UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-37776
SHINECO, INC.
(Exact name of registrant as specified in its charter)
Delaware | 52-2175898 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Room 1001, Building T5, DaZu Square,
Daxing District, Beijing
People’s Republic of China 100176
(Address of principal executive offices) (Zip Code)
(+86) 10-87227366
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | TYHT | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [X] | Smaller reporting company | [X] |
Emerging growth company | [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 14, 2021, there were 4,009,288 shares of common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
i |
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | June 30, | |||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 25,848,597 | $ | 32,371,372 | ||||
Accounts receivable, net | 5,087,539 | 11,008,485 | ||||||
Due from related parties | 130,407 | 120,939 | ||||||
Inventories, net | 2,363,050 | 1,799,876 | ||||||
Advances to suppliers, net | 16,743,140 | 13,313,946 | ||||||
Other current assets | 5,847,512 | 905,380 | ||||||
TOTAL CURRENT ASSETS | 56,020,245 | 59,519,998 | ||||||
Property and equipment, net | 6,058,925 | 9,489,484 | ||||||
Land use right, net of accumulated amortization | 1,263,683 | 1,195,943 | ||||||
Investments | - | 4,515,124 | ||||||
Distribution rights | 1,125,603 | 1,043,887 | ||||||
Long-term deposit and other noncurrent assets | 100,343 | 96,280 | ||||||
Right of use assets | 3,022,178 | 3,227,895 | ||||||
TOTAL ASSETS | $ | 67,590,977 | $ | 79,088,611 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Short-term loans | $ | 1,830,249 | $ | 2,333,894 | ||||
Accounts payable | 278,633 | 148,209 | ||||||
Advances from customers | 6,820 | 6,324 | ||||||
Due to related parties | 1,131,376 | 1,355,919 | ||||||
Other payables and accrued expenses | 7,776,146 | 4,018,684 | ||||||
Operating lease liabilities - current | 97,560 | 97,633 | ||||||
Taxes payable | 3,329,182 | 3,386,662 | ||||||
TOTAL CURRENT LIABILITIES | 14,449,966 | 11,347,325 | ||||||
Income tax payable - noncurrent portion | 566,022 | 566,022 | ||||||
Operating lease liabilities - non-current | 449,162 | 401,891 | ||||||
Deferred tax liability | 281,401 | 260,972 | ||||||
TOTAL LIABILITIES | 15,746,551 | 12,576,210 | ||||||
Commitments and contingencies | - | - | ||||||
EQUITY: | ||||||||
Common stock; par value $0.001, 100,000,000 shares authorized; 4,009,288 and 3,039,943 shares issued and outstanding at March 31, 2021 and June 30, 2020* | 4,009 | 3,040 | ||||||
Additional paid-in capital | 30,037,504 | 27,302,051 | ||||||
Statutory reserve | 4,198,107 | 4,198,107 | ||||||
Retained earnings | 18,522,830 | 40,106,518 | ||||||
Accumulated other comprehensive loss | (1,451,386 | ) | (6,283,835 | ) | ||||
Total Stockholders’ equity of Shineco, Inc. | 51,311,064 | 65,325,881 | ||||||
Non-controlling interest | 533,362 | 1,186,520 | ||||||
TOTAL EQUITY | 51,844,426 | 66,512,401 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 67,590,977 | $ | 79,088,611 |
* Retrospectively restated for effect of stock split on August 14, 2020.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1 |
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(UNAUDITED)
For
the Nine Months Ended
March 31, |
For
the Three Months Ended
March 31, |
|||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
REVENUE | $ | 9,197,101 | $ | 18,649,715 | $ | 1,990,737 | $ | 3,734,322 | ||||||||
COST OF REVENUE | ||||||||||||||||
Cost of product and services | 8,563,090 | 14,191,705 | 2,261,864 | 3,308,857 | ||||||||||||
Stock written off due to natural disaster | 3,358,716 | - | 729,029 | - | ||||||||||||
Business and sales related tax | 29,100 | 43,004 | 7,160 | 15,341 | ||||||||||||
Total cost of revenue | 11,950,906 | 14,234,709 | 2,998,053 | 3,324,198 | ||||||||||||
GROSS PROFIT (LOSS) | (2,753,805 | ) | 4,415,006 | (1,007,316 | ) | 410,124 | ||||||||||
OPERATING EXPENSES | ||||||||||||||||
General and administrative expenses | 13,625,060 | 9,343,435 | 5,016,939 | 3,896,478 | ||||||||||||
Selling expenses | 86,870 | 340,681 | 32,525 | 145,526 | ||||||||||||
Total operating expenses | 13,711,930 | 9,684,116 | 5,049,464 | 4,042,004 | ||||||||||||
LOSS FROM OPERATIONS | (16,465,735 | ) | (5,269,110 | ) | (6,056,780 | ) | (3,631,880 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Income (loss) from equity method investments | (3,753,280 | ) | 97,528 | (1,777,551 | ) | (43,054 | ) | |||||||||
Other income (expense), net | (2,066,268 | ) | 39,084 | (28,076 | ) | 627 | ||||||||||
Interest expense, net | (30,977 | ) | (8,250 | ) | (452 | ) | (7,942 | ) | ||||||||
Total other income (expense) | (5,850,525 | ) | 128,362 | (1,806,079 | ) | (50,369 | ) | |||||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | (22,316,260 | ) | (5,140,748 | ) | (7,862,859 | ) | (3,682,249 | ) | ||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | - | 274,569 | (83,106 | ) | 110,177 | |||||||||||
NET LOSS | (22,316,260 | ) | (5,415,317 | ) | (7,779,753 | ) | (3,792,426 | ) | ||||||||
Net income (loss) attributable to non-controlling interest | (732,572 | ) | 82,530 | (272,488 | ) | 25,267 | ||||||||||
NET LOSS ATTRIBUTABLE TO SHINECO, INC. | $ | (21,583,688 | ) | $ | (5,497,847 | ) | $ | (7,507,265 | ) | $ | (3,817,693 | ) | ||||
COMPREHENSIVE LOSS | ||||||||||||||||
Net loss | $ | (22,316,260 | ) | $ | (5,415,317 | ) | $ | (7,779,753 | ) | $ | (3,792,426 | ) | ||||
Other comprehensive income (loss): foreign currency translation income (loss) | 4,911,863 | (2,320,277 | ) | (164,631 | ) | (1,209,436 | ) | |||||||||
Total comprehensive income loss | (17,404,397 | ) | (7,735,594 | ) | (7,944,384 | ) | (5,001,862 | ) | ||||||||
Less: comprehensive income (loss) attributable to non-controlling interest | (653,158 | ) | 47,067 | (273,806 | ) | 5,280 | ||||||||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO SHINECO, INC. | $ | (16,751,239 | ) | $ | (7,782,661 | ) | $ | (7,670,578 | ) | $ | (5,007,142 | ) | ||||
Weighted average number of shares basic and diluted* | 3,372,327 | 2,920,086 | 3,184,593 | 3,037,048 | ||||||||||||
Basic and diluted loss per common share | $ | (6.40 | ) | $ | (1.88 | ) | $ | (2.36 | ) | $ | (1.26 | ) |
* Retrospectively restated for effect of stock split on August 14, 2020.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2 |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2021 AND 2020
(UNAUDITED)
ACCUMULATED | ||||||||||||||||||||||||||||||||
ADDITIONAL | OTHER | NON- | ||||||||||||||||||||||||||||||
COMMON STOCK |
PAID-IN |
STATUTORY | RETAINED | COMPREHENSIVE | CONTROLLING | TOTAL | ||||||||||||||||||||||||||
SHARES* | AMOUNT | CAPITAL | RESERVE | EARNINGS | LOSS | INTEREST | EQUITY | |||||||||||||||||||||||||
Balance at June 30, 2019 | 2,541,308 | $ | 2,541 | $ | 24,779,687 | $ | 4,198,107 | $ | 46,735,190 | $ | (4,184,024 | ) | $ | 1,100,613 | 72,632,114 | |||||||||||||||||
Stock issuance | 495,740 | 496 | 2,522,367 | - | - | - | - | 2,522,863 | ||||||||||||||||||||||||
Net income (loss) for the period | - | - | - | - | (5,497,847 | ) | - | 82,530 | (5,415,317 | ) | ||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | (2,284,814 | ) | (35,463 | ) | (2,320,277 | ) | |||||||||||||||||||||
Balance at March 31, 2020 | 3,037,048 | $ | 3,037 | $ | 27,302,054 | $ | 4,198,107 | $ | 41,237,343 | $ | (6,468,838 | ) | $ | 1,147,680 | $ | 67,419,383 | ||||||||||||||||
Balance at June 30, 2020 | 3,039,943 | $ | 3,040 | $ | 27,302,051 | $ | 4,198,107 | $ | 40,106,518 | $ | (6,283,835 | ) | $ | 1,186,520 | $ | 66,512,401 | ||||||||||||||||
Stock issuance | 969,345 | 969 | 2,735,453 | - | - | - | - | 2,736,422 | ||||||||||||||||||||||||
Net income loss for the period | - | - | - | - | (21,583,688 | ) | - | (732,572 | ) | (22,316,260 | ) | |||||||||||||||||||||
Foreign currency translation gain | - | - | - | - | - | 4,832,449 | 79,414 | 4,911,863 | ||||||||||||||||||||||||
Balance at March 31, 2021 | 4,009,288 | $ | 4,009 | $ | 30,037,504 | $ | 4,198,107 | $ | 18,522,830 | $ | (1,451,386 | ) | $ | 533,362 | $ | 51,844,426 |
* Retrospectively restated for effect of stock split on August 14, 2020.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3 |
SHINECO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(UNAUDITED)
ACCUMULATED | ||||||||||||||||||||||||||||||||
ADDITIONAL | OTHER | NON- | ||||||||||||||||||||||||||||||
COMMON STOCK |
PAID-IN | STATUTORY | RETAINED | COMPREHENSIVE | CONTROLLING | TOTAL | ||||||||||||||||||||||||||
SHARES* | AMOUNT | CAPITAL | RESERVE | EARNINGS | LOSS | INTEREST | EQUITY | |||||||||||||||||||||||||
Balance at December 31, 2019 | 3,037,048 | $ | 3,037 | $ | 27,302,054 | $ | 4,198,107 | $ | 45,055,036 | $ | (5,279,389 | ) | $ | 1,142,400 | $ | 72,421,245 | ||||||||||||||||
Net income (loss) for the period | - | - | - | - | (3,817,693 | ) | - | 25,267 | (3,792,426 | ) | ||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | (1,189,449 | ) | (19,987 | ) | (1,209,436 | ) | |||||||||||||||||||||
Balance at March 31, 2020 | 3,037,048 | $ | 3,037 | $ | 27,302,054 | $ | 4,198,107 | $ | 41,237,343 | $ | (6,468,838 | ) | $ | 1,147,680 | $ | 67,419,383 | ||||||||||||||||
Balance at December 31, 2020 | 3,644,843 | $ | 3,645 | $ | 28,944,533 | $ | 4,198,107 | $ | 26,030,095 | $ | (1,288,073 | ) | $ | 807,168 | $ | 58,695,475 | ||||||||||||||||
Stock issuance | 364,445 | 364 | 1,092,971 | - | - | - | - | 1,093,335 | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | (7,507,265 | ) | - | (272,488 | ) | (7,779,753 | ) | |||||||||||||||||||||
Foreign currency translation gain (loss) | - | - | - | - | - | (163,313 | ) | (1,318 | ) | (164,631 | ) | |||||||||||||||||||||
Balance at March 31, 2021 | 4,009,288 | $ | 4,009 | $ | 30,037,504 | $ | 4,198,107 | $ | 18,522,830 | $ | (1,451,386 | ) | $ | 533,362 | $ | 51,844,426 |
* Retrospectively restated for effect of stock split on August 14, 2020.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (22,316,260 | ) | $ | (5,415,317 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 520,005 | 891,727 | ||||||
Loss from disposal of property and equipment | 2,154,151 | 60,111 | ||||||
Provision for doubtful accounts | 11,141,211 | 5,748,507 | ||||||
Provision for inventory reserve | 216,629 | 242,015 | ||||||
Stock written off due to natural disaster | 3,358,716 | - | ||||||
Deferred tax benefit | - | (202,293 | ) | |||||
Loss (income) from equity method investments | 3,753,280 | (97,528 | ) | |||||
Amortization of right of use assets | 424,638 | - | ||||||
Restricted shares issued for management | - | 1,022,661 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (2,420,160 | ) | (1,037,487 | ) | ||||
Advances to suppliers | (4,332,686 | ) | 3,268,646 | |||||
Inventories | (3,990,001 | ) | 209,054 | |||||
Other receivables | (3,813,081 | ) | (767,368 | ) | ||||
Prepaid expense and other assets | 4,450 | 441,640 | ||||||
Due from related parties | - | 62,570 | ||||||
Right of use assets | - | (32,376 | ) | |||||
Accounts payable | 116,677 | (52,865 | ) | |||||
Advances from customers | - | (367,705 | ) | |||||
Other payables | 3,641,524 | 293,804 | ||||||
Operating lease liabilities | (11,513 | ) | - | |||||
Taxes payable | (301,821 | ) | 29,733 | |||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (11,854,241 | ) | 4,297,529 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Acquisitions of property and equipment | - | (1,497 | ) | |||||
Proceeds from disposal of property and equipment | 1,497,675 | 79,414 | ||||||
Proceeds from withdrawal of investments | 1,027,405 | - | ||||||
Repayments (advances) of loans to third parties | (1,273,024 | ) | 38,377 | |||||
NET CASH PROVIDED BY INVESTING ACTIVITIES | 1,252,056 | 116,294 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from short-term loans | 299,535 | 2,352,488 | ||||||
Repayment of short-term loans | (973,489 | ) | (2,352,488 | ) | ||||
Repayment of other short-term loans | - | (7,129 | ) | |||||
Proceeds from issuance of common stock | 2,736,422 | 1,500,203 | ||||||
Proceeds from (repayments of) advances from related parties | (297,510 | ) | 614,526 | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,764,958 | 2,107,600 | ||||||
EFFECT OF EXCHANGE RATE CHANGE ON CASH | 2,314,452 | (1,206,310 | ) | |||||
NET INCREASE (DECREASE) IN CASH | (6,522,775 | ) | 5,315,113 | |||||
CASH - Beginning of the Period | 32,371,372 | 35,330,676 | ||||||
CASH - End of the Period | $ | 25,848,597 | $ | 40,645,789 | ||||
SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||
Cash paid for income taxes | $ | 619,704 | $ | 530,299 | ||||
Cash paid for interest | $ | 88,894 | $ | 84,432 | ||||
SUPPLEMENTAL NON-CASH OPERATING ACTIVITY: | ||||||||
Right-of-use assets obtained in exchange for operating lease obligations | $ | - | $ | 413,955 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5 |
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Shineco, Inc. (“Shineco” or the “Company”) was incorporated in the State of Delaware on August 20, 1997. The Company is a holding company whose primary purpose is to develop business opportunities in the People’s Republic of China (the “PRC” or “China”).
On December 30, 2004, the Company acquired all of the issued and outstanding shares of Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”), a PRC company, in exchange for restricted shares of the Company’s common stock, and the sole operating business of the Company became that of its subsidiary, Tenet-Jove. Tenet-Jove was incorporated on December 15, 2003 under the laws of China. Consequently, Tenet-Jove became a 100% owned subsidiary of Shineco and was officially granted the status of a wholly foreign-owned entity by Chinese authorities on July 14, 2006. This transaction was accounted for as a recapitalization. Tenet-Jove owns 90% interest of Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).
On December 31, 2008, June 11, 2011, and May 24, 2012, Tenet-Jove entered into a series of contractual agreements including an Executive Business Cooperation Agreement, a Timely Reporting Agreement, an Equity Interest Pledge Agreement, and an Executive Option Agreement (collectively, the “VIE Agreements”), with each one of the following entities, Ankang Longevity Pharmaceutical (Group) Co., Ltd. (“Ankang Longevity Group”), Yantai Zhisheng International Freight Forwarding Co., Ltd. (“Zhisheng Freight”), Yantai Zhisheng International Trade Co., Ltd. (“Zhisheng Trade”), Yantai Mouping District Zhisheng Agricultural Produce Cooperative (“Zhisheng Agricultural”), and Qingdao Zhihesheng Agricultural Produce Services., Ltd. (“Qingdao Zhihesheng”). On February 24, 2014, Tenet-Jove entered into the same series of contractual agreements with Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. (“Zhisheng Bio-Tech”), which was incorporated in 2014. Zhisheng Bio-Tech, Zhisheng Freight, Zhisheng Trade, Zhisheng Agricultural, and Qingdao Zhihesheng are collectively referred to herein as the “Zhisheng VIEs.”
Pursuant to the VIE Agreements, Tenet-Jove has the exclusive right to provide to the Zhisheng VIEs and Ankang Longevity Group consulting services related to their business operations and management. All the above contractual agreements obligate Tenet-Jove to absorb a majority of the risk of loss from the Zhisheng VIEs and Ankang Longevity Group’s activities and entitle Tenet-Jove to receive a majority of their residual returns. In essence, Tenet-Jove has gained effective control over the Zhisheng VIEs and Ankang Longevity Group. Therefore, the Zhisheng VIEs and Ankang Longevity Group are treated as variable interest entities (“VIEs”) under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation.” Accordingly, the accounts of these entities are consolidated with those of Tenet-Jove.
Since Shineco is effectively controlled by the majority shareholders of the Zhisheng VIEs and Ankang Longevity Group, Shineco owns 100% of Tenet-Jove. Accordingly, Shineco, Tenet-Jove, and its VIEs, the Zhisheng VIEs and Ankang Longevity Group are effectively controlled by the same majority shareholders. Therefore, Shineco, Tenet-Jove, and the VIEs of Tenet-Jove are considered under common control. The consolidation of Tenet-Jove and its VIEs into Shineco was accounted for at historical cost and prepared on the basis as if the aforementioned exclusive contractual agreements between Tenet-Jove and its VIEs had become effective as of the beginning of the first period presented in the accompanying unaudited condensed consolidated financial statements.
6 |
On May 2, 2017, the Company entered into a Strategic Cooperation Agreement with Beijing Zhongke Biorefinery Engineering Technology Co., Ltd. (“Biorefinery”), a leading high-tech biomass refining company financially backed by the Chinese Academy of Sciences Institute of Process Engineering, to establish the Institute of Chinese Apocynum Industrial Technology Research (“ICAITR”). Pursuant to the Strategic Cooperation Agreement, the two parties agreed to establish the ICAITR, with the Company and Biorefinery owning 80% and 20% of the equity interests of ICAITR, respectively. Shineco invested RMB5.0 million (US$737,745) as the registered capital, and Biorefinery would invest a technology patent named “Steam Explosion Degumming.”
On September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with registered capital of RMB10.0 million (US$1,502,650). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering Co., Ltd. (“Runze”) with registered capital of RMB10.0 million (US$1,502,650). Xinjiang Taihe and Runze became wholly-owned subsidiaries of Tenet-Jove.
On December 10, 2016, Tenet-Jove entered into a purchase agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”), an online e-commerce company based in Tianjin, China, specializing in distributing Luobuma related products and branded products of Daiso 100-yen shops, pursuant to which Tenet-Jove would acquire a 51% equity interest in Tianjin Tajite for cash consideration of RMB14,000,000 (approximately US$2.1 million). On December 25, 2016, the Company paid the full amount as the deposit to secure the deal. In May, 2017, the Company amended the agreement and required Tianjin Tajite to satisfy certain preconditions related to product introductions into China. On October 26, 2017, the Company completed the acquisition for 51% of the shares in Tianjin Tajite.
On October 27, 2017, the Company, through its subsidiary Tianjin Tajite, obtained contractual rights to distribute branded products of Daiso Industries Co., Ltd. (“Daiso”), a large franchise of 100-yen shops founded in Japan, via JD.com, one of the largest e-commerce companies and one of the largest retailers in China. On November 3, 2017, the Company further developed the cooperation with Daiso by entering into a supply and purchase agreement (the “Daiso Agreement”) for the purpose of establishing a continuous supply and sale of Daiso’s products in China. Pursuant to the Daiso Agreement, the Company planned to purchase Daiso Products in the amount of approximately RMB20 million by August 2018 and add orders as circumstance requires. The term of the Daiso Agreement is for one year, and it renews for an additional one-year at the end of each term unless terminated by written notice by either Tianjin Tajite or Daiso. Due to the policy of China Customs, many of the bestselling products of Daiso are not allowed to be imported through the general form of trade model, but only through cross-border e-commence business model. As a result, the Company and Daiso agreed to suspend the cooperation temporarily and wait for the opening of the China-Japan-South Korea Free Trade Zone.
On November 1, 2017, the Company established an Apocynum Industrial Park in Xinjiang, China. The industrial park is focusing on planting and purchasing Bluish Dogbane and processing and distributing Bluish Dogbane preliminary products.
On March 13, 2019, Tenet-Jove established Beijing Tenjove Newhemp Biotechnology Co., Ltd. (“TNB”) with registered capital of RMB10.0 million (US$1,502,650). TNB became a wholly-owned subsidiary of Tenet-Jove.
On August 22, 2019, Tenet-Jove established Shineco Zhong Hemp Group Co., Ltd. (“Zhong Hemp”) with registered capital of RMB200.0 million (US$28,237,022) and owns 60% interest of Zhong Hemp.
We ceased the business operation of Xinjiang Taihe and Runze in September 2020 and October 2020, respectively.
The Company, its subsidiaries, its VIEs, and its VIEs’ subsidiaries (collectively the “Group”) operate three main business segments: 1) Tenet-Jove is engaged in manufacturing and selling Bluish Dogbane and related products, also known in Chinese as “Luobuma,” including therapeutic clothing and textile products made from Luobuma; 2) the Zhisheng VIEs are engaged in planting, processing, and distributing green agricultural produce as well as providing domestic and international logistic services for agricultural products (“Agricultural Products”); and, 3) Ankang Longevity Group manufactures traditional Chinese medicinal herbal products as well as other retail pharmaceutical products. These different business activities and products can potentially be integrated and benefit from one another.
7 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules of the SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2020, which was filed on September 28, 2020.
The unaudited condensed consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries, its VIEs, and its VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in the Company’s majority owned subsidiaries and VIEs. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation of Variable Interest Entities
VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
The carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information were as follows:
March 31, 2021 |
June 30, 2020 |
|||||||
Current assets | $ | 52,240,926 | $ | 58,350,565 | ||||
Plant and equipment, net | 4,679,535 | 8,168,594 | ||||||
Other non-current assets | 4,369,823 | 11,054,954 | ||||||
Total assets | 61,290,284 | 77,574,113 | ||||||
Total liabilities | (7,046,069 | ) | (6,189,172 | ) | ||||
Net assets | $ | 54,244,215 | $ | 71,384,941 |
For
the nine months ended
March 31, |
For
the three months ended
March 31, |
|||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales | $ | 9,115,071 | $ | 18,565,197 | $ | 1,971,082 | $ | 3,731,867 | ||||||||
Gross profit (loss) | $ | (2,562,654 | ) | $ | 4,620,187 | $ | (873,783 | ) | $ | 484,907 | ||||||
Loss from operations | $ | (14,234,577 | ) | $ | (1,054,684 | ) | $ | (5,119,542 | ) | $ | (2,805,273 | ) | ||||
Net loss | $ | (19,443,845 | ) | $ | (1,323,411 | ) | $ | (6,591,598 | ) | $ | (3,030,057 | ) |
Non-controlling Interests
U.S. GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the non-controlling interests in the net income of these entities are reported separately in the unaudited condensed consolidated statements of loss and comprehensive loss.
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Risks and Uncertainties
The operations of the Company are located in the PRC and are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these factors and believes that it is in compliance with existing laws and regulations, there is no guarantee that the Company will continue to do so in the future.
