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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Shineco Inc | NASDAQ:SISI | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.0169 | -2.19% | 0.7554 | 0.7554 | 0.8088 | 200 | 13:42:15 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported)
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
T1,
|
||
(Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code: (
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
|
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Explanatory Note
This Amendment No. 1 on Form 8-K (“Amendment No. 1”) amends Item 9.01 of the Current Report on Form 8-K filed by Shineco, Inc., a Delaware corporation (the “Company”) on September 21, 2023 (the “Original Report”) in which the Company reported, among other events, the consummation of the previously-announced acquisition (the “Acquisition”) wherein 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, acquired Dream Partner Limited, a BVI corporation (“Dream Partner”).
This Amendment No. 1 hereby amends the subsections of Item 2.01 identified below and Item 9.01 in the Original Report to include the (i) Dream Partner’s audited consolidated financial statement for the years ended June 30, 2023 and 2022, which is filed as Exhibit 99.1 to this Current Report on Form 8-K/A; (ii) Company’s unaudited pro forma condensed combined financial information as of June 30, 2023, which is filed as Exhibit 99.2 to this Current Report on Form 8-K/A; and (iii) written consent of Beijing Quanrui CPAs, Dream Partner’s Independent Registered Public Accounting Firm, which is filed as Exhibit 23.1 to this Current Report on Form 8-K/A.
The text of the Original Report is hereby incorporated by reference. This Amendment No. 1 solely amends the subsections of Item 2.01 and 9.01 as identified below, and the Item 2.01 and 9.01 of the Original Report otherwise remain unchanged. This Amendment No. 1 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Report. Capitalized terms not otherwise defined herein shall have their respective meanings ascribed to them in the Original Report.
Item 2.01 Completion of Acquisition or Disposition of Assets
As previously reported by the Company in its Original Report, the Company consummated the Acquisition of Dream Partner on September 19, 2023. The purpose of this Current Report on Form 8-K/A is to file the required financial information related to the Acquisition.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit Number | Description | |
23.1 | Consent of Beijing Quanrui CPAs | |
99.1 | Audited Financial Statement of Dream Partner Limited for the years ended June 30, 2023 and 2022 | |
99.2 | Unaudited pro-forma financial statements as of June 30, 2023 | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and included as Exhibit 101). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: December 1, 2023 | SHINECO, INC. | |
By: | /s/ Jennifer Zhan | |
Name: | Jennifer Zhan | |
Title: | Chief Executive Officer |
Exhibit 23.1
Wantong Finance Center #1905, Xicheng District, Beijing, China
Email: bjqrcpa@163.com | TEL:010-64446251 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3/A (Amendment No.2, file number 333-261229); Form S-3/A (Amendment No.1, file number 333- 250160), relating to the financial statements of Shineco Inc., including the consolidated balance sheets of Dream Partner Limited and its subsidiary as of June 30, 2023 and 2022, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2023, which appear in this Current Report on Form 8-K/A of Shineco Inc.
Beijing Quanrui CPAs
Beijing, PRC
November 29, 2023
Exhibit 99.1
DREAM PARTNER LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
AND
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DREAM PARTNER LIMITED
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Dream Partner Limited
We have audited the accompanying balance sheets of Dream Partner Limited (the “Company”) as of June 30, 2023 and 2022, and the related statements of income and comprehensive income, changes in equity and cash flows for each of the two years in the period ended June 30, 2023. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of their operations and their cash flows for each of the two years in the period ended June 30, 2023 in conformity with accounting principles generally accepted in the United States of America.
Beijing Quanrui CPAs
Beijing, PRC
November 29, 2023
1 |
DREAM PARTNER LIMITED
June 30, | June 30, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 600,636 | $ | 771,848 | ||||
Accounts receivable, net | 15,685,622 | 16,274,560 | ||||||
Due from related parties | 1,007,612 | 789,661 | ||||||
Inventories, net | 1,571,988 | 4,032,971 | ||||||
Advances to suppliers, net | 462,820 | 178,899 | ||||||
Derivative financial assets | 99,282 | - | ||||||
Other current assets, net | 359,433 | 470,350 | ||||||
TOTAL CURRENT ASSETS | 19,787,393 | 22,518,289 | ||||||
Property and equipment, net | 3,296,484 | 3,274,742 | ||||||
Land use right, net | 148,919 | 169,658 | ||||||
Operating lease right-of-use assets | 2,080 | 3,643 | ||||||
Deferred tax assets | 305,186 | - | ||||||
TOTAL ASSETS | $ | 23,540,062 | $ | 25,966,332 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Short-term bank loans | $ | 11,633,911 | $ | 12,231,168 | ||||
Long-term bank loans - current | 1,425,386 | 820,825 | ||||||
Accounts payable | 6,867,691 | 4,161,173 | ||||||
Advance from customers | 22,136 | 2,312,968 | ||||||
Due to related parties | 1,396,173 | 2,898,163 | ||||||
Other payables and accrued liabilities | 649,848 | 641,560 | ||||||
Operating lease liabilities - current | 1,811 | 1,816 | ||||||
Taxes payable | 596,219 | 519,646 | ||||||
TOTAL CURRENT LIABILITIES | 22,593,175 | 23,587,319 | ||||||
Operating lease liabilities - non-current | - | 1,962 | ||||||
Long-term bank loans - non-current | 620,211 | 1,544,025 | ||||||
TOTAL LIABILITIES | 23,213,386 | 25,133,306 | ||||||
Commitments and contingencies | - | - | ||||||
EQUITY: | ||||||||
Registered capital | 1,341,852 | 1,341,852 | ||||||
Additional paid-in capital | 1,045,826 | 1,045,826 | ||||||
Accumulated deficit | (3,684,302 | ) | (3,113,534 | ) | ||||
Statutory reserve | 294,720 | 235,608 | ||||||
Accumulated other comprehensive income | 123,839 | 70,196 | ||||||
TOTAL SHAREHOLDERS’ DEFICIT | (878,065 | ) | (420,052 | ) | ||||
Non-controlling interest | 1,204,741 | 1,253,078 | ||||||
TOTAL EQUITY | 326,676 | 833,026 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 23,540,062 | $ | 25,966,332 |
The accompanying notes are an integral part of these consolidated financial statements.
