -    -    -    -    (1,925,123)   -    -    (1,925,123)
Net loss from discontinued operation for the period                            (844,750)        (2,638)   (847,388)
Foreign currency translation gain (loss)   -    -    -    -    -    -    1,136,850    (11,823)   1,125,027 
Balance at December 31, 2022   1,965,736   $1,966   $(3,532,340)  $64,002,918   $4,198,107   $(23,581,618)  $(3,268,590)  $(392,061)  $37,428,382 
                                              
Balance at September 30, 2023   4,923,591   $4,924   $(3,442,352)  $64,134,641   $4,198,107   $(26,369,227)  $(108,567)  $12,448,077   $50,865,603 
                                              
Stock issuance   1,200,000    1,200    -    1,438,800    -    -    -    -    1,440,000 
Forgiveness of subscription receivable             3,024,000                             3,024,000 
Issuance of common shares for convertible notes redemption   289,311    289    -    265,431    -    -    -    -    265,720 
Common stock issued for management and employees   -    -    240,020    -                        240,020 
Net loss from continuing operations for the period   -    -    -    -    -    (4,327,442)   -    (728,661)   (5,056,103)
Foreign currency translation gain   -    -    -    -    -    -    14,518    25,872    40,390 
Balance at December 31, 2023   6,412,902   $6,413   $(178,332)  $65,838,872   $4,198,107   $(30,696,669)  $(94,049)  $11,745,288   $50,819,630 

 

*Retrospectively restated for effect of the Reverse Stock Split on February 2, 2024.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4
 

 

SHINECO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   2023   2022 
  

For the Six Months Ended

December 31,

 
   2023   2022 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income (loss)  $286,021   $(5,214,831)
Net income (loss) from discontinued operations, net of tax   8,855,247    (1,267,012)
Net loss from continuing operations   (8,569,226)   (3,947,819)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   2,365,955    285 
Allowance for credit losses and doubtful accounts   516,063    928,220 
Reversal of inventory reserve   (26,288)   - 
Deferred tax benefit   (957,928)   - 
Loss from equity method investment   -    6,221 
Amortization of right of use assets   37,002    - 
Forgiveness of subscription receivable   3,024,000    - 
Common stock issued for management and employees   540,311    612,000 
Amortization of debt issuance and other costs   366,057    355,972 
Accrued interest expense for convertible notes   457,056    479,641 
Accrued interest income from third parties   -    (119,978)
           
Changes in operating assets and liabilities:          
Accounts receivable   5,207,133    - 
Advances to suppliers   (4,961,015)   - 
Inventories   164,612    - 
Other current assets   42,536    (221,896)
Accounts payable   (4,353,578)   - 
Contract liabilities   

3,062,228

    - 
Other payables and accrued expenses   528,131    65,585 
Other long-term payable   (35,315)   - 
Operating lease liabilities   (23,083)   - 
Taxes payable   66,725    109 
Net cash used in operating activities from continuing operations   (2,548,624)   (1,841,660)
Net cash provided by (used in) operating activities from discontinued operations   (162,253)   54,704 
Net cash used in operating activities   (2,710,877)   (1,786,956)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisitions of property and equipment   (33,360)   - 
Payment made for loans to third parties   (1,539,715)   - 
Repayment from loans to third parties   50,000    10,915,129 
Repayment from loans to related parties   490,177    - 
Payment for derivative financial assets   (18,480)   - 
Redemption of derivative financial assets   21,050    - 
Payment made for business acquisition   -    (9,000,000)
Acquisition of subsidiaries, net of cash   1,003,678    - 
Disposal of VIEs - Tenet-Jove, net of cash   (13,889,752)   - 
Net cash provided by (used in) investing activities from continuing operations   (13,916,402)   1,915,129 
Net cash provided by investing activities from discontinued operations   -    490,456 
Net cash provided by (used in) investing activities   (13,916,402)   2,405,585 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from short-term loans   9,807,483    - 
Repayment of short-term loans   (8,302,815)   - 
Repayment of long-term loans   (317,444)     
Proceeds from issuance of common stock   2,020,030    1,250,000 
Repayments of advances from related parties   (81,966)   (24,224)
Net cash provided by financing activities from continuing operations   3,125,288    1,225,776 
Net cash provided by (used in) financing activities from discontinued operations   293,180    (145,785)
Net cash provided by financing activities   3,418,468    1,079,991 
           
