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PROSPECTUS
SUPPLEMENT
(To
the Prospectus dated December 19, 2017)
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Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-221711
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604,900
Shares of Common Stock
Pursuant
to this prospectus supplement and the accompanying prospectus,
Shineco, Inc. (the “Company”, “we” or “us”) is offering 604,900
shares of our common stock, par value $0.001 per share, directly to
selected investors (the “Offering”).
We
will receive gross proceeds of approximately $1,651,377 from the
Offering. The price per share of Common Stock sold in the Offering
is $2.73 per share.
Shares
of our common stock are currently traded on the NASDAQ Capital
Market under the symbol “TYHT”. On December 8, 2020, the closing
sale price of our common stock was $3.25 per share.
As of
December 8, 2020, the aggregate market value of our outstanding
common stock held by non-affiliates is approximately $8,436,330.5,
based on 3,039,943 shares of outstanding common stock, of which
2,595,794 are held by non-affiliates, and a per share price of
$3.25 based on the closing sale price of our common stock on
December 8, 2020.
The
aggregate market value of securities sold by or on our behalf
pursuant to Instruction I.B.6 of the general instructions to Form
S-3 during the period of 12 calendar months immediately prior to
and including the date of this prospectus supplement, does not
exceed one-third of the aggregate market value of our voting and
non-voting common stock held by our non-affiliates, determined as
of a date not more than 60 days before the date of sale.
Investing
in our securities involves a high degree of risk. See “Risk
Factors” beginning on page S-4 of this prospectus supplement and on
page 3 of the accompanying prospectus and the risk factors
contained in the documents incorporated by reference herein for a
discussion of certain risks that should be considered in connection
with an investment in our securities.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined whether this prospectus supplement or the accompanying
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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Per
Share |
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Total |
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Offering
price per share of Common Stock |
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$ |
2.73 |
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$ |
1,651,377 |
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Proceeds
to us, before estimated expenses, for the Common Stock |
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$ |
2.73 |
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|
$ |
1,651,377 |
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The
date of this prospectus supplement is December 9, 2020.
TABLE
OF CONTENTS
Prospectus
ABOUT
THIS PROSPECTUS SUPPLEMENT
On
November 21, 2017, we filed with the Securities Exchange Commission
(the “SEC”) a registration statement on Form S-3 (File No.
333-221711) utilizing a shelf registration process relating to the
securities described in this prospectus supplement, which
registration statement, as amended, was declared effective on
December 19, 2017 (the “Registration Statement”). Under this shelf
registration process, we may, from time to time, sell up to
$25,000,000 in the aggregate of common stock and other types of
securities as specified in the shelf Registration
Statement.
On
January 23, 2018, pursuant to the Registration Statement and an
accompanying prospectus supplement dated and filed with the SEC on
January 26, 2018 (the “IFG Prospectus Supplement”), we entered into
a Common Stock Purchase Agreement (the “Purchase Agreement”) with
IFG OPPORTUNITY FUND LLC (“IFG Fund”) whereby, upon the terms and
subject to the conditions and limitations set forth therein, we
have the right, from time to time in our sole discretion during the
24-month term of the Purchase Agreement, to direct IFG Fund to
purchase up to a total of $15,000,000 (the “Available Amount”) of
shares of common stock. We entered into a Termination Agreement
with IFG Fund on July 3, 2018, pursuant to which the Purchase
Agreement was terminated, effective immediately. As of the date of
this prospectus supplement, no shares under the Available Amount
have been issued to IFG Fund by the Company (except for the
Commitment Shares). As such, as of the date of this prospectus
supplement, except for the 200,000 Commitment Shares, no other
securities of the Company have been issued pursuant to the
Registration Statement and the IFG Prospectus Supplement. The
Company filed a prospectus supplement to the shelf Registration
Statement on September 27, 2018, as amended on January 2, 2019, to
cover the offering of up to 4,064,814 shares of common stock (the
“January 2019 Offering”) pursuant to which the Company sold
1,637,700 shares of common stock on September 28, 2018. Effective
July 23, 2019, the Company has terminated the January 2019
Offering. The Company filed a prospectus supplement to the shelf
Registration Statement on September 3, 2019 to cover the offering
of up to 2,798,792 shares of common stock (the “September 2019
Offering”) pursuant to which the Company sold 2,798,792 shares of
common stock on September 3, 2019.
Under
this shelf registration process, we are offering to sell shares of
common stock. In this prospectus supplement, we provide you with
specific information about the securities that we are selling in
this Offering. Both this prospectus supplement and the accompanying
prospectus include important information about us, our securities
being offered and other information you should know before
investing. This prospectus supplement also adds, updates and
changes information contained in the accompanying prospectus. You
should read this prospectus supplement and the accompanying
prospectus as well as additional information described under
“Incorporation of Certain Information by Reference” on page S-9 of
this prospectus supplement before investing in our
securities.
This
prospectus supplement describes the specific terms of an offering
of our securities and also adds to and updates information
contained in the accompanying prospectus and the documents
incorporated by reference into the accompanying prospectus. The
second part, the accompanying prospectus, provides more general
information. If the information in this prospectus supplement is
inconsistent with the accompanying prospectus or any document
incorporated by reference therein filed prior to the date of this
prospectus supplement, you should rely on the information in this
prospectus supplement.
In
making your investment decision, you should rely only on the
information contained or incorporated by reference in this
prospectus supplement and the accompanying prospectus and any
relevant free writing prospectus. We have not authorized anyone to
provide you with any other information. If you receive any
information not authorized by us, you should not rely on it. We are
not making an offer to sell the securities in any jurisdiction
where the offer or sale is not permitted. You should not assume
that the information contained or incorporated by reference in this
prospectus supplement or the accompanying prospectus or any
relevant free writing prospectus is accurate as of any date other
than its respective date.
It is
important for you to read and consider all of the information
contained in this prospectus supplement and the accompanying
prospectus in making your investment decision. We include
cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials where you can find
additional related discussions. The table of contents in this
prospectus supplement provides the pages on which these captions
are located. You should read both this prospectus supplement and
the accompanying prospectus, together with the additional
information described in the sections entitled “Where You Can Find
More Information” and “Incorporation of Certain Information by
Reference” of this prospectus supplement, before investing in our
securities.
We
are offering to sell, and seeking offers to buy, our securities
only in jurisdictions where offers and sales are permitted. The
distribution of this prospectus supplement and the accompanying
prospectus and the offering of the securities in certain
jurisdictions may be restricted by law. Persons outside the United
States who come into possession of this prospectus supplement and
the accompanying prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the
securities and the distribution of this prospectus supplement and
the accompanying prospectus outside the United States. This
prospectus supplement and the accompanying prospectus do not
constitute, and may not be used in connection with, an offer to
sell, or a solicitation of an offer to buy, any securities offered
by this prospectus supplement and the accompanying prospectus by
any person in any jurisdiction in which it is unlawful for such
person to make such an offer or solicitation.
Our
primary executive offices are located at Room 1001, Building T5,
DaZu Square, Daxing District, Beijing, People’s Republic of China
and our telephone number is (+86) 10-87227366.
Unless
we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement and the accompanying
prospectus to “TYHT,” the “Company,” “we,” “us” and “our” or
similar terms refer to Shineco, Inc. a Delaware corporation and its
consolidated subsidiaries.
Prospective
investors may rely only on the information contained in this
prospectus supplement. We have not authorized anyone to provide
prospective investors with different or additional information.
This prospectus supplement is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. The information contained in
this prospectus supplement is correct only as of the date of this
prospectus supplement, regardless of the time of the delivery of
this prospectus supplement or any sale of these
securities.
Cautionary
Statement Regarding Forward-Looking Statements
The
SEC encourages companies to disclose forward-looking information so
that investors can better understand a company’s future prospects
and make informed investment decisions. This prospectus supplement,
the accompanying prospectus and the documents we have filed with
the SEC that are incorporated herein and therein by reference
contain such forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). All statements, other
than statements of historical facts, included or incorporated in
this prospectus regarding our strategy, future operations,
financial position, future revenues, projected costs, prospects,
plans and objectives of management are forward-looking
statements.
The
words “anticipates,” “believes,” “estimates,” “expects,” “intends,”
“may,” “plans,” “projects,” “will,” “would” and similar expressions
are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We
cannot guarantee that we actually will achieve the plans,
intentions or expectations disclosed in our forward-looking
statements and you should not place undue reliance on our
forward-looking statements. There are a number of important factors
that could cause our actual results to differ materially from those
indicated by these forward-looking statements. These important
factors include the factors that we identify in the documents we
incorporate by reference in this prospectus supplement and the
prospectus, as well as other information we include or incorporate
by reference in this prospectus supplement and the prospectus. Many
factors could affect our actual results, including those factors
described under “Risk Factors” in our Form 10-K for the year ended
June 30, 2018, incorporated by reference herein. You should read
these factors and other cautionary statements made in this
prospectus supplement and the accompanying prospectus and the
documents incorporated herein by reference. We do not assume any
obligation to update any forward-looking statements made by us.
Numerous factors could cause our actual results to differ
materially from those described in forward-looking statements.
Examples are statements regarding future developments with respect
to the following:
The
forward-looking statements contained herein are based on current
expectations and beliefs concerning future developments and the
potential effects on us. Future developments actually affecting us
may not be those anticipated. These forward-looking statements
involve a number of risks, uncertainties (some of which are beyond
our control) or other assumptions that may cause actual results or
performance to be materially different from those expressed or
implied by these forward-looking statements. Examples are
statements regarding future developments with respect to the
following:
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Our
ability to improve internal controls and procedures; |
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Inflation
and fluctuations in foreign currency exchange rates; |
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Our
on-going ability to obtain all mandatory and voluntary government
and other industry certifications, approvals, and/or licenses to
conduct our business; |
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Development
of a liquid trading market for our securities; |
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The
costs we may incur in the future from complying with current and
future governmental regulations and the impact of any changes in
the regulations on our operations; and |
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The
use of proceeds from this Offering |
You
should not place undue reliance on any forward-looking statements,
which are based on current expectations. Furthermore,
forward-looking statements speak only as of the date they are made.
If any of these risks or uncertainties materialize, or if any of
our underlying assumptions are incorrect, our actual results may
differ significantly from the results that we express in or imply
by any of our forward-looking statements. These and other risks are
detailed in this prospectus supplement, in the accompanying
prospectus, in the documents that we incorporate by reference into
this prospectus supplement and the accompanying prospectus and in
other documents that we file with the Securities and Exchange
Commission. We do not undertake any obligation to publicly update
or revise these forward-looking statements after the date of this
prospectus supplement to reflect future events or circumstances. We
qualify any and all of our forward-looking statements by these
cautionary factors.
In
light of these assumptions, risks and uncertainties, the results
and events discussed in the forward-looking statements contained in
this prospectus supplement or the accompanying prospectus or in any
document incorporated herein or therein by reference might not
occur. Investors are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this
prospectus supplement or the accompanying prospectus or the date of
the document incorporated by reference herein or therein. We are
not under any obligation, and we expressly disclaim any obligation,
to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law. All subsequent forward-looking statements
attributable to us or to any person acting on our behalf are
expressly qualified in their entirety by the cautionary statements
contained or referred to in this section.
PROSPECTUS
SUPPLEMENT SUMMARY
The
following summary highlights selected information contained or
incorporated by reference in this prospectus. This summary does not
contain all of the information you should consider before investing
in the securities. Before making an investment decision, you should
read the entire prospectus and any supplement hereto carefully,
including the risk factors section as well as the financial
statements and the notes to the financial statements incorporated
herein by reference.
In
this prospectus and any amendment or supplement hereto, unless
otherwise indicated, the terms “we,” “us,” “our,” and the “Company”
refer only to Shineco, Inc. (“TYHT”) and its
subsidiaries.
Additionally,
unless we indicate otherwise, references in this prospectus
to:
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“China”
and the “PRC” are to the People’s Republic of China, excluding, for
the purposes of this prospectus only, Taiwan and the special
administrative regions of Hong Kong and Macau; |
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“RMB”
and “Renminbi” are to the legal currency of China; and |
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“$,”
“US$” and “U.S. dollars” are to the legal currency of the United
States. |
General
We
are a Delaware holding company that uses our subsidiaries’ and
variable interest entities’ vertically- and horizontally-integrated
production, distribution and sales channels to provide health and
well-being focused plant-based products. Our products are only sold
domestically in China. We utilize modern engineering technologies
and biotechnologies to produce, among other products, Chinese
herbal medicines, organic agricultural produce and specialized
textiles. Our health and well-being focused plant-based products
business is divided into three major segments:
1.
Processing and distributing traditional Chinese herbal medicine
products as well as other pharmaceutical products. This segment is
conducted through Ankang Longevity Group, which operates 66
cooperative retail pharmacies throughout Ankang, a city in southern
Shaanxi province, China, through which we sell directly to
individual customers traditional Chinese medicinal products
produced by us as well as by third parties. Ankang Longevity Group
also owns a factory specializing in decoction, which is the process
by which solid materials are heated or boiled in order to extract
liquids, and distributes decoction products to wholesalers and
pharmaceutical companies around China. This segment accounted for
approximately 44% and 56% of our revenues for the fiscal years
ended June 30, 2019 and 2020, respectively, and 75% for the three
months ended September 30, 2020.
2.
Processing and distributing green and organic agricultural produce
as well as growing and cultivating yew trees (taxus media). We
currently cultivate and sell yew mainly to large group and
corporate customers, but do not currently process yew into Chinese
or Western medicines. This segment is conducted through the
Company’s variable interest entities: the Zhisheng Group, which
comprises the following Chinese companies participating in our yew
tree business: Shineco Zhisheng (Beijing) Bio-Technology Co.
(“Zhisheng Bio-Tech”), 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”). This segment accounted for
approximately 54% and 43% of our revenues for the fiscal years
ended June 30, 2019 and 2020, respectively, and 24% for the nine
months ended September , 2020.
3.
Developing and distributing specialized fabrics, textiles and other
byproducts derived from an indigenous Chinese plant Apocynum
Venetum, grown in the Xinjiang region of China, and known in
Chinese as “Luobuma” or “bluish dogbane”. Our Luobuma products are
specialized textile and health supplement products designed to
incorporate traditional Eastern medicines with modern scientific
methods. These products are predicated on centuries-old traditions
of Eastern herbal remedies derived from the Luobuma raw material.
This segment is channeled through the Company’s directly-owned
subsidiary, Beijing Tenet-Jove Technological Development Co., Ltd.
(“Tenet-Jove”). This segment accounted for approximately 2% and 1%
of our revenues for the fiscal years ended June 30, 2019 and 2020,
respectively, and 1% for the three months ended September 30,
2020.
We
primarily market our health and wellbeing-focused products in
China. At present, we do not sell any of our products in the United
States or Canada. China’s domestic pharmaceutical and healthcare
products market is fast-growing but, in our opinion,
underdeveloped. We believe China’s healthcare sector has the
capacity to develop even further. From pharmaceuticals to medical
products to general consumer health, we believe that China remains
among the world’s most attractive markets, and one of the
fastest-growing large emerging markets. Driving this growth is
China’s aging population, increased incidence of chronic diseases,
and a material increase in investment from both domestic and
foreign corporations. The growth also reflects the Chinese
government’s focus on healthcare as both a social priority (as
witnessed in its late 2000s healthcare reforms) and a strategic
priority (as witnessed in the 12th five-year plan’s stated focus on
growing the biomedical industry in the future).
Corporate
Information
Our
principal executive offices are located at Room 1001, Building T5,
DaZu Square, Daxing District, Beijing, People’s Republic of China.
Our telephone number is: (+86) 10-58693193.
Implications
of Being an Emerging Growth Company
As a
company with less than $1.07 billion in revenue during our last
fiscal year, we qualify as an “emerging growth company” as defined
in the Jumpstart Our Business Startups Act of 2012, or the JOBS
Act. For so long as we remain an emerging growth company, we are
permitted and intend to rely on exemptions from specified
disclosure requirements that are applicable to other public
companies that are not emerging growth companies. These exemptions
include:
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being
permitted to provide only two years of audited financial
statements, in addition to any required unaudited interim financial
statements, with correspondingly reduced “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”
disclosure; |
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not
being required to comply with the auditor attestation requirements
in the assessment of our internal control over financial
reporting; |
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not
being required to comply with any requirement that may be adopted
by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the
financial statements; |
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reduced
disclosure obligations regarding executive compensation;
and |
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exemptions
from the requirements of holding a nonbinding advisory vote on
executive compensation and shareholder approval of any golden
parachute payments not previously approved. |
We
may take advantage of these provisions through 2020 or such earlier
time that we are no longer an emerging growth company. We would
cease to be an emerging growth company if we have more than
approximately $1.07 billion in annual revenues, have more than $700
million in market value of our capital stock held by
non-affiliates, or issue more than $1.0 billion of non-convertible
debt over a three-year period. We may choose to take advantage of
some, but not all, of the available exemptions. We have taken
advantage of some reduced reporting burdens in this prospectus and
the documents incorporated by reference into this prospectus.
