Form 10-Q SHINECO, INC. For: Sep 30


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UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
DC 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 September 30, 2020

 

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
  (I.R.S.
Employer
incorporation
or organization)
  Identification
No.)

 

Room
1001, Building T5, DaZu Square,

Daxing
District, Beijing

People’s
Republic of China 100176

(Address
of Principal Executive Offices)

 

(+86)
10-87227366

(Registrant’s
telephone number, including area code)

 

N/A

(Former
name, former address and former fiscal year, if changed since last report)

 

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 and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 [  ]
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 17(a)(2)(B) of the Securities Act.
[  ]

 

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

As
of November 13, 2020, the registrant had 3,039,943 shares of common stock outstanding.

 

 

 

TABLE
OF CONTENTS

 

 

 

PART
I. FINANCIAL INFORMATION

 

ITEM
1. FINANCIAL STATEMENTS

 

SHINECO,
INC.

CONDENSED
CONSOLIDATED BALANCE SHEETS

 

    September 30,     June 30,  
    2020     2020  
    (Unaudited)        
ASSETS                
CURRENT ASSETS:                
Cash   $ 23,130,106     $ 32,371,372  
Accounts receivable, net     12,257,280       11,008,485  
Due from related parties     125,713       120,939  
Inventories, net     3,843,944       1,799,876  
Advances to suppliers, net     20,083,865       13,313,946  
Other current assets     3,723,229       905,380  
TOTAL CURRENT ASSETS     63,164,137       59,519,998  
                 
Property and equipment, net     9,709,334       9,489,484  
Land use right, net of accumulated amortization     1,234,806       1,195,943  
Investments     4,708,898       4,515,124  
Distribution rights     1,085,092       1,043,887  
Long-term deposit and other noncurrent assets     98,964       96,280  
Right of use assets     3,204,393       3,227,895  
TOTAL ASSETS   $ 83,205,624     $ 79,088,611  
                 
LIABILITIES AND EQUITY                
                 
CURRENT LIABILITIES:                
Short-term loans   $ 2,426,019     $ 2,333,894  
Accounts payable     159,665       148,209  
Advances from customers     6,930       6,324  
Due to related parties     1,383,813       1,355,919  
Other payables and accrued expenses     6,308,263       4,018,684  
Operating lease liabilities – current     92,909       97,633  
Taxes payable     3,438,773       3,386,662  
TOTAL CURRENT LIABILITIES     13,816,372       11,347,325  
                 
Income tax payable – noncurrent portion     566,022       566,022  
Operating lease liabilities – non-current     424,605       401,891  
Deferred tax liability     271,273       260,972  
TOTAL LIABILITIES     15,078,272       12,576,210  
                 
Commitments and contingencies            
                 
EQUITY:                
Common stock; par value $0.001, 100,000,000 shares authorized;                
3,039,943 and 3,039,943 shares issued and outstanding at September 30, 2020 and June 30, 2020*     3,040       3,040  
Additional paid-in capital     27,302,051       27,302,051  
Statutory reserve     4,199,964       4,198,107  
Retained earnings     39,047,151       40,106,518  
Accumulated other comprehensive loss     (3,662,816 )     (6,283,835 )
Total Stockholders’ equity of Shineco, Inc.     66,889,390       65,325,881  
Non-controlling interest     1,237,962       1,186,520  
TOTAL EQUITY     68,127,352       66,512,401  
                 
TOTAL LIABILITIES AND EQUITY   $ 83,205,624     $ 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

 

 

SHINECO,
INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME (LOSS)

(UNAUDITED)

 

    For the Three Months Ended September 30,  
    2020     2019  
             
REVENUE   $ 4,143,383     $ 7,046,781  
                 
COST OF REVENUE                
Cost of product and services     3,222,611       5,394,423  
Business and sales related tax     12,191       12,463  
Total cost of revenue     3,234,802       5,406,886  
                 
GROSS PROFIT     908,581       1,639,895  
                 
OPERATING EXPENSES                
General and administrative expenses     1,820,732       3,354,643  
Selling expenses     33,635       121,886  
Total operating expenses     1,854,367       3,476,529  
                 
LOSS FROM OPERATIONS     (945,786 )     (1,836,634 )
                 
OTHER INCOME (EXPENSE)                
Income from equity method investments     15,287       69,899  
Other income (expense)     2,788       (9,754 )
Interest expense, net     (19,972 )     (3,126 )
Total other income (expense)     (1,897 )     57,019  
                 
LOSS BEFORE PROVISION FOR INCOME TAXES     (947,683 )     (1,779,615 )
                 
PROVISION (BENEFIT) FOR INCOME TAXES     105,297       (4,783 )
                 
NET LOSS     (1,052,980 )     (1,774,832 )
                 
Net income attributable to non-controlling interest     4,530       17,805  
                 
NET LOSS ATTRIBUTABLE TO SHINECO, INC.   $ (1,057,510 )   $ (1,792,637 )
                 
COMPREHENSIVE LOSS                
Net loss   $ (1,052,980 )   $ (1,774,832 )
Other comprehensive income (loss): foreign currency translation income (loss)     2,667,931       (2,858,537 )
Total comprehensive income (loss)     1,614,951       (4,633,369 )
Less: comprehensive income (loss) attributable to non-controlling interest     51,442       (24,360 )
                 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHINECO, INC.   $ 1,563,509     $ (4,609,009 )
                 
Weighted average number of shares basic and diluted*     3,037,048       2,687,433  
                 
Basic and diluted loss per common share   $ (0.35 )   $ (0.67 )

 

* 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

 

 

SHINECO,
INC.

CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

 

    COMMON
STOCK
    ADDITIONAL PAID-IN     STATUTORY     RETAINED     ACCUMULATED OTHER COMPREHENSIVE     NON- 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 year                             (1,792,637 )           17,805       (1,774,832 )
Foreign currency translation loss                                   (2,816,372 )     (42,165 )     (2,858,537 )
Balance at September 30, 2019     3,037,048 (*)   $ 3,037     $ 27,302,054     $ 4,198,107     $ 44,942,553     $ (7,000,396 )   $ 1,076,253     $ 70,521,608  
                                                                 
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  
                                                                 
Net income (loss) for the year                       1,857       (1,059,367 )           4,530       (1,052,980 )
Foreign currency translation gain                                   2,621,019       46,912       2,667,931  
Balance at September 30, 2020     3,039,943 (*)   $ 3,040     $ 27,302,051     $ 4,199,964     $ 39,047,151     $ (3,662,816 )   $ 1,237,962     $ 68,127,352  

 

* 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

 

 

SHINECO,
INC.

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Three Months Ended September 30,  
    2020     2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (1,052,980 )   $ (1,774,832 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and amortization     204,786       187,429  
Loss from disposal of property and equipment           61,098  
Provision for doubtful accounts     1,049,672       1,334,666  
Provision for inventory reserve     13,831       177,197  
Deferred tax benefit           (145,624 )
Loss from equity method investments     (15,287 )     (69,899 )
Amortization of right of use assets     111,215        
Restricted shares issued for management           1,022,661  
                 
Changes in operating assets and liabilities:                
Accounts receivable     (1,413,046 )     (539,538 )
Advances to suppliers     (6,557,896 )     2,974,205  
Inventories     (1,953,484 )     (32,176 )
Other receivables     (1,741,772 )     (891,900 )
Prepaid expense and other assets     (557 )     245,005  
Due from related parties           59,550  
Right of use assets           (2,858,396 )
Prepaid leases           2,796,461  
Accounts payable     5,511       37,914  
Advances from customers     350       (367,577 )
Other payables     2,332,197       (50,311 )
Operating lease liabilities     (7,931 )      
Taxes payable     (74,637 )     (20,058 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     (9,100,028 )     2,145,875  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Acquisitions of property and equipment           (1,497 )
Proceeds from disposal of property and equipment           79,387  
Payment for construction in progress           (2,118 )
Advances of loans to third parties     (1,228,630 )     (56,992 )
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     (1,228,630 )     18,780  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from short-term loans     289,089       285,051  
Repayment of short-term loans     (289,089 )     (285,051 )
Repayment of other short-term loans           (7,126 )
Proceeds from issuance of common stock           1,500,203  
Proceeds from (repayments of) advances from related parties     (11,429 )     62,554  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     (11,429 )     1,555,631  
                 
EFFECT OF EXCHANGE RATE CHANGE ON CASH     1,098,821       (1,438,380 )
                 
NET INCREASE (DECREASE) IN CASH     (9,241,266 )     2,281,906  
                 
CASH – Beginning of the Period     32,371,372       35,330,676  
                 
CASH – End of the Period   $ 23,130,106     $ 37,612,582  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURES:                
Cash paid for income taxes   $ 469,853     $  
Cash paid for interest   $ 29,622     $ 30,277  
                 
SUPPLEMENTAL NON-CASH OPERATING ACTIVITY:                
Right-of-use assets obtained in exchange for operating lease obligations   $     $ 413,810  

 

The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Shineco,
Inc. (“Shineco” or the “Company”) was incorporated in the State of Delaware on August 20, 1997. The Company
is a holding company whose primary purpose is to develop business opportunities in the People’s Republic of China (“PRC”
or “China”).

 

On
December 30, 2004, the Company acquired all of the issued and outstanding shares of Beijing Tenet-Jove Technological Development
Co., Ltd. (“Tenet-Jove”), a PRC company, in exchange for restricted shares of the Company’s common stock, and
the sole operating business of the Company became that of its subsidiary, Tenet-Jove. Tenet-Jove was incorporated on December
15, 2003 under the laws of China. Consequently, Tenet-Jove became a 100% owned subsidiary of Shineco and was officially granted
the status of a Wholly Foreign-Owned Entity (“WFOE”) by Chinese authorities on July 14, 2006. This transaction was
accounted for as a recapitalization. Tenet-Jove owns 90% interest of Tianjin Tenet Huatai Technological Development Co., Ltd.
(“Tenet Huatai”).

 

On
December 31, 2008, June 11, 2011 and May 24, 2012, Tenet-Jove entered into a series of contractual agreements including an Executive
Business Cooperation Agreement, a Timely Reporting Agreement, an Equity Interest Pledge Agreement and Executive Option Agreement
(collectively, the “VIE Agreements”), with each one of the following entities, Ankang Longevity Pharmaceutical (Group)
Co., Ltd. (“Ankang Longevity Group”), Yantai Zhisheng International Freight Forwarding Co., Ltd. (“Zhisheng
Freight”), Yantai Zhisheng International Trade Co., Ltd. (“Zhisheng Trade”), Yantai Mouping District Zhisheng
Agricultural Produce Cooperative (“Zhisheng Agricultural”) and Qingdao Zhihesheng Agricultural Produce Services.,
Ltd. (“Qingdao Zhihesheng”). On February 24, 2014, Tenet-Jove entered into the same series of contractual agreements
with Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. (“Zhisheng Bio-Tech”), which was incorporated in 2014. Zhisheng
Bio-Tech, Zhisheng Freight, Zhisheng Trade, Zhisheng Agricultural, and Qingdao Zhihesheng are collectively referred to herein
as the “Zhisheng Group”.

