[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the period ended December 31, 2021, show an increase in total assets to $74.8 million from $61.3 million at June 30, 2021, primarily due to a significant rise in inventories, with total liabilities more than doubling to $32.9 million, driven by the issuance of convertible notes, and a net loss of $17.1 million on revenues that decreased to $1.36 million [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of December 31, 2021, total assets increased to $74.8 million from $61.3 million at June 30, 2021, largely driven by a substantial increase in inventories to $21.0 million and other current assets, while total liabilities rose significantly to $32.9 million from $15.9 million, mainly due to an increase in convertible notes payable to $14.8 million, consequently decreasing total equity from $45.4 million to $41.8 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Dec 31, 2021 ($) | June 30, 2021 ($) | | :--- | :--- | :--- | | **Total Current Assets** | 66,641,593 | 49,278,577 | | **Total Assets** | **74,752,610** | **61,318,599** | | **Total Current Liabilities** | 30,376,977 | 14,795,390 | | Convertible note payable | 14,840,874 | 2,933,030 | | **Total Liabilities** | **32,918,168** | **15,940,393** | | **Total Equity** | **41,834,442** | **45,378,206** | [Condensed Consolidated Statements of Loss and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Loss%20and%20Comprehensive%20Loss) For the six months ended December 31, 2021, revenue decreased to $1.36 million from $1.80 million in the prior-year period, resulting in a gross loss of $1.29 million and a loss from operations of $12.96 million, which widened significantly from a loss of $7.36 million YoY, leading to a net loss attributable to Shineco, Inc. of $17.12 million and a basic and diluted loss per share of ($1.96) Six Months Ended December 31, (Unaudited) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Revenue | 1,362,332 | 1,797,639 | | Gross Loss | (1,291,236) | (2,705,309) | | Loss from Operations | (12,956,585) | (7,364,765) | | Net Loss from Continuing Operations | (13,992,621) | (7,271,692) | | Net Loss from Discontinued Operations | (3,135,237) | (7,264,815) | | **Net Loss Attributable to Shineco, Inc.** | **(17,116,043)** | **(14,076,423)** | | **Basic and Diluted Loss Per Share** | **(1.96)** | **(4.52)** | [Condensed Consolidated Statements of Changes in Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) For the six months ended December 31, 2021, total equity decreased from $45.4 million to $41.8 million, primarily driven by a net loss of $17.1 million, partially offset by proceeds from stock issuances and common shares issued for convertible note redemption totaling approximately $13.5 million, and a positive foreign currency translation adjustment of $0.8 million - Key equity changes for the six months ended Dec 31, 2021 include a net loss of **$17.1 million**, stock issuances of **$7.5 million**, and issuance of common shares for convertible notes redemption valued at **$6.0 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended December 31, 2021, net cash used in operating activities was $5.6 million, net cash used in investing activities was significant at $32.5 million, mainly due to loans to third parties and the disposal of a VIE, and net cash provided by financing activities was $25.2 million, primarily from the issuance of common stock and convertible notes, resulting in an overall cash decrease from $29.0 million to $16.6 million during the period Cash Flow Summary for the Six Months Ended December 31, (Unaudited) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (5,610,545) | (11,436,484) | | Net cash provided (used in) by investing activities | (32,450,291) | 221,518 | | Net cash provided by financing activities | 25,235,511 | 957,325 | | **Net Decrease in Cash** | **(12,403,499)** | **(8,012,380)** | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's structure, including its reliance on Variable Interest Entities (VIEs) in the PRC, and significant accounting policies, highlighting key events such as the July 5, 2021 restructuring where the company disposed of its Ankang Longevity Group and acquired Guangyuan, the issuance of significant convertible notes totaling over $17 million in principal, and breakdowns of balance sheet accounts, segment performance, related party transactions, and legal contingencies - The company operates through a VIE structure in the PRC, which is essential for its control over entities like the Zhisheng VIEs and the newly acquired Guangyuan[21](index=21&type=chunk)[22](index=22&type=chunk) - On July 5, 2021, the company completed a major restructuring, disposing of the Ankang Longevity Group in exchange for control over Yushe County Guangyuan Forest Development Co., Ltd. ("Guangyuan") Ankang is now treated as a discontinued operation[28](index=28&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk) - During the six months ended December 31, 2021, the company issued multiple convertible promissory notes to an institutional investor, raising a total of **$17.0 million** in proceeds[149](index=149&type=chunk)[150](index=150&type=chunk) - The company is involved in a lawsuit with Mrs. Guiqin Li, for which it has accrued approximately **$781,700** It is also in litigation with Lei Zhang and Yan Li over unpaid restricted shares, facing a counterclaim seeking at least **$19 million** in damages[175](index=175&type=chunk)[176](index=176&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's structure as a Delaware holding company operating through VIEs in the PRC, a structure that carries regulatory risks, and analyzes the six months ended December 31, 2021, revealing a 24.2% decrease in revenue from continuing operations to $1.36 million, a widening net loss from continuing operations to $14.0 million, driven by increased G&A expenses and an impairment loss, with liquidity supported by recent financing activities [Results of Operations for the Six Months Ended December 31, 2021 and 2020](index=54&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20December%2031,%202021%20and%202020) For the six months ended Dec 31, 2021, revenue from continuing operations fell 24.2% to $1.36 million, with Luobuma products down 52.4% and agricultural products down 23.0%, while gross loss narrowed to $1.29 million from $2.71 million YoY due to lower inventory write-offs, but a 126.6% surge in G&A expenses to $10.5 million and a new $1.14 million impairment charge on distribution rights caused the loss from operations to widen to $13.0 million, and the net loss from continuing operations increased to $14.0 million from $7.3 million in the prior year period Revenue Breakdown (Six Months Ended Dec 31) | Segment | 2021 Revenue ($) | 2020 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Luobuma products | 34,768 | 73,009 | (52.38)% | | Other agricultural products | 1,327,564 | 1,724,630 | (23.02)% | | **Total** | **1,362,332** | **1,797,639** | **(24.22)%** | - General and administrative expenses increased by **126.6%** to **$10.5 million**, primarily due to a **$2.5 million** increase in bad debt expenses, costs from the newly acquired Guangyuan VIE, and higher professional service fees[247](index=247&type=chunk) - A full impairment loss of **$1,140,551** was recorded on the distribution rights of Tianjin Tajite due to lower than expected revenue and an unfavorable business environment[248](index=248&type=chunk) - Net loss from discontinued operations (Ankang Group) was **$3.1 million**, reflecting the loss on disposal, compared to a **$7.3 million** operating loss from that segment in the prior year period[255](index=255&type=chunk)[258](index=258&type=chunk) [Results of Operations for the Three Months Ended December 31, 2021 and 2020](index=59&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20December%2031,%202021%20and%202020) For the three months ended Dec 31, 2021, revenue decreased slightly by 7.2% to $732,574, but a significant reduction in cost of revenue, mainly from lower inventory write-offs, led to a much smaller gross loss of $561,691 compared to $2.97 million in the prior-year quarter, and general and administrative expenses decreased by 39.9% to $1.9 million, largely due to a reversal of bad debt allowance, consequently narrowing the net loss from continuing operations substantially to $2.88 million from $6.11 million YoY Quarterly Performance Highlights (Three Months Ended Dec 31) | Metric | 2021 ($) | 2020 ($) | % Change | | :--- | :--- | :--- | :--- | | Revenue | 732,574 | 789,662 | (7.2)% | | Gross Loss | (561,691) | (2,970,947) | (81.1)% | | Loss from Operations | (2,504,491) | (6,194,447) | (59.6)% | | Net Loss from Continuing Operations | (2,884,400) | (6,108,387) | (52.8)% | - The significant improvement in gross loss was primarily due to lower inventory write-offs in the agricultural segment compared to the same period in 2020, when severe weather caused substantial damage[271](index=271&type=chunk)[274](index=274&type=chunk) - General and administrative expenses decreased mainly due to a reversal of bad debt allowance of **$1.5 million** in Q4 2021, compared to a provision of **$2.6 million** in Q4 2020[276](index=276&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) The company finances its operations through stock offerings, convertible notes, and short-term loans, with working capital increasing by $1.8 million to $36.3 million as of December 31, 2021, and significant capital raised during the six-month period, including $17.0 million from convertible notes and $7.5 million from common stock issuance, despite high cash used in investing activities at $32.5 million, with management believing current cash and future cash flows are sufficient for the next 12 months - The company raised approximately **$26.5 million** through the issuance of convertible notes and common stock in the second half of 2021[294](index=294&type=chunk)[295](index=295&type=chunk) Cash Flow Summary (Six Months Ended Dec 31) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (5,610,545) | (11,436,484) | | Net cash used in/provided by investing activities | (32,450,291) | 221,518 | | Net cash provided by financing activities | 25,235,511 | 957,325 | - Working capital increased by **$1.8 million** to **$36.3 million** as