NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Shineco, Inc. (“Shineco” or
the “Company”) was incorporated in the State of Delaware on August 20, 1997. The Company is a holding company whose
primary purpose is to develop business opportunities in the People’s Republic of China (“PRC” or “China”).
On December 30, 2004, the Company acquired
all of the issued and outstanding shares of Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”),
a PRC company, in exchange for restricted shares of the Company’s common stock, and the sole operating business of the Company
became that of its subsidiary, Tenet-Jove. Tenet-Jove was incorporated on December 15, 2003 under the laws of China. Consequently,
Tenet-Jove became a 100% owned subsidiary of Shineco and was officially granted the status of a Wholly Foreign-Owned Entity (“WFOE”)
by Chinese authorities on July 14, 2006. This transaction was accounted for as a recapitalization. Tenet-Jove owns 90% interest
of Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).
On December 31, 2008, June 11, 2011 and
May 24, 2012, Tenet-Jove entered into a series of contractual agreements including an Executive Business Cooperation Agreement,
a Timely Reporting Agreement, an Equity Interest Pledge Agreement and Executive Option Agreement (collectively, the “VIE
Agreements”), with each one of the following entities, Ankang Longevity Pharmaceutical (Group) Co., Ltd. (“Ankang
Longevity Group”), Yantai Zhisheng International Freight Forwarding Co., Ltd. (“Zhisheng Freight”), Yantai Zhisheng
International Trade Co., Ltd. (“Zhisheng Trade”), Yantai Mouping District Zhisheng Agricultural Produce Cooperative
(“Zhisheng Agricultural”) and Qingdao Zhihesheng Agricultural Produce Services., Ltd. (“Qingdao Zhihesheng”).
On February 24, 2014, Tenet-Jove entered into the same series of contractual agreements with Shineco Zhisheng (Beijing) Bio-Technology
Co., Ltd. (“Zhisheng Bio-Tech”), which was incorporated in 2014. Zhisheng Bio-Tech, Zhisheng Freight, Zhisheng Trade,
Zhisheng Agricultural, and Qingdao Zhihesheng are collectively referred to herein as
the “Zhisheng Group”.
Pursuant to the VIE Agreements, Tenet-Jove
has the exclusive right to provide to Zhisheng Group and Ankang Longevity Group consulting services related to their business
operations and management. All the above contractual agreements obligate Tenet-Jove to absorb a majority of the risk of loss from
the Zhisheng Group and Ankang Longevity Group’s activities and entitle Tenet-Jove to receive a majority of their residual
returns. In essence, Tenet-Jove has gained effective control over the Zhisheng Group and Ankang Longevity Group. Therefore, the
Zhisheng Group and Ankang Longevity Group are treated as Variable Interest Entities (“VIEs”) under the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation”. Accordingly,
the accounts of these entities are consolidated with those of Tenet-Jove.
Since Shineco is effectively controlled
by the majority shareholders of the Zhisheng Group and Ankang Longevity Group, Shineco owns 100% of Tenet-Jove. Accordingly, Shineco,
Tenet-Jove, and its VIEs, the Zhisheng Group and Ankang Longevity Group are effectively controlled by the same majority shareholders.
Therefore, Shineco, Tenet-Jove and its VIEs are considered under common control. The consolidation of Tenet-Jove and its VIEs
into Shineco was
accounted for at historical cost and prepared
on the basis as if the aforementioned exclusive contractual agreements between Tenet-Jove and its VIEs had become effective as
of the beginning of the first period presented in the accompanying consolidated financial statements.
On April 19, 2017, Tenet-Jove established
Xinjiang Tiankunrunze Biological Engineering Co., Ltd. (“Tiankunrunze”) with registered capital of RMB 50.0 million
(US$ 7,262,000) and owns
65% interest of Tiankunrunze. On
April 28, 2017, Tiankunrunze established Xinjiang Tianzhuo Technology Development Co., Ltd. (“Tianzhuo”) with registered
capital of RMB 10.0 million (US$ 1,450,233). On May 22, 2017, Tiankunrunze established Xinjiang Tianhuihechuang Agriculture Development
Co., Ltd. (“Tianhuihechuang”) with registered capital of RMB 10.0 million (US$ 1,452,294). On May 23, 2017, Tiankunrunze
established Xinjiang Tianxintongye Biotechnology Development Co., Ltd. (“Tianxintongye”) with registered capital of
RMB 10.0 million (US$ 1,451,615). Therefore, Tenet-Jove controls Tiankunrunze and its wholly owned subsidiaries.
On May 2, 2017, the Company entered into
a Strategic Cooperation Agreement with Beijing Zhongke Biorefinery Engineering Technology Co., Ltd. (“Biorefinery”),
a leading high-tech biomass refining company financially backed by the Chinese Academy of Sciences Institute of Process Engineering,
to establish the Institute of Chinese Apocynum Industrial Technology Research (“ICAITR”). Pursuant to the Strategic
Cooperation Agreement the two parties agreed to establish the ICAITR and each will own 80% and 20% of the equity interests of
ICAITR, respectively. Shineco invested
RMB 5.0 million (US$
737,745) as the registered capital, and Biorefinery will invest a technology patent named “Steam Explosion Degumming
”.
On September 30, 2017, Tenet-Jove established
Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with registered capital of RMB 10.0 million
(US$ 1,502,650). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering Co., Ltd. (“Runze”)
with registered capital of RMB 10.0 million (US$ 1,502,650). Xinjiang Taihe and Runze became wholly-owned subsidiaries of Tenet-Jove.
On December 10, 2016, Tenet-Jove entered
into a purchase agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”), an online e-commerce company
based in Tianjin, China, specializing in distributing Luobuma related products and branded products of Daiso 100-yen shops, pursuant
to which Tenet-Jove would acquire a 51% equity interest in Tianjin Tajite for cash consideration of RMB 14,000,000 (approximately
US$ 2.1 million). On December 25, 2016, the Company paid the full amount as the deposit to secure the deal. In May, 2017, the
Company amended the agreement that required
Tianjin Tajite
to satisfy certain preconditions related to product introductions into China. On October 26, 2017, the Company
completed
the acquisition for 51% of the shares in Tianjin Tajite.
On October 27, 2017, the Company, through
its subsidiary Tianjin Tajite E-Commerce Ltd., obtained contractual rights to distribute branded products of Daiso Industries
Co., Ltd. (“Daiso”), a large franchise of 100-yen shops founded in Japan, via JD.com (“JD”), one of the
largest e-commerce companies and one of the largest retailers in China . On November 3, 2017, the Company further developed
the cooperation with Daiso by entering into a supply and purchase agreement (the “Daiso Agreement”) for the purpose
of establishing a continuous supply and sale of Daiso’s products in China. Pursuant to the Daiso Agreement, the Company
agreed to purchase Daiso Products in the amount of approximately RMB 20 million by April 30, 2018 and add orders
as circumstance requires. The term of the Agreement is currently one year, and it extends for one additional year at each expiration
date unless written notice of termination is given by either of the parties.
On November 1, 2017, the Company established
an Apocynum Industrial Park in Xinjiang, China.
The Company, its subsidiaries, its VIEs
and its VIEs’ subsidiaries (collectively the “Group”) operate three main business segments: 1) Tenet-Jove is
engaged in manufacturing and selling of Bluish Dogbane and related products, also known in Chinese as “Luobuma”, including
therapeutic clothing and textile products made from Luobuma; 2) Zhisheng Group is engaged in the business of planting, processing
and distributing of green agricultural produce as well as providing domestic and international logistic services for agricultural
products (“Agricultural Products”); and, 3) Ankang Longevity Group manufactures traditional Chinese medicinal herbal
products as well as other retail pharmaceutical products. These different business activities and products can potentially be
integrated and benefit from one another
.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”) for interim financial information pursuant to the rules of the SEC and have been consistently applied.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Interim results are not necessarily indicative of results for the full year. These financial statements should
be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the
fiscal year ended June 30, 2017, which was filed on October 13, 2017.