Members of the current management team own controlling interests in the Company and are also the owners of the VIEs in the PRC. The Company only controls the VIEs through contractual arrangements, which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the agreement terms, as a result of which the Company would not retain control of the VIEs. In addition, should these agreements be challenged or litigated, they would also be subject to the laws and courts of the PRC legal system, which could make enforcing the Company’s rights difficult.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting periods. Significant estimates required to be made by management include, but are not limited to, useful lives of property, plant, and equipment, and intangible assets, the recoverability of long-lived assets, and the valuation of accounts receivable, deferred taxes, and inventory reserves. Actual results could differ from those estimates.
Revenue Recognition
The Company previously recognized revenue from sales of Luobuma products, Chinese medicinal herbal products, and agricultural products, as well as providing logistic services and other processing services to external customers. The Company recognized revenue when all of the following have occurred: (i) there was persuasive evidence of an arrangement with a customer; (ii) delivery had occurred or services had been rendered; (iii) the sales price was fixed or determinable; and (iv) the Company’s collection of such fees was reasonably assured. These criteria, as related to the Company’s revenue, were considered to have been met as follows:
Sales of products: The Company recognized revenue from the sale of products when the goods were delivered and title to the goods passed to the customer, provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.
Revenue from the provision of services: Revenue from international freight forwarding, domestic air, and overland freight forwarding services was recognized upon the performance of services as stipulated in the underlying contract or when commodities were being released from the customer’s warehouse; the service price was fixed or determinable; and collectability was deemed probable.
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With the adoption of ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The Company adopted the new revenue standard beginning July 1, 2018, and adopted a modified retrospective approach upon adoption. The Company believes that its previous revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASC 606. Potential adjustments to input measures are not expected to be pervasive to the majority of the Company’s contracts. There is no significant impact upon adoption of the new guidance.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, cash on deposit, and other highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions mainly in the PRC. As of March 31, 2021 and June 30, 2020, the Company had no cash equivalents.
Under PRC law, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’ rights over and interests in their deposited money. PRC banks are subject to a series of risk control regulatory standards, and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a material credit crisis. The Company monitors the banks utilized and has not experienced any problems.
Accounts Receivable, Net
Accounts receivable are recorded at net realizable value, consisting of the carrying amount less an allowance for uncollectible accounts, as necessary. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customers’ historical payment history, their current credit-worthiness, and current economic trends. The fair value of long-term receivables is determined using a present value technique by discounting the future expected contractual cash flows using current rates at which similar instruments would be issued at the measurement date. As of March 31, 2021 and June 30, 2020, the allowance for doubtful accounts was US$13,539,904 and US$5,235,436, respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful.
Inventories, Net
Inventories, which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods related to the Company’s products. Cost is determined using the first in first out (“FIFO”) method. Agricultural products that the Company farms are recorded at cost, which includes direct costs such as seed selection, fertilizer, labor cost and contract fees that are spent in growing agricultural products on the leased farmland, and indirect costs which include amortization of prepayments of farmland leases and farmland development costs. All the costs are accumulated until the time of harvest and then allocated to the harvested crops costs when they are sold. The Company periodically evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value. As of March 31, 2021 and June 30, 2020, the inventory reserve was US$1,429,804 and US$1,121,408, respectively.
Advances to Suppliers, Net
Advances to suppliers consist of payments to suppliers for materials that have not been received. Advances to suppliers are reviewed periodically to determine whether their carrying value has become impaired. As of March 31, 2021 and June 30, 2020, the Company had an allowance for uncollectible advances to suppliers of US$5,629,606 and US$3,342,590, respectively.
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Business Acquisitions
Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a bargain gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values on the date acquired and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than 12 months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed, and requires the Company to recognize and measure certain assets and liabilities, including those arising from contingencies and contingent consideration in a business combination.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available).
Leases
The Company adopted ASU 2016-02, “Leases” on July 1, 2019 and used the alternative transition approach, which permits the effects of adoption to be applied at the effective date. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. The Company also elected the short-term lease exemption and combining the lease and non-lease components practical expedients. The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s balance sheet for office space operating leases. Upon adoption, the Company recognized additional operating liabilities of approximately US$0.5 million, with corresponding ROU assets of US$3.6 million based on the present value of the remaining rental payments under current leasing standards for existing operating leases. There was no cumulative effect of adopting the standard.
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Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for additions, major renewals, and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis, less estimated residual value, if any, over an asset’s estimated useful life. Farmland leasehold improvements are amortized over the shorter of lease term or estimated useful lives of the underlying assets. The estimated useful lives of the Company’s property and equipment are as follows:
Estimated useful lives |
||
Buildings | 20-50 years | |
Machinery equipment | 5-10 years | |
Motor vehicles | 5-10 years | |
Office equipment | 5-10 years | |
Farmland leasehold improvements | 12-18 years |
Land Use Rights, Net
According to Chinese laws and regulations regarding land use rights, land in urban districts is owned by the state, while land in the rural areas and suburban areas, except otherwise provided for by the state, is collectively owned by individuals designated as resident farmers by the state. In accordance with the legal principle that land ownership is separate from the right to the use of the land, the government grants individuals and companies the rights to use parcels of land for a specified period of time. Land use rights, which are usually prepaid, are stated at cost less accumulated amortization. Amortization is provided over the life of the land use rights, using the straight-line method. The useful life is 50 years, based on the term of the land use rights.
Long-lived Assets
Finite-lived assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property, plant and equipment, land use rights, investments, and long-term prepaid leases. For the nine and three months ended March 31, 2021 and 2020, the Company did not recognize any impairment of its long-lived assets.
Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.
The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.
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Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for unaudited condensed consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company did not have any uncertain tax positions at March 31, 2021 and June 30, 2020. The Company had not provided deferred taxes for undistributed earnings of non-U.S. subsidiaries at March 31, 2021, as it is the Company’s policy to indefinitely reinvest these earnings in non-U.S. operations. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable.
The statute of limitations for the Company’s U.S. federal income tax returns and certain state income tax returns remains open for tax year 2017 and thereafter. As of March 31, 2021, the tax years ended December 31, 2016 through December 31, 2020 for the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of The Act, the U.S. corporate tax rate decreased from 35% to 21%. As the Company has a June 30 fiscal year end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ended June 30, 2018, and 21% for subsequent fiscal years. Additionally, The Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate caused the Company to re-measure its income tax liability and record an estimated income tax expense of US$744,766 for the year ended June 30, 2018. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of The Act. In accordance with SAB 118, additional work is necessary to do a more detailed analysis of The Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2019 when the analysis is complete. The Company elects to pay the transition tax over an eight-year period using specified percentages (eight percent per year for the first five years, 15 percent in year six, 20 percent in year seven, and 25 percent in year eight).
Value-Added Tax
Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). Before May 1, 2018, all of the Company’s products that were sold in the PRC were subject to a Chinese value-added tax at a rate of 17% of the gross sales price. After May 1, 2018, the Company was subject a tax rate of 16%, and after April 1, 2019, the tax rate was further reduced to 13% based on the new Chinese tax law. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing finished products or acquiring finished products. The Company records a VAT payable or VAT receivable in the accompanying unaudited condensed consolidated financial statements.
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Foreign Currency Translation
The Company uses the United States dollar (“U.S. dollars,” “USD,” or “US$”) for financial reporting purposes. The Company’s subsidiaries and VIEs maintain their books and records in their functional currency of Renminbi (“RMB”), the currency of the PRC.
In general, for consolidation purposes, the Company translates the assets and liabilities of its subsidiaries and VIEs into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statements of income and cash flows are translated at average exchange rates during the reporting periods. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the financial statements of the subsidiaries and VIEs are recorded as accumulated other comprehensive loss.
The balance sheet amounts, with the exception of equity, at March 31, 2021 and June 30, 2020 were translated at 1 RMB to 0.1525 USD and at 1 RMB to 0.1414 USD, respectively. The average translation rates applied to the income and cash flow statement amounts for the nine months ended March 31, 2021 and 2020 were 1 RMB to 0.1498 USD and 1 RMB to 0.1426 USD, respectively. The average translation rates applied to income and cash flow statement amounts for the three months ended March 31, 2021 and 2020 were 1 RMB to 0.1542 USD and 1 RMB to 0.1432 USD, respectively.
Comprehensive Loss
Comprehensive loss consists of two components, net loss and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to USD is reported in other comprehensive income (loss) in the unaudited condensed consolidated statements of loss and comprehensive loss.
Equity Investment
An investment in which the Company has the ability to exercise significant influence, but does not have a controlling interest, is accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock between 20% and 50%, and other factors, such as representation on the board of directors, voting rights, and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate.
Loss per Share
The Company computes loss per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net loss divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., outstanding convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is no anti-dilutive effect for the nine and three months ended March 31, 2021 and 2020.
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New Accounting Pronouncements
In November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). The guidance identifies, evaluates, and improves areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided. The amendments in that ASU expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For entities that have adopted the amendments in Update 2018-07, the updated guidance is effective for annual periods beginning after December 15, 2019, and is applicable to the Company in fiscal 2021. Early adoption is permitted. The Company adopted this ASU on July 1, 2020 and the adoption of this ASU did not have a material impact on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The FASB is issuing this Update as part of its initiative to reduce complexity in accounting standards (the “Simplification Initiative”). The objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The specific areas of potential simplification in this ASU were submitted by stakeholders as part of the Simplification Initiative. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, (“ASU 2020-03”). ASU 2020-03 improves various financial instruments topics, including the CECL Standard. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 were effective upon issuance of ASU 2020-03. The amendments related to Issue 3, Issue 6, and Issue 7 were effective for the Company beginning on January 1, 2020. The Company adopted this ASU on July 1, 2020 and the adoption of this ASU did not have a material impact on its financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments in this standard can be applied anytime between the first quarter of 2020 and the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations, cash flows, and disclosures.
The Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s condensed unaudited consolidated financial statements.
NOTE 3 – INVENTORIES, NET
The inventories, net consisted of the following:
March 31, 2021 |
June 30, 2020 |
|||||||
Raw materials | $ | 298,414 | $ | 958,206 | ||||
Work-in-process | 1,757,429 | 529,655 | ||||||
Finished goods | 1,737,011 | 1,433,423 | ||||||
Less: inventory reserve | (1,429,804 | ) | (1,121,408 | ) | ||||
Total inventories, net | $ | 2,363,050 | $ | 1,799,876 |
Work-in-process includes direct costs such as seed selection, fertilizer, labor cost, and subcontractor fees that are spent in growing agricultural products on the leased farmland, and indirect costs which include amortization of the prepayment of the farmland lease fees and farmland development costs. All the costs are accumulated until the time of harvest and then allocated to harvested crop costs when they are sold.
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NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
March 31, 2021 |
June 30, 2020 |
|||||||
Buildings | $ | 8,157,093 | $ | 11,525,458 | ||||
Machinery and equipment | 927,978 | 860,610 | ||||||
Motor vehicles | 62,141 | 57,630 | ||||||
Office equipment | 249,272 | 231,174 | ||||||
Farmland leasehold improvements | 3,207,353 | 2,974,508 | ||||||
12,603,837 | 15,649,380 | |||||||
Less: accumulated depreciation and amortization | (6,544,912 | ) | (6,159,896 | ) | ||||
Total property and equipment, net | $ | 6,058,925 | $ | 9,489,484 |
Depreciation and amortization expense charged to operations was US$446,236 and US$524,239 for the nine months ended March 31, 2021 and 2020, respectively. Depreciation and amortization expense charged to operations was US$135,511 and US$104,281 for the three months ended March 31, 2021 and 2020, respectively.
Farmland leasehold improvements consisted of following:
March 31, 2021 |
June 30, 2020 |
|||||||
Blueberry farmland leasehold improvements | $ | 2,464,031 | $ | 2,285,149 | ||||
Yew tree planting base reconstruction | 276,063 | 256,021 | ||||||
Greenhouse renovation | 467,259 | 433,338 | ||||||
Total farmland leasehold improvements | $ | 3,207,353 | $ | 2,974,508 |
NOTE 5 - LAND USE RIGHTS, NET
Land use rights are recognized at cost less accumulated amortization. According to the Chinese laws and regulations regarding land use rights, land in urban districts is owned by the state, while land in the rural areas and suburban areas, except otherwise provided for by the state, is collectively owned by individuals designated as resident farmers by the state. However, in accordance with the legal principle that land ownership is separate from the right to the use of the land, the government grants the user a “land use right” to use the land. The Company has the land use right to use the land for 50 years and amortizes the rights on a straight-line basis over the period of 50 years.
March 31, 2021 |
June 30, 2020 |
|||||||
Land use rights | $ | 1,696,485 | $ | 1,573,325 | ||||
Less: accumulated amortization | (432,802 | ) | (377,382 | ) | ||||
Total land use rights, net | $ | 1,263,683 | $ | 1,195,943 |
For the nine months ended March 31, 2021 and 2020, the Company recognized amortization expenses of US$28,822 and US$27,720, respectively. For the three months ended March 31, 2021 and 2020, the Company recognized amortization expenses of US$9,840 and US$9,293, respectively.
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The estimated future amortization expenses are as follows:
12 months ending March 31: | ||||
2022 | $ | 33,930 | ||
2023 | 33,930 | |||
2024 | 33,930 | |||
2025 | 33,930 | |||
2026 | 33,930 | |||
Thereafter | 1,094,033 | |||
Total | $ | 1,263,683 |
NOTE 6 - DISTRIBUTION RIGHTS
The Company acquired distribution rights to distribute branded products of Daiso 100-yen shops through the acquisition of Tianjin Tajite. As this distribution right is difficult to acquire and will contribute significant revenue to Tianjin Tajite, such distribution rights were identified and valued as an intangible asset in the acquisition of Tianjin Tajite. The distribution rights, which have no expiration date, have been determined to have an indefinite life. Since the distribution rights have an indefinite life, the Company will evaluate them for impairment at least annually or earlier if determined necessary. As of March 31, 2021, the distribution rights were evaluated at RMB7,380,000 (US$1,125,603).
NOTE 7 - INVESTMENTS
In 2013, Ankang Longevity Group entered into two equity investment agreements with Shaanxi Pharmaceutical Group Pai’ang Medicine Co. Ltd. (“Shaanxi Pharmaceutical Group”), a Chinese state-owned pharmaceutical enterprise, to invest a total of RMB6.8 million (approximately US$1.0 million) for a 49% equity interest in a pharmacy retail company called Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Retail Chain Co., Ltd. (“Sunsimiao Drugstores”), and a 49% equity interest in a pharmaceutical wholesale distribution company named Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (“Shaanxi Longevity Pharmacy”). These two entities were incorporated to collaborate with Shaanxi Pharmaceutical Group to expand sales to regional hospitals and clinics and to establish the presence of retail pharmacies under the brand name “Sunsimiao.” The investments were accounted for using the equity method because Ankang Longevity Group has significant influence, but no control of these two entities. Ankang Longevity Group recorded a loss of US$3,753,280 and an income of US$97,528 for the nine months ended March 31, 2021 and 2020, respectively and recorded a loss of US$1,777,551 and a loss of US$43,054 for the three months ended March 31, 2021 and 2020, respectively, from the investments, which was included in “Income from equity method investments” in the unaudited condensed consolidated statements of loss and comprehensive loss. (See Note 11.) On March 5, 2021, Ankang Longevity Group entered into two equity investment transfer agreements with a third-party company to sell all of its 49% equity interest in Sunsimiao Drugstores and its 49% equity interest in Shaanxi Longevity Pharmacy for a total consideration of RMB6.86 million (approximately US$1.0 million), and the full amount had been received by March 31, 2021. Upon the transfer of these two equity investments, Ankang Longevity Group recorded a loss of US$1,748,459, which was included in the investment loss for the nine and three months ended March 31, 2021 as mentioned above.
In 2013, Ankang Longevity Group entered into a supplemental agreement with Shaanxi Pharmaceutical Group. According to the supplemental agreement, new 49% equity investment companies established by Shaanxi Pharmaceutical Group and Ankang Longevity Group are required to exclusively purchase certain raw materials and drug products from Shaanxi Pharmaceutical Group. In return, Shaanxi Pharmaceutical Group has agreed to compensate Ankang Longevity Group with a purchase rebate of 7% of the total purchases made from Shaanxi Pharmaceutical Group. For the nine and three months ended March 31, 2021 and 2020, no income was recognized by Ankang Longevity Group from this supplemental agreement in addition to its 49% share of the income from the equity investment companies.
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On October 21, 2013, the Company, through its controlled subsidiaries, Zhisheng Freight and Zhisheng Agricultural, entered into an agreement with an unrelated third party, Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd. (“Zhen’Ai Network”), and invested RMB14.5 million (approximately US$2.2 million) into Tiancang Systematic Warehousing project (“Tiancang Project”) operated by Zhen’Ai Network. The Tiancang Project is an online platform established to provide comprehensive warehousing and logistic solutions to companies involved in E-commerce. The Company is entitled to 29% of Tiancang Project’s after-tax net income annually, less 30% statutory reserve and a 10% employee welfare fund contribution. When the amount of the accumulated statutory reserve reaches 30% of the total investment for the Tiancang Project, no additional appropriation to the statutory reserve is required. The Company considered it unlikely to obtain any investment income in the future, and decided to make a full impairment on this investment during the year ended June 30, 2020.
The Company’s investments in unconsolidated entities consist of the following:
March 31, 2021 |
June 30, 2020 |
|||||||
Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. | $ | - | $ | 3,690,419 | ||||
Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Chain Co., Ltd. | - | 824,705 | ||||||
Total investment | $ | - | $ | 4,515,124 |
Summarized financial information of unconsolidated entities is as follows:
March 31, 2021 |
June 30, 2020 |
|||||||
Current assets | $ | - | $ | 38,546,879 | ||||
Noncurrent assets | - | 324,725 | ||||||
Current liabilities | - | 29,671,104 |
For the nine months ended March 31, |
||||||||
2021 | 2020 | |||||||
Net sales | $ | 21,199,520 | $ | 23,490,467 | ||||
Gross profit | 1,748,858 | 2,236,670 | ||||||
Income (loss) from operations | (4,065,801 | ) | 195,147 | |||||
Net income (loss) | (4,091,472 | ) | 199,037 |
18 |
NOTE 8 - LEASES
Effective July 1, 2019, the Company adopted the new lease accounting standard using the optional transition method, which allowed it to continue to apply the guidance under the lease standard in effect at the time in the comparative periods presented. In addition, the Company elected the package of practical expedients, which allowed it to not reassess whether any existing contracts contain a lease, to not reassess historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company has also elected the practical expedient, allowing it to not separate the lease and non-lease components for all classes of underlying assets. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities of $3,587,788 and $450,123, respectively, as of July 1, 2019 with no impact on accumulated deficit. Financial position for reporting periods beginning on or after July 1, 2019, are presented under the new guidance, while prior-period amounts are not adjusted and continue to be reported in accordance with previous guidance.
The Company leases offices space under non-cancelable operating leases, with terms ranging from one to six years. In addition, the Zhisheng VIEs entered into several farmland lease contracts with farmer cooperatives to lease farmland in order to plant and grow organic vegetables, fruit, and Chinese yew trees. The lease terms vary from five years to 24 years. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of ROU assets and lease liabilities. Lease expenses for lease payment are recognized on a straight-line basis over the lease term. Leases with initial terms of 12 months or less are not recorded on the balance sheet.
When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below presents the operating lease related assets and liabilities recorded on the balance sheets.
March 31, 2021 |
June 30, 2020 |
|||||||
ROU lease assets | $ | 3,022,178 | $ | 3,227,895 | ||||
Operating lease liabilities – current | 97,560 | 97,633 | ||||||
Operating lease liabilities – non-current | 449,162 | 401,891 | ||||||
Total operating lease liabilities | $ | 546,722 | $ | 499,524 |
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of March 31, 2021 and June 30, 2020:
March 31, 2021 |
June 30, 2020 |
|||||||
Remaining lease term and discount rate: | ||||||||
Weighted average remaining lease term (years) | 9.21 | 9.26 | ||||||
Weighted average discount rate | 5.0 | 5.0 |
Rent expenses totaled US$337,128 and US$307,503 for the nine months ended March 31, 2021 and 2020, respectively. Rent expenses totaled US$112,171 and US$106,175 for the three months ended March 31, 2021 and 2020, respectively.
19 |
The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2021:
Remainder of 2021 | $ | 112,118 | ||
2022 | 343,437 | |||
2023 | 341,200 | |||
2024 | 341,200 | |||
2025 | 341,200 | |||
Thereafter | 1,603,424 | |||
Total lease payments | 3,082,579 | |||
Less: imputed interest | (60,398 | ) | ||
Less: prepayments | (2,475,459 | ) | ||
Present value of lease liabilities | $ | 546,722 |
NOTE 9 - SHORT-TERM LOANS
Short-term loans consisted of the following:
Lender |
March 31, 2021 |
Maturity Date |
Int. Rate/Year |
|||||||
Agricultural Bank of China-a^ | 1,525,208 | 2022/2/27 | 5.66 | % | ||||||
Agricultural Bank of China-b | 305,041 | 2021/9/1 | 5.66 | % | ||||||
Total short-term loans | $ | 1,830,249 |
Lender |
June 30, 2020 |
Maturity Date |
Int. Rate/Year |
|||||||
Agricultural Bank of China-b* | $ | 282,896 | 2020-8-22 | 5.60 | % | |||||
Agricultural Bank of China-a | 636,517 | 2020-12-23 | 4.65 | % | ||||||
Agricultural Bank of China-a | 1,414,481 | 2021-2-24 | 5.66 | % | ||||||
Total short-term loans | $ | 2,333,894 |
The loans outstanding were guaranteed by the following properties, entities or individuals:
a. | Guaranteed by a commercial credit guaranty company unrelated to the Company and also by Jiping Chen, a stockholder of the Company. |
b. | Collateralized by the building owned by Xiaoyan Chen and Jing Chen, who are both related parties of the Company. Xiaoyan Chen is one of the shareholders of Ankang Longevity Group. Jing Chen is the sister of Xiaoyan Chen but not a shareholder of Ankang Longevity Group. |
* | The Company repaid the loan in full on maturity date. |
^ | Upon the original maturity date of February 27, 2021, the Company signed two loan extension agreements with Agricultural Bank of China to extend the loan repayment date to February 27, 2022 with the same interest rate of 5.66% per annum. |
The Company recorded interest expenses of US$88,894 and US$84,432 for the nine months ended 2021 and 2020, respectively. The annual weighted average interest rates were 5.36% and 5.03% for the nine months ended 2021 and 2020, respectively.
The Company recorded interest expenses of US$25,627 and US$26,166 for the three months ended 2021 and 2020, respectively. The annual weighted average interest rates were 5.50% and 4.53% for the three months ended 2021 and 2020, respectively.
20 |
NOTE 10 - ACQUISITION
On December 12, 2016, the Company entered into a merger and acquisition agreement with Tianjin Tajite, a professional e-commerce company distributing Luobuma fabric commodities and branded products of Daiso 100-yen shops, based in Tianjin, China, to acquire 51 % equity interests in Tianjin Tajite.
Pursuant to the agreement, the Company made a payment of RMB14,000,000 (approximately US$2.1 million) at the end of December 2016 as the total consideration for the acquisition of Tianjin Tajite.
On October 26, 2017, the Company completed the acquisition of Tianjin Tajite. The acquisition provides a unique opportunity for the Company to enter the market of Luobuma fabric commodities and branded products of Daiso 100-yen shops.
The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements represents management’s best estimate of fair values as of the acquisition date.
As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of the fair value of net assets acquired.
The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill which amounted to RMB14,010,195 (approximately US$2.1 million). The results of operations of Tianjin Tajite have been included in the consolidated statements of operations from the date of acquisition.
In June 2018, the management performed evaluation on the impairment of goodwill. Due to the lower than expected revenue and profit, and unfavorable business environment, the management fully recorded an impairment loss on goodwill of Tianjin Tajite.
