SHINECO, INC. 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 for the fiscal year endedJune 30, 2021 filed with theSEC onSeptember 30, 2021 (the "Annual Report"). 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. 42 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. All monetary figures are presented inU.S. dollars, unless otherwise indicated. General OverviewShineco, Inc. is a holding company incorporated inDelaware . As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our operating entities established inthe People's Republic of China , or the PRC, primarily our variable interest entities (the "VIEs"). We do not have any equity ownership of our VIEs, instead we control and receive the economic benefits of our VIEs' business operations through certain contractual arrangements. Our common stock that currently listed on theNasdaq Capital Markets are shares of ourDelaware holding company that maintains service agreements with the associated operating companies. The Chinese regulatory authorities could disallow our structure, which could result in a material change in our operations and the value of our securities could decline or become worthless. We use our subsidiaries and the 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 inChina . 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 throughAnkang Longevity Pharmaceutical (Group) Co., Ltd. ("Ankang Longevity Group "), a Chinese company formerly under contractual control by the Company which operates 66 cooperative retail pharmacies throughout Ankang, a city in southernShaanxi 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 aroundChina . OnJune 8, 2021 , Tenet-Jove entered into a Restructuring Agreement with various parties. Pursuant to the terms of the Restructuring Agreement, (i) the Company transferred all of its rights and interests in Ankang Longevity toYushe County Guangyuan Forest Development Co., Ltd. ("Guangyuan")'s Shareholders in exchange for the control of 100% of equity interests in Guangyuan, which composes of one group of similar identifiable assets; (ii) Tenet-Jove entered a Termination Agreement with Ankang Longevity and the Ankang Shareholders; (iii) as a consideration to the Restructuring Agreement and based on a valuation report on the equity interests of Guangyuan issued by an independent third party, Tenet-Jove relinquished all of its rights and interests in Ankang Longevity and transferred those rights and interests to the Guangyuan Shareholders; and (iv) Guangyuan and the Guangyuan Shareholders entered into a series of variable interest entity agreements with Tenet-Jove. After signing of the Restructuring Agreement, the Company and the shareholders of Ankang and Guangyuan actively carried out the transferring of rights and interests in Ankang and Guangyuan, and the transferring was completed subsequently onJuly 5, 2021 . Afterwards, with the completion of all other follow-ups works, onAugust 16, 2021 , the Company, through its subsidiary Tenet-Jove, completed the previously announced acquisition pursuant to the Restructuring Agreement datedJune 8, 2021 . The management determined thatJuly 5, 2021 was the disposal date of Ankang. The assets and liabilities of the entities of Ankang Longevity have been reclassified as "assets of discontinued operations" and "liabilities of discontinued operations" within current and non-current assets and liabilities, respectively, on the unaudited condensed consolidated balance sheets as ofMarch 31, 2022 andJune 30, 2021 . The results of operations of Ankang Longevity have been reclassified to "net loss from discontinued operations" in the unaudited condensed consolidated statements of loss and comprehensive loss for the nine and three months endedMarch 31, 2022 and 2021. 43
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"), andQingdao Zhihesheng Agricultural Produce Services, Ltd ("Qingdao Zhihesheng") (collectively, the "Zhisheng VIEs"). Meanwhile, we entered the market of planting fast-growing bamboo willows and scenic greening trees through we newly acquired VIE,Yushe County Guangyuan Forest Development Co., Ltd. ("Guangyuan"). The operations of this segment are located in the North regions of MainlandChina , mostly carried out inShanxi Province . Developing and distributing specialized fabrics, textiles, and other byproducts derived from an indigenous Chinese plant Apocynum Venetum, grown in theXinjiang region ofChina , 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% subsidiaryTianjin Tenet Huatai Technological Development Co., Ltd. ("Tenet Huatai"). Financing Activities
OnJune 16, 2021 , the Company entered into a securities purchase agreement pursuant to which the Company issued an unsecured convertible promissory note with a one-year maturity term to an institutional accredited investor,Streeterville Capital, LLC ("Investor"). The note had an original principal amount ofUS$3,170,000 and Investor gave consideration ofUS$3.0 million , reflecting original issue discount ofUS$150,000 and Investor's legal fee ofUS$20,000 . Interest accrues on the outstanding balance of the note at 6% per annum. The Company anticipates using the proceeds for general working capital purposes. The Company has received the principal in full from the Investor. As ofMarch 31, 2022 , no share of the Company's common stock under this agreement was issued by the Company to the Investor, and the Notes balance wasUS$3,267,745 , with a carrying value ofUS$3,319,034 , net of deferred financing costs ofUS$51,289 was recorded in the accompanying unaudited condensed consolidated balance sheets. OnJuly 16, 2021 , the Company entered into another securities purchase agreement with the Investor, pursuant to which the Company issued the Investor two unsecured convertible promissory notes each with a one-year maturity term. The first convertible promissory note had an original principal amount ofUS$3,170,000 and the Investor gave consideration ofUS$3.0 million , reflecting original issue discount ofUS$150,000 and Investor's legal fee ofUS$20,000 . The second convertible promissory note has the original principal amount ofUS$4,200,000 and Investor gave consideration ofUS$4.0 million , reflecting original issue discount ofUS$200,000 . Interest accrues on the outstanding balance of the Notes at 6% per annum. The Company has received the principal in full from the Investor. As ofMarch 31, 2022 , shares of the Company's common stock totaling 1,695,877 were issued by the Company to the Investor equaling principal and interests amounted toUS$7,250,000 , and the Notes balance wasUS$214,892 , with a carrying value ofUS$219,277 , net