The unaudited condensed consolidated financial
statements of the Company reflect the principal activities of the Company, its subsidiaries, its VIEs and its VIEs’ subsidiaries.
The non-controlling interest represents the minority shareholders’ interest in the Company’s majority owned subsidiaries.
All intercompany accounts and transactions
have been eliminated.
Consolidation of Variable Interest Entities
VIEs are generally entities that lack
sufficient equity to finance their activities without additional financial support from other parties or whose equity holders
lack adequate decision making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the
VIE for financial reporting purposes.
The carrying amount of the VIEs and their subsidiaries’
consolidated assets and liabilities are as follows:
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
50,095,204
|
|
|
$
|
40,584,817
|
|
Plant and equipment, net
|
|
|
10,496,029
|
|
|
|
8,958,282
|
|
Other noncurrent assets
|
|
|
11,726,385
|
|
|
|
10,707,344
|
|
Total assets
|
|
|
72,317,618
|
|
|
|
60,250,443
|
|
Total liabilities
|
|
|
(4,804,706
|
)
|
|
|
(4,662,387
|
)
|
Net assets
|
|
|
67,512,912
|
|
|
$
|
55,588,056
|
|
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 net income
(loss) of these entities
are reported separately in the unaudited condensed consolidated statements of income and comprehensive income.
Risks and Uncertainties
The operations of the Company are located
in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the
political, economic, and legal environment in the PRC, as well as by the general state of the PRC economy. The Company’s
operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North
America and Western Europe. These include risks associated with, among other factors, the political, economic and legal environment
and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and
social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although
the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations,
changes could affect the Company’s interest in these entities.
Members of the current management team
own controlling interests in the Company and are also the owners of the VIEs in the PRC. The Company only controls the VIEs through
contractual arrangements which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the
controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the
agreement terms, as a result of which the Company would not retain control of the VIEs.
Use of Estimates
The preparation of the unaudited condensed
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited
condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting periods.
Significant estimates required to be made by management include, but are not limited to, useful lives of property, plant, and
equipment, and intangible assets, the recoverability of long-lived assets and the valuation of accounts receivable, deferred taxes
and inventory reserves. Actual results could differ from
those estimates.
Revenue Recognition
The Company recognizes revenue from sales
of Luobuma products, Chinese medicinal herbal products and agricultural products, as well as providing logistic services and other
processing services to external customers. The Company recognizes revenue when all of the following have occurred: (i) there is
persuasive evidence of an arrangement with a customer; (ii) delivery has occurred or services have been rendered; (iii) the sales
price is fixed or determinable; and (iv) the Company’s collection of such fees is reasonably assured. These criteria, as
related to the Company’s revenue, are considered to have been met as follows:
Sales of products:
The Company
recognizes revenue from the sale of products when the goods are delivered and title to the goods passes to the customer provided
that there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is
fixed or determinable; and collectability is deemed probable.
Revenue from the rendering of services
: Revenue
from international freight forwarding, domestic air and overland freight forwarding services is recognized upon the performance
of services as stipulated in the underlying contract or when commodities are being released from the customer’s warehouse;
the service price is fixed or determinable; and collectability is deemed probable.
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 March 31, 2018 and June 30, 2017, 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.
Accounts Receivable
Accounts receivable are recorded at net
realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as necessary. The Company reviews
the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors,
including the age of the balance, the customers’ historical payment history, their current credit-worthiness and current
economic trends. As of March 31, 2018 and June 30, 2017, the allowance for doubtful accounts was US$ 98,799 and US$ 48,450, respectively.
Accounts are written off against the allowance after efforts at collection prove unsuccessful.
Inventories
Inventories, which are stated at the lower
of cost or current market value, consist of raw materials, work-in-progress, and finished goods related to the Company’s
products. Cost is determined using the first in first out (FIFO) method. Market value is the lower of replacement cost or net
realizable value. Agricultural products that the Company farms are recorded at cost, which includes direct costs such as seed
selection, fertilizer, labor cost and contract fees that are spent in growing agricultural products on the leased farmland, and
indirect costs which include amortization of prepayments of farmland leases and farmland development costs. All the costs are
accumulated until the time of harvest and then allocated to the harvested crops costs when they are sold. The Company periodically
evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds
market prices.
Advances to Suppliers
Advances to suppliers consist of payments
to suppliers for materials that have not been received. Advances to suppliers are reviewed periodically to determine whether their
carrying value has become impaired. As of March 31, 2018 and June 30, 2017, the Company had an allowance for uncollectible advances
to suppliers of US$ 2,686 and US$ 17,618, respectively.
Loans to Third Parties
Loans to third parties consist of various
cash advances to unrelated companies and individuals, with whom the Company has business relationships. The loans are due within
one year with no interest. Loans to third parties are reviewed periodically as to whether their carrying values remain realizable.
Business Combinations
Business acquisitions are accounted for
under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition
date, recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the
acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in
the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are
recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the
fair value of the net assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments
to fair value assessments are generally recorded to goodwill over the measurement period (not longer than twelve months). The
acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense
as committed, and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies
and contingent consideration in a business combination.
Goodwill
Goodwill represents the excess of the
purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit
with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the
reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting
unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation
techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting
unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that
are publicly traded or which are part of a public or private transaction (to the extent available).
Property and Equipment
Property and equipment are stated at cost,
less accumulated depreciation and amortization. Expenditures for additions, major renewals and betterments are capitalized, and
expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis,
less estimated residual value, if any, over an asset’s estimated useful life. Farmland leasehold improvements are amortized
over the shorter of lease term or estimated useful lives of the underlying assets. The estimated useful lives of the Company’s
property and equipment are as follows:
|
Estimated
useful lives
|
|
|
Buildings
|
20-50 years
|
Machinery equipment
|
5-10 years
|
Motor vehicles
|
5-10 years
|
Office equipment
|
5-10 years
|
Farmland leasehold
improvements
|
12-18 years
|
Land Use Rights
According to the Chinese laws and regulations
regarding land use rights, land in urban districts is owned by the State, while land in the rural areas and suburban areas, except
otherwise provided for by the State, is collectively owned by individuals designated as resident farmers by the State. 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 estimated useful life is 50 years, based on the term of the land use rights.
Long-lived Assets
Finite-lived assets and intangibles are
reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets,
when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down
to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property, plant and
equipment, land use rights, investments and long-term prepaid leases. For the nine and three months ended March 31, 2018 and 2017,
the Company did not recognize any impairment of its long-lived assets.
Fair Value of Financial Instruments
The Company follows the provisions of
ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities
for which there are inputs other than quoted prices
in level
1 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 assets or liabilities.
The carrying value of financial instruments
included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.
Income Taxes
Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the results of operations in the period that includes the enactment date. A valuation allowance is established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting
for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition
and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides guidance on the recognition
of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for
interest and penalties associated with tax positions, and related disclosures. The Company does not have any uncertain tax positions
at March 31, 2018 and June 30, 2017. The Company has not provided deferred taxes for undistributed earnings of non-U.S. subsidiaries
at March 31, 2018, as it is the Company's policy to indefinitely reinvest these earnings in non-U.S. operations. Quantification
of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable.