The fair value of distribution rights and its estimated useful lives are as follows:
Preliminary Fair Value |
Weighted Average Useful Life (in Years) |
|||||||
Distribution rights | $ | 1,125,603 | (a) |
(a) The distribution rights with no expiration date has been determined to have an indefinite life.
Under ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation, and other professional fees) are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. Acquisition-related costs were $nil in the nine and three months ended March 31, 2021.
21 |
NOTE 11 - RELATED PARTY TRANSACTIONS
Due from Related Parties
The Company has made temporary advances to certain stockholders of the Company and to other entities that are either owned by family members of those stockholders or to other entities that the Company has investments in. Those advances are due on demand and non-interest bearing.
As of March 31, 2021 and June 30, 2020, the outstanding amounts due from related parties consisted of the following:
March 31, 2021 |
June 30, 2020 |
|||||||
Yang Bin | $ | 45,756 | $ | 42,434 | ||||
Beijing Huiyinansheng Asset Management Co., Ltd (a.) | 22,878 | 21,217 | ||||||
Wang Qiwei | 61,773 | 57,288 | ||||||
Total due from related parties | $ | 130,407 | $ | 120,939 |
a. | This company is wholly owned by one of the Company’s senior management. |
Due to Related Parties
As of March 31, 2021 and June 30, 2020, the Company had related party payables of US$1,131,376 and US$1,355,919, respectively, mainly due to the principal stockholders or certain relatives of the stockholders of the Company who lent funds for the Company’s operations. The payables are unsecured, non-interest bearing, and due on demand.
March 31, 2021 |
June 30, 2020 |
|||||||
Wu Yang | $ | 97,690 | $ | 90,598 | ||||
Wang Sai | 91,293 | 90,629 | ||||||
Chen Jiping | - | 3,024 | ||||||
Zhou Guocong | 547,974 | 648,308 | ||||||
Li Baolin | 228,781 | 353,619 | ||||||
Zhao Min | 165,638 | 169,741 | ||||||
Total due to related parties | $ | 1,131,376 | $ | 1,355,919 |
Sales to Related Parties
For the nine and three months ended March 31, 2021, the Company recorded sales to Shaanxi Pharmaceutical Group, a related party (see Note 7), of US$1,606,448 and US$311,249, respectively. For the nine and three months ended March 31, 2020, the Company recorded sales to Shaanxi Pharmaceutical Group, a related party, of US$2,128,575 and US$582,726, respectively. As of March 31, 2021 and June 30, 2020, the balance of accounts receivable due from Shaanxi Pharmaceutical Group was US$nil and US$1,567,160, respectively.
22 |
NOTE 12 - TAXES
(a) Corporate Income Taxes
The Company is subject to income taxes on an entity basis on income arising in or derived from the location in which each entity is domiciled.
Shineco is incorporated in the United States and has no operating activities. Tenet-Jove and its VIEs are governed by the Income Tax Laws of the PRC, and are currently subject to tax at a statutory rate of 25% on taxable income. Two VIEs and Xinjiang Taihe receive a full income tax exemption from the local tax authority of the PRC as agricultural enterprises as long as the favorable tax policy remains unchanged.
On December 22, 2017, The Act was enacted. The Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused the Company to re-measure its income tax liability and record an estimated income tax expense of US$744,766 for the year ended June 30, 2018. In accordance with SAB 118, additional work is necessary to do a more detailed analysis of The Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2019 when the analysis is complete. The Company elects to pay the transition tax over an eight-year period using specified percentages (eight percent per year for the first five years, 15 percent in year six, 20 percent in year seven, and 25 percent in year eight).
i) The components of the income tax expenses (benefits) were as follows:
For
the nine months ended
March 31, |
For
the three months ended
March 31, |
|||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Current income tax provision (benefit) | $ | - | $ | 476,862 | $ | (83,106 | ) | $ | 142,960 | |||||||
Deferred income tax benefit | - | (202,293 | ) | - | (32,783 | ) | ||||||||||
Total | $ | - | $ | 274,569 | $ | (83,106 | ) | $ | 110,177 |
March 31, 2021 |
June 30, 2020 |
|||||||
Deferred tax assets: | ||||||||
Allowance for doubtful accounts | $ | 1,291,461 | $ | 428,879 | ||||
Inventory reserve | 326,903 | 252,022 | ||||||
Net operating loss carry-forwards | 544,267 | 504,754 | ||||||
Total | 2,162,631 | 1,185,655 | ||||||
Valuation allowance | (2,162,631 | ) | (1,185,655 | ) | ||||
Total deferred tax assets | - | - | ||||||
Deferred tax liability: | ||||||||
Distribution rights | (281,401 | ) | (260,972 | ) | ||||
Total deferred tax liability | (281,401 | ) | (260,972 | ) | ||||
Deferred tax liability, net | $ | (281,401 | ) | $ | (260,972 |
Movement of the valuation allowance:
March 31, 2021 |
June 30, 2020 |
|||||||
Beginning balance | $ | 1,185,655 | $ | 519,671 | ||||
Current year addition | 884,162 | 680,901 | ||||||
Exchange difference | 92,814 | (14,917 | ) | |||||
Ending balance | $ | 2,162,631 | $ | 1,185,655 |
23 |
(b) Value-Added Tax
The Company is subject to a VAT for selling merchandise. The applicable VAT rate was 17% before May 1, 2018 for products sold in the PRC and decreased to 16% thereafter, and after April 1, 2019, the tax rate was further reduced to 13% based on the new Chinese tax law. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under commercial practice in the PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued.
In the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty based on the amount of the taxes which are determined to be late or deficient, and the penalty will be expensed in the period if and when a determination is made by the tax authorities. There were no assessed penalties during the nine and three months ended March 31, 2021 and 2020.
(c) Taxes Payable
Taxes payable consisted of the following:
March 31, 2021 |
June 30, 2020 |
|||||||
Income tax payable | $ | 3,326,884 | $ | 3,424,043 | ||||
Value added tax payable | 561,854 | 522,615 | ||||||
Business tax and other taxes payable | 6,466 | 6,026 | ||||||
Total tax payable | 3,895,204 | 3,952,684 | ||||||
Less: current portion | 3,329,182 | 3,386,662 | ||||||
Income tax payable - noncurrent portion | $ | 566,022 | $ | 566,022 |
NOTE 13 - STOCKHOLDERS’ EQUITY
Initial Public Offering
On September 28, 2016, the Company completed its initial public offering of 190,354 shares of common stock at a price of US$40.50 per share for gross proceeds of US$7.7 million and net proceeds of approximately US$5.4 million. The Company’s common shares began trading on September 28, 2016 on the NASDAQ Capital Market under the symbol “TYHT.”
Statutory Reserve
The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. As of March 31, 2021 and June 30, 2020, the balance of the required statutory reserves was US$4,198,107 and US$4,198,107, respectively.
On September 3, 2019, the Company granted 184,763 restricted shares of common stock to its employees as compensation cost for awards. The fair value of the restricted shares was US$1,022,660 based on the closing stock price US$5.54 at September 3, 2019. These restricted shares vested immediately on the grant date.
24 |
On September 5, 2019, the Company entered into a securities purchase agreement with select investors whereby the Company agreed to sell, and the investors agreed to purchase, up to 310,977 shares of common stock at a purchase price of US$4.68 per Share. The Company received net proceeds of US$1,500,203. The offering was made pursuant to the Company’s effective registration statement on Form S-3 (Registration Statement No. 333-221711) previously filed with the Securities and Exchange Commission and a prospectus supplement thereunder.
On July 10, 2020, the Company’s stockholders approved a 1-for-9 reverse stock split of the Company’s common stock, par value $0.001 per share, with a market effective date of August 14, 2020 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each nine pre-split shares of common stock outstanding automatically combined and converted to one issued and outstanding share of common stock without any action on the part of stockholders. No fractional shares of common stock were issued to any stockholders in connection with the Reverse Stock Split. Each stockholder was entitled to receive one share of common stock in lieu of the fractional share that would have resulted from the Reverse Stock Split. The number of the Company’s authorized common stock remained at 100,000,000 shares, and the par value of the common stock following the Reverse Stock Split remained at $0.001 per share. As of August 14, 2020 (immediately prior to the effective date), there were 27,333,428 shares of common stock outstanding, and the number of common stock outstanding after the Reverse Stock Split was 3,037,048, taking into account of the effect of rounding fractional shares into whole shares. As a result of the Reverse Stock Split, the Company’s shares and per share data as reflected in the unaudited condensed consolidated financial statements were retroactively restated as if the transaction occurred at the beginning of the periods presented.
On December 10, 2020, the Company entered into a securities purchase agreement with select investors whereby the Company agreed to sell, and the investors agreed to purchase, up to 604,900 shares of common stock at a purchase price of US$2.73 per share. The Company received net proceeds of US$1,643,087. The offering was made pursuant to the Company’s effective registration statement on Form S-3 (Registration Statement No. 333-221711) previously filed with the Securities and Exchange Commission and a prospectus supplement thereunder.
On January 27, 2021, the Company issued 364,445 shares of common stock to three investors at a price of US$3.0 per share. The Company received net proceeds of US$1,093,355.
NOTE 14 - CONCENTRATIONS AND RISKS
The Company maintains principally all bank accounts in the PRC. The cash balance held in the PRC bank accounts was US$25,831,506 and US$32,358,252 as of March 31, 2021 and June 30, 2020, respectively.
During the nine months ended March 31, 2021 and 2020, almost 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenue was derived from its subsidiaries and VIEs located in the PRC.
For the nine months ended March 31, 2021, four customers accounted for approximately 17%, 15%, 14%, and 10% of the Company’s total sales, respectively. For the three months ended March 31, 2021, three customers accounted for approximately 16%, 13%, and 12% of the Company’s total sales, respectively. At March 31, 2021, five customers accounted for approximately 72% of the Company’s accounts receivable.
For the nine months ended March 31, 2020, two customers accounted for approximately 14% and 11% of the Company’s total sales, respectively. For the three months ended March 31, 2020, four customers accounted for approximately 19%, 16%, 14%, and 10% of the Company’s total sales, respectively.
For the nine months ended March 31, 2021, two vendors accounted for approximately 53% and 11% of the Company’s total purchases, respectively. For the three months ended March 31, 2021, two vendors accounted for approximately 48% and 10% of the Company’s total purchases, respectively.
For the nine months ended March 31, 2020, four vendors accounted for approximately 34%, 16%, 11%, and 10% of the Company’s total purchases, respectively. For the three months ended March 31, 2020, six vendors accounted for approximately 22%, 21%, 17%, 15%, 13%, and 12% of the Company’s total purchases, respectively.
25 |
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Legal Contingencies
On May 16, 2017, Bonwick Capital Partners, LLC (the “Plaintiff”) commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against the Company in the United States District Court for the Southern District of New York. Plaintiff alleged that the Company entered into an agreement with the Plaintiff, pursuant to which the Plaintiff was to provide the Company with financial advisory services in connection with the Company’s initial public offering in the United States. The Plaintiff alleged that the Company breached the Agreement and seek money damages up to US$6 million. In March 2021, the Company entered into a Settlement Agreement and Release with the Plaintiff, pursuant to which the Company paid the Plaintiff a total sum of US$ 47,500 as settlement payment, and upon acceptance of the settlement payment from the Company, the Plaintiff waived, released, and forever discharged the Company from all past and future claims.
NOTE 16 - SEGMENT REPORTING
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Group’s internal organizational management structure as well as information about geographical areas, business segments, and major customers in for details on the Group’s business segments.
The Company’s chief operating decision maker has been identified as the Chief Executive Officer who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the Group. Based on management’s assessment, the Company has determined that it has three operating segments according to its major products and locations as follows:
● | Developing, manufacturing, and distributing specialized fabrics, textile products, and other by-products derived from an indigenous Chinese plant called Apocynum Venetum, commonly known as “Bluish Dogbane” or known in Chinese as “Luobuma” (referred to herein as Luobuma): |
The operating companies of this segment, namely Tenet-Jove and Tenet Huatai, specialize in Luobuma growing, development and manufacturing of relevant products, as well as purchasing Luobuma raw materials processing.
This segment’s operations are focused in the north region of Mainland China, mostly carried out in Beijing, Tianjin, and Xinjiang.
● | Processing and distributing of traditional Chinese medicinal herbal products as well as other pharmaceutical products (“Herbal products”): |
The operating companies of this segment, namely AnKang Longevity Group and its subsidiaries, process more than 600 kinds of Chinese medicinal herbal products with an established domestic sales and distribution network.
Ankang Longevity Group is also engaged in the retail pharmacy business and the operating revenue, which is not material, is also included in this segment.
● | Planting, processing, and distributing green and organic agricultural produce as well as growing and cultivating of Chinese Yew trees (“Other agricultural products”): |
The operating companies of this segment, the Zhisheng VIEs, are engaged in growing and distributing green and organic vegetables and fruits as well as providing logistics services for distributing agricultural products. This segment has been focusing its efforts on the growing and cultivating of Chinese yew trees (formally known as “taxus media”), a small evergreen tree whose branches can be used for the production of medications believed to be anti-cancer and the tree itself can be used as an ornamental indoor bonsai tree, which are known to have the effect of purifying air quality.
The operations of this segment are located in the East and North regions of Mainland China, mostly carried out in Shandong Province and in Beijing, where the Zhisheng VIEs have newly developed over 100 acres of modern greenhouses for cultivating yew trees and other plants.
26 |
The following table presents summarized information by segment for the nine months ended March 31, 2021:
For the nine months ended March 31, 2021 | ||||||||||||||||
Luobuma | Herbal | Other agricultural | ||||||||||||||
products | products | products | Total | |||||||||||||
Segment revenue | $ | 96,477 | $ | 6,761,663 | $ | 2,338,961 | $ | 9,197,101 | ||||||||
Cost of revenue and related business and sales tax | 287,629 | 5,792,488 | 5,870,789 | 11,950,906 | ||||||||||||
Gross profit (loss) | (191,152 | ) | 969,175 | (3,531,828 | ) | (2,753,805 | ) | |||||||||
Gross profit (loss) % | (198.1 | )% | 14.3 | % | (151.0 | )% | (29.9 | )% |
The following table presents summarized information by segment for the nine months ended March 31, 2020:
For the nine months ended March 31, 2020 | ||||||||||||||||
Luobuma | Herbal | Other agricultural | ||||||||||||||
products | products | products | Total | |||||||||||||
Segment revenue | $ | 144,659 | $ | 9,661,025 | $ | 8,844,031 | $ | 18,649,715 | ||||||||
Cost of revenue and related business and sales tax | 349,840 | 7,353,047 | 6,531,822 | 14,234,709 | ||||||||||||
Gross profit (loss) | (205,181 | ) | 2,307,978 | 2,312,209 | 4,415,006 | |||||||||||
Gross profit (loss) % | (141.8 | )% | 23.9 | % | 26.1 | % | 23.7 | % |
The following table presents summarized information by segment for the three months ended March 31, 2021:
For the three months ended March 31, 2021 | ||||||||||||||||
Luobuma | Herbal | Other agricultural | ||||||||||||||
products | products | products | Total | |||||||||||||
Segment revenue | $ | 23,468 | $ | 1,352,938 | $ | 614,331 | $ | 1,990,737 | ||||||||
Cost of revenue and related business and sales tax | 157,001 | 1,342,583 | 1,498,469 | 2,998,053 | ||||||||||||
Gross profit (loss) | (133,533 | ) | 10,355 | (884,138 | ) | (1,007,316 | ) | |||||||||
Gross profit (loss) % | (569.0 | )% | 0.8 | % | (143.9 | )% | (50.6 | )% |
The following table presents summarized information by segment for the three months ended March 31, 2020:
For the three months ended March 31, 2020 | ||||||||||||||||
Luobuma | Herbal | Other agricultural | ||||||||||||||
products | products | products | Total | |||||||||||||
Segment revenue | $ | 5,900 | $ | 2,821,425 | $ | 906,997 | $ | 3,734,322 | ||||||||
Cost of revenue and related business and sales tax | 80,683 | 2,125,927 | 1,117,588 | 3,324,198 | ||||||||||||
Gross profit (loss) | (74,783 | ) | 695,498 | (210,591 | ) | 410,124 | ||||||||||
Gross profit (loss) % | (1,267.5 | )% | 24.7 | % | (23.2 | )% | 11.0 | % |
Total assets as of March 31, 2021 and June 30, 2020 were as follows:
March 31, 2021 |
June 30, 2020 |
|||||||
Luobuma products | $ | 5,348,926 | $ | 2,836,450 | ||||
Herbal products | 39,467,761 | 43,855,815 | ||||||
Other agricultural products | 22,774,290 | 32,396,346 | ||||||
Total assets | $ | 67,590,977 | $ | 79,088,611 |
NOTE 17 - SUBSEQUENT EVENTS
These unaudited condensed consolidated financial statements were approved by management and available for issuance on May 14, 2021, and the Company has evaluated subsequent events through this date. No subsequent events required adjustments to or disclosure in these unaudited condensed consolidated financial statements.
27 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements include:
● | the timing of the development of future products; | |
● | projections of revenue, earnings, capital structure, and other financial items; | |
● | local, regional, national, and global Luobuma and herbal medicines price fluctuations; | |
● | statements of our plans and objectives, including those that relate to our proposed expansions and the effect such expansions may have on our revenue; | |
● | statements regarding the capabilities of our business operations; | |
● | statements of expected future economic performance; | |
● | the impact of the COVID-19 outbreak; | |
● | statements regarding competition in our market; and | |
● | assumptions underlying statements regarding us or our business. |
The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material risks under the heading “Risk Factors” in our annual report on Form 10-K and Registration Statement on Form S-1. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Nonetheless, we reserve the right to make such updates from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report. No such update shall be deemed to indicate that other statements not addressed by such update is incorrect or create an obligation to provide any other updates.
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The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, filed with the SEC on September 28, 2020. All monetary figures are presented in U.S. dollars, unless otherwise indicated.
General Overview
We are a Delaware holding company that uses our subsidiaries’ and variable interest entities’ (“VIEs”) 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:
Processing and distributing traditional Chinese herbal medicine products as well as other pharmaceutical products - This segment is conducted through our VIE, Ankang Longevity Pharmaceutical (Group) Co., Ltd. (“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.
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 group and corporate customers, but do not currently process yew into Chinese or Western medicines. This segment is conducted through our VIEs: 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”), and Qingdao Zhihesheng Agricultural Produce Services, Ltd (“Qingdao Zhihesheng”) (collectively, the “Zhisheng VIEs”).
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 our directly-owned subsidiary, Beijing Tenet-Jove Technological Development Co., Ltd. (“Tenet-Jove”), and its 90% subsidiary Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).
Financing Activities
On January 27, 2021, the Company issued 364,445 shares of common stock to three investors, who are not “U.S. persons” as defined pursuant to Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”), at a price of US$3.0 per share. The share issuance was exempt from the registration requirements of the Securities Act pursuant to Regulation S promulgated under the Securities Act. The Company received net proceeds of US$1,093,355.
On April 14, 2021, the Company entered into certain stock purchase agreements with certain investors (the “Purchasers”), who are not “U.S. persons” as defined in the stock purchase agreements pursuant to Regulation S promulgated under the Securities Act, whereby the Company agreed to issue and sell, and the Purchasers agreed to purchase, severally and not jointly, an aggregate of 3,872,194 shares of common stock (the “Shares”) at an aggregate purchase price of $11,005,204.40 (the “Offering”). The Shares to be issued in the Offering are exempt from the registration requirements of the Securities Act, pursuant to Regulation S promulgated under the Securities Act. As of the date of this Quarterly Report, the Offering is in process and not yet completed.
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Factors Affecting Financial Performance
We believe that the following factors will affect our financial performance:
Increasing demand for our products - The increasing demand for our agricultural products will have a positive impact on our financial position. We plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses, all aimed at increasing awareness of our brand, developing customer loyalty, meeting customer demands in various markets and providing solid foundations for our continuous growth. As of the date of this Quarterly Report, however, we do not have any agreements, undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will.
Maintaining effective control of our costs and expenses - Successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices. We will focus on improving our long-term cost control strategies including establishing long-term alliances with certain suppliers to ensure adequate supply is maintained. We will carry forward the economies of scale and advantages from our nationwide distribution network and diversified offerings. Moreover, we will step up our efforts in higher value added products of Luobuma by using an exclusive and patented technology, to optimize quality management, procurement processes and cost control, and give full play to the strong production capacity and trustworthy sales teams to maximize our profit and bring better long-term return for our stockholders.
Economic and Political Risks
Our operations are conducted primarily in the PRC and subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions, remittances abroad, and rates and methods of taxation, among other things.
COVID-19 Impact
The COVID-19 outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. In accordance with the epidemic control measures imposed by the local governments related to the COVID-19 outbreak, our offices and retail stores remained closed or had limited business operations after the Chinese New Year holiday until early April 2020. In addition, the COVID-19 outbreak had caused severe disruptions in transportation, limited access to our facilities and limited support from workforce employed in our operations, and as a result, we experienced delays or the inability to delivery our products to customers on a timely basis. Further, some of our customers or suppliers experienced financial distress, delayed or defaults on payment, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. Any decreased collectability of accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations. Wider-spread COVID-19 in China and globally could prolong the deterioration in economic conditions and could cause decreases in or delays in spending and reduce and/or negatively impact our short-term ability to grow our revenue.
Although we have used all reasonable efforts to adopt measures to overcome the adverse impact of the COVID-19 outbreak and resumed our normal business activities in early May 2020, our management believes the outbreak had a negative impact on our operation result during the nine and three months ended March 31, 2021. Our revenue for the nine months ended March 31, 2021 was approximately US$9.2 million, a decrease of approximately US$9.5 million, or 50.7%, from approximately US$18.6 million for the same period in 2020. Our revenue for the three months ended March 31, 2021 was approximately US$2.0 million, a decrease of approximately US$1.7 million, or 46.7%, from approximately US$3.7 million for the same period in 2020. As of the date of this Quarterly Report, the COVID-19 outbreak in China appears to have been under relative control. While we expect this matter to negatively impact our business, results of operations, and financial position, the related financial impact and the duration of the impact cannot be reasonably estimated at this time.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our consolidated financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Consolidation of Variable Interest Entities
VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
Use of Estimates
Significant estimates required to be made by management include, but are not limited to, useful lives of property, plant, and equipment, and intangible assets, the recoverability of long-lived assets and the valuation of accounts receivable, deferred taxes and inventory reserves. Actual results could differ from those estimates.
Accounts Receivable, Net
Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as necessary. We review the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, the customers’ historical payment history, their current credit-worthiness and current economic trends. The fair value of long-term receivables is determined using a present value technique by discounting the future expected contractual cash flows using current rates at which similar instruments would be issued at the measurement date. As of March 31, 2021 and June 30, 2020, the allowance for doubtful accounts was US$13,539,904 and US$5,235,436, respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful.
Inventories, Net
Inventories, which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods related to our products. Cost is determined using the first in first out method. Agricultural products that we farm are recorded at cost, which includes direct costs such as seed selection, fertilizer, labor cost, and contract fees that are spent in growing agricultural products on the leased farmland, and indirect costs such as amortization of prepayments of farmland leases and farmland development costs. All the costs are accumulated until the time of harvest and then allocated to the harvested crops costs when they are sold. We periodically evaluate our inventory and records an inventory reserve for certain inventories that may not be saleable or whose cost exceeds net realizable value. As of March 31, 2021 and June 30, 2020, the inventory reserve was US$1,429,804 and US$1,121,408, respectively.
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Revenue Recognition
We previously recognized revenue from sales of Luobuma products, Chinese medicinal herbal products, and agricultural products, as well as providing logistic services and other processing services to external customers. We recognized revenue when all of the following have occurred: (i) there was persuasive evidence of an arrangement with a customer; (ii) delivery had occurred or services had been rendered; (iii) the sales price was fixed or determinable; and (iv) our collection of such fees was reasonably assured. These criteria, as related to our revenue, were considered to have been met as follows:
Sales of products: We recognized revenue from the sale of products when the goods were delivered and title to the goods passed to the customer provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.
