| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Principles of Consolidation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”). The
consolidated financial statements of the Company reflect the principal activities of the Company, its subsidiaries, the VIEs and the
VIEs’ subsidiaries. The non-controlling interest represents the minority shareholders’ interest in the Company’s majority
owned subsidiaries and the VIEs. All intercompany accounts and transactions have been eliminated in consolidation. Consolidation
of Variable Interest Entities VIEs
are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties
or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must
be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate
the VIE for financial reporting purposes. There
are no consolidated assets of the VIEs and the VIEs’ subsidiaries that are collateral for the obligations of the VIEs and the VIEs’
subsidiaries and can only be used to settle the obligations of the VIEs and the VIEs’ subsidiaries. As
the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors or beneficial interest holders of the VIEs
do not have recourse to the general credit of the Company for any of the liabilities of the VIEs in normal course of business. There
are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or
its subsidiaries to provide financial support to the VIEs and the VIEs’ subsidiaries. However, if the VIEs and the VIEs’
subsidiaries ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions,
provide financial support to the VIEs and the VIEs’ subsidiaries through loans to the shareholder of the VIEs and the VIEs’
subsidiaries or entrustment loans to the VIEs and the VIEs’ subsidiaries. The
total carrying amount of the VIEs and their subsidiaries’ consolidated assets and liabilities and income information and the carrying
amount of the VIEs and their subsidiaries’ consolidated income information held for discontinued operations were as follows: SCHEDULE
OF CONSOLIDATED ASSETS AND LIABILITIES AND INCOME INFORMATION
June 30, 2023 June 30, 2022
Current assets $ 32,532,618 $ 34,723,255
Non-current assets 2,493,883 1,212,739
Total assets 35,026,501 35,935,994
Total liabilities (5,952,438 ) (5,719,289 )
Net assets $ 29,074,063 $ 30,216,705
2023 2022
For the years ended June 30,
2023 2022
Net sales $ 2,448,508 $ 2,142,511
Gross loss $ (594,290 ) $ (1,556,403 )
Income (loss) from operations $ 482,105 $ (11,476,699 )
Net income (loss) attributable to Shineco, Inc. $ 515,789 $ (14,023,582 ) Non-controlling
Interests U.S.
GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance
sheet. In addition, the amounts attributable to the non-controlling interests in the net loss of these entities are reported separately
in the consolidated statements of loss and comprehensive loss. Risks
and Uncertainties The
operations of the Company are located in the PRC and are subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal
environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory,
and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary
measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not
experienced losses from these factors and believes that it is in compliance with existing laws and regulations, there is no guarantee
that the Company will continue to do so in the future. Members
of the current management team own controlling interests in the Company and are also the owners of the VIEs in the PRC. The Company only
has contractual arrangements with the VIEs, which obligate it to absorb the risk of loss and to receive the residual expected returns.