2 |
DREAM PARTNER LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended June 30, | ||||||||
2023 | 2022 | |||||||
REVENUE | ||||||||
Revenue - third party | $ | 48,042,214 | $ | 47,157,173 | ||||
Revenue - related party | 508,914 | 1,128,315 | ||||||
Total revenue | 48,551,128 | 48,285,488 | ||||||
COST OF REVENUE | ||||||||
Cost of products | 47,317,440 | 44,291,641 | ||||||
Business and sales related tax | 4,548 | 4,952 | ||||||
Total cost of revenue | 47,321,988 | 44,296,593 | ||||||
GROSS PROFIT | 1,229,140 | 3,988,895 | ||||||
OPERATING EXPENSES | ||||||||
General and administrative expenses | 1,101,701 | 938,575 | ||||||
Selling expenses | 89,252 | 85,832 | ||||||
Total operating expenses | 1,190,953 | 1,024,407 | ||||||
INCOME FROM OPERATIONS | 38,187 | 2,964,488 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Investment income from derivative financial assets | 85 | 13,069 | ||||||
Interest expenses, net | (845,388 | ) | (860,160 | ) | ||||
Other income, net | 147,816 | 741,496 | ||||||
Total other expense, net | (697,487 | ) | (105,595 | ) | ||||
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES | (659,300 | ) | 2,858,893 | |||||
PROVISION (BENEFIT) FOR INCOME TAXES | (127,644 | ) | 790,726 | |||||
NET INCOME (LOSS) | (531,656 | ) | 2,068,167 | |||||
Less: net income (loss) attributable to non-controlling interest | (20,000 | ) | 46,643 | |||||
NET INCOME (LOSS) ATTRIBUTABLE TO DREAM PARTNER LIMITED | $ | (511,656 | ) | $ | 2,021,524 | |||
COMPREHENSIVE INCOME (LOSS) | ||||||||
Net income (loss) | $ | (531,656 | ) | $ | 2,068,167 | |||
Other comprehensive loss: foreign currency translation loss | (58,305 | ) | (31,572 | ) | ||||
Total comprehensive income (loss) | (589,961 | ) | 2,036,595 | |||||
Less: comprehensive loss attributable to non-controlling interest | (31,631 | ) | (236 | ) | ||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO DREAM PARTNER LIMITED | $ | (558,330 | ) | $ | 2,036,831 |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
DREAM PARTNER LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2023 AND 2022
ACCUMULATED | ||||||||||||||||||||||||||||
ADDITIONAL | OTHER | NON- | TOTAL | |||||||||||||||||||||||||
REGISTERED | PAID-IN | ACCUMULATED | STATUTORY | COMPREHENSIVE | CONTROLLING | EQUIT | ||||||||||||||||||||||
CAPITAL | CAPITAL | DEFICIT | RESERVE | INCOME | INTEREST | (DEFICIT) | ||||||||||||||||||||||
Balance at June 30, 2021 | $ | 1,341,852 | $ | 1,045,826 | $ | (5,097,811 | ) | $ | 198,361 | $ | 54,890 | $ | 1,253,314 | $ | (1,203,568 | ) | ||||||||||||
Net income for the year | - | - | 2,021,524 | - | - | 46,643 | 2,068,167 | |||||||||||||||||||||
Statutory reserve | - | - | (37,247 | ) | 37,247 | - | - | - | ||||||||||||||||||||
Foreign currency translation gain (loss) | - | - | - | - | 15,306 | (46,879 | ) | (31,573 | ) | |||||||||||||||||||
Balance at June 30, 2022 | $ | 1,341,852 | $ | 1,045,826 | $ | (3,113,534 | ) | $ | 235,608 | $ | 70,196 | $ | 1,253,078 | $ | 833,026 | |||||||||||||
Net loss for the year | - | - | (511,656 | ) | - | - | (20,000 | ) | (531,656 | ) | ||||||||||||||||||
Minority shareholders withdrawl | - | - | - | - | - | 83,611 | 83,611 | |||||||||||||||||||||
Statutory reserve | - | - | (59,112 | ) | 59,112 | - | - | - | ||||||||||||||||||||
Foreign currency translation gain (loss) | - | - | - | - | 53,643 | (111,948 | ) | (58,305 | ) | |||||||||||||||||||
Balance at June 30, 2023 | $ | 1,341,852 | $ | 1,045,826 | $ | (3,684,302 | ) | $ | 294,720 | $ | 123,839 | $ | 1,204,741 | $ | 326,676 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
DREAM PARTNER LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (531,656 | ) | $ | 2,068,167 | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 225,677 | 259,068 | ||||||
Loss on disposal fixed assets | - | 6,846 | ||||||
Provision for doubtful accounts | 214,304 | - | ||||||
Deferred tax provision (benefits) | (318,486 | ) | 534,982 | |||||
Loss on acquisition of equity interest from non-controlling interest | 70,038 | - | ||||||
Amortization of right of use assets | 1,339 | 1,358 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (866,619 | ) | (1,236,022 | ) | ||||
Advances to suppliers | (317,198 | ) | (42,659 | ) | ||||
Inventories | 2,244,849 | 1,569,557 | ||||||
Other current assets | 46,525 | 217,191 | ||||||
Accounts payable | 3,158,137 | (3,348,426 | ) | |||||
Advance from customers | (2,205,202 | ) | (1,103,764 | ) | ||||
Other payables and accrued expenses | 60,093 | (528,982 | ) | |||||
Operating lease liabilities | (1,749 | ) | (1,741 | ) | ||||
Taxes payable | 121,578 | 656,549 | ||||||
Net cash provided by (used in) operating activities | 1,901,630 | (947,876 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Acquisitions of property and equipment | (502,917 | ) | (882,520 | ) | ||||
Payment for derivative financial assets | (103,609 | ) | - | |||||
Net cash used in investing activities | (606,526 | ) | (882,520 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from short-term bank loans | 23,056,808 | 23,896,850 | ||||||
Repayment to short-term bank loans | (22,728,095 | ) | (21,981,731 | ) | ||||
Repayment to long-term bank loans | (114,772 | ) | - | |||||
Proceeds from (repayments of) advances from related parties | (1,625,825 | ) | 324,489 | |||||
Net cash provided by (used in) financing activities | (1,411,884 | ) | 2,239,608 | |||||
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | (54,432 | ) | (28,952 | ) | ||||
CHANGE IN CASH AND CASH EQUIVALENTS | (171,212 | ) | 380,260 | |||||
CASH AND CASH EQUIVALENTS, beginning of year | 771,848 | 391,588 | ||||||
CASH AND CASH EQUIVALENTS, end of year | $ | 600,636 | $ | 771,848 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for interest expense | $ | 800,506 | $ | 822,830 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Dream Partner Limited (“Dream” or the “Company”) was a holding company incorporated on January, 2007, under the laws of the British Virgin Islands.
The accompanying consolidated financial statements reflect the activities of the Company and each of the following entities as of June 30, 2023:
Name of Entity | Date of Incorporation |
Place of Incorporation |
% of Ownership |
Principal Activities | ||||
Link Profit Worldwide Limited (“Link Profit”) | November 13, 2008 | Hong Kong | - | Investment holding | ||||
Chongqing Ruifan Trade Ltd (“Chongqing Ruifan”) | April 13, 2017 | PRC | 100% owned by Link Profit | Investment holding | ||||
Chongqing Wintus (New Star) Enterprises Group (“Chongqing Wintus”) | January 23, 1997 | PRC | 100% owned by Chongqing Ruifan | Primarily engages in import and export trading | ||||
Chongqing Hongsheng Silk Co., Ltd (“Chongqing Hongsheng”) | May 25, 2009 | PRC | 54% owned by Chongqing Wintus | Primarily engages in purchasing and selling silkworm cocoons, which is raw material for production of silk | ||||
Wulong Wintus Silk Co., Ltd (“Wulong Wintus”) | May 19, 2004 | PRC | 100% owned by Chongqing Wintus | Primarily engages in purchasing and selling silkworm cocoons, which is raw material for production of silk | ||||
Chongqing Liangping Wintus Textile Ltd (“Liangping Wintus”) | January 5, 2004 | PRC | 100% owned by Chongqing Wintus | Primarily engages in production of silk fabrics | ||||
Chongqing Jiaxuan Import and Export Ltd (“Chongqing Jiaxuan”) | January 9, 2015 | PRC | 100% owned by Chongqing Wintus | Primarily engages in import and export trading |
6 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements of the Company reflect the principal activities of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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 India, Thailand and Malaysia. 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.
Non-controlling Interests
US GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the non-controlling interests in the net income (loss) of these entities are reported separately in the consolidated statements of income (loss) and comprehensive income (loss).
Use of Estimates
The preparation of the 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 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, the valuation of accounts receivable and deferred taxes. Actual results could differ from those estimates.
7 |
Revenue Recognition
The Company generates its revenues primarily through sales of agricultural products, such as silk and silk fabrics as well as fruit 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 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.
Sales of products: The Company recognized revenue from the sale of products when the goods were delivered and title to the goods passed to the customer, provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.
Disaggregation of Revenue
The Company disaggregates its revenue by geographic areas, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenue for the years ended June 30, 2023 and 2022 are as follows:
8 |
Geographic Information
The summary of the Company’s total revenue by geographic area for the years ended June 30, 2023 and 2022 was as follows:
For the Years Ended June 30, | ||||||||
2023 | 2022 | |||||||
China domestic market | $ | 46,654,480 | $ | 40,255,588 | ||||
Overseas market | 1,896,648 | 8,029,900 | ||||||
Total revenue | $ | 48,551,128 | $ | 48,285,488 |
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 June 30, 2023 and 2022, the Company had no cash equivalents.
Under PRC law, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’ rights over and interests in their deposited money. PRC banks are subject to a series of risk control regulatory standards, and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a material credit crisis. The Company monitors the banks utilized and has not experienced any problems.
Accounts Receivable, Net
Accounts receivable are recorded at net realizable value, consisting of the carrying amount less an allowance for uncollectible accounts, as necessary. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customers’ historical payment history, their current credit-worthiness, and current economic trends. The fair value of long-term receivables is determined using a present value technique by discounting the future expected contractual cash flows using current rates at which similar instruments would be issued at the measurement date. As of June 30, 2023 and 2022, the allowance for doubtful accounts was US$170,396 and US$1,648, respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful.