Revenue from provision of services: Revenue from international freight forwarding, domestic air, and overland freight forwarding services was recognized upon the performance of services as stipulated in the underlying contract or when commodities were being released from the customer’s warehouse; the service price was fixed or determinable; and collectability was deemed probable.
With the adoption of ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. We adopted the new revenue standard beginning July 1, 2018, and adopted a modified retrospective approach upon adoption. We believe that our previous revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASC 606. Potential adjustments to input measures are not expected to be pervasive to the majority of our contracts. There is no significant impact upon adoption of the new guidance.
Fair Value of Financial Instruments
We follow the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.
The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.
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Results of Operations for the Nine Months Ended March 31, 2021 and 2020
Overview
The following table summarizes our results of operations for the nine months ended March 31, 2021 and 2020:
Nine Months Ended March 31, |
Variance | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Revenue | $ | 9,197,101 | $ | 18,649,715 | $ | (9,452,614 | ) | (50.69 | )% | |||||||
Cost of revenue | 11,950,906 | 14,234,709 | (2,283,803 | ) | (16.04 | )% | ||||||||||
Gross profit (loss) | (2,753,805 | ) | 4,415,006 | (7,168,811 | ) | (162.37 | )% | |||||||||
General and administrative expenses | 13,625,060 | 9,343,435 | 4,281,625 | 45.82 | % | |||||||||||
Selling expenses | 86,870 | 340,681 | (253,811 | ) | (74.50 | )% | ||||||||||
Loss from operations | (16,465,735 | ) | (5,269,110 | ) | (11,196,625 | ) | 212.50 | % | ||||||||
Income (loss) from equity method investments | (3,753,280 | ) | 97,528 | (3,850,808 | ) | (3,948.41 | )% | |||||||||
Other income (expense), net | (2,066,268 | ) | 39,084 | (2,105,352 | ) | (5,386.74 | )% | |||||||||
Interest expense, net | (30,977 | ) | (8,250 | ) | (22,727 | ) | 275.48 | % | ||||||||
Loss before income tax provision | (22,316,260 | ) | (5,140,748 | ) | (17,175,512 | ) | 334.11 | % | ||||||||
Provision for income taxes | - | 274,569 | (274,569 | ) | (100.00 | )% | ||||||||||
Net loss | $ | (22,316,260 | ) | $ | (5,415,317 | ) | $ | (16,900,943 | ) | 312.10 | % | |||||
Comprehensive loss attributable to Shineco Inc. | $ | (16,751,239 | ) | $ | (7,782,661 | ) | $ | (8,968,578 | ) | 115.24 | % |
Revenue
Currently, we have three revenue streams derived from our three major business segments: (i) developing, manufacturing, and distributing specialized fabrics, textiles, and other by-products derived from an indigenous Chinese plant Apocynum Venetum, known in Chinese as “Luobuma” or “Bluish Dogbane,” as well as Luoboma raw materials processing, which segment is channeled through our wholly owned subsidiary, Tenet-Jove; (ii) processing and distributing traditional Chinese medicinal herbal products as well as other pharmaceutical products, which segment is conducted via our VIE, Ankang Longevity Group and its subsidiaries; and (iii) planting, processing, and distributing green and organic agricultural produce as well as growing and cultivation of yew trees, which segment is conducted through the Zhisheng VIEs.
The following table sets forth the breakdown of our revenue for each of our three segments, for the nine months ended March 31, 2021 and 2020, respectively:
Nine Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
Luobuma products | $ | 96,477 | 1.05 | % | $ | 144,659 | 0.78 | % | $ | (48,182 | ) | (33.31 | )% | |||||||||||
Chinese medicinal herbal products | 6,761,663 | 73.52 | % | 9,661,025 | 51.80 | % | (2,899,362 | ) | (30.01 | )% | ||||||||||||||
Other agricultural products | 2,338,961 | 25.43 | % | 8,844,031 | 47.42 | % | (6,505,070 | ) | (73.55 | )% | ||||||||||||||
Total Amount | $ | 9,197,101 | 100.00 | % | $ | 18,649,715 | 100.00 | % | $ | (9,452,614 | ) | (50.69 | )% |
For the nine months ended March 31, 2021 and 2020, revenue from sales of Luobuma products was US$96,477 and US$144,659, respectively, which represented a decrease of US$48,182, or 33.31%. The decrease of revenue from this segment was mainly due to the decrease in revenue from Tenet-Jove and Tenet Huatai. We did not launch any new products since last year and mainly focused on clearing off our remaining old stocks. Meanwhile, we reduced resources and investments in our E-commerce distribution channel, which also resulted in a decrease in our online sales volume. In addition, our sales of Luobuma products were affected by the COVID-19 outbreak. As a result, our overall sales decreased during the nine months ended March 31, 2021 as compared to the same period in 2020.
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For the nine months ended March 31, 2021 and 2020, revenue from sales of Chinese medicinal herbal products was US$6,761,663 and US$9,661,025, respectively, representing a decrease of US$2,899,362, or 30.01%. Due to the COVID-19 outbreak, people became more health conscious and started wearing masks in public area, which resulted in a reduction of the incidence of other illness. Hence, our sales of Chinese medicinal herbal products decreased during the nine months ended March 31, 2021 as compared to the same period in 2020.
For the nine months ended March 31, 2021 and 2020, revenue from sales of other agricultural products was US$2,338,961 and US$8,844,031, respectively, representing a decrease of US$6,505,070, or 73.55%. The decrease was mainly due to the decline of sales volume of yew trees during the nine months ended March 31, 2021 as compared to the same period in 2020. Our sales of yew trees were affected by the COVID-19 outbreak, which resulted in less orders from our customers during the nine months ended March 31, 2021 as compared to the same period in 2020. The decrease was also due to a shift in our business strategy as our yew trees business is adversely affected by the COVID-19 outbreak. Instead of selling more unmatured yew trees, we are now cultivating more matured yew trees, which can be used to extract Taxol, a more valuable chemical substance which is used experimentally as a drug in the treatment of cancer.
Cost of Revenue and related tax
The following table sets forth the breakdown of the cost of revenue for each of our three segments, for the nine months ended March 31, 2021 and 2020, respectively:
Nine Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
Luobuma products | $ | 287,613 | 2.41 | % | $ | 349,516 | 2.46 | % | $ | (61,903 | ) | (17.71 | )% | |||||||||||
Chinese medicinal herbal products | 5,767,915 | 48.26 | % | 7,318,018 | 51.41 | % | (1,550,103 | ) | (21.18 | )% | ||||||||||||||
Other agricultural products | 5,866,278 | 49.09 | % | 6,524,171 | 45.83 | % | (657,893 | ) | (10.08 | )% | ||||||||||||||
Business and sales related tax | 29,100 | 0.24 | % | 43,004 | 0.30 | % | (13,904 | ) | (32.33 | )% | ||||||||||||||
Total Amount | $ | 11,950,906 | 100.00 | % | $ | 14,234,709 | 100.00 | % | $ | (2,283,803 | ) | (16.04 | )% |
For the nine months ended March 31, 2021 and 2020, cost of revenue from sales of our Luobuma products was US$287,613 and US$349,516, respectively, representing a decrease of US$61,903, or 17.71%. The decrease was in line with the decrease in sales of Luobuma products. However, the percentage of decrease in cost of revenue was less than the percentage of decrease in sales, mainly due to reduced selling prices of our Luobuma products, as we gave more promotion and price discounts in order to attract more customers and clear our remaining old stocks during the nine months ended March 31, 2021.
For the nine months ended March 31, 2021 and 2020, cost of revenue from sales of Chinese medicinal herbal products was US$5,767,915 and US$7,318,018, respectively, representing a decrease of US$1,550,103, or 21.18%. The decrease was mainly due to less Chinese medicinal herbal products sold during the nine months ended March 31, 2021 as compared to the same period in 2020 as mentioned above. However, the percentage of decrease in cost of revenue was less than the percentage of decrease in sales; please refer to the gross profit analysis below for more details.
For the nine months ended March 31, 2021 and 2020, cost of revenue from sales of other agricultural products was US$5,866,278 and US$6,524,171, respectively, representing a decrease of US$657,893, or 10.08%. The decrease was mainly due to less yew trees sold during the nine months ended March 31, 2021 as compared to the same period in 2020 as mentioned above. The decrease was partially offset by an inventory write-off during the nine months ended March 31, 2021. Due to the continuous impact of the Covid-19 outbreak in China and severe cold weather during the winter period this year, which resulted in the damage and death of a large number of yew trees, we wrote off our inventory in the amount of US$3,358,716 during the nine months ended March 31, 2021.
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Gross Profit (Loss)
The following table sets forth the breakdown of the gross profit (loss) for each of our three segments, for the nine months ended March 31, 2021 and 2020, respectively:
Nine Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
Luobuma products | $ | (191,152 | ) | 6.94 | % | $ | (205,181 | ) | (4.65 | )% | $ | 14,029 | (6.84 | )% | ||||||||||
Chinese medicinal herbal products | 969,175 | (35.19 | )% | 2,307,978 | 52.28 | % | (1,338,803 | ) | (58.01 | )% | ||||||||||||||
Other agricultural products | (3,531,828 | ) | 128.25 | % | 2,312,209 | 52.37 | % | (5,844,037 | ) | (252.75 | )% | |||||||||||||
Total Amount | $ | (2,753,805 | ) | 100.00 | % | $ | 4,415,006 | 100.00 | % | $ | (7,168,811 | ) | (162.37 | )% |
Gross loss from Luobuma product sales decreased by US$14,029, or 6.84%, for the nine months ended March 31, 2021 as compared to the same period in 2020. During the nine months ended March 31, 2021, our gross loss was US$191,152, mainly due to the allowance we accrued for slow-moving inventories in the amount of US$216,629. In addition, in order to reduce our old stock, we sold some of our products below their original costs during the nine months ended March 31, 2021. However, our gross loss decreased, which was mainly due to less allowance accrued for our slow-moving inventories in the amount of US$25,386 during the nine months ended March 31, 2021 as compared to the same period in 2020.
Gross profit from sales of Chinese medicinal herbal products decreased by US$1,338,803, or 58.01%, for the nine months ended March 31, 2021 as compared to the same period in 2020. However, the percentage of decrease in gross profit was more than the percentage of decrease in revenue. It was mainly due to reduced selling prices of our Chinese medicinal herbal products, as we gave more promotion and price discounts in order to attract more customers and clear our stocks when the demand for our products was impacted during the nine months ended March 31, 2021.
Gross loss from sales of other agricultural products decreased by US$5,844,037, or 252.75%, for the nine months ended March 31, 2021 as compared to the same period in 2020. During the nine months ended March 31, 2021, our gross loss was US$3,531,828, mainly due to less yew trees sold as well as an inventory write-off during the nine months ended March 31, 2021 as mentioned above. The decrease was also due to reduced selling prices of our products, as we gave more price discounts in order to get more customer orders when the demand for our products was impacted during the nine months ended March 31, 2021.
Expenses
The following table sets forth the breakdown of our operating expenses for the nine months ended March 31, 2021 and 2020, respectively:
Nine Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
General and administrative expenses | $ | 13,625,060 | 99.37 | % | $ | 9,343,435 | 96.48 | % | $ | 4,281,625 | 45.82 | % | ||||||||||||
Selling expenses | 86,870 | 0.63 | % | 340,681 | 3.52 | % | (253,811 | ) | (74.50 | )% | ||||||||||||||
Total Amount | $ | 13,711,930 | 100.00 | % | $ | 9,684,116 | 100.00 | % | $ | 4,027,814 | 41.59 | % |
General and Administrative Expenses
For the nine months ended March 31, 2021, our general and administrative expenses were US$13,625,060, representing an increase of US$4,281,625, or 45.82%, as compared to the same period in 2020. The increase was mainly due to an increase in bad debt expenses of US$5,392,704 during the nine months ended March 31, 2021. Due to the COVID-19 outbreak in China, many of our customers’ businesses were adversely affected during this period, which resulted in slow collection of our receivables, and we recorded allowance according to our accounting policy based on our best estimates. Management will continue putting effort in the collection of overdue accounts receivable from our customers. The increase was partially offset by a decrease in staff salary expenses as we issued restricted shares to the management as compensation of US$1,022,661 during the same period in 2020.
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Selling Expenses
For the nine months ended March 31, 2021, our selling and distribution expenses were US$86,870, representing a decrease of US$253,811, or 74.50%, as compared to the same period in 2020. The decrease was mainly due to the decrease in promotion expenses and commission expenses for our online shops under Tenet-Jove, which was in line with the decrease in our sales during the nine months ended March 31, 2021. The decrease was also due to the decrease in salary-related expenses as a result of a reduced number of staff members during the nine months ended March 31, 2021.
Income (Loss) from Equity Method Investments
We were 49% owners in two companies incorporated pursuant to two equity investment agreements with Shaanxi Pharmaceutical Group Pai’ang Medicine Co. Ltd. (“Shaanxi Pharmaceutical Group”): Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Retail Chain Co., Ltd. (“Sunsimiao Drugstores”), and Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (“Shaanxi Longevity Pharmacy”). We recorded a net loss of US$3,753,280 and a net income of US$97,528 from these equity investments for the nine months ended March 31, 2021 and 2020, respectively. The increase in net loss was primarily due to the net loss in Sunsimiao Drugstores and Shaanxi Longevity Pharmacy in the current period. Shaanxi Longevity Pharmacy recorded a large amount of bad debt expenses due to slow collection of its accounts receivable, as many of its customers’ businesses were adversely affected by the COVID-19 outbreak in China during this period. In addition, on March 5, 2021, Ankang Longevity Group entered into two equity investment transfer agreements with a third-party company to sell all of its 49% equity interest in Sunsimiao Drugstores and its 49% equity interest in Shaanxi Longevity Pharmacy for a total consideration of RMB6.86 million (approximately US$1.0 million), and the full amount had been received by March 31, 2021. Upon the transfer of these two equity investments, Ankang Longevity Group recorded a loss of US$1,748,459, which was included in the investment loss for the nine months ended March 31, 2021 as mentioned above.
Other Income (Expenses), Net
For the nine months ended March 31, 2021, our net other expenses were US$2,066,268, representing an increase of US$2,105,352, or 5,386.74%, as compared to net other income of US$39,084 in the same period in 2020. The increase in net other expenses was primarily due to a loss from disposal of property and equipment of US$2,154,151 during the nine months ended March 31, 2021.
Provision for Income Taxes
For the nine months ended March 31, 2021 and 2020, our provision for income taxes decreased by US$274,569, or 100.00%, to US$nil for the nine months ended March 31, 2021 from US$274,569 for the nine months ended March 31, 2020. The decrease in provision for income taxes was mainly due to the decreased taxable income of Ankang Longevity Group as Ankang Longevity Group incurred loss before tax for the nine months ended March 31, 2021.
Net Loss
Our net loss was US$22,316,260 for nine months ended March 31, 2021, an increase of US$16,900,943, or 312.10%, from a net loss of US$5,415,317 for nine months ended March 31, 2020. The increase in net loss was primarily a result of the decrease in gross profit, the increase in general and administrative expenses, the loss from equity method investments, and net other expenses.
Comprehensive Loss
The comprehensive loss was US$17,404,397 for the nine months ended March 31, 2021, an increase of US$9,668,803 from a comprehensive loss of US$7,735,594 for the nine months ended March 31, 2020. After deduction of non-controlling interest, the comprehensive loss attributable to us was US$16,751,239 for the nine months ended March 31, 2021, compared to a comprehensive loss attributable to us in the amount of US$7,782,661 for the nine months ended March 31, 2020. The significant increase in comprehensive loss was due to the increase in net loss as mentioned above, which was partially offset by an increase in the recorded income of foreign currency translation, where the financial statements denominated in RMB were translated to the USD denomination.
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Results of Operations for the Three Months Ended March 31, 2021 and 2020
Overview
The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31, |
Variance | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Revenue | $ | 1,990,737 | $ | 3,734,322 | $ | (1,743,585 | ) | (46.69 | )% | |||||||
Cost of revenue | 2,998,053 | 3,324,198 | (326,145 | ) | (9.81 | )% | ||||||||||
Gross profit (loss) | (1,007,316 | ) | 410,124 | (1,417,440 | ) | (345.61 | )% | |||||||||
General and administrative expenses | 5,016,939 | 3,896,478 | 1,120,461 | 28.76 | % | |||||||||||
Selling expenses | 32,525 | 145,526 | (113,001 | ) | (77.65 | )% | ||||||||||
Loss from operations | (6,056,780 | ) | (3,631,880 | ) | (2,424,900 | ) | 66.77 | % | ||||||||
Loss from equity method investments | (1,777,551 | ) | (43,054 | ) | (1,734,497 | ) | 4,028.65 | % | ||||||||
Other income (expense) | (28,076 | ) | 627 | (28,703 | ) | (4,577.83 | )% | |||||||||
Interest expense, net | (452 | ) | (7,942 | ) | 7,490 | (94.31 | )% | |||||||||
Loss before income tax provision | (7,862,859 | ) | (3,682,249 | ) | (4,180,610 | ) | 113.53 | % | ||||||||
Provision (benefit) for income taxes | (83,106 | ) | 110,177 | (193,283 | ) | (175.43 | )% | |||||||||
Net loss | $ | (7,779,753 | ) | $ | (3,792,426 | ) | $ | (3,987,327 | ) | 105.14 | % | |||||
Comprehensive loss attributable to Shineco Inc. | $ | (7,670,578 | ) | $ | (5,007,142 | ) | $ | (2,663,436 | ) | 53.19 | % |
Revenue
Currently, we have three revenue streams derived from our three major business segments: (i) developing, manufacturing, and distributing specialized fabrics, textiles, and other by-products derived from an indigenous Chinese plant Apocynum Venetum, known in Chinese as “Luobuma” or “Bluish Dogbane,” as well as Luobuma raw materials processing, which segment is channeled through our wholly owned subsidiary, Tenet-Jove; (ii) processing and distributing traditional Chinese medicinal herbal products as well as other pharmaceutical products, which segment is conducted via our VIE, Ankang Longevity Group and its subsidiaries; and (iii) planting, processing, and distributing green and organic agricultural produce as well as growing and cultivation of yew trees, which segment is conducted through the Zhisheng VIEs.
The following table sets forth the breakdown of our revenue for each of our three segments, for the three months ended March 31, 2021 and 2020, respectively:
Three Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
Luobuma products | $ | 23,468 | 1.18 | % | $ | 5,900 | 0.16 | % | $ | 17,568 | 297.76 | % | ||||||||||||
Chinese medicinal herbal products | 1,352,938 | 67.96 | % | 2,821,425 | 75.55 | % | (1,468,487 | ) | (52.05 | )% | ||||||||||||||
Other agricultural products | 614,331 | 30.86 | % | 906,997 | 24.29 | % | (292,666 | ) | (32.27 | )% | ||||||||||||||
Total Amount | $ | 1,990,737 | 100.00 | % | $ | 3,734,322 | 100.00 | % | $ | (1,743,585 | ) | (46.69 | )% |
For the three months ended March 31, 2021 and 2020, revenue from sales of Luobuma products was US$23,468 and US$5,900, respectively, which represented an increase of US$17,568, or 297.76%. The increase was mainly due to increased sales volume resulting from reduced selling prices of our Luobuma products, as we gave more promotion and price discounts so that we could attract more customers orders during the three months ended March 31, 2021.
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For the three months ended March 31, 2021 and 2020, revenue from sales of Chinese medicinal herbal products was US$1,352,938 and US$2,821,425, respectively, representing a decrease of US$1,468,487 or 52.05%. Due to the COVID-19 outbreak, people became more health conscious and started to wear masks in public area, which resulted in a reduction of the incidence of other illness. Hence, our sales of Chinese medicinal herbal products decreased during the three months ended March 31, 2021 as compared to the same period in 2020.
For the three months ended March 31, 2021 and 2020, revenue from sales of other agricultural products was US$614,331 and US$906,997, respectively, representing a decrease of US$292,666 or 32.27%. The decrease was mainly due to the decline of sales volume of yew trees during the three months ended March 31, 2021 as compared to the same period in 2020. The decrease in sales volume was mainly due to a shift in our business strategy as our yew trees business is adversely affected by the COVID-19. Instead of selling more unmatured yew trees, we are now cultivating more matured yew trees, which can be used to extract Taxol, a more valuable chemical substance which is used experimentally as a drug in the treatment of cancer.
Cost of Revenue and related tax
The following table sets forth the breakdown of the cost of revenue for each of our three segments, for the three months ended March 31, 2021 and 2020, respectively:
Three Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
Luobuma products | $ | 157,001 | 5.24 | % | $ | 80,680 | 2.42 | % | $ | 76,321 | 94.60 | % | ||||||||||||
Chinese medicinal herbal products | 1,336,937 | 44.59 | % | 2,114,211 | 63.60 | % | (777,274 | ) | (36.76 | )% | ||||||||||||||
Other agricultural products | 1,496,955 | 49.93 | % | 1,113,966 | 33.51 | % | 382,989 | 34.38 | % | |||||||||||||||
Business and sales related tax | 7,160 | 0.24 | % | 15,341 | 0.47 | % | (8,181 | ) | (53.33 | )% | ||||||||||||||
Total Amount | $ | 2,998,053 | 100.00 | % | $ | 3,324,198 | 100.00 | % | $ | (326,145 | ) | (9.81 | )% |
For the three months ended March 31, 2021 and 2020, cost of revenue from sales of our Luobuma products was US$157,001 and US$80,680, respectively, representing an increase of US$76,321, or 94.60%. The increase was mainly due to the increased allowance we accrued for slow-moving inventories as well as increase in cost of revenue as we sold more Luobuma products, which was in line with the increase in sales during the three months ended March 31, 2021.
For the three months ended March 31, 2021 and 2020, cost of revenue from sales of Chinese medicinal herbal products was US$1,336,937 and US$2,114,211, respectively, representing a decrease of US$777,274, or 36.76%. The decrease was mainly due to less Chinese medicinal herbal products sold during the three months ended March 31, 2021 as compared to the same period in 2020 as mentioned above. However, the percentage of decrease in cost of revenue was less than the percentage of decrease in sales; please refer to the gross profit analysis below for more details.
For the three months ended March 31, 2021 and 2020, cost of revenue from sales of other agricultural products was US$1,496,955 and US$1,113,966, respectively, representing an increase of US$382,989, or 34.38%. The increase was mainly due to an inventory write-off during the three months ended March 31, 2021. Due to the continuous impact of the Covid-19 outbreak in China and severe cold weather during the winter period this year, which resulted in the damage and death of a large number of yew trees, we wrote off our inventory in the amount of US$729,029 during the three months ended March 31, 2021. The increase was partially offset by the decrease in cost of revenue as we sold less yew trees during the three months ended March 31, 2021 as compared to the same period in 2020 as mentioned above.
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Gross Profit (Loss)
The following table sets forth the breakdown of the gross profit (loss) for each of our three segments, for the three months ended March 31, 2021 and 2020, respectively:
Three Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
Luobuma products | $ | (133,533 | ) | 13.26 | % | $ | (74,783 | ) | (18.23 | )% | $ | (58,750 | ) | 78.56 | % | |||||||||
Chinese medicinal herbal products | 10,355 | (1.03 | )% | 695,498 | 169.58 | % | (685,143 | ) | (98.51 | )% | ||||||||||||||
Other agricultural products | (884,138 | ) | 87.77 | % | (210,591 | ) | (51.35 | )% | (673,547 | ) | 319.84 | % | ||||||||||||
Total Amount | $ | (1,007,316 | ) | 100.00 | % | $ | 410,124 | 100.00 | % | $ | (1,417,440 | ) | (345.61 | )% |
Gross loss from Luobuma product sales increased by US$58,750, or 78.56%, for the three months ended March 31, 2021 as compared to the same period in 2020. During the three months ended March 31, 2021, our gross loss was US$133,533, mainly due to the allowance we accrued for slow-moving inventories in the amount of US$58,388. In addition, in order to reduce our old stock, we sold some of our products below their original costs during the six months ended December 31, 2020, resulting in a gross loss during the six months ended December 31, 2020.