Accordingly, the information contained herein may be different than
the information you receive from other public companies in which
you hold stock.
In
addition, the JOBS Act provides that an emerging growth company can
take advantage of an extended transition period for complying with
new or revised accounting standards. This provision allows an
emerging growth company to delay the adoption of some accounting
standards until those standards would otherwise apply to private
companies. We have irrevocably elected not to avail ourselves of
this exemption from new or revised accounting standards and,
therefore, we will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth
companies.
THE
OFFERING
Common
stock offered by us pursuant to this prospectus supplement: 604,900
shares of common stock
Common
stock outstanding immediately prior to this Offering:
3,039,943.
Common
stock to be outstanding after this offering 3,644,843 shares
assuming the sale of 604,900 shares of common stock to selected
investors.
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Plan
of Distribution |
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We
are selling the common stock directly to selected investors. See
“Plan of Distribution.” |
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| Risk
Factors |
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Investing
in our common stock involves a high degree of risk. Please read the
information contained in and incorporated by reference under the
heading “RISK FACTORS” beginning on page S-4 of this prospectus
supplement and page 3 of the accompanying prospectus, and under
similar headings in the other documents, including our Annual
Report on Form 10-K and our Quarterly Reports on Form 10-Q, that
are incorporated by reference into this prospectus supplement and
the accompanying prospectus. |
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| Use
of Proceeds |
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We
estimate that the net proceeds from the Offering to us, before
expenses, will be approximately $1,651,377. |
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We
intend to use the net proceeds from this offering for general
corporate purposes and working capital. See “Use of Proceeds” in
this prospectus supplement. |
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| Market
for the Common Stock |
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Our
common stock is quoted and traded on NASDAQ Capital Market under
the symbol “TYHT”. |
Risk
Factors
Investing
in our securities involves a high degree of risk. Before deciding
whether to invest in our securities, you should consider carefully
the risk factors below and in the accompanying prospectus and the
risks and uncertainties and assumptions discussed under the heading
“Risk Factors” included in our most recent periodic and current
reports that we file with the SEC after the date of this prospectus
supplement, which are on file with the SEC and are incorporated
herein by reference, and which may be amended, supplemented or
superseded from time to time by other reports we file with the SEC
in the future. There may be other unknown or unpredictable
economic, business, competitive, regulatory or other factors that
could have material adverse effects on our future results. If any
of these risks actually occurs, our business, business prospects,
financial condition or results of operations could be seriously
harmed. This could cause the trading price of our common stock to
decline, resulting in a loss of all or part of your investment.
Please also read carefully the section above entitled “Cautionary
Statement Regarding Forward-Looking Statements.”
The
risk factors below are limited to those that relate to this
Offering, although as mentioned above, this is by no means an
exhaustive account of any such potential risk factors. We encourage
you to read the Risk Factor section included in the accompanying
prospectus below for risk factors related to our business and
operations.
Risks
Related to the Offering
Our management will have broad discretion over the use of the
proceeds to us from this offering and may apply it to uses that do
not improve our operating results or the value of our
securities.
Our
management will have broad discretion in the application of the net
proceeds from this offering, and investors will be relying solely
on such judgment of our management regarding the application of
these proceeds. Although we expect to use the net proceeds from
this offering for working capital and general corporate purposes,
which may include working capital and research and development, we
have not allocated these net proceeds for specific purposes.
Investors will not have the opportunity, as part of their
investment decision, to assess whether the proceeds are being used
appropriately. Our use of the proceeds may not improve our
operating results or increase the value of the securities being
offered hereby.
The market price of our common stock may be volatile or may decline
regardless of our operating performance, and you may not be able to
resell your shares at or above the offering
price.
The
price per share of Common Stock sold in the Offering will be $0.52
which may vary from the market price of our common stock following
our offering If you purchase our Common Stock in our offering, you
may not be able to resell those shares at or above the offering
price. We cannot assure you that the offering price of our Common
Stock, or the market price following our offering, will equal or
exceed prices in privately negotiated transactions of our shares
that have occurred from time to time prior to our offering. The
market price of our common stock may fluctuate significantly in
response to numerous factors, many of which are beyond our control,
including:
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actual
or anticipated fluctuations in our revenue and other operating
results; |
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the
financial projections we may provide to the public, any changes in
these projections or our failure to meet these
projections; |
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actions
of securities analysts who initiate or maintain coverage of us,
changes in financial estimates by any securities analysts who
follow our company, or our failure to meet these estimates or the
expectations of investors; |
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announcements
by us or our competitors of significant products or features,
technical innovations, acquisitions, strategic partnerships, joint
ventures, or capital commitments; |
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price
and volume fluctuations in the overall stock market, including as a
result of trends in the economy as a whole; |
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lawsuits
threatened or filed against us; and |
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other
events or factors, including those resulting from war or incidents
of terrorism, or responses to these events. |
In
addition, the stock markets have experienced extreme price and
volume fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. Stock prices
of many companies have fluctuated in a manner unrelated or
disproportionate to the operating performance of those companies.
In the past, stockholders have filed securities class action
litigation following periods of market volatility. If we were to
become involved in securities litigation, it could subject us to
substantial costs, divert resources and the attention of management
from our business, and adversely affect our business.
Our common stock is considered a “penny stock” and may be difficult
to sell.
The
SEC has adopted regulations which generally define “penny stock” to
be an equity security that has a market price of less than $5.00
per share or an exercise price of less than $5.00 per share and
that is not listed on a national securities exchange, subject to
specific exemptions. Historically, the price of our Common Stock
has fluctuated greatly. As of the date of this filing, the market
price of our Common Stock is less than $5.00 per share, and is
therefore a “penny stock” according to SEC rules. The “penny stock”
rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than
established customers and accredited investors (generally those
with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have
received the purchaser’s written consent to the transaction before
the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the broker-dealer must deliver, before the
transaction, a disclosure schedule prescribed by the SEC relating
to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information
on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the
willingness of broker-dealers to sell our common stock, and may
result in decreased liquidity for our common stock and increased
transaction costs for sales and purchases of our common stock as
compared to other securities.
The requirements of the Sarbanes-Oxley Act of 2002 and other U.S.
securities laws impose substantial costs and may drain our
resources and distract our management.
We
are subject to certain of the requirements of the Sarbanes-Oxley
Act of 2002 in the U.S., as well as the reporting requirements
under the Exchange Act. The Exchange Act requires, among other
things, filing of annual reports on Form 10-K, quarterly reports on
Form 10-Q and periodic reports on Form 8-K, following the
occurrence of certain material events, with respect to our business
and financial condition. The Sarbanes-Oxley Act requires, among
other things, that we maintain effective disclosure controls and
procedures and internal controls over financial reporting. We have
identified a number of material weaknesses in our internal
controls, as described in our Annual Report on Form 10-K and our
Quarterly Reports on Form 10-Q incorporated by reference in this
prospectus supplement. Meeting the requirements of the Exchange Act
and the Sarbanes-Oxley Act may strain our resources and may divert
management’s attention from other business concerns, both of which
may have a material adverse effect on our business.
We do not intend to pay dividends for the foreseeable
future.
We
currently intend to retain any future earnings to finance the
operation and expansion of our business, and we do not expect to
declare or pay any dividends in the foreseeable future. As a
result, you may only receive a return on your investment in our
common stock if the market price of our Common Stock
increases.
Provisions
in our By-laws and Delaware laws might discourage, delay or prevent
a change of control of our company or changes in our management
and, therefore, depress the trading price of our Common
Stock.
Provisions
of our by-laws and Delaware laws may discourage, delay or prevent a
merger, acquisition or other change in control that stockholders
may consider favorable, including transactions in which you might
otherwise receive a premium for your shares of our Common Stock.
These provisions may also prevent or frustrate attempts by our
stockholders to replace or remove our management. These provisions
include:
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limitations
on the removal of directors; |
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limitations
on the ability of our shareholders to call special
meetings; |
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establishing
advance notice provisions for shareholder proposals and nominations
for elections to the board of directors to be acted upon at
meetings of shareholders; |
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providing
that the board of directors is expressly authorized to adopt, or to
alter or repeal our bylaws; and |
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establishing
advance notice and certain information requirements for nominations
for election to our board of directors or for proposing matters
that can be acted upon by shareholders at shareholder
meetings. |
In
addition, we are subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with
an interested stockholder for a period of three years following the
date on which the stockholder became an interested stockholder,
unless such transactions are approved by our board of directors.
The existence of the foregoing provisions and anti-takeover
measures could limit the price that investors might be willing to
pay in the future for shares of our Common Stock. They could also
deter potential acquirers of our company, thereby reducing the
likelihood that you could receive a premium for your Common Stock
in an acquisition.
You may experience dilution in the future.
To
the extent that the options we will grant to our officers,
directors and employees, are ultimately exercised, you will sustain
dilution. We may also acquire or license other technologies or
finance strategic alliances by issuing equity, which may result in
additional dilution to our shareholders.
A substantial number of shares of common stock may be sold in the
market, which may depress the market price for our common
stock.
Sales
of a substantial number of shares of our Common Stock in the public
market could cause the market price of our common stock to decline.
A substantial majority of the outstanding shares of our common
stock are freely tradable without restriction or further
registration under the Securities Act.
The price of the Common Stock has been determined by our
management.
The
price per share of Common Stock sold in the Offering will be $2.73
which may vary from the market price of our common stock following
our offering. . If you purchase our common stock in the Offering,
you will pay a price that was determined by our Board of Directors.
The offering price for our Common Stock may bear no relationship to
our assets, book value, historical results of operations or any
other established criterion of value. The trading price, if any, of
the Common Stock that may prevail in any market that may develop in
the future, for which there can be no assurance, may be higher or
lower than the price you paid for our common stock.
Use
Of Proceeds
We
estimate that the net proceeds from the Offering will be
approximately $1,651,377, after deducting estimated offering
expenses payable by us.
We
intend to use the net proceeds from the Offering for general
corporate purposes, which may include working capital, capital
expenditures, and research and development expenditures.
We
have not yet determined the amount of net proceeds to be used
specifically for any of the foregoing purposes. Accordingly, our
management will have significant discretion and flexibility in
applying the net proceeds from this Offering. Pending any use, as
described above, we intend to invest the net proceeds in
high-quality, short-term, interest-bearing securities.
DETERMINATION
OF OFFERING PRICE
The
offering price of the securities offered in this Offering has been
determined arbitrarily by our Board of Directors. The price does
not bear any relationship to our assets, book value, earnings, or
other established criteria for valuing a company. In determining
the number of shares to be offered and the offering price, we took
into consideration our cash on hand and the amount of money we
would need to implement our business plan. Accordingly, the
offering price should not be considered an indication of the actual
value of the securities.
Description
of Securities TO BE REGISTERED
Common
Stock
In
this Offering, we are offering 604,900 shares of our common stock,
$0.001 par value per share. For a description of the common stock
being offered hereby, please see “Description of Securities to be
Registered” in the accompanying prospectus.
Plan
Of Distribution
We
are selling the common stock, $0.001 par value per share, directly
to the purchasers thereof, and we are not engaging an underwriter
or other agent to solicit investors or facilitate the issuance,
conversion or exercise of such securities.
Subject to customary closing conditions, certain investors have
agreed to purchase, and we have agreed to sell, 604,900 shares of
common stock at a purchase price of $2.73 per
share.
It is possible that not all
of the shares of common stock we are offering pursuant to this
prospectus supplement will be sold at the closing, in which case
our net proceeds would be reduced. We expect that the sale will be
completed on or before December [ _2nd__], 2020. In negotiating the
offering price per share of our common stock, we considered the
dilution to our stockholders that will result from this
offering.
EXPERTS
The
audited financial statements incorporated by reference in this
prospectus have been so incorporated by reference in reliance upon
the report of Centurion ZD CPA & Co., independent registered
public accountants, upon the authority of said firm as experts in
accounting and auditing in giving said report.
Where
You Can Find More Information
We
have filed a registration statement on Form S-3 with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the shares of our common stock offered by
this prospectus. This prospectus supplement and the accompanying
prospectus are only part of a registration statement on Form S-3
that we filed with the SEC under the Securities Act of 1933, as
amended, and therefore omits certain information contained in the
registration statement. We have also filed exhibits and schedules
with the registration statement that are excluded from this
prospectus supplement and the accompanying prospectus, and you
should refer to the applicable exhibit or schedule for a complete
description of any statement referring to any contract or other
document. For further information with respect to our common stock
and us, you should refer to the registration statement, its
exhibits and the material incorporated by reference therein as well
as annual, quarterly and periodic reports, proxy statements and
other information we file with the SEC.
The
registration statement and any other materials we file with the SEC
may be obtained from the web site that the Securities and Exchange
Commission maintains at http://www.sec.gov.
Incorporation
of Certain Information By Reference
The
Securities and Exchange Commission allows us to incorporate by
reference the information we file with them under certain
conditions, which means that we can disclose important information
to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this
prospectus and any information that we file subsequent to this
prospectus with the Securities and Exchange Commission will
automatically update and supersede this information. The documents
we are incorporating by reference are as follows:
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(a) |
the
Company’s Annual Report on Form 10-K for the year ended June
30, 2020; |
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(b) |
the
Company’s Quarterly Reports on Form 10-Q for the periods ended
September 30, 2020,; |
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(d) |
the
description of the Common Stock, $0.001 par value per share,
contained in the Registrant’s registration statement on Form 8-A filed with the
Commission on May 13, 2016 pursuant to Section 12(b) of the
Exchange Act and all amendments or reports filed by us for the
purpose of updating those descriptions. |
In
addition, all documents (other than current reports furnished under
Item 2.02 or Item 7.01 of Form 8-K and exhibits filed in such forms
that are related to such items unless such Form 8-K expressly
provides to the contrary) subsequently filed by us pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
initial filing date of this prospectus, through the earlier of the
date declared effective or until the termination of the offering of
securities contemplated by this prospectus shall be deemed to be
incorporated by reference into this prospectus. These documents
that we file later with the Securities and Exchange Commission and
that are incorporated by reference in this prospectus will
automatically update information contained in this prospectus or
that was previously incorporated by reference into this prospectus.
You will be deemed to have notice of all information incorporated
by reference in this prospectus as if that information was included
in this prospectus.
We
will provide to any person, including any beneficial owner, to whom
this prospectus is delivered, a copy of any or all of the
information that has been incorporated by reference in this
prospectus but not delivered with this prospectus (excluding
exhibits, unless the exhibits are specifically incorporated), at no
cost to the requesting party, upon request to us in writing or by
telephone using the following information:
SHINECO,
INC.
Room
1001, Building T5,
DaZu
Square, Daxing District,
Beijing,
People’s Republic of China
Attn:
Mr. Guocong Zhou
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
certificate of incorporation, as amended, provides that all our
directors, officers, employees and agents shall be entitled to be
indemnified by us to the fullest extent permitted under the
Delaware General Corporation Law, as amended (“DGCL”), except for
the following exceptions set forth in Section 102 of the DGCL.
Section 102 of the DGCL allows a corporation to eliminate or limit
the personal liability of directors to a corporation or its
shareholders for monetary damages for breach of fiduciary duty as a
director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or
approved a stock repurchase or redemption in violation of the DGCL
or engaged in a transaction from which the director obtained an
improper personal benefit.
Our
Bylaws provide for indemnification of our officers, directors and
others who become a party to an action on our behalf by us to the
fullest extent not prohibited under the Delaware General
Corporation Law.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in
the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is therefore
unenforceable.
604,900
Shares of Common Stock
Prospectus
Supplement dated December 9, 2020
December
19, 2017
PROSPECTUS
SHINECO,
INC.
$25,000,000.00
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Rights
Units
We
may from time to time, in one or more offerings at prices and on
terms that we will determine at the time of each offering, offer
common stock, preferred stock, warrants, or a combination of these
securities, or units, for an aggregate offering price of up to $25
million. This prospectus describes the general manner in which our
securities may be offered using this prospectus. Each time we offer
and sell securities, we will provide you with a prospectus
supplement that will contain specific information about the terms
of that offering. Any prospectus supplement may also add, update,
or change information contained in this prospectus. You should
carefully read this prospectus and the applicable prospectus
supplement as well as the documents incorporated or deemed to be
incorporated by reference in this prospectus before you purchase
any of the securities offered hereby. This prospectus may not be
used to offer and sell securities unless accompanied by a
prospectus supplement.