As such, the controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of
the agreement terms, as a result of which the Company would not retain the economic benefits from the VIEs. In addition, should these
agreements be challenged or litigated, they would also be subject to the laws and courts of the PRC legal system, which could make enforcing
the Company’s rights difficult. Use
of Estimates The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements as well as the reported amounts of revenue and expenses during the reporting periods. Significant estimates required
to be made by management include, but are not limited to, useful lives of property and equipment, and intangible assets, the recoverability
of long-lived assets, and the valuation of accounts receivable, advances to suppliers, deferred taxes, and inventory reserves. Actual
results could differ from those estimates. Revenue
Recognition The
Company generates its revenues primarily through sales of Luobuma products, agricultural products and rapid diagnostic and other
products, as well as providing logistic services and other processing services to external customers in accordance with ASC 606. ASC
606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows
arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to
recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it
expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are
satisfied. With
the adoption of ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps
are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance
obligation is satisfied. The Company has assessed the impact of the guidance by reviewing its existing customer contracts to identify
differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction
price, customer payments, transfer of control, and principal versus agent considerations. In accordance with ASC 606, the Company evaluates
whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When
the Company is a principal, that the Company obtains control of the specified goods or services before they are transferred to the customers,
the revenues should be recognized in the gross amount of consideration to which it expects to be entitled in exchange for the specified
goods or services transferred. When the Company is an agent and its obligation is to facilitate third parties in fulfilling their performance
obligation for specified goods or services, the revenues should be recognized in the net amount for the amount of commission which the
Company earns in exchange for arranging for the specified goods or services to be provided by other parties. Based on the assessment,
the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope
of Topic 606 and therefore there was no material changes to the Company’s consolidated financial statements upon adoption of ASC
606. More
specifically, revenue related to the Company’s products and services is generally recognized as follows: Sales
of products: Revenue
from the provision of services Cash
and Cash Equivalents Cash
and cash equivalents consist of cash on hand, cash on deposit, and other highly liquid investments which are unrestricted as to withdrawal
or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial
institutions mainly in the PRC. As of June 30, 2023 and 2022, the Company had no Under
PRC law, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’
rights over and interests in their deposited money. PRC banks are subject to a series of risk control regulatory standards, and PRC bank
regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a material credit crisis. The
Company monitors the banks utilized and has not experienced any problems. Accounts
Receivable, Net Accounts
receivable are recorded at net realizable value, consisting of the carrying amount less an allowance for uncollectible accounts, as necessary.
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the
collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many
factors, including the age of the balance, the customers’ historical payment history, their current credit-worthiness, and current
economic trends. The fair value of long-term receivables is determined using a present value technique by discounting the future expected
contractual cash flows using current rates at which similar instruments would be issued at the measurement date. As of June 30, 2023
and 2022, the allowance for doubtful accounts from the continuing operations was US$ 946,892 nil 7,206,958 7,317,236 Inventories,
Net Inventories,
which are stated at the lower of cost or net realizable value, consist of raw materials, work-in-progress, and finished goods related
to the Company’s products. Net realizable value is the estimated selling price in the normal course of business less any costs
to complete and sell products. Cost is determined using the first in first out (“FIFO”) method. 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 June 30, 2023 and 2022, the inventory reserve
from the continuing operations was US$ 56,655 nil 1,106,649 1,249,543 Advances
to Suppliers, Net Advances
to suppliers consist of payments to suppliers for materials that have not been received. Advances to suppliers are reviewed periodically
to determine whether their carrying value has become impaired. As of June 30, 2023 and 2022, the allowance for uncollectible advances
from the continuing operations was US$ 3,502 nil 10,163,946 13,544,627 Business
Acquisitions Business
acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer,
determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquired entity, and recognize and measure goodwill or a bargain gain from the purchase. The acquiree’s results
are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed
are recorded at their fair values on the date acquired and the excess of the purchase price over the amounts assigned is recorded as
goodwill, or if the fair value of the net assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded.
Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than 12 months). The
acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense
as committed, and requires the Company to recognize and measure certain assets and liabilities, including those arising from contingencies
and contingent consideration in a business combination. Goodwill Goodwill
represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value,
goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of
a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined
in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each
of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques,
including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market
approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded
or which are part of a public or private transaction (to the extent available). Leases The
Company follows FASB ASC No. 842, Leases Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental
borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating
lease ROU asset also includes any lease payments made and excludes lease incentives and includes initial direct costs incurred. The Company’s
lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. All operating lease ROU assets
are reviewed for impairment annually. For the years ended June 30, 2023 and 2022, the impairment for its ROU assets from the continuing
operations were both US$ nil nil 2,268,344 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: SCHEDULE
OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
Estimated useful lives
Buildings 20 50
Machinery equipment 3 10
Motor vehicles 5 10
Office equipment 3 10
Farmland leasehold improvements 12 18
Leasehold improvement Lesser of useful life and lease term Long-lived
Assets Finite-lived
assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability
of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset
is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property
and equipment, land use rights, distribution right, ROU assets and investments. For the years ended June 30, 2023 and 2022, the impairment
for its long-lived assets from the continuing operations were both US$ 689,923 nil nil 4,315,888 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. Income
Taxes Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce deferred tax assets to
the amount expected to be realized. The
provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for
consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This
ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company did
not have any uncertain tax positions from the continuing operations and the discontinued operations at June 30, 2023 and 2022. The Company
had not provided deferred taxes for undistributed earnings of non-U.S. subsidiaries from the continuing operations and the discontinued
operations at June 30, 2023, 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 2019 and thereafter. As of June 30, 2023, the tax years ended December 31, 2018 through December 31, 2022 for the Company’s
PRC subsidiaries from the continuing operations and the discontinued operations 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 21 744,766 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”). All of the Company’s products that
were sold in the PRC were subject to a Chinese value-added tax at rates ranging from 3% to 13%, depending on the type of products sold Foreign
Currency Translation The
Company uses the United States dollar (“U.S. dollars,” “USD,” or “US$”) for financial reporting purposes.
