The financial statements required by this item are set forth
beginning on page F-1.
Consolidated Statements of Operations and
Comprehensive Income For the Years Ended June 30, 2016 and 2015
Consolidated Statements of Equity For the Years
Ended June 30, 2016 and 2015
Consolidated Statements of Cash Flows For the
Years Ended June 30, 2016 and 2015
The accompanying notes are an integral part of these
consolidated and combined financial statements.
The accompanying notes are an integral part of these
consolidated and combined financial statements.
The accompanying notes are an integral part of these
consolidated and combined financial statements.
The accompanying notes are an integral part of these
consolidated and combined financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS BACKGROUND
China Health Industries Holdings, Inc. (China Health US) was
incorporated in the State of Arizona on July 11, 1996 and was the successor of
the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, it
entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse
merger) with Edmonds 6, Inc. (Edmonds 6), a Delaware corporation, and changed
its name to Universal Fog, Inc. Pursuant to this agreement, Universal Fog, Inc.
(which has been in continuous operation since 1996) became a wholly-owned
subsidiary of Edmonds 6.
China Health Industries Holdings Limited (China Health HK)
was incorporated on July 20, 2007 in Hong Kong under the Companies Ordinance as
a limited liability company. China Health HK was formed for the purpose of
seeking and consummating a merger or acquisition with a business entity
organized as a private corporation, partnership, or sole proprietorship as
defined by FASB ACS Topic 915 (Development Stage Entities).
Harbin Humankind Biology Technology Co., Limited (Humankind)
was incorporated in Harbin City, Heilongjiang Province, the Peoples Republic of
China (the PRC) on December 14, 2003, as a limited liability company under the
Company Law of the PRC. Humankind is engaged in the manufacturing and sale of
health products.
On August 20, 2007, the sole shareholder of China Health HK
entered into a share purchase agreement (the Share Purchase Agreement) with
the owners of Humankind. Pursuant to the Share Purchase Agreement, China Health
HK purchased 100% of the ownership in Humankind for a cash consideration of
$60,408 (the Share Purchase). Subsequent to the completion of the Share
Purchase, Humankind became a wholly-owned subsidiary of China Health HK. The
Share Purchase was accounted for as a reverse merger since the owner of
Humankind owned a majority of the outstanding shares of China Health HKs common
stock immediately following the execution of the Share Purchase Agreement, it
was deemed to be the acquirer in the reverse merger. Consequently, the assets
and liabilities and the historical operations that have been reflected in the
financial statements for periods prior to the Share Purchase are those of
Humankind and have been recorded at the historical cost basis. After completion
of the Share Purchase, China Health HKs consolidated financial statements
include the assets and liabilities of both China Health HK and Humankind, the
historical operations of Humankind, and the operations of China Health HK and
its subsidiaries from the closing date of the Share Purchase.
F-7
On October 14, 2008, Humankind set up a 99% owned subsidiary,
Harbin Huimeijia Medicine Company (Huimeijia), with its primary business being
manufacturing and distributing medicine. Mr. Xin Sun, the Companys majority
owner, owns 1% of Huimeijia. Huimeijia is consolidated in the consolidated
financial statements of China Health HK.
On December 31, 2008, China Health HK entered into a reverse
merger with Universal Fog, Inc., a U.S. publicly traded shell company (the
Transaction). China Health HK is the acquirer in the Transaction, and the
Transaction has been treated as a recapitalization of China Health US. After the
Transaction and a 20:1 reverse stock split, Mr. Xin Sun owned 61,203,088 shares
of common stock, representing 98.3% of the 62,234,737 total outstanding shares
of common stock of China Health US. On April 7, 2009, Mr. Sun transferred
28,200,000 shares of common stock to 296 individuals, leaving him with
33,003,088 shares of common stock of China Health US, or approximately 53.03% of
the total outstanding shares of common stock. Universal Fog, Inc. changed its
name to China Health Industries Holdings, Inc. on February 19, 2009.
On November 22, 2013, Humankind completed the acquisition of
Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (HLJ Huimeijia) for a total
purchase price of $16,339,869 (RMB100,000,000). HLJ Huimeijia was founded on
October 30, 2003, and is engaged in the manufacturing and distribution of
tincture, ointments, rubber paste (including hormones), topical solution,
suppositories, liniment (including traditional Chinese medicine extractions),
enemas and oral liquids. HLJ Huimeijias predecessor is Heilongjiang Xue Du
Pharmaceutical Co., Ltd., which has established its brand name in the market
through its supply of high quality medical products. HLJ Huimeijia is
categorized as a high and new technology enterprise by the Science Technology
Department in Heilongjiang Province. HLJ Huimeijia has 21 products which have
been approved by, and have received approval numbers issued by, the China State
Food and Drug Administration (the CFDA). In addition, HLJ Huimeijia is the
holder of one patent for utility models, five patents for external design and
three trademarks in China, including the Chinese brand name of Xue Du which
has an established reputation among customers in northeastern China.
China Health US, China Health HK, Humankind, Huimeijia and HLJ
Huimeijia are collectively referred herein to as the Company.
As of June 30, 2016, the Companys corporate structure was as
follows:
F-8
F-9
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies of the Company
is presented to assist in understanding the Companys financial statements. The
financial statements and notes are representations of the Companys management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles in the United
States ("US GAAP") and have been consistently applied in the preparation of the
consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include
China Health US and its four subsidiary companies, including China Health HK,
Humankind, Huimeijia, and HLJ Huimeijia. All significant intercompany balances
and transactions have been eliminated in consolidation and combination.