Our
common stock is listed on the NASDAQ Capital Market under the
symbol “TYHT.” On December 11, 2017, the last reported sales price
of our common stock was $2.95. We will apply to list any shares of
common stock sold by us under this prospectus and any prospectus
supplement on the NASDAQ Capital Market. The prospectus supplement
will contain information, where applicable, as to any other listing
of the securities on the NASDAQ Capital Market or any other
securities market or exchange covered by the prospectus
supplement.
As of
December 11, 2017, the aggregate market value of our outstanding
common stock held by non-affiliates is $49,985,307, based on
21,034,072 shares of outstanding common stock, of which
approximately 16,947,172 shares are held by non-affiliates, and a
per share price of $2.95 based on the closing sale price of our
common stock on December 11, 2017. During the 12 calendar month
period ended December 12, 2017, no shares of the common stock of
the Company have been offered.
During
the 12 calendar month period ended December 12, 2017, no shares of
the common stock of the Company have been offered.
Pursuant
to General Instruction I.B.6 of Form S-3, in no event will we sell
our common stock in a public primary offering with a value
exceeding more than one-third of our public float in any 12-month
period so long as our public float remains below $75 million. We
have not offered any securities pursuant to General Instruction
I.B.6 of Form S-3 during the 12 calendar months prior to and
including the date of this prospectus.
Investing
in any of our common stock involves risk. You should carefully
consider the Risk Factors beginning on page 3 of this prospectus in
addition to Risk Factors contained in the applicable prospectus
supplement, before you make an investment in the
securities.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus if truthful or complete. Any
representation to the contrary is a criminal offense.
We
may offer the securities directly or through agents or to or
through underwriters or dealers. If any agents or underwriters are
involved in the sale of the securities their names, and any
applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable
from the information set forth, in an accompanying prospectus
supplement. We can sell the securities through agents, underwriters
or dealers only with delivery of a prospectus supplement describing
the method and terms of the offering of such securities. See “Plan
of Distribution.”
The
date of this prospectus is December 19, 2017.
TABLE
OF CONTENTS
You
should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have
not authorized any dealer, salesman or any other person to provide
you with additional or different information. This prospectus and
any prospectus supplement are not an offer to sell or the
solicitation of an offer to buy any securities other than the
securities to which they relate and are not an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction to
any person to whom it is unlawful to make an offer or solicitation
in that jurisdiction. You should not assume that the information in
this prospectus or any prospectus supplement or in any document
incorporated by reference in this prospectus or any prospectus
supplement is accurate as of any date other than the date of the
document containing the information. We will disclose any material
changes in our affairs in a post-effective amendment to the
registration statement of which this prospectus is a part, a
prospectus supplement, or a future filing with the Securities and
Exchange Commission incorporated by reference in this
prospectus.
Note
Regarding Forward-Looking Statements
The
information contained in this registration statement on Form S-3
includes some statements that are not purely historical and that
are “forward-looking statements.” Such forward-looking statements
include, but are not limited to, statements regarding our company
and our management’s expectations, hopes, beliefs, intentions or
strategies regarding the future, including our financial condition
and results of operations. In addition, any statements that refer
to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking statements. The words “anticipates,” “believes,”
“continue,” “could,” “estimates,” “expects,” “intends,” “may,”
“might,” “plans,” “possible,” “potential,” “predicts,” “projects,”
“seeks,” “should,” “will,” “would” and similar expressions, or the
negatives of such terms, may identify forward-looking statements,
but the absence of these words does not mean that a statement is
not forward-looking.
The
forward-looking statements contained herein are based on current
expectations and beliefs concerning future developments and the
potential effects on us. Future developments actually affecting us
may not be those anticipated. These forward-looking statements
involve a number of risks, uncertainties (some of which are beyond
our control) or other assumptions that may cause actual results or
performance to be materially different from those expressed or
implied by these forward-looking statements. Examples are
statements regarding future developments with respect to the
following:
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Our
ability to improve internal controls and procedures; |
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Inflation
and fluctuations in foreign currency exchange rates; |
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Our
on-going ability to obtain all mandatory and voluntary government
and other industry certifications, approvals, and/or licenses to
conduct our business; |
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Development
of a liquid trading market for our securities; and |
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The
costs we may incur in the future from complying with current and
future governmental regulations and the impact of any changes in
the regulations on our operations. |
You
should not rely upon forward-looking statements as predictions of
future events. The events and circumstances reflected in the
forward-looking statements may not be achieved or occur. Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither
we nor any other person assume responsibility for the accuracy and
completeness of the forward-looking statements. Except as required
by law, we undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this
report to conform these statements to actual results or to changes
in our expectations.
We
qualify all of our forward-looking statements by these cautionary
statements. The Company assumes no obligation to revise or update
any forward-looking statements for any reason, except as required
by law.
PROSPECTUS
SUMMARY
This
prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or SEC, using a “shelf”
registration process. Under this shelf registration process, we may
sell any combination of the securities described in this prospectus
in one of more offerings up to a total dollar amount of proceeds of
$25,000,000. This prospectus describes the general manner in which
our securities may be offered by this prospectus. Each time we sell
securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information
contained in this prospectus or in documents incorporated by
reference in this prospectus. The prospectus supplement that
contains specific information about the terms of the securities
being offered may also include a discussion of certain U.S. Federal
income tax consequences and any risk factors or other special
considerations applicable to those securities. To the extent that
any statement that we make in a prospectus supplement is
inconsistent with statements made in this prospectus or in
documents incorporated by reference in this prospectus, you should
rely on the information in the prospectus supplement.
You
should carefully read both this prospectus and any prospectus
supplement together with the additional information described under
“Where You Can Find Additional Information” before buying any
securities in this offering.
The
terms “we,” “us,” “our,” and the “Company” refer only to Shineco,
Inc. (“TYHT”) and its subsidiaries, unless the context suggests
otherwise. Additionally, unless we indicate otherwise, references
in this prospectus to:
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“China”
and the “PRC” are to the People’s Republic of China, excluding, for
the purposes of this prospectus only, Taiwan and the special
administrative regions of Hong Kong and Macau; |
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“RMB”
and “Renminbi” are to the legal currency of China; and |
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“$,”
“US$” and “U.S. dollars” are to the legal currency of the United
States. |
The
Company
We
are a Delaware holding company that uses our subsidiaries’ and
variable interest entities’ vertically- and horizontally-integrated
production, distribution and sales channels to provide health and
well-being focused plant-based products. Our products are only sold
domestically in China. We utilize modern engineering technologies
and biotechnologies to produce, among other products, Chinese
herbal medicines, organic agricultural produce and specialized
textiles. Our health and well-being focused plant-based products
business is divided into three major segments:
1.
Processing and distributing traditional Chinese herbal medicine
products as well as other pharmaceutical products. This segment is
conducted through Ankang Longevity Group, which operates 66
cooperative retail pharmacies throughout Ankang, a city in southern
Shaanxi province, China, through which we sell directly to
individual customers traditional Chinese medicinal products
produced by us as well as by third parties. Ankang Longevity Group
also owns a factory specializing in decoction, which is the process
by which solid materials are heated or boiled in order to extract
liquids, and distributes decoction products to wholesalers and
pharmaceutical companies around China. This segment accounted for
approximately 39.4% of our revenues for the year ended June 30,
2017. This segment accounted for approximately 41.8% of our
revenues for the three months period ended September 30,
2017.
2.
Processing and distributing green and organic agricultural produce
as well as growing and cultivating yew trees (taxus media). We
currently cultivate and sell yew mainly to large group and
corporate customers, but do not currently process yew into Chinese
or Western medicines. This segment is conducted through the
Company’s variable interest entities: the Zhisheng Group, which
comprises the following Chinese companies participating in our yew
tree business: Shineco Zhisheng (Beijing) Bio-Technology Co.
(“Zhisheng Bio-Tech”), 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”). This segment accounted for
approximately 49.8% of our revenues for the year ended June 30,
2017. This segment accounted for approximately 44.8% of our
revenues for the three months period ended September 30,
2017.
3.
Developing and distributing specialized fabrics, textiles and other
byproducts derived from an indigenous Chinese plant Apocynum
Venetum, grown in the Xinjiang region of China, and known in
Chinese as “Luobuma” or “bluish dogbane”. Our Luobuma products are
specialized textile and health supplement products designed to
incorporate traditional Eastern medicines with modern scientific
methods. These products are predicated on centuries-old traditions
of Eastern herbal remedies derived from the Luobuma raw material.
This segment is channeled through the Company’s directly-owned
subsidiary, Beijing Tenet-Jove Technological Development Co., Ltd.
(“Tenet-Jove”). This segment accounted for approximately 10.8% of
our revenues for the year ended June 30, 2017. This segment
accounted for approximately 13.4% of our revenues for the three
months period ended September 30, 2017.
We
primarily market our health and wellbeing-focused products in
China. At present, we do not sell any of our products in the United
States or Canada. China’s domestic pharmaceutical and healthcare
products market is fast-growing but, in our opinion,
underdeveloped. We believe China’s healthcare sector has the
capacity to develop even further. From pharmaceuticals to medical
products to general consumer health, China remains among the
world’s most attractive markets, and by far the fastest-growing of
all the large emerging ones. Driving this growth is China’s aging
population, increased incidence of chronic diseases, and a material
increase in investment from both domestic and foreign corporations.
The growth also reflects the Chinese government’s focus on
healthcare as both a social priority (as witnessed in its late
2000s healthcare reforms) and a strategic priority (as witnessed in
the 12th five-year plan’s stated focus on growing the biomedical
industry in the future).
Our
principal executive offices are located at Room 1001, Building T5,
DaZu Square, Daxing District, Beijing, People’s Republic of China.
Our telephone number is: (+86) 10-87227366.
RISK
FACTORS
You
should carefully consider the following material risk factors and
other information in this report. If any of the following risks
actually occur, our business, financial condition, results of
operations and prospects for growth could be seriously impacted. As
a result, the trading price, if any, of our Common Stock could
decline and you could lose part or all of your
investment.
Risks
Related to Our Business and Industry
Our significant business lines have a limited operating history,
which makes it difficult to evaluate our future prospects and
results of operations.
Although
our Luobuma business segment has been operational for 18 years, our
pharmaceutical sales and yew plant segments have a limited
operating history and began operations in 2005 and 2013,
respectively. In addition, those newer business segments account
for a large portion (approximately 89%) of our operating results at
this time. Accordingly, our past operating results may not be an
accurate indication of the lines of business we are principally
engaged in currently. Thus, you should consider our future
prospects in light of the risks and uncertainties experienced by
early stage companies in evolving markets rather than typical
companies of our age. Some of these risks and uncertainties relate
to our ability to:
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attract
additional customers and increased spending per
customer; |
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increase
awareness of our brand and develop customer loyalty; |
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respond
to competitive market conditions and compete with existing
competitors with broad recognition; |
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respond
to changes in our regulatory environment; |
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manage
risks associated with intellectual property rights; |
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maintain
effective control of our costs and expenses; |
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raise
sufficient capital to sustain and expand our business; |
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attract,
retain and motivate qualified personnel; and |
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upgrade
our technology to support additional research and development of
new products. |
If we
are unsuccessful in addressing any of these risks and
uncertainties, our business may be materially and adversely
affected.
The expansion of our business within our existing business segments
could significantly strain our resources, management and
operational infrastructure, which could impair our ability to meet
increased demand for our products and hurt our business
results.
To
accommodate our anticipated expansion within our existing business
lines—our pharmaceutical wholesale sales and yew plant
segments—that have a relatively limited operating history, we will
need to expend capital resources and dedicate personnel to
implement and upgrade our accounting, distribution networks and
operational infrastructure. We may need to recruit more personnel
to train and manage our growing and diverse employee base. If we
cannot successfully implement these measures efficiently and
cost-effectively, we will be unable to satisfy the demand for our
products, which will impair our revenue growth and hurt our overall
financial performance.
Any disruption in the supply chain of raw materials and our
products could adversely impact our ability to produce and deliver
products.
As to
the products we manufacture, we must manage our supply chain for
raw materials and delivery of our products. Supply chain
fragmentation and local protectionism within China further
complicates supply chain disruption risks. Local administrative
bodies and physical infrastructure built to protect local interests
pose transportation challenges for raw material transportation as
well as product delivery throughout China. In addition,
profitability and volume could be negatively impacted by
limitations inherent within the supply chain, including
competitive, governmental, legal, natural disasters, and other
events that could impact both supply and price. Any of these
occurrences could cause significant disruptions to our supply
chain, manufacturing capability and distribution system that could
adversely impact our ability to produce and deliver some of our
products.
The loss of any of our key customers could reduce our revenues and
our profitability.
For
the year ended June 30, 2017, sales to our seven largest customers
amounted in the aggregate to approximately 64% of our total
revenue. For the year ended June 30, 2016, sales to our five
largest customers amounted in the aggregate to approximately 68% of
our total revenue.
For
the three months ended September 30, 2017, sales to our eight
largest customers amounted in the aggregate to approximately 78% of
our total revenue. For the three months ended September 30, 2016,
sales to our six largest customers amounted in the aggregate to
approximately 82% of our total revenue.
There
can be no assurance that we will maintain or improve the
relationships with these customers, or that we will be able to
continue to supply these customers at current levels or at all. Any
loss of these customers could have a material negative effect on
our company’s business. In addition, having a relatively small
number of customers may cause our quarterly results to be
inconsistent, depending upon when these customers order and pay for
outstanding invoices.
Furthermore,
customers in our yew plant segment tend to have long purchase
cycles that average over two to three years. Thus, our major
customers in our yew plant segment for any given year do not tend
to purchase products from us in the immediately following years. We
must maintain good business relationships with these customers in
the years in which they are not purchasers of our yew plant
products. Additionally, we must procure orders from different
customers each year in order to grow our sales. There is no
assurance that we will be able to accomplish this
successfully.
Finally,
consolidation among our customers in recent years has resulted in
additional customer concentration in the short term. If more of our
existing customers acquire one another or enter into joint venture
relationships, we could experience additional concentration of our
customer base.
For
the three months period ended September 30, 2017 and the years
ended June 30, 2017 and 2016, we had eight, seven and five
customers, respectively, that each accounted for 5% or more of our
revenues:
|
|
|
Percentage
of Revenues in |
|
|
Purchaser
Name |
|
Three
Months Period ended September 30, 2017 |
|
|
Year
ended June 30, 2017 |
|
|
Year
ended June 30, 2016 |
|
|
Qingdao
City Association of Shipping Owners |
|
|
* |
% |
|
|
8 |
% |
|
|
40 |
% |
| Xi’an
Qianhe Pharmaceutical Co., Ltd. |
|
|
6 |
% |
|
|
11 |
% |
|
|
8 |
% |
| Shaanxi
Pharmaceutical Group Pai’ang Medicine Co. Ltd. |
|
|
10 |
% |
|
|
10 |
% |
|
|
9 |
% |
| Ankang
Beiyida Pharmaceutical Share Co., Ltd. |
|
|
7 |
% |
|
|
6 |
% |
|
|
* |
% |
| Qingdao
Shipping Services Association |
|
|
6 |
% |
|
|
10 |
% |
|
|
* |
% |
| Qingdao
Cruise and Yacht Association |
|
|
12 |
% |
|
|
9 |
% |
|
|
* |
% |
|
Qingdao
ShiMeng Cruise Industrial Development Operation Management Co.,
Ltd. |
|
|
22 |
% |
|
|
10 |
% |
|
|
* |
% |
| Ziyan
County Ziye Pharmaceutical Company |
|
|
* |
% |
|
|
* |
% |
|
|
6 |
% |
| Shaanxi
Heyuan Commercial Co., Ltd. Medical Sub-branch |
|
|
* |
% |
|
|
* |
% |
|
|
5 |
% |
| Shaanxi
Fengdakailai Medical Co., Ltd. |
|
|
9 |
% |
|
|
* |
% |
|
|
* |
% |
| Shaanxi
Zhongcai Associated Medical Technology Co., Ltd. |
|
|
6 |
% |
|
|
* |
% |
|
|
* |
% |
If we
cannot maintain long-term relationships with these major customers,
the loss of our sales to any of them could have an adverse effect
on our business, financial condition and results of
operations.
We buy our products from a relatively limited number of
vendors.