Gross profit from sales of Chinese medicinal herbal products decreased by US$685,143, or 98.51%, for the three months ended March 31, 2021 as compared to the same period in 2020. However, the percentage of decrease in gross profit was more than the percentage of decrease in revenue. It was mainly due to reduced selling prices of our Chinese medicinal herbal products, as we gave more promotion and price discounts in order to attract more customers and clear our stocks when the demand for our products was impacted during the three months ended March 31, 2021.
Gross loss from sales of other agricultural products increased by US$673,547, or 319.84%, for the three months ended March 31, 2021 as compared to the same period in 2020. During the three months ended March 31, 2021, our gross loss was US$884,138, mainly due to less yew trees sold as well as an inventory write off during the three months ended March 31, 2021 as mentioned above. The decrease was also due to reduced selling prices of our products, as we gave more price discounts in order to get more customer orders when the demand for our products was impacted during the three months ended March 31, 2021.
Expenses
The following table sets forth the breakdown of our operating expenses for the three months ended March 31, 2021 and 2020, respectively:
Three Months Ended March 31, | Variance | |||||||||||||||||||||||
2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
General and administrative expenses | $ | 5,016,939 | 99.36 | % | $ | 3,896,478 | 96.40 | % | $ | 1,120,461 | 28.76 | % | ||||||||||||
Selling expenses | 32,525 | 0.64 | % | 145,526 | 3.60 | % | (113,001 | ) | (77.65 | )% | ||||||||||||||
Total Amount | $ | 5,049,464 | 100.00 | % | $ | 4,042,004 | 100.00 | % | $ | 1,007,460 | 24.92 | % |
General and Administrative Expenses
For the three months ended March 31, 2021, our general and administrative expenses were US$5,016,939, representing an increase of US$1,120,461, or 28.76%, as compared to the same period in 2020. The increase was mainly due to an increase in bad debt expenses of US$889,605 during the three months ended March 31, 2021. Due to the COVID-19 outbreak in China, many of our customers’ businesses were adversely affected during this period, which resulted in slow collection of our receivables, and we recorded allowance according to our accounting policy based on our best estimates. Management will continue putting effort in the collection of overdue accounts receivable from our customers.
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Selling Expenses
For the three months ended March 31, 2021, our selling and distribution expenses were US$32,525, representing a decrease of US$113,001, or 77.65%, as compared to the same period in 2020. The decrease was mainly due to the decrease in promotion expenses and commission expenses for our online shops under Tenet-Jove, which was in line with the decrease in our sales during the three months ended March 31, 2021. The decrease was also due to a decrease in salary related expenses as a result of a reduced number of staff members during the three months ended March 31, 2021.
Loss from Equity Method Investments
We were 49% owners in two companies incorporated pursuant to two equity investment agreements with Shaanxi Pharmaceutical Group: Sunsimiao Drugstores and Shaanxi Longevity Pharmacy. We recorded a net loss of US$1,777,551 and a net loss of US$43,054 from these equity investments for the three months ended March 31, 2021 and 2020, respectively. The increase in net loss was primarily due to the net loss in Sunsimiao Drugstores and Shaanxi Longevity Pharmacy in the current period. Shaanxi Longevity Pharmacy recorded a large amount of bad debt expenses due to slow collection of its accounts receivable, as many of its customers’ businesses were adversely affected by the COVID-19 outbreak during this period. In addition, on March 5, 2021, Ankang Longevity Group entered into two equity investment transfer agreements with a third-party company to sell all of its 49% equity interest in Sunsimiao Drugstores and its 49% equity interest in Shaanxi Longevity Pharmacy for a total consideration of RMB6.86 million (approximately US$1.0 million), and the full amount had been received by March 31, 2021. Upon the transfer of these two equity investments, Ankang Longevity Group recorded a loss of US$1,748,459, which was included in the investment loss for the three months ended March 31, 2021 as mentioned above.
Provision (Benefit) for Income Taxes
For the three months ended March 31, 2021 and 2020, our provision for income taxes decreased by US$193,283, or 175.43%, to an income tax benefit of US$83,106 for the three months ended March 31, 2021 from an income tax provision of US$110,177 for the three months ended March 31, 2020. The decrease in provision for income taxes was mainly due to the decreased taxable income of Ankang Longevity Group as Ankang Longevity Group incurred loss before tax for the three months ended March 31, 2021.
Net Loss
Our net loss was US$7,779,753 for three months ended March 31, 2021, an increase of US$3,987,327, or 105.14%, from net loss of US$3,792,426 for three months ended March 31, 2020. The increase in net loss was primarily a result of the decrease in gross profit, the increase in loss from equity method investments, and the increase in general and administrative expenses.
Comprehensive Loss
The comprehensive loss was US$7,944,384 for the three months ended March 31, 2021, an increase of US$2,942,522 from comprehensive loss of US$5,001,862 for the three months ended March 31, 2020. After deduction of non-controlling interest, the comprehensive loss attributable to us was US$7,670,578 for the three months ended March 31, 2021, compared to comprehensive loss attributable to us of US$5,007,142 for the three months ended March 31, 2020. The increase of comprehensive loss was due to the increase in net loss as mentioned above, which was partially offset by a decrease in the recorded loss of foreign currency translation, where the financial statements denominated in RMB were translated to the USD denomination.
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Treasury Policies
We have established treasury policies with the objectives of achieving effective control of treasury operations and of lowering cost of funds. Therefore, funding for all operations and foreign exchange exposure have been centrally reviewed and monitored from the top level. To manage our exposure to fluctuations in exchange rates and interest rates on specific transactions and foreign currency borrowings, currency structured instruments and other appropriate financial instruments will be used to hedge material exposure, if any.
Our policy precludes us from entering into any derivative contracts purely for speculative activities. Through our treasury policies, we aim to:
(a) Minimize interest risk
This is accomplished by loan re-financing and negotiation. We will continue to closely monitor the total loan portfolio and compare the loan margin spread under our existing agreements against the current borrowing interest rates under different currencies and new offers from banks.
(b) Minimize currency risk
In view of the current volatile currency market, we will closely monitor the foreign currency borrowings at the company level. As of December 31, 2020 and June 30, 2020, we did not engage in any foreign currency borrowings or loan contracts.
Liquidity and Capital Resources
We currently finance our business operations primarily through cash flows from operations and proceeds from our initial public offering, as well as from short-term loans and the sale of our common stock. Our current cash primarily consists of cash on hand and cash in bank, which is unrestricted as to withdrawal and use and is deposited with banks in China.
On December 10, 2020, we entered into a securities purchase agreement with select investors whereby we sold up to 604,900 shares of common stock at a purchase price of US$2.73 per share. The net proceeds that we received was US$1.6 million.
On January 27, 2021, we issued 364,445 shares of common stock to three investors at a price of US$3.0 per share. The net proceeds that we received was US$1.1 million.
As of March 31, 2021, we had US$1,830,249 bank loans outstanding. We expect that we will be able to renew our existing bank loans upon their maturity based on past experience and our good credit history.
Management believes that our current cash, cash flows from future operations, and access to loans will be sufficient to meet our working capital needs for at least the next 12 months. We intend to continue to carefully execute our growth plans and manage market risk.
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Working Capital
The following table provides the information about our working capital at March 31, 2021 and June 30, 2020:
March 31, 2021 | June 30, 2020 | |||||||
Current Assets | $ | 56,020,245 | $ | 59,519,998 | ||||
Current Liabilities | 14,449,966 | 11,347,325 | ||||||
Working Capital | $ | 41,570,279 | $ | 48,172,673 |
The working capital decreased by US$6,602,394, or 13.7%, as of March 31, 2021 from June 30, 2020, primarily as a result of a decrease in cash and accounts receivable, and an increase in other payables and accrued expenses, partially offset by increased advances to suppliers and other current assets during the nine months ended March 31, 2021.
As of March 31, 2021 and June 30, 2020, the other major component of our working capital was accounts receivable. The accounts receivable as of March 31, 2021 were US$5,087,539, a decrease of approximately 53.8% from US$11,008,485 as of June 30, 2020 as a result of increased provision for doubtful accounts. Due to the COVID-19 outbreak in China, many of our customers’ businesses were adversely affected during this period, which resulted in slow collection of our receivables, and we recorded allowance according to our accounting policy based on our best estimates. Management will continue putting effort in the collection of overdue account receivables from our customers.
Capital Commitments and Contingencies
Capital commitments refer to the allocation of funds for the possible purchase in the near future for fixed assets or investment. Contingency refers to a condition that arises from past transactions or events, the outcome of which will be confirmed only by the occurrence or non-occurrence of uncertain futures events.
As of March 31, 2021 and June 30, 2020, we had no material capital commitments or contingent liabilities.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own common stock and classified as stockholders’ equity, or that are not reflected in our consolidated financial statements.
Cash Flows
The following table provides detailed information about our net cash flows for the nine months ended March 31, 2021 and 2020.
For the nine months ended March 31 |
||||||||
2021 | 2020 | |||||||
Net cash provided by (used in) operating activities | $ | (11,854,241 | ) | $ | 4,297,529 | |||
Net cash provided by investing activities | 1,252,056 | 116,294 | ||||||
Net cash provided by financing activities | 1,764,958 | 2,107,600 | ||||||
Effect of exchange rate changes on cash | 2,314,452 | (1,206,310 | ) | |||||
Net increase (decrease) in cash | (6,522,775 | ) | 5,315,113 | |||||
Cash, beginning of period | 32,371,372 | 35,330,676 | ||||||
Cash, end of period | $ | 25,848,597 | $ | 40,645,789 |
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Operating Activities
Net cash used in operating activities during the nine months ended March 31, 2021 was approximately US$11.9 million, consisting of a net loss of US$22.3 million, bad debt expenses of US$11.1 million, an inventory write-off due to natural disasters of US$3.4 million, a loss from disposal of property and equipment of US$2.2 million, a loss from equity method investments of US$3.8 million, and net changes in our operating assets and liabilities, which mainly included an increase in advances to suppliers of US$4.3 million, inventories of US$4.0 million, other receivables of US$3.8 million, and accounts receivables of US$2.4 million, partially offset by the increase in other payable of US$3.6 million. Net cash provided by operating activities during the nine months ended March 31, 2020 was approximately US$4.3 million, consisting of a net loss of US$5.4 million, bad debt expenses of US$5.7 million, restricted shares issued to management of US$1.0 million, and net changes in our operating assets and liabilities, which mainly included a decrease in advances to suppliers of US$3.3 million, partially offset by the increase in other receivables of US$0.8 million.
Investing Activities
For the nine months ended March 31, 2021, net cash provided by investing activities was US$1.3 million, primarily due to the proceeds from disposal of property and equipment of US$1.5 million, and proceeds from withdrawal of investments of 1.0 million, partially offset by advances of loan to a third party of US$1.3 million during the nine months ended March 31, 2021. For the nine months ended March 31, 2020, net cash provided by investing activities was approximately US$116,294, primarily due to the proceeds from disposal of property and equipment of US$79,414, as well as a repayment of loans to third parties of US$38,377 during the three months ended March 31, 2020.
Financing Activities
For the nine months ended March 31, 2021, net cash provided financing activities amounted to approximately US$1.8 million, primarily due to the proceeds from issuance of common stock of US$2.7 million, and proceeds from short-term loans of US$0.3 million, partially offset by the repayment of short-term loans of US$1.0 million. For the nine months ended March 31, 2020, net cash provided by financing activities amounted to US$2.1 million, primarily due to the proceeds from issuance of common stock of US$1.5 million, and proceeds from short-term loans of US$2.4 million, partially offset by the repayment of short-term loans of US$2.4 million.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a small reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
(a) | Evaluation of Controls and Procedures |
We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based on our review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report due to following material weaknesses:
● | a lack of full-time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions; and | |
● | a lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries. |
In order to address the above material weaknesses, our management has taken the following steps:
● | recruiting sufficient qualified professionals with appropriate levels of knowledge and experience to assist in reviewing and resolving accounting issues in routine or complex transactions. To mitigate the reporting risks, we engaged an outside professional consulting firm to supplement our efforts to improve our internal control over financial reporting; | |
● | improving the communication between management, board of directors, and the Chief Financial Officer; and | |
● | obtaining proper approval for other significant and non-routine transactions from the board of directors. |
We are committed to monitoring the effectiveness of these measures and making any changes that are necessary and appropriate.
(b) | Changes in Internal Control over Financial Reporting |
There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the fiscal quarter ended March 31, 2021. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.
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Other than ordinary routine litigation (of which we are not currently involved), we know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation, and there are no proceedings in which any of our directors, officers, or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our company except as set forth below:
On May 16, 2017, the Plaintiff commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against us in the United States District Court for the Southern District of New York. Plaintiff alleged that we entered into an agreement with the Plaintiff, pursuant to which the Plaintiff was to provide us with financial advisory services in connection with our initial public offering in the United States. The Plaintiff alleged that we breached the Agreement and seek money damages up to US$6 million. In March 2021, we entered into a Settlement Agreement and Release with the Plaintiff, pursuant to which we paid the Plaintiff a total sum of US$ 47,500 as settlement payment, and upon acceptance of the settlement payment from us, the Plaintiff waived, released and forever discharged us from all past and future claims.
As a smaller reporting company, we are not required to provide the information otherwise required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
See “Part I—Financial Information—Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Financing Activities.”
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
* | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
45 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SHINECO, INC. | ||
Dated: May 14, 2021 | By: | /s/ Ou Yang |
Ou Yang | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Dated: May 14, 2021 | By: | /s/ Sai (Sam) Wang |
Sai (Sam) Wang | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
46 |
Exhibit 10.2
Equity Transfer Agreement
Transferor: An Kang Chang Shou Co., Ltd. (hereinafter referred to as Party A)
Legal representative: CHEN Jiping
Contact information: [*]
Transferee: Ankang Huazhuo Health Management Co., Ltd. (hereinafter referred to as Party B)
Legal representative: ZHANG Yuankai
Contact information: [*]
Whereas Party A lawfully owns 49% equity in Shaanxi Pharmaceutical Holding Group Ankang Changshou Pharmaceutical Co., Ltd. (hereinafter referred to as the Target Company), Party A currently intends to transfer in whole its equity in the Target Company, and its request to transfer its equity has been approved by the Board of Shareholders of the Target Company;
Whereas Party B agrees to accept the 49% equity held by Party A in the Target Company;
Whereas the Board of Shareholders of the Target Company also agrees to the transfer of the 49% equity held by Party A in the Target Company to Party B;
Now therefore, after friendly negotiations, based on the principles of equality, mutual benefit and reaching consensus through negotiations, Party A and Party B have entered into the following Agreement on equity transfer:
Article 1 Equity Transfer
1. Party A agrees to transfer in whole the equity it holds in the Target Company (which accounts for 49% of the registered capital of the Target Company) to Party B, and Party B agrees to accept the equity.
2. The equity which Party A agrees to sell and Party B agrees to purchase includes any carried interest and right thereunder, and the aforesaid equity is free and clear of, among others, any lien, mortgage and other third-party rights or claims.
3. After this Agreement enters into force, Party A shall no longer enjoy the rights of shareholders of the Target Company or bear obligations of shareholders of the Target Company, or participate in the operation and management of the Target Company, and Party B shall succeed to Party A’s rights and obligations in the Target Company as a shareholder.
Article 2 Equity Transfer Price and Price Payment Terms
1. Party A agrees to transfer the 49% equity held by it in the Target Company to Party B at the price of 4.9 million Yuan according to the terms and conditions set forth herein, and Party B agrees to accept the equity at such price.
2. Party B agrees to pay the contract price to Party A as follows:
Party B agrees to pay a deposit of 100,000 Yuan to the account designated by Party A on the day when both parties sign this Agreement; after Party A and Party B complete formalities for registration of the change, Party B shall pay the remaining price of 4.8 million Yuan to the account designated by Party A.
Article 3 Party A’s Representations
1. Party A is the sole owner of the equity transferred under Article 1 hereof.
2. As a shareholder of the Target Company, Party A has fully fulfilled its obligation to contribute to the registered capital of the Target Company.
3. From the effective date of this Agreement, Party A shall completely withdraw from the operation of the Target Company and no longer participate in the distribution of the Target Company’s property or profits, and relevant rights and interests shall belong to Party B.
Article 4 Party B’s Representations
1. Party B shall be liable to the Target Company to the extent of its capital contribution.
2. Party B shall acknowledge and perform the revised Articles of Association of the Target Company.
3. Party B undertakes to pay the price in the manner set forth in Article 2 hereof.
Article 5 Bearing of Expenses Related to the Equity Transfer
Both parties agree that Party B shall bear the expenses incurred to complete the equity transfer formalities agreed herein.
Article 6 Relevant Rights and Obligations of Shareholders, including Responsibility for the Target Company’s Profits and Losses (including Claims and Debts)
1. Party A shall be responsible for all claims and debts arising from its exercise of shareholder rights as a shareholder of the Target Company before this Agreement enters into force; from the effective date of this Agreement, Party B shall actually exercise its rights as a shareholder of the Target Company and perform the corresponding shareholder obligations. If necessary, Party A shall assist Party B in exercising shareholder rights and performing shareholder obligations, including signing relevant documents in the name of Party A.
2. From the effective date of this Agreement, Party B shall share profits, risks and losses in proportion to the equity it holds and in accordance with the law; Party B hereby confirms and undertakes to comply with the obligations and responsibilities agreed in the Articles of Association by Party A and Shaanxi Pharmaceutical Holding PAI+ANG Pharmaceutical Co., Ltd., a former shareholder of the Target Company.
Article 7 Modification and Rescission of the Agreement
This Agreement may be modified or rescinded if any of the following circumstances occurs, provided that Party A and Party B shall sign a modification or rescission agreement:
1. This Agreement could not be performed due to force majeure or any external circumstance which occurs through no fault of a party hereto but cannot be prevented;
2. Before the completion of registration of equity change, one party hereto loses the ability to actually perform this Agreement;
3. A breach hereof by a party has seriously affected the financial interests of the other party and renders performance hereof unnecessary;
4. Due to a change in circumstances, the two parties agree to modify or rescind this Agreement after negotiations;
5. Any other circumstance specified herein which warrants modification or rescission of this Agreement occurs.
Article 8 Liability for Breach of Contract
1. If either party hereto fails to perform or seriously violates any provision hereof, the breaching party must pay the non-breaching party 200,000 Yuan as compensation for its financial losses. Unless otherwise provided herein, the non-breaching party shall also have the right to require the rescission of this Agreement and claim from the breaching party compensation for all financial losses thus suffered by the non-breaching party.
2. If Party B fails to pay the equity price in accordance with Article 2 hereof on time, Party B shall pay a late fee in an amount equal to 1‰ of the overdue amount for each day of delay.
Article 9 Confidentiality
1. Without the written consent of the other party, neither party may disclose the trade secrets or relevant information learned of during the performance of this Agreement to any other third party, or disclose the content of this Agreement or relevant archival materials to any third party, except if the disclosure is required by laws and regulations.
2. The confidentiality clause is an independent clause and shall be valid whether this Agreement is signed, modified, rescinded or terminated.
Article 10 Dispute Settlement
All disputes arising from or in connection with the performance of this Agreement shall be settled by Party A and Party B through friendly negotiations. If negotiations fail, either party shall have the right to bring a lawsuit in the people’s court of the place where Shaanxi Pharmaceutical Holding Group Ankang Changshou Pharmaceutical Co., Ltd. is domiciled.
Article 11 Entry into Force and Miscellaneous
1. This Agreement shall enter into force on the day when it is signed and sealed by both parties.
2. After this Agreement enters into force, if either party needs to modify this Agreement, it shall notify the other party in writing ten working days in advance, and the two parties shall sign a written supplementary agreement after negotiations. Such supplementary agreement shall have the same effect as this Agreement.
3. Matters not covered hereby which arise during the performance hereof shall be settled by Party A and Party B through friendly negotiations and based on facts. If the two parties reach a consensus through negotiations, a supplementary agreement shall be signed. Such supplementary agreement shall have the same effect as this Agreement.
4. The execution, validity, interpretation and termination of and settlement of disputes related to this Agreement shall be governed by the laws of the People’s Republic of China.
5. Party A and Party B shall cooperate with the Target Company to go through the approval formalities for the change in shareholders as soon as possible, and go through the corresponding formalities for registration of the change.
6. The original Agreement is made in quadruplicate, with each party, the Target Company and the business registration authority each holding one counterpart. All counterparts have the same legal effect.
Transferor: /s/ An Kang Chang Shou Co., Ltd.
Signature and/or Seal of Legal Representative:
Transferee: /s/ Ankang Huazhuo Health Management Co., Ltd.
Signature and/or Seal of Legal Representative:
March 5, 2021
Exhibit 10.3
Equity Transfer Agreement
Transferor: An Kang Chang Shou Co., Ltd. (hereinafter referred to as Party A)
Legal representative: CHEN Jiping
Contact information: [*]
Transferee: Ankang Huazhuo Health Management Co., Ltd. (hereinafter referred to as Party B)
Legal representative: ZHANG Yuankai
Contact information: [*]
Whereas Party A lawfully owns 49% equity in Shaanxi Pharmaceutical Sun Simiao Pharmacy Ankang Chain Co., Ltd. (hereinafter referred to as the Target Company), Party A currently intends to transfer in whole its equity in the Target Company, and its request to transfer its equity has been approved by the Board of Shareholders of the Target Company;
Whereas Party B agrees to accept the 49% equity held by Party A in the Target Company;
Whereas the Board of Shareholders of the Target Company also agrees to the transfer of the 49% equity held by Party A in the Target Company to Party B;
Now therefore, after friendly negotiations, based on the principles of equality, mutual benefit and reaching consensus through negotiations, Party A and Party B have entered into the following Agreement on equity transfer:
Article 1 Equity Transfer
1. Party A agrees to transfer in whole the equity it holds in the Target Company (which accounts for 49% of the registered capital of the Target Company) to Party B, and Party B agrees to accept the equity.
2. The equity which Party A agrees to sell and Party B agrees to purchase includes any carried interest and right thereunder, and the aforesaid equity is free and clear of, among others, any lien, mortgage and other third-party rights or claims.
3. After this Agreement enters into force, Party A shall no longer enjoy the rights of shareholders of the Target Company or bear obligations of shareholders of the Target Company, or participate in the operation and management of the Target Company, and Party B shall succeed to Party A’s rights and obligations in the Target Company as a shareholder.
Article 2 Equity Transfer Price and Price Payment Terms
1. Party A agrees to transfer the 49% equity held by it in the Target Company to Party B at the price of 1.96 million Yuan according to the terms and conditions set forth herein, and Party B agrees to accept the equity at such price.
2. Party B agrees to pay the contract price to Party A as follows:
Party B agrees to pay a deposit of 100,000 Yuan to the account designated by Party A on the day when both parties sign this Agreement; after Party A and Party B complete formalities for registration of the change, Party B shall pay the remaining price of 1.86 million Yuan to the account designated by Party A.
Article 3 Party A’s Representations
1. Party A is the sole owner of the equity transferred under Article 1 hereof.
2. As a shareholder of the Target Company, Party A has fully fulfilled its obligation to contribute to the registered capital of the Target Company.
3. From the effective date of this Agreement, Party A shall completely withdraw from the operation of the Target Company and no longer participate in the distribution of the Target Company’s property or profits, and relevant rights and interests shall belong to Party B.
Article 4 Party B’s Representations
1. Party B shall be liable to the Target Company to the extent of its capital contribution.
2. Party B shall acknowledge and perform the revised Articles of Association of the Target Company.
3. Party B undertakes to pay the price in the manner set forth in Article 2 hereof.
Article 5 Bearing of Expenses Related to the Equity Transfer
Both parties agree that Party B shall bear the expenses incurred to complete the equity transfer formalities agreed herein.