On November 22, 2013, China Health US, through its wholly owned
subsidiary Humankind, completed the acquisition of HLJ Huimeijia. HLJ Huimeijia
and Humankind are under the common control of Mr. Xin Sun, the CEO of the
Company before and after the date of transfer. Humankinds accounting policy
adopted the guidance in ASC 805-50-05-5 for the transfer of net assets between
entities under common control to apply a method similar to the
pooling-of-interests method. Under this method, the financial statements of
Humankind shall report results of operations for the period in which the
transfer occurs as though the transfer of net assets had occurred at the
beginning of the period. Results of operations for that period will thus
comprise both those of the previously separate entities combined from the
beginning of the period to the date the transfer is completed and those of the
combined operations from that date to the end of the period. Similarly,
Humankind shall present the statements of financial position and other financial
information as of the beginning of the period as though the assets and
liabilities had been transferred at that date. Financial statements and
financial information of Humankind presented for prior years also shall be
retrospectively adjusted to furnish comparative information.
Segment Reporting
FASB ASC Topic 280, Segment Reporting, established standards
for reporting information about operating segments on a basis consistent with
the Company's internal organizational structure as well as information about
geographical areas, business segments and major customers in financial
statements for details on the Company's business segments. The Company has three reportable operating
segments: Humankind, HLJ Huimeijia and others. The segments are grouped based on
the types of products provided.
F-10
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB ASC Topic 820 that
applies to the Company requires all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on the balance sheet, for which it is practicable to estimate fair value, and
defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures,
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements.
Various inputs are considered when determining the fair value
of the Companys debt. The inputs or methodologies used for valuing securities
are not necessarily an indication of the risk associated with investing in these
securities. These inputs are summarized in the three broad levels listed below.
Level 1 observable market inputs that
are unadjusted quoted prices for identical assets or liabilities in active
markets.
Level 2 other significant observable
inputs (including quoted prices for similar securities, interest rates, credit
risk, etc.).
Level 3 significant unobservable
inputs (including the Companys own assumptions in determining the fair value of
investments).
The carrying value of financial assets and liabilities recorded
at fair value is measured on a recurring or nonrecurring basis. Financial assets
and liabilities measured on a non-recurring basis are those that are adjusted to
fair value when a significant event occurs. The Company had no financial assets
or liabilities carried and measured on a nonrecurring basis during the reporting
periods. Financial assets and liabilities measured on a recurring basis are
those that are adjusted to fair value each time a financial statement is
prepared. The Company had no financial assets or liabilities carried and
measured on a recurring basis during the reporting periods.
F-11
The availability of inputs observable in the market varies from
instrument to instrument and depends on a variety of factors including the type
of instrument, whether the instrument is actively traded, and other
characteristics particular to the transaction. For many financial instruments,
pricing inputs are readily observable in the market, the valuation methodology
used is widely accepted by market participants, and the valuation does not
require significant management discretion. For other financial instruments,
pricing inputs are less observable in the market and may require management
judgment.
Translation of Foreign Currencies
Humankind, Huimeijia and HLJ Huimeijia maintain their books and
accounting records in PRC currency Renminbi (RMB), which has been determined
as the functional currency. Transactions denominated in currencies other than
RMB are translated into RMB at the exchange rates prevailing on the date of the
transactions, as quoted by the Federal Reserve Board. Foreign currency exchange
gains and losses resulting from these transactions are included in operations.
Humankind, Huimeijia and HLJ Huimeijias financial statements
are translated into the reporting currency, the United States Dollar (USD).
Assets and liabilities of the above entities are translated at the prevailing
exchange rate at each reporting period end date. Contributed capital accounts
are translated using the historical rate of exchange when capital is injected.
Income and expense accounts are translated at the average rate of exchange
during the reporting period. Translation adjustments resulting from the
translation of these financial statements are reflected as accumulated other
comprehensive income in shareholders equity and non-controlling interests.
Statement of Cash Flows
In accordance with Statement FASB ASC Topic 230, Statement of
Cash Flows, cash flow from the Company's operations is calculated based upon
the local currencies and translated to the reporting currency using an average
foreign exchange rate for the reporting period. As a result, amounts related to
assets and liabilities reported in the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and judgments that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities on the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company bases its
estimates and judgments on historical experience and on various other
assumptions and information that are believed to be reasonable under the
circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and,
accordingly, these estimates may change as new events occur, as more experience
is acquired, as additional information is obtained and as the Companys
operating environment changes. Significant estimates and assumptions by
management include, among others; useful lives of long-lived assets and
intangible assets, valuation of inventory, accounts receivable and notes
receivable, impairment analysis of long-lived assets, construction in progress,
intangible assets and deferred taxes. While the Company believes that the
estimates and assumptions used in the preparation of the financial statements
are appropriate, actual results could differ from those estimates. Estimates and
assumptions are periodically reviewed and the effects of revisions are reflected
in the financial statements in the period they are determined to be necessary.
F-12
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits in
banks with maturities of three months or less, and all highly liquid investments
which are unrestricted as to withdrawal or use, and which have original
maturities of three months or less at the time of purchase.
As of June 30, 2016 and 2015, the Companys uninsured bank
balance was mainly maintained at financial institutions located in the PRC and
HK, totaled $29,791,730 and $21,123,027 respectively. The Company has no insured
bank balance as of June 30, 2016 and 2015, respectively.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do
not bear interest. The Company extends unsecured credit to its customers in the
ordinary course of business but mitigates the associated risks by performing
credit checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and determined based on managements assessment of known
requirements, aging of receivables, payment and bad debt history, the customers
current credit worthiness, changes in customer payment patterns and the economic
environment. From November 1, 2013, the Company changed its credit policy by
offering ninety (90) day payment terms for sales agents, whereas the payment
terms for sales agents before November 1, 2013 were thirty (30) day. As of June
30, 2016 and 2015, the balances of accounts receivable were $1,145,131 and
$1,431,298, respectively. The Company determines the allowance based on aging
data, historical collection experience, customer specific facts and economic
conditions. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is
considered remote. The Company evaluated the nature of all accounts receivable
then provided allowance for doubtful accounts. As of June 30, 2016 and 2015, the
balances of allowance for doubtful accounts were $52,129 and $45,489,
respectively.