of deferred financing costs ofUS$4,385 was recorded in the accompanying unaudited condensed consolidated balance sheets. OnAugust 19, 2021 , the Company entered into another securities purchase agreement with the Investor, pursuant to which the Company issued the Investor an unsecured convertible promissory note with a one-year maturity term. The note has an original principal amount ofUS$10,520,000 and Investor gave consideration ofUS$10.0 million , reflecting original issue discount ofUS$500,000 and Investor's legal fee ofUS$20,000 . Interest accrues on the outstanding balance of the note at 6% per annum. The Company has received the principal in full from the Investor. The Company anticipates using the proceeds for general working capital purposes. As ofMarch 31, 2022 , no share of the Company's common stock under this agreement was issued by the Company to the Investor, and the Notes balance wasUS$10,610,116 , with a carrying value ofUS$10,900,449 , net of deferred financing costs ofUS$290,333 was recorded in the accompanying unaudited condensed consolidated balance sheets. 44
OnApril 11, 2022 , the Company entered into a securities purchase agreement (the "Purchase Agreement") withJing Wang (the "Investor"). Under the Purchase Agreement, the Company will sell to the Investor, up to 973,451 shares (the "Shares") of its common stock at a per share purchase price of$2.26 (subject to the terms and conditions of the Purchase Agreement) for gross proceeds of up to$2,200,000 which were fully received, and the Shares were issued to the Investor onApril 18, 2022 .
Factors Affecting Financial Performance
We believe that the following factors will affect our financial performance:
Increasing demand for our products - We believe that 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 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 operating inNorth America and/orWestern 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 COVID-19, our offices and retail stores remained closed or had limited business operations after theChinese New Year holiday until earlyApril 2020 . In addition, COVID-19 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 inChina 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. 45 As of the date of this report, due to the recent resurgence of COVID-19 cases inChina , our headquarter inBeijing was closed down onApril 25, 2022 and is expected to resume its business in earlyJune 2022 . Meanwhile, the business of our subsidiaries and VIEs was also negatively affected during this period, including but not limited to the execution of our sales contract and fulfillment of customer orders and the collection of the payments from customers in a timely manner. The resurgence of COVID-19 impact on our operating results and financial performance seems to be temporary, we will continue to monitor and modify the operating strategies in response to the COVID-19. The extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the date our unaudited condensed consolidated financial statements are released .
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity withU.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 unaudited condensed 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 unaudited condensed 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 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 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. 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 ofMarch 31, 2022 andJune 30, 2021 , the allowance for doubtful accounts from the continuing operations wasUS$7,038,542 andUS$5,959,887 , respectively. As ofMarch 31, 2022 andJune 30, 2021 , the allowance for doubtful accounts from the discontinued operations was US$ nil andUS$3,675,619 , respectively. Accounts are written off against the allowance after efforts at collection prove unsuccessful. 46 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 ofMarch 31, 2022 andJune 30, 2021 , the inventory reserve from the continuing operations wasUS$1,332,435 andUS$1,229,158 , respectively. As ofMarch 31, 2022 andJune 30, 2021 , the inventory reserve from the discontinued operations were both US$
nil. 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 beginningJuly 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. 47 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.
Results of Operations for the Nine Months Ended
Overview
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
March 31, Variance
2022 2021 Amount %
Revenue $ 1,980,426 $ 2,435,438 $ (455,012 ) (18.68 )%
Cost of revenue 3,764,404 6,158,418 (2,394,014 ) (38.87 )%
Gross loss (1,783,978 ) (3,722,980 ) 1,939,002 (52.08 )%
General and administrative
expenses 12,724,864 6,615,282 6,109,582 92.36 %
Selling expenses 34,376 34,106 270 0.79 %
Impairment loss of
distribution rights 1,140,551 - 1,140,551 100.00 %
Loss from operations (15,683,769 ) (10,372,368 ) (5,311,401 ) 51.21 %
Impairment loss on an
unconsolidated entity (149,790 ) - (149,790 ) 100.00 %
Loss from equity method
investments (156,235 ) - (156,235 ) 100.00 %
Other income (loss), net (5,731 ) 87,883 (93,614 ) (106.52 )%
Amortization of debt
issuance costs (1,142,215 ) - (1,142,215 ) 100.00 %
Interest income, net 232,644 20,057 212,587 1,059.91 %
Loss before income tax
provision from continuing
operations (16,905,096 ) (10,264,428 ) (6,640,668 ) 64.70 %
Benefit for income taxes (6,507 ) - (6,507 ) 100.00 %
Net loss from continuing
operations (16,898,589 ) (10,264,428 ) (6,634,161 ) 64.63 %
Net loss from discontinued
operations (3,135,237 ) (12,051,832 ) 8,916,595 (73.99 )%
Net loss $ (20,033,826 ) $ (22,316,260 ) $ 2,282,434 (10.23 )%
Comprehensive loss
attributable to Shineco Inc. $ (19,060,297 ) $ (16,751,239 ) $ (2,309,058 ) 13.78 %
Revenue
Currently, we, through our PRC subsidiaries and VIEs, have two revenue streams
derived from our two major business segments from continuing operations. First,
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; this segment is channeled through our wholly owned
subsidiary, Tenet-Jove. Second, planting, processing and distributing green and
organic agricultural produce, growing and cultivation of yew trees, as well as
planting fast-growing bamboo willows and scenic greening trees; this segment is
conducted through the Zhisheng VIEs and Guangyuan. For the business segment,
that processing and distributing traditional Chinese medicinal herbal products
as well as other pharmaceutical products; this segment is conducted via our VIE,
Ankang Longevity Group and its subsidiaries, which was disposed and we have
reclassified it as discontinued operations.