Article 6 Relevant Rights and Obligations of Shareholders, including Responsibility for the Target Company’s Profits and Losses (including Claims and Debts)
1. Party A shall be responsible for all claims and debts arising from its exercise of shareholder rights as a shareholder of the Target Company before this Agreement enters into force; from the effective date of this Agreement, Party B shall actually exercise its rights as a shareholder of the Target Company and perform the corresponding shareholder obligations. If necessary, Party A shall assist Party B in exercising shareholder rights and performing shareholder obligations, including signing relevant documents in the name of Party A.
2. From the effective date of this Agreement, Party B shall share profits, risks and losses in proportion to the equity it holds and in accordance with the law; Party B hereby confirms and undertakes to comply with the obligations and responsibilities agreed in the Articles of Association by Party A and Shaanxi Pharmaceutical Holding PAI+ANG Pharmaceutical Co., Ltd., a former shareholder of the Target Company.
Article 7 Modification and Rescission of the Agreement
This Agreement may be modified or rescinded if any of the following circumstances occurs, provided that Party A and Party B shall sign a modification or rescission agreement:
1. This Agreement could not be performed due to force majeure or any external circumstance which occurs through no fault of a party hereto but cannot be prevented;
2. Before the completion of registration of equity change, one party hereto loses the ability to actually perform this Agreement;
3. A breach hereof by a party has seriously affected the financial interests of the other party and renders performance hereof unnecessary;
4. Due to a change in circumstances, the two parties agree to modify or rescind this Agreement after negotiations;
5. Any other circumstance specified herein which warrants modification or rescission of this Agreement occurs.
Article 8 Liability for Breach of Contract
1. If either party hereto fails to perform or seriously violates any provision hereof, the breaching party must pay the non-breaching party 200,000 Yuan as compensation for its financial losses. Unless otherwise provided herein, the non-breaching party shall also have the right to require the rescission of this Agreement and claim from the breaching party compensation for all financial losses thus suffered by the non-breaching party.
2. If Party B fails to pay the equity price in accordance with Article 2 hereof on time, Party B shall pay a late fee in an amount equal to 1‰ of the overdue amount for each day of delay.
Article 9 Confidentiality
1. Without the written consent of the other party, neither party may disclose the trade secrets or relevant information learned of during the performance of this Agreement to any other third party, or disclose the content of this Agreement or relevant archival materials to any third party, except if the disclosure is required by laws and regulations.
2. The confidentiality clause is an independent clause and shall be valid whether this Agreement is signed, modified, rescinded or terminated.
Article 10 Dispute Settlement
All disputes arising from or in connection with the performance of this Agreement shall be settled by Party A and Party B through friendly negotiations. If negotiations fail, either party shall have the right to bring a lawsuit in the people’s court of the place where Shaanxi Pharmaceutical SUN Simiao Pharmacy Ankang Chain Co., Ltd. is domiciled.
Article 11 Entry into Force and Miscellaneous
1. This Agreement shall enter into force on the day when it is signed and sealed by both parties.
2. After this Agreement enters into force, if either party needs to modify this Agreement, it shall notify the other party in writing ten working days in advance, and the two parties shall sign a written supplementary agreement after negotiations. Such supplementary agreement shall have the same effect as this Agreement.
3. Matters not covered hereby which arise during the performance hereof shall be settled by Party A and Party B through friendly negotiations and based on facts. If the two parties reach a consensus through negotiations, a supplementary agreement shall be signed. Such supplementary agreement shall have the same effect as this Agreement.
4. The execution, validity, interpretation and termination of and settlement of disputes related to this Agreement shall be governed by the laws of the People’s Republic of China.
5. Party A and Party B shall cooperate with the Target Company to go through the approval formalities for the change in shareholders as soon as possible, and go through the corresponding formalities for registration of the change.
6. The original Agreement is made in quadruplicate, with each party, the Target Company and the business registration authority each holding one counterpart. All counterparts have the same legal effect.
Transferor: /s/ An Kang Chang Shou Co., Ltd.
Signature and/or Seal of Legal Representative:
Transferee: /s/ Ankang Huazhuo Health Management Co., Ltd.
Signature and/or Seal of Legal Representative:
March 5, 2021
Exhibit 10.4
Loan Extension Agreement
Contract No.: 61010220210000109
Dear customer: in order to protect your rights and interests, before you sign this contract, please carefully read all terms of this contract (especially those in bold font), and pay attention to your rights and obligations under this contract. Please consult the lending bank if you have any question on this contract. To consult about our services or file a complaint, please dial Agricultural Bank of China’s customer service hotline 95599.
Borrower (full name): Ankang Changshou Pharmaceutical Group Chain Co., Ltd.
Lender (full name): Agricultural Bank of China Limited Ankang Xing’an Road Sub-branch
Security providers (full name): | (1) Ankang Caixin Financing Guarantee Co., Ltd. |
(2) — | |
(3) — |
Whereas the borrower is unable to fully repay the loan made under No. 61010120200000153 Working Capital Loan Contract signed with the lender (hereinafter referred to as the Loan Contract), the borrower has applied for an extension, the lender agrees to extend the term of the loan under the Loan Contract, and the security providers agree to provide security for the borrower. As per relevant laws and regulations of China, after negotiations, the parties concerned have executed this Agreement.
Article 1 The amount of the loan under the Loan Contract (currency and amount in words) is RMB Ten Million Yuan Only. The amount which the extension involves and the extension are specified in the table below.
Loan Maturity Date and Amount Originally Agreed | Maturity Date and Amount after the Extension | |||||||||||||
Year | Month | Date | Amount | Year | Month | Date | Amount | |||||||
2021 | 2 | 27 | ¥10,000,000.00 | 2022 | 2 | 27 | ¥10,000,000.00 |
(Tables attached due to insufficient space in the table shall be components of this Agreement.)
Article 2 During the extension period, the loan interest rate shall be as specified below:
1. For a RMB loan, the interest rate applicable during the extension period shall be determined as per (2) below:
(1) Floating interest rate
The loan interest rate shall be —% (above/below) the base rate and the applicable annual interest rate shall be —%. For a loan with a term not longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China which is applicable in that period; for a loan with a term longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China plus — (in words) percentage points.
The interest rate shall be adjusted once every — (in words) months. If the People’s Bank of China adjusts the RMB loan base rate, from the date corresponding to the loan disbursement date in the first month of the next cycle after the base rate adjustment, the lender shall determine a new loan interest rate based on the adjusted base rate corresponding to the loan term and the aforementioned calculation method, without further notice to the borrower. If the base rate adjustment date is the loan disbursement date or the date corresponding to the loan disbursement date in the first month of the relevant cycle, a new loan interest rate shall be determined from the base rate adjustment date. If there is no date corresponding to the loan disbursement date, the last date in that month shall be deemed the date corresponding to the loan disbursement date.
(2) Fixed interest rate
The loan interest rate shall be —% (above/below) the base rate and the applicable annual interest rate shall be 5.655%. For a loan with a term not longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China which is applicable in that period; for a loan with a term longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China plus — (in words) percentage points.
2. For a FX loan, the interest rate applicable during the extension period shall be determined as per — below:
(1) The loan interest rate shall be — (in words)-month — (LIBOR/HIBOR) + the spread of —% and be adjusted once every — (in words) months. LIBOR/HIBOR refers to the London Interbank Offered Rate / Hong Kong Interbank Offered Rate corresponding to the loan term, published by Reuters and applicable on the two working days before the interest calculation date.
(2) The applicable annual interest rate shall be —% until the loan maturity date.
(3) Other methods: —.
Article 3 The borrower and the security providers are willing to assume the following obligations:
1. If the original loan is secured by mortgage or pledge, and the maturity date after the loan extension is later than the expiration date of the insurance policy on the originally mortgaged or pledged asset, the borrower and the security providers shall renew such insurance policy.
2. If the lender agrees to an extension, the lender may charge such fees at such rates as determined by the lender as per laws and regulations, save as otherwise agreed by the parties. If the lender adjusts the fees, fee rates, etc. as per laws and regulations, after announcing the adjustment, the lender does not need to notify the borrower / security providers, except as otherwise stipulated by laws and regulations or otherwise agreed by the parties. The fees payable to third parties shall be paid by the party or parties determined by the parties through negotiations; if no negotiation is conducted or negotiations fail, the parties shall bear the fees as per laws and regulations or the principle of fairness.
For the purposes of this Contract, laws and regulations include the laws, administrative regulations, local regulations, rules, judicial interpretations and other legally effective provisions of the People’s Republic of China.
3. If the original loan is secured by a guarantee, and the guarantor is willing to continue to assume the joint and several liability under the guarantee, the guarantee period shall be two years from the expiration date of the loan extension; if the occurrence of an event stipulated by laws and regulations or the Loan Contract results in early maturity of the debts, the guarantee period shall be two years from the date, as determined by the Lender, of early maturity of the debts.
Article 4 This Agreement adjusts and supplements some clauses in the No. 61010120200000153 Loan Contract and No. 61100120200002258 Security Contract. Except the clauses related to the foregoing content, the clauses of the Loan Contract and Security Contract shall remain valid. In case of any change in the security providers or collaterals after the extension, the new Security Contract concluded shall prevail.
Article 5 Taxes and invoice
1. All amounts which the lender charges the borrower / security providers under this Contract for taxable events in accordance with China’s laws and regulations on taxation include VAT. The VAT shall be determined as per China’s laws and regulations. During the performance period hereof, if the China’s laws and regulations on tax administration are adjusted, the Lender will adjust the relevant tax rate, etc.
2. The Lender will, in accordance with China’s laws and regulations, issue to the borrower / security providers special or ordinary VAT invoices. If the borrower / any security provider requests the issuance of a special VAT invoice, the conditions and procedures stipulated by China’s laws and regulations on taxation shall be observed, otherwise the Lender shall have the right to reject their requests for a special VAT invoice hereunder. Within 360 days after the lender receives a taxable payment from the borrower / any security provider, the borrower / security provider shall have the right to request the issuance of an invoice, which shall be issued by the Lender or the invoicing institution designated by the Lender. If the borrower / security provider fails to request a VAT invoice within the time limit, the Lender will not be obligated to provide a VAT invoice.
3. If, through the fault of the borrower / any security provider, there is any error in a special or ordinary VAT invoice issued by the Lender to the borrower / security provider, the borrower / security provider shall be responsible therefor, and the Lender shall be entitled to require the borrower / security provider to take responsibility for the losses or other adverse consequences thus caused to the Lender. If a VAT invoice contains any error and as a result it needs to be nullified or a red-letter invoice needs to be issued, the borrower / security provider shall be obligated to cooperate with the lender to complete handling of relevant invoices.
Article 6 Miscellaneous
_______________________________________________________________________________________________
_______________________________________________________________________________________________
Article 7 This Agreement shall enter into force on the day when the parties sign or seal it.
Article 8 This Agreement is made in triplicate, one counterpart for each party, and —. All counterparts have the same force.
Statement of the borrower and the security providers: the lender has asked us to pay attention to relevant clauses (especially those in bold font) in accordance with the law and has explained the concepts, content and legal effect of relevant clauses at our request; we have known and understood the said clauses.
Borrower (Signature and/or Seal)
/s/ Ankang Changshou Pharmaceutical Group Chain Co., Ltd. (Seal) |
Lender (Signature or Seal)
/s/ Agricultural Bank of China Limited Ankang Xing’an Road Sub-branch for Credit Contracts (Seal) |
|
Legal Representative or Authorized Agent /s/ CHEN Jiping (Signature) Seal of CHEN Jiping (Seal) |
Person in Charge or Authorized Agent Signature Illegible |
|
Security Provider (Signature and/or Seal) /s/ Ankang Caixin Financing Guarantee Co., Ltd. (Seal) |
Security Provider (Signature and/or Seal)
|
|
Legal Representative or Authorized Agent Signature Illegible |
Legal Representative or Authorized Agent |
Signed on: February 26, 2021
Signed in: Agricultural Bank of China Ankang Xing’an Road Sub-branch
Exhibit 10.5
Loan Extension Agreement
Contract No.: 61010220210000110
Dear customer: in order to protect your rights and interests, before you sign this contract, please carefully read all terms of this contract (especially those in bold font), and pay attention to your rights and obligations under this contract. Please consult the lending bank if you have any question on this contract. To consult about our services or file a complaint, please dial Agricultural Bank of China’s customer service hotline 95599.
Borrower (full name): Ankang Changshou Pharmaceutical Group Chain Co., Ltd.
Lender (full name): Agricultural Bank of China Limited Ankang Xing’an Road Sub-branch
Security providers (full name): | (1) An Kang Chang Shou Co., Ltd. |
(2) CHEN Jiping | |
(3) — |
Whereas the borrower is unable to fully repay the loan made under No. 61010120200000153 Working Capital Loan Contract signed with the lender (hereinafter referred to as the Loan Contract), the borrower has applied for an extension, the lender agrees to extend the term of the loan under the Loan Contract, and the security providers agree to provide security for the borrower. As per relevant laws and regulations of China, after negotiations, the parties concerned have executed this Agreement.
Article 1 The amount of the loan under the Loan Contract (currency and amount in words) is RMB Ten Million Yuan Only. The amount which the extension involves and the extension are specified in the table below.
Loan Maturity Date and Amount Originally Agreed | Maturity Date and Amount after the Extension | |||||||||||||
Year | Month | Date | Amount | Year | Month | Date | Amount | |||||||
2021 | 2 | 27 | ¥10,000,000.00 | 2022 | 2 | 27 | ¥10,000,000.00 |
(Tables attached due to insufficient space in the table shall be components of this Agreement.)
Article 2 During the extension period, the loan interest rate shall be as specified below:
1. For a RMB loan, the interest rate applicable during the extension period shall be determined as per (2) below:
(1) Floating interest rate
The loan interest rate shall be —% (above/below) the base rate and the applicable annual interest rate shall be —%. For a loan with a term not longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China which is applicable in that period; for a loan with a term longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China plus — (in words) percentage points.
The interest rate shall be adjusted once every — (in words) months. If the People’s Bank of China adjusts the RMB loan base rate, from the date corresponding to the loan disbursement date in the first month of the next cycle after the base rate adjustment, the lender shall determine a new loan interest rate based on the adjusted base rate corresponding to the loan term and the aforementioned calculation method, without further notice to the borrower. If the base rate adjustment date is the loan disbursement date or the date corresponding to the loan disbursement date in the first month of the relevant cycle, a new loan interest rate shall be determined from the base rate adjustment date. If there is no date corresponding to the loan disbursement date, the last date in that month shall be deemed the date corresponding to the loan disbursement date.
(2) Fixed interest rate
The loan interest rate shall be —% (above/below) the base rate and the applicable annual interest rate shall be 5.655%. For a loan with a term not longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China which is applicable in that period; for a loan with a term longer than five years, the base rate shall be the RMB loan base rate published by the People’s Bank of China plus — (in words) percentage points.
2. For a FX loan, the interest rate applicable during the extension period shall be determined as per — below:
(1) The loan interest rate shall be — (in words)-month — (LIBOR/HIBOR) + the spread of —% and be adjusted once every — (in words) months. LIBOR/HIBOR refers to the London Interbank Offered Rate / Hong Kong Interbank Offered Rate corresponding to the loan term, published by Reuters and applicable on the two working days before the interest calculation date.
(2) The applicable annual interest rate shall be —% until the loan maturity date.
(3) Other methods: —.
Article 3 The borrower and the security providers are willing to assume the following obligations:
1. If the original loan is secured by mortgage or pledge, and the maturity date after the loan extension is later than the expiration date of the insurance policy on the originally mortgaged or pledged asset, the borrower and the security providers shall renew such insurance policy.
2. If the lender agrees to an extension, the lender may charge such fees at such rates as determined by the lender as per laws and regulations, save as otherwise agreed by the parties. If the lender adjusts the fees, fee rates, etc. as per laws and regulations, after announcing the adjustment, the lender does not need to notify the borrower / security providers, except as otherwise stipulated by laws and regulations or otherwise agreed by the parties. The fees payable to third parties shall be paid by the party or parties determined by the parties through negotiations; if no negotiation is conducted or negotiations fail, the parties shall bear the fees as per laws and regulations or the principle of fairness.
For the purposes of this Contract, laws and regulations include the laws, administrative regulations, local regulations, rules, judicial interpretations and other legally effective provisions of the People’s Republic of China.
3. If the original loan is secured by a guarantee, and the guarantor is willing to continue to assume the joint and several liability under the guarantee, the guarantee period shall be two years from the expiration date of the loan extension; if the occurrence of an event stipulated by laws and regulations or the Loan Contract results in early maturity of the debts, the guarantee period shall be two years from the date, as determined by the Lender, of early maturity of the debts.
Article 4 This Agreement adjusts and supplements some clauses in the No. 61010120200000153 Loan Contract and No. 61100120200002259 Security Contract. Except the clauses related to the foregoing content, the clauses of the Loan Contract and Security Contract shall remain valid. In case of any change in the security providers or collaterals after the extension, the new Security Contract concluded shall prevail.
Article 5 Taxes and invoice
1. All amounts which the lender charges the borrower / security providers under this Contract for taxable events in accordance with China’s laws and regulations on taxation include VAT. The VAT shall be determined as per China’s laws and regulations. During the performance period hereof, if the China’s laws and regulations on tax administration are adjusted, the Lender will adjust the relevant tax rate, etc.
2. The Lender will, in accordance with China’s laws and regulations, issue to the borrower / security providers special or ordinary VAT invoices. If the borrower / any security provider requests the issuance of a special VAT invoice, the conditions and procedures stipulated by China’s laws and regulations on taxation shall be observed, otherwise the Lender shall have the right to reject their requests for a special VAT invoice hereunder. Within 360 days after the lender receives a taxable payment from the borrower / any security provider, the borrower / security provider shall have the right to request the issuance of an invoice, which shall be issued by the Lender or the invoicing institution designated by the Lender. If the borrower / security provider fails to request a VAT invoice within the time limit, the Lender will not be obligated to provide a VAT invoice.
3. If, through the fault of the borrower / any security provider, there is any error in a special or ordinary VAT invoice issued by the Lender to the borrower / security provider, the borrower / security provider shall be responsible therefor, and the Lender shall be entitled to require the borrower / security provider to take responsibility for the losses or other adverse consequences thus caused to the Lender. If a VAT invoice contains any error and as a result it needs to be nullified or a red-letter invoice needs to be issued, the borrower / security provider shall be obligated to cooperate with the lender to complete handling of relevant invoices.
Article 6 Miscellaneous
_______________________________________________________________________________________________
_______________________________________________________________________________________________
Article 7 This Agreement shall enter into force on the day when the parties sign or seal it.
Article 8 This Agreement is made in triplicate, one counterpart for each party, and —. All counterparts have the same force.
Statement of the borrower and the security providers: the lender has asked us to pay attention to relevant clauses (especially those in bold font) in accordance with the law and has explained the concepts, content and legal effect of relevant clauses at our request; we have known and understood the said clauses.
Borrower (Signature and/or Seal)
/s/ Ankang Changshou Pharmaceutical Group Chain Co., Ltd. (Seal) |
Lender (Signature or Seal)
/s/ Agricultural Bank of China Limited Ankang Xing’an Road Sub-branch for Credit Contracts (Seal) |
|
Legal Representative or Authorized Agent /s/ CHEN Jiping (Signature) Seal of CHEN Jiping (Seal) |
Person in Charge or Authorized Agent Signature Illegible |
|
Security Provider (Signature and/or Seal) An Kang Chang Shou Co., Ltd. (Seal) |
Security Provider (Signature and/or Seal)
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Legal Representative or Authorized Agent /s/ CHEN Jiping (Signature ) Seal of CHEN Jiping (Seal) |
Legal Representative or Authorized Agent /s/ CHEN Jiping (Signature) Seal of CHEN Jiping (Seal) |
Signed on: February 26, 2021
Signed in: Agricultural Bank of China Ankang Xing’an Road Sub-branch
Exhibit 10.6
THIS STOCK PURCHASE AGREEMENT (THIS "AGREEMENT") RELATES TO AN OFFER AND SALE OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATION S (AS DEFINED HEREIN) UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
本认购协议(本“协议”)与向非美国人士(见协议中定义)邀约出售证券的离岸交易相关,遵循美国1933年证券法及其修订案(“证券法”)下的S条例(见协议中定义)。
NONE OF THE SECURITIES TO WHICH THIS STOCK PURCHASE AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
本协议相关证券未根据证券法或美国其它证券法注册,且除非进行该等注册,证券不得直接或间接在美国境内或向美国人士(见协议中定义)邀约或出售,但是符合证券法S条例中条款的、根据证券法下有效注册声明的、或根据证券法中可用豁免的、或不受证券法注册规定的交易的,且在上述各种情况下均符合相关州证券法的情况除外。
STOCK PURCHASE AGREEMENT
认购协议
This Agreement is dated as of _January 14___________, 2021 (the “Execution Date”) by and between Shineco, Inc., a Delaware corporation (the “Company”), and __ [Name]___ (the “Purchaser”).
本协议于2021年__1_月_14__日(“签署日”)由Shineco, Inc., 一家特拉华州公司(以下称“公司”)和_____[Name in Chinese]_________(以下称“认购人”)所签订。
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser, severally and not jointly with other purchasers, desires to purchase from the Company, securities of the Company as more fully described in this Agreement;
WHEREAS, the offer and sale of the Shares (as defined herein) by the Company (the “Offering”) is being made in reliance upon the provisions of Regulation S (“Regulation S”) promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act; and
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NOW, THEREFORE, in consideration of and subject to the mutual agreements, terms and conditions herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and Purchaser agree as follows:
兹证明:
鉴于,受制于本协议的条款和条件并根据证券法案第4(a)(2)条和/或根据证券法案颁布的第506规则,公司希望发行并向认购人销售本协议下文中更详细描述的公司证券,而认购人各自而非与其他认购人共同地希望从公司购买该公司证券;
鉴于,公司股票(见协议中定义)的邀约和出售(以下简称“邀约”)是遵照证券法下,证券交易委员会(以下简称“证交会”)颁布的S条例的条款(以下简称“S条例”)制定的;并且
现于此,根据并受制于本协议中包含的共同协议、条款和条件(公司和认购人均确认收到这些共同协议、条款和条件并确认其充分性),公司及认购人同意:
1. | PURCHASE AND SALE OF SHARES OF COMMON STOCK, AND RELEVANT RIGHTS |
1. 股票的购买和销售,以及相关权益
1.1 Purchase and Sale of Shares of Common Stock. Subject to the terms and conditions set forth herein, the Company is offering to the Purchaser the number of shares of the common stock of the Company, par value $0.001 (the “Common Stock”), set forth on the signature page herein at a price of $3 per share (collectively, the “Purchase Price”). The Common Stock are sometimes collectively referred to herein as the “Shares.”
1.1 股票的购买和销售。受制于本协议中的条款和条件,公司向认购人邀约销售一定数量的票面价值为 $0.001 的公司普通股(以下称 “普通股”),向每个认购人的邀约销售具体数量见本协议的签字页。每一普通股的价格为3美元(总称为“购买价格”)。普通股在本协议中有时也统称为“股票”。
1.2 Closing. The closing of the transactions contemplated hereby shall take place on a rolling close basis as agreed by the Company and each Purchaser (each closing being called the “Closing” and such date and time being called the “Closing Date”).
(a) At the Closing, subject to Section 2 below, the Purchaser shall pay the Purchase Price in immediately available funds or a certified check, bank draft or money order payable to “Shineco, Inc.” which must be delivered to Shineco,Inc, Attn: YuyingZhang. All such checks, bank drafts or money orders remitted to the Company shall be accompanied by information identifying the Purchaser, subscription, the Purchaser’s social security or taxpayer identification number and address.
(b) At the Closing, the Company shall deliver to the Purchaser its certificates representing its purchase or issue the Shares to the Purchase in book-entry form.