F-13
Advance to Suppliers
The Company periodically makes advances to certain vendors for
purchases of raw materials, or service providers for services relating to
construction plans for our plant, equipment and production lines for the GMP
upgrading, and records these payments as advance to suppliers. As of June 30,
2016 and 2015, advance to suppliers amounted to $154,988 and $69,120,
respectively.
Inventory
Inventory consists of raw materials, work in progress and
finished goods of manufactured products.
Inventory is stated at lower of cost or market and consists of
materials, labor and overhead. HLJ Huimeijia uses the weighted average method
for inventory valuation. The other entities of the Company use the first-in,
first-out (FIFO) method for inventory valuation. Overhead costs included in
finished goods include direct labor cost and other costs directly applicable to
the manufacturing process. The Company evaluates inventory for excess, slow
moving, and obsolete inventory as well as inventory the value of which is in
excess of its net realizable value. This evaluation includes analysis of sales
levels by product and projections of future demand. If future demand or market
conditions are less favorable than the Companys projections, a write-down of
inventory may be required, and would be reflected in cost of goods sold in the
period the revision is made. The inventory allowance with an amount of $164,859
and nil were provided for the years ended June 30, 2016 and 2015, respectively.
Impairment of Long-Lived Assets
The Companys long-lived assets and other assets are reviewed
for impairment in accordance with the guidance of the FASB ASC Topic 360-10,
Property, Plant, and Equipment, and FASB ASC Topic 205, Presentation of
Financial Statements. The Company tests for impairment losses on long-lived
assets used in operations whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Recoverability of
an asset to be held and used is measured by a comparison of the carrying amount
of the asset to the future undiscounted cash flows expected to be generated by
the asset. If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds its fair value. Impairment evaluations involve managements estimates on
asset useful lives and future cash flows. Actual useful lives and cash flows
could be different from those estimated by management which could have a
material effect on the Companys reporting results and financial position. Fair
value is determined through various valuation techniques including discounted
cash flow models, quoted market values and third-party independent appraisals,
as considered necessary. As of June 30, 2016 and 2015, the Company has not
experienced impairment losses on its long-lived assets. However, there can be no
assurances that demand for the Companys products or services will continue,
which could result in an impairment of long-lived assets in the future.
F-14
Property, Plant and Equipment
Property, plant and equipment are carried at the lower of cost
or fair value. Maintenance, repairs and minor renewals are expensed as incurred,
major renewals and improvements that extend the lives or increase the capacity
of plant assets are capitalized.
When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gains
or losses are included in the results of operations in the reporting period of
disposition.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets. The depreciable lives applied are:
|
Building, Warehouse and Improvements
|
20 to 30 years
|
|
Office Equipment
|
3 to 7 years
|
|
Vehicles
|
5 to15 years
|
|
Machinery and Equipment
|
7 to 15 years
|
Intangible Assets
The Company evaluates intangible assets in accordance with FASB
ASC Topic 350, Intangibles Goodwill and Other. Intangible assets deemed to
have indefinite lives are not amortized, but are subject to annual impairment
tests. If the assumptions and estimates used to allocate the purchase price are
not correct, or if business conditions change, purchase price adjustments or
future asset impairment charges could be required. The value of the Companys
intangible assets could be impacted by future adverse changes such as: (i) any
future declines in the Companys operating results, (ii) a decline in the
valuation of technology, including the valuation of the Companys common stock,
(iii) a significant slowdown in the worldwide economy, or (iv) any failure to
meet the performance projections included in the Companys forecasts of future
operating results. In accordance with FASB ASC Topic 350, the Company tests
intangible assets for impairment on an annual basis or more frequently if the
Company believes indicators of impairment exist. Impairment evaluations involve
management estimates of asset useful lives and future cash flows. Significant
management judgment is required in the forecasts of future operating results
that are used in the evaluations. It is possible, however, that the plans and
estimates used may be incorrect. If the Companys actual results, or the plans
and estimates used in future impairment analysis, are lower than the original
estimates used to assess the recoverability of these assets, we
could incur additional impairment charges in a future period. Based on such
evaluations, there was no impairment recorded for intangible assets for the
years ended June 30, 2016 and 2015, respectively.
F-15
Construction in Progress
Construction in progress represents the costs incurred in
connection with the construction of buildings or new additions to the Companys
plant facilities. Costs classified as construction in progress include all costs
of obtaining the asset and bringing it to the location and condition necessary
for its intended use. No depreciation is provided for construction in progress
until such time as the assets are completed and are placed into service.
The Company reviews the carrying value of construction in
progress for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the carrying value of the
assets, an impairment loss is recognized equal to an amount by which the
carrying value exceeds the fair value of the assets. The factors considered by
management in performing this assessment include current operating results,
trends and prospects, the manner in which the property is used, and the effects
of obsolescence, demand, competition and other economic factors. Based on this
assessment, there was no impairment recorded for construction in progress for
the years ended June 30, 2016 and 2015, respectively.
Translation of Foreign Currencies
Humankind, Huimeijia and HLJ Huimeijia maintain their books and
accounting records in PRC currency Renminbi (RMB), which has been determined
as the functional currency. Transactions denominated in currencies other than
RMB are translated into RMB at the exchange rates prevailing on the date of the
transactions, as quoted by the Federal Reserve Board. Foreign currency exchange
gains and losses resulting from these transactions are included in operations.
Humankind, Huimeijia and HLJ Huimeijias financial statements
are translated into the reporting currency, the United States Dollar (USD).
Assets and liabilities of the above entities are translated at the prevailing
exchange rate at each reporting period end date. Contributed capital accounts
are translated using the historical rate of exchange when capital is injected.