48
The following table sets forth the breakdown of our revenue for each of the two segments from the continuing operations, for the nine months endedMarch 31, 2022 and 2021, respectively: Nine Months Ended March 31, Variance 2022 % 2021 % Amount % Luobuma products$ 43,289 2.19 %$ 96,477 3.96 %$ (53,188 ) (55.13 )% Other agricultural products 1,937,137 97.81 % 2,338,961 96.04 % (401,824 ) (17.18 )% Total Amount$ 1,980,426 100.00 %$ 2,435,438 100.00 %$ (455,012 ) (18.68 )% For the nine months endedMarch 31, 2022 and 2021, revenue from sales of Luobuma products wasUS$ 43,289 andUS$ 96,477 , respectively, which represented a decrease ofUS$ 53,188 , or 55.13%. 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 and reduced our resources and investments in our E-commerce distribution channel, now we mainly focused on clearing off our remaining old stocks, hence, we offered more price discounts in order to get more customer orders. As a result, our overall sales decreased during the nine months endedMarch 31, 2022 as compared to the same period in 2021. For the nine months endedMarch 31, 2022 and 2021, revenue from sales of other agricultural products wasUS$ 1,937,137 andUS$ 2,338,961 , respectively, representing a decrease ofUS$ 401,824 , or 17.18%. The decrease was mainly due to the decline of sales volume of yew trees during the nine months endedMarch 31, 2022 as compared to the same period in 2021. As our sales of yew trees were adversely affected by the COVID-19 outbreak, we modified our operating strategies in response to the pandemic. 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 two segments from the continuing operations, for the nine months endedMarch 31, 2022 and 2021: Nine Months Ended March 31, Variance 2022 % 2021 % Amount % Luobuma products$ 153,507 4.08 %$ 287,613 4.67 %$ (134,106 ) (46.63 )%
Other agricultural products 3,606,068 95.79 % 5,866,278 95.26 % (2,260,210 ) (38.53 )% Business and sales related tax 4,829 0.13 % 4,527
0.07 % 302 6.67 %
Total Amount $ 3,764,404 100.00 % $ 6,158,418 100.00 % $ (2,394,014 ) (38.87 )%
For the nine months ended March 31, 2022 and 2021, cost of revenue from sales of
our Luobuma products was US$ 153,507 and US$ 287,613 , respectively, representing
a decrease of US$ 134,106 , or 46.63%. The decrease was mainly due to the
decreased allowance we accrued for our slow-moving inventories amounted to US$
89,944 on our remaining old stocks during the nine months ended March 31, 2022 .
For the nine months ended March 31, 2022 and 2021, cost of revenue from sales of
other agricultural products was US$ 3,606,068 and US$ 5,866,278 , respectively,
representing a decrease of US$ 2,260,210 , or 38.53%. The decrease was mainly due
to less stock written off during the nine months ended March 31, 2022 . Due to
the continuous impact of Covid-19 in China and severe cold weather during the
winter period, which resulted in the damage and death of a large number of yew
trees, we wrote off a large amount of our inventory during the nine monthsendedMarch 31, 2021 . 49 Gross Loss
The following table sets forth the breakdown of the gross loss for each of our two segments from the continuing operations, for the nine months endedMarch 31, 2022 and 2021: Nine Months Ended March 31, Variance 2022 % 2021 % Amount % Luobuma products$ (110,219 ) 6.18 %$ (191,152 ) 5.13 %$ 80,933 (42.34 )% Other agricultural products (1,673,759 ) 93.82 % (3,531,828 ) 94.87 % 1,858,069 (52.61 )% Total Amount$ (1,783,978 ) 100.00 %$ (3,722,980 ) 100.00 %$ 1,939,002 (52.08 )% Gross loss from Luobuma product sales decreased byUS$ 80,933 or 42.34%, for the nine months endedMarch 31, 2022 as compared to the same period in 2021. The decrease was due to the decreased allowance we accrued for our slow-moving inventories during the nine months endedMarch 31, 2022 as mentioned above. During the nine months ended March 31, 2022, our gross loss wasUS$ 110,219 , mainly due to the allowance we accrued for our slow-moving inventories amounting toUS$ 126,685 . The gross loss was also due to the reduced selling prices of our Luobuma products and we sold some of our products below their original costs, as we gave more promotion and price discounts in order to attract more customers and clear our remaining old stocks during the nine months endedMarch 31, 2022 . Gross loss from sales of other agricultural products decreased byUS$ 1,858,069 , or 52.61%, for the nine months endedMarch 31, 2022 as compared to the same period in 2021. During the nine months endedMarch 31, 2022 , our gross loss wasUS$ 1,673,759 , the decrease in gross loss was mainly due to less stock written off during the nine months endedMarch 31, 2022 as mentioned above. Expenses