We
buy our products from a limited number of vendors. For the three
months period ended September 30, 2017, our nine largest vendors
accounted for approximately 92% of our total purchases. For the
year ended June 30, 2017, our nine largest vendors accounted for
approximately 79% of our total purchases. During the year ended
June 30, 2016, our nine largest vendors accounted for approximately
90% of our total purchases. During the three months period ended
September 30, 2017 and the years ended June 30, 2017 and 2016, we
had nine, nine, and nine vendors, respectively, that each accounted
for 5% or more of our purchases:
|
|
|
Percentage
of Purchases in |
|
|
Purchaser
Name |
|
Three
Months Period ended September 30, 2017 |
|
|
Year
ended June 30, 2017 |
|
|
Year
ended June 30, 2016 |
|
|
Qingdao
Donglin Biological Engineering Co., Ltd. |
|
|
12 |
% |
|
|
23 |
% |
|
|
25 |
% |
|
Bozhou
City Biaoma Pharmaceutal Trading Co., Ltd. |
|
|
19 |
% |
|
|
14 |
% |
|
|
13 |
% |
|
Sichuan
Provincial Traditional Chinese Medicine Co., Ltd. |
|
|
11 |
% |
|
|
8 |
% |
|
|
9 |
% |
|
Tianma
(Anhui) Traditional Chinese Medicine Decoction Technology Co.,
Ltd. |
|
|
11 |
% |
|
|
6 |
% |
|
|
9 |
% |
|
Tianma
(Anhui) National Pharmaceutical Technology Co., Ltd. |
|
|
* |
% |
|
|
5 |
% |
|
|
* |
% |
|
Anhui
Bozhou City Wanzhen Traditional Chinese Medicine Co.,
Ltd. |
|
|
* |
% |
|
|
* |
% |
|
|
5 |
% |
|
Anhui
Bozhou Chinese Medicine Decoction Pieces Co., Ltd. |
|
|
* |
% |
|
|
5 |
% |
|
|
7 |
% |
|
Anhui
Bozhou Guolong Pharmaceutical Co., Ltd. |
|
|
* |
% |
|
|
6 |
% |
|
|
6 |
% |
|
Qingdao
Yinghuanhai International Logistics Co., Ltd. |
|
|
* |
% |
|
|
7 |
% |
|
|
11 |
% |
|
Sichuan
Zhongcheng Hengrui Pharmaceutical Co., Ltd. |
|
|
* |
% |
|
|
* |
% |
|
|
5 |
% |
|
Dalian
hanfang Biology Technology Co., Ltd. |
|
|
6 |
% |
|
|
* |
% |
|
|
* |
% |
|
Baoji
hanfang Chinese Medicine Decoction Pieces Co., Ltd. |
|
|
7 |
% |
|
|
* |
% |
|
|
* |
% |
|
Anhui
Bozhou Medicinal Materials Co., Ltd. |
|
|
13 |
% |
|
|
* |
% |
|
|
* |
% |
|
Xunyang
New Forest Ecological Agriculture Co., Ltd. |
|
|
6 |
% |
|
|
* |
% |
|
|
* |
% |
|
Qingdao
Longsheng Jieyun Express Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
There
are a number of suitable vendors who have the ability to supply raw
materials to us, and we do not believe that our inability to use a
particular vendor would materially disrupt our business. However,
because we currently purchase a material amount of our products
from a smaller number of suppliers, the loss of any such suppliers
could result in increased expenses for our company and could result
in adverse impact on our business, financial condition and results
of operations if we are unable to enter into an agreement with a
replacement supplier or suppliers on competitive terms.
Our success depends on our ability to protect our intellectual
property.
We
presently hold one patent in the People’s Republic of China for
Luobuma fiber yarn preparation and an application method; we
previously obtained eight other patents, but as of the date of this
filing, due to non-payment of the annual dues for such patents,
they are no longer valid. Our success depends on our ability to
obtain and maintain patent protection for products developed from
time to time utilizing our technologies, in the PRC and in other
countries, and to enforce these patents. There is no assurance that
any of our existing and future patents will be held valid and
enforceable against third-party infringement or that our products
will not infringe any third-party patent or intellectual
property.
Any
patents relating to our technologies may not be sufficiently broad
to protect our products. In addition, our patents may be
challenged, potentially invalidated or potentially circumvented.
Our patents may not afford us protection against competitors with
similar technology or permit the commercialization of our products
without infringing third-party patents or other intellectual
property rights.
We
also rely on or intend to rely on our trademarks, trade names and
brand names to distinguish our products from the products of our
competitors, and have registered or will apply to register a number
of these trademarks. However, third parties may oppose our
trademark applications or otherwise challenge our use of the
trademarks. In the event that our trademarks are successfully
challenged, we could be forced to rebrand our products, which could
result in loss of brand recognition and could require us to devote
resources to advertising and marketing these new brands. Further,
our competitors may infringe our trademarks, or we may not have
adequate resources to enforce our trademarks.
Our pharmaceutical business is subject to inherent risks relating
to product liability and personal injury claims.
Pharmacies
are exposed to risks inherent in the manufacturing and distribution
of pharmaceutical and other healthcare products, such as with
respect to improper filling of prescriptions, labeling of
prescriptions, adequacy of warnings, and unintentional distribution
of counterfeit drugs. In addition, product liability claims may be
asserted against us with respect to any of the products we sell and
as a retailer, we are required to pay for damages for any
successful product liability claim against us, although with
respect to products we sell but do not manufacture, we may have the
right under applicable PRC laws, rules and regulations to recover
from the relevant manufacturer for compensation we paid to our
customers in connection with a product liability claim. We may also
be obligated to recall affected products. If we are found liable
for product liability claims, we could be required to pay
substantial monetary damages. Furthermore, even if we successfully
defend ourselves against this type of claim, we could be required
to spend significant management, financial and other resources,
which could disrupt our business, and our reputation as well as our
brand name may also suffer. We, like many other similar companies
in China, do not carry product liability insurance. As a result,
any imposition of product liability could materially harm our
business, financial condition and results of operations. In
addition, we do not have any business interruption insurance due to
the limited coverage of any available business interruption
insurance in China, and as a result, any business disruption or
natural disaster could severely disrupt our business and operations
and significantly decrease our revenue and
profitability.
The retail price of some of our pharmaceutical products are subject
to control by PRC authorities.
A
small number of our pharmaceutical products (approximately 4% of
our product offerings), primarily those included in the national
and provincial medical insurance catalogs, are subject to price
controls in the form of fixed retail prices or retail price
ceilings. Since May 1998, the relevant PRC governmental authorities
have ordered price reductions on thousands of pharmaceutical
products. Any future price controls or government mandated price
reductions may have a material adverse effect on our financial
condition and results of operations, including significantly
reducing our revenue and profitability.
Our business requires a number of permits and
licenses.
Drugstores
in China are required to obtain certain permits and licenses from
various PRC governmental authorities, including Good Supply
Practice (“GSP”) certification. We are also required to obtain food
hygiene certificates for the distribution of nutritional
supplements and food products other than medicine.
Also,
we participate in the manufacture of Chinese medicine, which is
subject to various PRC laws and regulations pertaining to the
pharmaceutical industry. We have obtained certificates, permits,
and licenses required for the operation of a pharmaceutical
enterprise and the manufacturing of pharmaceutical products in the
PRC. We are required to meet GSP standards in order to continue
manufacturing pharmaceutical products. We are required to renew the
GSP every five years and our GSP for Ankang Longevity Chain was
renewed in August 2013. There is no guarantee we will be able to
renew the GSP when it next expires.
We
cannot assure you that we can maintain all required licenses,
permits and certifications to carry on our business at all times,
and in the past from time to time we may have not been in
compliance with all such required licenses, permits and
certifications. Moreover, these licenses, permits and
certifications are subject to periodic renewal and/or reassessment
by the relevant PRC governmental authorities and the standards of
such renewal or reassessment may change from time to time. We
intend to apply for the renewal of these licenses, permits and
certifications when required by then applicable laws and
regulations. Any inability to renew these licenses, permits and
certifications could severely disrupt our business and prevent us
from continuing to carry on our business. Any changes in the
standards used by governmental authorities in considering whether
to renew or reassess our business licenses, permits and
certifications, as well as any enactment of new regulations that
may restrict the conduct of our business, may also decrease our
revenue and/or increase our costs and materially reduce our
profitability and prospects. Furthermore, if the interpretation or
implementation of existing laws and regulations changes or if new
regulations come into effect requiring us to obtain any additional
licenses, permits or certifications that were previously not
required to operate our existing businesses, we cannot assure you
that we may successfully obtain such licenses, permits or
certifications.
Risks
Related to Our Corporate Structure and Operation
We rely on contractual arrangements with our variable interest
entities in China for our business operations, which may not be as
effective in providing operational control or enabling us to derive
economic benefits as through ownership of controlling equity
interests.
We
rely on and expect to continue to rely on our wholly owned PRC
subsidiary’s contractual arrangements with our variable interest
entities in China and their respective shareholders. These
contractual arrangements are not as effective in providing us with
control over the variable interest entities as ownership of
controlling equity interests would be in providing us with control
over, or enabling us to derive economic benefits from the
operations of, the affiliated consolidated entities. Under the
current contractual arrangements, as a legal matter, if any of the
affiliated consolidated entities or any of their shareholders fails
to perform its, his or her respective obligations under these
contractual arrangements, we may have to incur substantial costs
and resources to enforce such arrangements, and rely on legal
remedies available under PRC laws, including seeking specific
performance or injunctive relief, and claiming damages, which we
cannot assure you will be effective. For example, if shareholders
of a variable interest entity were to refuse to transfer their
equity interests in such variable interest entity to us or our
designated persons when we exercise the purchase option pursuant to
these contractual arrangements, we may have to take a legal action
to compel them to fulfill their contractual obligations.
If
(i) the applicable PRC authorities invalidate these contractual
arrangements for violation of PRC laws, rules and regulations, (ii)
any variable interest entity or its shareholders terminate the
contractual arrangements or (iii) any variable interest entity or
its shareholders fail to perform their obligations under these
contractual arrangements, our business operations in China would be
materially and adversely affected, and the value of your stock
would substantially decrease. Further, if we fail to renew these
contractual arrangements upon their expiration, we would not be
able to continue our business operations unless the then current
PRC law allows us to directly operate businesses in
China.
In
addition, if any variable interest entity or all or part of its
assets become subject to liens or rights of third-party creditors,
we may be unable to continue some or all of our business
activities, which could materially and adversely affect our
business, financial condition and results of operations. If any of
the variable interest entities undergoes a voluntary or involuntary
liquidation proceeding, its shareholders or unrelated third-party
creditors may claim rights to some or all of these assets, thereby
hindering our ability to operate our business, which could
materially and adversely affect our business and our ability to
generate revenues.
All
of these contractual arrangements are governed by PRC law and
provide for the resolution of disputes through arbitration in the
PRC. The legal environment in the PRC is not as developed as in
some other jurisdictions, such as the United States. As a result,
uncertainties in the PRC legal system could limit our ability to
enforce these contractual arrangements. Moreover, if a court were
to determine that these contracts are not in the public interest or
otherwise contrary to government policy, it could choose not to
enforce such contracts, even if the contractual obligations were
otherwise clear. In the event we are unable to enforce these
contractual arrangements, we may not be able to exert effective
control over our operating entities and we may be precluded from
operating our business, which would have a material adverse effect
on our financial condition and results of operations.
Proposed legislation in the PRC could adversely affect our
corporate structure, corporate governance and business
operations.
In
January 2015, China’s Ministry of Commerce, or MOFCOM, released a
discussion draft of the proposed Foreign Investment Law
(“Discussion Draft”), soliciting comments from the public. The
Discussion Draft is aimed to replace, upon its enactment, existing
laws regulating foreign investments in China with a uniform law
and, if adopted, could affect a wide range of foreign entities,
including our Company, and investments generally in
China.
The
proposed legislation is just a draft proposal at this time, and it
is uncertain when, if ever, MOFCOM will submit the final version of
the proposed law to the PRC’s National People’s Congress for review
and passage. The proposed legislation may never be submitted for
approval, or if submitted it may not be passed by the National
People’s Congress. Alternatively, the version submitted (or
approved) may be materially different than the current proposed
draft. Thus, like any proposed legislation, the potential impact of
such legislation on foreign investments in China and the business
operations of China-based companies is unknown. We are currently
working with our legal and accounting advisers to develop
strategies to minimize the impact potential changes to existing
Chinese laws regulating foreign investments might have.
Under
the Discussion Draft as it is currently written, variable interest
entities, or “VIEs,” that are controlled through their contractual
arrangements could be deemed a foreign-invested enterprise if they
are deemed to be ultimately “controlled” by foreign investors.
Therefore, for a company such as us with a VIE structure in an
industry designated as a “restricted” or “prohibited” to foreign
investment, the VIE structure may be deemed legitimate if the
ultimate controlling persons are PRC citizens or PRC entities. If
the ultimate controlling persons are not PRC citizens or PRC
entities, then the VIEs may be treated as foreign-invested
enterprises and operation in the restricted or prohibited
industries may require market entry clearance, national security
review, and certain information reporting obligations. At this time
we believe that under the current version of the Discussion Draft,
our VIE structure should be deemed legitimate, as the expected
ultimate controlling persons will be PRC citizens or PRC
entities.
As of
the date of this registration statement, no formal legislation has
been implemented.
An insufficient amount of insurance could expose us to significant
costs and business disruption.
We
have not purchased any insurance to cover our assets and property,
which could leave our business inadequately protected from loss. If
we were to incur substantial losses or liabilities due to fire,
explosions, floods, other natural disasters or accidents or
business interruption, our results of operations could be
materially and adversely affected.
We
are an “emerging growth company,” and we cannot be certain if the
reduced reporting requirements applicable to emerging growth
companies will make our common stock less attractive to
investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our
Business Startups Act, or the JOBS Act. For as long as we continue
to be an emerging growth company, we may take advantage of
exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies,
including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our
periodic reports and proxy statements and exemptions from the
requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute
payments not previously approved. We could be an emerging growth
company for up to five years, although we could lose that status
sooner if our revenues exceed $1 billion, if we issue more than $1
billion in non-convertible debt in a three year period, or if the
market value of our common stock held by non-affiliates exceeds
$700 million as of any June 30 before that time, in which case we
would no longer be an emerging growth company as of the following
December 31. We cannot predict if investors will find our common
stock less attractive because we may rely on these exemptions. If
some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock and
our stock price may be more volatile.
Under
the JOBS Act, emerging growth companies can also delay adopting new
or revised accounting standards. We have irrevocably elected not to
avail our company of these exemptions from new or revised
accounting standards and, therefore, will be subject to the same
new or revised accounting standards as other public companies that
are not emerging growth companies.
Risks
Related to the Offering and Our Common Stock
The market price of our common stock may be volatile or may decline
regardless of our operating performance, and you may not be able to
resell your shares at or above the offering
price.
The
offering price for our common stock will be determined by our
Company and may vary from the market price of our common stock
following our offering. If you purchase our common stock in our
offering, you may not be able to resell those shares at or above
the offering price. We cannot assure you that the offering price of
our common stock, or the market price following our offering, will
equal or exceed prices in privately negotiated transactions of our
shares that have occurred from time to time prior to our offering.
The market price of our common stock may fluctuate significantly in
response to numerous factors, many of which are beyond our control,
including:
|
|
● |
actual
or anticipated fluctuations in our revenue and other operating
results; |
|
|
● |
the
financial projections we may provide to the public, any changes in
these projections or our failure to meet these
projections; |
|
|
● |
actions
of securities analysts who initiate or maintain coverage of us,
changes in financial estimates by any securities analysts who
follow our company, or our failure to meet these estimates or the
expectations of investors; |
|
|
● |
announcements
by us or our competitors of significant products or features,
technical innovations, acquisitions, strategic partnerships, joint
ventures, or capital commitments; |
|
|
● |
price
and volume fluctuations in the overall stock market, including as a
result of trends in the economy as a whole; |
|
|
● |
lawsuits
threatened or filed against us; and |
|
|
● |
other
events or factors, including those resulting from war or incidents
of terrorism, or responses to these events. |
In
addition, the stock markets have experienced extreme price and
volume fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. Stock prices
of many companies have fluctuated in a manner unrelated or
disproportionate to the operating performance of those companies.
In the past, stockholders have filed securities class action
litigation following periods of market volatility. If we were to
become involved in securities litigation, it could subject us to
substantial costs, divert resources and the attention of management
from our business, and adversely affect our business.
Provisions in our By-laws and Delaware laws might discourage, delay
or prevent a change of control of our company or changes in our
management and, therefore, depress the trading price of our Common
Stock.
Provisions
of our by-laws and Delaware laws may discourage, delay or prevent a
merger, acquisition or other change in control that stockholders
may consider favorable, including transactions in which you might
otherwise receive a premium for your shares of our Common Stock.