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS   229,252    (421,244)
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (12,979,559)   1,277,376 
           
CASH AND CASH EQUIVALENTS - Beginning of the period   14,166,759    15,165,231 
           
CASH AND CASH EQUIVALENTS - End of the period  $1,187,200   $16,442,607 
           
Less: cash and cash equivalents of discontinued operations - Ended of the period   -    14,123,179 
           
Cash and cash equivalents of continuing operations - Ended of the period  $1,187,200   $2,319,428 
           
SUPPLEMENTAL CASH FLOW DISCLOSURES:          
Cash paid for interest  $274,879   $- 
           
SUPPLEMENTAL NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:          
Issuance of common shares for convertible notes redemption  $1,595,720   $527,636 
Issuance of common shares for proceeds received in prior year  $-   $5,000,000 
Issuance of common shares for business acquisition  $2,300,000   $3,097,000 
Transferal of equity interest of Tenet Jove for business acquisition of Wintus  $37,705,951   $-   
Right-of-use assets obtained in exchange for operating lease obligations  $32,737   $645,711 
Repayments of loans to third parties offset by other payables  $-   $3,156,610 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5
 

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

Shineco, Inc. (“Shineco” or the “Company”) was incorporated in the State of Delaware on August 20, 1997. The Company is a holding company whose primary purpose is to develop business opportunities in the People’s Republic of China (the “PRC” or “China”).

 

On December 30, 2004, the Company acquired all of the issued and outstanding shares of Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”), a PRC company, in exchange for restricted shares of the Company’s common stock, and the sole operating business of the Company became that of its subsidiary, Tenet-Jove. Tenet-Jove was incorporated on December 15, 2003 under the laws of China. Consequently, Tenet-Jove became a 100% owned subsidiary of Shineco and was officially granted the status of a wholly foreign-owned entity by Chinese authorities on July 14, 2006. This transaction was accounted for as a recapitalization. Tenet-Jove owns 90% interest of Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).

 

On December 31, 2008, June 11, 2011, and May 24, 2012, Tenet-Jove entered into a series of contractual agreements including an Executive Business Cooperation Agreement, a Timely Reporting Agreement, an Equity Interest Pledge Agreement, and an Executive Option Agreement (collectively, the “VIE Agreements”), with each one of the following entities, Ankang Longevity Pharmaceutical (Group) Co., Ltd. (“Ankang Longevity Group”), Yantai Zhisheng International Freight Forwarding Co., Ltd. (“Zhisheng Freight”) and Qingdao Zhihesheng Agricultural Produce Services., Ltd. (“Qingdao Zhihesheng”). On February 24, 2014, Tenet-Jove entered into the same series of contractual agreements with Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. (“Zhisheng Bio-Tech”), which was incorporated in 2014. Zhisheng Bio-Tech, Zhisheng Freight and Qingdao Zhihesheng are collectively referred to herein as the “Zhisheng VIEs.

 

Pursuant to the VIE Agreements, Tenet-Jove has the exclusive right to provide to the Zhisheng VIEs and Ankang Longevity Group consulting services related to their business operations and management. All the above contractual agreements obligate Tenet-Jove to absorb a majority of the risk of loss from the Zhisheng VIEs and Ankang Longevity Group’s activities and entitle Tenet-Jove to receive a majority of their residual returns. In essence, Tenet-Jove has become the primary beneficiary of the operations of the Zhisheng VIEs and Ankang Longevity Group. Therefore, the Zhisheng VIEs and Ankang Longevity Group are treated as variable interest entities (“VIEs”) under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation.” Accordingly, the accounts of these entities are consolidated with those of Tenet-Jove.