 

Pursuant
to the VIE Agreements, Tenet-Jove has the exclusive right to provide to the Zhisheng Group and Ankang Longevity Group consulting
services related to their business operations and management. All the above contractual agreements obligate Tenet-Jove to absorb
a majority of the risk of loss from the Zhisheng Group and Ankang Longevity Group’s activities and entitle Tenet-Jove to
receive a majority of their residual returns. In essence, Tenet-Jove has gained effective control over the Zhisheng Group and
Ankang Longevity Group. Therefore, the Zhisheng Group and Ankang Longevity Group are treated as Variable Interest Entities (“VIEs”)
under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810
“Consolidation”. Accordingly, the accounts of these entities are consolidated with those of Tenet-Jove.

 

Since
Shineco is effectively controlled by the majority shareholders of the Zhisheng Group and Ankang Longevity Group, Shineco owns
100% of Tenet-Jove. Accordingly, Shineco, Tenet-Jove, and its VIEs, the Zhisheng Group and Ankang Longevity Group are effectively
controlled by the same majority shareholders. Therefore, Shineco, Tenet-Jove and its VIEs are considered under common control.
The consolidation of Tenet-Jove and its VIEs into Shineco was accounted for at historical cost and prepared on the basis as if
the aforementioned exclusive contractual agreements between Tenet-Jove and its VIEs had become effective as of the beginning of
the first period presented in the accompanying consolidated financial statements.

 

On
April 19, 2017, Tenet-Jove established Xinjiang Tiankunrunze Biological Engineering Co., Ltd. (“Tiankunrunze”) with
registered capital of RMB 50.0 million (US$ 7,262,000) and owns 65% interest of Tiankunrunze. On April 28, 2017, Tiankunrunze
established Xinjiang Tianzhuo Technology Development Co., Ltd. (“Tianzhuo”) with registered capital of RMB 10.0 million
(US$ 1,450,233). On May 22, 2017, Tiankunrunze established Xinjiang Tianhuihechuang Agriculture Development Co., Ltd. (“Tianhuihechuang”)
with registered capital of RMB 10.0 million (US$ 1,452,294). On May 23, 2017, Tiankunrunze established Xinjiang Tianxintongye
Biotechnology Development Co., Ltd. (“Tianxintongye”) with registered capital of RMB 10.0 million (US$ 1,451,615).
Therefore, Tenet-Jove controls Tiankunrunze and its wholly owned subsidiaries.

 

 

On
May 2, 2017, the Company entered into a Strategic Cooperation Agreement with Beijing Zhongke Biorefinery Engineering Technology
Co., Ltd. (“Biorefinery”), a leading high-tech biomass refining company financially backed by the Chinese Academy
of Sciences Institute of Process Engineering, to establish the Institute of Chinese Apocynum Industrial Technology Research (“ICAITR”).
Pursuant to the Strategic Cooperation Agreement the two parties agreed to establish the ICAITR, the Company and Biorefinery own
80% and 20% of the equity interests of ICAITR, respectively. Shineco invested RMB 5.0 million (US$ 737,745) as the registered
capital, and Biorefinery will invest a technology patent named “Steam Explosion Degumming”.

 

On
September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with
registered capital of RMB 10.0 million (US$ 1,502,650). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering
Co., Ltd. (“Runze”) with registered capital of RMB 10.0 million (US$ 1,502,650). Xinjiang Taihe and Runze became wholly-owned
subsidiaries of Tenet-Jove.

 

On
December 10, 2016, Tenet-Jove entered into a purchase agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin Tajite”),
an online e-commerce company based in Tianjin, China, specializing in distributing Luobuma related products and branded products
of Daiso 100-yen shops, pursuant to which Tenet-Jove would acquire a 51% equity interest in Tianjin Tajite for cash consideration
of RMB 14,000,000 (approximately US$ 2.1 million). On December 25, 2016, the Company paid the full amount as the deposit to secure
the deal. In May, 2017, the Company amended the agreement that required Tianjin Tajite to satisfy certain preconditions related
to product introductions into China. On October 26, 2017, the Company completed the acquisition for 51% of the shares in Tianjin
Tajite.

 

On
October 27, 2017, the Company, through its subsidiary Tianjin Tajite E-Commerce Co., Ltd. (“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 (“JD”), one of the largest e-commerce companies and one of the largest retailers
in China. On November 3, 2017, the Company further developed the cooperation with Daiso by entering into a supply and purchase
agreement (the “Daiso Agreement”) for the purpose of establishing a continuous supply and sale of Daiso’s products
in China. Pursuant to the Daiso Agreement, the Company planned to purchase Daiso Products in the amount of approximately RMB 20
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, 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 RMB 10.0 million (US$ 1,502,650). TNB became a wholly-owned subsidiary of Tenet-Jove.

 

The
business operation of Tiankunrunze and its wholly owned subsidiaries was ceased in July 2019.

 

On
August 22, 2019, Tenet-Jove established Shineco Zhong Hemp Group Co., Ltd. (“Zhong Hemp”) with registered capital
of RMB 200.0 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 of Bluish Dogbane and related products, also known in
Chinese as “Luobuma”, including therapeutic clothing and textile products made from Luobuma; 2) Zhisheng Group is
engaged in the business of planting, processing and distributing of green agricultural produce as well as providing domestic and
international logistic services for agricultural products (“Agricultural Products”); and, 3) Ankang Longevity Group
manufactures traditional Chinese medicinal herbal products as well as other retail pharmaceutical products. These different business
activities and products can potentially be integrated and benefit from one another.

 

 

NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis
of Presentation and Principles of Consolidation

 

The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules
of the SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for
the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s Form 10-K for the fiscal year ended June 30, 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
are as follows:

 

    September 30,
2020
    June 30,
2020
 
             
Current assets   $ 61,596,986     $ 58,350,565  
Plant and equipment, net     8,350,796       8,168,594  
Other non-current assets     9,223,659       11,054,954  
Total assets     79,171,441       77,574,113  
Total liabilities     (7,496,725 )     (6,189,172 )
Net assets   $ 71,674,716     $ 71,384,941  

 

    For the three months ended
September 30,
 
    2020     2019  
             
Net sales   $ 4,122,691     $ 7,011,877  
Gross profit   $ 912,427     $ 1,805,879  
Income (loss) from operations   $ (294,564 )   $ 522,355  
Net income (loss)   $ (400,077 )   $ 569,490  

 

Non-controlling
Interests

 

US
GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s
balance sheet. In addition, the amounts attributable to the non-controlling interests in the net income of these entities are
reported separately in the unaudited condensed consolidated statements of income (loss) and comprehensive loss.

 

 

Risks
and Uncertainties

 

The
operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the general state
of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not
typically associated with companies in North America and Western Europe. These include risks associated with, among other factors,
the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected
by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations
with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods
of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is
in compliance with existing laws and regulations, changes could affect the Company’s interest in these entities and its
operations in the PRC.

 

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 US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses
during the reporting periods. Significant estimates required to be made by management include, but are not limited to, useful
lives of property, plant, and equipment, and intangible assets, the recoverability of long-lived assets and the valuation of accounts
receivable, deferred taxes and inventory reserves. Actual results could differ from those estimates.

 

Revenue
Recognition

 

The
Company 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 rendering 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. 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 June 30, 2020 and 2019, 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 September 30, 2020 and June 30, 2020 the allowance for doubtful accounts was US$ 6,065,185 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 September
30, 2020 and June 30, 2020, the inventory reserve was US$ 1,179,743 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 September 30, 2020 and June 30, 2020, the Company had an
allowance for uncollectible advances to suppliers of US$ 3,900,865 and US$ 3,342,590, respectively.

 

 

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 twelve months). The acquisition method also requires that acquisition-related transaction
and post-acquisition restructuring costs be charged to expense as committed, and requires the Company to recognize and measure
certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.

 

Goodwill

 

Goodwill
represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the
fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds
its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the
implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair
value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying
amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized
in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined
using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash
flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable
companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent
available).

 

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 us not to reassess under the
new standard our 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.

 

 

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 three months ended September
30, 2020 and 2019, 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.

 

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 does not have any uncertain tax positions at June 30, 2020 and 2019. The Company has not
provided deferred taxes for undistributed earnings of non-U.S. subsidiaries at June 30, 2020, 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 September 30, 2020, the tax years ended December 31, 2014 through December 31,
2019 for the Company’s People’s Republic of China (“PRC”) subsidiaries remain open for statutory examination
by PRC tax authorities.

 

On
December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of The Act,
the U.S. corporate tax rate decreased from 35% to 21%. As the Company has a June 30 fiscal year end, the lower corporate income
tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year 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 has caused us to
re-measure the Company’s 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 US 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 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 is on raw materials and other materials included in
the cost of producing finished products or acquiring finished products. The Company records a VAT payable or VAT receivable in
the accompanying unaudited condensed consolidated financial statements.

 

 

Foreign
Currency Translation

 

The
Company uses the United States dollar (“U.S. dollars”, “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 September 30, 2020 and June 30, 2020 were translated at 1 RMB to 0.1470
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 three months ended September 30, 2020 and 2019 were at 1 RMB to 0.1445 USD and at 1 RMB to 0.1425 USD, respectively.

 

Comprehensive
Loss

 

Comprehensive
loss consists of two components, net income (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
unaudited condensed consolidated statements of income (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 three months ended September 30, 2020 and 2019.

 

New
Accounting Pronouncements

 

In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to
financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers
between Level 1 and Level 2 of the fair value hierarchy, policies for timing of transfers between different levels for fair value
measurements, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range
and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this
update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2019. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.

 

 

In
August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,”
(ASU 2018-15), to align the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract
with the requirements for capitalizing implementation costs relating to internal-use software. The update requires entities in
a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs
to capitalize as an asset and which costs to expense. ASU 2018-15 is effective for the Corporation on January 1, 2020 and may
be applied using either the retrospective or prospective approach. Early adoption is permitted. The Company expects that the adoption
of this ASU will have a material impact on its financial statements.

 

In
October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance
for Variable Interest Entities”. The new standard changes how entities evaluate decision-making fees under the variable
interest entity guidance. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years. Early adoption is permitted in any interim period after issuance. The standard should be applied on
a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period
of adoption. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.

 

In
November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.”
ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment
of receivables arising from operating leases should be accounted for in accordance with Accounting Standard Codification (“ASC”)
842, Leases. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.

 

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 Update 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 expects that the adoption of this ASU
will 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 Board
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 Update were submitted by stakeholders as part of the Simplification Initiative.
For public business entities, the amendments in this Update 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.

 

The
Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s financial
statements.

 

 

NOTE
3 – INVENTORIES, NET

 

The
inventories, net consisted of the following:

 

    September 30,
2020
    June 30,
2020
 
             
Raw materials   $ 702,649     $ 958,206  
Work-in-process     2,621,429       529,655  
Finished goods     1,699,609       1,433,423  
Less: inventory reserve     (1,179,743 )     (1,121,408 )
Total inventories, net   $ 3,843,944     $ 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.

 

NOTE
4 – PROPERTY AND EQUIPMENT, NET

 

Property
and equipment, net consisted of the following:

 

    September 30,
2020
    June 30,
2020
 
             
Buildings   $ 11,980,396     $ 11,525,458  
Machinery and equipment     894,580       860,610  
Motor vehicles     59,905       57,630  
Office equipment     240,300       231,174  
Farmland leasehold improvements     3,091,919       2,974,508  
      16,267,100       15,649,380  
Less: accumulated depreciation and amortization     (6,557,766 )     (6,159,896 )
Total property and equipment, net   $ 9,709,334     $ 9,489,484  

 

Depreciation
and amortization expense charged to operations was US$ 152,107 and US$ 178,215 for the three months ended September 30, 2020 and
2019, respectively.