These provisions may also prevent or frustrate attempts by our
stockholders to replace or remove our management. These provisions
include:
|
|
● |
limitations
on the removal of directors; |
|
|
● |
limitations
on the ability of our shareholders to call special
meetings; |
|
|
● |
establishing
advance notice provisions for shareholder proposals and nominations
for elections to the board of directors t be acted upon at meetings
of shareholders; |
|
|
● |
providing
that the board of directors is expressly authorized to adopt, or to
alter or repeal our bylaws; and |
|
|
● |
establishing
advance notice and certain information requirements for nominations
for election to our board of directors r for proposing matters that
can be acted upon by shareholders at shareholder
meetings. |
In
addition, we are subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with
an interested stockholder for a period of three years following the
date on which the stockholder became an interested stockholder,
unless such transactions are approved by our board of directors.
The existence of the foregoing provisions and anti-takeover
measures could limit the price that investors might be willing to
pay in the future for shares of our Common Stock. They could also
deter potential acquirers of our company, thereby reducing the
likelihood that you could receive a premium for your Common Stock
in an acquisition.
We may issue preferred stock whose terms could adversely affect the
voting power or value of our common stock.
Our
certificate of incorporation authorizes us to issue, without the
approval of our shareholders, one or more classes or series of
preferred stock having such designations, preferences, limitations
and relative rights, including preferences over our common stock
respecting dividends and distributions, as our board of directors
may determine. The terms of one or more classes or series of
preferred stock could adversely impact the voting power or value of
our common stock. For example, we might grant holders of preferred
stock the right to elect some number of our directors in all events
or on the happening of specified events or the right to veto
specified transactions. Similarly, the repurchase or redemption
rights or liquidation preferences we might assign to holders of
preferred stock could affect the residual value of the common
stock.
If we are unable to maintain effective internal control over
financial reporting in the future, investors may lose confidence in
the accuracy and completeness of our financial reports and the
market price of our common stock, may decline, and we may have
difficulty raising additional capital.
As a
public company, we are required to maintain internal control over
financial reporting and to report any material weaknesses in such
internal control. In addition, we are required to furnish a report
by management on the effectiveness of our internal control over
financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act. We will continue to incur considerable costs and use
significant management time and other resources in an effort to
comply with Section 404 and other requirements of the
Sarbanes-Oxley Act. In addition, our independent registered public
accounting firm will be required to attest to the effectiveness of
our internal control over financial reporting beginning with our
annual report on Form 10-K following the date on which we are no
longer an “emerging growth company,” which may be up to five full
years following the date of this offering. If we identify material
weaknesses in our internal control over financial reporting, if we
are unable to comply with the requirements of Section 404 in a
timely manner or assert that our internal control over financial
reporting is effective, or if our independent registered public
accounting firm is unable to express an opinion as to the
effectiveness of our internal control over financial reporting when
required, investors may lose confidence in the accuracy and
completeness of our financial reports and the market price of our
common stock could be negatively affected, and we could become
subject to investigations by the stock exchange on which our
securities are listed, the Securities and Exchange Commission, or
other regulatory authorities, which could require additional
financial and management resources.
The requirements of being a public company may strain our resources
and divert management’s attention.
As a
public company, we are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, or the Exchange Act,
the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing
requirements of the securities exchange on which we list, and other
applicable securities rules and regulations. Despite recent reforms
made possible by the JOBS Act, compliance with these rules and
regulations has high legal, accounting, and financial compliance
costs and investor relations and public relations costs, make some
activities more difficult, time-consuming or costly and increases
demand on our systems and resources, particularly after we are no
longer an “emerging growth company.” The Exchange Act requires,
among other things, that we file annual, quarterly, and current
reports with respect to our business and operating results as well
as proxy statements.
As a
result of disclosure of information in this prospectus and in
filings required of a public company, our business and financial
condition is more visible, which we believe may result in
threatened or actual litigation, including by competitors and other
third parties. If such claims are successful, our business and
operating results could be harmed, and even if the claims do not
result in litigation or are resolved in our favor, these claims,
and the time and resources necessary to resolve them, could divert
the resources of our management and adversely affect our business,
brand and reputation and results of operations.
These
rules and regulations will make it more expensive for us to obtain
director and officer liability insurance, and we may be required to
accept reduced coverage or incur substantially higher costs to
obtain coverage. These factors could also make it more difficult
for us to attract and retain qualified members of our board of
directors, particularly to serve on our audit committee and
compensation committee, and qualified executive
officers.
If we raise less than the full amount of the Offering, there is a
risk we will not have sufficient funds to support our growth and
execute our business strategy.
Because
this Offering does not require a minimum amount to be raised before
closing, it is possible we will raise less than the full amount of
the Offering. If this occurs, we will have fewer funds available to
apply to the implementation of our business strategy. This produces
a risk of underfunding that would reduce our ability to execute our
business plan as intended and would negatively affect our results
of operations.
We have broad discretion in the use of the net proceeds from our
Offering and may not use them effectively.
To
the extent (i) we raise more money than required for the purposes
explained in the section titled “Use of Proceeds” or (ii) we
determine that the proposed uses set forth in that section are no
longer in the best interests of our Company, we cannot specify with
any certainty the particular uses of such net proceeds that we
receive from the offering. Our management will have broad
discretion in the application of such net proceeds, including
working capital, possible acquisitions, and other general corporate
purposes, and we may spend or invest these proceeds in a way with
which our shareholders disagree. The failure by our management to
apply these funds effectively could harm our business and financial
condition. Pending their use, we may invest the net proceeds from
the offering in a manner that does not produce income or that loses
value.
We do not intend to pay dividends for the foreseeable
future.
We
currently intend to retain any future earnings to finance the
operation and expansion of our business, and we do not expect to
declare or pay any dividends in the foreseeable future. As a
result, you may only receive a return on your investment in our
common stock if the market price of our common stock
increases.
If a more active trading market for our common stock develops, the
market price of our common stock is likely to be highly volatile
and subject to wide fluctuations, and holders of our common stock
may be unable to sell their shares at or above the price at which
they were acquired.
The
market price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to a number
of factors that are beyond our control, including:
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quarterly
variations in our revenues and operating expenses; |
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developments
in the financial markets and worldwide economies; |
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announcements
of innovations or new products or services by us or our
competitors; |
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announcements
by the PRC government relating to regulations that govern our
industry; |
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significant
sales of our common stock or other securities in the open
market; |
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variations
in interest rates; |
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changes
in the market valuations of other comparable companies;
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changes
in accounting principles. |
The obligation to disclose information publicly may put us at a
disadvantage to competitors that are private
companies.
As a
public company in the United States, we are required to file
periodic reports with the Securities and Exchange Commission upon
the occurrence of matters that are material to our company and
shareholders. Although we may be able to attain confidential
treatment of some of our developments, in some cases, we will need
to disclose material agreements or results of financial operations
that we would not be required to disclose if we were a private
company. Our competitors will have access to this information,
which would otherwise be confidential. This may give them
advantages in competing with our company. Similarly, as a U.S.
public company, we will be governed by U.S. laws that our
competitors, which are mostly private Chinese companies, are not
required to follow. To the extent compliance with U.S. laws
increases our expenses or decreases our competitiveness against
such companies, our public company status could affect our results
of operations.
You will experience immediate and substantial
dilution.
The
offering price of our shares may be substantially higher than the
pro forma net tangible book value per share of our common stock.
Accordingly, if you Put Shares in this offering, you may incur
immediate and substantial dilution of your investment. See
“Dilution” on page 25.
A sale or perceived sale of a substantial number of shares of our
common stock may cause the price of our common stock to
decline.
If
our shareholders sell substantial amounts of our common stock in
the public market, the market price of our common stock could fall.
Moreover, the perceived risk of this potential dilution could cause
shareholders to attempt to sell their shares and investors to short
our common stock. These sales also may make it more difficult for
us to sell equity or equity-related securities in the future at a
time and price that we deem reasonable or appropriate.
Risks
Related to Doing Business in China
PRC regulation of loans to, and direct investments in, PRC entities
by offshore holding companies may delay or prevent us from using
proceeds from this offering and/or future financing activities to
make loans or additional capital contributions to our PRC operating
subsidiaries.
As an
offshore holding company with PRC subsidiaries, we may transfer
funds to our PRC subsidiaries or finance our operating entity by
means of loans or capital contributions. Any loans to our PRC
subsidiaries, which are foreign-invested enterprises, cannot exceed
statutory limits based on the difference between the amount of our
investments and registered capital in such subsidiaries, and shall
be registered with China’s State Administration of Foreign Exchange
(“SAFE”), or its local counterparts. Furthermore, any capital
increase contributions we make to our PRC subsidiaries, which are
foreign-invested enterprises, shall be approved by China’s Ministry
of Commerce (“MOFCOM”), or its local counterparts. We may not be
able to obtain these government registrations or approvals on a
timely basis, if at all. If we fail to receive such registrations
or approvals, our ability to provide loans or capital to increase
contributions to our PRC subsidiaries may be negatively affected,
which could adversely affect our liquidity and our ability to fund
and expand our business.
PRC state administration of foreign exchange (“SAFE”) regulations
regarding offshore financing activities by PRC residents which may
increase the administrative burden we face. The failure by our
shareholders who are PRC residents to make any required
applications and filings pursuant to such regulations may prevent
us from being able to distribute profits and could expose us and
our PRC resident shareholders to liability under PRC
law.
SAFE,
issued a public notice (“SAFE #75”) effective from November 1,
2005, which requires registration with SAFE by the PRC resident
shareholders of any foreign holding company of a PRC entity.
Without registration, the PRC entity cannot remit any of its
profits out of the PRC as dividends or otherwise.
In
November 2005, SAFE issued a public notice, the Notice on Relevant
Issues in the Foreign Exchange Control over Financing and Return
Investment Through Special Purpose Companies by Residents Inside
China, or the SAFE notice, which requires PRC residents, including
both legal persons and natural persons, to register with the
competent local SAFE branch before establishing or controlling any
company outside of China, referred to as an “offshore special
purpose company,” for the purpose of overseas equity financing
involving onshore assets or equity interests held by them. In
addition, any PRC resident that is the shareholder of an offshore
special purpose company is required to amend its SAFE registration
with the local SAFE branch with respect to that offshore special
purpose company in connection with any increase or decrease of
capital, transfer of shares, merger, division, equity investment or
creation of any security interest over any assets located in China.
Moreover, if the offshore special purpose company was established
and owned the onshore assets or equity interests before the
implementation date of the SAFE notice, a retroactive SAFE
registration is required to have been completed before March 31,
2006. If any PRC shareholder of any offshore special purpose
company fails to make the required SAFE registration and amendment,
the PRC subsidiaries of that offshore special purpose company may
be prohibited from distributing their profits and the proceeds from
any reduction in capital, share transfer or liquidation to the
offshore special purpose company. Moreover, failure to comply with
the SAFE registration and amendment requirements described above
could result in liability under PRC laws for evasion of applicable
foreign exchange restrictions.
It is
unclear whether our other PRC resident shareholders must make
disclosure to SAFE. We believe that only PRC resident shareholders
who receive ownership of the foreign holding company in exchange
for ownership in the PRC operating company are subject to SAFE #75,
there can be no assurance that SAFE will not require our other PRC
resident shareholders to register and make the applicable
disclosure. In addition, SAFE #75 requires that any monies remitted
to PRC residents outside of the PRC be returned within 180 days;
however, there is no indication of what the penalty will be for
failure to comply or if shareholder non-compliance will be
considered to be a violation of SAFE #75 by us or otherwise affect
us.
In
the event that the proper procedures are not followed under SAFE
#75, we could lose the ability to remit monies outside of the PRC
and would therefore be unable to pay dividends or make other
distributions. Our PRC resident shareholders could be subject to
fines, other sanctions and even criminal liabilities under the PRC
Foreign Exchange Administrative Regulations promulgated January 29,
1996, as amended.
Labor disputes could significantly affect our
operations.
Labor
disputes with our employees or labor disputes regarding social
welfare could significantly disrupt operations or expansion plans.
Delays caused by any such disruptions could materially affect
projections for increased capacity, production and revenues, which
could have a material adverse effect on our business, financial
condition, results of operations and prospects.
Labor laws in the PRC may adversely affect our results of
operations.
The
Labor Contract Law of the PRC imposes greater liabilities on
employers and significantly affects the cost of an employer’s
decision to reduce its workforce. Further, it requires certain
terminations be based upon seniority and not merit. In the event we
decide to significantly change or decrease our workforce, the Labor
Contract Law could adversely affect our ability to enact such
changes in a manner that is most advantageous to our business or in
a timely and cost-effective manner, thus materially and adversely
affecting our financial condition and results of
operations.
The cessation of tax exemptions and deductions by the Chinese
government may affect our profitability.
As
part of our business is agricultural, we benefit from value added
tax (“VAT”) and income tax exemption status for Qingdao Zhihesheng
and Zhisheng Agricultural. Ankang Longevity Group also benefits
from VAT exemptions from the purchase of raw materials used in
Chinese medicine. If China’s law with respect to these tax
exemptions changes, it will have significant effect on our net
profit.
The rental of collective land requires the permission of local
residents or the local government.
Our
agricultural business requires the rental of collective land which
may be revoked by the committee of collective rural residents or
the local government if the use of the land does not comply with
the original rental agreement and relevant regulations to use the
land for agriculture purposes. While we will continue to strive for
compliance with the rental agreement and relevant regulations,
should such revoking situation occur, we would further negotiate
with the relevant local government to revise the agreement for the
continued use of the land.
Adverse changes in political and economic policies of the PRC
government could have a material adverse effect on the overall
economic growth of China, which could reduce the demand for our
products and materially and adversely affect our competitive
position.
Substantially
all of our business operations are conducted in China. Accordingly,
our business, results of operations, financial condition and
prospects are subject to economic, political and legal developments
in China. Although the Chinese economy is no longer a planned
economy, the PRC government continues to exercise significant
control over China’s economic growth through direct allocation of
resources, monetary and tax policies, and a host of other
government policies such as those that encourage or restrict
investment in certain industries by foreign investors, control the
exchange between RMB and foreign currencies, and regulate the
growth of the general or specific market. These government
involvements have been instrumental in China’s significant growth
in the past 30 years. In response to the recent global and Chinese
economic slowdown, the PRC government has adopted policy measures
aimed at stimulating the economic growth in China. If the PRC
government’s current or future policies fail to help the Chinese
economy achieve further growth or if any aspect of the PRC
government’s policies limits the growth of our industry or
otherwise negatively affects our business, our growth rate or
strategy, our results of operations could be adversely affected as
a result.
Under the Enterprise Income Tax Law, we may be classified as a
“Resident Enterprise” of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC
shareholders.
China
passed the Enterprise Income Tax Law, or the EIT Law, and it is
implementing rules, both of which became effective on January 1,
2008. Under the EIT Law, an enterprise established outside of China
with “de facto management bodies” within China is considered a
“resident enterprise,” meaning that it can be treated in a manner
similar to a Chinese enterprise for enterprise income tax purposes.
The implementing rules of the EIT Law define de facto management as
“substantial and overall management and control over the production
and operations, personnel, accounting, and properties” of the
enterprise.
On
April 22, 2009, the State Administration of Taxation of China
issued the Notice Concerning Relevant Issues Regarding Cognizance
of Chinese Investment Controlled Enterprises Incorporated Offshore
as Resident Enterprises pursuant to Criteria of de facto Management
Bodies, or the Notice, further interpreting the application of the
EIT Law and its implementation to offshore entities controlled by a
Chinese enterprise or group. Pursuant to the Notice, an enterprise
incorporated in an offshore jurisdiction and controlled by a
Chinese enterprise or group will be classified as a
“non-domestically incorporated resident enterprise” if (i) its
senior management in charge of daily operations reside or perform
their duties mainly in China; (ii) its financial or personnel
decisions are made or approved by bodies or persons in China; (iii)
its substantial assets and properties, accounting books, corporate
stamps, board and shareholder minutes are kept in China; and (iv)
at least half of its directors with voting rights or senior
management often reside in China. A resident enterprise would be
subject to an enterprise income tax rate of 25% on its worldwide
income and must pay a withholding tax at a rate of 10% when paying
dividends to its non-PRC shareholders. Because substantially all of
our operations and senior management are located within the PRC and
are expected to remain so for the foreseeable future, we may be
considered a PRC resident enterprise for enterprise income tax
purposes and therefore subject to the PRC enterprise income tax at
the rate of 25% on our worldwide income. However, it remains
unclear as to whether the Notice is applicable to an offshore
enterprise controlled by a Chinese natural person. Therefore, it is
unclear how tax authorities will determine tax residency based on
the facts of each case.