 

Since Shineco is effectively controlled by the majority shareholders of the Zhisheng VIEs and Ankang Longevity Group, Shineco owns 100% of Tenet-Jove. Accordingly, Shineco, Tenet-Jove, and the VIEs, the Zhisheng VIEs and Ankang Longevity Group are effectively controlled by the same majority shareholders. Therefore, Shineco, Tenet-Jove, and the VIEs of Tenet-Jove are considered under common control. The consolidation of Tenet-Jove and its VIEs into Shineco was accounted for at historical cost.

 

On September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with registered capital of RMB10.0 million (approximately US$1.5 million). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering Co., Ltd. (“Runze”) with registered capital of RMB10.0 million (approximately US$1.5 million). Xinjiang Taihe and Runze became wholly-owned subsidiaries of Tenet-Jove. The Company ceased the business operation of Xinjiang Taihe and Runze in September 2020 and October 2020, respectively.

 

On December 10, 2016, Tenet-Jove entered into a purchase agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”), an online e-commerce company based in Tianjin, China, specializing in distributing Luobuma related products and branded products of Daiso 100-yen shops, pursuant to which Tenet-Jove would acquire a 51% equity interest in Tianjin Tajite for cash consideration of RMB14,000,000 (approximately US$2.1 million). On December 25, 2016, the Company paid the full amount as the deposit to secure the deal. In May 2017, the Company amended the agreement and required Tianjin Tajite to satisfy certain preconditions related to product introductions into China. On October 26, 2017, the Company completed the acquisition for 51% of the shares in Tianjin Tajite. On May 5, 2019, two minority shareholders of Tianjin Tajite transferred their 26.4% of the equity interest to the Company. There was no consideration paid for the transfers, and after the transfers, the Company owns 77.4% equity interest of Tianjin Tajite.

 

6
 

 

On March 13, 2019, Tenet-Jove established Beijing Tenjove Newhemp Biotechnology Co., Ltd. (“TNB”) with registered capital of RMB10.0 million (approximately US$1.5 million). TNB became a wholly-owned subsidiary of Tenet-Jove. The operations of TNB ceased on May 15, 2023.

 

On July 23, 2020, Shanghai Jiaying International Trade Co., Ltd. (“Shanghai Jiaying”) was established with registered capital of RMB200 million (approximately US$29.9 million). Tenet-Jove owned an equity interest of 90% of Shanghai Jiaying, and the remaining 10% equity interests was owned by an individual shareholder. Jiaying Trade did not engage in any active business operations, and the operations of Shanghai Jiaying ceased on December 21, 2021.

 

On January 7, 2021, Inner Mongolia Shineco Zhonghemp Biotechnology Co., Ltd. (“SZB”) was established with registered capital of RMB50 million (approximately US$7.5 million). Tenet-Jove owned an equity interest of 55% of SZB, and the remaining 45% equity interests was owned by an individual shareholder. SZB is currently not engaging in any active business operations.

 

On December 7, 2021, the Company established Shineco Life Science Research Co., Ltd. (“Life Science”) as a wholly foreign-owned entity with registered capital of US$10.0 million.

 

On April 13, 2022, the Company established Shineco Life Science Group Hong Kong Co., Limited (“Life Science HK”) as a wholly owned entity with registered capital of US$10.0 million. On April 24, 2022, the Company entered into a Share Transfer Agreement with Life Science HK. Pursuant to the agreement, the Company transferred its 100% of the equity interest of Life Science to Life Science HK. There was no consideration paid for the transfer, and after the transfer, Life Science became a wholly-owned subsidiary of Life Science HK.

 

On May 16, 2023, Fuzhou Meida Health Management Co., Ltd (“Fuzhou Meida”), formerly known as Pangke Planet (Fuzhou) Health Management Co., Ltd, was established with registered capital of RMB1.0 million (approximately US$0.1 million). Life Science owned an equity interest of 51% of Fuzhou Meida, and the remaining 49% equity interests was owned by two shareholders.