 

Farmland
leasehold improvements consist of following:

 

    September 30,
2020
    June 30,
2020
 
             
Blueberry farmland leasehold improvements   $ 2,375,350     $ 2,285,149  
Yew tree planting base reconstruction     266,127       256,021  
Greenhouse renovation     450,442       433,338  
Total farmland leasehold improvements   $ 3,091,919     $ 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” (the “Right”) to use the land. The Company has the Right to use the land for 50 years
and amortizes the rights on a straight-line basis over the period of 50 years.

 

    September 30,
2020
    June 30,
2020
 
             
Land use rights   $ 1,635,428     $ 1,573,325  
Less: accumulated amortization     (400,622 )     (377,382 )
Total land use rights, net   $ 1,234,806     $ 1,195,943  

 

For
the three months ended September 30, 2020 and 2019, the Company recognized amortization expense of US$ 9,300 and US$ 9,214, respectively.

 

The
estimated future amortization expenses are as follows:

 

Twelve months ending September 30:      
       
2021   $ 32,709  
2022     32,709  
2023     32,709  
2024     32,709  
2025     32,709  
Thereafter     1,071,261  
Total   $ 1,234,806  

 

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 June 30, 2020, the distribution
rights were evaluated at RMB 7,380,000 (US$ 1,085,092).

 

 

NOTE
7 – INVESTMENTS

 

Ankang
Longevity Group entered into two equity investment agreements with Shaanxi Pharmaceutical Group Pai’ang Medicine Co. Ltd.
(“Shaanxi Pharmaceutical Group”), a Chinese state-owned pharmaceutical enterprise to invest a total of RMB 6.8 million
(approximately US$ 1.0 million) 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 equity investments were formed as new business entities to collaborate with Shaanxi Pharmaceutical Group to expand sales
to regional hospitals and clinics and to establish the presence of retail pharmacies under the Brand name “Sunsimiao”.
The investments are accounted for using the equity method because Ankang Longevity Group has significant influence, but no control
of these two entities. Ankang Longevity Group income of US$ 15,287 and US$ 69,899 for the three months ended September 30, 2020
and 2019, respectively, from the investments, which was included in “Income from equity method investments” in the
unaudited condensed consolidated statements of income (loss) and comprehensive loss (see Note 11).

 

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 three months ended September 30, 2020 and 2019, 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, respectively.

 

On
October 21, 2013, the Company, through its controlled subsidiaries, Zhisheng Freight and Zhisheng Agricultural, entered into an
agreement with an unrelated third party, Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd. (“Zhen’Ai Network”),
and invested RMB 14.5 million (approximately US$ 2.2 million) into Tiancang Systematic Warehousing project (“Tiancang Project”)
operated by Zhen’Ai Network. The Tiancang Project is an online platform established to provide comprehensive warehousing
and logistic solutions to companies involved in E-commerce. The Company is entitled to 29% of Tiancang Project’s after-tax
net income annually, less 30% statutory reserve and a 10 % employee welfare fund contribution. When the amount of the accumulated
statutory reserve reaches 30% of the total investment for the Tiancang Project, no additional appropriation to the statutory reserve
is required. The Company considered it’s unlikely to obtain any investment income in the future, and decided the make a
fully impairment on this investment during the year ended June 30, 2020.

 

On
November 21, 2016, the Company (the “Investor”) entered into an agreement with Original Lab Inc., a California corporation
(the “Investee”), and made a payment of US$ 200,000 in exchange for the right to acquire certain shares of the Investee’s
common and preferred stock. The Company considered it’s unlikely to obtain any investment income in the future, and decided
the make a fully impairment on this investment during the year ended June 30, 2019.

 

The
Company’s investments in unconsolidated entities consist of the following:

 

    September 30,
2020
    June 30,
2020
 
             
Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. (Ankang Longevity Pharmacy)   $ 3,853,750     $ 3,690,419  
Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Chain Co., Ltd.     855,148       824,705  
Total investment   $ 4,708,898     $ 4,515,124  

 

 

Summarized
financial information of unconsolidated entities is as follows:

 

    September 30,
2020
    June 30,
2020
 
             
Current assets   $ 39,876,243     $ 38,546,879  
Noncurrent assets     385,893       324,725  
Current liabilities     30,667,280       29,671,104  

 

    For the three months ended
September 30,
 
    2020     2019  
             
Net sales   $ 7,890,100     $ 7,540,520  
Gross profit     554,304       764,612  
Income from operations     24,327       138,891  
Net income     31,198       144,590  

 

NOTE
8 – LEASES

 

Effective
July 1, 2019, the Company adopted the new lease accounting standard using the optional transition method which allowed us 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 us 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 us 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, one
of the Company’s controlled subsidiaries, Zhisheng Group entered into several farmland lease contracts with farmer cooperatives
to lease farmland in order to plant and grow organic vegetables, fruit and Chinese yew trees. The lease terms vary from 5 years
to 24 years. The 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 right of use assets and lease liabilities. Lease expense for lease payment is recognized
on a straight-line basis over the lease term. Leases with initial term 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 discount 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.

 

    September 30,
2020
    June 30,
2020
 
             
Rights of use lease assets   $ 3,204,393     $ 3,227,895  
                 
Operating lease liabilities – current     92,909       97,633  
Operating lease liabilities – non-current     424,605       401,891  
Total operating lease liabilities   $ 517,514     $ 499,524  

 

The
weighted average remaining lease terms and discount rates for all of operating leases were as follows as of September 30. 2020
and June 30, 2020:

 

    September 30,
2020
    June 30,
2020
 
             
Remaining lease term and discount rate:                
Weighted average remaining lease term (years)     9.23       9.26  
Weighted average discount rate     5.0       5.0  

 

Rent
expense totaled US$113,115 and US$ 92,325 for the three months ended September 30, 2020 and 2019, respectively.

 

The
following is a schedule, by years, of maturities of lease liabilities as of September 30, 2020:

 

2021   $ 300,401  
2022     277,157  
2023     328,920  
2024     328,920  
2025     319,213  
Thereafter     1,720,775  
Total lease payments     3,275,386  
Less: imputed interest     (70,991 )
Less: prepayments     (2,686,881 )
Present value of lease liabilities   $ 517,514  

 

 

NOTE
9 – SHORT-TERM LOANS

 

Short-term
loans consist of the following:

 

Lender   September 30,
2020
    Maturity
Date
  Int.
Rate/Year
 
Agricultural Bank of China-a   $ 661,642     2020/12/31     4.65 %
Agricultural Bank of China-a     1,470,314     2021/2/27     5.66 %
Agricultural Bank of China-b     294,063     2021/9/1     5.66 %
Total short-term loans   $ 2,426,019              

 

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 shareholder 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 the Xiaoyan Chen but not a shareholder of Ankang Longevity
Group.
   
* The
Company repaid the loan in full on maturity date.

 

The
Company recorded interest expense of US$ 29,622 and US$ 30,277 for the three months ended September 30, 2020 and 2019, respectively.
The annual weighted average interest rates are 5.31% and 5.31% for the three months ended September 30, 2020 and 2019, respectively.

 

 

NOTE
10 – ACQUISITION

 

On
December 12, 2016, the Company entered into a merger and acquisition agreement with Tianjin Tajite E-Commerce Co., Ltd. (“Tianjin
Tajite”), a professional e-commerce company distributing Luobuma fabric commodities and branded products of Daiso 100-yen
shops, based in Tianjin, China, to acquire a 51 % equity interest of Tianjin Tajite.

 

Pursuant
to the agreement, the Company made a payment of RMB 14,000,000 (approximately US$ 2.1 million) at the end of December, 2016 as
the total consideration for the acquisition of Tianjin Tajite.

 

On
October 26, 2017, the Company completed the acquisition of Tianjin Tajite. The acquisition provides a unique opportunity for the
Company to enter the market of Luobuma fabric commodities and branded products of Daiso 100-yen shops.

 

The
transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent
appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed.
The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition
Date.

 

As
required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, management
conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC
805-20’s measurement procedures for recognition of the fair value of net assets acquired.

 

The
following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:

 

Accounts receivable, net     27,288  
Inventory     58,679  
Other current assets     186,519  
Distribution rights     1,085,092  
Property, plant and equipment     14,205  
Advance from customers     (79,017 )
Tax payable     (17,056 )
Deferred tax liabilities     (271,273 )
Salary payable     (25,362 )
Accrued liabilities and other current liabilities     (1,004,308 )
Non-controlling interest     1,440  
Goodwill     2,059,939  
Total purchase price for acquisition, net of US$ 22,294 of cash   $ 2,036,146  

 

The
excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill. The results of operations
of Tianjin Tajite have been included in the 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 is as follows:

 

    Preliminary
Fair Value
    Weighted Average Useful Life
(in Years)
Distribution rights   $ 1,085,092     (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 three months ended September 30, 2020.

 

NOTE
11 – RELATED PARTY TRANSACTIONS

 

DUE
FROM RELATED PARTIES

 

The
Company had previously made temporary advances to certain shareholders of the Company and to other entities that are either owned
by family members of those shareholders or to other entities that the Company has investments in. Those advances are due on demand,
non-interest bearing.

 

As
of September 30, 2020 and June 30, 2020, the outstanding amounts due from related parties consist of the following:

 

    September 30,
2020
    June 30,
2020
 
             
Yang Bin   $ 44,109     $ 42,434  
Beijing Huiyinansheng Asset Management Co., Ltd (a.)     22,055       21,217  
Wang Qiwei     59,549       57,288  
Total due from related parties   $ 125,713     $ 120,939  

 

a. This
Company is wholly owned by one of the Company’s senior management.
   
b. This
Company is wholly owned by one of the Company’s shareholders.

 

 

DUE
TO RELATED PARTIES

 

As
of September 30, 2020 and June 30, 2020, the Company had related party payables of US$ 1,355,919 and US$ 1,355,919, respectively,
mainly due to the principal shareholders or certain relatives of the shareholders of the Company who lend funds for the Company’s
operations. The payables are unsecured, non-interest bearing and due on demand.

 

    September 30,
2020
    June 30,
2020
 
             
Wu Yang   $ 94,174     $ 90,598  
Wang Sai     90,964       90,629  
Chen Jiping     3,024       3,024  
Zhou Guocong     799,548       648,308  
Li Baolin     220,546       353,619  
Zhao Min     175,557       169,741  
Total due to related parties   $ 1,383,813     $ 1,355,919  

 

SALES
TO RELATED PARTIES

 

For
the three months ended September 30, 2020 and 2019, the Company recorded sales to Shaanxi Pharmaceutical Group, a related party
(see Note 7), of US$759,366 and US$ 795,548, respectively. As of September 30, 2020 and June 30, 2020, the balance of accounts
receivable due from Shaanxi Pharmaceutical Group was US$ 1,722,124 and US$ 1,567,160, respectively.

 

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 entities are governed by the Income
Tax Laws of the PRC, and are currently subject to tax at a statutory rate of 25% on taxable income. Two VIE entities and Xinjiang
Taihe receive a full income tax exemption from the local tax authority of the PRC as agricultural enterprises as long as the favorable
tax policy remains unchanged.