1.2 交割。本协议中拟进行的交易应按滚动交割方式,在公司和每个认购人同意的情况下,进行交割(每一笔交割称为“交割”,相应的日期和时间称为“交割日期”)。
(a) 在交割时,受制于下文的条款2,认购人应向 “Shineco, Inc.”以立即可得的资金或保付支票、银行汇票或凭票即付的汇票支付全部购买价格。这些支付工具应被送到张玉莹收。这些汇往公司的支付工具应附有相关信息以确认认购人、认购情况、认购人的社保号或个体纳税人识别号和地址。
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(b) 在交割时,公司应向认购人递送代表此次认购的证明或以电子股票形式向认购人发行股票。
2. | REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
公司的陈述和保证
The Company represents and warrants to Purchaser that:
公司向认购人陈述和保证:
2.1 The Company is duly incorporated in the state of Delaware and is validly existing in good standing under the laws of Delaware. The Company and each subsidiary, if any, is not in violation of any of the provisions of its articles of incorporation, by-laws or other organizational or charter documents, each as may be amended (the “Internal Documents”). The Company is qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction where the location of its properties or the conduct of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business, assets, liabilities, results of operations, condition (financial or otherwise), properties or prospects of the Company.
公司在特拉华州依法成立并在特拉华州法律下合法存在并有良好的经营持续性。公司及其每一个子公司(若有)均没有违反其公司成立协议、公司章程或其他组织或章程类文件及可能的经过修订的此类文件(称为“内部文件”)中的任何条款。公司在其每个有资产和商业行为的管辖区内都有合法资格作为外国公司进行经营并有良好的经营持续性,除了一些管辖区,如果公司不能在这些区域内有合法资格经营也不会对公司的商业行为、资产、负债、经营结果、情况(财务或其他)、财产或其他方面产生重大不良影响。
2.2 The Company has all power and authority to: (i) conduct its business as presently conducted and as proposed to be conducted as described herein; (ii) enter into and perform its obligations under this Agreement; and (iii) issue, sell and deliver the Shares. The execution and delivery of this Agreement and the issuance, sale and delivery of the Shares has been duly authorized by all necessary corporate action. Once executed and delivered, this Agreement will constitute, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and except that no representation is made herein regarding the enforceability of the Company’s obligations to provide indemnification and contribution remedies under the securities laws and subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity).
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公司拥有全部的权力和授权以:(i)进行其目前正在进行和本协议中描述的将进行的商业 行为;(ii)签订和履行本协议下的义务;以及(iii)发行、销售和送达股票。本协议的签署和递送以及股票的发行、销售和送达都由所有必要的公司行为合法授权。一旦签署并送达,本协议将包括对于公司有效和有约束力的执行义务,除非受到适用的破产、解散、重组、延期偿付或其他目前或之后生效的相似的,与债权人的权利相关或会对其造成影响的法律的限制,包括和欺诈性转移和优先转让相关的法规和其他法律的影响,但不包括本协议中没有表述的公司按照证券法和一般性的衡平法原则进行补偿和分担的义务的可执行性(无论这一可执行性是在法律或衡平法的程序下讨论)。
2.3 The Shares will be duly and validly issued, fully paid and non-assessable, and free from all taxes or liens with respect to the issue thereof and shall not be subject to preemptive rights, rights of first refusal and/or other similar rights of stockholders of the Company and/or any other person.
股票将是合法有效发行的、缴足股款并不加缴的,且没有所有和发行有关的税收或留置权,并且不受制于公司的股东和/或其他个人的优先购买权、优先承购权和/或其他相似权利。
2.4 No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or its property is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement by the Company or the consummation of any of the transactions contemplated hereby or thereby, and/or (ii) could reasonably be expected to have a material adverse effect on the Company’s operations.
不存在任何和公司或其财产有关的,未决的或在公司知道的范围内可能针对公司的法庭或政府机构、权力机关或主体或仲裁机构行为、诉讼,可以合理预期到(i)将会对本协议的执行或协议中拟进行的交易造成重大不良影响,和/或(ii)将会对公司的经营造成重大不良影响。
2.5 The Company is not in (i) violation or default of any provision of its Internal Documents; (ii) default or material violation of the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject; and/or (iii) default or material violation of any statute, law, rule, regulation, judgment, order or decree applicable to the Company of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its properties, as applicable.
公司没有(i)违反或违背其内部文件的任一条款;(ii)违反或违背任何公司在其中作为一方当事人的或受到约束的或其财产受到约束的债券、合同、租赁合同、保证、契约、票据协议、贷款协议或其他协议、义务、条件、契约或融资工具的任何条款;和/或(iii)违反或违背对公司或其任何财产拥有管辖权的法庭、监管主体、管理机构、政府主体、仲裁机构或其他权力主体的适用于公司的的任何法规、法律、规则、条例、判决、法令。
2.6 Assuming the accuracy of the Purchaser’s representations and warranties set forth in this Agreement, no registration under the Securities Act of the Shares is required for the offer and sale of the Shares to the Purchaser in the manner contemplated herein.
设本协议下文认购人的陈述和保证的准确性,本协议中拟对认购人邀约和出售股票的方式不要求该股票在证券法案下进行注册。
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2.7 The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under any provision of any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. Neither the execution and delivery of this Agreement by the Company, nor the consummation of the transaction contemplated hereby, will result in the imposition of any security interest upon the Shares.
本协议的签署和送达以及拟根据本协议进行的交易不会和任何适用于公司或其财产或资产的保证、债券、租赁合同或其他合同或融资工具、许可、特许权、经销权、执照、判决、法令、法规、法律、规则或条例相冲突,也不会造成和此相关的违约(无论是否得到通知或经过时间推移,或两者兼有)或引起任何义务的终止、取消或加速,或造成重大利益的损失。本协议的签署和送达以及拟根据本协议进行的交易都不会导致和股票相关的担保权益。
2.8 Securities Compliance and Restricted Shares. All Shares are restricted securities as defined in Rule 144 promulgated under the Securities Act.
符合证券法的规定以及受限制股票。所有股票均为根据证券法案公布的第144条规则中定义的受限制股票。
2.9 No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Shares by any form of general solicitation or general advertising. The Company has offered the Shares for sale only to “accredited investors” within the meaning of Rule 501 under the Securities Act and as set forth under Exhibit A hereof.
无一般劝诱。公司或任何代表公司的个人均没有采取一般劝诱或公众广告的方式邀约或销售股票。公司只对“合格投资人”提出邀约并销售股票,合格投资人的定义由证券法案第501条规则和本协议下文的附件A给出。
2.10 Certain Fees. No brokers fees, finder’s fees or financial advisory fees or commissions will be payable by the Company with respect to the transactions contemplated by this Agreement. The Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this section that may be due in connection with the transactions contemplated by this Agreement.
特定费用。公司不需要对根据本协议拟进行的交易支付相关中介费用、佣金费用或融资顾问费用或提成。对于与本协议拟进行的交易有关的任何费用,或由他人或代表他人就本章节中提及的任何类型的费用而提出的任何索赔,认购人均不承担责任。
2.11 Registration Rights. No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any subsidiaries.
注册权利。没有任何个体有权使公司根据证券法案对公司及其任何子公司的证券进行注册。
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2.12 No Bad Actors. To the knowledge of the Company, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
无不良行为人。在公司知道的范围内,公司、其任何前身、所属发行人、董事、管理层成员、其他参与发行的公司人员、持有20%或更多公司已发行有投票权的证券的实质性所有人(以投票权为基础进行计算)、以及和在发行证券时与公司有联系的推广人(按照证券法案第405条规则的定义)(上述当事人分别被称为“发行方相关个体”,并总称为“发行方相关团体”)均未因符合证券法案第506(d)(1)(i)到(viii)的描述而被认定为“不良行为人”而被取消资格(称为“取消资格事件”)。符合第506(d)(2)或(d)(3) 描述的事例不属于取消资格事件范围内。公司在决定任一发行方相关个体是否受制于取消资格事件时实施了合理注意。
3. | REPRESENTATIONS AND WARRANTIES OF PURCHASER |
认购人的陈述和保证
Purchaser hereby represents and warrants to the Company as follows:
认购人在此向公司陈述和保证:
3.1 Organization. Such Purchaser is either an individual or an entity, corporate, partnership, limited liability company, duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporated or formed with full right, or similar power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder.
组织。认购人为个人或在其管辖区内依法成立或设立的,有效存续的经济实体、公司、合伙制企业、有限责任公司,并拥有完整的权利或类似权力和授权以签署和履行本协议中拟进行的交易或履行其在本协议或其他协议中的义务。
3.2 Authority. The Purchaser has the requisite power and authority to enter into and perform this Agreement and to purchase the Shares being sold to it hereunder. The execution, delivery and performance of this Agreement by such Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate, partnership or limited liability company action, and no further consent or authorization of such Purchaser or its Board of Directors, stockholders, partners, members, or managers, as the case may be, is required. This Agreement has been duly authorized, executed and delivered by such Purchaser and constitutes, or shall constitute when executed and delivered, a valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with the terms hereof.
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授权。认购人签署和履行本协议以及购买依本协议向其销售的股票所需的权力和授权。认 购人对本协议的签署、送达和履行和完成在此由所有必要的公司、合伙制企业或有限责任公司行为合法有效授权,不需要再由认购人或其董事会、股东会、合伙人、成员或经理进一步依情况同意或授权。本协议已被合法有效授权、签署和交付给认购人,并已构成或将在执行并交付后构成认购人有效和具有约束力的义务,可根据其条款对认购人执行。
3.3 Purchase Entirely for Own Account. This Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company, which by Purchaser’s execution of this Agreement, Purchaser hereby confirms that the Shares to be acquired by Purchaser will be acquired for investment for Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares.
完全为本人购买。本协议是根据认购人对公司的陈述与认购人签订的。根据认购人对本协议的签署,认购人在此确认此股票是认购人为其本人而非作为代名人或代理人所购买,也非为了对其任何部分进行再销售或分销而购买,认购人目前没有意图对此股票进行销售、部分授权或分销。根据认购人对本协议的签署,认购人进一步确认认购人目前没有和任何人有合同、保证、协议或安排以向其或第三方销售、转让或准许参与投资此股票。
3.4 Experience of Purchaser. Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment.
认购人经验。认购人单独或与其代表人一起,拥有足够的商业和金融知识、复杂度和经验以评估对此股票未来投资的实质和风险,并已按此做出评估。
3.5 Ability to Bear Risk. Purchaser understands and agrees that purchase of the Shares is a high-risk investment and Purchaser is able to afford and bear an investment in a speculative venture having the risks and objectives of the Company, including a risk of total loss of such investment. Purchaser must bear the substantial economic risks of the investment in the Shares indefinitely because none of the Shares may be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration(s) are available. The Purchaser represents that it is able to bear the economic risk of an investment in the Shares and is able to afford a complete loss of such investment.
风险承担能力。认购人理解并同意对此股票的购买是具有高风险的投资,认购人有能力支付并承担在具有本公司风险和目标的投机性企业中的投资,包括该投资完全损失的风险。认购人必须无限期地承担在本股票中投资的相当的经济风险,因为除非之后本股票按照证券法案或州证券法进行注册或适用于这些注册相关的豁免条款存在,股票无法被销售、抵押或以其他形式处置。认购人表示有能力承担于此股票中的投资并有能力负担此投资的完全损失。
3.6 Disclosure of Information. Purchaser has been given access to full and complete information regarding the Company and has utilized such access to Purchaser’s satisfaction for the purpose of obtaining such information regarding the Company as Purchaser has reasonably requested. In particular, Purchaser: (i) has received and thoroughly read and evaluated all the disclosures contained in this Agreement; and (ii) has been given a reasonable opportunity to review such documents as Purchaser has requested and to ask questions of, and to receive answers from, representatives of the Company concerning the terms and conditions of the Shares and the business and affairs of the Company and to obtain any additional information concerning the Company’s business to the extent reasonably available so as to understand more fully the nature of this investment and to verify the accuracy of the information supplied. The Purchaser is satisfied that it has received adequate information with respect to all matters which he/she/it considers material to its decision to make this investment.
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信息披露。认购人已获取关于公司全部和完整的信息渠道,且已以认购人可合理要求获取关于公司的这些信息为目的而使用了该渠道。特别的,认购人:(i)已收到并完整阅读和评估了本协议中的所有披露;并(ii)得到合理的机会以审阅认购人要求的文件并询问关于股票条款和条件以及公司的经营和事务相关的问题,认购人已从公司代表处得到了这些问题的解答,也得到合理的机会获取合理存在的关于公司经营的额外信息。认购人得到的这些额外信息足以使其对此投资的性质和得到的信息的准确性进行进一步的理解。认购人表示其已经获得了其认为与此投资决定有重大联系的所有事宜有关的足够信息。
3.7 No other documents. In evaluating the suitability of an investment in the Company, the Purchaser has not relied upon any representation or other information (oral or written) other than as stated in this Agreement.
无其他文件。在评估对公司投资的合适性时,认购人并未依赖于此协议中陈述之外的其他任何口头或书面陈述或信息。
3.8 Use of Purchase Price. Purchaser understands, acknowledges and agrees that management of the Company shall have sole and absolute discretion concerning the use of the Purchase Price as well as the timing of its expenditures.
购买价格的使用。认购人理解、承认并同意公司管理层拥有使用购买价格的使用方式和花销时间的单独和绝对判断权。
3.9 Restricted Securities. Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act, which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Purchaser’s representations as expressed herein. Purchaser understands that the Shares are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Except as otherwise provided herein, Purchaser acknowledges that the Company has no obligation to register or qualify the Shares. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company that are outside of Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy.
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受限制证券。认购人理解此股票没有且将来也不会依据证券法案进行注册,其原因是证券法案中的一条特定豁免条款。可依据此特定豁免条款取决于认购人在此协议表示的投资意愿的真实性和其陈述的准确性,以及其他因素。认购人理解此股票是适用的美国联邦和州证券法下的“受限制证券”,且根据这些法律,认购人必须无限期地持有股票直到此股票向美国证券交易委员会注册并得到州权力机关的认可,或相关的注册和审核要求中有豁免条款存在。除非此协议中另有说明, 认购人承认公司没有对股票进行注册或通过审核的义务。认购人进一步承认如果相关的注册和审核要求中有豁免条款存在,这些豁免条款将以多项要求为前提,包括但不限于,销售时间和方式、股票的持有期和与公司有关但不受认购人控制的要求,公司没有义务且可能无法满足这些要求。
3.10 No General Solicitation. The Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
无一般劝诱。认购人购买此股票并不是因为任何在任何报纸、杂志或其他媒体上发表的或在电视或广播上播放的或在任何会议上陈述的广告、文章、通知或其他关于此股票的信息或其他一般劝诱或一般广告。
3.11 Exculpation Among Purchasers. Purchaser acknowledges that it is not relying upon any Person, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Purchaser agrees that Purchaser is not liable to any other purchasers participated in this Offering for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the Shares.
认购人间免责。认购人知晓其在对公司进行投资或作投资决定时并未依赖于公司或其管理人员和董事之外的任何主体。认购人同意认购人并不对任何其他参与此邀约购买的认购人在购买此股票时的相关作为或不作为负责。
3.12 Residence. Purchaser is presently a bona fide resident of the state or country represented on the signature page hereof and has no present intention of becoming a resident of any other state, country, or jurisdiction, and the address and Social Security Number/National Insurance Number (or other applicable number) or Employer Identification Number/Corporate Tax Reference Number (or other applicable number) set forth on the signature page hereof are Purchaser’s true and correct residential or business address and Social Security Number/National Insurance Number (or other applicable number) or Employer Identification Number/Corporate Tax Reference Number (or other applicable number).
居住地。认购人是签字页上所填的州或国家的真实居民,且目前没有成为其他任何州、国家或管辖区居民的意愿,另外签字页上的地址和社保号或个体纳税人识别号(或其他适用号码)是认购人的真实个人或商业地址和社保号或个体纳税人识别号(或其他适用号码)或其雇主识别号/公司纳税人识别号(或其他适用号码)。
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3.13 The Purchaser has been independently advised as to the restrictions with respect to trading the Shares and with respect to the resale restrictions imposed by applicable securities laws, confirms that no representation has been made to it by or on behalf of the Company with respect thereto, acknowledges the risks relating to an investment therein and of the fact that it may not be able to resell the Shares except in accordance with limited exemptions under applicable securities legislation and regulatory policy until expiry of the applicable restriction period and compliance with the other requirements of applicable law, that the Purchaser (or others for whom it is contracting hereunder) is solely responsible to find out what these restrictions are and the Purchaser is solely responsible (and neither the Company is not in any way responsible) for compliance with applicable resale restrictions and the Purchaser is aware that it may not be able to resell the Shares except in accordance with limited exemptions under applicable securities laws, and it agrees that any certificates representing the Shares may bear a legend indicating that the resale of such securities is restricted;
认购人已得到关于此股票的交易限制以及使用的证券法规定的再销售限制的独立建议,确认公司或公司代表没有对其作出与此相关的陈述,承认关于此投资的风险以及其可能无法在使用的限制期结束和满足其他适用法律的要求之前对此股票进行再销售,除非在适用的证券立法和监管政策中有豁免条款,承认认购人(或其他与认购人签订相关合同的人)单独对了解这些交易限制单独负责,认购人对遵守相关再销售限制单独负责(公司不以任何方式对此负责),认购人知晓其可能无法对此股票进行再销售,除非适用的证券法有有限的豁免条款,且其同意任何此股票的股票证书上可能带有表明此证券再销售限制的交易限制说明。
3.14 The Purchaser is aware that the Company is a “reporting company” (as such term is used in the Securities Exchange Act of 1934, as amended) in the U.S.;
认购人知晓公司是1934年证券交易法案修订案中定义的美国“申报公司”。
3.15 The Company may complete additional financings, including project financing, in the future in order to develop the business of the Company and to fund its ongoing development; there is no assurance that such financings or project financings will be available and, if available, on reasonable terms; failure to obtain sufficient additional funds by way of debt or equity financings or through joint ventures will prevent the continued development of the business of the Company and any such future financings may have a dilutive effect on current security holders, including the Purchaser;
公司可能在将来为了发展公司业务和为其正在进行的发展提供资金而进行额外融资,包括项目融资;不保证这样的融资或项目融资将会存在,如果存在,会有合理的条款;如无法通过债券或股票融资或共同投资的方式获得足够的额外资金,将会妨碍公司业务的持续发展,另外任何这样的未来融资可能会对现在的证券所有者产生稀释效应,包括认购人。
3.16 The Purchaser is solely responsible (and the Company is not responsible in any way) for compliance with all applicable hold periods and resale restrictions under which the Shares are subject;
认购人对遵守所有此股票受制于的适用的持有期和再销售限制独立负责(公司不以任何方式对此负责)。
3.17 The Purchaser understands that the purchase of the Shares is a highly speculative investment and that an investment in the Shares is suitable only for sophisticated investors and requires the financial ability and willingness to accept the possibility of the loss of all or substantially all of such investment as well as the risks and lack of liquidity inherent in an investment in the Company;
认购人理解购买此股票是具有很高投机性的投资,对此股票的投资只适合于复杂的投资者,且要求投资者具有接受失去全部或几乎全部投资、在本公司中投资的风险和流动性缺乏的经济能力和意愿。
3.18 Confidential Information. The Purchaser agrees that such Purchaser and its employees, agents and representatives will keep confidential and will not disclose, divulge or use (other than for purposes of monitoring its investment in the Company) any confidential information which such Purchaser may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to such Purchaser pursuant to this Agreement, unless such information is (i) known to the public through no fault of such Purchaser or his or its employees or representatives; (ii) becomes part of the public domain other than by a breach of this Agreement; (iii) becomes known by the action of a third party not in breach of a duty of confidence; or (iv) is required to be disclosed to a third party pursuant to any applicable law, government resolution, or decision of any court or tribunal of competent jurisdiction; provided, however, that a Purchaser may disclose such information (i) to its attorneys, accountants and other professionals in connection with their representation of such Purchaser in connection with such Purchaser’s investment in the Company, (ii) to any prospective permitted transferee of the Securities, or (iii) to any general partner or affiliate of such Purchaser, so long as the prospective transferee agrees to be bound by the provisions of this Section 3.19.
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保密信息。认购人同意认购人和其雇员、代理、代表将对从公司根据此协议提供的财务报表、报告和其他材料中得到的保密信息进行保密,且不会披露、泄露和使用这些信息(除非是为了跟踪其在公司中的投资),除非这些信息是:(i)在未因为认购人及其雇员过错的情况下为大众所知晓;(ii)在不是因违背此协定的情况下成为公共领域的一部分;(iii)在不是因为第三方违背保密责任进行的行为的情况下为人所知;或(iv)因第三方在适用管辖区的适用法律、政府决议、或法庭决定的要求下而被披露;但是,认购人可以(i)向其律师、会计师和其他和对本公司投资相关的专业人员,(ii)向任何可能的收到允许的此证券的交易方,或(iii)向认购人的一般合伙人或附属主体披露这些信息,只要可能的交易方同意受到3.19这一条款的限制。
3.19 Regulation S Exemption. The Purchaser acknowledges and agrees that none of the Shares have been registered under the Securities Act, or under any state securities or "blue sky" laws of any state of the United States, and are being offered only in a transaction not involving any public offering within the meaning of the Securities Act, and, unless so registered, may not be offered or sold in the United States or to U.S. Persons (as defined herein), except pursuant to an effective registration statement under the Securities Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in each case only in accordance with applicable state and provincial securities laws. The Purchaser understands that the Shares are being offered and sold to him, her or it in reliance on an exemption from the registration requirements of United States federal and state securities laws under Regulation S promulgated under the Securities Act and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of the Purchaser to acquire the Shares. In this regard, the Purchaser represents, warrants and agrees that:
S 条例豁免条款。认购人确认且同意股票未根据证券法或美国任何州“蓝天”证券法注册,且仅在证券法定义中的非公众邀约交易中进行邀约,且,除非进行该等注册,不得在美国境内或向美国人士(见协议中定义)出售,但是根据证券法下有效注册声明的、或根据证券法中可用豁免的、或不受证券法注册规定的交易的,且在上述各种情况下均符合相关州证券法的情况除外。认购人理解,将要向其提供并出售的股票依赖于美国联邦和州证券法中S条例规定的注册要求的豁免。公司将依赖于认购人在协议里的陈述、保证、合意、确认和理解的真实性和准确性为上述用途与目的决定豁免条款在其中的适用性和认购人获得股票的适当性。就这点而言,认购人陈述,保证并同意:
(i) The Purchaser is not a U.S. Person and is not an affiliate (as defined in Rule 501(b) under the Securities Act) of the Company and is not acquiring the Shares for the account or benefit of a U.S. Person. A “U.S. Person” means any one of the following:
认购人非美国人士,也非公司的关联人士(根据证券法501(b)条款的定义),且认购人购买的股票不为美国人士的目的或利益。 “美国人士” 定义为下列中的任意一种:
(A) | any natural person resident in the United States of America; |
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任何在美国的自然人居民;
(B) | any partnership, limited liability company, corporation or other entity organized or incorporated under the laws of the United States of America; |
基于美国法律组织或设立的任何合伙企业、有限责任公司、公司或者其他实体;
(C) | any estate of which any executor or administrator is a U.S. Person; |
以美国人士为执行人或管理人的任何财产;
(D) | any trust of which any trustee is a U.S. Person; |
受托人是美国人士的任何信托;
(E) | any agency or branch of a foreign entity located in the United States of America; |
任何位于美国的外国机构的代理人或分支;
(F) | any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person; |
任何经纪人或其他受托人拥有的,为美国人士的利益所设的非全权买卖账户或类似账户(除财产或信托);
(G) | any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States of America; and |
任何经纪人或其他受托人设立、组成的或(如果是个人)居民拥有的全权买卖账户或类似账户(除了财产或信托);
(H) | any partnership, company, corporation or other entity if: |
任何合伙企业,组织、公司或其他实体,如果其:
(1) | organized or incorporated under the laws of any foreign jurisdiction; and |
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基于任何外国管辖地的法律设立或组成;和
(2) | formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts. |
由美国人士以证券法中投资未注册的证券为主要目的, 除非是由非自然人,财产或信托的实体的合资格投资者(根据证券法第501(a)条款)设立或组成或拥有 。
(ii) At the time of the origination of contact concerning this Agreement and the date of the execution and delivery of this Agreement, the Purchaser was outside of the United States.