Income and expense accounts are translated at the average rate of exchange
during the reporting period. Translation adjustments resulting from the
translation of these financial statements are reflected as accumulated other
comprehensive income in shareholders equity and non-controlling interests.
F-16
Revenue Recognition
The Company recognizes revenue when it is both earned and
realized or realizable. The Companys policy is to recognize revenue when title
to the product, ownership and risk of loss have transferred to the customer,
persuasive evidence of an arrangement exits and collection of the sales proceeds
is reasonably assured, all of which generally occur upon shipment of goods to
customers. The majority of the Companys revenue relates to the sale of
inventory to customers, and revenue is recognized when title and the risks and
rewards of ownership pass to the customer. Given the nature of the Companys
business and the applicable rules guiding revenue recognition, the Companys
revenue recognition practices do not contain estimates that materially affect
the results of operations. The Company records revenue at the discounted selling
price and allows its customers to return products for exchange or credit subject
to certain limitations. A provision for such returns is recorded based upon
historical experience. There has been no provision recorded for returns based
upon historical experience for the years ended June 30, 2016 and 2015,
respectively.
Cost of Goods Sold
Cost of goods sold consists primarily of the costs of raw
materials, freight charges, direct labor, depreciation of plants and machinery,
warehousing and overhead costs associated with the manufacturing process and
commission expenses.
Income Taxes
The Company adopts FASB ASC Topic 740, Income Taxes, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
In July 2006 the FASB issued FIN 48(ASC 740-10), Accounting
for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109
(ASC 740), which requires income tax positions to meet a more-likely-than-not
recognition threshold to be recognized in the financial statements. Under FIN
48(ASC 740-10), tax positions that previously failed to meet the
more-likely-than-not threshold should be recognized in the first subsequent
financial reporting period in which that threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not threshold should be
derecognized in the first subsequent financial reporting period in which that
threshold is no longer met.
F-17
As a result of the implementation of FIN 48 (ASC 740-10), the
Company undertook a comprehensive review of its portfolio of tax positions in
accordance with recognition standards established by FIN 48 (ASC 740-10). The
Company recognized no material adjustments to liabilities or stockholders
equity as a result of the implementation. The adoption of FIN 48 did not have a
material impact on the Companys financial statements.
The application of tax laws and regulations is subject to legal
and factual interpretation, judgment and uncertainty. Tax laws and regulations
themselves are subject to change as a result of changes in fiscal policy,
changes in legislation, the evolution of regulations and court rulings.
Therefore, the actual liability may be materially different from the Companys
estimates, which could result in the need to record additional tax liabilities
or potentially reverse previously recorded tax liabilities or deferred tax asset
valuation allowance.
Enterprise Income Tax
Under the Provisional Regulations of PRC Concerning Income Tax
on Enterprises promulgated by the PRC (the EIT Law), income tax is payable by
enterprises at a rate of 25% of their taxable income.
Value Added Tax
The Provisional Regulations of PRC Concerning Value Added Tax
promulgated by the State Council came into effect on January 1, 1994. Under
these regulations and the Implementing Rules of the Provisional Regulations of
the PRC Concerning Value Added Tax, value added tax (VAT) is imposed on goods
sold in, or imported into, the PRC and on processing, repair and replacement
services provided within the PRC.
VAT payable in the PRC is charged on an aggregated basis at a
rate of 13% or 17% (depending on the type of goods involved) on the full price
collected for the goods sold or, in the case of taxable services provided, at a
rate of 17% on the charges for the taxable services provided, but excluding, in
respect of both goods and services, any amount paid in respect of VAT included
in the price or charges, and less any deductible VAT already paid by the
taxpayer on purchases of goods and services in the same financial year. As of
June 30, 2016 and 2015, VAT payables were $183,813 and $219,553, respectively.
F-18
Sales-Related Taxes
Pursuant to the tax law and regulations of the PRC, the Company
is obligated to pay 7% and 5% of the annual VAT paid as taxes on maintaining and
building cities and education additional fees, both of which belong to
sales-related taxes. Sales-related taxes are recorded when sales revenue is
recognized. Sales-related taxes for the years ended June 30, 2016 and 2015 were
$144,420, and $143,987, respectively.
Concentrations of Business and Credit Risks
All of the Companys manufacturing is located in the PRC. There
can be no assurance that the Company will be able to successfully continue to
manufacture its products and failure to do so would have a material adverse
effect on the Companys financial position, results of operations and cash
flows. Also, the success of the Companys operations is subject to numerous
contingencies, some of which are beyond managements control. These
contingencies include general economic conditions, prices of raw materials,
competition, governmental and political conditions, and changes in regulations.
Since the Company is dependent on trade in the PRC, the Company is subject to
various additional political, economic and other uncertainties. Among other
risks, the Companys operations will be subject to the risks of restrictions on
transfer of funds, domestic customs, changing taxation policies, foreign
exchange restrictions, and political and governmental regulations.
The Company operates in China, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between U.S. dollars and the Chinese
currency RMB. The results of operations denominated in foreign currency are
translated at the average rate of exchange during the reporting periods.
Earnings Per Share
Basic earnings per common share is computed by dividing net
earnings applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. When applicable, diluted earnings
per common share is determined using the weighted-average number of common
shares outstanding during the period, adjusted for the dilutive effect of common
stock equivalents, consisting of shares that might be issued upon exercise of
common stock options and warrants. For the years ended June 30, 2016 and 2015,
the Company had no potential dilutive common stock equivalents outstanding.
Potential common shares issued are calculated using the
treasury stock method, which recognizes the use of proceeds that could be
obtained upon the exercise of options and warrants in computing diluted earnings
per share. It assumes that any proceeds would be used to purchase common stock
at the average market price of the common stock during the period.