 

On
December 22, 2017, the “Tax Cuts and Jobs Act” (“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 us to re-measure the Company’s 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 expense (benefit) are as follows:

 

    For the three months ended
September 30,
 
    2020     2019  
Current income tax provision   $ 105,297     $ 140,841  
Deferred income tax provision (benefit)           (145,624 )
Total income tax expense   $ 105,297     $ (4,783 )

 

    September 30,
2020
    June 30,
2020
 
Deferred tax assets:                
Allowance for doubtful accounts   $ 498,846     $ 428,879  
Inventory reserve     265,487       252,022  
Net operating loss carry-forwards     524,678       504,754  
Total     1,289,011       1,185,655  
Valuation allowance     (1,289,011 )     (1,185,655 )
Total deferred tax assets            
Deferred tax liability:                
Distribution rights     (271,273 )     (260,972 )
Total deferred tax liability     (271,273 )     (260,972 )
Deferred tax liability, net   $ (271,273 )   $ (260,972  

 

Movement
of the valuation allowance:

 

    September 30,
2020
    June 30,
2020
 
             
Beginning balance   $ 1,185,655     $ 519,671  
Current year addition     56,555       680,901  
Exchange difference     (46,801 )     (14,917 )
Ending balance   $ 1,289,011     $ 1,185,655  

 

(b)
Value Added Tax

 

The
Company is subject to a value added tax (“VAT”) for selling merchandise. The applicable VAT rate is 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 will be expensed
in the period if and when a determination is made by the tax authorities. There were no assessed penalties during the three months
ended September 30, 2020 and 2019.

 

 

(c)
Taxes Payable

 

Taxes
payable consists of the following:

 

    September 30,
2020
    June 30,
2020
 
             
Income tax payable   $ 3,457,740     $ 3,424,043  
Value added tax payable     540,730       522,615  
Business tax and other taxes payable     6,325       6,026  
Total tax payable     4,004,795       3,952,684  
Less: current portion     3,438,773       3,386,662  
Income tax payable – noncurrent portion   $ 566,022     $ 566,022  

 

NOTE
13 – SHAREHOLDERS’ 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 June 30, 2020 and 2019, the balance of the required statutory
reserves was US$ 4,199,964 and US$ 4,198,107, respectively.

 

On
January 23, 2018, Shineco, Inc. entered into a Common Stock Purchase Agreement (“Purchase Agreement”) with IFG Opportunity
Fund LLC (“IFG Fund”) whereby, upon the terms and subject to the conditions and limitations set forth therein, the
Company had the right, from time to time in its sole discretion during the 24-month term of the Purchase Agreement, to direct
IFG Fund to purchase up to a total of US$ 15,000,000 worth of shares of common stock. As consideration for IFG Fund to enter into
the Purchase Agreement, the Company agreed to issue 22,222 shares of the Company’s Common Stock (the “Commitment Shares”)
to IFG Fund. The Purchase Shares are being offered in an indirect primary offering consisting of an equity line of credit, in
accordance with the terms and conditions of the Purchase Agreement. The total number of Purchase Shares shall not exceed 444,444.
On January 23, 2018, the Company issued the Commitment Shares to IFG Fund. On July 3, 2018, the Company and IFG Fund entered into
a termination agreement, dated July 3, 2018 (the “Termination Agreement”) effective as of July 3, 2018, to terminate
the Purchase Agreement and the Registration Rights Agreement. IFG retained the 22,222 commitment shares which were valued at US$
434,000 and written off during the nine months ended March 31, 2019.

 

On
September 27, 2018, the Company entered into a securities purchase agreement with selected investors whereby the Company agreed
to sell up to 181,967 of common stock at a purchase price of US$ 9 per share, for gross proceeds to the Company of approximately
US$ 1,637,700 (the “2018 Offering”). After deducting the offering cost, the net proceeds the Company received was
US$ 1,589,892. The 2018 Offering closed on September 28, 2018. The 2018 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
May 8, 2019, TNB, filed with the United States Securities and Exchange Commission a Notice of Exempt Offering of Securities on
Form D regarding an offering (“Offering”) of simple agreement for future tokens. Tenet-Jove intends to use the net
proceeds from sales of the tokens to develop land and facilities for cultivating industrial hemp in China under a newly formed
wholly owned subsidiary (the “Operations”). The minimum target amount in this private placement is $1,000,000. Once
Shineco raises $1,000,000, investors will have the option to convert smart contracts that represent preferred stock into Shinceo’s
common stock. For this, smart contracts that shall be convertible into common stock at the following ratio of 180:1. If Shineco
raises $1,000,000 in this private placement, then up to 55,556 shares of common stock will be issued pursuant to the following
calculation if the smart contract holders choose to convert their smart contracts that represent preferred stock into Shinceo’s
common stock:

 

1.
Each smart contract is $ 0.1;

 

2.
$1,000,000 can get 10,000,000 smart contracts. ($1,000,000 divided by 0.1 equals to 10,000,000 smart contracts.)

 

3.
The conversion ratio of smart contracts to common stock is 180:1

 

4.
Therefore,-10,000,000-smart-contracts-divided by 180 -equals-55,556-common stock.

 

Shineco
plans to issue no more than 444,444 shares in connection with this transaction, specifically for the exchange of smart contracts.

 

On
September 3, 2019, the Company granted 184,763 restricted shares 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
were vested immediately from the grant date.

 

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 (the “Shares”) at a purchase price
of US$ 4.68 per Share. The net proceeds that the Company received was US$ 1,500,203. The offering is being 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 shareholders approved to effect a 1-for-9 reverse stock split of the shares (the “Reverse
Stock Split”) of the Company’s common stock, par value $0.001 per share with the market effective date of August 14,
2020. As a result of the Reverse Stock Split, each nine pre-split shares of common stock outstanding will automatically combine
and convert to one issued and outstanding share of common stock without any action on the part of the stockholder. No fractional
shares of common stock will be issued to any shareholders in connection with the Reverse Stock Split. Each shareholder will be
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 remains at 100,000,000 shares, and the par value of the common
stock following the Reverse Stock Split shall remain at $0.001 per share. As of August 14, 2020 (immediately prior to the effective
date), there were 27,333,428 common stock outstanding, and the number of common stock outstanding after the Reverse Stock Split
is 3,037,048, taking into account of the effect of rounding fractional shares into whole shares. As a result of this Reverse Stock
Split, the Company’s shares and per share data as reflected in the unaudited condensed consolidated financial statements
has been retroactively restated as if the transaction occurred at the beginning of the periods presented.

 

 

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$ 23,113,638
and US$ 32,358,252 as of September 30, 2020 and June 30, 2020, respectively.

 

During
the three months ended September 30, 2020 and 2019, almost 100% of the Company’s assets were located in the PRC and 100%
of the Company’s revenues were derived from its subsidiaries and VIEs located in the PRC.

 

For
the three months ended September 30, 2020, four customers accounted for approximately 18%, 15%, 14% and 10% of the Company’s
total sales, respectively. At September 30, 2020, five customers accounted for approximately 64% of the Company’s accounts
receivable.

 

For
the three months ended September 30, 2019, five customers accounted for approximately 14%, 12%, 11%, 10% and 10% of the Company’s
total sales, respectively.

 

For
the three months ended September 30, 2020, three vendors accounted for approximately 51%, 13% and 10% of the Company’s total
purchases, respectively. For the three months ended September 30, 2019, three vendors accounted for approximately 36%, 16% and
12% of the Company’s total purchases, respectively.

 

NOTE
15 – COMMITMENTS AND CONTIGENCIES

 

Legal
Contingencies

 

On
May 16, 2017, Bonwick Capital Partners, LLC (“Plaintiff”) commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against
the Company in the United States District Court for the Southern District of New York. Plaintiff alleges that the Company entered
into an agreement with Plaintiff (the “Agreement”), pursuant to which Plaintiff was to provide the Company with financial
advisory services in connection with the Company’s initial public offering in the United States. Plaintiff alleges that
the Company breached the Agreement and seeks money damages up to US$ 6 million. As the date of this report, there is no progress
in this lawsuit. The Company believes that these claims are without merit and intends to vigorously defend its position.

 

 

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 of specialized fabrics, textile products and other by-products derived from an indigenous Chinese
plant called Apocynum Venetum, commonly known as “Bluish Dogbane” or known in Chinese as “Luobuma”
(referred to herein as Luobuma):

 

The
operating companies of this segment, namely Tenet-Jove and Tenet Huatai, specialize in Luobuma growing, development and manufacturing
of relevant products, as well as purchasing Luobuma raw materials processing.

 

This
segment’s operations are focused in the north region of Mainland China, mostly carried out in Beijing, Tianjin and Xinjiang
City.

 

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 of 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 Group, is engaged in the business of growing and distributing green and organic
vegetables and fruits as well as providing logistics services for distributing agricultural products. This segment has been focusing
its efforts on the growing and cultivating of Chinese yew trees (formally known as “taxus media”), a small evergreen
tree whose branches can be used for the production of 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 Group has newly developed over 100 acres of modern greenhouses for cultivating yew trees and
other plants.

 

 

The
following table presents summarized information by segment for the three months ended September 30, 2020:

 

    For the three months ended September 30, 2020  
    Luobuma     Herbal     Other agricultural        
    products     products     products     Total  
Segment revenue   $ 24,615     $ 3,135,406     $ 983,362     $ 4,143,383  
Cost of revenue and related business and sales tax     28,462       2,492,463       713,877       3,234,802  
Gross profit (loss)     (3,847 )     642,943       269,485       908,581  
Gross profit (loss) %     (16 )%     20.5 %     27.4 %     21.9 %

 

The
following table presents summarized information by segment for the three months ended September 30, 2019:

 

    For the three months ended September 30, 2019  
    Luobuma     Herbal     Other agricultural        
    products     products     products     Total  
Segment revenue   $ 65,519     $ 3,300,321     $ 3,680,941     $ 7,046,781  
Cost of revenue and related business and sales tax     231,504       2,599,404       2,575,978       5,406,886  
Gross profit     (165,985 )     700,917       1,104,963       1,639,895  
Gross profit %     (253.3 )%     21.2 %     30.0 %     23.3 %

 

Total
Assets as of

 

    September 30,
2020
    June 30,
2020
 
             
Luobuma products   $ 3,265,271     $ 2,836,450  
Herbal products     45,107,523       43,855,815  
Other agricultural products     34,832,830       32,396,346  
Total assets   $ 83,205,624     $ 79,088,611  

 

NOTE
17 – SUBSEQUENT EVENTS

 

These
unaudited condensed consolidated financial statements were approved by management and available for issuance on November 16,
2020, 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.

 

 

SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This
document contains certain statements of a forward-looking nature. Forward-looking statements involve risks and uncertainties,
such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking
statements by terminology such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,”
“should,” “will,” “could” and similar expressions denoting uncertainty or an action that may,
will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties
and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed
or implied by the forward-looking statements.

 

Examples
of forward-looking statements include:

 

  the timing of
the development of future products;
     
  projections of
revenue, earnings, capital structure and other financial items;
     
  statements of
our plans and objectives, including those that relate to our proposed expansions and the effect such expansions may have on
our revenues;
     
  statements regarding
the capabilities of our business operations;
     
  statements of
expected future economic performance;
     
  statements regarding
competition in our market; and
     
  assumptions underlying
statements regarding us or our business.

 

The
ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss
our known material risks under the heading “Risk Factors” in our 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, the Company reserves the right to make such updates from time to time by press release,
periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall
be deemed to indicate that other statements not addressed by such update is incorrect or create an obligation to provide any other
updates.