The following table sets forth the breakdown of our operating expenses for the
nine months ended
Nine Months Ended
March 31, Variance
2022 % 2021 % Amount %
General and administrative
expenses $ 12,724,864 91.54 % $
6,615,282 99.49 %
34,376 0.25 % 34,106 0.51 % 270 0.79 %
Impairment loss of distribution
rights 1,140,551 8.21 % - - 1,140,551 100.00 %
Total Amount $ 13,899,791 100.00 % $ 6,649,388 100.00 % $ 7,250,403 109.04 %
General and Administrative Expenses
For the nine months endedMarch 31, 2022 , our general and administrative expenses wereUS$ 12,724,864 , representing an increase ofUS$ 6,109,582 , or 92.36%, as compared to the same period in 2021. The increase was mainly due to an increase in bad debt expenses ofUS$ 1,918,968 during the nine months endedMarch 31, 2022 . Due to the COVID-19 outbreak inChina , many of our customers' businesses were adversely affected during this period, which resulted in slow collection of our receivables and utilization of our advances to vendors, and we recorded allowance according to our accounting policy based on our best estimates. Management will continue putting effort in collection of overdue receivables and utilize our advances to our vendors. Meanwhile, the increase was also due to the increased general and administrative expenses from our newly acquired VIE, Guangyuan during the nine months endedMarch 31, 2022 . The increase was also due to increased professional service fees in relation to the Company's issuance of common stock and convertible notes, increased compensation expenses in relation to the Company's lawsuit, increased rental expenses as the Company leased a new office in downtown area, the impairment of the Company's right of use assets as well as the increased salary related expenses during the nine months endedMarch 31, 2022 . 50
Impairment Loss of Distribution Rights
For the nine months endedMarch 31, 2022 , our impairment loss of distribution right wasUS$ 1,140,551 . We acquired distribution rights to distribute branded products of Daiso100-yen shops through the acquisition of Tianjin Tajite. During the nine months endedMarch 31, 2022 , the management performed evaluation on the impairment of distribution rights. Due to the lower than expected revenue and profit, and unfavorable business environment, the management fully recorded an impairment loss on distribution rights of Tianjin Tajite.
Impairment Loss on An Unconsolidated Entity
For the nine months endedMarch 31, 2022 , our impairment loss on an unconsolidated entity wasUS$ 149,790 . The management performed evaluation on the impairment of the investment make onShanxi Pharmaceutical Group Yushe Pharmaceutical Development Co., Ltd. , ("Yushe Pharmaceutical") and considered it's unlikely to obtain any investment income in the future, hence, the management fully recorded impairment loss on this investment.
Loss from Equity Method Investments
Our newly acquired VIE, Guangyuan has a 20% equity interest in Yushe
Pharmaceutical, and we recorded a loss of
OnAugust 31, 2021 , we entered into a capital injection agreement with the other shareholders ofShanghai Gaojing Private Fund Management ("Gaojing Private Fund "), a Chinese private fund management company, to complete the injection of a totalRMB 4.8 million (approximatelyUS$ 0.74 million ) for its 32% equity interest inGaojing Private Fund . We recorded a loss ofUS$ 140,082 for the nine months endedMarch 31, 2022 from this investment.
Amortization of Debt Issuance Costs
For the nine months endedMarch 31, 2022 , our amortization of debt issuance costs expenses wasUS$ 1,142,215 , representing an increase of 100.00%, as compared to the same period in 2021. The increase in was attributable to the amortization of debt issuance costs during the nine months endedMarch 31, 2022 on the convertible notes issued by us. Interest Income, Net For the nine months endedMarch 31, 2022 , our net interest income wasUS$ 232,644 , representing an increase ofUS$ 212,587 , or 1,059.91%, as compared to net interest income ofUS$ 20,057 in the same period in 2021. The increase was attributable to the increased interest income generated from loans to third parties and related parties, the increase was partial offset by the interest expense incurred for the convertible notes issued by us.
Net Loss from Continuing Operations
Our net loss from continuing operations wasUS$ 16,898,589 for the nine months endedMarch 31, 2022 , an increase ofUS$ 6,634,161 , or 64.63%, from net loss from continuing operations ofUS$ 10,264,428 for the nine months endedMarch 31, 2021 . The increase in net loss was primarily a result of the increase in general and administrative expenses, impairment loss of distribution rights and amortization of debt issuance costs.