of December 31, 2021, compared to June 30, 2021[296](index=296&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Shineco, Inc. is not required to provide the information for this item - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[306](index=306&type=chunk) [Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2021, due to material weaknesses, including a lack of full-time U.S. GAAP personnel in the accounting department and a lack of segregation of duties, with the company taking remedial steps such as recruiting qualified professionals and engaging an outside consulting firm, and no material changes to internal control over financial reporting occurred during the quarter - Management identified material weaknesses in internal controls, concluding that disclosure controls and procedures were not effective[307](index=307&type=chunk) - Specific weaknesses include a lack of U.S. GAAP accounting personnel and inadequate segregation of duties[307](index=307&type=chunk) - Remediation efforts include recruiting qualified staff and engaging an external consulting firm to improve internal controls[308](index=308&type=chunk) [PART II. OTHER INFORMATION](index=68&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) The company discloses two significant legal proceedings: a lawsuit by Mrs. Guiqin Li related to stock sale losses from the IPO, for which the company has accrued approximately $781,700, and a complaint filed by the company against Lei Zhang and Yan Li for non-payment for restricted shares, which has resulted in a counterclaim against the company seeking at least $9 million in damages and $10 million in punitive damages - A lawsuit by Mrs. Guiqin Li concerning losses from the company's IPO has resulted in an accrued liability of approximately **$781,700** as of December 31, 2021 The company is appealing the initial judgment[312](index=312&type=chunk) - The company is suing Lei Zhang and Yan Li for non-payment of **982,500** restricted shares, with a corresponding subscription receivable of **$3.024 million** on its balance sheet The defendants have filed a counterclaim alleging misleading statements and are seeking damages of at least **$9 million** plus **$10 million** in punitive damages[313](index=313&type=chunk) [Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Shineco, Inc. is not required to provide the information for this item - The company is not required to provide risk factor disclosures in this report as it qualifies as a smaller reporting company[314](index=314&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Information regarding this item is referenced in the Management's Discussion and Analysis section under "Financing Activities" - Details on unregistered sales of equity securities are provided in the MD&A section concerning financing activities[315](index=315&type=chunk)

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company reported a significant net loss increase to $14.2 million for Q3 2021, driven by revenue decline and gross loss, with balance sheet liabilities rising due to new convertible note financing [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $68.3 million by September 30, 2021, while total liabilities surged to $31.6 million, primarily from convertible notes, leading to a decline in total equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2021 | June 30, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $59,523,586 | $49,278,577 | | **Total Assets** | **$68,261,157** | **$61,318,599** | | **Total Current Liabilities** | $29,008,848 | $14,795,390 | | Convertible note payable | $16,352,339 | $2,933,030 | | **Total Liabilities** | **$31,612,254** | **$15,940,393** | | **Total Equity** | **$36,648,903** | **$45,378,206** | [Condensed Consolidated Statements of Loss and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Loss%20and%20Comprehensive%20Income%20%28Loss%29) Revenue declined 37.5% to $629,758 for Q3 2021, resulting in a gross loss and a total net loss of $14.2 million, including discontinued operations, with diluted loss per share at $1.71 Quarterly Income Statement Summary (Unaudited) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | **Revenue** | $629,758 | $1,007,977 | | **Gross Profit (Loss)** | **($729,545)** | **$265,638** | | **Loss from Operations** | ($10,452,094) | ($1,170,318) | | **Net Loss from Continuing Operations** | ($11,108,221) | ($1,163,305) | | Net (Loss) Income from Discontinued Operations | ($3,135,237) | $110,325 | | **Net Loss** | **($14,243,458)** | **($1,052,980)** | | **Basic and Diluted Loss Per Share** | **($1.71)** | **($0.35)** | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was $5.3 million, while investing activities consumed $26.0 million, offset by $20.4 million from financing, leading to a $10.8 million decrease in cash for the quarter Quarterly Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($5,264,781) | ($9,100,028) | | Net Cash Used in Investing Activities | ($25,954,544) | ($1,228,630) | | Net Cash Provided by (Used in) Financing Activities | $20,436,888 | ($11,429) | | **Net Decrease in Cash** | **($10,794,321)** | **($9,241,266)** | | **Cash - End of Period** | **$18,230,073** | **$23,130,106** | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's VIE structure, a major restructuring involving the disposal of Ankang Longevity and acquisition of Guangyuan, significant convertible note financing, and a $1.14 million impairment loss on distribution rights - The company operates through a VIE structure in the PRC, completing a major restructuring on **July 5, 2021**, by disposing of Ankang Longevity Group and acquiring Guangyuan[9](index=9&type=chunk)[71](index=71&type=chunk)[94](index=94&type=chunk) - The disposal of Ankang Longevity Group is reported as a discontinued operation, recognizing a loss on disposal of **$3,135,237** for the quarter[94](index=94&type=chunk)[97](index=97&type=chunk) - The company issued unsecured convertible promissory notes in July and August 2021, raising **$17.0 million** with a one-year maturity and **6% interest rate**[78](index=78&type=chunk) - A full impairment loss of **$1,140,551** was recorded on Tianjin Tajite distribution rights due to underperforming revenue and an unfavorable business environment[51](index=51&type=chunk)[70](index=70&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's VIE structure, operational restructuring, a **37.5% revenue decline** to $0.6 million, and a net loss increase to **$14.2 million**, with liquidity bolstered by **$17 million** in convertible notes [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Revenue decreased **37.5%** to $629,758 for Q3 2021, resulting in a gross loss of **$729,545** due to inventory write-offs, while G&A expenses surged **502%** from increased bad debt, leading to an **$11.1 million** net loss from continuing operations Revenue by Segment (Continuing Operations) | Segment | Q3 2021 Revenue | Q3 2020 Revenue | % Change | | :--- | :--- | :--- | :--- | | Luobuma products | $13,508 | $24,615 | (45.12)% | | Other agricultural products | $616,250 | $983,362 | (37.33)% | | **Total** | **$629,758** | **$1,007,977** | **(37.52)%** | - Cost of revenue increased **83.1%** year-over-year, primarily due to a **$492,987** inventory write-off from flood damage and a **$120,273** allowance for slow-moving inventory[119](index=119&type=chunk) - General and administrative expenses increased by **$7.2 million (502.37%)** year-over-year, mainly due to a **$6.6 million** increase in bad debt expenses[122](index=122&type=chunk) - A full impairment loss of **$1,140,551** was recorded on Tianjin Tajite distribution rights due to underperformance[124](index=124&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by **$17.0 million** from convertible notes and **$2.4 million** from stock sales, despite **$5.3 million** net cash used in operations and **$26.0 million** in investing activities, with working capital at **$30.5 million** - The company raised significant capital, including **$17.0 million** from convertible notes and **$2.4 million** from common stock issuance during the quarter[140](index=140&type=chunk) Working Capital Summary | Metric | Sep 30, 2021 | June 30, 2021 | | :--- | :--- | :--- | | Current Assets | $59,523,586 | $49,278,577 | | Current Liabilities | $29,008,848 | $14,795,390 | | **Working Capital** | **$30,514,738** | **$34,483,187** | [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company[142](index=142&type=chunk) [Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of September 30, 2021, due to material weaknesses including a lack of U.S. GAAP personnel and inadequate segregation of duties, with remediation efforts underway - Management identified material weaknesses in internal controls over financial reporting[143](index=143&type=chunk) - Specific weaknesses include a lack of U.S. GAAP personnel and inadequate segregation of duties in the accounting department[143](index=143&type=chunk) - Remediation efforts include recruiting qualified professionals and engaging an outside consulting firm[143](index=143&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) A 2017 lawsuit related to IPO financial advisory services was settled in March 2021 for **$47,500**, with no other material legal proceedings currently pending - A lawsuit filed by Bonwick Capital Partners, LLC in 2017, seeking up to **$6 million** in damages, was settled in **March 2021** for a payment of **$47,500**[145](index=145&type=chunk) [Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) The company is exempt from providing risk factor disclosures as it qualifies as a smaller reporting company - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company[145](index=145&type=chunk)