The statute of limitations for the Company’s
U.S. federal income tax returns and certain state income tax returns remains open for tax years 2007 and after. As of March 31,
2018, the tax years ended June 30, 2012 through June 30, 2017 for the Company’s People’s Republic of China (“PRC”)
subsidiaries remain open for statutory examination by PRC tax authorities.
On December 22, 2017, the “Tax Cuts
and Jobs Act” (“The Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased
from 35% to 21%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting
in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal
years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries,
and future foreign earnings are subject to U.S. taxation. The Company expects that the adoption of this Act would not have a material
impact on its unaudited condensed consolidated financial statements, since most of the profitable entities are its VIEs and VIEs’
subsidiaries, which are located in China. Meanwhile, the subsidiaries of the Company, which are also located in China, such as
Tenet-Jove, Tianjin Tenet Huatai, and Tenet-Jove’s subsidiaries and branches have accumulated loss
es.
As a result, no one-time transition tax has been accrued by the Company. The details of the Act are still in the process of being
written and when finished, the Company’s position will be reviewed for any potential adjustments.
Value Added Tax
Sales revenue represents the invoiced
value of goods, net of a Value-Added Tax (“VAT”). All of the Company’s products that are sold in the PRC are
subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This 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 unaudited condensed consolidated financial statements.
Foreign Currency Translation
The Company uses the United States dollar
(“U.S. dollars” or “USD”) for financial reporting purposes. The Company’s subsidiaries and VIEs
maintain their books and records in their functional currency of Renminbi (“RMB”), the currency of the PRC.
In general, for consolidation purposes,
the Company translates the assets and liabilities of its subsidiaries and VIEs into U.S. dollars using the applicable exchange
rates prevailing at the balance sheet date, and the statements of income and cash flows are translated at average exchange rates
during the reporting periods. As a result, amounts related to assets and liabilities reported on the statement of cash flows will
not necessarily agree with changes in the corresponding balances on the balance sheet. Equity accounts are translated at historical
rates. Adjustments resulting from the translation of the financial statements of the subsidiaries and VIEs are recorded as accumulated
other comprehensive income (loss).
The balance sheet amounts, with the exception
of equity, at March 31, 2018 and June 30, 2017 were translated at 1 RMB to 0.1592 USD and at 1 RMB to 0.1475 USD, respectively.
The average translation rates applied to income and cash flow statement amounts for the nine months ended March 31, 2018 and 2017
were at 1 RMB to 0.1527 USD and at 1 RMB to 0.1472 USD, respectively. The average translation rates applied to income and cash
flow statement amounts for the three months ended March 31, 2018 and 2017 were at 1 RMB to 0.1573 USD and at 1 RMB to 0.1451 USD,
respectively.
Comprehensive Income
Comprehensive income consists of two components,
net income and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of
the financial statements expressed in RMB to USD is reported in other comprehensive income (loss) in the unaudited condensed consolidated
statements of income and comprehensive income.
Equity Investment
An investment in which the Company has
the ability to exercise significant influence, but does not have a controlling interest, is accounted for using the equity method.
Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock between
20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements,
are considered in determining whether the equity method of accounting is appropriate.
Earnings per Share
The Company computes earnings per share
(“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies
with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted
average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per
share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the
beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e.,
those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is no
anti-dilutive effect for the nine and three months ended March 31, 2018 and 2017.
Reclassification
Certain prior year amounts had been reclassified
to conform to the current period presentation. These reclassifications have no effect on the results of operations and cash flows
previously reported.
New Accounting Pronouncements
In February 2016, the FASB issued ASU
2016-02 Amendments to the ASC 842 Leases. This update requires a lessee to recognize the assets and liability (the lease liability)
arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease,
a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise
an option to extend the lease or not to exercise an option to terminate the lease. Within a twelve months or less lease term,
a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this
election, it should recognize lease expense on a straight-line basis over the lease term. In transition, this update will be effective
for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The
Company does not currently expect the adoption of ASU 2016-02 to have a material impact on the Company’s financial statements
unless it enters into a new long-term lease.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting. The objective is to
identity, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be
reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas
for simplification include the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. Some of the areas apply only to nonpublic entities. For public business entities, the ASU is effective
for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities,
the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning
after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes
that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of
ASU 2016-09 did not impact our financial statements.
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing. The objective is to clarify
the two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the
related principles for these areas. The ASU affects the guidance in ASU 2014-09, Revenue from Contracts with Customers (ASC 606),
which is not yet effective. The effective date and transition requirements for this ASU are the same as the effective date and
transition requirements in ASC 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, Revenue from Contracts with Customers
(ASC 606): Deferral of the Effective Date, defers the effective date of ASU 2014-09 by one year. The Company does not expect the
adoption of ASU 2016-10 to have a material impact on the Company’s financial statements.
In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients. The objective is to address
certain issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition. The amendments in this Update
affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet
effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date
and transition requirements for ASC 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14,
Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by
one year. The Company does not expect the adoption of ASU 2016-12 to have a material impact on the Company’s financial statements.
In June 2016 the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which eliminates the
probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record
a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost. This
is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial
assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable
forecasts. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does
it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of
amortized cost or fair value. As a public business entity that is an SEC filer, ASU 2016-13 becomes effective for the Company
on January 1, 2020, although early application is permitted for 2019. The Company is currently evaluating the potential effects
on the Company’s financial statements, if any.
In August 2016, the FASB issued ASU No.
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity
in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide
guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of
Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective
Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the
Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned;
(6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization
Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition
method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments
for those issues would be applied prospectively as of the earliest date practicable. The Company does not expect the adoption
of ASU 2016-15 to have a material impact on the Company’s financial statements.
In November 2016, the FASB issued Accounting
Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to
include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling
beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal
year beginning after December 31, 2018 and early adoption is permitted. The Company does not expect the adoption of ASU 2016-18
to have a material impact on the Company’s financial statements.
In January 2017, the FASB issued ASU No.
2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this ASU is to clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting
including acquisitions, disposals, goodwill, and consolidation. The amendments are effective for public business entities for
fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the
amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years
beginning after December 15, 2019. The adoption of this ASU did not have a material effect on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09,
Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides
guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718. For all entities, this ASU is effective for annual reporting periods, including
interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in any interim period. The adoption of this ASU is not expected to have a material effect on the Company’s financial
statements.
In July 2017, the FASB issued ASU 2017-11,
“Earnings Per Share (Topic 260)”, Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic
815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments
(or embedded features) with down round features. When determining whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified
instruments. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480
that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting
effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. The Company believes that the adoption of this ASU will not
have a material impact on its unaudited condensed financial statements.
In September 2017, the FASB issued ASU
2017-13, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842). The main objective of this pronouncement is
to clarify the effective date of the adoption of ASC Topic 606 and ASC Topic 842 and the definition of public business entity
as stipulated in ASU 2014-09 and ASU 2016-02. ASU 2014-09 provides that a public business entity and certain other specified entities
adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within
that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December
15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. ASU 2016-12 requires
that “a public business entity and certain other specified entities adopt ASC Topic 842 for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. All other entities are required to adopt ASC Topic 842 for fiscal
years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020”. ASU
2017-13 clarifies that the SEC would not object to certain public business entities electing to use the non-public business entities
effective dates for applying ASC 606 and ASC 842. ASU 2017-13, however, limits such election to certain public business entities
that “otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion
of its financial statements or financial information in another entity’s filings with the SEC”. The Company expects
that the adoption of this ASU will
not have a material impact
on its unaudited condensed financial statements.