9 |
Inventories, Net
Inventories, which are stated at the lower of cost or net realizable value, consist of raw materials and finished goods related to the Company’s products. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost is determined using the first in first out (“FIFO”) method. The Company periodically evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value. As of June 30, 2023 and 2022, the balance of the inventory reserve was both US$ nil.
Advances to Suppliers, Net
Advances to suppliers consist of payments to suppliers for materials that have not been received. Advances to suppliers are reviewed periodically to determine whether their carrying value has become impaired. As of June 30, 2023 and 2022, the allowance for doubtful accounts was US$6,285 and US$ nil, respectively.
Leases
The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, which is classified as operating lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and includes initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. All operating lease right-of-use assets are reviewed for impairment annually. There was no impairment for operating lease right-of-use lease assets as of June 30, 2023 and 2022.
10 |
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals, and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis, less estimated residual value, if any, over an asset’s estimated useful life. The estimated useful lives of the Company’s property and equipment are as follows:
Estimated useful lives | ||
Building | 5-50 years | |
Motor vehicles | 5-15 years | |
Machinery and equipment | 5-10 years | |
Office equipment | 3-8 years | |
Furniture and fixture | 3 years |
Construction in progress includes property and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognized impairment loss. Construction in progress is classified to the appropriate category of property and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Land Use Rights, Net
According to Chinese laws and regulations regarding land use rights, land in urban districts is owned by the State, while land in the rural areas and suburban areas, except otherwise provided for by the State, is collectively owned by individuals designated as resident farmers by the State. In accordance with the legal principle that land ownership is separate from the right to the use of the land, the government grants individuals and companies the rights to use parcels of land for a specified period of time. Land use rights, which are usually prepaid, are stated at cost less accumulated amortization. Amortization is provided over the life of the land use rights, using the straight-line method. The useful life is 30 years, based on the term of the land use rights.
Long-lived Assets
Finite-lived assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property and equipment and ROU assets. For the years ended June 30, 2023 and 2022, the Company did not recognize any impairment of its long-lived assets.
11 |
Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.
The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying amounts of the long-term bank loans approximate its fair value because the stated interest rates approximate rates currently offered by financial institutions for similar debt instruments of comparable credit risk and maturities.
Income Taxes
The Company are accounted for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
12 |
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. No penalties or interest relating to income taxes were incurred during the years ended June 30, 2023 and 2022. The Company did not have any uncertain tax positions at June 30, 2023 and 2022.
The Company is subject to the income tax laws of the PRC. No significant income was generated outside the PRC for the years ended June 30, 2023 and 2022. As of June 30, 2023, the tax years ended December 31, 2018 through December 31, 2022 for the Company remain open for statutory examination by PRC tax authorities.
Value-Added Tax
Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). The VAT is based on gross sales price and VAT rates range from 6% to 13% in the years ended June 30, 2023 and 2022, depending on the type of products sold. For overseas sales, VAT is exempted on the exported goods. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing finished products or acquiring finished products. The Company records a VAT payable or VAT receivable in the accompanying consolidated financial statements.
Derivative Financial Assets
Derivative financial assets are measured at fair value and recognized as either assets or liabilities on the consolidated balance sheets in either other current or non-current assets or other current liabilities or non-current liabilities depending upon maturity and commitment. Changes in the fair value of derivatives are either recognized periodically in the consolidated statements of comprehensive income (loss) or in other comprehensive income (loss) depending on the use of the derivatives and whether they qualify for hedge accounting.
The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in prices of raw material for silk products. These financial exposures are monitored and managed by the Company as an integral part of its risk management program. The Company does not engage in derivative instruments for speculative or trading purposes. The Company’s derivative financial assets are not qualified for hedge accounting, thus changes in fair value are recognized in “Investment income from derivative financial assets” in the consolidated statements of income (loss) and comprehensive income (loss). The cash flows of derivative financial assets are classified in the same category as the cash flows from the items subject to the economic hedging relationships. The estimated fair value of the derivatives is determined based on relevant market information.
Derivative financial assets are presented as net if rights of setoff exist, with all of the following conditions met: (a) each of two parties owes the other determinable amounts; (b) the reporting party has the right to set off the amount owed with the amount owed by the other party; (c) the reporting party intends to set off; and (d) the right of setoff is enforceable at law.
The outstanding derivative financial assets as of June 30, 2023 and 2022 was US$99,282 and US$ nil, respectively. Investment income from derivative financial assets was US$85 and US$13,069 for the years ended June 30, 2023 and 2022, respectively. The change in fair value of derivative financial assets was immaterial for the years ended June 30, 2023 and 2022.
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Foreign Currency Translation
The Company uses the United States dollar (“U.S. dollars,” “USD,” or “US$”) for financial reporting purposes. The Company and its subsidiaries maintain their books and records in their functional currency of Renminbi (“RMB”), the currency of the PRC.
In general, for consolidation purposes, the Company translates the assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statements of income and cash flows are translated at average exchange rates during the reporting periods. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the financial statements of the Company are recorded as accumulated other comprehensive income.
The balance sheet amounts, with the exception of equity, at June 30, 2023 and 2022 were translated at 1 RMB to 0.1378 USD and at 1 RMB to 0.1493 USD, respectively. The average translation rates applied to the income and cash flow statement amounts for the years ended June 30, 2023 and 2022 were 1 RMB to 0.1438 USD and 1 RMB to 0.1549 USD, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive loss. The foreign currency translation loss resulting from translation of the financial statements expressed in RMB to USD is reported in other comprehensive loss in the consolidated statements of income (loss) and comprehensive income (loss).
Segment Reporting
The Company uses the management approach in determining reportable operating segments. The management approach considers the internal reporting used by the Company’s chief operating decision maker for making operating decisions about the allocation of resources of the segment and the assessment of its performance in determining the Company’s reportable operating segments. Management has determined that the Company has one operating segment.
14 |
New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 was subsequently amended by Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Accounting Standards Update 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and Accounting Standards Update 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” (“ASU 2019-10”). ASU 2019-10 (i) provides a framework to stagger effective dates for future major accounting standards and (ii) amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. Specifically, ASU 2019-10 changes some effective dates for certain new standards on the following topics in the FASB Accounting Standards Codification (ASC): (a) Derivatives and Hedging (ASC 815) – now effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021; (b) Leases (ASC 842) - now effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021; (c) Financial Instruments — Credit Losses (ASC 326) - now effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years; and (d) Intangibles — Goodwill and Other (ASC 350) - now effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company plans to adopt this guidance effective July 1, 2023 and the adoption of this ASU is not expected to have a material impact on its financial statements.
The Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLE, NET
The accounts receivable, net consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Accounts receivable | $ | 15,856,018 | $ | 16,276,208 | ||||
Less: allowance for doubtful accounts | (170,396 | ) | (1,648 | ) | ||||
Accounts receivable, net | $ | 15,685,622 | $ | 16,274,560 |
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Movement of allowance for doubtful accounts is as follows:
June 30, 2023 | June 30, 2022 | |||||||
Beginning balance | $ | 1,648 | $ | 1,710 | ||||
Charge to expense | 176,234 | - | ||||||
Foreign currency translation adjustments | (7,486 | ) | (62 | ) | ||||
Ending balance | $ | 170,396 | $ | 1,648 |
NOTE 4 – INVENTORIES, NET
The inventories, net consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Raw materials | $ | 52,871 | $ | 109,401 | ||||
Work in progress | 542,100 | 1,183,456 | ||||||
Finished goods | 977,017 | 2,740,114 | ||||||
Less: inventory reserve | - | - | ||||||
Total inventories, net | $ | 1,571,988 | $ | 4,032,971 |
Inventories include raw materials, work in progress and finished goods. Provision for inventory reserve was both US$ nil for the years ended June 30, 2023 and 2022.