 

On May 16, 2023, Shinkang Technology (Jiangsu) Co., Ltd (“Shinkang”) was established with registered capital of RMB10.0 million (approximately US$1.4 million). Life Science owned an equity interest of 51% of Shinkang, and the remaining 49% equity interests was owned by one shareholder. Shinkang is currently not engaging in any active business operations.

 

On May 23, 2023, Life Science established Beijing Shineco Chongshi Information Consulting Co., Ltd (“Chongshi”) as a wholly owned entity with registered capital of RMB0.1 million (approximately US$0.01 million). Chongshi is currently not engaging in any active business operations.

 

On June 8, 2021, Tenet-Jove entered into a Restructuring Agreement with various parties. Pursuant to the terms of the Restructuring Agreement, (i) the Company transferred all of its rights and interests in Ankang Longevity to 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 and the Ankang Shareholders; (iii) as a consideration to the Restructuring Agreement and based on a valuation report on the equity interests of Guangyuan issued by an independent third party, Tenet-Jove relinquished all of its rights and interests in Ankang Longevity and transferred those rights and interests to the Guangyuan Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of variable interest entity agreements with Tenet-Jove. After signing of the Restructuring Agreement, the Company and the shareholders of Ankang and Guangyuan actively carried out the transferring of rights and interests in Ankang and Guangyuan, and the transferring was completed subsequently on July 5, 2021. Afterwards, with the completion of all other follow-ups works, on August 16, 2021, the Company, through its subsidiary Tenet-Jove, completed the previously announced acquisition pursuant to the Restructuring Agreement dated June 8, 2021.

 

7
 

 

On December 30, 2022, Life Science closed the acquisition of 51% of the issued equity interests of Changzhou Biowin Pharmaceutical Co., Ltd. (“Biowin”), a company established under the laws of China, pursuant to the previously announced stock purchase agreement, dated as of October 21, 2022, among Beijing Kanghuayuan Medicine Information Consulting Co., Ltd., a company established under the laws of China (“Seller”), Biowin, the Company and Life Science. As the consideration for the acquisition, the Company paid to Seller US$9 million in cash and the Company issued 326,000 shares of the Company’s common stock, par value US$0.001 per share to the equity holders of Biowin or any persons designated by Biowin. According to the Supplementary Agreement, dated as of December 30, 2022, by and among Life Science, the Seller and Biowin, the Seller owned 51% of the issued equity interests of Biowin before January 1, 2023, and transferred the 51% of the issued equity interests of Biowin together with its controlling rights of production and operation of Biowin to Life Science from January 1, 2023.

 

On May 29, 2023, Life Science HK entered into a stock purchase 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 “Wintus Sellers”), pursuant to which Life Science HK shall acquire 71.42% equity interest in Wintus (the “Acquisition”). As the consideration for the Acquisition, the Company (a) paid the Wintus Sellers an aggregate cash consideration of $2,000,000; (b) issued certain shareholders, as listed in the agreement, an aggregate of 1,000,000 shares of the Company’s restricted Common Stock; and (c) transferred and sold to the Wintus Sellers 100% of the Company’s equity interest in Tenet-Jove.

 

The Company, through its subsidiaries, currently operates three main business segments: 1) Biowin specializes in the development, production and distribution of innovative rapid diagnostic products and related medical devices for the most common diseases (“Rapid Diagnostic and Other Products”); 2) Wintus is engaged in producing, processing and distribution of agricultural products, such as silk and silk fabrics as well as trading of fresh fruit; and (3) Fuzhou Meida operates a health-oriented chain restaurant that specializes in developing healthy meals for people with slow metabolic health and those in recovery from metabolic disorders. Due to the Acquisition mentioned above, the Company’s business segments, that were operated by Tenet-Jove and its subsidiaries, Guangyuan and Zhisheng VIEs which Tenet-Jove is the primary beneficiary of (the “Tenet-Jove Disposal Group”), are classified as discontinued operations on the Company unaudited condensed consolidated financial statements. These business segments are: 1) Tenet-Jove is engaged in manufacturing and selling Bluish Dogbane and related products, also known in Chinese as “Luobuma,” including therapeutic clothing and textile products made from Luobuma; 2) Qingdao Zhihesheng and Guangyuan are engaged in planting, processing, and distributing green agricultural produce; (“Agricultural Products”); and 3) Zhisheng Freight is providing domestic and international logistic services (“Freight Services”).