 

 

ITEM
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

The
following discussion and analysis of the results of our operations and financial condition for the three months ended September
30, 2020 and 2019 should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes
to those unaudited condensed consolidated financial statements that are included elsewhere in this Report and our annual report
on Form 10-K for the twelve months ended June 30, 2020 and 2019, including the consolidated financial statements and notes thereto.
All monetary figures are presented in U.S. dollars, unless otherwise indicated.

 

Forward-Looking
Statements

 

The
statements in this discussion that are not historical facts are “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the “safe harbor” created by those sections The words “may,” “will,” “expect,”
“believe,” “anticipate,” “intend,” “could,” “estimate,” “continue,”
the negative forms thereof, or similar expressions, are intended to identify forward-looking statements, although not all forward-looking
statements are identified by those words or expressions. Forward-looking statements by their nature involve substantial risks
and uncertainties, certain of which are beyond our control. Actual results, performance or achievements may differ materially
from those expressed or implied by forward-looking statements depending on a variety of important factors, including, but not
limited to, weather, local, regional, national and global Luobuma and herbal medicines price fluctuations, availability of financing
and interest rates, competition, changes in, or failure to comply with, government regulations, costs, uncertainties and other
effects of legal and other administrative proceedings, and other risks and uncertainties. Actual results and the timing of the
events may differ materially from those contained in these forward looking statements due to many factors, including those discussed
in the “Forward-Looking Statements” set forth elsewhere in this quarterly report on Form 10-Q. We are not undertaking
to update or revise any forward-looking statement, whether as a result of new information, future events or circumstances or otherwise.

 

Business
Overview and Corporate Structure

 

Shineco,
Inc. (the “Company”, “we”, “us” and “our”) was incorporated in the State of Delaware
on August 20, 1997. 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 our restricted shares of common
stock. Consequently, Tenet-Jove became our 100% owned subsidiary and its operating business became that of the Company. Tenet-Jove
was incorporated on December 15, 2003 under the laws of China and was officially granted the status of a Wholly Foreign-Owned
Entity (“WFOE”) by Chinese authorities on July 14, 2006. This transaction was accounted for as a recapitalization.
Tenet-Jove owns a 90% interest of Tianjin Tenet Huatai Technological Development Co., Ltd. (“Tenet Huatai”).

 

On
December 31, 2008, June 11, 2011 and May 24, 2012, Tenet-Jove entered into a series of contractual agreements including an Executive
Business Cooperation Agreement, a Timely Reporting Agreement, an Equity Interest Pledge Agreement and Executive Option Agreement
(collectively, the “VIE Agreements”), with each one of the following entities, Ankang Longevity Pharmaceutical (Group)
Co., Ltd. (“Ankang Longevity Group”), Yantai Zhisheng International Freight Forwarding Co., Ltd. (“Zhisheng
Freight”), Yantai Zhisheng International Trade Co., Ltd. (“Zhisheng Trade”), Yantai Mouping District Zhisheng
Agricultural Produce Cooperative (“Zhisheng Agricultural”) and Qingdao Zhihesheng Agricultural Produce Services.,
Ltd. (“Qingdao Zhihesheng”). On February 24, 2014, Tenet-Jove entered into the same series of contractual agreements
with Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. (“Zhisheng Bio-Tech”), which was incorporated in 2014. Zhisheng
Bio-Tech, Zhisheng Freight, Zhisheng Trade, Zhisheng Agricultural, and Qingdao Zhihesheng are collectively referred to herein
as the “Zhisheng Group.” Zhisheng Agricultural has not had any significant business activities and thus we have deregistered
it in 2017. We have transferred all assets, rights and liabilities to an affiliated entity, Zhisheng Freight.

 

 

Pursuant
to the VIE Agreements, Tenet-Jove has the exclusive right to provide to each of the Zhisheng Group entities and Ankang Longevity
Group consulting services related to their business operations and management. All these contractual agreements obligate Tenet-Jove
to absorb a majority of the risk of loss from each of the Zhisheng Group entities 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
each of the Zhisheng Group and Ankang Longevity Group. Based on these contractual arrangements, the Zhisheng Group and Ankang
Longevity Group are treated as Variable Interest Entities (“VIEs”) under Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 810 “Consolidation”. Accordingly, the accounts of each of the
Zhisheng Group entities and Ankang Longevity Group are consolidated with those of Tenet-Jove. Ankang Longevity Group has several
subsidiaries. We carry out all of our business in China through our PRC subsidiaries, our VIEs and their subsidiaries.

 

On
April 19, 2017, Tenet-Jove established Xinjiang Tiankunrunze Biological Engineering Co., Ltd. (“Tiankunrunze”) with
registered capital of RMB 50.0 million (US$ 7,262,000) and owns 65% interest of Tiankunrunze. On April 28, 2017, Tiankunrunze
established Xinjiang Tianzhuo Technology Development Co., Ltd. (“Tianzhuo”) with registered capital of RMB 10.0 million
(US$ 1,450,233). On May 22, 2017, Tiankunrunze established Xinjiang Tianhuihechuang Agriculture Development Co., Ltd. (“Tianhuihechuang”)
with registered capital of RMB 10.0 million (US$ 1,452,294). On May 23, 2017, Tiankunrunze established Xinjiang Tianxintongye
Biotechnology Development Co., Ltd. (“Tianxintongye”) with registered capital of RMB 10.0 million (US$ 1,451,615).
Therefore, Tenet-Jove controls Tiankunrunze and its wholly owned subsidiaries.

 

On
May 2, 2017, the Company entered into a Strategic Cooperation Agreement with Beijing Zhongke Biorefinery Engineering Technology
Co., Ltd. (“Biorefinery”), a leading high-tech biomass refining company financially backed by the Chinese Academy
of Sciences Institute of Process Engineering, to establish the Institute of Chinese Apocynum Industrial Technology Research (“ICAITR”).
Pursuant to the Strategic Cooperation Agreement the two parties agreed to establish the ICAITR, the Company and Biorefinery own
80% and 20% of the equity interests of ICAITR, respectively. Shineco invested RMB 5.0 million (US$ 737,745) as the registered
capital, and Biorefinery will invest a technology patent for “Steam Explosion Degumming”.

 

On
September 21, 2017, the Company, through its wholly owned subsidiary Tenet-Jove, entered into a Strategic Cooperation Agreement
(the “Agreement”) with Mr. Jianjun Wang, who is experienced in apocynum planting, manufacturing and knowledgeable
in apocynum market and administration procedures with relevant authorities in apocynum industry in China, to establish an Apocynum
Industrial Park in Xinjiang, China. Pursuant to the Agreement entered into on September 21, 2017, both parties have agreed to
establish a new company, namely, Xinjiang Shineco Taihe Agriculture Technology Ltd. to hold and operate the Apocynum Industrial
Park, with a total investment of RMB 50 million (approximately US$ 7.57 million), of which the Company will invest RMB 47.5 million
and Mr. Wang will invest RMB 2.5 million. Upon the closing of the Agreement, Shineco owns 95% of the equity interest of Xinjiang
Taihe.

 

On
September 30, 2017, Tenet-Jove established Xinjiang Shineco Taihe Agriculture Technology Ltd. (“Xinjiang Taihe”) with
registered capital of RMB 10.0 million (US$ 1,502,650). On September 30, 2017, Tenet-Jove established Xinjiang Tianyi Runze Bioengineering
Co., Ltd. (“Runze”) with registered capital of RMB 10.0 million (US$ 1,502,650). Xinjiang Taihe and Runze became wholly-owned
subsidiaries of Tenet-Jove.

 

On
December 10, 2016, Tenet-Jove entered into a purchase agreement with Tianjin Tajite, 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 E-Commerce Co., Ltd. (“Tianjin Tajite”), a professional e-commerce
company distributing Luobuma fabric commodities and branded products of Daiso 100-yen shops, based in Tianjin, China, for cash
consideration of RMB 14,000,000 (approximately US$ 2.1 million). On December 25, 2016, the Company paid the full amount as the
deposit to secure the deal. In May, 2017, the Company amended the agreement that required Tianjin Tajite to satisfy certain preconditions
related to product introductions into China. On October 26, 2017, the Company completed the acquisition for 51% of the equity
interest in Tianjin Tajite.

 

 

On
October 27, 2017, the Company, through its subsidiary Tianjin Tajite E-Commerce Co., Ltd. (“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 (“JD”), one of the largest e-commerce companies and one of the largest retailers
in China. On November 3, 2017, the Company further developed the cooperation with Daiso by entering into a supply and purchase
agreement (the “Daiso Agreement”) for the purpose of establishing a continuous supply and sale of Daiso’s products
in China. Pursuant to the Daiso Agreement, the Company planned to purchase Daiso Products in the amount of approximately RMB 20
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 waits for the opening of the China-Japan-South Korea Free Trade Zone.

 

On
November 1, 2017, the Company established the Apocynum Industrial Park in Xinjiang, China.

 

We
ceased the business operation of Tenet-Jove Xuzhou branch in November 2017.

 

On
March 13, 2019, Tenet-Jove established Beijing Tenjove Newhemp Biotechnology Co., Ltd. (“TNB”) with registered capital
of RMB 10.0 million (US$ 1,502,650). TNB became wholly-owned subsidiaries of the Company.

 

We
ceased the business operation of Tiankunrunze and its wholly owned subsidiaries in July 2019.

 

On
August 22, 2019, Tenet-Jove established Shineco Zhong Hemp Group Co., Ltd. (“Zhong Hemp”) with registered capital
of RMB 200.0 million (US$ 28,237,022) and owns 60% interest of Zhong Hemp.

 

The
Company, through its subsidiary, Xinjiang Taihe has entered into a definitive Share Exchange and Acquisition Agreement (the “Xinjiang
Tiansheng Agreement”) with Western Xinjiang Tiansheng Agricultural Development Co., Ltd (“Xinjiang Tiansheng”).
Pursuant to the Xinjiang Tiansheng Agreement, Xinjiang Taihe will receive 51% equity ownership in Xinjiang Tiansheng for further
investment in apocynum business expansion in Xinjiang, China, in exchange for a combination of 14% equity ownership in Xinjiang
Taihe and cash payments in three separate installments (the “Acquisition Consideration”). The first installment in
the amount of RMB 810,000 (approximately US$ 117,933) was paid to Xinjiang Tiansheng (the “Xinjiang Tiansheng Deposit”).
The Acquisition Consideration in the aggregate is valued at RMB 23.8 million (approximately US$ 3.5 million) contingent upon certain
milestones in the next years. The Company and Xinjiang Tiansheng terminated the Xinjiang Tiansheng Agreement on July 10, 2018
and Xinjiang Tiansheng returned the full Xinjiang Tiansheng Deposit following such termination by the end of July 2018.

 

We
ceased the business operation of Xinjiang Taihe and Runze in September 2020 and October 2020, respectively.

 

Currently,
we have three main business segments: (i) Tenet-Jove is engaged in developing, manufacturing and selling of Bluish Dogbane and
related products, also known in Chinese as “Luobuma,” including therapeutic clothing and textile products made from
Luobuma, as well as purchasing Luoboma raw materials processing; (ii) Zhisheng Group is engaged in the business of planting, processing
and distributing of green agricultural produce as well as providing domestic and international logistic services for agricultural
products (“Agricultural Products”); and, (iii) Ankang Longevity 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.