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Shineco, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and explanatory notes [Condensed Consolidated Balance Sheets (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) This section provides the unaudited condensed consolidated balance sheets, detailing the company's assets, liabilities, and equity as of September 30, 2020, and June 30, 2020 Condensed Consolidated Balance Sheet Highlights (USD) | Metric | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------- | :----------------- | :----------------- | :----------- | :------- | | **Assets** | | | | | | Total Current Assets | 63,164,137 | 59,519,998 | 3,644,139 | 6.12% | | Total Assets | 83,205,624 | 79,088,611 | 4,117,013 | 5.21% | | **Liabilities & Equity** | | | | | | Total Current Liabilities | 13,816,372 | 11,347,325 | 2,469,047 | 21.76% | | Total Liabilities | 15,078,272 | 12,576,210 | 2,502,062 | 19.90% | | Total Equity | 68,127,352 | 66,512,401 | 1,614,951 | 2.43% | | Total Liabilities and Equity | 83,205,624 | 79,088,611 | 4,117,013 | 5.21% | - Cash decreased by **$9,241,266** from **$32,371,372** on June 30, 2020, to **$23,130,106** on September 30, 2020[4](index=4&type=chunk) - Accounts receivable, net increased by **$1,248,795** from **$11,008,485** on June 30, 2020, to **$12,257,280** on September 30, 2020[4](index=4&type=chunk) [Condensed Consolidated Statements of Income and Comprehensive Income (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(unaudited)) This section presents the unaudited condensed consolidated statements of income and comprehensive income, outlining revenue, expenses, and net loss for the three months ended September 30, 2020 and 2019 Condensed Consolidated Statements of Income and Comprehensive Income (Loss) Highlights (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :------------------------------------------------ | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Revenue | 4,143,383 | 7,046,781 | (2,903,398) | (41.20)% | | Gross Profit | 908,581 | 1,639,895 | (731,314) | (44.60)% | | Loss From Operations | (945,786) | (1,836,634) | 890,848 | (48.50)% | | Net Loss | (1,052,980) | (1,774,832) | 721,852 | (40.67)% | | Net Loss Attributable to Shineco, Inc. | (1,057,510) | (1,792,637) | 735,127 | (41.01)% | | Comprehensive Income (Loss) Attributable to Shineco, Inc. | 1,563,509 | (4,609,009) | 6,172,518 | (133.92)% | | Basic and Diluted Loss Per Common Share | (0.35) | (0.67) | 0.32 | (47.76)% | - Comprehensive income (loss) attributable to Shineco, Inc. significantly improved from a loss of **$4,609,009** in Q3 2019 to an income of **$1,563,509** in Q3 2020, primarily due to a foreign currency translation gain of **$2,667,931**[5](index=5&type=chunk) [Condensed Consolidated Statements of Changes in Equity (unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20(unaudited)) This section details the unaudited condensed consolidated statements of changes in equity, showing movements in total equity, net income, and foreign currency translation gains Condensed Consolidated Statements of Changes in Equity Highlights (USD) | Metric | June 30, 2020 (USD) | Net Income (Loss) (USD) | Foreign Currency Translation Gain (USD) | September 30, 2020 (USD) | | :-------------------------------- | :------------------ | :---------------------- | :-------------------------------------- | :----------------------- | | Total Equity | 66,512,401 | (1,052,980) | 2,667,931 | 68,127,352 | - The company's total equity increased by **$1,614,951** from **$66,512,401** on June 30, 2020, to **$68,127,352** on September 30, 2020, despite a net loss, primarily driven by a significant foreign currency translation gain[6](index=6&type=chunk)[8](index=8&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) This section presents the unaudited condensed consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Net Cash Provided by (Used in) Operating Activities | (9,100,028) | 2,145,875 | (11,245,903) | (524.09)% | | Net Cash Provided by (Used in) Investing Activities | (1,228,630) | 18,780 | (1,247,410) | (6642.23)% | | Net Cash Provided by (Used in) Financing Activities | (11,429) | 1,555,631 | (1,567,060) | (100.73)% | | Effect of Exchange Rate Change on Cash | 1,098,821 | (1,438,380) | 2,537,201 | (176.39)% | | Net Increase (Decrease) in Cash | (9,241,266) | 2,281,906 | (11,523,172) | (504.90)% | | Cash - End of the Period | 23,130,106 | 37,612,582 | (14,482,476) | (38.50)% | - Net cash used in operating activities significantly increased to **$9.1 million** in Q3 2020 from cash provided of **$2.1 million** in Q3 2019, primarily due to increases in advances to suppliers, inventories, and accounts receivables[9](index=9&type=chunk)[221](index=221&type=chunk) - Net cash used in investing activities was **$1.2 million** in Q3 2020, a substantial shift from cash provided of **$18,780** in Q3 2019, mainly due to advances of loans to third parties[9](index=9&type=chunk)[222](index=222&type=chunk) [Notes to the Condensed Consolidated Financial Statements (unaudited)](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining the company's organization, accounting policies, and specific financial line items [NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS](index=10&type=section&id=NOTE%201%20-%20ORGANIZATION%20AND%20NATURE%20OF%20OPERATIONS) This note describes Shineco, Inc.'s corporate structure, primary business segments in China, and recent operational changes - Shineco, Inc. is a Delaware holding company focused on business opportunities in the People's Republic of China (PRC), operating through its wholly-owned subsidiary Tenet-Jove and various Variable Interest Entities (VIEs) like Zhisheng Group and Ankang Longevity Group[11](index=11&type=chunk)[12](index=12&type=chunk)[14](index=14&type=chunk) - The company's three main business segments are: 1) manufacturing and selling Bluish Dogbane (Luobuma) products, 2) planting, processing, and distributing green agricultural produce and providing logistics services, and 3) manufacturing traditional Chinese medicinal herbal products and retail pharmaceuticals[23](index=23&type=chunk) - Recent operational changes include the cessation of business operations for Tiankunrunze and its subsidiaries in July 2019, and for Xinjiang Taihe and Runze in September and October 2020, respectively[22](index=22&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the significant accounting policies used in preparing the financial statements, including consolidation principles, revenue recognition, and recent accounting standard adoptions - The unaudited condensed consolidated financial statements are prepared in conformity with US GAAP, consolidating the Company, its subsidiaries, VIEs, and VIEs' subsidiaries, with all intercompany accounts and transactions eliminated[25](index=25&type=chunk)[26](index=26&type=chunk) VIEs' Financial Information (USD) | Metric | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------- | :----------------- | :----------------- | :----------- | :------- | | Total Assets | 79,171,441 | 77,574,113 | 1,597,328 | 2.06% | | Total Liabilities | (7,496,725) | (6,189,172) | (1,307,553) | 21.13% | | Net Assets | 71,674,716 | 71,384,941 | 289,775 | 0.41% | | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Net Sales | 4,122,691 | 7,011,877 | (2,889,186) | (41.20)% | | Net Income (Loss) | (400,077) | 569,490 | (969,567) | (170.26)% | - The company's operations are primarily located in the PRC, exposing it to significant political, economic, and legal environment risks, including potential challenges to contractual arrangements with VIEs[30](index=30&type=chunk)[31](index=31&type=chunk) - The allowance for doubtful accounts increased to **$6,065,185** as of September 30, 2020, from **$5,235,436** as of June 30, 2020, reflecting management's assessment of collectability[37](index=37&type=chunk) - The company adopted ASU 2016-02, 'Leases,' on July 1, 2019, recognizing approximately **$0.5 million** in operating liabilities and **$3.6 million** in corresponding Right-of-use (ROU) assets, with no cumulative effect on adoption[41](index=41&type=chunk) - The company expects ASU No. 2018-15, 'Intangibles - Goodwill and Other - Internal-Use Software,' to have a material impact on its financial statements upon adoption[64](index=64&type=chunk) [NOTE 3 – INVENTORIES, NET](index=19&type=section&id=NOTE%203%20%E2%80%93%20INVENTORIES%2C%20NET) This note provides a breakdown of the company's inventories, net, including raw materials, work-in-process, and finished goods, along with changes over the period Inventories, Net (USD) | Category | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :------------------ | :----------------- | :----------------- | :------- | :------- | | Raw materials | 702,649 | 958,206 | (255,557) | (26.67)% | | Work-in-process | 2,621,429 | 529,655 | 2,091,774 | 394.94% | | Finished goods | 1,699,609 | 1,433,423 | 266,186 | 18.57% | | Less: inventory reserve | (1,179,743) | (1,121,408) | (58,335) | 5.20% | | **Total inventories, net** | **3,843,944** | **1,799,876** | **2,094,068** | **116.35%** | - Work-in-process inventory saw a substantial increase of **394.94%** from June 30, 2020, to September 30, 2020, indicating increased production activity or accumulation of costs for agricultural products[69](index=69&type=chunk) [NOTE 4 - PROPERTY AND EQUIPMENT, NET](index=20&type=section&id=NOTE%204%20-%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) This note details the company's property and equipment, net, including buildings, machinery, and farmland leasehold improvements, and related depreciation Property and Equipment, Net (USD) | Category | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :---------------------------------- | :----------------- | :----------------- | :------- | :------- | | Buildings | 11,980,396 | 11,525,458 | 454,938 | 3.95% | | Machinery and equipment | 894,580 | 860,610 | 33,970 | 3.95% | | Motor vehicles | 59,905 | 57,630 | 2,275 | 3.95% | | Office equipment | 240,300 | 231,174 | 9,126 | 3.95% | | Farmland leasehold improvements | 3,091,919 | 2,974,508 | 117,411 | 3.95% | | Less: accumulated depreciation and amortization | (6,557,766) | (6,159,896) | (397,870) | 6.46% | | **Total property and equipment, net** | **9,709,334** | **9,489,484** | **219,850** | **2.32%** | - Depreciation and amortization expense decreased by **14.65%** from **$178,215** in Q3 2019 to **$152,107** in Q3 2020[70](index=70&type=chunk) - Farmland leasehold improvements include investments in blueberry farmland, yew tree planting base reconstruction, and greenhouse renovation[71](index=71&type=chunk) [NOTE 5 - LAND USE RIGHTS, NET](index=21&type=section&id=NOTE%205%20-%20LAND%20USE%20RIGHTS%2C%20NET) This note describes the company's land use rights, net, including their amortization policy and changes over the period Land Use Rights, Net (USD) | Category | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------- | :----------------- | :----------------- | :------- | :------- | | Land use rights | 1,635,428 | 1,573,325 | 62,103 | 3.95% | | Less: accumulated amortization | (400,622) | (377,382) | (23,240) | 6.16% | | **Total land use rights, net** | **1,234,806** | **1,195,943** | **38,863** | **3.25%** | - Amortization expense for land use rights remained stable, with **$9,300** recognized in Q3 2020 compared to **$9,214** in Q3 2019[74](index=74&type=chunk) - The company holds land use rights for 50 years and amortizes them on a straight-line basis over this period[73](index=73&type=chunk) [NOTE 6 - DISTRIBUTION RIGHTS](index=21&type=section&id=NOTE%206%20-%20DISTRIBUTION%20RIGHTS) This note explains the company's distribution rights acquired through the Tianjin Tajite acquisition, their valuation, and impairment assessment policy - The company acquired distribution rights for Daiso 100-yen shops branded products through the acquisition of Tianjin Tajite, valued at **$1,085,092** as of June 30, 2020[76](index=76&type=chunk) - These distribution rights have an indefinite life and are evaluated for impairment at least annually[76](index=76&type=chunk) [NOTE 7 - INVESTMENTS](index=22&type=section&id=NOTE%207%20-%20INVESTMENTS) This note details the company's investments in unconsolidated entities and income from equity method investments, including impairment events Investments in Unconsolidated Entities (USD) | Entity | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------------------------------------------------------------- | :----------------- | :----------------- | :------- | :------- | | Shaanxi Pharmaceutical Holding Group Longevity Pharmacy Co., Ltd. | 3,853,750 | 3,690,419 | 163,331 | 4.43% | | Shaanxi Pharmaceutical Sunsimiao Drugstores Ankang Chain Co., Ltd. | 855,148 | 824,705 | 30,443 | 3.69% | | **Total investment** | **4,708,898** | **4,515,124** | **193,774** | **4.29%** | Income from Equity Method Investments (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :---------------------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Income from equity method investments | 15,287 | 69,899 | (54,612) | (78.13)% | - The company fully impaired its investment in the Tiancang Systematic Warehousing project during the fiscal year ended June 30, 2020, and its investment in Original Lab Inc. during the fiscal year ended June 30, 2019, due to **unlikelihood of future investment income**[80](index=80&type=chunk)[81](index=81&type=chunk) [NOTE 8 - LEASES](index=23&type=section&id=NOTE%208%20-%20LEASES) This note provides information on the company's operating leases, including rights-of-use assets, lease liabilities, and related expenses Operating Lease Related Assets and Liabilities (USD) | Category | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :---------------------------------- | :----------------- | :----------------- | :------- | :------- | | Rights of use lease assets | 3,204,393 | 3,227,895 | (23,502) | (0.73)% | | Operating lease liabilities – current | 92,909 | 97,633 | (4,724) | (4.84)% | | Operating lease liabilities – non-current | 424,605 | 401,891 | 22,714 | 5.65% | | **Total operating lease liabilities** | **517,514** | **499,524** | **17,990** | **3.60%** | - The weighted average remaining lease term for operating leases was **9.23 years** as of September 30, 2020, with a weighted average discount rate of **5.0%**[91](index=91&type=chunk) - Rent expense increased by **22.52%** from **$92,325** in Q3 2019 to **$113,115** in Q3 2020[91](index=91&type=chunk) [NOTE 9 - SHORT-TERM LOANS](index=25&type=section&id=NOTE%209%20-%20SHORT-TERM%20LOANS) This note details the company's short-term loans, including lenders, outstanding balances, interest rates, and collateral arrangements Short-Term Loans (USD) | Lender | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Interest Rate/Year (Sep 30, 2020) | | :-------------------------- | :----------------- | :----------------- | :-------------------------------- | | Agricultural Bank of China-a | 661,642 | 636,517 | 4.65% | | Agricultural Bank of China-a | 1,470,314 | 1,414,481 | 5.66% | | Agricultural Bank of China-b | 294,063 | 282,896 | 5.66% | | **Total short-term loans** | **2,426,019** | **2,333,894** | **5.31% (Weighted Average)** | - Short-term loans are guaranteed by a commercial credit guaranty company and a shareholder (Jiping Chen), or collateralized by buildings owned by related parties (Xiaoyan Chen and Jing Chen)[95](index=95&type=chunk)[96](index=96&type=chunk) - Interest expense for short-term loans was **$29,622** in Q3 2020, a slight decrease from **$30,277** in Q3 2019, with the annual weighted average interest rate remaining at **5.31%** for both periods[97](index=97&type=chunk) [NOTE 10 - ACQUISITION](index=26&type=section&id=NOTE%2010%20-%20ACQUISITION) This note describes the acquisition of Tianjin Tajite E-Commerce Co., Ltd., including the recognized goodwill, distribution rights, and subsequent impairment - The company completed the acquisition of a **51%** equity interest in Tianjin Tajite E-Commerce Co., Ltd. on October 26, 2017, for approximately **$2.1 million**, aiming to enter the Luobuma fabric and Daiso branded products market[99](index=99&type=chunk)[100](index=100&type=chunk) - Goodwill of **$2,059,939** was recognized in the acquisition but was fully impaired in June 2018 due to lower than expected revenue and an unfavorable business environment[103](index=103&type=chunk)[104](index=104&type=chunk) - Distribution rights, valued at **$1,085,092**, were identified as an intangible asset with an indefinite life in the Tianjin Tajite acquisition[103](index=103&type=chunk)[104](index=104&type=chunk) [NOTE 11 - RELATED PARTY TRANSACTIONS](index=27&type=section&id=NOTE%2011%20-%20RELATED%20PARTY%20TRANSACTIONS) This note outlines the company's transactions and balances with related parties, including accounts receivable and payable, and sales to affiliated entities Related Party Balances (USD) | Category | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------- | :----------------- | :----------------- | :------- | :------- | | Due from related parties | 125,713 | 120,939 | 4,774 | 3.95% | | Due to related parties | 1,383,813 | 1,355,919 | 27,894 | 2.06% | | Accounts receivable from Shaanxi Pharmaceutical Group | 1,722,124 | 1,567,160 | 154,964 | 9.89% | - Sales to Shaanxi Pharmaceutical Group, a related party, decreased by **4.54%** from **$795,548** in Q3 2019 to **$759,366** in Q3 2020[110](index=110&type=chunk) - Both 'Due from related parties' and 'Due to related parties' are unsecured, non-interest bearing, and due on demand[106](index=106&type=chunk)[108](index=108&type=chunk) [NOTE 12 - TAXES](index=28&type=section&id=NOTE%2012%20-%20TAXES) This note details the company's income tax expense, corporate income tax rates for its PRC subsidiaries, and various taxes payable Income Tax Expense (Benefit) (USD) | Category | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :-------------------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Current income tax provision | 105,297 | 140,841 | (35,544) | (25.24)% | | Deferred income tax provision (benefit) | - | (145,624) | 145,624 | (100.00)% | | **Total income tax expense** | **105,297** | **(4,783)** | **110,080** | **(2301.48)%** | - The company's PRC subsidiaries are generally subject to a **25%** corporate income tax rate, though two VIEs and Xinjiang Taihe receive full income tax exemption as agricultural enterprises[112](index=112&type=chunk) Taxes Payable (USD) | Category | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------- | :----------------- | :----------------- | :------- | :------- | | Income tax payable | 3,457,740 | 3,424,043 | 33,697 | 0.98% | | Value added tax payable | 540,730 | 522,615 | 18,115 | 3.47% | | Business tax and other taxes payable | 6,325 | 6,026 | 299 | 4.96% | | **Total tax payable** | **4,004,795** | **3,952,684** | **52,111** | **1.32%** | [NOTE 13 - SHAREHOLDERS' EQUITY](index=30&type=section&id=NOTE%2013%20-%20SHAREHOLDERS%27%20EQUITY) This note provides information on shareholders' equity, including the impact of a reverse stock split, common stock outstanding, and statutory reserves - The company completed a **1-for-9 reverse stock split** of its common stock, effective August 14, 2020, retroactively restating shares and per share data[129](index=129&type=chunk) - The number of common stock outstanding after the reverse stock split was **3,037,048**, down from **27,333,428** pre-split[129](index=129&type=chunk) - The statutory reserve, required by PRC GAAP, increased slightly to **$4,199,964** as of September 30, 2020, from **$4,198,107** as of June 30, 2020[122](index=122&type=chunk) [NOTE 14 - CONCENTRATIONS AND RISKS](index=31&type=section&id=NOTE%2014%20-%20CONCENTRATIONS%20AND%20RISKS) This note highlights the company's operational concentration in the PRC, cash balances, and significant customer concentration risks - The company's operations are highly concentrated in the PRC, with almost **100%** of assets and revenues derived from its subsidiaries and VIEs located there[130](index=130&type=chunk) - Cash balances are primarily held in PRC bank accounts, totaling **$23,113,638** as of September 30, 2020[130](index=130&type=chunk) - Customer concentration is significant, with four customers accounting for approximately **18%**, **15%**, **14%**, and **10%** of total sales, respectively, and five customers representing **64%** of accounts receivable for Q3 2020[131](index=131&type=chunk) [NOTE 15 - COMMITMENTS AND CONTIGENCIES](index=32&type=section&id=NOTE%2015%20-%20COMMITMENTS%20AND%20CONTIGENCIES) This note discloses the company's material legal proceedings and confirms the absence of other significant capital commitments or contingent liabilities - The company is involved in a lawsuit filed by Bonwick Capital Partners, LLC in May 2017, seeking up to **$6 million** for alleged breach of a financial advisory services agreement, which the company intends to vigorously defend[133](index=133&type=chunk) - As of September 30, 2020, the company reported no other material capital commitments or contingent liabilities[219](index=219&type=chunk) [NOTE 16 - SEGMENT REPORTING](index=33&type=section&id=NOTE%2016%20-%20SEGMENT%20REPORTING) This