If
the PRC tax authorities determine that we are a “resident
enterprise” for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. First, we may be
subject to the enterprise income tax at a rate of 25% on our
worldwide taxable income as well as PRC enterprise income tax
reporting obligations. In our case, this would mean that income
such as non-China source income would be subject to PRC enterprise
income tax at a rate of 25%. Currently, we do not have any
non-China source income, as we complete our sales, including export
sales, in China. Second, under the EIT Law and its implementing
rules, dividends paid to us from our PRC subsidiaries would be
deemed as “qualified investment income between resident
enterprises” and therefore qualify as “tax-exempt income” pursuant
to the clause 26 of the EIT Law. Finally, it is possible that
future guidance issued with respect to the new “resident
enterprise” classification could result in a situation in which the
dividends we pay with respect to our common stock, or the gain our
non-PRC shareholders may realize from the transfer of our common
stock, may be treated as PRC-sourced income and may therefore be
subject to a 10% PRC withholding tax. The EIT Law and its
implementing regulations are, however, relatively new and
ambiguities exist with respect to the interpretation and
identification of PRC-sourced income, and the application and
assessment of withholding taxes. If we are required under the EIT
Law and its implementing regulations to withhold PRC income tax on
dividends payable to our non-PRC shareholders, or if non-PRC
shareholders are required to pay PRC income tax on gains on the
transfer of their shares of common stock, our business could be
negatively impacted and the value of your investment may be
materially reduced. Further, if we were treated as a “resident
enterprise” by PRC tax authorities, we would be subject to taxation
in both China and such countries in which we have taxable income,
and our PRC tax may not be creditable against such other
taxes.
We may be exposed to liabilities under the Foreign Corrupt
Practices Act and Chinese anti-corruption law.
We
are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), and
other laws that prohibit improper payments or offers of payments to
foreign governments and their officials and political parties by
U.S. persons and issuers as defined by the statute for the purpose
of obtaining or retaining business. We are also subject to Chinese
anti-corruption laws, which strictly prohibit the payment of bribes
to government officials. We have operations, agreements with third
parties, and make sales in China, which may experience corruption.
Our activities in China create the risk of unauthorized payments or
offers of payments by one of the employees, consultants or
distributors of our company, because these parties are not always
subject to our control.
Although
we believe to date we have complied in all material respects with
the provisions of the FCPA and Chinese anti-corruption law, our
existing safeguards and any future improvements may prove to be
less than effective, and the employees, consultants or distributors
of our Company may engage in conduct for which we might be held
responsible. Violations of the FCPA or Chinese anti-corruption law
may result in severe criminal or civil sanctions including personal
liability for management, and we may be subject to other
liabilities, which could negatively affect our business, operating
results and financial condition. In addition, the government may
seek to hold our Company liable for successor liability FCPA
violations committed by companies in which we invest or that we
acquire.
Uncertainties with respect to the PRC legal system could adversely
affect us.
We
conduct all of our business through our subsidiaries and variable
interests entities in China. Our operations in China are governed
by PRC laws and regulations. Our PRC subsidiaries and variable
interests entities are generally subject to laws and regulations
applicable to foreign investments in China and, in particular, laws
and regulations applicable to wholly foreign-owned enterprises. The
PRC legal system is based on statutes. Prior court decisions may be
cited for reference but have limited precedential value.
Since
1979, PRC legislation and regulations have significantly enhanced
the protections afforded to various forms of foreign investments in
China. However, China has not developed a fully integrated legal
system and recently enacted laws and regulations may not
sufficiently cover all aspects of economic activities in China. In
particular, because these laws and regulations are relatively new,
and because of the limited volume of published decisions and their
nonbinding nature, the interpretation and enforcement of these laws
and regulations involve uncertainties. In addition, the PRC legal
system is based in part on government policies and internal rules
(some of which are not published on a timely basis or at all) that
may have a retroactive effect. As a result, we may not be aware of
our violation of these policies and rules until sometime after the
violation. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of resources and
management attention.
Furthermore,
and as discussed above in “Risk Factors—Proposed legislation in the
PRC could adversely affect our corporate structure, corporate
governance and business operations,” MOFCOM, released in January
2015 a discussion draft of the proposed Foreign Investment Law,
which, if enacted, would replace existing laws regulating foreign
investments in China with a uniform law. The proposed legislation
could affect a wide range of foreign entities, including our
Company, and investments generally in China.
PRC
regulation of loans and direct investment by offshore holding
companies to PRC entities may delay or prevent us from using the
proceeds of this offering to make loans or additional capital
contributions to our PRC subsidiaries, which could materially and
adversely affect our liquidity and our ability to fund and expand
our business.
In
utilizing the proceeds of this offering in the manner described in
“Use of Proceeds,” as an offshore holding company of our PRC
operating subsidiaries, we may make loans to our PRC subsidiaries,
or we may make additional capital contributions to our PRC
subsidiaries.
Any
loans to our PRC subsidiaries, and the repayments thereof, are
subject to PRC regulations. For example, loans by us to our
subsidiaries in China, which are foreign invested entities
(“FIEs”), to finance their activities cannot exceed statutory
limits and must be registered with the State Administration of
Foreign Exchange, or SAFE. On August 29, 2008, SAFE promulgated
Circular 142, a notice regulating the conversion by a
foreign-invested company of foreign currency into RMB by
restricting how the converted RMB may be used. The notice requires
that RMB converted from the foreign currency-denominated capital of
a foreign-invested company may only be used for purposes within the
business scope approved by the applicable governmental authority
and may not be used for equity investments within the PRC unless
such investments are otherwise provided for in the business scope.
The foreign currency-denominated capital shall be verified by an
accounting firm before converting into RMB. In addition, SAFE
strengthened its oversight over the flow and use of RMB funds
converted from the foreign currency-denominated capital of a
foreign-invested company. To convert such capital into RMB, the
foreign-invested company must report the use of such RMB to the
bank, and the RMB must be used to the reported purposes. According
to Circular 142, change of the use of such RMB without approval is
prohibited. In addition, such RMB may not be used to repay RMB
loans if the proceeds of such loans have not yet been used.
Violations of Circular 142 may result in severe penalties,
including substantial fines as set forth in the Foreign Exchange
Administration Rules.
Furthermore,
SAFE promulgated Circular 59 on November 19, 2010, requiring the
governmental authority to closely examine the authenticity of
settlement of net proceeds from offshore offerings. In particular,
any net proceeds settled from offshore offerings must be applied in
the manner described in the offering documents.
On
May 10, 2013, SAFE released Circular 21, which came into effect on
May 13, 2013. According to Circular 21, SAFE has simplified the
foreign exchange administration procedures with respect to the
registration, account openings and conversions, settlements of
FDI-related foreign exchange, as well as fund
remittances.
Circular
142, Circular 59 and Circular 21 may significantly limit our
ability to convert, transfer and use the net proceeds from this
offering and any offering of additional equity securities in China,
which may adversely affect our liquidity and our ability to fund
and expand our business in the PRC.
We
may also decide to finance our subsidiaries by means of capital
contributions. These capital contributions must be approved by the
Ministry of Commerce of China, or MOFCOM, or its local counterpart,
which approval usually takes no more than 30 working days to
complete. We may not be able to obtain these government approvals
on a timely basis, if at all, with respect to future capital
contributions by us to our PRC subsidiaries. If we fail to receive
such approvals, we will not be able to use the proceeds of this
offering and capitalize our PRC operations, which could adversely
affect our liquidity and our ability to fund and expand our
business.
Governmental control of currency conversion may affect the value of
your investment by restricting our ability to pay dividends, even
if profitable.
The
PRC government imposes controls on the convertibility of the RMB
into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantially all of our revenues
in RMB. Under our current corporate structure, our income is
primarily derived from dividend payments from our PRC subsidiaries.
Shortages in the availability of foreign currency may restrict the
ability of our PRC subsidiaries to remit sufficient foreign
currency to pay dividends or other payments to us, or otherwise
satisfy their foreign currency denominated obligations. Under
existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments
and expenditures from trade-related transactions can be made in
foreign currencies without prior approval from SAFE by complying
with certain procedural requirements. However, approval from
appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay
capital expenses such as the repayment of loans denominated in
foreign currencies. The PRC government may also at its discretion
restrict access in the future to foreign currencies for current
account transactions. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy
our currency demands, we may not be able to pay dividends in
foreign currencies to our security-holders.
We are a holding company and we rely on dividend payments from our
subsidiaries, which are subject to restrictions under PRC laws, for
funding.
We
are a holding company incorporated in Delaware, and we operate our
core businesses through our subsidiaries in the PRC and through
various variable interest entities, or VIEs, and agreements with
third parties. Therefore, the availability of funds for us to pay
dividends to our shareholders and to service our indebtedness
depends upon dividends received from these PRC subsidiaries. If our
subsidiaries incur debt or losses, their ability to pay dividends
or other distributions to us may be impaired. As a result, our
ability to pay dividends and to repay our indebtedness will be
restricted. PRC laws require that dividends be paid only out of the
after-tax profit of our PRC subsidiaries calculated according to
PRC accounting principles, which differ in many aspects from
generally accepted accounting principles in other jurisdictions.
PRC laws also require enterprises established in the PRC to set
aside part of their after-tax profits as statutory reserves. These
statutory reserves are not available for distribution as cash
dividends. In addition, restrictive covenants in bank credit
facilities or other agreements that we or our subsidiaries may
enter into in the future may also restrict the ability of our
subsidiaries to pay dividends to us. These restrictions on the
availability of our funding may impact our ability to pay dividends
to our Shareholders and to service our indebtedness.
Our business may be materially and adversely affected if any of our
PRC subsidiaries declare bankruptcy or become subject to a
dissolution or liquidation proceeding.
According
to the SAFE’s Notice of the State Administration of Foreign
Exchange on Further Improving and Adjusting Foreign Exchange
Administration Policies for Direct Investment, effective on
December 17, 2012, and the Provisions for Administration of Foreign
Exchange Relating to Inbound Direct Investment by Foreign
Investors, effective May 13, 2013, if any of our PRC subsidiaries
undergoes a voluntary or involuntary liquidation proceeding, prior
approval from the SAFE for remittance of foreign exchange to our
shareholders abroad is no longer required, but we still need to
conduct a registration process with the SAFE local branch. It is
not clear whether “registration” is a mere formality or involves
the kind of substantive review process undertaken by SAFE and its
relevant branches in the past. If the review process is more
substantive and stringent, it will be more time consuming and
costly; thus diverting our management’s time and our revenues away
from everyday operations. Additionally, if the registration
requires a substantive review, it will delay and could potentially
deny our ability to remit our profits to our
shareholders.
Fluctuations in exchange rates could adversely affect our business
and the value of our securities.
Changes
in the value of the RMB against the U.S. dollar, Euro and other
foreign currencies are affected by, among other things, changes in
China’s political and economic conditions. Any significant
revaluation of the RMB may have a material adverse effect on our
revenues and financial condition, and the value of, and any
dividends payable on our shares in U.S. dollar terms. For example,
to the extent that we need to convert U.S. dollars we receive from
our offering into RMB for our operations, appreciation of the RMB
against the U.S. dollar would have an adverse effect on RMB amount
we would receive from the conversion. Conversely, if we decide to
convert our RMB into U.S. dollars for the purpose of paying
dividends on our shares of common stock or for other business
purposes, appreciation of the U.S. dollar against the RMB would
have a negative effect on the U.S. dollar amount available to us.
In addition, fluctuations of the RMB against other currencies may
increase or decrease the cost of imports and exports, and thus
affect the price-competitiveness of our products against products
of foreign manufacturers or products relying on foreign
inputs.
Since
July 2005, the RMB is no longer pegged to the U.S. dollar. Although
the People’s Bank of China regularly intervenes in the foreign
exchange market to prevent significant short-term fluctuations in
the exchange rate, the RMB may appreciate or depreciate
significantly in value against the U.S. dollar in the medium to
long term. Moreover, it is possible that in the future PRC
authorities may lift restrictions on fluctuations in the RMB
exchange rate and lessen intervention in the foreign exchange
market.
From
June 30, 2016 to June 30, 2017, the PRC Government devalued its
currency by approximately 2.1%, representing the largest yuan
depreciation in 20 years. China weakened the value of RMB currency
by 2.1% to 6.78 against the US dollar on June 30, 2017, from 6.64
against the US dollar on June 30, 2016. On September 30, 2017, the
value of RMB currency against the US dollar was 6.65. Concerns
remain that China’s slowing economy, and in particular its exports,
will need a stimulus that can only come from further cuts in the
exchange rate.
If we become directly subject to the recent scrutiny, criticism and
negative publicity involving U.S.-listed Chinese companies, we may
have to expend significant resources to investigate and resolve the
matter which could harm our business operations, this offering and
our reputation and could result in a loss of your investment in our
stock, especially if such matter cannot be addressed and resolved
favorably.
Recently,
U.S. public companies that have substantially all of their
operations in China, have been the subject of intense scrutiny,
criticism and negative publicity by investors, financial
commentators and regulatory agencies, such as the SEC. Much of the
scrutiny, criticism and negative publicity has centered around
financial and accounting irregularities, a lack of effective
internal controls over financial accounting, inadequate corporate
governance policies or a lack of adherence thereto and, in many
cases, allegations of fraud. As a result of the scrutiny, criticism
and negative publicity, the publicly traded stock of many U.S.
listed Chinese companies has sharply decreased in value and, in
some cases, has become virtually worthless or illiquid. Many of
these companies are now subject to shareholder lawsuits and SEC
enforcement actions and are conducting internal and external
investigations into the allegations. It is not clear what effect
this sector-wide scrutiny, criticism and negative publicity will
have on our Company, our business and this offering. If we become
the subject of any unfavorable allegations, whether such
allegations are proven to be true or untrue, we will have to expend
significant resources to investigate such allegations and/or defend
the Company. If such allegations are not proven to be groundless,
our Company and business operations will be severely hampered and
your investment in our stock could be rendered worthless. Even if
such allegations are groundless, this situation may be a major
distraction to our management.
You may face difficulties in protecting your interests and
exercising your rights as a shareholder since we conduct
substantially all of our operations in China, and almost all of our
officers and directors reside outside the U.S.
Although
we are incorporated in Delaware, we conduct substantially all of
our operations in China. All of our current officers and directors
reside outside the U.S. and substantially all of the assets of
those persons are located outside of the U.S. It may be difficult
for you to conduct due diligence on the Company or such directors
in your election of the directors and attend a shareholder meeting
if the meeting is held in China. We plan to have one shareholder
meeting each year at a location to be determined, potentially
alternating between U.S. and China. As a result of all of the
above, our public shareholders may have more difficulty in
protecting their interests through actions against our management,
directors or major shareholders than would shareholders of a
corporation doing business entirely or predominantly within the
U.S.
DISCLOSURE
REGARDING FORWARD-LOOKING INFORMATION
This
prospectus and the documents incorporated by reference herein
contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based on our current expectations
and beliefs, including estimates and projections about our
industry. Forward-looking statements may be identified by use of
terms such as “anticipates,” “expects,” “intends,” “plans,”
“seeks,” “estimates,” “believes” and similar expressions, although
some forward-looking statements are expressed differently.
Statements concerning our financial position, business strategy and
plans or objectives for future operations are forward-looking
statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict and may cause actual
results to differ materially from management’s current
expectations. Such risks and uncertainties include those set forth
herein under “Risk Factors.” The forward-looking statements in this
prospectus speak only as of the time they are made and do not
necessarily reflect our outlook at any other point in
time.
Except
as may be required under the federal securities laws, we undertake
no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise.
You are advised, however, to read any further disclosures we make
on related subjects in our filings with the SEC, including Form
10-K, Form 10-Q and Form 8-K reports. Also note that under the
caption “Risk Factors,” we provide a cautionary discussion of
risks, uncertainties and possibly inaccurate assumptions relevant
to our business. These are factors that we think could cause our
actual results to differ materially from expected and historical
results. Other factors besides those listed in “Risk Factors,”
including factors described as risks in our filings with the SEC,
could also adversely affect us. For any forward-looking statements
contained in any document, we claim the protection of the safe
harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
USE
OF PROCEEDS
Unless
otherwise indicated in a prospectus supplement, we intend to use
the net proceeds from the sale of the securities under this
prospectus for general corporate purposes. We may also use a
portion of the net proceeds to acquire or invest in businesses and
products that are complementary to our own, although we have no
current plans, commitments or agreements with respect to any
acquisitions as of the date of this prospectus. Pending the uses
described above, we intend to invest the net proceeds in
short-term, interest bearing, investment-grade
securities.
DETERMINATION
OF OFFERING PRICE
The
offering price of the securities may be determined by us or our
sales agent from time to time in connection with the offering. We
will provide the offering price of securities in the supplement(s)
to this prospectus.