Net Loss from Discontinued Operations
As mentioned above, after signing of the Restructuring Agreement onJune 8, 2021 , we and the shareholders of Ankang and Guangyuan actively carried out the transferring of rights and interests in Ankang and Guangyuan, and the transferring was completed subsequently onJuly 5, 2021 , and the management determined thatJuly 5, 2021 was the disposal date of Ankang. We had a total net loss from discontinued operations ofUS$ 3,135,237 for the nine months endedMarch 31, 2022 as compared to a total net loss from discontinued operations ofUS$ 12,051,832 for the same period in 2021. 51
The summarized operating results of our discontinued operations included in our
unaudited condensed consolidated statement of loss and comprehensive loss is as
follows:
Nine Months Ended
March 31,
2022 2021
Revenues $ - $ 6,761,663
Cost of revenues - 5,792,488
Gross profit - 969,175
Operating expenses - 7,062,542
Other expenses, net - (5,958,465 )
Loss before income tax - (12,051,832 )Provision for income tax expense - - Net loss from discontinued operations - (12,051,832 ) Loss from disposal (3,135,237 ) -
Total net loss from discontinued operations
Net Loss
Our net loss wasUS$ 20,033,826 for the nine months endedMarch 31, 2022 , a decrease ofUS$ 2,282,434 or 10.23%, from a net loss ofUS$ 22,316,260 for the same period in 2021. The decrease in net loss was primarily a result of the decreased net loss from discontinued operations, which partially offset by the increase net loss from continuing operations as mentioned above. Comprehensive Loss The comprehensive loss wasUS$ 19,071,477 for the nine months endedMarch 31, 2022 , an increase ofUS$ 1,667,080 from a comprehensive loss ofUS$ 17,404,397 for the same period in 2021. After deduction of non-controlling interest, the comprehensive loss attributable to us wasUS$ 19,060,297 for the nine months endedMarch 31, 2022 , compared to a comprehensive loss attributable to us in the amount ofUS$ 16,751,239 for the nine months endedMarch 31, 2021 . The increase of comprehensive loss was due to the decrease in the recorded income of foreign currency translation where the financial statements denominated in RMB were translated to the USD denomination, which partially offset by the decrease in net loss as mentioned above. 52
Results of Operations for the Three Months Ended
Overview
The following table summarizes our results of operations for the three months
ended
Three Months Ended
March 31, Variance
2022 2021 Amount %
Revenue $ 618,094 $ 637,799 $ (19,705 ) (3.09 )%
Cost of revenue 1,110,836 1,655,470 (544,634 ) (32.90 )%
Gross loss (492,742 ) (1,017,671 ) 524,929 (51.58 )%
General and administrative
expenses 2,218,398 1,978,762 239,636 12.11 %
Selling expenses 16,044 11,170 4,874 43.63 %
Loss from operations (2,727,184 ) (3,007,603 ) 280,419 (9.32 )%
Loss from equity method
investment (49,247 ) - (49,247 ) 100.00 %
Other income (expenses), net (7,174 ) 1,967 (9,141 ) (464.72 )%
Amortization of debt
issuance costs (287,897 ) - (287,897 ) 100.00 %
Interest income, net 165,505 8,370 157,135 1,877.36 %
Loss before income tax
provision from continuing
operations (2,905,997 ) (2,997,266 ) 91,269 (3.05 )%
Benefit for income taxes (29 ) (4,530 ) 4,501 (99.36 )%
Net loss from continuing
operations (2,905,968 ) (2,992,736 ) 86,768 (2.90 )%
Net loss from discontinued
operations - (4,787,017 ) 4,787,017 (100.00 )%
Net loss $ (2,905,968 ) $ (7,779,753 ) $ 4,873,785 (62.65 )%
Comprehensive loss
attributable to Shineco Inc. $ (2,743,234 ) $ (7,670,578 ) $ 4,927,344 (64.24 )%
Revenue
Currently, we, through our PRC subsidiaries and VIEs, have two revenue streams
derived from our two major business segments from continuing operations. First,
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; this segment is channeled through our wholly owned
subsidiary, Tenet-Jove. Second, planting, processing and distributing green and
organic agricultural produce, growing and cultivation of yew trees, as well as
planting fast-growing bamboo willows and scenic greening trees; this segment is
conducted through the Zhisheng VIEs and Guangyuan. For the business segment,
that processing and distributing traditional Chinese medicinal herbal products
as well as other pharmaceutical products; this segment is conducted via our VIE,
Ankang Longevity Group and its subsidiaries, which was disposed and we have
reclassified it as discontinued operations.
The following table sets forth the breakdown of our revenue for each of the two
segments from the continuing operations, for the three months ended March 31,
2022 and 2021, respectively:
Three Months Ended
March 31, Variance
2022 % 2021 % Amount %
Luobuma products $ 8,521 1.38 % $ 23,468 3.68 % $ (14,947 ) (63.69 )%
Other agricultural products 609,573 98.62 % 614,331 96.32 % (4,758 ) (0.77 )% Total Amount$ 618,094 100.00 %$ 637,799 100.00 %$ (19,705 ) (3.09 )% 53 For the three months endedMarch 31, 2022 and 2021, revenue from sales of Luobuma products wasUS$ 8,521 andUS$ 23,468 , respectively, which represented a decrease ofUS$ 14,947 , or 63.69%. 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 and mainly focused on clearing off our remaining old stocks, hence, we offered more price discounts in order to get more customer orders. As a result, our overall sales decreased during the three months endedMarch 31, 2022 as compared to the same period in 2021.