note provides financial information by operating segment, including revenue, gross profit, and total assets for Luobuma, herbal, and other agricultural products - The company operates three main segments: Luobuma products, Herbal products, and Other agricultural products, with operations primarily in various regions of Mainland China[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) Segment Revenue (USD) | Segment | Three Months Ended Sep 30, 2020 (USD) | % of Total (2020) | Three Months Ended Sep 30, 2019 (USD) | % of Total (2019) | Change (USD) | % Change | | :-------------------------- | :------------------------------------ | :---------------- | :------------------------------------ | :---------------- | :----------- | :------- | | 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 Segment Revenue** | **4,143,383** | **100.00%** | **7,046,781** | **100.00%** | **(2,903,398)** | **(41.20)%** | Segment Gross Profit (USD) | Segment | Three Months Ended Sep 30, 2020 (USD) | % of Total (2020) | Three Months Ended Sep 30, 2019 (USD) | % of Total (2019) | Change (USD) | % Change | | :-------------------------- | :------------------------------------ | :---------------- | :------------------------------------ | :---------------- | :----------- | :------- | | 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 Gross Profit** | **908,581** | **100.00%** | **1,639,895** | **100.00%** | **(731,314)** | **(44.60)%** | Total Assets by Segment (USD) | Segment | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :-------------------------- | :----------------- | :----------------- | :------- | :------- | | Luobuma products | 3,265,271 | 2,836,450 | 428,821 | 15.12% | | Herbal products | 45,107,523 | 43,855,815 | 1,251,708 | 2.85% | | Other agricultural products | 34,832,830 | 32,396,346 | 2,436,484 | 7.52% | | **Total Assets** | **83,205,624** | **79,088,611** | **4,117,013** | **5.21%** | [NOTE 17 - SUBSEQUENT EVENTS](index=34&type=section&id=NOTE%2017%20-%20SUBSEQUENT%20EVENTS) This note confirms that no subsequent events requiring adjustment or disclosure were identified up to the financial statement approval date - No subsequent events requiring adjustments or disclosure were identified through November 16, 2020, the date the financial statements were approved for issuance[142](index=142&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of Shineco, Inc.'s financial condition and results of operations, covering business overview, performance factors, risks, and cash flows [Forward-Looking Statements](index=35&type=section&id=Forward-Looking%20Statements) This section cautions readers about forward-looking statements, highlighting inherent risks and uncertainties that may cause actual results to differ materially - The document contains forward-looking statements regarding future plans, objectives, expectations, and financial items, which involve known and unknown risks and uncertainties that could cause actual results to differ materially[144](index=144&type=chunk)[146](index=146&type=chunk) - The company explicitly states it undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, except as required by law[147](index=147&type=chunk) [Business Overview and Corporate Structure](index=36&type=section&id=Business%20Overview%20and%20Corporate%20Structure) This section outlines Shineco, Inc.'s operational structure in China, its primary business segments, and recent changes in its subsidiary operations - Shineco, Inc. operates primarily in China through its wholly-owned subsidiary Tenet-Jove and various Variable Interest Entities (VIEs), including Zhisheng Group and Ankang Longevity Group, which are consolidated due to contractual control[150](index=150&type=chunk)[153](index=153&type=chunk) - The company's business segments include Luobuma products, green agricultural produce and logistics services, and traditional Chinese medicinal herbal products[164](index=164&type=chunk) - Recent operational adjustments include the cessation of business for Tiankunrunze and its subsidiaries in July 2019, and for Xinjiang Taihe and Runze in September and October 2020, respectively[160](index=160&type=chunk)[163](index=163&type=chunk) [Financing Activities](index=39&type=section&id=Financing%20Activities) This section details the company's past financing activities, including common stock purchase agreements and share offerings, and their net proceeds - The company previously entered into a Common Stock Purchase Agreement with IFG Opportunity Fund LLC in January 2018 for up to **$15 million** in common stock, which was terminated in July 2018[166](index=166&type=chunk) - In September 2018, the company completed an offering of **181,967** common shares at **$9 per share**, generating net proceeds of approximately **$1.59 million**[167](index=167&type=chunk) - In September 2019, the company sold **310,977** shares of common stock at **$4.68 per share**, resulting in net proceeds of approximately **$1.5 million**[170](index=170&type=chunk) [Factors Affecting Financial Performance](index=39&type=section&id=Factors%20Affecting%20Financial%20Performance) This section discusses key factors influencing the company's financial performance, including demand, supply, production capacity, sales networks, and cost control strategies - Key factors influencing financial performance include increasing demand for products, expansion of supply sources, production capacity, and sales networks, and maintaining effective control of costs and expenses[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) - The company plans to develop new products, expand its distribution network, and pursue mergers and acquisitions to increase brand awareness and customer loyalty[171](index=171&type=chunk) - Strategies for cost control include establishing long-term alliances with suppliers, leveraging economies of scale, and focusing on higher value-added Luobuma products using patented technology[173](index=173&type=chunk) [Economic and Political Risks](index=40&type=section&id=Economic%20and%20Political%20Risks) This section highlights the economic and political risks associated with the company's operations primarily located in the People's Republic of China - The company's operations are primarily in the PRC, making its business, financial condition, and results susceptible to the political, economic, and legal environment in China[174](index=174&type=chunk) - Adverse effects could arise from changes in political and social conditions, governmental policies, anti-inflationary measures, currency conversions, remittances abroad, and taxation rates[175](index=175&type=chunk) [COVID-19 Impact](index=41&type=section&id=COVID-19%20Impact) This section assesses the impact of the COVID-19 pandemic on the company's operations, including office closures, supply chain disruptions, and revenue decline - The COVID-19 pandemic led to significant governmental measures in China, causing company offices and retail stores to close or operate with limitations until early April 2020[177](index=177&type=chunk) - The outbreak resulted in severe disruptions to transportation, limited facility access, and workforce support, causing delays in product delivery and financial distress for some customers and suppliers[177](index=177&type=chunk) - Revenue for the three months ended September 30, 2020, decreased by approximately **$2.9 million (41.2%)** compared to the same period in 2019, attributed to the negative impact of COVID-19[177](index=177&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section describes the critical accounting policies and significant management estimates used in preparing the financial statements, such as asset valuation and revenue recognition - The preparation of financial statements requires significant management estimates and assumptions, particularly for useful lives of assets, recoverability of long-lived assets, and valuation of accounts receivable, deferred taxes, and inventory reserves[180](index=180&type=chunk) - The company consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, meaning it absorbs the majority of risks and receives the majority of residual returns[179](index=179&type=chunk) - Revenue recognition follows ASC 606, where revenue is recognized when performance obligations are satisfied, with no significant impact from the adoption of the new standard[186](index=186&type=chunk) [Results of Operations for the Three Months Ended September 30, 2020 and 2019](index=43&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20September%2030%2C%202020%20and%202019) This section provides a detailed analysis of the company's results of operations for the three months ended September 30, 2020 and 2019, covering revenue, expenses, and net loss [Overview](index=43&type=section&id=Overview) This overview summarizes the key financial performance metrics for the three months ended September 30, 2020 and 2019, including revenue, gross profit, and net loss Results of Operations Overview (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :------------------------------------------------ | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Revenue | 4,143,383 | 7,046,781 | (2,903,398) | (41.20)% | | Gross Profit | 908,581 | 1,639,895 | (731,314) | (44.60)% | | Loss From Operations | (945,786) | (1,836,634) | 890,848 | (48.50)% | | 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](index=44&type=section&id=Revenue) This section analyzes the company's revenue performance by segment for the three months ended September 30, 2020 and 2019, highlighting changes and contributing factors Revenue by Segment (USD) | Segment | Three Months Ended Sep 30, 2020 (USD) | % of Total (2020) | Three Months Ended Sep 30, 2019 (USD) | % of Total (2019) | Change (USD) | % Change | | :-------------------------- | :------------------------------------ | :---------------- | :------------------------------------ | :---------------- | :----------- | :------- | | 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 Revenue** | **4,143,383** | **100.00%** | **7,046,781** | **100.00%** | **(2,903,398)** | **(41.20)%** | - Revenue from Luobuma products decreased by **62.43%** due to a focus on clearing old stocks and the impact of the COVID-19 outbreak[192](index=192&type=chunk) - Other agricultural products revenue declined by **73.29%**, primarily