F-19
FASB ASC Topic 260, Earnings Per Share, requires a
reconciliation of the numerator and denominator of the basic and diluted
earnings per share (EPS) computations.
Recent Accounting Pronouncements
In April 2016, the FASB released ASU 2016-09, Compensation -
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. The ASU includes multiple provisions intended to simplify various
aspects of the accounting for share-based payments. While aimed at reducing the
cost and complexity of the accounting for share-based payments, the amendments
are expected to significantly impact net income, EPS, and the statement of cash
flows. Implementation and administration may present challenges for companies
with significant share-based payment activities. The ASU is effective for public
companies in annual periods beginning after December 15, 2016, and interim
periods within those years. The Company is currently evaluating the impact of
this new standard on its consolidated financial statements.
In April 2016, FASB issued Accounting Standards Update No.
2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing. The amendments clarify the following two
aspects of Topic 606: (a) identifying performance obligations; and (b) the
licensing implementation guidance. The amendments do not change the core
principle of the guidance in Topic 606. The effective date and transition
requirements for the amendments are the same as the effective date and
transition requirements in Topic 606. Public entities should apply the
amendments for annual reporting periods beginning after December 15, 2017,
including interim reporting periods therein (i.e., January 1, 2018, for a
calendar year entity). Early application for public entities is permitted only
as of annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period. The Company is currently
evaluating the impact of this new standard on its consolidated financial
statements.
In May 2016, the FASB issued ASU 2016-11, Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance
Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting, The amendments rescinds SEC
paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging
Issues Task Force (EITF) meeting. Specifically, registrants should not rely on
the following SEC Staff Observer comments upon adoption of Topic 606: 1) Revenue
and Expense Recognition for Freight Services in Process, which is codified in
paragraph 605-20-S99-2; 2) Accounting for Shipping and Handling Fees and Costs,
which is codified in paragraph 605-45-S99-1; 3) Accounting for Consideration
Given by a Vendor to a Customer (including Reseller of the Vendor's Products),
which is codified in paragraph 605-50-S99-1; 4) Accounting for Gas-Balancing
Arrangements (i.e., use of the "entitlements method"), which is codified in paragraph 932-10-S99-5, which is effective
upon adoption of ASU 2014-09. The Company is currently in the process of
evaluating the impact of the adoption on its consolidated financial statements.
F-20
In May 2016, the FASB issued ASU 2016-12, "Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients". The amendments, among other things: (1) clarify the objective of
the collectability criterion for applying paragraph 606-10-25-7; (2) permit an
entity to exclude amounts collected from customers for all sales (and other
similar) taxes from the transaction price; (3) specify that the measurement date
for noncash consideration is contract inception; (4) provide a practical
expedient that permits an entity to reflect the aggregate effect of all
modifications that occur before the beginning of the earliest period presented
when identifying the satisfied and unsatisfied performance obligations,
determining the transaction price, and allocating the transaction price to the
satisfied and unsatisfied performance obligations; (5) clarify that a completed
contract for purposes of transition is a contract for which all (or
substantially all) of the revenue was recognized under legacy GAAP before the
date of initial application, and (6) clarify that an entity that retrospectively
applies the guidance in Topic 606 to each prior reporting period is not required
to disclose the effect of the accounting change for the period of adoption. The
effective date of these amendments is at the same date that Topic 606 is
effective. The Company is currently in the process of evaluating the impact of
the adoption on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments (ASU 2016-13) which requires credit losses on
available-for-sale debt securities to be presented as an allowance rather than
as a write-down. This approach is an improvement to current GAAP because an
entity will be able to record reversals of credit losses (in situations in which
the estimate of credit losses declines) in current period net income, which in
turn should align the income statement recognition of credit losses with the
reporting period in which changes occur. Current GAAP prohibits reflecting those
improvements in current period earnings. ASU 2016-13 is effective for interim
and annual periods beginning after December 15, 2019, and requires a modified
retrospective approach to adoption. Early adoption is permitted for interim and
annual periods beginning after December 15, 2018. The Company is currently
evaluating the impact of this new standard on its consolidated financial
statements and related disclosures.
NOTE 3 - ASSETS SALE
On December 24, 2014, Humankind entered into a stock transfer
agreement (the Agreement) with Xiuzheng Pharmaceutical Group Co., Ltd. a
company incorporated under the laws of the Peoples Republic of China and
located in Jilin province (Xiuzheng Pharmacy or the Buyer), Mr. Xin Sun, the
CEO of the Company, and Huimeijia, pursuant to which, Humankind and Mr. Xin Sun
(the Equity Holders), shall sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of
the 100% equity interests of Huimeijia to the Buyer was for a total cash
consideration of RMB 8,000,000 (approximately $1,306,186) to the Equity Holders.
F-21
On February 9, 2015, the four parties entered into a
supplementary agreement (the Supplementary Agreement) to modify the terms of
the Agreement, pursuant to which, the Equity Holders and Huimeijia (collectively
the Assets Transferors) shall only sell the 19 drug approval numbers
(including the tablet, capsule, powder, mixture, oral liquid, syrup and oral
solution under the 19 approval numbers; licenses including the original copies
of Business License, Organization Code Certificate, Tax Registration
Certificate, Drug Production Permit and GMP Certificate, and other documents and
original copies related to the production and operation of the 19 drugs) (the
Assets) to Xiuzheng Pharmacy. The Equity Holders will retain the equity
interests in Huimeijia, but will have the equity interests pledged to Xiuzheng
Pharmacy until the Assets are transferred, at which time all the cash
consideration shall be paid by the Buyer. The total cash consideration remains
to be the same as under the Agreement, i.e., RMB 8,000,000 (approximately
$1,306,186) to the Assets Transferors. In the event that the Assets are failed
to be transferred to the Buyer due to the fault of the Assets Transferors, the
paid consideration shall be returned to the Buyer with interests accrued. If the
failure of the transfer of the Assets is a result of the government policy
changes or force majeure, the paid cash consideration shall be returned to the
Buyer but without any interests.