For the three months ended
Cost of Revenue and Related Tax
The following table sets forth the breakdown of the cost of revenue for each of
our two segments from the continuing operations, for the three months ended
Three Months Ended
March 31, Variance
2022 % 2021 % Amount %
Luobuma products $ 3,202 0.29 % $ 157,001 9.49 % $ (153,799 ) (97.96 )%
Other agricultural products 1,106,062 99.57 % 1,496,955 90.42 % (390,893 ) (26.11 )%Business and sales related tax 1,572 0.14 % 1,514
0.09 % 58 3.83 %
Total Amount $ 1,110,836 100.00 % $ 1,655,470 100.00 % $ (544,634 ) (32.90 )%
For the three months ended March 31, 2022 and 2021, cost of revenue from sales
of our Luobuma products was US$ 3,202 and US$ 157,001 , respectively,
representing a decrease of US$ 153,799 , or 97.96%. The decrease was mainly due
to the decreased allowance we accrued for our slow-moving inventories amounted
to US$ 128,543 on our remaining old stocks during the three months ended March
31, 2022.
For the three months ended March 31, 2022 and 2021, cost of revenue from sales
of other agricultural products was US$ 1,106,062 and US$ 1,496,955 ,
respectively, representing a decrease of US$ 390,893 , or 26.11%. The decrease
was mainly due to less stock written off during the three months ended March 31,
2022 . Due to the continuous impact of Covid-19 in China and severe cold weather
during the winter period, which resulted in the damage and death of a large
number of yew trees, we wrote off a large amount of our inventory during the
three months ended March 31, 2021 .
Gross Profit (Loss)
The following table sets forth the breakdown of the gross profit (loss) for each of our two segments from the continuing operations, for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, Variance 2022 % 2021 % Amount % Luobuma products$ 5,318 (1.08 )%$ (133,533 ) 13.12 %$ 138,851 (103.98 )% Other agricultural products (498,060 ) 101.08 % (884,138 ) 86.88 % 386,078 (43.67 )% Total Amount$ (492,742 ) 100.00 %$ (1,017,671 ) 100.00 %$ 524,929 (51.58 )% 54 Gross profit from Luobuma product sales increased byUS$ 138,851 , or 103.98%, for the three months endedMarch 31, 2022 as compared to the same period in 2021. During the three months endedMarch 31, 2022 , our gross profit wasUS$ 5,318 , mainly due to the decreased allowance we accrued for our slow-moving inventories during the three months endedMarch 31, 2022 as mentioned above. The increase in gross profit was partially offset by the reduced selling prices of our Luobuma products and we sold some of our products below their original costs, as we gave more promotion and price discounts in order to attract more customers and clear our remaining old stocks during the three months ended
March 31, 2022 . Gross loss from sales of other agricultural products decreased byUS$ 386,078 , or 43.67%, for the three months endedMarch 31, 2022 as compared to the same period in 2021. The decrease was mainly due to the decrease inventory written off during the three months endedMarch 31, 2022 as mentioned above. Expenses
The following table sets forth the breakdown of our operating expenses for the
three months ended
Three Months Ended
March 31, Variance
2022 % 2021 % Amount %
General and administrative expenses $ 2,218,398 99.28 % $ 1,978,762 99.44 % $ 239,636 12.11 %
Selling expenses 16,044 0.72 % 11,170 0.56 % 4,874 43.63 %
Total Amount $ 2,234,442 100.00 % $ 1,989,932 100.00 % $ 244,510 12.29 %
General and Administrative Expenses
For the three months endedMarch 31, 2022 , our general and administrative expenses wereUS$ 2,218,398 , representing an increase ofUS$ 239,636 , or 12.11%, as compared to the same period in 2021. The increase was mainly due to the increased professional service fees in relation to the Company's issuance of common stock, increased rental expenses as we leased a new office in downtown area, as well as the increased salary related expenses, which was partially offset by a decrease in bad debt expenses during the three months endedMarch 31, 2022 .
Loss from Equity Method Investments
OnAugust 31, 2021 , we entered into a capital injection agreement with the other shareholders ofGaojing Private Fund , a Chinese private fund management company, to complete the injection of a totalRMB 4.8 million (approximatelyUS$ 0.74 million ) for its 32% equity interest inGaojing Private Fund . We recorded a loss ofUS$ 49,247 for the three months endedMarch 31, 2022 from this investment.
Amortization of Debt Issuance Costs
For the three months endedMarch 31, 2022 , our amortization of debt issuance costs expenses wasUS$ 287,897 , representing an increase of 100.00%, as compared to the same period in 2021. The increase in was attributable to the amortization of debt issuance costs during the three months endedMarch 31, 2022 on the convertible notes issued by us. Interest Income, Net
For the three months endedMarch 31, 2022 , our net interest income wasUS$ 165,505 , representing an increase ofUS$ 157,135 , or 1,877.36%, as compared to net interest income ofUS$ 8,370 in the same period in 2021. The increase was attributable to the increased interest income generated from loans to third parties and related parties, the increase was partial offset by the interest expense incurred for the convertible notes issued by us. 55
Net Loss from Continuing Operations
Our net loss from continuing operations wasUS$ 2,905,968 for three months endedMarch 31, 2022 , a slight decrease ofUS$ 86,768 , or 2.90%, from net loss from continuing operations ofUS$ 2,992,736 for three months endedMarch 31, 2021 . The decrease in net loss was primarily a result of the decrease in gross loss, partially offset by the increased general and administrative expenses, and amortization of debt issuance costs.