due to fewer yew trees sold and a strategic shift towards cultivating matured yew trees for Taxol extraction[194](index=194&type=chunk) [Cost of Revenue and related tax](index=45&type=section&id=Cost%20of%20Revenue%20and%20related%20tax) This section details the cost of revenue and related taxes by segment for the three months ended September 30, 2020 and 2019, explaining changes in costs Cost of Revenue by Segment (USD) | Segment | Three Months Ended Sep 30, 2020 (USD) | % of Total (2020) | Three Months Ended Sep 30, 2019 (USD) | % of Total (2019) | Change (USD) | % Change | | :-------------------------- | :------------------------------------ | :---------------- | :------------------------------------ | :---------------- | :----------- | :------- | | 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 Cost of Revenue** | **3,234,802** | **100.00%** | **5,406,886** | **100.00%** | **(2,172,084)** | **(40.17)%** | - Cost of revenue for Luobuma products decreased by **87.70%** due to lower sales volume and a reduced allowance for slow-moving inventories[196](index=196&type=chunk) - The decrease in cost of revenue for Chinese medicinal herbal products and other agricultural products was proportional to their respective sales declines[197](index=197&type=chunk)[198](index=198&type=chunk) [Gross Profit](index=45&type=section&id=Gross%20Profit) This section analyzes the company's gross profit by segment for the three months ended September 30, 2020 and 2019, explaining changes and contributing factors Gross Profit by Segment (USD) | Segment | Three Months Ended Sep 30, 2020 (USD) | % of Total (2020) | Three Months Ended Sep 30, 2019 (USD) | % of Total (2019) | Change (USD) | % Change | | :-------------------------- | :------------------------------------ | :---------------- | :------------------------------------ | :---------------- | :----------- | :------- | | 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 Gross Profit** | **908,581** | **100.00%** | **1,639,895** | **100.00%** | **(731,314)** | **(44.60)%** | - The gross loss from Luobuma product sales significantly reduced by **97.68%** to **$3,847**, primarily due to a decreased allowance for slow-moving inventories, despite selling some products below cost[199](index=199&type=chunk) - Gross profit from other agricultural products decreased by **75.61%**, consistent with the decline in yew tree sales[202](index=202&type=chunk) [Expenses](index=46&type=section&id=Expenses) This section examines the company's operating expenses, including general and administrative, and selling expenses, for the three months ended September 30, 2020 and 2019 [General and Administrative Expenses](index=46&type=section&id=General%20and%20Administrative%20Expenses) This section details the changes in general and administrative expenses for the three months ended September 30, 2020 and 2019, and their primary drivers General and Administrative Expenses (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :---------------------------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | General and administrative expenses | 1,820,732 | 3,354,643 | (1,533,911) | (45.73)% | - General and administrative expenses decreased by **45.73%**, mainly due to lower staff salary expenses (following restricted shares issued as compensation in the prior year) and a **$284,994** decrease in bad debt expense[203](index=203&type=chunk) [Selling Expenses](index=46&type=section&id=Selling%20Expenses) This section analyzes the changes in selling expenses for the three months ended September 30, 2020 and 2019, attributing them to reduced promotional activities and staff costs Selling Expenses (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :--------------- | :------------------------------------ | :------------------------------------ | :------- | :------- | | Selling expenses | 33,635 | 121,886 | (88,251) | (72.40)% | - Selling expenses decreased by **72.40%**, primarily due to reduced promotion and commission expenses for online shops, aligning with the decrease in sales, and a reduction in staff-related expenses[204](index=204&type=chunk) [Income from Equity Method Investments](index=46&type=section&id=Income%20from%20Equity%20Method%20Investments) This section reports the income from equity method investments for the three months ended September 30, 2020 and 2019, and explains the decrease Income from Equity Method Investments (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Income from equity method investments | 15,287 | 69,899 | (54,612) | (78.13)% | - Income from equity method investments decreased by **78.13%**, primarily due to lower net profit generated by the two **49%** equity investment companies[205](index=205&type=chunk) [Provision for Income Taxes](index=47&type=section&id=Provision%20for%20Income%20Taxes) This section details the provision for income taxes for the three months ended September 30, 2020 and 2019, explaining the significant increase Provision for Income Taxes (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Provision for income taxes | 104,204 | (4,783) | 108,987 | (2278.63)% | - The provision for income taxes significantly increased by **2,278.63%** to **$104,204**, mainly due to decreased deferred income tax benefits from the allowance for doubtful accounts and inventory reserve[207](index=207&type=chunk) [Net Loss](index=47&type=section&id=Net%20Loss) This section analyzes the company's net loss for the three months ended September 30, 2020 and 2019, highlighting the primary factors contributing to its change Net Loss (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :--------------- | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Net Loss | (1,052,980) | (1,774,832) | 721,852 | (40.67)% | - Net loss decreased by **40.67%**, primarily due to a decrease in general and administrative expenses, partially offset by a decrease in gross profit[208](index=208&type=chunk) [Comprehensive Income (Loss)](index=47&type=section&id=Comprehensive%20Income%20(Loss)) This section reports the comprehensive income (loss) attributable to Shineco, Inc. for the three months ended September 30, 2020 and 2019, and its main drivers Comprehensive Income (Loss) Attributable to Shineco, Inc. (USD) | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | % Change | | :------------------------------------------------ | :------------------------------------ | :------------------------------------ | :----------- | :------- | | Comprehensive Income (Loss) Attributable to Shineco, Inc. | 1,563,509 | (4,609,009) | 6,172,518 | (133.92)% | - Comprehensive income attributable to Shineco, Inc. significantly increased from a loss of **$4,609,009** in Q3 2019 to an income of **$1,563,509** in Q3 2020, mainly driven by a foreign currency translation gain[208](index=208&type=chunk) [Treasury Policies](index=47&type=section&id=Treasury%20Policies) This section outlines the company's treasury policies aimed at controlling operations, lowering funding costs, and managing interest and currency risks - The company's treasury policies aim to achieve effective control of treasury operations and lower the cost of funds through centralized review and monitoring of funding and foreign exchange exposure[209](index=209&type=chunk) - The policy prohibits speculative derivative contracts and focuses on minimizing interest risk through loan re-financing and negotiation, and currency risk by closely monitoring foreign currency borrowings[210](index=210&type=chunk) - As of September 30, 2020, and June 30, 2020, the company did not engage in any foreign currency borrowings or loan contracts[210](index=210&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity and capital resources, including working capital, capital commitments, and cash flow analysis from various activities - The company finances its operations primarily through cash flows, IPO proceeds, short-term loans, and common stock sales, with cash mainly held in PRC bank accounts[211](index=211&type=chunk) - As of September 30, 2020, the company had **$2,426,019** in outstanding bank loans and expects to renew existing loans based on past experience and credit history[214](index=214&type=chunk) - Management believes current cash, future operating cash flows, and access to loans will be sufficient to meet working capital needs for at least the next 12 months[215](index=215&type=chunk) [Working Capital](index=48&type=section&id=Working%20Capital) This section analyzes the company's working capital, including current assets and liabilities, and explains the factors contributing to its change Working Capital (USD) | Metric | Sep 30, 2020 (USD) | Jun 30, 2020 (USD) | Change (USD) | % Change | | :---------------- | :----------------- | :----------------- | :------- | :------- | | Current Assets | 63,164,137 | 59,519,998 | 3,644,139 | 6.12% | | Current Liabilities | 13,816,372 | 11,347,325 | 2,469,047 | 21.76% | | **Working Capital** | **49,347,765** | **48,172,673** | **1,175,092** | **2.44%** | - Working capital increased by **2.4%** due to increases in advances to suppliers, inventories, other current assets, and accounts receivables, partially offset by a decrease in cash[216](index=216&type=chunk) - Accounts receivable increased by **11.3%** to **$12,257,280** as of September 30, 2020, with slower collection attributed to the COVID-19 outbreak affecting customer businesses[217](index=217&type=chunk) [Capital Commitments and Contingencies](index=49&type=section&id=Capital%20Commitments%20and%20Contingencies) This section confirms the absence of material capital commitments or contingent liabilities as of September 30, 2020 - As of September 30, 2020, the company reported no material capital commitments or contingent liabilities[219](index=219&type=chunk) [Cash Flows](index=49&type=section&id=Cash%20Flows) This section provides a summary of the company's cash flows from operating, investing, and financing activities for the three months ended September 30, 2020 and 2019 Cash Flow Summary (USD) | Category | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Change (USD) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | :----------- | | Net cash provided by (used in) operating activities | (9,100,028) | 2,145,875 | (11,245,903) | | Net cash provided by (used in) investing activities | (1,228,630) | 18,780 | (1,247,410) | | Net cash provided by (used in) financing activities | (11,429) | 1,555,631 | (1,567,060) | | Effect of exchange rate changes on cash | 1,098,821 | (1,438,380) | 2,537,201 | | **Net increase (decrease) in cash** | **(9,241,266)** | **2,281,906** | **(11,523,172)** | [Operating Activities](index=49&type=section&id=Operating%20Activities) This section details the net cash used in operating activities for the three months ended September 30, 2020, and the primary reasons for its change - Net cash used in operating activities was approximately **$9.1 million** in Q3 2020, a significant shift from **$2.1 million** provided in Q3 2019, primarily due to increases in advances to suppliers, inventories, other receivables, and accounts receivables[221](index=221&type=chunk) [Investing Activities](index=49&type=section&id=Investing%20Activities) This section analyzes the net cash used in investing activities for the three months ended September 30, 2020, primarily due to loans to third parties - Net cash used in investing activities was **$1.2 million** in Q3 2020, compared to **$18,780** provided in Q3 2019, mainly driven by advances of loans to third parties[222](index=222&type=chunk) [Financing Activities](index=49&type=section&id=Financing%20Activities) This section details the net cash used in financing activities for the three months ended September 30, 2020, primarily due to repayment of related party advances - Net cash used in financing activities was approximately **$11,429** in Q3 2020, a sharp decrease from **$1.6 million** provided in Q3 2019, primarily due to the repayment of advances from related parties[223](index=223&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Shineco, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[225](index=225&type=chunk) [ITEM 4. Controls and Procedures](index=50&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures, identifying material weaknesses and outlining management's remediation plans [Evaluation of Controls and Procedures](index=50&type=section&id=Evaluation%20of%20Controls%20and%20Procedures) This section reports the ineffectiveness of disclosure controls and procedures due to staffing and segregation of duties issues, along with remediation plans - The company's disclosure controls and procedures were deemed ineffective as of September 30, 2020, due to a lack of full-time U.S. GAAP personnel and insufficient segregation of duties within the accounting department[226](index=226&type=chunk) - Management plans to remediate these weaknesses by recruiting qualified professionals, engaging an outside consulting firm, improving communication, and ensuring proper approval for significant transactions[227](index=227&type=chunk) [Changes in Internal Control over Financial Reporting](index=50&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms no material changes in the company's internal control over financial reporting during the first fiscal quarter of 2021 - There have been no material changes in the company's internal control over financial reporting during the first fiscal quarter of 2021[229](index=229&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=51&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section discloses a material legal proceeding against the company, specifically a lawsuit seeking up to $6 million for alleged breach of a financial advisory services agreement - The company is a defendant in a lawsuit filed by Bonwick Capital Partners, LLC, alleging breach of a financial advisory services agreement and seeking up to **$6 million** in damages[232](index=232&type=chunk) - The company believes the claims are without merit and intends to vigorously defend its position[232](index=232&type=chunk) [ITEM 1A. Risk Factors](index=51&type=section&id=ITEM%201A.%20Risk%20Factors) As a smaller reporting company, Shineco, Inc. is not required to provide specific risk factor disclosures in this report - The company is exempt from providing specific risk factor disclosures in this report due to its status as a smaller reporting company[233](index=233&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms that there were no unregistered sales of equity securities during the three months ended September 30, 2020 - There were no unregistered sales of equity securities during the three months ended September 30, 2020[233](index=233&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=51&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - The company reported no defaults upon senior securities[233](index=233&type=chunk) [ITEM 4. Mine Safety Disclosures](index=51&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[233](index=233&type=chunk) [ITEM 5. Other Information](index=51&type=section&id=ITEM%205.%20Other%20Information) The company reported no other information required under this item - The company reported no other information[233](index=233&type=chunk) [ITEM 6. Exhibits](index=51&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents, contractual agreements, and required certifications - The exhibits include foundational corporate documents such as the Certificate of Incorporation and Amended and Restated Bylaws[231](index=231&type=chunk) - Numerous contractual agreements related to the company's Variable Interest Entities (VIEs) and their operations are listed, including Exclusive Business Cooperation Agreements and Equity Interest Pledge Agreements[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(a) and Section 1350 of Title 18, are filed or furnished[241](index=241&type=chunk) [SIGNATURES](index=58&type=section&id=SIGNATURES) The report is duly signed on behalf of Shineco, Inc. by its Chief Executive Officer and Chief Financial Officer on November 16, 2020 - The report was signed by Guocong Zhou, Chief Executive Officer, and Sai (Sam) Wang, Chief Financial Officer, on November 16, 2020[244](index=244&type=chunk)

Part I [Business](index=5&type=section&id=Item%201.%20Business) Shineco, Inc. operates in China through subsidiaries and VIEs, focusing on plant-based health products across three segments: herbal medicine, agricultural produce, and specialized textiles - FY2019 Revenue Breakdown by Segment | Business Segment | Description | FY2019 Revenue Contribution (%) | | :--- | :--- | :--- | | Chinese Herbal Medicine | Processing and distributing traditional Chinese medicine products via Ankang Longevity Group | ~38% | | Agricultural Produce | Growing and cultivating yew trees and other organic produce via Zhisheng Group | ~58% | | Specialized Textiles | Developing and distributing fabrics from the Luobuma plant via Tenet-Jove | ~4% | - The company operates through directly-owned subsidiaries and VIEs (Ankang Longevity Group, Zhisheng Group) due to PRC restrictions on foreign investment in traditional Chinese medicine preparation[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - A key PRC patent for Luobuma fiber yarn preparation is expected to increase fiber yield over **one hundredfold** and reduce extraction costs by approximately **50%**[67](index=67&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) - Employee Distribution as of June 30, 2020 | Department | Number of Employees | | :--- | :--- | | Senior Management | 24 | | Human Resource & Administration | 19 | | Finance | 25 | | Research & Development | 11 | | Production & Procurement | 114 | | Sales & Marketing | 125 | | **Total** | **318** | [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, the company is exempt from providing specific risk factor disclosures - Risk factor disclosure is not required as the company qualifies as a smaller reporting company[153](index=153&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - The company has no unresolved staff comments[154](index=154&type=chunk) [Properties](index=31&type=section&id=Item%202.%20Properties) The company's properties in China include leased and owned facilities such as offices, factories, warehouses, and farmland for agricultural and pharmaceutical operations - Main properties include an office in Beijing, a factory in Yantai, a medicine logistics warehouse in Ankang City, and various production facilities for Ankang Longevity Group[157](index=157&type=chunk)[158](index=158&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) The company faces a lawsuit from Bonwick Capital Partners, LLC, seeking up to **$6 million** for alleged breach of IPO financial advisory services - Bonwick Capital Partners, LLC filed a lawsuit in May 2017, alleging breach of contract for IPO financial advisory services and seeking damages up to **$6 million**[159](index=159&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable as the company has no mining operations - This section is not applicable to the company[160](index=160&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchase%20of%20Equity%20Securities) The company's common stock trades on NASDAQ (TYHT), with no anticipated cash dividends due to a focus on retaining earnings and PRC dividend restrictions - Quarterly Stock Price (Fiscal Years 2020 & 2019) | Fiscal Year | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | :--- | | **2020** | Q1 | 0.85 | 0.515 | | | Q2 | 1.07 | 0.461 | | | Q3 | 0.76 | 0.35 | | | Q4 | 0.67 | 0.361 | | **2019** | Q1 | 1.14 | 0.83 | | | Q2 | 1.03 | 0.5 | | | Q3 | 1.60 | 0.43 | | | Q4 | 1.66 | 0.61 | - The company does not anticipate paying cash dividends, intending to retain earnings for growth, with **174** registered stockholders as of September 18, 2020[163](index=163&type=chunk)[164](index=164&type=chunk) - PRC regulations restrict dividend distributions from subsidiaries, requiring a **10%** after-tax profit allocation to a statutory reserve and imposing a **10%** withholding tax[165](index=165&type=chunk)[166](index=166&type=chunk) [Selected Financial Data](index=35&type=section&id=Item%206.