The Company’s subsidiaries and VIEs maintain their books and records in their functional currency of Renminbi (“RMB”),
the currency of the PRC. In
general, for consolidation purposes, the Company translates the assets and liabilities of its subsidiaries and VIEs into U.S. dollars
using the applicable exchange rates prevailing at the balance sheet date, and the statements of income and cash flows are translated
at average exchange rates during the reporting periods. As a result, amounts related to assets and liabilities reported on the statement
of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Equity accounts are translated
at historical rates. Adjustments resulting from the translation of the financial statements of the subsidiaries and VIEs are recorded
as accumulated other comprehensive loss. The
balance sheet amounts, with the exception of equity, at June 30, 2023 and 2022 were translated at 1 0.1378 1 0.1493 1 0.1438 1 0.1549 Convertible
Notes Payable In
accordance with ASC 470 Debt with conversion and other option Research
and Development Expenses Research
and development costs relating to the development of new processes and significant improvements and refinements to existing processes
are expensed when incurred in accordance with the FASB ASC 730, “Research and Development.” The research and development
costs primarily comprise employee costs, consultant fees, materials and testing costs, and depreciation to property and equipment used
in the research and development activities and other miscellaneous expenses. For the years ended June 30, 2023 and 2022, total research
and development expense from continuing operations were approximately US$ 135,849 nil Comprehensive
Loss Comprehensive
loss consists of two components, net loss and other comprehensive 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 loss in the 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 50 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 years ended June 30, 2023 and 2022. The
following table presents a reconciliation of basic and diluted loss per share for the years ended June 30, 2023 and 2022: SCHEDULE
OF RECONCILIATION OF BASIC AND DILUTED (LOSS) PER SHARE
2023 2022
For the years ended June 30,
2023 2022
Net loss from continuing operations attributable to Shineco $ (10,126,904 ) $ (7,593,058 )
Net loss from discontinued operations attributable to Shineco (3,236,495 ) (19,440,036 )
Net loss attributable to Shineco $ (13,363,399 ) $ (27,033,094 )
Weighted average shares outstanding - basic and diluted 18,634,212 9,458,077
Net loss from continuing operations per share of common share
Basic and diluted $ (0.54 ) $ (0.80 )
Net loss from discontinued operations per share of common share
Basic and diluted $ (0.17 ) $ (2.06 )
Net loss per share of common share
Basic and diluted $ (0.71 ) $ (2.86 ) Reclassifications Certain
prior year balances were reclassified to conform to the current year’s presentation with consideration of reflecting the Company’s
Tenet-Jove Disposal Group as discontinued operations. None of these reclassifications had an impact on reported financial position or
cash flows for any of the periods presented. New
Accounting Pronouncements In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) Codification Improvements
to Topic 326, Financial Instruments—Credit Losses, Codification Improvements to Topic
326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments Targeted Transition Relief. In November 2021, the FASB issued ASU 2021-10, Disclosures
by Entities about Government Assistance (Topic 832) The
Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s consolidated
financial statements. |