As of June 30, 2016, the transfer of the Assets had not been
completed because the assets transfer crossed different provinces which resulted
in a complicated interaction among the local administrations of Heilongjiang
Province, where Huimeijia is located and Jilin Province, where the transferee is
located. The Company is striving to accelerate the process of the transfer.
NOTE 4 - ACCOUNTS RECEIVABLE
The Companys accounts receivable amounted to $1,145,131 and
$1,431,298, respectively, net of allowance for doubtful accounts amounting to
$52,129 and $45,489 as of June 30, 2016 and 2015, respectively.
NOTE 5 - INVENTORIES
Inventory consists of following:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Raw Materials
|
$
|
122,569
|
|
$
|
189,004
|
|
Supplies and Packing Materials
|
|
130,472
|
|
|
19,565
|
|
Work-in-Progress
|
|
118,233
|
|
|
261,019
|
|
Finished Goods
|
|
48,713
|
|
|
371,651
|
|
Total
|
$
|
419,987
|
|
$
|
841,239
|
|
F-22
For the years ended June 30, 2016 and 2015, the Company has not
made provision for inventory in regards to excessive, slow moving or obsolete
items.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction in progress consisted of the following:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Plant - HLJ Huimeijia
|
$
|
670,051
|
|
$
|
605,542
|
|
Plant and Production Lines - Huimeijia
|
|
1,806
|
|
|
1,935
|
|
Total
|
$
|
671,857
|
|
$
|
607,477
|
|
On April 6, 2012, HLJ Huimeijia entered into an agreement with
a contractor for the plant, the estimated total cost of construction was
approximately $2.09 million (RMB 12,800,000), anticipated to be completed by
December 2016. As of June 30, 2016, 35% of construction had been completed and
$670,051 (RMB 4,453,093) had been recorded as a cost of construction in
progress.
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Building, Warehouses and
Improvements
|
$
|
4,360,191
|
|
$
|
4,673,771
|
|
Machinery and Equipment
|
|
1,232,861
|
|
|
1,226,433
|
|
Office Equipment
|
|
69,330
|
|
|
134,932
|
|
Vehicles
|
|
204,457
|
|
|
232,511
|
|
Less Accumulated Depreciation
|
|
(1,998,278
|
)
|
|
(1,952,553
|
)
|
Total
|
$
|
3,868,561
|
|
$
|
4,315,094
|
|
Depreciation expense was $255,330 and $364,932 for the years
ended June 30, 2016 and 2015, respectively. Depreciation expense charged to
operations was $136,822 and $141,753 for the years ended June 30, 2016 and 2015,
respectively. Depreciation expense charged to cost of goods sold was $118,508
and $223,179 for the years ended June 30, 2016 and 2015, respectively.
As of June 30, 2016, the building of HLJ Huimeijia with the
book value of $1,676,627 has been mortgaged for the working capital loan in the
principal amount of $1,504,687 (RMB 10,000,000). As of June 30, 2015, the
building of HLJ Huimeijia in the book value of $1,797,209 has been
mortgaged for the working capital loan in the principal amount of $1,612,903
(RMB 10,000,000).
F-23
NOTE 8 - INTANGIBLE ASSETS
The following is a summary of intangible assets:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Land Use Rights Humankind
|
$
|
953,670
|
|
$
|
1,022,255
|
|
Health Supplement Product Patents Humankind
|
|
4,514,061
|
|
|
4,838,709
|
|
Pharmaceutical Patents - HLJ
Huimeijia
|
|
134,817
|
|
|
144,514
|
|
Land Use Rights - HLJ Huimeijia
|
|
652,295
|
|
|
699,208
|
|
Less: Accumulated
Amortization
|
|
(2,063,784
|
)
|
|
(1,692,389
|
)
|
Total
|
$
|
4,191,059
|
|
$
|
5,012,297
|
|
All land in the PRC belongs to the State. Enterprises and
individuals can pay the State a fee to obtain the right to use a piece of land
for commercial purposes or residential purposes for an initial period of 50
years or 70 years, respectively. The land use right can be sold, purchased, and
exchanged in the market. The successor owner of the land use right will have the
right to use the land for the time remaining on the initial period.
Amortization expense charged to operations was $500,409 and
$443,925 for the years ended June 30, 2016 and 2015, respectively.
As of June 30, 2016, land use rights of HLJ Huimeijia with the
book value of $652,295 have been mortgaged for a working capital loan in the
principal amount of $1,504,687 (RMB 10,000,000). As of June 30, 2015, land use
rights of HLJ Huimeijia with a book value of $699,208 have been mortgaged for a
working capital loan in the principal amount of $1,612,903(RMB 10,000,000).
NOTE 9 - SHORT-TERM LOAN
On November 12, 2015, HLJ Huimeijia entered into a short-term
loan agreement with a bank for a working capital loan in the principal amount of
RMB 10,000,000, at an interest rate of 5.66% from November 12, 2015 to November
10, 2016. The loan was secured by the land use right and the building of HLJ
Huimeijia, with a maturity date of November 10, 2016. As of June 30, 2016 and
2015, the Companys short-term loan was $1,504,687 and $1,612,903, respectively.
Interest expenses were $102,253 and $125,608 for the years
ended June 30, 2016 and 2015, respectively.
F-24
NOTE 10 - RELATED PARTY DEBTS
Related party debts, which represent temporary short-term loans
from Mr. Xin Sun and Mr. Kai Sun consisted of the following:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Mr. Xin Sun
|
$
|
2,678,220
|
|
$
|
1,872,830
|
|
Mr. Kai Sun
|
|
35,186
|
|
|
37,716
|
|
Total
|
$
|
2,713,406
|
|
$
|
1,910,546
|
|
These loans are unsecured and non-interest bearing and have no
fixed terms of repayment; therefore, they are deemed payable on demand. Mr. Kai
Sun is a PRC citizen and a family member of Mr. Xin Sun, the CEO of the Company.