DILUTION
Our
net tangible book value as of September 30, 2017 was $3.08 per
share of Common Stock . Net tangible book value per share of Common
Stock is determined by dividing our tangible net worth, which is
tangible assets less liabilities, by the total number of shares of
our Common Stock outstanding. If we offer shares of our Common
Stock, purchasers of our Common Stock in that offering may
experience immediate dilution in net tangible book value per share.
The prospectus supplement relating to an offering of shares of our
Common Stock will set forth the information regarding any dilutive
effect of that offering.
SELLING
STOCKHOLDERS
Not
Applicable.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
General
The
following description of our capital stock (which includes a
description of securities we may offer pursuant to the registration
statement of which this prospectus, as the same may be
supplemented, forms a part) does not purport to be complete and is
subject to and qualified in its entirety by our certificate of
incorporation, our bylaws and by the applicable provisions of
Delaware law.
Our
authorized capital stock consists of 105,000,000 shares of common
stock, par value $0.001 per share, consisting of 100,000,000 shares
of common stock and 5,000,000 shares of preferred stock. The
following description of our capital stock is intended as a summary
only and is qualified in its entirety by reference to our amended
certificate of incorporation and bylaws, which have been filed
previously with the SEC, and applicable provisions of Delaware
law.
We,
directly or through agents, dealers or underwriters designated from
time to time, may offer, issue and sell, together or separately, up
to $25,000,000 in the aggregate of:
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secured
or unsecured debt securities consisting of notes, debentures or
other evidences of indebtedness which may be senior debt
securities, senior subordinated debt securities or subordinated
debt securities, each of which may be convertible into equity
securities; |
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warrants
to purchase our securities; |
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rights
to purchase our securities; or |
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units
comprised of, or other combinations of, the foregoing
securities. |
We
may issue the debt securities as exchangeable for or convertible
into shares of common stock, preferred stock or other securities.
The preferred stock may also be exchangeable for and/or convertible
into shares of common stock, another series of preferred stock or
other securities. The debt securities, the preferred stock, the
common stock and the warrants are collectively referred to in this
prospectus as the “Securities.” When a particular series of
securities is offered, a supplement to this prospectus will be
delivered with this prospectus, which will set forth the terms of
the offering and sale of the offered securities.
Common
Stock
As of
December 12, 2017, there were 21,034,072 shares of our common stock
issued and outstanding, held of record by approximately 299
stockholders. The outstanding shares of common stock are fully paid
and non-assessable. The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of the stockholders.
Our
board is divided into three classes, each of which will generally
serve for a term of three years with only one class of directors
being elected in each year. The common stock has no cumulative
voting rights, including with respect to the election of
directors.
Subject
to preferential rights with respect to any future outstanding
preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by our board of directors
out of funds legally available therefore. As of the date of this
prospectus, we do not have any preferred stock outstanding nor do
we have any classes of preferred stock designated. Pursuant to
Section 281 of Delaware General Corporation Law, in the event of
our dissolution, the holders of common stock are entitled to the
remaining assets after payment of all liabilities of the
company.
Our
common stock has no preemptive or conversion rights or other
subscription rights.
Preferred
Stock
Our
certificate of incorporation, as amended, empowers our board of
directors, without action by our shareholders, to issue up to
5,000,000 shares of preferred stock from time to time in one or
more series, which preferred stock may be offered by this
prospectus and supplements thereto. As of the date of this
prospectus, no shares of preferred stock were designated or issued
and outstanding. Our board may fix the rights, preferences,
privileges and restrictions of our authorized but undesignated
preferred shares, including:
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dividend
rights and preferences over dividends on our common stock or any
series of preferred stock; |
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the
dividend rate (and whether dividends are cumulative); |
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conversion
rights, if any; |
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rights
and terms of redemption (including sinking fund provisions, if
any); |
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redemption
price and liquidation preferences of any wholly unissued series of
any preferred stock and the designation thereof of any of them;
and |
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to
increase or decrease the number of shares of any series subsequent
to the issue of shares of that series but not below the number of
shares then outstanding. |
You
should refer to the prospectus supplement relating to the series of
preferred stock being offered for the specific terms of that
series, including:
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title
of the series and the number of shares in the series; |
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the
price at which the preferred stock will be offered; |
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the
dividend rate or rates or method of calculating the rates, the
dates on which the dividends will be payable, whether or not
dividends will be cumulative or noncumulative and, if cumulative,
the dates from which dividends on the preferred stock being offered
will cumulate; |
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the
voting rights, if any, of the holders of shares of the preferred
stock being offered; |
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the
provisions for a sinking fund, if any, and the provisions for
redemption, if applicable, of the preferred stock being offered,
including any restrictions on the foregoing as a result of
arrearage in the payment of dividends or sinking fund
installments; |
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the
liquidation preference per share; |
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the
terms and conditions, if applicable, upon which the preferred stock
being offered will be convertible into our common stock, including
the conversion price, or the manner of calculating the conversion
price, and the conversion period; |
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the
terms and conditions, if applicable, upon which the preferred stock
being offered will be exchangeable for debt securities, including
the exchange price, or the manner of calculating the exchange
price, and the exchange period; |
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any
listing of the preferred stock being offered on any securities
exchange; |
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a
discussion of any material federal income tax considerations
applicable to the preferred stock being offered; |
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the
relative ranking and preferences of the preferred stock being
offered as to dividend rights and rights upon liquidation,
dissolution or the winding up of our affairs; |
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any
limitations on the issuance of any class or series of preferred
stock ranking senior or equal to the series of preferred stock
being offered as to dividend rights and rights upon liquidation,
dissolution or the winding up of our affairs; and |
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any
additional rights, preferences, qualifications, limitations and
restrictions of the series. |
Upon
issuance, the shares of preferred stock will be fully paid and
nonassessable, which means that its holders will have paid their
purchase price in full and we may not require them to pay
additional funds.
Any
preferred stock terms selected by our board of directors could
decrease the amount of earnings and assets available for
distribution to holders of our common stock or adversely affect the
rights and power, including voting rights, of the holders of our
common stock without any further vote or action by the
stockholders. The rights of holders of our common stock will be
subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued by us in the
future. The issuance of preferred stock could also have the effect
of delaying or preventing a change in control of our company or
make removal of management more difficult.
Debt
Securities
As
used in this prospectus, the term “debt securities” means the
debentures, notes, bonds and other evidences of indebtedness that
we may issue from time to time. The debt securities will either be
senior debt securities, senior subordinated debt or subordinated
debt securities. We may also issue convertible debt securities.
Debt securities issued under an indenture (which we refer to herein
as an Indenture) will be entered into between us and a trustee to
be named therein. It is likely that convertible debt securities
will not be issued under an Indenture.
We
will file as an exhibit to the registration statement of which this
prospectus is a part, or will incorporate by reference from a
current report that we file with the SEC, the form of Indenture and
the form of each Indenture agreement, if any, relating to
Indentures offered under this prospectus.
Events
of Default Under the Indenture
Unless
we provide otherwise in the prospectus supplement or free writing
prospectus applicable to a particular series of debt securities,
the following are events of default under the indentures with
respect to any series of debt securities that we may
issue:
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if we
fail to pay the principal or premium, if any, when due and payable
at maturity, upon redemption or repurchase or
otherwise; |
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if we
fail to pay interest when due and payable and our failure continues
for certain days; |
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if we
fail to observe or perform any other covenant contained in the
Securities of a Series or in this Indenture, and our failure
continues for certain days after we receive written notice from the
trustee or holders of at least certain percentage in aggregate
principal amount of the outstanding debt securities of the
applicable series. The written notice must specify the Default,
demand that it be remedied and state that the notice is a “Notice
of Default”; |
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if
specified events of bankruptcy, insolvency or reorganization occur;
and |
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if
any other event of default provided with respect to securities of
that series, which is specified in a Board Resolution, a
supplemental indenture hereto or an Officers’ Certificate as
defined in the Form of Indenture. |
We
covenant in the Form of Indenture to deliver a certificate to the
trustee annually, within certain days after the close of the fiscal
year, to show that we are in compliance with the terms of the
indenture and that we have not defaulted under the indenture.
Nonetheless, if we issue debt securities, the terms of the debt
securities and the final form of indenture will be provided in a
prospectus supplement. Please refer to the prospectus supplement
and the form of indenture attached thereto for the terms and
conditions of the offered debt securities. The terms and conditions
may or may not include whether or not we must furnish periodic
evidence showing that an event of default does not exist or that we
are in compliance with the terms of the indenture.
The
statements and descriptions in this prospectus or in any prospectus
supplement regarding provisions of the Indentures and debt
securities are summaries thereof, do not purport to be complete and
are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indentures (and any amendments or
supplements we may enter into from time to time which are permitted
under each Indenture) and the debt securities, including the
definitions therein of certain terms.
General
Unless
otherwise specified in a prospectus supplement, the debt securities
will be direct secured or unsecured obligations of our company. The
senior debt securities will rank equally with any of our other
unsecured senior and unsubordinated debt. The subordinated debt
securities will be subordinate and junior in right of payment to
any senior indebtedness.
We
may issue debt securities from time to time in one or more series,
in each case with the same or various maturities, at par or at a
discount. Unless indicated in a prospectus supplement, we may issue
additional debt securities of a particular series without the
consent of the holders of the debt securities of such series
outstanding at the time of the issuance. Any such additional debt
securities, together with all other outstanding debt securities of
that series, will constitute a single series of debt securities
under the applicable Indenture and will be equal in
ranking.
Should
an indenture relate to unsecured indebtedness, in the event of a
bankruptcy or other liquidation event involving a distribution of
assets to satisfy our outstanding indebtedness or an event of
default under a loan agreement relating to secured indebtedness of
our company or its subsidiaries, the holders of such secured
indebtedness, if any, would be entitled to receive payment of
principal and interest prior to payments on the senior indebtedness
issued under an Indenture.
Prospectus
Supplement
Each
prospectus supplement will describe the terms relating to the
specific series of debt securities being offered. These terms will
include some or all of the following:
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the
title of debt securities and whether they are subordinated, senior
subordinated or senior debt securities; |
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any
limit on the aggregate principal amount of debt securities of such
series; |
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the
percentage of the principal amount at which the debt securities of
any series will be issued; |
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the
ability to issue additional debt securities of the same
series; |
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the
purchase price for the debt securities and the denominations of the
debt securities; |
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the
specific designation of the series of debt securities being
offered; |
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the
maturity date or dates of the debt securities and the date or dates
upon which the debt securities are payable and the rate or rates at
which the debt securities of the series shall bear interest, if
any, which may be fixed or variable, or the method by which such
rate shall be determined; |
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the
basis for calculating interest if other than 360-day year or twelve
30-day months; |
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the
date or dates from which any interest will accrue or the method by
which such date or dates will be determined; |
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the
duration of any deferral period, including the maximum consecutive
period during which interest payment periods may be
extended; |
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whether
the amount of payments of principal of (and premium, if any) or
interest on the debt securities may be determined with reference to
any index, formula or other method, such as one or more currencies,
commodities, equity indices or other indices, and the manner of
determining the amount of such payments; |
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the
dates on which we will pay interest on the debt securities and the
regular record date for determining who is entitled to the interest
payable on any interest payment date; |
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the
place or places where the principal of (and premium, if any) and
interest on the debt securities will be payable, where any
securities may be surrendered for registration of transfer,
exchange or conversion, as applicable, and notices and demands may
be delivered to or upon us pursuant to the applicable
Indenture; |
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the
rate or rates of amortization of the debt securities, if
any; |
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if we
possess the option to do so, the periods within which and the
prices at which we may redeem the debt securities, in whole or in
part, pursuant to optional redemption provisions, and the other
terms and conditions of any such provisions; |
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our
obligation or discretion, if any, to redeem, repay or purchase debt
securities by making periodic payments to a sinking fund or through
an analogous provision or at the option of holders of the debt
securities, and the period or periods within which and the price or
prices at which we will redeem, repay or purchase the debt
securities, in whole or in part, pursuant to such obligation, and
the other terms and conditions of such obligation; |
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the
terms and conditions, if any, regarding the option or mandatory
conversion or exchange of debt securities; |
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the
period or periods within which, the price or prices at which and
the terms and conditions upon which any debt securities of the
series may be redeemed, in whole or in part at our option and, if
other than by a board resolution, the manner in which any election
by us to redeem the debt securities shall be evidenced; |
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any
restriction or condition on the transferability of the debt
securities of a particular series; |
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the
portion, or methods of determining the portion, of the principal
amount of the debt securities which we must pay upon the
acceleration of the maturity of the debt securities in connection
with any event of default if other than the full principal
amount; |
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the
currency or currencies in which the debt securities will be
denominated and in which principal, any premium and any interest
will or may be payable or a description of any units based on or
relating to a currency or currencies in which the debt securities
will be denominated; |
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provisions,
if any, granting special rights to holders of the debt securities
upon the occurrence of specified events; |
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any
deletions from, modifications of or additions to the events of
default or our covenants with respect to the applicable series of
debt securities, and whether or not such events of default or
covenants are consistent with those contained in the applicable
Indenture; |
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any
limitation on our ability to incur debt, redeem stock, sell our
assets or other restrictions; |
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the
application, if any, of the terms of the applicable Indenture
relating to defeasance and covenant defeasance (which terms are
described below) to the debt securities; |
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what
subordination provisions will apply to the debt
securities; |
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the
terms, if any, upon which the holders may convert or exchange the
debt securities into or for our common stock, preferred stock or
other securities or property; |
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whether
we are issuing the debt securities in whole or in part in global
form; |
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any
change in the right of the trustee or the requisite holders of debt
securities to declare the principal amount thereof due and payable
because of an event of default; |
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the
depositary for global or certificated debt securities, if
any; |
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any
material federal income tax consequences applicable to the debt
securities, including any debt securities denominated and made
payable, as described in the prospectus supplements, in foreign
currencies, or units based on or related to foreign
currencies; |
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any
right we may have to satisfy, discharge and defease our obligations
under the debt securities, or terminate or eliminate restrictive
covenants or events of default in the Indentures, by depositing
money or U.S. government obligations with the trustee of the
Indentures; |
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the
names of any trustees, depositories, authenticating or paying
agents, transfer agents or registrars or other agents with respect
to the debt securities; |
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to
whom any interest on any debt security shall be payable, if other
than the person in whose name the security is registered, on the
record date for such interest, the extent to which, or the manner
in which, any interest payable on a temporary global debt security
will be paid if other than in the manner provided in the applicable
Indenture; |
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if
the principal of or any premium or interest on any debt securities
is to be payable in one or more currencies or currency units other
than as stated, the currency, currencies or currency units in which
it shall be paid and the periods within and terms and conditions
upon which such election is to be made and the amounts payable (or
the manner in which such amount shall be determined); |
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the
portion of the principal amount of any debt securities which shall
be payable upon declaration of acceleration of the maturity of the
debt securities pursuant to the applicable Indenture if other than
the entire principal amount; |
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if
the principal amount payable at the stated maturity of any debt
security of the series will not be determinable as of any one or
more dates prior to the stated maturity, the amount which shall be
deemed to be the principal amount of such debt securities as of any
such date for any purpose, including the principal amount thereof
which shall be due and payable upon any maturity other than the
stated maturity or which shall be deemed to be outstanding as of
any date prior to the stated maturity (or, in any such case, the
manner in which such amount deemed to be the principal amount shall
be determined); and |
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any
other specific terms of the debt securities, including any
modifications to the events of default under the debt securities
and any other terms which may be required by or advisable under
applicable laws or regulations. |
Unless
otherwise specified in the applicable prospectus supplement, the
debt securities will not be listed on any securities exchange.
Holders of the debt securities may present registered debt
securities for exchange or transfer in the manner described in the
applicable prospectus supplement. Except as limited by the
applicable Indenture, we will provide these services without
charge, other than any tax or other governmental charge payable in
connection with the exchange or transfer.
Debt
securities may bear interest at a fixed rate or a variable rate as
specified in the prospectus supplement. In addition, if specified
in the prospectus supplement, we may sell debt securities bearing
no interest or interest at a rate that at the time of issuance is
below the prevailing market rate, or at a discount below their
stated principal amount. We will describe in the applicable
prospectus supplement any special federal income tax considerations
applicable to these discounted debt securities.
We
may issue debt securities with the principal amount payable on any
principal payment date, or the amount of interest payable on any
interest payment date, to be determined by referring to one or more
currency exchange rates, commodity prices, equity indices or other
factors. Holders of such debt securities may receive a principal
amount on any principal payment date, or interest payments on any
interest payment date, that are greater or less than the amount of
principal or interest otherwise payable on such dates, depending
upon the value on such dates of applicable currency, commodity,
equity index or other factors. The applicable prospectus supplement
will contain information as to how we will determine the amount of
principal or interest payable on any date, as well as the
currencies, commodities, equity indices or other factors to which
the amount payable on that date relates and certain additional tax
considerations.