NOTE 5 – ADVANCES TO SUPPLIERS, NET
The advances to suppliers, net consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Advances to suppliers | $ | 469,105 | $ | 178,899 | ||||
Less: allowance for doubtful accounts | (6,285 | ) | - | |||||
Advance to suppliers, net | $ | 462,820 | $ | 178,899 |
Advances to suppliers consist of mainly payments to suppliers for raw materials or products that have not been received.
Movement of allowance for doubtful accounts is as follows:
June 30, 2023 | June 30, 2022 | |||||||
Beginning balance | $ | - | $ | - | ||||
Charge to expense | 6,559 | - | ||||||
Foreign currency translation adjustments | (274 | ) | - | |||||
Ending balance | $ | 6,285 | $ | - |
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NOTE 6 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Building | $ | 2,935,455 | $ | 3,179,780 | ||||
Machinery and equipment | 1,671,300 | 1,899,984 | ||||||
Motor vehicles | 109,300 | 118,398 | ||||||
Office equipment | 117,196 | 126,950 | ||||||
Furniture and fixture | 102,103 | 110,601 | ||||||
Construction in progress | 566,169 | 91,268 | ||||||
Subtotal | 5,501,523 | 5,526,981 | ||||||
Less: accumulated depreciation | (2,205,039 | ) | (2,252,239 | ) | ||||
Total property and equipment, net | $ | 3,296,484 | $ | 3,274,742 |
Depreciation expense was US$217,639 and US$250,410 for the years ended June 30, 2023 and 2022, respectively.
The Company pledged certain property and equipment for the Company’s bank loans (see Note 11).
NOTE 7 – LAND USE RIGHTS, NET
June 30, 2023 | June 30, 2022 | |||||||
Land use rights | $ | 231,081 | $ | 250,315 | ||||
Less: accumulated amortization | (82,162 | ) | (80,657 | ) | ||||
Land use rights, net | $ | 148,919 | $ | 169,658 |
Amortization expenses for land use rights was US$8,038 and US$8,658 for the years ended June 30, 2023 and 2022, respectively.
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NOTE 8 - LEASES
The Company has an office with lease terms of five years. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of ROU assets and lease liabilities. Lease expenses for lease payment are recognized on a straight-line basis over the lease term. Leases with initial terms of 12 months or less are not recorded on the balance sheet.
When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below presents the operating lease related assets and liabilities recorded on the balance sheets.
June 30, 2023 | June 30, 2022 | |||||||
ROU lease assets | $ | 2,080 | $ | 3,643 | ||||
Operating lease liabilities – current | 1,811 | 1,816 | ||||||
Operating lease liabilities – non-current | - | 1,962 | ||||||
Total operating lease liabilities | $ | 1,811 | $ | 3,778 |
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June 30, 2023 and 2022:
June 30, 2023 | June 30, 2022 | |||||||
Remaining lease term and discount rate: | ||||||||
Weighted average remaining lease term (years) | 1.5 | 2.5 | ||||||
Weighted average discount rate | 4.75 | % | 4.75 | % |
Rent expenses totaled US$23,179 and US$1,589 for the years ended June 30, 2023 and 2022, respectively.
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2023:
Twelve months ending June 30, | Lease Payment | |||
2024 | $ | 1,859 | ||
Total lease payments | 1,859 | |||
Less: imputed interest | (48 | ) | ||
Present value of lease liabilities | $ | 1,811 |
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NOTE 9 - RELATED PARTY TRANSACTIONS
(a) Nature of Relationships with Related Parties
Name | Relationship with the Company | |
Mrs. Xiaohui Wang | One of the directors of the Company, one of the shareholders of the Company | |
Mr. Chikeung Yan | One of the directors of the Company, one of the shareholders of the Company | |
Mr. Zhiwei Ren | General manager of Liangping Wintus | |
Chongqing Yufan Trading Co., Ltd (“Chongqing Yufan”) | An entity controlled by one of the shareholders of the Company | |
Chongqing Dream Trading Co., Ltd (“Chongqing Dream”) | An entity controlled by the shareholders of the Company | |
Chongqing Fuling District Renyi Zhilu Silk Industry Co., Ltd (“Renyi Zhilu”) | Minority shareholder of Chongqing Hongsheng | |
Chongqing Huajian Housing Development Co., Ltd (“Chongqing Huajian”) | An entity controlled by the family member of one of the shareholders of the Company |
(b) Due from Related Parties
June 30, 2023 | June 30, 2022 | |||||||
Chongqing Yufan | $ | 498,935 | $ | 620,097 | ||||
Chongqing Dream | 41,347 | - | ||||||
Mr. Chikeung Yan | 441,143 | 169,564 | ||||||
Mr. Zhiwei Ren | 26,187 | - | ||||||
Total due from related parties | $ | 1,007,612 | $ | 789,661 |
As of June 30, 2023 and 2022, the balance due from related parties mainly consisted of payments to the Company’s related parties for working capital purposes. These advances are unsecured, non-interest bearing, and due on demand.
(c) Due to Related Parties
June 30, 2023 | June 30, 2022 | |||||||
Mrs. Xiaohui Wang | $ | 506,674 | $ | 1,249,424 | ||||
Renyi Zhilu | 502,593 | 1,229,629 | ||||||
Chongqing Huajian | 386,906 | 419,110 | ||||||
Total due to related parties | $ | 1,396,173 | $ | 2,898,163 |
As of June 30, 2023 and 2022, the balance due to related parties mainly consisted of advances from the Company’s related parties for working capital purposes during the Company’s normal course of business. These advances are unsecured, non-interest bearing, and due on demand.
(d) Sales to Related Parties
The Company made sales of US$508,914 and US$1,128,315 to its related party, Renyi Zhilu for the years ended June 30, 2023 and 2022, respectively.
(e) Loan guarantee provided by related parties
Several related parties provide guarantees and collateral for the Company’s short-term bank loans and long-term bank loans (see Note 11).
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NOTE 11 - LOANS
a. | Short-term bank loans |
Short-term bank loans consisted of the following:
Lender | June 30, 2023 | Maturity Date | Int. Rate/Year | |||||||
Chongqing Rural Commercial Bank-a | $ | 1,309,333 | 2024/3/23 | 4.30 | % | |||||
Industrial and Commercial Bank of China | 413,474 | 2023/8/12* | 4.00 | % | ||||||
Bank of China-b | 413,474 | 2024/2/14 | 3.65 | % | ||||||
United Overseas Bank-d | 9,497,630 | July 2023 - December 2023 | 4.40 | % | ||||||
Total short-term bank loans | $ | 11,633,911 |
Lender | June 30, 2022 | Maturity Date | Int. Rate/Year | |||||||
Chongqing Rural Commercial Bank-a | $ | 1,418,313 | 2023/5/10* | 4.30 | % | |||||
Bank of China-b | 298,592 | 2023/2/8* | 3.65 | % | ||||||
United Overseas Bank-c | 10,514,263 | July 2022 - December 2022 | 4.50%-5.00 | % | ||||||
Total short-term bank loans | $ | 12,231,168 |
* | This loan has been fully repaid upon maturity. |
The loans outstanding were guaranteed by the following properties, entities or individuals:
a. | Guaranteed by Mrs. Xiaohui Wang and her family members, and Chongqing Huajian. The loan is also guaranteed by Wulong Wintus, Liangping Wintus and Chongqing Hongsheng. In addition, Chongqing Huajian pledged its properties to guaranty the Company’s loan from Chongqing Rural Commercial Bank. |
b. | Guaranteed by Mrs. Xiaohui Wang and her family member, and Chongqing Wintus. In addition, Chongqing Huajian and another third party pledged their properties to guaranty the Company’s loan from Bank of China. |
c. | Guaranteed by Mrs. Xiaohui Wang and her family member, and Mr. Chikeung Yan, Chongqing Huajian and Chongqing Yufan. In addition, Chongqing Huajian, Chongqing Yufan and another third party also pledged their properties as collateral to guaranty the Company’s loans from United Overseas Bank. |
d. | Guaranteed by Mrs. Xiaohui Wang and her family member, and Mr. Chikeung Yan, Chongqing Huajian and Chongqing Yufan. In addition, Chongqing Huajian and Chongqing Yufan also pledged their properties as collateral to guaranty the Company’s loans from United Overseas Bank. As of the date of this report, approximately US$7.0 million of the June 30, 2023 balance have been repaid upon maturity, and the Company also made additional loans from United Overseas Bank totaling to approximately US$7.5 million (approximately RMB 54.4 million). |
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b. | Long-term bank loans |
Long-term bank loans consisted of the following:
Lender | June 30, 2023 | Maturity Date | Int. Rate/Year | |||||||