在此协议开始沟通和签署日和协议的交付日时,认购人在美国境外。
(iii) The Purchaser realizes that the basis for the exemption may not be present if, notwithstanding such representations, the Purchaser has in mind merely acquiring the Shares for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Purchaser does not have any such intention.
认购人了解,尽管作出相关陈述,但如果认购人认购仅意图为在未来一定期间内持有股票、或为市场上涨、或为在市场未上涨的情况下出售,则豁免的依据可能不存在。认购人没有上述意图。
(iv) The Purchaser will not, during the period commencing on the date of issuance of the Shares and ending on the first anniversary of such date, or such shorter period as may be permitted by Regulation S or other applicable securities law (the “Restricted Period”), offer, sell, pledge or otherwise transfer the Shares in the United States, or to a U.S. Person for the account or for the benefit of a U.S. Person, or otherwise in a manner that is not in compliance with Regulation S.
认购人不会在自发行股票日到其一年周期日期间内,或者S 条例或其他适用证券法允许的更短时间(“受限制期限”)内,在美国进行股票的邀约、出售、质押或另外转让,或为美国人士利益或目的向其转让,或任何不遵守S条例的行为。
(v) The Purchaser will, after expiration of the Restricted Period, offer, sell, pledge or otherwise transfer the Shares only pursuant to registration under the Securities Act or an available exemption therefrom and, in accordance with all applicable state and foreign securities laws.
认购人将在受限制期限届满后,根据证券法中的注册规定或者适用豁免条款,并依照适用的州和外国证券法邀约、出售、质押或者转让股票。
(vi) The Purchaser was not in the United States engaged in, and prior to the expiration of the Restricted Period will not engage in, any short selling of or any hedging transaction with respect to the Shares, including without limitation, any put, call or other option transaction, option writing or equity swap.
在受限制期限届满前,认购人未在美国参与任何股票的卖空或者任何关于股票的对冲交易,包括但不限于,任何看涨、看跌或其他期权交易,期权出售或股权互换。
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(vii) Neither the Purchaser nor or any person acting on his behalf has engaged, nor will engage, in any directed selling efforts to a U.S. Person with respect to the Shares and the Purchaser and any person acting on his or her behalf have complied and will comply with the “offering restrictions” requirements of Regulation S under the Securities Act.
认购人或任何作为其代表的人士不能已参与或将参与任何直接将股票出售给美国人士的行为,且认购人和任何作为其代表的人士已遵守并将遵守证券法中S 条例的“邀约限制”要求。
(viii) The transactions contemplated by this Agreement have not been pre-arranged with a buyer located in the United States or with a U.S. Person, and are not part of a plan or scheme to evade the registration requirements of the Securities Act.
本协议计划的交易未与在美国境内的买家在或与美国人士预先安排,也非规避证券法注册要求计划或方案中的一部分。
(ix) Neither the Purchaser nor any person acting on its behalf has undertaken or carried out any activity for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States, its territories or possessions, for any of the Shares. The Purchaser agrees not to cause any advertisement of the Shares to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Shares, except such advertisements that include the statements required by Regulation S under the Securities Act, and only offshore and not in the U.S. or its territories, and only in compliance with any local applicable securities laws.
认购人或任何作为其代表的人士未进行或采取对于股票可被合理预计影响美国的市场情况、其领地和财产的行为。认购人同意不使任何关于股票的广告出现在报纸或者期刊或者在任何公共场所张贴,不发行任何关于股票的通知,除非广告包含证券法S条例中的陈述,并且位于离岸且不在美国或其领土,并且要遵循任何当地可适用的证券法。
(x) The Purchaser has carefully reviewed and completed the investor questionnaire annexed hereto as Exhibit A.
认购人已仔细审阅和完成 附录A中的投资人问卷调查.
3.20 No Advertisements or Direct Selling Effort. The Purchaser is not subscribing for the Shares as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio or via the Internet, or presented at any seminar or meeting. The Purchaser has not acquired the Shares as a result of, and will not itself engage in, any "directed selling efforts" (as defined in Regulation S) in the United States in respect of any of the Shares which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of any of the Shares; provided, however, that the Purchaser may sell or otherwise dispose of any of the Shares pursuant to registration of any of the Shares pursuant to the Securities Act and any applicable state securities laws or under an exemption from such registration requirements and as otherwise provided herein.
禁止广告或直接出售。认购人没有由于或继广告、文件、 通知或其他在任何报纸、杂志,或任何类似媒体或电视收音机转播或互联网或在任何研讨会或会议的其他出版传播之后认购股票。认购人收购股票并非基于,且其自身不参与,任何在美国境内关于股票“直接出售”(见S条例中定义),包括为股票转售而进行的可被合理预计影响美国的市场情况行为;但条件是,认购人可以通过证券法及相关州证券法下的股票注册或对于注册规定的豁免或本协议中另外所作规定对股票进行出售或另外处置。
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3.21 Legend. The Purchaser acknowledges and agrees that the Shares shall bear a restricted legend (the “Legend”), in the form and substance as set forth in Section 4 hereof, prohibiting the offer, sale, pledge or transfer of the securities, except (i) pursuant to an effective registration statement filed under the Securities Act, (ii) in accordance with the applicable provisions of Regulation S, promulgated under the Securities Act, (iii) pursuant to an exemption from registration provided by Rule 144 under the Securities Act (if available), and (iv) pursuant to any other exemption from the registration requirements of the Securities Act or for estate planning purposes (subject to any escrow restrictions).
标志。认购人理解并同意股票需要具有限制性的标志(以下简称“标志”),根据第四节的形式和内容,禁止邀约,出售,质押或者转让证券,除(i)依据证券法提交有效的注册声明,(ii)符合颁布在证券法中适用的S 条例条款,(iii)依据证券法中注册要求144 规则的豁免(若可以), 和(iv)依据其他根据证券法中注册要求的豁免或为财产规划目的(受任何代管限制)。
3.22 Economic Considerations. The Purchaser is not relying on the Company, or its affiliates or agents with respect to economic considerations involved in this investment. The Purchaser has relied solely on his or her own advisors.
经济因素。认购人不能依赖于公司或其关联或代理关于此投资中包括的经济因素。认购人仅依赖于其顾问。
3.23 Compliance with Laws. Any resale of the Shares during the “distribution compliance period” as defined in Rule 902(f) to Regulation S shall only be made in compliance with exemptions from registration afforded by Regulation S. Further, any such sale of the Shares in any jurisdiction outside of the United States will be made in compliance with the securities laws of such jurisdiction. The Purchaser will not offer to sell or sell the Shares in any jurisdiction unless the Purchaser obtains all required consents, if any.
遵守法律。任何根据S条例下902(f)条款在“发行合规期”内股票的转售必须仅在遵循S条例下注册豁免条款的情况进行。而且,任何此类在非美国管辖地的出售要遵循管辖地的法律。认购人不能在任何管辖地发出出售或者出售股票的邀约,除非认购人获得所有要求的同意(若有)。
3.24 General. Such Purchaser understands that the Shares are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of such Purchaser to acquire the Shares.
综述。认购人理解此股票的邀约和销售是依据联邦和州的证券法中的交易豁免条款,公司在决定这样的豁免条款是否适用于认购人对此股票的购买时,是依据认购人提供的陈述、保证、协议、承诺和理解的真实性和准确性。
4. | LEGENDS, ETC. |
4.1 Legends. Each certificate representing the Shares shall be endorsed with the following legends, in addition to any other legend required to be placed thereon by applicable federal or state securities laws:
标志。任何表现股票的证明应包含以下内容的标志背书,附加适用联邦或州证券法要求包含的标志:
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“THESE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”)) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT.”
“该证券仅向非美国人士(具体定义请参见美国1933年证券法(“证券法”)及其修正案)提出邀约,该证券根据证券法S条例未在美国证券交易委员会注册。”
“TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”
“除非符合证券法S条例、根据证券法注册规定,或根据可用的注册豁免, 不得转让该证券。除非符合证券法规定,不得进行对冲交易。”
4.2 Company’s Refusal to Register Transfer of Shares. The Company shall refuse to register any transfer of the Shares not made in accordance with (i) the provisions of Regulation S, (ii) pursuant to an effective registration statement filed under the Securities Act, or (iii) pursuant to an available exemption from the registration requirements of the Securities Act.
公司拒绝登记股票转让: 当如下情况发生时,公司应拒绝对相关股票转让进行登记:(i)该转让与S条例的相关内容不符;(ii)该转让未根据证券法项下提交的有效注册声明进行;(iii)该转让不符合证券法中的注册豁免规定。
5. | MISCELLANEOUS |
其他
5.1 Fees and Expenses. Except as expressly set forth in this Agreement to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.
费用与花费。除非此协议中有明确的相反规定,协议任一方应自行支付其与顾问、律师、会计师和其他专家有关的费用与花费,以及与此协议相关的谈判、准备、签署、交付和执行相关的其他花费。
5.2 Representations and Warranties. The representations and warranties of the Company and Purchaser shall survive the Closing and delivery of the Shares.
陈述与保证。公司和认购人的陈述与保证在交割和股票的交付后依然有效。
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5.3 Indemnification. Purchaser agrees to indemnify and hold harmless the Company and each director, officer or agent thereof from and against any and all losses, damages, liabilities and expenses arising out of or in connection with any breach of, or inaccuracy in, any representation or warranty of the undersigned, whether contained in this Agreement or otherwise.
补偿。对于一切由于违反此协议中的或与之相关的陈述或保证或其不准确性而造成的损失、损害、债务和花费,认购人同意补偿并豁免公司及其董事、管理人员或代理人的责任 。
5.4 Waiver, Amendment. Neither this Agreement nor any provisions hereof shall be waived, modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, change, discharge or termination is sought.
豁免,修订。此协议及其中的任何条款均不应被豁免、修订、修改、撤销或终止,除非被上述改动影响的一方以书面形式同意。
5.5 Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either Company or Purchaser without the prior written consent of each other party.
转让。此协议或由此而来的任何权利、赔偿、义务或责任均不应被公司或认购人转让,除非另一方事先以书面形式同意。
5.6 Section and Other Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
条款标题与其他标题。本协议中的条款标题仅起参考作用,不应以任何方式影响本协议的意义和对其的解读。
5.7 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
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适用法律;同意司法管辖区;放弃陪审团审判。无论纽约州法律对法律选择的原则有何规定,本协议均应受到美国纽约州的内部法律的管辖并根据该法律进行解释。对于和本协议或根据本 协议拟进行的交易相关的或由此引起的任何诉讼、程序或判决,本协议的任一方在此均不可撤销地服从于位于纽约郡的纽约州法院和纽约南区美国联邦区法院的专属管辖。与这些诉讼、程序或判决有关的程序的递送可以按照本协议通知部分列出的相同方式递送给世界上任何地方的相关当事人。协议双方在此不可撤销地同意在上文所述的程序中上述法院的司法管辖权和审判地。协议双方在此不可撤销地放弃任何对在上文所述的程序中上述法院的审判地的反对意见和任何关于上述程序由上述法院进行审理的不方便性的声明。协议双方在此放弃在任何有关此协议和其他根据此协议拟进行的交易中所得的文件的诉讼中要求陪审团审判的权利,并表示在放弃权利前已向律师特别咨询。
5.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.
副本。本协议可同时签署多份副本,任何一份副本在签署和交付后应视作一份正本,所有副本与正本共同构成同一份法律文书。
5.9 Notices. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid or if delivered by facsimile or electronic transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine):
(a) if to Purchaser:
The address included on the signature page.
(b) if to the Company:
Shineco, Inc.
Room 3106, Building B, Jianwai SoHO, Chaoyang District, Beijing City, China
Attn: Yuying Zhang
通知。本协议下的所有通知或其他通信必须采用书面形式,并在按以下方式递送后视为正式送达,直接递送或通过挂号信,要求收据,邮资预付,或通过传真或电子传递。如果于收件人所在时区下午6点前送达,送达时间为送达的工作日当天,若于下午6点后送达,则送达时间为下一个工作日(以发送方电传复印机生成的书面送达确认为准):
(a) 如通知认购人:
签字页中包括的地址。
(b) 如通知公司:
Shineco, Inc.
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中国北京市朝阳区建外SOHO东区B座3106室
Attn: 张玉莹
5.10 Binding Effect. The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, legal representatives, permitted successors and assigns.
约束效果。本协议的条款对协议双方以及其继承人、法定代表人、继任者、委任者具有法律约束力。
5.11 Entire Agreement. This Agreement (including the Exhibit hereto) constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled.
完整协议。此协议(包括其中附件)构成双方就其主题事项达成的协议条款的全部和完整声明,任何其他由双方就其主题事项达成的书面或口头协议就此明确取消。
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
可分割性。如本协议的任何条款、规定、契约或限制被任何拥有司法管辖权的法院裁定为无效、非法、或不可执行,本协议的其他条款、规定、契约或限制将保持完全有效,并不因此在任何方式上受到影响、损坏或作废。协议双方应尽其商业上合理的努力找到并实施替代方式,以取得拟根据被裁定的条款、规定、契约或限制达到的相同或大部分相同的结果。
5.13 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under this Agreement. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in this Agreement and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
救济。除有权实施本协议或法律赋予的所有权利包括取得赔偿金之外,认购人和公司还有权根据此协议得到特定履行。协议双方同意金钱赔偿可能无法对因违反任何此协议中的义务造成的损失进行足够的赔偿,并同意在金钱赔偿可以进行足够赔偿的情况下放弃在任何诉讼中要求特定履行。
5.14 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise this Agreement and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments thereto.
解释。协议双方同意双方和/或其各自的律师已审阅并有机会修订此协议。因此,出现歧义时以对起草方不利的方式解释的一般性规则不适用于本协议或任何修订的解释。
5.15 Further Assurances: Each party hereto shall from time to time at the request of the other party hereto do such further acts and execute and deliver such further instruments, deeds and documents as shall be reasonably required in order to fully perform and carry out the provisions of this Agreement. The parties hereto agree to act honestly and in good faith in the performance of their respective obligations hereunder.
进一步保证。协议双方应不时地根据对方的要求,为完成本协议中约定,在所有合理要求下,采取进一步行动和交付进一步的工具、契约和文件。协议双方在此同意诚实并真诚地履行各自在此协议中的义务。
5.16 Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof and thereof, nor shall any delay or omission of any party to exercise any right hereunder and thereunder in any manner impair the exercise of any such right accruing to it thereafter.
豁免。协议任何一方对本协议的任何条款、条件或要求的任何豁免均不应被视作将来的持续性豁免,或对其他任何条款、条件或要求的豁免。若协议任何一方延迟或未能履行本协议中的任何权利,不应对此权利在之后的履行在任何方式上造成损害。
5.17 Successors and Assigns. This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Purchaser, as applicable, provided, however, that, subject to federal and state securities laws and as otherwise provided in this Agreement, the Purchaser may assign its rights and delegate its duties hereunder in whole or in part (i) to a third party acquiring all or substantially all of its Ordinary Shares in a private transaction or (ii) to an affiliate, in each case, without the prior written consent of the Company or the other purchasers participated in this Offering, after notice duly given by such Purchaser to the Company provided, that no such assignment or obligation shall affect the obligations of such Purchaser hereunder and that such assignee agrees in writing to be bound, with respect to the transferred securities, by the provisions hereof that apply to the Purchaser. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
继承人和转让。在没有得到协议另一方提前书面同意地情况下,协议的任一方均不能将此协议进行转让。但是根据联邦和州证券法并在此协议中有相反规定的情况下,认购人可以将其权利和义务全部或部分转让给(i)从认购人处通过私下交易获得其全部或绝大部分股票的第三方或(ii)认购人的下属主体。上述任一情况均不要求公司或其他参与此邀约的认购人提供提前书面同意,但认购人应事先向公司合法提供通知,说明该转让不会影响协议中的认购人的任何义务,且受让方书面同意受到适用于认购人的关于被转让证券的条款。此协议中的条款应适用于并约束协议双方得到同意的继承人和受让方。本协议中没有任何明确或隐含条款是为了赋予除协议双方或其相应的继承人和受让方以外的任何当事人此协议中的任何权利、赔偿、义务或负债,除非此协议另有明确规定。
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5.18 Signature Page. It is hereby agreed that the execution by the Purchaser of this Agreement, in the place set forth herein, will constitute agreement to be bound by the terms and conditions hereof.
签字页。双方在此同意认购人在协议中的签字页的签字将被视作双方同意受到本协议中的条款和条件的约束。
[signature pages follow]
【下页为签字页】
20 |
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.
以下签字人在协议第一页所述日期签署本协议,以昭信守。
Company:
Shineco, Inc.
By:
由:/s/ Guocong Zhou
Name(姓名) |
Guocong Zhou |
|
Title(职位) | Chief Executive Officer |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
【本页剩下部分特意留空,下页为认购人签字页】
21 |
SHINECO, INC.
PURCHASER SIGNATURE PAGE TO
SUBSCRIBTION AGREEMENT
认购协议 认购人签字页
Purchaser hereby elects to purchase _[Share Number]_____ shares of Common Stock for a purchase price of $___[Purchase Price]__________.
认购人在此决定以_[Purchase Price]___美元的总金额购买___[Share Number]___股股票。
Date (NOTE: To be completed by the Purchaser): Jan 14 , 2021
日期(注:由认购人填写):2021年_1_月_14_日。
If the Purchaser is an INDIVIDUAL, and if purchased with a SPOUSE, or as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:
若认购人为个人,且若和配偶共同购买,或作为联权共有人,
分权共有人或夫妻共有财产购买:
[Name] [ID#]
Print
Name(s) ID#(s)
(Passport/ID/Social Security
Number)
姓名 证件号码(护照/身份证号/社保号码)
/s/[Name] [Address]
Signature(s)
of Purchaser(s) Address
认购人签字 地址
Jan 14, 2021
Date City, State, Zip, Country
日期 城市,州,邮编,国家
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Exhibit A
附录A
INVESTOR SUITABILITY QUESTIONNAIRE
FOR NON-U.S. INVESTORS AS DEFINED IN RULE 902 OF REGULATION S
投资方适格性调查
(S条例902规则下非美国投资者)
CONFIDENTIAL
保密
Shineco Inc. (the “Company”) will use the responses to this questionnaire to qualify prospective investors for purposes of federal and state securities laws.
Shineco Inc. (“公司”) 将使用以下对问卷的回答判断潜在投资者是否在联邦和州证券法下适格。
Please complete, sign, date and return one copy of this questionnaire as soon as possible, via mail or facsimile, to:
请尽快完成、签字、注明日期并将此问卷的复印件,通过邮寄或传真方式发回至:
【Name of the Company contact person:
公司管理人员姓名:张玉莹
Contact information:
公司管理人员联系方式:[*]】
Name: 姓名: |
[Name] |
(EXACT NAME AS IT SHOULD APPEAR ON SECURITIES)
(显示在证券上的准确姓名)
1. |
Please indicate the country in which you maintain your principal residence and how long you have maintained your principal residence in that country. 请填写您主要居住地国家及居住在此国家的时间。 |
23 |
Country: | China |
国家: | 中国 |
Duration: | [Duration] |
期间: | |
Address: | |
地址: | |
Email Address: | |
电子邮件: |
You agree that the Company may present this questionnaire to such parties as the Company deems appropriate to establish the availability of exemptions from registration under federal and state securities laws. You represent that the information furnished in this questionnaire is true and correct and you acknowledge that the Company and its counsel are relying on the truth and accuracy of such information to comply with federal and state securities laws. You agree to notify the Company promptly of any changes in the foregoing information that may occur prior to the investment.您同意,公司可能将此问卷出示给有关人士以证明公司认为在联邦和州证券法下此股票认购可以适用登记豁免。您表示在此问卷内填写的信息是真实及正确的,且您知悉公司及其代表将依此信息的真实准确性遵守联邦和州证券法律。您同意,在投资前就前述信息可能出现的任何改动将及时通知公司。
/s/[Name] | ||
(Signature) (签名) |
||
Title or capacity of signing party if the Purchaser is partnership, corporation, trust or other non-individual entity 签字方的名称或身份(如果认购方是合伙、公司、信托或其他非个人实体) |
||
Date: 日期: |
Jan 14, 2021 | |
24 |
I. INDIVIDUAL INVESTORS:
第1部分 个人投资方:
(Investors other than individuals should turn to Part II)
(非个人投资方应填写第2部分)
INITIAL EACH BOX TRUE OR FALSE OR COMPLETE, AS APPROPRIATE
在每个表格内是或否的位置填入姓名首字母
Disclosure of Foreign Citizenship.
外国公民信息披露
1. |
___√___ ________ True 是 False 否 |
You are a citizen of a country other than the United States. 您是除美国以外的其它国家的公民。 |
||
2. |
__China ____________ |
If the answer to the preceding question is true, specify the country of which you are a citizen. 如果上述问题回答为“是”,具体指出是哪国公民 |
Verification of Status as a Non-“U.S. Person” under Regulation S.
S条例下非美国人士的身份确认
3. |
______ ____√____ True 是 False 否 |
You are a natural person resident in the United States. 您是居住在美国境内的自然人。 |
PLEASE PROVIDE COPIES OF THE IDENFICATION DOCUMENTS ISSUED BY THE COUNTRY OF WHICH YOU ARE A CITIZEN.
请提供您所在公民的国家出具的身份证明复印件
25 |
PLEASE TURN TO PART III AND SIGN AND DATE THIS QUESTIONNAIRE
请转至第3部分并为此问卷签署姓名和注明日期
26 |
II. SIGNATURE
第2部分 签字
You agree that the Company may disclose this questionnaire to such parties as the Company deems appropriate to establish the availability of exemptions from registration under federal and state securities laws. You represent that the information furnished in this questionnaire is true, complete and correct and you acknowledge that the Company and its counsel are relying on the truth and accuracy of such information to comply with federal and state securities laws. You agree to notify the Company promptly of any changes in the foregoing information that may occur prior to the investment.
您同意,公司可能将此问卷出示给有关人士以证明公司认为在联邦和州证券法下此股票认购可以适用登记豁免。您表示在此问卷内填写的信息是真实及正确的,且您知悉本公司及其代表将依此信息的真实准确性遵守联邦和州证券法律。您同意,在投资前就前述信息可能出现的任何改动将及时通知本公司。
FOR INDIVIDUALS:
个人:
/s/[Name] | ||
(Signature) | ||
(签字): | ||
Date: 日期: |
Jan 14, 2021 | |
27 |
Schedule of Material Differences
One or more person signed a share purchase agreement under this form. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with a schedule setting forth the material details in which the executed agreements differ from this form:
No. | Name | Name in Chinese | Share Number | Purchase Price | ID# | Duration | Address | ||||||||
1. | Dingyu Cui | 崔丁宇 | 158,890 | 476,670 | [*] | [*] | [*] | ||||||||
2. | Lihong Wang | 王丽红 | 5,555 | 16,665 | [*] | [*] | [*] | ||||||||
3. | Wei Chang | 常薇 | 200,000 | 600,000 | [*] | [*] | [*] |
28 |
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ou Yang, certify that:
1. I have reviewed this report on Form 10-Q of Shineco, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 14, 2021
/s/ Ou Yang | |
Ou Yang | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sai (Sam) Wang, certify that:
1. I have reviewed this report on Form 10-Q of Shineco, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 14, 2021
/s/ Sai (Sam) Wang | |
Sai (Sam) Wang | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Shineco, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Quarterly Report of the Company on Form 10-Q for the three months ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 14, 2021
/s/ Ou Yang | |
Ou Yang | |
Chief Executive Officer (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Shineco, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Quarterly Report of the Company on Form 10-Q for the three months ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 14, 2021
/s/ Sai (Sam) Wang | |
Sai (Sam) Wang | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.