NOTE 3 - INVENTORIES
The inventories consist of the following:
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,105,152
|
|
|
$
|
1,167,553
|
|
Work-in-process
|
|
|
881,342
|
|
|
|
672,966
|
|
Finished goods
|
|
|
1,845,389
|
|
|
|
1,346,437
|
|
Less: inventory reserve
|
|
|
(1,066,740
|
)
|
|
|
(840,683
|
)
|
Total
|
|
$
|
2,765,143
|
|
|
$
|
2,346,273
|
|
Work-in-process includes direct costs
such as seed selection, fertilizer, labor cost and subcontractor fees that are spent in growing agricultural products on the leased
farmland, and indirect costs which include amortization of the prepayment of the farmland lease fees and farmland development
costs. All the costs are accumulated until the time of harvest and then allocated to harvested crop costs when they are sold.
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
13,051,625
|
|
|
$
|
10,516,245
|
|
Building improvements
|
|
|
55,893
|
|
|
|
51,797
|
|
Machinery and equipment
|
|
|
1,008,847
|
|
|
|
474,888
|
|
Motor vehicles
|
|
|
95,850
|
|
|
|
48,651
|
|
Construction in progress
|
|
|
6,092
|
|
|
|
442,646
|
|
Office equipment
|
|
|
198,347
|
|
|
|
153,836
|
|
Farmland leasehold improvements
|
|
|
3,348,201
|
|
|
|
3,102,803
|
|
|
|
|
17,764,855
|
|
|
|
14,790,866
|
|
Less: accumulated depreciation and amortization
|
|
|
(5,301,767
|
)
|
|
|
(4,470,470
|
)
|
Property and equipment, net
|
|
$
|
12,463,088
|
|
|
$
|
10,320,396
|
|
Depreciation and amortization expense
charged to operations was US$ 460,146 and US$ 415,163 for the nine months ended March 31, 2018 and 2017, respectively. Depreciation
and amortization expense charged to operations was US$ 183,708 and US$ 133,239 for the three months ended March 31, 2018 and 2017,
respectively.
Farmland leasehold improvements consist
of following:
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Blueberry farmland leasehold reconstruction
|
|
$
|
2,572,236
|
|
|
$
|
2,383,711
|
|
Yew tree planting base reconstruction
|
|
|
288,186
|
|
|
|
267,064
|
|
Greenhouse renovation
|
|
|
487,779
|
|
|
|
452,028
|
|
Total farmland leasehold improvements
|
|
$
|
3,348,201
|
|
|
$
|
3,102,803
|
|
NOTE 5 - LAND USE RIGHTS
Land use rights are recognized at cost
less accumulated amortization. According to the Chinese laws and regulations regarding land use rights, land in urban districts
is owned by the State, while land in the rural areas and suburban areas, except otherwise provided for by the State, is collectively
owned by individuals designated as resident farmers by the State. However, in accordance with the legal principle that land ownership
is separate from the right to the use of the land, the government grants the user a “land use right” (the “Right”)
to use the land. The Company has the Right to use the land for 50 years and amortizes the rights on a straight-line basis over
the period of 50 years.
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
Land use rights
|
|
$
|
1,770,985
|
|
|
$
|
1,641,181
|
|
Less: accumulated amortization
|
|
|
(344,414
|
)
|
|
|
(294,550
|
)
|
Land use rights, net
|
|
$
|
1,426,571
|
|
|
$
|
1,346,631
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31, 2018
and 2017, the Company recognized amortization expense of US$ 29,689 and US$ 29,874, respectively. For the three months ended March
31, 2018 and 2017, the Company recognized amortization expense of US$ 10,295 and US$ 14,829, respectively.
The estimated future amortization expenses
are as follows:
Twelve months ending March 31:
|
|
|
|
|
|
|
|
2018
|
|
$
|
35,420
|
|
2019
|
|
|
35,420
|
|
2020
|
|
|
35,420
|
|
2021
|
|
|
35,420
|
|
2022
|
|
|
35,420
|
|
Thereafter
|
|
|
1,249,471
|
|
Total
|
|
$
|
1,426,571
|
|
NOTE 6 – DISTRIBUTION RIGHTS
The Company acquired distribution rights
to distribute branded products of Daiso 100-yen shops through the acquisition of Tianjin Tajite. As this distribution right is
difficult to acquire and will contribute significant revenue to Tianjin Tajite, such distribution rights were identified and valued
as an intangible asset in the acquisition of Tianjin Tajite. The distribution rights with no expiration date has been determined
to have an indefinite life. Since the distribution rights have an indefinite life, the Company will evaluate them for impairment
at least annually or earlier if determined necessary. As of March 31, 2018 , the distribution right was evaluated at RMB
7,380,000 (US$ 1,175,033).
NOTE 7 – INVESTMENTS
Ankang Longevity Group entered into two
equity investment agreements with Shaanxi Pharmaceutical Group Pai’ang Medicine Co. Ltd. (“Shaanxi Pharmaceutical
Group”), a Chinese state-owned pharmaceutical enterprise to invest a total of RMB 6.8 million (approximately US$ 1.0 million)
to form a 49% equity investment pharmacy retail company called Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Retail Chain
Co., Ltd. (“Sunsimiao Drugstores”), and a 49% equity investment pharmaceutical wholesale distribution company named
Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (“Shaanxi Longevity Pharmacy”). Ankang Longevity
Group obtained 49% interest in each of these two new 49% equity investment companies. These two 49% equity investment companies
were formed as new business entities to collaborate with Shaanxi Pharmaceutical Group to expand sales to regional hospitals and
clinics and to establish the presence of retail pharmacies under the Brand name “Sunsimiao”. The investments are accounted
for using the equity method because Ankang Longevity Group has significant influence, but no control of these two entities. Ankang
Longevity Group recorded income of US$ 550,759 and US$ 588,994 for the nine months ended March 31, 2018 and 2017, respectively
and recorded income of US$ 200,107 and US$ 187,226 for the three months ended March 31, 2018 and 2017, respectively, from the
investments, which was included in “Income from equity method investments” in the unaudited condensed consolidated
statements of income and comprehensive income (see Note 12).
Ankang Longevity Group entered into a
supplemental agreement with Shaanxi Pharmaceutical Group. According to the supplemental agreement, the new 49% equity investment
companies established by Shaanxi Pharmaceutical Group and Ankang Longevity Group are required to exclusively purchase certain
raw materials and drug products from Shaanxi Pharmaceutical Group. In return, Shaanxi Pharmaceutical Group has agreed to compensate
Ankang Longevity Group with a purchase rebate of 7% of the total purchases made from Shaanxi Pharmaceutical Group. For the nine
months ended March 31, 2018 and 2017 a total of US$ 1,191,011 and US$ 846,297 was recognized by Ankang Longevity Group from this
supplemental agreement in addition to its 49% share of the income from the equity investment companies, respectively. For the
three months ended March 31, 2018, total income of US$ 411,076 was recognized by Ankang Longevity Group from this supplemental
agreement, compared to US$ 253,669 in the same period in 2017.
On October 21, 2013, the Company, through
its controlled subsidiaries, Zhisheng Freight and Zhisheng Agricultural, entered into an agreement with an unrelated third party,
Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd. (“Zhen’Ai Network”), and invested RMB 14.5 million
(approximately US$ 2.2 million) into Tiancang Systematic Warehousing project (“Tiancang Project”) operated by Zhen’Ai
Network. The Tiancang Project is an online platform established to provide comprehensive warehousing and logistic solutions to
companies involved in E-commerce. The Company is entitled to 29% of Tiancang Project’s after-tax net income annually, less
30% statutory reserve and a 10
% employee welfare fund
contribution. When the amount of the accumulated statutory reserve reaches 30% of the total investment for the Tiancang
Project, no additional appropriation to
the statutory reserve
is required. For the nine and three months
ended March 31,
2018 and 2017, the Company recorded investment income distributions of US$ 152,694 and US$ 110,387 from Zhen’Ai Network,
respectively.