Chongqing Rural Commercial Bank-a | $ | 620,211 | 2024/9/7 | 4.85 | % | |||||
Bank of Chongqing-b | 565,080 | 2023/7/6* | 5.50 | % | ||||||
Bank of Chongqing-c | 537,516 | 2023/7/5* | 5.50 | % | ||||||
China Everbright Bank-d | 322,790 | 2027/5/22* | 4.50 | % | ||||||
Total long-term bank loans | $ | 2,045,597 | ||||||||
Long-term bank loans-current | $ | 1,425,386 | ||||||||
Long-term bank loans-non-current | $ | 620,211 |
Lender | June 30, 2022 | Maturity Date | Int. Rate/Year | |||||||
Chongqing Rural Commercial Bank-a | $ | 671,832 | 2022/9/7* | 4.85 | % | |||||
Bank of Chongqing-b | 641,973 | 2023/7/6* | 5.50 | % | ||||||
Bank of Chongqing-c | 612,114 | 2023/7/5* | 5.50 | % | ||||||
China Everbright Bank-d | 438,931 | 2027/5/22* | 4.50 | % | ||||||
Total long-term bank loans | $ | 2,364,850 | ||||||||
Long-term bank loans-current | $ | 820,825 | ||||||||
Long-term bank loans-non-current | $ | 1,544,025 |
* | This loan has been fully repaid. |
The loans outstanding were guaranteed by the following properties, entities or individuals:
a. | Guaranteed by Mrs. Xiaohui Wang and her family member, and Mr. Chikeung Yan. The loan is also guaranteed by Wulong Wintus and Chongqing Wintus. In addition, the Company’s properties with net book values of US$125,130 and US$142,556 were pledged as collateral to secure this loan as of June 30, 2023 and 2022, respectively. |
b. | Guaranteed by Mrs. Xiaohui Wang and her family members. In addition, the Company’s properties with net book values of US$439,776 and US$500,914 were pledged as collateral to secure this loan as of June 30, 2023 and 2022, respectively. |
c. | Guaranteed by Mrs. Xiaohui Wang and her family members, and Mr. Chikeung Yan. The loan is also guaranteed by Chongqing Wintus. In addition, the Company’s properties with net book values of US$241,017 and US$274,581 were pledged as collateral to secure this loan as of June 30, 2023 and 2022, respectively. |
d. | Guaranteed by Mrs. Xiaohui Wang and her family member. In addition, the Company’s properties with net book values of US$784,348 and US$867,000 were pledged as collateral to secure this loan as of June 30, 2023 and 2022, respectively. The loan was fully repaid in October 2023. |
21 |
The future maturities of long-term bank loans as of June 30, 2023 were as follows:
Twelve months ending June 30, | ||||
2024 | $ | 1,425,386 | ||
2025 | 620,211 | |||
Total long-term bank loans | $ | 2,045,597 |
For the above mentioned short-term and long-term bank loans, the Company recorded interest expenses of US$641,018 and US$776,264 for the years ended June 30, 2023 and 2022, respectively.
NOTE 12 – TAXES
(a) | Corporate Income Taxes |
British Virgin Islands
Under the current BVI law, income from Dream is not subject to taxation.
Hong Kong
Link Profit are incorporated in Hong Kong and is subject to profit taxes in Hong Kong at a rate of 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000. Under Hong Kong tax law, Link Profit is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Under the Enterprise Income Tax (“EIT”) Law of PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. For the years ended June 30, 2023 and 2022, Chongqing Hongsheng, Wulong Wintus and Liangping Wintus are recognized as small low-profit enterprises. According to the relevant PRC tax policies, once an enterprise meets certain requirements and is identified as a small-scale minimal profit enterprise, the portion of its taxable income not more than RMB1 million is subject to a reduced effective rate of 5% (the effective rate was further reduced to 2.5% for the period from January 1, 2021 to December 31, 2022), and the portion between RMB1 million and RMB3 million is subject to a reduced effective rate of 10% and 5% respectively for 2021 and 2022. During the period from January 1, 2023 to December 31, 2027, the taxable income not more than RMB3 million is subject to a reduced effective rate of 5%.
22 |
i) The components of the income tax expense (benefit) were as follows:
For the years ended June 30, | ||||||||
2023 | 2022 | |||||||
Current income tax provision | $ | 190,842 | $ | 255,744 | ||||
Deferred income tax provision (benefit) | (318,486 | ) | 534,982 | |||||
Total income tax expense (benefit) | $ | (127,644 | ) | $ | 790,726 |
ii) The components of the deferred tax assets were as follows:
June 30, 2023 | June 30, 2022 | |||||||
Deferred tax assets: | ||||||||
Allowance for doubtful accounts | $ | 48,702 | $ | - | ||||
Net operating loss carry-forwards | 363,628 | 446,721 | ||||||
Subtotal | 412,330 | 446,721 | ||||||
Valuation allowance | (107,144 | ) | (446,721 | ) | ||||
Total deferred tax assets, net | $ | 305,186 | $ | - |
Movement of the valuation allowance:
June 30, 2023 | June 30, 2022 | |||||||
Beginning balance | $ | 446,721 | $ | 420,918 | ||||
Current year addition (reduction) | (318,555 | ) | 42,520 | |||||
Exchange difference | (21,022 | ) | (16,717 | ) | ||||
Ending balance | $ | 107,144 | $ | 446,721 |
(b) Value-Added Tax
The Company is subject to a VAT for selling merchandise. The applicable VAT rate range from 6% to 13% in the years ended June 30, 2023 and 2022, depending on the type of products sold. For overseas sales, VAT is exempted on the exported goods. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under commercial practice in the PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued.
In the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty based on the amount of the taxes which are determined to be late or deficient, and the penalty will be expensed in the period if and when a determination is made by the tax authorities. There were no assessed penalties during the years ended June 30, 2023 and 2022, respectively.
23 |
(c) Taxes Payable
Taxes payable consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Value added tax payable | $ | 185,753 | $ | 273,170 | ||||
Income tax payable | 410,408 | 246,473 | ||||||
Other taxes and levies | 58 | 3 | ||||||
Total tax payable | $ | 596,219 | $ | 519,646 |
NOTE 13 — SHAREHOLDER’S EQUITY
Registered Capital
The Company had registered capital of US$1,341,852 (RMB10.0 million) as of June 30,2023 and 2022, respectively.
Statutory Reserve
The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. As of June 30, 2023 and 2022, the Company’s aggregate amount of statutory reserve was US$294,720 and US$235,608, respectively.
NOTE 14 - CONCENTRATIONS AND RISKS
The Company maintains principally all bank accounts in the PRC. The cash balance held in the PRC bank accounts was US$591,583 and US$756,063 as of June 30, 2023 and 2022, respectively.
During the years ended June 30, 2023 and 2022, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues were derived from its subsidiaries located in the PRC.
For the year ended June 30, 2023, two customers accounted for approximately 68% of the Company’s total sales. At June 30, 2023, four customers accounted for approximately 68% of the Company’s accounts receivable.
For the year ended June 30, 2022, three customers accounted for approximately 79% of the Company’s total sales. At June 30, 2022, three customers accounted for approximately 97% of the Company’s accounts receivable.
For the year ended June 30, 2023, one vendor accounted for approximately 78% of the Company’s total purchases.
For the year ended June 30, 2022, three vendors accounted for approximately 83% of the Company’s total purchases.
24 |
NOTE 15 - SUBSEQUENT EVENTS
On May 29, 2023, Shineco, Inc. (“Shineco”), through its wholly owned subsidiary, Shineco Life Science Group Hong Kong Co., Limited (“Life Science HK”), entered into a stock purchase agreement (the “Agreement”) with the Company, Chongqing Wintus Group, (“Wintus”) and certain shareholders of Dream Partner (the “Sellers”), pursuant to which Life Science HK shall acquire 71.5% equity interest in Wintus (the “Acquisition”). The Acquisition was approved by the Board of Directors of Shineco on the special meeting held on July 20, 2023. On September 19, 2023, Life Science HK closed the Acquisition. As the consideration for the Acquisition, Life Science HK (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 Shineco’s restricted Common Stock; and (c) transferred and sold to the Sellers 100% of Shineco’s equity interest in Beijing Tenet-Jove Technological Development Co., Ltd.