NOTE 11 - INCOME TAXES
(a) Corporate income taxes
United States
China Health US was organized in the United States. China
Health US had no taxable income for US income tax purposes for the years ended
June 30, 2016 and 2015, respectively. As of June 30, 2016, China Health US has a
net operating loss carry forward for United States income taxes. Net operating
loss carry forwards are available to reduce future years taxable income.
Management believes that the realization of the benefits from these losses
appears uncertain due to the Companys operating history and the continued
losses of the US entity. Accordingly, the Company has provided a 100% valuation
allowance on the deferred tax asset to reduce the asset to zero. There were no
changes in the valuation allowance for the years ended June 30, 2016 and 2015.
Management reviews this valuation allowance periodically and makes adjustments
accordingly.
Hong Kong
China Health HK was incorporated in Hong Kong and is subject to
Hong Kong taxation on its activities conducted in Hong Kong and income arising
in or derived from Hong Kong. No provision for income taxes have been made as
China Health HK has no taxable income in Hong Kong.
F-25
Peoples Republic of China
Under the EIT Law, the standard EIT rate is 25%. The PRC
subsidiaries of the Company are subject to PRC income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The provision for income taxes on income consists of the
following for the years ended June 30, 2016 and 2015:
Provision for income taxes consisted of:
|
|
For the
Years Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Current provision:
|
|
|
|
|
|
|
USA
|
$
|
-
|
|
$
|
-
|
|
China
|
|
343,986
|
|
|
234,905
|
|
Total current provision
|
|
343,986
|
|
|
234,905
|
|
Deferred provision:
|
|
|
|
|
|
|
USA
|
|
-
|
|
|
-
|
|
China
|
|
-
|
|
|
-
|
|
Total deferred provision
|
|
-
|
|
|
-
|
|
Total provision for income
taxes
|
$
|
343,986
|
|
$
|
234,905
|
|
Significant components of deferred tax assets were as
follows:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
$
|
118,259
|
|
$
|
141,735
|
|
Allowance for doubtful
accounts
|
|
-
|
|
|
-
|
|
Valuation allowance
|
|
(118,259
|
)
|
|
(141,735
|
)
|
Deferred tax assets, net
|
$
|
-
|
|
$
|
-
|
|
As of June 30, 2016 and 2015, the Company accrued a 100%
valuation allowance on its deferred tax assets based on the assessment on the
probability of future reversion.
(b) Uncertain tax positions
There were no unrecognized tax benefits as of June 30, 2016 and
2015, respectively. Management does not anticipate any potential future
adjustments in the next twelve months which would result in a material change to
its tax positions. For the years ended June 30, 2016 and 2015, the Company did
not incur any interest and penalties arising from its tax payments.
F-26
NOTE 12 - EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net
earnings applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. When applicable, diluted earnings
per common share is determined using the weighted-average number of common
shares outstanding during the period, adjusted for the dilutive effect of common
stock equivalents, consisting of shares that might be issued upon exercise of
common stock options and warrants.
Potential common shares issued are calculated using the
treasury stock method, which recognizes the use of proceeds that could be
obtained upon the exercise of options and warrants in computing diluted earnings
per share. It assumes that any proceeds would be used to purchase common stock
at the average market price of the common stock during the period.
FASB ASC Topic 260, Earnings Per Share, requires a
reconciliation of the numerator and denominator of the basic and diluted
earnings per share (EPS) computations.
For the years ended June 30, 2016 and 2015, the Company does
not have potential dilutive shares.
The following table sets forth the computation of basic and
diluted net income per share:
|
|
For the
Years Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net income attributable to
the common stockholders
|
$
|
159,602
|
|
$
|
2,561
|
|
|
|
|
|
|
|
|
Basic weighted average
outstanding shares of common stock
|
|
65,616,175
|
|
|
63,044,395
|
|
Dilutive effect of options and warrants
|
|
-
|
|
|
-
|
|
Diluted weighted average
common stock and common stock equivalents
|
$
|
65,616,175
|
|
$
|
63,044,395
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
$
|
0.002
|
|
$
|
0.000
|
|
Diluted
|
$
|
0.002
|
|
$
|
0.000
|
|
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Companys assets are located in the PRC and revenues are
derived from operations in the PRC.
F-27
In terms of industry regulations and policies, the economy of
the PRC has been transitioning from a planned economy to market oriented
economy. Although in recent years the Chinese government has implemented
measures emphasizing the utilization of market forces for economic reforms, the
reduction of state ownership of productive assets and the establishment of sound
corporate governance in business enterprises, a substantial portion of
productive assets in the PRC is still owned by the Chinese government. For
example, all land is state owned and leased to business entities or individuals
through the governments granting of Land Use Rights. The granting process is
typically based on government policies at the time of granting and can be
lengthy and complex. This process may adversely affect the Companys future
manufacturing expansions. The Chinese government also exercises significant
control over the PRCs economic growth through the allocation of resources and
providing preferential treatment to particular industries or companies.
Uncertainties may arise with changing of governmental policies and measures.
The Company faces a number of risks and challenges not
typically associated with companies in North America and Western Europe, since
its assets exist solely in the PRC, and its revenues are derived from its
operations therein. The PRC is a developing country with an early stage market
economic system, overshadowed by the state. Its political and economic systems
are very different from the more developed countries and are in a state of
change. The PRC also faces many social, economic and political challenges that
may produce major shocks, instabilities and even crises, in both its domestic
arena and in its relationships with other countries, including the United
States. Such shocks, instabilities and crises may in turn significantly and
negatively affect the Companys performance.