Net Loss from Discontinued Operations
As mentioned above, after signing of the Restructuring Agreement onJune 8, 2021 , we and the shareholders of Ankang and Guangyuan actively carried out the transferring of rights and interests in Ankang and Guangyuan, and the transferring was completed subsequently onJuly 5, 2021 , and the management determined thatJuly 5, 2021 was the disposal date of Ankang. We had a total net loss from discontinued operations of US$ nil for the three months endedMarch 31, 2022 as compared to a total net loss from discontinued operations ofUS$ 4,787,017 for the same period in 2021. The summarized operating results of our discontinued operations included in our unaudited condensed consolidated statement of loss and comprehensive loss is as follows: Three Months Ended March 31, 2022 2021 Revenues $ -$ 1,352,938 Cost of revenues - 1,342,583 Gross profit - 10,355 Operating expenses - 3,059,532 Other expenses, net - (1,816,416 ) Loss before income tax - (4,865,593 ) Benefit for income tax expense - (78,576 ) Net loss from discontinued operations - (4,787,017 ) Loss from disposal - -
Total net loss from discontinued operations $ -
Net Loss
Our net loss was
Comprehensive Loss The comprehensive loss wasUS$ 2,757,925 for the three months endedMarch 31, 2022 , a decrease ofUS$ 5,186,459 from a comprehensive loss ofUS$ 7,944,384 for the same period in 2021. After deduction of non-controlling interest, the comprehensive loss attributable to us wasUS$ 2,743,234 for the three months endedMarch 31, 2022 , compared to a comprehensive loss attributable to us in the amount ofUS$ 7,670,578 for the same period in 2021. The decrease of comprehensive loss was due to the decrease in net loss as mentioned above, as well as an increase in the recorded income of foreign currency translation where the financial statements denominated in RMB were translated to the USD denomination. 56 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 ofMarch 31, 2022 andJune 30, 2021 , except the above-mentioned convertible note, we did not engage in any foreign currency borrowings or loan contracts.
Liquidity and Capital Resources
We currently finance our business operations primarily through proceeds from
short-term loans, convertible notes 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
OnDecember 10, 2020 , we entered into a securities purchase agreement with select investors whereby we sold purchase, up to 604,900 shares of common stock at a purchase price ofUS$ 2.73 per share. The net proceeds that we received wasUS$ 1.6 million . OnJanuary 27, 2021 , we issued 364,445 shares of common stock to two investors at a price ofUS$ 3.0 per share. The net proceeds that we received was US$
1.1 million.
On
57
OnJune 16, 2021 , we entered into a securities purchase agreement pursuant to which we issued an unsecured convertible promissory note with a one-year maturity term to an institutional accredited investorStreeterville Capital, LLC ("Investor"). The convertible promissory note has the original principal amount ofUS$ 3,170,000 and Investor gave consideration ofUS$ 3.0 million , reflecting original issue discount ofUS$ 150,000 and Investor's legal fee ofUS$ 20,000 . We received principal in full from the Investor. OnJuly 16, 2021 , we entered into a securities purchase agreement pursuant to which we issued two unsecured convertible promissory notes with a one-year maturity term to the same investor. The first convertible promissory note has an original principal amount ofUS$3,170,000 and the Investor gave consideration ofUS$3.0 million , reflecting original issue discount ofUS$150,000 and Investor's legal fee ofUS$20,000 . The second convertible promissory note has an original principal amount ofUS$4,200,000 and the Investor gave consideration ofUS$4.0 million , reflecting original issue discount ofUS$200,000 . OnAugust 19, 2021 , we entered into a securities purchase agreement pursuant to which we issued an unsecured convertible promissory note with a one-year maturity term to the same investor. The Note has the original principal amount ofUS$10,520,000 and Investor gave consideration ofUS$10.0 million , reflecting original issue discount ofUS$500,000 and Investor's legal fee ofUS$20,000 . We received principal in full from the Investor and we anticipate using the proceeds for general working capital purposes. As ofMarch 31, 2022 , shares of the Company's common stock totaling 1,695,877 were issued by the Company to the Investor equaling principal and interests amounted toUS$7,250,000 , and the Notes balance wasUS$14,092,753 , with a carrying value ofUS$14,438,760 , net of deferred financing costs ofUS$346,007 was recorded in the accompanying unaudited condensed consolidated balance sheets. OnDecember 6, 2021 , we entered into a securities purchase agreement withGHS Investments, LLC ("GHS"). Under the Purchase Agreement, we sold GHS 291,775 shares of its common stock at a per share purchase price of$6.8546 for gross proceeds of$2,000,000 . After the deduction of issuance cost, we received net proceeds ofUS$1,970,000 . Management believes that our current cash, cash flows from future operations, and access to loans will be sufficient to meet our working capital needs for at least the next 12 months. We intend to continue to carefully execute our growth plans and manage market risk. Working Capital
The following table provides the information about our working capital at
March 31 ,June 30, 2022 2021
Current Assets
The working capital increased slightly byUS$ 766,138 , or 2.2%, as ofMarch 31, 2022 fromJune 30, 2021 , primarily as a result of an increase in inventories, other current assets and due from related parties, partially offset by the decrease in current assets held for discontinued operations and advances to suppliers, and an increase in other payables and accrued expenses, and convertible note payable as ofMarch 31, 2022 .