Warrants
We
may issue warrants for the purchase of our common stock, preferred
stock or debt securities or any combination thereof. Warrants may
be issued independently or together with our common stock,
preferred stock or debt securities and may be attached to or
separate from any offered securities. To the extent warrants that
we issue are to be publicly-traded, each series of such warrants
will be issued under a separate warrant agreement to be entered
into between us and a bank or trust company, as warrant agent. The
warrant agent will act solely as our agent in connection with such
warrants. The warrant agent will not have any obligation or
relationship of agency or trust for or with any holders or
beneficial owners of warrants.
We
will file as exhibits to the registration statement of which this
prospectus is a part, or will incorporate by reference from a
current report on Form 8-K that we file with the SEC, forms of the
warrant and warrant agreement, if any. The prospectus supplement
relating to any warrants that we may offer will contain the
specific terms of the warrants and a description of the material
provisions of the applicable warrant agreement, if any. These terms
may include the following:
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the
title of the warrants; |
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the
price or prices at which the warrants will be issued; |
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the
designation, amount and terms of the securities or other rights for
which the warrants are exercisable; |
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the
designation and terms of the other securities, if any, with which
the warrants are to be issued and the number of warrants issued
with each other security; |
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the
aggregate number of warrants; |
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any
provisions for adjustment of the number or amount of securities
receivable upon exercise of the warrants or the exercise price of
the warrants; |
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the
price or prices at which the securities or other rights purchasable
upon exercise of the warrants may be purchased; |
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if
applicable, the date on and after which the warrants and the
securities or other rights purchasable upon exercise of the
warrants will be separately transferable; |
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a
discussion of any material U.S. federal income tax considerations
applicable to the exercise of the warrants; |
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the
date on which the right to exercise the warrants will commence, and
the date on which the right will expire; |
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the
maximum or minimum number of warrants that may be exercised at any
time; |
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information
with respect to book-entry procedures, if any; and |
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any
other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants. |
Exercise
of Warrants. Each warrant will entitle the holder of warrants to
purchase the amount of securities or other rights, at the exercise
price stated or determinable in the prospectus supplement for the
warrants. Warrants may be exercised at any time up to the close of
business on the expiration date shown in the applicable prospectus
supplement, unless otherwise specified in such prospectus
supplement. After the close of business on the expiration date, if
applicable, unexercised warrants will become void. Warrants may be
exercised in the manner described in the applicable prospectus
supplement. When the warrant holder makes the payment and properly
completes and signs the warrant certificate at the corporate trust
office of the warrant agent, if any, or any other office indicated
in the prospectus supplement, we will, as soon as possible, forward
the securities or other rights that the warrant holder has
purchased. If the warrant holder exercises less than all of the
warrants represented by the warrant certificate, we will issue a
new warrant certificate for the remaining warrants.
Rights
We
may issue rights to purchase our securities. The rights may or may
not be transferable by the persons purchasing or receiving the
rights. In connection with any rights offering, we may enter into a
standby underwriting or other arrangement with one or more
underwriters or other persons pursuant to which such underwriters
or other persons would purchase any offered securities remaining
unsubscribed for after such rights offering. Each series of rights
will be issued under a separate rights agent agreement to be
entered into between us and one or more banks, trust companies or
other financial institutions, as rights agent that we will name in
the applicable prospectus supplement. The rights agent will act
solely as our agent in connection with the rights and will not
assume any obligation or relationship of agency or trust for or
with any holders of rights certificates or beneficial owners of
rights.
The
prospectus supplement relating to any rights that we offer will
include specific terms relating to the offering, including, among
other matters:
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the
date of determining the security holders entitled to the rights
distribution; |
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the
aggregate number of rights issued and the aggregate amount of
securities purchasable upon exercise of the rights; |
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the
conditions to completion of the rights offering; |
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the
date on which the right to exercise the rights will commence and
the date on which the rights will expire; and |
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any
applicable federal income tax considerations. |
Each
right would entitle the holder of the rights to purchase for cash
the principal amount of securities at the exercise price set forth
in the applicable prospectus supplement. Rights may be exercised at
any time up to the close of business on the expiration date for the
rights provided in the applicable prospectus supplement. After the
close of business on the expiration date, all unexercised rights
will become void.
If
less than all of the rights issued in any rights offering are
exercised, we may offer any unsubscribed securities directly to
persons other than our security holders, to or through agents,
underwriters or dealers or through a combination of such methods,
including pursuant to standby arrangements, as described in the
applicable prospectus supplement.
Units
We
may issue units consisting of any combination of the other types of
securities offered under this prospectus in one or more series. We
may evidence each series of units by unit certificates that we may
issue under a separate agreement. We may enter into unit agreements
with a unit agent. Each unit agent, if any, may be a bank or trust
company that we select. We will indicate the name and address of
the unit agent, if any, in the applicable prospectus supplement
relating to a particular series of units. Specific unit agreements,
if any, will contain additional important terms and provisions. We
will file as an exhibit to the registration statement of which this
prospectus is a part, or will incorporate by reference from a
current report that we file with the SEC, the form of unit and the
form of each unit agreement, if any, relating to units offered
under this prospectus.
If we
offer any units, certain terms of that series of units will be
described in the applicable prospectus supplement, including,
without limitation, the following, as applicable
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the
title of the series of units; |
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identification
and description of the separate constituent securities comprising
the units; |
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the
price or prices at which the units will be issued; |
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the
date, if any, on and after which the constituent securities
comprising the units will be separately transferable; |
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a
discussion of certain United States federal income tax
considerations applicable to the units; and |
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any
other material terms of the units and their constituent
securities. |
The
provisions described in this section, as well as those described
under the description of “Common Stock”, “Preferred Stock”, and
“Warrants” will apply to each unit and to any Common Stock,
Preferred Stock or warrant included in each unit,
respectively.
Anti-Takeover
Provisions of the Delaware Law and Our Governing
Documents
Delaware
Law
We
are subject to Section 203 of the Delaware General Corporation Law
(“Section 203”). In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in “business combination”
transactions with any “interested stockholder” for a period of
three years following the time that the stockholder became an
interested stockholder, unless:
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prior
to the time the stockholder became an interested stockholder,
either the applicable business combination or the transaction which
resulted in the stockholder becoming an interested stockholder is
approved by the corporation’s board of directors; |
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upon
consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the voting stock outstanding (but not the
voting stock owned by the interested stockholder) shares owned by
directors who are also officers of the corporation and shares owned
by employee stock plans in which the employee participants do not
have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer;
or |
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at or
subsequent to the time that the stockholder became an interested
stockholder, the business combination is approved by the
corporation’s board of directors and authorized at an annual or
special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. |
A
“business combination” is defined to include, in general and
subject to exceptions, a merger of the corporation with the
interested stockholder; a sale of 10% or more of the market value
of the corporation’s consolidated assets to the interested
stockholder; certain transactions that result in the issuance of
the corporation’s stock to the interested stockholder; a
transaction that has the effect of increasing the proportionate
share of the corporation’s stock owned by the interested
stockholder; and any receipt by the interested stockholder of
loans, guarantees or other financial benefits provided by the
corporation. An “interested stockholder” is defined to include, in
general and subject to exceptions, a person that (1) owns 15% or
more of the outstanding voting stock of the corporation or (2) is
an “affiliate” or “associate” (as defined in Section 203 of the
DGCL) of the corporation and was the owner of 15% or more of the
corporation’s outstanding voting stock at any time within the prior
three year period.
A
Delaware corporation may opt out of Section 203 with an express
provision in its original certificate of incorporation or by an
amendment to its certificate of incorporation or bylaws expressly
electing not to be governed by Section 203 and approved by a
majority of its outstanding voting shares. We have not opted out of
Section 203. As a result, Section 203 could delay, deter or prevent
a merger, change of control or other takeover of our company that
our stockholders might consider to be in their best interests,
including transactions that might result in a premium being paid
over the market price of our common stock, and may also limit the
price that investors are willing to pay in the future for our
common stock.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Island Stock
Transfer, LLC, 15500 Roosevelt Blvd. Suite 301, Clearwater, FL
33760, and their telephone number is (727) 289-0010.
NASDAQ
Capital Market Listing
Our
common stock is listed on the NASDAQ Capital Market under the
symbol “TYHT.”
PLAN
OF DISTRIBUTION
We
may sell the securities offered through this prospectus (i) to or
through underwriters or dealers, (ii) directly to purchasers,
including our affiliates, (iii) through agents, or (iv) through a
combination of any these methods. The securities may be distributed
at a fixed price or prices, which may be changed, market prices
prevailing at the time of sale, prices related to the prevailing
market prices, or negotiated prices. The prospectus supplement will
include the following information:
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the
terms of the offering; |
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the
names of any underwriters or agents; |
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the
name or names of any managing underwriter or
underwriters; |
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the
purchase price of the securities; |
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any
over-allotment options under which underwriters may purchase
additional securities from us; |
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the
net proceeds from the sale of the securities; |
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any
delayed delivery arrangements; |
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any
underwriting discounts, commissions and other items constituting
underwriters’ compensation; |
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any
discounts or concessions allowed or reallowed or paid to
dealers; |
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any
commissions paid to agents; and |
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any
securities exchange or market on which the securities may be
listed. |
Sale
Through Underwriters or Dealers
Only
underwriters named in the prospectus supplement are underwriters of
the securities offered by the prospectus supplement. If
underwriters are used in the sale, the underwriters will acquire
the securities for their own account, including through
underwriting, purchase, security lending or repurchase agreements
with us. The underwriters may resell the securities from time to
time in one or more transactions, including negotiated
transactions. Underwriters may sell the securities in order to
facilitate transactions in any of our other securities (described
in this prospectus or otherwise), including other public or private
transactions and short sales. Underwriters may offer securities to
the public either through underwriting syndicates represented by
one or more managing underwriters or directly by one or more firms
acting as underwriters. Unless otherwise indicated in the
prospectus supplement, the obligations of the underwriters to
purchase the securities will be subject to certain conditions, and
the underwriters will be obligated to purchase all the offered
securities if they purchase any of them. The underwriters may
change from time to time any offering price and any discounts or
concessions allowed or reallowed or paid to dealers.
If
dealers are used in the sale of securities offered through this
prospectus, we will sell the securities to them as principals. They
may then resell those securities to the public at varying prices
determined by the dealers at the time of resale. The prospectus
supplement will include the names of the dealers and the terms of
the transaction.
We
will provide in the applicable prospectus supplement any
compensation we will pay to underwriters, dealers or agents in
connection with the offering of the securities, and any discounts,
concessions or commissions allowed by underwriters to participating
dealers.
Direct
Sales and Sales Through Agents
We
may sell the securities offered through this prospectus directly.
In this case, no underwriters or agents would be involved. Such
securities may also be sold through agents designated from time to
time. The prospectus supplement will name any agent involved in the
offer or sale of the offered securities and will describe any
commissions payable to the agent. Unless otherwise indicated in the
prospectus supplement, any agent will agree to use its reasonable
best efforts to solicit purchases for the period of its
appointment.
We
may sell the securities directly to institutional investors or
others who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any sale of those securities.
The terms of any such sales will be described in the prospectus
supplement.
Delayed
Delivery Contracts
If
the prospectus supplement indicates, we may authorize agents,
underwriters or dealers to solicit offers from certain types of
institutions to purchase securities at the offering price under
delayed delivery contracts. These contracts would provide for
payment and delivery on a specified date in the future. The
contracts would be subject only to those conditions described in
the prospectus supplement. The applicable prospectus supplement
will describe the commission payable for solicitation of those
contracts.
Market
Making, Stabilization and Other Transactions
Unless
the applicable prospectus supplement states otherwise, other than
our common stock, all securities we offer under this prospectus
will be a new issue and will have no established trading market. We
may elect to list offered securities on an exchange or in the
over-the-counter market. Any underwriters that we use in the sale
of offered securities may make a market in such securities, but may
discontinue such market making at any time without notice.
Therefore, we cannot assure you that the securities will have a
liquid trading market.
Any
underwriter may also engage in stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Rule 104
under the Securities Exchange Act. Stabilizing transactions involve
bids to purchase the underlying security in the open market for the
purpose of pegging, fixing or maintaining the price of the
securities. Syndicate covering transactions involve purchases of
the securities in the open market after the distribution has been
completed in order to cover syndicate short positions.
Penalty
bids permit the underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by the
syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions. Stabilizing transactions,
syndicate covering transactions and penalty bids may cause the
price of the securities to be higher than it would be in the
absence of the transactions. The underwriters may, if they commence
these transactions, discontinue them at any time.
General
Information
Agents,
underwriters, and dealers may be entitled, under agreements entered
into with us, to indemnification by us against certain liabilities,
including liabilities under the Securities Act. Our agents,
underwriters, and dealers, or their affiliates, may be customers
of, engage in transactions with or perform services for us, in the
ordinary course of business.
LEGAL
MATTERS
Unless
otherwise indicated in the applicable prospectus supplement, the
validity of the securities offered by this prospectus, and any
supplement thereto, will be passed upon for us by Hunter Taubman
Fischer & Li, LLC, New York, NY. The legality of the securities
for any underwriters, dealers or agents will be passed upon by
counsel as may be specified in the applicable prospectus
supplement.
EXPERTS
Wei,
Wei & Co., LLP (“Wei”), an independent registered public
accounting firm, audited our financial statements included in our
Annual Report on Form 10-K for the year ended June 30, 2017, as set
forth in their report included therein, which are incorporated by
reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference
in reliance on Wei’s report, given on their authority as experts in
accounting and auditing.
Material
Changes
None.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
file annual, quarterly and special reports, along with other
information with the SEC. Our SEC filings are available to the
public over the Internet at the SEC’s website at
http://www.sec.gov; you can also find our filings on our company
website:
http://shinecobiotech.mediaroom.com/index.php?s=2429&o=0&l=25.
You may also read and copy any document we file at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room.
This
prospectus is part of a registration statement on Form S-3 that we
filed with the SEC to register the securities offered hereby under
the Securities Act of 1933, as amended. This prospectus does not
contain all of the information included in the registration
statement, including certain exhibits and schedules. You may obtain
the registration statement and exhibits to the registration
statement from the SEC at the address listed above or from the
SEC’s internet site.
INFORMATION
INCORPORATED BY REFERENCE
The
Securities and Exchange Commission allows us to incorporate by
reference the information we file with them under certain
conditions, which means that we can disclose important information
to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this
prospectus and any information that we file subsequent to this
prospectus with the Securities and Exchange Commission will
automatically update and supersede this information. The documents
we are incorporating by reference are as follows:
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(a) |
the
Company’s Annual Report on Form 10-K for the year ended June
30, 2017; |
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(b) |
the
Company’s Quarterly Report on Form 10-Q for the period ended
September 30, 2017 |
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(c) |
the
Company’s Current Reports on Form 8-K filed on October 27,
2017; |
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(d) |
the
Company’s Current Reports on Form 8-K filed on November 1,
2017; |
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(e) |
the
Company’s Current Reports on Form 8-K filed on November 13,
2017; |
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(f) |
the
Company’s Current Reports on Form 8-K filed on November 16,
2017; |
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(g) |
the
Company’s Current Reports on Form 8-K filed on December 11,
2017; and |
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(h) |
the
description of the Common Stock, $0.001 par value per share,
contained in the Registrant’s registration statement on Form 8-A filed with the
Commission on May 13, 2016 pursuant to Section 12(b) of the
Exchange Act and all amendments or reports filed by us for the
purpose of updating those descriptions. |
All
documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the initial filing date of this
prospectus, through the date declared effective, until the
termination of the offering of securities contemplated by this
prospectus shall be deemed to be incorporated by reference into
this prospectus. These documents that we file later with the
Securities and Exchange Commission and that are incorporated by
reference in this prospectus will automatically update information
contained in this prospectus or that was previously incorporated by
reference into this prospectus. You will be deemed to have notice
of all information incorporated by reference in this prospectus as
if that information was included in this prospectus.
We
will provide to any person, including any beneficial owner, to whom
this prospectus is delivered, a copy of any or all of the
information that has been incorporated by reference in this
prospectus but not delivered with this prospectus (excluding
exhibits, unless the exhibits are specifically incorporated), at no
cost to the requesting party, upon request to us in writing or by
telephone using the following information:
SHINECO,
INC.
Room
1001, Building T5,
DaZu
Square, Daxing District,
Beijing,
People’s Republic of China
Attn:
Mr. Yuying Zhang
SHINECO,
INC.
$25,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Rights
Units
December
19, 2017