 

 

Financing
Activities

 

On
January 23, 2018, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with IFG OPPORTUNITY
FUND LLC (“IFG Fund”) whereby, the Company had the right, from time to time in its sole discretion during the 24-month
term of the Purchase Agreement, to direct IFG Fund to purchase up to a total of US$ 15,000,000 of shares of Common Stock and an
additional 22,222 shares of Common Stock (the “Commitment Shares”) as consideration for IFG to enter into the Purchase
Agreement. The Company and IFG Fund, on January 23, 2018, entered into a Registration Rights Agreement for certain registration
rights in connection with the Purchase Agreement (the “Registration Rights Agreement”). The IFG Fund offering was
made pursuant to a prospectus supplement dated and filed with the Securities and Exchange Commission (“SEC”) on January
26, 2018 and an accompanying prospectus dated November 21, 2017, under the Company’s shelf registration statement on Form
S-3 declared effective by the SEC on December 19, 2017 (File No. 333-221711). On January 23, 2018, the Company issued the Commitment
Shares to IFG Fund. On July 3, 2018, the Company and IFG Fund entered into a termination agreement, dated July 3, 2018 effective
as of July 3, 2018, to terminate the Purchase Agreement and the Registration Rights Agreement. IFG retained the 22,222 commitment
shares which were valued at US$ 434,000 and written off during the year ended June 30, 2019.

 

On
September 27, 2018, the Company entered into a securities purchase agreement with selected investors whereby the Company agreed
to sell up to 181,967 of common stock at a purchase price of US$ 9 per share, for gross proceeds to the Company of approximately
US$ 1,637,700 (the “2018 Offering”). After deducting the offering cost, the net proceeds the Company received was
US$ 1,589,892. The 2018 Offering closed on September 28, 2018. The 2018 Offering was made pursuant to the Company’s effective
registration statement on Form S-3 (Registration Statement No. 333-221711) previously filed with the SEC and a prospectus supplement
thereunder.

 

On
May 8, 2019, TNB, filed with the United States Securities and Exchange Commission a Notice of Exempt Offering of Securities on
Form D regarding an offering (“Offering”) of simple agreement for future tokens. Tenet-Jove intends to use the net
proceeds from sales of the tokens to develop land and facilities for cultivating industrial hemp in China under a newly formed
wholly owned subsidiary (the “Operations”). The minimum target amount in this private placement is $1,000,000. Once
Shineco raises $1,000,000, investors will have the option to convert smart contracts that represent preferred stock into Shinceo’s
common stock. For this, smart contracts that shall be convertible into common stock at the following ratio of 180:1. If Shineco
raises $1,000,000 in this private placement, then up to 55,556 shares of common stock will be issued pursuant to the following
calculation if the smart contract holders choose to convert their smart contracts that represent preferred stock into Shinceo’s
common stock:

 

1.
Each smart contract is $ 0.1;

 

2.
$1,000,000 can get 10,000,000 smart contracts. ($1,000,000 divided by 0.1 equals to 10,000,000 smart contracts.)

 

3.
The conversion ratio of smart contracts to common stock is 180:1

 

4.
Therefore, -10,000,000-smart-contracts-divided by 180 -equals-55,556-common stock.

 

Shineco
plans to issue no more than 444,444 shares in connection with this transaction, specifically for the exchange of smart contracts.

 

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 (the “Shares”) at a purchase price
of US$ 4.68 per Share. The net proceeds that the Company received was US$ 1,500,203. The offering is being 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.

 

 

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 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.

 

Expansion
of our sources of supply, production capacity and sales network
– To meet the increasing demand for our products, we need
to expand our sources of supply and production capacity. We plan to make capital improvements in our existing production facilities
which would improve both their efficiency and capacity. In the short-run, we intend to increase our investment in our reliable
supply network, personnel training, information technology applications and logistic system upgrades. We also participate in two
non-equity investment opportunities through a VIE, both of which we expect to provide us with new networks and platforms.

 

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 shareholders.

 

Economic
and Political Risks

 

Our
operations are conducted primarily in the PRC. Accordingly, our business, financial conditions and results may be influenced by
the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

 

Our
operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North
America and Western Europe. These include risks with, among others, the political, economic and legal environment and foreign
currency exchange. Our Company’s 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

 

In
December 2019, a novel strain of coronavirus was reported in Wuhan, China. On March 11, 2020, the World Health Organization categorized
it as a pandemic. The outbreak 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 the Chinese New Year holiday until early April 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 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 revenues. Although we
have taken all possible measures to overcome the adverse impact derived from the COVID-19 outbreak and have resumed our normal
business activities in early May 2020. Our management believes the outbreak had a negative impact on our operation result during
the three months ended September 30, 2020. Our revenue for the three months ended September 30, 2020 were approximately US$ 4.1
million, a decrease of approximately US$ 2.9 million or 41.2% from approximately US$ 7.0 million for the same period in 2019.
As of the date of this report, the COVID-19 outbreak in China appears to have been under relative control. While the disruption
is currently expected to be temporary, there is uncertainty around the duration. Therefore, while we expect this matter to negatively
impact our business, results of operations, and financial position, the related financial impact cannot be reasonably estimated
at this time.

 

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 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

 

The
preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenue and expenses
during the reporting periods. Significant estimates required to be made by management include, but are not limited to, useful
lives of property, plant, and equipment, and intangible assets, the recoverability of long-lived assets and the valuation of accounts
receivable, deferred taxes and inventory reserves. Actual results could differ from those estimates.

 

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 September 30, 2020 and June 30, 2020 the allowance for doubtful accounts was US$ 6,065,185 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 September
30, 2020 and June 30, 2020, the inventory reserve was US$ 1,179,743 and US$ 1,121,408, respectively.

 

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 rendering 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. 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.

 

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.

 

Results
of Operations for the Three Months Ended September 30, 2020 and 2019

 

Overview

 

The
following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:

 

    Three Months Ended
September 30,
    Variance  
    2020     2019     Amount     %  
Revenue   $ 4,143,383     $ 7,046,781     $ (2,903,398 )     (41.20 )%
Cost of revenue     3,234,802       5,406,886       (2,172,084 )     (40.17 )%
Gross profit     908,581       1,639,895       (731,314 )     (44.60 )%
General and administrative expenses     1,820,732       3,354,643       (1,533,911 )     (45.73 )%
Selling expenses     33,635       121,886       (88,251 )     (72.40 )%
Loss from operations     (945,786 )     (1,836,634 )     890,848       (48.50 )%
Income from equity method investments     15,287       69,899       (54,612 )     (78.13 )%
Other income (expense)     2,788       (9,754 )     12,542       (128.58 )%
Interest expense, net     (19,972 )     (3,126 )     (16,846 )     538.90 %
Loss before income tax provision     (947,683 )     (1,779,615 )     831,932       (46.75 )%
Provision (benefit) for income taxes     105,297       (4,783 )     110,080       (2,301.48 )%
Net loss   $ (1,052,980 )   $ (1,774,832 )   $ 721,852       (40.67 )%
Comprehensive income (loss) attributable to Shineco Inc.   $ 1,563,509     $ (4,609,009 )   $ 6,172,518       (133.92 )%

 

 

Revenue

 

Currently,
we have three revenue streams derived from our three major business segments. 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, 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.
Third, planting, processing and distributing green and organic agricultural produce as well as growing and cultivation of yew
trees; this segment is conducted through our VIEs, the Zhisheng Group.

 

The
following table sets forth the breakdown of our revenue for each of our three segments, for the three months ended September 30,
2020 and 2019, respectively:

 

    Three Months Ended September 30,     Variance  
    2020     %     2019     %     Amount     %  
Luobuma products   $ 24,615       0.60 %   $ 65,519       2.12 %   $ (40,904 )     (62.43 )%
Chinese medicinal herbal products     3,135,406       75.67 %     3,300,321       43.91 %     (164,915 )     (5.00 )%
Other agricultural products     983,362       23.73 %     3,680,941       53.97 %     (2,697,579 )     (73.29 )%
Total Amount   $ 4,143,383       100.00 %   $ 7,046,781       100.00 %   $ (2,903,398 )     (41.20 )%

 

For
the three months ended September 30, 2020 and 2019, revenue from sales of Luobuma products was US$ 24,615 and US$ 65,519, respectively,
which represented a decrease of US$ 40,904 or 62.43%. The decrease of revenue from this segment was mainly due to the decrease
in revenue from Tenet-Jove and Tenet Huatai. Since last year, we did not launch new products, and we mainly focused on clearing
off our old stocks. In addition, our sales of Luobuma products were affected by the COVID-19 outbreak, as a result, sales decreased
during the three months ended September 30, 2020 as compared to the same period in 2019.

 

For
the three months ended September 30, 2020 and 2019, revenue from sales of Chinese medicinal herbal products was US$ 3,135,406
and US$ 3,300,321, respectively, representing a slight decrease of US$ 164,915 or 5.00%. Due to the COVID-19 outbreak, people
become more health conscious and wear masks at 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 September 30, 2020 as compared to the same
period in 2019.

 

For
the three months ended September 30, 2020 and 2019, revenue from sales of other agricultural products was US$ 983,362 and US$
3,680,941, respectively, representing a decrease of US$ 2,697,579 or 73.29%. The decrease was mainly due to the decline of sales
volume of yew trees during the three months ended September 30, 2020 as compared to the same period in 2019. Our sales of yew
trees were affected by the COVID-19 outbreak, which resulted in less orders from our customers during the three months ended September
30, 2020 as compared to the same period in 2019. In addition, the decrease was also due to a shift in our business strategy as
our yet 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 extracted Taxol, a more valuable chemical substance which is used experimentally
as a drug in the treatment of cancer, in the future.

 

 

Cost
of Revenue and related tax

 

The
following table sets forth the breakdown of the Company’s cost of revenue for each of our three segments, for the three
months ended September 30, 2020 and 2019, respectively:

 

    Three Months Ended September 30,     Variance  
    2020     %     2019     %     Amount     %  
Luobuma products   $ 28,462       0.87 %   $ 231,381       4.28 %   $ (202,919 )     (87.70 )%
Chinese medicinal herbal products     2,481,321       76.71 %     2,589,930       47.90 %     (108,609 )     (4.19 )%
Other agricultural products     712,828       22.04 %     2,573,112       47.59 %     (1,860,284 )     (72.30 )%
Business and sales related tax     12,191       0.38 %     12,463       0.23 %     (272 )     (2.18 )%
Total Amount   $ 3,234,802       100.00 %   $ 5,406,886       100.00 %   $ (2,172,084 )     (40.17 )%

 

For
the three months ended September 30, 2020 and 2019, cost of revenue from sales of our Luobuma products was US$ 28,462 and US$
231,381, respectively, representing a decrease of US$ 202,919 or 87.70%. The decrease was mainly due to the decrease in cost of
revenue as we sold less products, which was in line with the decrease in sales, the decrease was also due to the decreased allowance
we accrued for our slow-moving inventories during the three months ended September 30, 2020.

 

For
the three months ended September 30, 2020 and 2019, cost of revenue from sales of Chinese medicinal herbal products was US$ 2,481,321
and US$ 2,589,930, respectively, representing a decrease of US$ 108,609 or 4.19%. The percentage of decrease in cost of revenue
was proportional to the percentage of the decrease in sales.