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. 58 OnMay 16, 2017 , Mrs.Guiqin Li (the "Plaintiff") commenced a lawsuit against us in the People'sCourt of Chongqing Pilot Free Trade Zone ofChina . Plaintiff alleged that due to the misguidance given by our security trading department, the Plaintiff did not manage to complete the sales of our common stock on the day of our initial public offering inthe United States . As the price of our common stock continued falling after initial public offering, the Plaintiff incurred losses and hence seek money damages against us. Based on the judgment of the first trail, we required to pay the Plaintiff a settlement payment, including the money compensation, interests and other legal fees. As ofMarch 31, 2022 , we accrued a total sum ofUS$ 784,120 (approximatelyRMB 5.0 million ) for this lawsuit. We made the appeal to the People's Court, and will vigorously defend itself and seek for less settlement payment in the second trail of this litigation. OnNovember 26, 2021 , we filed a complaint in theSupreme Court of the State of New York ,New York County againstLei Zhang andYan Li , as defendants, andTranshare Corporation , as a nominal defendant, asserting that defendants had not paid for restricted shares of our stock pursuant to stock purchase agreements they executed with us. In December, defendants filed an answer and counterclaim against us, which they amended onJanuary 27, 2022 after we moved to dismiss their counterclaims. They claimed that we made false and materially misleading statements, specifically regarding the sale of the shares and the removal of their restrictive legends. Defendants seek a declaratory judgment, indemnification, and money damages of at leastUS$ 9 million , punitive damages ofUS$ 10 million , plus interest, costs, and fees. We anticipate moving to dismiss the counterclaims in June, 2022. The outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. We intend to recover on its claims, and vigorously defend itself in this litigation. As ofMarch 31, 2022 , the total unpaid restricted shares issued toLei Zhang andYan Li by us was 982,500 shares, and the subscription receivable was amounted toUS$ 3,024,000 which was recorded on the unaudited condensed consolidated balance sheet.
As of
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
Nine Months Ended
March 31,
2022 2021
Net cash used in operating activities$ (6,755,462 ) $ (11,854,241 ) Net cash provided by (used in) investing activities (32,520,356 ) 1,252,056 Net cash provided by financing activities 25,229,718
1,764,958
Effect of exchange rate changes on cash 499,127
2,314,452
Net decrease in cash (13,546,973 ) (6,522,775 )
Cash, beginning of the period 29,024,394 32,371,372
Cash, end of the period $ 15,477,421 $ 25,848,597 Less: cash of discontinued operations - ended of the period -
11,997,106
Cash of continuing operations - ended of the period 15,477,421
13,851,491
59
Operating Activities
Net cash used in operating activities during the nine months ended March 31,
2022 was approximately US$ 6.8 million , consisting of net loss from continuing
operations of US$ 16.9 million , bad debt expenses of US$ 6.4 million , stock
written off due to natural disaster of US$ 1.3 million , impairment loss on
distribution rights of US$ 1.1 million , and net changes in our operating assets
and liabilities, which mainly included an increase in other current assets of
US$ 4.4 million , partially offset by the decrease in advances to suppliers and
increase in other payable. Net cash used in operating activities during the nine
months ended March 31, 2021 was approximately US$ 11.9 million , consisting of
net loss from continuing operations of US$ 10.3 million , bad debt expenses of
US$ 4.5 million , stock written off due to natural disaster of US$ 3.4 million ,
and net changes in our operating assets and liabilities, which mainly included
an increase in inventories of US$ 4.6 million , advances to suppliers of US$ 3.8
million , other current assets of US$ 2.4 million , and accounts receivable of US$
2.2 million , partially offset by the increase in other payable.
Investing Activities
For the nine months ended March 31, 2022 , net cash used in investing activities
was US$ 32.5 million , primarily due to the disposal of Ankang of US$ 12.7
million , payment made for loans to third parties of US$ 12.2 million and payment
made for loans to related parties of US$ 6.7 million . For the nine months ended
March 31, 2021 , net cash provided by investing activities was US$ 1.3 million
due to the net cash provided by investing activities from discontinued
operations.
Financing Activities
For the nine months ended March 31, 2022 , net cash provided by financing
activities amounted to approximately US$ 25.2 million , primarily due to proceeds
from issuance of convertible note of US$ 17.0 million and proceeds from issuance
of common stock of US$ 7.5 million . For the nine months ended March 31, 2021 ,
net cash provided by financing activities amounted to approximately US$ 1.8
million due to proceeds from issuance of common stock of US$ 2.7 million ,
partially offset by the net cash used in financing activities from discontinued
operations of US$ 0.7 million .
60
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