Since the Company terminated its rental agreement on January 9,
2013, it had no rental commitment as of June 30, 2016.
NOTE 14 - MAJOR SUPPLIERS AND CUSTOMERS
The Company had one supplier that accounted for 78% of the
Companys purchases for the year ended June 30, 2016.
The Company had one supplier that accounted for 67% of the
Companys purchases for the year ended June 30, 2015.
The Company had four customers that in the aggregate accounted
for 44% of the Companys total sales for the year ended June 30, 2016, with each
customer accounting for 12%, 11%, 11% and 10%, respectively.
F-28
The Company had three customers that in the aggregate accounted
for 28% of the Companys total sales for the year ended June 30, 2015, with each
customer accounting for 12%, 10% and 6%, respectively.
NOTE 15 - SEGMENT REPORTING
The Company was organized into three main business segments
based on the types of products being provided to customers: HLJ Huimeijia,
Humankind and others. Each of the three operating segments referenced above has
separate and distinct general ledgers. The chief operating decision maker
(CODM) receives financial information, including revenue, gross margin,
operating income, and net income produced from the various general ledger
systems to make decisions about allocating resources and assessing performance;
however, the principal measure of segment profitability or loss used by the CODM
is net loss by segment.
The following tables present summary information by segment for
the years ended June 30, 2016 and 2015, respectively:
|
|
For the Year Ended June 30, 2016
|
|
|
For the Year Ended June 30,
2015
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
Revenues
|
$
|
703,478
|
|
$
|
7,113,023
|
|
$
|
-
|
|
$
|
7,816,501
|
|
$
|
1,569,807
|
|
$
|
8,656,245
|
|
$
|
-
|
|
$
|
10,226,052
|
|
Cost of revenues
|
|
580,479
|
|
|
4,920,644
|
|
|
-
|
|
|
5,501,123
|
|
|
1,203,911
|
|
|
6,086,263
|
|
|
-
|
|
|
7,290,174
|
|
Gross profit
|
|
122,999
|
|
|
2,192,379
|
|
|
-
|
|
|
2,315,378
|
|
|
365,896
|
|
|
2,569,982
|
|
|
-
|
|
|
2,935,878
|
|
Interest expense
|
|
102,253
|
|
|
-
|
|
|
-
|
|
|
102,253
|
|
|
125,608
|
|
|
-
|
|
|
-
|
|
|
125,608
|
|
Depreciation and amortization
|
|
55,629
|
|
|
580,835
|
|
|
767
|
|
|
637,231
|
|
|
72,756
|
|
|
510,987
|
|
|
1,937
|
|
|
585,680
|
|
Income tax
|
|
-
|
|
|
343,986
|
|
|
-
|
|
|
343,986
|
|
|
-
|
|
|
234,905
|
|
|
-
|
|
|
234,905
|
|
Net income (loss)
|
|
(577,963
|
)
|
|
1,031,957
|
|
|
(294,407
|
)
|
|
159,587
|
)
|
|
(426,579
|
)
|
|
704,714
|
|
|
(275,626
|
)
|
|
2,509
|
|
Total capital expenditures
|
|
92,860
|
|
|
444
|
|
|
-
|
|
|
93,304
|
|
|
4,384
|
|
|
17,240
|
|
|
-
|
|
|
21,624
|
|
Total assets
|
$
|
2,969,121
|
|
$
|
37,258,149
|
|
$
|
51,527
|
|
$
|
40,278,797
|
|
$
|
3,358,615
|
|
$
|
38,082,449
|
|
$
|
64,365
|
|
$
|
41,505,429
|
|
NOTE 16 - STOCK BASED COMPENSATION
On March 27, 2015, the Board of Directors (the Board) adopted
the Companys 2015 Equity Incentive Plan (the Plan), which became effective as
of such date. The Plan is intended to be construed as an employee benefit plan
that satisfies the requirements for exemption from the restrictions of Section
16(b) of the Exchange Act. A summary of the principal provisions of the Plan is
set forth below.
The aggregate number of shares of common stock that may be
issued under the Plan is 6,000,000 shares. In the event that the Board
determines that any dividend or other distribution, recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Common Stock or other
securities of the Company, or other corporate transaction or event affects the
common stock such that an adjustment is determined by the Board, in its sole
discretion, to be necessary or appropriate in order to prevent dilution or
enlargement of benefits or potential benefits intended to be made available
under the Plan, the Board may, in such manner as it in good faith deems
equitable, adjust any or all of (i) the number of shares of common stock or
other securities of the Company (or number and kind of other securities or
property) with respect to which awards may be granted, (ii) the number of shares
of common stock or other securities of the Company (or number and kind of other
securities or property) subject to outstanding awards, and (iii) the exercise
price with respect to any stock option, or make provision for an immediate cash
payment to the holder of an outstanding award in consideration for the
cancellation of such award.
F-29
Individuals eligible for awards under the Plan shall consist of
employees (including officers), directors and consultants, or those who will
become employees (including officers), directors and consultants, of the Company
and/or its subsidiaries whose performance or contribution, in the sole
discretion of the Committee, benefits or will benefit the Company or any
subsidiary.
The Plan was effective upon its approval by the Board and
adoption by the Company. The Plan shall terminate on March 27, 2025, except with
respect to awards then outstanding. After such date no further awards shall be
granted under the Plan.
On March 30, 2015, the Company granted 3,000,000 and 300,000
restricted shares to Mr. Xin Sun, Chief Executive Officer and Chief Financial
Officer of the Company and an employee, respectively. The vesting periods of the
restricted shares under the Plan were determined based on individual stock award
agreements and was recognized as equity compensation for the fiscal years ended
June 30, 2015 and 2016. The grant was pursuant to the Plan and a Restricted
Stock Award Agreement, and was based on the exemption afforded by Regulation S
under the Securities Act of 1933, as amended.
F-30