On July 5, 2023, the Company entered into a loan agreement with Bank of Chongqing borrow up to US$1,102,597 as working capital for three years, with a maturity date of July 3, 2026. The loan has a fixed interest rate of 4.00% per annum. The loan is also guaranteed by Mrs. Wang Xiaohui and Mr. Chikeung Yan, two of the shareholders of the Company, and the family members of Mrs. Xiaohui Wang. In addition, the Company’s properties were pledged as collateral to secure this loan.
On July 31, 2023, the Company entered into a loan agreement with Industrial and Commercial Bank of China borrow up to US$413,474 as working capital for one year, with a maturity date of July 25, 2024. The loan has a fixed interest rate of 3.85% per annum.
On October 23, 2023, the Company entered into a loan agreement with Industrial and Commercial Bank of China to borrow up to US$616,844 as working capital for one year, with a maturity date of September 22, 2024. The loan has a fixed interest rate of 3.45% per annum. The loan is also guaranteed by Chongqing Wintus and the Company’s properties were pledged as collateral to secure this loan.
These consolidated financial statements were approved by management and available for issuance on November 29, 2023, and the Company has evaluated subsequent events through this date. No subsequent events required adjustments to or disclosure in these consolidated financial statements.
25 |
Exhibit 99.2
SHINECO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
On May 29, 2023, Shineco, Inc. (the “Company”), through its wholly-owned subsidiary, Shineco Life Science Group Hong Kong Co., Limited (“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 71.5% equity interest in Wintus (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”). The Acquisition was approved at the special meeting of stockholders of the Company held on July 20, 2023.
The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated pro forma effect of the Acquisition.
The unaudited pro forma condensed combined financial information presented has been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, as amended by the SEC’s final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and the option to present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). The Company has elected not to present Management’s Adjustments and has only presented Transaction Accounting Adjustments in the following unaudited pro forma condensed combined financial information.
The unaudited proforma condensed combined balance sheet as of June 30, 2023, together with the unaudited condensed combined statements of operations for the year ended June 30, 2023 presented herein gives effect to the Acquisition as if the transaction had occurred at the beginning of such period and includes certain adjustments that are directly attributable to the transaction which are expected to have a continuing impact on the Company, and are factually supportable, as summarized in the accompanying notes and assumptions.
The pro forma adjustments and allocation of the Purchase Price are based on the fair value of the assets to be acquired and liabilities to be assumed that were determined by the independent appraisers retained by the Company.
1 |
Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes below.
The unaudited pro forma condensed combined financial information and accompanying notes are based on, and should be read in conjunction with, (i) the historical audited consolidated financial statements of the Company and accompanying notes for the year ended June 30, 2023, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023; and (ii) the historical audited financial statements of Wintus and accompanying notes included for the year ended June 30, 2023, which is filed as Exhibit 99.1, with this Current Report on Form 8-K/A.
The following unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are based on currently available information and assumptions that we believe are reasonable under the circumstances. They do not purport to represent what our actual consolidated results of operations or the consolidated financial position would have been had the Acquisition been completed on the dates indicated, or on any other date, nor are they necessarily indicative of our future consolidated results of operations or consolidated financial position as a result of the Acquisition. Our actual financial position and results of operations will differ, perhaps significantly, from the pro forma amounts reflected herein due to a variety of factors, including access to additional information, changes in value not currently identified and changes in operating results of the Company and Wintus following the date of the unaudited pro forma condensed combined financial statements.
2 |
Unaudited Pro Forma Condensed Combined Financial Information
On May 29, 2023, 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 Shineco, Inc. (the “Company” together with Shineco Life as the “Buying Parties”), 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,” together with Dream Partner and Wintus as the “Selling Parties”), pursuant to which Shineco Life shall acquire 71.5% equity interest in Wintrus (the “Acquisition”). On September 19, 2023, Shineco Life closed the Acquisition in accordance with the terms of the Agreement, and 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”).
The Acquisition represents the Company’s termination of its VIE structure and exit from the plant-based health and well-being focused products industry.
The Acquisition is considered a significant acquisition and disposition for purposes of Item 2.01 of Form 8-K. The accompanying unaudited pro forma condensed consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed financial statements as of June 30, 2023, are presented as if the Acquisition had occurred on June 30, 2023. The unaudited pro forma condensed consolidated financial statements are for informational purposes only and are not necessarily indicative of the operating results or financial position that would have been achieved had the Acquisition been consummated on the dates indicated. The unaudited pro forma condensed consolidated financial information should not be construed as being representative of the Company’s future results of operations or financial position. The actual results of operations and financial position may differ significantly from the pro forma amounts reflected herein.
3 |
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
As of June 30, 2023 (UNAUDITED)
(Stated in US Dollars)
SHINECO, INC.
UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 2023
SHINECO, INC. | WINTUS | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||
ASSETS | ||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||
Cash and cash equivalents | $ | 625,966 | $ | 600,636 | $ | (181,947 | ) | (e) | $ | 1,044,655 | ||||||||
Derivative financial assets | - | 99,282 | 99,282 | |||||||||||||||
Accounts receivable, net | 34,586 | 15,685,622 | 15,720,208 | |||||||||||||||
Due from related parties, net | - | 1,007,612 | 1,007,612 | |||||||||||||||
Inventories, net | 324,406 | 1,571,988 | 1,896,394 | |||||||||||||||
Advances to suppliers, net | 2,697 | 462,820 | 465,517 | |||||||||||||||
Other current assets, net | 2,827,042 | 359,433 | (2,800,000 | ) | (e)(i) | 386,475 | ||||||||||||
Current liabilities held for discontinued operations | 37,109,046 | - | (37,109,046 | ) | (f) | - | ||||||||||||
TOTAL CURRENT ASSETS | 40,923,743 | 19,787,393 | (40,090,993 | ) | 20,620,143 | |||||||||||||
Property and equipment, net | 1,213,116 | 3,296,484 | 1,101,500 | (c)(r) | 5,611,100 | |||||||||||||
Intangible assets, net | 12,049,473 | 148,919 | 32,402,931 | (a)(d)(h) | 44,601,323 | |||||||||||||
Goodwill | 6,574,743 | - | 21,440,360 | (b) | 28,015,103 | |||||||||||||
Operating lease right-of-use assets | 132,366 | 2,080 | 134,446 | |||||||||||||||
Deferred tax assets, net | - | 305,186 | 305,186 | |||||||||||||||
Non-current assets held for discontinued operations | 2,575,698 | - | (2,575,698 | ) | (f) | - | ||||||||||||
TOTAL ASSETS | $ | 63,469,139 | $ | 23,540,062 | $ | 12,278,100 | $ | 99,287,301 | ||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||
Short-term bank loans | $ | 1,240,431 | $ | 11,633,911 | $ | $ | 12,874,342 | |||||||||||
Long-term bank loans - current | - | 1,425,386 | 1,425,386 | |||||||||||||||
Accounts payable | 191,148 | 6,867,691 | 7,058,839 | |||||||||||||||
Advances from customers | 89,490 | 22,136 | 111,626 | |||||||||||||||
Due to related parties | 48,046 | 1,396,173 | 1,444,219 | |||||||||||||||
Other payables and accrued expenses | 669,147 | 649,848 | 1,318,995 | |||||||||||||||
Operating lease liabilities - current | 86,978 | 1,811 | 88,789 | |||||||||||||||
Convertible note payable | 15,126,198 | - | 15,126,198 | |||||||||||||||
Taxes payable | 500,869 | 596,219 | 1,097,088 | |||||||||||||||
Current liabilities held for discontinued operations | 5,393,844 | - | (5,393,844 | ) | (f) | - | ||||||||||||
TOTAL CURRENT LIABILITIES | 23,346,151 | 22,593,175 | (5,393,844 | ) | 40,545,482 | |||||||||||||
Income tax payable - noncurrent portion | 335,145 | - | 335,145 | |||||||||||||||
Operating lease liabilities - non-current | 44,469 | - | 44,469 | |||||||||||||||
Deferred tax liability | 1,416,592 | - | 8,376,108 | (j)(m) | 9,792,700 | |||||||||||||
Other long-term payable | 68,913 | - | 68,913 | |||||||||||||||
Long-term bank loans - non-current | - | 620,211 | 620,211 | |||||||||||||||
Non-current liabilities held for discontinued operations | 1,404,823 | - | (1,404,823 | ) | (f) | - | ||||||||||||
TOTAL LIABILITIES | 26,616,093 | 23,213,386 | 1,577,441 | 51,406,920 | ||||||||||||||
Commitments and contingencies | - | - | - | |||||||||||||||
EQUITY | ||||||||||||||||||
Common stock; par value $0.001, 100,000,000 shares authorized; 36,393,381 issued and outstanding at June 30, 2023 | 26,393 | - | 10,000 | (q) | 36,393 | |||||||||||||
Additional paid-in capital | 68,847,563 | 2,387,678 | (9,002,380 | ) | (f)(p)(q) | 62,232,861 | ||||||||||||
Subscription receivable | (3,782,362 | ) | - | (3,782,362 | ) | |||||||||||||
Statutory reserve | 4,198,107 | 294,720 | (294,235 | ) | (p)(f) | 4,198,592 | ||||||||||||
Accumulated deficit | (31,735,422 | ) | (3,684,302 | ) | 9,216,620 | (e)(f)(g)(m)(n)(o)(p) | (26,203,104 | ) | ||||||||||
Accumulated other comprehensive gain (loss) | (4,992,381 | ) | 123,839 | 4,758,542 | (p)(f)(n) | (110,000 | ) | |||||||||||
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) | 32,561,898 | (878,065 | ) | 4,688,547 | 36,372,380 | |||||||||||||
Non-controlling interest | 4,291,148 | 1,204,741 | 6,012,112 | (p)(k)(f)(n) | 11,508,001 | |||||||||||||
TOTAL EQUITY | 36,853,046 | 326,676 | 10,700,659 | 47,880,381 | ||||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 63,469,139 | $ | 23,540,062 | $ | 12,278,100 | $ | 99,287,301 |
4 |
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended June 30, 2023 (UNAUDITED)
(Stated in US Dollars)
SHINECO, INC.