%20Selected%20Financial%20Data) As a smaller reporting company, the company is exempt from providing selected financial data - Selected financial data disclosure is not required as the company qualifies as a smaller reporting company[170](index=170&type=chunk) [Management's Discussion and Analysis of Financial Conditions and Results of Operations](index=35&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Conditions%20and%20Results%20of%20Operations) FY2020 revenue decreased by **24.1%** to **$23.7 million** due to COVID-19, resulting in a **$6.5 million** net loss from a **$0.9 million** net income in FY2019, with a significant reversal in operating cash flow - The COVID-19 pandemic significantly impacted H2 FY2020 operations, causing revenue to decrease by approximately **$6.5 million**, or **42.5%**, year-over-year[199](index=199&type=chunk) - Results of Operations (FY2020 vs. FY2019) | Metric | FY 2020 ($) | FY 2019 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 23,684,626 | 31,220,040 | (24.14)% | | Gross Profit | 6,119,812 | 8,971,596 | (31.79)% | | Income (Loss) from Operations | (3,489,612) | 115,415 | (3,123.53)% | | Net Income (Loss) | (6,510,541) | 881,787 | (838.33)% | - Revenue from other agricultural products decreased by **39.17%** to **$10.3 million**, Luobuma products fell **74.58%** to **$0.17 million**, while herbal products saw a slight **3.23%** decrease, all impacted by COVID-19[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - A **$2.1 million** impairment loss was recorded on the Tiancang Systematic Warehousing project investment due to unlikely future income generation[232](index=232&type=chunk) - Cash Flow Summary (FY2020 vs. FY2019) | Cash Flow Activity | FY 2020 ($) | FY 2019 ($) | | :--- | :--- | :--- | | Net cash from operating activities | (4,656,007) | 3,498,371 | | Net cash from investing activities | 104,776 | (246,391) | | Net cash from financing activities | 2,625,407 | 1,812,471 | [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is exempt from providing quantitative and qualitative market risk disclosures - Quantitative and qualitative market risk disclosure is not required as the company qualifies as a smaller reporting company[254](index=254&type=chunk) [Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the consolidated financial statements located in Part III, Item 15 of this report - Consolidated financial statements are included in Part III, Item 15 of this report[254](index=254&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=49&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - The company reported no disagreements with its accountants[254](index=254&type=chunk) [Controls and Procedures](index=50&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of June 30, 2020, due to material weaknesses in U.S. GAAP qualified personnel and segregation of duties, with remediation plans underway - Management identified material weaknesses in internal controls, specifically a lack of U.S. GAAP qualified personnel and inadequate segregation of duties for accounting staff[255](index=255&type=chunk)[262](index=262&type=chunk)[264](index=264&type=chunk) - Due to material weaknesses, management concluded that disclosure controls and procedures were not effective as of June 30, 2020[255](index=255&type=chunk)[262](index=262&type=chunk) - Remediation plans include recruiting qualified professionals, enhancing management-board communication, and ensuring proper approval for significant transactions[256](index=256&type=chunk) [Other Information](index=52&type=section&id=Item%209B.%20Other%20Information) Effective September 24, 2020, Fenming Liu resigned as CEO and Guocong Zhou, with prior company experience, was appointed as the new Chief Executive Officer - Effective September 24, 2020, CEO Fenming Liu resigned and was replaced by Guocong Zhou[269](index=269&type=chunk)[270](index=270&type=chunk) - New CEO Guocong Zhou, 64, previously served as deputy general manager of Beijing TenetJove and will receive an initial annual salary of **$100,000**[270](index=270&type=chunk)[271](index=271&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=53&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) As of June 30, 2020, the board comprised seven directors, including four independent members, with an executive team led by Chairman and CEO YuYing Zhang and CFO Sai (Sam) Wang - The Board of Directors consists of **seven** members, including **four** independent directors: Jin Liu, Yanzeng An, Ning Chen, and Harry Edelson[288](index=288&type=chunk) - The company established Audit, Compensation, and Nominating committees, all composed of independent directors, with Jin Liu serving as the audit committee financial expert[290](index=290&type=chunk)[292](index=292&type=chunk) [Executive Compensation](index=59&type=section&id=Item%2011.%20Executive%20Compensation) In FY2020, CEO YuYing Zhang received **$141,130** in total compensation, while independent directors received an annual cash retainer of **$10,000**, with one receiving **$36,000** - CEO Compensation (FY2020 vs. FY2019) | Name and Principal Position | Fiscal Year | Salary ($) | Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | YuYing Zhang (Chairman) | 2020 | 120,000 | 21,130 | 141,130 | | | 2019 | 120,000 | 18,180 | 138,180 | - Independent directors received an annual cash retainer of **$10,000** for their service during the fiscal year ended June 30, 2020[304](index=304&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=61&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of September 28, 2020, officers and directors collectively owned **10.2%** of common stock, with Jiping Chen being the largest beneficial owner at **8.02%** - Beneficial Ownership as of September 28, 2020 | Name | Amount of Beneficial Ownership | Percent of Class (%) | | :--- | :--- | :--- | | Yuying Zhang | 127,016 | 4.18% | | Sai (Sam) Wang | 83,294 | 2.74% | | Baolin Li | 99,565 | 3.28% | | All Officers and Directors as a Group (7 total) | 309,875 | 10.2% | | Jiping Chen (5% Shareholder) | 243,791 | 8.02% | [Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company conducts related party transactions, including with VIEs, reporting **$1.36 million** due to and **$0.12 million** due from related parties, and **$3.0 million** in sales to Shaanxi Pharmaceutical Group in FY2020 - As of June 30, 2020, the company had **$1,355,919** in unsecured, non-interest bearing, demand payables to principal shareholders and their relatives for operational funding[314](index=314&type=chunk)[315](index=315&type=chunk) - In FY2020, sales to related party Shaanxi Pharmaceutical Group totaled **$2,990,910**, with **$1,567,160** in outstanding accounts receivable at year-end[317](index=317&type=chunk) [Principal Accounting Fees and Services](index=64&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Centurion ZD CPA billed **$195,000** for audit services in both FY2020 and FY2019, with no other accounting fees incurred - Accountant Fees (FY2020 vs. FY2019) | Fee Category | FY 2020 ($) | FY 2019 ($) | | :--- | :--- | :--- | | Audit Fees | 195,000 | 195,000 | | Audit-related Fees | - | - | | Tax Fees | - | - | | All Other Fees | - | - | | **Total** | **195,000** | **195,000** | Part IV [Exhibits and Financial Statement Schedules](index=65&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including corporate governance documents, VIE agreements, and officer certifications - This section indexes all Form 10-K exhibits, including corporate governance documents, VIE contractual agreements, and Sarbanes-Oxley Act certifications[324](index=324&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk) [Form 10-K Summary](index=70&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company did not provide a summary for this item - No summary was provided for this item[333](index=333&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=73&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Centurion ZD CPA & Co. issued an unqualified opinion on the consolidated financial statements for FY2020 and FY2019, confirming fair presentation in conformity with U.S. GAAP - The auditor issued an unqualified opinion, stating financial statements are fairly presented in accordance with U.S. GAAP[336](index=336&type=chunk) - The audit did not include internal control over financial reporting, as the company is not required to have one[338](index=338&type=chunk) [Consolidated Financial Statements](index=74&type=section&id=Consolidated%20Financial%20Statements) FY2020 consolidated financial statements show total assets decreased to **$79.1 million**, total equity to **$66.5 million**, and a net loss of **$6.5 million**, a significant downturn from prior year's net income - Consolidated Balance Sheet Highlights (as of June 30) | Account | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Cash | 32,371,372 | 35,330,676 | | Total Current Assets | 59,519,998 | 60,962,375 | | Total Assets | 79,088,611 | 83,739,473 | | Total Current Liabilities | 11,347,325 | 10,481,756 | | Total Liabilities | 12,576,210 | 11,107,359 | | Total Equity | 66,512,401 | 72,632,114 | - Consolidated Statement of Income Highlights (for the year ended June 30) | Account | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Revenue | 23,684,626 | 31,220,040 | | Gross Profit | 6,119,812 | 8,971,596 | | Net Income (Loss) | (6,510,541) | 881,787 | | Basic and Diluted EPS | (2.25) | 0.32 | [Notes to Consolidated Financial Statements](index=80&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, VIE structure, segment performance, related party transactions, and subsequent events, including significant customer concentration and a 1-for-9 reverse stock split - Operations are conducted through a WFOE (Tenet-Jove) controlling VIEs (Zhisheng Group, Ankang Longevity Group) via contractual agreements due to foreign ownership restrictions[350](index=350&type=chunk)[351](index=351&type=chunk) - Segment Revenue (for the year ended June 30) | Segment | 2020 Revenue ($) | 2019 Revenue ($) | | :--- | :--- | :--- | | Luobuma products | 168,241 | 661,778 | | Herbal products | 13,266,050 | 13,708,166 | | Other agricultural products | 10,250,335 | 16,850,096 | | **Total** | **23,684,626** | **31,220,040** | - In FY2020, three customers accounted for **15%**, **13%**, and **10%** of total sales, and four vendors for **30%**, **16%**, **12%**, and **11%** of purchases, indicating significant concentration risk[470](index=470&type=chunk)[471](index=471&type=chunk) - On August 14, 2020, a **1-for-9** reverse stock split was effected, with all share and per-share data retroactively restated in the financial statements[480](index=480&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 ( ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2019 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 ...