On November 21, 2016, the Company (the
“Investor”) entered into an agreement with Original Lab Inc., a California corporation (the “Investee”),
and made a payment of US$ 200,000 in exchange for the right to acquire certain shares of the Investee’s common and preferred
stock. For the nine and three months ended March 31, 2018 and 2017, the Company did not record investment income from this investment.
The Company’s investments in unconsolidated
entities consist of the following:
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (Ankang Longevity Pharmacy)
|
|
$
|
3,435,550
|
|
|
$
|
2,744,391
|
|
Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Chain Co., Ltd.
|
|
|
759,756
|
|
|
|
611,228
|
|
Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd.
|
|
|
2,308,669
|
|
|
|
2,139,461
|
|
Original Lab Inc.
|
|
|
200,000
|
|
|
|
200,000
|
|
Total
|
|
$
|
6,703,975
|
|
|
$
|
5,695,080
|
|
Summarized financial information of unconsolidated
entities is as follows:
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
44,046,482
|
|
|
$
|
32,880,168
|
|
Noncurrent assets
|
|
|
284,733
|
|
|
|
281,162
|
|
Current liabilities
|
|
|
35,785,761
|
|
|
|
26,328,322
|
|
|
|
For the nine months ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
28,482,180
|
|
|
$
|
21,516,345
|
|
Gross profit
|
|
|
3,549,739
|
|
|
|
2,904,497
|
|
Income from operations
|
|
|
1,225,896
|
|
|
|
1,204,295
|
|
Net income
|
|
|
1,123,997
|
|
|
|
1,202,028
|
|
NOTE 8 - DEPOSIT FOR BUSINESS ACQUISITION
On November 16, 2017, Xinjiang Taihe entered
into a Strategic Cooperation Agreement (the "Agreement") with Western Xinjiang Tiansheng Agricultural Development Co.,
Ltd. ("Xinjiang Tiansheng"), a leading nursery and agricultural company with extensive industry experience in Xinjiang,
China. Pursuant to the Agreement, Xinjiang Taihe intends to acquire 51% equity interest in Xinjiang Tiansheng, in exchange for
a combination of 14% equity ownership in Xinjiang Taihe and for cash consideration of RMB 23.8 million (approximately US$ 3,657,000).
On December 20, 2017, the Company paid RMB 810,000 (US$ 128,967) as a
deposit.
NOTE 9 - PREPAID LEASES
One of the Company’s controlled
subsidiaries, Zhisheng Group entered into several farmland lease contracts with farmer cooperatives to lease farmland in order
to plant and grow organic vegetables, fruit and Chinese yew trees. The lease terms vary from 5 years to 24 years. The aggregate
prepaid lease payments on these leases was approximately RMB 36.7 million (approximately US$ 5.8 million). Zhisheng Group was
required to prepay the leases
plus transfer fees at the
beginning of the lease.
These leases are accounted for as operating
leases and will be amortized each year on a straight-line basis over the lease terms. The amortization expense is initially recorded
as work in process in the inventory account during the growing period and then transferred to harvested crops costs at the time
of harvest and then allocated to cost of sales when they are sold.
Future amortization expense will be recognized as follows:
Twelve months ending March 31:
|
|
|
|
|
|
|
|
2018
|
|
$
|
502,826
|
|
2019
|
|
|
502,826
|
|
2020
|
|
|
480,004
|
|
2021
|
|
|
228,970
|
|
2022
|
|
|
228,970
|
|
Thereafter
|
|
|
1,763,134
|
|
Total
|
|
$
|
3,706,730
|
|
NOTE 10 - SHORT-TERM LOANS
Short-term loans consist of the following:
Lender
|
|
March 31,
2018
|
|
|
Maturity
Date
|
|
Int.
Rate/Year
|
|
MY Bank-a
|
|
|
92,877
|
|
|
2018-10-20
|
|
|
11.84
|
%
|
Agricultural Bank of China-d
|
|
|
318,437
|
|
|
2018-7-3
|
|
|
5.22
|
%
|
Agricultural Bank of China-d
|
|
|
796,093
|
|
|
2018-10-12
|
|
|
5.66
|
%
|
Agricultural Bank of China-d
|
|
|
1,273,749
|
|
|
2019-1-30
|
|
|
5.66
|
%
|
Total
|
|
$
|
2,481,156
|
|
|
|
|
|
|
|
Lender
|
|
June 30,
2017
|
|
|
Maturity
Date
|
|
Int.
Rate/Year
|
|
Wanxiang Trust Co., Ltd-a
|
|
|
7,746
|
|
|
2017-9-9
|
*
|
|
13.48
|
%
|
Agricultural Bank of China-b
|
|
|
295,098
|
|
|
2017-10-16
|
*
|
|
5.22
|
%
|
Agricultural Bank of China-c
|
|
|
737,745
|
|
|
2017-8-17
|
*
|
|
5.66
|
%
|
Agricultural Bank of China-d
|
|
|
1,180,392
|
|
|
2017-12-7
|
*
|
|
5.22
|
%
|
Agricultural Bank of China-e
|
|
|
442,647
|
|
|
2017-11-15
|
*
|
|
5.22
|
%
|
Total
|
|
$
|
2,663,628
|
|
|
|
|
|
|
|
The loans outstanding were guaranteed
by the following properties, entities or individuals:
a. Not collateralized or guaranteed.
b. Collateralized by the building owned by Xiaoyan Chen and
Jing Chen, who are both related parties of the Company. Xiaoyan Chen is one of the shareholders of Ankang Longevity Group. Jing
Chen is the sister of the Xiaoyan Chen but not a shareholder of Ankang Longevity Group.
c. Guaranteed by commercial credit guaranty
companies unrelated to the Company.
d. Guaranteed by a commercial credit guaranty
company, unrelated to the Company and also by Jiping Chen, a shareholder of the Company.
e. Guaranteed by a third-party company
and also by Jiping Chen, a shareholder of the Company.
* The Company repaid the loans in full
on maturity date.
The Company recorded interest expense
of US$ 98,017 and US$ 111,500 for the nine months ended March 31, 2018 and 2017, respectively. The annual weighted average interest
rates are 5.79% and 5.21% for the nine months ended March 31, 2018 and 2017, respectively.
The Company recorded interest expense
of US$ 28,519 and US$ 39,914 for the three months ended March 31, 2018 and 2017, respectively. The annual weighted average interest
rates are 5.85% and 4.71% for the three months ended March 31, 2018 and 2017, respectively.
Note 11 – ACQUISITION
On December 12, 2016, the Company entered
into a merger and acquisition agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”), a professional
e-commerce company distributing Luobuma fabric commodities and branded products of Daiso 100-yen shops, based in Tianjin, China,
to acquire a 51
% equity interest of Tianjin Tajite.
Pursuant to the agreement, the Company
made a payment of RMB 14,000,000 (approximately US$ 2.1 million) at the end of December, 2016 as the total consideration for the
acquisition of Tianjin Tajite.
On October 26, 2017, the Company completed
the acquisition of Tianjin Tajite. The acquisition provides a unique opportunity for the Company to enter the market of Luobuma
fabric commodities and branded products of Daiso 100-yen shops.