 

For
the three months ended September 30, 2020 and 2019, cost of revenue from sales of other agricultural products was US$ 712,828
and US$ 2,573,112, respectively, representing a decrease of US$ 1,860,284 or 72.30%. The decrease was mainly due to less yew trees
we sold during the three months ended September 30, 2020 as compared to the same period in 2019 as mentioned above. The percentage
of decrease in cost of revenue was proportional to the percentage of the decrease in sales.

 

Gross
Profit

 

The
following table sets forth the breakdown of the Company’s gross profit for each of our three segments, for the three months
ended September 30, 2020 and 2019, respectively:

 

    Three Months Ended September 30,     Variance  
    2020     %     2019     %     Amount     %  
Luobuma products   $ (3,847 )     (0.42 )%   $ (165,985 )     (10.12 )%   $ 162,138       (97.68 )%
Chinese medicinal herbal products     642,943       70.76 %     700,917       42.74 %     (57,974 )     (8.27 )%
Other agricultural products     269,485       29.66 %     1,104,963       67.38 %     (835,478 )     (75.61 )%
Total Amount   $ 908,581       100.00 %   $ 1,639,895       100.00 %   $ (731,314 )     (44.60 )%

 

Gross loss
from Luobuma product sales reduced by US$ 162,138 or 97.68% for the three months ended September 30, 2020 as compared
to the same period in 2019. During the three months ended September 30, 2020, our gross loss or negative gross profit
was US$ 3,847, it was mainly due to clearance of our old stocks, as we sold some of our products below their original costs
during the three months ended September 30, 2020. Hence, resulted in a negative gross profit during the year ended June 30,
2020. However, our negative gross profit decreased which was mainly due to less allowance we accrued for our slow-moving
inventories amounted to US$ 163,366 during the three months ended September 30, 2020 as compared to the same period in
2019.

 

Gross
profit from sales of Chinese medicinal herbal products decreased by US$ 57,974 or 8.27% for the three months ended September 30,
2020 as compared to the same period in 2019. The percentage of the variance in gross profit was proportional to the percentage
of the variance in revenue due to the stable gross margin of our products.

 

 

Gross
profit from sales of other agricultural products decreased by US$ 835,478 or 75.61% for the three months ended September 30, 2020
as compared to the same period in 2019. As mentioned above, the decrease was mainly due to less yew trees we sold during the three
months ended September 30, 2020 as mentioned above. The percentage of the variance in gross profit was proportional to the percentage
of the variance in revenue due to the stable gross margin of our products.

 

Expenses

 

The
following table sets forth the breakdown of our operating expenses for the three months ended September 30, 2020 and 2019, respectively:

 

    Three Months Ended September 30,     Variance  
    2020     %     2019     %     Amount     %  
General and administrative expenses   $ 1,820,732       98.19 %   $ 3,354,643       96.49 %   $ (1,533,911 )     (45.73 )%
Selling expenses     33,635       1.81 %     121,886       3.51 %     (88,251 )     (72.40 )%
Total Amount   $ 1,854,367       100.00 %   $ 3,476,529       100.00 %   $ (1,622,162       (46.66 )%

 

General
and Administrative Expenses

 

For
the three months ended September 30, 2020, our general and administrative expenses were US$ 1,820,732, representing a decrease
of US$ 1,533,911 for three months ended September 30 or 45.73%, as compared to the same period in 2019. The decrease in general
and administrative expenses was mainly due to a decrease in staff salary expenses as we issued restricted shares to the management
as compensation of US$ 1,022,661 last year, as well as a decrease in bad debt expense of US$ 284,994 during the three months ended
September 30, 2020.

 

Selling
Expenses

 

For
the three months ended September 30, 2020, our selling and distribution expenses were US$ 33,635, representing a decrease of US$
88,251, or 72.40%, as compared to the same period in 2019. The decrease was mainly due to the decrease in promotion expense, commission
expenses for our online shops of Tenet-Jove which was in line with the decrease in our sales during the three months ended September
30, 2020. The decrease was also due to the decrease in salary related expenses as a result of reduced number of staff during the
three months ended September 30, 2020.

 

Income
from Equity Method Investments

 

We
are 49% owners in two equity investment companies 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
net income of US$ 15,287 and US$ 69,899 from these equity method investments for the for the three months ended September 30,
2020 and 2019, respectively. The decrease in net income was primarily due to lower net profit in the two 49% equity investment
companies in the current period.

 

 

Provision
for Income Taxes

 

For
the three months ended September 30, 2020 and 2019, the Company’s provision for income taxes increased by US$ 108,987 or
2,278.63% to US$ 104,204 for the three months ended September 30, 2020 from an income tax benefit of US$ 4,783 for the three months
ended September 30, 2019. The increase in provision for income taxes was mainly due to the decreased deferred income tax benefits
arisen from the allowance for doubtful accounts and inventory reserve during the three months ended September 30, 2020 as compared
to the same period of 2019.

 

Net
Loss

 

Our
net loss was US$ 1,052,980 for three months ended September 30, 2020, a decrease of US$ 721,852 or 40.67% from net loss of US$
1,774,832 for three months ended September 30, 2019. The decrease in net loss was primarily a result of the decrease in decrease
in general and administrative expenses, which was partially offset by the decrease in gross profit.

 

Comprehensive
Income (Loss)

 

The
comprehensive income was US$ 1,614,951 for the three months ended September 30, 2020, an increase of US$ 6,248,320 from comprehensive
loss of US$ 4,633,369 for the three months ended September 30, 2019. After deduction of non-controlling interest, the comprehensive
income attributable to the Company was US$ 1,563,509 for the three months ended September 30, 2020, compared to comprehensive
loss attributable to the Company of US$ 4,609,009 for the three months ended September 30, 2019. The reason of the significant
increase of comprehensive income was due to the increase in the recorded income of foreign currency translation where the financial
statements denominated in RMB were translated to the USD denomination.

 

Treasury
Policies

 

We
have established treasury policies with the objectives of achieving effective control of treasury operations and 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 September 30, 2020 and June 30, 2020, we do 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
September 28, 2016, we completed the initial public offering of 190,354 shares of the Company’s 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.

 

On
September 27, 2018, we entered into a securities purchase agreement with selected investors whereby the Company agreed to sell
up to 181,967 of common stock at a purchase price of US$ 9 per share, for gross proceeds of US$ 1.6 million and net proceeds of
approximately US$ 1.6 million.

 

On
September 5, 2019, we entered into a securities purchase agreement with select investors whereby the Company sold 310,977 shares
of common stock at a purchase price of US$ 4.68 per share, for the net proceeds of approximately US$ 1.5 million.

 

As
of September 30, 2020, we had US$ 2,426,019 bank loan outstanding. We expect that we will be able to renew our existing bank loan
upon its 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.

 

Working
Capital

 

The
following table provides the information about our working capital at September 30, 2020 and June 30, 2020:

 

    September 30, 2020     June 30, 2020  
             
Current Assets   $ 63,164,137     $ 59,519,998  
Current Liabilities     13,816,372       11,347,325  
Working Capital   $ 49,347,765     $ 48,172,673  

 

The
working capital remained relatively stable with a slight increased by US$ 1,175,092 or 2.4% as of September 30, 2020 from June
30, 2020, primarily as a result of an increase in advances to suppliers, inventories, other current assets and account receivables,
partially offset by a decrease in cash during the three months ended September 30, 2020. We believe that we currently have sufficient
working capital to operate our business.

 

As
of September 30, 2020 and June 30, 2020, the other major component of our working capital is accounts receivable. The accounts
receivable as of September 30, 2020 were US$ 12,257,280, an increase of approximately 11.3% from US$ 11,008,485 as of June 30,
2020. Due to the recent COVID-19 outbreak in China, many of our customers’ businesses were adversely affected during this
period, which resulted in slow collection of our receivables. Management will continue putting effort in collection of overdue
account receivables from the 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 September 30, 2020 from June 30, 2020, we had no material capital commitments or contingent liabilities.

 

Cash
Flows

 

The
following table provides detailed information about our net cash flows for the three months ended September 30, 2020 and 2019.

 

    For the three months ended
September30,
 
    2020     2019  
             
Net cash provided by (used in) operating activities   $ (9,100,028 )   $ 2,145,875  
Net cash provided by (used in) investing activities     (1,228,630 )     18,780  
Net cash provided by (used in) financing activities     (11,429 )     1,555,631  
Effect of exchange rate changes on cash     1,098,821       (1,438,380 )
Net increase (decrease) in cash     (9,241,266 )     2,281,906  
Cash, beginning of period     32,371,372       35,330,676  
Cash, end of period   $ 23,130,106     $ 37,612,582  

 

Operating
Activities

 

Net
cash used in operating activities during the three months ended September 30, 2020 was approximately US$ 9.1 million, consisting
of net loss of US$ 1.1 million, bad debt expenses of US$ 1.0 million, and net changes in our operating assets and liabilities,
which mainly included an increase in advances to suppliers of US$ 6.6 million inventories of US$ 2.0 million, other receivables
of US$ 1.7 million and accounts receivables of US$ 1.4 million, partially offset by the increase in other payable of US$ 2.3 million.
Net cash provided by operating activities during the three months ended September 30, 2019 was approximately US$ 2.1 million,
consisting of net loss of US$ 1.8 million, bad debt expenses of US$ 1.3 million, restricted shares issued for 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$ 3.0 million, partially offset by the increase in other receivables of US$ 0.9 million.

 

Investing
Activities

 

For
the three months ended September 30, 2020, net used in by investing activities was US$ 1.2 million, primarily due to the advances
of loans to third parties of US$ 1.2 million during the three months ended September 30, 2020. For the three months ended September
30, 2019, net cash provided by investing activities was approximately US$ 18,780, primarily due to the proceeds from disposal
of property and equipment of US$ 79,387, partial offset by advances of loans to third parties of US$ 56,992 during the three months
ended September 30, 2019.

 

Financing
Activities

 

For
the three months ended September 30, 2020, net cash used in financing activities amounted to approximately US$ 11,429, primarily
due to the repayment of advances from related parties of US$ 11,429. For the three months ended September 30, 2019, net cash provided
by financing activities amounted to US$ 1.6 million, primarily due to the proceeds from issuance of common stock of US$ 1.5 million,
and proceeds from short-term loans of US$ 0.3 million, partially offset by the repayment of short-term loans of US$ 0.3 million.

 

 

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 the Company’s disclosure controls and procedures were not
effective at the reasonable assurance level as of the end of the period covered by this report due to following material weaknesses:

 

  Lack
of full-time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions;

 

  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 plans to take 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.

 

The
Company believes the foregoing measures will remediate the identified material weaknesses in future periods. The Company is 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
have been 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 our first fiscal quarter of 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.

 

 

PART
II – OTHER INFORMATION

 

ITEM
1. LEGAL PROCEEDINGS.

 

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, Bonwick
Capital Partners, LLC (“Plaintiff”) commenced a lawsuit (Case No. 1:17-cv-03681-PGG) against the Company in the United
States District Court for the Southern District of New York. Plaintiff alleges that the Company entered into an agreement with
Plaintiff (the “Agreement”), pursuant to which Plaintiff was to provide the Company with financial advisory services
in connection with the Company’s initial public offering in the United States. Plaintiff alleges that the Company breached
the Agreement and seeks money damages up to $6 million. The Company believes that these claims are without merit and intends to
vigorously defend itself.

 

ITEM
1A. RISK FACTORS.

 

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.

 

There
have been no unregistered sale of equity securities during the three months ended September 30, 2020.