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2023
SHINECO, INC. | WINTUS | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||
REVENUE | $ | 550,476 | $ | 48,551,128 | $ | $ | 49,101,604 | |||||||||||
COST OF REVENUE | ||||||||||||||||||
Cost of product and services | 421,273 | 47,317,440 | 47,738,713 | |||||||||||||||
Business and sales related tax | 3,018 | 4,548 | 7,566 | |||||||||||||||
Total cost of revenue | 424,291 | 47,321,988 | - | 47,746,279 | ||||||||||||||
GROSS INCOME | 126,185 | 1,229,140 | - | 1,355,325 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||
General and administrative expenses | 8,610,592 | 1,101,701 | 5,518,688 | (e)(g) | 15,230,981 | |||||||||||||
Research and development expenses | 135,849 | - | 135,849 | |||||||||||||||
Selling expenses | 137,387 | 89,252 | 226,639 | |||||||||||||||
Total operating expenses | $ | 8,883,828 | $ | 1,190,953 | $ | 5,518,688 | $ | 15,593,469 | ||||||||||
LOSS FROM OPERATIONS | (8,757,643 | ) | 38,187 | (5,518,688 | ) | (14,238,144 | ) | |||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||
Impairment loss on an unconsolidated entity | $ | (596,570 | ) | $ | - | $ | $ | (596,570 | ) | |||||||||
Loss from equity method investment | (20,876 | ) | - | (20,876 | ) | |||||||||||||
Investment income from derivative financial assets | - | 85 | 85 | |||||||||||||||
Other income, net | 181,471 | 147,816 | 329,287 | |||||||||||||||
Amortization of debt issuance costs | (803,355 | ) | - | (803,355 | ) | |||||||||||||
Interest expenses, net | (908,759 | ) | (845,388 | ) | (1,754,147 | ) | ||||||||||||
Total other expense | (2,148,089 | ) | (697,487 | ) | - | (2,845,576 | ) | |||||||||||
LOSS BEFORE PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS | (10,905,732 | ) | (659,300 | ) | (5,518,688 | ) | (17,083,720 | ) | ||||||||||
- | ||||||||||||||||||
BENEFIT FOR INCOME TAXES | (194,564 | ) | (127,644 | ) | (1,134,185 | ) | (1,456,393 | ) | ||||||||||
NET LOSS FROM CONTINUING OPERATIONS | (10,711,168 | ) | (531,656 | ) | (4,384,503 | ) | (15,627,327 | ) | ||||||||||
- | ||||||||||||||||||
DISCONTINUED OPERATIONS: | - | |||||||||||||||||
Loss from discontinued operations, net of taxes | (3,244,863 | ) | - | 3,244,863 | (f) | - | ||||||||||||
Gain on disposal of discontinued operations | - | - | 8,855,247 | (o) | 8,855,247 | |||||||||||||
Net income (loss) from discontinued operations | (3,244,863 | ) | - | 12,100,110 | 8,855,247 | |||||||||||||
NET LOSS | (13,956,031 | ) | (531,656 | ) | 7,715,607 | (6,772,080 | ) | |||||||||||
- | ||||||||||||||||||
Net loss attributable to non-controlling interest | (592,632 | ) | (20,000 | ) | (969,729 | ) | (n) | (1,582,361 | ) | |||||||||
NET LOSS ATTRIBUTABLE TO SHINECO, INC. | (13,363,399 | ) | (511,656 | ) | 8,685,336 | (5,189,719 | ) | |||||||||||
COMPREHENSIVE LOSS | ||||||||||||||||||
Net loss | (13,956,031 | ) | (531,656 | ) | 7,715,607 | (6,772,080 | ) | |||||||||||
Other comprehensive loss: foreign currency translation loss | (2,911,283 | ) | (58,305 | ) | (2,969,588 | ) | ||||||||||||
Total comprehensive loss | (16,867,314 | ) | (589,961 | ) | 7,715,607 | (9,741,668 | ) | |||||||||||
Less: comprehensive loss attributable to non-controlling interest | (612,290 | ) | (31,631 | ) | (643,921 | ) | ||||||||||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO SHINECO, INC. | $ | (16,255,024 | ) | $ | (558,330 | ) | $ | 7,715,607 | $ | (9,097,747 | ) | |||||||
Weighted average number of shares basic and diluted | 18,634,212 | - | 10,000,000 | (l) | 28,634,212 | |||||||||||||
Basic and diluted loss per common share | (0.71 | ) | (0.24 | ) | ||||||||||||||
Loss per common share | ||||||||||||||||||
Continuing operations - Basic and Diluted | (0.54 | ) | (0.24 | ) | ||||||||||||||
Discontinued operations - Basic and Diluted | (0.17 | ) | - | |||||||||||||||
Net loss per common share - basic and diluted | (0.71 | ) | (0.24 | ) |
5 |
Notes to Pro Forma Condensed Financial Statements
Note 1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements are derived from the historical consolidated financial statements of the Company and the historical financial statements of Wintus. The unaudited pro forma condensed combined financial statements are prepared as a business combination using the purchase accounting method.
The unaudited proforma condensed combined balance sheet as of June 30, 2023, together with the unaudited condensed combined statements of operations for the year ended June 30, 2023 presented herein gives effect to the Acquisition as if the transaction had occurred at the beginning of such period and includes certain adjustments that are directly attributable to the transaction which are expected to have a continuing impact on the Company, and are factually supportable, as summarized in the accompanying notes and assumptions.
The Acquisition will be accounted for under the purchase accounting method of accounting in accordance with FASB ASC 805, Business Combinations, using the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures. We are treated as the “acquirer” and Wintus is treated as the “acquired” company for financial reporting purposes. Accordingly, the purchase consideration allocated to the Wintus business’s net assets and liabilities for preparation of the unaudited pro forma condensed combined balance sheet is based upon their estimated preliminary fair values assuming the Acquisition was completed as of June 30, 2023. The amount of the purchase consideration that was in excess of the estimated preliminary fair values of the Wintus’ business’ net assets and liabilities at June 30, 2023 is recorded as goodwill in the unaudited pro forma condensed combined balance sheet.