The transaction was accounted for in accordance
with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in
the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial
statements represent management’s best estimate of fair values as of the Acquisition Date.
As required by ASC 805-20, Business Combinations—Identifiable
Assets and Liabilities, and Any Noncontrolling Interest, management conducted a review to reassess whether they identified all
the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of
the fair value of net assets acquired.
The following table summarizes the allocation
of estimated fair values of net assets acquired and liabilities assumed:
Accounts receivable, net
|
|
|
29,550
|
|
Inventory
|
|
|
63,543
|
|
Other current assets
|
|
|
201,979
|
|
Distribution rights
|
|
|
1,175,033
|
|
Property, plant and equipment
|
|
|
15,382
|
|
Advance from customers
|
|
|
(85,567
|
)
|
Tax payable
|
|
|
(18,470
|
)
|
Deferred tax liabilities
|
|
|
(293,758
|
)
|
Salary payable
|
|
|
(27,464
|
)
|
Accrued liabilities and other current liabilities
|
|
|
(1,087,553
|
)
|
Non-controlling interest
|
|
|
1,560
|
|
Goodwill
|
|
|
2,230,683
|
|
Total purchase price for acquisition, net of US$ 24,142 of cash
|
|
$
|
2,204,918
|
|
The excess of the purchase price over
the aggregate fair value of assets acquired was allocated to goodwill. The results of operations of Tianjin Tajite have been included
in the unaudited condensed consolidated statements of operations from the date of acquisition.
The fair value of distribution rights
and its estimated useful lives is as follows:
|
|
|
Preliminary
Fair Value
|
|
|
|
Weighted Average Useful Life (in Years)
|
|
Distribution rights
|
|
$
|
1,175,033
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The distribution rights with no expiration
date has been determined to have an indefinite life.
Under ASC 805-10, acquisition-related
costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred,
but are expensed in the periods in which the costs are incurred. Acquisition-related costs were nil in the nine months ended March
31, 2018.
The Company has included the operating
results of Tianjin Tajite in its unaudited condensed consolidated financial statements since the Acquisition Date, which includes
US$ 193,332 in net sales and US$ 272,534 in net loss of Tianjin Tajite.
The following unaudited pro forma condensed
financial information presents the combined results of operations for the nine and three months ended March 31, 2018 and 2017
of Shineco, Inc and Tianjin Tajite as if the acquisition had occurred as of the beginning of each period presented (in thousands
except per share amounts):
|
|
Pro Forma Combined
Nine Months Ended
March 31,
|
|
|
Pro Forma Combined
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net sales
|
|
$
|
35,443
|
|
|
$
|
25,687
|
|
|
$
|
13,341
|
|
|
$
|
8,096
|
|
Net income
|
|
|
9,153
|
|
|
|
5,702
|
|
|
|
4,512
|
|
|
|
1,866
|
|
Net income per common share, basic and diluted
|
|
$
|
0.44
|
|
|
$
|
0.30
|
|
|
$
|
0.21
|
|
|
$
|
0.09
|
|
Shares outstanding, basic and diluted
|
|
|
21,034
|
|
|
|
20,478
|
|
|
|
21,034
|
|
|
|
21,034
|
|
The unaudited pro forma condensed financial
information is not intended to represent or be indicative of the consolidated results of operations of the Company that would
have been reported had the acquisition been completed as of the beginning of the period presented, and should not be taken as
being representative of the future consolidated results of operations of the Company.
NOTE 12 - RELATED PARTY TRANSACTIONS
DUE FROM RELATED PARTIES
The Company had previously made temporary
advances to certain shareholders of the Company and to other entities that are either owned by family members of those shareholders
or to other entities that the Company has investments in. Those advances are due on demand, non-interest bearing.
As of March 31, 2018 and June 30, 2017, the outstanding amounts
due from related parties consist of the following
|
|
March 31, 2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Yang Bin
|
|
$
|
159,218
|
|
|
$
|
147,550
|
|
Zhang Xin
|
|
|
98,716
|
|
|
|
91,480
|
|
Chang Song
|
|
|
62,891
|
|
|
|
73,037
|
|
Zhang Xinyu
|
|
|
-
|
|
|
|
61,441
|
|
Zhang Hua
|
|
|
-
|
|
|
|
28,034
|
|
Beijing Huiyinansheng Asset Management Co., Ltd
|
|
|
23,883
|
|
|
|
22,132
|
|
Zhang Yuying
|
|
|
-
|
|
|
|
15,567
|
|
Wang Qiwei
|
|
|
64,485
|
|
|
|
8,117
|
|
Tian Shuangpeng
|
|
|
-
|
|
|
|
1,475
|
|
|
|
$
|
409,193
|
|
|
$
|
448,833
|
|
DUE TO RELATED PARTIES
As of March 31, 2018 and June 30, 2017,
the Company had related party payables of US$ 206,885 and US$ 257,880, respectively, mainly due to the principal shareholders
or certain relatives of the shareholders of the Company who lend funds for the Company’s operations. The payables are unsecured,
non-interest bearing and due on demand.
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Wu Yang
|
|
|
101,979
|
|
|
|
94,505
|
|
Wang Sai
|
|
|
6,878
|
|
|
|
71,942
|
|
Zhao Min
|
|
|
98,028
|
|
|
|
91,433
|
|
|
|
$
|
206,885
|
|
|
$
|
257,880
|
|
SALES TO RELATED PARTIES
For the nine and three months ended March
31, 2018, the Company recorded sales to Shaanxi Pharmaceutical Group, a related party (see Note 7), of US$ 2,388,488 and US$ 786,854,
respectively. For the nine and three months ended March 31, 2017, the Company recorded sales to Shaanxi Pharmaceutical Group
of
US$ 2,562,560 and US$ 879,956, respectively. As of March 31, 2018 and June 30, 2017, the balance of accounts receivable due from
Shaanxi Pharmaceutical Group was US$ 2,927,705 and US$ 2,205,453, respectively.
NOTE 13 - TAXES
|
(a)
|
Corporate
Income Taxes
|
The Company is subject to income taxes
on an entity basis on income arising in or derived from the location in which each entity is domiciled.
Shineco is incorporated in the United
States and has no operating activities. Tenet-Jove and its VIEs entities are governed by the Income Tax Laws of the PRC, and are
currently subject to tax at a statutory rate of 25% on taxable income. Two VIE entities and Xinjiang Taihe receive a full income
tax exemption from the local tax authority of the PRC as agricultural enterprises as long as the favorable tax policy remains
unchanged.
|
i)
|
The components of the income tax expense are
as follows:
|
|
|
For the nine months ended
March 31,
|
|
|
For the three months ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Current income tax provision
|
|
$
|
870,324
|
|
|
$
|
823,871
|
|
|
$
|
233,766
|
|
|
$
|
275,060
|
|
Deferred income tax provision (benefit)
|
|
|
(35,677
|
)
|
|
|
9,790
|
|
|
|
5,846
|
|
|
|
53,214
|
|
Total
|
|
$
|
834,647
|
|
|
$
|
833,661
|
|
|
$
|
239,612
|
|
|
$
|
328,274
|
|
|
ii)
|
The following table summarizes deferred tax assets resulting from
differences between the financial reporting basis and tax basis of assets and liabilities:
|
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
22,462
|
|
|
$
|
24,598
|
|
Inventory reserve
|
|
|
267,067
|
|
|
|
209,236
|
|
Net operating loss carry-forwards
|
|
|
120,730
|
|
|
|
111,882
|
|
Total
|
|
|
410,259
|
|
|
|
345,716
|
|
Valuation allowance
|
|
|
(120,730
|
)
|
|
|
(111,882
|
)
|
Total deferred tax assets
|
|
|
289,529
|
|
|
|
233,834
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Distribution rights
|
|
|
(293,758
|
)
|
|
|
-
|
|
Total deferred tax liability
|
|
|
(293,758
|
)
|
|
|
-
|
|
Deferred tax assets (liability), net
|
|
$
|
(4,229
|
)
|
|
$
|
233,834
|
|
Movement of the valuation allowance:
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
111,882
|
|
|
$
|
114,122
|
|
Exchange difference
|
|
|
8,848
|
|
|
|
(2,240
|
)
|
Ending balance
|
|
$
|
120,730
|
|
|
$
|
111,882
|
|
(b) Value Added Tax
The Company is subject to a value added
tax (“VAT”) for selling merchandise. The applicable VAT rate is 17% for products sold in the PRC. The amount of VAT
liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on
purchases made with the relevant supporting invoices (input VAT). Under commercial practice in the PRC, the Company pays VAT based
on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be
a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued.