 

NOTE 2. GOING CONCERN UNCERTAINTIES

 

As disclosed in the Company’s unaudited condensed consolidated financial statements, the Company had recurring net losses of US$8,569,226 and US$3,947,819, and continuing cash outflow of US$2,548,624 and US$1,841,660 from operating activities from continuing operations for the six months ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had negative working capital of US$18,655,945. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months. In assessing the Company’s going concern, management monitors and analyzes the Company’s cash on-hand and its ability to generate sufficient revenue sources in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Direct offering and debt financing have been utilized to finance the working capital requirements of the Company. In addition, the Company’s shareholders made pledges to provide continuous financial support to the Company whenever the Company has liquidity difficulty for at least next 12 months from the date of this filing.

 

8
 

 

Despite those negative financial trends, as of December 31, 2023, the Company had the following measurements which the management has taken to enhance the Company’s liquidity:

 

1) On January 12, 2023, the Board of the Company approved the sales of 72,222 shares of the Company’s common stock to the Company’s employees for gross proceeds of up to US$650,000. As the date of this report, proceeds amounted to US$0.5 million has been received by the Company, and the remaining balance of the proceeds is expected to be fully collected by March 31, 2024.
   
2) On December 22, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain non-US investors (the “Investors”). Under the Purchase Agreement, the Company agreed to sell to the Investors up to 1,200,000 shares (the “Shares”) of its common stock at a per share purchase price of $1.2 for gross proceeds of up to $1,440,000. The Company has received gross proceeds in full from the Investors, and all of the Shares were issued on December 28, 2023.
   
3) The Company financed from commercial banks and third parties. As of December 31, 2023, the Company had US$14.9 million in short-term loans outstanding and US$1.8 million in long-term loans outstanding. The management expects that the Company will be able to renew its existing bank loans upon their maturity based on past experience and its good credit history.

 

Management believes that the foregoing measures collectively will provide sufficient liquidity for the Company to meet its future liquidity needs 12 months from the date of this filing.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules of the SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2023, which was filed on September 28, 2023.

 

The unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries, its VIEs and its VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in the Company’s majority owned subsidiaries and VIEs. All intercompany accounts and transactions have been eliminated in consolidation.

 

Consolidation of Variable Interest Entities

 

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

 

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.

 

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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. However, if the VIEs and the VIEs’ subsidiaries ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIEs and the VIEs’ subsidiaries through loans to the shareholder of the VIEs and the VIEs’ subsidiaries or entrustment loans to the VIEs and the VIEs’ subsidiaries.

 

The total carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information and the carrying amount of the VIEs and their subsidiaries’ consolidated income information held for discontinued operations were as follows:

 

   December 31, 2023   June 30, 2023 
         
Current assets  $           -   $32,532,618 
Non-current assets   -    2,493,883 
Total assets   -    35,026,501 
Total liabilities   -    (5,952,438)
Net assets  $-   $29,074,063 

 

   2023   2022   2023   2022 
   For the six months ended
December 31,
  

For the three months ended

December 31,

 
   2023   2022   2023   2022 
Net sales  $-   $1,055,723   $-   $525,599 
Gross loss  $-   $(221,023)  $   -   $(124,778)
Income from operations  $60,426   $807,083   $-   $419,178 
Net income  $60,426   $830,047   $-   $430,315 

 

Non-controlling Interests

 

U.S. GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the non-controlling interests in the net loss of these entities are reported separately in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).

 

Risks and Uncertainties

 

The operations of the Company are located in the PRC and are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these factors and believes that it is in compliance with existing laws and regulations, there is no guarantee that the Company will continue to do so in the future.