We have completed the detailed valuation studies necessary to arrive at the final estimates of the fair value of Wintus’ assets to be acquired, the liabilities to be assumed and the related allocations of the Purchase Price.
The unaudited pro forma condensed combined financial information includes pro forma adjustments that are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the unaudited condensed combined pro forma statements of operations, expected to have a continuing impact on the results of operations of the combined company.
These unaudited pro forma condensed combined financial statements do not purport to represent what the actual consolidated results of operations of the Company would have been had the Merger been completed on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.
6 |
Note 2. Accounting Policies
The unaudited pro forma condensed combined financial statements may not reflect all reclassifications necessary to conform Wintus’ presentation to that of the Company’s. As a result, we may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements.
Note 3. Preliminary Purchase Consideration and Purchase Price Allocation
Under the purchase method of accounting, the identifiable assets acquired and liabilities assumed are recorded at the fair values. The Purchase Price allocation provided in these pro forma condensed combined financial statements is based on estimates of the fair value of the assets acquired and liabilities assumed that were determined by the independent appraisers retained by the Company.
The Purchase Price, as provided in the Merger Agreement, provides for the Sellers to receive 10,000,000 common shares of the Company, US$2.0 million in cash consideration and 100% of the Company’s equity interest in Tenet-Jove. The 10,000,000 common shares were fair valued, taking into consideration a liquidity discount reflecting the 180-day resale restriction on the issued shares.
Estimated fair value of common shares issued | $ | 2,300,000 | ||
Cash | 2,000,000 | |||
100% of the Company’s equity interest in Tenet-Jove | 37,705,951 | |||
Estimated fair value of consideration transferred | $ | 42,005,951 |
7 |
The table below represents the allocation of the total Purchase Price to Wintus’ business’ assets and liabilities in the Merger based on the estimates of the fair value of the assets acquired and liabilities assumed that were determined by the independent appraisers retained by the Company.
Description | Estimated Fair Value | |||
Assets acquired: | ||||
Cash and cash equivalents | 1,003,678 | |||
Accounts receivable, net of allowance for doubtful accounts | $ | 12,507,353 | ||
Advances to suppliers, net | 3,513,448 | |||
Inventories, net | 1,782,180 | |||
Derivative financial assets | 6,212 | |||
Other current assets, net | 1,426,163 | |||
Property and equipment, net | 5,407,301 | |||
Intangible assets | 36,117,041 | |||
Operating lease right-of-use assets | 1,999 | |||
Goodwill | 21,440,360 | |||
Total assets acquired | 83,205,735 | |||
Liabilities assumed: | ||||
Short-term bank loans | 12,021,992 | |||
Accounts payable | 6,686,700 | |||
Advances from customers | 78,677 | |||
Tax payable | 600,742 | |||
Other current liabilities | 2,277,877 | |||
Long-term bank loans | 2,071,093 | |||
Operating lease liabilities - non-current | 1,847 | |||
Deferred income | 77,007 | |||
Deferred tax liabilities | 9,186,376 | |||
Total liabilities assumed | 33,002,311 | |||
Less: non-controlling interest | 8,197,473 | |||
Estimated fair value of net assets acquired | $ | 42,005,951 |
Our unaudited pro forma Purchase Price allocation includes certain identifiable intangible assets with an estimated fair value of approximately US$35,487,273. These intangible assets include patents, trademarks, trade secrets and product formulation knowledge each of which is expected to have a finite life and are expected to be amortized using the straight-line method over the respective lives of each asset.
8 |
Goodwill represents the amount of the Purchase Price in excess of the amounts assigned to the fair value of the Wintus’ assets acquired and the liabilities assumed. Goodwill will not be amortized, but will be tested for impairment at least annually for events or circumstances that may indicate a possible impairment exists. In the event management determines that the value of goodwill has been impaired, we will incur an impairment charge during the period in which the determination is made.
The fair value of the identifiable intangible assets acquired was estimated using a combination of different methods under the Cost-Based Approach. The Cost-Based Approach is a general way of determining a value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that convert anticipated economic benefits into a present single amount. This valuation technique requires us to make certain assumptions about future operating and financial performance and cash flow, and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired, the relationship between the assets acquired and the business as a whole, and the experience of the acquired business. Such valuation methodologies and estimates are subject to change, possibly materially, as additional information becomes available and as additional analyses are performed.
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Merger and has been prepared for informational purposes only and are not intended to indicate the results of future operations or the financial position of either company.
The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to events that are directly attributable to the Merger, factually supportable, and with respect to the statements of operations, expected to have a continuing impact on the results of the Company.
The following items are presented as reclassifications in the unaudited pro forma condensed combined financial statements:
(a) | Adjustment includes preliminary estimated fair value of intangible assets acquired by Wintus. |
(b) | Adjustment reflects preliminary estimated goodwill. |
(c) | Adjustment includes preliminary estimated fair value of property and equipment acquired by Wintus. |
(d) | Adjustment includes preliminary estimated fair value of land-used right acquired by Wintus. |
9 |
(e) | Represents pro forma adjustment to eliminate transaction expenses related to the Merger incurred by Shineco and Wintus, which will not be recurring after the completion of the Merger. |
(f) | Adjustment reflects the transferal of equity interest of Tenet Jove for business acquisition of Wintus. |
(g) | Includes the cumulative impact of preliminary depreciation and amortization expense for identifiable intangible assets, land use right and property and equipment acquired. |
(h) | Adjustment includes the cumulative impact of the amortization of identifiable intangible assets. |
(i) | Release of prepayment for business acquisition of Wintus made in advance as the consideration of USD 2,000,000. |
(j) | To record the increase of deferred tax liabilities as a result of the increase in value of intangible assets and property and equipment, which may be taxable in the future. |
(k) | Adjustment reflects portion of net assets of Wintus attributable to 28.5% non-controlling interest. |
(l) | Increase in the weighted average shares in connection with the issuance of 10,000,000 common shares as the consideration of the acquisition. |
(m) | To record the reversal of deferred tax liabilities as a result of the amortization of identifiable intangible assets and depreciation of property and equipment. |
(n) | Adjustment reflects portion of comprehensive loss of Wintus attributable to 28.5% non-controlling interest. |
(o) | Adjustment reflects the gain on disposal of Tenet Jove. |
(p) | Adjustment includes the elimination of the historical additional paid-in capital, statutory reserve, accumulated deficit and non-controlling interest of Wintus. |
(q) | Adjustment reflects the preliminary estimated fair value of the common shares issued to Wintus’ equity holders. This equity consideration is included in the preliminary estimated fair value of the consideration transferred in the Merger. |
(r) | Adjustment includes the cumulative impact of the depreciation of property and equipment. |
10 |
Cover |
Sep. 19, 2023 |
---|---|
Cover [Abstract] | |
Document Type | 8-K/A |
Amendment Flag | true |
Amendment Description | Amendment No. 1 |
Document Period End Date | Sep. 19, 2023 |
Entity File Number | 001-37776 |
Entity Registrant Name | SHINECO, INC. |
Entity Central Index Key | 0001300734 |
Entity Tax Identification Number | 52-2175898 |
Entity Incorporation, State or Country Code | DE |
Entity Address, Address Line One | South Tower |
Entity Address, Address Line Two | Jiazhaoye Square |
Entity Address, Address Line Three | Chaoyang District |
Entity Address, City or Town | Beijing |
Entity Address, Country | CN |
Entity Address, Postal Zip Code | 100022 |
City Area Code | +86 |
Local Phone Number | 10-87227366 |
Written Communications | false |
Soliciting Material | false |
Pre-commencement Tender Offer | false |
Pre-commencement Issuer Tender Offer | false |
Title of 12(b) Security | Common Stock |
Trading Symbol | SISI |
Security Exchange Name | NASDAQ |
Entity Emerging Growth Company | false |
1 Year Shineco Chart |
1 Month Shineco Chart |
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