In the event that the PRC tax authorities
dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty based on
the amount of the taxes which are determined to be late or deficient, and will be expensed in the period if and when a determination
is made by the tax authorities. There were no assessed penalties during the nine and three months ended March 31, 2018 and 2017.
(c) Taxes Payable
Taxes payable consists of the following:
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Income tax payable
|
|
$
|
1,823,629
|
|
|
$
|
1,541,548
|
|
Value added tax payable
|
|
|
552,491
|
|
|
|
60,685
|
|
Business tax and other taxes payable
|
|
|
9,209
|
|
|
|
6,693
|
|
|
|
$
|
2,385,329
|
|
|
$
|
1,608,926
|
|
NOTE 14 – SHAREHOLDERS’
EQUITY
Initial Public Offering
On September 28, 2016, the Company completed
its initial public offering of 1,713,190 shares of common stock at a price of US$ 4.50 per share for gross proceeds of US$ 7.7
million and net proceeds of approximately US$ 5.4 million. The Company’s common shares began trading on September 28, 2016
on the NASDAQ Capital Market under the symbol “TYHT.”
Statutory Reserve
The Company is required to make appropriations
to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined
in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations to the statutory surplus
reserve are required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is
equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion
of the Board of Directors. As of March 31, 2018 and June 30, 2017, the balance of the required statutory
reserves were US$ 4,074,570 and US$ 3,484,449, respectively.
On January 23, 2018, Shineco, Inc. entered
into a Common Stock Purchase Agreement (“Purchase Agreement”) with IFG Opportunity Fund LLC (“IFG Fund”)
whereby, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right, from time
to time in its sole discretion during the 24-month term of the Purchase Agreement, to direct IFG Fund to purchase up to a total
of US$ 15,000,000 of shares of common stock. As consideration for IFG Fund to enter into the Purchase Agreement, the Company agreed
to issue 200,000 shares of the Company’s Common Stock to IFG Fund. The Purchase Shares are being offered in an indirect
primary offering consisting of an equity line of credit, in accordance with the terms and conditions of the Purchase Agreement.
The total number of Purchase Shares shall not exceed 4,000,000. As the date of this Current Report, the Purchase Agreement continues
to be in full force and effect.
NOTE 15 - CONCENTRATIONS AND RISKS
The Company maintains principally all
bank accounts in the PRC for which there is no insurance. The cash balance held in the PRC bank accounts was US$ 28,272,219 and
US$ 23,112,124 as of March 31, 2018 and June 30, 2017, respectively.
During the nine months ended March 31,
2018 and 2017, almost 100% of the Company's assets were located in the PRC and 100% of the Company's revenues were derived from
its subsidiaries and VIEs located in the PRC.
For the nine months ended March 31, 2018,
three customers accounted for approximately 23%, 10% and 10% of the Company’s total sales, respectively. For the three months
ended March 31, 2018, one customer accounted for approximately 40% of the Company’s total sales. At March 31, 2018, five
customers accounted for approximately 73% of the Company’s accounts receivable.
For the nine months ended March 31, 2017,
one customer accounted for approximately 11% of the Company’s total sales. For the three months ended March 31, 2017, five
customers accounted for approximately 13%, 13%, 11%, 10%, and 10% of the Company’s total sales, respectively.
For the nine months ended March 31, 2018,
two vendors accounted for approximately 40% and 18% of the Company’s total purchases, respectively. For the nine months
ended March 31, 2017, three vendors accounted for approximately 19%, 17%, and 14% of the Company’s total purchases, respectively.
For the three months ended March 31, 2018,
two vendors accounted for approximately 30% and 30% of the Company’s total purchases, respectively. For the three months
ended March 31, 2017, two vendors accounted for approximately 38% and 16% of the Company’s total purchases, respectively.
NOTE 16 - COMMITMENTS AND CONTIGENCIES
Lease Commitments
The Company leases four main office spaces
under non-cancelable operating lease agreements through December 10, 2020. The Company also leases farmland under a non-cancelable
operating lease agreement through April 26, 2041. Most of those operating lease payments are scheduled on a quarterly basis. The
future minimum rental payments are as follows:
Twelve months ending March 31:
|
|
|
|
|
|
|
|
2018
|
|
$
|
550,668
|
|
2019
|
|
|
449,992
|
|
2020
|
|
|
262,658
|
|
2021
|
|
|
219,879
|
|
2022
|
|
|
219,879
|
|
Thereafter
|
|
|
3,976,145
|
|
Total
|
|
$
|
5,679,221
|
|
Rent expense totaled US$ 409,669 and US$
491,591 for the nine months ended March 31, 2018 and 2017, respectively.
Rent expense totaled US$ 140,647 and US$
167,418 for the three months ended March 31, 2018 and 2017, respectively.
In addition, the Company sublets the above-mentioned
farmland to a third party under a non-cancelable operating lease agreement through May 31, 2020. The future minimum sublease rental
income to be received is as follows:
Twelve months ending March 31:
|
|
|
|
|
|
|
|
2018
|
|
|
219,879
|
|
2019
|
|
|
219,879
|
|
2020
|
|
|
36,647
|
|
Total
|
|
$
|
476,405
|
|
Sublease rental income totaled US$ 164,909
and US$ 158,957 for the nine months ended March 31, 2018 and 2017, respectively.
Sublease rental income totaled US$ 56,501
and US$ 52,284 for the three months ended March 31, 2018 and 2017, respectively.
Legal Contingencies
On May 16, 2017, Bonwick Capital Partners,
LLC (“Plaintiff”) commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against the Company in the United States District
Court for the Southern District of New York. Plaintiff alleges that the Company entered into an agreement with Plaintiff (the
“Agreement”), pursuant to which Plaintiff was to provide the Company with financial advisory services in connection
with the Company’s initial public offering in the United States. Plaintiff alleges that the Company breached the Agreement
and seeks money damages up to US$ 6 million. The Company believes that these claims are without merit and intends to vigorously
defend itself.
NOTE 17 - SEGMENT REPORTING
ASC 280, “Segment Reporting”,
establishes standards for reporting information about operating segments on a basis consistent with the Group's internal organizational
management structure as well as information about geographical areas, business segments and major customers in financial statements
for details on the Group's business segments.
The Company's chief operating decision
maker has been identified as the Chief Executive Officer who reviews the financial information of separate operating segments
when making decisions about allocating resources and assessing performance of the Group. Based on management's assessment, the
Company has determined that it has three operating segments according to its major products and locations as follows:
Ø
|
Developing, manufacturing and distributing of
specialized fabrics, textile products and other by-products derived from an indigenous Chinese plant called Apocynum Venetum,
commonly known as “Bluish Dogbane” or known in Chinese as “Luobuma” (referred to herein as Luobuma):
|
The operating companies of
this segment, namely Tenet-Jove and Tenet Huatai, specialize in Luobuma growing, development and manufacturing of relevant products,
as well as purchasing Luobuma raw materials processing.