 

Members of the current management team own controlling interests in the Company and are also the owners of the VIEs in the PRC. The Company only has contractual arrangements with the VIEs, which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the agreement terms, as a result of which the Company would not retain the economic benefits from the VIEs. In addition, should these agreements be challenged or litigated, they would also be subject to the laws and courts of the PRC legal system, which could make enforcing the Company’s rights difficult.

 

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Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting periods. Significant estimates required to be made by management include, but are not limited to, useful lives of property and equipment, and intangible assets, the recoverability of long-lived assets, assessment of expected credit losses for accounts receivable and other current asset, the valuation allowance of deferred taxes, and inventory reserves. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company generates its revenue primarily through sales of Luobuma products, other agricultural products, healthy meals 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 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 revenue 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 revenue 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 financial statements upon adoption of ASC 606.

 

More specifically, revenue related to the Company’s products and services is generally recognized as follows:

 

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

 

Revenue from the provision of services: The Company merely acts as an agent in these types of services transactions. Revenue from domestic air and overland freight forwarding services was recognized at the point in time 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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Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand, cash on deposit, and other highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions mainly in the PRC. As of December 31, 2023 and June 30, 2023, the Company had no cash equivalents.

 

Under PRC laws, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’ rights over and interests in their deposited money. PRC banks are subject to a series of risk control regulatory standards, and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a material credit crisis. The Company monitors the banks utilized and has not experienced any problems.

 

Accounts Receivable, Net

 

Accounts receivable are recorded at net realizable value, consisting of the carrying amount less an allowance for credit losses, as necessary. As of December 31, 2023 and June 30, 2023, the allowance for credit losses from the continuing operations was US$1,521,575 and US$946,892, respectively. As of December 31, 2023 and June 30, 2023, the allowance for credit losses from the discontinued operations was US$ nil and US$7,206,958, respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful.

 

Advances to Suppliers, Net

 

Advances to suppliers consist of payments to suppliers for materials that have not been received. As of December 31, 2023 and June 30, 2023, the allowance for uncollectible advances to suppliers from the continuing operations was US$130,998 and US$3,502, respectively. As of December 31, 2023 and June 30, 2023, the allowance for uncollectible advances to suppliers from the discontinued operations was US$ nil and US$10,163,946, respectively.

 

Credit Losses

 

On July 1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The adoption of the credit loss accounting standard has no material impact on the Company’s unaudited condensed consolidated financial statements as of July 1, 2023.

 

The Company’s account receivables and other receivables included in other current assets on the unaudited condensed consolidated balance sheets are within the scope of ASC Topic 326. The Company makes estimates of expected credit and collectability trends for the allowance for credit losses based upon assessment of various factors, including historical experience, the age of the accounts receivable and other receivables balances, credit-worthiness of the customers and other debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and other debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.

 

ASC Topic 326 is also applicable to loans to third parties that included in the other current assets on the unaudited condensed consolidated balance sheets. Management estimates the allowance for credit losses on loans not sharing similar risk characteristics on an individual basis. The key factors considered when determining the above allowances for credit losses include estimated loan collection schedule, discount rate, and assets and financial performance of the borrowers.

 

Expected credit losses are recorded as general and administrative expenses on the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss). After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses.

 

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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 the Company’s products. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost is determined using the first in first out (“FIFO”) method. The Company periodically evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value. As of December 31, 2023 and June 30, 2023, the inventory reserve from the continuing operations was US$31,249 and US$56,655, respectively. As of December 31, 2023 and June 30, 2023, the inventory reserve from the discontinued operations was US$ nil and US$1,106,649, respectively.

 

Business Acquisitions

 

Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a bargain gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values on the date acquired and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than 12 months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed, and requires the Company to recognize and measure certain assets and liabilities, including those arising from contingencies and contingent consideration in a business combination.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available).

 

Leases

 

The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, warehouse, and farmland which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

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