 

ITEM
3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM
4. MINE SAFETY DISCLOSURES

 

Not
applicable.

 

ITEM
5. OTHER INFORMATION.

 

None.

 

ITEM
6. EXHIBITS

 

Number   Exhibit
3.1†   Certificate of Incorporation of Shineco, Inc. (1)
     
3.2†   Amended and Restated Bylaws of Shineco, Inc.(1)
     
4.1†   Specimen Common Stock Share Certificate (3)
     
4.2†   2016 Share Incentive Plan (2)
     
10.1†   Exclusive Business Cooperation Agreement between Beijing Tenet-Jove Technological Development Co., Ltd. and Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.2†   Timely Reporting Agreement between Shineco Inc. and Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated July 3, 2014. (1)
     
10.3†   Equity Interest Pledge Agreement among Beijing Tenet Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Liu Yu, Zhou Qi, Yang Chunhong, and Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.4†   Exclusive Option Agreement among Beijing Tenet Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Liu Yu, Zhou Qi, Yang Chunhong (Shareholders from Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd.), and Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.5†   Power of Attorney by and between Yang Chunhong and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)

 

 

Number   Exhibit
10.6†   Power of Attorney by and between Yin Weixing and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.7†   Power of Attorney by and between Liu Yu and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.8†   Power of Attorney by and between Wang Qiwei and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.9†   Power of Attorney by and between Wang Sai and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.10†   Power of Attorney by and between Zhou Qi and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Shineco Zhisheng (Beijing) Bio-Technology Co., Ltd. dated February 24, 2014. (1)
     
10.11†   Exclusive Business Cooperation Agreement between Beijing Tenet-Jove Technological Development Co., Ltd. and Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.12†   Timely Reporting Agreement between Shineco Inc. and Yantai Zhisheng International Freight Forwarding Co., Ltd. dated July 3, 2014. (1)
     
10.13†   Equity Interest Pledge Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Zhang Weisheng, Zhou Qi, Yang Chunhong, and Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.14†   Exclusive Option Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Zhang Weisheng, Zhou Qi, Yang Chunhong, and Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.15†   Power of Attorney by and between Zhou Qi and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.16†   Power of Attorney by and between Zhang Weisheng and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.17†   Power of Attorney by and between Yang Chunhong and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)

 

 

Number   Exhibit
10.18†   Power of Attorney by and between Wang Qiwei and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.19†   Power of Attorney by and between Wang Sai and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.20†   Power of Attorney by and between Yin Weixing and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Freight Forwarding Co., Ltd. dated June 16, 2011. (1)
     
10.21†   Exclusive Business Cooperation Agreement between Beijing Tenet Jove Technological Development Co., Ltd. and Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.22†   Timely Reporting Agreement between Shineco Inc. and Yantai Zhisheng International Trade Co., Ltd. dated July 3, 2014. (1)
     
10.23†   Equity Interest Pledge Agreement among Beijing Tenet Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Zhang Weisheng, Zhou Qi, Yang Chunhong, and Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.24†   Exclusive Option Agreement among Beijing Tenet Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Zhang Weisheng, Zhou Qi, Yang Chunhong, and Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.25†   Power of Attorney by and between Zhang Weisheng and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.26†   Power of Attorney by and between Zhou Qi and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.27†   Power of Attorney by and between Wang Qiwei and Beijing Tenet Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.28†   Power of Attorney by and between Yin Weixing and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.29†   Power of Attorney by and between Wang Sai and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)
     
10.30†   Power of Attorney by and between Yang Chunhong and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Zhisheng International Trade Co., Ltd. dated June 16, 2011. (1)

 

 

Number   Exhibit
10.31†   Exclusive Business Cooperation Agreement between Beijing Tenet-Jove Technological Development Co., Ltd. and Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.32†   Timely Reporting Agreement between Shineco Inc. and Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated July 3, 2014. (1) 
     
10.33†   Equity Interest Pledge Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Zhang Weisheng, Zhou Qi, Yang Chunhong, and Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.34†   Exclusive Option Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Wang Qiwei, Wang Sai, Yin Weixing, Zhang Weisheng, Zhou Qi, Yang Chunhong, and Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.35†   Power of Attorney by and between Wang Sai and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Qingdao Zhihesheng Agricultural Produce Services Co., Ltd. dated May 24, 2012. (1)
     
10.36†   Power of Attorney by and between Wang Qiwei and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Qingdao Zhihesheng Agricultural Produce Services Co., Ltd. dated May 24, 2012. (1)
     
10.37†   Power of Attorney by and between Yin Weixing and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.38†   Power of Attorney by and between Zhang Weisheng and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.39†   Power of Attorney by and between Zhou Qi and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.40†   Power of Attorney by and between Yang Chunhong and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Qingdao Zhihesheng Agricultural Produce Services, Co., Ltd. dated May 24, 2012. (1)
     
10.41†   Exclusive Business Cooperation Agreement between Beijing Tenet-Jove Technological Development Co., Ltd. and Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated June 16, 2011. (1)
     
10.42†   Timely Reporting Agreement between Shineco Inc. and Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated July 3, 2014. (1)

 

 

Number   Exhibit
10.43†   Guarantee Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Wang Qiwei, and Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated June 16, 2011. (1)
     
10.44†   Power of Attorney by and between Zhang Weisheng and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated June 16, 2011. (1)
     
10.45†   Power of Attorney by and between Yin Weixing and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated June 16, 2011. (1)
     
10.46†   Power of Attorney by and between Wang Sai and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated June 16, 2011. (1)
     
10.47†   Power of Attorney by and between Wang Qiwei and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Yantai Mouping District Zhisheng Agricultural Produce Cooperative dated June 16, 2011. (1)
     
10.48†   Exclusive Business Cooperation Agreement between Beijing Tenet-Jove Technological Development Co., Ltd. and Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated December 31, 2008. (1)
     
10.49†   Timely Reporting Agreement between Shineco Inc. and Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated July 3, 2014. (1)
     
10.50†   Equity Interest Pledge Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Chen Jiping, Chen Xiaoyan, and Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated December 31, 2008. (1)
     
10.51†   Exclusive Option Agreement among Beijing Tenet-Jove Technological Development Co., Ltd., Chen Jiping, Chen Xiaoyan, and Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated December 31, 2008. (1)
     
10.52†   Power of Attorney by and between Chen Xiaoyan and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated December 31, 2008. (1)
     
10.53†   Power of Attorney by and between Chen Jiping and Beijing Tenet-Jove Technological Development Co., Ltd. regarding shareholding of Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated December 31, 2008. (1)
     
10.54†   Summary translation of Cooperation Agreement between Shaanxi Pharmacy Sunsimiao Drugstore Chain Co., Ltd. and Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated September 27, 2012. (1)
     
10.55†   Summary translation of Cooperation Agreement between Shaanxi Pharmacy Holding Group Xi’an Pharmaceutical Co., Ltd. and Ankang Longevity Pharmaceutical (Group) Co., Ltd. dated September 27, 2012. (1)

 

 

Number   Exhibit
10.56†   Summary translation of Loan Contract between Beijing Tenet-Jove Technological Development Co., Ltd. and Beijing Rural Commercial Bank Co., Ltd. Tiantongyuan Branch dated December 31, 2009. (1)
     
10.57†   Summary translation of Project Shares Purchase Contract among Yantai Zhisheng International Freight Forwarding Co., Ltd., Yantai Mouping District Zhisheng Agricultural Produce Cooperative and Zhejiang Zhen’Ai Network Warehousing Services Co., Ltd. dated October 21, 2013. (1)
     
10.58†   Summary translation of Contractual Management/Operation Agreement between Ankang Longevity Pharmaceutical Group Chain Co., Ltd. and Qiu Haiyin dated March 1, 2013. (1)
     
10.59†   Summary translation of Supplementary Agreement between Ankang Longevity Pharmaceutical Group Chain Co., Ltd. and Qiu Haiyin dated February 28, 2014. (1)
     
10.60†   Form of Independent Director Engagement Letter (2)
     
10.61†   2016 Share Incentive Plan (included in Exhibit 4.2) (2)
     
10.62†   Translated Definitive Share Exchange and Acquisition Agreement between Xinjiang Taihe and Western Xinjiang Tiansheng Agricultural Development Co., Ltd., dated December 6, 2017 (Incorporated by reference to the Company’s Form 8-K filed with the SEC on December 11, 2017)
     
10.63†   Common Stock Purchase Agreement between the Company and IFG Opportunity Fund LLC, dated January 23, 2018 (Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 26, 2018)
     
10.64†   Registration Rights Agreement between the Company and IFG Opportunity Fund LLC, dated January 23, 2018 (Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 26, 2018)
     
10.65†   Termination Agreement between the Company and IFG Opportunity Fund LLC, dated July 3, 2018 (Incorporated by reference to the Company’s Form 8-K filed with the SEC on July 5, 2018)
     
10.66†   Form of Securities Purchase Agreement among the Company and selected investors, dated September 27, 2018 (Incorporated by reference to the Company’s Form 8-K filed with the SEC on September 28, 2018)

 

 

 

* Filed
herewith.
   
** Furnished
but not filed.
   
Previously
filed.

 

(1) Incorporated
by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on July 1, 2015 (Registration No.
333-202803).
   
(2) Incorporated
by reference to the Company’s Annual Report on Form 10-K filed with the SEC September 28, 2016.
   
(3) Incorporated
by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on January 27, 2016 (Registration
No. 333-202803).

 

 

SIGNATURES

 

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:
November 16, 2020
By: /s/
Guocong Zhou
    Guocong
Zhou
    Chief
Executive Officer
    (Principal
Executive Officer)
     
Dated:
November 16, 2020
By: /s/
Sai (Sam) Wang
    Sai
(Sam) Wang
    Chief
Financial Officer
    (Principal
Financial and Accounting Officer)

 

 

 

EXHIBIT
31.1

 

CERTIFICATION
OF CHIEF EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002

 

I,
Guocong Zhou, certify that:

 

1. I
have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2020 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;
and

 

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 the registrant’s board of directors
(or persons performing the equivalent functions):

 

  a. All
significant deficiencies and material weaknesses in the design or operation of internal control 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:
November 16, 2020
By: /s/
Guocong Zhou
    Guocong
Zhou
    Chief
Executive Officer
    (Principal
Executive Officer)

 

 

EXHIBIT
31.2

 

CERTIFICATION
OF CHIEF FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002

 

I,
Sai (Sam) Wang, certify that:

 

1. I
have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2020 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;
and

 

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 the registrant’s board of directors
(or persons performing the equivalent functions):

 

  a. All
significant deficiencies and material weaknesses in the design or operation of internal control 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:
November 16, 2020
By: /s/
Sai (Sam) Wang
    Sai
(Sam) Wang
    Chief
Financial Officer
    (Principal
Finance and 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

 

I,
Guocong Zhou, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

  1. The
Quarterly Report on Form 10-Q of Shineco, Inc. (the “Company”) for the period ended September 30, 2020
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (U.S.C. 78m or 78o(d)); 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:
November 16, 2020
By: /s/
Guocong Zhou
    Guocong
Zhou
   

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

 

I,
Sai (Sam) Wang, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

  1. The
Quarterly Report on Form 10-Q of Shineco, Inc. (the “Company”) for the period ended September 30, 2020
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (U.S.C. 78m or 78o(d)); 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:
November 16, 2020
By: /s/
Sai (Sam) Wang
    Sai
(Sam) Wang
   

Interim
Chief Financial Officer

(Principal
Financial and 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.