This segment’s operations
are focused in the north region of Mainland China, mostly carried out in Beijing, Tianjin and Xinjiang City.
Ø
|
Processing and distributing of traditional Chinese
medicinal herbal products as well as other pharmaceutical products (“Herbal products”):
|
The operating companies of
this segment, namely AnKang Longevity Group and its subsidiaries, process more than 600 kinds of Chinese medicinal herbal products
with an established domestic sales and distribution network.
Ankang Longevity Group is also
engaged in the retail pharmacy business and the operating revenue, which is not material, is also included in this segment.
Ø
|
Planting, processing and distributing of green
and organic agricultural produce as well as growing and cultivating of Chinese Yew trees (“Agricultural products”):
|
The operating companies of
this segment, the Zhisheng Group, is engaged in the business of growing and distributing green and organic vegetables and fruits
as well as providing logistics services for distributing agricultural products. This segment has been focusing its efforts on
the growing and cultivating of Chinese yew trees (formally known as “taxus media”), a small evergreen tree whose branches
can be used for the production of anti-cancer medications and the tree itself can be used as an ornamental indoor bonsai tree,
which are known to have the effect of purifying air quality.
The operations of this segment
are located in the East and North regions of Mainland China, mostly carried out in Shandong Province and in Beijing where the
Zhisheng Group has newly developed over 100 acres of modern greenhouses for cultivating yew trees and other plants.
The following table presents summarized
information by segment for the nine months ended March 31, 2018:
|
|
For the nine months ended March 31, 2018
|
|
|
|
Bluish
|
|
|
Herbal
|
|
|
Agricultural
|
|
|
|
|
|
|
dogbane
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
10,411,292
|
|
|
$
|
10,231,923
|
|
|
$
|
14,639,762
|
|
|
$
|
35,282,977
|
|
Cost of goods
|
|
|
4,805,701
|
|
|
|
7,894,122
|
|
|
|
10,359,506
|
|
|
|
23,059,329
|
|
Business and sales related tax
|
|
|
15,244
|
|
|
|
40,380
|
|
|
|
-
|
|
|
|
55,624
|
|
Gross profit
|
|
|
5,590,347
|
|
|
|
2,297,421
|
|
|
|
4,280,256
|
|
|
|
12,168,024
|
|
Gross profit contribution %
|
|
|
45.9
|
%
|
|
|
18.9
|
%
|
|
|
35.2
|
%
|
|
|
100.0
|
%
|
The following table presents summarized
information by segment for the nine months ended March 31, 2017:
|
|
For the nine months ended March 31, 2017
|
|
|
|
Bluish
|
|
|
Herbal
|
|
|
Agricultural
|
|
|
|
|
|
|
dogbane
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
2,769,003
|
|
|
$
|
9,725,580
|
|
|
$
|
13,036,730
|
|
|
$
|
25,531,313
|
|
Cost of goods
|
|
|
1,373,423
|
|
|
|
7,196,451
|
|
|
|
8,437,174
|
|
|
|
17,007,048
|
|
Business and sales related tax
|
|
|
12,391
|
|
|
|
40,837
|
|
|
|
-
|
|
|
|
53,228
|
|
Gross profit
|
|
|
1,383,189
|
|
|
|
2,488,292
|
|
|
|
4,599,556
|
|
|
|
8,471,037
|
|
Gross profit contribution %
|
|
|
16.3
|
%
|
|
|
29.4
|
%
|
|
|
54.3
|
%
|
|
|
100.0
|
%
|
The following table presents summarized
information by segment for the three months ended March 31, 2018:
|
|
For the three months ended March 31, 2018
|
|
|
|
Bluish
|
|
|
Herbal
|
|
|
Agricultural
|
|
|
|
|
|
|
dogbane
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
5,477,219
|
|
|
$
|
3,303,784
|
|
|
$
|
4,560,278
|
|
|
$
|
13,341,281
|
|
Cost of goods
|
|
|
2,356,145
|
|
|
|
2,563,474
|
|
|
|
3,145,498
|
|
|
|
8,065,117
|
|
Business and sales related tax
|
|
|
1,815
|
|
|
|
12,472
|
|
|
|
-
|
|
|
|
14,287
|
|
Gross profit
|
|
|
3,119,259
|
|
|
|
727,838
|
|
|
|
1,414,780
|
|
|
|
5,261,877
|
|
Gross profit contribution %
|
|
|
59.3
|
%
|
|
|
13.8
|
%
|
|
|
26.9
|
%
|
|
|
100.0
|
%
|
The following table presents summarized
information by segment for the three months ended March 31, 2017:
|
|
For the three months ended March 31, 2017
|
|
|
|
Bluish
|
|
|
Herbal
|
|
|
Agricultural
|
|
|
|
|
|
|
dogbane
|
|
|
products
|
|
|
products
|
|
|
Total
|
|
Segment revenue
|
|
$
|
1,121,044
|
|
|
$
|
3,049,290
|
|
|
$
|
3,771,249
|
|
|
$
|
7,941,583
|
|
Cost of goods
|
|
|
565,085
|
|
|
|
2,281,387
|
|
|
|
2,473,270
|
|
|
|
5,319,742
|
|
Business and sales related tax
|
|
|
3,919
|
|
|
|
15,345
|
|
|
|
-
|
|
|
|
19,264
|
|
Gross profit
|
|
|
552,040
|
|
|
|
752,558
|
|
|
|
1,297,979
|
|
|
|
2,602,577
|
|
Gross profit contribution %
|
|
|
21.2
|
%
|
|
|
28.9
|
%
|
|
|
49.9
|
%
|
|
|
100.0
|
%
|
Total Assets as of
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Bluish Dogbane or “Luobuma”
|
|
$
|
16,601,966
|
|
|
$
|
6,983,551
|
|
Herbal products
|
|
|
41,846,641
|
|
|
|
35,222,278
|
|
Agricultural products
|
|
|
30,813,883
|
|
|
|
26,079,141
|
|
|
|
$
|
89,262,490
|
|
|
$
|
68,284,970
|
|
NOTE 18 – SUBSEQUENT EVENTS
These unaudited condensed consolidated financial statements were approved by management and available
for issuance on May 15, 2018, and the Company has evaluated subsequent events through this date.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This document contains
certain statements of a forward-looking nature. Forward-looking statements involve risks and uncertainties, such as statements
about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements
by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”
“ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,”
“will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected
to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors
that could cause actual results to differ materially from any future results, performances or achievements expressed or implied
by the forward-looking statements.
Examples of forward-looking
statements include:
|
●
|
the timing of the development of future products;
|
|
●
|
projections of revenue, earnings, capital structure and other financial items;
|
|
●
|
statements of our plans and objectives, including those that relate to our proposed expansions and the effect such expansions may have on our revenues;
|
|
●
|
statements regarding the capabilities of our business operations;
|
|
●
|
statements of expected future economic performance;
|
|
●
|
statements regarding competition in our market; and
|
|
●
|
assumptions underlying statements regarding us or our business.
|
The ultimate correctness
of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material
risks under the heading “Risk Factors” in our Registration Statement on Form S-1. Many factors could cause our actual
results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place
undue reliance on these forward-looking statements.
The forward-looking
statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report
or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to
indicate that other statements not addressed by such update is incorrect or create an obligation to provide any other updates.